What Is Performance Management?

6 minutes read

If you’re like many people, you equate the term “performance management” with job descriptions and performance reviews. That’s certainly part of it, but it’s much more than that. 

Performance management is many things: a corporate management tool, a human resources initiative, a specific HR software module.      

For most employers, performance management is, at its core, an internal program intended to help employees achieve new heights of potential—i.e., to work more proficiently and productively. It’s designed to promote continuous improvement. 

In addition, performance management serves as a tool that links employee performance to compensation, managing wage increases, bonuses, promotions, etc.

The benefits of an effective performance management system are significant. For employers, it ensures that employees are helping achieve organizational goals, such as financial growth and greater cost efficiencies. For employees, the benefits are professional growth, higher compensation and job satisfaction. 

Done right, performance management programs lead to a more engaged, better optimized workforce. In other words, it’s a win-win.

How Performance Management Programs Work

Because the objective of performance management is to align employees’ activities with their employers’ overall goals, the process starts at the top of an organization. 

From there, goals, job activities and standards are deployed to departments, managers and workers. HR is charged with coordinating the process, keeping everyone on point and maintaining the related records.    

According to the Society for Human Resource Management (SHRM), at the employee/manager level, the three key elements of performance management are:

  • Goal-setting: It’s important for employees to understand what their responsibilities are—i.e., their job description—and what’s expected of them.
  • Performance Appraisals: These help companies evaluate how well an employee is completing their assigned tasks and achieving their preset goals. 
  • Performance Improvement Plans: These are designed to give employees detailed roadmaps for achieving higher performance levels.  

While old-school performance management programs were built around the premise of annual performance reviews, HR experts now advocate for regular check-ins between managers and employees, so workers can receive coaching and feedback more frequently.

Performance management works best when it’s a continuous process—and when the data is solid.  

Heidi Gardner, a distinguished fellow at Harvard Law School recently told the Harvard Business Review podcast, “When anyone sets up a performance management system, they have to have the right supports in place, and that involves some of the data that gets collected. People need to have real confidence that the data represents what leaders believe it represents. And having accurate data that’s timely and trustworthy is truly essential.”

Where Performance Management Software Fits In

Administering an employer’s performance management program is no small feat, especially for already-busy HR departments. That’s where performance management software comes into play.

It can keep the entire process on track, while acting as a centralized hub for HR, managers and employees.

For example, robust performance management software will:

  • Make it easy to create job descriptions, providing job-specific templates
  • Simplify the creation of performance appraisal forms 
  • Generate automatic notifications and reminders 
  • Deploy, collect and summarize 360-degree feedback surveys 
  • Help employers pay grade/pay increase matrix, linking performance to compensation
  • Provide goal-setting and goal-management tools 
  • Allow managers and employees to add notes to their files any time
  • Offer a real-time statistical dashboard and reporting capabilities

In short, performance management is essential to helping employers get the most from their workforce—and performance management software is a key component of effective human capital management (HCM) systems.  

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