Identifying desired behaviors and targets, and then measuring how well employees are doing is performance management. Performance management is the process through which managers ensure that employees’ activities and outputs contribute to the organization’s goals. This process requires knowing what activities and outputs are desired, observing whether they occur, and providing feedback to help employees meet expectations. Managers and employees may identify performance problems and establish ways to resolve those problems.

Effective performance management can tell top performers they are valued, encourage communication between managers and their employees, and establish consistent standards for evaluating employees. To meet these objectives, companies must think of effective performance management as a process, not an event. An effective performance management process contributes to the company’s overall competitive advantage and must be given visible support by leadership.

The first two steps of the process involve identifying what the company is trying to accomplish (its goals or objectives) and developing employee goals and actions to achieve these outcomes. The third step in the process—organizational support—involves providing employees with training, necessary resources and tools, and ongoing feedback between the employee and manager. Step four involves evaluating performance: the manager and employee discuss and compare targeted goals and supporting behavior with actual results. This step includes the annual formal performance review.

The final steps of the performance management process involve both the employee and the manager identifying what the employee can do to capitalize on performance strengths and address weaknesses. The entire process should be reviewed each year to ensure alignment with the organization’s goals and objectives.