Performance Management Process

Various authors propose various steps for performance management process. The typical performance management process includes some or all of the following steps, whether in performance management of organizations, subsystems, processes, etc. Note that how the steps are carried out can vary widely, depending on the focus of the performance efforts and who is in charge of carrying it out. For example, an economist might identify financial results, such as return on investment, profit rate, etc. An industrial psychologist might identify more human-based results, such as employee productivity.

Performance management process is composed of four main stages:

  1. Planning Performance
  2. Managing Performance
  3. Reviewing Performance
  4. Rewarding Performance

Performance Management Process

1. Planning Performance

As with the introduction of any process, there first needs to be clarity about the primary reason for introducing performance management and a clear view about what it is expected to deliver in terms of results. There also needs to be strong commitment from the top to the introduction of process, as without this commitment it will be difficult to gain support from the lower echelons of organizations and insufficient resources may be allocated to achieve the desired result.

The next logical step in designing a performance management system is the setting of objectives. Typically, these will derive from the organization’s overall direction and strategy and from broad statement of intent which will be gradually refined, cascading down the organization, until they are translated into individual targets. This is known as the top-down approach. An alternative to this is bottom-up approach. In this case, as the name suggests priorities and targets would be identified by those lower down in the organization. In some respects this might seem illogical as it runs counter to the theory that jobs exist for a particular purpose is determined by the organization’s management. Certainly in most situations it would be expected that the targets of individual employee would be dependent on the overall objectives. However, there are circumstances in which the bottom-up approach can be useful means of determining overall objectives. This will normally arise in large organization in which senior management may be a long way removed from the customer or client base. In such circumstances the employees at the ‘coal-face’ may well have a sounder appreciation of the needs of those customer or clients and be therefore better able to decide on the kinds of priorities that are likely to result in greater customer satisfaction.

When consideration is given to target setting for individuals, it should also be borne in mind that those individuals will have aims that are not just work related. Indeed their priorities are much more likely to revolve around such issues as promotion prospects, pay, recognition, time-off, lifestyle, relations with colleagues and the boss.

Objective Setting:

An objective may be defined as a “clear statement indicating how a particular output will be achieved in both quantitative and qualitative terms”. Good objectives should conform to what have been described as “SMART’ criteria, i.e. they should be:

  • Specific- As precise as possible and relating to only one identifiable output.
  • Measurable- Or it will be difficult, if not impossible, to judge when they have been achieved.
  • Achievable- Or they will lose credibility, be demoralizing and serve no useful purpose.
  • Result oriented- Be related to the end result which is to be achieved.
  • Time related- Objectives without a clear timescale give no guidance on priorities.

There are a number of other factors to be taken into account when setting objectives. It has already been stated that they should be achievable., but it should also be borne in mind that the extent to which someone will be motivated to achieve a particular objective will depend on the extent to which they are able to influence it.

In a manufacturing environment, for example, an individual may well have a higher degree of control over the number of units produced. Similarly sales representative will usually have a high degree of control over the visits they might make to potential customers. In these case objectives can be set which can contain, among other things, certain target volumes to be achieved, and the individuals will usually regard these as being logical, although they might debate the actual numbers selected.

On the other hand, setting targets over which a person has little control will be demoralizing and will be unlikely to result in the set target being reached. There are numerous examples of this; supervisors may often be held accountable for the motivation and morale of employees under their control. However, this motivation and morale can suffer for reasons that are totally beyond the control of the supervisor, such as poor business performance, weak senior management, redundancies, etc.

While it is crucial that objective and targets should be those that individuals can influence, it is also important that they are significant ones for the organization. Almost anyone who works in an office, for example, has a considerable amount of influence over the way in which they organize their paperwork, but setting targets for them to attain is hardy likely to make a significant contribution to the organization unless that is the organization’s business, such as a company which processes credit card transactions on behalf of Barclay card or American Express. The overriding consideration is that any objective should, as far as possible, both give the organization some kind of competitive advantage or have the impact on the direction and performance of the business, and also be those over which the individual has a high degree of control. The higher degree of control and the more significant the attainment of a specific objective, the more desirable it is for the organization.

It is very important to ensure that any objective set relate to corporate objectives and that they align well with those set for other posts. For this reason objective setting should not be done in isolation for one post only but should take account of all other posts in a particular team or group and all the other individuals and teams with which they interact.

Although objectives have to be achievable, they should also be stretching to ensure that the organization performs well and grows where possible and to develop the individual post holder. Objectives that will be attained in any case and with the little discernible effort on the part of post holder are of little value.

Objectives should be set in all the important areas of the job and should not be too numerous, otherwise it will dilute the impact and divert the individual’s attention from the matters that are really important. While the precise number will depend on the type of job and the kind of objectives set, any number significantly greater than ten is likely to be too many for one person to cope with realistically.

Obviously some objectives will be more important than others and the priorities should be made clear. Those which should be given greatest priority are ones which will have most significant impact on the organization and give the greatest competitive advantage.

