In 2025, performance management is more critical than ever. With remote and hybrid working now firmly embedded in UK workplaces, people managers face new challenges: maintaining productivity, supporting employee development, and retaining top talent amid skills shortages. In this evolving environment, a structured approach to performance is no longer a “nice-to-have” — it is essential.

What is performance management?

At its core, performance management is a continuous, strategic process that helps organisations ensure employees are meeting their goals, developing their skills, and contributing to wider business objectives. It involves setting clear goals, providing regular feedback, conducting performance reviews, and creating development plans to support individual and team growth. An effective approach also embeds performance within a learning culture, promoting collaboration and growth rather than compliance alone.

This guide will cover:

• Why performance management is vital in the modern workplace
• The key stages of an effective performance management process
• Practical strategies for managing performance
• Common pitfalls to avoid
• How performance management is evolving
• How to upskill your managers to lead effective performance conversations
• The science and evidence supporting modern performance practices

Whether you are an HR professional or people leader, this guide offers a practical overview to help you establish a more effective, people-centred approach to performance.

Why Performance Management is Essential in Today’s Workplace

Effective performance management is not simply about completing annual reviews or checking compliance boxes. When implemented well, it becomes a vital tool for building engaged, high-performing teams and delivering long-term business results.

1. Enhancing employee engagement

When employees understand expectations and receive regular, constructive feedback, they are more likely to feel connected to their work and motivated to perform. Research by Lira et al. (2024) highlights that clear goals and timely feedback significantly enhance engagement and accountability, with performance rising over 20% in goal-focused teams.

2. Driving productivity

Aligning employee goals with organisational priorities helps teams focus on what truly matters. Teams that operate under aligned, measurable objectives — such as OKRs — consistently outperform those with less structured goals.

3. Supporting retention and development

Employees are more likely to stay when they see a clear pathway for growth. Performance management systems that integrate development discussions, according to McKinsey research, are linked to 30% faster capability development and improved retention.

According to CIPD research, over 40% of UK employees report not having clear performance expectations. This lack of clarity leads to disengagement, missed targets, and increased turnover. For HR and L&D teams, investing in manager capability and continuous conversations is central to mitigating these risks.

(Explore: What Is People Management? How to Manage Difficult People Effectively)

The Performance Management Process – Five Core Stages

A robust performance management process consists of several distinct but connected stages. Each plays a role in enabling employees to succeed and contribute effectively.

1. Setting SMART goals

Managers and employees should collaboratively set goals that are Specific, Measurable, Achievable, Relevant, and Time-bound. Alternatively, OKRs help align individual performance with strategic business priorities. Research shows that when goal clarity is achieved, task persistence and focus increase significantly (Lira et al., 2024).

2. Ongoing feedback and coaching

Frequent, informal feedback fosters openness and course correction. Traditional systems that delay feedback until annual reviews fail to capture real-time performance. The Semantic Scholar whitepaper found that absence of ongoing feedback contributed to over 30% higher voluntary attrition rates.

3. Performance check-ins and reviews

While annual reviews still exist, many organisations now favour monthly or quarterly conversations. A study in Public Administration found that public agencies that shifted toward regular check-ins — while retaining accountability metrics — achieved better service delivery and internal morale (Cuganesan & Gilchrist, 2023).

4. Training and development planning

Effective systems use performance discussions to identify growth needs. These may include stretch assignments, mentoring, or formal qualifications. Integrating learning into performance improves both capability and engagement, as demonstrated by McKinsey’s research on skill-building pathways.

5. Recognition and improvement planning

Recognising achievements encourages positive behaviours. When underperformance occurs, it should be addressed promptly through coaching, feedback, and if necessary, performance improvement plans (PIPs) with documented follow-up.

Managing for Performance – What Good Looks Like

Managing for performance requires a proactive, people-focused approach. Effective managers go beyond metrics — they create the conditions for sustained success.

(Resource: CIPD)

Role clarity

Employees should clearly understand what success looks like, the expectations of their role, and how their contributions impact the broader organisation. Clarity at this level is correlated with stronger performance and lower frustration levels.

Two-way conversations

Performance conversations should be collaborative. Employees must be able to share feedback, challenges, and aspirations, not just receive directives.

