Factors Affecting Performance Management Systems Business Essay


In order to achieve common recognition of work prospects, areas and opportunities that exist for the growth of the employees as well as for the organization by appraising performance outcomes, an evolving concept of performance management is on the rise. Performance management is a systematic process that links means that enable organizations to foster a common image related to the goals set by the organization and in providing direction to workers so that they can comprehend and preserve for both, individual as well as company's performance (Holton, 2002).

According to (Salem, 2003) , performance management can be stated as a methodology that is integrative and orderly for the purpose of enlightening organizational performance that encourages a philosophy focused towards the attainment of planned aims, mission, vision and principles.

More precisely, it is concerned with evaluating the performance of workforces so that development can be carried in by relating suitable assessment and rewards for the efforts of the employees and by simplifying the flow of communication, boosting learning prospects and explicatory work engagements (Salem, 2003).


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Lockett has underlined a number of performance management's goals. They are as follows:

The main aim of performance management is to facilitate the workforce of an organization to achieve higher standards of performing their job responsibilities.

Performance management enables the employees to improve the level of their current performance by authorizing, encouraging and executing an operative reward mechanism.

Facilitating smooth flow of communication so that potentials regarding roles, tasks, reporting are simplified between the managers and the employees. It enables the communication of corporate, business and functional goals alongside providing a systematic and apparent opinion about performance of the employee.

Ensures constant supervision and coaching.

The key aim for performance management is to identify and resolve the barriers that prevent effective performance. This can be done by way of providing instructions, active governance, close monitoring and change interventions.

Building a foundation for numerous organizational assessments deliberate arrangements, succession planning, advancements and rewards linked with performance.

Providing employees with the opportunity to prosper by exploiting the opportunities that exist so as to achieve personal growth and improvement in their career (Lockett, 1992).


For performance management system to be implemented, there are a number of conditions that must exist prior to its execution. These factors include:

Ability of manager to mobilize the organization.

Effectively communicating the roles, duties and responsibilities of all such individuals who are the participants in the process of bringing about change.

Transparency and Simplicity

Practicality and Participation

Equality and Objectivity (Amatayakul, 2005).


In the views of Joseph R. Grima, performance management should be:

Participative: Performance management is a two way process and must encourage the participation of both supervisor and employee. This participation should be there for establishing objectives at the very start of the assessment period and at the end, evaluating results.

Task-oriented: Performance should be measured on the basis of business objectives and the outcomes, personal traits and pre-defined areas and targets.

Developmental: The process should be implemented not only to evaluate and rate employees but also to help the employees to advance their future career paths by way of personal growth and development. It should also identify the areas where employee needs further training (Grima, 2000).

It is essential for performance management system to be participative, task-oriented as well as developmental. If the performance management system of an organization doesn't provides the employees' opportunities to learn and develop when deficiencies from the results are identified, than such system is of no use. The main focus of performance management is to identify and to address vital people issues that exist in an organization. It leads towards building relationship with the people employed by the organization. It creates an environment or work setting that enables the employed people to best perform the abilities that they possess (Heathfield, 2012).


An integrated model of performance management is presented by (Thomas G. Cummings C. G., 2005).

(Thomas G. Cummings C. G., 2005) pg #421.

For effective implementation of performance management, it is important to consider three appropriate factors that exist in the larger organizational perspective and affects performance organization wide. These factors include:

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Business Strategy: It includes internal and external environment within which the company operates. It also includes all those policies, procedures, plans, objectives, environment that enables an organization to compete in the most successful manner and the focus that organization has on effective performance of its employees.

Workplace Technology: Workplace technology has a huge impact on performance of individuals and groups. It depends upon whether the technology is high or low in interdependence. In case technology is highly interdependent, work structures are preferably designed for work groups rather than individuals and performance management in such a case is aimed at work group behavior (Thomas G. Cummings C. G., 2005).

Employee Involvement: Level of involvement depends upon the control that exists in an organization varying from bureaucratic to flexible. Organizations rigid controls discourage participation and the setting of goals, appraisal of performance are formalized and inflexibly administered by management. On the other hand, when organizations are supportive and flexible, participation from employees is encouraged, sense of ownership increases and performance management becomes a two way process for employees as well as for the employer (Thomas G. Cummings C. G., 2005).


Goal setting specifies the acceptable level of performance. It is a two way process in which employee and the employer establishes and gain understanding of the goals set for the employee to achieve. Goal setting involves:

Establishing challenging goals: An organization should set goals by encouraging participation from the employees, setting challenging and clear goals that are specifically defined and realistic (Thomas G. Cummings C. G., 2005).

Clarifying goal measurement: When the goals set by the organization are specific, each employee has a clear understanding of what is expected from him. However to achieve clarity in goal measurement, goals should be operationally defined (Thomas G. Cummings C. G., 2005).

Management by objectives: Another way of setting goals is by way of management by objectives (MBO); focusing on alignment of personal goals with the business strategy by facilitating the flow of communication between the manager and the subordinate and by unification of conflicts where it exists(Thomas G. Cummings C. G., 2005). . This process of MBO can be implemented by following the below mentioned steps:

Step1: Group along with individual goals is defined and action plans are developed for the achievement of the set goals.

