After working for a company that you considered to be archaic in its operations, you are relieved by the refreshing, innovative organization where you’ve landed a new job. You’re fairly young and uncertain about your career, making you eager for continuous feedback. One of the biggest issues with your prior employer was only having annual check-ins with your manager and feeling disconnected from the priorities of the company at large.  Luckily, after being at your new gig for only one month, your manager is already taking a more proactive approach, with biweekly check-ins on your performance and where you are on the road to achieving both personal and organizational goals.

Your experience with your new company is best captured by performance management: a dynamic, strategic process that replaces outdated annual reviews with ongoing collaboration, aligning employee performance with organizational goals through continuous feedback, measurable objectives, and regular coaching to drive individual and business success. Many companies have a formal performance management program or system that helps higher-ups and their employees foster a mutual understanding—with an emphasis on how one’s own work may align with a company’s bigger vision. 

Typically, performance management programs rely on the funds collected from the organization’s performance budget, which measures the program’s outcomes and then uses those results to inform future budget allocations, such as supplemental training.² In an ideal world, employees and employers work together to achieve an absolute performance standard.³ While this level of perfection may be unattainable in practice, it remains a useful benchmark for striving toward optimal performance and the highest quality of work.

Conventional performance management tools often focus on familiar practices, such as goal-setting and measuring objectives, which help clarify how individual performance is assessed. Recently, however, there has been a notable shift away from performance appraisals such as annual assessments and toward more regular feedback mechanisms.¹ Modern tools facilitating this shift include 360-degree feedback platforms and continuous performance tracking systems like real-time feedback apps.⁴

Though nowadays there is performance management software that can do most of the work for managers, companies usually tailor performance management to their own unique needs. In general, here are some universal elements of performance management:¹

1. Align employee activities relative to company goals and business objectives. Employees need to recognize how their job plays a part in a company’s larger goals. A joint process between supervisors and employees helps to define responsibility and ensure accountability on the job. 
2. Develop performance outcomes unique to each position. Employees can come to answer some key questions via performance management, like, what service or product does my role lead to? What processes do I need to know for my job? Or, what kind of impact should I have on the company? 
3. Make performance-based expectations quantifiable. The way in which success is measured should be opportune for each employee, such as by KPIs or other metrics. In performance management, expectations commonly consider results, like the service someone creates at work; actions, like the processes an employee does to complete a service; as well as behaviors, the attitude and values that an employee displays. 
4. Bring definition to job-development plans. Nowadays, employees have (or, at least should have) a voice in what they want to learn at work and how such knowledge may translate into good for the company. Performance management helps ensure that employees play a proactive role in their professional growth with a more egalitarian perspective than in the past when a manager simply decided what was best.
5. Meet and communicate often. This may sound like an obvious one, but the truth is that there used to only be annual performance reviews (and for some places, this is still the case!). A proactive, frequent approach to meeting amongst managers and employees leads to more dynamic performance management. Once a month or per quarter may be often enough to incentivize, assess, and reward work performance. 

A similar model to performance management is management by objectives (MBO), which is a corporate leadership theory where employee goals are congruent with that of an organization. Performance and MBO crossover in that there is an expectation that the employee has a say and contributes to their own goal-setting.¹

If done right, performance management can benefit organizations and their employees in goal attainment, employee fulfillment, and overall higher commitment to the job. Performance management is versatile across a range of fields as it adapts to the unique goals and metrics of diverse industries, helping to align individual contributions with organizational objectives. 

Performance budget: A summary of the amount of resources used relative to the services provided in a given unit of an organization. These budgets are created with the intent to motivate employee goal attainment for company success.²

Absolute performance standard: A fictional marker of what a perfect company performance would look like. This is an unreachable level of performance that allows companies to compare how their business and employees are doing relative to a flawless standard of perfection.³

360-degree feedback: A performance management process that obtains anonymous assessments from several different sources in a given employee’s work environment (e.g., peers, managers, customers) to give a holistic view of their work performance. The goal is to compile a more unbiased and balanced view of an employee’s performance.⁴

Management by objectives (MBO): A management strategy where employees set goals to compare their performance to. The aim of MBO is to align individual goals with those of an organization, ideally leading to higher motivation and productivity.²

Performance appraisal: Often also known as an annual review or performance review, this is a typical review of an individual employee's job performance and company contributions as a whole. It may include an assessment of said employee’s skills, successes, growth, or when these aspects are missing.

