When you think about performance management, does your mind go straight to awkward annual reviews and unclear objectives? You’re not alone. Many HR leaders feel stuck with outdated methods that frustrate employees and fail to deliver results. In fact, only 2% of CHROs believe their performance management system is working well.
Fortunately, we have good news: while there’s no one-size-fits-all approach to managing performance, research has uncovered proven strategies that work. Companies with effective performance management systems are over four times more likely to outperform their peers. They also reported 30% higher revenue growth and 5% lower attrition rates.
There’s no secret to their success, just best practices in action — creating systems that prioritize continuous feedback, align employee goals with the business’s, and invest in development. These practices improve performance for both individual employees and organizations as a whole.
Ready to rethink employee performance management? Let’s dive into the eight best practices that can help your team thrive.
What Is Performance Management?
Performance management refers to a company’s strategy for getting the best work from every employee. Rather than a single annual performance review, it’s an ongoing roadmap connecting daily work to larger business goals.
Performance management includes:
- Setting goals for individuals and teams, aligned with business objectives
- Providing the support and resources needed to reach those goals
- Continuously tracking progress and removing roadblocks
- Offering constructive feedback, adjusting goals as needed
- Evaluating performance with transparency and fairness
- Recognizing and rewarding achievements in meaningful ways
A solid performance management strategy encompasses more than just the evaluation part. It’s woven into daily conversations, quick check-ins, and well-timed guidance that helps everyone avoid roadblocks before they get too big. Done right, it gives managers a framework to coach and develop their teams while keeping employees in the loop with transparent expectations and regular feedback.
Performance management strategy is not just about putting consistent policies and processes in place. It’s how you create an environment that encourages employees to do great work and recognizes them for it. Well-executed performance management helps you spot high performers, address skill gaps, and make smart, data-driven talent decisions. It’s the key to moving your business forward.
How Does Effective Performance Management Benefit Employees?
The benefits of effective performance management practices are often underestimated, especially since traditional approaches have led to widespread frustration in the workplace. Just one in five employees feels their employer’s process is fair or motivating, and more than half don’t know what’s expected of them at work. When performance management is reduced to an annual ritual, employees are left in the dark about their goals and feel disconnected from their development.
That doesn’t have to be a reality for your organization. A well-designed system can transform the employee experience:
- Greater Clarity: When employees are involved in setting their own goals, they’re twice as likely to say they understand their responsibilities at work.
- Increase Engagement: Regular check-ins between managers and employees work. When they have quarterly progress conversations, employees are 90% more likely to be engaged and more than twice as likely to view the process as fair and transparent.
- Improve Fairness and Trust: Moving beyond once-a-year reviews to ongoing feedback builds trust and helps employees feel that their contributions matter and are recognized.
The results of effective performance management show up in increased confidence, motivation, and ownership. When performance management is ongoing, relevant, and focused on growth, your employees are better equipped to succeed.
8 Best Practices for Performance Management in 2025
HR’s role in performance management is critical if you want a strategy that actually contributes to increased productivity and higher engagement. Your team lays the groundwork, designing its framework, building performance evaluations, managing review cycles, and creating programs for employee development and recognition.
But an effective performance management strategy goes well beyond periodic review cycles. It evolves into a continuous, supportive process that actively empowers both employees and managers to achieve better outcomes. Below are eight best practices to help you create a system that works in 2025.
1. Set Clear and Measurable Goals
Ambiguity is the enemy of high performance. After all, how can your employees succeed if they don’t know what success looks like? They need clear expectations — SMART goals — so they know what they’re working toward.
But simply telling your employees to set SMART goals doesn’t increase transparency. Make your goal-setting methods as effective as possible when:
- Managers and employees collaborate to set goals, rather than assigning goals without any discussion
- Employees’ goals include team and customer goals, encouraging teamwork
2. Switch to a Continuous Feedback Model
Constructive, timely feedback is crucial if you want a performance management strategy that actually works. Waiting for annual reviews to discuss performance is just as difficult as it sounds. Mistakes that were made are long past correcting, celebrating accomplishments feels disingenuous, and some things are sure to slip through the cracks. That’s why best practices point to regular — generally weekly — check-ins as the best way to ensure employees get plenty of feedback.
