What Is Performance Management? A Comprehensive Guide

By Indeed Editorial Team

Updated 2 December 2022 | Published 13 May 2022

Updated 2 December 2022

Published 13 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Management of performance is a continuous process where a supervisor reviews an employee's performance throughout the year. This process helps managers train employees to work in synchrony with an organisation's goals and objectives. Knowledge of performance enhancement techniques makes managers more effective and employees more responsive to instructions. In this article, we examine what management of performance means, what benefits it offers an organisation and how to use it effectively.

What Is Performance Management?

Performance management is a repetitive process where a supervisor communicates with employees and motivates them to achieve organisational goals. It effectively replaces a year-end appraisal with periodic reviews scheduled year-round to analyse an employee's strengths and weaknesses. It can also help reduce unproductive and redundant work, saving a considerable amount of resources for a business. Employees can identify how they want to improve their skills and performance, making themselves accountable for their own professional development. An effective management system works with clear objectives, like:

  • Communicating organisational goals to employees to optimise performance

  • Setting expectations for both employees and managers

  • Facilitating effective communication between teams and managers

  • Defining performance standards

  • Listing performance improvement strategies and individual development plans

Related: Performance Improvement Plan: Benefits, Process And Examples

Using Performance Management Systems Effectively

The goal of business processes and systems is to increase business value, reduce costs and risks, generate revenue and help in managing the multiple functions of a business entity. A few examples of such systems include information systems, risk management systems and management systems for performance. If a business does not design or implement these systems effectively, it may not be able to achieve its goals. Faulty design, poor governance, unrealistic goals, lack of feedback and lack of employee motivation are some factors that may lead to implementing an inadequate performance management system.

To prevent this, businesses can follow these guidelines to set up an effective management system for performance:

Set effective and realistic goals

Goals are the foundation of a management system for performance. Department managers usually define goals for employees in their departments and it is their duty to ensure that these goals do not overlap or conflict with the goals of other departments. Job descriptions and job specifications act as the basis of goal setting and help managers keep in mind the responsibilities and expectations of every role. It is important that the managers also outline how an employee can achieve their goals.

Incorporating SMART (Specific, Measurable, Achievable, Result-oriented and Time-bound) goals can complement an effective management system. Specific, measurable and achievable goals help an employee take actionable steps to achieve them. SMART goals are typically relevant to an employee's role and they can achieve it within a specified timeframe. Some examples of management goals are, Complete sales target for the third quarter, Complete four modules of conflict resolution by the end of this month or Find new suppliers and reduce cost by ten per cent by the end of the year. Managers can define goals in relation to multiple competencies, including:

  • Productivity

  • Efficiency

  • Revenue generation

  • Management

  • Customer satisfaction

  • Business intelligence

  • Human resources

  • Recruiting

  • Business analysis

  • Organisation

  • Quality of work

  • Design aptitude

  • Knowledge base

  • Sales performance

  • Decision-making abilities

Related: SMART Goals: Definition And Examples

Set up a performance planning mechanism

Managers and employees can collaborate to set up a performance planning mechanism and define expectations by referring to goals and job descriptions. They can identify long-term and short-term goals for each role and a clear action plan on how to achieve goals. They can also agree on the evaluation process, identify hurdles and devise plans to overcome them. For example, lack of skill could be a hurdle and attending an internal training program could be the plan to overcome it.

An employee can refer to performance plan documents to monitor their own progress. Evaluating the performance plan periodically, assessing progress, updating goals if required and reevaluating training programmes can help maintain the effectiveness of a management system for performance. It is important that managers continue to communicate with employees to address any queries or concerns they may have with regard to a performance plan.

Create a continuous feedback process

Managers can monitor the progress of employees and provide feedback regularly. An annual performance appraisal only generates feedback once a year. Continuous feedback and mentoring is crucial for improving the performance of employees. If the feedback is not continuous, employees may lose morale and may not consider learning an additional skill or acquiring a useful leadership trait.

Related: 20 Examples Of Feedback In The Workplace

Gather employee information

Many factors can influence employee performance and an ideal management system considers each factor. A manager can access data and feedback from multiple departments, ask an employee to self-evaluate or verify past performance plans to track individual career goals. In large teams, team members can also provide feedback for each other.

Once they have the required information, a manager can evaluate an employee objectively. They can collaborate with other managers to develop a uniform evaluation process for appraisal. This helps in creating reward schemes and recognition programmes. Some systems also use universal performance metrics to remove bias and identify employees exhibiting exceptional or poor performance.

Track progress

Managers may not be able to give accurate feedback or constructive criticism regarding an employee's performance, unless they closely track their progress on an individual level. If an employee is falling behind in productivity and efficiency without the knowledge of a manager or supervisor, it can lead to losses for the business, cause the employee to lose motivation and ultimately lead to failure of the management system. Tracking goals and employee progress routinely is crucial for ensuring that a management system remains effective in the long run.

Document results

A manager prepares a performance log for employees to record achievements, recommendations and observations. These performance logs can be helpful references for guiding future performance appraisals. A performance log makes both the employee and their manager accountable for decisions that have the potential to affect performance.

What Are The Benefits Of Using An Effective Performance Management System?

Before setting up a management system, it is important to understand why a business requires one. Apart from tracking employee performance throughout the year, it can also help managers create individual professional development plans. It can also help identify, recognise and reward high-performing employees. It can boost employee morale and motivate them to improve their performance. The primary benefits of using an effective management system include:

Improved coordination

A performance evaluation system creates a continuous communication channel between a supervisor and an employee. Both are aware of what the organisation expects from them, which helps them coordinate their tasks better and perform as a team. There is less scope for miscommunication, disputes and delays when there is better coordination. This positively impacts output and quality of work.

Improved employee morale

A performance evaluation system helps employees prioritise their work goals to meet crucial deadlines. It also identifies redundant tasks which add no value for the employee or the company. As employees engage only in those tasks that contribute and add value, it can help them stay motivated in their role.

Increased efficiency

Efficiency is the ability of an employee to produce a quality outcome within a given timeframe, using the least amount of resources. Managers can track how much effort an employee puts towards completing a task. Employees know that the company may recognise exceptional performance with rewards or recognitions. This motivates them to work harder, improve their productivity and become more efficient.

Helps create individual development plans

Senior managers and supervisors use reports from performance evaluation systems to identify suitable employees for promotion or additional training. The system also allows employees to introspect on their performance, strengths and weaknesses. It helps them commit to individual development plans, which identify areas for improvement and lays out action plans on how to achieve goals.

Improved talent retention

Attrition is a challenge for human resource managers and management staff, as it can cause work disruption and delay outcomes. An effective and continuous management system helps employees improve their performance. A manager may also identify employees who are not performing well, analyse reasons and suggest suitable remedial measures. An employee keen on improving the quality of their work is more likely to stay with the company, instead of moving to a new one.

Improved business performance

Employees who understand their strengths and weaknesses and are willing to bridge those gaps are likely to work towards business goals proactively. This increases overall productivity, improves the quality of deliverables and contributes to the brand value. One of the primary benefits of a management system is that it improves business performance and profitability.


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