The 4 Stages of Performance Management Cycle

Every organization aims to optimize the performance of its employees in order to reach its objectives. To accomplish this, it is essential to have a system in place that enables managers to oversee, mentor, train, and inspire their employees. This is where the concept of a performance management cycle comes into play. The performance management cycle can be divided into four key stages: planning, monitoring, developing and reviewing, and rating and rewards.

This article will delve into the different stages of the performance cycle, providing a comprehensive understanding of what a performance management cycle entails and why it is crucial for organizational success.

Explore the nuances of the performance management cycle in this video.

What is a Performance Management Cycle?

The performance management cycle is an ongoing process that involves planning, implementing, measuring, and analyzing employee performance. Its goal is to achieve comprehensive performance management by aligning employee success with that of the organization.

Traditionally, the performance management cycle lasted a year. However, in today’s labor market, focused on feedback, employee engagement, and experience, companies are increasingly adopting a more agile approach to performance appraisal.

This shift has prompted organizations to embrace shorter performance appraisal cycles, often quarterly or semi-annually, along with a culture of frequent feedback.

Why is a Performance Management Cycle Important?

So the next burning question to ask is why are performance management cycles important to a business? Well, there are a few of them, and we will look at some in this segment.

  • Builds Strong Relationship

One of the objectives of implementing a performance management cycle is to get the employees to see the bigger picture of their goals. Being part of the planning process and being constantly given feedback improve engagement. This can help build trust and foster a stronger relationship between employees and management.

  • Keep Employees Engaged

According to an article by Gallup, employees whose managers held them accountable for their work are 2.5 times more likely to be engaged. This aspect is particularly significant in a world where employees demand better and more frequent feedback from their employers.

Also read: Do These 8 Things To Improve Employee Engagement
  • Reduce Turnover

High employee turnover is always a nightmare situation for employers. It costs employers to hire a new person, and the vacant space can also lead to a potential loss of revenue. Adopting a performance management cycle plan will help because there will be defined goals, regular feedback, support for career development, rewards and incentives, and a career path within the organization. All of this will give employees the idea of an organization that cares.

  • Help Detects and Fix Problems Faster

The monitoring aspect of the performance management cycle helps organizations find problems faster and potentially solve them. The problem may be an underperforming employee, an overbearing manager, or the unrealistic nature of a set goal. If left unsolved, it can affect the productivity of an employee or a team. The performance appraisal cycle can help nip the problem sooner rather than later.

  • Improves Performance

Businesses with laid-out objectives and plans always set themselves up to achieve them. The performance appraisal cycle allows organizations to plan, monitor, and review their set goals and achieve them. Employees have to take regular feedback and continuously improve themselves to keep up with their objectives. Doing this helps them stay in line with the organizational goal, which improves performance.

4 Stages of the Performance Management Cycle

The concept of the performance management cycle first originates in Peter Drucker’s 1954 book called ‘Management by Objects.’ His book explained how management must break organizational goals into smaller individual and team goals that are also definite.

The most commonly cited performance management cycle is by Michael Armstrong in his book ‘Handbook of Performance Management.’ In it, he described the four stages of a performance appraisal cycle. They are plan, act, track, and review. Over the years, it has been refined to tailor to the demand for the present needs of the organization.

The performance management cycle definition encompasses the following four stages:

  • Planning  
  • Monitoring 
  • Developing and Reviewing
  • Rating and Rewards

The specifics of these stages are covered in the section below:

1. Planning

Planning is the first act an organization will have to undertake. Management must first strategize on the goals the company wants to meet in the first place before meeting with employees and other team members to assign goals to them. After there is clarity on the pact of the organization, then management can set personal goals, targets, and specific objectives for teams and employees. 

In setting goals for the team and employees, it’s best to plan alongside them. A meta-analysis by Cawly, Keeping & Levy (1998) shows that involving employees in setting their goals allows them to perceive fairness because they see the reason behind it. Also, there is a sense of belonging and satisfaction when you include them in such activities. 

