Creating a Modern Performance Management System
Modern performance management is overwhelming. There are more options than ever before, and the hardest part can be knowing where to start.
Should you do OKRs like Google? Or maybe quarterly check-ins like Adobe? Or does Deloitte have it right with project-based reviews?
At PerformYard, we’ve helped hundreds of organizations create custom performance strategies that are just right for their needs.
In this guide, we combine our approach to designing a new process with our favorite resources from around the internet.
What is Modern Performance Management?
Performance management has changed, and you’ve probably seen the headlines:
- Death to the Performance Review
- Amazon to Drop Dreaded Stack-Ranking
- Why Every Good Company is Ending Annual Performance Reviews
But maybe you’ve also seen headlines like these:
- Why Facebook Still Uses Traditional Performance Reviews
- Lets Not Kill Performance Evaluations Yet
- Companies That Got Rid Of Performance Ratings Aren't Doing So Well
So what’s going on? Is there a new “right” way to do performance management? And what is it?
Modern performance management is more about your perspective, your focus, and how you execute your process than it is about specific tactics.
There are high profile tactics out there like continuous feedback, weekly 1-on-1s, OKRs, and quarterly check-ins that have become synonymous with modern performance management.
But you shouldn’t just take these things off the shelf and apply them to your organization. You’re not Adobe or Google.
Modern performance management is about starting with your organization’s needs and the needs of your modern workforce, then building a custom strategy that serves those needs.
It’s about creating a strategic business operation rather than fulfilling a year-end compliance requirement.
Characteristics of Modern Performance Management
That’s a little abstract, so here are some more concrete ways that performance management has changed.
(We also included a long list of examples from real organizations at the bottom of the page.)
Digital First
Digital tools are enabling this transformation. More feedback, more data, and more transparency are only possible because they can be achieved with a light tough through technology.
Before adding complexity to their processes, organizations are streamlining them through technology.
Development Focused
Traditional strategies focused primarily on rewarding top performers and eliminating underperformers.
While that is still a part of modern systems, the focus has shifted to include development with accountability.
More Frequent
You can’t talk about modern performance management without talking about increased frequency of feedback.
Whether it’s quarterly check-ins, weekly 1-on-1s, or continuous feedback, more and more frequent feedback is what it’s all about.
Rewards Collaboration
Traditional performance management would tend to give individual ratings, which didn't always incentivize teamwork.
Today, organizations want to know not only how well you work alone, but how you build up a team.
More Agile
We live in a more dynamic world and organizations want to reward employees with the flexibility to adapt and perform as an organization evolves. Modern strategies reward both tactical performance and adaptive performance.
More Fair
Unfortunately traditional performance management is filled with bias.
Modern performance management seeks to even the playing field and get to a better understanding of actual performance. It’s no longer just about your manager’s opinion of you for one week a year.
Smarter Data
Finally, modern performance management still embraces data. Even after an initial rejection of ratings and rankings, many organizations are looking for smarter ways to bring data back into their process in order to inform career planning, hiring, and other business decisions.
Here are some of our favorite articles on Modern Performance Management:
The History and Science of Performance Management
How Much is Bad Performance Management Costing You?
What is Modern Performance Management?
4 Common Reasons Performance Management is "Broken"
Using Software for a Modern Performance Appraisal System
One hallmark of most modern performance appraisal systems is they're built on dedicated software. It's difficult to build a modern system on spreadsheets, shared documents or survey-builders. In the image below, you'll see what a typical modern performance appraisal dashboard looks like:
This image from PerformYard shows how the modern performance appraisal system provides admins with more visibility into the company's performance management process. A modern software system is faster, because everyone can login to one platform to fill out reviews. Plus, the platform will send notifications to employees who have yet to fill out reviews.
Modern appraisal systems also rely on software to gather data. After all, performance reviews should be a useful endeavor, not just a box to check. Finally, the modern performance appraisal system depends on software for customization. Tools like PerformYard make it easy to edit multiple review forms, create and implement new ones, and send them out to employees with a few clicks.
A Purpose for Performance Management
Modern performance management has a business purpose. If you're designing a new strategy, you need to start with its purpose.
The challenge is that not every organization will have the same purpose. You really should choose just one or two to start.
But how do you choose?
