Performance Management System Guide, Definition, Requirements, Features (2021)

A guide that will give you all the answers related to a performance management system.

In short, a Performance Management System is actually a Performance Measurement System. A vital thought here is that ‘Do we measure what needs to be measured?’  

It doesn’t mean that things aren’t being monitored in the business context. They are measured. However, vital measures are missing when it comes to measuring employee performance. It is where a PMS comes into play. 

Generally, we don’t set a bar to measure the performance of our employees. It’s something we believe will happen after an employee has spent a significant amount of time at the company. In reality, as soon as an employee joins the company, performance measures need to be put in place. Not just set, they should be calibrated, monitored, and improved over time.  

To do that, we need clarity on performance and how the measurement part works. But there are plenty of myths running around when it comes to a Performance Management System. 

Misconceptions about Performance Management Systems 

Here are some of the common PMS myths, and also a shot at busting them wide open in this article. 

1. Myth: Performance Management System means Performance Appraisal (PA) 

Reality: Performance appraisal is nothing but a small part of the performance management process. The system is far more comprehensive. It involves elements like feedback, reviews, ratings, goal-setting, One on one meetings, etc. Performance appraisal focuses on a cycle that can be quarterly, yearly, or something else. 

2. Myth: Performance is only used for the salary hike process 

Reality: PMS has got a significant impact on business than simply deciding the salaries of performing or non-performing employees. For example, setting up better goals and aligning them with the organization’s view leads to better outcomes. 

3. Myth: Performance Management System is about installing a software

Reality: The software, no matter how good, will only solve 50% of the problems. It only facilitates the easy implementation of the performance-related measures. It is still the leadership at an organization that decides which parameters are to be measured. It will vary department-wise.  

4. Myth: It’s about setting goals, and that’s it. 

Reality: Goal-setting is a key step in the performance management process. However, it’s only one of the steps. Here too, steps depend on the requirements. The SMART framework is better suited towards individual goals, whereas OKRs give the entire organizational goals a defined structure. 

So, the myths are cleared. The question that’s knocking on your mind right now is ‘How do you understand Performance Management Definition?’ 

Well, time to find that out. 

What is a Performance Management System (PMS)? 

A performance management system uses a systematic approach to measure employee performance by aligning the mission, goals, objectives, resources, etc., in a common direction.   

It helps in outlining a set of priorities and systems that defines overall employee performance. The managers, leaders, and workers get together to discuss the actionable items. Frameworks allow us to set clear goals and also improve business processes. Now, thinking of mechanisms is one thing. But who’s going to track it? 

Performance management software does this by continuously reviewing performance on a real-time basis. It helps organizations monitor, track, analyze and evaluate the performance of employees. It ensures the fulfillment of set goals and desired results on time. After all, it’s the outcomes that drive ROIs for businesses. 

Employee development is another area where performance management can really do wonders. Competencies and skills help us in understanding where an employee excels. By identifying future leaders, it enables succession planning. Then there is a time when employees need to learn new things. PMS identifies the gaps and provides guidance, training, and coaching to employees at different levels. Continuous feedback and 1-on-1’s remove the hurdles people are facing at work through constructive communication. 

The best part? Performance Management System can work for a single department or an entire organization. The aim is to monitor, measure and improve performance standards against a set of goals and targets. 

Why do we need a Performance Management System? 

It serves many purposes. Here are a few of the important one’s: 


It helps in aligning the overall organizational goal with team and individual goals. Each activity is linked with outcomes for the entire company. 


It also helps during the appraisal and salary processes by measuring the deciding factor of promotion, demotion, increment, terminations, etc. It identifies top performers, but more importantly, also the non-performers. With accurate data and insights, the decision-making process becomes easier for the top management. 


PMS automates regular tasks like performance reviews, goal-setting, performance reports. Thus, everything is communicated via a centralized dashboard. Here, managers can not only check the goals, deliverables, and parameters for a particular team but also update them whenever required.  


If any employee is struggling, structured methods like continuous feedback, appreciation, development plans, 1 to 1 meetings help in reducing those struggles. With the help of a performance management system, the managers can enable coaching and training for their team members to perform sharply. 

Maintaining Standards 

A PMS creates a yardstick for measuring employee, team, organization’s achievements and evaluates the gaps through data, tools, and monitoring. It maintains the health of the organization from behind the curtains so that everyone is performing at their best standard and peak condition. 


Most organizations cannot understand performance because they have a hard time documenting it. It’s understandable that manually collecting reviews, feedback, forms, etc., for thousands of employees can be a difficult task. A performance management system automates this process so you can focus on the important part- setting up suitable measures, objectives, and frameworks for evaluation. 

Performance Management Cycle 

steps of performance management cycle

normal cycle looks like this: 

  • Agree­ing on a SMART set of objectives. 
  • Include per­son­al devel­op­ment plan in those objectives. 
  • Make a plan depending upon the action items. 
  • A Review of the employee’s job require­ments, updat­ing the role pro­file where necessary. 

In the past, companies planned for the entire year in go. However, the current business environment is agile and changing rapidly, so many organizations do it quarterly. Company goals and values play a huge role during performance planning as they help in aligning individual performances with the overall strategy of an organization. To fully achieve the set objectives, personal development initiatives should focus on developing behaviors, skills, knowledge of employees. 

