What Is Performance Management?

  
Every business organization has a founding vision and sets its goals, objectives, roadmaps,

and milestones in line with what the business hopes to achieve. 

Among the key contributors that help meet these objectives is the company’s actual human

cap: the employees or the workforce. Despite several structures being put in place, there

remains a growing need to smooth performance, harmonize every member of the

organization, and to bridge the wide gap between expectations and results. 

This is because it takes a well-defined performance management system to ensure that every

arm of the business works together to achieve the overall aim of yielding maximum results.

Have you ever wondered about the scope and benefits of performance management? We aim

to define and demystify every key element of performance management here.

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Understanding performance management 

Performance management, quite simply, refers to the process of monitoring an organization’s

activities to ensure that employees meet set goals and objectives. 

It encompasses priority setting, employee training, continuous supervision, offering

consistent, yet constructive feedback, performance reviews, and suggesting remedial

measures. Oftentimes, our view of performance management has been restricted to the end-

of-the-year appraisal and feedback process. However, it has become apparent that each

human resources (HR) team must understand that the scope of performance management

goes beyond this.  

One primary challenge to providing an all-inclusive performance management definition is

that it covers multiple activities for an even greater variety of organizations, their models, and

structures. To answer the question, ‘what is performance management’, Michael Armstrong

and Angela Baron (1998) offer a very concise definition, which states that it is the:

“systematic process for improving organizational performance by developing the

performance of individuals and teams. It is a means of getting better results from the

organization, teams,  and individuals by understanding and managing performance within an

agreed framework of planned goals, standards, and competence requirements.” 

At the heart of this definition lies the crucial link connecting the ability of an organization to

achieve its goals and the performance of the human capital. This holds true irrespective of the

type, structure, or size of an organization.  

Finally, performance management can be described as the system through which

organizations set work goals, determine performance standards, assign, and evaluate work,
provide performance feedback, determine training, and development needs, and distribute

rewards. (Briscoe and Claus, 2008) 

Learn More: The Ultimate Guide to Human Resources 

What Is the Importance of Performance Management?

In the past, there was hardly any emphasis placed on performance management

in human resource management. Fortunately, this narrative is changing rapidly as a culture of

employee-centricity evolves. Let us delve deeper to understand the importance of

performance management.  

Why is performance management important?  

Here are eight reasons why organizations must be intentional about it. 

1. Drives financial gain  

Without pretense, the primary aim of any organization providing goods and services is to

make a profit. At the end of the day, employees must be paid, shareholders rewarded for their

investment, and opportunities for expansion realized. If the company’s human capital is at

maximal functional capacity (not overworked or underutilized), it will have a direct

implication on raising levels of profit.  

For example, when a salesperson hits their target, or the advertising team comes up with a

campaign with good conversion rates, there is no doubt that this will increase income flow

and improve the bottom line.  

2. Encourages and motivates employees via recognition and rewards

A key benefit of performance management is that it arouses the employees’ desire to do

more. From C-level executives, through middle management, individual contributors,

and support staff, everybody has a need to be recognized for their value.  When this is done,

employees are spurred on to do more.  

3. Prevents overlapping roles
Most people function best in a defined and safe environment. A company's human resource

performance management must enable this. It should be clear to every worker what his or her

objectives are, how they fit into the big picture, and why things must be done in a particular

way.  

When more than one employee is assigned to a task, they must be equally informed so that

they are equipped to work together, achieving the set target while avoiding interpersonal

conflicts. On the other hand, smaller goals and objectives should be assigned to individual

members of the team. This provides a deep sense of purpose and responsibility, allowing him

or her to work comfortably in their niche. 

4. Increases employee engagement and productivity       

The importance of a performance management system lies in that it enhances engagement

and productivity in employees. What does this mean? Engagement in this context refers to

how much the employee interacts with the company and its structures. Productivity defines

itself in terms of increased outcomes and Return On Investment (ROI).  

