What is a Performance
Management System (PMS)?

A Performance Management System (PMS) enables companies to measure their employees' performance continuously and effectively. It sets individual and team goals and aligns them with organizational objectives to ensure the development of employee skills and company productivity. A performance management system tracks and analyzes employee performance data, assists employers in making decisions and delivers feedback.

Performance Management Guide

What Is Performance Management?

Performance management is a set of processes that assists employers in monitoring and analyzing employees’ performance over a specific period. It creates an environment where employees can maximize their potential, perform better in their roles, and boost their success. Conversely, employers can smoothly evaluate and rate employees’ work. Performance management improves organizational strategic goals’ achievement and promotes a positive environment for employee growth.

 

According to Verified Market Research, performance management was valued at USD 10.5 billion in 2023. With the upcoming trends, it will cross USD 20.6 billion by 2030, where the CAGR would be 12.3% during the forecast period 2023-2030.

What is the Performance Management Process?

A continuous performance management process refers to the continuous evaluation of the employees based on the individual goals set by the company for them. The process also includes the creation of these goals, as well as the development of a performance plan to achieve their goals within the specified timeframe.

 

The following are the major steps in the continuous performance management process:

Performance Management

▸Plan

The basic step in the employee performance management process is ‘planning’. It includes the creation of a plan for evaluating employees effectively while establishing the objectives for the performance management cycle. When setting goals, one should ensure that they come under fulfilling the requirements of SMART goals:

 

S – Specific

 

M – Measurable

 

A – Achievable

 

R – Relevant

 

T – Time-bound

 

A good planning strategy can align employee performance to organizational objectives. It can also be changed as per the changing business priorities, to ensure complete engagement from the staff members.

 

▸Act

Once the goals are set, the management should convey the same to their staff and gather feedback to make any changes as per their suggestions. Once they are finalized, it is time to put the wheels in motion. You need to start evaluating your employees based on their performance objectives. You should also take regular feedback from your staff to promote engagement.

 

▸Track

The next step is to constantly track the progress of the staff to understand whether they are on track. You should recognize and appreciate the employees who are on track while checking with the under-performers to understand what is hindering their progress. You can use various tools at your disposal such as 360-degree feedback, peer evaluations, etc. to undertake robust performance reviews and find any issues.

 

▸Review

Performance reviews are a part of the performance management process and it helps you communicate your thoughts and analysis with your staff once you have evaluated their performance. You can also help your staff understand how much they have contributed to the company’s growth and reward them accordingly. You can also discuss the career objectives of the employees and align them with the company objectives to ensure maximum engagement.

Payroll Software

Why is a Performance Management System important?

The right system for performance management in HRM assists both employees and employers in aligning with their goals and expectations. Here are the top 5 points describing the importance of a performance management system in the organization.

performance management in hrm
  • Better Strategy Development

 

It creates clear criteria that maintain transparency between employees and employers.

 

Besides, the system involves numerous performance-related tools, such as KPIs and 360-degree performance trackers, that guides employees understand how to work efficiently to achieve positive outcomes.

 

A performance management system helps employers understand organizational goals and assists them in creating strategies for successful workplace workflows.

 

Conversely, the system guides employees in understanding their responsibilities and plans their work process to achieve their targets quickly. It introduces numerous performance-related tools, such as KPIs and 360-degree performance trackers, for employees and employers to understand the performance management process to achieve positive outcomes. It mainly creates clear criteria that maintain transparency between employees and employers.

 

  • Enhanced Transparency

 

A performance management system in HRM introduces numerous features or functionalities, such as OKRs(Objectives and Key Results), CSFs, PIs(Performance Indicators), and 360-degree feedback, that help organizations increase transparency in the workplace. Employees and their employers can also evaluate their performance using those trackers.

 

Hence, it becomes effective for employers to demonstrate the workflows or discuss any drawbacks to achieve positive outcomes.