A surprisingly difficult aspect of measuring actually knows when someone has attained his or her targets. Even when clear and concrete targets are available this can still be difficult. For example, if someone has set a sale target of Rs.100, 000 in a year but achieves Rs.97, 000 only, is that on target or not? A strict literal interpretation would be that individual is below the target. However it is more likely that any figures within what may be regarded as an acceptable range would be treated as on-target performance.

It all depends on he circumstances in which he results are obtained and the way in which the performance process operates. What is important is that wherever possible numerical targets are set. Obviously most jobs have certain aspects to them that are not easily measurable and for others the output may be very difficult indeed to define. How, for example, can you measure the outputs of a scene of a crime officer in a police force? Or a researcher? In such cases performance objectives may have to relate more to competencies than measurable outputs, and this is considered further below.

Competency Based Objectives:

It has been stated that objective should, as far as possible, be specific and measurable. This means using clear output measures wherever possible. For many jobs, however, outputs are not all clear. While generally it is easy to determine the performance measures for the most senior management posts in the organization, usually based on overall organization performance and including such parameters as earning per share, and for the most junior posts which are likely to be task based, it is much more difficult for those posts in the middle where there is a less direct link with outputs. Similarly even where there are clear measures, to focus on unit of production alone could neglect the qualitative and development aspects of any role.

Any performance management scheme should therefore have a mixture of quantifiable outputs and more behaviorally based competencies. The important points in using competencies as performance measures are:

  • They must be worded in such a way that they can be objectively assessed, otherwise they run the risk of becoming just shopping list of desirable traits.
  • They must be relevant to the job.
  • There should be a common core of competencies for jobs operating in same environment; otherwise it will be difficult to establish common standards.
  • They should mot be too numerous otherwise the same thing may be measured more than once.

2. Managing Performance

Once performance objectives have been set and action plan agreed, the next stage of the performance management process is to ensure that those plans are acted on and the required results produced. ‘Management’ in this sense means more than conducting an annual appraisal, although such actions will inevitably form an important part of the process. What it is really about is giving employees the necessary support and create the appropriate conditions for them to be able to deliver required results, in effect ‘empowering’ them. In particular terms that is likely to mean:

  • Giving necessary practical support, such as providing the appropriate resources.
  • Ensuring that employees are clear about the results and giving any advice or clarification that may be needed.
  • Giving employees the necessary training and development to ensure that they are able to achieve their accountabilities.
  • Adjust targets, priorities and performance measures according to changes in organizational priorities, markets, government, policies, etc.

In essence this involves adopting a management style approach that helps to develop a performance culture in which results are perceived as more important than traditional conventions of behaviors within the organization. For example, there should be less emphasis on ensuring that people are in the office between certain hours and more on what they produce while they are there, although of course in many environments good timekeeping would be an essential requirement for effective performance.

An important part of managing performance is also taking responsibility for one’s own performance. This requirement applies equally to managers and subordinate, but it’s particularly important for managers to lead by examples.

It is over simplifying to suggest that there is any one management style that is the best. The most appropriate style in any particular situation will depend on a number of factors, including personality of the individual, the nature of the task, the timescale and the culture of organization. For example, in any organization such as fire services, because of consequences of not acting as a team and responding quickly to direct instructions could be fatal, a directive style of management is most appropriate, at least for operational staff. This is reinforced by strict rules, drills and uniforms. On the other hand, with a team of professional engineers, a more participative style is more appropriate to ensure the fullest consideration of ideas and views and because the nature of the role is to reach agreement through discussion (in most cases). Similarly some individuals prefer to be directed while others loathe it. Jobs that have to be completed against a very tight deadline require strong direction and control.

Except where tasks are very prescribed, and possibly even then, the most effective management style is likely to be one that empowers individuals to make decisions that are within there competence and that gives them all the necessary support and encouragement. The aim in effectively managing performance, therefore, should be to adopt a style which gives coaching and assists in people’s development, but with the option held in reserve of becoming more directive should be the need arise. At the end of day it’s the role of the manager to ensure that the results within his control are obtained, and the delegation or empowerment of subordinates does not absolve that manager of that responsibility. There may be the danger that subordinates may not be able to cope with the ambiguity that could arise from the use of different styles at different times. The way round this problem is to make it very clear just what the ground rules are i.e. “the way things are done round here”. Over the years organizations have written down what their philosophy of management.

3. Reviewing Performance

Strictly speaking that performance review is part of the process of managing performance. However, in view of specific considerations that apply to this aspect of the process it is convenient to examine it as a separate element.

Where performance appraisal exists, it typically centers round interview held once or twice a year, between the post holder and his or her boss. Sometimes the outcomes of this interview can have a direct bearing on pay or promotion, whereas in other cases the emphasis is on training and development. Often performance issues are raised that may not have been discussed at any time during the year.

