PERFORMANCE MANAGEMENT

MODULE-1
Dr. Renju Chandran,
SMS, Union Christian College, Aluva
Performance Management-Definition
• Performance management is a means of getting better
results from the organization, teams and individuals
by managing performance in line with organizational
strategy.
Performance Management-Definition
• “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.”
• It requires –
Knowing what priorities managers and their
employees should be focusing on;
Having clear targets and goals that focus on
priorities;
Measuring actual performance against agreed targets
and goals; and
Identifying and remedying performance problems
FEATURES OF PM
It is a continuous process
It is a strategic process
It is an Integrated Approach
• Vertical integration
• Functional integration
• HR integration
• Goal integration
It is an approach for Performance Improvement
It is concerned with Development
CONCEPT OF PM
• According to Armstrong and Baron (2006), the
concept if performance management is built around
two simple propositions:
1. When people know and understand what is expected
of them, they will do their best to meet them.
2. The performance of the people depends on the levels
of their capability, the level of support given by
management, and the processes.
• The concept of performance management may be
categorized into two separate types of
management.
• The first one deals with - the performance of an
organization as a whole and evaluates the
effectiveness of its managers.
• The second one deals with the system of
evaluating employees in order to enable them to
achieve reasonable goals and thus ensure that the
organization performs better.
LINKAGE OF PM WITH OTHER HRM
ACTIVITIES/SUB SYSTEMS

Recruitment and Human resource Industrial

Selection planning relations

Performance
Annual stock
Performance management
taking
management audit

Training and Mentoring

Reward
development and
management
counselling
 PROCESS OF PM
• Performance management process consists of the following
components:
❑ Performance planning:- It refers to setting
performance criteria (objectives/goals/targets) in line
with strategic goals of the organization, identifying the
required levels of competencies needed and
developmental plans to perform effectively.
❑ Performance managing:- It refers to working towards
the performance expectations determined at the
performance planning level. This essentially means that
resources required to perform are available, and
ensuring that optimal utilization of resources are made.
• Performance appraisal :- It refers to the systematic
evaluation of the employee’s performance on the job
and his potential for development. It is an objective
method of judging the relative worth or ability of an
individual employee in performing his task.
• Performance monitoring:- It refers to the
continuous overseeing of employee performance,
giving feedback of results, and providing support and
carrying out correctional and developmental activities
in order to ensure continual alignment with the set
performance objectives at the planning level.
PERFORMANCE MANAGEMENT PROCESS

Performance Performance
Performance Performance
managing monitoring
planning appraisal
*identifying *refining *analyzing *providing
relevant indicators and performance feedback and
accountabilities designing data counseling
*selecting measures *evaluating *problem solving
measures and *assessing performance of *developing a
indicators organizational employees regular reporting
*setting resource against and monitoring
performance allocation performance cycle
criteria *ensuring plans *providing appeal
*communicatin optimal *administration mechanism
g expectations utilization of of *annual stock
*getting organizational performance-bas taking
employee resources ed rewards
commitment
PERFORMANCE MANAGEMENT
AUDIT
OBJECTIVES
Performance management has the following objectives:
o To help achieve the sustainable improvements in
organizational performance.
o To help in developing more performance oriented
culture.
o To increase the motivation and commitment of
employees.
o To help employees to develop their abilities and
increase their job satisfaction, and achieve their full
potential.
OBJECTIVES
o To enhance team cohesion and performance.
o To develop constructive and open relationships
between individuals and their managers in a
process of continuing dialogue.
o To provide opportunities for individuals to
express their aspirations and expectations
about their work
To sum up, performance management aims at helping organizations to:
✔ Set objectives for employees over the coming year.
✔ Review employee’s performance against objectives and agree on
improvement plans.
✔ Pay employees for good performance.
✔ Collect information on gaps in skills and training needs.
✔ Develop employees for future to aid succession planning and career
development.
✔ To document job responsibilities.
✔ To help define performance expectations.
✔ To provide a framework for managers and their employees to communicate
with each other.
✔ To provide ongoing opportunities for managers to coach and encourage
personal development.
✔ To align individual performance expectations with organizational goals.
Importance and benefits of
Performance Management
For the Organization:

