According to Gartner, 81% of HR leaders are changing their organization’s performance management system. This shift is largely due to the increasing emphasis clients place on measurable outputs. But here's the conundrum: in an effort to improve performance, management often tries to streamline processes and reduce employee efforts. Unfortunately, this can backfire, leading to an even further decline in workforce performance.

Why does this happen? It all comes down to how performance management is approached. To truly enhance your organization’s performance, it's crucial to rethink and redesign the performance management process. In this blog, we'll explore what a performance management process is, and why it matters for an organization's success.

What Is Performance Management?

Performance management is the continuous process of evaluating and guiding employees to ensure their performance meets the organization's standards, and that their goals align with the organization's objectives.

The primary aim of performance management is to realign employees with the organization's goals and ensure they meet the expected performance standards.

The Need for Performance Management

Nearly 50% of managers fail to see the value in their company’s performance management process. That’s most likely because the company may not be following a proper process.

When done the right way, performance management brings in a plethora of benefits for your organization.

1. Aligns Individual Goals with Business Goals

Performance management helps align employees' and teams' objectives with the organization's goals. When employees understand how their work contributes to the company’s success, they are more motivated to work harder and achieve results.

2. Enhances Productivity

When employees know what’s expected of them and receive support, they become more productive.

To achieve this, you can focus on setting clear objectives, providing regular feedback, and frequently recognizing achievements. This motivates employees and lets them stay focused and accountable.

3. Identifies and Resolves Weaknesses

Regular evaluations and feedback is an important part of performance management, and can pinpoint problem areas.

Through training, mentoring, and coaching, performance management helps employees improve their skills, boosting overall team competence and efficiency.

4. Boosts Engagement and Satisfaction

Recognizing achievements and providing constructive feedback make employees feel valued.

Thus, engaged and recognized employees are less likely to leave. This can reduce turnover rates, improve morale, and contribute to a positive workplace.

5. Supports Succession Planning and Talent Development

Performance management helps identify and develop future leaders.

By fostering the desired leadership skills, your organization can ensure smooth transitions and effective leadership succession.

6. Facilitates Informed Decision-Making

Performance management collects valuable data on employees’ strengths and weaknesses.

This data supports smarter decisions on promotions, training, and resource allocation, that can improve your organization's overall efficiency.

What Is a Performance Management Process?

A performance management process is the continuous cycle of planning, monitoring, developing, evaluating, rewarding, and refining employee performance to ensure that individual contributions align with organizational objectives. These activities together form the performance management cycle, a continuous loop that supports ongoing improvement.

The performance management process helps organizations reach their goals by creating a system where employees clearly understand expectations, receive timely guidance, and have access to ongoing growth opportunities.

It consists of six key steps:

  • Planning
  • Monitoring
  • Developing
  • Evaluating
  • Rewarding
  • Reiterating

1. Planning

The first stage sets clear expectations and establishes the foundation for the entire performance management cycle. Managers and employees work together in collaborative conversations to define specific goals, key responsibilities, and concrete success measures. This partnership approach ensures buy-in and mutual understanding from the start.

What happens during planning:

  • Managers and employees meet to discuss organizational priorities and how individual roles contribute to broader company objectives
  • Together, they establish SMART goals that align with both departmental targets and the employee's career aspirations
  • Job responsibilities are clarified and documented so there's no confusion about what's expected
  • Success metrics are defined—these are the tangible indicators that will show whether goals have been met
  • Employees learn how their daily work connects to the bigger picture, which increases motivation and purpose

Why this matters: Good planning answers critical questions: What needs to be accomplished?

By when?

What does success look like?

How will we measure it?

Without clear planning, employees may work hard but in the wrong direction, wasting time and resources while feeling frustrated.

Example: A customer service representative and their manager might agree on goals like "Reduce average call handling time to under 5 minutes while maintaining a customer satisfaction score above 4.5 out of 5" rather than vague expectations like "provide good customer service." This clarity gives the employee a concrete target to work toward.

2. Monitoring

Once goals are established, progress needs continuous tracking. Monitoring is the ongoing process of observing performance, gathering data, and maintaining regular communication between managers and employees. This isn't about micromanagement, but staying informed and connected to what's happening day-to-day.

