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Aim: To test and refine a performance-based management system to improve health worker performance in Nepal.Methods: A mixed-methods implementation research in three districts. The study assessed health workers' job satisfaction at the start and end of the study. Qualitative techniques were used to document processes, and routine health service data were analysed to measure outcomes.Results: Job satisfaction significantly increased in six of nine key areas, and the proportion of staff absenteeism significantly declined in the study districts. It demonstrated an increase in immunisation coverage, the proportion of women who had a first antenatal check-up also having a fourth check-up and the proportion of childbirth in a health facility. The greatest perceived strengths of the system were its robust approach to performance planning and evaluation, supportive supervision, outcome-based job descriptions and a transparent reward system. A functional health facility environment, leadership and community engagement support successful implementation.Conclusion: The performance-based management system has the potential to increase health workers' job satisfaction, and it offers a tool to link facility-wide human resource management. A collaborative approach, ownership and commitment of the health system are critical to success. Considering the Nepal context, a management system that demonstrates a positive improvement has potential for improved health care delivery. [ABSTRACT FROM AUTHOR]