Performance Management System In Business Organization


The aim of this report is to provide analysis on how the organization can improve the performance management system which should link employee activities with the organizational goals. The factors of the current situation in Australia which reveals that many firms are forming strategies to manage worker's performance will also be reviewed. This report will also discuss the three general purpose of performance management (PM) and its criteria for effective performance management system (PMS) which can be adopted in the company's business. Plus, the recommendation will be conducted based on the contemporary business organizations in Australia. This is done on the hope that the reader of this report will understand the effective of performance management system (PMS) in human resource management in the global environment as well as its importance.


This report will examine the sources of performance information which would be use to evaluate the fairness of performance management. While evaluating the PMS, this report will also measure the effectiveness of performance management in an organization by achieving their desired able result. It will also explain that compensation management can positively affect motivation, performance and interest within an organization as a part of performance management. This report will be divided into few parts. The first part will show more about the importance and purpose of performance management system. The second part will show how performance management will effect an organization. Last but not least, some recommendations for the organization to find an effective performance management system for their business.


Introduction to PMS

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The constant growth of improvement in human resource management requires a successful performance management system in the organization. Schermerhorn (1999) defined Performance Management System as a system that ensures performance standards and objectives are set, that performance is regularly assessed for accomplishments and that actions are taken to improve performance potential in the future. The process of properly assessing their employee's work activities and giving feedback is performance appraisal. As stated by Schermerhorn (1999), the three basic objective of maintaining a quality workforce are:

a) Accessing previous performance in order to let the employee know where they are to the performance objectives and standards.

b) Giving the employee the training and development which they need in to order to grow and assist them in their training and growing their personal development.

c) Accessing their future potential for the organizational development and their personal growth.

Performance Appraisal

Performance appraisal is a positive part of the performance management and has come a very long way in the history of human resource management. Performance appraisal is one of the central pillars of the performance management which is directly related to the organizational performance and has a direct and significant impact on it. Performance appraisal has been, and is still the strength of performance management

According to one studies (PeopleStreme, 2010), appraisals add very little value to the performance of an organization and in some circumstances may actually damage the organizations who wish to move towards the Performance Management. A contributing factor may be that managers who have been conducting appraisals have also seen little, if any, impact on departmental or team performance as a consequence of conducting these appraisals (PeopleStreme, 2010).

The performance appraisal system have serves many organizational objectives and goals. Besides encouraging high level of performance, the evaluation system is useful in identifying employees with potential, rewarding performance and determining employees' needs for development. These are all the activities that should support the organization's strategic orientation. Although these activities are clearly instrumental in achieving corporate plans and long-term growth, typical appraisal systems in most organizations have been focused on short-term goals.

Purpose of Performance Management System


Performance management systems are seen as a means of integrating HR management activities with the strategic objectives of an organization (Rudman, 2002). Performance management systems involve setting performance goals and expectations for the organization as a whole, for teams within the organization and individual employees.

The performance management approach includes identifying planning, monitoring and reviewing the performance of people through methodically relating the needs of the individuals and the objectives of the organization. Thus the theme of mutuality of interests emerges, along with the notion that performance management is a process that implies more than a one-off appraisal discussion (Rudman, 2002).

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Performance Management System is a system composed of an orderly series of programs designed to define, measure, and improve organizational performance (Katz & Green, 1997). It is developed to make the staff follow the goals set by the company in order for them to excel in their role. PMS uses the tools of process to form the starting decisions about changing. It includes the processes of performance awareness, performance measurement, and performance improvement.


As stated by Katz and Green (1997), performance management refers to a set of techniques and procedures which share the common feature of:

a. Providing information on the contribution of human resources to the strategic objective of the organization.

b. Forming a framework of techniques to secure maximum achievements for given inputs.

c. Providing a means of inspecting the functioning of the process links which deliver performance against objectives.

A successful performance management requires the creation, use and evaluations of method to define the standards and to tell those affected by the standards about them (Katz & Green, 1997). It will make the performance management a means of interpreting organizational and strategic human resources goals to all of the organizations employees.

Nankervis, Compton & McCarty (1999) stated that the development of performance review must never be taken by itself but, rather, link directly to the organization's strategic plan and the strategies that make up that plan. Organizational success is base on the result of adding together all the individual outputs. If the business plan can be put simply in a mathematic equation, if person A and person B and person C do their jobs correctly, the organization's results are A + B + C (Nankervis, Compton & McCarty, 1999). If the company manages to combine those person results, then the organization will succeed.

