Performance Management System

Module I- Introduction

Performance Management: Overview-

Performance management is the continuous process of identifying, improving and managing

employee performance, reviewing and assessing progress, and developing the knowledge, skills
and abilities of people to achieve the organizational goals.

Definition:

 Aguinis, 2005, ‘Performance management is a continuous process of identifying,

measuring and developing the performance of individuals and teams and aligning
performance with the strategic goals of the organization.
 Briscoe and Claus, 2008, ‘Performance management is the system through which
organizations set work goals, determine performance standards, assign and evaluate
work, provide performance feedback, determine training and development needs and
distribute rewards.’
 DeNisi, and Pritchard, 2006: ‘Performance management is a broad set of activities
aimed at improving employee performance.’

Performance management is a means of ensuring that the organization’s strategic goals are
achieved. It contributes to the adoption of upgraded technology and managing change and it is
integrated with other key HR activities, especially human capital management, talent
management, learning and development and reward management. Thus performance
management helps to achieve objectives and integrate it with HR practices so that performance
aspects can be linked to other dimensions/departments/divisions and can interact, complement
and reinforce each other. Performance management also play an important part in enhancing the
levels of employee engagement. Performance management is a continuous process whilst
performance appraisal tended to be just an annual event.

Armstrong and Baron define performance management as ‘a process which contributes to the
effective management of individuals and teams in order to achieve high levels of organizational
performance. As such, it establishes shared understanding about what is to be achieved and an
approach to leading and developing people which will ensure that it is achieved'. The nature of
the strategy depends on the organizational context and can vary from organization to
organization based on nature, size and operation of the organization.'

In other words, performance management should be:

 Strategic - it is about broader issues and longer-term goals

 Integrated - it should link various aspects of the business, people management,
individuals and teams.

It should incorporate:

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
  Performance Improvement - throughout the organization, for individual, team and
organizational effectiveness
 Development – In absence of continuous development of individuals and teams,
performance goals can’t be achieved.
 Managing behavior - Ensuring that individuals are encouraged to behave in a way that
allows and fosters better working relationships.

Performance management is about establishing a culture in which individuals and groups take
responsibility for the continuous improvement of business processes and of their own skills,
behavior and contributions. Managers can clarify what they expect individual and teams to do;
likewise, individuals and teams can communicate their expectations of how they should be
managed and what they need to do their jobs. It follows that performance management is about
interrelationships and about improving the quality of relationships - between managers and
individuals, between managers and teams, between members of teams and so on, and is therefore
an integrative process.

Benefits:

The overall objective of performance management is to develop and improve the performance of
individuals, teams and organization as a whole. A strategic approach means that performance
management processes such as setting goals are explicitly designed to align individual objectives
with the organization’s strategic objectives. Performance management aims to develop the
capacity of people to meet and exceed expectations and to achieve their full potential to the
benefit of themselves and the organization. It is about ensuring that the support and guidance
people need to develop and improve is readily available.

The major benefits of performance management for organizations:

 To integrate individual, team and corporate objectives;

 To guide individual and team effort to meeting overall business needs;
 To motivate and engage employees;
 To recognize individual contribution;
 To plan individual careers (talent management, career planning);
 To introduce relevant and effective learning and development programs to meet
identified needs.

The major benefits of performance management for organizations:

 To know what is employees’ expectation;

 To know how they stand in terms of performance;
 To know what they need to do to reach their goals;
 To be able to discuss with their manager about their present job, development and
training needs and their future.

Pre-requisites for Effective Performance Management:

Performance management can be regarded as a continuous process managing the performances

of people for getting desired results. Performance management is beneficial to all the major

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
stakeholders of an organization by clearly describing what is supposed to be done for attaining
certain desired goals. Performance management is the core of any HR processes in an
organization as it influences the rest other HR functions or processes. Focus on performance
management may be fruitless without the existence of proper organizational design and
management systems.

