Performance Management System – Objectives, Components and Benefits

In the current day and age, the role of HR has evolved and developed to new levels .  the focus of HR now  is largely on the development of functional strategies to help in corporate strategy implementation. HR works in tandem with corporate strategies for optimum results, to improve employee performance, to create a harmonious work environment and to involve employees in decision making and planning for the corporate.  It is the role of HR to provide these opportunities and hence it has climbed a notch higher from being just an  passive participant  to an enabler and facilitator. Performance management system in HR is  a key component to increase employee motivation and drive high performance.

What is a Performance Management System?

Performance management systems set in line an organized and systematic way of progress review, goal setting, communication, recognizing and rewarding achievement, providing feedback for better performance and implementing employee development programs. It is a continuous process, which is carried out right from the time when an employee joins an organization till the time he or she leaves . Performance management in HR is aimed at improving the overall corporate performance by enhancing individual performance within the framework of a team. It pushes for optimum performance by setting the right expectations, communicating effectively, defining clear roles, and setting achievable objectives.

Working of Corporate Performance Management

The following actions are included in corporate performance management systems:

  • Development of precise job descriptions and creating detailed employee performance plans inclusive of their performance indicators and key result areas (KRA).
  • Setting up a strong selection process in lines with the company policies so that the right candidates are selected for the job.
  • Discussing and setting performance standards to measure productivity and output set against benchmarks that have been predefined.
  • Giving the employee feedback and coaching on a continuous basis right through his performance delivery period.
  • Catering to development and training needs by measuring productivity and performance quality.
  • Having discussions on the employees’ quarterly performance and evaluating them based on the performance plan.
  • Developing and implementing a set rewarding and compensation system for employees who exceed performance benchmarks or those who excel in their jobs based on their performance plans.
  • Facilitating guidance sessions, career development support and promotional discussions for employees on a regular basis.
  • Holding comprehensive exit interviews to find out the reasons for an employee’s discontentment with the company and the reason for his or her departure.


Components of an Effective Performance Management System



Performance planning: This is the basis of performance appraisals and it is a crucial component of a corporate performance management system. Both the appraiser and the reviewee carry out performance planning at the start of a work session. KRA’s and performance budgets are decided after mutual agreements between the employee and reporting officer.

Performance appraisal and reviewing: Organizations usually have mid-year and annual reviews in which the employees’ performance is reviewed; based on achievements and fulfillment of his goals as well as overall performance, he/she is appraised. The process combines both self-review as well as a review by the reporting officer. Measurable and quantifiable achievements are rated and causes for loopholes are detected and analyzed.

Performance feedback and personal counseling: This is a very important step in which the appraiser and employee sit in discussion. The appraiser talks to the employee about areas of improvement and about his levels of contribution, expected performance achievement, etc. Along with transparent feedback, the need for training and development is also identified. The appraiser needs to adopt necessary measures to ensure that the employee meets the company’s expectation levels and that he improves overall performance.

Rewarding good performance: The motivation of an employee is determined when his good performance is recognized and rewarded. It could directly influence the self-esteem of a person. It is very sensitive in propelling his achievement orientation too. When an organization recognizes an employee’s contribution and rewards him for it, he strives to do be better because of the motivation.

Performance improvement planning: This calls for setting of new goals and deadlines for employees. Key areas of improvement are made aware to the employee and he is also assigned a stipulated deadline for the same. He must show improvement within the jointly finalized and mutually accepted time-frame.

Potential Appraisal: The employee’s lateral and vertical movement is influenced by this factor. Competency mapping and assessment techniques need to be carried out for successful appraisal. This needs to include crucial points such as job rotation and succession planning.

Key benefits of Performance Management Systems

In short, successful implementation of corporate performance management systems can result in overall benefit of the organization, the manager and the employee.


  • It improves overall performance of the organization and increases employee loyalty and retention.
  • It improves productivity of the company and also delivers cost advantages.
  • It sets clear accountabilities and overcomes communication barriers in the organization.


  • It saves on a lot of precious time and reduces conflicts within the team or department
  • It increases efficiency levels of team members and motivates better, consistent high performance.


  • It clarifies all the expectations of an employee including his exact role and KRA
  • It gives him an opportunity for self review, assessment and introspection
  • It directly contributes to enhanced performance and better productivity levels.
  • Career paths are defined and it promotes job satisfaction and a positive mindset.