Quick takeaways
- Performance management is not the same as managing underperformance. It is the broader leadership discipline of aligning people, roles, behaviours and accountability with business results.
- CIPD defines effective performance management around clear expectations, motivation, skills, resources, support and accountability — not merely annual reviews or forms.
- The strongest systems measure what matters most, role by role, rather than measuring what is easiest to count.
- The Workforce Scorecard argued for viewing the workforce by contribution rather than cost, differentiating measures by strategic impact, and making line managers and HR jointly responsible for workforce quality and strategy execution.
- Feedback conversations need care. HBR’s The Feedback Fallacy challenged the assumption that constant corrective feedback automatically helps people thrive, arguing that managers should pay closer attention to what is working and how people learn.
- The best performance management systems are not administrative rituals. They are leadership systems.
It seems self-evident to say that the real purpose of performance management is to manage performance. When we talk about managing performance we are going well beyond supervision and into the realms of managerial leadership being exhibited at every level of the organisation.
Over the last 10 to 15 years, at 1st Executive, we have been instrumental in installing performance management systems in organisations large and small. We have applied these through paper-based systems, Excel models, and world-class performance management software. During that period the debate about the merits of performance management have raged strongly. To some extent it has been unfortunate that the phrase “performance management” is also applied to what is effectively a situational leadership technique designed to closely supervise under-performing talent to an acceptable level of productivity, quality or results.
Once we accept that true performance management is about managing existing and potential human resources to a high level of business performance then we can see that the commentary that has ranged between performance management being a complete waste of time and an essential component of high performing teams is instructional.
The truth is that all of these points of view are both correct and paradoxically incorrect at the same time. The March/April 2019 issue of Harvard Business Review runs a front-page headline that says “Why Feedback Fails” in which it explains how an incorrect approach to the performance management conversation can actually be detrimental to improved employee performance.
If I add this article to the breadcrumb trail of the last 10 to 15 years of literature it seems to me that there are a number of best practice considerations to be addressed when applying performance management:
1. Executive leadership needs to be accountable for results. The CEO or General Manager will generally be held accountable for the profit outcome. Sales will generally be held accountable for delivering revenue. Operations may well be held accountable for the efficiency that is required to generate profit and in simple terms, finance may be responsible managing expenses, investment and ROI. Other executive roles may have specific KPIs or business objectives that are based on inputs which contribute to the achievement of results. For these KPIs or business objectives to be effective they must be derived from the financial goals of the organisation.
2. Back in 2005, “The Workforce Scorecard” by Huselid, Becker and Beatty (Harvard Business Press) advocated a completely strategic approach to workforce management. It highlighted the importance of differentiating your workforce strategy in favour of roles that created value and ensuring clear line of sight with corporate objectives. In the opening words of its foreword it asked the question “How do we know?” In essence this was just a precursor to the need to be clear about what we need to know to succeed and then ensuring that in performance management we measure what matters most.
3. Taking “The Workforce Scorecard” approach it then becomes important to align values and behaviours, structured competency framework, and clear and accurate description of the responsibilities in all roles with the objectives of the business. This preparation then, in principle, ensures that performance management across the entire organisation is focused on strategic alignment of the workforce with the goals of the business. What this approach neTEAM-2eds to succeed is a method that exists to provide feedback to employees who know their part in the plan.
4. This takes us to the heart of this most recent Harvard Business Review article which addresses the need to provide feedback in a constructive way, which highlights the often flawed opinion base of the reviewing manager and accurately describes the basis of those flaws. The article advocates an approach very similar to Gallup’s strengths-based methodology which is something to be commended as it correctly identifies the purpose of “feedback” as helping “employees thrive and excel”
In conclusion, our view, that the critics of performance management methodologies over the last 10 to 15 years are both correct and incorrect holds true. In all of our work we seek to ensure that:
- Performance expectations are aligned with the plan
- That strategic differentiation in favour of value creation is commercially essential
- That the organisation measures what matters most role by role. For some this is results, for others it is the demonstration of soft skills, and for others the extent to which they can fulfil the requirements of the role with the correct degree of autonomy.
- Finally, that performance management conversations are held transparently to ensure that the employee is helped as much as possible to thrive and excel.”
Performance management is not the same as managing underperformance
One reason performance management has attracted criticism is that the phrase is used to describe two very different things.
The first is the proper strategic discipline: aligning people, roles, behaviours and accountability with business performance.
The second is the remedial process of managing an individual whose performance has fallen below an acceptable level.
Both matter, but they are not the same.