Manager and employees usually have served as appraisers of the other's performance (Nankervis, Compton & McCarty, 1999). Managers do appraisal in order to improve employee performance, not to find their fault (Bacal, 2004). He stated that, if there is to be a point to performance appraisal it should be getting manager and employee working together to have everyone get better in order to achieve the company goals.


Employers can use the performance appraisal event to provide feedback to the employees regarding his or her past performance and to help them to improve their job performance. This exercise also provides opportunity for employees to express their feelings about the job and to increase interpersonal communication. From this it can stimulate interest in self-development for the purpose of greater personal development. Beside, performance appraisal will produce a databank of information can be used for financial and non-financial rewards.

In this discussion, top management is being seen as on the key factors in performance appraisal system. Recognition and commitment from top management towards the performance appraisal system will eventually affect the entire implementation of such system. Top management can influence personnel in a holistic manner to ensure the ultimate goal of performance management system i.e. for improving individuals, teams and organization as a whole base on measures that tie directly to the success drivers of the organization.

Human resource department and the managers is the one who hold the major responsibilities in setting the performance review for the employees. However, if the employees go with the process with the negative approach, they're not likely to get anything from the system or their development in long term (Bacal, 2004). He continues, the main importance for the process to be a success is an active participation among the key people while maintaining the problem solving mindset and keeps on concentrating on how things can become better in the future. As reviewed by Bacal (2004), no matter how the process starts, performance appraisal is about giving positive review between managers and their employees.

Criteria of Performance Management System

Strategic Congruence

Performance management (PM) is seen as a macro system for managing people in organizations, with performance appraisal being a micro-system under the performance management arena (Piggot-Irvine, 2003). The appraisal process has a dual purpose:

For the individual to be accountable

For the individual to improve or develop performance.

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The focus of an effective performance management is in the improvement of quality leading, managing, teaching and learning in the educational organization. Basically, PM is an ongoing process that occurs throughout the year. The PM process is rather a cycle which mainly includes planning, checking-in and assessment. To begin the planning process, overall expectations and performance objectives are reviewed. Individual development goals as well as development plan are developed. Then, during check-in meeting, goals and objectives are discussed and also ensure employees achieve results through mutual-feedback. At the end of performance period, assessment is made against objectives, means or behaviors demonstrated. Plus, new objectives for the next performance period maybe established (The University of California, Berkeley, 2010).


Performance appraisals are always valid for everyone. While organizations make an effort to be as objective as possible, there are always concern about specific performance appraisals and their accuracy. Performance appraisal instruments are considered as test and must be validated against actual job-related requirements. Job requirements or standards should be based on job analysis or competency profiling and resulting job description and job specifications. When performance standards are properly established, they will translate job requirements into levels of acceptable or unacceptable employee performance (Nankervis, Compton & McCarty, 1999).

Performance appraisal isn't only about the forms and often the management and the human resource department take it as such. McCulligh (2009) said in her site that the validity of performance management is really important and they are not useful if it's not evaluated properly. Managers and employees need to communicate not only in the place that need to be improved, but also on how they are doing with their role. In order to do that, a schedule performance reviews need o be done in order for the managers and their employees to communicate (McCulligh, 2009).


A weakness of many performance programs is that manager and supervisors are not trained adequately for the appraisal task and provide little meaningful feedback to their employees (Nankervis, Compton & McCarty, 1999). Doing a proper training is not only for the employee but also the manager who mostly will involve in the performance review process which is one the important tasks of human resource department. Both the manager and the employee need to hold the same understanding about why they are doing the performance review process and how it will be done and what is expected of them. As stated by Buckingham (2005), most importantly managers must focus on the strengths of each individual and discover what is unique about each person and then capitalize on it.


Many tools have been developed to improve employees' performance. Some of the tool had been used is by writing procedures where a better contact between the employees and manager, the incentives given or the rewards when they achieving the company desired results. Nankervis, Compton & McCarty (1999) suggested that jobs which involve tasks where qualitative measurement is difficult, this job it may well be that success must be measured in how the work is performed rather than by end numerical result.

Expectation about work output in terms of quality, quantity and errors should be discussed as often as necessary until the employee is self-monitoring and self-correcting. When the employee was asking to set up standards of performance, they will be given an opportunity to express their opinions during the post-appraisal interview and give them a sense of participation and probably increase their job satisfaction. Moreover, having helped to set the goals themselves, they will be less likely to argue later about what is expected of them (Ordóñez, Schweitzer, Galinsky & Bazerman, 2009).


