A performance management system is a systematic procedure of developing a work environment in which workers are encouraged to perform to their finest abilities. It is a continuous and flowing process rather than once in a lifetime event, to influence, manage, and monitor the performance of a worker.

A performance management system consists of creating a clear job description and the prime responsibility of an employee, laying out effective orientation for new employees, offering training, and providing feedback regularly, allowing career development, and maintaining an appraisal management system to make sure that the deserving employees are rewarded for their hard work.

Measuring the performance of all the employees during a single annual meeting is next to impossible. In today’s complex business world, employees are the most valuable asset.

The behavior of a person is volatile as it is subjected to many situations and experiences. In such scenarios, one needs to see how the employees perform, for getting rewards and appraisal.

The annual reviewing of the employee’s performance dates back to post World War 2 duration when the world was trying to stabilize the economy and get back to normalcy. Needless to say, the talent management system has changed drastically since then.

There are many benefits of a performance management system like-

  • Making sure that the employees realize the importance of their contributions towards the company, and help in making it profitable.
  • Encouraging transparency among the employees and treating them as equals.
  • Promoting effective communication and improving the engagement of all the employees throughout the organization.
  • Meetings and discussions on the goals and strategies of the company, how to go about a project, which encourages the employees to work harder.
  • Identifying the top skilled employees by keeping track of their performance and achievements, which in turn will help the company to retain the employee when the time comes.
  • Maintaining a cordial relation between the manager and the employee.
  • A performance management system is the only eminent tool that helps in determining the performance of each and every employee of the firm and thus helps in giving them appraisals and rewards according to their talent and hard work.

As it is known, the prime elements of a performance management system are dependent on various factors, which are as follows-


The first stage in the cycle of a performance management system is drafting the foundation to make it into an effective process. It includes creating plans for assessment, getting commitment activities, and setting top objectives.

Planning or drafting is a continual process in the performance appraisal system and should be done extremely carefully. It helps in motivating commitment by contrasting the employee’s work with the organization’s objectives and goals.

This step involves visualizing the success of the company and working towards it together.


The second stage is a very important one and is all about achieving the goals of the company in the long run. This process involves continuously monitoring the performance of all the employees and providing them with feedback, positive or negative.

If the employees get positive feedback, they will work harder to be more appreciated, on the other hand, if employees receive negative feedback, they will know where they are lacking and they can make up for it by working harder on that skill.

It promotes healthy conversation between the manager and the employee, as the managers let them know how to contribute to the company’s growth.


This stage includes reviewing the milestones of employees by going through their performance data and assessing how exactly have they contributed towards the growth of the company. A hard-working employee is not someone who spends the maximum hours in the office, it is more about someone who works efficiently and achieves all the targets within no time.


This is the last stage of the performance management system. It includes recognizing the hard work of the employees and rewarding them for it. Most companies use a performance appraisal system, where they give the employee appraisal depending on how skilled they are and their performance throughout. It creates a healthy competitive environment amongst the employees.

When they know they will be rewarded according to the amount of commitment they have towards the work, they tend to give their best to make sure they are rewarded handsomely. This is also very helpful when it comes to retaining employees, as it lets you know which employee has contributed maximum.

Management cannot expect the workers to stay motivated if they are not rewarded for their hard work. A performance management system not only lets the company see the performance of all the employees, but also helps in reviewing which employee is working hard to achieve the targets, and which employee is performing poorly and not showing any interest in improvising too.

Based on this, the company can decide which employee should be rewarded, and which employee should be let go. An HR software has many features like performance management which helps companies in managing employee’s performance, attendance, payroll and other HR activities.