If performance management is only experienced by employees when something has gone wrong, it becomes associated with anxiety, compliance and documentation. It becomes a process people endure rather than a leadership discipline that helps them succeed.
True performance management starts much earlier. It clarifies what good performance looks like. It connects the individual role to the organisation’s plan. It gives employees a fair chance to understand expectations, receive support, build capability and know how their work contributes to results.
That is why performance management belongs at the centre of managerial leadership, not in a folder that is opened once a year.
Line of sight: from business plan to role expectations
A performance management system only works when there is a clear line of sight between the organisation’s goals and the work people are being asked to do.
At executive level, this is usually easier to see. The CEO or General Manager is accountable for overall business performance. Sales is accountable for revenue. Operations may be accountable for efficiency, quality and delivery. Finance may be accountable for expenses, investment, reporting and return on investment.
But the discipline cannot stop there.
The question is how those goals translate into the next layer of the organisation, and then the next. Every role should have a clear answer to three questions:
- What results does this role directly influence?
- What behaviours and capabilities are required to deliver those results?
- What level of autonomy, judgement and accountability is expected?
That is where performance management becomes useful. It turns the business plan into role-level clarity.
Without that line of sight, performance conversations become subjective. With it, they become practical.
Measure what matters most
The question from The Workforce Scorecard — “How do we know?” — remains one of the best questions in performance management.
How do we know whether the workforce is aligned with strategy?
How do we know whether leaders are creating value?
How do we know whether people understand the plan?
How do we know whether role expectations are actually driving business performance?
The danger is that organisations often measure what is easy rather than what matters.
For one role, the most important measure may be revenue. For another, it may be customer retention. For another, compliance quality. For another, project delivery. For another, team development, collaboration, judgement, safety, or the ability to operate with the right degree of autonomy.
CIPD notes that objectives are most useful when they reflect a clear understanding of good performance, and that complex roles may require learning outcomes or open-ended objectives rather than rigid targets.
That is an important point. Not all value is numeric. But all value should be understood.
A good performance system does not force every role into the same template. It identifies what value looks like role by role.
Feedback should not become managerial opinion dressed as fact
The most dangerous performance conversation is the one where opinion is presented as truth.
That is part of the value of the Harvard Business Review argument in The Feedback Fallacy. Buckingham and Goodall challenged the idea that managers are always reliable judges of another person’s performance, noting that ratings can reflect the rater as much as the person being rated.
That does not mean managers should avoid feedback. It means they should be more careful about what feedback is for.
A manager can legitimately say:
- “Here is what the role requires.”
- “Here is what I observed.”
- “Here is the impact it had.”
- “Here is what good looks like in this context.”
- “Here is where I saw you at your best.”
- “Here is where we need to agree a different standard or approach.”
That is different from saying, “This is who you are.”
The purpose of a performance conversation is not to win an argument about the employee’s character. It is to help the employee understand expectations, improve performance, build confidence, and contribute more effectively to the plan.
From annual review to regular performance conversations
Annual reviews are not useless, but they are rarely enough.
Modern performance management has moved toward regular check-ins, coaching conversations and more agile goal-setting. McKinsey notes that effective performance management systems should allow goals to be updated as conditions change, provide regular feedback, and establish a stronger fact base through broader evaluation where appropriate.
CIPD also describes the shift away from process-heavy systems and toward higher-quality conversations, coaching styles and sometimes strengths-based approaches.
That is not a rejection of structure. It is a rejection of structure without value.
The annual review can still have a place. It can summarise performance, document outcomes, inform pay decisions, and set direction. But the real work happens in the conversations between formal reviews.
That is where expectations are clarified, problems are caught early, support is provided, and performance is actually managed.
Strengths-based performance does not mean avoiding accountability
A strengths-based approach is sometimes misunderstood as being soft.
It is not.
It means that managers should understand where people are most likely to grow, contribute and create value. Gallup’s CliftonStrengths meta-analysis found a substantial and generalisable relationship between strengths-based development and performance at both individual and work-unit levels.
But strengths do not replace accountability.
A person still needs to deliver what the role requires. A team still needs to achieve outcomes. A business still needs results.
The point is that performance management should not only ask, “What is wrong and how do we fix it?” It should also ask, “Where is this person most effective, and how do we create more of that?”
This is where performance management becomes developmental rather than defensive.
Managing underperformance fairly
There will always be situations where performance is below the required standard. In those cases, the organisation needs a fair, documented and supportive process.
The Fair Work Ombudsman’s best practice guide for managing underperformance recommends identifying the problem, assessing and analysing it, meeting with the employee, jointly finding a solution, documenting the plan, following up, monitoring and supporting the employee, and ensuring fairness if dismissal is being considered.
