Performance Management System (PMS) is understood by many as a repackaged version of traditional Performance Appraisal Systems (PAS), a new management term. PMS however, extends much beyond the performance appraisal process, techniques and tools. It is a comprehensive process involving the firm's strategy and performance linked pay structures.

The need for integrating the strategic concerns of a firm with its performance monitoring system arose from the fact that simply having good/best systems in place, does not necessarily make the firm successful. Similarly, the purpose of any reward/incentive system should be to ensure a motivational climate wherein performance for strategic goals is reinforced and encouraged. In addition, a firm competes with others, not only for customers, but also for resources - such as valuable skills. Attracting and retaining these skills have necessitated that pay structures be variable and highly differentiating between those that contribute to the bottom line and those who do not.

PMS thus entails not only measuring performance through various appraisal/feedback mechanisms, but also identifying, eliciting and rewarding appropriately those performances which lead to achievement of a company's goals.