Performance Management
By Rodney K. Platt, WorldatWork
(Submitted by: Tammy Goins, HRACI Communications Committee)
Performance
management is perhaps one of the most challenging areas
of responsibility in the field of human resources. It also
is one of the most controversial, because it involves the
measurement and evaluation of employee performance. As a
result, performance management systems must be well conceived
and implemented.
After
a somewhat humble start in many companies as an “HR
program,” performance management has evolved into
a competition-mandated, business imperative as organizations
have learned that focusing on individual performance eventually
can pay bottom-line company dividends. Despite years of
academic research and real-life practice, the development
and implementation of effective performance management practices
continues to be a challenge for many organizations today.
In
addition to being challenging and controversial, performance
management is critical to the success of the business. An
effective performance management system encourages employee
behaviors that drive positive business results. An ineffective
performance management system, at best, utilizes rewards
inefficiently and, at worst, adversely affects the outcomes
that it is intended to improve.
To
maximize organizational success, companies must motivate
individuals and groups toward a common goal. Performance
management is the managerial process that is used for this
purpose.
What
is Performance Management?
Performance management is a systematic approach for managing
individuals and/or groups that involves planning, monitoring,
appraising, rewarding and improving performance in support
of the business strategy. It is a dynamic and adaptable
process that cascades throughout the organization, from
the organizational level to the individual level. It utilizes
observation, feedback, development and other management
tools.
A number
of forces are driving evolutionary changes in performance
management systems. Accelerating technological change is
a leading force for change in performance management because
technology creates new bases of competition and continually
mandates new employee skill sets. A second major factor
is global competition, due to the relentless competitive
and economic pressures it applies to most organizations.
Performance
management also is being influenced by the “new deal,”
which many employees experience in their employment relationship.
No longer do employees hold out the hope, nor even the desire,
for life employment with the same company. Free agency and
an individual career management mentality have taken over
in the work force, sometimes to the detriment of organizational
performance. In addition, new organizational designs (such
as team-based work), the importance of human capital and
general dissatisfaction with existing performance management
systems are all forcing changes in performance management
thinking and practice.
Why
Performance Management?
Is a formal performance management system really necessary?
Organizations can justify performance management by using
it effectively to achieve business objectives.
The
ultimate goal of a performance management system is improved
organizational performance. Performance management works
to achieve consensus, cultivate continuous improvement,
support relationships and ensure that the entire organization
is focused on achieving the desired results. Performance
management is needed to:
-
Foster cultural change, link pay to performance, identify
training needs, empower line managers, motivate the work
force
-
Improve profit, performance, customer service, efficiency,
competence and quality.
Benefits
of Performance Management
Performance management provides management structure. Most
employees prefer a certain degree of structure in which
to operate (unless it becomes too constraining). It also
provides avenues for management to be champions, mentors
and coaches; it creates a framework for offering encouragement,
support and guidance.
Results
of Performance Management
Does performance management work? It does, but it is a constantly
evolving process. A performance management system that balances
the organizational goals with the abilities and characteristics
of its work force will have the greatest chance of success.
Utilizing
a formal performance management system is common in most
organizations today. In fact, 95 percent of the nearly 1,200
organizations supplying information in a recent survey of
performance management practices report having some type
of formal performance evaluation system in their organizations.
The
Performance Management System
The concept of performance management usually is associated
with the performance appraisal. However, performance management
is a process that is part of a larger system affecting employee
performance as well as the entire organization and its departments,
teams/groups, processes, programs, projects, products/services
and customers.
The
performance management system originates with the key organizational
drivers of business performance. Performance objectives
emerge from the drivers to create performance targets, with
the performance management process being applied to the
entire organization, business units, groups and individuals.
The performance management process should undergo periodic
evaluation and assessment, ultimately leading the organization
to achieve desired outcomes.
Internal
and External Influences
Performance management does not operate in a vacuum. Internal
and external influences exert continual and changing pressures.
Legal challenges, competitive situations and internal changes
are just a few examples of the forces that may act to throw
the system out of balance. HR must be aware that there will
be many influences that affect performance management and
take steps to ensure that the system can withstand or adapt
to most of the obstacles it encounters.
Internal
influences can include corporate philosophy, business strategy,
culture, organizational structure, employees and management.
External
influences can include community culture, legal/regulatory,
labor market, industry characteristics, resource availability,
technology, competition, economics, politics and global
changes.
Performance
Objectives
Organizational drivers lead to the development of specific
organizational objectives. To achieve organizational objectives,
there must be a means by which to measure and assess incremental
performance. Consequently, there is a need for performance
standards and measures.
Performance
standards and measures identify certain target levels of
performance and specify the method(s) used to quantify and
track performance. Performance standards may stipulate that
a certain level of performance is achieved, a critical success
target is reached or the organization needs to “stretch”
to achieve even more.