• Align corporate, individual • Help to develop a learning

organization
and team objectives
• Enlarge the skill base
• Improve performance • Provide for continuous
• Motivate employees improvement and development
• Provide the basis for career
• Increase commitment planning
• Underpin core values • Help to retain skilled employees
• Improve training and • Support total quality and
customer service initiatives
development processes
• Support culture-change
programmes
• For Managers:
• Provide the basis for clarifying performance and behaviour
expectations
• Afford a framework for reviewing performance and competence
levels
• Improve team and individual performance
• Support leadership, motivation and teambuilding processes
• Provide the basis for helping underperformers
• Help to develop or coach individuals
• Provide the opportunity to spend structured time with teams ad
team members.
• Provide the basis for providing non-financial rewards to staff (Eg.
Recognition, opportunity for growth and development)
• For Individuals:
• Provide greater clarity of roles and objectives
• Offer encouragement an support to perform well
• Provide guidance and help in developing abilities and
performance
• Afford opportunities to spend time with their managers
• Offer opportunities to contribute to the formulation of
objectives and plans to improve the way work is managed and
carried out
• Provide an objective and fair basis for assessing performance.
CHARACTERISTICS OF AN IDEAL
PMS
✔ Fairness
✔ Transparency
✔ Equity
✔ Strategic congruence
✔ Specificity
✔ Identification of effective performance
✔ Thoroughness
✔ Practicality
✔ Meaningfulness
✔ Reliability
✔ Validity
✔ Acceptability
- Contd.
✔ Inclusiveness
✔ Openness
✔ Correctability
✔ Standardization
✔ Ethicality
 PRE-REQUISITES OF PMS
❖Organizational readiness - HRM practices should be in place to
support the process. These include:
• well-designed jobs
•Written job descriptions
•Comprehensive orientation
•Effective training
•Effective supervision
•A positive work environment
❖Organizational Fit – A good PMS must fit the direction, systems
and culture of the organization. It must fit to its circumstances.
❖Top management commitment and involvement – The PMS
must have the support of the top management and line managers
of the organization.
❖ Knowledge of the mission and job – There are two important
prerequisites before a PMS is implemented:
1) Knowledge of the organization’s mission and strategic goals
and
2) Knowledge of the job in question.
❖ Acceptance, commitment and ownership – A PMS should
be perceived as fair and is acceptable to the managers and
employees.
❖ Adequacy of compensation - The compensation and the
reward systems in the organization should be equitable and
linked to performance.
❖ Availability and access to resources – Inadequacy and non
access to resources will defeat the very purpose of PMS.
❖ Effective communication – Existence of an effective
communication system in the organization will ensure that
employees are continually informed of the level and quality of their
performance.
❖ A culture of Accountability – The success of a PMS depends on
the culture of accountability in an organization.
❖ Familiarity of Managers with Planning tools, Target-setting and
Monitoring – The managers and employees should be well-versed
in using planning tools, so that targets are fixed and their
implementation are monitored.
❖ An open and honest Management style – The management should
follow an open and honest style which encourages two-way
communication.
KEY RESULT AREAS
• KRAs are the critical areas of an employee’s
job, where the employee is needed to achieve
results.
• KRA are a set of responsibilities which drive
individuals towards business objectives.
• Routine responsibilities are not to be considered
as KRAs.
• “Results” are not the things you ‘do’- they are the
intended consequences of the things you do.
Individual KRA
The best way to define KRA is by interview or
discussion. The questions asked to the employees by
manager may be:-
o What are the most important activities in your job?
o What are you expected to achieve in each of the
individual activities?
o How can you or others assess your accomplishment
in the identified area?
 • For an employee, performance objective in the form
of KRAs are developed in line with his respective
department, project or group’s objectives, as outlined
below:
✔ An employee drafts the KRAs based on business unit
or team objectives.
✔ Manager reviews KRA and ensure whether they
follow the SMART model.
✔ Weightage is assigned to selected KRAs.
✔ Manger and employee agree on the set of KRAs
For an employee, performance objective in the form of KRAs are
developed in line with his respective department, project or
group’s objectives, as outlined below:
o An employee drafts the KRAs based on the business unit or
team objectives.
o The manager reviews the KRAs of the employees and ensures
that they follow the SMART model.
o Weightage is assigned to each KRAs
o The manager and the employee agree on the set of KRAs.
 Identification of KRAs
• Manager and employees should jointly identify the KRAs for the
job.
They are the key business result areas that contribute to achieve
organization’s strategic goals.
▪ Identify the vital elements of the job that give results.
▪ Focus outcomes rather than activities.
Some illustrations of KRAs:
• Reduction in conversion cost
• Quality systems implementation
• New product development
• Relationship building
• Working capital management
Examples of KRAs for Sales Manager:
• Territory management
• Customer care
• Customer retention
• Product knowledge
• Negotiation skills
• Sales forecasting
KRA : Sales
Objective : Sell ‘x’ new products to customers
Measure : Number of units sold per new customer while maintaining
a net sales realization of 20% and ensuring repeated business within
12 months with the same customers.
Functional KRA
• KRA constitute about 80% of work role of the department
and remaining, is the area of shared responsibility.
Eg: Helping team mates, participating in activities for the
good of the organization.
Step 1: Review the company philosophy and approach by
examining the following:
o Vision statement
o Mission statement
o Corporate objectives
o Corporate strategy
o Departmental or corporate business unit’s strategy or
plans.
Step 2: Take each department, one at a time, and review
the following for the budget period, which is usually
twelve months.
o Department objectives
o Department strategies
o Department plans

