PERFORMANCE MANAGEMENT SYSTEM: A

GENERAL PERSPECTIVE

PerIormance Management System is the heart oI any people management` process in the
organization. PerIormance Management involves the careIul selection oI employees
communication oI work expectations, monitoring oI perIormance, Ieedback and support Ior
ongoing development and recognition Ior excellent perIormance. It enhances organizational
success through increased employee clarity regarding organizational goals and individual
contributions towards goals. A uniIied approach to perIormance managementone that ties
together the organizational and individual aspects is discussed in the Iollowing pages.

COMPONENTS OF PERFORMANCE MANAGEMENT

PerIormance management is an amalgamation oI Iive missing linkages. These are combined
together through the organizational and individual aspects. These core components include:
O Align the objectives, resources and budgets oI the diIIerent parts oI the organization
and the goals, opportunities and quotas oI individuals.
O Measure organizational and individual perIormance.
O #eward individuals Ior perIormance.
O #eport organizational and individual perIormance.
O Analyze organizational and individual strategy execution.

Alignment
An organization consists oI business units, departments and divisions, each with its own set
oI objectives. Alignment must exist between the objectives oI the various organizational
entities and the strategic objectives oI the organization itselI. This grouping must be
Irequently adjusted at least quarterly in response to new objectives, changes in the
business environment or problems with achieving current objectives.

Aligning employees involves cascading strategic objectives down to all levels oI the
workIorce. This enables members oI the workIorce to understand how their perIormance will
be measured and evaluated, and also how their eIIorts tie into the overall strategy. This
linkage between organizational objectives and individual goals and activities is at the core oI
eIIective perIormance management.

Measurement
Although all organizations measure perIormance, most Iocus on Iinancial metrics and
meeting government regulations. An organization that only measures historical Iinancial
perIormance, however, is Iocusing on the past rather than driving Iuture perIormance.

To drive perIormance, one must link organizational objectives and individual employee goals
and their associated metrics oI perIormance with the measurement oI actual
organizational and individual perIormance. Measurement is oI critical value in linking pay to
perIormance and in laying out a Ieedback mechanism that allows one to adjust their strategy
and tactics over time.

Measuring individual perIormance through a tight link to goal achievement deIines
expectations Ior the employees, thus providing an equitable and predictable basis Ior
accountability. It also provides a way Ior management to assess employee capabilities. Such
measurement provides a consistent and objective basis Ior determination oI employee
rewards.
Frequent, objective measurement Iacilitates in assessing whether the organization is on the
right path or needs to adjust objectivesand the goals oI individual employeesto drive
desired behaviors.

Reward
Linking perIormance measurement to rewards is the power steering that enables the
organization to drive the behaviors oI the entire workIorce and keep them on the straightest
path to achieving the organization`s strategic objectives.

All employees in the organization should be on a variable pay plan that is linked to their
individual perIormance. Although rewarding people based only on individual perIormance
may make Ior an overtly competitive culture, teamwork and collaborative eIIort can be
Iactored in to preclude unhealthy competition.

Report
#eporting is about providing timely inIormation to executives, managers and individuals
about the perIormance oI the organization and its people. However, Ior most organizations
reporting is more a matter oI compliance with government regulations.

EIIective reporting allows you to see the degree oI objective and goal achievement and
provides a Ieedback mechanism that allows you to adjust your strategy, tactics, objectives
and goals over time.

Analyze
Analysis answers the why and how oI perIormance management. The purpose oI analysis is
to initiate changechanges in strategy, in tactics, in personnel, in budgets and many other
aspects oI managing the enterprise.

Analysis oI organizational perIormance provides actionable, timely, meaningIul inIormation
that enables the organization to take corrective action proactively and to learn and adapt
rapidly. Analysis oI individual perIormance enables managers to help employees understand
how speciIic behaviors aIIect the company`s perIormance, identiIy trouble points in
processes that are restricting individual perIormance and make the best use oI resources by
optimally aligning people and activities.

