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Updated: April 26, 2018
TechnologyAdvice Guide to Performance Management Software
An Overview of Performance Management Software
A talented and skilled workforce is the lifeblood of every organization. Companies spend over $120 billion worldwide in order to find and attract top talent. But if organizations don’t take the time to continuously develop that talent— which is their most valuable resource— then all the money and effort spent hiring is for naught. Companies must look closely at how they manage and measure employee performance, as well as the technology they use to do so.
What is performance management software?
Performance management software is a tool designed to help managers write accurate job profiles and expectations, create relevant objectives that align with the company’s goals and mission, document performance, and write appraisals.
The best performance management software will also improve employee engagement through transparency, recognition, and feedback. Each team member can see how they contribute to the organization’s mission, and professional development programs are closely aligned to business goals.
Market size for PMS is difficult to ascertain. Current estimates value the talent management market (a rough proxy) at $5 billion, with a growth rate of approximately 17 percent. By 2019, the broader Human Capital Management (HCM) market is predicted to be worth $17.49 billion.
According to HR research specialists Bersin by Deloitte, 67 percent of the companies purchasing new talent management software in 2015 plan to purchase a PM solution, either for the first time or as a replacement for existing solutions.
Performance Management Tools (by Category)
Conducting a Performance Management Software Comparison
Performance management software helps align your workforce to corporate objectives, measure and evaluate individual employee performance, and measure organizational results on a continuous basis. The software digitally tracks all activities that ensure goals are consistently met in an effective and efficient manner.
Traditionally, companies conduct performance reviews at least annually. However, it’s important for employees to receive ongoing feedback in order to understand how they are performing and contributing to corporate goals, as well as what the next steps are in their career development. This means aligning and assessing performance continuously and gathering feedback from not only a direct manager, but team members, peers, and indirect managers as well.
A performance management system will offer the following functions, which can be used to gain insight into an individual’s overall strengths and potential:
- Coaching management
- Performance appraisals
- Performance review management
- Goal-setting, alignment, and management
- Feedback management
- Competency management and skill assessment
- Development planning
- Performance and productivity analytics
- Pay for performance
- Talent profiles
- Multi-rater functionality
- Mobile capabilities
- Reporting and analytics
Trends in Performance Management Tools
Assess, Coach, Repeat
Modern PM software isn’t just for HR— it’s for employees, managers, and leaders. Today, more than 70 percent of employees in an organization are “knowledge workers” or “service providers.” This means they become more valuable over time. Consequently, performance management is shifting from a competitive evaluation model towards ongoing coaching and development.
According to HR expert Josh Bersin, “Companies that provide high levels of development planning and coaching to their employees have a third less voluntary turnover and generate twice the revenue per employee of their peers. These are huge returns.”
This shift is supported by performance management systems that offer coaching tips and features for managers such as:
- Automated coaching tools
- Assignment of a coach within the system
- Links to on-demand related coaching information
- Workflows to track coaching and mentoring activities
These tools provide a digital record as well as data about how meetings impact performance, engagement, and turnover.
Business priorities change fast and frequently. There’s no guarantee a goal set at the beginning of a year will be relevant weeks or even months later. Research shows that organizations which have employees revise or review their goals quarterly (or more frequently) are 45 percent more likely to have above-average financial performance and 64 percent more likely to be effective at holding costs at or below the level of competitors.
As the entire performance appraisal process evolves, it’s best to think of your workforce as a valuable sports team: regular feedback, communication, and coaching will create high levels of performance. To facilitate high performance going forward, it’s necessary to have modern systems that encourage feedback, frequent check-ins, collaborative assessments, skill development, and social recognition.
End-to-end Talent Management
Recruitment, onboarding and training, performance management, and learning and development are tightly woven together. Because of this, one of the biggest trends in HR software is the shift from standalone or best of breed solutions to integrated product suites. Touchpoint solutions for payroll or recruiting provide tailored functionality for specific tasks and niche problems. However, a single vendor solution offers a seamless user interface, easy access to data across the system, and comprehensive analytics.
Though 74 percent of businesses surveyed currently use one system for performance management, as many as 10 or more HR systems are used inside their organization. Of the companies that plan to replace existing performance management software, a full 75 percent want to replace a standalone performance management application with an integrated suite solution. Ultimately, the decision depends on the needs of your organization, but having a full talent management solution helps integrate disparate talent processes.
Common PMS Applications
When choosing a performance management tool, there’s no one-size-fits-all solution. Different business sizes and types may need additional features, so it’s important to consider your company’s goals, needs, and industry.
That said, the market can be broadly divided a few ways:
- Enterprise: For large organizations, a performance management system that integrates with existing HR or ERP systems is necessary. Large companies upgrading legacy applications should consider integrated suites from one vendor, or ensure new software will integrate seamlessly with existing systems.
