July 26, 2023

Why Is Performance Management So Important?

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Key takeaways:

  • Continuous performance management offers many benefits for businesses, including better employee engagement, increased productivity, and better retention.
  • The right HR software can make it easier to create and stick with a formal performance management program.

Jul. 25, 2023: We revised the copy for clarity, accuracy, and depth. We also added examples of software solutions that support your performance management goals.

Ready to jumpstart your company’s performance management program? Start by browsing software solutions in our Performance Management Software Guide.

What are the benefits of performance management?

A well-designed performance management program offers benefits for employees, managers, and the organization at large. In particular, performance management:

  • Creates opportunities for 360-degree feedback.
  • Clarifies each employee’s role.
  • Identifies employee needs and addresses potential problems.
  • Encourages employees to set goals and celebrate achievements.
  • Supports employee training and development.
  • Increases employee retention and satisfaction.

Creates opportunities for 360-degree feedback

Compared to traditional performance reviews, a modern performance management program enables 360-degree feedback. In this framework, employees receive feedback and recognition from their peers, collaborators, and direct reports in addition to their direct supervisors. It can also incorporate a self-review, prompting employees to actively reflect on their performance and identify potential areas for improvement.

A 360-degree approach creates a more holistic view of the employee’s performance beyond what a two-way discussion can capture. For example, Qualtrics’ 360-degree feedback feature analyzes reviewers’ responses using natural language processing and provides clear action items that are tailored to the reviewee’s growth.

Qualtrics displays personalized development tips for an employee working to improve their "trust others" ratings.
Qualtrics parses 360-degree feedback to curate personalized development tips. Source: Qualtrics

Clarifies each employee’s role

It’s not always clear what role each employee is supposed to play, especially in smaller organizations where the same people wear many different hats. Having regular performance management appraisals gives employees a chance to clarify expectations about their roles and ensure everyone is on the same page.

This will prove helpful as employees prepare to advance in the company. Managers can discuss areas for growth to work toward career advancement and identify ways to redistribute tasks among the team as roles change.

These check-ins can also contribute to larger workforce planning initiatives. Having these conversations can help managers figure out what roles might be missing from the organization, or if one person is handling too many responsibilities that need to be split across multiple roles.

Identifies employee needs and addresses potential problems

One of the goals of the performance management process is to address the earliest indications of employee productivity problems. Without regular performance discussions that foster transparency and accountability, though, this can be challenging. How can managers help employees who don’t feel comfortable admitting their weaknesses?

Continuous performance management gives managers the chance to talk with employees about their needs and keep that dialogue open. Regular communication helps establish trust, and employees don’t have to put a special meeting with their supervisor on the calendar if they’re facing roadblocks or other challenges.

“It’s hard to get accurate data on burnout rates, but it’s definitely a problem,” said Matthew Ramirez, founder of Rephrase Media and Forbes 30 Under 30 alum. “It’s not always easy to tell who needs a break and who is genuinely struggling — and how bad it might get if left unchecked. By using a performance management system, we can keep a close eye on how everyone is doing.”

Encourages employees to set goals and celebrate achievements

A performance evaluation is the perfect time to talk with employees about their career goals and set personal individual performance objectives. It’s also a good time to evaluate the feasibility of your employees’ various goals and help tweak them as necessary. Performance goals that are completely out of reach may need to be adjusted, especially if employees don’t yet have the skills to achieve their goals yet.

These check-ins are a great opportunity to celebrate staff members’ achievements and praise them for meeting their goals. Instead of only focusing on what the next benchmark is, take some time to look back and reflect on how much your employees have grown since the last check-in.

Performance management software can help with logging and tracking goals. For instance, Trakstar lets users set due dates and email reminders for check-ins, cascade organizational goals to the individual level, and automatically enroll employees in training courses. These features remind everyone to stay on top of their progress toward their goals.

Trakstar dashboard displays strategic goals feature with sample goals for sales processes and employee satisfaction.
Trakstar supports company-wide alignment around SMART goals. Source: Trakstar

Also read: Top 5 Digital Rewards & Recognitions for Remote Workers

Supports employee training and development

Individual employee performance appraisals were originally intended to identify gaps in employee skill sets, but it’s self-defeating to identify the gaps without offering any type of solution on how they can meet performance standards. If employees are setting ambitious goals, then that presents the perfect opportunity to talk with them about professional development options.

It’s common to hire for potential and not experience, so organizations need to provide the proper training and employee development programs that address employee performance and skill gaps. Plus, many companies like to promote from within rather than make outside hires, meaning they need to train candidates that show the most potential for leadership roles.

“Employee engagement can be enhanced by providing opportunities for learning and development, and by giving employees a sense of autonomy and ownership over their work,” explained Jonathan H. Westover, Ph.D., managing partner and principal at Human Capital Innovations. “This can promote a sense of purpose and fulfillment, which can lead to higher levels of engagement.”

If you are planning to develop internal training courses for your employees to use, a learning management system (LMS) is a must-have.