What happens during monitoring:

  • Managers schedule regular check-ins (weekly, bi-weekly, or monthly) to discuss progress, challenges, and wins
  • Performance data is collected through various means: productivity metrics, customer feedback, project milestones, quality assessments, or peer input
  • Informal feedback flows in both directions. Managers provide guidance while employees share obstacles they're facing
  • Early warning signs of problems get identified before they become serious issues
  • Managers observe work habits, collaboration skills, and other behaviors that impact results

Why this matters: Monitoring allows managers to provide timely support and course corrections rather than discovering problems months later during a formal review. It keeps employees engaged and prevents small issues from snowballing. Real-time awareness of performance means faster interventions and better outcomes.

Example: A sales manager might have weekly pipeline reviews with each salesperson, discussing which deals are progressing, which are stuck, and what support the salesperson needs. If someone is consistently missing their weekly activity targets three weeks in a row, the manager can address it immediately rather than waiting until the quarter ends.

3. Developing

This stage focuses on building capabilities and fostering growth. Development ensures employees not only meet their current goals but also gain the skills and knowledge needed for future responsibilities. Managers act as coaches and facilitators of learning, helping employees expand their potential.

What happens during development:

  • Managers identify skill gaps through observation, feedback, and assessment results
  • Development plans are created that outline what skills to build and how to build them
  • Employees receive coaching—one-on-one guidance where managers help them work through challenges and refine their approach
  • Training opportunities are provided, including workshops, online courses, certifications, or formal education programs
  • Mentoring relationships are established, connecting employees with experienced colleagues who can share insights and advice
  • Stretch assignments are offered—challenging projects that push employees beyond their comfort zone to accelerate learning
  • Employees are encouraged to pursue professional development activities like attending conferences or joining industry groups

Why this matters: Development addresses skill gaps that prevent employees from reaching their full potential. It prepares people for promotions and new responsibilities. Organizations benefit because they're building internal talent rather than always hiring from outside. Employees feel valued and invested in, which increases engagement and retention.

Example: A junior marketing coordinator struggles with data analysis. Their manager arranges for them to attend a Google Analytics certification course, pairs them with a senior analyst for monthly mentoring sessions, and assigns them small analytical projects with guidance. Over six months, the coordinator develops analytical skills that make them more effective in their current role and qualify them for future advancement.

4. Evaluating

Performance gets formally assessed against the goals and expectations established during planning. This is the structured checkpoint where managers and employees step back to comprehensively review what's been accomplished over a defined period—typically quarterly, biannually, or annually, depending on organizational practices.

What happens during evaluation:

  • Managers gather all performance data collected during monitoring: metrics, feedback from colleagues, project outcomes, quality assessments, and their own observations
  • A formal performance review document is prepared that rates performance in various categories
  • Manager and employee meet for an evaluation discussion that reviews accomplishments, challenges, and overall performance
  • Specific examples are discussed—both strengths and areas needing improvement
  • Performance is typically rated using a scale (such as "exceeds expectations," "meets expectations," "needs improvement")
  • The conversation addresses whether goals were met, partially met, or missed, and explores the reasons why
  • Documentation is created that becomes part of the employee's official record

Why this matters: Evaluations provide structured feedback and create accountability. They highlight achievements so employees feel recognized, and they identify improvement areas so employees know where to focus. The official documentation serves important purposes: it supports decisions about promotions and compensation, provides legal protection for the organization, and creates a historical record of performance trends over time.

Example: During an annual review, a project manager receives ratings across multiple competencies. They exceeded expectations in "stakeholder communication" and "risk management," met expectations in "budget management," but need improvement in "team development." The manager provides specific examples: excellent stakeholder updates during the website redesign project, but limited investment in mentoring junior team members. This balanced assessment gives clear direction for the coming year.

5. Rewarding

Employees receive recognition and tangible rewards for their contributions and achievements. This stage acknowledges that strong performance deserves appreciation and reinforcement. Rewards can take many forms, both monetary and non-monetary, depending on what the organization offers and what motivates individual employees.

