An effective performance management system is at its best when it establishes a true pay-for-performance culture, which, in turn, improves employee engagement. The process for linking a company’s compensation plan to individual or team performance involves setting, measuring, and rewarding achievable performance expectations. Describe the importance a good performance appraisal system and identify the major components of an effective system. Then, reflect on the performance appraisal system within your organization. Focus on what works well and address any areas that need improvement.