Step 3: Review the job descriptions of the department,

starting with the Head of the department.
o Review the job description
o Pick five key areas from the job description that will
have an impact on the results of the department. They
are the key performance areas.
• Provide weightage to the five KPAs according to
importance. The weights must add up to 100.
• If the KRAs are large, break them into two or three
areas.
• Develop key performance indicators (KPIs)
Eg: Human Resource Department
Job description of the head: Human Resource Manager
Position reports to: General Manager
Primary objective: *To provide the right skill mix
required by the organization and to ensure supply of
required manpower to the organization.
• To formulate plans, policies and procedures for
procurement, utilization and development of human
resources.
Other responsibilities: Establish HR strategies, prepare
budgets, monitor performance, recruitment and selection,
design training and development programmes, ensure
compliance with HR laws.

Weight KRAs:
• Recruitment and selection (20%)
• Workforce planning (20%)
• Performance management (25%)
• Reward management (20%)
• Workplace management (10%)
• Building capabilities and organization learning (5%)
Out of the six KRAs, only one KRA is large and hence
broken into two KPAs.
KPA 1= Recruitment
KPA 2= Selection

Indicate performance indicators:

The objective of the enterprise is to increase
productivity by 10%.
 KPA Indicators

Recruitment and selection Reduce the average time taken per

employee from 2 months to 45 days
Workforce planning Maintain absenteeism rate at 5% and
turnover rate at 6%
Performance management Appraisals to be changed from quarterly
to bi-monthly
Reward management Competitive. Total compensation to sales
to be 10%
Workplace management Evaluations to cover lower grade staff
also.
Building capabilities and organization Average training hours per employee per
learning annum to be seventy two hours or three
days.
 KEY PERFORMANCE AREAS
• Key Performance Areas may be defined as the
important or critical categories of functions to be
performed by an employee, over a given period of time.

• These categories of functions should be so defined that

the performance of the employee can be assessed
meaningfully for any given period of time.

• In addition, these critical functions should specify what

the employee should focus his attention during the
appraisal period.
 Some Examples of KPAs
• KPAs for a Sales Manager:
1. Contacting potential customers
2. Market survey for new products
3. Attending to customer complaints, etc.
▪ KPAs for an Accounts Manager:
1. Budget preparation
2. Payment of bills to suppliers
3. Developing a system of computerization, etc
▪ KPAs of a Branch Manager of a Bank:
1. Balancing of ledgers
2. Recovery of sick accounts
3. Mobilizing new deposits
4. Public relations, etc.
 Advantages & Disadvantages
▪ Provide role clarity. Difficult to achieve
▪ Inculcate a planning objectivity.
orientation.
▪ Can be fixed for all Do not emphasize
types of jobs. Outcomes/results.
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