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Why Is Performance Management Important? (+ Tactical Tips)

Annual reviews, quarterly performance appraisals, and regular check-ins between managers and employees take up a lot of time, and yet, they’re indispensable for companies that want to do well.

But why is performance management important, and what exactly is it?

What Is Performance Management?

“Per­for­mance man­age­ment is the con­tin­u­ous process of improv­ing per­for­mance by set­ting indi­vid­ual and team goals which are aligned to the strate­gic goals of the organ­i­sa­tion, plan­ning per­for­mance to achieve the goals, review­ing and assess­ing progress, and devel­op­ing the knowl­edge, skills, and abil­i­ties of peo­ple.”

Michael Armstrong (“Armstrong’s Handbook of Performance Management”)

Important here is that performance management is an ongoing process and not something that’s limited to yearly reviews. It requires a system that allows managers to efficiently track, assess, reward, and, where needed, correct employee performance as part of their day-to-day activities.

Below, we’ll look at why performance management is important and how you can implement a performance management system in your organization.

Why Is Performance Management Important?

There are a few reasons!

It Helps Managers Spot And Address Issues As They Arise

A great performance management system consists of various tracking mechanisms that allow managers to continuously monitor the performance of their team. These tracking mechanisms can be both human and technological in nature.

On the human side of things, good performance management means managers are regularly checking in with employees, making a conscious effort to identify problems as they arise, and keeping everyone on course.

This happens both through structured performance reviews and unstructured, more casual conversations.

On the technological side, performance management software can help companies identify things like bugs, malfunctions, and bottlenecks. However, effective performance management doesn’t necessarily require highly-sophisticated or expensive software. 

What it does require, is an easy and efficient way to track metrics and identify issues on a day-to-day basis so quick changes can be made when needed.

Manufacturing companies, for example, will need industrial systems that alert them as soon as there is a variation in production speed while a SaaS may only need an uptime monitor and a task management tool.

It Assists HR With Recruiting, Training, And More.

Regardless of the type of software you go with or how frequently you do performance reviews, the human side of your company’s performance management strategy ideally ties into its human resource management. 

When HR knows which issues continuously pop up, it can adapt its training programs accordingly and when performance is slowed down because the team lacks someone with a specific skill, HR can hire specifically for that profile.

HR professionals can also play a more proactive role in a company’s performance management, for example, by setting up development plans to help ambitious employees skill up or to help teams prepare for new and challenging projects.

Lastly, because good performance management requires constant dialogue between manager and employees, managers are likely to get to know the individual goals and motivations of their team members. That means that when someone has done an extraordinary job or reached a target, managers and HR can brainstorm personalized ways of rewarding them.

It Allows For Just Rewards And Repercussions

Still in too many companies, rewards are limited to annual bonuses and a Christmas present. While those are nice, they’re often also expected and thus aren’t that motivating.

Rewards don’t always need to come in the form of a financial bonus. While some employees will prefer this, others may want development opportunities within the company, more paid leave, or simply regular verbal recognition of their good work.

Note: Performance appraisals are great moments to ask people how they’d like to be rewarded. You can even let employees know beforehand that this question will be asked, giving them time to properly think it over. 

Just realize that if you then ignore personal desires and give everyone the same bonus, that might create more disappointment than if you hadn’t asked at all.

Some employees might need a few nudges before they feel comfortable opening up, though, and that’s why regular check-ins are so crucial. During a more casual conversation, it’s more natural for someone to drop a hint about what truly motivates them and thus how they can be rewarded or incentivized to do better.

The latter is important too, as continuous performance monitoring also allows managers to quickly notice when someone is not giving it their best. While rewarding great performance is important for employee retention, it’s just as important to address bad performance. 

Bad performance negatively affects your bottom line and may rub off on team members so you’ll want to address it as quickly as possible. While a performance appraisal is a great time to bring up low performance, you don’t have to wait for that to take place. Address problems in real-time to avoid things getting out of hand.

It Makes Employees Feel Respected And Heard

According to a study performed in over 150 countries, 96% of employees would like to receive feedback more regularly. Regular feedback lets high-performers know their work is appreciated while offering low-performers the chance to quickly course-correct.

The best way to go about this is to develop a performance management process with review moments at set frequencies. This can include a quick daily recap, weekly team performance feedback, monthly reviews, and a quarterly performance appraisal. 

By creating a rhythm like this, the review process becomes an inherent part of both manager and employee activities, rather than this extra thing that needs to be done.

Employees know that it’s not just allowed but even expected of them to bring up concerns.

It Promotes Both Individual And Team Performance

Another great way to make employees feel invested is by letting them set their own individual goals to help the team reach its target. Always failing to reach targets imposed by someone else is demotivating whereas always easily reaching them can create complacency. The best targets are those that challenge employees and require them to dive in and/or further develop their skills

As their manager, you can help guide them to set goals they’ll feel proud of reaching and even offer them some development opportunities to grow their skillset. 

The latter can be especially interesting when working with high-achievers who may want to take on more responsibility. 

And if you want to take it a step further, this type of goal setting can also be extended to the entire team. After all, your team members know their work, the challenges it brings, and the opportunities it holds better than anyone else.

When everyone is working toward the same goal, the metrics tracking employee performance should reflect that. Rather than solely measuring the individual performance of an employee, set metrics that motivate people to collaborate in order to reach the team’s targets.

Similarly, performance reviews should address an employee’s individual performance but also how their actions impacted the performance of the team.

It Creates A Morale-Boosting Common Sense Of Purpose

People feel empowered when they’re contributing to something bigger. That’s why it’s crucial for managers to communicate the company’s overarching goal and set targets that are clearly in line with that goal. When that’s not the case, employees feel like they’re merely chasing numbers to boost their boss’ ego.

While specific targets will be different across company levels, they’ll ideally support the targets of the level above and build on the targets of the levels below them. This means that when managers set goals, it’s important they keep this flow in mind and communicate to their team where these goals fit into the bigger picture.

Setting targets like this also makes it harder to manipulate information just for the sake of reaching a target. After all, the people above and around you need to build on your work and if it’s not solid, the whole performance flow will start to crumble.

Wrapping Up: The Importance Of Performance Management

A great performance management system proactively involves employees in the goal-setting process while making sure all goals are in line with the company’s overarching target. It consists of regular feedback moments that allow managers to spot and address problems quickly as well as keep everyone motivated and on track.

By improving employee engagement and improving company productivity, performance management helps boost a company’s profitability while keeping everyone happy. It’s a no-brainer.

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