Annual performance reviews are on the way out, as they are seen as time-consuming, overly formal and too fixated on past performance. In their place, many companies are shifting to more agile performance management systems that emphasize ongoing feedback, real-time goal setting and regular check-ins.
Performance management systems foster employee development while also helping managers stay aligned with fast-changing business needs. Thankfully, there are a wide range of software tools on the market that can help track the progress of these efforts and make data-driven decisions about operations and people management.
Performance Management System Definition
A performance management system is a structured process or software tool that helps organizations set goals, track progress, offer feedback, evaluate performance and nurture employee development.
What Is a Performance Management System?
A performance management system is a framework or process for assessing and improving employee performance. The term is often used interchangeably with performance management software, which is a type of HR technology that managers and human resources teams use to establish clear expectations, track employee performance, conduct performance reviews and offer feedback, recognition and resources for professional development.
Generally speaking, a performance management system includes the following elements:
Setting Goals
By laying out clear goals through the performance management system, managers can ensure their employees are on the same page about what is expected from them. Managers and team leads should collaboratively set key performance indicators (KPIs) for individuals and teams that align with the objectives and key results (OKRs) of the team and the organization.
Monitoring and Communicating
Managers can use performance management systems to regularly track employee performance data, which allows them to proactively discuss challenges, address obstacles or answer questions the employee might have. Through regular check-ins and real-time feedback, managers can address the employee’s performance issues before they pose a problem for the rest of the team. In some cases, managers may create a performance improvement plan to help an employee get up to speed.
Evaluating Performance
Performance reviews are the core function of a performance management system. Performance reviews might take different forms depending on the company culture, but they typically include an employee self-evaluation, a manager’s assessment and 360-degree feedback from their colleagues.
Recognizing and Rewarding Performance
Performance management systems also ensure employees are recognized and rewarded when they go above and beyond in their work. Managers should recognize specific accomplishments or reinforce desirable behaviors as they occur. They should also reward consistently high performance with promotions and pay increases.
Nurturing Growth
Performance management systems encourage managers to support employee growth and development by identifying skill gaps, setting stretch goals or identifying opportunities for continuous learning via learning and development (L&D) programs. Managers could also draft a more in-depth employee development plan that guides the employee’s future growth in the organization.
Why Is a Performance Management System Important?
Promotes Transparency and Fairness
When managers set clear expectations, they help employees better understand how their performance is being evaluated. This transparency reduces miscommunication and ensures that assessments are grounded in an agreed-upon performance criteria, not personal bias or subjectivity.
Increases Engagement and Productivity
A performance management system facilitates frequent, future-focused feedback that helps employees feel more invested in their work. A 2022 Gallup study found that 80 percent of employees who receive meaningful feedback are engaged. Employees feel valued when a manager gives (and receives) feedback, giving them a deeper sense of connection that in turn drives retention, productivity and profitability.
Fosters Development and Retention
Lack of career development opportunities is one of the top causes of turnover, but employee development is still an afterthought for many managers. Performance management systems help managers identify high-performing employees, identify skill gaps, assign training and chart an employee’s path for growth within the organization.
Types of Performance Management
Traditional Performance Management
Traditional performance management consists of an annual or semi-annual performance review that assesses an employee on their past performance — typically with a numerical rating. This may be the only time the employee receives feedback about their performance, and it may lack guidance as to how the employee can grow as a professional or advance in the organization.
Continuous Performance Management
Continuous performance management is based on the idea that employee performance should be assessed more than once or twice a year. Instead, managers should support ongoing development through real-time feedback, regular employee recognition and consistent access to career development resources.
Who Uses a Performance Management System?
Performance management software is typically used throughout the organization. Managers use it to set goals, track employee performance, conduct performance reviews and deliver feedback, recognition and resources for development. Employees use it to submit their self-evaluation and 360-degree feedback, but they also use it to access feedback and professional development resources from their manager.
Meanwhile, HR teams oversee the performance management system itself, working with managers to ensure they are setting goals, assessing employees and giving feedback in a way that aligns with their performance management philosophy.
Performance Management Software Platforms to Know
Performance management tools are built into several human capital management (HCM) platforms like BambooHR and Workday, but these are a few tools more focused on performance management.
15Five
15Five is a performance management platform that helps managers track performance and conduct performance reviews, but it also helps structure 1-on-1s, encourage employee recognition and facilitate career pathing discussions. It also offers coaching for managers.
Lattice
Lattice allows managers to conduct performance reviews, track employee progress, offer real-time feedback, create 1-on-1 agendas and collaboratively set goals with employees. Lattice specializes in performance management and employee engagement, but it also offers general HR capabilities, like storing employee records.
Leapsome
Leapsome uses artificial intelligence to help managers with performance reviews, goal setting, timely feedback and compensation management. The platform, which also integrates employee engagement surveys and general HR capabilities, emphasizes employee development and manager training through its learning management system.
Betterworks
Betterworks started in 2013 as a goal-setting software, but it has since evolved into a comprehensive performance management platform that facilitates real-time feedback, goal-oriented 1-on-1 meetings and focused check-in conversations around employee performance.
ClearCompany
ClearCompany offers a performance management solution with customizable performance reviews, goal-planning tools and mechanisms for feedback. While it emphasizes performance management, it markets itself as a unified talent management system with tools for recruiting, onboarding, employee engagement, learning and people analytics.
Workleap
Workleap offers a number of performance management tools. It facilitates performance evaluations that emphasize self-assessments and peer reviews, and it offers a career development tool to help assess skills and chart career paths. Workleap also offers a learning management system, an onboarding solution and employee engagement platform OfficeVibe.
PerformYard
PerformYard is a dedicated performance management platform that can be customized to meet an organization’s performance review cycles. It also offers multiple avenues for feedback and recognition, and it helps teams set goals, monitor progress toward those goals and create 1-on-1 agendas. PerformYard also offers engagement surveys and analytics tools.
Frequently Asked Questions
What is a performance management system?
A performance management system is a structured process or software tool used by organizations to set goals, monitor employee progress, deliver feedback, assess performance and foster employee development.
What are the types of performance management systems?
Performance management systems can generally be broken down into two types: traditional performance management — which refers to annual performance reviews — and continuous performance management — which involves more frequent check-ins, real-time feedback and an emphasis on employee development.
What is an example of a performance management system?
A popular performance management system is Lattice, a performance management platform used for performance reviews, feedback and 1-on-1 agendas. It also assists HR teams with employee engagement surveys and general HR functions.
