How to Improve the Performance Management System in an Organization: 10 Key Strategies

Employee performance management can easily feel like a drag. If your managers dread hosting annual performance review meetings and employees hate attending them, your current strategy probably isn’t working. It’s also likely that your team members aren’t performing at their optimal level.

Modern performance management systems offer an effective alternative to this challenge. They incorporate regular feedback from various sources and tie it to actionable employee development plans. It’s meaningful, forward-thinking, and always aligned with overall business objectives. Our guide details how to improve your performance management system in ten simple steps to achieve these benefits.

Step 1: Assess the status quo

While the majority of companies will have an existing approach to performance management they want to improve, some won’t even have a formal strategy in place.

In either case, it’s important to benchmark your current position, enabling you to measure progress once you tweak your strategy or roll out an entirely new initiative. Take the following steps to achieve this:

1. Diagnose what’s working and not currently working with your performance management system by collecting feedback from managers, employees, and HR
2. Review your current performance management policies and procedures to identify any gaps or areas for improvement—for example, are performance reviews conducted regularly? Do some employees miss receiving a review at all?
3. Analyze data on employee engagement, retention rates, and productivity to see how they are impacted by your current performance management system
4. Check if your employees have role clarity—do they understand their role’s specific deliverables, processes, goals, and KPIs?

Step 2: Implement continuous feedback

Traditional performance management has hinged on the annual review—the dreaded appointment where managers talk and employees listen. Top-down feedback is undoubtedly crucial to the development process, enabling workers to gain insights into the quality of their performance. However, shelving these conversations as a once-a-year event prevents workers from gaining meaningful praise or feedback in the moment.

In contrast, continuous feedback enables workers to stay aligned with their goals and receive real-time actionable insights. The payoff is clear: 80% of employees who have received meaningful feedback in the last week are fully engaged in their work, bringing associated performance and productivity benefits to the organization.

Switch to a culture of continuous feedback by:

1. Setting up monthly one-on-one meetings between managers and their direct reports
2. Using feedback software to enable workers to request and provide feedback on their peers’ work
3. Incorporating a “feedback and recognition” section in team meetings or stand-ups

Step 3: Introduce goal-setting frameworks for added clarity and alignment

Employees can only perform at their best if they understand what you require from them. Unfortunately, only 45% of employees know what is expected of them at work, according to Gallup research.

Ideally, your new performance management system will involve:

1. Defining the skills and competencies required for each individual role in your org chart—for example, a mid-level accountant should have advanced financial skills, knowledge of applicable accounting software, and experience conducting analyses
2. Highlighting career pathways to promote internal mobility within your organization, for example, demonstrating the skills, competencies, and experience your mid-level accountant needs to become a senior accountant
3. Implementing structured frameworks like OKRs (objectives and key results) or SMART goals to ensure clarity and alignment—for example, setting an objective for mid-level accountants to reduce budget variances by 10% in the next quarter

Step 4: Incorporate 360-degree feedback

360-degree performance reviews involve collecting honest, actionable feedback from a range of sources close to the person you’re evaluating. Rather than rely on one person’s point of view, this performance management trend is more holistic, encouraging collaboration and balanced insights.

Here are some common feedback types to collect:

• Manager to direct report: Traditional top-down feedback
• Direct report to manager: Upward feedback crucial in evaluating manager performance
• Peer to peer: Colleagues in the same or adjacent departments may provide honest feedback on what it’s like to work alongside the reviewee
• Self-appraisal: The reviewee can raise awareness of some activities they’ve completed or obstacles they’ve faced—this also provides the opportunity for reflection
• Third-party: External business partners working closely with an employee may have valuable insights to share as part of a performance appraisal—for example, a freelancer may provide feedback on what it’s like to work with their point of contact on the team

Step 5: Emphasize employee development with individual development plans (IDPs)

Performance reviews can only be effective if you connect the dots between the feedback employees receive and their individual development.

Example: Imagine Emilio, a mid-level manager, receives constructive feedback from their manager, peers, and their direct report that they lack strong communication skills, which has impacted project momentum. The point of delivering this candid feedback isn’t to make Emilio feel bad but rather to use the information to construct their development plan. Emilio’s manager can arrange for him to:

• Take an online course on communication skills
• Attend workshops on effective team management
• Set up a mentorship with a senior manager known for their excellent communication style

For top effectiveness, employee development must be personalized to the individual and focused on long-term growth. This will inspire workers to stay with your organization long-term and motivate them to perform their best.

Step 6: Encourage open communication and coaching

While individual employee development sounds like a solo pursuit, it actually requires strong communication and collaboration from those who work alongside each other. In a psychologically safe work environment, employees will feel safe to ask clarifying questions, raise concerns, and discuss their growth with colleagues.

Linking employees with their own coach is another way to integrate individual learning and performance management cycles. Some companies may provide access to a third-party coach who specializes in leadership or personal development. Other organizations may designate a more senior employee as the coach, providing opportunities for growth while also building stronger relationships among team members. In either situation, a coach offers the following:

• A sounding board: Employees can discuss any challenges with someone who may have a different perspective on a problem
• Accountability: A coach keeps employees accountable for achieving their development goals, providing ongoing motivation throughout the process
• Guidance: Coaches can signpost resources to support employees in improving skills like conflict resolution, time management, or building effective relationships

Note: Unlike prescribed advice from a mentor or superior, a coach will support the employee in finding solutions to their own problems. Of course, a strong leader will incorporate elements of coaching into their managerial style.

