Introduction

Performance management is the activity and set of processes that aim to maintain and improve employee performance in line with an organisation's objectives. It’s strategic as well as operational, as its aim is to ensure that employees contribute positively to business objectives. Ideally, performance should be managed holistically, throughout the range of HR activities and processes.

This factsheet explores critical aspects to get right in performance management, as well as recent changes in thinking. It summarises some of the main tools used in performance management, including objective setting, performance ratings, performance appraisals and feedback, learning and development, and performance-related pay.

Key takeaways

  • Performance management requires a multifaceted approach linked to organisational strategy.
  • ‘SMART’ objectives work well in many contexts, but there are better alternatives for complex jobs.
  • Regular performance feedback is crucial for monitoring progress.
  • Employees’ voice and perceived fairness are critical elements in performance feedback. 
  • There are many biases to watch out for in performance ratings.

CIPD viewpoint

If people are the greatest creators of value in organisations, then good performance management is critical for organisational success. Employees must understand what’s expected of them, and to achieve those goals they need to be managed so that they’re motivated, have the necessary skills, resources and support, and are accountable.

Broadly, good performance management revolves around regular, effective feedback on progress towards objectives. It’s multifaceted, not a technique in itself, and there’s no single best approach. It should align with organisational strategy and suit the type of jobs in question.

People managers are instrumental in performance management. Ideally, they reinforce the links between organisational and individual objectives and give feedback that motivates employees, helps them improve, and holds them to account. Managers need to be suitably skilled and supported by processes that are fit for purpose. But much of how performance is discussed is shaped by cultural norms: senior leaders will set the precedent and line management relationships will in turn shape how colleagues discuss performance more widely. 

At the core of effective performance management are frank, yet supportive performance conversations that include ongoing feedback. Occasional processes, such as annual performance reviews and pay setting, can be useful, but shouldn’t be the main focus.

For professions involved in ensuring organisational performance, such as HR, a big challenge is to lever the relationship between the people engaged in the enterprise and the value they deliver. Performance management is the attempt to maximise this value creation and ensure that employees contribute to business objectives.

At its best, performance management is a holistic set of processes. It brings together many principles that enable good people management practice, including learning and development, performance measurement and organisational development. For this very reason, it’s complex and often misunderstood.

There’s no definitive definition of performance management. Those that exist usually state that it comprises a range of distinct tools and activities. Broadly, performance management is an activity that:

  • establishes objectives through which individuals and teams can see their part in the organisation’s mission and strategy
  • improves performance among employees, teams and, ultimately, organisations
  • holds people to account for their performance by linking it to reward, career progression and termination of contracts.

Performance management should be:

  • strategically aligned with broad issues and long-term goals
  • integrated with various aspects of the business and how people are managed.

Effective performance management relies on both formal and informal processes. It’s about planning; for example, defining and reviewing objectives, linking ways of achieving those objectives to business plans, and setting measures of success. These are often discussed in meetings between the line manager and employees, known as performance reviews or appraisals. But performance management is also about establishing a culture in which individuals and groups take responsibility for the continuous improvement of business processes and their own skills, behaviours and contributions. As part of this, employees will need to talk to their managers about the support and resources they need to do their jobs well. 

Performance management is a continuous cycle, not an isolated event. Because performance management integrates various HR activities, an overarching structure or framework is needed for the different parts to be complementary. 

The elements of performance management may be similar across different organisations, but there’s no single best approach. Each organisation should develop practices that are relevant to their specific business context and their actual (or desired) organisational culture. There should also be flexibility within the system itself to account for the different ways teams or functions operate within a single organisation.

Corporate strategic goals should provide the starting point for business and departmental goals, followed by agreement on individual performance and development priorities. Individuals and managers can then draw up plans and monitor performance continuously. Feedback should be given regularly, and could be supported by formal performance reviews at agreed points over the course of the year. The plans can also highlight organisation-wide processes that are required to support performance; for example, leadership, internal communications, and others.

Changing trends in performance management

In this video, Jonny Gifford, Senior Adviser for Organisational Behaviour at the CIPD, explores the changing trends in performance management over recent years.
Play Video
Jonny Gifford, Senior Advisor for Organisational Behaviour, CIPD

Having remained fairly stable for two or three decades, common performance management practices have started to change over the last few years in response to a proliferation of articles challenging received wisdom. The broad thrust is that traditional practices – in particular, the dreaded annual appraisal – are outdated, if indeed they ever worked. However, most popular articles on new practices present little, if any, evidence on what’s actually effective in improving performance.

In our research report Could do better? Assessing what works in performance management, we present evidence to help employers cut through the hearsay on trends and instead make grounded decisions on what is most likely to be effective in improving performance.

At a fundamental level, the established performance management chain still holds, as seen in Diagram 1 below.

However, there are a number of important factors that employers should be careful not to take for granted. Based on the best available evidence, a fuller model of target-setting and performance appraisal should consider the following:

  • Objectives can be outcomes-focused: They can be specific and challenging, focused on doing one’s best, or focused on behaviour or learning.
  • Performance ratings can be used for administrative purposes (for example, to inform pay decisions) or to support people development after the judgements managers make.
  • There are a number of sources and forms of bias that can unduly influence performance ratings, but there are things we can do to reduce them.

