UNIT 3 : Foundations of

Performance Management
Performance Management system (PMS)
Performance management is a process intended to improve
individual and organizational performance. Employees and
their manager mutually establish goals and expectations that are
specific, measurable, attainable and are linked to the goals of
higher level management.
Evolution of performance management
System (PMS)
Evolution of performance management
system (Pms)
The philosophy behind a performance appraisal system is to improve human
resource management. This in turn improves the company’s overall
performance. It is an opportunity to recognize individual performance and
achievement. Individual’s need positive feedback in order to feel that they are
being recognized as contributing to a company’s overall success. Appraisals
are also an opportunity to improve performance by setting further goals and
agreeing upon suitable actions to achieve them. Traditionally appraisals are
carried out annually or half yearly. More and more organizations now are
moving more towards slightly more informal and more frequent performance
discussions with team members. This has the benefit of keeping goals and
performance in people’s minds and grows a positive culture of open
communication and recognition within an organization.
Objectives of performance management
system (pms)
• To enable the employees towards achievement of superior standards of work performance.
• To help the employees in identifying the knowledge and skills required for performing the job efficiently
as this would drive their focus towards performing the right task in the right way.
• Boosting the performance of the employees by encouraging employee empowerment, motivation and
implementation of an effective reward mechanism.
• Promoting a two way system of communication between the supervisors and the employees for clarifying
expectations about the roles and accountabilities, communicating the functional and organizational goals,
providing a regular and a transparent feedback for improving employee performance and continuous
coaching.
• Identifying the barriers to effective performance and resolving those barriers through constant monitoring,
coaching and development interventions.
• Creating a basis for several administrative decisions strategic planning, succession planning, promotions
and performance based payment.
• Promoting personal growth and advancement in the career of the employees by helping them in acquiring
the desired knowledge and skills.
Characteristics of PMS
• Fair and Accurate
A major issue with the traditional performance management system is
the personal bias and perspectives of managers, which inhibits the
fairness in the process. Fair and accurate performance review is done by
involving multiple people in the review process of an employee.
A modern performance management system involves 360 degree
feedback and reviews that incorporate feedback from multiple partners.
Such a review process eliminates the personal bias and perspectives of
managers and takes anonymous feedback from the concerned people.
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• The System Must be Efficient
An efficient performance appraisal system establishes and communicates goals and
performance expectations to employees. It helps in reducing the manual efforts and
overall time required to conduct the performance review process. Thereby providing
accurate results for taking actions.
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• Continuous, Flexible, and Intuitive
As organizations have started embracing automation, they look for performance
management systems that can simplify complex tasks and are flexible enough to
accommodate changing business dynamics. Performance management systems are
continually evolving with technology. They offer intelligent insights based on the
input data and solve multiple technical problems that is difficult for human resource
managers to comprehend.
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• The System Must Focus on Employee Development

The purpose of implementing performance management tools is to enhance the
performance of employees. It is achieved by understanding their current skill-
set, challenges, engagement level, and opportunities, and matching them with
the organizational objectives. 
An effective system focuses on imparting employee development plans for
those employees that are lacking in optimum performance and rewarding those
with exceptional performance. The system helps in gathering the employees’
information and creating a well-defined learning path for them. Even the
measurement of employee development results and ROI is easier with an HR
performance management system.
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• Aligned Towards Organizational Goals
The performance of employees is directly linked with the achievement of
business goals. If the workforce is not aligned to the organizational objectives
then it becomes difficult to accomplish organizational goals . A performance
management system aids in aligning the employee goals with organizational
strategy. 
It can be achieved by setting goals that reflect the business strategy of the
company. It requires taking every department and business unit into
consideration while crafting the goals. Once the goals are designed, leaders have
to cascade the goals down to every manager and employee in the organization.
The last step is to review, monitor, and measure the success of these activities.
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• Aligned With Organizational Culture and Values
Organizational culture and values constitute the vision, mission, business
strategy, and day-to-day interactions of employees with leaders, managers,
and peers.
Employees are able to build a strong relationship and a sense of bonding
with the organization when they feel like they are a part of the culture. A
performance management system drives engagement, productivity, and
development by undertaking multiple initiatives. It helps in building a
closer relationship between an employer and their employees. It helps in
creating a sense of purpose, achievement, and involvement among
employees within the organization. 
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• The System Must Help With Goal Setting and Tracking

