PERFORMANCE MANAGEMENT SYSTEM

CONTINUOUS PROCESS.
A company's MISSION is a statement of  Performance management is ongoing. It involves a
 the basic purpose or reason for its existence never ending process of setting goals and
 its values (role to stakeholders-customers, objectives, observing performance, and giving and
employees, society, etc.) receiving ongoing coaching and feedback.
The VISION - goes beyond the mission statement
 clarifies the long-term direction of the company ALIGNMENT WITH STRATEGIC GOALS
(where the company is going)  Performance management requires that managers
 reflects management's aspirations for the company ensure that employees’ activities and outputs are
OBJECTIVES - are yardsticks for tracking a company's congruent with the organization’s goals and,
performance or end result. consequently, help the organization gain a
 Financial performance objectives (eg. ROA, ROI, competitive advantage. Performance management
ROE, dividend growth, stock price) therefore creates a direct link between employee
 Strategic performance objectives (eg. Market performance and organizational goals and makes
share, growth, innovation leader, customer service, the employees’ contribution to the organization
community & environmental responsibility) explicit.

STRATEGY THE PERFORMANCE MANAGEMENT CONTRIBUTION

 The word strategy has its roots in military science  Motivation to perform is increased.
and literally means "the act of the general,"  Self-esteem is increased.
having been derived from the Greek word  Managers gain insight about subordinates.
“strategos” a general leading an army."  The definitions of job and criteria are clarified.
 Moreover, the Greek verb stratego means to "plan  Self-insight and development are enhanced.
the destruction of one's enemies through effective  Administrative actions are fairer and more
(doing the right things) and efficient (doing things appropriate.
right) use of resources."  Organizational goals are made clear.
 STRATEGY is management's overall plan and  Employees become more competent.
actions for deploying resources and skills taking  Employee misconduct is minimized.
into consideration the strength, weakness,  There is better protection from lawsuits.
opportunities and threats in the environment  There is better and more timely differentiation
 to achieve it's mission, vision, and objectives between good and poor performers.
 to establish a favorable competitive position  Supervisors’ views of performance are
communicated more clearly.
Strategic management  Organizational change is facilitated.
- can be defined as the art and science of  Motivation, commitment, and intentions to stay in
formulating, implementing, and evaluating cross- the organization are enhanced.
functional decisions that enables organizations to  Voice behaviour is encouraged.
achieve its objectives
 Employee engagement is enhanced.
- focuses on how managers formulate and
implement, and evaluate strategies aimed at
DISADVANTAGES/DANGERS OF POORLY
developing and maintaining competitive
IMPLEMENTED PERFORMANCE MANAGEMENT
advantage.
SYSTEMS
 Increased turnover
IMPORTANCE OF STRATEGIC MANAGEMENT
 Use of false or misleading information
 Gives every employee a role to play in making the
firm successful.  Lowered self-esteem
 Makes a difference in performance levels.  Wasted time and money
 Provides systematic approach to uncertainties that  Damaged relationships
organizations face.  Decreased motivation to perform
 Coordinates and focuses employees to achieve  Employee job burnout and job dissatisfaction
organization’s goals.  Increased risk of litigation
 Unjustified demands on managers’ and employees’
REWARDS resources
 MONETARY (tangible)  Varying and unfair standards and ratings
 NON-MONETARY (intangible)  Emerging biases
 Unclear ratings system
PERFORMANCE MANAGEMENT
 is a continuous process of identifying, measuring, REWARDS SYSTEMS
and developing the performance of individuals and  A reward system is the set of mechanisms for
teams and aligning performance with the strategic distributing both tangible and intangible returns as
goals of the organization. part of an employment relationship.
  It should be noted that not all types of returns are
directly related to performance management
systems. (ex. Position, employment status)