Increases employee retention and satisfaction

When done right, performance management can help increase employee morale and job satisfaction, reduce staffing turnover, and improve employee retention rates. Employees who feel supported and believe their HR manager is invested in their career progression are more likely to feel satisfied at work, and performance management programs provide a formal channel for that support.

Furthermore, employee engagement software can help uncover meaningful data about the impact performance management initiatives have on employee sentiment. If a company survey reveals that some employees feel they don’t have clear goals and direction, HR leaders should carefully examine the performance management measures in place.

For example, 15Five has an entire feature set dedicated to employee engagement. The science-backed surveys can be completed in just six minutes, and the software automatically analyzes the results to identify both wins and challenges across multiple areas.

15Five displays a heatmap with employee engagement survey results.
15Five makes it easy to identify measures that will improve employee engagement for different segments of your workforce. Source: 15Five

How does performance management affect employees?

Many companies are guilty of treating corporate performance management as a yearly event where supervisors only give feedback at an annual performance review. Unfortunately, this is a surefire recipe for employee disengagement. Instituting a formal employee performance management structure — and supporting it with the right software — could be the key to combating employee burnout and improving your business performance as a whole.

“Performance management doesn’t have to be considered a bad thing, but rather something that helps your employees hold themselves accountable,” said Erin Banta, co-founder of e-commerce home design company Pepper Home.

“Performance management can also offer your employees needed constructive feedback and gives them that opportunity without having to seek it out. Plus, performance management allows employees to give their employer feedback in a comfortable, safe, and transparent setting.”

Furthermore, performance management presents an opportunity to celebrate employees’ achievements, which can have broader implications for employee satisfaction and retention. In 2022, Gallup and Workhuman found that employees who feel adequately recognized for their work are 73% less likely to fall victim to burnout, 56% less likely to look for a new job, and five times as likely to recommend their company to friends and family.

How can software help with performance management?

Performance management tools may be implemented as stand-alone software or integrated as part of a broader HR suite, and both approaches are beneficial for different kinds of business needs. In either case, performance management software features help businesses with goal-setting, coaching support, document management, continuous feedback, automation, and competence management.

Managers can use software to create employee professional development plans, while employees can use it to set their own goals and track their progress toward achieving them. HR software such as Engagedly makes it easy for employees and supervisors to track progress with performance measurement. Additionally, the reporting and analytics features make it possible to track both individual goals and company goals.

Engagedly’s goals dashboard provides quick access to company-wide progress. Source: Engagedly
Visit Engagedly

Ideally, employee performance management systems should provide coaching resources and reminders for managers, so they have the support they need to succeed as supervisors and to help their employees improve. These documents and resources can be created by an HR manager, then uploaded to the performance management portal for all supervisors to access.

Good performance management software centralizes all of the professional development resources for a single employee. If the employee gets a new manager, the software can store all of the notes and analytics related to the employee’s past performance. This is also helpful for reflecting on qualitative information that adds context to quantitative metrics.

Many performance management tools, like Namely, allow for multi-rater functionality. This means people other than HR or the employee’s direct manager can leave constructive feedback about the employee’s performance. Well-rounded, ongoing feedback is usually collected through anonymous surveys to allow for transparency.

Namely’s multi-rater capability provides a well-rounded view of an employee’s performance. Source: Namely

HR software can automate performance management tasks that are often handled manually, like tracking progress toward an objective or scheduling check-in meetings. This allows employees and managers to focus on the more impactful tasks and discussions involved with performance management.

Some HR software platforms, such as TalentGuard, include competency management capabilities to support the overall performance management plan. This means the software tracks assessments, certifications, licenses, and other professional qualifications employees need for compliance or career advancement.

TalentGuard engages each employee in a clear, actionable growth plan tailored to their goals. Source: TalentGuard

Choosing the right performance management software

A good performance management system that supports employee recruitment and development can be the competitive edge a company needs to win and retain top talent. The right solution will promote transparency in conversations with employees, provide actionable data, help employees meet organizational objectives, and lay a foundation for growth and success.

If you’re ready to find the right tools to support your performance management program, check out our Performance Management Software Guide to explore top solutions.

Kara Sherrer Avatar

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Featured performance management partners


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Conduct better reviews, increase feedback quality, and simplify review cycle management. ClearCompany Performance Management helps you implement an employee-first approach by shifting the focus of performance reviews from evaluation and ranking to employee growth and future potential. ClearCompany helps your company drive engagement and focus with goal-planning tools while increasing the value and reducing the workload of performance review cycles.

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Performance Pro

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Performance Pro is a customizable, user-friendly, automated performance management platform. Save time with our customizable libraries of content from competencies to tools that help managers leave more meaningful feedback & establish smart goals. Empower your employees to pursue their own professional development, retain your top talent, provide a sense of purpose with goal alignment to strategic objectives, & truly drive an increase in performance & achievement throughout your organization.

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Mesh is a performance management platform that helps people at distributed organizations grow faster by scaling the habit of leader, manager, and peer check-ins. Its social-first interface, GenAI-enabled nudges and recommendations, and prescriptive insights assist organizations in improving their chances of hitting business goals by 4x and improving the density of its top performers from 5% to ~10-20%.

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