Scientific management: Originating with Frederick W. Taylor in the early 20th century, this management theory was the first to apply scientific methods to increase efficiency and productivity at work, with the overarching assumption that there is a “single best way” to perform a given task. 

Theory X: A management philosophy coined by Douglas McGregor that assumes people dislike work and will avoid it at all costs. This theory views employees as being inherently lazy, with close supervision needed to ensure work performance. 

Theory Y: A management philosophy coined by Douglas McGregor that assumes people are innately motivated and want to work. This theory focuses on self-direction and responsibility on the job, where intrinsic motivation is common.

Annual confidential reports (ACRs): Formal assessments mostly in government and public sector organizations to evaluate an employee's performance, conduct, and potential over a year. These reports are often kept confidential to encourage candid feedback—but have faced criticism for their lack of transparency.

Before performance management evolved into what it is today—proactive employee feedback, check-ins as often as daily, and ideally, open conversations between employees and their managers—early inspiration arose from another strategic approach: scientific management. At the start of the 1900s, American mechanical engineer Frederick W. Taylor was intrigued by how productivity in the workplace could be enhanced using scientific methods.⁵ Sometimes coined as ‘Taylorism,” scientific management’s influence was far-reaching across a plethora of various management practices. A key takeaway from Taylor is to integrate science-informed ways to choose, train, and develop each employee over time—with continuous observation of their performance, which soon came to be foundational for performance management itself.⁵

During World War I, notable advancements in performance management emerged with Sir Walter Scott, founder of the Austrian consulting firm WD Scott & Co. Scott introduced the concept of man-to-man comparison, using merit-oriented performance appraisal systems to identify underperformers and reassign them to more suitable roles.^5,6 By the 1950s, performance appraisals had expanded beyond military settings into corporate environments. These appraisals helped managers assess not only employee productivity but also personality traits and attitudes.⁶

Around this time, social psychologist Douglas McGregor introduced two influential theories—Theory X and Theory Y—that marked a significant shift in how performance management was perceived. Theory X assumed employees were inherently lazy and motivated primarily by material rewards or punishments, requiring close supervision to ensure performance. In contrast, Theory Y proposed a strengths-based, developmental approach: employees are naturally motivated, care about their work, and can excel when supported through goal-setting and self-evaluation alongside supervisor feedback. While Theory X and Theory Y represent opposing ends of a spectrum, they are not mutually exclusive; instead, they provide managers with complementary frameworks for understanding and improving employee performance.⁶

Performance appraisals had other phases of evolution before their modern-day form. In the 1960s, a predecessor of appraisals was seen in annual confidential reports (ACRs).⁵ Also called “employee service records,” these reports provided much more in-depth information on how employees were performing. Much of how annual confidential reports were applied was seen in government settings as pertinent sources of employee information. If you were working at this time, your ACR might include any past incidents at work, which could have tangible negative effects on career progression.

As a consequence of these reports, the 1970s was characterized by many employees attempting to clean up their track records by adjusting their work habits accordingly.⁶ Over time, performance appraisals zeroing in on personality traits transformed into a goal and objective focus. What an individual employee could contribute in the future was finally considered attainable—as long as the right action plan was in place. With stress from high inflation in the 1970s, raises were a huge factor: raises of 20% or higher could be rewarded to top achievers to make a clear distinction from the majority of employees only making ends meet.⁶

The 1980s and 1990s marked a shift toward a more multi-faceted approach to performance management, focusing not only on identifying top performers but also on motivating and engaging employees. During this period, new metrics emerged to assess skills like self-awareness, communication, emotional regulation, and conflict resolution—elements of workplace performance that had previously been overlooked.⁷ These developments introduced a more holistic view of employee success, many of which we take for granted today, such as the importance of managing interpersonal conflicts and emotions among colleagues.