DRIVING PERFORMANCE
In essence, eIIective perIormance management is when every part oI the organization and
every person is drumming to the same beat and marching in step.

For many organizations, becoming perIormance-driven might cause a cultural upheaval that,
at least in its early stages, results in turmoil, a perception oI chaos and a lot oI discomIort. It
can trigger turnover oI long-time employees who do not like to be held accountable Ior goal
achievement and who Ieel entitled to a certain level oI pay regardless oI their perIormance.
And it might cost money as they make the initial investments.

But with the leadership and commitment oI senior management, becoming perIormance-
driven will lead to dramatic improvements in perIormance in Iinancial terms, with respect to
employee productivity and morale and in the Ilexibility to quickly adapt to change. The eIIort
will be well worth it.

PURPOSE OF PERFORMANCE MANAGEMENT

PerIormance management has many advantages. It greatly Iacilitates the organization to:
O Ensure that the work plans oI the employees are eIIectively directed towards the
strategic direction oI the organization. It signiIicantly motivates employees to
accomplish their best.
O Improve perIormance by establishing clear communication between the manager and
the employee about what he/she is expected to accomplish. It also provides ongoing,
constructive Ieedback on perIormance and reveals poor areas that need improvement.
O IdentiIy skills and abilities oI each employee so that work assignments build and
reIlect on employee`s strength.
O Train & develop the staII in the right way so they successIully accomplish their work
and career goals. All this is done by identiIying training needs and development
opportunities.
O Formulate administrative decisions that support decision making regarding
promotions, terminations, compensation and rewards.

PerIormance measurement is designed to highlight achievements and reveal strategic and
operational issues that hinder progress toward the attainment oI the organization`s mission. It
is not designed or intended Ior use in assessing perIormance at the individual level. It is an
on-going progress, and is not a once a year process like perIormance appraisal was initially
where employees met once a year to look back at the work done during the previous year and
to evaluate what was accomplished. PerIormance management on the other hand, is the
process employers use to make sure that employees are working towards organizational
goals.

ROADBLOCKS TO PERFORMANCE MANAGEMENT

O #ating scales are applied inconsistently
O Evaluators are not trained leading to rater errors
O Supervisors do not value the procedure and use it Ior reprimanding or arguing
O Standards and criteria are not objective, relevant and realistic or are unrelated to the
work perIormed.
O Failure to use evaluation results Ior decision.
O It is highly personal and time consuming
O Supervisors are reluctant to measure perIormance oI the very employees they depend
on to get work accomplished Irom.

TYPES OF PERFORMANCE APPRAISALS

O Self Appraisal: when the employee is asked to evaluate his/her own work
O Peer Appraisal: staII oI equal rank within the organization are asked to evaluate the
employee
O Team Appraisal: similar to peer appraisals; employees who work as a part oI the
team are asked to evaluate the team work.
O Assessment centre: the employee is assessed by proIessional assessors using several
types oI evaluation such as work simulations and actual activities
O degree Appraisal: the employee`s work is reviewed by gathering input Irom
representatives oI all the groups the employee interacts with as supervisors, peers,
subordinates and clients.
O Management by Objectives: the employee`s achievements oI work objectives that
are set in collaboration with his/her supervisor are assessed.
O Combination Methods: some organizations combine diIIerent methods into their
perIormance management process. Some organizations include an evaluation oI
competencies such as the KSAs that distinguish superior perIormance.

Performance Appraisal Ratings and Forms

rganizations usually establish appraisal ratings to indicate the level oI perIormance
achieved by employees. The current trend is to simpliIy rating scales and move away Irom
numeric scales to words oI descriptive perIormance. The value oI a rating system is that it
provides a clear indicator to the employee oI the level oI his or her perIormance achievement.
However, over Iocus on the perIormance rating minimizes the value oI the ongoing
perIormance development oI the employee.