 

Additionally, this platform facilitates open discussions between employees and management, creating a culture of honesty and trust and maintaining transparency within the organization.

 

  • Increased Engagement

 

A successful performance management system creates a communicative forum where employers and employees collaborate smoothly. Employers can use the platform to increase team engagement by establishing meetings, measuring monthly performance, delivering feedback, etc. Besides, an organization can set clear goals, offer feedback, and recognize the achievements of the top talent.

 

Conversely, it helps employees understand their role in the organization. Once the employees feel empowered, supported, and motivated for their contribution, it creates an overall positive work environment, which leads to ultimate business achievement.

 

  • Top Talents Recognition

 

In the corporate world, scrutinizing employee performance minutely to identify genuine top talent is challenging. A performance management system helps employers evaluate employee performance to effectively identify the company’s top talent and analyze the scope of further improvement. The system introduces numerous performance-tracking tools and functionalities that streamline the employee performance analysis process. Once the employers receive the outcomes, they can easily identify the high-potential candidates for future growth and development and understand where improvement is needed.

 

  • Un-biased Review

 

A performance management system establishes clear, object-related performance criteria and transparent evaluation processes by verifying employees’ work capabilities. One of the system’s fundamental principles is initiating unbiased workforce management for ultimate positive outcomes.  

 

Besides, by using objective performance metrics like key performance indicators (KPIs), employers measure employees’ performance using the same standard, which promotes fairness and equity in performance evaluation and maintains an unbiased workplace.

What Is the Difference Between Performance Management and Performance Appraisal?

Here is a detailed overview of the differences between Performance Management and Performance Appraisal as follows,

Performance Management

Performance Appraisal

Performance management is a process of understanding, managing, and improving an individual’s performance to achieve overall organizational success. Employee performance appraisal is a process within performance management that involves understanding and evaluating an individual’s performance for a specific period.
The entire management team, HR professionals, and team manager are involved in processing performance management. The primary responsibility for performance appraisals depends on the human resource professionals and the management team. The HRs offer appraisals based on the decisions made by the overall management.
Performance management is continuing throughout the year Employee performance appraisal appears during employee appraisals.
Performance management emphasizes individual growth and development by identifying strengths and weaknesses. It delivers opportunities for employees to learn and enhance their skills. The performance appraisal systems evaluate employee performance and areas of development and make decisions about appraisals and rewards.
A performance management system is a collaborative process between employees and employers. Employers communicate, train, and support employees regarding work-related tasks and responsibilities. During performance appraisals, employers review the employee documentation and coding of performance-related information, such as salary reviews, performance data, and other necessary things before increment. 

What are the Key Components or Elements of a Performance Management System?

There are numerous components of a Performance Management System which help in its efficient functioning. These elements ensure that the system runs smoothly without hindering the daily work of the staff members. It also provides the HR and related teams with robust tools to actively engage the staff while evaluating their performance in the company.

 

The following are the key components of the performance management system:

1. Setting Goals

Goal setting is a basic component of any employee performance management system as it helps in setting meaningful SMART goals for the employees, based on their duties. You should also take care to let your staff understand the meaning of their goals, and how they tie into the organizational objectives. It will help keep them engaged since they will be able to realize how their job matters to the company.

2. Effective Communication

Open communication is the cornerstone of any successful organization. Hence, you should foster a culture of open communication and collaboration, which helps in keeping your staff motivated. If you are a manager, keeping an open line of communication will help in keeping your employees posted about their progress as well as how relevant their job is for the organization.

3. Regular Reviews

Performance reviews are an essential component in a performance management software as they help in communicating what the management thinks about the staff’s performance on an individual level. Performance appraisal used to take place either annually or quarterly in the legacy method of performance management. However, it has been replaced with continuous feedback in the newer systems.

4. Employee Recognition

With the right recognition, you can convert any employee to an engaged one as they realize their importance and worth in the company. With adequate employee recognition, companies can keep their staff engaged and motivated to work harder. Hence, the newer performance management systems come with multiple kinds of employee rewards and recognition modules to help managers recognize their employees’ efforts.

