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Performance management system is defined as a tool in the strategic human resource management used by organization to evaluate the overall performance of employees (Gary Dessler, 2005). He adds on saying performance management is a process that consolidates goal setting, performance appraisal and development into a single, common system, the aim of which is to ensure that the employee’s performance is supporting the company’s strategic aims. (Human Resource Management, Gary Dessler). Raymond J. Stone later suggest that performance management systems aim to improve organization, functional, unit and individual performance which incorporate job design, recruitment and selection, training and development, career planning and remuneration and benefits in addition to performance appraisal. Raymond J.Stone defines performance appraisal as concerned with determining how well employees are doing their job, communicating that information to employees, agreeing on new objectives and establishing a plan for performance improvement.
Traditionally, performance appraisal was done in a one way communication method. This means that the managers will evaluate based on their experience and memory upon the employees. This one way communication method proves to be problematic as biasness and unfair judgments will cause the breakdown towards the appraisal. Hence, the birth modern appraisal system eliminates these problems through a multi directional appraisal (360 degree appraisal). This appraisal strives to provide individual an overall evaluation process gathered from information of related parties that had engaged in operations with the employee. Thus, the accuracy of the data can be verified.
Corbrigde and Pilbeam (1998) suggest five main types of appraisal which includes top-down schemes, self appraisal, upwards appraisal, peer appraisal and multi directional appraisal (Strategic Management of Human Resource, UOS, 2007). However, there are no absolute appraisal systems that can create ultimate effectiveness. It is often impacted by the environmental factors as well as people’s behavior towards the appraisal. Ali et al (2001) says that when choosing methods of assessing employees’ performance, organization need to make sure that the end result has a positive effect on motivation and increases people’s sense of self-worth, realistic targets, positive feedback and listening which are key factors.
Factors influencing effectiveness of performance appraisal
Nevertheless, there are still factors that can determine the accuracy of the appraisal systems. Factors such as demographics, culture, age, communication methods, perceptions and many others will determine the appraisal success as well as the accuracy of the information gathered. The degree of seriousness that employees have towards the appraisal strongly suggests the impact and accuracy of the result. Discrimination can also be a factor that caused a defective appraisal. Manager with negative towards the employees will provide negative evaluation. As a result, the employee will show minor improvement or needs to develop. Thus, organization will customized the appraisal, integrating one or more system to perform effective evaluation towards an individual.
This essay will evaluate to what extend can performance management systems stand alone in an organization and how and why organizations uses this performance appraisal in developing their employees.
Purpose of performance appraisal
Buhler 2002 says that appraisals are conducted for the purposes of evaluation; provides input for the decision on promotion, transfer, demotions, terminations and compensations, and feedback; development of individuals. The purpose of evaluation provides a guideline for recruitment and selection in HR functions. As recruitment and selection plays a vital role in an organization, PMS provides significant details on the employees’ achievement from the last appraisal. Thus, organization can gauge the performance level of each employee and later make decision on the where about of the employees. This will help organization to identify the right people for the right job. Evidently, PMS result had led to the promotion of Bob Stack and Mike Tyson to the board of director in Cadbury.
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The purpose of feedback provides a better understanding of the full potential of the employee, analyzing the strengths, weaknesses, threats and opportunities in line with the business objectives. Hence, training and development, another HR function, is conducted to motivate growth in an individual. This will allow individual to indentify the hidden natural strength and develop the strength to its full potential. Moreover, individual tend to have incremental learning capability as they drew enthusiasm that comes from within. Moreover, organizations can change employees’ weakness to strengths and exploit the threats to opportunities. This will allow organization to gain competitive advantage by developing the individual while reducing the need to recruit extra workforce. Similarly, Cadbury also implemented Managing for Value, Growing our People and Passion for People programme as their development steps. As Cadbury identified the need to growth its employees, “Growing our People” programme was initiated. Cadbury opts to unlock potential of its employees to maximize their performance in order to fulfill the organization’s objective to deliver superior shareholder performance.
- Integration of effective performance appraisal
There are six distinguishing features that make up for an effective PMS; objective setting, ongoing review of objectives, the development of personal improvement plans linked to training and development, formal appraisal with feedback, pay review and a competence-based organizational capability review (Strategic Management of Human Resource, UOS, 2007). Inevitably, organization follows this guideline in order to create an effective appraisal system suitable for the organization.