Some of the essential pre- requisites without which performance management system will not
function effectively in an organization are:

1) Participation: Should attract very high levels of participation from all the
members concerned in an organization. It should be a participative process.
2) Management Support: Top management support and commitment is very
essential for building a sound performance culture in an organization.
3) Clarity of Goals: Organizational vision, mission and goals should be clearly
defined and understood by all levels so that the efforts are directed towards the
realization of the organizational ambitions.
4) Clarity of Roles: Clear definition of the roles for performing a given job within
the organizational framework which emanates from the departmental and the
organizational objectives. The system should also be able to explain the linkages
of a role with other roles.
5) Effective Communication: Open and transparent communication should prevail
which will motivate the employees for participating freely and delivering high
performance. Communication is an essential pre requisite for a performance
management process as it clarifies the expectations and enables the parties in
understanding the desired behaviors or expected results.
6) Identification of Parameters and KPI’s : Identification of major performance
parameters and definition of key performance indicators.
7) Consistency and fairness in application.
8) Commitment: A commitment towards recognition of high performance. Rewards
and recognitions should be built within the framework of performance
management framework.
9) Training opportunities: Proper organizational training should be provided to the
staff members based on the identification of training needs from periodic
evaluation and review of performance. This will motivate the employees for a
superior performance.

Ex: Tata Iron and Steel Company (TISCO), a flagship company of India involved in
manufacturing of cost effective steel can be appreciated for their initiatives in the
implementation of an effective performance management framework and innovative HR
practices. TISCO initiated a management restructuring programme for transforming into a high
performing and a growing organization. In the HR front, the management focused on providing
exciting career opportunities and building a team of high performing professionals for which
they hired Mckinsey and Co. The consultants firstly started with building a lean and a flat
strategic business unit with enriched jobs, increased accountabilities and autonomy. A
Performance Ethic Programme (PEP) was also introduced for promoting young and dynamic
professionals and this was a replacement of seniority based promotions. A new Performance
Management System (PMS) was introduced for aligning the KRA’s with the business strategies
and identifying superior performers in the organization by defining clear career paths and

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
accountabilities. The rewards and recognitions were linked with the PMS. The new measures in
the direction of performance management boosted the employee’s motivation and performance.
The job satisfaction also improved due to the introduction of a fair and transparent reward
system.

Performance appraisal V/s performance management

Performance management is concerned with assumptions, mutual obligations, expectations and

promises (Guest, D E et al, 1996). The views of some of the leading organizations of
performance management approach are given below:

 According to Eli Lilly and Co., performance management focuses on aligning the
individual goals with the goals of the organization and ensures that the employees work
on the right tasks and do the right things.
 According to Standard Chartered Bank, performance management is concerned with
those processes and behaviors by way of which the managers manage the performance of
the employees for developing high achieving organizations

Performance management is the process of identifying, measuring, managing, and developing

the performance of the human resources in an organization.

Performance appraisal, on the other hand, is the ongoing process of evaluating employee
performance.

The main objective of the performance appraisal system is to exercise control over the activities
of the employees through disciplinary actions and management of rewards and promotions. The
supervisors are expected to rate their employees on certain traits ranging between a scale of
unsatisfactory to outstanding performance and these ratings were susceptible to various errors
like central tendency, human errors, bias, halo effect, etc.

Performance Appraisal Performance Management

Top down assessment Inclusive ( Focuses on mutual objective setting through a
process of joint dialogue)
Performed annually Continuous reviews are performed
Usage of ratings is very common Usage of ratings is less common
Focus is on traits Focus is on quantifiable objectives, values and behaviors
Rigid system Flexible system
Directly linked with pay Not directly linked with pay
Operational Strategic
Past oriented Future oriented
Linked with employee’s need Linked with employer’s need
More Documentation Less Documentation
Conducted by HR department Conducted by Top level Executives

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
Performance management Cycle:

The traditional performance management cycle

While there are many versions of the performance management cycle, the most popular is
probably the one cited by Michael Armstrong in his Handbook of Performance
Management. Below is our representation of this cycle:

Plan

Review Act

Monitor

The first stage of this performance management cycle is ‘planning’; a phase which was
traditionally carried out only once each year. During this planning phase, employees are
set SMART objectives, which contribute to achieving one or more of the company’s goals. The
planning phase is the foundation of the entire process. In this phase, individual goals and
objectives are set for the performance period. Goals that are S.M.A.R.T (Specific, Measurable,
Achievable, Relevant, and Time Based) increase employee motivation and commitment to goal
attainment, leading to greater success.