5. Constructive Feedback

While providing feedback to your staff members, you should ensure that it is constructive in nature. Constructive feedback refers to a form of feedback in which you also help them understand how to improve themselves when you are pointing out their shortcomings. Instead of simply commenting ‘Good Work’ or ‘Needs Improvement’, you should provide them with the reason for the feedback to let them understand what they are doing right or wrong.

6. Continuous Learning

Learning and development go hand in hand with performance feedback as upskilling and reskilling the staff are essential parts of performance management. Having good-performing employees helps in improving the quality of the products and services of the organization, leading to a better brand image. Hence, it is essential to create a culture of continuous learning and development to let your staff become self-sufficient.

Benefits of Deploying a Performance Management System

There are several benefits of deploying an effective performance management system. While it drives the productivity and the profitability of the company, it has other benefits too. Some of the most relevant benefits of deploying a performance management software are:

▸Consistent Performance

Since the performance management system is deployed keeping the organizational performance objectives in mind, following it will give rise to consistent performance. The system can set performance expectations for each employee, and it will be in tune with the organizational objective to ensure maximum effectiveness.

▸Motivated Staff

Since the employees understand which parameters they are evaluated against, they can focus on improving those for enhanced productivity. The performance management system can also enable the managers to provide recognition for any task well done as soon as it is completed. It results in motivated staff who are willing to undertake their tasks effectively.

▸Better Performers

With the help of effective performance management software, the company can appreciate their talent, resulting in the recognition of better performers. It also helps the training and development department to realize the potential of their staff and reallocate the training resources accordingly.

▸Employee Engagement

With the deployment of a performance management system, the employer can understand the performers and the training requirements of the team. Such training will eventually lead to better-performing personnel in the company, who are also highly motivated to work in the organization. As a result, they stay engaged with their company for longer.

▸Effective Training

The performance management system can measure the overall productivity of the staff for specific durations. Hence, it can be used effectively to understand the improvement brought about by the company’s training initiatives. By understanding the training effectiveness, the company can understand whether any changes are required to better their workforce productivity.

▸Performance Automation

With modern AI-based performance management systems, the entire performance management process can be automated with the help of augmented processing. As a result of such innovative tools and increased automation, HR and management can focus on running the business effectively with the software undertaking employee performance-related activities.

▸Fair Appraisals

Performance management systems can provide tangible data for measuring the performance of staff members. As a result, they can provide accurate appraisals and justify their decisions, in case of any dispute. It results in increased trust in the HR and management as the system helps in keeping the appraisals transparent.

▸Time Savings

With increased automation and increased accuracy, a performance management system helps reduce the time taken to measure employee performance. Additionally, with continuous performance evaluation methods, you can take corrective actions as soon as you realize there is any discrepancy in your staff performance, making it highly efficient for any organization.

▸Paper Trails

With an effective performance appraisal system in place, you can have a paper trail for your performance management cycle. It helps improve the transparency of the process as well as provide necessary evidence in case any employee objects to their appraisal. Such measures provide the company with easy paper trails to ensure a fair and just appraisal system.

How have Performance Management Systems evolved?

The Performance Management System has gone through several iterations before reaching its current form. The concept of performance management cycle and appraisals can be traced for over a century.

 

Hence, it is essential to check out the rudimentary early systems to understand the evolution of performance management systems through the years:

 

▸1908 – 1914

 

1908 was the year when famous American Mechanical Engineer Frederick Winslow Taylor proposed that his ‘Scientific Management’ principles can be utilized to find out how work potential affects productivity. These principles laid the foundation for a performance management process. Later, in 1909, Henry Ford adopted these principles into his assembly line method of mass production. It ensured that employees with limited training quickly undertake their repetitive tasks as it has been divided into simple steps.

