Many people associate performance management with performance appraisal. This is a typical misapprehension. Performance management is the term used to refer to activities, tools, processes, and programs that companies create or apply to manage the performance of individual employees, teams, departments, and other organizational units within their organizational influence.
In contrast, performance appraisal refers to the act of appraising or evaluating performance during a given performance period to determine how well an employee, a partner or an organizational unit has performed relative to agreed objectives or goals, and this is only one of many important activities within the overall concept of performance management.
People started to implement employee performance management around 60 years ago as a source of income justification. It was mostly used to determine an employees wage based on performance. Organizations used employee performance management to drive behaviors from their employees to get specific outcomes. This seemed to work well for certain employees who were solely driven by financial rewards. However, where employees were driven by learning and development of their skills, it failed miserably. The gap between justification of pay and the development of skills and knowledge became a huge problem in the use of employee performance management. This became evident in the late 1980s; the realization that a more comprehensive approach to manage and reward performance was needed. Consequently, employee performance management is frequently used in order to do employee performance evaluations too.