HR Administration

What is a performance management system? A detailed guide

By Alison Harper

Mar. 29, 2023


  • A performance management system (PMS) is a combination of tools and processes that companies use to measure and monitor each employee’s performance. 

  • A PMS lets you schedule reviews, set expectations and goals with employees, monitor their performance in a collaborative way, and recognize good performance. 

  • A PMS is beneficial to your company and your employees because it centralizes the performance review process, helps you address training needs, and promotes self-motivation.

A performance management system (PMS) is a combination of tools and processes that companies use to measure and monitor how each employee contributes to the success of the company. 

A strong PMS enables you to easily work together with managers and employees to achieve goals and recognize good performance. Implementing a PMS helps guarantee that everyone across the organization is aligned on and contributing to overall business objectives.

Benefits of a performance management system

A PMS is beneficial to your company and employees because it centralizes performance management, helps you address training needs better, and promotes self-motivation.

Centralizes performance reviews

The PMS acts as the single source of truth for measuring and reviewing staff performance. Everyone from HR directors down to frontline workers can use the same system to submit feedback, schedule reviews, and set development goals. 

With a centralized performance management system, there’s full transparency. It creates an environment where everyone knows what’s expected of them and what they need to improve upon. Without one, it is easy for an organization to lose sight of how individual performances impact one another across teams and departments. It also limits the degree to which management can audit the history and development of an employee’s performance. 

Allows you to better address training needs

A PMS also gives you more accurate insight into the training needs of your employees, so you know what areas they can be upskilled in, what new abilities they need to develop, and how they can otherwise boost their performance. 

Information like skill reviews, feedback, and performance metrics gets logged into the PMS. HR and managers can then use the PMS to identify gaps in knowledge and skills for each employee and recommend certain training or courses to individual workers rather than a blanket suggestion for everyone.  

Helps promote a culture of self-sufficient employees 

With the help of a PMS, HR can work with managers to set expectations for their employees and delegate important tasks based on skill sets. This way, employees understand what is expected from them and work self-sufficiently. 

With a PMS, all employee skill sets, goals, and objectives are in a central spot — either in a tool, database, or spreadsheet. With this information, managers can empower employees by delegating important tasks they know they can handle, recognizing positive behaviors that they want to reinforce, and building a culture of transparency and trust. 

A culture of self-motivated employees can also mitigate the need for tattleware so that HR and managers don’t have to micromanage their employees. 

What to look for in a performance management system

A performance management system lets you work with managers to schedule reviews, set expectations and goals with employees, monitor their performance in a collaborative way, and recognize good performance. 

Performance review features

Perhaps the most critical function of a performance management system is its ability to schedule performance reviews. These reviews may occur as often or as little as you like. Some organizations may only conduct formal reviews on an annual basis, while others may schedule routine, informal reviews every week. Some may even schedule impromptu reviews as needed, based on attendance, scheduling, or teamwork issues. 

No matter the method, the physical process of scheduling reviews is the foundation upon which a performance management system is built. A solid performance management platform should feature a calender, notifications, and a streamlined process to set up reviews. 

Goal-setting or planning features

Goals are essential to help employees understand what is expected of them and how they can perform to meet company objectives. A performance management system should help you facilitate goal setting and planning so there is a clear roadmap to meeting goals that you, managers, and other employees can use and reference. 

HR and managers should have the ability to input OKRs, KPIs, action steps, and more into the PMS system. These are the foundational components of each employee’s goals and the benchmark for measuring their performance.  

The process of goal setting and planning should also be collaborative. Involve employees in their own goal-setting and planning so that they are more likely to buy into their goals and achieve them. 

Monitoring features

Use your PMS to monitor performance so you can help managers remove roadblocks for employees and motivate them. A PMS should let you see what all employees’ strengths and weaknesses are. Based on this information, you can work with managers to help employees improve on certain aspects of the job, like attendance — or skills, like customer service or communication. 

Look for the capability to input important talent metrics into your PMS so you and the managers can monitor them, compare them to previous performance inputs, and help employees understand what they can improve upon. Track talent metrics like attendance, retention, engagement, and quota attainment. 

Recognition features

Prioritizing recognition can go a long way toward increasing engagement. In fact, employees who receive adequate recognition are four times more likely to be engaged than employees who don’t. 

And remember: engaged employees are more productive and profitable to your company as a whole.

Your PMS should help you identify top performers and people who have picked up extra work and properly recognize them. Look for employees who have the fewest absences, complete all their tasks regularly, and have good customer feedback. All of this information should be in your PMS so you and your managers can easily recognize high-performing staff members. 

3 best practices for a performance management system

With a PMS in place, you want to encourage managers to act on the insights they receive, use it to provide ongoing feedback, and leverage it for succession planning. 

1. Encourage managers to act on the insights from your performance management system

Insights mean nothing if managers don’t use them to communicate regularly with employees about how to improve their performance. In fact, 55% of workers said that standard annual reviews do nothing to improve their performance. Instead, they need more specific insight into their performance on an ongoing basis. 

Set up regular recurring meetings between employees and their direct manager to discuss their performance, career plans, and growth based on data from the PMS. A good cadence for performance reviews is bi-weekly or once per month so that employees are always in the know about what they should improve on and what they are doing well. 

2. Use your performance management system to provide ongoing 360-degree feedback 

Feedback helps employees understand what they’re doing well and what they could improve on. Not only that, but employees whose managers offer them daily feedback are three times more likely to be engaged with the company they work for than those who receive feedback only once per year or less. 

To incite ongoing feedback, employees should be able to get feedback from managers, peers, and customers so they know how they’re performing. Collect feedback from comment cards, peer reviews, and manager one-on-ones. Then log all feedback for each employee into the PMS so everything lives in one place. 

Managers can look at the PMS to identify patterns in feedback — either to recognize the employee or to make a plan for improvement. 

3. Use your performance management system for succession planning

Succession planning can help you avoid any gaps in positions when an employee leaves or retires. This can make it less stressful or urgent when someone leaves because you already know which employee will fill the position from within and have a plan in place. 

Use an organizational chart to document promotions, positions that employees have an interest in, employee skill sets, and more. Identify current employees who would be good candidates for positions that are opening up in the future. Keep track of positions that are likely to open up for which you don’t have an employee to fill the role. 

By inputting all your succession information into a PMS, you have a better idea of when you need to start hiring externally. You’ll also be able to see which of your current employees need to be trained on certain skills in order to prepare them for their career growth.

Implement the right performance management system

Decide how you want to set up your PMS based on what works for your budget, the data you need to collect, and what tools or processes you’re already using. 

The right performance management system should make life easier, not harder. It should be unintrusive, fitting seamlessly into employee workflows, and it should add value to your organization in the long run. 

Oftentimes, you’ll find performance management platforms falling short in one, or even both, of these requirements. This is a pitfall that major white-collar agencies can tolerate, but for the majority of businesses out there with hardworking, hourly staff, choosing the wrong kind of performance management can be costly. 

Find out how to properly navigate employee performance by checking out our platform – we promise it’s worth your time. 

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