Table of Contents
Table of Contents

Performance Management: Definition, How It Works, and Examples of Programs

Performance Management

Investopedia / Jiaqi Zhou

What Is Performance Management?

Performance management is a corporate management tool that helps managers monitor and evaluate employees' work. Performance management's goal is to create an environment where people can perform to the best of their abilities and produce the highest-quality work most efficiently and effectively.

Key Takeaways

  • Performance management tools help people to perform to the best of their abilities and produce the highest-quality work most efficiently and effectively.
  • The precept of performance management is to view individuals in the context of the broader workplace system. 
  • Performance management focuses on accountability and transparency and fosters a clear understanding of expectations.

Understanding Performance Management

A formal performance-management program helps managers and employees see eye-to-eye about expectations, goals, and career progress, including how an individual's work aligns with the company's overall vision. Generally speaking, performance management views individuals in the context of the broader workplace system. In theory, you seek the absolute performance standard, though that is considered unattainable.

Performance-management programs use traditional tools such as creating and measuring goals, objectives, and milestones. They also aim to define what effective performance looks like and develop processes to measure performance. However, instead of using the traditional paradigm of year-end reviews, performance management turns every interaction with an employee into an occasion to learn.

Managers can use performance management tools to adjust workflow, recommend new courses of action, and make other decisions that will help employees achieve their objectives. In turn, this helps the company reach its goals and perform optimally. For example, the manager of a sales department gives staff target revenue volumes that they must reach within a set period. In a performance management system, along with the numbers, the manager would offer guidance gauged to help the salespeople succeed.

Focusing on continuous accountability creates a healthier, more transparent work environment, and emphasis on regular meetings can improve overall communications. Because performance management establishes concrete rules, everyone has a clearer understanding of the expectations. When expectations are clear, the workplace is less stressful. Employees are not trying to impress a manager by doing some random task, and managers aren't worried about how to tell employees that they are not performing well. If the system is working, they probably know it already.

Performance-Management Programs

Although performance-management software packages exist, templates are generally customized for a specific company. Effective performance-management programs, however, contain certain universal elements, such as:

  • Aligning employees' activities with the company's mission and goals. Employees should understand how their goals contribute to the company's overall achievements.
  • Developing specific job-performance outcomes. What goods or services does my job produce? What effect should my work have on the company? How should I interact with clients, colleagues, and supervisors? What procedures does my job entail?
  • Creating measurable performance-based expectations. Employees should give input into how success is measured. Expectations include resultsthe goods and services an employee produces; actions—the processes an employee uses to make a product or perform a service; and behaviors—the demeanor and values an employee demonstrates at work.
  • Defining job-development plans. Supervisors and employees together should define a job's duties. Employees should have a say in what types of new things they learn and how they can use their knowledge to the company's benefit.
  • Meeting regularly. Instead of waiting for an annual appraisal, managers and employees should engage actively year-round to evaluate progress.
Article Sources
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  1. University of California Berkley, People & Culture. "Performance Management: Concepts & Definitions."

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