Understanding the performance management cycle | Key stages & best practices

Organizations implement traditional performance management systems with good intentions — to uncover, utilize, and reward employee strengths and identify areas where team members need coaching and development. In general, conventional reviews can yield a net positive impact for businesses as team members grow professionally and contribute to key business outcomes.

However, according to a recent Willis Towers Watson survey, only 55% of employees feel their managers have the tools to holistically assess their performance. They also discovered that highly effective organizations allow for more flexible goal-setting in performance management and connect performance reviews to conversations about career development.* 

This shows that a simple performance evaluation process where managers review their reports based on results alone is no longer the most efficient way to scale your business or help employees grow as professionals. There are better systems for building trust, transparency, and engagement within your organization.

It’s time to embrace the performance management cycle — a more collaborative, motivating, and growth-oriented approach to employee assessments. In this article, we take the opportunity to discuss:

• What a performance management cycle is
• Why they’re important for businesses
• The five key stages of a cycle
• Best practice tips for successful implementation and maintenance

* Willis Towers Watson, 2023
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What is a performance management cycle?

A performance management cycle is a recurring process for employee development. It allows managers and direct reports to set and track performance goals that align with broader company goals and it usually consists of these five stages:

• Goal-setting or defining specific objectives and expectations
• Planning what strategies and tools you’ll use to achieve your goals
• Monitoring or using metrics and check-ins to track progress
• Evaluating or discussing outcomes and results and deciding whether you need a new approach
• Rewarding and recognizing team and individual contributions

Performance management cycles are particularly effective because they’re designed to be collaborative — team leads and employees work together to set realistic objectives as opposed to managers simply delegating the goals from the top down.

They’re also highly flexible. As you monitor and evaluate progress toward certain objectives, you can determine what’s working and what’s not and tweak these strategies as you go.  
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The importance of performance management cycles in achieving organizational goals

When you set realistic goals and track relevant metrics, the performance appraisal cycle can yield significant short and long-term benefits for your organization, such as:

• More transparency and equitability — A cyclical performance management system gives employees more visibility into company and cross-departmental goals, empowering them and encouraging them to participate more actively. The more open and equitable nature of this approach gives equal weight to the input of each team member. ‍
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• Increased engagement — The ongoing communication, cooperation, rewards, and recognition built into performance management cycles will strengthen people’s investment and trust in the process, as well as in your organizational culture.
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• ‍Improved competencies — As employees take more ownership over how they’re progressing toward their goals, managers can assume the role of coaches. Coaching is an important component of good leadership, so this in turn strengthens their leadership skills whilst encouraging direct reports to develop professionally.  
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• ‍Boost in overall productivity — When you set achievable team and individual goals that are relevant to company targets, the work of employees will actively contribute in moving your organization in the direction you want to go. 

“Performance management for us is an ongoing process — especially learning to give and receive feedback the right way.

We’re happy to have a solid and comprehensive tool like Leapsome helping us highlight the importance of performance management. The tool provides us with a comprehensive overview of performance and behavior and consistently helps us develop and improve our individual performance and hence, the company’s overall performance.”

— Leonie Stratbüker, Team Lead for People and Organization at CHRONEXT, on how Leapsome optimizes the performance management cycle

5 stages of the performance management cycle

It’s important to keep in mind that every step of the performance management cycle process is meant to encourage growth and teamwork between managers and reports. 

This approach makes performance reviews more powerful and streamlined, but it takes buy-in at every single level of the company if you want to see meaningful results.
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1. Goal-setting: Defining expectations & objectives

Effective performance management cycles work in tandem with the cascading goals framework. This objective-setting framework involves translating high-level company goals into smaller team and individual personal development goals, so that everyone can see how they’re contributing to the bigger picture. It also prevents performance siloes, which can occur when each team is charged with creating and tracking its own metrics and targets. 

