What Is a Performance Management System?

Managing employees is an important part of running a small business. Business organizations often rely on employees to complete business functions in a timely and efficient manner. The reputation of the business may also rely partly on the performance of its employees. Owners of businesses often develop an employee performance management system to help them evaluate employees. The human resources department and various managers usually conduct employee reviews according to company guidelines.


A formal employee performance management system is commonly used for annual employee evaluations. These systems usually include information specific to the company’s operations and how well employees perform under specific circumstances. These evaluations occur at the management and employee level. Managers may be held to higher standards during the performance evaluation process. This higher standard often exists since managers are usually responsible for training employees.


Performance management reviews can be conducted in various formats. Types of evaluation systems include rating employees on a scale of 1 to 10 or giving a rating of excellent, good, average or poor. These evaluations often rate employees on topics relating to technical skills, willingness to learn, ability to work independently, showing up on time and other important functions. While companies can use standard or universal performance management systems, owners of businesses may choose to design their own performance evaluation system.


Companies often score employee evaluations to determine the number or type of rewards achieved by the employee. Rewards include annual compensation increases, special bonuses, additional vacation time, employee recognition banquets or similar items. This process helps employees know what they are doing right and how they can achieve future rewards. Performance management reviews can also point out areas where employees need to improve their job performance. Companies might seek feedback from employees regarding poor job performance to ensure no misunderstandings exist about employment expectations.


Owners of businesses may decide to use a third-party employee evaluation during a performance management appraisal process. A third-party performance management process can help limit the legal liabilities companies can face when evaluating personnel. These companies also have copious amounts of experience in evaluating employees and offering appropriate appraisal evaluations based on employee performance. These evaluations can be completed in conjunction with the owners or managers of a business at the company’s facilities.


Using a performance management system can help companies provide extrinsic motivational factors for employees. These motivational factors ensure that employees increase their productivity levels when completing job functions in hopes of a future reward. Increases in employee productivity can help companies lower personnel costs and improve sales revenues from greater business output. Companies may also experience better employee morale when offering rewards to an employee under a performance management and appraisal system.