Aside from involving the employees in setting their goals, both parties will also discuss the training and development goals for the cycle. Creating a training and development schedule is necessary to show employees you are interested in their personal growth and career and not only meeting organizational goals.

While planning employees’ goals, managers can apply the SMART framework for efficient goal-setting. 

  • Specific: The goal should be well-defined. It should be clear and not ambiguous.
  • Measurable: The goal should have measurable indicators to help the employees monitor their progress. There should also be a clear start and an end.
  • Achievable: While it’s good to challenge employees when setting goals, it’s wise to make the goals reasonably obtainable. It may mean taking employees through a training and development program to equip them. 
  • Relevant: The goal must apply to the individual’s job and the organization’s goals. 
  • Time-bound: The goal must have a deadline. It’s not a goal if there is no set deadline to achieve the required result.
Also read: 7 Reasons Why Goal Setting Is Important

Thus, planning is a crucial part of the performance management cycle, if done right, the other stages flow well.

2. Monitoring

Planning and not following up with it is a recipe for failure. Managers and supervisors are to monitor the goals continuously. In the past, managers followed up once or twice a year, but as we now know, this can be ineffective. To ensure the employees are on target to achieve their goals. There needs to be constant follow-up and feedback to iron out any issues and provide support.

Ideally, monthly or quarterly meetings will take place. Some organizations have even opted for weekly or bi-weekly sessions. It should also be possible to adjust deadlines to accommodate unforeseen circumstances or unaccounted variables, for example, a pandemic or a new law in place.

Another reason to monitor continuously is that long-term goals may intimidate and not motivate employees. Managers and supervisors can help by breaking them into monthly or quarterly goals. Spotting problems early on and providing adequate support will only work effectively under a continuous feedback system.

3. Developing and Reviewing

Towards the end of the cycle, the management does a review. If the manager or supervisor worked well with the employee in the first two cycles, then the third one should be nothing more than a formality between the manager and employees. Development entails looking at the cycles before and asking these questions:

  • If the employee had the required skill set to perform their duty.
  • How much had they learned from their experience?
  • Was the training assigned at the beginning of the cycle of use in completing the task? 
  • What other skills should they look to learn? 

The aim of the development aspect of the third cycle is to gauge how well they have developed and what further training they will need to improve.

Also read: Best Performance Review Tips You Will Read This Year

The review aspect of the cycle focuses on how well the employee or the team did in achieving their goals. It will cover questions like:

  • Did they underachieve or overachieve?
  • What enabled them to either underachieve or overachieve?
  • Did the organization provide adequate support for them? 
  • Are the processes used the very best, or could they be improved? 
  • Was the original goal realistic?

These questions will help the management and employees properly analyze their performance. The third performance management cycle is also when the employee can give their perspective on their performance and receive comprehensive feedback from management.

4. Rating and Rewards

This stage is where management gives its ratings to teams and employees. Management should take appropriate action against employees who don’t meet their goals. It may be a warning, a fine (if such an agreement exists), or termination if it would be impossible to work together. On the other hand, for employees who either meet their targets or overachieve, it is crucial to reward them fairly. 

This action sends the message that the company values those who put in the work and get results. It also signals to employees that the organization appreciates their input. This last cycle is very essential because not acknowledging your employees can demotivate them, and the worst-case scenario leads to resignation. It can also reduce productivity, knowing that management will not reward their efforts.

After completing a cycle, it’s time to come together again and begin a new one. 

Also read: Recognition At Work: The Virtual Edition

How Engagedly Supercharges Performance Management at Every Stage

Performance management is a continuous cycle, not a once-a-year event. It’s about ongoing communication, feedback, and development that empowers employees to thrive and organizations to achieve their goals. Engagedly’s performance management platform streamlines and amplifies every stage of this cycle, turning it into a powerful engine for growth.

