The Performance Management Cycle Commerce Essay

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Human Resource Management can be defined as a strategic and coherent approach to the management of an organizations most valued assets - the people working there who individually and collectively contribute to the achievement of its objectives' (Armstrong 2006: 3). For Henderson (2011: 5), HRM is really the result of a 'revolution' that occurred in the 1980s and which seemingly superseded the established paradigm of Personnel Management. On the other hand, Torrington, Hall and Taylor (2005: 12) claim that HRM is no revolution but a further dimension to a multi-faceted role.

Torrington, Hall and Taylor (2005: 7) describe the role of HRM as comprising of four specific objectives namely staffing, performance, change management and administration. It is the Performance Management function which is the focus of this work specifically the performance appraisal component. According to Armstrong (2006: 495) performance management can be defined as follows:

A systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of getting better results by understanding and managing performance within an agreed framework of planned goals, standards and competency requirements.

The Performance Management Cycle (PMS) cycle below shows the integration of the following key elements:

Alignment of performance criteria at operational level with corporate level business goals and objectives in the form of an agreement.

Agreement on an action plan which includes self-development/career plans.

Regular monitoring and feedback to assess actual versus expected performance and consequently identify performance gaps or development needed.

Moreover, together with the cycle the vertical integration of the PMS with the processes of training, development and reward provides opportunity for translating the corporate goals to operational ones, in the process identifying required levels of performance to ensure viable operations (Chase and Fuchs 2008: 226).

Within the PMS cycle, performance appraisal is that part which is concerned with the assessment of individuals in a formal, regular and systematic way (Henderson 2011: 165). It should be emphasized that even though Performance Management and Performance appraisal are sometimes assumed to be the same thing there are significant differences between them as pointed out by Armstrong (2006: 550).

A key concept underpinning Performance Management is how to motivate people to improve their performance. To that end many organisations link performance and pay. The issue is that performance must be measured and the process of measuring performance or performance appraisal must necessarily be seen as being transparent, equitable, providing reporting consistency and regular feedback on performance (Armstrong & Baron, 2005). In other words, the performance appraisal procedure should apply the principles of procedural justice which is conceived by Folger and Greenberg (1985) as the perceived fairness of the procedures used in making decisions i.e. the 'means' whereby 'ends' are achieved.

Some critics have argued that poorly designed PMS may demoralise and demotivate (Winstanley and Stuart-Smith, 1996).

2. Literature Review

2.1 A brief history of Performance Appraisal and Performance Management Systems

Armstrong (2009: 10) surveys the evolution of performance appraisal and performance management systems and notes that the first formal monitoring systems evolved through the work of Taylor and his followers before the First World War. This was applied to officers of the US armed forces in the 1920s and made its way to the UK. Merit rating became popular in the 50's and 60's and was sometimes renamed as performance appraisal. This was followed by management by objectives in the 60's and 70's. A revised results-oriented performance appraisal took form in the 1970s while the term Performance Management was introduced at the same time and gained acceptance as a process only in the late 1980s.It should be noted that the 1970s version of performance appraisal is a stand-alone process and not the same as the component of our contemporary PMS.

2.2 The need for Performance Appraisal

In the words of McGregor (1957), formal performance appraisal plans are designed to meet three needs, one for the organization and two for the individual:

They provide systematic judgments to back up salary increases, promotions, transfers, and sometimes demotions or terminations.

They are a means of telling a subordinate how he is doing, and suggesting needed changes in his behaviour, attitudes, skills, or job knowledge; they let him know "where he stands" with the boss.

They also are being increasingly used as a basis for the coaching and counselling of the individual by the superior.

It appears there is unanimity concerning the functions of performance appraisal. However, one issue that is still subject to debate is whether to link the performance appraisal to reward. Under the heading of 'HRM Dilemma', Henderson (2011: 168) states that it was always standard advice to managers from social psychologists to never directly link rewards to performance assessment. This is because people would naturally enhance their accounts of their own performance if their reward depended on it. Moreover, Chase and Fuchs (2008: 234) note there is indication to suggest that the inclusion of the reward element in the appraisal might be demotivating.

