Performance Management: Definition, Process & Best Practices
Interviews / Opinions

Performance Management: Definition, Process & Best Practices

, Content Marketing Manager

A lot of good has come from people who perform well within companies.

High-performing employees achieve their own goals while improving the companies they work for. Others recognize them as accountable, skilled, and highly driven.

But just how much more does a top performer do than a regular employee? A recent study revealed that top performers are, on average, four times more productive than the average worker.

Oftentimes, you need to guide or motivate your employees to get to this state. An effective strategy, aptly named performance management, can help you do this.

It’s all about aligning goals, creating actionable plans, supporting the process, and rewarding achievements. When done right, your employees turn into top performers, and your business gets a boost in many areas.

What you’ll find in this article:

1. What is performance management?

2. Performance management goals

3. Why is employee performance management important?

4. What is a performance management cycle?

5. What are the steps and key elements of the performance management process?

6. Performance management process best practices

7. Success in the performance management process

What is performance management?

Performance management is a series of processes designed to guide an employee’s performance at a workplace.

During the performance management process, the employee, and manager work together to set goals and plan how to meet them. The employee then executes the plan while the manager guides and evaluates them.

An effective performance management process isn’t simply an annual appraisal system but rather an ongoing collaborative process. When done right, it improves individual and organizational performance. Research by McKinsey says companies with good performance management systems do almost three times better than others in their industry.

What is the performance management process?

The performance management process follows four key steps: planning, coaching, reviewing, and rewarding. These steps form a continuous cycle known as the performance management cycle.

The performance management process is both strategic and systematic. It incorporates both verbal and written components that occur throughout the year.

While the performance management process is cyclical, in practice, it has four actionable ‘solutions/outcomes’:

  • Coaching: is when the manager gives an employee guidance on how to perform better.
  • Rewarding: is a way of giving your employees recognition or some other tangible reward for a good performance improvement.
  • Corrective action: is all about improving poor performance, sometimes with consequences (e.g., a performance improvement plan).
  • Termination: happens when there’s been zero or very little improvement from an employee.

Performance management goals

The goal of the performance management process is to help employees gain the skills they need to do their jobs well and reach their goals. Successfully doing so also contributes to achieving the respective business goals.

One way to envision this is through sales. If your sales team hits its performance management goals and closes more deals per month, then the company earns more revenue.

However, some recent information shows businesses and employees aren’t fully using this process. According to a Betterworks survey:

  • 21% of workers have annual goals that are never revisited, and 16% don’t establish any goals at all.
  • One-third of workers don’t meet with their manager or get feedback more than twice a year.
  • One in ten employees claim they rarely or never receive this type of feedback.

For the performance management process to be effective, you need to do more than help set expectations—you need to execute.

Performance management goals should help establish clear performance expectations for employees. It should also highlight what they can achieve by meeting these goals, such as compensation, rewards, or promotions.

What Is Performance Management? Definition, Steps & Tips

Why is employee performance management important?

An effective performance management process offers numerous advantages to all. Here are some of the key reasons why investing time in managing employee performance pays off:

Boosts employee engagement and motivation

Managers can use ongoing feedback in 1:1s and performance to motivate and engage employees.

One way to do this is to help your employees understand how their work fits into the company’s goals.

Let’s imagine one of your writers is getting really high SEO scores on Google. Because of this, a lot of people are visiting your website. You can use this opportunity to give that employee feedback and tell them how they are helping the whole business. Thus instilling a sense of purpose within the writer that helps drive positive engagement.

Additionally, offering constructive feedback is a great way to address areas for growth in a positive yet impactful way. Approach these discussions collaboratively—it’s not a monologue. Offer guidance, discuss growth potential and set relevant milestones. This provides clarity and further motivates employees to continuously improve.

However, don’t only focus on where your employees fall short. It’s also important to recognize effort and celebrate achievements to further motivate employee performance.

Supports career development

Career development is a framework to help guide an employee to reach their ideal job.

You can infuse your performance management process with career development strategies or implement them side by side.

An example of this is to use performance evaluations to help you identify employee strengths, weaknesses, and aspirations. Then, using that knowledge/data to plan how to support their career development.

Giving feedback on evaluations is another way to use both practices. During evaluations, managers can ask employees development questions. These questions help managers better comprehend employee needs and aspirations. Managers can then advise them on building the right skills to achieve them.