That is good practice because it protects both sides.
The employee deserves clarity, support and a fair opportunity to improve. The employer deserves a process that allows performance issues to be addressed directly and lawfully.
But this should not be confused with the broader discipline of performance management.
Managing underperformance is one part of the system. It is not the system.
What a good performance management system should include
A performance management system does not need to be complicated. But it does need to be coherent.
At minimum, it should include:
1. Business alignment
The system should start with the organisation’s strategy, financial goals, customer promises and operational priorities.
2. Role clarity
Every employee should understand what their role is accountable for, what good performance looks like, and how their work connects to the wider plan.
3. Differentiated measures
Not every role should be measured in the same way. Some roles are results-heavy. Some rely more on judgement, quality, collaboration, compliance, safety, service or autonomy.
4. Values and behaviours
Performance is not only what is achieved. It is also how it is achieved. Values and behaviours need to be clear enough to guide decisions, not vague enough to decorate a wall.
5. Regular conversations
Performance should be discussed throughout the year, not saved for a formal review.
6. Development support
If the organisation wants higher performance, it must provide the capability, resources, coaching and context required to achieve it.
7. Evidence and documentation
The system should capture enough evidence to support fair decisions, without becoming an administrative burden.
8. Leadership accountability
Managers should be accountable not only for their own results, but for the quality of the performance conversations they lead.
That final point is often missed. A weak performance culture is rarely caused by a weak form. It is usually caused by unclear leadership.
AI and modern performance management
AI will increasingly appear in performance management systems, especially through analytics, goal tracking, summarisation, workflow prompts and workforce planning.
That can be useful, but it also raises the standard for leadership.
AI may help identify patterns, flag missed check-ins, summarise performance evidence, compare goals across teams, or highlight where measures are inconsistent. But it should not become a substitute for managerial judgement.
Microsoft’s 2025 Work Trend Index describes the emergence of human-agent teams and notes that leaders expect employees to increasingly manage digital agents in the coming years.
That matters for performance management because future performance conversations will need to consider not only what people do, but how effectively they work with systems, data and AI-supported workflows.
Even then, the principle remains the same: measure what matters most.
Using AI more often is not the same as creating more value. The performance question is not, “Did the employee use the tool?” The better question is, “Did the employee use the available tools, judgement and relationships to produce better outcomes?”
What this means for leaders
Performance management is often treated as an HR process. It should not be.
HR can design the system, provide tools, train managers and ensure fairness. But managers must lead it.
The manager is the person who clarifies expectations, understands the work, observes performance, removes obstacles, gives context, recognises contribution and addresses issues early.
That is why performance management cannot be delegated to software.
A system can record the conversation. It cannot replace the courage to have it.
A form can document the goal. It cannot make the goal meaningful.
A rating can summarise performance. It cannot create performance.
The real work still sits with leaders.
FAQ
What is the real purpose of performance management?
The real purpose of performance management is to align people, roles, behaviours and accountability with business results. It should help employees understand what is expected, receive support, improve performance and contribute to organisational goals.
Is performance management the same as managing underperformance?
No. Managing underperformance is a specific process for addressing below-standard performance. Performance management is broader. It includes role clarity, goal alignment, feedback, development, accountability and business performance.
Why do performance management systems fail?
They usually fail when they become administrative exercises, when goals are disconnected from the business plan, when managers avoid honest conversations, when the wrong things are measured, or when feedback is delivered as opinion rather than useful guidance.
What should performance management measure?
It should measure what matters most for each role. For some roles, that may be revenue or productivity. For others, it may be quality, customer outcomes, safety, collaboration, leadership behaviour, autonomy, judgement or development progress.
Are annual performance reviews still useful?
They can be useful, but they are not enough on their own. Annual reviews should be supported by regular performance conversations, coaching, goal adjustment and development discussions throughout the year.
What is the role of managers in performance management?
Managers are central. They clarify expectations, connect work to business goals, provide feedback, support development, recognise strengths, address underperformance and help employees understand how to succeed.
What is strengths-based performance management?
Strengths-based performance management focuses on where employees are most likely to grow and contribute strongly, while still maintaining accountability for role requirements and business outcomes.
How should underperformance be managed?
Underperformance should be managed fairly and transparently. The issue should be identified, discussed with the employee, supported by clear expectations and documented through an agreed plan with follow-up, monitoring and support.
Can AI improve performance management?
AI can support performance management by helping with analytics, summaries, reminders, goal tracking and workforce insights. But it should not replace human judgement, context, coaching or accountability.
