Performance Management Operations In A Firm Business Essay


Performance management is one of the most essential areas of the strategic human resource process. It portrays the performance of employees within the organization. Performance is what organization is required because it is the people who are achieving the organization goals at the end of the day so; organizations do have the primary focus in developing the performance management system that is capable of determining the employee performance.

Sheehan (1996) studied different organizations and concluded that although most had clear statements of mission, very few had developed performance measurement systems that revealed whether the organization had an impact on its mission. In effect, the organizations had no way to distinguish whether their strategy was succeeding or failing

Over the last decades there has been an immense development has been taken in to the performance management system as organization gradually realizes the importance of performance management and its effects on employee performance. Many researches have been conducted and new processes have been developed in order to make performance management effective and efficient portraying a true picture of employee performance.

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According to McMahan, & McWilliams, (1994) organizations must also horizontally align their various HRM practices toward their strategic goal and that practices must complement one another to achieve the firm's business strategy. Performance management system should also align with the organizational business strategy as at the end of the day profitability is what the concern of any profitable organization.

Roger C Meyers, (1999) states that there is some evidence that suggests that trust levels for management in many organizations are declining. The effective use of performance appraisal systems may provide an opportunity to build trust in organizations.

According to Pffefer (1994), firms have increasingly recognized the potential for their people to be a source of competitive advantage. Creating competitive advantage through people requires careful attention to the practices that best leverage these assets. This change in the mindset of executive decision-makers has spurred an increasing body of academic research attempting to reveal a relationship between a firm's HR practices and its performance.

Bartol, Kathryn. M, 1998 states, The introduction of the Uniform Guidelines on Employee Selection Procedures and Title VII of the Civil Service Reform Act in 1978 ushered in an era of heightened concern regarding appraisal issues. Although a great deal has been written in such areas as appraisal techniques, rater cognitive processes and situational

influences on appraisals, relatively little attention has focused on maintaining a performance appraisal system after it has been implemented.(1) Keeping a performance appraisal system responsive to the needs of an organization is particularly important as many significant personnel decisions are based on system output.

This article draws on relevant research and considers current major issues in framing suggestions for maintaining a performance appraisal system.(2) Collectively the major actions required to maintain a performance appraisal system can be divided into three major categories: controlling the system, monitoring the system and furnishing feedback to those who use the system.

Controlling the System

Controlling the performance appraisal system requires the coordination of all facets of the system. This function is normally assigned to the personnel staff. Among the many responsibilities are ensuring that rating periods are established, the proper rating techniques (such as management by objectives (MBO) and behaviorally anchored rating scales (BARS)) are used for each employee's evaluation, performance appraisal training is conducted for raters and ratees, the performance appraisal system is operated in a legally defensible manner, performance appraisal reviews are conducted on time and the results of the performance appraisal process are properly linked to the programs dependent on them (merit pay, promotion, employee development and others).

Rating periods are usually annual. Some organizations use the employee's date of hire as the beginning/ending date for the annual rating period. Other organizations use specified beginning/ending dates to designate the rating period for all employees, or all employees at a particular pay grade or level. It is usually easier to collect the completed forms using the latter method because all members of the organization (or a subset thereof) are focused on completing performance appraisals at a particular time.

The performance appraisal should be based on the specific tasks the employee accomplishes or fails to accomplish, and where appropriate, the behaviors identified as necessary to perform the job during the rating period. Thus the rating technique, or combination of techniques, used by the organization should provide a measurement of the employee's job performance that is as accurate as possible.

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Effective training in the performance appraisal system should include the role of the organization, rarer and ratee, as well as how the results are to be used. The performance appraisal system should include provisions for written, individual standards of performance known to the employee. Where possible the individual should participate in establishing these standards prior to the beginning of the rating period.

