What Is Performance Management?

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

A formal performance-management program helps managers and employees see eye-to-eye about expectations, goals, and career progress, including how individuals' work aligns with the company's overall vision. Performance management generally views individuals in the context of the broader workplace system. 

How Performance Management Works

Performance-management programs use traditional tools such as creating and measuring goals, objectives, and milestones; defining what effective performance looks like, and developing 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 her 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. 

Performance-Management Programs

Although performance-management software packages exist, templates generally are 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. For example: 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 1) results—the goods and services an employee produces; 2) actions—the processes an employee uses to make a product or perform a service; and 3) 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.

    Why Does Performance Management Matter?

    Focusing on continuous accountability creates a healthier, more transparent work environment; 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, then the workplace is less stressful: Employees aren't 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—they probably know it already.