A performance management system helps in setting SMART
(Specific, Measurable, Achievable, Relevant, Time-bound) goals.
Research shows that setting goals in collaboration with
employees increases accountability and also align individual
goals with organizational goals. The check-in feature of the
performance management system also helps in tracking the
overall performance of team members. Thereby enhancing
transparency in the review process.
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• Integrates All Aspects of Employee Development
Employee development is a cumbersome process. It involves various
parameters, like skill development, job rotation, job enrichment, mentoring
and coaching, and lateral moves. As organizations grow in size, employee
development gets more challenging. Thus, it requires a thorough analysis of
the workforce and creating a plan for every employee. 
Using employee performance management solutions can simplify the tasks of
employee analysis, learning path creation, execution, monitoring, review, and
success measurement. Managers can use the performance review tools to
quickly identify employee development opportunities and quickly start the
process.
Performance management model (PCER)
The performance management process is intended to create an ongoing
dialogue between the supervisor and employee. The Division of Human
Resources and Organizational Effectiveness recognizes the PCER (Plan,
Coach, Evaluate, and Reward) model for facilitating the performance
management process. Through this process, best practices are utilized to
create a performance plan, coach for successful completion of the plan,
and complete the annual performance evaluation.
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• Plan: Performance Management begins when the supervisor reviews the
employee's position restriction, communicates competencies, creates goals,
and discusses them with the employee. This helps establish mutual
understanding of the performance and behavioral expectations.
• Coach: The supervisor provides coaching and feedback throughout the year
to help their employees successfully reach their goals. The goals and any
other documentation created during the Plan phase become a working
document to be referenced, and revised if necessary, throughout the
performance review period. The supervisor and employee can each create
notes about employee performance at any time which are tracked outside
the Workday system.
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• Evaluate: During the evaluation process, the supervisor may rely on
multiple resources, such as the employee self evaluation, performance
notes created during the year, accolades, and customer feedback to assess
the employee's performance. The supervisor meets with the employee to
discuss the performance evaluation, explain the ratings, and provide
feedback about strengths and areas for improvement. The supervisor then
completes the evaluation in Workday and sends it to the employee to
review and acknowledge before formally closing the review in Workday.
• Reward: The supervisor recognizes and rewards performance at year-
end and during the year as merited.
5 Most Important Performance Management Models