As a result of more holistic performance appraisals, a revolutionary tool known as 360-degree feedback emerged. This approach combined reviews from multiple players, ranging from colleagues to supervisors and customers, to craft a well-rounded perspective of an employee’s performance.⁴ The tool even allowed employees to assess their supervisors—finally giving them a chance to reciprocate compliments and criticism. Not all companies were fans, however, due to the high costs of conducting 360-degree feedback. However, these multi-source performance management tools have pushed organizations to start paying attention to new measures like teamwork, communication, and conflict resolution, no matter where in the hierarchy an employee is. 

Performance management continues to evolve today, perhaps more so than ever before. Frequent feedback, sometimes even daily, is the new norm. At the same time, what we consider effective performance management to be is now inevitably as dynamic as work culture itself. As this decade progresses, we can anticipate that artificial intelligence will play an increasing role in performance management. Other future considerations to note are focusing on the quality over quantity of check-ins as well as continuously flexible performance management processes.

Frederick Winslow Taylor

An American mechanical engineer known for his methods of improving industrial efficiency.⁵ As a pioneering management consultant, Taylor released The Principles of Scientific Management, which influenced the evolution of performance management with an emphasis that all management must incorporate science for a company to be truly successful. 

Sir Walter Scott

An Australian accountant who is credited with creating Australia’s first management consultancy.⁷ Not to be confused with American psychologist Walter Dill Scott, this accountant took inspiration from Taylor in forming one of the first performance appraisal systems for a company’s employees. Scott added industrial engineering to his firm, which completed services like personnel selection, economic advice, and market research, amongst other services for public and private spheres.⁷

Douglas Murray McGregor 

An American management professor who was best known for his Theory X and Theory Y, from his book The Human Side of Enterprise in 1960.⁸ As a student of humanistic psychologist Abraham Maslow, McGregor was curious about how employees are motivated (or not) by work and what they do. He was also one of the first professors at MIT Sloan School of Management.

In an age of information overload, finding ways to be communicative between manager and employee is critical. Let’s review some of the positive impacts performance management has on clarity, rewards, and professional development.

Clearly Defined Objectives

Let’s think back to our example of your two workplace performance management experiences. While the old annual review becomes blurry within weeks, at your new job, bi-monthly check-ins are easy to remember and implement. A key impact of performance management is objectives that have a high degree of clarity—both in terms of your personal and company’s vision.

With many versions and customizations of performance management, it can be challenging to siphon through to what works best for each company. Yet, some key components of an effective performance management cycle for clear objective-setting likely include planning and setting goals, monitoring and coaching progress, reviewing performance, and recognizing achievements. Without objectives that prioritize clarity, employees may be uncertain about their expectations and how their goals find themselves in the broader work system. Performance management organizes both individual and company goals through collaborative discussions. 

Teamwork at the Forefront 

Historically, performance appraisals emphasized competitive rankings and merit-based evaluations that often led to negative reviews, fostering an individualistic focus on job performance. In contrast, modern performance management promotes teamwork by encouraging open communication, aligning individual goals with team objectives, fostering collaboration, and establishing clear systems for rewards and recognition.

From this perspective, 360-degree reviews become an especially relevant tool for boosting company morale. Instead of the spotlight only being directed at one individual at a time, all coworkers get the chance to both give and receive feedback, regardless of their position. In turn, feedback comes from sources that were not previously considered, leading to stronger relationships both within and across teams. With a 360-degree point-of-view, colleagues can both complement and critique each other when appropriate.

From Accountability to Development

Throughout the historical timeline of performance management, there have been stages focussing on accountability (like individual contributions and performance communicated via traditional appraisals) versus a focus on development (like employee growth and autonomy communicated via frequent check-ins).⁶ We see accountability as an older (and perhaps outdated) focus in WWI merit-rating systems and 1940s performance appraisals, in contrast to developmental theories like McGregor’s where employee engagement and goal-setting are vital for motivation. 