- SMB: Thanks to SaaS deployments, small-to-medium sized businesses can benefit from a robust performance management system. For growing SMBs, scalability is one of the most important factors to keep in mind— you don’t want to outgrow your system in a matter of months. As you scale, you’ll need to continually evaluate company goals and growth projections to ensure your vendor is still a good fit. If you find your system lacks the functionality you need, don’t continue to upgrade with the same vendor just to avoid having to transfer your data to another system.
- Best-of-breed: Do you already have a comprehensive HR solution in place, but find your performance management tool is subpar? If so, then a standalone system with more advanced functionality is necessary— especially if you’re satisfied with the majority of your HRIS. Just be sure that the new performance management software integrates with the existing platform.
- Integrated suite: If you want to improve your entire talent management process, create an efficient and effective system from scratch, or upgrade from overwhelming spreadsheets, then an integrated suite with multiple modules is best.
How to Create Executive Buy-in
To create executive buy-in for a new PM tool, you must build a compelling proposal. Luckily, performance management affects each individual department as well as the company as a whole. To ensure successful adoption and long-term ROI, focus on what’s in it for your decision makers. Below are a few ways to align your initiative:
Your technology leadership team is an excellent resource to help you conduct a performance management system comparison. Involving them early on is extremely important, as they can ensure the new technology will fit with existing systems and infrastructure.
If you’re replacing a self-developed or on-premise legacy solution, a modern performance management system can reduce infrastructure requirements, updates, and support, which frees the IT department to focus on more strategic goals. Additionally, CIOs can determine if a new system aligns with the company’s growth and three to five year technology life-cycle plan, ensuring it’s able to provide a return on investment.
The CIO will eventually manage your new system anyway, so make them an ally upfront. A strong endorsement from IT will give you a better chance of gaining buy-in from other execs.
People build businesses. That’s why developing a world-class workforce is a top priority for CEOs. A performance management system is essentially an accountability system. Once a CEO sets high-priority objectives, performance management software can help ensure those objectives are achieved. From company goals, departmental and team responsibilities are established, which then cascade into individual performance plans.
Since your CEO is concerned about the big picture, highlight how performance management software helps align workforce skills, development, and performance. It sets expectations for every single employee regarding what results they’re accountable for and how they should achieve them. With clear roles defined, it’s easy to see if employees are above or below performance, which then identifies where skills can be developed.
It’s important to know how to evaluate the effectiveness of your performance management system before you implement it. This will be the first thing your Chief Revenue Officer wants to know. Identify the outcomes from the system and how they will be measured. Aside from presenting the upfront costs, be prepared to outline ways a performance management system will give back to the company. Especially regarding the bottom line.
Be sure to mention that with performance management software, you can actively manage and track performance investments with metrics. Reports and analytics from a modern system can be used to calculate ROI for both revenue and talent growth.
Executives invest in solutions that help the company make money, avoid risk, or that serve long term strategic purposes. Performance management software fits all of these criteria. Create a common language and shared perspective to connect the dots for decision makers. Be sure to speak their language and use data to back up your proposal whenever possible.
Halogen Performance and Carhartt
Headquartered in Dearborn, Michigan, Carhartt Inc. manufactures premium workwear known for exceptional durability, comfort, and quality. The company started with only four sewing machines and five employees and now has 120 years of experience and more than 4,500 employees worldwide.
Prior to adopting performance management software, Carhartt struggled with a Word-based employee performance appraisal system. The DIY forms were cumbersome, which meant users often lost their work. There was no standard method to complete the process, and employees were generally disengaged with the system.
Carhartt needed to standardized the performance management process, and provide visibility and control. Specifically, the company needed a web-based employee system, a high level of functionality, and a user friendly interface — all while putting internal teams in control and enabling them to quickly and easily create forms and change the workflow.
Carhartt chose Halogen Performance for their new system and was able to deploy the solution enterprise-wide in under 60 days. With the new web-based system, the company has increased the level of employee engagement, gained insight into the process, and achieved measurable cost and time savings. Results include:
- An automated performance management process
- Overcoming the global challenges of paper-based systems and achieving 100 percent consistency between all HR teams, managers, and regions
- Improving employee engagement and visibility into the process
- Putting HR in control of the system, forms, and processes with little involvement from IT
- Achieving a 120 percent ROI for the company and gaining major measurable time and cost savings, particularly for managers
Choosing the Best Performance Management Software
This analysis of the performance management market, prominent features, and current trends can be used as a starting point for your software purchasing decision, as well as a means to create buy-in. If you need guidance choosing a solution, you can speak with one of our in-house tech advisors to get free personalized product recommendations by phone, or use the TechnologyAdvice Product Selection Tool on our website to sort products based on the features you need.