General Purposes Of Performance Management Commerce Essay

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Performance management is utilized in an attempt to measure employee performance in organizations. Often times the outcome of these affect the employees' retention, promotion, or salary. An effective performance management system should improve morale, motivation, and overall productivity of an organization by identifying employees' strengths and addressing areas that need improvement.

The ideal type model for effective performance management systems contains seven categories: Policies and Procedures; Managerial Support; Training; Setting of Employee Goals; Setting of Performance Standards; Observation of Performance; and Appraising Performance.

Since the departments ultimately depend on employees to achieve its goals, the most powerful control mechanisms are those that provide employees with the motivational impetus to direct their own behavior (Burstein 1983: 184). By aligning individual and team objectives with departmental goals, employees at all levels will have greater ownership of departmental goals. Departments must manage employee performance in an attempt to direct organizational behavior toward task or goal accomplishment. "A performance management system requires that employees and managers jointly prioritize and determine goals and objectives, establishes how employees or teams contribute to organizations goals, identifies strengths and weaknesses of an individual's performance, and recognizes and rewards high performance" (Selden, Ingraham, and Jacobson 2001: 605). To ensure that employees understand what is expected of them and how they are performing, counties use performance management.

There is consensus in the literature that management are utilized for employment decisions such as promotion, retention, assignment, transfer, and discharge as well as an employee development tool for providing feedback, conducting research, and constructing training (Gabris and Ihrke, 2001, p. 158). Further, an effective performance management system would provide the employee with feedback regarding his or her individual performance, reward superior performance, and correct poor performance. Therefore, it is expected that a valid and reliable performance management system will give employees and managers data about employees' strengths and needs for development. If the data is used to reinforce strengths and to plan and provide developmental assignments in areas of need, then one might also expect improvements in morale, motivation, and productivity (Mani 2002: 141). Dissatisfaction with the performance management system, however, could potentially lead to decreased motivation, feelings of inequity, and even employee.

A study consolidated surveys of hundreds of employees representing several different departments. The study found a strong relationship between employee satisfaction with the performance management system and job satisfaction.

The performance of an organization goes hand in hand with the performance of its employees. Implementing a successful performance management system is one of the most challenging aspects of performance management. An effective performance management system is an important tool for measuring and improving productivity. Most would acknowledge the value of documenting, communicating about, and targeting areas of performance. Cederblom and Pemerl (2002: 131) suggest that many employees become frustrated about the limited value, in actual practice, of performance management in their organizations.

The performance management process can serve both as a tool to manage employee performance and as a safeguard against costly litigation. "Performance management figure prominently in many cases involving personnel actions in organizations" (Martin, Bartol, and Kehoe 2000: 379). The growth of management and the use in personnel actions has brought increasing attention to the legal rights of employees. Some other researchers note, "There is no dispute that performance management practices are subject to employment legislation" .

Performance management is an important part of the management. Employers attempt to gain utility from the system by utilizing it to manage employee performance and relate the outcomes to promotion, discharge, merit pay, and layoff decisions. Employees are confident in a system that they perceive to have equity and are more likely to accept performance ratings (Roberts 2002: 334). Charges of bias and discrimination between employee and employer are often times resolved in court.

Performance measurement, choosing which quantity or quantities to use in an incentive contract, is a central problem in business organizations. Holmström (1979) examined the use of performance measures in incentive contracts, and established criteria for when a second-best contract based on the employee's objective can be improved by the inclusion of additional performance measures. However, Holmström's paper and most subsequent work start from the assumption that the employee's objective is always a contractible performance measure. In many organizational settings this assumption is not supportable. Many organizations (e.g. non-profit firms or government agencies) lack a clear objective: incentive contracting in such an environment demands the use of other performance measures. Some firms lack traded residual claims, so that their objective (total value) is not a quantity that can be used in incentive contracts. In large publicly traded firms, total firm value may fluctuate so much that it is almost useless as a performance measure for risk averse employees.

Research has suggested that contact employee performance is critical to create customer satisfaction, little has been done to analyze which employee behaviors influence customer encounter satisfaction and which behaviors influence relationship satisfaction. Dolen, W., et al., (2004) examines the key dimensions of employee performance in creating these two different types of satisfaction.