An appraisal Iorm constitutes to consistency in perIormance Ieedback and management in the
organization and ensures perIormance management activities are properly documented. Form
should be kept as simple and clear as possible the more complex the Iorm, the more
opportunity Ior misunderstanding and miscommunication.

Performance Appraisal Roles
O Supervisors
4 &sually do the actual appraising.
4 Must be Iamiliar with basic appraisal techniques.
4 Must understand and avoid problems that can cripple appraisals.
4 Must know how to conduct appraisals Iairly.

O H# department
4 Serves a policy-making and advisory role.
4 Provides advice and assistance regarding the appraisal tool to use.
4 Prepares Iorms and procedures and insists that all departments use them.
4 #esponsible Ior training supervisors to improve their appraisal skills.
4 #esponsible Ior monitoring the system to ensure that appraisal Iormats and
criteria comply with Equal Employee pportunity (EE laws and are up to
date.



MANAGEMENT BY OB1ECTIVES
Management by objectives (MB is a systematic and organized approach that allows
management to Iocus on achievable goals and to attain the best possible results Irom
available resources. It aims to increase organizational perIormance by aligning goals and
subordinate objectives throughout the organization. Ideally, employees get strong input to
identiIy their objectives, time lines Ior completion, etc. MB includes ongoing tracking and
Ieedback in the process to reach objectives.

Managerial Focus
MB managers Iocus on the result, not the activity. They delegate tasks by "negotiating a
contract oI goals" with their subordinates without dictating a detailed roadmap Ior
implementation. Management by bjectives (MB is about setting objectives and then
breaking these down into more speciIic goals or key results.

Main Principle
The principle behind Management by bjectives (MB is to make sure that everybody
within the organization has a clear understanding oI the aims, or objectives, oI that
organization, as well as awareness oI their own roles and responsibilities in achieving those
aims. The complete MB system is to get managers and empowered employees acting to
implement and achieve their plans, which automatically achieve those oI the organization.

Where to Use MBO
The MB style is appropriate Ior knowledge-based enterprises when your staII is competent.
It is appropriate in situations where you wish to build employees' management and selI-
leadership skills and tap their creativity, tacit knowledge and initiative. Management by
bjectives (MB is also used by chieI executives oI multinational corporations (MNCs Ior
their country managers abroad.

MBO Strategy
1. All individuals within an organization are assigned a special set oI objectives that they
try to reach during a normal operating period. These objectives are mutually set and
agreed upon by individuals and their managers.
2. PerIormance reviews are conducted periodically to determine how close individuals
are to attaining their objectives.
. #ewards are given to individuals on the basis oI how close they come to reaching
their goals.

MBO Stages
1. eIine corporate objectives at board level
2. Analyze management tasks and devise Iormal job speciIications, which allocate
responsibilities and decisions to individual managers
. Set perIormance standards
4. Agree and set speciIic objectives
5. Align individual targets with corporate objectives
6. Establish a management inIormation system to monitor achievements against
objectives

Advantages
O MB programs continually emphasize what should be done in an organization to
achieve organizational goals.
O MB process secures employee commitment to attaining organizational goals.

Disadvantages
O The development oI objectives can be time consuming, leaving both managers and
employees less time in which to do their actual work.
O The elaborate written goals, careIul communication oI goals, and detailed perIormance
evaluation required in an MB program increase the volume oI paperwork in an
organization.

BOTTOM LINE
For many organizations, becoming perIormance-driven might cause a cultural upheaval that,
at least in its early stages, results in turmoil, a perception oI chaos and a lot oI discomIort. It
can trigger turnover oI long-time employees who do not like to be held accountable Ior goal
achievement and who Ieel entitled to a certain level oI pay regardless oI their perIormance.
And it might cost money as you make the initial investments.

But with the leadership and commitment oI senior management, becoming perIormance-
driven will lead to dramatic improvements in perIormance in Iinancial terms, with respect to
employee productivity and morale and in the Ilexibility to quickly adapt to change. The eIIort
will be well worth it.