Now, the resurgence of people-oriented development is here to stay: companies wish to invest in the talent they find by putting more growth into their recruits. One instance is in firms such as consultancies, where college graduates are transformed into highly skilled advisers through carefully organized training. This is further seen in such employees taking growth into their own hands.

For a development approach to excel, fruitful feedback is a must from those in charge. One way to ensure this is through individual-focused check-ins instead of the dissatisfying annual reviews. This way, employees can implement feedback soon after finishing a task, presenting to a client, or completing a team project.

As performance management takes off in popularity, issues with this approach persist, just as with any other model. Some limitations may include micromanagement, cognitive biases coming into play, as well as gauging how to properly reward stellar performance—while improving poor performance in the process. 

Micromanagement

There are times when we have felt our managers are just a little bit too involved in overseeing our work. The unfortunate reality is that micromanagement can stem from performance management, undermining the very goals it seeks to achieve. While these systems intend to enhance employee productivity and align efforts with organizational goals, an overly involved approach to monitoring performance can erode employee autonomy and trust. Employees who feel excessively scrutinized may experience negatives such as heightened stress, reduced job satisfaction, and a lack of motivation to take initiative, stifling creativity and long-term performance. 

When an employee experiences micromanagement, there may be a shift in focus from outcomes to more trivial short-term tasks—leading to inefficiencies and disengagement.⁹ For high-achieving and self-motivated employees, this can be especially annoying when they feel highly capable of simply doing their job. This micromanaging behavior may result in an unnecessary deficit in employee confidence, creating a toxic cycle where workers feel undervalued and managers feel the need to control even more. To avert this pitfall, organizations must strike a balance by using performance management tools to empower employees with clear objectives and constructive feedback rather than restricting them through unnecessary oversight.

Bias, Here We Come

In any aspect of work, it is difficult to remove bias from the decision-making process, let alone completely eliminate it altogether. This problem is no stranger to performance management, especially in how the evaluations are designed themselves.¹⁰ Think back on a time when you completed a performance management check-in. Most likely, you were asked to write about accomplishments and points of improvement, followed by your manager assessing your responses and providing constructive criticism by rating your performance on a scale. The issue with this process is trust in the objective nature of evaluation, both in our own self-ratings and those we receive from management. 

Implicit biases can significantly influence the implementation and outcomes of performance management.¹¹ Without structured and objective feedback systems, evaluations may inadvertently be shaped by factors such as gender, race, or other aspects of identity, leading to stereotyped assumptions rather than fair and data-driven assessments for all employees.

How to Reward High Performers

At any workplace, there are high achievers, low achievers, and everything in between. When it comes to performance management, a question to think about is how different levels of performance should be rewarded. Let’s focus on a relatively high-achieving employee for a second. What kind of reward here is best? While an obvious answer may be a bonus or raise, other non-monetary forms of recognition might be preferable, such as company-wide recognition, assigning more duties, or granting professional development training. These internal drives that find their motivation via challenges, enjoyment, or satisfaction may lead to better performance rather than the usual external rewards or pressures. 

In performance management, rewards should be proportionate to employee performance, yet also be appropriate within the company’s vision and budget, too. It may be difficult to achieve this balance, as rewards that feel suitable may be highly subjective—which may especially be the case with employees outperforming all others. For those who go above and beyond, what might an appropriate reward look like?  One solution may be to give employees, notably those who have performed beyond expectations, empowerment: they get to choose the reward.¹² A caveat here is that the reward still has to be proportionate to the resources available, which reiterates how the ‘right’ rewards are not always extrinsically motivated ones. Something to also be mindful of here is that high expectations may indeed lead to these high-performance outcomes.

Helping Poor Performers

On the other side of the performance continuum are those employees who are not quite hitting the mark. Though performance management is apt at finding those poor performers, this isn’t always necessarily a good thing. Simply putting a name to those underperforming may cause further stress and anxiety in achieving tasks that already feel out of reach for these employees. 

