Which of the following statements is the best explanation of a performance management system?

The system is collaborative, with managers and employees working together to set expectations, identify employee goals, define performance measurement, share employee performance reviews and appraisals, and provide feedback.

When properly defined and consistently applied, a performance management system increases overall workforce productivity. Employees are more invested in their work and turnover is minimized while revenue per employee is maximized.

Performance management software can be implemented on premise, in the cloud, or within a hybrid environment.

A cloud platform or HR cloud provides a range of benefits including larger data storage capacities, stronger security, and easier integration with complementary applications, such as learning and development, compensation, and other people-centric systems.

A performance management system relies on three key processes:

1. Plan and act with goal management
   • Align employee performance to the objectives of the organization.
   • Assign work that is meaningful and fulfilling to increase employee engagement.
   • Quickly adapt goals when business priorities shift.
2. Monitor with continuous performance management
   • Monitor the goals of each employee to ensure ongoing alignment with organizational goals.
   • Provide feedback and guidance to improve performance.
   • Recognize good results as they happen.
3. Evaluate and recognize through performance assessments
   • Assess performance consistently and accurately.
   • Recognize and reward strong performers.
   • Use data-driven insights from the system to quantify the value your workforce delivers to the business.

Businesses have been managing the performance of individuals for centuries. But one of the first formalized models was introduced during the First and Second World Wars when the military needed to understand the strengths and capabilities of each member to inform battle strategies.

By mid-century, performance appraisals were being used by businesses to grade the performance of individual workers and to assign rewards.

In the 1960s, the focus began to shift to employee development, where discussions were held between an employee and their manager to review performance and – where warranted – to institute teaching and training to help the employee improve and/or advance in their career.

In the intervening years, some aspects of traditional performance management software have evolved due to better technology, such as cloud computing, improvements in user interfaces, and artificial intelligence (AI) and machine learning. However, most systems continue to emphasize employee evaluation and reward on a quarterly or annual basis.

While recognition remains an important aspect of performance management, businesses are moving to a more holistic approach, one that provides ongoing feedback and guidance for employees to help them achieve their goals.

Any company with an employee base – regardless of industry or size – will benefit from a performance management system. 

Although every employee will interact with the system at some stage, the power user is the team leader or manager with direct reports.

• Employees work with their managers to define employee goals. They build their individual employee performance reviews within the system, and participate in 360-degree review cycles if this model is in use.
• HR professionals define the HR processes and systems that support the performance management cycle. They work with managers and employees to ensure processes are fair and that each stage is carried out in a timely manner.
• Managers are the power users of the system and must ensure every employee actively participates in the process. Managers are also ultimately responsible for the performance of their team(s).

Along with increased workforce productivity, higher employee engagement, lower turnover, and maximized revenue per employee, a performance management system that is properly integrated with adjacent business systems can provide valuable insights that will inform broader human capital management decisions.

For example, a performance management system stores and quantifies data from employee/manager interactions including individual career aspirations, appropriate skill sets, and overall fit for succession planning. With these insights, learning and development funding can be invested in a manner that best supports the needs of the business and the employee.

Performance management software provides an accurate and real-time view of the workforce that aids in people planning and strategy.

Consistency and transparency are key to optimizing the performance management process. The cycle of goal management, continuous performance management, and assessment are ongoing. Once the cycle is complete, existing and new goals are identified and the cycle begins again.

Best practices also include the provision of ongoing, interactive feedback throughout the year versus only during the performance assessment stage. Performance conversations should be relaxed and open. Employees and managers must take the time to sharpen these skills if they wish to improve their interactions.

To ensure a consistent methodology is applied to assessments for workers within similar roles across the company, a calibration process should be implemented.