Performance management is a continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization.

Performance management is ongoing. It involves a continuous process of setting goals and objectives, observing performance, and giving and receiving ongoing coaching and feedback. Performance management requires that managers create a direct link between employee and team performance and organizational goals, and consequently, help the organization gain a competitive advantage. A system that involves employee evaluations once a year without an ongoing effort to provide feedback and coaching so that performance can be improved is not a true performance management system.

Instead, this is only a performance appraisal system. Performance appraisal is the measurement and description of an employee’s strengths and weaknesses. Thus, performance appraisal is an important component of performance management, but it is just a part of a bigger whole because performance management is much more than just performance measurement. Performance management systems must make an explicit connection between the employee contribution and organizational goals, establishing a shared understanding about what is to be achieved and how it is to be achieved.

Performance management systems serve multiple purposes. The information collected by a performance management system is most frequently used for salary administration, performance feedback, and the identification of employee strengths and weaknesses.