June 30, 2023
4 min read
Andrew Makhovskyi - CEO at Effy.ai

Performance Management Cycle: 4 Stages Walkthrough

In this article:

It's no longer a secret that traditional annual reviews are flawed and no longer effective for the current workforce. According to a study from Gallup, only 14% of employees agree that the performance reviews they receive inspire them to do better.

That is why a performance management cycle is necessary. It provides a more frequent opportunity to evaluate employee performance and keep them more engaged in their jobs. 

In this article, we'll explain how you can use the performance management cycle to set business goals and boost employee performance. 

Let's begin by defining the performance management cycle. 

What is a performance management cycle?

people discussing performance management cycle

Image source: Freepik

The performance management cycle is an ongoing collaborative process that lasts throughout the year and helps management teams set strategic business goals and assess employee performance to ensure they work towards achieving organizational objectives. 

Why do you need a performance management cycle?

While a performance management cycle helps establish business goals and objectives, it can provide more benefits to your organization. Here are key reasons for implementing a performance management cycle:

1.  Builds a strong relationship between employees and management

A key objective of a performance management process is to help employees reach their goals through planning, support, and regular feedback. Showing employees they are not alone throughout the process helps build trust and strengthens the relationship between teams and managers.

2. Reduces employee turnover 

Lack of support and feedback can cause employees to experience poor job satisfaction and low engagement in the workplace. That, in turn, can lead to high employee turnover.

With a performance management cycle, you can provide regular feedback, support, and training to help employees meet performance expectations.

As a result, employees experience greater satisfaction in their job roles and are less likely to quit. 


3. Improves performance 

Continuous performance management sets the path for elevating performance in the workplace. When employees receive regular feedback and support to keep up with their goals, they produce excellent results that align with the organization's goals. 

4. Helps identify and fix problems early

There may be underlying issues impacting organizational performance, such as:

  • Unrealistic business goals
  • Communication gaps
  • Underperforming employee

With the help of a performance management cycle, you can identify these problems and provide a solution. 

Performance management cycle: 4 stages

There are four stages you must apply for an effective performance cycle. Let's go through each of these stages. 

1. Planning

The planning process lays the foundation for achieving the overall organizational objectives. To begin, the management team should apply the following steps to align the overall vision and objectives of the company with employees' set goals. 

  • Setting organizational goals – The management team would have to outline the company's goals before establishing individual goals. 
  • Employee goal setting – After the leadership team has set clear company goals, managers and employees can work together to set the employee's individual goals. Using the Smart goal setting framework, you must ensure employees set specific, measurable, achievable, realistic, and time-bound goals. 
  • Creating a development plan – After establishing goals, you and your employees need to work on creating a personal development plan and employee performance plans. This means providing resources, support, and skill training to help employees grow and achieve the overall business goals. 

2. Monitoring

After the planning stage, you must set efficient systems to follow up on set goals. This means providing ongoing feedback to address any issues employees may experience throughout the process.

When an employee is underperforming, this stage is an opportunity to provide needed support to help the employee work at optimum performance.

This phase answers questions like:

  • Is the employee on track toward achieving a set goal? 
  • How many business objectives has the employee met? 
  • What roadblocks are impacting employee performance? 

When you follow up with organizational and employee goals, you gain more insight into unaccounted variables like a sick employee or a pandemic. 

While the main goal is to track the goal progress, it's essential to run regular check-ins at the right frequency. Yearly or biannual performance reviews will not be effective enough. Instead, adopt monthly or quarterly meetings to spot issues early on and provide needed support. 

3. Reviewing

In this stage, management and employees meet to review performance, assess employee success, and measure set goals. Unlike the planning and monitoring stage, which focuses on tracking goal progress, this stage focuses on evaluating the employee's final results. This evaluation process should cover questions like:

  • To what extent did the employees complete their tasks? 
  • Did the management team provide enough support to achieve the goal? 
  • Did the employees gain practical experience or improve their skills? 

For effective performance management, you must give the employee room to offer their view on their performance throughout the process.

Remember, a performance review shouldn't be a one-sided but a two-way conversation. Also, focus on providing meaningful feedback that addresses how well the employee met or exceeded their goals. 

4. Rewarding

People receive rewards during the performance management cycle

Image source: Freepik

The final phase in the entire performance management cycle is rewarding employee performance to show employees that you appreciate their efforts through great rewards like:

  • A promotion
  • An increased vacation time 
  • A bonus 
  • A bigger compensation plan 
  • A positive written feedback 

Recognizing your employees' efforts and success makes them feel appreciated and valued while seeing the importance of hard work to meet set goals.

After the reward stage, the management team and employees can discuss plans for the following performance management cycles. 


The performance management cycle model is a process that can elevate your workforce to the next level. When done well, it improves business performance and employee productivity while decreasing the chances of failure. 

As you implement the steps mentioned above, focus on making it a continuous process, with each cycle more effective than the previous one.

This means taking note of errors, missed opportunities, and critical learnings, then applying the insight during the following cycle. 


What is PMS in HR?

PMS stands for a performance management system. It is a structured approach that aims to track individual employee and team performance consistently. 

The system applies technology, meaningful feedback, and a reward system to ensure all employees align with organizational objectives. 

What is a performance management framework?

A performance management framework outlines business goals and reinforces employee development and performance to meet those goals. You can use performance management cycle software to streamline the process.

What are the 4 stages of a performance management cycle?

The four stages of a performance management cycle include:

  1. Planning for setting business objectives and individual employee goals 
  2. Monitoring for tracking employee performance toward achieving their goals 
  3. Reviewing for assessing employee success 
  4. Rewards for recognizing and appreciating employees for their efforts 

What’s Effy software?
Performance review
Easily launch review cycles in your way, track progress.
360 degree feedback
Collect feedback from peers and managers. Identify strength and improvements areas.
Choose templates that are right for you. Start review process in 15 min.
Collaborate effectively with team meeting agenda, action items and meeting notes
Personal development plan
Develop your people by providing them an explicit plan to the next level. Track goals progression.
AI generated insights & Analytics
AI will generate an extended summary for every employee, including top strength, areas to improve and action plan.
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