1. Traditional
Many of us associate the term ‘traditional’ with something primitive. However, the
traditional performance management model – the annual performance management
model – is still the best one for several organizations. The yearly review model of
performance management works well for teams that work with long-term, yearly
goals with fixed plans. This performance management model is ideal for
organizations that have exceptionally high employee retention rates.  
The downside of this model, however, is that the employee would have to stick
with an organization for at least a year to receive even one of these annual reviews
and might not experience feedback or suggestions for improvement over the year.
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2. Bi-annual
A bi-annual performance management model is essentially the
traditional/yearly model broken into two sections. The employee will be
evaluated for their work twice over the course of a year. This
performance management model is again perfect for teams that work
with long-term goals but have some room for change. This model gives
teams a chance to bring all operations back on track in case of
deviations and calibrate the processes that are in motion.  
This model could also work for an organization that works with
flexible/multiple goals but is inflexible with the execution process.
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3. Project-based
The project-based performance management model, as the name implies, is one where an employee is
evaluated on a project-by-project basis. For this model to be successful, one needs to decide on every
outcome one wants from a project and have the exact evaluation metrics mapped out in advance. 
After each project is completed, the team members review every step taken, every setback, and every
goal achieved, and management can analyze an employee’s performance on that particular project. 
This works well for teams that work with different clients and receive different requirements from
each project they take up. In the case of long-term projects, the frequency of these reviews can be
increased. The regular, continuous feedback sessions that this performance management model
promotes help employees with significant professional development and fast-paced growth.  
One downside to adopting the project-based performance management model is that reviews might
not be the perfect barometer for the evaluation of an employee’s overall performance, since the
reviews are only based on performance in one particular project.
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4. Stack ranking
Stack ranking is a relatively old model of performance management that works on the
foundation of improving performance by driving competition amongst employees. It is a model
in which management gives ratings to employees, and the stack ranking fosters a competitive
atmosphere in the workplace that motivates people to perform better. With numbers and
defined metrics in place, evaluations become easier to understand, document, and analyze.  
There are a few cons to using stack ranking as a performance management model: 
The performance measuring practices become more quantitative rather than qualitative.  
The practice could promote a negative work culture where people might feel like they are pitted
against one another.  
The model could lower morale and result in dissatisfaction among employees.  
When not done right, and without the right tools of positive reinforcement, this performance
management model can also end up decreasing productivity instead of increasing it.
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5. High-growth (Highly recommended)
The high-growth model of performance management is one that is holistic and
built on the pillars of planning, monitoring, reviewing, and rewarding.  
The high-growth model is relatively new and is suited for agile teams across
industries. This model supports annual and bi-annual review sessions,
reinforced by smaller periodic check-ins to evaluate employees more
extensively and frequently. Since the high-growth performance management
model involves shorter assessment periods and frequent evaluations,
incorporating performance improvement feedback becomes easier. 
Goals for a high-growth performance management model are typically set based
on a lot of factors and are SMART, which stands for specific, measurable,
achievable, relevant, and time-bound.
Performance measurement planning and
methods
1. Defining performance and selecting a measurement approach
2. Developing job descriptions
3. Defining performance standards
4. KRA’s and KPI’s based on job descriptions
5. Designing appraisal forms
6. Methods of performance appraisal
Defining performance and selecting a measurement approach
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Defining Performance :
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Determinants of Performance:
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Performance Dimension
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Approaches to Measuring Performance

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Developing job description
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Defining performance standards
A performance standard is a management-approved expression
of the performance threshold(s), requirement(s), or
expectation(s) that must be met to be appraised at a particular
level of performance. A Fully Successful (or equivalent) standard
must be established for each critical element and included in the
employee performance plan. If other levels of performance are
used by the appraisal program, writing standards for those levels
and including team in the performance plan is not required by is
encouraged so that employees will know what they have to do to
meet standards higher than Fully Successful.
KRA’s and KPI’s based on job descriptions

• While KPIs focus on the performance metrics of the entire organization

and employees, KRAs focus on the key activities and responsibilities of
the employees and teams.
• KPI and KRA are interlinked and heavily dependent on each other: By
defining and measuring KRAs for all employees, they get better clarity
about their roles and responsibilities, which in turn help the organization
to achieve their KPIs.
• At the same time, by defining and documenting KPIs for the
organization, the employees can understand their roles and expectations
in a better way. Higher KPI and KRA translate to success and growth for
the organization.
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What is KPI or Key Performance Indicators?
KPIs are quantifiable and measurable values, which are used to evaluate and
measure the success of a company or employees. Depending upon the
business objectives, KPIs for different companies and organizations can be
different, and unique.
For example, KPIs for a manufacturing firm can be daily production count
and utilization resources. At the same time, KPIs for a cinema theatre can be
customer satisfaction and the number of non-empty seats in the auditorium
at any given time.
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What is KRA or Key Responsibility Area?
KRA or Key Responsibility Area are quantifiable and measurable tasks and
responsibilities for employees in an organization. Depending on the job
profile, experience and expectations, different employees can have different
KRAs within the same company.
For example, KRA for a sales manager can be the total number of sales in a
quarter, while KRA for an HR Manager can be attrition rate and employee
satisfaction.
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Key Performance Indicators for Employees
When it comes to finding out the key performance indicators for employees,
then these factors can be considered, depending on the business objectives
and goals:
• Teamwork
• Communication
• Customer Service
• Job Functions
Designing appraisal forms
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Methods of performance appraisal