Consider a scenario where the HR manager shows interest in what the social media manager

does only at the end of the year. Compare it with how much more of a concerted effort the

social media manager would put in when promoting the company under a modern

performance management system. The company's vision, aims, and goals will be evident in

each piece of content posted online in the second scenario.  

Employee engagement should cut across every aspect of work, even down to whether people

contribute to team meetings or not. In fact, employees whose managers are actively involved

in performance management are three times more engaged than others. 

5. Makes room for idea generation  

In a fast-tracked world, we can’t underestimate the importance of generating new ideas. A

company’s sole aim might be to provide affordable housing. However, if there is no steady

and inspiring stream of ideas to sell to the public, there will be a plateau and eventual decline

in sales.  
Now, with a functional performance management system, the burden of idea generation no

longer rests solely on the owner or product management team. Ideas can flow more easily,

and in the right direction, because every worker knows that their inputs are welcome.

Amazingly, this is not just limited to consumer products. Idea generation could also benefit

the company, such as suggestions for a better working system, etc.  

6. Creates a platform for employee development  

A consistent performance management system invariably results in an active form of

employee development. Discussing each employee’s role, past performance, current efforts,

strengths, and weaknesses gives you an accurate understanding of what each employee can

do. When combined with a agile HR technology, it creates opportunities to steer employees

in a direction best suited to their abilities and the company’s goals.   

Performance management makes training targeted rather than generalized, and most

importantly, employee potential is optimally utilized to the advantage of everyone involved. 

7. Enables proper documentation and record-keeping  

We are witnessing a rapid shift from paper and filing cabinets documentation systems to

faster, easier, and less burdensome digital ones. There are several digital performance

management solutions that help track every aspect of HR.  

These HR management tools provide a clear documentation process that can be stored and

revisited when needed. It means you have a record of each employee's past performance at

your fingertips. Promotions are scheduled and timely rewards given, and even a history of

errors with administrative action is documented. 

Learn More: Top 10 Employee Engagement Trends For 2022

What Is the Scope of Performance Management?

The scope of performance management is almost as broad as its root, human resource

management. A performance management system has to conform to the overall

organizational structure. It should not be viewed in isolation, but rather as underlying the
entire organization. This ensures the fundamental aim of performance management systems,

to ensure good work from every department in the organization. 

The scope of a performance management system encompasses everything people do at work

– from the vision and goals of the organization to the employees, their personal interest, the

tasks assigned to them, how they are executed as against the set standard, the employer's

intent, interests, and the company’s goals.  

This covers such a broad framework that, to understand it effectively, we must look at it as

two halves of a whole.  

1. Corporate performance management (CPM) 

2. People performance management (PPM) 

Corporate performance management (CPM) or enterprise performance management

considers the overall performance of the organization. It is a series of managerial strategies

that a business must apply to define its goals, design a working strategy, execute it,

periodically analyze its result, and utilize the information to make better decisions for

growth. The tools used in corporate performance management range from budgeting and

product vision to business models, etc. 

On the other hand, people performance management (PPM) focusses on the employees

within the organization. It is the most challenging aspect of performance management as it

involves a larger number of people and a greater number of objectives. It deals with ensuring

that all factors align to perfectly fit into the overall aim of an organization.

Learn More: Performance Management Approaches, Models, & Frameworks: The

Ultimate Guide for HR

Scope of performance management 

The PPM system is one that will: 

 Validate the employee selection process 

  Identify employee training needs 

 Give performance feedback and constructive criticism when necessary  

 Determine employee reward and benefit 

 Decide on the time and nature of promotion or demotion 

All these are adequately represented in the performance management cycle, which has

evolved from the traditional, static form that ran as long as a year to a more continuous model

with broadly defined goals that can be reviewed. It has four phases: 
1. Planning  

In the planning phase, both CPM and PPM are involved. The management team initially

meets to determine the overall goals of the organization, and then the yearly or quarterly

goals. This is then shaped to the level of the employees, defining their roles and objectives. It

also considers the personal development goals of each employee. The planning phase is a

goal-setting phase. Getting the most out of this phase is easy by using the SMART guide.