Informed decision-making

Data and KPIs support objectivity, but qualitative insights provide context. Managers must balance dashboards with human observations. Faheem (2024) cautions against over-reliance on AI; while AI can enhance fairness and surface patterns, decisions still require empathy and discretion.

(Explore: AI in HR: How to Keep It Human with 4 Real Cases and Actionable Insights)

Addressing underperformance

Underperformance should be addressed early through open dialogue, objective evidence, and a structured support plan. Avoiding difficult conversations leads to longer-term team tension and inconsistent standards.

Common Pitfalls to Avoid

Even well-intentioned performance management strategies can fall short. Common pitfalls include:

• Relying solely on annual reviews, which often fail to address issues in a timely manner
• Providing generic or inconsistent feedback that lacks specificity
• Failing to train line managers, resulting in poorly handled conversations
• Setting goals in isolation from broader organisational strategy
• Treating appraisals as separate from continuous development

The Semantic Scholar review (2024) stresses that without capable managers and regular developmental feedback, performance systems fail to deliver lasting value.

(Explore: HR Data and People Analytics: A Guide for Modern HR Teams)

Performance Management in the Modern Workplace

Performance management must keep pace with evolving work structures and employee expectations.

Continuous feedback tools

Tools such as Lattice, 15Five, and Workday enable frequent feedback, real-time check-ins, and goal tracking. These platforms also help standardise performance conversations across hybrid or geographically dispersed teams.

(Explore: 14 Best AI Tools for HR: Recruitment, Performance, Automation and L&D)

Integration with wellbeing

Performance and wellbeing are increasingly interlinked. Leading employers now assess employee energy, psychological safety, and work-life balance as part of performance discussions.

Linking performance and learning

Organisations embedding learning directly into performance discussions are seeing faster development cycles. McKinsey research suggests that linking individual goals with upskilling pathways accelerates capability development by 30%.

AI and analytics

AI tools help identify patterns in feedback, performance gaps, and high-potential talent. However, as Faheem (2024) notes, AI must be used ethically and with human oversight to avoid biased automation.

Explore: Report – Wellbeing & Mental Health in the Workplace)

Upskilling People Managers to Lead Performance Conversations

The most advanced systems are only as effective as the managers applying them. Many managers lack confidence in giving feedback, setting goals, or addressing difficult behaviours.

Avado’s CIPD-accredited qualifications are designed to close this gap. These programmes equip professionals to:

• Conduct purposeful one-to-one meetings that build trust and direction
• Deliver clear, motivational feedback supported by evidence
• Address performance concerns with consistency and care
• Build individual development plans aligned with business needs

Performance management, when grounded in behavioural science and embedded in organisational culture, becomes a powerful tool for driving performance and supporting people. The research is clear: dynamic, continuous approaches outperform static appraisal models, particularly when supported by capable managers and enabling technology.

To achieve this, organisations must invest in systems that integrate goal setting, feedback, learning, and wellbeing — and ensure their leaders have the skills to bring these processes to life.

Explore Avado’s CIPD qualifications to empower your managers and build a performance culture fit for the modern workplace.

Frequently Asked Questions

What is performance management?

A structured process used by organisations to ensure employees are meeting goals and contributing effectively. It includes goal setting, continuous feedback, performance reviews, and development planning.

How do I set effective performance goals for my team?

Goals should follow the SMART framework or use Objectives and Key Results (OKRs) to drive alignment and focus.

What should be included in a performance review?

Key areas include accomplishments, strengths, areas for improvement, future goals, and feedback from the line manager.

How often should performance reviews happen?

While annual reviews are still used, many organisations now adopt quarterly or more frequent check-ins to maintain momentum and responsiveness.

How can I deal with underperforming employees?

Begin with clear communication and feedback. Follow up with a formal performance improvement plan (PIP), coaching, and documented support strategies.

What are common performance metrics or KPIs?

These depend on role type. For example:

• Sales: revenue, conversion rates
• Customer service: resolution time, satisfaction scores
• Marketing: campaign performance, lead generation

What is the difference between performance management and performance appraisal?

Performance management is an ongoing process that includes feedback, coaching, and development. Appraisals are periodic reviews that form part of this broader system.

How can technology support performance management?

HR platforms can help track progress, enable feedback, and facilitate transparent performance discussions across teams and departments.