HR Performance Management: The Definitive Guide for 2025

Traditional HR performance management is only tackled once a year. Employees fill out a survey and management meets with them to discuss the previous year’s work and set a goal or two for the year ahead.

Today’s HR performance management is much more dynamic than an annual performance review. It is an ongoing performance management process that supports employee engagement and high performance throughout the year.

But exactly what does that look like, and how can you implement a continuous HR project management system in an effective way?

Here’s everything you need to know about setting up a system of regular feedback, starting with what HR performance management is and why it’s so important in the first place.

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What is HR Performance Management?

HR performance management is a systematic approach to improving employee performance in alignment with organizational objectives. It utilizes continuous communication between managers and employees to review job responsibilities, outline expectations, and review performance. The ultimate goal is to support employees in performing their best while ensuring their actions align with organizational goals.

The process includes setting goals and discussing employee development. Continuous feedback software ensures that these conversations occur on a regular basis. This enables managers to provide real-time support to their employees. It also gives human resources the power to identify strengths, address weaknesses, and help create clear career pathways for employees.

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Why is HR Performance Management Important?

Modern HR performance management takes a lot more time and attention than traditional annual reviews, but there are some convincing reasons why it’s worth the extra effort.

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Organizational benefits of HR performance management

Effective performance management has the ability to drive business success by improving productivity. Those who utilize continuous project management see a 66% increase in productivity with a 64% increase in achieving the top goals of the organization.

It also increases retention, which is something that can cost organizations a lot of money. It can cost as much as twice an employee’s annual salary to replace them, but you can reduce the number of employees who leave your organization with an effective performance management cycle. Employees are five times more likely to stay if their manager provides consistent feedback.

A system of HR performance management helps create a culture of accountability and transparency, not just among employees, but among leadership too. Everyone knows exactly how they can best contribute to organizational objectives, and everyone feels supported in achieving their own goals along the way.

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Employee benefits of performance management

A good performance management system directly benefits the organization, but it does so by supporting employees. Structured feedback and regular goal setting help employees better understand their role within the organization and outlines expectations so they can tackle their tasks with confidence.

A dedicated goal-setting process enables employees to see their contributions to organizational objectives, but it also gives them the ability to personalize their goals, which is important. Having career development opportunities is the number one reason employees give for changing jobs. Employees can work with their managers on areas of improvement with professional development opportunities, training, or tuition reimbursement programs.

Organizations that use employee engagement software are able to support engagement, which is good for productivity, but it also leads to more satisfied employees. Employees who feel heard through a performance appraisal process are 4.6 times more likely to feel empowered to perform their best work. 

Key Components of an Effective HR Performance Management System

It’s important to get all your ducks in a row if you’re ready to create an HR performance management system. Here’s what you need to know about choosing and using a strategy and a performance management framework that works for you.

Choose from one of the four main methods for performance management

There are many different ways to approach performance management, but the four main methods include:

• Management by objectives (MBO)
• 360-degree feedback
• Performance appraisals
• Coaching

Management by Objectives (MBO)

The method of management by objectives (MBO) gives leadership a top-down approach to performance management. Employees appreciate it too because the process feels more impartial, since workers are being compared to quantifiable behaviors that aren't reliant on manager opinions.

Managers begin by assessing the job requirements of a role and how well they align with organizational objectives before seeing how employees are performing according to those findings.

That doesn't mean employees don't have any input. Employees and managers collaborate together to create goals that align with their job requirements and organizational objectives. SMART HR goals are effective regardless of the performance management method you choose, but they are especially effective with an MBO strategy because they are specific, measurable, achievable, relevant, and time-bound.

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Are there a certain number of goals that should be set? Where will you store these goals? How often will employees review them? HR needs to figure out how to measure and track goals. Bias can creep into the process, so having a way to track goals impartially is important. 

360-degree feedback

A 360 approach to feedback builds a holistic view of performance by allowing coworkers, managers, and others to provide feedback to each other.

This approach is most effective when it is implemented in real time. By allowing everyone to input their feedback in real time, no one has to wait for the next review cycle to receive their feedback.

It is important to make sure your workforce is trained on how to provide meaningful feedback. It's also a good idea to provide employees with opportunities to practice receiving feedback so the process doesn't create unnecessary stress or frustration.

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Performance appraisals

Performance appraisals are a broad category of methods that focus on measuring performance, depending on exactly what you want to measure. For example, project-based reviews are a handy way to reflect after a specific project is complete, while an essay appraisal is an open-ended way to collect feedback from managers and employees.

Check-ins and regular performance reviews are essential to whatever performance appraisal method you choose because they give employees the opportunity to voice their concerns and celebrate wins throughout the year.

To learn more about different kinds of performance appraisals, click here.

Coaching

Instead of focusing on goals and putting managers in charge of monitoring progress, coaching puts the control in the hands of your employees. They still receive direction and support, but the direction and support are highly catered to each individual’s particular proficiencies, skills, and aspirations.

Doing HR performance management this way empowers your employees and eliminates the top-down feeling of other performance management strategies. It emphasizes keeping the lines of dialog open, and it enables the organization to benefit from the personal success of their employees as they learn and grow.

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The five stages of performance management

No matter what method you choose, the performance management process goes through five stages:

• Planning
• Monitoring
• Developing
• Rating
• Rewarding

Planning

First HR, managers, and other leaders must decide on a method of performance management and iron out how it's going to unfold.

This step also includes the planning you do with your employees to set goals and create benchmarks to make sure everyone is on track. This can be done during check-ins or one-on-ones that kick off a review cycle.