Diagnosing Your Organization’s Needs
Choose a purpose for your modern performance management strategy by understanding the needs of your organization and your workforce.
For helping to decode the type of organization you have and its performance needs we love the “Organizational DNA” framework from PWC.
Then…
Take the short survey to get a sense of what type of organization you are.
Choosing a Purpose
Once you understand what your organization needs, choose the primary purpose of your new system.
Every organization may be a little different, but here are the 5 most common types of strategies we see.
Accountability
This is the most traditional approach, but it still makes sense in the context of modern performance management.
Systems that focus on accountability evaluate employees against standards. The most common examples would be a sales quota or a competency based system.
These systems can work very well when employees know what is expected of them and are highly motivated to achieve the standard. This tends to be organizations with well-defined roles, many people in those roles and measurable results. It also helps to have a large pool of qualified candidates to fill vacancies.
Development
Development focused performance management is having its day!
Popular tactics like weekly 1-on-1s, continuous feedback, and engagement surveys fall squarely in a development focused performance management strategy.
A development focus works well for knowledge workers, team based work, or employees with a lot of self-direction.
If your employees see their job as “just a paycheck”, you’ll need to change their mindset before using a development focus.
Recognition
One of the most common complaints about informal continuous feedback strategies is that employees don’t know where they stand. That’s why many companies embrace recognition.
Your most driven employees likely embrace some level of competition and have aggressive personal goals.
Recognition is best for organizations with highly motivated employees with opportunities to promote from within and room for some variable compensation.
Organizational Alignment
Alignment embraces the idea that you don’t need to manage people’s performance, you need to get out of their way. If you can clearly articulate what needs to get done, your employees will get after it and make it happen.
This approach is best for flat organizations with highly distributed decision making and information flows.
Hierarchical organizations are just naturally better at alignment and don’t need as much help. Flat organizations need a way to get everyone moving in the same direction.
Cultural Alignment
This focus brings the organization’s values off the wall and into conversations between employees.
The goal is to increase self-awareness within the context of the values, with the hope that when employees embrace the values the results will trickle down to every element of performance.
This works best for organizations that see toxic cultures as the cause of their performance issues. Public sector organizations can find themselves in this category.
Our list of the most popular performance management system examples goes into more detail of when to use particular appraisal methods.
Potential Stumbling Blocks
Even the best companies have problems with their processes. Unfortunately, identifying the problems is often a very small part of actually solving them.
In many companies, the performance management process is a great example of this reality. You might know that the way you manage your talent needs work, but for a number of reasons, it is not always easy to find the best way to fix it.
Of course, successful change happens at companies every day. When it comes to performance management, many companies have found a way to commit the time to move from an annual review process to an ongoing performance conversation. The key to their success has been identifying the roadblocks in their way, and sticking to a successful model for developing a tailored solution.
We’ll get to the successful model at the end of the post, but first, think about these potential stumbling blocks before you start to build your own performance management process.
- Lack of Executive Support: No matter how broken your process is, it may not be at all evident to those at the very top. What’s more, it’s possible that the existing system was created by one of them. Regardless, securing their buy-in and forming the consensus for the end goals of revamping how you manage your talent is vital.
- Widespread Ambivalence: A 2012 Achievers poll found that 98% of staff find performance reviews to be unnecessary. With this kind of near-universal opposition, convincing your managers and employees that they can benefit from an enhanced performance management process will not be easy. Fortunately, there are case studies that show the benefits of fostering a performance dialogue. It may be useful to implement a new process on a small scale to create your own case study to help make your case throughout your company.
- Poorly Defined Ratings: Employees that are disenchanted by performance reviews may be confused about the specific behaviors and expectations. Further, if your ratings system is not well defined, managers will have difficulty accurately assessing their employees.
- Infrequent Reviews: Giving employees and update on their performance on an annual basis can stifle their growth and be a drag on morale. However, moving to a system with more frequent check-ins will add meetings and take more time for all employees, especially managers. This additional commitment will be an added challenge to securing their buy-in.
And for further reading on the purpose of performance management check these articles:
The Purpose of Performance Management: 5 Options
Does Your Performance Management Process have Purpose? These 9 Companies Do.
Elements of a Performance Management Strategy
Once you have a vision for your modern performance management strategy, it's time to turn it into a process.
