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Performance Management System: Issues and Challenges

Article  in  Management and Labour Studies · August 2011

DOI: 10.1177/0258042X1103600304

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 Performance Management System :
Issues and Challenges

S. Panda

Human resource is a vital component for an organization. In the current

scenario of business, their co-opt ability, competitiveness, knowledge up-
dates, skill up-gradation and over & above their performance play crucial
role in yielding successful results for a company. Organizations have
started realizing and strategizing their Performance Management System
(PMS) which has become an important area of concern both for the
practitioners as well as for the academicians. In this paper, performance
related issues, Systems Model on PMS, common practice, challenges of
PMS, some of the problematic issues in managing employee’s performance
and the key role of the department of HRM have been discussed.
Keywords : HPerformance Management System (PMS), Human Resource
Management (HRM) Key Performance Area (KPA), Key Result Area (KRA),
Counselling

I. Introduction 1985; Terpstra et.al. 1993; MacDuffie,

1995; Guest & Hoque,1994; Pfeffer, 1994).
Human Resources are vital assets for
Different intangible assets like customer
organizational success. These are to be
loyalty, capacity to innovate and change,
valued highly for achieving the
brand image, intellectual capital,
competitive edge. In this direction, the
leadership effectiveness aspects depend
HR policies and practices should be
heavily on employees’ capabilities and
linked with the organizational goals. The
commitment. The reality for many
impact of HRM practices can be source
organizations is that their human
for sustained competitive advantage.
resources remain undervalued, under-
Enhancement of organizational
trained, and under-utilized (A.S.Kohli &
performance should be the focus for an
T.Deb, 2008). Different models on HRM
organization Wright et.al. 1999). Studies
like Havard Model by Michael Beer
have suggested that training, selection,
(1984), Stakeholder Systems Model by
appraisals, compensation, linking of
Freeman (1984), Wheeler and Sillanpaa
HRM practices index to both financial
(1997), equally emphasize on the
and market outcomes; have linkage with
performance outcome of the employees
organizational performance (Russel,
and benefit to all eh stakeholders interest

Dr. Sitansu Panda, Associate Professor (HRM), Siva Sivani Institute of Management, Kompally,
Secunderabad. Email: sitansupanda.ssim@gmail.com

MANAGEMENT AND LABOUR STUDIES 271 Vol. 36 No. 3, August 2011

 Performance Management System : Issues and Challenges
including organizational effectiveness.
The theoretical framework provided by
Jackson and Schuler (1995) discusses on
the role and functional aspects of human
resources to help developing the area of
HRM. An integrated model on HRM
highlights performance management as
an essential part of human resource
management (A.S.Kohli, 2008). In this
paper, various issues and challenges in
managing employee performance have
been discussed.
II. Conceptual Framework on
Performance Management
System
It is difficult to trace the true antecedent
of formal performance appraisal. But, it
seems that the performance appraisals
of workers on annual basis began with
the advent of industrial revolution in the
late eighteenth century (Kohli, 2008). The
basic purpose was to assess the
productivity of a worker. The rating of
performance was introduced in the
1920s. The focus of appraisal changed
to assessing the personality traits of
workers after the Hawthorne Studies.
And it brought merit rating method for
assessing the performance. However,
this method came under severe criticism
as it focused more on the personality
traits. Moreover, trait measures were
subjective and dubious in predicting the
outcome of an employee (Napier &
Latham, 1986). Then, MBO approach of
appraisal advocated by Peter F. Drucker
gained popularity. But, too much
subjectivity and inconsistency were the
limitations of this approach. Over time,
performance management as a concept
evolved and gained attention (Beer &
Ruh, 1976). The real concept of
performance management aims for
MANAGEMENT AND LABOUR STUDIES
enhancing the performance of both
individuals and the organization
(Fletcher, 1993). And in due course of
time, many performance management
systems like Performance Pyramid (Cross
& Lynch, 1991) Balance Score Card
(Kaplan & Norton, 1992), Performance
Prism (Neely, 2000) have been developed
providing a scope for appraising
multiple dimensions of performance.
The phrase of performance management
was used for the first time in 1976 by
Beer and Ruh. (Kohli, 2008). This concept
has been the most significant
development in HRM sphere in recent
times. The emphasis has been shifting
from controlling, commanding and
vigilant system to commitment based
system.
Performance management involves
thinking through various facets of
performance, identifying critical
dimensions of performance, planning,
reviewing, developing and enhancing
performance and related competencies
(Dr. T.V. Rao, 2004).
Performance management includes the
whole cycle of agreeing goals and
objectives, providing feedback, offering
coaching, advice and motivating staff to
perform at a high level (John Storey,
2005).
Performance management is a process
which contributes to the effective
management of individuals and teams
in order to achieve high levels of
organizational performance (Michael
Armstron & Angela Baron, 2004).
Performance management is a planned
and systematic approach to managing
the performance of individuals ensuring
their personal development and
272 Vol. 36 No. 3, August 2011
 Performance Management System : Issues and Challenges
contribution towards the organizational
goals (Ronnie Malcom, 2007).
Performance management is a strategic
and integrated process that delivers
sustained success to organizations by
improving the performance of the people
who work in them and by developing
the capabilities of individual
contributors and team (Michael
Armstrong, 2000).
Performance management is a
management system whereby the
organizations objectives are set and met
by means of process of objective setting
for individual employee (Institute of
Manpower Studies Report, 1992).
More or less, the aforesaid definitions
focus that performance management
should aim for enabling an organization
for continuous communication and
commitment building process providing
scope for employees and organizational
development. In this context, it is
pertinent to provide a model for the
effective management of employee/s
performance in organizations which has
been discussed.
III. Systems Model Performance
Management
Managing employees’ performance
essentially requires managerial skill and
professionalism. Suitable planning,
implementing, monitoring, reward and
performance feedback are to be taken for
its effective management. A systems
model for management of employees
performance portrayed in Figure-1 has
been discussed below.
MANAGEMENT AND LABOUR STUDIES
Employees are expected to perform better
and when their expectations/goals are
aligned with business goals then it will
bring wonderful results for the company
as well as for the employee/s (Dumond,
1994). But, mostly it does not happen due
to faulty work system/technical
problems/personal incompetency. In
this perspective, it is essential for the
management to formulate a suitable
system ensuring identification of
problems at various levels and taking
sound policy measures which is done
by the top management initiatives with
the involvement of line management. It
is followed by implementation of
appraisal policy. It is equally important
as fixing of standard performance in
quantitative or qualitative form
(absolute/relative), selection of
appropriate appraisal method,
frequency and periodicity are to be
decided and implemented. After filling
the performance attainment record in
suitable forms and comment given by the
concerned authorities for the employees,
all the date are referred to the
department of HRM. Finally, the top
management decides the reward of the
achievers/performers. Finally, the
limitations and suggestions are
incorporated for modifying the existing
performance policy/methods and the
like. In case of the poor performer, the
boss and the HRM department provide
suitable counseling for his improvement.
By and large, companies follow systems
model and strive for excelling their
employee/s performance.
273 Vol. 36 No. 3, August 2011
 Performance Management System : Issues and Challenges

