Using a performance management system to drive high performance

Employee performance has long been a priority for leaders and HR teams. Companies are eager to build a high-performance culture that pushes employees to be their best.

But here’s the thing: Your employees are just as hungry to learn and improve their performance.

A survey from the Society for Human Resource Management found that 49% of employees want to develop their skills. In separate research from Gallup, nine in 10 millennials say professional development or career growth opportunities are very important to them in a job.

Yet, too often, employee performance is left to chance – with infrequent and unproductive performance reviews, murky expectations, and performance metrics that seem pressing at the moment but are quickly abandoned and forgotten.

This speaks to why a performance management system is so valuable. It formalizes your performance management cycle and helps your company take a more intentional approach to employee development and performance.

This guide covers what you need to know to set up a performance management system that supports your employees in doing their best work – and boosts their job satisfaction in the process.

What is a performance management system?

A performance management system is a process or tool that your organization uses to set performance goals, track employee progress, evaluate performance, and provide relevant feedback – all to improve employee effectiveness and outcomes.

But today, when most people mention a performance management system, they aren’t talking about the general approach to performance management. Instead, they’re referring specifically to performance management software.

Performance management software is the digital platform that an organization uses to establish clear performance expectations, monitor progress and key performance indicators, and conduct and organize employee performance reviews.

Why does your organization need a performance management system?

If you’ve ever tried to manage employee development and your performance management cycle using scattered documents and random spreadsheets, you likely already have a sense of what makes a formalized performance management system so helpful for organizations.

A solid performance management system benefits both employees and the entire company. Here’s how.

Formalizes the performance process

It’s tough (if not impossible) to build a high-performance culture with an ad hoc approach. A performance management system gives you a structured framework for setting employee and organizational goals, tracking progress, and evaluating outcomes. This helps you build a clear, repeatable workflow that’s easily applied across teams and departments and ensures employees feel engaged in the process. Need proof? Using Culture Amp, Meltwater experienced an 84% initial performance cycle completion rate.

Reduces bias and increases fairness

Any hint of bias in the performance process can impact employee perceptions of whether the process is fair. Alarmingly, 25% of employees say their supervisor’s personal biases have negatively affected their performance reviews. Fortunately, using a performance management system means establishing clear performance metrics and evaluation criteria to standardize your performance reviews across the board. This minimizes subjective judgments and ensures you use a fair process that assesses employees based on contributions and results instead of personal opinions.

Improves transparency

You might think that employees are in the loop on what success looks like in their roles, but Gallup research shows that only 47% of workers strongly agree they know what’s expected of them at work. With centralized goals, performance data, and easily accessible feedback, employees have a clearer understanding of what to focus on and how their performance is measured.

Supports alignment

Employees may not recognize how their daily work contributes to the company’s organizational goals. Your performance management system will help connect the dots between individual or team contributions and your bigger company priorities. This lets everyone feel like they’re working toward those overall objectives, which fuels a sense of purpose and improves organizational performance.

Boosts accountability

With clear goals and detailed tracking of relevant key performance indicators, it’s easier to hold both employees and managers accountable to your performance standards. Performance management features like regular check-ins and documented progress reports allow you to spot when expectations aren’t being met and offer more support to get the employee or team back on track.

Increases efficiency

Old-fashioned performance management processes are often associated with administrative headaches and time-consuming tasks. Performance management software can automate simple tasks like review reminders, feedback collection, and performance tracking so your managers can focus their time and energy on meaningful conversations and development – rather than chasing down documents or managing spreadsheets. For example, Wave saved 28 days on performance management reporting per cycle using Culture Amp.

Offers data-backed insights

Your system will collect and analyze data over time, allowing you to gather valuable insights into trends, strengths, and areas for improvement. You can use this information to identify high performers, proactively address skill gaps, and steer around potential risks. Your performance management system supports a far more proactive approach to employee development and talent management.

Guides decision-making

All of those insights help you make more consistent, fair, and data-driven decisions about promotions, raises, training needs, and succession planning. You’ll have clear, documented performance evidence to shape and support your choices.

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What are the benefits of focusing on employee performance and development?

Ultimately, a performance management system helps you systemize, streamline, and improve your approach to employee performance and development. Demonstrating your commitment to employee development offers many other benefits as well, including:

• Higher employee engagement and morale: Regular recognition and an understanding of how their work contributes to the bigger picture helps employees feel more valued, motivated, connected, and committed to their roles.
• Boosted employee retention: Lack of career development is one of the top reasons people leave jobs. You can reduce employee turnover by giving workers visibility into opportunities for growth and advancement within your company.
• Stronger talent development: Ongoing performance management helps you shape and improve your existing employees, leading to a stronger workforce and a more powerful organization.
• Greater organizational agility: When employees are adequately trained and invested in, they’re better equipped to roll with the punches and adapt to changes in your company or the broader industry – making your entire company far more agile and successful. According to McKinsey, companies that focus on employee performance are 4.2 times more likely to outperform their peers.