A robust career development program can also help you attract and retain top talent. 41% of employees say that training is a determining factor in whether they stay or leave their jobs.

Making career development part of your performance management process can even help you ‌retain top talent. Employees want opportunities for development, and 76% are ready to stick around with a company that gives them that.

Identifies training needs

Ongoing discussions during the performance management process are the best way for managers and employees to pinpoint development needs.

Annual reviews, 360-degree feedback, and 1:1 meetings all help to identify skills or knowledge gaps. Once identified, the manager can tailor or modify learning and development programs.

There are a number of ways to do that, one being through employee training software. You can use AI features to customize course content and create personalized learning paths to help your employees develop the careers they want.

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Enables data-driven decisions

Many modern tools are available that you can use to gather data on your employees and their performance.

Performance data makes it easier for managers to make fair, objective evaluations about employee performance and make informed decisions about next steps.

Drives business results

An effective performance management system directly ties employee goals to business objectives. When a team and a business align, they form an almost symbiotic relationship where they both grow together because of each other.

What is a performance management cycle?

The performance management cycle is a framework that guides employee development and manager support.

Although the specific steps may differ, most companies follow a four-stage employee performance management cycle. These all typically follow a similar logical sequence of phases:


Planning involves setting clear goals, responsibilities, and expectations for the upcoming performance period. Managers help employees set realistic, yet challenging goals that align with the company’s strategy.

Managers and employees might also identify development areas to focus on.


During this phase, the employee sets out to work towards the goals set during planning. Their managers monitor their progress and give feedback, training or coaching. This helps align activities with goals and to solve any performance gaps or obstacles that arise.

Reviewing and Rating

Formal performance reviews happen at specific intervals, usually once or twice per year. This includes self-evaluations, manager reviews, and feedback.

Progress is tracked based on agreed goals. If needed, new development plans are made, or existing ones are changed.


Based on regular reviews and performance tracking, top performers may receive rewards such as pay increases, bonuses, or promotions.

Those who underperform may undergo constructive action such as being placed on performance improvement plans, while those who are consistently underperforming may face termination.

Performance management process: What are the steps and key elements?

Before we go into each step, it’s important to note that the phases of the performance management process don’t occur independently. They aren’t sequential steps that occur in a vacuum.

Rather than occurring separately, these stages naturally intersect and influence one another. For example, when things change, performance plans should also change. And feedback shouldn’t just happen at certain times.

These stages serve as a guide to help you create your own effective performance management process.

Now, let’s explore each step in more depth.

Step 1: Planning

Step one is planning and goal-setting.

In the planning stage, the manager and employee work together to decide how the employee’s performance will be measured and to plan how to get there.

When setting goals, managers should provide context on company strategy and priorities. Then, they can define meaningful goals together.

The performance criteria should be structured as SMART goals:

  • Specific. Goals should have clearly defined desired outcomes.
  • Measurable. Include quantifiable targets and KPIs to track progress.
  • Achievable. Goals should stretch capabilities but still be realistic and attainable.
  • Relevant. Goals must align with organizational strategy and priorities.
  • Time-bound. Deadlines create accountability and prompt action.

An example SMART goal would be “Improve operational efficiency by 10% by the end of July 2025.” This goal has a specific and measurable outcome tied back to company goals and can be achieved by a specific end date.

Once the goals have been set, the employee and manager devise a career development plan for the specified time frame. They should include the skills, knowledge, and behaviors an employee needs to develop to achieve the goals.

For example:

  • If an employee needs to create a detailed analysis of product performance for the previous year, they may require training with a tool.
  • If a goal is to improve time management gaps, the employee may need to commit to strategies for achieving this.

In addition to outlining strategies for future growth, the development plan must include SMART goals.

At the end of the planning stage, the manager and employee should also have an agreement about the rewards for achieving the goals.

Step 2: Monitoring

The second phase is often called “monitoring.” This is the time when employees do their jobs and managers track their work. However, the manager also has many responsibilities to handle during this phase.

One managerial responsibility is to ensure that employees have the help and tools they need to execute the plan.

Another duty of the performance management process is to have regular check-ins with employees, ideally every two weeks or every month. It helps to anticipate potential issues before they become major problems.