To make this first phase more impactful, you’ll need to know:

• Your organizational parent goals
• Your team goals
• The time frame in which you hope to achieve these
• The core competencies each report needs to develop

Working with your direct report asynchronously or in a 1:1 meeting, you’ll decide which skills they should prioritize, and you’ll use these to create individual personal development goals. For example, if a junior sales representative wants to improve their strategic thinking skills, you can set a personal development goal such as “create and share a detailed plan on how to target a specific customer segment.”

It’s worth noting: Managers shouldn’t use progress with performance development goals as their only criteria for reviewing results at the evaluation stage. Alongside goals, team leads should take position-specific competencies, core values, achievements, and milestones into account for a fairer, more well-rounded evaluation. 
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2. Planning: Identifying resources & strategies to achieve goals

Here, you’ll decide how you want to structure and track goals. The objectives and key results (OKR) framework is the most strategic approach because it makes every objective specific and outcome-focused, which avoids vagueness. Additionally, the KRs are like markers on a map, illuminating the steps that employees need to take along the way.

We recommend setting between one to three individual development OKRs for each quarter. More than that may become overwhelming to manage. 

Every personal objective should have three to five time-bound, trackable key results. You can see the formatting in this example below: Note how the ‘objective’ statement is broad but outcome-focused, and every ‘key result’ has a target metric to help you measure its success.

Objective | Start a mentorship role to improve coaching skills

• Key Result 1 | Successfully finished a personal development course and got certified to mentor others on creating better goals.
• Key Result 2 | Guided the mentee(s) through a structured mentoring plan, which resulted in them passing a final assessment.
• Key Result 3 | After the mentorship, a survey reported that the mentee(s) felt confident about applying their new skills to the work context.
• Key Result 4 | The mentee(s) showed improvement in at least one competency in their next performance review.
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3. Monitoring: Tracking progress & performance

Connecting development goals with your reports’ daily tasks makes it easier for them to incorporate these goals into their regular workload. You can monitor employees’ progress regularly throughout the quarter to ensure the workload is distributed evenly and that they are getting the support they need to achieve their goals.

Managers and reports can do this asynchronously with a dedicated goal management solution like Leapsome, which allows users to track advancement toward individual goals at their leisure and share feedback when needed.

Team leads should also set up regular 1:1 meetings with team members to discuss:

• What they’ve accomplished — What steps has the employee taken to achieve their development goals?
  
• What went well — What successes, big or small, do they have to report?
  
• What’s blocking progress — Are there any obstacles or dependencies that are preventing them from staying on track?
  
• The support they need — How can their team lead or other stakeholders support them in meeting their current goals?
  
• The next action steps — What do they plan to accomplish before the following check-in?

“With Leapsome, we’ve improved both the quality and quantity of feedback in our performance review process at Picnic.

The flexibility of the platform allowed us to define and implement our ideal process, which was really important for us. Thanks to the templates and automated reminders, I’m now spending up to 50% less time on managing performance reviews compared to our previous process when we were collecting feedback manually in Excel.” 

— Elise Baeriswyl, People Partner at Picnic_, on how Leapsome has saved her time and improved their review cycle process

4. Evaluating: Assessing outcomes & results

At the end of every performance management cycle, the evaluation process — which happens every six months or year —  will be more objective and unbiased. This is because it will be based on data gathered from continual monitoring, coaching, and ongoing feedback, rather than just how each manager feels about their team’s performance at the end of the cycle. 

If you’ve utilized the performance management cycle well, you won’t have to worry about surprising employees with anything during the review. You will have checked in and discussed progress with development goals and core competencies regularly before you meet for the assessment.

Make the evaluation more constructive and thorough with a 360 degree review, which involves a self-assessment as well as feedback from the reviewee’s peers, direct reports, and managers. 

One way to assess outcomes in a 360 review is by using a Likert scale, including questions such as:

• What’s the most crucial development goal the employee should work on?
• How well do they take feedback and suggestions from others?
• How well do they prioritize tasks and make decisions?
• How well do they manage their workload and meet deadlines?