Recent research in the area of procedural justice suggests that fairness should underlie all actions and decisions concerning employee performance, including the use of the performance appraisal ratings. Employees should participate in establishing individual goals. Where possible, a self rating mechanism can be helpful in enhancing mutual understanding of the employee's performance and in setting expectations for the next rating period. An appeals procedure is important for giving employees an opportunity to express their opinions and concerns about how the performance appraisal system is operating. Two problems have been identified with appeals procedures: workers fear reprisals from supervisors if they report them for unfair treatment and the organization is more likely to support the supervisor than the employee in making a final decision. One process which partially addresses this dilemma is to create a separate system for appealing performance appraisals, outside the appealing employee's chain of command.

Performance appraisals should be conducted on a schedule where results support the organizational human resource systems. For example, if the organization uses performance appraisal results for merit pay, it is advisable to have the individual performance data a month or two before pay decisions are made. The process for using performance appraisal results with personnel systems has to be clearly understood both by those who depend on the results for a particular system (e.g., merit pay and promotion) and those who are affected. Finally, while controlling the operational aspects of the performance appraisal system is important, it is also critical to keep it current by monitoring key areas to ensure that it continues to meet the needs of the organization.

Ensure the System is monitored

Certain indicators may assist in determining the effectiveness of a performance appraisal system. These indicators are setting quality of performance standards, conducting performance appraisal reviews, using performance appraisal results, tracking raters, socialization of scales, and eliminating adverse impact.

Monitoring these system areas usually requires planning and, in some instances, implementing special procedures. Although there are many possible ways of monitoring these areas, a few are suggested here with discussion.

Quality of Performance Standards

One of the most significant indicators of performance appraisal system effectiveness is the quality of the standards used to appraise the job performance of the employees. The standards should be specific, challenging, realistic, dynamic, understandable, consistent with the organizational goals and, when possible, measurable. A specific standard should be developed for every rating an employee is to receive. The employee should be aware of the standards before the rating period begins. Understanding the standards increases when employees participate in setting the standards they are to achieve. One model of this procedure is in the Civil Service Reform Act of 1978, which indicates that federal employees should be encouraged to participate in establishing performance standards and be advised of these standards before the appraisal.(11) Prior to the start of the rating period, standards should be reviewed by a third party, frequently the next level manager (i.e., the rater's supervisor). This review will ensure that standards meet the criteria previously indicated and that there is agreement regarding the standards by which the employee will be evaluated for the coming rating period.

Performance appraisal reviews must be scheduled in advance and conducted when scheduled. Both raters and employees should prepare for these reviews. Most organizational procedures require annual formal performance appraisal reviews. Yet many are finding that more frequent reviews, such as informal quarterly or semiannual reviews, produce a better understanding of the job requirements and increase both the rater's and employee's appreciation of the job. Increased communication also reduces opportunities for misunderstandings about performance expectations. The reviews should be conducted as "discussions," focusing on how the employee has met the organizational expectations and what can be done to improve performance. In addition, the employee's short and long term career development considerations should be discussed. Completion of formal performance appraisal reviews is typically recorded on the employee's performance appraisal form. Procedural justice research findings suggest that it is wise to provide a means by which employees can offer feedback concerning the process and the appraisal. A useful way to provide this opportunity is by designating an area for written employee comments on the appraisal form. Additional feedback concerning the performance appraisal process may also be obtained by using employee opinion surveys and focus groups.

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Use of Performance Appraisal Results

When a performance appraisal system is developed, one of the first questions is, "What are the results going to be used for?" The linkage between the performance appraisal results and their use should be clear to all involved. As one indicator, rewards and recognition should correlate with performance ratings. Those who perform better should receive higher ratings and subsequently get higher pay raises, be promoted faster, attend more advanced training, be assigned to more significant jobs and receive other types of rewards and recognition, which accompany doing a job well. This is easily checked. In some instances, there may be other factors, such as where an individual is in a pay range, which could affect the type of rewards an employee may receive. An annual review of actions based on performance ratings can assist in assessing appropriate use of performance appraisal results throughout the organization.