EMPLOYEE’S COMPENSATION Purposes Served by a Performance Management

 usually referred to as tangible returns, includes System
cash compensation (i.e., base pay, cost-of-living  Strategic: To help top management achieve
and merit pay, short-term incentives, and long-term strategic business objectives
incentives) and benefits (i.e., income protection,  Administrative: To furnish valid and useful
work/life focus, tuition reimbursement, and information for making administrative decisions
allowances). about employees
 Informational: To inform employees about how
INTANGIBLE RETURNS they are doing and about the organization’s and
 also referred to as relational returns, which include the supervisor’s expectations
recognition and status, employment security,  Developmental: To allow managers to provide
challenging work, and learning opportunities. coaching to their employees
 Organizational maintenance: To provide
TYPES OF RETURNS information to be used in workplace planning and
allocation of human resources
BASE PAY- is given to employees for work performed.  Documentational: To collect useful information
COST-OF-LIVING ADJUSTMENTS (COLA) - imply the that can be used for various purposes (e.g., test
same percentage increase for all employees regardless of development, administrative decisions)
their individual performance. Cost-of-living adjustments are
given to com- bat the effects of inflation in an attempt to CHARACTERISTICS OF AN IDEAL PERFORMANCE
preserve the employees’ buying power. MANAGEMENT SYSTEM
CONTINGENT PAY- sometimes referred to as merit pay, is
STRATEGIC CONGRUENCE- The system should be
given as an addition to the base pay based on past
congruent with the unit and organization’s strategy. In other
performance.
words, individual goals must be aligned with unit and
SHORT-TERM INCENTIVES - based on past performance. organizational goals.
Incentives are one-time payments and are sometimes CONTEXT CONGRUENCE- The system should be
referred to as variable pay. congruent with the organization’s culture as well as the
INCOME PROTECTION- programs serve as a backup to broader cultural context of the region or country.
employees’ salaries in the event that an employee is sick, THOROUGHNESS- should satisfy 4 dimensions: employee
disabled, or no longer able to work. Some countries evaluation, job responsibilities evaluation, evaluation
mandate income protection programs by law. duration, feedback.
WORK/LIFE FOCUS- Benefits related to work/life focus PRACTICALITY- usage of good and user-friendly systems
include programs that help employees achieve a better to help manages make decisions.
balance between work and nonwork activities.
MEANINGFULNESS- People will not pay attention to a
ALLOWANCES- Benefits in some countries and system that has no consequences in terms of outcomes
organizations include allowances covering housing and that they value.
transportation. SPECIFICITY- A good system should be specific: it should
RELATIONAL RETURNS- Relational returns are intangible provide detailed and concrete guidance to employees about
in nature. They include recognition and status, employment what is expected of them and how they can meet these
security, challenging work, opportunities to learn, and expectations.
opportunities to form personal relationships at work
(including friendships and romances). IDENTIFICATION OF EFFECTIVE AND INEFFECTIVE
PERFORMANCE
RETURNS AND THEIR DEGREE OF DEPENDENCY ON
THE PERFORMANCE MANAGEMENT SYSTEM RELIABILITY -A good system should include measures of
performance that are consistent and free of error.
VALIDITY- refers to the fact that the measures include all
relevant performance facets and do not include irrelevant
performance facets.
ACCEPTABILITY AND FAIRNESS -A good system is
acceptable and is perceived as fair by all participants.
INCLUSIVENESS- Good systems include input from
multiple sources on an ongoing basis.
OPENNESS- good systems have no secrets.
CORRECTABILITY – unjust decisions can be rectified.
STANDARDIZATION- This means that performance is on a sound performance management system led
evaluated consistently across people and time. to improved interpersonal relationships and
ETHICALITY- Good systems comply with ethical standards. enhanced supervisor–subordinate trust.
This means that the supervisor suppresses her personal 7. Organizational goals are made clear.
self-interest in providing evaluations.  The goals of the unit and the organization are
There are many advantages associated with the made clear, and the employee understands the link
implementation of a performance management system. A between what he or she does and organizational
performance management system can make the following success. This is a contribution to the
important communication of what the unit and the
1. Motivation to perform is increased. organization are all about and how organizational
goals cascade down to the unit and the individual
 Receiving feedback about one’s performance employee. Performance management systems can
increases the motivation for future performance. help improve employee acceptance of these wider
Knowledge about how one is doing and recognition goals (i.e., organizational and unit level).
of one’s past successes provide the fuel for future
accomplishments. 8. Employees become more competent.
2. Self-esteem is increased.  An obvious contribution is that the performance of
employees is improved. In addition, there is a solid
 Receiving feedback about one’s performance fulfils foundation for developing and improving
a basic need to be appreciated and valued at work. employees by establishing developmental plans.
This, in turn, is likely to increase employees’ self-
esteem. 9. There is better protection from lawsuits.
3. Managers gain insight about subordinates.  Data collected through performance management
systems can help document compliance with
 Direct supervisors and other managers in charge of regulations (e.g., equal treatment of all employees
the appraisal gain new insights into the person regardless of sex or ethnic background).
being appraised.  When performance management systems are not
 The importance of knowing your employees is in place, arbitrary performance evaluations are
