Performance Management: What, How, Practices & Examples

Table of Contents
Employee Performance Management – System Components & List of Benefits

In order to become a good manager, one must provide his employees with regular feedback. And that’s where employee performance management comes into play.

Nowadays, most big and small corporations do have a system that helps managers evaluate the work of their subordinates.

In this article, we will discuss what employee performance management is and the benefits it brings to an organization.

What is Employee Performance Management? – Definition & Meaning

Performance management is a method used to sustain and improve employee performance in companies.

This improved production by each employee has to help make the whole organization more effective.

In real life, performance management happens during meetings, where both the employee and the manager work together to discuss past performances and future goals.

One of the most common performance management strategies is the performance appraisal, which usually is held on a yearly basis.

Key Components of a Performance Management Model/System

The performance appraisal however is not a performance management system, even though it can be a part of one.

A performance management model aims to define the job of each employee and thus serve as a way to measure their performance level.

It usually begins when a person is hired and ends when they leave the company or switch to a new position. Performance management also aims to define the interaction between the manager and the employee.

Normally, it includes several key components such as:

  • having or developing clear descriptions for each position in the company
  • recruitment of potential new hires
  • making an offer to the desired candidate and negotiating their terms
  • providing training when needed
  • giving regular feedback and coaching sessions when required
  • conducting performance appraisals
  • having a rewards and compensation system in place
  • providing career development opportunities
  • organizing exit interviews and analyzing their results

Why Is Employee Performance Management Process Important? List of Benefits

No matter what size an organization is, it should be aware of the state in which its employees are currently at.

A good everyday performance management system helps define the critical role and the responsibilities of each position and thus gives management different instruments which can be used to evaluate employee performance.

By having a proper system in place, the company and its managers have a way to give all subordinates a performance boost and thus make the whole organization run smoothly by perfecting the way each individual does their job.

Statistics show that companies that set performance goals quarterly generate 31% greater returns from their performance process than those that do it annually and the ones that do it on a monthly basis have an even better result.

Here’s a list of all the additional employee performance management benefits:

  • keeping employees engaged
  • development of good employee/manager relationship
  • helps retain talent in the organization
  • aligns the company goals with the individual ones of each employee and their position

Let’s discuss the three most important benefits of performance management.

1. Keeping Employees Engaged

It’s important to keep employees engaged and that likely won’t happen, if they receive consistent feedback on their goals only once a year.

In fact, statistics show that employees enjoy getting feedback a lot more frequently. A recent study found that 94% of people said they prefer getting feedback in real-time and 81% claimed they would enjoy at least quarterly reviews.

In order for organizations to keep their people engaged, the performance management system has to include either monthly or quarterly performance reviews.

They also tend to serve as check-ins, where both the manager and the employee can discuss current issues, potential roadblocks, or recent successes.

2. Retaining Employee Talent

Frequent meetings between managers and employees tend to lead to better relationships between the two parties. And that quickly translates into better problem-solving abilities, improved understanding, and more positive feelings within the team.

Additionally, when employees see that their manager put in the effort to help them, takes interest in their current work and career development, they’re much more likely to remain a part of the organization.

3 Main Importance of Employee Performance Management

3. Developing leaders from within

By retaining good performers in the company, the management team gets a pool of future leaders that may develop within the organization.

This helps lower costs of recruitment of new hires, as it allows the company to save from spending on training and on-boarding. Furthermore, by growing leaders from within, organizations can begin creating lasting cultures.

3 Examples of Employee Performance Management

1. Using SMART Goals

It’s really common to use SMART goals during performance appraisals. They’re a great way to set attainable goals for employees as they’re specific, measurable, and thus can be properly tracked along the way.

2. Giving both Good and Bad Feedback

It’s a best practice to give both good and bad feedback in one meeting. By doing so, the employee behavior gets an adequate idea of what they’re doing correctly and what needs improvement. Furthermore, it makes the bad feedback stings less, as it gets throw-in with all the positives and accomplishments that they’ve had.

3. Give Reasons for Improvement

It’s good practice to tie in future goals with the career development aspirations of the employee. That way they will be motivated to achieve them, as they’re tied not only with benefits for the company but with personal benefits for them.

The Purpose and Goals of Employee Performance Management


  • create a system that helps employees and managers collaborate in a meaningful way that leads to increased productivity.
  • lets both parties manage and track their goals, as well as the company objectives


  • increased productivity and improved actual performance plan
  • boost employee engagement
  • develop future leaders and retain talent in the organization

List of 15 Best Practices for Employee Performance Management

We already discussed a ton about performance management and how it should be done and now I would like to share 15 best practices that every manager should be aware of.

1. Have a definition of each role

In order for an employee to do their job properly, they have to know what’s expected of them. That’s why it’s important to have outlined the responsibilities of each role within the organization.

2. Develop a performance plan

Create a performance plan to help employees visualize their path to their end goal. This will ensure that employees stay motivated and on track from start to finish.

If an employee struggles to meet his objectives, a manager can put him on a performance improvement plan that will have specific goals aimed at improving the overall work of the subordinate.

3. Monitor progress

Use analytics to measure the performance of employees and see how they’re progressing according to their pre-set targets. If you see that they’re struggling for a prolonged period of time, look for ways to help them.

Follow-up Communication is key here, as it’s all about the way in which the manager gives assistance to the subordinate. If he is too helpful, that may tamper with the success of his employee in the long run.