Some interviews can be bland, with the employee left with the impression that he or she is performing satisfactorily even though that may not be the manager’s true view, this is because large number of managers find it uncomfortable to be openly critical of their subordinates’ performance, even though they may be prepared to make such criticism to third parties. At the other extreme, interviews can degenerate into sessions for apportion blames for past failures.

What is ideally required is a process that is constructive and supportive and that gives advice that can help individual improve and develop. Able and well-motivated staff will usually welcome constructive criticism. To achieve this there are certain principles that need to be adhered to:

  • The appraisal interview should not contain any surprises. The appraisee should be well aware of his/her level of performance before the interview because of the regular feedback given by managers.
  • The process should be applied to everybody. Every employee has the right to know how well he/she is doing and it is an obligation on the part of management to let him/her know.
  • Employee should be encouraged to review their own performance and give the opinions about how they think they have done.
  • The discussion should be focused on the targets that have been set and the achievements against those targets.
  • Appraisers should remember the rule that they have two ears and one mouth, to be used in that proportion when conducting an appraisal interview.

Rating performance

A crucial part of performance appraisal is judging how well an individual has performed against identified targets. Generally, assessing the results will be easier than judging the quality of those results, but it can be far from straightforward even when the measure seems obvious. In making judgments about performance there are a number of key principles to be adhered to:

  • The performance should be judged against overall objectives, which may have been broken down into separate targets which together contribute to the overall objective. For example, an objective of reaching a certain level of sales may be comprised of target figures for individual products.
  • As far as possible, objectives should be quantifiable, although for most jobs there will be a mixture of hard objective measures and competencies.
  • Unfortunately there are few short cuts when it comes to assessing performance. Careful consideration has to be given to each of the objective and targets and account has to be taken of the circumstances in which they were achieved. There is rarely any easy formula that can be used for a particular measure.
  • In rating performance, the appraiser should take account of every aspect of the job, give an overall rating for the job as a whole and not be unduly influenced by extremes of performance in one part of it.
  • In considering individual performance, emphasis should be placed on what are regarded as priority objectives and the overall performance should be measured against the post holders’ accountabilities.
  • Account should be taken of any internal factors affecting performance, such as changes to the organization, the availability of resources, the degree of challenge built into the accountabilities in first place.
  • One of the greatest difficulties any manager experiences in appraising staff is being objective about the individual. There is a tendency, naturally, to want to give better ratings to people we like than to those we are less keen on. Similarly, judgments can be influenced by the “halo effect” in which one impressive attribute can tend to make the appraiser rate the others more highly than they perhaps deserve. The converse could be described as the “horns effect”, in which poor performance in one area could color judgments about other aspects.
  • The appraiser should also take account of external circumstances, particularly in terms of market conditions, changes to the law or in government policies, and economic conditions. There are several examples of large divisionalised companies where some divisions are buoyant and managers are hitting their targets or exceeding them with ease, whereas in other divisions of the company, because of a difficult market, managers with similar targets struggle to get even close. In such circumstances account has to be taken of the prevalent market conditions, even at the risk of undermining what might be perceived as internal equity.

There are a number of different ways of describing the performance rating. Some organizations use a standard verbal description, others may assign an alphabetical or numerical rating, while yet others may describe performance as ‘on target’, ‘above target’, etc. Similarly the number of levels varies, with five being about the most commons.

The key to successful performance appraisal probably lies in ensuring that line managers have ownership of the process, that they are fully trained in it, and that there is general acceptance of the principle of appraisal by the employees concerned. The one thing that is certain is that is individuals’ performance will be appraised anyway. The issue is that whether it should be done informally or formally and in an open and systematic way which can develop and reinforce a performance culture. However, once implemented, the process must be the only one in existence. There is at least one organization in which in addition to the formal scheme there was another, informal one through which manager could qualify any comments they might have made in face-to-face discussion with the appraisee. These qualified comments could be made unofficially to senior members of management and would be placed on individual’s files. Obviously such an approach undermines the whole principle of performance management.

4. Rewarding Performance

Rewarding performance is the element of the performance management process which seeks to give employees some kind of return for achieving their targets. This is wider than just financial recompense and includes such things as praise, greater opportunities for training and development, and promotion. Very often one of the things most sought by an employee is the recognition that he or she is doing a good job and where, for example, this is expressed in terms of bonus it is very often the recognition rather than the cash that really matters. It is only when money enters the equation that rewarding performance become very tricky and the emphasis her is therefore on the financial aspects.

People very often consider performance management solely in terms of performance related performance related pay (PRP). When there are business pressures to improve performance a common reaction of many managers is to want to pay for the results, even though the organization may have no comprehensive system of performance management. However, it is never appropriate to introduce PRP unless there is already such system in place. It is very difficult to get this aspect of process right, and there are numerous examples of PRP schemes, which may be called, ‘merit pay’, ‘performance bonuses’, ‘incentive bonuses’, etc that have fallen into disrepute.

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