Performance management involves establishing a continuous feedback and communication process between employees and their managers, with an aim to achieve the organization’s strategic goals. It is a strategic and systematic process aiming to facilitate learning and development, enabling employees to perform better in their job roles. It enhances employee performance, development, and engagement by evaluating their performance against set goals. It takes a proactive approach, using various inputs and data to promote a performance-driven culture.
The goal of performance management is to help employees build on their skills to reach their full potential, boosting their chances of success and contributing to the organization’s goals.
Employee performance management and performance appraisal are two different concepts with different purposes, focus, timeframes, etc. Employee performance management refers to an ongoing process that aligns individual performance with organizational goals, focusing on continuous feedback and development. In contrast, performance appraisal is a formal, periodic evaluation of an employee’s performance, typically conducted annually, to assess past performance and make decisions related to promotions, raises, or training needs.
The main aim of performance management is to provide managers and employees with a clear and consistent system within which both can work, improving organizational productivity. For employees, a performance management system shows them the path to success by measuring their performance, providing feedback, and offering opportunities for training and development. Performance management also allows employers to understand how their employees are working by tracking their progress and providing continuous feedback to facilitate employee development.
According to the Global Talent Trends 2024 report by Mercer, 98% of organizations report large skill gaps within their workforce, which makes reskilling and upskilling an urgent need. Establishing a continuous conversation with employees, monitoring their skills, and providing learning and development opportunities can help uncover performance gaps and hidden potentials of employees. With this knowledge, it becomes easier for organizations to work towards closing the skill gaps.
Effective employee performance management sets clear expectations for employees, helping them understand the impact of their job role on the achievement of organizational goals. Continuous performance management also provides employees with opportunities for learning and development, which helps them feel valued in the organization and makes them more open to receiving feedback and improving on it.
Having a clear understanding of the career path and knowing what is expected improves employee engagement. Further, employees always prefer organizations that are invested in their growth and advancement.
A culture that promotes trust and communication begins with leadership initiatives that trickle down to all employees, including the performance management process and policies. Managers providing honest, constructive feedback and being open with their employees will encourage employees to communicate as well, fostering a healthy company culture.
Effective employee performance management can significantly improve organizational performance. As employees learn and develop their skills, they are able to perform better in their job roles.
The partnership between managers and employees built through performance management and consistent employee development can help organizations prepare future leaders from within the company. Employees who develop their skills consistently can move up in the company, effectively building a leadership pipeline for the organization.
Well-defined roles and performance standards make it easier for recruiters to hire top talent as they can better understand the hiring requirements and assess whether a candidate is a suitable fit for the job role or not. Clearly defined roles and performance standards also help L&D managers understand the exact areas that need improvement, making it easier for them to create effective employee training programs.
This involves identifying and evaluating the behaviors of employees. This approach is best suited for job roles where individual employee results are difficult to measure. The end result is to provide employees with detailed feedback on their behaviors and mapping desirable future behaviors.
This involves evaluating employees based on objective criteria. The approach is best suited for job roles where there may be multiple ways to do a particular job, but the focus remains on the output in terms of quantity and quality. Under this approach, the end results are the prime focus, not how they were achieved.
Performance management programs help managers and employees get on the same wavelength about goals, expectations, and career progress and help them understand how an employee’s job role aligns with the overall vision of the organization. It views individual employees in the context of the broader workplace.
Performance management aims to define what an employee’s performance looks like and develop methods to measure the defined performance. It involves goal setting and tracking, marking milestones, and creating well-defined roles and performance standards for employees. However, instead of confining the approach to year-end reviews and feedback sessions, performance management should focus on continuous feedback, where every interaction with employees can be turned into a learning opportunity. Performance management tools can be used to adjust workflow, recommend courses of action, and provide support to the employees in achieving their objectives.
The first step is all about establishing performance expectations with employees. These goals should also be clearly outlined in job role descriptions at the time of hiring so organizations can attract the right talent. Post-hiring, the expectations should be reconfirmed, and SMART goals and performance management metrics should be set. Actively involving the employees in the planning process increases employee satisfaction and motivation. It is also important to ensure that performance management plans are flexible so they can be adjusted along the way.
After planning comes the monitoring stage, during which employee performance is regularly monitored and assessed based on the set goals. Providing feedback on performance regularly instead of once a year gives employees the opportunity to correct any issues that may be highlighted soon. While performance management software can help track employee performance in real time, reports and data should not replace face-to-face discussions.
