What is the purpose of a performance management system?

Online systems have revolutionized the way companies look at, measure, and manage employee performance. Effective software makes the entire process easier for administration, engaging for employees—and most importantly—frictionless for managers.

But how do you identify which performance management software is best? Finding the right performance management software provider isn’t a process to take lightly; be sure to do your research.

What is a performance management system?

A performance management system helps leaders continuously track and coach employee performance. Not only do these systems ensure that employees are working effectively toward aligned organizational goals, but they help leaders develop their talent toward optimal performance. 

Certain features within an effective performance management system help leaders stay on top of employee performance to continuously motivate and engage them, which reduces turnover and maximizes business outcomes. 

Why do you need a performance management system?

The modern organization is fast-paced, complex, and faces different challenges than before. While output and production is an important metric in business success, innovation, communication, and adaptability is key. That’s why taking an annual, irregular approach to performance management is no longer effective. 

Top organizations now need a continuous approach to performance management that prioritizes ongoing performance conversations, to capture real-time data and progress. In fact, roughly 75% of organizations have reinvented their performance management process to be more continuous. It’s clear that new-age workplaces need a modern performance management system to adapt, improve, and drive performance—rather than simply evaluating it. 

Here are the top reasons that leaders need a performance management system:

• To measure performance accurately
• To close employee skills gaps with effective coaching 
• To discuss employee goals—both personal and professional
• To increase employee morale and reduce turnover 
• To show adequate appreciation for employees’ work
• To create a foundation of trust between employees and their managers
• To create a path to success for all employees
• To increase company-wide alignment
• To drive the outcomes that matter to your business

What are the elements of a performance management system?

When you’re considering key elements of a performance management system, it’s important to consider all aspects of your performance management cycle. The right software will help you make performance management easier at every stage. 

1. Planning

It’s important your performance management system helps you facilitate key planning activities like setting and aligning on employee goals. This helps safeguard organizational alignment and gives an opportunity for employees, teams, and leaders to outline an action plan.

2. Monitoring

Your performance management system should help you track key metrics and monitor employee progress to ensure employee and team goals are reached. This is critical in addressing roadblocks and motivating productivity.

3. Reviewing 

It’s key that your performance management system helps you efficiently review an employee’s performance and final results. The right system will facilitate the conversations that allow managers to provide feedback, understand the employee’s perspective, and create performance plans for the future.

4. Rewarding

Your performance management system should give you the tools to reward employees for their efforts. By providing adequate recognition, leaders can motivate employees toward optimal performance in the future.  

What to look for in a performance management system?

An effective performance management system should help you capitalize on your initiatives. With these features, you can maximize employee performance and drive business success:

1. Set, track, and collaborate on goals.

Why it matters: Goals help organizations achieve more, faster, with less.

Goals should be clear, aligned and shared. Clear goals guide employees to focus on the right priorities and keep their work aligned

with organizational strategy. This ensures accountability across the company, motivation to propel the business forward, and strategic alignment at every level.

How tech can help

Make sure you have the tools you need to help your teams set and track goals. Organizational goals should be driving team goals, and team goals should be driving individual goals.

Your performance management software should promote transparency, alignment, and collaboration across the organization. 

Look for features such as:

• Real-time goal-setting so managers can recognize barriers early and stay on top of team progress
• Visibility on company goals so employees can put their work and priorities in context
• One-stop dashboard for clear insights into team culture and performance
• In-tool tips and reminders to keep employee goals top-of-mind and coach teams on best practices

2. Conduct ongoing performance conversations

Why it matters: Ongoing conversations help organizations get a more complete picture of performance.

Performance conversations should be frequent, collaborative, and documented. And employee-manager one-on-ones are the perfect opportunity to discuss performance. From check-in meetings to formal performance reviews, one-on-ones might be the most important part of your performance management platform. When managers effectively coach and develop their employees, 74% say their performance management systems are effective.

How tech can help

With so many moving parts, it can feel daunting to try to capture the right information, document it, and create an action plan for every single employee, every time.

Your performance management software should empower managers to have regular and effective performance conversations.

Performance reviews should be future-focused, transparent, and two-way. Look for one-on-one software that can help you prepare for and follow-up on meetings with features such as:

• Best practice templates 
• The ability to capture private notes
• A shared agenda builder so employees can collaborate on their performance conversations and check-ins

Plus, having access to past meetings, employee goals, feedback, and data from your HRIS or other performance features allows you to get a full picture of employee performance and help managers better coach their team.

3. Facilitate peer-to-peer, real-time employee recognition.

Why it matters: Recognition encourages employees to perform their best.

