Strengthen your performance management system with real-world examples

Employee performance has a direct and meaningful impact on your organization’s performance. But as an HR professional, you know high performance doesn’t just happen. Even your most skilled and motivated employees need the right pieces in place – goals, expectations, feedback, reviews, and more – to fulfill their potential.

Put simply, you can’t just expect solid employee performance – you need to proactively manage employee performance.

That’s where your performance management system comes in. It’s the intentional and structured approach you take to setting employee goals, monitoring progress, encouraging employee development, and ensuring that employee efforts fuel your organizational objectives.

Feeling overwhelmed by the world of performance management processes and systems? This guide will help you grasp the basic concepts. It explains what you need to know to get the best out of your employees in a consistent, fair, supportive, and repeatable way.

What is a performance management system?

Let’s start by defining performance management. Culture Amp’s people science team describes it this way:

Performance management is a process that involves goal setting, feedback, development, recognition, coaching, and performance appraisal. The overall goal of performance management is to improve both individual and organizational performance.

That’s the what. Your performance management system is the how. It’s what you’ll lean on to plan, execute, and monitor the different aspects of your performance management process.

Today, when people talk about performance management systems, they’re typically talking about two different (but closely related) aspects: the process and the platform.

• Process: The approach or methodology you use to manage and improve your employee performance (e.g., Objectives and Key Results or 360-degree feedback).
• Platform: The technology systems or tools you use to manage the process (e.g., Culture Amp).

Both play a role in your ability to successfully manage employee performance. In this guide, we’ll talk about performance management systems more holistically and focus on both the tactics and the technology.

Why do you need a performance management system?

Employee performance is far too important to risk a haphazard approach. Yet, many organizations fall short, because their existing performance systems don’t meet their (or their employees’) needs. According to research from the Society for Human Resource Management:

• 93% of employers say driving organizational performance is a key objective of performance management, but only 44% say their program is meeting that objective
• 72% of employers said supporting employee development is a primary objective, but only 31% said their program is meeting that objective

That gets to the main value proposition of a performance management system: It encourages a more structured (and ultimately more successful) approach to employee performance.

With a system in place, you’re better able to intentionally build and implement processes that improve the employee experience and boost employees’ perceptions of fairness – rather than making performance management a disruption or source of frustration for employees.

Of course, an effective performance management process has plenty of other benefits, too, including:

• More consistency for employees: According to McKinsey, employees have strong doubts that employers’ performance management practices are equitable. Recent Culture Amp data shows that one in four employees question whether their performance evaluation was fair. A well-articulated system provides transparency, increases consistency, and increases employee confidence in the ways their performance is measured and managed.
• Stronger connection to organizational goals: Alarmingly, only 23% of employees say they feel educated on company goals. A solid performance system allows employees to understand their contributions, as well as how those ladder up to the broader organizational objectives.
• Job satisfaction: Employees are 3.6x more engaged when they have a voice in setting their own goals and aligning them to the company initiatives.
• Greater accountability: When only 47% of employees strongly agree that they know what is expected of them at work, the clarity they get from your performance system (and related goal-setting frameworks) helps them feel a stronger sense of responsibility for their work.
• Better decision-making: As you build out your system, you’ll need to iron out criteria related to performance reviews, promotions, and raises. You’ll also benefit from insights related to employee performance that you can use to make more data-driven decisions as you plan for the future.

A good performance management system will show you that employee performance is something you can support and harness – rather than something that simply happens.

Why does performance management matter?

A performance management system helps your performance process go from scattershot to structured. But, as you consider what kind of system will work best for you, it’s worth zooming out a bit to answer this question: Why does performance management even matter in the first place?

The answer may sound obvious, but it’s also true: It helps organizations improve employee performance. And, when employees perform at a higher level, so does the entire organization.

However, the benefits of performance management extend far beyond achieving goals. Performance management also has a direct and influential impact on other things you care about – like employee engagement, development, and retention. Let’s take a closer look at each.

Providing meaningful feedback can increase employee engagement

It’s tough for employees to feel committed to their work if they don’t understand how they’re doing or what they’re working toward.

