Nov 20, 2022
25 min read

What is Employee Performance Management in 2024?

In this article:

Managing people can be tricky. You have to keep them satisfied, keep them entertained, and make sure they have a reason to keep putting in the right amount of effort.

There can’t be a well-performing company with inefficient employees. When managing performance, focus on your employees while keeping your corporate goals in mind.

That's where a performance management system comes into play. This article explains the employee performance management process, its significance, and how to incorporate it into your company processes.

Employee performance management definition

Employee performance management definition

Image source: Freepik

It's important to distinguish between enterprise performance management and people performance management.

  • Enterprise performance management (also known as strategic or corporate performance management) considers the organization's performance as a whole.
  • Employee performance management is focuses on the people and how their effort contributes to the company's goals.

At, we are all about people, and that's why we focus more on employee performance in this article.

People performance management is a set of initiatives that empower employees to do their best and achieve their individual goals in the broader context of the company goals.

Good performance management implies that everyone in the organization has a single source of truth about the corporate goals, the overall performance, and ways and means to contribute to that overall performance as an individual.

Sounds reasonable, right? Like anything else that involves people, there's more beneath the surface than you'd think. We reveal more in the chapters below.

Employee performance management system: Main features

Thinking of performance management as a process is critical because it involves multiple activities, often done simultaneously. It also happens in real-time, with adjustments made on the go as new data becomes available.

Here are five essential traits of the performance management process:

  1. Continuity
  2. Adaptability
  3. Transparency
  4. Objectivity
  5. Frequency

Let's go over these features in detail and see how each contributes to the value of performance management.

Performance management is a continuous process

Effective performance management requires a variety of ongoing activities that overlap in time and depend on each other. You need to evaluate progress on goals often enough to identify potential obstacles on time. The alternative is to wait until the annual performance review, only to find out that it's too late.

Also, from the employees' perspective, it's much better to report on issues as they occur, knowing that any time is a good time for feedback. People interested and engaged will consider this a part of their contribution. Knowing that someone is ready to listen and think of adjustments will motivate them to participate.

The performance management process is adaptable

There isn't a one-size-fits-all solution. Effective performance management systems should serve the needs of your organization and your employees. It is up to you to build and implement a performance management system around the right tools that work for you.

You don't have to come up with unique ideas. The employee management practices you already apply can be integrated into an effective performance management system with some adjustments.

The performance management process is transparent

As a manager, you have to clear all doubt and confusion related to corporate objectives and their link to personal goals. Employees should always be aware of what they’re supposed to be doing and why. Also, it might be a good idea if they have a vote on the how.

Getting lost in a pile of backlog tasks with unclear priorities can be a real nightmare. Transparent performance management process steps make clear what is important. It creates a more productive environment that allows employees to deliver optimal results.

Objective and relevant metrics are paramount

Performance metrics won't do much for you if they are not objective or relevant. Your employees must see the connection between their role and the selected metrics. People will not easily accept result measurements they consider unfair or unrelated. We hardly need to explain what that could do to the work environment.

Another negative example is the selection of metrics that motivate personal performance but don't relate to overall progress at the company level. As a manager, make sure that performance metrics are selected wisely and inspire people to do meaningful work. Otherwise, your employees will pursue numbers at all costs and demand their rewards even if their work does not contribute to business success.

Performance management requires frequently repeated activities

Frequency is a direct result of making performance management a continuous process. We mentioned that progress towards goals should be monitored all the time. The information you get along the way opens up opportunities for regular check-ins.

As a manager, you can use these to exchange feedback, discuss problems and possible solutions, and propose improvements. Frequent conversations keep managers and employees connected and naturally contribute to transparency and alignment.

Why is employee performance management important?

Effective performance management is essential because competition is fierce across all sectors nowadays. Constant awareness of strategic goals helps with alignment. Employees are aware of how their goals and targets contribute to the strategic objectives set on a company level. This way, the company's success becomes an individual success and vice versa.

With good performance management, employees get a sense of achievement and value because they see how the things they do daily matter in the long run. This leads to better employee development, increased engagement, and improved readiness to deal with challenges.

Performance management vs. performance appraisal

Performance management can easily be mistaken for the practice of recurring formal performance reviews and appraisals. As a matter of fact, performance management evolved from the traditional annual performance reviews. The ever-increasing competition, however, puts greater demands on optimal performance nowadays.

It no longer makes sense to wait for an entire year before reviewing employee performance. Before you figure out what might be going wrong (if anything), it might be already too late. Market forces can kick you out of business much sooner. That's why many companies abandoned performance appraisals and shifted towards a continuous performance management process. This presents opportunities to share concerns and act accordingly on the go

Key stages: How do you create a performance management system?

