Performance management is how an organisation makes sure people know what is expected of them, get the support to deliver it and are held to account. The CIPD describes it as how organisations maximise the value of their employees, and stresses that it is a group of practices rather than a single event: objectives, feedback, reviews, development and, sometimes, pay. At its best, the CIPD says, it is a two-way process of regular, open and supportive discussion.
That is different from performance appraisal, which is one part of the system: the periodic, formal assessment of someone's performance. Many organisations have kept appraisals but surrounded them with more frequent conversations.
What is the performance management process?
The US Office of Personnel Management describes five stages that work as a cycle. They apply well outside government.
| Stage | What happens | Typical tools |
|---|---|---|
| 1. Planning | Set goals and expectations for the period | Objectives, job description, competency framework |
| 2. Monitoring | Track progress and give feedback as work happens | One-to-ones, dashboards, check-ins |
| 3. Developing | Build the skills needed to meet the standard | Training, coaching, stretch assignments |
| 4. Rating | Summarise performance periodically | Performance review, rating scale |
| 5. Rewarding | Recognise good performance | Pay, bonus, recognition, promotion |
The CIPD's guidance is that the cycle should be continuous, with objectives changing as business priorities change and feedback given regularly and promptly.
What does good performance mean?
Before you can manage performance you need to define it. The CIPD groups performance into three types:
- Task performance: how well someone does the core activities of the job.
- Contextual performance: voluntary contributions outside the core role, such as helping other teams.
- Adaptive performance: how well someone responds to change and supports new ways of working.
A role profile that only lists tasks will miss the other two. Agree with each manager what good looks like in all three for their team. Our guide on how to measure job performance covers practical measures.
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How should you set objectives?
- Use SMART objectives for well-defined work: specific, measurable, achievable, relevant and time-bound.
- Use learning or open-ended objectives for complex work. The CIPD notes that for complex tasks it is often better to set goals about what the person will learn or improve.
- Link objectives to team and organisational goals so people see how their work fits.
- Get commitment, not necessarily authorship. The CIPD reports that, contrary to popular belief, it is not generally better for employees to set their own goals; what matters is that they are committed to them.
- Balance individual and team goals where results depend on collaboration, so they don't pull against each other.
Example (illustrative). For a customer support lead: "Reduce the backlog of tickets older than five working days to zero by the end of March, and keep it there through June, while maintaining the current customer satisfaction score."
What is a performance management system?
"Performance management system" can mean two things: the process and rules your organisation uses, or the software that runs them.
The process should define:
- the review cycle and who is involved
- how objectives are set and changed
- how feedback and check-ins are recorded
- whether you use ratings, and on what scale
- how reviews link to pay, promotion and development
- how underperformance is handled
Software should support it with:
- objective setting and tracking, including cascaded or shared goals
- one-to-one agendas and notes
- review forms and workflows
- feedback requests from peers (if you use 360-degree feedback)
- reporting on completion and rating distribution
- integration with your HR system
Choose the process first. Software built around a process you don't follow will be ignored.
Annual appraisal or continuous performance management?
The CIPD reports a shift away from annual appraisals towards ongoing, flexible reviews, with less focus on forced ranking and lengthy rating processes and more on good-quality conversations, often with a coaching style. It says there is good evidence that some of these changes are worthwhile.
A practical middle ground most organisations can run:
- Monthly or fortnightly one-to-ones focused on progress, obstacles and support.
- A quarterly objectives check to reset goals.
- A short annual or six-monthly review that summarises the period and feeds pay and promotion decisions.
Should performance management be linked to pay?
Linking pay to performance remains common. The CIPD says performance-related pay is widely debated because it can demotivate people or encourage the wrong behaviour when targets are narrow, but that pay is a strong motivator and steps can be taken to make it feel fairer.
The CIPD's evidence review on feedback recommends separating conversations about appraisals and administrative decisions from feedback aimed at improvement and development. If people know a conversation sets their pay, they are less likely to discuss weaknesses openly.
What is the manager's role?
Managers are where performance management succeeds or fails. The CIPD says they should help employees see how their objectives connect to the organisation's, give feedback that motivates and helps people improve, and hold them to account, and that they need the skills and HR support to do this.
Train managers in:
- setting clear objectives
- giving specific, timely feedback
- running one-to-ones
- rating consistently and avoiding bias
- spotting and addressing underperformance early
A structured rubric helps here, in the same way it does in hiring; our interview scoring rubric template shows the principle of anchoring each rating to observable behaviour.
How do you handle underperformance?
- Raise it early and informally, with specific examples and a clear standard.
- Find the cause: unclear expectations, missing skills, workload, health, personal circumstances or conduct.
- Agree a plan with goals, support and a review date. A formal performance improvement plan should be specific and time-bound.
- Review and record progress at each check-in.
- Move to a formal process only if needed, following your written capability or disciplinary procedure.
Rules on formal processes and dismissal differ by country. In the UK, GOV.UK says disciplinary procedures should include a hearing where the employee can give their side and a chance to appeal, and dismissals must be fair or the employer risks an employment tribunal claim. Elsewhere, check local law and any contract or collective agreement before you begin a formal process. Where a health condition or disability may be a factor, consider adjustments first.
This is general information, not legal advice.
How do you know if performance management is working?
- People can say what is expected of them and how they are doing.
- One-to-ones happen and are recorded.
- Ratings are spread in a way that matches reality, with no unexplained differences between groups.
- Underperformance is raised early, not saved for the annual review.
- Regretted leavers don't cite unclear expectations or lack of feedback; check your exit interview data.
FAQs
What is the difference between performance management and performance appraisal?
Performance management is the whole ongoing system: objectives, feedback, development, reviews and rewards. Performance appraisal is the periodic formal assessment within it.
How often should performance reviews happen?
Frequency is usually a policy choice, unless a collective agreement or contract sets it. A common pattern is frequent informal check-ins with a formal review once or twice a year.
Should we use performance ratings?
Ratings help when you need to make consistent pay or promotion decisions across many people. They can distract from development if they dominate the conversation. If you use them, define each point on the scale with examples and train managers to apply it consistently.
What is a performance improvement plan?
A performance improvement plan (PIP) is a written plan setting out where performance falls short, the standard required, the support offered and the timescale for improvement. It is usually used once informal conversations haven't worked.
Sources
Checked 30 October 2026.