Managing their performance with clear goals and regular feedback shows them that you value their work and are invested in their progress. According to McKinsey, 80% of employees who have received meaningful feedback in the past week are fully engaged.

Performance management supports employee development

Plan to keep your performance and development processes separate – meaning you’ll address performance first and then development. However, they can inform each other. For example, you can use performance reviews to guide development plans and identify ways to build new employee skills.

Employees are eager for this level of support and involvement. While 67% of employees want to develop their skills and their careers, 46% say they lack career support from their managers. All of the elements of performance management (like goal-setting and frequent feedback) are crucial for encouraging employee development.

It also improves employee retention

Managing performance (and, as a result, prioritizing development) can make your employees want to stick around. Consider the following:

• According to Culture Amp data, employees without consistent development opportunities are 2x more likely to leave within a year
• Lack of support for career development is a key reason why people leave their jobs
• Among employees in traditional jobs, career development and advancement were the top reasons they accepted a new role

An intentional approach to performance management shows employees you’re committed to them – which can, in turn, make them feel more committed to your organization.

Performance management is about people, not just numbers

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8 ingredients of a successful performance management system

A successful performance management system is one that meets the specific needs of your employees and your organization – meaning there isn’t a one-size-fits-all mold for building your performance management cycle and process.

With that said, different performance management processes often share certain components. Your performance management system may include:

1. Clear goals and expectations: Employees need clear responsibilities, goals, and performance criteria, all of which you can align with your company priorities and organizational objectives. Involve employees in the process, because achieving peak performance is a collaborative exercise. Encourage their participation through employee self-assessments, engagement surveys, and goal-setting frameworks that incorporate their unique desires and opinions.
2. Ongoing feedback: You’re managing performance – not just measuring it. Provide employees with regular check-ins, real-time feedback, and coaching to make performance an ongoing priority instead of an annual box to check.
3. Fair and consistent evaluations: Base performance reviews on transparent and objective criteria that are consistent across departments.
4. Employee development and growth: Performance management is a two-way street, meaning it can’t only benefit your organization. Create a system that also supports skill-building, career advancement, and learning opportunities for your employees.
5. Employee recognition: Avoid processes that feel punitive or overly scrutinizing, as they are likely to harm employee engagement. Instead, take a positive approach that includes plenty of employee recognition. Find regular opportunities to acknowledge and celebrate achievements and contributions.
6. Flexibility and adaptability: The needs of your organization and your employees are constantly changing. Choose a performance management process designed to evolve alongside your business and employee expectations.
7. Manager training and support: Even if your HR department is planning the performance management process, your people leaders are responsible for executing it. Provide thorough training to your managers so they understand how to offer effective feedback and coach employees.
8. Technology and automation: Gone are the days when you could successfully manage employee performance with a tangle of spreadsheets and documents. Digital platforms like Culture Amp can help you streamline goal tracking, feedback collection, and performance reviews.

You can rely on digital tools for data-driven insights, including metrics and analytics. They’ll help you make informed decisions and take action on employee feedback.

Performance management systems: 5 tools (with real-world examples)

Ready to start hashing out your new and improved performance management process? You’ll find similar approaches and elements across various types of performance management systems. Below, we’ll explore five common elements, along with examples.

1. Objectives and Key Results (OKRs)

Objectives and Key Results (OKRs) is a goal-setting framework that starts by setting a high-level objective and then listing the key results that will be used to evaluate success. For example:

Objective: Increase brand awareness in key markets.

Key Results:

• Increase website traffic by 25% over the next quarter.
• Gain 5,000 new social media followers across all platforms.
• Secure media coverage in at least three major industry publications.

How does this connect to employee performance? Using OKRs provides clarity on your organization’s objectives, so that you can align and connect your employees’ individual goals to the wider company vision.

Example: Google is one of many successful companies that use OKRs to establish organizational goals and explain how each employee will contribute.

2. 360-Degree or 180 feedback

Building 360-degree feedback into your performance management process gives your employees opportunities to provide both developmental feedback to others at the organization, and to hear feedback from others on their own performance.