Employee recognition should be motivating, public, and reinforce your organization's values. One study found that 69% of employees would work harder if they felt their efforts were better recognized.

Openly acknowledging and praising employee behavior or achievements offers many benefits, such as increased productivity, increased engagement, decreased turnover, and improved company culture.

How tech can help

Only 37% of employees nationwide are satisfied with the way they receive recognition and appreciation at work. And a staggering 45% of workers have not been recognized in the last six months.

Recognition software can help you bridge the gap to celebrate, motivate, and engage teams across your organization.

Look for recognition software that:

• Facilitates public, peer-to-peer recognition
• Alerts managers in real-time when others have recognized their teams
• Enables team bonding and peer recognition through a public recognition board
• Allows anyone to share praise and post recognitions across the organization
• Provides insight into broader performance by integrating recognition seamlessly into employee goals, one-on-ones, and feedback

4. Collect and share immediate and continuous feedback.

Why it matters: Feedback builds strong relationships to drive performance.

Great companies are built on trust, and trusting cultures are built on feedback. Our research shows that a strong feedback culture correlates with a highly engaged workplace.

Continuous feedback should be individualized, constructive, and unbiased. Regular feedback builds strong relationships by encouraging transparent dialogue and helps drive better performance through continual improvement.

How tech can help

Too many organizations aren’t providing enough feedback. In fact, 71% of employees prefer immediate feedback, even if it’s negative. The right software can make sure your teams are getting the feedback they need to succeed.

Choose a feedback tool that helps you create a feedback culture across the organization.

Look for software that lets you: 

• Collect ongoing 360, peer-to-peer, and upward feedback
• Request or give feedback anytime, anywhere
• Coach employees on feedback best practices to improve the feedback loop
• Automate feedback cycles and set reminders to ensure no one falls through the cracks 

5. Track vital talent metrics.

Why it matters: Talent reviews allow leaders to develop and retain top talent.

Talent reviews should be frequent, unbiased, and rooted in data. Managers and leaders across the organization need to know who is doing the best work, who is ready for promotion, and who is at risk of leaving. Talent reviews allow leaders to track and evaluate performance, fill talent gaps, develop and retain top talent, and intervene before employees burn out or quit.

How tech can help

Talent decisions should be based on credible data that is easy to access, understand, and act upon. Performance management software can help you track talent metrics on an ongoing basis so you can make informed and strategic talent decisions.

Look for features that simplify the talent review process, such as:

• Collaborative reviews that ensure transparency and consensus among leadership
• Intuitive dashboards with shared insights across HR, managers, and leaders
• Automated evaluations so you always have consistent, up-to-date information

6. Coach employees for ongoing development.

Why it matters: Learning and development leads to a stronger connection between the employee and their work.

Employees want to work at a company that invests in their long-term development and provides opportunities to grow. And the benefits of a strong employee development program are mutual. Employee learning and development should be prioritized, supported, and organization-wide. Successful employee learning and development leads to increased engagement, better employee performance, and happier, more motivated workers.

There are multiple ways to invest in employee development. But one of the most powerful tools is coaching.

How tech can help

In order for coaching to be effective, it needs to be integrated into your organizational culture. That’s where technology can make a big difference.

Use a performance management system to build coaching into the fabric of your company culture.

Look for features that help you: 

• Provide feedback training to both coaches and employees
• Communicate expectations clearly across teams

7. Understand the big picture behind performance.

Why it matters: understanding performance trends helps managers effectively coach employees and make strategic people decisions. 

A deep understanding surrounding performance needs to be in place before managers can adequately coach and motivate employees. When managers can see performance activity, it’s easier to mentor their talent and drive success. Plus, smarter people decisions can be made as leaders can identify high-risk employees and low performers to shape a retention strategy before it’s too late.

How tech can help 

With the right tools, leaders can connect the dots on employee performance, all in one place. And that’s where technology comes in. The right software can help you identify where performance is excelling or lacking and understand performance risk. Tools like performance snapshot and flight risk help leaders uncover big picture trends that actively affect performance. 

Look for features that:

• Highlight employee performance to tell a clear, succinct story. 
• Create automated, intuitive dashboards that are easy for leaders to understand
• Identify high-risk employees so leaders can intervene with informed people decisions. 

12 performance management system questions to ask when evaluating a solution 

When picking out the right solution for you, there are many things to consider. That’s why we’ve compiled a list of 12 questions you should ask to get the most out of your performance management system. 

Big-picture evaluation questions

When first adopting a performance management system, it’s important to understand the why behind your performance initiatives. By doing this, you can uncover the opportunities and obstacles that you want your performance management system to help you navigate. This will help you gain insight into whether your system is the right fit or not.