Tracking the Raters

A rater tracking system is particularly helpful in monitoring a performance appraisal system. "Tracking" consists of reviewing the ratings awarded by individual raters, and subsequently giving raters feedback concerning the quality of their ratings. It is useful to focus part of the review on the levels of ratings awarded and, where possible, the justification for the levels being awarded. The reviews can furnish insight into a rater's understanding of the appraisal process and adequate ratings available in the system. For example, a review may suggest that a rater who consistently gives all high ratings could be committing a leniency error. On the other hand, a rater who rated most employees low may have fallen prey to the stringency error, and one who rated most employees in the middle of the scale may be demonstrating the error of central tendency. This problem becomes further exacerbated when all members of one work unit receive very high ratings whereas those of another work unit in the immediate vicinity receive generally low ratings. It could be that there were no errors and the ratings were justified. Some judgment about the validity of such rating patterns can often be made by checking other performance indicators such as unit performance results or project progress. Although possible, it would probably be infrequent that most employees in a work unit would receive high ratings and the unit fails to accomplish its assigned goals. Similarly a unit achieving its goals would not normally be expected to have a relatively large number of low individual ratings.

The personnel office would normally track the performance ratings and furnish feedback to the raters. Employees in the personnel office who review performance appraisals as part of the tracking process can only look for inconsistencies, omissions, inappropriate statements, process errors and other issues which do not involve the technical requirements of a job. Questions about specific job issues, however, should be referred to the rater for resolution.

Socialization of Scales

Subjectivity is normally present to some degree in the performance appraisal process. This subjectivity is a part of the rater-employee work relationship. It has a definite bearing on the type of rating awarded for a particular level of work performance. Thus, if this social relationship is positive or negative, the rating will be so influenced. That relationship plays a role in the creeping deterioration of the integrity of the performance ratings.

Rating inflation is a serious problem with performance appraisal. Without some form of control, performance ratings will usually creep steadily upward over time. For example, during the first rating period, a newly-installed performance appraisal system may produce an average individual score of somewhere in the 80s on a 100 point scale. That average tends to rise each year until it finally reaches the point that the performance ratings become so high that they fail to discriminate average from outstanding performance. There are a number of solutions to this rating inflation phenomenon, including establishing a method to monitor performance appraisal ratings, simplifying the performance appraisal ratings, modifying the rating technique periodically and instituting a forced distribution rating technique. Performance appraisal ratings can be monitored several ways: by the rater's supervisor, by the organizational tracking system, or by a designated person or group of people who have the responsibility to review completed performance appraisals. Performance appraisal ratings can be simplified to only two choices: meets organizational expectations or does not meet organizational expectations. Similar to pass/fail, this option provides two clear choices; but, does not provide recognition for levels of performance. Thus it is difficult to use when making significant decisions, such as pay, promotion and termination decisions, which normally rely on making relatively close comparisons of individual performance. Another potential solution to rating inflation is to modify the rating technique periodically. When coupled with appropriate training, altering the rating technique can help to recalibrate rating level usage within the performance appraisal system. In some organizations, particularly the uniformed military services, rating techniques are modified about every four years. One governmental agency requested the authors of this article to develop a performance appraisal system that would be used for a number of personnel functions including promotion, termination, and career development. A major reason that the new system was needed was because the current system had been used for many years and, at that time, the average individual performance score was 98 out of a possible 100 points. As a result, the organization could no longer make good personnel decisions based on the performance appraisal results since everyone in the organization was "outstanding."

Another approach sometimes used to inhibit rating inflation is a forced distribution rating technique, which dictates a specified number or percentage of ratings in certain categories. This approach is based on the premise that performance levels conform to a normal distribution. However, workforces are not always comprised of employees whose performance conforms to a normal distribution. The shortcomings of this method were sufficiently compelling that when the Civil Service Reform Act of 1978 was prepared the following was included: "An appraisal system must not include any controls, such as the requirement to rate on a bell curve, that prevent fair appraisals of performance in relation to the performance standards."

