The Ultimate Guide to Performance Management: What It Is and How To Do It Right

Andrew Le
2025-02-23T09:11:12-05:00
The Ultimate Guide to Performance Management: What It Is and How To Do It Right
Great Place To Work

Think of performance management as a garden. Without regular care—watering, pruning, and guidance—growth stalls. But with the right attention, employees can flourish, contributing to a vibrant, thriving workplace.

Imagine taking a road trip without a GPS, maps, or even road signs. Sure, you might eventually reach your destination, but the journey would be inefficient, frustrating, and full of wrong turns.

This is exactly what happens when a workplace doesn’t have a clear performance management process.

Just as a GPS gives real-time updates, clear directions, and course corrections, performance management helps organizations and their people stay on track toward shared goals. Employees can grow and be more productive and, as a result, are more engaged.

When everyone is moving together with clear directions, it cultivates a more trusting and purpose-driven culture.

What is performance management, and why does it matter?

Performance management is a structured, continuous approach to helping employees understand where they’re going and how to get there. It includes three key components:

A clear destination (goals and expectations)

Regular checkpoints (feedback and coaching)

Tools to measure progress (evaluations and engagement surveys)

When these elements work together, they create a roadmap that keeps everyone moving in the right direction. For example, regular one-on-one meetings can serve as “recalculating” moments where managers can help employees adjust their course.

A well-organized performance management system can improve productivity and employee retention because employees know what’s expected of them. They understand their purpose and have the support they need to succeed.

The key dimensions of performance

Performance management is about more than employees getting everything on their to-do lists done.

While that’s certainly part of it, a performance management plan that only looks at the day-to-day and doesn’t consider the bigger picture — such as learning and development, personal goals, and growth opportunities — is unlikely to drive success.

Instead, performance management should take a holistic approach. Where do employees want to take their careers? What do they enjoy, and what do they struggle with? How do they view their role and purpose within the wider organization?

Consider these types of performance as you’re drafting your system:

Task performance: How well do employees fulfill their core responsibilities? (This is the daily to-do list.)

Development performance: How actively do employees pursue growth and learning? Are they acquiring new skills, seeking feedback, and making progress on career goals?

Collaborative performance: What contributions do employees make beyond their role? Do they exemplify teamwork? Do they step forward for new initiatives?

Adaptive performance: How well do employees respond to change and drive innovation?

Cultural performance: How well do employees embody and promote organizational values and behaviors?

Leadership performance: How effectively do employees influence and guide others? This could be by mentoring colleagues, leading projects, or serving as role models.

Most importantly, performance is more than just results (although those matter). A strong performance management system considers how behaviors impact results, not just a black-and-white bottom line.

How effective performance management drives workplace success

When workplaces get performance management right, the benefits ripple through every aspect of the business.

Improved employee engagement and trust

Employees are more engaged when they understand how their work matters. Regular conversations about goals and progress build trust between managers and workers, creating an environment where people feel valued and supported.

Increased efficiency and productivity

When expectations are well-defined, and employees receive regular guidance, they spend less time wondering if they’re on the right track — and more time doing their best work.

This clarity also helps teams work more efficiently since everyone understands their role in the bigger picture.

Enhanced retention and lower turnover rates

When employees see a clear path for growth and feel their contributions are recognized, they’re less likely to look for work elsewhere.

This reduced turnover not only saves on hiring costs but also helps preserve valuable institutional knowledge.

Better decision-making through actionable feedback

The feedback loop created by effective performance management leads to smarter decision-making at all levels.

Managers gain insights that help them allocate resources more effectively and spot potential issues before they become problems. Employees receive the information they need to adjust their approach and develop new skills.

Core principles of performance management

For your performance management process to be great, ensure it hits the following marks:

Clarity: Goals should be specific and measurable, connecting each person’s work to the company’s bigger picture.

Consistency: Have regular, structured ways to discuss progress and provide feedback.

Relevance: Ensure what you’re measuring is what actually matters. Every metric should have a clear “why” behind it.

Fairness: Performance standards should apply equally to everyone. Evaluations should be based on clear evidence, not personal bias.