“Our whole review system runs through Leapsome now. There are no more human errors, and it’s much easier for our managers to see previous feedback. Everyone locks in their development goals after the review and can easily incorporate them into the next review cycle.”

— Tina Chater, Director of People and Organization at hy, on how Leapsome has optimized their review process

5. Rewarding: Recognizing & rewarding employee contributions

Even though 67% of leaders and 61% of managers say they recognize team members a few times a week, 40% of employees report that they only receive recognition a few times a year. One reason behind that difference in perception is that recognition may not always feel authentic and personalized. In addition, team leads often fail to connect praise with the tangible results and skills employees are trying to build. 

Another issue is that many organizations don’t measure employee success based on impact, with some leaders relying on arbitrary metrics to decide when and how to reward staff. That means team members often don’t receive rewards for short-term contributions at all, which can be demotivating. 

In light of this, leadership and managers can build an impactful recognition and rewards process by:

• Designing a recognition and rewards (R&R) program with clearly defined criteria for monetary and non-monetary rewards. It should be outlined in an internal document for all team members to review and refer back to over time.
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• Explaining the specific rewards that are available to your team as part of your program.
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• Weighting all achievements based on organizational impact, no matter how small.
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• Consistently praising direct reports and co-workers via a channel that’s dedicated to praising peers and sharing wins.
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• Implementing a compensation management plan and philosophy to make all pay and benefits-related decisions fairer, more transparent, and closely connected to performance goals. 

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Tips for a successful performance management cycle

To make the performance management cycle more people-centered and impactful, consider these essential best practices:

• Foster a collaborative and supportive environment — Companies that value innovation believe great ideas can come from anyone at any time, but that doesn’t work if some employees feel their voices are not heard. An encouraging work environment is key to ensure that people are comfortable enough to share their perspectives unprompted.
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• Provide timely and constructive feedback — Team leads shouldn’t wait for check-in meetings or evaluations to offer constructive input. It’s ideal if they make regular use of any and all feedback channels to offer respectful critiques and support when the need arises.
  
  
• Encourage employee participation and involvement — The performance management cycle hinges on the team member’s ability to participate at every step. Cooperation is crucial for engagement, and it allows staff to develop as professionals and leaders. That’s why managers should prioritize their roles as coaches and make sure their direct reports have everything they need to engage in the process meaningfully.
  
  
• Be fair and objective — When offering constructive criticism, point to specific instances where the team member’s performance fell short, focusing on how the situations impacted others. This can help you avoid feedback that comes from a place of judgment or bias.
  
  
• Offer support and resources for employee development — Whether you’ve identified a strength or area of growth, work with your direct report to create a concrete plan for development. Refer them to helpful external resources, too. For example, Leapsome’s Competency Frameworks are useful tools that employees can use to plan out their career progression.
  
  
• Use technology to support performance management — Performance management platforms allow you to automate the administrative, repetitive aspects of the review cycle. Not only will they send you helpful reminders and alerts, but you can also use them to arrange meetings, create agendas, share feedback, track goals, create training courses, and design compensation and rewards programs in one place.
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Streamline your performance management process with Leapsome

The standard performance review process does not directly focus on growth, so it’s time it had an update. Performance management cycles combine traditional reviews with goal-setting frameworks and development plans to create more employee-centric systems that deliver tangible business outcomes.

Leapsome makes it easy for HR and people ops teams to design a successful performance management cycle that drives continuous improvement. With our Learning, Goals, and Reviews modules, you have all the tools you need to support, track, and evaluate development progress. Individualize employee growth with transparent competency frameworks, tailored learning paths, collaborative goal management, and automated review cycles.

Best of all, managers have granular visibility over employee progress and access to comprehensive analytics, so they can make the process more impactful and fair by giving instant feedback and making data-driven decisions.

By integrating all these elements of a performance management cycle into one platform, Leapsome empowers HR to enhance productivity, improve employee engagement, and promote a culture of feedback, ultimately contributing to the overall success and growth of their organization and its people.
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