The introduction of the Uniform Guidelines on Employee Selection Procedures and Title VII of the Civil Service Reform Act in 1978 ushered in an era of heightened concern regarding appraisal issues. Although a great deal has been written in such areas as appraisal techniques, rater cognitive processes and situational

Influences on appraisals, relatively little attention have focused on maintaining a performance appraisal system after it has been implemented. Keeping a performance appraisal system responsive to the needs of an organization is particularly important as many significant personnel decisions are based on system output.

This article draws on relevant research and considers current major issues in framing suggestions for maintaining a performance appraisal system. Collectively the major actions required to maintain a performance appraisal system can be divided into three major categories: controlling the system, monitoring the system and furnishing feedback to those who use the system.

Ensure Feedback is given to Participants

Among the keys to good performance knows what is expected to succeed on the job, how well those expectations are being met and what actions are required to improve. Information about these expectations is included in the communications between the rater and the employee.

These are transmitted, on an ongoing basis, through goal setting and feedback. Goal setting usually takes place at the beginning of the performance cycle; feedback occurs continuously throughout the process.

The employee receives feedback in two ways. Informal feedback should follow completion of each significant task. This is normally accomplished by a "well done" or "good job," which can be given orally, in writing or both. Formal performance appraisal reviews, conducted quarterly or semiannually, provide a scheduled time to focus on how the employee is meeting organization expectations. These reviews should be conducted in the spirit of an accomplishment review, recognition of what is to be done in the future and a discussion of what both the rater and employee need to do to be more effective in accomplishing organizational goals. Normally the rater can be most effective in removing obstacles which interfere with the employee accomplishing his/her assigned goals.

Raters should receive feedback concerning the appraisals they are submitting from both their supervisors and the department responsible for reviewing performance appraisals. A rater tracking system greatly assists in furnishing information, which can be forwarded to raters.

The actions previously discussed will greatly assist in keeping a performance appraisal system responsive to organization needs. The impetus for implementing these processes is a function of the organization's desire to ensure fairness, equality and currency of the information generated by the system. The resulting personnel decisions, based on the output of this system, will be much better and, ultimately, lead to greater organizational goal accomplishment.

The three basic general purposes of performance management system are as follows:

Clear understanding of the dimension of work.

Compensation Review.

Employee Education and Training Considerations.

Clear understanding of the dimension of work:

Performance management one of the most important purposes is to identify and clarify the dimension of work required to perform the duties. It provides the general guidelines about how duties will perform and the job will going to be asses. Managers will get a clear picture about the job and the work required they have a better picture about the quality and quantity of work that is required by employee to perform in any job.

For employee point of view although he/she is aware of mission and vision of the company but in actual majority is confused or not aware of what is required from them or on what grounds their performance will be judged. Performance management system provides them the basic idea about their jobs and also indicated the areas where employees have to focus in order to make their performance impressive.

Compensation Review:

Derekstockley, (2004) in organizations, especially those which are performance oriented, link a portion of the employee salary to their performance. The better one performs and the larger contribution one makes to the attainment of organizational goals, the greater the salary one is going to achieve. Further, some other organizations awards salary bonuses and annual increases based on one's performance.

Performance oriented organization is what the current idea of compensation in contemporary organizations people are not getting rewards on the basis of seniority or favors but purely based on the way they performed in their jobs. Although traditional view has arguments but it was biased one man has the power to do anything in the organization. Performance management system in contemporary organization identifies key areas where employee should need to focus in order to get better compensation.

Compensation is the primary motivation for the majority of employees in any organization in Australia; good compensation packages will increase the employee productivity as well as satisfaction level of the employees. Performance management system should be designed in a way that achieved the primary objective of compensation review and efficiently answers the basic questions of how much to pay? And secondly, what sort of other benefits will offer to the employees.