Growth: Performance conversations should discuss development and improvement, not just evaluation.

Action: End with clear next steps. Every discussion should include “What’s next” and “How can we help you get there?”

Get more tips on how to master performance management.

How to implement a performance management strategy

Performance management is often seen only as a look-back system: How well did an employee perform, did they meet their targets, etc.

If results are successful, the employee is perhaps awarded a bonus or promotion. But if not, the employee is reprimanded, with little more than an order to do better next time.

But a better way to approach performance management is as a forward-thinking tool. What goals are you trying to achieve? Where do employees see their roles in six months? How can management and employees collaborate to make it happen?

This is where performance management serves as your GPS. You can’t get to where you want to be without knowing how to get there.

Here’s how to ensure your organization’s performance management is hitting all the stops along the way:

1. Set clear, measurable goals that align with business objectives

Clearly outline the expectations for each role in your organization. Identify the metrics that matter, whether that’s sales targets, customer satisfaction scores, or project completion rates.

Most importantly, show employees how their individual work connects to larger company goals — this creates meaning and purpose.

2. Develop a feedback culture

Encourage open communication between leaders and employees. Set up a clear pattern of communication that works for your team. Maybe that’s weekly check-ins to keep everyone aligned, or monthly discussions to work through challenges and celebrate wins.

3. Train your leaders

Teach managers how to have productive coaching conversations. Leadership effectiveness hinges on showing managers how to deliver feedback that actually drives improvement and how to set meaningful goals that stretch but don’t break their teams.

4. Integrate technology and tools

Create straightforward templates for feedback that guide discussion while leaving room for meaningful conversation. Use employee engagement surveys to track progress and gather data-based insights.

5. Focus on employee growth

There should be a clear connection between performance and opportunity. Show employees how improving their performance opens doors. Invest in training and development and career mapping.

6. Evaluate and iterate

Gather regular feedback from both managers and employees about their experience. Be ready to adjust and evolve your approach based on what you learn — no performance management system is perfect from day one.

Examples of performance management in action

There are some common themes among great workplaces when it comes to performance management.

For example, they offer transparency, clear expectations, and ongoing support. They share company goals and strategies openly with all employees, so everyone understands what needs to be achieved and how to achieve it.

Penn Mutual: Giving feedback in real-time

When financial services firm Penn Mutual realized its performance management cycle didn’t align with the company’s fast-paced business cycle, and that employees were unsure how their roles related to different areas of the business, the company knew a change was needed.

Teams shifted from annual reviews to continuous, real-time feedback that clearly connects business goals to the individual level. This made it easier for employees and leaders to assess what was working and identify any misalignments.

“The focus really needs to shift to empowerment, enablement, and people really bringing their best,” says Liz Heitner, chief human resources officer at Penn Mutual, in a conversation about performance management. “It’s not something that you can just say, ‘Oh, yay, we’ve arrived. Check the box. We’re done.’”

Wellstar: Creating clear career paths

All employees at Wellstar Health Systems have an active individual development plan, with tailored goals created in collaboration with their manager.

To help guide the process, Wellstar provides a library of goal examples, a three-step worksheet for setting goals, documentation to help leaders explain the goal-setting process, and goal-setting webinars.

This focus on personal goals helps Wellstar to maximize its internal talent pool, creating clear paths for employees to progress.

Texas Health Resources, Inc.: Prioritizing the why

At Texas Health, the why behind what they do is integrated into the performance management process — KPIs aren’t just arbitrary numbers to chase but a driving force.

Fraser Hay, president of Texas Health Plano, says: “We make sure we’re communicating, not just ‘Here’s the target on the wall. Go get it,’ but also why we have this target, why we’re very focused on it, why it’s important for us as a hospital and as a system, and why it would be important for us as consumers if we were coming to receive care here.”

The company also helps employees to understand their impact with things like a “Good to Great” wall — a status board showing a direct line between employee performance and the hospital’s KPIs. This visual helps employees see how their day-to-day work fits into the company’s performance and growth.

Box, Inc.: Focusing on values

Tech company Box puts its values front and center when it comes to performance management — not just evaluating employees on the “what” (results achieved), but also the “how” (whether employees are exemplifying company values).