However; when reward is linked to performance the performance appraisal systems should be seen as being transparent and equitable, providing reporting consistency and regular feedback on performance" (Armstrong & Baron, 2005).This is an application of procedural justice and is explained further below.

2.3 Requirements for a fair and equitable performance appraisal

Several studies have demonstrated that reactions to performance appraisals depend more on the procedures by which they were carried out than what the appraisal outcomes may be. For example, Taylor et al. (1998) found out that employees are more satisfied and willing to accept outcomes which are less than desirable when these are the result of a system they consider as fair. The following are the characteristics of a procedurally just appraisal system (Armstrong 2009):


A transparent system is one in which people understand how reward mechanisms function and how they are affected by them. The motivations behind pay decisions are made clear at the time they are made. Employees also have their say in matters of reward policies and practices.


A system is equitable when it rewards people properly in relation to others within the organization. Equitable reward mechanisms measure as objectively as possible the relative worth of jobs and ensure that work of equal value are rewarded equally. If however there is any inequality between rewards, people may scale up their efforts to achieve balance or, if they perceive it as not worthwhile, may reduce their efforts (Adams 1965 cited in Chase and Fuchs 2008: 224).


In the context of performance-related pay, a consistent approach is one in which pay decisions do not vary arbitrarily - without good reason - between different people or different times. The pay decisions do not deviate unreasonably from what would be considered as just and equitable.


Armstrong (2009: 105) defines feedback as "the provision of information to people on how they have performed in terms of results, events, critical incidents, and significant behaviours". Feedback is positive when it informs people that they have performed well, constructive when it advises on how to improve and negative when it informs people that they have performed badly. Feedback encourages good behaviour and directs where and how behaviour needs to changed.

Providing regular feedback plays an important role in the continuous process of performance management. London, Mone and Scot (2004: 326) point out that goals and feedback work together to affect goal accomplishment. However it is cautioned that "feedback or praise in the form of public recognition or a monetary bonus do not affect performance unless they lead to setting, and committing to, specific and difficult goals" (Latham 2002 cited in London, Mone and Scot 2004: 326).

Overall feedback focuses attention on performance goals that are important to the organization, helps discover errors, maintains goal direction, influences new goals, provides information on performance capabilities and how much more effort/energy is needed to achieve goals, and provides positive reinforcement for goal accomplishments (Ilgen, Fischer, & Taylor 1979 cited in London, Mone and Scot 2004: 326).

2.4 Tools for performance appraisals

Organisations can choose from a large variety of performance assessment techniques. Chase & Fuchs (2011: 230) lists some of the main ones:

Rating scales appraise an employee's performance against a set of agreed descriptors that indicate the level of performance achieved and whether he has fulfilled his main duties.

Objective setting in management by objectives programmes monitors the feasibility of the objectives set and whether they have been achieved. There should be a fit between employee and organisational objectives.

360 degree performance appraisal is a process that aims at obtaining more effective feedback on performance from a number of sources that are connected to the individual concerned for e.g. seniors, colleagues, supervisor etc.

3. Analysis and Discussion

2.1 Company Profile

The discussion is based on the Central Electricity Board (CEB) which is a parastatal body wholly owned by the Government of Mauritius and reporting to the Ministry of Renewable Energy and Public Utilities. Established in 1952 and empowered by the Central Electricity Board Act of 25 January 1964, the CEB's business is to "prepare and carry out development schemes with the general object of promoting, coordinating and improving the generation, transmission, distribution and sale of electricity" in Mauritius and Rodrigues Island.

The main strategic objectives of CEB are to ensure sustainability of the business, optimize the use of assets, resources, skills, ensure security of electricity supply and enhance customer service delivery.

