Expert Ways to Integrate Performance Management and Talent Management

Few things in business are as important as having a talented and productive workforce. To make this a reality for your organization, two key HR concepts stand out from the crowd: performance management and talent management.

Whether you need clarity on the definition of each or are looking for best practices to combine them, this guide has you covered. We offer a comprehensive breakdown of the differences and overlaps between talent management and performance management, complete with six best integration practices.

You will also find some eye-opening insights from leaders describing their approach to developing people to their true potential.

What is talent management?

The concept of talent management took off in the corporate world in 1998. It was popularized by McKinsey and Company, which released “The War for Talent” to describe how companies aggressively compete to hire the most talented people in the marketplace.

Now, companies perceive talent as “some combination of a sharp strategic mind, leadership ability, emotional maturity, communication skills, the ability to attract and inspire other talented people, entrepreneurial instincts, functional skills and the ability to deliver results,” as noted by Michaels et al.

Talent is a significant corporate resource; harnessing it ensures your organization has a healthy pipeline of people to meet your strategic goals. Therefore, talent management involves creating processes to find, develop, retain, and reward your people.

What are the key elements of talent management?

Talent management includes the following:

1. Recruitment: Attracting high-caliber applicants and keeping them engaged throughout the candidate journey
2. Onboarding: Orienting new employees and providing them with the skills and tools they need to ramp up and become productive
3. L&D: Providing employees with the proper training, upskilling, and leadership development opportunities to stay current and become better contributors
4. Performance management: Setting goals, providing feedback, and assessing progress by creating a high-performance culture of continuous improvement
5. Rewards and recognition: Rewarding employees with incentives to maintain engagement and keep morale high
6. Compensation and benefits: Engaging employees with attractive salary and benefits packages.
7. Deployment: Identifying specific skills and roles needed and ensuring the right people are in the right positions at a given time—deployment also includes developing future leaders through succession planning
8. Retention: Creating a culture of belonging, encouraging employee loyalty, and reducing turnover

Why is talent management critical?

J. Willard Marriott, entrepreneur and founder of the international hotel chain Marriott International once said, “Great companies are built by people who never stop thinking about ways to improve the business.”

This is the crux of talent management. It’s essential for:

• Achieving business objectives
• Enabling organizational growth
• Hiring top talent
• Building a strong employer brand
• Reducing turnover
• Directing relevant skills to the right areas of your business

Challenges and pitfalls in talent management

But no one said talent management was easy.

There’s a constant stream of internal and external hurdles for Human Resources teams to leap over to execute a winning talent management strategy.

Some typical challenges include:

• Lack of direction: Companies need stakeholder buy-in or a talent management budget to create a clear path and set of practices to manage their best people
• Retention difficulties: Competitors may poach your most valued people assets by offering compensation, benefits, or other opportunities you cannot match
• No development investment: Companies without a development budget will struggle to offer strategic training using innovative methods in the flow of work
• Restricted strategy: Some companies confine talent management to potential leaders or successors rather than understanding that all people have talent and you must develop and nurture them equally

What is performance management?

Performance management is a specific aspect of talent management that focuses on evaluating, monitoring, and developing the performance of employees. It sets expectations for performance output and defines criteria for measuring how well your employees meet their goals.

There are multiple approaches to performance evaluations, including:

• Annual performance reviews delivered by a manager to a direct report.
• 360-degree reviews, a holistic approach that collects feedback from peers, managers, direct reports, and business partners
• Self-evaluations, where employees take the reins by regularly assessing their own performance
• Regular check-ins that allow employees to receive continuous feedback in 1:1 meetings or in the flow of work

What are the key elements of performance management?

Whether you have daily performance conversations or save them for formal annual reviews, your management structure will involve some key components:

1. Defining expectations: Clarify the goal and expectations for performance—for example, a sales professional may have a quota for each cycle
2. Setting goals: Managers and their team members work together to set goals—use OKRs or the SMART method to create specific, measurable, attainable, realistic, and time-bound goals
3. Gathering feedback: Decide who can provide feedback about an employee’s performance_for example, in a 360-degree appraisal, an employee may nominate certain colleagues or managers to participate in their feedback cycle
4. Analyzing feedback: Review the input gathered, look for patterns, and consider how to use the guidance to develop goals or reinforce performance expectations
5. Course-correcting: Use feedback to course-correct and influence the employee’s behavior or performance—for example, the feedback may flag a weakness that requires some constructive (reinforcement) feedback to support an adjustment. Alternatively, the feedback may highlight employee skills in a new area, allowing you to redirect your L&D path accordingly
6. Rewarding outstanding performance: Provide compensation or recognition for employees displaying extraordinary performance to drive productivity and engagement—for example, a strong performance review may lead to a promotion or transition to a higher salary band

Why is performance management important?

The benefits of having a performance management strategy commonly fall into three buckets—positively impacting employees, managers, and employers:

• Employees: Performance management programs enable individual workers to achieve career growth by working towards their personal and professional goals
• Managers: Performance reviews allow managers to give constructive feedback, helping foster better relationships within their team. Heightened productivity and greater engagement also ensure the team functions at its best
• Employers: By developing individual performance, employers can achieve their organizational goals, resulting in increased profitability and business success

Challenges and pitfalls in performance management

Performance management also has its fair share of obstacles on the path to success, including:

• Failing to assess performance objectively: Bias can infiltrate reviews
• Misalignment with other HR processes: Making meaningful decisions about administrative actions like compensation can be challenging if performance management does not link to the rest of your HR processes
• Feedback delays: Timely and ongoing feedback is essential for performance management. Annual reviews aren’t timely and can lead to skills gaps or performance issues
• Lack of clear goals: Without clear communication, managers and employees could struggle to focus on valuable objectives

How talent management differs from performance management

Talent management and performance management are both integral to your organization’s success. However, there are glaring differences between how you plan and handle these crucial HR strategies.

