Final answer:
Step 1: Defining Performance Expectations is where realistic job demands are ensured and aligned with the organization's strategy. This first step involves setting clear objectives and conducting a job analysis that supports broader strategic goals.
Step-by-step explanation:
The step of the performance management process where we ensure realistic job demands and alignment with the organization's strategy is Step 1: Defining Performance Expectations. In this initial phase, clear objectives and expectations are set that are in sync with the company's goals. A thorough job analysis is undertaken to outline the specific requirements and duties, and align them with broader strategic objectives. This step is crucial as it sets the foundation for subsequent performance evaluation, where factors like effort and compensation are considered in the light of the set expectations.