Performance Management can be defined as a strategic and integrated approach to deliver sustained success to 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). According to Walter (1995), performance management is about directing and supporting employees to work as effectively and efficiently as possible in line with the needs of the organisation. Anderson and Evenden (1994) identified that performance management involved directing employees' effort in the right direction through performance appraisal and it ensures that targets are set with proper planning with a view to influence the future performance of employees.
A rather narrow and linear conception of performance management is ‘a set of deliberate policies and practices designed to maintain or improve the performance of individual, and through them, work groups and organisations' (People and Strategy, 2001:3). As said by Philpott and Sheppard (1992), performance management aims to improve strategic focus and organisational effectiveness through continuously securing improvements in the performance of individuals and teams. Performance management is thus a broad set of activities aimed at improving employee performance (DeNisi and Pritchard, 2006)
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These definitions frequently refer to performance management as a process of aligning or integrating organisational and individual objectives to achieve organisational effectiveness. Yet it can be argued that development of employees is the prime purpose of performance management. As Bones (1996) commented: ‘performance does not need managing. It needs encouraging, developing, supporting and sustaining.' Hence the overall objective of performance management is to develop and improve performance of individuals and teams and therefore the organisation.
2.2 Difference between Performance Appraisal and Performance Management
According to Tyson and York (2002, pp68), performance appraisal is “an activity designed formally or informally to measure performance of subordinates against their achievement of agreed objectives”. Performance appraisal can be defined as the formal assessment and rating of individuals by their managers at - usually - an annual review meeting (Armstrong, 2000). Langdon and Osborne (2002) justify the importance of performance appraisal by providing various reasons such as it provides the appraiser the opportunity to review the employee's work related behaviour and helps exhibiting the strengths and weaknesses of employees.
However, performance appraisal should be distinguished from performance management, which is a much wider, more comprehensive and more natural process of management. Noe et al(2008) emphasises that performance appraisal is only a component of performance management as it involves the administrative and relatively isolated duty of measuring aspects of an employee's performance. As Armstrong and Murlis (1998) assert, performance appraisal too often degenerates into ‘a dishonest annual ritual'. Many research studies by academics have criticised traditional approaches to performance appraisal. The following are some typical comments:
- Appraisal is a system of bureaucratic or management control (Barrow, 1989; Townley, 1993; Newton and Findlay, 1996)
- Appraisal implies that rewards and progress are in the hands of a single ‘superordinate' (Grint, 1993)
- Appraisal aims at voluntary compliance (Newton and Findlay, 1996)
- Appraisal is an inconsistent and fundamentally subjective process (Grint, 1993)
In contrast, performance management is a broader concept than performance appraisal in that it provides not only for the measurement of performance but defining of performance according to organisational goals as well as the provision of performance feedback. (Noe et al, 2008). The concept of performance management is based on approaches that aim to overcome these negatives by emphasising that performance management is a continuous and forward looking process in which managers and individuals work together in partnership. (Armstrong, 2000)
The differences are summarised in Table 1:
Joint process through dialogue
Annual appraisal meeting
Continuous review with one or more formal reviews
Use of ratings
Ratings less common
Focus on quantified objectives
Focus on values and behaviours as well as objectives
Often linked to pay
Less likely to be directly linked to pay
Bureaucratic - complex paper work
Documentation kept to a minimum
Owned by the HR department
Owned by line managers
Table 2.1: Performance Appraisal compared to performance management
Source: Armstrong. M, (2006). A handbook of Human Resource management Practice, Tenth Edition. Kogan Page. p.501
Hence, it can be said that performance appraisal is not the same thing as performance management which is a much broader and continuous process of management. But it is a component of performance management.
2.3Performance Management Process
Performance management is an area of Human Resource management which has the potential to make the most significant contribution to organisational effectiveness and growth. (Sparrow and Hiltrop, 1994). In the present managerial world, it is an essential tool for managing the performance of employees. It is a means of getting better results for the organisation, teams and individuals by understanding the role specificity and managing their performance within an agreed framework of planned goals, standards and competence requirements.
The performance management system is a continuous and flexible process that involves managers and those whom they manage acting as partners within a framework that sets out how they can best work together to achieve the required results. It focuses on future performance planning and improvement (Armstrong, 2000). According to Lee (2005), the real goals of any performance management system are threefold - to correct poor performance, to sustain good performance and to improve performance... All performance management systems should be designed to generate information and data exchange so that the individuals involved can properly dissect performance, discuss it, understand it, and agree on its character and quality.
Performance management itself is “an integrated process in which managers work with their employees to set their expectations, measure and review results, and reward performance, in order to improve employee performance, with the ultimate aim of positively affecting organisational success” (Den Hartog et al, 2004)
According to Masango (2000) key aspects of an effective performance management system should include, among others, performance targeting, the setting of performance standards and a performance evaluation system.