Performance Management Process

"A performance management is one of the most complex, and controversial human resource techniques" (Roberts 2002: 333). According to DeNisi (1992: 71), "performance management has always been, and continues to be an important part of the management function." A valid and reliable management system gives employers and employees useful information relating to the employees' strengths as well as needs for development (Mani 2002: 141). Ideally management provides employees with concrete steps they can take to be successful in their organization.

An effective performance management system is among the tools for measuring and improving organizations productivity (Mani 2002: 142). They note that most management systems are designed by personnel specialists with limited or no input from managers or employees. Typically, the performance management focuses on the employees past performance without consideration for the organizations current or future direction (Cederblom and Pemeral 2002: 132). Nevertheless, appraisal systems in organizations often share the common goals of providing feedback to employees about individual performance, rewarding superior performance, and correcting poor performance (Johnson 2000: 3).

"Accurate feedback about performance is regarded as critical to an employee's ability to perform effectively in an organization" (Nathan, Mohrman, and Milliman 1991: 352). Performance feedback is the means by which the appraisal causes changes in employee behavior (Nathan, Mohrman, and Milliman 1991: 365). "Performance reviews can satisfy important personnel growth and development needs of subordinates" (Nathan, Mohrman, and Milliman 1991: 366).

If, however, an employer cannot give employees usable feedback then it is less likely that a performance appraisal will have credibility (Mani 2002:150). Mani (2002: 158) found employee satisfaction with the appraisal system is related to the perception that the system is fair. "The notion that job performance is more than just the execution of specific tasks and that it involves a wide variety of organizational activities has important implications for the understanding and measurement of job performance" (Arvey and Murphy 1998: 162).

Purpose of Performance Management System

"The use of performance management in employment settings is widespread" (Kleiman and Durham 1981: 103). The linkage between the performance management results and their use should be clear to all involved" (Martin and Bartol 1998: 226).

Following are the purposes of performance management and criteria which can be adopted by contemporary business organizations.


Performance management utilized for administrative purposes include employment decisions such as promotion, retention, transfer, layoff, and discharge. This approach allows employers to keep and advance employees who demonstrate wanted organizational behaviors based on the management. To be effective for this purpose the performance management must:

Provide criteria whereby selection, classification, and placement systems may be validated.

Provide direct input to personnel decisions, such as promotion, job assignment/transfer, and termination.

Influence the distribution of outcomes such as advancement, raises, and bonuses (Feldman 1992: 10-11)


Performance management utilized for the purpose of development provide employees with feedback, aid in the development of training, and clarify role expectations. This format serves as a communication tool between employers and employees. The purpose should be constructed so that:

Evaluating organizational interventions such as training and goal setting are conducted.

Formal and informal feedback to subordinates, influencing not only behavior but also feelings of competence and self-efficacy is encouraged.

Employees are educated in the norms, values, and objectives (Feldman 1992: 10-11).


Performance management implicitly assume that pay is an incentive associated with performance. Specifically, when performance is high, higher pay increases should be available; when performance is low, little or no pay increase should be provided

(Kellough 1999: 663). According to Roberts (2002) incentive systems are effective because they operate to develop, maintain, and enhance employees' desired behavior. Mani (2002: 158) views, "pay as a motivator and an incentive for employees to improve productivity and remain with the organization." An effective incentive system must:

Be perceived as distributively just (Gabris and Ihrke 2001: 162).

Provide criteria so that ratings can be validated.

Provide adequate funding (Mani 2002: 158).

Performance management involves a systematic attempt to direct organizational behavior toward overall goals (Burstein 1983: 184). Organizations commonly use management for a combination of or all of the purposes discussed to manage employee performance. Employee satisfaction in the management system usually depends on their perception that the system has a level of equity and trust (Mani 2002: 158). According to Gabris and Ihrke, "If public organizations intend to reward individual employees on some type of performance basis, they need a method for rating, measuring, and scoring in a routine way" (2001: 158).

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

Arguments against Implementation of Performance Management System

Financial Cost

Performance management system implementation entail a heavy capital investment in terms of its fixed cost it requires the installation of HRIS throughout the organization (Kaplan, RS, 2001).

Employee education and training Considerations

Employees are unaware about how the system operates; therefore, company has to incur a large sum of amount in order to provide training from the experts of this particular field.

Arguments for Implementation of Performance Management System

Development of Employees

A fine performance management system has a concern for employee development center. This system helps managers in identifying the strengths of its team and provide assistance in formulating developmental plans for each employee (Derekstockley, 2004).