Traditionally, all the focus was on reviews. Appraisal and rewards were also totally dependent on reviews. However, tracking and acting to remove hurdles are the most important stages of improving performance. Because initially, problems can come up. It’s how efficiently you solve them that will affect the results achieved. Motivation is also a big factor as managers need to strive towards encouraging their team to achieve their objectives and follow up with development plans. For this to happen, managers need to regularly check in with the team. Feedback works when it’s continuous, and instead of bashing an individual, the focus is on constructive criticism that allows for quick progress. When reviews are done at the end of the year, there is no time to make changes. All that is left is regret.  

Also, the stages in the performance cycle don’t flow one after the other. In fact, most of them work simultaneously. Tracking and taking action are continuous processes. Reviews may happen differently for different teams and maybe re-visited anytime as per needs. Goals can change in an instant. For example, post COVID-19 lockdown, brands had to switch to work from home in a week. Due to WFH, productivity is now related to outcomes instead of the number of working hours. 

The continuous performance cycle is no more once-a-year performance appraisals. Instead, the focus is now on regular check-ins, continuous feedback, 360-degree reviews, modern goal-setting (OKRs4DX, etc.) 

This provides the workforce to analyze what has worked well and what hasn’t worked well in a short time. The challenges faced and the process of overcoming them is now driven by the combined actions of the individual and the manager.    

Here is how the new continuous Per­for­mance Man­age­ment process works in the leading organizations: 


It all starts with setting goals the right way. They need to achievable and sensible. Employees should also understand why these goals matter and how they will help the organization on a larger scale. When employees realize that their work can impact the entire company, they’re likely to engage more and perform better. 

Goal setting is collaborative. Previously, the top-down approach worked but now aligning goals upwards is the right path. A transparent system with clear objectives will put employees in the driver’s seat as they’ll able to develop their set of mini-goals catering to the bigger company goals. All of this leads to improved performance. 


Employees crave transparency and zero bias. It also applies to challenges. They don’t want to be kept in the dark when things aren’t going right for the team or the entire organization. Real-time communication can lead to healthy relationships between employees, managers, and top management. Regular and constructive feedback is the first step towards achieving transparency. 

Employee Recognition 

A modern per­for­mance man­age­ment sys­tem should focus on employee recognition and rewards. If employees don’t feel valued or appreciated, they won’t put in 100% effort at work. It will directly harm outcomes and revenues. So, spend time and make your employees feel wanted. 

Constructive and Continuous Reviews 

Most people don’t give regular feedback as they don’t know what to write. For that check this piece on employee feedback examples. But because most people don’t receive constructive feedback, it leads to a lack of transparency. Employees want insights into their work for better decision-making and if it doesn’t happen, it leads to a dip in overall productivity. 

Employee Development 

Ambitious performers want to progress in their careers. They don’t want to spend months or years at a company without any skills development or promotion. Learning matters to employees. If you help them do that then good will happen for the organization through a more skilled and capable workforce. 

The Good and the Bad  

details explaining the effectiveness of PMS

Truly effective employee performance management 

Establishing a PMS can be divided into 3 simple steps: 

  • Deciding measures of performance 
  • Calculation of employee performance 
  • Calculating average performance 

It’s important to have all elements of the performance management cycle in place. However, having a system doesn’t directly guarantee effective performance management or performance improvement. Plenty of other factors are in play, such as: 

  • Having trust from top management to implement a performance management system in the organization. 
  • Ensuring that the performance cycle is continuous instead of an outdated annual process. 
  • Ensuring regular and meaningful reviews are happenings instead of tick-box activities. 
  • Having a flexible performance management software that gives you the output and saves resources. 
  • Winning the trust of managers and employees to deliver effective management daily. 

Performance Management System Features 

Here’s a list of features that a PMS should have in 2021 and beyond. 

  • Intuitive User Interface  
  • Fully automated  
  • Has a dedicated in-house consulting team for the Implementation phase  
  • Easily integrates with existing systems  
  • Scalable  
  • Easy Review process  
  • Handles OKRs and traditional goals  
  • Timely goal progress updates  
  • Reviews past data anytime and anywhere  
  • Secures the data  
  • Constantly Improves 
  • Provides talking points for One-on-One meetings  
  • Easy-to-set competency mechanism  
  • Succession Planning  
  • Competency Mapping  
  • 360-degree reviews 


What Keka can do for your company? 

Keka’s performance management software is simple, powerful, and employee-centric. With Keka you can: 

  • Engage employees with One on Ones. 
  • Recognize and share feedback anytime and anywhere. 
  • Set smart goals and motivate your team to achieve them on time. 
  • Conduct 360-degree feedback and performance reviews. 

Managing employee performance is difficult for any organization, especially if there isn’t an existing system that gives great results. To help, we suggest you have a PMS like Keka as your buddy. 

Ready to add performance management to your agenda in 2021?

Try Keka! 

Contributing Author

Sr. Content Writer

Anubhav is forever weird, but he’s a fun Copywriter and interview host at Keka. Anubhav figured out in college days that with COPY you can get a bunch of very-targeted people to come to your website, consume your material, and even buy. His focus is on making HR easier for professionals and anyone wanting to make a difference in the workplace. When he isn’t writing, he’s either traveling to the mountains, playing football, reading about Tigers, or doing nothing.