There is a clear link between the strategic plans of the organisation and the objectives of the individuals and teams integrated together in the process of improving performance to achieve business objectives as shown in Figure 2.1.
Source: Figure 14.3; The performance management process. Sparrow and Hiltrop (1994), European Human Resource Management in Transition. Prentice Hall. p. 56
2.4 Approaches to Performance Management
- The comparative approach
- The attribute approach
- The behavioural approach
- The results approach
- The quality approach
- The multi-rated approach
2.4.1 The Comparative Approach
The comparative approach measures an individual's performance by comparing his/her performance to the performance of others. Comparative approach helps in reducing leniency and other errors, which makes them useful for administrative decisions such as determining pay rises. But it does a poor job of linking performance to organisational goals, and they do not provide feedback for improvement (Jackson and Mathis, 2006).
Three techniques adopt the comparative approach:
In this technique, the supervisor ranks his subordinates from best performer to worst performer. Straight ranking entails simply the rank ordering of individuals, according to overall merit or according to other performance factors, from the best performer through to the worst performer (Erasmus et al, 2003). It is suggested that its use should be limited to cases where only small numbers of individuals are to be rated and only the “better than” is important and not the “how much better than”. Hence, this approach is not aimed at feedback to employees.
In a forced distribution employees are ranked in groups. The use of a forced distribution system makes managers identify high, average and low performers. Thus high performers can be rewarded and developed, while low performers can be “encouraged” to improve. (Jackson and Mathis, 2006). Advocates of forced ranking also state that forced distribution ensures that compensation increases truly are differentiated by performance rather than being spread somewhat equally among all employees. But the forced distribution method suffers from several drawbacks. One of the problem is that a supervisor may resist placing any individual in the lowest (or the highest) group. Difficulties also arise when the rater must explain to an employee why he/she was placed in one group and others were placed in higher groups. Finally, in some cases, the manager may fake false distinctions between employees. By comparing people against each other, rather than against a standard if a job performance, supervisors trying to fill the percentages may end up giving employees subjective ratings.
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Paired comparison is when the supervisor compares “every employee with every other employee in the work group, giving an employee a score of 1 every time he/she is considered to be the higher performer.”
This procedure requires the evaluator to compare each worker separately with each other worker. The eventual ranking of an individual is then determined by the number of times he/she was judged to be better than the other worker.
The number of comparisons required may be calculated by the formula:
N (N - 1)
Where ‘N' refers to the number of individuals to be ranked. (Erasmus et al, 2003)
However, this approach has certain limitations. The more workers to be ranked, the more unwieldy the method becomes.
2.4.2 The Attribute Approach
This approach focuses on the identification of employee attributes (knowledge, skills, attitude, and experience) necessary for the organisation's success. The employee is measured against these attributes.
This approach includes techniques such as:
Graphic Rating Scales
In the graphic rating scales, the supervisor rates the subordinate on particular traits and characteristics. It was designed to elicit ratings of traits relevant to a job. However, one problem with graphic rating scales was that the rating points were not well defined (Elaine Pulakos, 2009). Thus, graphic rating scales were limited because they did not provide sufficiently defined standards that managers could use to systematically and fairly evaluate employees.
Mixed Standard Scales
Mixed standard scales are when the supervisor rates the subordinate against relevant performance dimensions.
2.4.3 The Behavioural Approach
The behavioural approach defines behaviours necessary for effective performance in a particular job. In assessing performance, managers identify the extent to which subordinate has exhibited the required behaviours.
Behavioural Observation Scale
A behaviour observation scale (BOS) is similar to a behaviour anchored rating scales (BARS) in that they are both based in critical incidents. A BOS is designed to measure how frequently each of the behaviours has been observed (Bohlander and Snell, 2009). The value of a BOS is that this approach allows the appraiser to play the role of observer rather than judge. In this way, he/she can more easily provide constructive feedback to employee, who will be more willing to accept it. Research shows that users of the system frequently prefer it over the BARS or trait scales for:
- maintaining objectivity
- distinguishing good performers from poor performers
- providing feedback, and
- identify training needs.
An assessment centre is a procedure originally adopted to assess managerial potential. It is an assessment method that consists of a standardised evaluation of behaviour based on multiple raters and multiple measures such as in-basket exercises, paper and pencil ability test, leaderless group discussion, simulation and personality questionnaires (Erasmus et al, 2003).
Vecchio (1996) correctly point out that, an assessment centre is designed to appraise individual's current managerial ability, rather than their past performance. This future orientation would therefore make the method quite suitable for development purposes.
