Free policy template · Word

Performance Management Policy

A performance management policy describes the yearly cycle for setting goals (KRAs/KPIs), reviewing progress, rating performance, calibrating ratings and acting on results through rewards, development or a performance improvement plan. HR owns the process; managers and employees run it together.

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[Company Logo][Company Name]

PERFORMANCE MANAGEMENT POLICY

Policy No.:: [Reference Number]
Version:: [Version Number]
Effective Date:: [Date]
Policy Owner:: Human Resources

1. Purpose

This policy establishes a fair and transparent process at [Company Name] for planning, reviewing and rewarding performance, and for supporting employees to grow in their roles.

2. Scope

It applies to all confirmed employees who have completed at least [Number] months of service by the year-end review date. Probationers are reviewed under the Probation Policy.

3. Definitions

Performance year: [Month] to [Month].
KRA/KPI: key result areas and their measurable indicators, with weightages totalling 100%.
Calibration: a review meeting of managers to align ratings across teams.
PIP: performance improvement plan.

4. Policy

Every employee has [Number] to [Number] documented KRAs agreed with the Reporting Manager at the start of the year.
Goals may be revised mid-year if business priorities change, with HR's knowledge.
Ratings use the five-point scale below; the final rating considers results (what) and behaviours (how).
Ratings are calibrated at department level before being communicated.
Ratings inform increments, variable pay, promotions and development plans.
An employee rated 'Below Expectations' may be placed on a PIP of [Number] days with clear goals and support.

Rating	Label	Description
5	Outstanding	Consistently exceeds all goals and is a role model
4	Exceeds Expectations	Exceeds most goals
3	Meets Expectations	Achieves goals fully
2	Partially Meets	Achieves some goals; improvement needed
1	Below Expectations	Does not meet most goals

5. Procedure

Stage	Timeline	Owner
Goal setting	[Month]	Employee & Manager
Mid-year review	[Month]	Manager
Self-appraisal	[Month]	Employee
Manager review & calibration	[Month]	Manager & HR
Feedback discussion & letters	[Month]	Manager & HR

6. Responsibilities

Employee: agree goals, seek feedback and complete self-appraisal on time.
Manager: set clear goals, give regular feedback, rate objectively with evidence.
HR: run the calendar, train managers, facilitate calibration and appeals.

7. Non-compliance

Managers who do not complete reviews on time may have their team's outcomes delayed. An employee may appeal a final rating in writing to HR within [Number] working days; the appeal is reviewed by the skip-level manager and HR, whose decision is final.

8. Review & Approval

HR will review the process after each cycle using feedback from employees and managers.

Prepared by
[HR Name]
Human Resources

Approved by
[Authorised Signatory]
[Designation]
Date: [Date]

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What this template includes

Annual calendar — goal setting, mid-year and year-end review dates
KRA/KPI setting with weightages — clear, measurable expectations
Five-point rating scale with definitions — consistent language for ratings
Calibration meeting — reduces rater bias across teams
Links to rewards and PIP — consequences are predictable
Appeal route — employees can challenge a rating fairly

When to use it

Introducing a formal appraisal cycle in a growing company
Employees feel ratings are arbitrary and want a transparent process
Linking increments and promotions to documented performance
Handling consistent under-performance fairly

How to customise this template

1Enter your cycle dates in the calendar table
2Edit the rating scale labels and definitions
3Decide whether ratings follow a guided distribution
4Set eligibility (e.g., employees who joined before [Date])
5Insert your PIP duration and appeal timelines

HR tips

Continuous feedback matters more than the annual form — ask managers to hold monthly check-ins
Write goals in measurable terms; 'improve sales' is not a KPI
Train managers on bias such as recency and halo effects
Never surprise an employee with a low rating at year-end

Performance outcomes can lead to pay decisions or separation. Use this template as a starting point and review it against your standing orders, appointment terms and with legal advice before acting on poor ratings.

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Frequently asked questions

What is the difference between KRA and KPI?+

A KRA (Key Result Area) is a broad area of responsibility, such as 'customer retention'. A KPI (Key Performance Indicator) is the measurable target within it, such as 'renewal rate of [Number]%'.

Is bell-curve rating allowed?+

A guided distribution is a management choice, not a legal requirement. If used, apply it at a large group level and allow calibration so individuals are not forced into a rating unfairly.

Can an employee be terminated for poor performance in India?+

Possibly, but the process must be fair — documented expectations, feedback, a reasonable improvement opportunity such as a PIP, and compliance with appointment terms and applicable law. Take legal advice for each case.

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[Company Name]
Document No.:
[Reference Number]
Version:
[Version Number]
Effective Date:
[Date]
Policy Owner:
[HR Name], Human Resources
Approved By:
[Authorised Signatory]
Chapter 1: Introduction
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1.3 Precedence: Where this manual conflicts with any law, certified standing order or individual appointment letter, the law and then the more favourable term for the employee will apply.
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- Employee: any person employed on the company's rolls on a permanent, probationary or fixed-term basis.
- Reporting Manager: the person to whom an employee reports as per the organisation chart.
- HR: the Human Resources department or the person designated to perform the HR function.
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