Managing Employee Performance: A Complete Guide

You can have a lot going for your company — great ideas, innovative products, and cutting-edge technology. But when it comes down to it, if you want your organization to succeed, you need a high-performance culture, with high-performing employees.

“An organization’s greatest asset is its people,” said industrial and organizational psychologist Cabot Jaffee, PhD, CEO and president of hiring solutions company AlignMark. “A company can have great technology, processes, [and] systems...but without good people the organization will still fail.” 

One of the best ways to empower a high level of performance? Through employee performance management. This process uses feedback, goal-setting, performance reviews, employee development, recognition, and more to drive organizational goals and long-term performance. Below, we explain why performance management is so important, break down the best ways to effectively manage employee performance, and share relevant scenarios and solutions to help you build a strong performance strategy that empowers your team to reach their full potential.

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What Is Performance Management?

Performance management is an ongoing process of communication and feedback involving managers, peers, and employees, all working together to achieve organizational objectives. While it differs from people management — which takes a broader approach to employee engagement, growth, and well-being — performance management focuses on setting goals, leveraging data, and implementing structured processes to empower employees, foster development, enhance productivity, and drive business success. 

Typically, performance management is structured around four key stages:

1. Planning: Setting effective goals to establish performance expectations and improve manager-employee alignment
2. Monitoring and Developing: Continuous communication between managers and their direct reports to review goal progress, address challenges, resolve obstacles, and provide real-time feedback
3. Reviewing: Formally reviewing employee performance during annual, biannual, or quarterly performance reviews
4. Rewarding: Recognizing and rewarding employees for their hard work to boost motivation, productivity, and company loyalty

Learn more about performance management and the tools your business can use to build high-performing teams in our Comprehensive Guide to Performance Management Cycles. 

Why Is Performance Management Important?

Effective employee performance management has benefits at every level of an organization. Below, we’ll explore a few.

For Employees and Managers

The goal-setting element of performance management ensures employees understand their responsibilities and objectives.

• Performance management gives employees direction and helps them hit their goals. Employees can’t perform at their highest level if they don’t have clarity on what they’re expected to achieve. Employee performance management — which includes setting clear goals, developing an action plan to achieve those goals, and providing support along the way — can give employees the direction they need to succeed.

“Employees need direction in order to know where to focus their efforts,” said Edie Goldberg, PhD, founder and president of talent management consultancy E. L. Goldberg & Associates and author of The Inside Gig. “Setting specific, challenging goals, and providing feedback on progress toward goals motivate employees to achieve more than they would without having goals. Providing continuous coaching and feedback on how to make progress toward our goals helps drive performance improvement that leads to goal achievement.”

This goal clarity also makes it easier for managers to track progress, assess individual performance, share meaningful feedback with employees, and reward top performers.

For Businesses

Performance management drives organizational success by aligning individual efforts with strategic goals to boost productivity and improve overall efficiency.

• It drives results. Arguably the biggest benefit of an effective employee performance management strategy is that it drives real results and empowers employees to reach their full potential.

“Employee performance management is very important because it leads...to producing optimal organizational results,” said Russell Thackeray, PhD, business psychologist and director of UK-based organizational development firm QED. “Without employee performance management, people would not maximize their skills and contributions or potential and innovations.”

• It can also improve employee retention. Employees tend to look for new opportunities when they’re feeling stagnant. An effective performance management system can help employees continually grow and evolve, which can keep them engaged and committed to your organization.

“One of the top reasons individuals leave an organization is when [they] feel they are not being given an opportunity for development,” Jaffee noted. “The performance management process is a foundation for feedback, development, and growth to occur. So, with better performance management systems in place, retention should be positively impacted.”

7 Strategies for Managing Employee Performance

Effectively managing employee performance is crucial for building successful, high-performing teams. But first, you need to put a plan into action. Here are seven essential tips for building an effective employee performance management strategy.

1. Get clear on your starting point.

“If you don’t know where you are at the beginning of the development process, how can you know if you’ve improved and whether development occurred?” Jaffee asked.

