Learn all you need to know about performance management software.
If you’re searching for a performance management system, also known as a performance appraisal system, you’re likely a human resources (HR) professional or manager looking to ensure employees are meeting their performance objectives and contributing to organizational goals.
Below, we’ll cover the basics of performance management software so you can better understand its use cases and benefits. Along the way, we’ll hear from Daniel Harvey, [1] a Capterra advisor who specializes in performance management tools. Our advisors talk to hundreds of small-business buyers every day to find software solutions that meet their needs.
Daniel Harvey, Capterra advisor [1]
What is performance management software and why is it important?
Performance management software helps HR professionals store and administer employee performance appraisal and review processes. It provides features for goal setting, continuous employee feedback, individual performance evaluation, and employee development planning to align individual and organizational objectives with strategic goals.
Performance management systems are important because they encourage timely communication between employees and managers, which helps foster a culture of continuous feedback and accountability in the workplace. They also use data analytics to provide insights into employee performance management so HR professionals can make data-driven decisions.
Employee view of onboarding dashboard in performance management platform BambooHR
A performance management tool, like the one shown above, allows HR professionals and managers to onboard employees and track their performance as well as participation in compliance and training initiatives. This helps leaders ensure employees and teams meet both individual and organizational performance goals.
Who uses performance management software?
HR departments, freelancers and contractors, and educational institutions use performance management software to track employee performance, conduct performance reviews, and set goals efficiently. See the chart below for a breakdown of industries that performance management software reviewers on Capterra come from. [2]
Key features of performance management software
Key features of performance management software include goal setting/tracking and performance review management. Competency management and 360-degree feedback are common as well. For the three most critical performance management features according to Capterra software reviews, see the table below:
Feature | Description | % of reviewers who rate it as critical or highly important |
|---|---|---|
Performance review management | Create, fill out, and send performance reviews to individual employees | 92 |
Ongoing performance tracking | Gather real-time feedback on employee performance, skills, and accomplishments | 84 |
Goal setting/tracking | Establish measurable goals and objectives and track their progress over a specific period of time | 81 |
Beyond these features, Harvey adds how customers appreciate platforms that prioritize visual components such as dashboards and KPIs, both in their backends and in their self-service employee portals. “Not only do those give a better visual presentation of employee performance, but they also provide employees with more immediate feedback than having to wait for performance reviews once or twice a year.”
Goal planning dashboard shown in performance management platform ClearCompany
The image above gives an example of what Harvey is describing. “Vendors are able to package information in a more visually pleasing way these days, and so these dashboards are probably the most common feature that we've at least heard of recently that people really like.”
Benefits of performance management software
One of the performance management benefits Harvey likes most is how these tools streamline the performance management process for administrators and employees. “It eliminates the hoops that employees and managers have to jump through before performance reviews. Instead of having to dig through spreadsheets, for example, managers can generate a report at the click of a button.”
Tom Jauncey, [3] CEO of Nautilus Marketing, appreciates the following perks of an effective performance management system:
Tom Jauncey, CEO of Nautilus Marketing [3]
Continuous performance management feedback: “When employees have real-time insights into their performance, they can make changes in their work strategy accordingly. As an employer, weekly check-ins allow prompt feedback and motivate employees to boost productivity.”
Enhanced goal management: “As managers, you can set clear goals backed by performance measurement. In fact, companies that set performance goals quarterly tend to generate greater returns as compared to those who do it annually.”
Improved reporting/analytics: “Managers can easily identify trends, strengths, and areas for improvement with the help of detailed reports. This data-driven approach can help businesses to make better decisions and create strategies accordingly.”
Increased employee engagement: “By allowing an open communication environment and recognizing achievements, the software creates a positive work environment and makes employees feel valued and motivated.”
The table below lists a few more benefits of performance management software as well as excerpts from performance management software reviews on Capterra. [2]
Benefit | Description | Review excerpt |
|---|---|---|
Allows feedback management | Performance conversations between employees and their managers encourage a culture of trust and collaboration as well as employee growth. They also enable transparency regarding employee experience and performance issues. | “The reward feature, where colleagues can share successes and appreciation, is a great feature for appraisals and boosting morale.” –Anthony S., therapist, mental health care |
Streamlines HR management | Performance management systems can streamline HR processes and help companies efficiently manage HR-related tasks in one place. | “Not only has it alleviated administrative burden on HR, but our managers have more information at their fingertips that allows them to make sound decisions and perform efficiently.” –Erika R., director, HR systems & operations |
Facilitates smoother employee onboarding | Performance management solutions allow users to onboard multiple employees more easily by providing a centralized location for paperwork, benefits enrollment, completion of compliance processes, and training procedures. | “Easiness of use Cost-effective and time-efficient for training sessions, making it an excellent option for companies looking to streamline the onboarding process for new employees.” –Omar H., investment advisor, financial services |
Click here for even more performance management software benefits.
Considerations when looking for performance management software
Budget
Most performance management solutions on the market are priced per month, with a typical entry-level plan ranging from $4 to $1,089 per month. [4] These systems include the core functionality of goal setting/tracking and performance review management.
Premium subscriptions can range from $175 to over $3,750 per month and include features like customizable templates, advanced reporting, competency management, and performance metrics tracking.
Thirty-five percent of respondents in our 2024 Tech Trends Survey who use HR software, which includes performance management systems, expect to spend between $1,000 and $10,000 on these tools over the next 12 months.*
Harvey reminds buyers that there's a wide range when it comes to the cost of performance management software, and that cost depends on many factors. “Most of the time it's the number of features a customer needs or the number of employees that are actually managed within the system. Don't limit yourself too much on budget until you know all the features that you need.”
Deployment options
Harvey shares that most performance management solutions he recommends to buyers are cloud based, which are easier to implement since you don’t need a server or technical expertise in house.
“One drawback of a cloud-based tool is you’ll be more dependent on the [technical expertise and customer service of] the vendor,” Harvey clarifies. “However, this usually means the tool is more affordable since the vendor has all the hardware you need to run the system and provide technical support.”
Challenges
According to Harvey, the biggest issue faced by performance management software users is underutilization. “If users aren’t properly trained on the system, they may feel it’s too complicated and stop using it, which then makes them feel like they're wasting money.”
To safeguard against underutilization of performance management software, Harvey recommends investing more time and resources in training. “Get as many hands on deck as possible. Spending time on proper implementation is most crucial for avoiding headaches and getting things going.”
Ready to start your search for performance management software?
Ready to start your search for performance management software? Capterra Shortlist identifies the top performance management systems based on user ratings and popularity, helping small businesses find the best performance management software for their needs. We even offer a comparison tool so you can see how your favorites stack up against each other.
Once you’ve found a tool you like, download our How To Identify and Budget for Software Guide below. This eBook shows you how to plan a budget as well as understand and compare pricing models. It also explains total cost of ownership as well as pricing packages and ranges. Fill out the form below to learn more.
Note: Questions and responses have been edited for brevity and clarity.
Note: The screenshots of applications included in this article are examples to show a feature in context and are not intended as endorsements or recommendations.
