The aim of this essay is going to critically analysis why performance management is necessary in an organization. In order to answer this question, the author will briefly discuss what is management control, and how the employees response to it, this is to provide a backdrop of the historical problem of the tension between management and the workforce. Follow up with introduce what performance management and reward management is and outline various types of performance managementand reward management system and the advantages and disadvantages of them; it will suggest whyperformance and reward management is necessary, moreover the limitations and difficulties when implementing those management systems.
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Management is the “the process of using organization resources to achieve organizational objectives through the functions of planning, organizing and staffing, leading, and controlling” (DuBrin, 2000, p. 3).In order to achieve organizational goals, managers plays a role of control, which is to keep thing on the right track and on the right time, in other words, make sure everything goes smoothly. ‘Control is the process of guiding a set of variables to attain a preconceived goal or objective. It is a broad concept applicable to people, things, situations and organizations. In organizations, it includes various planning and controlling processes (Herath et al, 2007).’According to Simons (1995, p. 29), “control implies managing the inherent tension between creative innovation, on the one hand, and predictable goal achievement, on the other, so that both are transformed into profitable growth”.
Management control system helps to achieving goals, increase profitability, however it also brings problems, such as lack of employees morale; lack of innovation and changes. These may lead to alienation, which the employees have no sense of belonging, think the job is meaning less and powerlessness, therefore being de-motivated.
Thompson and Mchugh (2002, p. 103) suggest, “To ensure profitable production, capital must organize the conditions under which labour operates to its own advantage. But worker pursue their own interest for job security, higher reward and satisfying work, developing their own counter-organization informal job controls, restriction of output and the like.”Consequently how to manage the workforce effectively and tap the best potential of the employees has always been a challenge to the managers.
Performance management “is a strategic and integrated approach to increasing the effectiveness of organisations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors (Armstrong and Baron, 1998).” In other words, performance management provides different systems that the managers can adopt in order to control employee behaviour and performance.
‘There are many ways which performance management can be conducted, such as, target setting (provides the basis of performance measurement); competency frameworks (assist to identify the skills, knowledge and behaviour for a job role, also what training and development may require.); 360-degreeappraisal (To give a broader and more objective assessment of people’s competence.); performance measurement (feed back of one’s contribution to work, so the business and individual know how well they are doing and what needs to be improve.); performance related to pay and personal development plans (out line the development need for employees, also provide others with a systematic profile of their competence and achievement) (Leopold, Harris and Watson, 2005).’
Some performance management systems are designed as integrated wholes.Many are bringing together different components that had been introduced into organization at different times and to meet different needs.It is considered that different size of organizations should conduct different performance management processes, large-scale business should conduct formal processes and the small firms should conduct informal processes. Formal performance management processes focus on motivational, performance and development issues. It follows typical steps, first of all is to confirm the performance agreement with employee, and then gather performance information measured by appraisal method, next is to review the performance via interview or appraisal and give feed back to employee, finally address the needs of development or pay. The conductors can either be employee’s manager, self-appraisal, peers, subordinates, and persons outside the work environment or can be combination of them. The advantages of formal processes is less subject to personal bias, it provides information for future evidence, moreover helps less skilful managers to do the performance management. However the disadvantages are the formal processes can be time consuming and over bureaucratic, which everything follows the exact route makes employee feel annoy. In addition, it is too formal and inflexible, which difficult to change (HAY, 2010).
Informal performance management processes involves no typical steps, it is very flexible, easy to change, it promoted personal contact and open communication channels which allows better relationship, and moreover it is less costly. However, the informal processes may be subjective and biased, which not comprehensive enough. Also since it is not following certain route it is difficult to check how it is being carried out, and the employees only has little resource to appeal (HAY, 2010).
Performance management can be linked to business objectives and to develop employees’ skills and competence; It also helps to identifies organizational goals, measure effectiveness and efficiency toward the goals, it provides a stages allows internal competence, which produces meaningful measurement, moreover it helps to ensure equitable treatment of employees because appraisal are base on results rather than behaviour and activities.Also it makes employees feel part of the team, which have some sense of belonging. “There is no objective evidence that performance management improves an organisation’s performance but there is evidence people find it helpful in interpreting and evaluating their organisational roles (Leopold, Harris and Watson, 2005).”