The planning phase also includes the formation of a personal development plan (what strengths
and skills the employee should develop to achieve their goals) and a review of the employee’s
job requirements. The idea is to ensure that the organisation’s goals and values feed into this
planning phase, thereby ensuring that individual performance is aligned with the overall strategy
of the organisation.

The next two stages are ‘Act’ and ‘Monitor’, which occur throughout the year. Employees aim
to achieve their objectives and carry out their role effectively, while line managers coach their
employees, track progress, and provide feedback. Regular communication is critical during the
managing phase of the cycle. Through formal and informal conversations, both parties are kept
abreast of progress toward the successful completion of goals and expectations. These
discussions are also good opportunities to provide timely feedback and coaching. Since the
performance cycle spans several months, it is important to keep track of key performance
highlights and challenges. These notes will help immensely when it’s time to discuss
performance for the year

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
Historically, companies have placed a large emphasis on the final stage, ‘Review’, often
combining it with employee performance ratings. The ‘Review’ phase traditionally encompasses
an annual performance review, a meeting where employee and manager discuss and evaluate
goal progression and completion, performance issues, training and development, and
opportunities for advancement. At the conclusion of the cycle, both parties have a discussion to
review performance for the year. If S.M.A.R.T goals have been set (planning phase) and ongoing
communication/feedback has taken place (managing phase), both parties should have a
productive performance review discussion.

This once-a-year meeting can be extremely stressful for both employee and manager, and
ultimately unproductive. Because of the inadequacies of this annual process, a more agile
performance management cycle has been adopted by companies around the world, which we’ll
look at below. Employees may receive an increase to their annual base pay in accordance with
their overall performance rating. It is important to remember that performance increases should
be based upon merit. Rewards should be differentiated based upon overall performance ratings.

Nowadays the performance management cycle is shifting and evolving gradually. In recent
years, it has become widely recognized that it is more productive and motivating to discuss
performance and give feedback regularly, rather than once or twice a year. This mindset has
allowed for the creation of a continuous approach to performance management. This means that
instead of one annual performance management cycle, many companies (including Adobe and
Microsoft) have adopted frequent feedback system. This performance management cycle is an
ongoing process of developmental performance discussions and feedback, which allows
employers and managers to treat performance management as a process that “connects an
organisation’s culture, business goals and strategy to individual performance and contribution“.

Rather than setting an unrealistically large number of 12-month objectives at the start of each
year, under this new approach, employees and managers regularly meet and collaborate on a
smaller number of ‘near-term’ SMART goals. These goals are then periodically reviewed at
‘check-in’ meetings, when new near-term goals are also agreed. Meetings are an opportunity for
manager and employee to engage in future-focused, action-oriented discussions.

If it is done right, this continuous performance management cycle is more time efficient, and far
more productive.

Performance Dimensions

Corporate strategic goals provide the starting point for business and departmental goals, followed
by agreement on performance and development, leading to the drawing up of plans between
individuals and managers, with continuous monitoring and feedback supported by formal
reviews.

Following are the key dimensions of managing performance in organizations.

1) Quantity of work i.e. the quantity or amount of work produced or the sheer volume of
work completed by employees – recognizes hard-working employees.

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha
2) Timeliness of work i.e. timely delivery of work in terms of schedules, meeting deadlines,
etc. – recognizes employees who produce work on-time and meet deadlines.

3) Quality of work i.e. the quality of work produced in terms of standards, errors, waste
and rework – recognizes employees who produce quality work, work which meets
standards and work with few errors or mistakes.

4) Upgrading Skills & Capabilities – the employee is continuously adding new capabilities
in terms of skills, knowledge, and attitude to get work done in new/better ways and
building for the future.

5) Multifaceted Learning Platform: There should be different platform for different level
of employees for learning and acquiring knowledge. i.e. on the job training is suitable for
technical executives/ bottom level employees while off the job training is appropriate
for managerial level employees.

Dr. Pooja K. Singh

Sri Sri University, Cuttack, Odisha