Scope

Talent management focuses on the entire employee lifecycle, beginning with staffing and recruiting. It ensures the organization attracts, develops, and retains top talent to meet long-term goals.

In contrast, performance management concentrates on improving and managing the performance of current employees. The focus is on assessing, coaching, and developing individuals in their existing roles.

Time frame

Talent management is a long-term, strategic approach aimed at building a pipeline of talent for future organizational needs. In contrast, performance management zooms into specific review cycles. However, each review contributes to an employee’s long-term career development.

Goals

The primary goal of talent management is to optimize the organization’s talent capacity by identifying high-potential employees and aligning their development with future business needs. On the other hand, performance management aims to enhance the performance of individuals by setting clear goals, providing feedback, and offering opportunities for growth, ultimately improving day-to-day productivity.

Approach

Talent management is typically a top-down strategy driven by leadership. It involves succession planning, leadership development, and workforce planning. In contrast, performance management is a collaborative, ongoing process between managers and their teams. It encourages two-way communication and active participation to set goals, assess progress, and create development plans.

Why incorporate performance management with talent management

Matthew Ramirez, CEO of Rephrasely, explains the value of merging performance with talent management for the best results:

Let’s investigate some of the top reasons for abolishing these silos to blend performance and talent management.

Identifying talent

In his book, “Armstrong’s Handbook of Performance Management: An Evidence-Based Guide to Performance Leadership,” Michael Armstrong describes:

Planning for successors

A performance process forms the foundation of talent management strategies. Without it, there would be no succession planning or understanding of future talent requirements. Continuously assessing performance through role-specific competencies is instrumental in establishing talent pools—the talent resources available within your organization.

Build a high-performance culture

In a high-performance culture, everyone strives to deliver results and improve. Performance management reinforces a culture of accountability by providing regular feedback and tracking progress toward goals.

Improve employee satisfaction

Employees who are engaged and continuously challenged will have greater job satisfaction. The intertwining of performance and talent management ensures that employees have the resources and support to reach their career goals—and that they’re recognized and rewarded when they do.

In a Nectar employee recognition survey, 81.9% of respondents stated they feel more engaged when their employer recognizes their contributions.

Decrease turnover

Create a system where employees have better chances of developing critical skills, and you’ll notice higher retention rates.

LinkedIn’s Workplace Learning report highlights that 90% of organizations are concerned about retaining talent and acknowledge that L&D opportunities are the number one way to improve this.

Create a supportive workplace

Performance management will keep employees on track and hold them accountable. In contrast, talent management will forge strong relationships, trust, and mutual understanding in the workplace.

Best practices for integrating performance management and talent management

Here are six best practices to maximize the natural overlap between these different areas.

1. Align talent management and performance management goals

Your talent team must move in the same direction as your performance reviewers. The overarching aim is to ensure everyone develops relevant skills and capabilities to support long-term organizational goals.

Lilian Chen, Co-founder and Chief Operating Officer of Bar None Games, explains how to align both strategies:

2. Lean on data and analytics

Analytics is a major HR trend, and there’s no doubt that number-crunching will inform your strategic talent decisions, along with identifying top performers, pinpointing specific development opportunities, and spotlighting successors for critical roles.

Matt Teifke, CEO of Teifke Real Estate, believes in investing in technology to support talent and performance management. He told us:

3. Link performance management to career development

Maria Harutyunyan, a co-founder of Loopex Digital, explains how performance metrics enable leaders to accelerate individual career progression while tying into overall business performance objectives and future talent planning. She told us:

4. Foster a culture of ongoing feedback and support

Top leaders like Antreas Koutis, Administrative Manager of Financer, understand that clear and timely communication is a must-have for any organization looking to integrate talent and performance management. He recounts his experience of doing this:

5. Build a culture of continuous learning and development

By developing a learning culture, employees are more likely to be engaged, motivated, and committed to the organization’s success.

Mark Pierce, CEO of Cloud Peak Law Group, decodes how to encourage employees to participate in their professional development actively.

6. Invest in employee engagement

Encouraging employees to participate in important decisions related to performance and development relies on soliciting their feedback. Asking for their advice and insights can foster greater support and overall buy-in.

Again, it’s about encouraging your workforce to want to progress.

Charlie Southwell, Marketing Director at Let’s Talk Talent, describes the virtuous circle of driving high performance and unlocking potential in people already engaged:

Implement strategic performance and talent management with Deel Engage

Streamline talent management processes and get data-driven insights with Deel Engage:

• Create stellar onboarding experiences: Set your new hires for success with engagement onboarding journeys and accelerate cultural integration with buddy programs
• Create transparent career frameworks: Clarify role expectations and opportunities for career growth
• Evaluate and improve individual and team performance: Collect insights on performance, competencies, goals, and cultural alignment from multiple perspectives—peers, supervisors, direct reports
• Collect feedback: Measure worker sentiment and address their challenges and expectations for improved retention
• Manage training and development: From upskilling to personal development, give your people the resources to grow and excel—access thousands of courses from dozens of platforms to bridge the gap between talent development targets and concrete resources
• Manage offboarding: Track all key tasks across stakeholders before a worker’s final day in your organization
• AI assistant: Take advantage of the embedded AI assistant to accelerate time and resource-intensive processes such as defining career progression frameworks and creating training materials
• Deel HR, our truly global HRIS solution, is always included for free

Book a demo to see how our solutions will help you implement a strategic talent management system.