How do you create a performance management system

Image source: Freepik

Here we describe five distinct phases of performance management:

  1. Goal definition
  2. Execution
  3. Measurement
  4. Evaluation
  5. Rewarding

Keep in mind that the stages of the performance management cycle don't follow one another in a strict pattern. Some of them take place over longer periods that overlap.

Define goals

This classic planning stage defines what managers and employees will be striving to achieve for a considerable time ahead. Again, relevance and transparency are critical here. This is your opportunity to set a sound foundation for your performance management program.

Performance planning includes the objectives for your employees and teams and the means to measure performance and quantify success. Input from your employees is another important factor. People are more likely to be deeply invested if they take part in defining their own goals.


As the name suggests, actual stuff is getting done during this phase. As employees do tiny bits every day to complete short-term goals, managers monitor the progress and watch the performance metrics.

Open communication is critical here. The opportunity to discuss progress and roadblocks with your employees is priceless. Use it every time you can. Timely feedback, both upwards and downwards, helps to smooth out things as you go. It also helps to identify employee development opportunities for your workers as this phase reveals their strengths and weaknesses.

Finally, this phase is the primary reason we discuss continuous performance management. It stretches in time and involves nearly everyone in the organization.


In this phase, managers collect data about the progress toward the goals. Early indications allow you to identify issues and troubleshoot without jamming the whole process. Some decisions are made as you go, but a more thorough analysis is needed with data piling up.

The measurement phase of the performance management cycle overlaps with the execution phase. This is to the extent that can make both stages barely distinguishable. Once again, we are talking about continuous performance management. Also, this is the reason some authors describe a four-stage cycle.

Review employee performance

After a good amount of work has been done and you have enough data available, it's time to sum it up and evaluate the employee's job performance. This stage is more distinct because it requires time allocation aside from the daily routine.

While it's practical to observe how employees deal with daily challenges, it's always good to create a setting that leaves the daily stuff out for a while once it's time for evaluation. Also, there's common agreement that quarterly evaluations are better than annual ones because they present more opportunities for troubleshooting and correction.

How can Effy help?

Performance reviews are a stage where automation can make a big difference. People management tools like can help you save time and effort. You can organize your performance reviews with customizable cycles and adapt the system to your company's processes.

At we help you develop your business by developing your people. Our platform supports various templates to kickstart the review cycle with ease. To learn more about the Effy capabilities, you can request a demo here or sign up for free.

Reward and endorse for positive results

Recognition and proportional rewards are among the top factors of motivation. Positive results for the company should translate to positive results for the people. Good work should pay back, and it reinforces the base for future excellence when it does.

Just like performance appraisals, rewards should be fair. Let the top-performing employees be a good example and show the rest what is achievable and what success looks like. Also, if the company gets disrupted by external threats, make sure people still get recognition for their efforts.

Employee performance management systems: Benefits

Benefits of employee performance management

Establishing an effective performance management process has clear benefits for the organization. If carried out properly, a performance management strategy can bring improvements in the following areas:

  1. Fair reward system
  2. Clear goals to work towards.
  3. Employee motivation and engagement
  4. Continuous improvement

The list above is not meant to be exhaustive. You can break down any of these areas into subsets and expand the list.

Fair reward system

Handing out rewards randomly hasn't done anyone any good. Tying your reward system to performance makes perfect sense. You want to encourage meaningful work that drives results. Guarantee that good effort pays off, and employees will be willing to walk the extra mile.

Clear goals and better efficiency

It's easier to work on a series of short and mid-term goals instead of pursuing a single objective for a long time. Small, tangible steps indicate progress, and employees have a sense of achievement before the big milestones are reached. This helps to preserve motivation in times when tedious work takes its toll.

With effective performance management, employees know where to invest their effort because they know the importance of their individual objectives. This reduces the spending of time and resources on low-priority stuff.

Employee motivation and engagement

This one is a result of the previous two. Clear goals make it easier to know what to do and in what order. You can't expect employees to be invested in objectives they don't understand. Proper rewards are also a great contributor. The bottom line is people should know that what's expected is both doable and rewarding.

Continuous improvement

This is rooted in two things. The first is keeping an eye on the performance metrics daily. The second is being available for coaching and advice when people struggle with execution. Identifying issues and being able to intervene on time is critical. Your employees will appreciate the help. Furthermore, they will improve just by watching how you resolve issues.

Employee performance management challenges

Performance management requires a lot of attention and well-supported decisions at all stages. That said, it can be a challenging process. Here are the most common challenges managers have to deal with:

  • Settling on the right metrics - how you measure success is as important as your definition of success itself. Choosing the right set of metrics can be challenging, especially at a team level. Avoid settling with metrics that make teams compete instead of cooperating.
  • Setting adequate targets - balance is crucial here. Targets should be achievable, but hitting them should require a healthy dose of tension.
  • Clarity of personal and corporate objectives - explain the link between the two well and leave out confusing metrics.
  • Keeping up the dialogue - effective performance management requires managers to be available and accept bottom-up communication.
  • Working towards improvement - rewarding top performers is easy, but what do we do with the rest? How do we keep people engaged after delivering the news of suboptimal performance? These questions are hard to answer.

