
It's important to ensure your employees are performing well in their jobs, and one way to measure this is through a performance evaluation. However, the review process, which is typically coordinated between HR, the manager and employee, can be a tedious and inefficient process.
That's where performance management software comes in. Our buyer's guide details the common features, top benefits and necessary steps in choosing the right software.

The annual performance review process costs $120,000 in the value of time spent
Source: DecisionWise


43% of millennials want to receive performance feedback on a weekly basis.
Source: Ultimate Software

Companies that provide continuous feedback to their employees report a reduced turnover rate of 14.9%
Source: Gallup
POPULAR PERFORMANCE MANAGEMENT TOOLS

Performance Management Buyer's Guide
What is Performance Management Software?
Performance management software helps companies streamline the review process and provide fair and transparent feedback to their employees. It records and tracks employees' goals that align to the company's objectives. HR can also use the software to analyze workforce data for opportunities to further retain talent.
Performance management software is typically a standalone solution. However, it's also offered as a module within talent management software and human resource management systems (HRMS). Performance management solutions can also integrate with other applications, such as enterprise resource planning (ERP) systems and learning management systems (LMS).
Common Performance Management Features
Here are some common features in performance management software

Goals/objectives management
Aligning employees' goals with the company's objectives goes a long way in improving employee engagement, so most performance management solutions provide goal setting and management functionality. The company sets their short– or long-term organizational objectives within the software as a benchmark, and after discussion, the employee and manager add in the employee's specific goals. The software then tracks the goals and alerts the employee or manager if milestones or achievements are reached or if the employee is not meeting their goals. Performance management software includes a template of SMART goals that companies can choose from as well as the option to add in their own goals.

360-degree feedback
his feature refers to the process of getting feedback on an employee's performance from the people they work with (e.g., coworkers, team leads, clients). Typically, an employee's manager may not have direct involvement in their work and wants to solicit feedback from other team members. In other cases, an employee may be asked to review their manager's performance. Performance management solutions keep track of the workflows involved in 360-degree feedback, including sending the feedback form that recipients fill out, collecting data and alerting recipients of deadlines.

Reporting and analytics
Most performance management software includes reporting features, such as standard and customizable templates, ad-hoc analysis, dashboards with drilldown filters and scheduling. Users can analyze various metrics, including skills gaps and goal alignment. The reports can be exported into PDF or Excel files and shared with other users.

Assessment/review templates
Most performance management software includes evaluation templates (e.g., rating scales, open-ended questions, surveys) that companies can customize with their name, logo or other information. There are also competency-based and role-based assessments that evaluate the employee's strength and weakness. For example, CRG emPerform includes a library of up to 50 competencies, and companies can add additional ones that are not included.

Continuous performance management
Many companies are phasing out the typical yearly performance reviews in favor of continuous feedback, which usually consists of one-on-one meetings between the manager and employee. Managers can schedule feedback check-ins and create and share a meeting agenda with the employee. Employees can also record achievements, recognition or issues. The software also provides guidelines that help managers have difficult conversations with their employees.

Compensation planning
Some performance management solutions have compensation planning features that help employers ensure pay is fair and equal for employees. They include access to the budget and built-in, performance-based recommendations for specific raises or bonuses. There are also built-in workflows that route compensation plan approvals.

Succession planning
Succession planning refers to a strategy for identifying and evaluating internal candidates to fill an open position when an employee leaves the company. Employers can build a talent pool that helps them find the top internal candidates as well as run an analysis on skills gaps and develop an action plan to close them. They can easily access data on employees' history with the company, including performance reviews and skills. Employers can also create development plans for the employees that want to move up into the vacant role but don't have the necessary skills.

Top Benefits of Performance Management Software
Using performance management software comes with numerous benefits, including:
Streamlined performance review process
The performance review process tends to be cumbersome and inefficient. Multiple people may be involved in providing feedback on an employee's performance, and the manager would need to coordinate, collect information and follow up via email or phone. Performance management software has built-in processes that alert a manager or colleague that they need to send their feedback. It also includes built-in templates, so companies won't need to worry about creating a review form from scratch.
Flexible review cycles
Even though yearly performance evaluations are still standard in many companies, they're slowly being phased out in favor of continuous feedback. Performance management software provides the flexibility that allows managers to provide coaching or recognition rather than wait for the traditional review time. And it also supports specific review frequency if companies do want to continue annual or biannual evaluations.
Reduced employee bias
While employee evaluations should be objective, they can be subjective if managers let emotions or favoritism get in the way rather than rely on actual data. Managers also tend to mostly consider an employee's recent performance (also known as recency bias) rather than their overall history.
Since performance management software stores all data relating to an employee's evaluation, managers have access to real-time, transparent information. It also has compensation planning features that correlate with performance metrics to ensure bonuses, raises or other salary adjustments are promoted fairly.
Increased employee engagement
Employees want to know that their work contributes to the company's goals and objectives. In performance management software, employees get a transparent look at the company's objectives and can set attainable goals. Employees also like to be recognized for their hard work, so some solutions offer social or peer-to-peer recognition features that allow their coworkers or managers to send kudos. Some software solutions include a reward program that provide small bonuses or gift cards as a “thank you” for an employee's hard work.
Improved employee learning and development
The vast majority (87%) of millennials feel that development opportunities are very important when accepting a new job, according to Gallup. Therefore, companies need to promote opportunities that help employees in their career development. Performance management software provides development plans that companies can customize and integrate to learning management systems with training courses.
How to Choose a Performance Management Solution
There are many performance management solutions out there that vary in features and pricing. It's key to research all of your options before purchasing a software. We've listed four important steps below.

