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What is performance management software?

Performance management software allows human resources (HR) departments and managers to assess the performance of employees, ensuring alignment with company goals. A type of talent management system, performance management software empowers companies to keep an eye on employee performance at an organizational and individual level.

Unlike standalone performance reviews, the performance management process is more granular because it entails tracking employee performance in real time throughout the year and gathering feedback continuously. As a result, employers can adjust individual employee goals and expectations as needed. When workers understand their overall contribution to the company, they become more invested in their work — increasing productivity and decreasing turnover.

The software also enables HR teams to identify learning and development opportunities for employees. Leaders can identify skill gaps and develop employees to better meet company needs and expectations. Managers can upskill existing team members, possibly avoiding the need to hire more experienced talent.

Generally, performance management software offers features for setting employee goals and expectations, evaluating performance, coaching, conducting one-on-one meetings, collecting feedback, and giving employees rewards and recognition. After gathering performance management data, management can make more informed decisions around employee compensation and career advancement.

A performance management solution can be a standalone application that integrates with other HR systems, such as payroll. Alternatively, it can also be a module within a complete HR management platform.

Performance management software benefits

Boosts morale and motivation

One of the most important elements of performance management software is facilitating performance reviews. Regular performance reviews let managers recognize individuals for their hard work, improving employee morale. Moreover, performance management software includes feedback features that support consistent communication between managers and employees.

Along the same lines, many performance management software solutions have employee recognition and rewards capabilities, enabling organizations to further show appreciation for employees’ work. When companies consistently praise workers for exceptional performance, this encourages other staff members to enhance their own performance.

Strengthens employee retention

Regular feedback sessions give employees opportunities to interact with their managers and raise concerns. The organization can then resolve said issues as soon as possible. Workers are more likely to stay loyal to the company when their concerns are swiftly addressed, improving employee retention.

Supports employee engagement

Performance management software’s continuous feedback and one-on-one manager meeting features make employees feel heard and included in the organization. Further, these mechanisms help employees better understand what’s expected of them. When employees have clear guidance on day-to-day tasks, their efforts naturally achieve better outcomes.

Surfaces skill gaps and opportunities

With frequent performance check-ins, managers can better monitor and understand the skillsets and capacity of employees. HR teams can pinpoint individuals with skill gaps and introduce training to bridge the gap before it impacts productivity. At the same time, regular performance reviews also reveal which employees are ready for a promotion or increased responsibilities.

Encourages employee agency

Numerous performance management solutions let employees view their work progress and set business goals for themselves. Employees feel valued and more engaged because of their active involvement in the decision-making process.

Types of performance management software

Performance review software

As the name suggests, performance review software lets managers evaluate the performance of their direct reports. The software usually measures employee performance on a set cadence throughout the year based on standardized metrics and/or self evaluation. To be successful, the performance review process requires consistent communication between the manager and the employee.

KPI software

Key performance indicator, or KPI, software is a performance management tool that automatically tracks how well the organization, its departments, teams, or individual employees are performing against company goals and objectives. KPIs also work as an HR tool when used to support data-driven performance conversations with employees.

Similarly, goal setting and tracking solutions concentrate on setting work-related goals to inspire employees to improve their performance. Goal software also ensures that employee goals align with department and organization objectives.

360-degree feedback software

360-degree feedback software simplifies the performance review process by gathering feedback from multiple sources instead of focusing on only manager reviews. It provides each employee with a performance assessment based on the views of their colleagues, clients, and leaders.

Moreover, this software allows employees to provide assessments of their managers. Evaluation results are always confidential, but this software tends to be more successful when deployed in larger teams.

Employee recognition software

Employee recognition systems play a critical role in any performance management strategy. Rewards and recognition can be distributed in the form of cash incentives or bonuses, or via simple public acknowledgement of employees’ efforts and contributions. Regardless of the form it takes, recognizing high performance is key to maintaining morale and retaining top talent.

Business impact of performance management software

A good performance management solution enables businesses to reach goals faster and in a more structured manner, providing a real-time view of the workforce. When properly utilized, performance management software can increase employee productivity and engagement, decrease turnover, and maximize revenue per employee.

Performance management tools foster consistent and transparent communication between employees and employers. This builds trust and makes workers feel more supported, improving retention and preventing turnover. Furthermore, it lets managers and employees set clear and attainable goals that align with the company’s objectives.

With performance management software, leaders can pinpoint each employee’s strengths and weaknesses. With this data, organizations can advance employee professional development and help them overcome weaknesses.

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