2.4.4 The Result Approach
This approach is based on the belief that results are the one best indicator of how a subordinate's performance has contributed to organisational success. Advocate of results appraisals argue that they are more objective and empowering for employees. Looking at results such as sales figures and production output involves less subjectivity and therefore may be less open to bias. Furthermore, this approach gives employees responsibility for their outcomes, while giving them discretion over the methods they use to accomplish them (Bohlander and Snell, 2009)
Results based techniques include:
Management by Objective (MBO)
In this technique, the goal setting is cascaded down throughout the organisation and the goals become the standard against which an employee's performance s measured. It was introduced by Peter Drucker in 1954. MBO specifies the performance goals that an individual and manager mutually identify. Each manager sets objectives derived from the overall goals and objectives for the organisation (Jackson and Mathis, 2006). The MBO is a four-stage process including job review and agreement, development of performance standards, setting of objectives and finally continuous performance discussion.
Productivity Measurement and Evaluation System (PROMES)
It involves a process of motivating employees to higher productivity.
Balanced Score Cards
Balanced score cards may be used to manage performance of individual employees, teams, business units as well as the organisation itself. The appraisal considers four related categories:
The balanced score card enables managers to translate organisational goals into business unit, team and individual employee goals for each of the above categories.
2.4.5 The Quality Approach
The focus of the quality approach is on improving customer satisfaction through a customer oriented and the prevention of errors. Performance management is a quality-oriented process. More managers today are adapting the Total Quality Management (TQM) philosophy advocated by management experts like W. Edward Demings.
Basically, Demings argued that if things go wrong, it's not the employee, it's the system. Specifically, the latter said an employee's performance is more a function of training, communication tools and supervision than of his/her motivation. Performance management thus, focuses on using collegial feedback and changes to the management system (training, incentive, procedures and others) to improve performance.
The design of a quality-based performance management system should focus on:
- The assessment of employee and system factors.
- The relationship between managers and employees in solving performance problems.
- Internal and external customers in setting standards and measuring performance.
- Using a number of sources to evaluate employee and system factors.
2.4.6 The Multi-Rated Approach
There are numerous authors whose propose definitions of the 360-degree feedback process. Many organisations adopt a 360-degree feedback approach to performance measurement where information on an employee's performance is not only provided by the employee's immediate supervisor, but by those people whom he/she deals with on a day-to-day basis (e.g. customers, co-workers, subordinates, suppliers, contractors, consultants), (Snell and Bohlander, 2007). Hoffman (1995) explains that 360-degree is: “... an approach that gathers behavioural observations from many layers within the organisation and includes self-assessment.
This approach allows employees to receive an accurate view of their performance as “different people see different things” (Snell and Bohlander, 2007). This approach involves the administration of a questionnaire to a number of people with whom the employee interacts, in which they indicate how well the employee performs in a number of behavioural areas (Noe et al, 2008). Common terms used to refer to 360-degree feedback include:
- full circle appraisal;
- subordinate and peer appraisal and
- multi-perspective ratings.
Source: Mc Carthy and Garavan (2001). 360-degree feedback processes: performance improvement and career development. Journal of European Industrial Training. Vol. 25/1
DeNisi and Kluger (2000) herald that, for scholars and practitioners in the field of human resource management in general, it is widely accepted that feedback is an essential component of an effective performance improvement strategy.
18.104.22.168 Strengths of the 360-degree Feedback Approach
- As the employee is appraised from multiple perspectives, the approach is more comprehensive than other approaches.
- The information produced is of good quality.
- There is an emphasis on internal and external customers as well as the team.
- Bias and prejudice is lessened as the appraisal is not dependent on one person's view alone.
- Feedback from people other than the manager contributes considerably to an employee's development.
22.214.171.124 Weaknesses of the 360-degree Feedback Approach
- It is a complex system in that numerous appraisals need to be combined.
- It can be intimidating, resulting in resentment on the part of the employee being appraised.
- Appraisals from different individuals may be different and confusing.
- Considerable training is required to ensure that the system works as it should.
- Employees could undermine the reliability of the approach through colluding in terms of the appraisal which they are to give each other.
2.5 Purpose of Performance Management
“Performance management is a means of getting better results from the organisation, teams and individuals by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process for establishing shared understanding about what is to be achieved, and an approach to managing and developing people in a way that increases the probability that it will be achieved in the short and long term. It is owned and driven by line management”. (Armstrong, 2001)
Performance management has three essential purposes:
- Strategic purpose
- Administrative purpose
- Developmental purpose
Research indicated that the two most frequent purposes of performance management system are administrative and developmental (Cleveland and Murphy, 1989). There is much to gain if organisations are able to use their performance management systems for all three purposes. Moreover, performance management is about improving and developing performance as well as paying for performance (Brown and Armstrong, 1999). And Armstrong and Baron established in their 1997 research for the IPD that many organisations see its purpose as being primarily developmental.
