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    Performance Management Cycle: A Comprehensive Guide

    March 10, 2022

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    performance management cycle

    Wondering why performance management cycles are important?

    A survey states that a whopping 24% of employees are considering leaving their job because of a lack of performance feedback.

    An organization’s goal is to maximize productivity and thereby increase profits. To do this, the employees in that organization have to perform well enough to achieve that productivity.

    An organization that can manage its employees’ performance is better poised to maximize their productivity. Read on to understand what the performance management cycle is, its four stages, and its importance to ensure employee satisfaction in an organization.

    What is the Performance Management Cycle?

    Performance management is the process that helps manage the activities involving an organization achieving its goals in the most efficient way.

    It is vital for the organization, as a whole - departments, employees, and even their workflow. The Human Resources (HR) department must look into managing the human resource productivity of an organization. The procedure of performance management is referred to as a cycle simply because it is an ongoing process, typically starting anew every year.

    This model gives management and employees insight into how they can go about achieving their goals systematically and through well-planned employee development schemes.

    A performance management cycle is one of the most important tools in the overall performance management strategy adopted by an organization. There are four stages to the Performance Management cycle:                                                      

    Four stages of Performance Management Cycle

    There are four stages in the cycle:

    • Planning
    • Monitoring
    • Reviewing
    • Rewarding

    In most cases, the cycle begins at the beginning of the year. It ends once the employee receives an award for their performance. It then cycles back to the planning phase. Many organizations have shortened the cycle, finding that shorter cycles equal more frequent monitoring and thus improved employee performance.

    Now that we know the four stages of the performance management cycle, let’s understand them in detail:

    1. Planning

    Planning involves taking into account the goals and objectives of the organization. Here, the management decides how each employee or department will contribute towards turning these goals into success.

    Once the management has reached a decision, they will convey the information to the employees or respective departments.

    This information can be as follows:

    • The goals and objectives for the business
    • Personal goals of an employee
    • Developmental goals set by an organization
    • The outlines of specific tasks
    • Particular employee targets
    • The desired actions and behavior of an employee

    To ensure the planning part of the performance management cycle is effective, the management must effectively communicate the information to the employees.

    The clearer the ‘why’ part of it is made to an employee, the more invested they are likely to be in working towards that goal. The management can take heed of this good time to let the employees know how they are likely to gain from achieving these objectives.

    The management can use the S.M.A.R.T. method for outlining these goals. It can be described as follows:

    • Specific - The goal must be clear. HR must provide the employee with detailed information about what they have to do to achieve the goal and why it is essential to achieve it.
    • Measurable - The management must have an accurate and tangible way to measure whether or not the goal has been achieved.
    • Achievable – The management must remember that setting unrealistic goals is likely to demotivate employees rather than spur them towards achieving them.
    • Relevant - The goal must align with the target of the organization and employee objectives.
    • Time-bound – There should be a clear timeline to achieve said goal.

    Another reason to set goals like this is to allow management to create an employee development plan that helps them achieve these goals. Knowing what an employee needs to do makes it easy for management and HR teams to decide what kind of training programs and development plans will aid the employee in achieving these goals.

    2. Monitoring

    Monitoring is a vital aspect of the performance management cycle. The management must keenly monitor the organization's work and whether or not it aligns with its objectives.

    According to another survey, more than 50% of the workforce believes that their performance reviews are inaccurate. HR should actively try to avoid such inaccuracies and take time to check, even double-check, everything related to performance management.

    The best way to get the most out of the performance management cycle is to monitor progress as often as possible. The management may use analytics and other tools to monitor the situation regularly. However, it is vital to meet with the employees on a quarterly or monthly basis.

    Their inputs about performance management can help the management update their system accordingly. These check-ins also extend a helping hand to the employee who needs additional support in achieving these goals or helping them solve any obstacles they might be facing.

    Feedback from employees and a clear understanding of their progress will also allow management to adjust the goals. If the employee is close to achieving the goal much earlier than anticipated, management can set the target higher with the employee's consent. Similarly, it can lower an employee's target if their performance is failing to keep pace with it.

    While the performance management cycle is generally a year-long process, setting shorter periods to achieve goals can prove beneficial. Long-term goals either cause employees to slack in seriousness or overwhelm them in a way that hinders work. The management must break down the goals into quarterly or monthly periods to achieve optimum employee engagement.

    It also allows employees to review their progress and figure out the best way to achieve their goals, allowing management more visibility into the process.

    Sometimes organizational goals change during a year. Constant monitoring and more frequent meetings help keep track of the changes better, making it easier to shift goals or augment them as and when required.

    3. Reviewing

    Towards the end of the year, management holds meetings with employees to review the work done that year to understand if the employees and the organization have achieved their set goals.

    The previous stage, monitoring, should have given both management and employees a clear idea of the status of the goals thus far. If properly managed, the meeting should ideally discuss the success of achieving the goals.

    It is also a great opportunity for the employee to share their feedback with the management, helping the latter learn about the inconveniences, if any, faced by the employee. This meeting is just as much about reviewing the targets as it is about reviewing the entire process of setting goals.

    Here are a few good questions that organizations can ask:

    • Was the goal that was set achievable?
    • Was the goal in line with the organization’s objectives?
    • Have the employees learned any new skills or experienced anything on this journey?
    • How well have the assigned tasks been completed?
    • Was there enough support given to the employee?
    • Could anything have been done better to achieve the goals?
    • What areas can be tweaked for improvement?

    Keep in mind that when these questions are discussed in the meeting, the employees are likely to bring up some areas of concern. The management must be prepared with solutions to ensure that the discussion is constructive.

    This review meeting is also the ideal time to talk to employees about development opportunities, the bonuses they might receive, and increments in their compensation.

    4. Rewarding

    Rewarding is the final stage of the annual performance management cycle which is vital to ensure that employees remain motivated and align themselves with the organization’s goals.

    This part of the performance management cycle is key to retaining the talent that has worked endlessly throughout the year to achieve those goals for your organization. When rewarding employees, a blanket reward doesn’t make sense. The management must reward employees based on their merit to achieve their set goals that year.

    Rewarding employees that have done poorly, similarly, help show that the management appreciates their efforts. If not rewarded, employees might feel demotivated, leading to unhealthy dissent amongst the ranks.

    However, rewarding employees who have worked tirelessly has to be a priority. These employees expect, and deserve, more than a meager reward. Other employees are likely to put in hard work in the next cycle to feel appreciated for their work.

    Here are some ideas for rewards:

    • Increments in salary
    • Bonuses
    • More days of leave
    • Promotions
    • Public acknowledgment

    Once the employee has been rewarded, it is a good idea to have one more meeting. This meeting gives the management a good opportunity to review the employee's entire work cycle, discuss their concerns (if any), and start the preliminary planning of the next cycle.

    After this, the performance management cycle will be set to re-begin with renewed motivation and goals. 

    Advantages of Performance Management Cycle

    There are several advantages of utilizing the performance management cycle when it comes to employees, such as:

    • Employees become more aligned with organizational goals
    • A clear understanding of personal goals for employees
    • Clear route to achieve set goals and objectives

    Here are a few benefits of using the performance management cycle model for an organization:

    • Increased competitiveness
    • Improved flexibility
    • More inspired workforce
    • Increased productivity
    • Clearer insights into the process


    The performance management cycle is a good way to ensure that an organization has control over the overall performance of its employees. The management and the HR department should implement this model to help their organization achieve the desired goals.

    Remember, the best part of the performance management cycle is that it can be endlessly repeated, tweaked, and adjusted to optimize it according to the comforts of the organization.

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