So, the first step of managing employee performance is establishing a baseline of where your employee is today. That way, you can continually measure their progress, compare it to their starting point, and see how they’re advancing throughout the employee performance management process.

How you assess your employees is up to you. “The assessment can be informal, such as observations, or more formal, such as a full 360-degree survey,” said Jaffee. The key is establishing that baseline of performance so you have something to compare future performance to as your employee progresses.

2. Deliver ongoing feedback.

“Performance management cannot be viewed as an [isolated] event; rather, it should be an ongoing process that happens consistently throughout the year,” Jaffee noted.

If you want to move the needle on employee performance, you need to go beyond annual reviews and deliver ongoing feedback as well. This lets your employees know what they need to work on and gives them the chance to fix it in real-time. 

Employees don’t want to sit down for a review and hear that they’ve been underperforming for an entire year and no one has bothered to let them know. “When a manager saves up their feedback for a period of time, then it leads to ‘surprises’ on the part of the employee,” cautioned Jaffee. “There should never be any surprises during an appraisal if the manager has done a good job giving feedback as it is needed.”

If you want your employee performance management strategy to be successful, you need to be delivering feedback — and delivering it often.

3. Follow up on (and measure) action items.

Giving feedback is an important part of managing employee performance. But the feedback is only one part of the equation. For your employee performance management process to actually improve your employees’ performance, you need to take things a step further by developing an action plan to address that feedback and a set of metrics for measuring their progress.

“We know [that] what gets measured gets paid attention to,” Jaffee said. “So, if a manager simply tells an employee to improve — but that is never followed up on — then it won’t occur. If you tell an employee you will be measuring that improvement — and hold them accountable for addressing any skill gaps — then [they are] much more likely to engage in the resulting development actions put in place.”

4. Avoid “performance micromanagement.”

Following up with your employees and ensuring they’re on track with their goals is a must for effective performance management. But there’s a difference between performance management and performance micromanagement.

Employees “don’t want you to ‘manage’ their performance; they want to be inspired, supported, and developed to make a bigger impact,” Goldberg stressed. “This is not an invitation to micromanage.”

While it’s important to give your team the support and oversight they need to hit their performance goals, it’s also necessary to give them space and autonomy to hit those goals in their own way. Make sure you’re not overly involved — to the point of micromanaging — as they do that.

5. Help your team see the bigger picture.

You should give your team feedback on areas of improvement and help them develop a plan to make those changes: Think of that as the “how.” But if you want your employees to follow through, you need to give them a reason to improve — a strong “why.” That can inspire them to make the changes necessary to perform at a higher level. 

In other words, you need to help them see the bigger picture. “Help people understand the purpose and meaning in their work,” advised Thackeray. “Linking day-to-day tasks to a vision or goal that is bigger than themselves helps to create aspirational thinking and a sense of belonging [and drive improvement].”

For example, let’s say an employee is struggling to work collaboratively with their teammates. Instead of just letting them know they need to work better with others, giving them a reason why collaboration and teamwork are important can be a bigger motivator for change. For instance, you might explain that the ability to work better with others will enable them to move up in the company and make for a more positive work environment, for them and others.

6. Build on wins.

One of the key aims of employee performance management is to help your employees set and hit their goals. “When [employees] achieve goals, milestones, or results, work with them to highlight their achievement — and on how to spread that success across all areas of their role,” Thackeray said.

For example, say one of an employee’s goals was to hit an ambitious sales quota and they achieve that goal the following quarter. First, you should celebrate that win. But next, you should discuss how they can use that win to improve in other ways. This could be things like setting more ambitious goals in other areas of their job, such as upping their daily call volume or training new sales reps.

Effective employee performance management can lead to big wins for your team, and you can use those wins as a springboard for future successes and improvements.

7. Use the right tools.

All of these strategies will help you better manage employee performance. But to really drive results and make your entire employee performance management process more effective, you need the right tools.

“[The right] software makes the entire process more efficient and less time-consuming, and therefore increases the likelihood that the [performance management] activities will take place,” Jaffee pointed out.

