Last Updated on Feb 23, 2024 by James W

There is a fair chance that you’ve heard the term performance management before. However, few actually know what it entails and how much it can affect their business when done right. But performance management should be front and center for any company, and not monitoring performance correctly could have serious repercussions on your bottom line. So, what is performance management? And why is it so important for your organization? Let’s answer these questions as well as share the hard data on the benefits of a performance management system.

An Introduction to Performance Management

One definition of performance management is the ongoing process of communicating with employees. This includes identifying and setting goals for them, reviewing results, clarifying expectations, and giving feedback. The purpose of performance management is to improve employee performance.

Performance management is a tool for employers to monitor and evaluate the work of each employee. It is not monitoring employees’ day to day activities. Instead, it is about setting clear, easily measured, objective goals for employees based on the goals of the organization. These goals could be short term or long-term, but there shouldn’t be any doubt as to what the goals are.

Managers do have to make certain that team members understand what is expected of them in their role. Performance management also requires leaders to ensure that their expectations are agreed upon. If they don’t, then failure to fulfill the job’s requirements is the fault of the manager, not the employee.

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The performance management process depends on feedback. The feedback must be timely, specific, and in a manner that helps and doesn’t hurt performance.

Why Performance Management Is Important

Performance management tools help keep employee performance on track in relation to organizational goals. This affects productivity. When the feedback system works right, it leads to faster, more efficient growth for the organization as a whole.

A good performance management system will improve retention and aid in recruitment. For example, good feedback will improve employee productivity while rewarding and recognizing them for performance. It will increase engagement, reducing the odds people quit and improve the odds they refer their friends to the company when it has a job opening. One company found that implementing a better performance feedback system reduced employee turnover by a third. A good performance management system promotes an environment of feedback and leads to personal development strategies.

All of this explains why nearly eighty percent of executives said in a recent study that building or redesigning their performance management process is a top priority.

How to Create a Performance Management System

The modern performance management system has done away with the annual performance appraisal. Instead, employees are given personalized goals that are reviewed in regular check-ins. The employee’s performance is tracked with hard data, so managers provide feedback based on hard data, not impressions or assumptions.

Using the right performance management tools for your organization will allow you to draw on multiple sources of data and periodic reports to learn about issues almost immediately. This may include sales data, training programs or another key performance indicator. Then you can give them feedback as soon as possible to help them correct quickly or reinforce their good behavior.

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Regular monitoring of performance data relative to personalized goals also allows bosses to give relevant coaching instead of generic advice. The manager can give praise or another reward as soon as someone meets performance goals or address lapses as soon as they are recorded. This significantly improves each employee’s results.


Whether setting up a performance management system for the first time or refining an existing one, the goal is to engage in regular monitoring of metrics and give personalized feedback. Then you can help them achieve more with less stress for everyone.


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