There are some limitations when implementing performance management system, such as motivational impact of target setting, it is hard to ensure the target would encourage employees to perform better, and the fairness of target setting. In terms of performance appraisal, it was never easy to avoid biases and personal judgement. Besides, performance management tools are often built without a clear understanding of what is being measured or improved. In addition, Management tool are over burdened where appraisers are expected to identify staff training, good and poor performers, and deal with it. Moreover, evidence shows that many appraisal systems have little impact on business performance and fail both employers and employees. (HAY, 2010)
To control and co-operation with workforce is not only about appraisal but reward management. Bratton (2003:276) ‘stated that reward refers to all the monetary, non-monetary and psychological payments that an organisation provides for its employees in exchange for the work they perform.’Survey finds from late 1990s that most employees have broadly favourable views of the psychological contract; they believe their organisations has treat them fairly and fairly rewarded for their effort. However this result does not appear so often year on year, therefore the employees become less happy about the treatment year on year, and this may lead to damaging both employers and employees. Not receiving fair treatment may lead to low job satisfaction, poor performance, and feeling of anger which affecting the productivity. It de-motivated the staff on one hand, and damaging organization’s profitability on the other hand. This is to say ensure the fairness of reward management is a fundamentalresponsibility of organizations (Buchanan and Huczynski, 2004). The objective of reward management is to reward employee fairly, equitably base on their contribution to organizations.
There are two types of reward, which is extrinsic and intrinsic, in other words monetary and non-monetary. Extrinsic rewards are tangible reward includes base pay, commission, bonus andcompany share schemes, extrinsic rewards are more to do with short-term material enjoyment where Intrinsic rewards are more focus on long term satisfaction. Intrinsic rewards are intangible it consider of job satisfaction, recognition, responsibility, job security and job enrichment, it is more to do with mental satisfaction. Intangible reward also includes employee benefits, which are ‘welfare’ benefits (insurance, pension, and sick pay); family/friend benefits (child-care provision, compassionate leave); Job-related benefits (transport expenses, company discounts); and ‘flexible’ benefits, which allows choose between benefit packages.Organisations should find out which reward is more important to their staff so they can motivated them with appropriate reward.
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Managers were once relied on the hierarchical policies to control and manage the staff towards organizational goals, this may work in a way but become inflexible and the employee may be de-motivated. Organizational alignment defines the most important goals and let it be the main drive, so it allows creativity and flexibility. ‘There are two ways of linking reward and organizational strategy, which are vertical alignment and horizontal alignment, vertical alignment design to fit between the reward strategy and the business strategy, it means the reward strategies are in line with what have been defined in which how the employee should contribute to the achievement of business goals.The horizontal alignmentconcerned of the autonomy of organizations, it allows departments and branches to set their own goals; it isdesign to fit between reward strategies and HR strategies. (scribd.com).’ Vertical alignment is more suitable for larger organizations in terms of add cohesion, but it may be less flexible. Horizontal alignment is more time consuming and difficult to manage but it allows creativity and more flexible.
Reward scheme helps to improve organizational productivity through motivate employees, it also helps to control and manage people, as there is a clear reward polices avoids misunderstanding and unfairness. Besides, it allows effective team working, as they all working towards the same goal. It allows internal regulatory competition as well, which will lead to improve skills.Additionally, increases job satisfaction and encourage personal development.
‘According to Maslow’s hierarchy, motivation is largely driven by unsatisfied needs; in order to motivate employees the employer should understand their needs first. Which he developed a model shows different levels of need of workforce at work. There are, physiological needs, consider of basis needs, which are water, sleep, air and all other living needs; safety needs, to do with living in a safe area, job security, insurance etc; social needs includes needs of belonging, friends and love; Esteem needs is about self-respect, recognition of the contribution and achievement; The highest level of needs is self-Actualization, which the employees want to know the meaning of the job, the ability that is require, and justice (netmba.com).’ In Maslow’s hierarchy needs, once one level has been satisfied it moves up to next level, in order to manage the workforce effectively towards organizational goals it is very important for the managers to understand workforce’s needs and want. Management is not all about control and consent, but motivations and appropriate rewards according to performance. This is to say, performance management and reward management is necessary at work place.
A new challenge to employers of reward management will be the increasing diversity of the workforce, as employers’ reward are meant to motivate both part time and full time employees, also old and young staff. It is a major challenge when employers need to design the rewards that fit individual and ensure the fairness at the same time. Armstrong (2007) says: “All reward strategies are different, just as all organizations are different. Of course, similar aspects of reward will be covered in the strategies of different organization but they will be treated differently in accordance with variations in their contexts,
business strategies and cultures. But the reality of reward strategy is
that it is not such a clear-cut process, as some believe. It evolves, it
changes and it has sometimes to be reactive rather than proactive.”
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