 

▸1914 – 1920

 

By the start of 1914, the principles of Taylor were being utilized as ‘Taylorism’. His principles were altered to consider the specific employee’s traits such as knowledge, integrity, etc. while considering them for appraisals, instead of their adherence to their duties alone. Taylorism soon became the go-to method for employee appraisal since it was proving effective in improving the productivity of the staff, with Vladimir Lenin himself being a staunch supporter.

 

▸1930 – 1960

 

The WD Scott & Co., which is one of the largest management consultancy firms in Australia, introduced a system of ‘man-to-man’ comparison based on Taylorism, as early as 1918. However, it grew in popularity in the 1930s and became an effective tool for employee performance rating by the mid-1950s. Since it was using the modified Taylorism principles, the employees were being measured based on their traits than their workplace productivity.

 

▸1960 – 1970

 

The start of the 1960s saw the creation of ‘Employee Service Records’ which kept in-depth information about each employee’s performance, and hence, they were highly confidential in nature. However, the negative remarks in these records were communicated to the staff to ensure corrective action. As a result, the performance appraisals started focusing on evaluations based on organizational goals instead of the individual’s abilities.

 

▸1980 – 2000

 

Due to the nature of the performance evaluations, multi-person ratings became popular in the 1980s. It also introduced the concept of 360-degree feedback, thereby motivating the employees to improve their performance. As a result, companies like Esso Research started measuring traits like teamwork, efficiency, etc. With the advent of the new millennium, the performance appraisal process became even more flexible with the introduction of goal-setting and performance reviews throughout the year.

 

▸2000 – Present

 

While the system of goal setting and annual performance reviews is still the norm, it is constantly being transformed into continuous performance appraisals. The annual reviews were initially broken down into quarterly ones, which have been further divided into continuous ones. Similarly, companies are focussing on the positive traits in the employees to motivate them to work harder and create a productive environment. Similarly, the introduction of Artificial Intelligence (AI) is radically changing the game for HR and performance management nowadays with a shift from a quantity to a quality mindset.

Full and Final Settlement

Statistics on Modern Performance Management Systems

Following are some of the common statistics of modern performance management systems:

 

  • 98% of organizations understand the relevance of performance management.

 

  • 80% of millennials prefer instant peer-to-peer recognition over some annual reward.

 

  • 59% of staff believe that legacy evaluation methods have no impact on their performance.

 

  • 90% of performance evaluations are usually distressing for the employee.

 

  • 95% of HR managers find their company’s performance reviews unsatisfactory.

 

  • 51% of employees find annual reviews highly inaccurate.

 

Who uses Performance Management Systems?

Performance Management Systems are an essential part of any organization that employs individuals to undertake their work. Following are some of the common users of this system:

▸Employees

As it impacts them directly, the employee is the foremost user of a performance management system. They can discuss their annual goals with their manager to define their objectives. They can also participate in reviewing their peers as a part of the 360-degree feedback process.

▸HR Personnel

The HR department is concerned with the annual appraisals of the staff. Hence, they need the support of performance management systems to evaluate the performance of their staff and provide fair appraisals based on it.

▸Management

The management has the final say in providing the staff with appraisals. Hence, they need to access the performance management system to understand whether their staff has managed to achieve their goals on time.

Why do Businesses need a Performance Management System and How to Choose One?

The modern fast-paced workplace requires productivity as it is a major factor in ensuring the company’s profitability. A robust performance management system provides each staff member with custom goals that are aligned with the company goals for that specific duration. Hence, it is essential to deploy such a system to ensure adequate productivity in the workplace.

 

Following are some of the reasons for implementing a performance management software:

 

  • Measure employee performance accurately

 

  • Set employee performance goals

 

  • Improve employee morale and productivity

 

  • Provide effective training opportunities

 

  • Recognize performers and reward them

 

  • Provide fair and just appraisals

Leave Management System

How to Select the Best Performance Management System?