Monitoring

Managers and employees monitor performance during this phase. Continuous feedback can be especially helpful during this stage as it allows you to track performance in real time, celebrating wins and correcting course as needed.

Developing

The information that's gathered during the monitoring phase is used during the developing phase to help keep employees on track. For example, a professional development opportunity might help an employee with a project they're struggling with, or a shuffling of responsibilities might be needed in order to ensure projects align with an employee’s abilities.

Rating

Data-driven insights are extremely important when rating employees. You have to dig into the numbers to identify trends, ensure you're making informed decisions, and most importantly, let employees see that the feedback they receive is impartial and objective.

Rating doesn’t necessarily mean you’re rating employees against each other, although that is an option. You can use behaviorally anchored rating scales (BARS), key performance indicators (KPIs), and simple numerical employee performance rating scales to measure data that is shared during the performance review process.

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Strategies for Implementing HR Performance Management

There are still a few important things to know once you have decided between the different types of performance management systems and you feel comfortable knowing how the process will unfold.

Collaborate with stakeholders to define performance metrics to ensure they align with company goals. Then, create a step-by-step plan for implementing whichever performance management method you have chosen. It can be shared with relevant parties, and it acts as your North Star if things start to go off track.

Even the simplest performance management strategies aren’t as intuitive as they may seem on the surface. Training and development are needed in order to implement HR performance management effectively. Employees and managers should be trained in the process, which includes training them to use the right tools. It is also a good idea to make time to teach relevant parties how to give and receive effective feedback to make the process go more smoothly.

Make sure you have the right technology that is specifically designed to simplify the HR performance management process. Choosing a tool like PerformYard allows you to track goals, collect feedback, and analyze data quickly and easily. It also comes with handy automation features that can improve consistency and reduce the time HR and managers spend on performance-related tasks.

HR Performance Management Tools and Software

Making sure you have all the right performance management tools and software before the process even begins will save you and everyone else on the team a lot of time and headaches.

Tools and materials include things like review forms and the method you're going to use for continuous feedback. It also includes software that supports the plan you have created. For example, a dedicated performance management platform supports continuous feedback in one place. It can provide real-time analytics and automated review features that streamline the process.

It’s especially important to choose tools that seamlessly integrate with one another. That way you aren’t stuck chasing down information and entering it onto each individual platform manually.

Common Challenges in HR Performance Management

It’s normal to face unforeseen challenges during the HR performance management process, especially if you’re starting from scratch. Here are a few of the most common challenges along with possible solutions:

• Inconsistent feedback
• Unclear performance metrics
• Bias
• Lack of timelines
• Resistance to change

Inconsistent feedback

An HR performance management process only works if everyone participates. Unfortunately, that’s not always the case. It isn’t uncommon for managers and employees to leave inconsistent feedback. That can lead to confusion, frustration, and inaccurate data.

The key to tackling inconsistent feedback is to get to the root cause of why it’s inconsistent. For example, are employees so swamped that they don’t have time to complete a survey? If so, you might have to find a way to lighten their load. Is a new manager nervous about leaving honest feedback, so they don’t leave any at all? Training on giving and receiving feedback may be needed.

Unclear performance metrics

There’s a lot you can learn about performance and engagement when you track the right data. That can be a lot more difficult than it sounds. That’s especially true if you have many different managers who are putting their own spin on the performance management process.

Using the right technology can help. For example, PerformYard allows you to standardize and streamline the process. Ratings, data, and feedback are all located in one place, and reports can be automatically created, which helps you zero in on and understand the performance metrics that matter to you.

Bias

Biased managers aren’t bad. It’s human nature to have biases, but they can negatively affect the performance management process. Biases can alienate employees and negatively impact your data, providing you with inaccurate findings.

There are a couple of ways to reduce bias in HR performance management. First, use structured review forms to ensure consistency between evaluations. Second, incorporate multiple feedback sources to gather a more well-rounded view of performance. Lastly, provide regular training to managers to help them identify and reduce the negative effects of their biases in the workplace.

Lack of timelines

It’s true that supporting a performance management approach that spans the entire year is more effective than tackling it just once a year with an annual review, but that doesn’t mean timelines should go out the window. If employees and managers don’t have deadlines, you can bet that feedback will fall to the bottom of their to-do list.

Make sure you’ve got a timeline in place. Have a deadline for filling out surveys and reporting the findings. Create a cadence for check-ins and formal reviews. That way everyone participates in the process and HR spends less time chasing down feedback.

Resistance to change

Changing your performance management system is likely to come with some pushback. That’s especially true with continuous performance management if your team is used to a less involved and less time-consuming approach. It isn’t uncommon for employees and managers to resist the change by not engaging fully in the process.

It’s never too late to foster a culture of continuous improvement through training. Open communication can help a lot too. It allows employees to feel like they have some say in the changes that are made, which can help prevent resistance.

Tackle HR Performance Management in 2025 With Confidence

HR performance management in 2025 is all about creating a dynamic approach to performance that best supports your employees to achieve their personal and organizational goals. With so many points to consider, it can feel overwhelming to get started. Performance management software can help.

A platform like PerformYard allows you to create an HR performance management approach that works for you. It supports the full range of review and check-in options, goal management capabilities, continuous feedback functionality, and in-depth analytics. It allows you to be flexible with your approach by adding new strategies and removing ones that no longer work.

Take a demo and see exactly how PerformYard can transform the way you do HR performance management.