1. Planning & Goal Setting

  • Align Individual and Team Goals: Engagedly fosters goal alignment by cascading organizational objectives down to individual levels. Employees understand how their contributions directly impact the bigger picture, boosting motivation and engagement.
  • Set SMART Goals: The platform guides employees in setting Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals, ensuring clarity, focus, and a roadmap for success.
  • Continuous Goal Tracking: Progress bars and real-time updates keep employees informed about their performance against set goals, allowing for course correction and adjustments as needed.

2. Monitoring & Feedback

  • 360-Degree Feedback: Engagedly’s feedback tools go beyond traditional manager-to-employee evaluations. Peers, clients, and even self-assessments provide a holistic view of strengths and areas for improvement.
  • Continuous Performance Conversations: The platform encourages ongoing dialogue between managers and employees, fostering a culture of open communication and regular feedback that drives development.
  • Pulse Surveys: Quick, targeted surveys gauge employee sentiment and identify potential roadblocks or areas for improvement in real-time, enabling proactive intervention.

3. Development & Coaching

  • Personalized Learning Paths: Based on individual goals and skill gaps, Engagedly recommends relevant learning resources, training programs, and coaching opportunities, empowering employees to take ownership of their development.
  • Mentorship Programs: Connect experienced employees with mentees to facilitate knowledge sharing, guidance, and support, accelerating growth and fostering a culture of collaboration.
  • Performance Support Tools: Engagedly provides access to job aids, knowledge bases, and other resources that equip employees with the tools and information they need to perform their best.

4. Rating & Rewards

  • Fair and Transparent Performance Reviews: Performance data gathered throughout the cycle informs objective and transparent reviews, eliminating biases and fostering trust.
  • Rewards & Recognition: Engagedly offers a variety of recognition tools, from badges and shout-outs to gamified incentives, to celebrate achievements and reinforce desired behaviors.
  • Compensation Alignment: Performance data can be seamlessly integrated with compensation decisions, ensuring fair and motivating reward systems.

Engagedly’s impact extends beyond individual performance, driving organizational success through:

  • Improved employee engagement and retention: A focus on employee development, recognition, and open communication fosters a positive work environment, leading to happier and more engaged employees who are less likely to leave.
  • Enhanced alignment and goal achievement: Clear goal setting, regular feedback, and ongoing development ensure everyone is working towards the same objectives, increasing the likelihood of organizational success.
  • Data-driven decision-making: Performance data collected throughout the cycle provides valuable insights that can be used to inform strategic decisions, talent management initiatives, and continuous improvement efforts.

By streamlining and amplifying every stage of the performance management cycle, Engagedly transforms it from a bureaucratic chore into a powerful tool for growth and success.


Peter Drucker built the concept of the performance management cycle on the traditional form of appraising employees. Organizations can tailor it to fit into the budding perception of continuous feedback. The structure it presents has made it timeless, ensuring organizations get it right in maximizing employee performance. 

Performance Management System

Frequently Asked Questions

Q1. What is the performance management cycle?

Ans. The performance management cycle is a systematic process that organizations use to monitor, assess, and improve employee performance.

Q2. What are the 4 stages of the performance management cycle?

Ans. The performance management cycle involves four primary stages: planning, monitoring, developing, and rating & rewarding, and then loops back to begin anew.

Q3. Why is the performance management cycle important?

Ans. The performance management cycle is important because it enhances employee performance, aligns goals, improves communication, identifies development areas, supports decision-making, and boosts organizational productivity.

Q4. What is the performance management process?

Ans. The performance management process consists of regular meetings and check-ins between managers and direct reports. It includes planning, monitoring, and reviewing employee goals, performance, and their impact on the organization.

Subscribe To The Engagedly Newsletter

A Complete Guide to Performance Management Cycle

Unlike the modern organizational culture, we consider performance management to be a forward-looking solution that is based on retrospection. With an evolving work culture, the need for continuous feedback is now felt across offices and technology has brought forward such tools which are highly advanced and need based. Now managers can anticipate problems based on the performance cycle, and initiate course corrections to bring the action plan back on track.

