Performance management: An introduction

‘Performance management’ refers to how organisations maximise the value of their employees. It aims to maintain and improve employees’ performance in line with organisational goals. Rather than a single activity, it's a group of practices that should be approached holistically. 

Performance management typically involves:

• Setting objectives for individuals and teams, aligned to organisational strategy.
• Supporting improved performance across employees, teams and the organisation.
• Holding people accountable by linking performance to reward, career progression and termination of contracts.

At its best, performance management is a two-way process of regular, open and supportive discussion on progress towards objectives. It brings together many principles that enable good people management practice, including learning and development, performance measurement and organisational development. 

As well as helping people improve performance, a central strand of performance management is setting and reviewing objectives. The basic cycle is straightforward, as illustrated in Diagram 1. However, as shown in Diagram 2, there are other factors that make it more complex. We discuss these factors in the following sections.  

Performance management is usually backed up by formal processes, including recording objectives, periodic performance reviews and improvement plans for underperformance, but it is broader than these things. While policies and processes can be important, the main focus should be regular performance discussions.

Objectives and key performance indicators (KPIs) are usually clear at an organisational level, but it is often less clear what good performance constitutes for individuals or teams. Clarifying how organisational KPIs cascade to employees is vital. Performance can be grouped into three main types:  

• Task performance: how effectively core job activities are carried out. This could include the number of products manufactured to specification, service quality or (for people managers) their impact on the people in their team. 
• Contextual performance or ‘organisational citizenship behaviour’: voluntary activity that benefits the organisation but sits outside one’s core role – for example, helping other teams reach their targets, or contributing to ad hoc initiatives. 
• Adaptive performance: how well employees respond to change or support innovation. This includes both how agile employees are to changing objectives and how they help the organisation become more agile in response to market needs. 

Objectives or goals are powerful tools for motivating and improving performance. They can be expressed as KPIs, ongoing quality standards or specific tasks to be completed within a timeframe. Effective objectives must reflect a clear understanding of what constitutes good performance (see above). 

Employees must be committed to their objectives for them to be effective. But contrary to popular opinion, it is not generally better for employees to set their own goals. 

Objectives are most effective if they centre on specific outcomes and are stretching, often described as ‘SMART’ (typically, Specific, Measurable, Achievable, Relevant, and Time-bound). However, for complex tasks – for example, analysing information before making decisions – it’s usually better to focus on learning outcomes (how you will improve or develop), or open-ended objectives rather than rigid targets. For jobs that are heavily reliant on teamwork, it can be more effective to focus objectives on behaviours.

Performance can be defined at an individual or team level, or a mixture of both. Where collaboration is critical or responsibility for results is shared, team-based goals make sense. If striking a balance between individual and team objectives, employers should be careful that they do not undermine each other. 

To find out more about setting objectives look at our performance management tools.

See our evidence review Could do better? for more information.

Performance reviews are the process by which managers assess workers’ performance and discuss this with them. Assessing and feeding back on performance is an important way to leverage objectives, as monitoring progress towards objectives is strongly motivational. Performance reviews can also be an important opportunity for learning and improvement. 

Recent trends show a shift away from annual appraisals towards ongoing, flexible review systems. The main changes include: 

• Less focus on annual appraisals, or even scrapping them; greater focus on regular performance reviews.
• Less focus on process, such as forced ranking or guided distribution ratings and lengthy ratification; greater focus on high quality conversations, often aided by a coaching style and sometimes involving a strengths-based approach.
• Less focus on judging past performance to inform administrative decisions; greater focus on understanding current challenges and opportunities to help people improve. 

There is good evidence that some of the changes are worthwhile and not just a passing fad. For example, you can find out more in our performance reviews factsheet, our performance management tools and see our evidence review Could do better? 

Linking pay to individual, team and organisational performance remains common, approach. In organisations using PRP, performance management is central to pay reviews. 

This approach is widely debated, as PRP can demotivate employees or incentivise undesirable workplace behaviour, especially if targets are set narrowly and do not fully reflect what constitutes good performance. 

However, pay is clearly a strong motivator, not just a ‘hygiene factor’ as is often thought, and steps can be taken to avoid unintended consequences and make PRP feel fairer. 

Find out more in our performance-related pay factsheet.

People managers are central to performance management. They should help employees see the connections between organisational and individual objectives, give feedback that motivates employees and helps them improve, and hold them to account. Managers need to be suitably skilled to do this and in turn need to be supported by HR practices and processes that are fit for purpose.

Everyone has a responsibility for managing their performance. Employers need to cultivate a climate or culture in which it’s normal to discuss performance and seek ways to improve business processes and people capability. 

See our Performance management tools for information on supporting managers

There’s no single best approach to performance management, but because it integrates various management activities, an overarching structure or framework for performance management is helpful. 

Employers should develop practices that are relevant to their specific context – including strategic and operational priorities and how an organisation is set up. There should also be flexibility within the system so that teams or functions can manage performance in a way that is relevant for their roles.

Performance management should be a continuous cycle, not an isolated event. Employee objectives should evolve alongside changing business priorities. Feedback on performance should be regular, timely and focused on improvement.

See our evidence reviews for what works in driving High-performing teams and Knowledge work performance.

See also our Performance management tools for information about improving performance and developing talent.

Acas – Performance management

Center for Evidence-Based Management provides a database of evidence summaries on effective management

Books and reports

Acas. (2018) ‘Improvement required’? A mixed-methods study of employers’ use of performance management systems. London: Acas.

Armstrong, M. (2022) Armstrong's handbook of performance management: an evidence-based guide to performance leadership. 7th ed. London: Kogan Page. 

Ashdown, L. (2018) Performance management: a practical introduction. 2nd ed. HR Fundamentals. London: CIPD and Kogan Page.

Gifford, J. (2016). Could do better? Assessing what works in performance management. London: Chartered Institute of Personnel and Development. 

Gifford, J., Urwin, P. and Cerqua, A. (2017). Strengths-based performance conversations: an organisational field trial. London: Chartered Institute of Personnel and Development. 

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.

Journal articles

Armstrong, M. (2017) How can we fix performance management? People Management (online). 23 November.

Cappelli, P. and Tavis, A. (2016) The performance management revolution. Harvard Business Review. Vol 94, No 10, October, pp58-67. Reviewed in Bitesize research.

Denisi, A.S. and Pritchard, R.D. (2006) Performance appraisal, performance management and improving individual performance: a motivational framework. Management and Organization Review. Vol 2, No 2, pp253-77.

Murphy, K. (2019) Performance evaluation will not die, but it should. Human Resource Management Journal (online). 16 October. Reviewed in Bitesize research.

CIPD members can use our online journals to find articles from more than 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.