What is Performance Management?
Performance Management is a continuous and systematic approach to identifying, measuring, and developing the performance of the employees in the organization. Performance Management is an important aspect of the HR department that helps to create such an environment where peoples work through self-motivation to provide their best effort for achieving organizational goals. Employees will be committed to driving quality work if organizations can implement an effective performance management system.
Performance Management is – ‘The development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organization which supports and encourages their achievement.”
Armstrong and Baron,
“A strategic and integrated approach to increasing the effectiveness of organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.”
Types of Performance Management System in HRM
There are different types of performance management systems as bellows:
- General Appraisal- In this type of performance management system, ongoing and continuous communication between the manager and the employee occurred throughout the year. The main subject of this communication is the pre-set goals, the objectives, the performance feedback, and the setting of new goals. In this performance management system, managers can also recommend development plans and training programs for the skill improvement of the employees.
- 360-Degree Appraisal- 360-degree appraisal mostly allows peers, primary manager, cross-functional manager, and other internal & external stakeholders to share feedback on an employee’s performance and also team behavior. This type of performance management system helps an employee to know his/her strengths and weaknesses. Then the feedback is reviewed by the manager during his/her appraisal process.
- Technological Performance Appraisal- This type of performance management system is totally based on the technical knowledge of the employees. Overall technical expertise and capabilities of the employees are taken into account and identified by the manager for this appraisal system.
- Employee Self-Assessment- In this type of performance management system, the employee assesses himself/herself and finally it is compared with the manager’s completed assessment results. If a big difference is observed between their assessment, then managers will talk with the employees regarding it.
- Manager Performance Appraisal- This performance management system has been designed for the appraisal of the manager. Here the feedback is taken from the team members and client to evaluate the performance of the manager.
- Project Evaluation Review- This performance management system is considered the best way to identify the performance of employees at work. After completion of each project, the performance of the employee is evaluated, and based on the review another project is assigned for getting better results from the employees. This review process increases the commitment of the employees and keeps them involved in work.
- Sales Performance Appraisal- This performance management system is used to analyze the performance of the salespersons where monthly or yearly sale target is assigned to the employee at the beginning of a financial year. At the end of the financial year, the salesperson is judged based on target vs achievement.
Purposes of Performance Management System in HRM
The performance appraisal system is directly linked with KPIs for HR Manager, and the performance management system serves the following purposes:
- Feedback Mechanism: The ultimate purpose of this system is to develop a systematic feedback mechanism. It creates a corridor through which the employees become attentive about their contribution to the organization in terms of their performance. A two-way feedback mechanism helps employees regarding the improvement required in case of performance to meet set goals.
- Development Concern: It addresses the development issues like a training program for the employees. It refers to those areas of an employee where he has deficiency or weakness, or an area that simply could be better through the effort to enhance performance.
- Documentation Concern: All the information about the employees is collected through a database. From this database, easily anyone can know the performance level, skills, knowledge, expertise, and regular rewards received by the employee is maintained in this database.
- Diagnoses of Organizational Problems: A performance management system helps to diagnose organizational problems. The performance of the employee is generally recorded using a performance management system. This database helps to diagnosis the organizational problems and to identify what improvements are required to improve the performance status of the organization.
- Employment Decisions: Performance management system records are very important that helps an organization to make important decisions regarding the justification of employment. This type of performance management system helps to administer a formal organizational reward and punishment system.
Objectives of Performance Management System in HRM
Performance management system serves the following objectives:
- Performance appraisal system helps employees to achieve his or her work performance as per set standard.
- It helps to identify what skills and knowledge are required to perform a job efficiently.
- A performance management system helps organizations to boost the performance of employees by encouraging employee empowerment, motivation, and implementation of an effective reward instrument.
- It helps in goal setting in a more transparent way.
- It improves the communication channel between employees and supervisors.
- A performance appraisal system helps to identify the issues which are responsible for low performance.
- The performance appraisal system database helps to take decisions for promotions, strategic planning, succession planning, and compensation.
Advantages of Performance Management System
The advantages of the performance management system are as follows:
- Documentation: Performance management system documents help to generate performance documents for every employee.
- Structure: It helps to create a formal structure of communication between supervisor and employee. It also supports bringing out solutions for the improvement of employee performance.
- Clarify Expectations: Using the performance management system, respective managers can clarify the performance and behavior expectations which all employees should understand for achieving organizational goals.
- Annual Planning: The performance management system helps to make concrete decisions regarding annual planning of hiring, training and development practices, and also goal settings.
- Feedback: It helps employees to know the feedback about their performance in the organization for further improvement.
- Motivation: Performance management system data can be used to develop a comprehensive compensation strategy for motivating the employees to get improved performance.
Disadvantages of Performance Management System
The disadvantages of the performance management system are as follows:
- Create Negative Experiences: If performance management system data is not authentic then it may create a negative experience for the employees. So, managers need to keep sharp eyes for getting accurate and fair performance appraisal data.
- Time Consuming: A performance appraisal system is sometimes a time-consuming matter where the number of employees is large.
- Natural Biases: If managers are biased, then fair data may not be generated which can result in errors in ultimate ratings.
Elements of Performance Management System
There are 3 major elements of an effective performance management system as below:
Element One: Goal Setting
Goal setting is a process of establishing objectives that can be achieved over a period of time. This goal should be aligned with organizational goals. During goal setting, it should be ensured that goals are SMART:
- Specific, clear, and understandable.
- Measurable and results-oriented.
- Attainable or achievable.
- Relevant to the goals of the organization.
- Time-bound with a schedule.
Examples of effective goals statements:
- Increase revenue by 7 percent during the first quarter.
- Reduce office expenses by 15 percent as compared with actual costs of the previous year.
- Reduce 2 percent employee absenteeism in the first quarter.
Element Two: Performance Review
Performance review is a process of assessing an employee’s progress toward the goals. Performance review and evaluation process include:
- Define the expectations of performance over the period of time.
- Measuring employee’s performance and evaluation.
- A continuous and timely feedback process throughout the review period to outline employee’s performance over expectations.
- A process for recording performance and acknowledging the outcomes of the performance review process between the manager and the employee.
Element Three: Performance Improvement Plan
The organization uses different types of formats for generating performance improvement plans. This is helpful to achieving performance expectations.
The format of the Performance Improvement Plan (PIP) should include the following components:
- Employee information.
- Description of the performance gap.
- Description of expected performance.
- Description of actual performance.
- Description of consequences.
- Action Plan
- Signatures of manager and employee.
- Evaluation of action plan and performance improvement strategy.