Step 3: Reviewing and Rating

Performance reviews are where managers and employees should have insightful, productive conversations. Typically, these discussions revolve around performance, development, and career aspirations.

Some best practices for insightful performance reviews:

  • Set the tone to be a two-way dialogue, not a top-down review.
  • Discuss opportunities and training that can help the employee develop and grow in their role.
  • Provide balanced feedback on strengths and areas needing improvement.
  • Draft an action plan for development areas.
  • Follow up regularly after the review to check progress on development goals.

Additionally, ratings are a great way to standardize measuring performance. It allows objective evaluations, while ensuring consistency across the organization.

Assigning a numerical value to evaluations allows managers to establish clear benchmarks for performance and gives employees a good understanding of their progression.

Step 5: Rewarding

If an employee consistently meets and exceeds their goals, they should be rewarded.

In fact, employees are more likely to engaged when they receive recognition for their efforts. Therefore, for companies to effectively implement a performance management process as a strategic approach, the final step must include meaningful recognition.

Rewards work well when tightly aligned with actual performance and contributions. When there’s a clear correlation between performance and rewards over time, it spurs continuous achievement.

There are two types of rewards to consider:

  • Monetary rewards like bonuses and raises show employees their efforts are valued in tangible ways.
  • Non-monetary rewards like extra vacation time, special assignments, public recognition, and development opportunities also help ‌motivate employees.

Offering rewards publicly can sometimes add more meaning to achievements. Public recognition also helps reinforce what success looks like, while praise from leaders in visible ways emphasizes pride in a job well done.

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Performance management process best practices

Performance management isn’t a one-size-fits-all solution. It’s going to take some trial and error to get it right.

In 2020, 87% of HR leaders planned to change their performance review process. This suggests that almost everyone felt they could improve their current methods.

Here are some tips to help you maximize the effectiveness of your performance management strategy from the beginning:

Be consistent

Managers should establish clear standards for performance and evaluation from the start and stick to them.

When performance expectations are inconsistent or frequently changing, employees can become frustrated and unmotivated. They need stable goals to work towards.

Similarly, the criteria used to evaluate performance should uniformly apply across teams. You’ll want to avoid bias from creeping in and spoiling their performance.

Don’t make goals your only performance rating

Goals indicate what someone accomplished, but not how they accomplished it. Beyond goal achievement, there are many other factors that contribute to strong performance.

For a fair and meaningful review, it’s best to look at skills, behaviors, and competencies they showed throughout the period.

In addition to goals, incorporate ratings on:

  • Key skills and competencies
  • Ownership of company values
  • Personal brand
  • Quality of work
  • Impact on team or company
  • Growth and development

Train managers on delivering feedback

Giving constructive feedback is not something we are taught at school or college. It’s a skill that requires training and practice.

Training managers on how to give feedback is going to help the whole process go a lot smoother.

Formal training can introduce managers to proven frameworks for delivering feedback. The situation-behavior-impact (SBI) model is one simple but powerful approach. With SBI, the manager describes the situation, outlines the employee’s behavior or action in that context, and explains the impact of that behavior.

Developing strong feedback abilities ultimately leads to more motivated, higher-performing teams.

Use technology

Many HR systems come with performance management programs. Plus, most of them offer integrations with your company LMS to make it easier to track and monitor training progress.

Technology enables consistency, transparency, and efficiency in performance management. Automated systems can:

  • Standardize the performance management process
  • Show goals and metrics
  • Generate useful performance analytics
  • Centralize the performance appraisal

However, technology should complement human interaction, not replace it entirely.

Success in the performance management process

The key to getting the most out of your performance management process is to continuously improve it based on feedback. After each review cycle, check in with employees and managers to identify what’s working well and what isn’t.

Look for patterns in the feedback to pinpoint areas for improvement. For example, if multiple employees say they want more guidance around goal-setting, update your materials and training to provide clearer instructions. Or if managers report lacking time for frequent check-ins, adjust schedules to build in dedicated time.

Don’t let the performance management process stay static. Refine it periodically to optimize for your changing organizational needs.

With engaged, developed employees all rowing in the same direction, organizations can smash goals and accelerate success.

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Marialena Kanaki - Content Marketing Manager

Marialena hates talking about herself in the third person. She loves to inspire people with authenticity. And she prioritizes that in all her content—without the need for smoke and mirrors.

Marialena Kanaki LinkedIn

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