• Strengthen your performance evaluations: Collecting input from other people the employee works with can give you a broader perspective that informs their performance review. Gathering feedback from multiple stakeholders as a part of the performance process may help reduce bias and empower managers to create fairer and more comprehensive assessments.

To incorporate 360-degree and 180-degree feedback into your performance process, gather input from an employee’s supervisors, peers, direct reports, and sometimes even clients. Using 360 (for individuals) and 180 (for managers) surveys helps employees at every level better understand their strengths, identify improvement areas, and develop in their careers.

Example: Consumer Cellular used Culture Amp’s 360-degree assessment to gather data-based feedback. This allowed the organization to sharpen the focus of feedback discussions between managers and their teams.

3. Team-focused performance management

It’s common for companies to think about performance on an individual level. They use performance management tools to identify high performers so they can prioritize retaining them – but this may not work. In fact, Culture Amp research suggests that it’s incredibly rare for any employee to be rated as a high performer for several performance reviews in a row.

In some roles, especially those where collaboration is core to how work gets done, it can make more sense to focus on team performance over individual outcomes. Take software engineering teams, for example. When work is distributed across multiple people – think code reviews, pair programming, and shared ownership of delivery – it can be difficult to isolate individual contributions. In these cases, setting team-based performance goals can be more effective.

When a team sets their goals together, it creates shared purpose, alignment, and greater buy-in. Everyone is clear on what success looks like, and they’re motivated to support one another to get there. That doesn’t mean individual growth takes a back seat – each team member can (and should) still have their own development goals. But performance, in this context, becomes a collective effort.

4. Ratings and rankings

Many companies use performance management systems to evaluate each employee’s performance based on defined criteria. Often done as number ratings, these can provide useful data, particularly when they’re used in the background. For example, if you look at your employee ratings as part of an equity audit, they may draw your attention to potential disparities.

However, we recommend that these number ratings aren’t shared with employees. Rating employees with words is more objective and provides more clarity for the employee (e.g. “meets expectations” feels more helpful than “2”). Additionally, it avoids making people feel like numbers or like you’re defining them only by data, and it also emphasizes that ratings are an output – not the whole person.

Even so, some companies don’t just stop at ratings. They also compare each employee’s rating and rank people accordingly. Culture Amp doesn’t recommend ranking employees like this. Here’s why: Employee rankings may not reflect the full scope of an individual’s contributions, and they are likely to fuel an overly competitive work environment.

Example: Amazon often makes headlines for its controversial employment practices, and employee ratings and rankings are just one. The company uses stack ranking to rate employee performance. Then, it either puts low-performing employees on improvement plans or, in extreme cases, lays them off.

5. Employee self-assessments

Remember that you’re managing employee performance – which means your employees deserve to have a voice. Employee self-assessments are just one of many thoughtful ways for you to listen to their perspective.

You might also hear self-assessments referred to as self-evaluations or self-reflections. Regardless of the terminology, this tool asks employees to look back on their achievements, challenges, and growth areas and evaluate their performance.

Self-assessments can increase an employee’s engagement in the process and lead to more meaningful employee goals and performance conversations. However, you’ll want to give employees additional ways to share their thoughts and insights.

Encouraging your employees to reflect on their own performance can be helpful, but we don’t recommend asking employees to self-rate. Self-ratings may exacerbate biases and create less equitable outcomes.

Example: Meltwater partnered with Culture Amp to customize performance metrics and processes, including empowering employees to engage in self-reflection. This allowed them to assess their contributions and aspirations, which fueled far more relevant performance reviews and goal-setting conversations.

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Choosing the right performance management system for your organization

The performance management methodologies and tools listed in this article are meant to be a resource – not a restriction. You don’t need to pick a single approach. In all likelihood, your performance management system will use a combination of elements and frameworks.

We recommend choosing one strategic priority and focusing on that first. For example, if you’re most interested in aligning each employee’s day-to-day work with organizational objectives, goal-setting may be a great place to start.

