Management by objectives is a method of performance management. The method specifically defines performance objectives that both management and the employees agree upon. By participating in the decision-making process, they are encouraged to perform to that standard within the company in order to achieve the defined objectives. It is also assumed that a stronger sense of commitment and participation is instilled within the employees by allowing them to participate, which would ultimately improve the organization's performance.
The defined objectives also create a comparison by which the performance and achievements of the employees can be measured against.
The term was coined by Peter Drucker in his book "The Practice of Management". It has been criticized for its rigid methodology.