During this stage, the data and feedback collected about an employee’s performance during the previous stage are analyzed for insights that can help boost employee performance. Refresher courses, performance coaching, training programs, and other learning and development methods can be used to correct underperforming employees.
Employee performance should be rated throughout the year and during the performance appraisal period. The rating process should collect 360-degree feedback from peers and the managers of an employee. This will help quantify the performance of employees and understand the value added by each employee to the organization. Based on the performance evaluation, changes can be made to their development plans.
Recognizing and rewarding good employee performance and development progress is a crucial part of the performance management process. Whether it is through recognition, praise, salary raise, award, or promotion, it is important to reward superior performance within the organization.
Performance management focus has shifted towards helping employees reskill and upskill their competencies to meet set performance standards. That is why it is becoming increasingly important for organizations to leverage the capabilities of performance management systems to automate the process. These systems work throughout the year to analyze the strengths and areas of improvement of employees and help identify their potential for growth and development. Feedback based on these metrics, delivered on a regular basis, can help employees effectively improve their performance.
Most employees have performance evaluations conducted only once a year, and there is no guarantee that everyone will be motivated to improve their performance after them. This emphasizes the fact that traditional performance management practices may be outdated now. Performance management systems can provide consistent and ongoing feedback to employees throughout the year, reinforce positive behaviors through seamless feedback exchange across different departments, and facilitate effective monitoring of employee progress.
Through performance management automation, organizations can ensure transparency and accountability among all stakeholders. Performance management system provides the capability to continuously monitor how employees work through collected data and encourage employee growth.
Automated performance management systems enable organizations to utilize real-time employee performance data to establish personalized development goals for each individual, which can also be used to customize their training programs for maximum efficiency. Performance management systems help monitor and evaluate the efficacy of different approaches to employee development.
Unrealistic performance expectations, lack of career growth and development opportunities, and a shortage of purposeful tasks are some of the primary factors that lead to employees leaving an organization. Automating performance management establishes employee evaluation practices based on data-driven methods, eliminating the risk of unachievable performance targets.
Artificial intelligence has completely changed the way organizations approach performance management. Along with automating the process, AI also harnesses the power of data analytics and advanced algorithms. By analyzing extensive datasets, AI uncovers trends and patterns that might not be readily apparent, providing organizations with enhanced insights into employee performance and productivity. This analytical approach facilitates personalized feedback and focused development programs, ensuring that resources are utilized properly. It also mitigates impartialities from the performance management process and provides objective assessments based on predefined criteria. With capabilities for performing predictive analyses, AI can evaluate large volumes of historical performance data and forecast future performance trends, helping organizations make proactive, informed decisions.
Before conceptualizing the performance management program, it is important to first have a clear understanding of what you want to accomplish through the program. It can be designed to increase organizational productivity, identify and develop potential leaders, streamline the compensation process, and improve employee engagement and retention. Knowing exactly what the organization wants to achieve through the program will make it easier to build a suitable performance management process.
Write concise and relevant job role descriptions and set basic performance expectations. It is challenging for an employee to succeed in their job role if they do not understand what is expected from them – how they should work to meet those expectations and what end results are expected.
After goals have been set for employees, a performance plan should be developed to achieve them. Meeting year-long goals is challenging for many employees as the goals seem to be too large at first, overwhelming the employees before they even start. With a well-thought-out performance plan, employees can visualize the path that will take them to their goals, breaking the journey into smaller and more achievable segments.
Performance KPIs have a direct impact on employees, and unrealistic KPIs can demotivate them. It is important to ensure that employees also have a say in the goal-setting process. Asking employees for their opinions and feedback can offer valuable input on the performance management process. Further, employees should also be involved in creating their development plans. Clearly defined plans for career progression not only empower employees to take charge of their professional growth but also help reduce turnover rates.
Use performance metrics and analytics to review key performance areas. Continuously monitoring the progress of employees and tracking how their goals are progressing allows employers to intervene when required.
The performance management cycle should include creating guidelines for each job role in the organization. These guidelines or policies should stipulate specific areas for opportunities and experimentation and if there are any limits to the same. With clearly defined guidelines to follow, employees tend to achieve more.
SMART goals advocate creating specific, measurable, achievable, relevant, and time-bound goals. Each employee should have their own set of personalized key performance indicators so they have a clear understanding of what is expected from them, and managers can track their achievements. These goals should be further personalized based on the job role, function, and professional ambitions of the employee.
Continuous monitoring involves tracking the performance and progress of employees in real time with a focus on the end results and output being delivered. Continuous monitoring may also include keeping tabs on employee sentiment, which can help managers address the root cause of any issue or problem that may surface.