If you’re struggling to decide which approach is right for you, ask yourself the following questions:

• What is your overall philosophy on performance?
• What are the key business goals you want your performance management system to support?
• How frequently do you want performance feedback and evaluations to occur?
• Do you want your system to focus on individual growth, team collaboration, or?
• How important is goal-setting in your organization, and what framework best supports it?
• How much emphasis do you want to place on peer feedback and 360-degree reviews?
• What role should self-assessments play in the process?

Once you’ve ironed out your general approach to performance management, it’s time to focus on the technology piece of the puzzle.

You’ll need an intuitive platform for managing every aspect of your performance management process – surveys, reviews, career paths, performance data, feedback, and more. Here are a few criteria to keep in mind as you evaluate your options and choose the right system for your organization:

• Manager and employee experience: If the system is difficult to navigate, you may have trouble convincing employees and leaders to use it. User-friendly tools and make it easy for employees at all levels to engage.
• Data analytics and capabilities: Look for a platform with comprehensive reporting tools to provide insights on performance trends and areas for improvement.
• Integrations with other tools: You can eliminate clunky workflows by looking for a system that connects with the tools you’re already using – like your payroll system, communication tools, and HRIS.
• Customization and scalability: What you need five years from now might be more complex than what you need today. Find a platform that can adapt and evolve alongside your company’s needs.
• Compliance with regulations: Particularly if you work in a heavily regulated industry, confirm that your technology platform meets any relevant data privacy and employment law requirements.
• Cost: Budget is always a factor. Determine how much you can spend on a system before you start your search. Your budget will be a helpful filter as you consider your options.

The future of performance management in 2025 (and beyond)

In the past, some companies took a fairly selfish approach to performance management. They saw the entire process as a way to pull as much value as possible from each employee. But this is a short-term solution, because individual high performers often burn out.

As employee wellbeing remains in the spotlight, the new era of performance management will prioritize sustainable team performance and long-term success.

Performance management is becoming more equitable, more human-centered, and more balanced.

One of the biggest shifts we expect to see is that performance measurement will shift from “me” to “we” – where leaders will look less at individuals and more at what’s happening at the team level.

Individual performance reviews will still be part of the process, and they’ll still matter, but individual ratings will be contextualized through the lens of the team.

This is exciting, because employees are humans – not robots. Nobody (not even your highest performers) can operate at full capacity all of the time. This perspective embraces that reality by allowing leaders to plan rotations and ensure that different employees take the lead at different times.

FAQs: Everything you need to know about performance management systems

What’s the best type of performance management system for my company?

There isn’t one “best” system. What will work well for your organization hinges on your company’s goals, culture, and employee needs. It’s worth taking a look at your existing performance systems to understand what’s working, what isn’t, and what you most want to change or improve.

How do performance management systems improve engagement?

Performance management systems provide clear goals and expectations, regular feedback, and plenty of development opportunities. These can all make employees feel more valued, supported, and connected to the company’s mission.

How do I transition from annual reviews to a continuous feedback model?

It’s important to note that this isn’t about eliminating reviews entirely – they’re a valuable part of a continuous feedback model. However, those should be balanced by regular check-ins, ongoing feedback, and frequent conversations about performance and growth throughout the performance management cycle. This also helps reduce the heavy lift that needs to happen at performance review time.

Can performance management systems integrate with other HR tools?

Yes, many performance management systems can integrate with other HR tools (like your payroll systems or HRIS) to streamline your workflows and improve efficiency. Make a list of the integrations you need before you start evaluating performance management systems. That list can guide your search.

Take the next step with Culture Amp’s performance management solutions

You want your employees to achieve peak performance – and, in most cases, they share that goal. They want to do their best work.

But employee performance isn’t a personal problem. Employees need support. It’s up to you to give them the right resources, support, and systems to reach their full potential and make meaningful contributions to your company.

That’s why you need an effective performance management system. The right system doesn’t just track results – it enhances your entire employee experience with a structured, transparent, and growth-focused approach that connects the dots between individual contributions and company goals.

Ready to level-up your organization’s performance management?

Schedule a demo of Culture Amp today to see how you can create a system that supports employee development and drives success.

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