When they get ongoing feedback during development conversations, 77% of employees say their company’s strategy is motivating. As we mentioned, even quarterly progress check-ins move the needle, increasing engagement and the likelihood that employees will consider your performance management process to be fair and transparent. No matter how you help employees understand their performance and progress, your goal is to make feedback commonplace rather than a dreaded annual event.
3. Provide Targeted Development Opportunities
Great performance management strategies don’t focus on employees’ past performance — they look forward to what each of them can become. Use performance discussions to find learning and development (L&D) opportunities by identifying skills gaps and career aspirations. From there, you can create personalized development plans that help employees grow and encourage loyalty.
Investing in your employees’ future is great for your retention and engagement rates. 44% of frontline workers say they’d stay at their companies for another decade if they had more training and professional development support. Offering access to training, mentorship programs, or stretch assignments builds loyalty and creates a robust internal talent pipeline.
4. Make Performance Conversations Two-Way
A performance review should be a dialogue, not a monologue. Managers don't have all the answers, and employees often have valuable insights into their own performance, challenges, and the support they need.
Train managers to be active listeners and to ask open-ended questions. Encourage employees to self-assess and come prepared to discuss their achievements and obstacles. When conversations are truly collaborative, they foster trust and lead to more accurate assessments and effective goal setting.
5. Leverage HR Analytics to Make Decisions
There’s no longer any room for relying on gut feeling to guide your talent management strategy. With advanced performance management software, you can collect and analyze a wealth of data on performance, engagement, and development. 71% of HR teams that are already using talent analytics say it’s an essential part of their strategies.
You can leverage analytics to identify high-potential employees, spot trends in team performance, and uncover retention risks before they leave. A data-driven approach helps ensure that decisions around promotions, compensation, and succession planning are fair, transparent, and defensible, which is crucial for building a healthy and equitable organizational culture.
6. Recognize and Reward High Performance
We may not be in the midst of a Great Resignation, but research shows that employees are still willing to leave if the right opportunity comes along. One powerful way to combat apathy in your workforce? Consistent, timely employee recognition. When employees receive weekly recognition, they’re nine times more likely to feel a sense of belonging and six times more likely to view their job as a long-term career compared to those who get delayed recognition or none at all.
Meaningful recognition is not just powerful; it’s also one of the most cost-effective ways to motivate employees. It reinforces desired behaviors and makes people feel valued for their contributions. While financial bonuses are one form of reward, don't underestimate the impact of public praise, additional responsibility, or opportunities for career advancement.
The key is to make recognition timely, specific, and authentic. A company culture where great work is consistently acknowledged creates a positive feedback loop, inspiring everyone to perform at their best.
7. Use Performance Management Technology
Spreadsheets and paperwork have become insufficient tools for running performance management. You need dedicated performance management software to avoid administrative headaches and create scalable, fair processes.
With a software platform, you can automate reminders, streamline workflows, and centralize all performance-related data, from goals and feedback to recognition and development plans. This frees up managers and HR teams to focus on what truly matters: having meaningful conversations.
Choosing the right performance management system makes the entire process more efficient, consistent, and user-friendly for everyone involved.
8. Gather Feedback and Adapt
Your performance management system should not be set in stone. The needs of your organization and your employees will evolve, and your processes need to adapt, as well. Regularly solicit feedback from managers and employees about what’s working and what isn’t.
Are the check-ins helpful? Is it easy to set performance goals? Use surveys and focus groups to gather these insights, and be willing to make adjustments. The most effective performance management systems are those that are continuously improved based on the experience of the people who use them every day.
Improve Your Performance Management Process With ClearCompany
Following these performance management best practices helps your team build a culture where every employee can do their best work. With ClearCompany’s award-winning Performance Management system, you can leave outdated review cycles in the dust and embrace a smarter, more engaging approach. Our platform empowers you to set and track goals, create a real-time feedback culture, and streamline performance conversations — all in one place.
The benefits? Higher engagement, better development opportunities, and a company culture that people want to be part of. If you’re ready to build a performance management process that inspires, grows, and retains top talent, ClearCompany makes it easier than ever.
Schedule a personalized demo to see how ClearCompany can help you implement these best practices with ease.
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