Useful tools for your employee performance management system

An effective performance management system should include a certain set of tools.

  • One-on-One meetings - having frequent 1-on-1s with your employees helps bridge gaps during the execution phase of performance management programs. They are a perfect means for discussing individual struggles and providing professional advice.
  • The 9 box model - is a great tool for assigning employees to different groups based on their performance and potential.
  • 360-degree feedback - this helps figure out people's contributions outside the restraints of the performance metrics. For instance, a supportive employee who helps others would add value despite failing to meet personal targets. Gathering 360 feedback would help you figure out what's beneath the surface. Also using feedback management software can help organizations gather valuable insights and make informed decisions that lead to improved employee satisfaction, enhanced product or service quality, increased employee engagement, and better business outcomes.
  • Performance reviews - regularity is vital here. Also, make sure you have a productive conversation and allow your employees to speak their minds. Performance reviews should be a step towards performance improvement, not a reason to give up.
  • Reward and recognition programs - there's nothing better than positive reinforcement. However, it can be weaponized against you. Ensure rewards are fair and pay attention to how results are being achieved.
  • Personal development plans - work on these after the performance is measured and areas for improvement are identified.


Employee performance management involves a range of activities, and challenges arise at every step of the cycle. To set a sound performance and learning management system, managers need proper tools that enable the necessary decisions and actions at every step.


What is performance management?

Performance management is a continual communication process between a supervisor and an employee that occurs throughout the year to support the organization's strategic goals. Clarifying performance expectations, establishing objectives, identifying targets, providing feedback, and analyzing results are all components of the communication process.

What are the 5 elements of the performance management system?

The performance management cycle can be established in five straightforward steps, enabling managers and employees to connect their efforts with the company's larger culture.

  1. Planning 

The first step of the performance management cycle is planning. A manager and an employee meet to analyze the individual's present job and performance, identify areas for development, and then establish clear and explicit performance objectives and set attainable goals.

  1. Developing

The next step of the performance management cycle is to enhance an employee's current expertise and develop new skills, knowledge, talents, and potential. This is accomplished primarily through training, the assignment of tasks that introduce new skills or a high level of responsibility, the enhancement of work processes, and other means.

  1. Monitoring and performing

The third stage of the cycle is consistently monitoring the performance of employees and giving them continual feedback and the appropriate tools to help them achieve their goals.

  1. Reviewing

The reviewing phase of the performance management cycle compares employee or group performance to the goals, criteria, and standards established during the planning phase. Various tools, such as 360-degree feedback, self-assessments, competency-based evaluation, etc., can be used.

  1. Rewarding

If all objectives have been completed, the final stage of the cycle is to reward employees. By rewarding employees, managers recognize their contribution to the organization and create incentives to motivate and engage them further. There are numerous ways to recognize excellent achievement, including informal and official reward and recognition programs.

What is a performance management system?

A performance management system is a tool for measuring and tracking the performance of employees consistently and seamlessly. It helps to manage employee performance and ensure workplace discipline and employee collaboration towards strategic goals.

A performance management system is essential to spot the high performers and the under-performers. With this, the HR department can provide accurate reviews and compensate or sanction employees accordingly.

What are examples of performance management systems?

Some examples of performance management systems include Effy, Trakstar, 15Five, Lattice, and PerformYard.

What are the three types of the performance management system?

General Appraisal: This is the most common type of performance management system. This works by setting a standard metric that employees must follow, such as meeting goals, teamwork and innovative contributions.

360 degree Appraisal: This performance management system takes the reviews of co-workers, senior colleagues and junior colleagues into account. 

Manager Performance Appraisal: This is the system used to evaluate managers' performance by taking feedback from the team they lead and the clients they manage.

What are performance management tools examples?

Effy is a performance management system that has helped businesses enjoy seamless, cloud-based performance management. Effy offers innovative features such as real-time insights and accurate employee data analysis. Effy also provides a social news feed that connects employees on one platform.

BambooHR is an efficient tool that helps track employees' activity and evaluate their progress towards the organizational goals regarding performance management. However, unlike Effy, BambooHR is more expensive to subscribe to.

Sage HR is one of the old but innovative HRMS tools with many features, one of which is the performance management software.

For more examples, check out our post on the 12 best performance review software.

What are examples of performance management?

Examples of performance management processes or tools include key performance indicators (KPIs), performance appraisals, and management dashboards. 

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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