This can be daunting, but we find it’s easier if you break things down to the building blocks. There are many specific tactics you can consider (like these 5 Modern Alternatives to Annual Performance Reviews), but in the end, all of them are just variations or combinations of three things: reviews, goals, and feedback.
Reviews
Reviews, check-ins, assessments—it doesn’t matter what you call it. We've found that even the most forward-thinking processes still include some structured meeting or form that takes the long-term view and happens regularly. This could be a quarterly check-in, semi-annual performance discussions, or even annual reviews (yes, there is still room for annual reviews in modern performance management).
Why do many companies still do this?
- Fairness: It creates a set of standards for employee performance discussions and decisions that are going to happen with or without these reviews.
- Transparency: It takes the discussions and decisions about employee performance and brings them into the sanitizing light of day.
Goals
Goals can be found across the different types of performance management strategies. The difference will be what the goals are for, their terms, how often they are checked in on, and the form they take.
- Accountability Goals: Goals will often be role based, like standards of performance for that role. A sales quota is an example.
- Development Goals: Here, goals often take the form of professional development and tend to be a bit looser. They are more about agreeing on a direction than reaching a specific degree.
- Alignment Goals: Goals are at the heart of an alignment strategy. They may even make up the bulk of your process. Goals should have some way of cascading across the organization and should be dynamic enough to shift with the needs of the organization.
Feedback
Feedback is all about putting into action the ideas and intentions from reviews and goals.
Feedback can take many forms. You could instill a culture of continuous feedback that exists without strict systems, or you can formalize a process of feedback with required weekly one-on-ones.
You can also encourage regular recognition or require a few moments of recognition from each employee every month.
How you bring all this together will depend on your goals and your organization. We asked four HR leaders how they think about balancing an effective strategy with both structured and unstructured options in our article: Balancing Structured Reviews and Unstructured Feedback.
Whatever you decide, remember to keep it simple, lightweight and focused on a clear purpose.
Why it Needs to Be Easy for Employees
Once you have a purpose and have laid out a process, it can feel like you’re almost done. But the most important step still remains: you must make everything easy for your employees.
Every step should be scrutinized, every task you assign an employee should be questioned.
Modern performance management is more complex and more frequent—the only reason it works is because it is digital first.
Performance management software streamlines and automates the large administrative burden of pulling off a modern strategy. If you ask your employees to do that work, they will rightfully decline.
Software allows employees to focus only on the value creating activities, like self-reflection, conversations with managers, and planning.
To learn more about the importance of keeping things easy, read:
First, Take Back Your Time: Before adding complexity, streamline.
What is Performance Management Software
How To Choose Performance Management Software
How to Build a Custom Performance Management System
Bulky, time-consuming and ineffective. The once ubiquitous annual appraisal has gotten a bad rap — and don't get us started on ratings.
We get it. Employees don't want to be told they're 'better than average, but not excellent'. And we know that 50% of millennials would rather receive meaningful feedback every month than sit down for an hour each December. For many HR leaders, it's clear. The annual review has to go.
But the question is: in exchange for what?
Continuous feedback? Weekly check-ins? Bi-annual reviews? Performance management can be the quintessential HR Rubik's cube if you let it. And while you probably do need to make some changes, those changes might not need to be as drastic as you think.
If you want to change your performance review process but aren’t sure how, here are five steps to help you find a better way.
1. Find out who you are
The number one reason companies stay stuck in an outdated performance management process is perfectionism.
HR leaders become attached to an image, idea or industry case study that made a lot of sense for someone else, but might not be relevant for them. When it comes time to buckle execute on that big idea, the process quickly becomes muddled and eventually stalls out.
But every company has its own unique DNA.
So before you embark on a system change-up, take time to identify who you are as a company.
For instance, if you have a hierarchical structure with highly skilled professionals, many of whom do a similar job, you might have a cultural need to boost employee engagement and motivation. In contrast, a small company with a flat structure of specialist employees all working on different things may need to focus on how they measure performance fairly and consistently across small but diverse teams.
Give yourself permission to do this your way. The performance management process can at should look different at every company.
2. Define your purpose
Once you're clear on what your business is really about, have a good think about what you need your performance management process to accomplish.