The performance management system suggest to people in an organization how work is to be performed and communicated, often unintentionally the values and organizational culture too (Bacal, 1994). He added that, more specifically performance management system can encourage a lack of collective responsibility for achievement of organizational goals, encourage competition rather than cooperation and can impede the development of effective teamwork.

It is not surprising that most company willingly embrace the idea that each person should be both responsible and accountable for their work (Bacal, 1994). Performance management is designed to enhance people personal responsibility and focus on individual responsibility to reduces employee's responsibility and activities that are not related to job (Bacal, 1994).


Effectiveness of Performance Management in an organization

In today's global economy, the advantage of growth from employees' performance is cleared. It is referred as "intangible performance" (Moeller, 2009). He also continued that stock returns are closely correlated with "intangible performance". Many businesses are going through the same kind of internal dialog about their assets, particularly in the global economy, firms with relative little invested in factories and other tangible assets (Bates, 2002). Bates (2002) adds that in order to improve business performance, therefore, companies need tools that grow and manage their intangible assets. In order to do that, the company need to retain their best employee so that they can continued their role and achieve the success as what the organization desired.

Achieving organizations desired result

To overcome this problem, management should create an environment in which all members of the organization are continuously buzzing about and striving to improve the organization's performance relative to its purpose. Promote team spirit, interest and induce feeling towards the responsibility for almost everything that goes on. Bacal (1994) in his books stated that, when employees want to be involved, they contribute ideas, they function in a team context because they see achievement of overall organizational objectives as more important than the achievement of their own objectives. Perhaps the mathematics equation which had been illustrated earlier in the report can be used as an example for explanation to all employees (Nankervis, Compton & McCarty, 1999).

Business organization in Australia

Many studies had been made to prove the method of reviewing employees in Australia. During 2004, Associate Professor Alan Nankervis of Royal Melbourne Institute of Technology conducted a study of 992 Australian organizations (PeopleStreme, 2010). From the studies, only 2.4% of organizations reviewed their employees against objectives, the remaining 97.5% were a combination of some type of appraisal (PeopleStreme, 2010).

Furthermore, The Performance Management Institute of Australia conducted a survey of Australian employees' attitudes towards Performance Management in the workplace (PeopleStreme, 2010). According to the research, over 59% of employees received performance reviews once per year or less. This implies that the majority of Australian managers are failing to properly engage their employees. Effective management requires a continual goal setting and review process which gives employees regular feedback of management expectations and frequent praise for achievement of desired goals.

PeopleStreme (2010) conducted several research studies in focus groups over the last four years and during seminars on Performance Management. According to the studies (PeopleStreme, 2010), almost 87% of the organizations have the performance management system. Out of 87% that are using the PMS, almost 95% were using manual system without development plans or performance objectives (PeopleStreme, 2010). From the research, it's shown that most organizations incorrectly identify manual appraisal system as Performance Management System.

By reviewing the research, it is shown that Australian managers are performing appraisal and not performance reviews and objective setting for their employee (PeopleStreme, 2010). The result also shows that most managers didn't achieve the company goals and the employee is not reviewed for the work they had done. The lack of communication between managers and their employees will lead to disaffection and waste the development of the one who can make and want to make a difference to the organization (PeopleStreme, 2010).

Affect of Performance Management on a Company Business Strategy

Performance management is seen as a macro system for managing people in organizations, with performance appraisal. Employee nowadays would like to get to the top management as fast as they can. In order for the company to prevent their best employees from leaving the company, the organization should give the view for the individual development (Joinson, 2001). Joinson continued that if the employee can gain their development objectives over a period of time, normally they would stay within the company. Especially when reviews are not fair, accurate and timely, they fail to reward star performers, fail to provide encouragement and guidance to borderline workers and fail to give proper feedback to whose work is substandard (Joinson, 2001).

Bacal (1994) stated that there is convincing face logic for steps in a performance management system and the benefits and purposes cited for such a system are naturally compelling. There are very few managers in this current business world who would disagree with any of the functions or results which supposedly associated with performance management. Bacal (1994) also continued that by keeping in mind that while most researchers would agree with the idea few people will actually implement them.

An organization needs a plan linked with the behavior of their employees in order for them to link their activities with the target. When the employees are motivated to get the rewards, they will tend to doing better job in order to link with the business goals (McGraw et al, 1997). For example, if the focus is on service, employees will behave in ways that will help them in gaining rewards associated with service delivery (McGraw et al, 1997). The book continued that if the focus is on cost control, employees will seek to control cost and thus be recognized and rewarded. If the focus is on rewarding productivity, employees will strive for productivity.


