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For most companies, the end of the year is a time when employees and leaders go through the annual review process. This process is designed to rate performance for the year and, if applicable, apply a merit increase. Many companies consider this their performance management system. A true performance management system however is much more involved.

True performance management is an ongoing process. It occurs all year long. It involves ongoing dialogue between leader and employee. It requires constant alignment of employee goals against business objectives. It fosters the ability to make a meaningful impact on employee performance for both the sake of the employee and the company.

When implementing a performance management system, there are three keys to making the system effective.