4 core components of a performance management system

If you think of a performance management system as something you’ll use once or twice a year when performance reviews roll around, think again. It’s a resource that your leaders and employees will benefit from checking regularly to make performance a consistent priority (instead of a sporadic initiative).

With that in mind, let’s take a closer look at the elements of an effective performance management system. In general, you’ll want your system to do the following.

1. Set and communicate clear performance expectations

Employees need to understand what’s expected of them – not just in terms of tasks, but also behaviors, goals, and outcomes. This isn’t about micromanaging or obsessing over productivity for productivity’s sake (a common pitfall in many performance management conversations). Instead, it provides a clear roadmap so employees can feel more connected, confident, focused, and motivated to deliver their best.

2. Measure progress with relevant performance metrics and KPIs

You’re not just setting goals – you’re working toward them. You want your performance management system to include relevant metrics and key performance indicators (KPIs) to measure how well employees are meeting expectations. When managers regularly review this data, they can identify trends, address challenges, and adjust strategies before a minor challenge snowballs into a bigger problem.

3. Encourage employee development

Performance management isn’t just about evaluating employees. It’s about helping them learn and grow. You want your system to support continuous learning and development by setting growth goals, identifying skill gaps, and providing regular progress updates that keep employees focused and motivated.

4. Solicit continuous employee feedback

Employees will receive plenty of performance feedback from their managers, but you’ll also want your system to be a space where employees can regularly and openly share their thoughts, ideas, and concerns – rather than saving them for formal reviews. This ongoing feedback helps managers stay in tune with their teams, address issues early, and foster a culture of support and open communication.

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Understanding the performance management cycle

Different companies take different approaches to managing performance and improving professional development. While there’s always nuance and room for personalization, in general, the performance management cycle happens in four distinct phases.

1. Planning
   The cycle starts with clear, strategic planning. Define organizational objectives and identify the team and individual goals that ladder up to those. This ensures everyone knows what success looks like and how their role contributes. Without this foundation, performance management can feel scattered or disconnected from business priorities and organizational performance.
2. Monitoring
   Once you’ve set your goals, ongoing monitoring keeps performance on track. It’s easy to think of this as micromanaging. In reality, it’s about using data to spot trends, make informed decisions, and address challenges early. Put simply, monitoring is intended to support employee performance – not to spy on it.
3. Reviewing
   Performance reviews aren’t the entirety of your performance management process – but they’re a useful piece of it. These conversations are an opportunity to reflect, provide feedback, and discuss growth.
   
   Unfortunately, traditional reviews often miss the mark, with less than 20% of employees saying their reviews inspire them to improve their work. For maximum impact, make reviews part of an ongoing development conversation and focus on meaningful feedback rather than checking a box.
4. Developing
   Remember that the goal of performance management isn’t just to evaluate – it’s to develop. Use insights from all of the previous stages to craft personalized development plans and support employees in building new skills, taking on new challenges, and growing in their careers.

What are the different types of performance management systems?

There are different approaches to performance management, so it makes sense that there are also different types of performance management systems to support them. These systems typically fall into two distinct categories:

1. Traditional performance management
2. Continuous performance management

Let’s take a closer look at each.

Traditional performance management systems

These are likely what first spring to mind when you think about performance management. The traditional system relies on annual or semi-annual reviews, where employee performance is evaluated once or twice a year. With this system, feedback is formal, infrequent, and often retrospective – focused on past performance as opposed to future development.

Continuous performance management systems

In contrast, a continuous performance management system prioritizes ongoing development and performance conversations rather than reserving them for a formal time each year. It emphasizes regular check-ins, real-time feedback, and evolving goal-setting.

A continuous performance management system features far more frequent and honest dialogue between managers and employees, which allows for a deeper connection, more relevant feedback, quicker adjustments, and stronger alignment with business needs and priorities.

With that in mind, it makes sense that this is becoming the preferred system for many modern organizations. Some have even dropped annual performance reviews altogether. Back in 2016, 70% of organizations said they were moving toward a more continuous performance management model – a number that’s likely even higher today.

Some companies use a blend of traditional and continuous systems. For example, continuous performance management systems will often include aspects of a traditional system, like performance reviews. Additionally, both systems can incorporate other relevant strategies and methods, such as:

• 360-degree feedback: Collects performance feedback from multiple sources, like peers, managers, direct reports, and sometimes even clients.
• Objectives and key results (OKRs): Sets ambitious, measurable objectives with key results that track progress regularly (often quarterly).
• Competency-based performance management: Evaluates employees based on specific skills, behaviors, and aptitudes required for their roles.
• Ratings-based systems: Uses numerical scores or rating scales to assess performance across various criteria.
• Project-based performance management: Measures performance based on specific project contributions and outcomes rather than ongoing roles.