The right software makes managing employee performance easier and more effective. But it can also provide you with the data you need to continually optimize your efforts — and make sure you’re providing your team enough support.

“Software also provides a good central repository to manage all the data points — which, in turn, allows for much better evaluation of what’s working and what’s not,” Jaffee said. “It helps determine if certain actions are taking place, provides an easy way to share best practices, and helps quantitatively examine the effectiveness of what is going on related to performance management activities.”

Lattice Performance Management allows you to work with employees to set goals, deliver and receive feedback, and increase the effectiveness of your one-on-one meetings — all from a single, easy-to-use platform. Lattice also offers a full analytics suite that allows you to better collect and understand data and track your employees’ performance over time. You can use those insights to improve your employee performance management processes and help your team reach their full potential.

Core Components of Performance Management

An effective performance strategy is made up of several key components that ensure employee goals remain aligned with organizational success. Together, these initiatives help build a culture of continuous improvement, foster clear communication, and empower employees to reach their full potential.

• Goal-setting: Clear and achievable objectives provide direction and ensure everyone is working toward the same outcomes. Effective goal-setting methods like the objective and key results (OKR) framework help teams remain focused.
• Performance Measurement: Wondering how to track employee performance? Key performance indicators (KPIs) provide measurable benchmarks for evaluating progress and success. For managers to have a well-rounded view of performance, they should encourage employees to use both qualitative and quantitative KPIs when establishing their goals:some text
  • Quantitative data is information that is represented numerically, like revenue targets, completed tasks, and closed support tickets.
  • Qualitative data provide context beyond the numbers, focusing on unmeasurable aspects of performance like employee feedback, teamwork, and problem-solving skills.

Using both types of data helps identify strengths, address gaps, and support informed decision-making. Both are essential for creating a balanced and comprehensive approach to performance management.

• Regular Performance Appraisals: Your business should choose a cadence for formal performance evaluations, whether annually, biannually, quarterly, or at another frequency that fits your needs. These reviews provide an opportunity for managers to formally assess employee performance, share review ratings, and, when necessary, implement performance improvement plans to address poor performance.
• Feedback and Coaching: Timely feedback is a win-win for everyone. It enables managers to provide real-time coaching and helps employees make immediate improvements — instead of waiting to share feedback at annual reviews when it may no longer be relevant.

Regular one-on-one meetings and feedback tools that allow employees to request peer input as needed can build a feedback-rich culture. This approach not only enhances individual performance but also drives stronger collaboration and better overall results for your business.

• Learning and Development: Performance management can help businesses spot skill gaps, identify training needs, and invest in employee growth. Companies can also create career paths, which outline the experience and competencies employees need to progress to the next stage of their careers. With this framework, employees can more confidently work toward their professional goals. Career paths also make it easier for managers to help create individual development plans, identify growth areas, and push employees toward relevant internal training programs and learning opportunities.
• Performance-Related Pay: Performance-related pay involves linking compensation to individual or team performance, creating a direct connection between effort and reward. When implemented effectively, this approach can enhance motivation and productivity. However, poorly designed processes can backfire, leading to unintended consequences such as unhealthy competition, perceived favoritism, and demotivation among underperformers. 

To implement an effective performance-related pay system, organizations should set achievable performance metrics, clearly communicate expectations, provide employees with ongoing constructive feedback, and balance short-term incentives with long-term rewards to maintain fairness and motivation.

Wish there was a more streamlined way to manage performance reviews, feedback, goals, and compensation? Lattice has you covered. Lattice’s people management platform streamlines these tools into a single, intuitive platform, empowering your human resources team to manage performance effortlessly and effectively.

Influences on Employee Performance

Wondering what’s impacting your team’s performance? Focusing on the following factors can help you refine your business’s performance strategy.

Workplace Culture

Company culture plays an important role in employee performance. A strong, supportive culture fosters trust, engagement, and alignment, encouraging employees to perform at their best. Conversely, an unclear or toxic culture can undermine performance, leading to low employee morale and high turnover. A supportive and empowering work environment helps employees feel valued, motivating them to meet and exceed their goals.