Rocks Hotel Resort, which based in Australia, located on some 200 km from the nearest major town in the central coast of Queensland, and another resort in Thailand in the near future. The management wants to have an ideal performance management plan in their human resource department, such as recruitment, training and development, employment relations and other relevant difficulties that impact upon a company's profit (Dessler et al. 2004).

The performance management system is an essential tool that can lead the companies to identify, evaluate and develop the work performance of their employees, so the company's main goals and objectives are more effectively realized. For example, employees have poor standards of their work performance, they cannot maximize knowledge and skills to perform their job, they cannot have regular responses on their performance and also they cannot develop their career in the company (Office of the Commissioner for Public Employment of the Northern Territory, 1998). The effective performance management is created to improve performance, identify performance requirements, provide response relevant to these requirements and assist with career development. The lack of the performance management can emerge negative situation to employees. Furthermore, the company applies performance management for evaluation and development as its goals (Briscoe et al. 2004).

In order to have an effective performance management, Jay Forte (2009, p.3) said that managers should create performance expectation for employees and let them to tailor their own expectation. In addition, they can also discuss and give performance response frequently for improvement and development purposes. Carlo Wolff (1997, p.50) has indicated that housekeeping managers for the hotel always hold meeting regularly in the morning with their staffs to discuss and evaluate each staff's performance and future career. On the other hand, the hotel who gives more rewards than punishment can increase the staff's performance in the business.


A properly drawn out performance management system is a useful framework for companies to use to communicate important messages to their employees. It can be used to achieve a number of different functions; as a method of communicating organizational goals; identifying development requirements, improving individual and team performance, planning for the future and the measurement of results and outcomes (Armstrong & Baron, 2005)

In the current modern business world, most of the organizations use the benefits, compensation, pay and other rewards as an effective performance management tool to grow their operational efficiency and enhance their performance. It is very important for the organization to employ, motivate and retain the best people in the company as they are the key importance on the company future success. As for that, those rewards are one of the main strategies use by the organization to ensure that the people are paid equally according to their performance and assist the attraction of top quality staff within the company.

In order to get this strategy, the organization's performance management system should be designed to connect the employee performance expectations to the company goals, show the employee's role in the business, improve the productivity, recognize the training needs and required a great communication between manager and employee while recognizing their roles in the business.


Performance management may be understood as the assessment of an individual's performance in a systematic way, the performance being measured against such factors as job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgments and more (Jing, FF & Avery, GC 2008). They continued that leadership behaviors can facilitate the improvement of both leaders' leadership capability and induce or encourage employees to work better improves their commitment and satisfaction. This ultimately contributes to enhancing organizational performance.

Performance measures with respect to the organizational performance are a tool to evaluate the progress of the business against the organizational objectives. It could be said that performance management is the key in Human Resource Management (HRM). In other words, PM is a vital business driver that helps to achieve business result (Schuler, Fulkerson and Dowling 1991). Having an efficient PM system will bolster firms to maximize its employee performance.

In conclusion, this report can summarize that the performance management becomes not only a means of knowing if the employees' behavior is consistent with the overall strategic focus, but also an important organizational tool to link employee activities and the goals of the organization.


Organizations have been continually searching for an effective performance management system. Measuring organizational performance management has variety of uses. As stated by Kellen (2003) those measuring uses by the organization include monitoring and controlling activities, driving organizational improvement, maximizing the effectiveness of the improvement effort, achieving alignment with organizational goal and objectives, rewarding and disciplining. Here is some of the recommendation to get an effective performance management in order to successfully achieve the company goals.

Gaining employee commitment is important as it will improve the employee performance. It also helps to build up employees' morality and will help employee became self motivated to do their job.

Proper recognition of high- level performance, by the management is required.

The employees should be aware of, the performance management system which would help each employee to discover their potential.

Employees should have a good relationship with their managers and maintain the good interpersonal relationship in the organization which will help improve their performance review.

Management has to give the opportunity to the employees to involve in suggestion scheme.

With respect to individual performances, it is to assess progress against stated performances objectives, or "results to be achieved" for individual employees or teams of employees (Good & Carin, 2004). In conclusion it must be stress that an effective Performance Management System ensures that both the managers and employees understand each other expectations, and how these are incorporated into the company's plan and how can this impact on their roles, behaviors, relationships and interactions, rewards and futures.


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