Employee Performance Management – List of 15 Best Practices

4. Perform regular coaching

Assist employees before they’re in employee burnout. It’s important that the manager doesn’t try to solve every single little issue that they have, but also shouldn’t leave them alone to deal with big potential roadblocks.

If employees are really struggling, the manager should perform some one-on-one coaching and try to aid them in solving their problems. This can happen through the development of new coaching skills or by recognizing common errors in the current situation.

5. Set goals for performance management initiatives

Before starting an employee performance management program, the company should make sure they specific targets they want to achieve. Then the program should be designed in a way that helps meet those goals and can use the right organizational tools to drive progress forward.

6. Have guidelines to follow

People tend to perform better when they have guidelines to follow. That’s why employees have to be aligned with the ones for their job. That way they won’t have to second guess every decision they make and can work in peace, knowing that they’re doing exactly what’s required of them.

7. Create a culture aligned with the organization’s goals

It’s important to have all your employees aware and in tune with the organizational culture. That’s why the values and beliefs should be shared with everyone in the organization from the first day they step foot in the company. It should also happen with individual employees during the regular check-ins with their manager, as it will help nurture specific behavior.

8. Create cross-functional meetings

In big companies, often people from one department don’t know what any of the other department does. That’s why cross-functional workshops help create a good culture. And in return, by understanding the function of each department, the organizational goals can be met with more ease.

9. Give actionable feedback

SMART goals are a cliche, but one that certainly works. The feedback process should always be actionable so that employees have clear steps to take and follow, once it’s been given.

Employee Performance Management – List of 15 Best Practices

10. Don’t make it personal

Tensions can arise in performance appraisals if the consistent feedback is not constructive, but feels rather personal.

Managers should avoid making character assessments and focus more on actions that the employee has completed. Constructive feedback is key to a good relationship between the manager and the employee.

11. Managers should receive coaching too

Companies often forget that giving feedback about employee performance and in general managing people is a difficult job. That’s why it’s important for managers to be trained in these skills.

This is an important part of their professional development that is often skipped by some companies and I see that as a huge error.

12. Give 360-degree feedback

A lot of companies use this strategic approach to give multiple-source feedback to employees. That’s often good, as people can see how their work is perceived from different angles.

Peer feedback is also useful to employees as they can see their “ranking” to the other people in their team and thus better understand their role in the company projects.

13. Don’t rely only on consistent performance reviews

Coaching meetings, training, and one-on-one talks are also keys to a working performance management system.

Organizations should also aim to hold an all-employee meeting at least once per year, as this is deemed a good practice in most huge companies.

14. Problems have different sources

As a management team doesn’t put all the problems on the employees. Consider the different reasons as to what may be causing your current issues. The effectiveness of companies is measured by their ability to find wholes in their existing processes and find ways to fix them.

This can happen through additional meetings with important members of staff or by asking each person in the organization in the all-employee meeting that’s held once per year.

15. Give recognition and awards

Praise a good boost in performance when employees deserve it. Give awards, public recognition and thus encourage employees to continue with their efforts.

This feedback tool is often left unused by the executive team but it’s a terrific appraisal tool that should be used for managers and subordinates alike.

Employee Performance Evaluation – How to Identify and Improve the Goals

The best way to set goals is by tying them to certain objectives. That’s because it’s important to know what you’re looking towards.

Goals should also be tied with future career goals and aspirations of the employees, as that will motivate them to further work towards achieving what they’ve set their sights on.

To improve the goal setting, one should be certain that the goals are attainable and measurable. One way to ensure that is by using the SMART method whenever there’s an appraisal coming right around the corner.

What is the Difference Between Employee Performance Management and Employee Experience Management?

Performance management is focused on reaching goals and objectives, while on the other hand employee experience management is concentrated on the way the employees feel throughout their journey in the company.

What is the Difference Between Employee Performance Management and Employee Performance Appraisals?

Performance management is a whole system that focuses on hiring, recruitment, training, and development of employees.

The performance appraisal is a part of that system, but it’s basically a meeting between the manager and the employee, where they have a discussion in regards to the performance of the subordinate during a specific period of time (month, quarter, year).

Performance Management FAQ

What are the five steps in the performance management process?

The first step you should take in the performance management process is to create a performance management plan. Try to be as specific as you can in your plan. Create timelines and goals for yourself so you can later evaluate your progress.

The third step you should take is to create a system where you can review employee performance. This could be a colleague/manager feedback system, customer reports, productivity tracking, or something else.

After you have this information, share it with your team members so they know their strengths and weaknesses. Finally, continue updating the strength/weakness list for your employee and keep tracking the chosen metrics.

What are the three stages of performance management?

In general, performance management can be simplified down to three major stages. They are coaching, corrective action, and termination. Coaching involves teaching new recruits and ensuring they understand the values, goals, and inner workings of your team.

Corrective action is the consequences you give team members that disobey your clearly outlined rules. Finally, if someone does not change their behavior after corrective action, you should consider termination.

What is the performance management process?

The performance management process is a way to evaluate employee growth, strengths, and weaknesses. Teams come together collaboratively to discuss how they can improve.

They track certain agreed-upon metrics to see if they meet their goals, improve their skills, and satisfy customers. Teams often introduce new employees to rules before starting to track their performance and giving feedback.

Your test result:
In less than 15 min, discover what you are great at using our science-backed strengths assessment.
Blog Feedback
Not at all Likely Extremely Likely
Join +3 million people from leading companies in discovering what they are naturally great at