Employees’ reactions to feedback are a vital factor. Reactions are influenced by an individual’s personality (for example, their self-esteem and openess) and how they perceive the appraisal (for example, as fair and involving).

We expand on these points in Diagram 2 below, while our Could do better? report provides further details.

Setting performance objectives for individuals, departments and the organisation is an important aspect of managing performance. These objectives can be expressed as targets to be met (such as sales levels), ad hoc tasks to be completed by specified dates, or ongoing standards to be met. They may be directly related to team or organisational key performance indicators or personal; for example, taking the form of developmental objectives for individuals. 

Today, many employers do not solely rely on measurements of employees’ outputs. Rather, they balance these with learning and development objectives and assessments of employees’ behaviour, such as how supportive they are of colleagues. These can be of longer-term importance to the organisation. For example, there’s good evidence that social cohesion is an important factor driving performance in knowledge organisations, so it’s important for such employers to promote collegiate and collaborative behaviour. Performance management is one way of doing this.

It’s often said that objectives should be SMART – typically, Specific, Measurable, Achievable (yet stretching), Relevant, and Time-bound. As we argue in our Could do better? report, the best evidence supports this in some contexts but not others. In straightforward tasks, goals that are specific and stretching do increase performance, but in 'complex' jobs (such as those which involve making analysis-based decisions or adapting to unfamiliar cues), they do not. Here, vaguer outcome objectives focused on ‘doing one’s best’ work better, and best of all are objectives focused on learning or behaviour. 

Whatever their nature, objectives should be clearly relevant to the overall purpose of the job, team and organisation. Our research found that employees do need to be committed to them, but they do not need to set their own objectives – indeed, targets tend to be more powerful when they are set by one’s manager.

Employers can also opt for objectives on team-level performance rather than individual level. Both types can work well; the important thing is to match objectives to the nature of the work. In one job, good performance may purely be a factor of individual application; in another job it may rely much more on teamwork. If striking a balance between individual and team objectives, employers should be careful that they do not undermine each other. 

Performance management often focuses almost purely on assessing employees’ past performance and linking it to administrative decisions (for example, on pay). This is a mistake. If the ultimate aim is to improve performance, there should also be a strong focus on how employees need to develop. Performance conversations should thus help employees to learn from their experiences and identify other relevant learning and development opportunities. 

A number of organisations use personal development plans (PDPs) to set out actions they propose to take in this regard. Sometimes, a review of employees’ potential and development needs is grouped with the performance appraisal and called a performance development review (PDR). 

You can explore more on how learning supports workplace performance in our learning and development strategy factsheet.

Performance appraisal is a process by which managers assess workers’ performance. It’s often seen as an annual process, but this need not – and indeed should not – be the case. Assessing and feeding back on performance is a critical factor in making targets effective, as monitoring our progress towards objectives is strongly motivational. Performance appraisal should thus be a regular occurrence; for example, happening at the end of a piece of work or every few months, depending on the nature of the work. They can involve face-to-face conversations between managers and their staff, 360-degree feedback, and assessments against performance targets.

Linking levels of pay to individual, team and organisational performance is a traditional, and still common, approach. In organisations that have performance-related pay (PRP), performance management is an inseparable aspect of pay reviews. However, the relationship between pay and performance is a widely debated aspect of performance management, which we explore further in our performance-related pay factsheet.

Contacts

Center for Evidence-Based Management provides a database of evidence summaries on effective management

Books

ACAS. (2014) How to manage performance. Advisory booklet. London: Acas. 

ARMSTRONG, M. (2014) Armstrong's handbook of performance management: an evidence-based guide to delivering high performance. 5th ed. London: Kogan Page. 

HUTCHINSON, S. (2013) Performance management: theory and practice. London: Chartered Institute of Personnel and Development. 

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.

Journal articles

CAPPELLI, P. and TAVIS, A. (2016) The performance management revolution. Harvard Business Review. Vol 94, No 10, October. pp58-67.

GROEN, B.A.C., WILDEROM, C.P.M. and WOUTERS, M.J.F. (2017) High job performance through co-developing performance measures with employees. Human Resource Management. Vol 56, No 1, January-February. pp111-132. 

KINLEY, N. (2016) The end of performance management: sorting out the facts from the hype. Strategic HR Review. Vol 15, No 2. pp90-94.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.

This factsheet was last updated by Jonny Gifford.

Jonny Gifford

Jonny Gifford: Organisational Behaviour Adviser

Jonny is the CIPD’s Senior Research Adviser for Organisational Behaviour. He has had a varied career in researching employment and people management issues, working at the Institute for Employment Studies and Roffey Park Institute before joining the CIPD in 2012. A central focus in his work is applying behavioural science insights to core aspects of people management. Recently he has led programmes of work doing this in the areas of recruitment, reward and performance management. 

Jonny is also committed to helping HR practitioners make better use of evidence to make better decisions. He runs the CIPD Applied Research Conference, which exists to strengthen links between academic research and HR practice. 


Explore our related content

Top