What is Performance Management? And Why it Matters

Updated on December 22nd, 2021
What is Performance Management? And Why it Matters

If you’re employed or an employer, there’s a good chance you’ve heard the term performance management. 

For any readers who are wondering exactly what’s entailed, here’s a fairly detailed performance management definition. If you're interested in learning video, then watch below. Otherwise, skip ahead.

What is Performance Management? 

According to Berkley, UC,  “Performance management is an ongoing process of communication between a supervisor and an employee that occurs throughout the year, in support of accomplishing the strategic objectives of the organization. The communication process includes clarifying expectations, setting objectives, identifying goals, providing feedback, and reviewing results.”

So clearly, there’s a purpose to performance management—an objective. 

But let’s pick apart that quote and simplify it. 

The Performance Management System at a Glance

At its very essence, performance management is a tool that gives managers and supervisors the means to monitor and evaluate the work of their staff. And no, it’s not about keeping tabs on them.

Remember, it’s about “accomplishing the strategic objectives of the organization.” And since employees play a large part in that, this tool is used to help achieve that goal. 

Since “clarifying expectations” is necessary, leaders need to be sure their teams fully understand what’s expected of them on the job. If they don’t, job performance issues are the fault of the leader, and not the employee. 

So it’s imperative that during the course of performance management all expectations must be clearly communicated. And not just communicated. It is the job of the leader to make sure they are also fully understood and agreed upon. 

As far as “setting objectives” and “identifying goals” go, these should be clear and easily measured. They could be short or long-term goals, but there should be no question as to the expected or desired outcome.  

What about “feedback?” 

Employee feedback is critical to the employee performance management system or process. Without it, employees are left guessing as to how they’re doing. Is their work helping the company reach its goals or not?

Feedback needs to be specific, timely and given in a manner that will help and not hinder their performance. This means constant criticism isn’t the way to go. Leaders need to be sure to reinforce whatever an employee is doing right before outlining anything they may be doing wrong when “reviewing results.”

What is Performance Management? It’s a tool that:

  • Helps accomplish strategic organizational objectives
  • Clarifies expectations 
  • Sets objectives 
  • Identifies goals 
  • Provides feedback
  • Reviews results

Why Performance Management Matters

Since having an employee performance management system in place helps keep your employees on track in terms of organizational goals, it clearly matters. Ultimately, it matters in the areas of employee engagement, recruitment, retention, and productivity.

Let’s talk about a few key areas where they prove to be especially beneficial. 

Performance management:

  • Encourages employee reward and recognition and includes employee incentive programs
  • Boosts employee productivity and engagement 
  • Helps in the creation of development strategies 
  • Promotes an environment for feedback
  • Encourages team building

I’ll take each of those and expand on why they matter. 

 1. Encourage Employee Reward and Recognition

The better you reward and recognize your employees, the better chance you have at holding on to them. Remember that the cost of a disengaged employee can be quite high. 

Research done by American Express found that of the 300 small and medium-sized enterprises (SME) and 500 employees surveyed, 51% of the employers said they reward employees to increase motivation.

Here are some other key findings of that survey:

  • 94% of the employers who responded said they reward their staff with gifts
  • 34% of the above say those gifts improve retention rates
  • 38% reward employees who are high performers 
  • 23% reward all staff
  • 21% reward long-term employees
  • 37% of the employers who don’t offer rewards do think their employees would work harder if they did offer them
  • 89% of the employees who responded had received some kind of reward from their employers in the past
  • 33% of the employees who responded felt that receiving rewards made them work harder
  • 46% felt more valued due to the reward 
  • 44% feel that their employers reward them for the dedication and hard work

So rewards and recognition work, but how can a leader reward good work if they fail to measure it? With performance management, there is a definitive process to identify activity that merits a reward or recognition.

With employee performance management in place, you can first identify good employees and then reward them. Statistics say that 83% of employees that work for a company that has a good reward and recognition strategy in place are content to stay. 

That matters.

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2. Boost Employee Productivity and Engagement 

First, what is employee engagement

It’s not about how happy they are about their jobs or even the extent of their satisfaction with their jobs. 

It means how emotionally committed they are to the organization they work for and its goals. How much they care about the work they do and the company they work for. 

It’s not about the paycheck. It’s about what they can do to help advance the organization. When they care—when they’re engaged—they are going to use discretionary effort.

Discretionary effort means employees go the extra mile without being asked. They see something that needs to be done and they do it. They are willing to expend more effort. 

Engaged employees:

  • Stay with the company longer
  • Involve themselves to a greater degree in the workplace 
  • Produce better results 

The above can lead to:

  • A boost in productivity 
  • A better ROI

Since these are the kind of employees you want—not to mention the kind of outcome you want—how can you turn your employees into engaged employees?

By means of a good performance management system. 

This system creates an environment where employees should feel at ease when it comes to open and ongoing dialogue. A workplace with an air of support and encouragement, which will foster trust. 

Employees who believe their managers or supervisors—not to mention the company as a whole—have their best interests at heart will reciprocate. Knowing they have an employer who has a performance management system in place that will ultimately help them not only improve their work but their careers as well, increases the chances of their engagement to the company. 

Implement an employee performance management system where they are given clearly communicated objectives through consistent engagement. A system where they are encouraged to grow and where goals are set. Doing so can significantly increase the likelihood of them expending a bit more discretionary effort. 

Remember, performance management can ultimately lead to:

  • A boost in productivity 
  • A better ROI

Does all of this matter to you? Probably. 

3. Create Development Strategies

Having a performance management system in place means your company is taking a proactive approach to the development needs of your employees. 

A leader is in constant communication with employees, taking allotted time to discuss the possible development needs and planning for them. 

When performance management takes place in this ongoing manner and not just carried out as a simple appraisal or review once or twice a year, this provides an opportunity to cultivate talent. 

Since you are measuring and collecting information about both past and current performance issues you have the perfect opportunity to develop strategies that develop your employees. Thanks to the open communication you are fostering, you and your employee can devise a plan that will not only help their natural talents grow and evolve but will also work in line with your overall organizational goals. 

That is a win-win proposition.

When you have an employee performance management system in place that focuses on new and existing areas of development, you keep both employee and the business focused on set goals.

Ultimately, performance management can help your employees meet—and perhaps exceed—their potential. 

Developing a strategy may include:

  • Analyzing the needs of your employee
  • Identifying any gaps in their skillset 
  • Prioritizing which skills need to be addressed first
  • Planning and delivering any necessary training

 4. Promotes an Environment for Feedback

With feedback performance management collapses. Feedback—even going feedback—is critical to the process. 

And note this is a two-way street. It isn’t simply about you as a leader offering feedback to your employees. It’s also about giving them a forum where they can honestly share their feedback on the company and its goals and performance in general, but also feedback about the way management is or isn’t succeeding. 

Let them speak their opinions. 

But be quick to share with them all the positive things about their performance before pointing out where they can improve.

And then devising one of the above-mentioned strategies to help them do so. 

This interchange of feedback is imperative if you want your company and its processes to evolve into something even better than it is today.

Feedback should include:

  • Unstructured Feedback. As the name implies, this is feedback that occurs spontaneously, and at every opportunity that presents itself.
  • Structured Feedback. This is planned and systematic, perhaps by means of the actual performance review. 

Wrapping Up 

Performance management is a system every company should have in place. A tool that’s optimized to offer continuous growth to your employees.

Implementing clear-cut performance strategies will help your employees grow and flourish. And help your company reach its goals while increasing your bottom line. 


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