Keep track of what everyone is doing

Through proper implementation of performance management system, managers can keep track about the performance of its employees. Managers can observe who is attaining its goals and who is lacking its performance. So, employees are provided with constructive feedback to improve the areas where they are deficient.

Examine the sources of performance information you would use to adequately evaluate the performance of sales assistance in a selected business

The components of the performance appraisal process play an important part in the overall performance appraisal system. The following section addresses the components of the performance appraisal system.

Performance Appraisal Components

Performance appraisal systems can be deconstructed into component parts. Components most often associated with effective performance appraisal systems are: (Grote, 1996, p. 19)

Formal written policies

Objectives setting

Performance planning

Employee participation

Documentation of appraisal

Rater training

Support of top-level management

Keeping a performance appraisal system responsive to the needs of an organization and employee is important because many decisions are based on the appraisal system (Martin and Bartol 1998: 223). "Participation in system development enhances employee understanding of job requirements, develops a consensus on what aspects of the job are important and how the performance is to be measured" (Roberts and Pavlak 1996: 390).

Performance Analysis of a Sales Assistant

Shipley Associates deploys the following formula to analyze the performance of sales assistants (Brennan JN, 2003):

Performance = Competence + Motivation + Opportunity

The above formula states performance as a function of competence, motivation and opportunity. All of the performance sources are independent of each other. It implies, a sales assistant may be highly motivated, competent and opportunistic at the same time or may not be.

Shipley Associates gauge the performance of sales assistants according to the above stated formula. According to Brennan JN, competency is measured through the examination of the knowledge about the products, sales processes and policies, company, and related industry.

Further, motivation is another critical source of performance information but its more subjective in terms of its measurement. Shipley Associates judge the motivation level of sales assistants by observing their efforts, attitudes, celebration of success, enjoyment and dedication to the job.

In addition, Shipley Associates provides the optimal development opportunities for each potential sales assistant to ensure maximum performance and results

Evaluate the fairness of performance management

Performance management fairness evaluation

An ideal performance management system entails the following constructs:

Policies and Procedures

Managerial Support


Setting of Employee Goals

Setting of Performance Standards

Observation of Performance

Appraising Performance

Each category is discussed in the following sections.

Policies and Procedures

Policies and procedures provide an explanation of the performance appraisal process. Additionally, these procedures explain the setting of both employee goals and performance standards. Further, there is indication in the policies of frequency of appraisals and the responsible party for administering the system. Lastly, the model requires that rating criteria and required documentation be explained and appeal procedures be defined.

Managerial Support

Managerial support is demonstrated in a performance appraisal system when raters are held accountable for the administration of the system. Managerial support should also include providing additional compensation/benefits to employees who perform at or above standards.


The assessment model requires that all employees receive training on the performance appraisal process and conducting self-appraisals. Raters should be trained in establishing both employee goals and performance standards. Further, rater training also includes providing continuous performance feedback and steps of the appraisal process to involve employees in.

Setting of Employee Goals

Employee goals are tailored to the individual employees' job. These goals should be prioritized and set jointly by the rater and employee. Lastly, goals always need to be documented in writing.

Setting of Performance Standards

Performance standards are used to evaluate employees' achievement of established goals. Like the goals discussed in the previous section, performance standards should be set jointly by rater and employee and documented in writing.

Observation of Performance

Observation of performance in an effective performance appraisal system includes on-going feedback provided by raters to employees during the performance period. Further, raters should document their observations of employee performance in writing and encourage employees to do the same.

Appraising Performance

Rater and employee both complete a written appraisal of employees' performance. They meet to discuss the ratings. Raters should always provide specific examples to justify all ratings.

State personnel manual (2007) describes the fairness of the performance management system as follows:

The performance manager shall monitor the administration of the performance management system to ensure its conformity with organization's strategy.

Organization shall evaluate its performance management system within a certain time period to determine how effectively the system is meeting the purposes and take actions to improve the system if necessary.

Performance managers shall be rational and free from any type of biasness in appraising employees' performance.

Kanter and Summers (2003) reinforce the importance of reflecting the outcomes for multiple constituencies and the need to have both long-term measures (outcomes) and short-term measures (processes and activities performed). The authors note that conflict often occurs between external and internal constituencies, and they conclude that

"A balanced approach would provide the data to help the organization know whether it is 'doing well' on any of the dimensions of performance with which an active constituency might be concerned."