Performance Management

Workforce Management

To ensure productive employees, efficient activities, and optimal results, companies use a process called Performance Management. Typically, the goal of this process is to incentivize employees to act effectively and efficiently, in alignment with the objectives of the company.

Performance management systems can have various focuses, including the performance of individual employees, specific departments, or the company as a whole.

Keep reading to discover everything you need to know about managing performance, its benefits, and the importance of performance management systems.

What is Performance Management?

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Throughout the year, supervisors and employees have ongoing communication regarding the strategic objectives of the organization and how to go about achieving those objectives.

This can include making performance expectations clear, identifying goals, setting objectives, giving and receiving feedback, and reviewing the results. This process is referred to as performance management.

To increase efficiency in both management and employees, performance management systems should have clear targets.

Performance Management System

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Performance management tools can be used by supervisors and managers to monitor and evaluate performance of team members and senior executives. Effective performance management systems also need to help employees achieve goals by clarifying manager expectations, reviewing performance to pinpoint strengths and weaknesses, and creating opportunities for training and development.

Benefits of Performance Management

There are a variety of tools that senior management can use for managing employee performance, each of which has its own benefits in a company.

Some of these tools and their benefits include:

  • Incentive Programs – Can boost productivity among employees
  • Company-wide Goals – Can encourage teamwork
  • Using Development Strategies – Provides measurable data
  • Constructive Feedback – Promotes a healthy work culture

Five Stages of Performance Management

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Performance management is a continuous process that goes both ways. Feedback to and from employees is important to ensure that employees understand what is expected of them, and how they are contributing to the overall goals of the organization.

In order for this feedback to be successful, however, it needs to happen in real-time, be specific, and improve performance rather than hinder it. In other words, criticism is not encouraged.

Employee performance conversations should include both strengths and weaknesses in the employee’s work, i.e., what employees do right as well as what they do wrong.

There are five stages in all performance management processes. These include:

Performance Planning Stage

This is the first stage in the process of performance management. In this stage, managers discuss current performance, the working environment, goals, and how to achieve objectives with employees.

Employee Development

Managers use training opportunities to develop employees and ensure that they have the required mindset and skillset to perform well.


Managers use tools and software to track and measure performance, in order to pinpoint issues and areas for improving performance.

Performance Appraisal

Using interviews, self-assessment, and 360 feedback, managers (together with employees) review employee performance.

Rewarding Good Performance

In the last stage, managers reward employees for whom the performance management process results in the desired outcome.

Importance of a Performance Management System

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Having a performance management system in place aids in employee recruitment and retention. Other benefits of performance management include:

  • Encouraging Employees (via incentive programs)
  • Boosting Employee Engagement and Productivity
  • Aiding in the Creation of Development Strategies
  • Promoting Feedback
  • Encouraging Team Building

Encourages Employee Reward and Recognition

Employee retention tends to be higher when employees are recognized and rewarded for their hard work. Statistically, eighty-three percent of employees who work for an organization with a good recognition and reward strategy are likely to stay with that company long-term.

For this reason, it is important to accurately identify activities that reward recognition and rewards, using effective performance management.

Boosts Employee Engagement and Productivity

Employee engagement refers to how emotionally committed an employee is to the goals of the organization and the organization itself. In other words, it is about how much an employee cares about their company and their work. In turn, this influences how employees attempt to help advance the business.

Employees who are engaged, or care about the company they work for, tend to use discretionary effort. This means that they will put in extra effort without being asked to do so by superiors. They feel the need to be proactive and are willing to put in more effort. In so doing, they increase their individual performance.

Engaged employees tend to create their own goals and stay with the company longer. They also produce better results and are more involved in the workplace.

This can lead to a boost in company-wide productivity and a better Return of Investment.

Using a continuous performance management process can help employees become more engaged. It fosters trust by providing a space where employees feel comfortable regarding open communication and feedback and creates an air of support and encouragement.

When employees believe that the organization they work for and their managers or superiors have their best interest at heart, they are more likely to reciprocate.

However, this can only be achieved with an effective performance management system.

Aids in the Creation of Development Strategies

Effective performance management strategies allow for employee performance to be tracked without wasting valuable resources or company time. When the right strategy is created, it allows companies to take a proactive approach to the needs and development of their employees.

When open communication is fostered, companies can come up with strategies that develop employees by growing and evolving their natural talents. Employees can reach and even exceed their potential.

To develop an effective performance management strategy, you may need to:

  • Analyzing employee needs
  • Identifying gaps in employee skillset
  • Prioritizing skills that need to be addressed
  • Planning development and offering needed training

Creates an Environment for Feedback

Performance management relies on transparent communication and continuous feedback. This includes feedback from management to employees, as well as feedback from employees on company goals and their own performance. It allows employees to freely express their opinions.

In an organization, feedback should be both structured and unstructured. Structured feedback is typically systematic and planned, like during a performance review. Unstructured feedback is more frequent and occurs whenever there is an opportunity.

Keep in mind that, during this process, it is important to first share positive things about an employee’s performance with them, before pointing out areas that need improvement and devising strategies to do so.

Employee Performance Management Programs

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In order to evaluate performance successfully, every organization needs a custom program. Employee development differs between companies, and while the end goal is the same (improving employee performance), each company’s development program should be tailored according to the kind of organization it’s for.

However, there are still some primary elements included in every performance management program, such as:

  • Synchronization between organization objectives and employee development
  • Specific outcomes to be achieved on a day-to-day basis
  • Creation of strategic and measurable goals
  • Regular feedback to and from employees
  • Year-round engagement (as opposed to an annual review)