The CEB is administered by a Board of Directors and is headed by a General Manager. Under the General Manager, the business activities and operations of the CEB are organized under 10 departments. At present the CEB has a workforce of around 1800 employees, out of which 900 are on the manual establishment. Most manual workers are employed in the Transmission and Distribution (T&D) and Generation departments. The staff is either administrative or technical with the administrative personnel being administrative assistants, accountants, auditors, human resource officers and technical staff being technical officers and engineers mainly.

2.2 History of performance appraisal at CEB

The history of a formal performance management system at the CEB is recent. A PMS has only been implemented and put in application at the start of this year. Before that; a performance appraisal exercise was conducted yearly using the grading method whereby the rater considers certain features and marks them accordingly according to a scale. The categories are shown below.

This appraisal method suffered many flaws like intentionally or unintentionally over- or under-rate performance. The appraiser could intentionally over-rate because of favoritism, to avoid confrontation or to give a good impression as himself as a senior. Conversely, the appraiser could possibly deliberately under-rate an employee out of meanness or due to favoritism for another employee. The performance appraisal was mainly for pay purposes; the appraiser would at the end of the appraisal process give his approval whether to increase the appraisee's salary by one increment. Personal development was reduced to the appraisee stating what post he was aspiring in the future and what training he wished for. Unintentional rating errors might also occur like due to the Halo effect or due to the 'central tendency'. The latter is a problem the author has encountered during his appraisal whereby he felt, perhaps subjectively, that his good performance was not being recognized and was instead being averaged.

It must be admitted that even with all its above-mentioned flaws; the old performance appraisal system will perhaps be missed because it allowed some positive leniency. Indeed, most if not all appraisers tended to approve the yearly incremental salary increase, this perhaps reflecting the widely shared sentiment that the cost of living is becoming a very heavy burden. The new PMS with its more precise, almost mathematical take on performance will undoubtedly bring some change. It remains to be seen whether the new PMS which is supposedly more equitable, transparent and fair will bring more satisfaction

2.2 Comparing HRM theory and practice

2.2.1 The PMS cycle

The PMS at CEB does have its cycle which is shown below.

It is important to note that the deadlines associated with each components of the cycle. To enforce these deadlines; appraisees are warned that a 2.5 % reduction of their performance score would be applied in case they don't respect the deadline. This definitely creates some stress for many employees since a minimum rating of 2.5 out of 4 is required to obtain an increment. Moreover, at the end of the deadline, HR people circulate a list of all those who have not respected the delay and who consequently have been penalized. This is certainly not a practice you learn from your MBA!

2.2.2 Aligning performance agreement with the business goals.

The balanced scorecard approach is used to list the parameters which will be reflective of the performance of the organization in the coming year and show the targets for the parameters. The targets of the organization scorecard are then cascaded to the departments. The objective is to set the targets of all the organization keeping a line of sight to the organization targets.

2.2.3 The Rationale for the new PMS system

In the words of the HR people at CEB, the new appraisal system "aims at addressing certain fundamental concerns of: objectivity, accountability, transparency and implementation". These four requirements will be analysed in light of how theory compares to practice.

Objectivity here refers to "objective measurements of target set in the beginning of the year". This is more easily said than done. There are lots of difficulties concerning the appraisal process that are documented in the literature. Over and under-rating either intentionally or not are possible and happen. Hence, this is matter of making fair appraisals so that equitable rewards are distributed. Moreover, the performance planning process at start of the year whereby the individual objectives are set may not be well carried out. For example, last year in the author's section, the objectives were too ambitious resulting in "low" performance at the end of the year. Obviously, the objectives set were not SMART!

Transparency refers to the "integrated system that ensures uniformity and consistency of the process across the organization with visible and transparent linkage to other HR systems such as Training and development, succession planning and career pathing". This means that the PMS system tries to make the performance appraisal constant across different departments and sections which is important since employees will make comparisons with colleagues that are in the same office as well as those with are in other departments. If gross differences are seen, there may be the risk employees will perceive the system as unfair. The transparency objective also aims at demonstrating clearly how rewards such as training and promotions are decided.

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