A performance management cycle is a round the year phenomenon and includes planning, monitoring and evaluating employee’s performance. It works in such a way that meets the overall goal of an organization. Here, the success of an employee is aligned with the success of an organization.   

The performance management cycle helps employees improve skills and achieve goals. An effective cycle focuses on employee performance and tries to make necessary changes for his growth in a workplace.

The performance management cycle encompasses four stages:

The management expert, Peter Drucker, designed one of the earliest performance management models. As per his sayings, whatever you can measure, can be managed and whatever you can manage, can be accomplished. Individual and organizational goals should be aligned together. The continuous process includes the following parameters to achieve the targets smoothly.  

1. Planning

Planning is the first step of the performance management cycle and includes three elements:

Defining stage 

Here, the management and HR team have to define jobs, include description and determine targets. Besides, it needs to list objectives, and have clear metrics on how to access and achieve the goals. The point is to make sure goals are lucid and are followed by clear performance standards. 

Giving feedbacks 

Once management completes the defining stage, employees should get the opportunity to give input for the materials. As they are the ones to perform the job, they should have in-depth insight of skills, goals and competencies to help the company achieve milestones easily.  

Approval stage 

In this, both management and employees should agree on roles, goals, and achieving objectives. This is how it is possible to make the first step in the process of collaboration, making the employees understand their engagement in goal setting.

Also read: A Guide to Choosing the Best OKR Software for Your Business

2. Monitoring

Plan meetings 

Try to plan for it in a timely and regular manner, wherein the next step for the management cycle would start. Monitoring and training are important and here, routine meetings can help employees assess their position. 

Provide training and coaching 

Meetings should focus on training and give solutions through mentoring, rather than measures that result in uninspiring performance.

Accountability should be positive and engage employees to be honest to speak on what they are struggling with and what changes can be beneficial. This is where management training plans can help employees effectively.    

Revisit objectives

As the process continues, management needs to revisit objectives to check on improvement and adjustments required. Management should focus on opportunities for employees.

The step reviews overall performance, and how the employees are rewarded in a meaningful manner.  

3. Reviewing

Performance review 

At the end of the annual performance cycle, this review is an integral part which is known as appraisal. Typically, these are once a year thing where an employee’s performance is evaluated over a span of a year.

Management checks records to evaluate the progress of an individual from the previous performance year. However, the monthly check-ins will help employees with problem solving, adjust goals and focus on future tasks. This step is included in the cycle that looks back to assess one’s behavior and potency for coming years.

Review management process

Here, both employees and management should look at how the management cycle is working and identify the areas of improvement. Asking some questions constructs an effective review mechanism:

  •       Try to know whether organizational objectives are met
  •       Challenges employees face and need for training
  •       Help from management feedback and how to work on the process

Review goal completion 

Of course, one important question to ask is whether employees can reach their goals. How well did the team perform to achieve the targets throughout the year? Consider all types of achievements as it helps identify areas where improvement is required.

Give effective feedback 

A key part of reviewing is to provide effective feedback and receive the same. Management should focus on actionable feedback so that employees know where to improve their performance in future.

Employees should be encouraged to give feedback on the process and how it can be better. 

4. Action

Plan rewards and recognition

It is a key step to keep employees motivated. This doesn’t have to be monetary, although this is a better incentive in most cases. Other rewards could be company recognition, responsibility for new projects, time off, and assigning leadership opportunities.    

Set stage for upcoming performance management cycle

The last step gives one last chance to employees and management to review the feedback on the entire year’s process. As feedback is the key to the organization to plan for the next year’s cycle and make it effective.

So, with this, you can have a clear conception on what is performance management process and how it impacts business’s success.

How to Improve the Management cycle?

Do you wish to improve the management cycle of your workplace? Here are some vital questions to bring things back on track.

What workforce looks forward to in the management cycle?