Performance
standards or targets commonly are identified in terms of:
-
Financial outcomes (e.g., revenue, net income)
-
Operational outcomes (e.g., customer satisfaction, quality)
-
Behavioral outcomes (e.g., performance/application of
knowledge, skills, abilities).
The
above outcomes are generated from the plans and objectives
set at the organizationwide, department, unit, group and
individual levels, all in support of the business strategy.
Outcomes
The outcomes of the performance management system will cascade
throughout the organization. In the early stages of design,
it is important to consider potential outcomes and make
design decisions with these in mind.
The
structure and operation of the performance management system
and processes may affect the following:
-
Performance management stabilization –
creating alignment, organizational initiatives and strategy,
department/goals, individual performance plans
-
Organizational performance –
productivity, adaptability, quality
• Human resources strategy and branding –
attraction, retention, total rewards mix
-
Employee satisfaction –
motivation, engagement, retention and loyalty
-
Reward systems – merit
pay, variable pay (short-term and long-term incentives,
including effect on equity-based rewards), recognition
-
Development – succession
planning, training, career progression.
Performance
Management Support
It is a common assumption that the HR department “owns”
performance management. This is likely due to the fact that
many of the performance management system tools are often
housed within HR, with the most conspicuous example being
the performance appraisal. In practice, performance management
is an organizational strategy that is supported by HR. The
various HR roles and responsibilities that link to performance
management include:
-
Staffing – (formal job creation, recruitment, selection,
promotions, demotions, terminations
-
Organizational development – (training, education,
coaching, succession planning
- Compensation
and rewards – (job analysis, job evaluation, job
descriptions, salary administration, merit budget, incentives,
recognition programs
- Performance
appraisal – (evaluation tools, performance reviews,
performance improvement plans, link to rewards)
-
Communication – (training of managers, organizationwide
communication of performance program, implementation of
evaluation tools)
Performance
management requires everyone in the organization to share
responsibility for its success. The role of HR is to serve
as a strategic partner in accomplishing the desired outcomes
of the performance management system.
Effective
Performance Management Systems
Effective performance management is always important, but
given the current economic climate, it takes on added significance.
In an era rife with workforce reductions, budget cuts and
small or no pay increases, enhanced productivity is perhaps
the only key to growth – and certainly one that organizations
can control.
The
question is how to enhance performance management practices.
Too many organizations, in a misguided manner, seek to improve
results by only focusing on revising "the appraisal
form" or by copying the rating scheme used by a "best
practice" company.
The
effectiveness of any human resources practice depends most
on its fit within the broader organizational system in which
it operates. The most powerful human resource practices
are firm specific and respond to an organization's unique
business and human capital context. Once the "right"
performance management practices are in place, they can
operate as a cohesive system and create a significant financial
return that competitors will find difficult to replicate.
Measuring
Performance
Establishing an effective performance management system
is a major challenge for most organizations. Perhaps the
most important reason for this interest is the increased
importance of human capital. Because work requires increasing
amounts of knowledge and skills, organizations depend more
and more on the performance of their human capital, and
as a result are increasingly focused on how it is managed.
It
is very difficult to effectively manage human capital without
a system that measures performance and performance capability.
Organizations need a system that can identify the capabilities
of its human capital so that they can effectively staff
projects, implement strategic initiatives and manage the
development of their workforces. They also need measures
of performance so they can deal with performance problems
and motivate performance excellence.
Organizations
potentially can use a wide variety of approaches to performance
management. These choices continue to increase because of
the availability of 360-degree appraisal tools and the growing
use of the Web to enable organizations to do more integrated
and comprehensive human capital management.
A
Building Block
A great deal of the theory concerned with human motivation
and human development argues that an effective performance
management system should be a key building block of every
organization's human capital management system. To tie performance
to rewards (the key to motivating performance), organizations
need to have accurate measures of individual performance.
To develop this, individuals need feedback about their strengths
and weaknesses as it relates to their role within the organization.
Organizations,
meanwhile, need performance information to direct their
training and development resources to those individuals
who can gain most by them. Finally, organizations need performance
information to correct performance problems and assess the
effectiveness of their improvement efforts.
Creating
an effective system likely is not simply a matter of picking
a number of best practices and putting them in place. There
are critical interface and system design issues that need
to be taken into account. The individual performance management
practices need to be driven by the business strategy and
fit with each other and with the overall human resource
management system of the organization.
When
the right practices are in place, the potential exists to
create a performance management system that can accomplish
multiple objectives. Creating an effective system requires
the tailoring of practices to the specific situation of
a given organization.
Reprinted
with permission from WorldatWork, 14040 N. Northsight Blvd.,
Scottsdale, AZ 85260; phone (877) 951-9191; fax (480) 483-8352;
www.worldatwork.org. © 2003 WorldatWork. Unauthorized
reproduction or distribution is strictly prohibited.
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