Performance management allows HR teams to identify areas where team members might need additional support, training, or resources to improve their performance. It also helps managers recognize high-performing team members who excel, paving the way for future leadership roles, promotions, and bonuses.

Research shows that organizations that adopt performance management systems outperform their competition. They attract and retain top talent, foster continuous learning, and often see increased revenue.

This article explains how performance management works, its benefits for team members and the organization, and how to implement a supportive performance management system. 

What is performance management? 

Performance management is a method of tracking team members’ work performance and developing their skills so they can contribute effectively to department and company goals.

Performance management involves three phases that encourage individuals to improve their performance level:

1. Planning

HR works with team members to set goals that match the company’s objectives. By tracking progress toward these goals, HR can see improvements and how their efforts contribute to the company’s success.

2. Check-in

Managers and team members should meet regularly to engage in two-way conversations about areas for improvement and progress.

3. Review

Frequent check-ins prepare managers and team members for quarterly or biannual performance reviews. These meetings help managers accurately assess people’s progress, achievements, and performance.

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Key takeaways

  • Performance management is a structured approach to tracking, evaluating, and improving employee performance to align with business goals.
  • A strong performance management system includes goal setting, continuous feedback, regular evaluations, and career development opportunities.
  • Businesses benefit from performance management through higher engagement, improved productivity, better retention, and enhanced manager-employee relationships.
  • Employees experience clear expectations, ongoing feedback, career growth opportunities, and increased motivation through structured performance evaluations.
  • Key performance management best practices include using a positive coaching approach, regular check-ins, 360-degree feedback, and tailored development plans.
  • Tracking performance metrics like work efficiency, revenue per employee, and absenteeism helps businesses refine their performance strategies.
  • Implementing performance management tools such as LMS platforms, employee recognition software, and appraisal systems can streamline the process and improve accuracy.

What are examples of performance management? 

Performance management helps your team work better and smarter, directly contributing to the organization’s bottom line. For example, a manager might notice one of their team members struggling with communication during team meetings. 

Instead of waiting for annual feedback, the manager sets up continuous training sessions focused on communication skills and schedules weekly check-ins to provide timely feedback and guidance. Over time, these efforts lead to noticeable improvements in the team member’s communication, enhancing overall team dynamics and productivity.

For example, HSBC introduced an app for team members and managers to act quickly on achievements and feedback. Team members use the app to manage HR tasks, track performance plans, and access learning resources. Meanwhile, managers set goals, conduct regular check-ins, and approve actions on-the-go. This tool has strengthened the connection between managers and team members, turning end-of-year reviews into ongoing, meaningful conversations.

How performance management works

Performance management encourages ongoing improvement by aligning team efforts with business goals. The process begins when leadership crafts a clear strategy, outlining the tools, methods, and responsibilities needed to track and enhance performance. 

Once in place, managers actively implement this strategy through planning, monitoring progress, developing skills, and providing rewards. This approach ensures that every team member contributes effectively to the organization’s success. 

What is the performance management cycle? 

Take these steps to actively manage and improve your team’s performance within your business:

  1. Set expectations. Performance management begins with establishing clear, specific, and measurable expectations for your people. This involves defining job roles, responsibilities, and performance goals. 
  2. Give continuous feedback. Regular feedback is critical to professional growth and development. Managers and team members can engage in ongoing communication to discuss progress, address concerns, and offer guidance. Timely feedback ensures that people can make necessary adjustments to meet performance expectations.
  3. Performance evaluation. Regular performance evaluations help managers assess team members based on their performance against established expectations.
  4. Professional development. HR leaders and managers can collaborate with individual contributors to create development plans—which may include training, mentoring, and additional responsibilities—to enhance skills and competencies.
  5. Recognition and rewards. Recognizing and rewarding exceptional performance maintains team member’s motivation and engagement.

Why is performance management important?

Providing team members with practical ways to better their work performance through consistent, corrective feedback empowers them during their development journey. A well-planned, standardized approach to performance management can increase:

  • Retention: Performance management creates a more satisfying work experience for people and positively challenges them—keeping them engrossed in their work and boosting retention
  • Employee engagement: When team members see that their efforts are recognized and rewarded, they become more engaged and committed to their work and the organization
  • Productivity: Clear performance expectations and regular feedback improve individual as well as organizational productivity, increasing revenue

Implementing a performance management strategy that encourages individuals to achieve more and increase their contributions can foster their autonomy and motivation.

Benefits of performance management for team members

Performance management provides the following benefits for team members:

Provides clear expectations

People perform better when they clearly understand the KPIs, metrics, and standards used to measure their work. A strong performance management strategy provides this clarity, helping everyone align their individual goals with the organization’s objectives. This focus leads to more effective teamwork and better overall results. 

Supports continuous feedback

According to Forbes research, 40 percent of team members disengage from work without sufficient feedback. A continuous feedback system allows managers to provide regular and consistent reviews, keeping team members informed about their performance.

Open, timely communication throughout the year helps team members adjust their performance before it impacts their overall success or end-of-year evaluations.

Increases motivation 

Over 70 percent of people feel more motivated when their manager acknowledges their hard work.

Proper performance management cycles foster a culture where managers regularly provide feedback and training. This approach strengthens team members’ connections to their work and boosts their morale.

Motivated team members drive productivity. As productivity rises, they achieve targets more effectively and feel even more engaged.

Aligns organizational and team member goals

Effective performance management helps team members align their personal goals with their company’s objectives. This gives team members a clear sense of direction, showing them how their efforts directly contribute to the organization’s success.

For example, if the company targets a 20 percent increase in sales, HR leaders guide team members in setting personal goals, such as increasing their own quarterly sales by five percent.