Tips for Creating a Supportive and Inclusive Culture

• Promote open communication. Foster a culture of regular feedback, transparency, and communication across all levels of your organization. Your business can also use anonymous employee surveys to collect feedback and make informed improvements to your workplace culture.
• Foster diversity and inclusion. Ensure all voices are heard by embracing diverse perspectives and providing equitable opportunities for all employees.
• Encourage work-life balance. Support flexible working arrangements and prioritize employee well-being so your workforce can balance their personal and professional lives. 

Recognition

Employee recognition is a powerful motivator. It shows employees that their contributions are noticed and valued, which can make them more likely to stay engaged and remain top performers. Lack of recognition, on the other hand, can lead to low morale, disengagement, and increased turnover.

Tips for Effective Employee Recognition

• Offer both public and private recognition. Publically and formally recognizing employees can boost team morale, while private, informal acknowledgment can strengthen employee-manager and employee-peer relationships.
• Encourage peer recognition. Peer recognition tools, like Lattice Praise, allow employees to instantly recognize their colleagues’ efforts, building a culture of ongoing recognition.
• Tie recognition to organizational values. Allow employees to connect their peer feedback to your organization’s core values, as this rewards desired behaviors and reinforces company culture.

For more ways to help your business celebrate employee contributions, check out our article 20 Employee Recognition Ideas to Show Them You Care.

Professional Development

Providing growth opportunities drives employee engagement, retention, and productivity by demonstrating your business’s commitment to employees’ professional development. Workers who see a clear path to advancement are more motivated to excel, while the absence of growth prospects can lead to disengagement and even turnover.

Tips for Prioritizing Professional Development

• Create individual development plans. Have managers collaborate with employees to outline their career goals and the steps needed to achieve them. Lattice Individual Development Plans make creating and tracking these plans simpler for employees and managers. 
• Offer learning programs. Provide access to training programs, certifications, skill-building workshops, or professional development stipends so employees can choose how they invest in their growth.
• Provide stretch assignments. Allow employees to try tasks outside their comfort zones to challenge themselves and develop new skills.

Clear Goals

Establishing clear goals helps employees understand expectations, enabling them to prioritize effectively and recognize what success looks like in their role. It also connects their contributions to larger organizational objectives, helping them see how their work impacts overall business success. This clarity can boost motivation, sharpen focus, and enhance productivity.

Tips for Clear Goal-Setting

• Set SMART goals. Develop goals that are specific, measurable, achievable, relevant, and time-bound (SMART).
• Use cascading objectives. Set organizational goals and cascade them down through the organization, so department, team, and individual goals are tied to company-wide business objectives. This not only improves organizational alignment but also helps employees understand the impact of their contributions. 
• Publicly document goals. Use goal-tracking software, like Lattice OKRs & Goals, to drive organizational visibility and accountability.

Frequent Feedback

Lastly, ongoing feedback allows employees to make on-the-fly adjustments that help them achieve their goals more efficiently. In fact, Gallup reported that employees who receive meaningful feedback from their managers daily are 3.6 times more likely to feel motivated to do outstanding work than those receiving annual feedback. And a 2023 survey of more than 5,000 UK workers found that employees who received feedback in the performance management process were more likely to achieve their objectives than employees who didn’t.

Tips for Ongoing Feedback

• Make feedback timely and specific. Provide feedback as close to the event as possible to ensure your advice is relevant and actionable. Be specific about what was done well or needs improvement to make your feedback meaningful.
• Share balanced feedback. Aim for a healthy mix of constructive feedback and positive feedback to guide improvement and reinforce strengths. This balance can make employees more receptive to what you have to say.
• Leverage technology. Use tools like Lattice Feedback to request, share, and document feedback. This ensures feedback is continuous and accessible, even for remote teams.

Performance Management in Action: Scenarios and Solutions

Managers play a pivotal role in cultivating a high-performing team culture. Managers set the tone for success by selecting the right software solutions, fostering empathy-driven leadership, and nurturing a culture of recognition. Below, we explore common scenarios managers might encounter and share potential solutions for navigating them effectively.

