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.

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