Simply put, goals must be Specific, Measurable, Achievable, Relevant, and Time-bound. 
2. Monitoring       

This phase falls under the scope of performance management and is much more effective

when done regularly. Studies have shown that 63% of Gen Z employees want to receive

frequent feedback from their managers rather than just an end-of-the-year review. The

management checks in to understand the progress, roadblocks, existing and surmounted

problems, ideas, etc. In the monitoring phase, there is also room for redefining goals set

during the planning phase. 

3. Reviewing  

At the end of the cycle, management must evaluate performance. Were goals met? Was there

a waste of the company's resources? How efficiently did employees achieve this goal? How

can this process be modified for better results? Did employees deliver an outstanding

performance or show leadership qualities? The reviewing phase is easier when proper

monitoring takes place. 

4. Rewarding  

Without mincing words, this is a phase that must not be relegated to the backburner. It is

crucial not just to the employee but also to the employer in the long run. A reward system is a

strong motivator of better performance.  

Learn More: Performance Management Cycle: A Comprehensive Guide

What Are the Objectives of Performance Management?  

Performance management is a strategy used in human resource management. There are

several objectives of performance management systems. When these are met, it creates a

successful strategy, which results in benefits for all involved. The objectives of performance

management include: 

1. Defining the organization’s goals and objectives 

Goal setting has proven to be a highly rewarding methodology in organizations. The

importance of goal setting goes beyond its impact on the employee, but also

affects management and the organization at large. In setting goals, an effective performance

management system must ensure that realistic, achievable, and cost-effective goals are set. It

takes into consideration the strengths and weaknesses of the people involved. 

From the employees’ perspective, goal setting: 

 Keeps them focused on the major objective/s  

 Maximizes individual performance and abilities  

 Merges employee and organization goals  

 Identifies priority tasks 

For the organization, goal setting is essential for: 

 Identifying flaws and weaknesses when goals are not met 

  Budgeting  

 Conducting performance appraisal  

 Reviewing general performance  

2. Clarifying expectations for employees and managers

It is imperative that every organization makes its expectations known to all involved. For

example, expectations of monthly pay, working hours, benefits, days off, etc., should be

clearly defined. Beyond this, setting expectations far above an employee's performance

ability will only lead to disappointment and burnout. However, there should be room for

growth and consistency. This clearly demonstrates the importance of a performance

management system. 

When setting expectations: 

 Define what is expected of the employee. There should be no confusion or ambiguity. 

 Document these expectations for easy reference. 

 Explain how beneficial it will be to both the employee and the organization if those
expectations are met. This may be learning a new skill, undergoing training,
improving workflows, increasing sales, etc. 

3. Setting performance standards

One of the objectives of a performance management system is to set performance standards.

This can be done on a rolling basis, based on previous employee performance, or based on

the company's expectations.  Performance standards are necessary for proper work

evaluation. It's the backdrop against which employee work output can be compared fairly.

Without it, human resource performance management might overlook suboptimal input, or

may not recognize exceptional performance, simply because there was nothing to compare it

with.  

4. Facilitating worker training and development of new job skills

A good performance management system highlights the abilities and weaknesses of each

employee and provides targeted training aimed at benefiting both the employee and the

organization.  

A good way to go about this involves employees in the process from start to finish. Ask them

what skills they lack to perform their jobs optimally. Figure out how these fit into the budget

and training programs. Discuss the benefit and application of these new skills and redefine set

goals to accommodate these skills.  

5. Identifying barriers to achieving organization goals 

An effective system shows the weakness of existing structures in the business. With constant

monitoring, this can be detected early enough, and intervention plans can be created.       

For example, in an organization where the delivery of products is outsourced, there is likely

going to be a some delays, mix-ups, and damaged goods. Overall, daily delivery goals may

not be met. Over a month, and with proper monitoring, this discrepancy can be reported, the

transportation barrier identified, and practical solutions offered.  

6. Creating an administrative framework for decision-making

Without an adequate, well-documented performance management system, organizational

heads will keep running in circles in the dark. However, when an effective system is put in

place, there is a better ability to make informed decisions, set strategic goals, and implement

effective policies for the good of all.  