highlighted by the fact that the Management more likely, resulting in an increased exposure to
Standards Centre has recognized that developing litigation.
productive relationships with colleagues is a key
competency for managers will help the manager 10. There is better and more timely differentiation
build a relationship with that person. between good and poor performers.
 Also, supervisors gain a better understanding of  Performance management systems allow for a
each individual’s contribution to the organization. quicker identification of good and poor performers.
This can be useful for direct supervisors as well as Also, they force supervisors to face up to and
for supervisors once removed. address performance problems on a timely basis
4. The job definition and criteria are clarified. (i.e., before the problem is too costly and cannot be
remedied).
 The job of the person being appraised may be
11. Supervisors’ views of performance are
clarified and defined more clearly.
communicated more clearly.
 In other words, employees gain a better
understanding of the behaviors and results  Performance management systems allow
required of their specific position. managers to communicate to their subordinates
 Employees also gain a better understanding of their judgements regarding performance.
what it takes to be a successful performer (i.e.,  Thus, there is greater accountability in how
which criteria define job success). managers discuss performance expectations and
provide feedback.
5. Self-insight and development are enhanced.
 Both assessing and monitoring the performance of
 The participants in the system are likely to develop others are listed as key competencies for
a better understanding of themselves and of the managers by the Management Standards Centre.
kind of development activities of value to them as  When managers possess these competencies,
they progress through the organization. subordinates receive useful information about how
 Participants in the system also gain a better their performance is seen by their supervisor.
understanding of their strengths and weaknesses,
12. Organizational change is facilitated.
which can help them better define future career
paths.  Performance management systems can be a
6. Personnel actions are fairer and more appropriate. useful tool to drive Organizational change. For
example, assume an organization decides to
 Performance management systems provide valid change its culture to give top priority to product
information about performance, which can be used quality and customer service.
for personnel actions such as merit increases,  Once this new organizational direction is
promotions and transfers, as well as terminations. established, performance management is used to
 In general, a performance management system align the organizational culture with the goals and
helps ensure that rewards are distributed on a fair objectives of the organization to make change
and credible basis. In turn, such decisions based possible.
  Employees are provided with training in the 9. Unjustified demands are made upon managers’
necessary skills, and are also rewarded for resources.
improved performance so that they have both the  Poorly implemented systems do not provide the
knowledge and the motivation to improve product benefits that well-implemented systems provide,
quality and customer service. yet they still take up managers’ time. Such systems
 This is precisely what IBM did in the 1980s when it will be resisted because of competing obligations
wanted to switch focus to customer satisfaction: and allocation of resources (e.g., time). Worse,
the performance evaluation of every member in the managers may simply choose to avoid the system
Organization was based, to some extent, on altogether.
customer satisfaction ratings regardless of function
(i.e., accounting, programming, manufacturing, 10. Standards and ratings vary and are unfair.
etc.)  Both standards and individual ratings may vary
 For IBM, as well as for numerous other across and within units, and may also be unfair.
organization, performance management provides 11. Biases can replace standards.
tools and motivation for individuals to change,
which, in turn, helps drive Organizational change.  Personal values, biases and relationships are likely
to replace organisational standards.
Disadvantages/Dangers of Poorly Implemented PM
Systems 12. Mystery surrounds how ratings were derived.
1. Employees may quit due to results.  Because of poor communication, employees may
not know how their ratings are generated or how
 If the process is not seen as fair, employees may the ratings are translated into rewards.
become upset and leave the organization. They
can leave physically (i.e., quit) or withdraw
psychologically (i.e., minimize their effort until they
are able to find a job elsewhere).
2. False or misleading information may be used.
 If a standardized system is not in place, there are
multiple opportunities for fabricating information
about an employee’s performance.
3. Self-esteem may be lowered.
 Self-esteem may be lowered if feedback is
provided in an inappropriate and inaccurate way.
This, in turn, can create employee resentment.
4. Time and money are wasted.
 Performance management systems cost money
and quite a bit of time. These resources are wasted
when systems are poorly designed and
implemented.
5. Relationships are damaged.
 As a consequence of a deficient system, the
relationships among the individuals involved may
be damaged, often permanently.
6. Motivation to perform is decreased.
 Motivation may be lowered for many reasons,
including the feeling that superior performance is
not translated into meaningful tangible rewards
(e.g., pay increase) or intangible rewards (e.g.,
personal recognition).
7. Employees suffer from job burnout and job
dissatisfaction.
 When the performance assessment instrument is
not seen as valid, and the system is not perceived
as fair, employees are likely to feel increased levels
of job burnout and job dissatisfaction. As a
consequence, employees are likely to become
increasingly irritated.6
8. There is increased risk of litigation.
 Expensive lawsuits may be filed by individuals who
feel they have been appraised unfairly.