As part of this, the company has designed training for managers and employees to hold a “Career Framework” conversation. In this conversation, both parties get to align on role expectations, set work for the year, and identify and discuss development opportunities.

At the end of each quarter, employees and managers discuss wins and learnings from the past quarter and begin preparing for the next quarter, again reinforcing the “what” (goals and targets) and the “how” (values).

Navy Federal Credit Union: Guiding two-way feedback

A good performance management process goes two ways. Not only should employees be assessed on their performance, but management should also be held to high standards.

Navy Federal Credit Union has a clear leadership model that defines expectations and behaviors for what great leadership looks like. The model is divided into three categories:

Do: Lead in the employee’s best interest with integrity by safeguarding trust, anticipating with empathy, and being proactive.

Learn: Elevate service through collaboration, curiosity, confident humility, and leveraging technical expertise.

Grow: Develop service-oriented employees by championing inclusion, coaching, challenging, and showing them care.

When it comes to employee performance reviews, the company has set out a “Do Well, Do Better, Do Next” framework to ensure it’s a two-way conversation between leaders and employees, that addresses where the employee is at, where they want to go, and how leadership can support them in getting there.

Challenges in performance management and how to overcome them

If you’ve ever had an unsupportive performance review, you know how scary the process can seem. It’s one of the main reasons workplaces may be resistant to a feedback loop — managers may feel uncomfortable giving it, and employees may struggle to receive it.

This could stem from past negative experiences or a workplace culture that hasn't valued open dialogue. The solution: Present feedback as a tool for growth rather than criticism. Train managers to have coaching conversations that focus on future improvement rather than past mistakes.

You may also run into challenges if goals aren’t aligned across teams and departments. Instead, create clear frameworks that guide how goals are set and measured throughout the whole organization.

Or sometimes, performance management efforts fall flat because they don’t connect to company values and culture. For instance, if your organization values innovation but your performance metrics only measure short-term results, you’re sending mixed messages.

The key to overcoming all these challenges is trust and transparency. Use employee surveys or focus groups to learn where your current system is falling short. Share these insights openly and involve your team in developing solutions.

Leadership’s role in driving performance management

Leaders set the tone for how performance management is perceived and practiced throughout the organization. Their daily actions determine whether it becomes a valuable tool for growth or just another box to check.

Here are some ways that great leaders help employees and create a strong performance culture:

They demonstrate vulnerability by openly sharing their own development goals and asking for feedback on their leadership style.

They make time for meaningful conversations about performance, going beyond surface-level praise or criticism to explore root causes and solutions.

They create psychological safety by responding to mistakes with curiosity rather than judgment.

They celebrate progress and small wins — not just results.

They remove obstacles by asking, “What do you need to succeed?” and then following through with support and resources.

Measuring the impact of performance management

Here’s how to track whether your performance management efforts are making a difference:

Track the employee experience with an employee engagement survey tool. Look for improved scores around clarity of expectations, quality of feedback, and career development opportunities.

Monitor productivity metrics such as sales figures, customer satisfaction scores, and project completion rates. Effective performance management should drive these numbers up.

Watch for turnover, particularly among high performers. People stay longer when they see opportunities for growth and feel valued.

This information can give you insights that your organization can then use to refine your process. It can also help leaders to become more accountable for their team culture.

For example, Wellstar used the Great Place To Work? Trust Index? Survey to help leaders make informed, data-driven decisions about how to best support their teams.

Each month, the company studied one of the five focus areas from the Trust Index and considered real-world examples of how to apply this new knowledge within the departments’ and leaders’ day-to-day work.

As a result, 73% of Wellstar’s leaders either increased or maintained high trust scores, with an average increase of 21 points.

Creating a high-performance workplace through effective management

When organizations get performance management right — with clear goals, regular feedback, and genuine support for employee growth — they create workplaces where people want to stay and do their best work.

Want to measure the impact of your performance management efforts? Great Place To Work’s employee survey solution provides data-driven insights about your company culture, measuring factors like trust, pride, and leadership effectiveness — so you can create a workplace where everyone can thrive.

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