A majority of organizations today have some sort of formal performance appraisal system. Such systems typically make use of a standardized rating form that is used to evaluate various aspects of employee performance. Numerical values or ratings are generally assigned to each performance dimension. Most formal appraisals are done annually, though there is evidence that employees prefer to be evaluated more frequently than this. In fact, both supervisors and employees frequently express considerable dissatisfaction with the process.

In response to such dissatisfaction, an increasing number of organizations have begun to emphasize performance management, which incorporates planning, employee goal setting, feedback, coaching, rewards, and individual development. Performance management focuses on an ongoing process of performance improvement, rather than primarily emphasizing an annual performance review. Performance management is more likely to emphasize informal over formal feedback.

There is a growing body of literature emphasizing the compensation and reward aspects of performance management. These are critical issues for organizations to address. Performance management and coaching must be connected to the goals and strategies of an organization as a whole.