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In every organization, a performance management system is critical to the success and effectiveness of the business.  While many companies reference performance management as a key competency, few have robust approaches that enable both manager and employee success.  In this article, we’ll discuss the key components of an effective performance management system so that you can better identify gaps in your own processes and implement best practices that will continually enable performance improvements in your organization.

Components of a Performance Management System

The foundational aspects of a robust performance management system include: 

  • Clear Role Definitions and Performance Expectations

  • Continual Performance Reporting

  • Frequent Performance Coaching

  • 360 Degree Feedback Approach to Performance Improvement

  • Performance Appraisal or Performance Review process

  • Performance Improvement Planning / Performance Development Planning


Breaking down a Performance Management System


Clear Role Definitions and Performance Expectations

In order for employees and teams within your organization to achieve optimal performance, you must clearly establish the expectations for their particular role as well as their responsibilities.  The more succinct you can make the expectations for employees, the better they will be able to deliver to your performance expectations.  A key part of clear expectations is setting benchmarks or targets for each key performance indicators.  This provides the employee with clear and measurable expectations that they can easily measure themselves against.  KPI’s also enable business leaders

Continual Performance Reporting

In order for performance management to occur, managers and employees need to be able to continually view how they are performing in relation to their goals on key performance metrics.  This should typically be accomplished with ‘same day’ or real time reporting supplemented by ‘next day’ or historical reporting.  Combining these two formats gives an easy view of how the employee is performing today as well as how they are tracking on their performance targets overall.

Frequent Performance Coaching

Recurring performance coaching sessions should be established with each employee so that they are receiving consistent feedback on how they are performing towards their metrics. 

360 Degree Feedback Approach to Performance Improvement

Providing each employee with a holistic view of their performance is worthwhile from a development perspective.  This type of feedback helps performers to understand their strengths as well as areas they can improve on even if their direct manager was not privy to the situation.  360 degree feedback is extremely effective in providing a well rounded view of performance and can be a key component of a performance improvement plan.

Performance Appraisal or Performance Review Process

On at least a yearly basis, there should be a formal process to evaluate each employee’s performance and to provide them with developmental feedback.  This step should be a roll up of the coaching discussions being had throughout the year and should serve as a more formal check in on the employee’s developmental goals and progress.  Incorporating 360 Degree Feedback into the review and also collaborating on ratings across teams are best practices for making this portion of the performance management process especially robust and meaningful. 

Performance Improvement Planning / Performance Development Planning

Performance Improvement Planning is critical part of the performance management system in that there are clearly documented goals and actions that both the employee and manager can continually reference.  While this step is often a part of the Performance Appraisal or Performance Review Process, used as an ongoing tool throughout the year, the development plan can and should help keep development goals on track.