What happens during rewarding:

  • Managers determine appropriate rewards based on evaluation results and organizational policies
  • Monetary rewards are distributed, which might include:
    • Merit-based pay raises that increase base salary
    • Performance bonuses (one-time payments for achieving specific goals)
    • Promotions to higher positions with increased responsibility and compensation
    • Stock options or profit-sharing payments
  • Non-monetary recognition is provided, such as:
    • Public acknowledgment in team meetings or company communications
    • Awards like "Employee of the Month" or achievement certificates
    • Additional flexibility in work arrangements or schedule
    • Prime project assignments or leadership opportunities
    • Professional development opportunities like conference attendance
  • Recognition is communicated clearly so employees understand exactly what they're being rewarded for and how it connects to their performance

Why this matters: Rewards reinforce positive performance and demonstrate that the organization values employees' contributions. They motivate continued excellence and signal what behaviors and outcomes the company wants to encourage. Recognition—even non-monetary—satisfies fundamental human needs for appreciation and validation. When people feel their hard work is noticed and valued, they're more engaged, productive, and likely to stay with the organization.

Example: An operations analyst who reduced processing errors by 40% through a process improvement initiative receives a 5% merit increase, a $2,000 performance bonus, and is publicly recognized at the quarterly company meeting. They're also invited to lead a similar improvement project in another department—giving them visibility and growth opportunity. This multi-faceted reward addresses different motivations: financial gain, public recognition, and career advancement.

6. Review and Reiterate

The final stage involves organizational reflection on the entire performance management cycle. This is when the company steps back to assess not just individual performance, but whether the performance management process itself is working effectively. Insights gathered here directly shape improvements for the next cycle, creating continuous evolution of the system.

What happens during review and reiterate:

  • Leadership and HR analyze patterns across all evaluations: Were goals generally met? Where did teams struggle? What common themes emerged?
  • The process itself is examined through questions like:
    • Were the goals we set realistic and aligned with business needs?
    • Was feedback frequent and helpful enough, or did employees feel disconnected?
    • Did the evaluation criteria accurately capture what matters most?
    • Were managers trained adequately to provide effective coaching?
    • Did employees understand expectations from the beginning?
    • Were rewards distributed fairly and did they motivate the right behaviors?
  • Feedback is gathered from employees and managers about their experience with the process—what worked well and what caused frustration
  • Data is reviewed to identify systemic issues: departments with consistently low performance, high turnover following evaluations, or goals that were universally missed
  • Adjustments are planned for the next cycle: revised goal-setting frameworks, improved training for managers, more frequent check-ins, different evaluation criteria, or enhanced development resources
  • The performance management calendar for the next period is established, incorporating lessons learned

Why this matters: Performance management isn't a static process—business priorities shift, workforce expectations evolve, and what worked last year might not work next year. Regular review ensures the system stays relevant, effective, and aligned with organizational needs. It prevents performance management from becoming a meaningless bureaucratic exercise and transforms it into a genuine tool for driving results and developing people. Organizations that skip this step often find their performance management processes growing stale, losing credibility with employees, and failing to support actual business outcomes.

Example: After completing annual reviews, a company's HR team notices that 60% of employees rated their goals as "unclear" in the feedback survey, and many managers struggled to provide specific developmental feedback. For the next cycle, they implement mandatory goal-setting workshops, create goal templates aligned with company strategy, increase check-in frequency from quarterly to monthly, and train managers on coaching techniques. Six months later, they measure improved goal clarity and more meaningful developmental conversations—demonstrating that their review and adjustments worked.

The Continuous Cycle

‍These six stages form a continuous loop.

As stage 6 concludes, the organization immediately begins stage 1 again with refined goals, improved processes, and lessons applied from the previous cycle.

This ongoing rhythm ensures performance management remains a living system that evolves with your organization rather than a once-a-year event that people dread. When executed well, this cycle creates alignment, accountability, development, and recognition that drive both individual and organizational success.

Results Take Time, but They are Worth It

Implementing a new performance management process and getting results from it can be a long-term process. But just like how Rome wasn't built in a day, anything great takes time.

The foundation on which an excellent performance management process is built is upon the knowledge of the goals and objectives your organization is looking forward to achieving. If your company goals and the mindset of employees do not align, no matter how good of a performance management process you build, it might not last long.

Let ThriveSparrow help you analyze employee sentiment and refine goal-management, so that when you come up with a performance management process, it is solid and foolproof.

FAQs

1. What is a Performance Management Process?

‍A performance management process is a continuous cycle where managers and employees collaborate to set goals, monitor progress, and evaluate outcomes to enhance individual and organizational performance.

2. Why is performance management important?

‍Effective performance management aligns individual objectives with organizational goals, fosters employee development, and improves overall productivity.