If you want performance out of your people it is time that you start coaching them. Engage them, encourage them, reward them and coach them. Provide them with the tools that they need to make an impact in the organization. Talk with them about what your vision is, give them tips on how to succeed in the organization and then get of the way. Let them do their thing. But, do not disappear on them.
You need to stay close, but not burdensome; you need to be there to provide the right guidance when needed. And, perhaps most importantly, you need to know when to step away. This is not rocket science, but it is an art and a science. You need to become adept at reading your people and understanding when you need to be there for them, and the science is in how you show up for your people.
If done wisely, your coaching sessions can replace your performance management conversations. It is unlikely that you will be able to sway your company to drop performance management completely, so it is important that you set proper expectations with your people. Not every coaching conversation should be a part of the formal performance record. You need to create a space where it's ok to provide coaching and guidance. A space where employees understand that coaching is not a form of discipline and that it isn't something that will always land in the formal record. That being said, it is also important to make it clear that if the guidance provided in some of the coaching sessions continues to go unheeded and performance continues to dip, it may very well become a part of the formal performance process.
Coaching is a balance between art and science. You do not want to appear that you are micro-managing your people, but you do not want to leave them in the wilderness. To become a good coach, you should think about the dynamics at play that include the culture of the organization, the business goals and objectives, the interpersonal relationships and the hard science of how to get results in a competitive environment.
This is your team, it is time to step up and coach... and then get out of the way and let them do their thing.