360-degree feedback involves anonymous evaluation surveys that are used to gather insights about an employee’s performance. These assessments provide a holistic image of the performance of an employee by tapping into data collected from their peers, direct reports, managers, and sometimes their customers or clients. 360-degree feedback may even include a self-evaluation from the employee. This approach supports professional growth and encourages open communication and teamwork.
Using AI, comprehensive data can be collected and analyzed to understand patterns, eliminating the need to manually sift through numerous survey reports from multiple people. With the capabilities offered by AI, assessments can be transformed into forward-thinking tools, propelling organizations toward efficiency, and revolutionizing the entire concept of employee performance management.
It is important to regularly reevaluate set KPIs to ensure their relevancy to the evolving market landscape. To make sure that your performance management process is effective, it is crucial that the goal and expectation setting for the employees are aligned with the latest industry trends.
When a team or employee meets a set goal or is performing well, their efforts should be rewarded. Rewards are a great way to improve performance and motivation within the workforce.
Leveraging the capabilities of HR technology and software can significantly improve the effectiveness and efficiency of your performance management process by removing impartialities, assessing employees objectively, and facilitating honest discussions. As long as a clear strategy is in place, performance management systems can help save a lot of time. These systems collect performance management data in real time and identify patterns to provide actionable insights.
The bank faced significant challenges in enhancing its technology processes to maintain a competitive edge in the evolving digital landscape. To address these issues, it sought scalable solutions to upskill its tech workforce in India and identify specific reskilling needs for each employee, ultimately aiming for a comprehensive development plan to facilitate digital transformation.
It recognized that effective performance management is crucial for successful upskilling. Targeted training initiatives would enhance individual growth and organizational effectiveness and help in employee performance evaluations.
Despite having clear upskilling goals, the bank struggled to translate them into actionable strategies and required a strategic partner to implement a holistic upskilling plan across various tech roles. It included the need for assessments aligned with global standards to evaluate employees’ competencies. The bank engaged Mercer | Mettl, which developed a remote, scalable upskilling plan, recognizing the necessity for innovative solutions.
Mercer | Mettl’s approach involved creating assessment frameworks tailored to the bank’s targeted tech roles, utilizing a combination of multiple-choice questions and real-world coding problems through advanced simulators. Additionally, a skills gap analysis was conducted to pinpoint individual development areas, ensuring that the bank’s workforce could acquire the necessary skills for future success.
Implementing these solutions enabled the bank to reskill over fifteen hundred employees effectively, paving the way for rapid digital transformation and providing detailed insights into each employee’s strengths and areas of improvement.
Tata Play Fiber defined its employee assessment and feedback goals but faced challenges translating these objectives into actionable strategies. To overcome this, the company sought the expertise of subject matter experts to develop an organization-wide development plan that spanned multiple professional roles. As the brand aimed to enhance its presence and stay ahead in talent management, it recognized the need for improved learning and development (L&D) processes, including scientific solutions to assess and develop its workforce, leading to effective performance management. The company aimed to implement a pull-based L&D strategy, moving away from its existing push system that relied on subjective performance observations to encourage proactive employee engagement in their personal and professional growth. Additionally, Tata Play Fiber needed solutions to identify role-specific training needs, assess employee strengths and improvement areas, and upgrade its feedback approach to minimize impartialities.
Tata Play Fiber partnered with Mercer | Mettl, who provided a comprehensive solution through their 360View and Leadership Assessments. These tools facilitated holistic feedback and objective assessments of leadership competencies, enabling the company to gather insights into employee performance and development needs. The collaboration resulted in a significant transformation in the company’s assessment approach, bringing in a culture of continuous learning, professional growth, increased employee engagement in L&D initiatives and effective performance management.
To help organizations optimize their performance management processes, Mercer | Mettl has built a highly refined 360-degree feedback tool, 360View. The solution is packed with valuable features and capabilities needed by organizations to streamline performance management. Some features of 360View include customization freedom, scalability, skills gap identification, auto-saved responses, customizable email templates, personalized development plan creation, and real time performance tracking.
Originally published June 23 2024, Updated June 26 2025
Vaishali has been working as a content creator at Mercer | Mettl since 2022. Her deep understanding and hands-on experience in curating content for education and B2B companies help her find innovative solutions for key business content requirements. She uses her expertise, creative writing style, and industry knowledge to improve brand communications.
360-degree feedback is a holistic performance review mechanism. It collects feedback about an employee from multiple sources - managers, peers, and subordinates - for appraisals and organizational planning. 360-degree feedback empowers organizations to make better people decisions.
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