7. Boosting employee performance through an effective reward

mechanism  

A primary objective of a performance management system is to achieve growth and to ensure

that employees are encouraged and motivated. This can easily be accomplished by

establishing an effective reward system. Logically, monthly remuneration should be enough

motivation. However, when exceptional performance is especially rewarded, it drives the

entire team to try to exceed such standards. 

8. Increasing job satisfaction and employee retention

Few things come close to the frustration of having to hire new employees every three

months for the same tasks. It results in constant sub-optimal output because of all the time

wasted in getting new hires up to speed. Sound performance management will result in

increased job satisfaction, and the best employees will stay on. This means that you will have

a fine-tuned selection of capable, skilled, and loyal employees in your organization.   

9. Inspiring new ideas and suggestions

Oftentimes, the best ideas come from unexpected sources. Of course, there may be

employees, product managers, marketing teams, and others responsible for idea generation.

Sometimes, an employee in a different department, such as the sales team or UI/UX

developers, might have a revolutionary idea for the organization.   

Performance management sets the stage for this. A worker who knows that his contributions,

no matter how small, are valued, will be unlikely to hoard ideas or be hesitant to express

them. Effective human resource performance management results in idea generation.  

10. Encouraging friendly competition

In a world where everyone receives the same treatment irrespective of effort, there will be a
massive decline in productivity. One of the objectives of performance management is to

encourage friendly competition among teams and individuals. It all boils down to a reward

and recognition system. No one wants to be left out, or constantly reprimanded, and while

some people may shy away from the spotlight, everyone enjoys recognition. Implement all

the elements of a good performance management system to instill healthy competition

amongst co-workers.  

Learn More: The 5 Best Job Evaluation Methods in 2022

What Are the Elements of Performance Management?

The essential elements of performance management are the features that every performance

management system must display. We will look at the key elements of a performance
management system. Having at least five of these is a good indicator of a successful

outcome.  

1. Longevity and consistency 

Before making your performance management strategies public, some vital questions must be

answered.  

 Can this system be sustained over the next five years?  

 Will this apply to every employee without being partial?  

 Is it within the yearly allocated budget?  

Consistency is a primary element of performance management. An employee should know

what to expect annually. There should be no sudden changes or discontinuity in the strategies

applied. In addition, the importance of treating each employee equally cannot be over-

emphasized. Why should one team be reprimanded more harshly than the other? Or another

be rewarded more for similar output? Nothing demoralizes your staff more than a biased

system.  

2. Outcome management

Your human resources performance management system must be equipped to manage

outcomes. Tasks will not always be accomplished, and goals will remain unmet. Depending

on the expertise/learning garnered across the process, these results may serve as stepping

stones to improved performance.  

3. Planning and goal setting

Goal setting is an essential element in performance management. Goal setting begins with

company leadership, then moves downward to annual and quarterly objectives, then to the

department and team goals, and eventually to individual tasks. These tasks must be in line

with the employees’ job description and abilities, and yet make room for creativity, learning,

and growth.  
4. Communication

Communication, feedback, and regular reviews are a key aspect of performance management.

It also includes communication of goals and strategies. It is necessary for a proper

understanding of organizational objectives, which will determine if personal objectives are

aligned to achieve the desired result.  

5. Employee reviews

Feedback and reviews go hand-in-hand in performance management. One is coming from the

bottom to the top, the other from top to bottom; however, both are assessing performance and

giving ideas on a better management strategy. Teams should be able to anonymously send in

reviews of their supervisors, etc. This way, there can be improved leadership and a smoother

relationship between co-workers. A system where employees’ ideas are implemented is one

where everyone wants to contribute something useful. 

6. Development and training

Another element of performance management is the training and development of employees.

This covers job skills such as software management, providing courses, sending them for

conferences and training programs, etc. As trained and experienced workers climb up the

leadership ladder, they need to be replaced with newer employees. This might create a period
of reduced outcomes. A good way to minimize the effect felt in the overall organization is the

role of mentorship and one-on-one training. Most of all, a well-documented workflow should

be made available to each employee coming into a new role in the organization.  