Knowing your company's needs
Before researching any vendors, you'll need to consider your needs and requirements. For example, do you need a dedicated performance management software or is a module within a HR software enough? Are there particular features that you absolutely require? You'll also want to ensure that your top executives, IT department and other staff are on board with deploying a new software.
Creating a Shortlist
Once you've established your software objectives, create a shortlist of vendors that best fit your needs. We recommend listing out the must-have features, as well as the nice-to-have ones, to help determine the type of solution you're looking for.
In addition to features, you'll need to consider the vendor's deployment options (e.g., on-premise, cloud), implementation processes and customer support.
Contacting vendors
Once you've established your shortlist of vendors, it's time to reach out to them. Explain what your objectives are and what features you require in a solution. You'll also want to request a demo of the software with real-data scenarios, if possible. Vendors offer virtual demonstrations, but it can also be useful to ask if a vendor is willing to meet with you at your office. Another way to test the software is to participate in a free trial, if there is one. Most vendors offer a 14-day or 30-day free trial.
And be sure to compare different price quotes you receive. We explain more on pricing in a separate section below.
Conducting due diligence
Once you've selected your top two or three vendors, ask for references from their current or previous clients. While vendors tend to give you the clients with the most glowing recommendations or experiences, ask to speak to clients that are in the same industry or are the same size as your company. It's important to see not just the positives of the solution or vendor but any issues clients have experienced as well.

Performance Management Pricing

One of the most important factors in selecting performance management software is pricing. Prices can vary depending on company size, customization and implementation.
Here are a few questions you should consider regarding pricing.
- Is there a clear plan to judge return on investment?
- How many features do we really need?
In the past, there were two models: perpetual licensing and subscription hosting. However, more performance management software vendors opt to host the solution in the cloud, which means companies will only need to pay a monthly or yearly subscription cost.
There are two popular pricing strategies: per user, per month and per employee, per month.

Per user, per month:
In the per user, per month strategy, companies can pay for each user that access the system, whether they're managers, HR, executives or employees. One example is ClearReview, which provides a single yearly pricing that's based on the number of users (features are all-inclusive). Its pricing calculator indicates that a company with 25 users is expected to pay $3,350 annually. There are no additional costs.

Per employee, per month
In this model, companies pay for each employee, whether they access the software or not. One example is AssessTeam, which offers three pricing tiers based on the number of features offered. Its Basic tier is $1 per employee, per month, the Premium tier costs $2 per employee, per month and the Enterprise tier is $3 per employee, per month.
You'll also need to consider implementation, training, data migration, customization and support. Depending on the vendor, each of these factors may require additional fees. Some vendors have a staff of implementation specialists, while others rely on third-party consultants.
Once you've compared price quotes, you'll want to see a copy of the contract (also known as a Service Level Agreement) from the vendor. Here are two questions to ask the vendor as you look over the agreement.
- Are there any hidden costs?
- Are there any “evergreen” clauses (e.g., subscription automatically renews without client approval)?
Be prepared to negotiate for better pricing with the vendor.
Challenges of Performance Management Software
While performance management software has many benefits, there are some challenges, including:
Purchasing a best-of-breed performance management solution
Some companies may feel it doesn't make sense to spend money on a dedicated solution when an integrated talent management software that has performance management functionality could suffice. Or they may not need the advanced features a dedicated software offers.

Getting buy-in from key players
It's critical to get buy-in from top executives, HR, IT and managers before purchasing software. However, they may have reservations. For example, top executives may be concerned about spending money if there's no discussion about return on investment, and HR or managers may have their own preferred way of conducting performance reviews. IT may also be concerned about data security of cloud-based solutions or not want the responsibility of hosting and maintaining the software on the company's servers.

Integration issues
Before purchasing, companies will need to consider how the software integrates with their existing applications (e.g., ERP, HRMS). The software may not integrate with a particular system, resulting in manual data entry or other issues.

Implementation issues
Cloud-based software tends to have shorter implementation timelines than on-premise software. However, there can be issues that could delay the go-live date, such as unclear business goals, integration issues or an unresponsive vendor. It's important to inform the vendor of your goals and budget as well as outline a detailed implementation plan, including what happens at each stage.

Software is not a cure-all for successfully managing employees
While performance management software makes things easier for managers, it doesn't replace their responsibility to engage in meaningful interactions with employees and effectively leading them. Managers must also be held accountable for reaching out and providing feedback to employees on a more frequent basis.

Market Trends
Like other software, the performance menegement solutions market is experiencing change. We've listed a few new market trends below:

Companies favor continuous performance management over yearly reviews
As we've stated, yearly performance evaluations tend to be tedious, and managers may not remember all the employee's achievements throughout the year. Continuous feedback gives employees the opportunity to hear from their manager at any time and receive help or coaching if needed. Most performance management solutions have features in place to support continuous feedback.
Executives want people analytics functionality
In the past, people analytics was not an important feature in talent management solutions. Now, 84% of HR executives feel that it's a must-have feature, according to Deloitte's 2018 Global Human Capital Trends survey. Performance management software includes reporting and analytics functionality to help executives analyze worker data and pinpoint issues in the workforce, such as engagement, pay or diversity.


Machine learning will become a key feature
Today more and more business software is incorporating artificial intelligence (AI) and machine learning functionality. Talent management solutions, especially performance management software, is no exception. Real-time data can show who the low or high performers are by simply detecting patterns within the data, such as goals achieved.
Companies want to increase employee engagement
Employee disengagement leads to lost revenue from low productivity and poor performance. So, companies want to increase employee morale by providing them with a better experience. Performance management systems store data that can help pinpoint issues and provide guidelines for managers to engage in meaningful discussion with employees. Another way to increase engagement is to offer employees career development opportunities with the company. Therefore, most performance management solutions either have standard career development features or integrate to learning management systems.