In other words: what's the purpose of your performance review?
Is it to increase employee skills or foster greater accountability? To boost engagement or is it there to simply justify salary decisions? Be honest.
If you want your performance management process to produce meaningful outcomes, you need to define why you’re doing it.
For example, there’s no point asking managers to review employees biannually when they work on a monthly project cycle. In a case like that, it would make more sense to have a more regular review schedule while introducing some less formal elements to address issues when they arise.
3. Know your performance management building blocks
Want to know a secret?
This performance management stuff isn't as complicated as it sounds.
It all boils down to 3 simple elements. Once you know those, it's easy to come up with an arrangement of those blocks that makes sense for you. For instance, Asana has an end of the year self-review that it combines with a biannual review, while the video game company Valve has a 360 system where teams of employees conduct performance interviews with everyone in the company.
Here are the 3 simple building blocks every performance management process has in common:
Reviews — Does a formal or informal approach fit better with your company culture? How often do you want to review your employees (annually, semi-annually, at the end of every project)? Who else do you need to hear from (self-appraisal, manager, peer-to-peer)?
Goal Setting — What types of goals will you set? Can you connect individual goals to the company's overarching vision? Have you created an opportunity for employees to include their personal goals?
Feedback — Where in your organization's work streams is it easiest and most natural to provide employee feedback? How do your employees want to receive feedback (in a one-to-one meeting, regular check-ins or through 360-degree-feedback)?
4. Don’t rush it
Rome wasn't built in a day, and you better believe your perfect performance management process won't be either.
Sure, HR case studies make it look easy but for some companies, it can take years to implement a new process. Managers and employees need time to familiarize themselves with it and they need a well-thought-out argument for why they should change in the first place.
So start with small steps like changing or removing appraisal questions, feedback methods or resetting the cadence for your reviews. Some of the most impactful change happens incrementally. You could even start by simply taking a much a smaller version of your current appraisal and executing it four times a year to test the waters.
5. Revisit, refine, repeat
Performance management is a moving target.
Finding an approach that works for your company means getting some things right and some things wrong. You have to be brave enough to take that leap and find what works for you. Create reflection points where you can assess what's worked, what hasn’t and how to remedy it.
And whatever you do, don’t be fooled by thinking you need to create the perfect process, especially if it takes you away from your true purpose for performance management at your company.
How to Evolve Your Performance Management Process
Lastly, continue to work on your process: improve, expand, and evolve.
Just please don’t throw it all away and start again whenever a new trend comes along.
We have a lot to say about this topic, but honestly, no one explains it better than Jon Stein in his article for First Round’s blog: Betterment Tested Three Performance Management Systems So You Don't Have To.
And read this case study on our customer: Colorado Health Foundation.
For additional insight check out:
Why You Should Iterate On Your Existing Strategy
Should You Test Your Performance Management Process?
Examples of Modern Performance Management
So what are the world’s leading companies doing? Here is a long list of examples from big name brands and several smaller organizations that you may have more in common with.
Case Studies
Spoor Bunch Franz | Accounting Firm | 50 Employees
Semi-annual reviews, monthly feedback, and additionally custom cycles for departments, roles and new employees.
Five Star Technology | IT Services | 140 Employees
Quarterly check-ins with broad 360 reviews that are qualitatively coded around the company’s six core values.
J2 Interactive | IT Integrator & Developer | 150 Employees
Quarterly conversations with annual goal-setting and a year end review to summarize performance.
InvestiNet | Receivables Management | 100 Employees
Four types of goals with weekly check-ins make sure everyone’s work is aligned and that they’re living the company mantra of “never settle for the status-quo.”
The Colorado Health Foundation | Foundation | 60 Employees
A quarterly conversations process with annual goal-setting, a simple year end review, and lots of flexibility.
More Examples
How Does Amazon Do Performance Management?
3 Approaches to Performance Management: Google, Betterment and IBM
How Does GE Do Performance Management Today?
How does Facebook do Performance Management
Performance Management at Tesla: What we know.
How Regeneron Built Their Performance Management System
How Does Uber Do Performance Management?
How Does Asana Do Performance Management?
18 HR Data Analytics Examples (2025)
Vanguard’s Approach to Reviews & Performance Management
.jpg)