- Objective setting
Objective setting undermines the need of organization to provide a clear cut employees’ function to the individual. Thus, it enables employee the focus on their current position eliminating confusion between switching task. A clear objective will provide employees with a direction in line with organization’s objective prior to the mission and vision of the organization. In line with objectives, organizations will provide a SMART objective; specific, measurable, achievable, realistic and appropriate timeline, to each employees. In example, organization will annually set an achievable sales target for the sales department. This given task will be based on each individual performance as different people have different capabilities.
- Ongoing review of objectives
Given the objective, organization will have to review the performance of the employee prior to the timeline. This can be done either doing an annual or quarterly appraisal of the employee. By continuous reviewing the employee, organization can identify the weaknesses or the problems that hinder the employees to fulfill the task. Thus, training and develop countermeasure can be allocated to motivate and improve the employee towards reaching the goal. Moreover, this can allow organization to identify the strength of the employee so that relocation can be made.
Development of personal improvement plans linked to training and development
In relation to the performance of the employees, organization will provide training and development. Training and development strives to draw out employees’ potential and to motivate them for better performance. Often times, organization would want to promote their employees with high credibility in their performance. Thus, organization will develop improvement plans seeking to unlock potential growth of the employees while providing employees with a new set of knowledge that will ease their job. This improvement plan is customized as motivation techniques differ from each individual. Hence the development will result to a different in employees’ learning curve.
- Formal appraisal with feedback
Ongoing review of employees can allow organization to monitor the effectiveness of the development plan. Formal appraisal system will provide organization to review the performance compared to past year and conduct essential training and development plan to follow up on the past development plan. It is vehemently important for an organization to conduct performance appraisal. This appraisal can not only identify the weakness of the employees but also exploit the employees’ opportunities for further development and improvement. Organization tied in the key performance indicator to the formal appraisal to provide an overall area of improvement of the employees. This system provides qualitative or quantitative measurements towards the growth and the area of improvement of the employees. Thus, organization can gain competitive advantage through development of their core asset and promoting efficiency in organizations’ operations.
- Pay review
Pay review is a crucial step in optimizing employees’ performance in relation to the salary that they deserve. Pay review provides increment or decrement in salary towards employees prior to their performance in past year. This step not only can gain satisfaction from other employee but also act as a motivation element in the overall organization for the employees.
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Competence-based organizational capability review
In any performance appraisal, organization approached should link directly towards the business strategy underlining the development plan towards achieving the business strategy. Hence, the organization strengths and capacity to provide outstanding performance is closely related. Organization other resources such as machines, methods, money, material, and management should provide allowance to the employees to achieve desired performance. In order words, organizations’ power will closely relate to the performance of employees providing efficiency in making suitable decisions when required.
Unquestionably, effective performance appraisal should provide benefit to the overall organization. ESD (2004) stated that an effective performance appraisal can bring benefits to individual, manager and organization.
Benefits for the individual:
- Gaining a better understanding of their role
- Understanding more clearly how and where they fit in within the wider picture
- A better understanding of how performance is assessed and monitored
- Getting an insight into how their performance is perceived
- Improving understanding of their strengths and weaknesses and developmental needs
- Identifying ways in which they can improve performance
- Providing an opportunity to discuss and clarify developmental and training needs
- Understanding and agreeing their objectives for the next year.
- An opportunity to discuss career direction and prospects.
- Benefits to the line manager/supervisor/team leader:
- Opportunities to hear and exchange views and opinions away from the normal pressure of work
- An opportunity to identify any potential difficulties or weaknesses
- An improved understanding of the resources available
- An opportunity to plan for and set objectives for the next period
- An opportunity to think about and clarify their own role
- An opportunity to plan for achieving improved performance
- An opportunity to plan for further delegation and coaching
- An opportunity to motivate members of the team.
Benefits to the organisation:
- A structured means of identifying and assessing potential
- Up-to-date information regarding the expectations and aspirations of employees
- Information on which to base decisions about promotions and motivation
- An opportunity to review succession planning
- Information about training needs which can act as a basis for developing training plans
- Updating of employee records (achievements, new competencies etc)
- Career counseling
- Communication of information
Undeniably, performance management system can stand alone in an organization provided that effective appraisal system stands out in the end result. Moreover, the information of employees is classified under private and confidential and should only be reviewed by authorized personnel. Nonetheless, performance management system should work hand in hand in the reward and benefit areas. This is because reward and benefit can increase the motivation of employees’ in creating a positive attitude towards appraisal. Thus, this will create a win-win situation where organization and employees get what they want in the end result.
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