Step 7: Align performance with company values and mission

Aligning learning programs to business goals is a top priority for L&D teams this year, according to LinkedIn’s Workplace Learning report. In terms of performance management, this means focusing on areas of an employee’s performance and development relevant to the overall company values and mission.

Example: If your company places a strong emphasis on customer service, reflect this in your performance management process by incorporating customer satisfaction metrics or goals to improve the customer experience.

When you execute this step effectively, your employees will have a clearer sense of purpose. They’ll understand what they need to do and how it fits into the bigger picture. Expect them to become more motivated and engaged as they strive to achieve excellence in their individual roles for the good of the organization.

Step 8: Utilize performance management technology

HR technology is essential in streamlining performance management processes and tracking employee progress. You can choose from:

• Dedicated performance management software
• All-in-one software with performance management capabilities
• HR solutions that sync with existing tools you use to track performance (such as spreadsheets, project management tools, etc.)

There are numerous potential routes when selecting the right performance management software. Whichever approach you take, the goal is to automate manual tasks and simplify the process of:

• Documenting performance review data
• Managing development plans
• Automating performance feedback
• Analyzing performance data
• Tracking development progress

Step 9: Leverage AI to enhance performance management

37% of CEOs and senior leaders envision a future where humans collaborate with rather than compete against artificial intelligence, according to Kornferry’s research. Performance management is undoubtedly an area that can benefit from the pace and structure offered by this technology. Here are some ways you might incorporate AI into your performance processes:

• Generating skills and competency matrices to tailor to the needs of your organization
• Automating performance review scheduling and reminders
• Identifying trends and patterns in employee data to inform development plans
• Providing real-time feedback based on employee performance data
• Suggesting relevant learning opportunities for employees based on their roles and goals
• Creating entire libraries of training courses to suit your employees’ needs

Step 10: Calibrate your performance management system

An effective performance management system is fair and equitable, giving every employee in your organization the chance to thrive. But performance evaluations can be subjective—what if Manager A is more generous with their feedback and performance scores than Manager B? What if Manager C uses an entirely different set of performance questions to Manager D?

These nuances matter, especially if performance reviews are linked to decisions related to compensation, promotions, or development opportunities. The solution is to calibrate your performance management system and provide a level playing field for every employee. Follow these steps:

• Document your performance evaluation process so every manager understands their responsibilities
• Train your managers on the key competencies and behaviors to look for in their team members so they evaluate performance through the same lens
• Host a performance calibration meeting where managers assess employee performance scores together, aligning on any discrepancies and ensuring consistency
• Analyze your data to identify any trends or biases in performance evaluations and adjust accordingly
• Establish a clear process for reviewing employee feedback before it’s shared with them to ensure fairness across teams and departments

Key metrics to measure the success of your refined performance management system

Track progress on your performance management system with data-driven metrics such as:

• Employee retention rate: How many employees stay with your company after their performance review and development plan?
• Employee turnover rate: How many employees leave your company? Do they mention performance management or learning and development as a driver in their decision-making?
• Employee satisfaction: Do employees feel the performance management process is fair, transparent, and helpful for their growth?
• Employee productivity: Are your people achieving greater output and a higher quality of work?
• Goal achievement: What percentage of individual and team goals are met after implementing your new performance management system?
• Feedback response rate and satisfaction: How many employees are satisfied with how their feedback is addressed?
• Skill development: Are employees improving their target skills after participating in learning and development activities?
• Time spent on individual development plans: How much time do managers and employees spend creating and implementing individual development plans? Are these plans effective in improving employee performance?

Tracking all the metrics above will likely be overkill. Instead, select three or four that relate closely to your specific performance management goals. Monitor the data over time to understand the impact of your refined performance management system and tweak it as needed.

Remember, refinement is an ongoing process, so don’t be afraid to experiment and adjust as required.

Build an effective performance management system with Deel Engage

Deel Engage is a people-first suite enabling you to build high-performing teams with half the work. The following features each act as building blocks of an effective talent management system:

1. Goal setting: Collaborate on OKRs and align individual development plans with overarching company goals
2. Role clarity: Build crystal clear competency frameworks displaying what every worker needs in their role and how they can progress along internal career pathways to achieve professional growth
3. Performance evaluations: Run comprehensive review cycles on autopilot, with the ability to customize feedback types, anonymity settings, review questions, and calibration steps according to your needs
4. Multi-rater feedback: Deliver a holistic overview of each person’s performance by collecting insights from a range of colleagues at all levels of your organization
5. 1:1 meetings: Schedule meaningful development conversations between managers and their direct reports
6. Bonus: Deel HR, our fully global HRIS solution, is always available at no additional cost

Ready to create an effective performance management system? Schedule a Deel Engage demo to discover how our platform will inspire and motivate each of your team members.