In addition, and importantly, performance management assists in the communication and integration of the organisation's core values. It clarifies the values that individuals are expected to uphold and serves as a means of assessing the extent to which they are doing so. Integration is the key to successful performance management which has to be regarded holistically, as an all-embracing approach to the management of performance (Brown and Armstrong, 1999).
2.5.1 Strategic Purpose
A performance management system serves to link employee performance to overall organisational strategy and organisational objectives. However, research has shown that very few organisations utilise performance management in a manner which supports the strategy of the organisation.
The strategic purpose may be achieved through designing evaluation mechanism which defines employee performance in terms of organisation's strategy and goals. By linking the organisational goals with individual goals, the performance management system reinforces behaviours consistent with the attainment of organisational goals. (Smither and London, 2009). Moreover, even if for some reason individual goals are not achieved, linking individual goals with organisational goals serves as a way to communicate what are the most crucial business strategic initiatives.
Also, as a process for managing expectations, performance management acts as an integrating force. It helps to integrate corporate and individual objectives so that what individuals and teams are expected to do flow from and supports what the organisation is aiming to do. It can integrate the core competencies of the organisation with the skills and behaviours teams and individuals need to display, so that, again, people understand what the organisation has to be good at doing and therefore, what they have to be good at doing. Furthermore, performance management provides a basis for managing expectations. These are defined and agreed mutually, covering what managers expect the members of teams to do and the guidance, development and support the latter expect from the managers. It therefore serves as a means of clarifying the psychological contract and of building a climate of trust (Brown and Armstrong, 1999).
126.96.36.199 Performance Management, Motivation and Job satisfaction.
Commentators argue that performance feedback increases job satisfaction and motivation (Hackman and Oldham, 1980).
188.8.131.52 Performance Management and Job Satisfaction
The basic requirements for job satisfaction may include comparatively higher pay, an equitable payment system, real opportunities for promotion, considerate and participative management, a reasonable degree of social interaction at work, interesting and varied tasks and a high degree of autonomy: control over work pace and work methods. The degree of satisfaction obtained by individuals, however, depends largely upon their own needs and expectations, and the working environment (Armstrong, 2007).
But research has not established any strongly positive connection between satisfaction and performance. A satisfied worker is not necessarily a high producer, and a high producer is not necessarily a satisfied worker. The claim that good performance results in satisfaction rather than rather than vice versa has not been proved (Armstrong, 2007).
However, Patterson et al (1997) found out that there was a significant positive relationship between employee attitudes (job satisfaction and commitment) and performance with a recommendation that organisations should focus more on human resources than on competitor strategy. Also a number of studies have suggested and indicated that employee attitudes make significant and positive contributions to employee performance (Fletcher and Williams, 1996).
2.5.2 Administrative Purpose
Performance management systems provide information which assists organisations with administrative decisions relating to issues such as salary administration (pay rise), lay-off and promotion (Noe et al, 2008). The administrative purpose encompasses staffing, compensation, promotion, and reward (Silverman, 1989). In other words, the implementation of reward systems based on information provided by performance management system falls within the administrative purpose. If an organisation does not have a good performance management system in place, administrative decisions are more likely to be based on personal preferences, politics and otherwise biased decisions (Smither and London, 2009).
Having a good system in place is particularly relevant for the implementation of contingent pay plans, also called pay-for-performance. Contingent pay means that individuals are rewarded based on how well they perform on the job. Thus, employees receive increases in pay based wholly or partly on job performance (Smither and London, 2009). Currently, contingent pay plans are pervasive and more than 70 percent of workers in the United States and the United Kingdom are employed by organisations implementing some type of variable pay plan (for example, bonus, commission, cash award, lump sum) directly to performance (Baty, 2006).
184.108.40.206 Performance and Pay
Research supports that contingent reward and recognition are effective means for improving performance (Cooke, 1994).
The management of performance related pay is perhaps the most difficult task HR people have to undertake (Wright, Hay Management Consultants).
2.5.3 Development Purpose
Performance management systems provide information about employee strengths and weaknesses and in so doing employee development needs (Noe et al, 2008). The developmental purpose seeks to ‘identify and develop potential for future performance, linked to succession and personal development planning' (Goss, 1994). Performance management establishes learning needs and outcomes. And it indicates how needs can be satisfied and the outcomes achieved (Brown and Armstrong, 1999).
Feedback is an important component of a well-implemented performance management system. Managers can use feedback to coach employees and improve performance on an ongoing basis (Smither and London, 2009). Of course, feedback is useful only to the extent that remedial action is taken and concrete steps are implemented to remedy any deficiencies (Aguinis and Kraiger, 2009). Another aspect of the developmental purpose is that employees receive information about themselves that can help them individualise their career paths. Thus, the development purpose refers to both short-term and long-term aspects of development.