Employee Education and Training Considerations:

An organization's decision whether or not to train its workers affects the overall economy, even if the firm does not factor the economy into its decision. If all firms within an industry fail to train their workers, the whole economy suffers. Hence, training workers is a type of public good, a category that encompasses a broad range of social dilemmas. During periods of slow growth and a weak economy, corporations commonly cut programs to maintain profitability. Training programs in particular are often targeted because employee turnover is generally higher during times of economic uncertainty.

According to Hequet, (1993) the negative correlation between training and turnover has been documented in several companies, such as the Marriott Corporation, Florida Power Corporation, IDS Financial Services Inc., and Target. All of those firms had increases in retention rates after investments in various training programs. Training is the best way to retain employee as past examples have shown organization that invest employee training will have a better returns and high retention rate. Performance management system focuses on the skills that are required to perform a particular job and training will help employees to achieve that skill employee will get training that are required and have better positions and compensation offers within the organization.

Q2. Argue for and against the implementation of a performance management system in contemporary business organisations in Australia.

Arguments in Favor

Increase Retention Rate

Performance management system not only implements just to evaluate the performance but also implement to understand the basic need of the employees. It helps senior mangers to understand what employee looking for or hoe he/she is performing in there respective jobs. It helps in increases the retention rate for the organization. Employees are aware of what are required from them and respond to the job that is actually required.

Performance Oriented

Contemporary organizations focused on performance oriented culture and performance management helps in identifying the guidelines and the performance expectations from the employees. It helps in developing a healthy competitive environment where employees are cnompeting with each other in a healthy manner. Culture will become performance oriented and people have clear idea about that in order to get appraisals and benefit they have to perform well.

Argument in Against

High Cost:

Performance management system has high financial cost with itself. Although it is considered to be investment not an expense but it bears a high cost required a lot of changes in the requirement due to this many traditional organizations are reluctant to implement performance management system.

Unrealistic Performance targets

Sometimes organizations are desperate in achieving the organization goals due to which unrealistic performance levels will set for the organization difficult for the employees to achieve those performance level resulting employee turnover and dissatisfaction.

Q3. Examine the sources of performance information you would use to adequately evaluate the performance of sales assistance in a selected business (you should select a suitable organisation as an example for this task).

Performance Evaluation

The method describe below will use to evaluate the sales Assistance Evaluation in Herman Miller Australia.

At the beginning of the year, the manager meets with each person for discussion on the planning piece of the employee performance appraisal process. In this hour-long session they discuss the "how" and the "what" of the job:

Discuss the individual's development plans. This discussion immediately generates improved employee performance because people know exactly what's expected of them. And as the manager, you have just earned the right to hold people accountable at the end of the year by making your expectations of them clear from the start.

The manager provides coaching and feedback to the individual to increase the probability of success and creates the conditions that motivate and resolve any performance problems that arise.

They meet to review the individual's progress toward the plans and goals discussed in the employee performance planning meeting. And the employee is responsible for certain elements of that progress - seeking out coaching and asking for feedback are two key examples.

The manager and the subordinate meet, usually for about an hour. The employee performance appraisal form is reviewed with the self-appraisal that the individual created assessing her own performance.

At the end of the review meeting they set a date to meet again to hold an employee performance planning discussion for the upcoming twelve months, starting the process anew.

Q4. Evaluate the fairness of performance management.

Performance Management Evaluation:

The company should make sure that their strategy should be inline with the overall business strategy. Performance management system should be able to achieve overall organization objective.

Easy understanding to the employees about what is required from them the company should have the performance expectation that is according to the understanding of employees.

Equal standards for all the performance evaluation management system should focus on equal evaluations for all there will be no differences on the basis of gender or caste every one would be on same standards.

It should drive organization on an upward direction. The organization should be in better palce with the passage of time it has observed growth in sales, profitability etc.