Performance Management Cycle


Performance management cycle is an important component in achieving organizational success and a competitive advantage.

The performance management cycle depicts the stages involved in the process of planning, monitoring, reviewing, and rewarding employee performance. The process is centered on setting employee goals that are aligned with strategic objectives of the organization. It involves the ongoing communication between supervisor/manager and employee throughout the year in an effort to support or advance the organization’s objectives, vision, mission, and strategies.

A performance management cycle can be divided into four strategic phases:

Phase 1: Planning

Phase 2: Monitoring

Phase 3: Reviewing

Phase 4: Rewarding

These four phases are completed over the course of a business year. The cycle then begins again the following year.

Planning: Planning means setting performance expectations and goals for groups and individuals to focus their efforts toward achieving organizational objectives.

Monitoring: Monitoring means consistently measuring performance and providing ongoing feedback to employees toward reaching their goals.

Reviewing: Reviewing means assessing the achievements the employees have made towards accomplishing their set goals.

Rewarding: Rewarding means recognizing and compensating employees for good performance.


The planning stage is the first stage and the foundation of the entire performance management cycle. This phase is traditionally carried out at the beginning of each business year.

During the planning phase, managers develop an overall strategic plan for the business. They then identify future performance goals for each of their employees in terms of targets, actions, and behaviors. This stage also includes the development of a plan to enhance the employee’s skills.

Setting Goals

In the planning phase, individual employee goals are set for the performance period. This should be a collaborative effort between the supervisor/manager and the employee. Involving employees in the planning process helps him or her understand the goals of the organization, what needs to be done, why it needs to be done, and how well it should be done. It also increases employee motivation and commitment to goal attainment.

Each of the employee’s goals should contribute to achieving one or more of the organization’s goals. This is to ensure that individual performance goals are aligned with the overall strategy of the organization.


A goal should challenge the individual, but also be achievable. Therefore, the employee’s goals should be set as S.M.A.R.T (Specific, Measurable, Achievable, Relevant, and Time-bound) goals.

Specific – The goal should be detailed and state the exact level of performance expected.

Measurable – The goal should contain a measurable indicator to assess the amount of progress and to definitely determine if the goal has been achieved.

Achievable – The goal should challenge and stretch the employee’s abilities, but realistically be able to be attained.

Relevant – The goal should be related to the organization’s goals and to the employee’s job responsibilities.

Time-bound – The goal should specify when the result(s) will be achieved.

Employee Development Plan

The beginning of the performance management cycle is an excellent opportunity to identify training and development needs and opportunities for employees. Therefore, the planning phase should also include the formation of a personal development plan. This plan will address the strengths and skills the employee should develop to achieve their goals.


Performance management will not work very effectively if it is only regarded as an once or twice a year process. The performance management works best if it is done as a continuous process throughout the year. Regular performance reviews (monthly or quarterly) helps ensure the plan is on track and goals will be achieved at the set level and time.

Regular monitoring of activities is a systematic way to determine whether the plans and methods to achieve the goals are working as intended. Organizational changes or business conditions may occur that affect the employee’s ability to achieve the original goals, thus an adjustment to the employee’s performance plan may be necessary.

Periodic Meetings

Ongoing monitoring provides the opportunity to check how employees are doing and to identify and resolve any problems early. Therefore, regular meetings should be set up to ensure continuous and appropriate feedback is given throughout the year.

Schedule regular progress reviews to determine:

  • what has been accomplished to date
  • how the employee’s performance has been to date
  • if the goals are on track for completion
  • if there are any potential issues
  • if any support is needed
  • if goal needs revising


The third stage in the performance management cycles is the performance review. This is typically done on an annual basis. It is when the final results of the performance are reviewed.

The stage is also a collaborative effort. It is designed to allow the supervisor/manager and employee to evaluate how effectively achievements have met the intended goals set during the planning stage. The more employees participate in the first three phases of the management performance cycle the more they will;

  • understand how their role contributes to the overall success of the organization
  • buy-in to the process
  • be satisfied with the performance management results
  • be motivated to improve

Review Process

During this stage, both the employee and supervisor review the performance. The employees review their accomplishments from their perspective through a self-assessment process. This provides employees with an opportunity to see how they have met objectives or exceeded performance expectations. The supervisor/manager will also independently assess the results.

The review phase typically concludes with a meeting where employee and supervisor/manager discuss:

  • goal progression and completion
  • performance results
  • any performance issues
  • compensation increases
  • advancement opportunities


Rewarding means providing incentives to employees for their performance and acknowledging their contributions to the organization’s success.

Reward and recognition are essential to the performance cycle. If employees are not properly rewarded for good performance, they may loss motivation and not strive to perform at a high level the following year. They may be less inclined to reach or exceed their goals if they feel there is no benefit to them. They may feel unappreciated and may begin looking for a new job elsewhere.

However, by honoring employee’s efforts, it demonstrates that the company values this type of commitment and hard work. This not only will motivate the individual employee, but provide incentives for the entire workforce.

Rewards and recognition can be in various forms including:

  • pay increase
  • monetary bonus
  • job promotion
  • flattering written annual review
  • public acknowledgment
  • personal time off
  • special projects

It is important to remember that performance increases should be based upon merit. Rewards should be differentiated based upon overall performance ratings. The better the individual performs the higher the reward.

Performance Discussion

At the conclusion of the performance manage cycle, there should be a formal discussion between the supervisor/manager and the employee to review the employee’s performance throughout the year. This meeting provides an opportunity for both to discuss the performance and to establish new goals and objectives for the upcoming year.

This discussion completes the cycle and moves it back into the planning stage for the upcoming year.

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