Managing Remote Teams

Managing remote teams requires a more intentional approach to maintaining connection and engagement. Unlike in-office settings, where check-ins and feedback often happen organically, remote work demands that managers actively schedule face time to ensure employees receive the same level of support, recognition, feedback, and coaching as their in-office counterparts. Despite these efforts, unique challenges can still arise, such as:

1. Isolation and Disengagement

Scenario: A high-performing remote employee starts disengaging due to a lack of interaction with colleagues and recognition from leadership. Their productivity declines, and they begin to feel disconnected from the team and the company’s goals.

Solution: Since remote employees don’t get the same face time with peers and senior leaders as in-office talent, try to schedule regular team-building activities and frequently celebrate remote employees’ achievements publicly. This allows them to develop stronger relationships with their team members and feel their work is seen and appreciated.‍

2. Unclear Expectations

Scenario: A remote worker struggles to meet performance expectations because their role’s objectives aren’t clearly defined.

Solution: At the beginning of each review period, sit down with employees to set professional and development goals. Using the SMART goal framework helps explicitly define success so employees know exactly what’s expected of them and how they’re approaching their targets. Of course, ongoing one-on-one meetings also allow employees to ask clarifying questions, request ongoing feedback, and update goals as priorities change.

Managing Hybrid Teams

Having some employees work in-office while some work from home creates a unique set of problems. Strive to give every employee an equal opportunity to succeed, regardless of where they work. To do this, consider the following challenges and solutions:

1. Inconsistent Visibility and Perceptions

Scenario: Remote employees can often be out of sight, out of mind, where their contributions are less visible to managers compared to in-office colleagues. As a result, in-office employees may receive more praise and rewards for similar work, simply because their efforts are more apparent. This can lead to remote workers feeling undervalued and overlooked, even when delivering high-quality results. 

Solution: Set clear, measurable performance metrics and focus on outcomes rather than time spent in the office. Implement regular check-ins and performance reviews based on measurable outcomes rather than visibility.

2. Unequal Collaboration Opportunities

Scenario: Remote employees are often excluded from spontaneous brainstorming sessions that occur in the office, affecting their contributions to key projects.

Solution: Use collaborative virtual tools to ensure participation across all locations and schedule structured brainstorming sessions that include everyone.

For more tips on hybrid leadership, check out our blog post on How to Build and Maintain a Strong Hybrid Culture Globally.

Managing Cross-Functional Teams

Managing cross-functional teams with diverse responsibilities and sometimes conflicting goals can be a challenge. To help, here are a few sample scenarios and strategies you can use to navigate this.

1. Misaligned Goals

Scenario: Your marketing team is focused on meeting strict lead volume targets to support the sales team. While they consistently hit their numbers, the sales team is frustrated because the emphasis on quantity over quality results in a flood of unqualified leads. This misalignment creates inefficiencies and tension between the teams.

Solution: Define shared cross-functional goals at the beginning of the year and conduct regular interdepartmental meetings to track progress, share feedback, and resolve issues. 

2. Communication Breakdowns

Scenario: Two teams rely on different project management platforms to create tasks, assign owners, set deadlines, and track progress. Miscommunication accumulates over time, causing the due dates and tasks in each system to become increasingly disconnected. This results in employees working from outdated information, causing missed deadlines and recurring project delays.

Solution: Migrate all teams onto one project management platform, creating a single source of truth for all stakeholders. This ensures real-time visibility into task ownership, deadlines, and progress, streamlining collaboration and minimizing delays. You can also use a RACI (responsible, accountable, consulted, informed) matrix to define clear roles and responsibilities for each deliverable.

Prioritizing Performance Management With Lattice

Performance management is a powerful driver of retention, alignment, and results. However, perfecting its many moving parts — goal-setting, reviews, ongoing feedback, recognition, and employee development — requires an intentional approach.

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That’s where Lattice comes in. By centralizing these essential functions into one intuitive platform, Lattice empowers employees and managers to streamline performance processes, while giving businesses enhanced visibility and insights to drive continuous improvement.

Curious how Lattice can transform performance management in your organization? Request a product demo today to see the platform in action.