Performance Management: The New Rules


By Elaine D. Pulakos, President, and Rose Mueller-Hanson, Manager, Leadership and Organizational Consulting Group, PDRI, an SHL Company

When people think about performance management (PM), what usually comes to mind is the formal HR system, consisting of steps, forms, rules, procedures, and software for conducting appraisals. More than 50 years of research have been devoted to designing the perfect formal PM system. Unfortunately, these attempts have failed to produce a PM system that managers and employees consistently view as working well and that yields the positive outcomes expected from PM. This focus on the formal system has been misplaced and caused us to lose sight of what really drives effective performance in organizations. To help get back on track, it’s time for managers and companies to throw out the old rules and follow these three new rules of PM to improve retention, optimize performance, and ultimately, boost the bottom line.

Rule 1: We need to change our collective mindset about PM. It’s not the formal system but rather critical day-to-day behaviors that drive important business outcomes.

Research has shown that the top drivers of employee engagement and high performance are several key behaviors that define PM: articulating clear expectations, providing regular feedback, and ensuring development opportunities (Corporate Leadership Council. (2004), “Driving employee performance and retention through engagement: A quantitative analysis of the effectiveness of employee engagement strategies,” Catalog No. CLC12PV0PD, Washington, DC: Corporate Executive Board). Google similarly found that being a good coach, having a clear vision and strategy, making time for employees, and taking an interest in employees’ success and well-being were linked with both higher productivity and lower turnover (“Google’s Quest to Build a Better Boss, The New York Times, March 12, 2011.) This tells us that the positive, day-to-day behaviors that comprise the essence of PM are what lead to important PM outcomes, notthe steps, tools, and procedures that comprise our formal PM systems.

The promise of PM thus can be realized only if there is a fundamental shift in our collective mindset about what PM is.We need to embrace the idea that PM is not just a once or twice yearly event driven by the formal system but rather, critical everyday behaviors for which everyone is responsible.

Rule 2: We need to stop focusing on the formal PM system and build up the informal one.

The behaviors that matter most are deceptively simple yet powerful drivers of performance:

  1. Vision: Where the organization is going and how each person’s work fits.
  2. Action: Real-time expectations and ongoing, informal feedback.
  3. Growth: Challenging developmental experiences and the freedom to learn.


Alignment between employee activities and the organization’s mission is essential. Commonly, alignment is achieved by cascading high-level organizational goals down to individual objectives, a time-consuming and burdensome process that often yields poorly stated and loosely linked goals. Further, it is not this formal process of cascading goals that leads to alignment, but rather the routine conversations between managers and employees that clarify the organization’s mission and how everything fits together. When employees understand the big picture, they can act more independently in alignment with it, which is beneficial to managers. Understanding the big picture helps employees understand their contributions to the larger whole, which is empowering.


Setting expectations is core to PM. Unfortunately, many organizations over-engineer this process to the point of uselessness. Setting SMART objectives, for example, is a time-consuming process that ignores the ever-changing nature of work. Further, it is not once-yearly goal-setting processes contained in our formal PM systems that drive outcomes. Rather, it is ongoing expectations that are set regularly as work changes that yield desired results. Ongoing expectations benefit managers because they enable employees to produce higher quality work that requires less rework. They benefit employees by clarifying what they should be doing day-to-day and what success means.

Clear and direct real-time feedback tied to expectations is also essential for high performance. In most formal PM systems, feedback is programmed into one or two review meetings, which are too infrequent to drive ongoing performance. In contrast, feedback that actually improves performance happens in day-to-day conversations about the work, such as problem-solving discussions between managers and employees, explanations of edits to a document, or comments on a dry-run briefing, to name a few.


Formal PM systems usually include a yearly development review in which managers commit time and resources for training. The reality, however, is that a yearly development review and associated formal training does not drive desired PM outcomes. Because 80 percent-plus of learning occurs on the job, it is actually development through ongoing job experience that is most beneficial, and managers are best equipped to grow employee capabilities by providing the right experiences at the right time. Doing this benefits managers because their employees perform better and accomplish more. It benefits employees because ongoing development is the best mechanism for enhancing skills and preparing for advancement.

Rule 3: We need to give informal PM staying power by weaving it into the organization’s DNA.

Rather than continue to invest significant resources—both time and money—into formal PM systems that have not delivered results, we need to foster and sustain the key behaviors that matter in driving employee performance and engagement. On the surface, the behaviors of interest appear to be commonsense. However, organizational surveys show they do not occur consistently and need improvement. Educating the workforce on how to engage in these behaviors effectively is a critical step. Beyond this initial training, managers and employees must be made accountable for, regularly evaluated on, and reinforced for performing the key behaviors that comprise effective PM—to the point that these behaviors become intricately woven into the fabric of the organization’s culture.

The Bottom Line?

Our formal PM systems are profoundly broken, but this does not mean PM should be abandoned —it is, in fact, critical for organizational success. However, only when we shift our collective mindset and start viewing PM as the ongoing behaviors that matter, rather than the formal system, will we realize the promise of PM. This means putting people in frontof PM, driving behavior that yields results—rather than behind it, driven by formal system requirements that add little value.

Rose Mueller-Hanson has been with PDRI since 2002. She currently is the manager of the Leadership and Organizational Consulting group. Her areas of expertise include leadership development; performance management system design, development, and implementation; training needs analysis, design, development, and delivery; competency modeling; individual and organizational assessment; and organizational development.

Elaine Pulakos is the president of PDRI and past president of the Society for Industrial and Organizational Psychology. A Fellow of APA and SIOP, she is a recognized contributor to the field of industrial and organizational psychology in the areas of hiring and performance management. She has published numerous articles, books, and best practice guidelines on the topics of performance management and selection practices.

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Lorri Freifeld
Lorri Freifeld is the editor/publisher of Training magazine. She writes on a number of topics, including talent management, training technology, and leadership development. She spearheads two awards programs: the Training APEX Awards and Emerging Training Leaders. A writer/editor for the last 30 years, she has held editing positions at a variety of publications and holds a Master’s degree in journalism from New York University.