Finding the right type of performance management system for your organization is less about fitting into a specific mold and more about finding an approach that meets the unique needs of your company and your employees.

5 steps to choose the right performance management software

Performance management systems offer plenty of potential benefits. However, only 2% of CHROs strongly agree that their performance management system inspires their employees to improve.

Implementing performance management software isn’t enough – you need to implement (and stick with) the right software. Here’s how to find it.

1. Start with a problem or need

Before you explore your options, get clear on what problem you’re trying to address or fix. Are employees disengaged from the performance management process? Do managers find the existing process time-consuming or inefficient? Pinpoint the core problem so you can find solutions that address your specific challenges.

2. Identify your criteria and budget

Next, narrow your focus to identify the features you need – and then sort them into must-haves, nice-to-haves, and deal breakers. You’ll also need to iron out your budget here. This will help you avoid flashy features that don’t meet your needs or solutions that are way outside the company’s financial means.

3. Ask thoughtful questions

Surface-level demos have their time and place, but evaluating software involves digging deeper with questions like:

• How customizable are the performance review templates?
• How easy is it for managers to track goal progress?
• What reporting capabilities does the software offer?
• Are there frequent software updates to keep pace with changing trends in performance management?

Asking these questions will help you uncover any potential limitations early in the process.

4. Enlist different perspectives

While HR is likely the team steering this software decision, they don’t need to go it alone. Involve other stakeholders – like company leaders and even employees – to test the system. Leaders can focus on goal-tracking features while employees can check out the self-reviews or upward feedback tools. Gathering diverse perspectives will help you land on a solution that works well across different roles and needs.

5. Evaluate your ROI

Once you’ve implemented the solution and have been using it for a while, revisit the problem you originally started with. Is the software solving it the way you hoped? Track relevant metrics like engagement rates, time saved on reviews, and employee satisfaction with the process so you can measure success and make adjustments when necessary.

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3 common challenges in introducing a performance management system (and how to overcome them)

A performance management system can be a game-changer for your organization, but you may encounter a few bumps during implementation. Here’s how to successfully navigate three common challenges.

1. Addressing resistance to change
   It’s normal for employees to resist change – even when it’s positive. They might be hesitant to learn and adopt a new system if they’re comfortable with the old way of doing things. To overcome this, communicate the benefits clearly, provide hands-on training on the system, and gather early feedback to refine the process. Making adoption feel collaborative rather than forced can ease the transition.
2. Encouraging consistent use
   Your new system will only be effective if people use it, and it’s easy for employees and managers to fall back into old habits. To support adoption and encourage regular use, set a cadence for check-ins, reinforce the system’s value in meetings, and integrate it seamlessly into your existing workflows.
3. Fostering the right mentality
   Performance management doesn’t drive meaningful change when it feels like just another HR initiative or requirement. Shift the focus from compliance to continuous improvement by emphasizing real-time feedback, deep development conversations, and goal alignment. When employees see the system as a tool for growth rather than just evaluation, their engagement increases.

FAQs about performance management systems

What is a performance management system, and why is it important?

A performance management system is a process or tool that your organization uses to set performance goals, track employee progress, evaluate performance, and provide relevant feedback. It improves alignment and engagement in the performance management process, which can fuel trust, motivate employees, and address issues with employee retention and turnover.

How does performance management software improve employee performance?

Performance management software sets clear expectations, tracks progress with relevant metrics, and provides regular feedback. This allows for more transparency, encourages continuous development, and aligns individual goals with organizational objectives – ultimately driving higher performance for employees and the entire company.

What are the key components of a successful performance management process?

A successful process includes:

• Clear performance expectations
• Measurable metrics
• Continuous feedback
• Ongoing employee development.

These components create a consistent framework for goal-setting, tracking progress, and fostering growth in employees and teams.

How often should organizations conduct performance reviews?

We recommend doing employee performance reviews twice per year. However, we consider these reviews part of a continuous performance management process that encourages more frequent check-ins and regular feedback.

What is the difference between traditional and modern performance management?

Traditional performance management relies exclusively on annual or semi-annual reviews, while modern systems emphasize continuous, real-time feedback and ongoing development conversations.

Performance management that’s proactive and purposeful

You want your employees to thrive – and they want that, too. But an improvised, slapdash performance management process doesn’t set them (or you) up for success.

That’s why a performance management system is so crucial. When you find the right fit and implement it well, you create an environment where employees can do their best work – and make meaningful contributions to your company’s success.

Ready to transform performance management from a disruption to a tool for growth?

Request a demo of Culture Amp to see how our performance management software can bring out the best in your employees.

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