Performance Management System

Discover what a performance management system is, the types of performance management systems, and how to effectively implement a performance management system in your organization.

el gerente y el empleado se dan la mano para la gestión del rendimiento

What is a Performance Management System?

A performance management system encompasses the processes that an organization takes to facilitate effective and clear communication between the supervisors and employees. Performance management is complicated, and a performance management system is necessary to make sure organizations are on the right track when it comes to ensuring that all systems are running smoothly and the company’s goals are being met.

A performance management system is in place year-round to assist everyone in the organization, aligning goals and setting both individual and team goals, while also developing employees to ensure they meet and exceed goals regularly.

Defining Performance Management

Performance management is a complex process. Simply put, performance management refers to the ways an organization communicates with the teams and individual employees to ensure that everyone is on the right track and performing as expected. It’s easy to assume that performance management only consists of a performance review every year. However, this is a constant process where managers, supervisors, and employees need to work together to achieve peak productivity and find ways to further improve the different processes.

Purpose of a Performance Management System

Performance management can be very tough in both large and small organizations. This is why a comprehensive management system is necessary to aid every member of the organization in aligning goals and consistently improving performance. Without it, it can be easy for people to lose track of the main goals of the company, which can result in a drop in numbers.


There are many types of performance management systems that are geared toward different companies and industries. However, most of them can be divided into two categories: organizational and personnel performance management systems.

Organizational Performance Management Systems

As the name suggests, organizational performance management systems apply to the whole organization. These are macro systems that have a much wider reach. They are used to help define the methodologies that organizations will use to define their goals, measure them, and ultimately attain them.

There are more than a few types of organizations’ performance management systems. But some of the most common ones include:

  • Balanced Scorecards – Combines financial, customer, internal processes, and personnel perspectives to give a comprehensive view of goals and how to achieve them.
  • Management by Objectives – Groups goals into larger sets that you can look at from a wider perspective.
  • Budget Driven Plans – A system that’s largely based on the organization’s budget and revolves around it.

Personnel Performance Management Systems

These are also called HR performance management systems and are used to create a framework that the team uses when evaluating employees and their performance. These are also used to appraise and align employee performance with the organization’s overall goals to make sure everyone is united in achieving the company’s larger objectives.

Why a Performance Management System is Important

Modern businesses exist in a fast-paced industry that’s complex and tough to understand. Performance management systems are in place to simplify the organization’s large and small goals and can outline the ways they can reach their goals.

Performance management systems don’t just look at input and output. They also consider everything that goes in between that including innovation, adaptability, and communication, which are key aspects in achieving the larger goals of the business.

A 2018 study showed that over 75% of businesses made changes to their performance management systems. This shows that performance management systems are top priorities for many businesses, especially if they want to compete in the modern world.

A high-quality performance management system paves the way for innovation, enhanced productivity, and an upward trajectory for a business. And in this fast-paced business landscape, we live in, it’s important for businesses to have clear systems in place for managing and improving performance.

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Elements of an Effective Performance Management System

Every organization has the freedom to create a performance management system that suits its specific needs. All businesses have unique needs, goals, and methodologies that need to be considered when creating a performance management system.

But while systems may vary greatly from organization to organization, there are some elements that remain constant. These include:

Elements of an Effective Performance Management System


An effective performance management system needs to include concrete plans that an organization needs to follow to meet its overall goals. When crafting a performance management system, it’s important to leave room for the planning phase which includes aligning and setting goals for the company.


Performance management systems need to be able to monitor both employee and team performance. This is to ensure that everything is going to plan and the company’s goals always remain within reach.

Performance Review

It’s important not to skip over performance review when creating a performance management system. Performance review allows you to see where certain employees are falling short and where they are exceeding. From there, it will be much easier to create a concrete plan to increase productivity and improve performance.


To properly manage performance within an organization, employees need to be incentivized to achieve goals. So, make sure to have rewards in place that will show employees that their hard work matters and will pay off.

Leon Altomonte
Article by
Leon Altomonte
SafetyCulture Content Contributor
Leon Altomonte is a content contributor for SafetyCulture. With his language degree and years of experience in content writing, he delivers well-researched, informative articles about safety, quality, and operational excellence. In addition to his professional pursuits, Leon maintains a creative outlet as a performing musician.