A few key strategies to help these poor performers are not just acknowledging the problem but discovering what’s causing underperformance, talking to the underperformer, and most crucially, maintaining confidentiality. Whatever the reason for lackluster performance, anonymous feedback systems can lend a helping hand here, allowing colleagues to privately share concerns, including when they feel a lack of support at work. A 360-degree review again can be apt here for looking at the whole picture, not simply the person as a problem. In the end, finding ways to allow an underperformer to self-reflect and have pockets for improvement may be more helpful than just labeling poor outcomes. 

McKinsey’s “War for Talent” 

Sometimes, it takes a crisis to find not only the right employees at a company but the right executives, too. In the late 1990s, global management consultant giant McKinsey & Company went to the battlefield in what was adequately dubbed “a war for talent.” Originally published as an article, Steven Hankin of McKinsey conducted a large-scale research project on the company’s constant search for highly skilled executives, especially those who can truly execute performance management. This ultimately made “the war” against other companies wanting to do the exact same.

Knowing that talented executives are of such a limited supply, organizations must find a way to out-compete other companies in search of these individuals—especially in rewarding them once discovered. The overarching implication of performance management here is the reiteration of how significant evaluating and rewarding performance is, with the cream of the crop in particular. 

The study now-turned book The War for Talent persists today in performance management settings, well before the management is done itself. A telling piece of evidence that demonstrates the influence of the war for talent is the now popular job of a talent recruiter. This initial attraction of talent wars is just the beginning, where keeping these types of employees is a growing priority through strong development programs, highly competitive monetary compensation, and engaging work cultures.

Adobe’s “Agile Manifesto”

The dynamic nature of performance management is highly related to supplementing the traditional practice of annual reviews. Some companies were ahead of the game in this—one being none other than the ubiquitous computer software company Adobe, who in 2011, left traditional reviews in the dust. In the adoption of a new, modern approach to performance management, Adobe was already adopting its version of an agile manifesto. The original “manifesto,” not to be confused with a speech or self-made ideology of sorts, was a foundational document made by other software developers as early as 2001 as a response to the traditional process of annual reviews. It was here that values such as change management, collaboration, self-direction, and constant revaluation of work efficiency were grappled with. 

Adobe had its own custom agile framework, where performance management interventions were expressed as “sprints” to help break down projects and quickly thereafter debrief said breakdowns. At the crux of the manifesto was getting rid of annual performance reviews entirely, as they were not seen as useful for understanding business operations and performance. Inspired by the software developers who made the agile manifesto in 2001, Adobe placed emphasis on four values from the original one:¹³

1. Individuals and relationships over processes and machines. People are what incites change and what a business requires in the moment, not the processes themselves. 
2. Software that is functional over detailed documents. Far too often documentation takes up too much time and is trivial. Software that actually works and leads to results is paramount.
3. Collaborating with customers and clients over contract negotiating. The customer becomes the epicenter of how a product comes about where their input is integrated, where contract negotiating isn’t as necessary 
4. Being proactive to change over following the status quo.  Change is a default part of the process, where adjustments can always be made along the way. 

The perpetual evaluation and feedback loop became a quintessential example of performance management itself: frequent check-ins over and above annual appraisals. Other notable companies were soon to follow, such as Juniper Systems, Dell, and Microsoft. 

The Adobe Agile Manifesto is symbolic of the evolution of performance management to ultimately be development and people-centered, where the individual worker is inherent to the process itself. Such an approach also keeps the customer at the forefront, where the feedback of users and integration of their opinions informs what makes a product or service proprietary. 

I Think I Am, Therefore I Am

Perception, especially self-perception, can have a significant impact on performance at work, amongst other forms of achievement. In this piece, TDL columnist Andrew Lewis explores both positive and negative, as well as internal and external forms of perception in application to the workplace.

Protecting Your Projects from Cognitive Bias

As we discussed, cognitive bias is a risk in performance management. It is also a risk for projects in general—including those done at wide scales for various forms of government. In this article, TDL writer Natasha Hawryluk briefly explains some common cognitive biases to be mindful of in project management.

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