Step2: Job duties, responsibilities and accountabilities are stated so that the individual has a clear understanding of what is to be done and what not.

Step3: A course of action for the execution of goals is determined known as action plans.

Step4: At this stage, the acceptable criteria for success and performance are agreed upon between the manager and the subordinate. This has to be a two way process so that a mutual understanding of goals and success criteria is achieved.

Step5: From time to time, manager reviews the performance of the subordinate or in other words review the progress of the work assigned. This step can be broken down into three sub-steps. First step is when the subordinate takes the initiative to talk with the manager about the opportunities, hurdles, achievements accomplished. Second step is when manager initiates a dialogue or meeting with the subordinate to discuss about the work plans for the future. In the last step, coaching and analysis usually takes place.

Step6: All the documents related to goal setting, success criterion, priorities, rewards and due dates are forwarded to a senior management (Thomas G. Cummings C. G., 2005).


Discussing and reviewing the performance of an employee in context of the tasks and responsibilities assigned to him as part of his job. Appraisal is based on job performance rather than personal characteristics of an employee. It provides an employee with the chance of identifying areas that needs improvement and also directs as to what are the strengths to capitalize on and weaknesses to avoid (Lee, 2007).

Process of performance appraisal:

According to (Egan, 1995), the process of performance appraisal is as follows:

Establishing standards: First and foremost step in performance appraisal process is to set standards based upon which actual and desired performance can be compared. For this purpose, the standards set should be simple, clear and measureable.

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Communicating standards: Standards set but not well communicated will be of no use. Thus it is essential that the employees must be communicated about the set standards so that they have a clear idea as to what is expected of them (Egan, 1995).

Measuring actual performance: This stage in the process of performance appraisal is the most difficult because to quantify the level of actual performance is complex. Appropriate measurement tools must be selected so that the performance measured is objective and realistic (Egan, 1995).

Comparing actual with preferred performance: This comparison is important so that deviation from preferred performance is quantified. If the actual performance is below the desired level, result is negative deviation (Egan, 1995).

Discussing results: Upon comparing the actual with the preferred performance, the result of the comparison whether it is positive or negative is communicated to the employee. Employer also pays attention as to why this deviation is taking place. At this stage, pragmatic solutions are determined and evaluated with each employee individually (Egan, 1995).

Decision making: At this stage, decision is made i.e. what needs to be done in order to improve the performance and what corrective actions need to be taken.

Performance appraisal must be consistent, timely, precise and conventional to users, focused on important control points and economically realistic (Thomas G. Cummings C. G., 2005).


The importance of designing and implementing reward systems in organization is increasing at a rapid pace. It is a matter of common observation that when employee performs a good job, they expect to receive some kind of reward in turn. Thus reward system of any organization plays an important role in motivating employees towards performance (Thomas G. Cummings C. G., 2005).Following are some of the reward systems:

Job Based: According to this system, pay structure is designed in which salary schedules are determined according to the position range based upon responsibilities and tasks assigned. This system minimizes the likelihood of probable biased pay practices (Kokemuller, 2007).

Performance Based: It is important for this kind of system to be successful, performance must be linked with the rewards that individuals receive such as for good performances salary may increase, a bonus may be rewarded (Thomas J. Atchison, 2010).

Skill and Knowledge-Based Pay System: According to this system, employees must be rewarded according to the knowledge, skills and abilities that they possess often called skills inventory. As employees are paid on this basis, it results in increased motivation, improved productivity, lower absenteeism and turnover (Paren, 1994).

Gain Sharing Systems: This is a form of remuneration. It offers a good deal for both employer as well as employee. Since employer are willing to negotiate deals in terms of improved performance and employees are willing to negotiate deals in terms of fair returns for their efforts (Bowey, 2008).

Promotion Systems: This system enables employees to grow their position and acquire higher-status positions in the organization. Nowadays, open job posting has become a norm and enables employees who believe in their abilities to suggest their names (Thomas G. Cummings C. G., 2005).


At times the best considered performance management system is subject to collapse if it is improperly managed. Fraser has provided a number of guidelines for improving the performance management system and is as follows:

An article for the purpose of internal affairs such as an internal manual should be produced that explains the PM system and must be done on consistent basis.

The employees must have a clear idea as to how PM system works and must be able to understand its connection with their individual performance.

In order to bring in efficiency and to avoid potential biases, senior management should be trained in this regard.

Good performance should be recorded in a formal document and be rewarded accordingly. On the other hand, poor performance should be recorded and opportunities to improve must be offered alongside monitoring whether improved performance is evident or not.

Key performance indicators should be developed that are simple and clear to the employees. Most importantly, organizations should avoid developing too many key performance indicators otherwise the focus on important issues can be abstracted (Fraser, 2007).


With reference to the above mentioned sources, we can conclude that the integrated process of performance management aims to identify, assess and strengthen employee work behaviors and outcomes. Involvement of the employees of the organization is crucial to make the performance management system a success. Goal setting, performance appraisal and reward systems form part of the performance management system. Organizations who don't emphasize on the effectiveness of performance management system fails to understand the importance of employee involvement and all those benefits resulting for the employer as well as for the employee. For a company to be a success in the long run, a well designed and implemented performance management system should exist in the organization.