There are certain factors to consider while selecting the best performance management system for your organization. Since this system is continuously evaluating your employee performance, you should ensure that it is customizable as per your policies. Additionally, numerous other factors should be considered while choosing the ideal performance management software for your company, such as:

1. Goal Setting

The performance management software should provide the necessary options to set, track and collaborate on employee goals on an individual level. These goals should be aligned with the company’s goals and hence, it should also have the option to set organizational goals.

2. Trackable Performance

The software should also provide you with the option to track the performance of your staff. It should ideally provide you with a template of the best practices in your industry, as well as the ability to create private remarks. Since performance reviews are confidential, the software should provide options to access previous performance review data of an employee to their manager.

3. Continuous Feedback Options

Since peer-to-peer recognition plays a crucial role in motivating the staff to undertake their duties efficiently, a performance management system should provide the option to recognize them publicly. It should also alert their manager if multiple peers are recognizing the same employee as a performer.

4. Conversation Tracking

The software should also provide options to log conversations as well as provide instant feedback to the staff as and when their manager sees fit. Since timely feedback is essential for motivating any employee, having the option to do it automatically enhances the usability of the system.

5. Training Opportunities

The system should also provide adequate training opportunities to ensure that the staff is trained well to meet the performance requirements of the company.

6. Software Integration

The software should provide easy integration options with other commonly used commercial software such as HRMS, payroll, etc. for a streamlined user experience. It should also be easy to implement with adequate customizability options to cater to the individual needs of the company.

 

Before inducting any performance management system in your HRMS solution, you must ensure whether integrating a performance management program is effective for overall business growth and target achievement.

11 Best Performance Management Software
in India

FAQs

Although there is no performance management definition, PMS in HR is a process for setting goals and evaluating employees based on those goals, which are defined by a predetermined period.

An employee appraisal management system, also known as a performance appraisal system, is a structured process used by organizations to evaluate and assess employee performance. It involves setting goals, conducting evaluations, providing feedback, and promoting employee development. It helps organizations in measuring performance, recognizing achievements, and identifying areas for improvement.

The most commonly used methods of performance management are:

  • 360-degree Feedback Method

  • Management by Objectives (MBO)

  • Behaviourally Anchored Rating Scale (BARS) Method

  • Assessment Center Method

  • Human Resource Accounting Method

Following are some examples of the best performance management systems in India:

  • Pocket HRMS

  • Keka HR

  • GreytHR

  • HR Mantra

  • Zimyo HR

  • Zing HR

  • Zoho HR

Yes, the system can be customized according to your needs. The system offers numerous performance-tracking tools and related functionalities for maintaining a non-biased, transparent performance evaluation. Besides, it has become influential in HRMS and payroll software solutions.

Yes, employers can provide feedback either regularly or on a monthly, half-yearly, or yearly basis.

Yes, the performance management system is generally suitable for all organizations. Yet, in the case of an SME or any start-up business, management may find some simpler version of performance management or perform it manually. However, different MNCs or big industries may need specialized systems to handle the performance of thousands of employees.

 

The company should decide which performance-tracking functionalities suit employers based on the organization’s requirements.

After updating your data in a system, you can relax, as your data is kept safe and secure for a lifetime. It includes different encryption protocols, data protection regulations such as GDPR or CCPA, and robust access controls to restrict fraudulent activities. Besides, it offers features like audit trails and user authentication for securely storing data in a database.

 

For example, with Pocket HRMS, you can be sure of the security of your company data as we use Microsoft Azure Cloud, which provides 256-bit enterprise-level security.

Yes, The system can easily integrate with the HRMS software and related HRMS payroll.

Yes, some specific training is necessary to use the system effectively. The training includes how to navigate the system correctly, input the employee performance data accurately, conduct performance evaluation within the estimated duration, and generate reports.

 

Training can be self-paced online tutorials or in-person workshops provided by the software specialist to both employees and employers. For example, if you integrate the Pocket HRMS performance management system with your HRM solution, we will provide detailed training on it.

 

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