A performance management process can hinder or help the workforce. Before you include a new performance management software, try to analyze what’s working and what’s not. Besides, try to find what employees want from the performance management program. As you discuss with employees, be ready to be surprised when you discover how many were looking forward to an improved process. Subsequently, bring in changes in the organization and improvements as per researched based findings.

Do you follow contentious performance management?

Even when employers want employees to be happy, the latter may seek motivation and recognition of work. A management cycle should deliver value to your employees, and companies can flourish in an increasingly motivated workforce.

 However, to boost motivation, performance management should be frequent along with ongoing conversation on how to achieve goals, how it impacts progress, and how it affects employee’s personal development. Motivation is related to a future focused approach, creating developmental scopes. So, managers must engage with employees on career growth that should be the focus of the organization for its success.

Also read: 5 Powerful CEO Engagement Activities That Are Impactful

Are managers using tools to handle performance management cycles?

Managers are crucial in the management program with engagement, motivation, and development plans. This should ensure that they have proper training to motivate employees and get useful feedback. They should coach employees appropriately in the continuous process.

Before introducing talent management, managers should have adequate training so that employees are comfortable being part of one such program. Use correct technology to support the performance management. It should help managers and HR to introduce and get effective results from continuous processes.    

Why develop a performance management cycle in business?

The reasons behind an effective performance cycle are many, but more often, it focuses on employee productivity as its primary reason. A valuable cycle would include development, execution, and monitoring of effective performance plans. Focus on setting one’s goal and arrange for continuous coaching and it will help to improve employee’s performance automatically. It helps them reach goals easily that directly contribute to the company’s growth.  

Best performance management practices

To ensure success of the management process, and whether it is continuously evolving, try to include the best practices:

Well-planned performance strategy 

The strategy should include how frequently employee evaluation is required. Try to find the type of evaluation analysis trackers that suit the company best and how meetings and surveys can help. An effective approach for feedback conversation can help deploy the best evaluation system. Set the workflow right, include actionable inputs for steady improvements. 

Inculcate a culture of open communication

Continuous monitoring should have effective communication to help discuss employee issues. If communication is transparent, negative feedback or matters of poor performance can be addressed. A culture of communication is widely accepted among people of all hierarchies. Managers should develop a culture of openness, expect honest feedback, allowing employees to remain honest and managers can use the information for required changes.

Transparent communication strategy should include:

  •       Share with the employees what the company expects
  •       Train employees to reach their potential using actionable goals
  •       Give constructive feedbacks
  •       Reward and recognition for successful achievement 

Continuous monitoring process

Sounds like monitoring every move of an employee? Certainly not! It is real-time tracking of employee’s progress and outcomes. It necessitates keeping an eye on employee’s sentiment through open discussion and how managers can help employees deal with it better.    

How can performance management software help?

Having a robust performance management software is beneficial in over one way and employers should be well trained to help teams use it. You can try to use the latest streamlined tool that enhances alignment, engagement and communication with employees. Some other benefits go as below:

Have clear goals

For ease of goal setting and tracking progress, a performance management platform is of great use. The right software elevates the employees and helps them reach the business goals. It helps get real-time results and boost goal alignment and is accountable for overall growth of workforce.

Ease of engagement recognition 

As mentioned earlier, rewarding is an integral part of the performance management cycle and recognition motivates an individual. A beneficial platform helps in peer-to-peer recognition, making an employee feel valued. 

Use of feedback frameworks

No matter what feedback framework or frequency a business follows, it should be continuous to protect high performing and potential candidates. An effective feedback strategy can drive individual, group, and organizational growth correctly.   

Effective talent reviews

Even though reviewing outcomes is tough, try to make it insightful. With constant reviewing, it is easy to identify top performers in the workforce. Uncover the growth perceptions among employees and create performance strategies for the success of both employees and business.

Once leaders are aware of best performing management practices and tools, you should know how to leverage it for the good of employees and organizations. With this, employee productivity and business growth skyrockets. Support individuals and teams with performance strategies that help them reach their potential and to push the business outcomes. 

Performance Management System

Subscribe To The Engagedly Newsletter