7. Employee recognition and rewards

Your employees are like your primary customers. The same logic behind bonuses, discounts,

freebies, and other attractive packages offered to customers works perfectly inside the

organization.
We all want to feel appreciated, especially for stellar performance. There is

no single approach to a      rewards and recognition system in performance management. It

could be in various forms, such as: 

 Recognition in front of peers and leadership 

 Leaderboards 

 Bonus pay 

 Gift items  

 Increased holiday length  

 Better insurance package 

 Better working environment  

 Gift cards 

 Shares in the company  

 Promotions  

8. Regular monitoring and feedback 

Traditional human resource management involves an annual performance assessment. In

contrast, regular monitoring at weekly, monthly, or quarterly intervals ensures that no aspect

of employee performance is overlooked. It provides both a holistic understanding of an

employee’s abilities and an in-depth appreciation of their performance. Regular monitoring

goes hand-in-hand with feedback.  

Learn More: The 30 Best Employee Feedback examples in 2022

What Is the Role of Performance Management in an

Organization?
The role of performance management in human resources is intrinsic to the success of an

organization. In fact, a study shows a strong positive correlation between performance

management and high-performance organizations. There are several roles of performance

management in an organization: 

1. Improving employee performance

Without performance management, there will be a progressive reduction in effort on the side

of employees. An effective system plays the role of spurring employees to greater

performance heights.  

In every mix of individuals, one or two will always shine more brightly than others. One of

the roles of performance management in human resources is to recognize, identify, and

cultivate high-quality performance/employees. When this is done, these employees can be

assigned more detailed tasks that have a direct effect on the company’s growth.  

2. Developing strong leaders  

Leadership is a quality that is both inbuilt and acquired. Where there is a well-developed

performance management process, leadership qualities such as team management, goal

setting, accomplishment, harmonizing work efforts, etc., will be brought to light. This way,

an organization can be a self-sufficient system that empowers its employees to become

leaders and places responsibility on them with a guarantee of high performance.  

3. Removing weak links

Another unpleasant yet necessary role performance management aims to accomplish is

the removal of the weak links in an organization. According to Billy Graham, “A chain is

only as strong as its weakest link." This applies equally to a team or an organization.  

Performance management helps to identify the one employee that keeps pulling the rest of the

team down. Once identified, they can then be provided constructive feedback, and training

and development of necessary skills can be provided, among other corrective measures. If

these measures prove futile, the performance management system in use provides an

objective indicator of that fact. At that time, human resource management is responsible for
lawfully terminating the contract of such an employee. Failure to do so puts organizations at

greater risk. 

4. Ensuring employee engagement and satisfaction

Performance management systems are as much about the employee as the employer.

Employee engagement is a buzzword in human resource performance management because

of its proven benefits. Keeping your workers actively engaged brings about productivity.

Also, employees should be kept as satisfied as possible. This includes job and remuneration

satisfaction and better working conditions. 

5. Providing employees with a defined career path

Most high-performance employees will not remain comfortable at the same career level for

years. Career progression is becoming more important now than ever. Defining career

plans, and how they can be achieved, falls under the scope of performance management and

must not be overlooked. Remember that if a high-performing employee is not provided with

opportunities for career growth, they will be tempted by greener pastures.  

6. Motivating and coaching employees

Performance management in human resource management must make sure employees are
motivated and coached. This is the role of departmental managers and team leaders.

However, the only way to know if the head of a department has a significant impact on the

motivation of his members is through reviews and appraisals.  

This is part of the role the performance management system is meant to accomplish. A good

performance management system guides how to give feedback, encouragement, and

criticism, and motivate different types of employees.  

7. Improving the organization’s bottom line

Lastly, performance management plays the role of improving the company’s balance sheets

by encouraging and ensuring better performance. As ideas flow and productivity rises, as
non-performers are coached or exited from the company, the overall system starts to function

better, which has a direct impact on revenues.