Defines career paths

Career advancement matters to team members, yet only 29 percent feel satisfied with the career paths available at their workplace. Implementing a supportive performance management system can help you actively plan how to advance team members’ skills or transition them to new, better-suited positions.

For example, during an HR assistant’s quarterly review, they might mention their goal is to become an HR coordinator by the end of the year. Their manager can help them align these personal aspirations with organizational objectives, provide training to advance their communication and organizational skills, and assign them HR coordinator tasks like facilitating new joiner orientations and offering conflict resolution sessions. This process keeps succession planning in motion, with well-defined career paths visible for all team members.

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Benefits of performance management for businesses 

Performance management provides the following benefits to businesses:

Increases engagement

Recognizing accomplishments and providing opportunities for growth keeps people motivated while a structured development process encourages them to improve and thrive within the organization. This consistent cycle of feedback, growth, and recognition fosters a deeper engagement with their work and organization, ultimately driving overall business success.

Identifies training and developmental needs

Conducting regular performance reviews, gathering feedback, and holding assessment sessions can help HR identify gaps in team members’ skills and knowledge.

When you identify training needs, organize targeted training programs that address the specific skills your team members need to develop. After these training sessions, follow up with your team to assess their progress and offer any additional support they might need.

For example, if the sales team consistently misses targets, a thorough performance management process might uncover a need for improved interpersonal skills to boost confidence when speaking to prospects. Use these insights to organize targeted training or coaching sessions, ensuring team members receive the support necessary to enhance their skills and improve overall performance.

Improves manager-employee relationships

Some companies may limit feedback to quarterly or annual reviews, creating a rigid and formal system that doesn’t foster trust or transparency.

Effective performance management encourages regular check-ins between team members and managers, such as through one-on-one weekly check-ins or biweekly roundups. This consistent interaction allows team members to express their needs or concerns comfortably, while managers can provide timely feedback and address issues promptly.

Boosts retention

People stay where they feel appreciated and see opportunities for career growth. Businesses that implement a strong performance management system can reduce team member churn.

For example, research shows that businesses that use continuous feedback as part of their performance management strategy retain up to 85 percent of their team members.

When you recognize contributions and foster a supportive work culture, you can retain skilled and motivated individuals who invest in your business’s success. You also reduce the costs and time spent on hiring, onboarding, and training new people.

Enhances performance

Performance management helps you identify your team’s skill gaps, provide the right training opportunities, set clear goals, and offer consistent feedback on their progress.

This approach collectively boosts performance, leading to tangible benefits for your organization. For example, by equipping your sales team with a sales enablement platform or providing targeted coaching, you can empower them to meet higher targets, resulting in increased revenue for your business.

Performance management best practices

HR leaders can use the following performance management best practices to help individuals sharpen their skills and develop their careers:

1. Decide on a performance management framework 

Identify a performance management method that addresses your goals and accurately fits the individual positions under evaluation. For example, HR may implement a 360-degree review to gauge personnel development while using management by objectives (MBO) to assess supervisors’ achievements.

2. Take a positive approach

Treating people with goodwill and empathy sets the groundwork for check-ins that can inspire positive growth. Rather than leaving a team member with unhelpful, negative feedback, managers can clarify expectations and coach individuals on how to progress. 

3. Train managers

Managers play a pivotal role in the success of performance management. The feedback they give—and how they give it—can significantly influence the overall performance and morale of their people. 

A robust manager training program can cover effective communication techniques, emotional intelligence, and coaching strategies. Managers can learn to offer actionable and motivating feedback, recognize achievements regularly, and address challenges with kindness. 

Teaching managers to shift from a purely evaluative role to a developmental one can build trust and make performance management a dynamic and meaningful experience for managers and their team members. 

4. Be consistent

Routine employee-manager check-ins enable both parties to maintain a connection. Short, informal meetings allow team members to keep a finger on the pulse of their work performance. When the quarterly performance review rolls around, they can readily digest the feedback they receive.

How to track performance management metrics

Keeping an eye on the appropriate metrics makes it easier to track the impact of a performance management strategy. Key performance metrics to monitor include:

  • Work efficiency: Measuring the ability of employees to complete tasks and achieve objectives while maintaining high-quality output.
  • Revenue per employee: Calculating how much revenue a professional generates within a particular period can give a more accurate picture of their performance.
  • Errors: If a team member commits errors consistently and the quality of their work suffers, it can be a sign that they’re struggling and need more training and support. 
  • Absenteeism: Measuring how often and for how long a professional is absent from work can demonstrate their impact on a team and their productivity.

Overtime: If someone regularly works more than their standard hours, it can indicate that they have too much to do or feel a lot of pressure to overachieve. Limiting overtime can help employers prevent burnout within their organization.

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Performance management tools

HR leaders and organizations use various tools to manage performance effectively:

  • 360-degree feedback software: This type of software gathers feedback on professionals from their colleagues, managers, and other team members to provide a comprehensive view of their performance.
  • Performance appraisal software: These platforms help managers automate performance evaluations, set goals, and track the progress of professionals.
  • Learning management systems (LMS): When a person struggles to perform their best, they may need additional training to support them. LMS platforms are an excellent tool for delivering training and development programs that can enhance their skills.
  • Employee recognition software: Recognition at work can strongly influence people’s performance. Employee recognition software makes it easy to establish a culture that acknowledges and incentivizes people who consistently meet or exceed performance expectations.

Use performance management to improve company culture

By setting clear goals, offering continuous feedback, and providing development opportunities, companies can help employees grow while aligning individual performance with broader business objectives. 

When implemented thoughtfully, it creates a win-win scenario: Team members feel supported in their career development and businesses benefit from a more motivated, skilled, and efficient workforce.

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