Figure-I: System Model for Managing Employees Performance

MANAGEMENT AND LABOUR STUDIES 274 Vol. 36 No. 3, August 2011

 Performance Management System : Issues and Challenges

MANAGEMENT AND LABOUR STUDIES 275 Vol. 36 No. 3, August 2011

 Performance Management System : Issues and Challenges
IV. Common Practice for Performance
Management
Every company needs to assess its
position and should strive for
improvement to attain/ sustain its
competitiveness in the market. In the
changing environment of business, entry
of new competitors, organizations
should become dynamic. In doing so,
critical issues like productivity, quality,
market share, analysis of domestic and
global market opportunities have to be
taken into consideration in formulating
policy measures which are to be made at
the strategic level. Then the
departmental goals are being set and
gradually cascaded to the employees
working at various levels.
In view of the organizational strategy,
assessment of performance needs is
essential for attaining organizational
objectives. In doing so, many issues like
identification of competencies, gathering
information regarding critical issues,
new and future performance needs,
prioritizing improvement measures,
regarding and recognizing
organizational value, setting
performance expectations and over &
above aligning employees performance
with the organizational goals; are to be
taken great care.
In general, companies follow six stages
in order to manage their employees’
performance as: performance planning,
mid-term review, annual assessment,
finalization of performance rating by the
reviewing officer, performance
counseling and HR actions.
Performance planning is done jointly by
the manager and the employees at the
beginning of the year and Key
MANAGEMENT AND LABOUR STUDIES
Performance Areas (KPAs) are to be
identified. Mid-term review is done and
necessary changes in support system,
resources, technology etc. are also
assessed. More or less, the achievements
by the employee/s (KRAs) are reviewed
by their boss. At the end of the year, the
appraisal forms are given to the
employee/s which needs to be filled up
by the employee/s. In the form, an
employee has to indicate his/her
achievements and outline the major
performance expectations to be achieved
next year. Then the manager/immediate
boss/superior authority/concerned
officer has to fill up the appraisal form
of the employees discussing with the
employee/s. In doing so, s/he discusses
with the employee and identifies specific
achievements and identifies corrective
measures. It is followed by the
performance review by the reviewing
officer who is a high-level manager who
finalizes the review for objectivity and
accuracy of performance assessment
with and across various work units.
Performance counseling is given to the
employee with the help of his immediate
boss where development inputs and
overcoming constraints are given more
importance. Different Facilitating
Factors (FF), Inhibiting Factors (IF) are
explored. Finally, all the filled in forms
with the comments of the reporting officer
and reviewing authority are sent to the
HRM department for suitable action. All
the training and development planning,
compensation and reward
administration, promotion/succession
planning announcement and such other
crucial issues are to be dealt with the
HRM department. PMS can fulfill
different functions depending on the
context, content, culture and managerial
276 Vol. 36 No. 3, August 2011
 Performance Management System : Issues and Challenges
intentions of the company concerned.
Some companies have electronic
performance management system.
Organizations of different sectors as per
the suitability and economic viability,
they either designs their own PMS or hire
and install the appropriate software.
They also take the professionals/
experts/HR consultants service for
V. Challenges in PMS
Strategic implementation of the
performance policy and its execution
yield the desired results. The alignment
of the organizational goals with Strategic
Business Units/Departmental goals/
Individual goals is one of the important
areas in PMS. The policy objectives and
measures taken at the strategic levels
MANAGEMENT AND LABOUR STUDIES
designing and implementing the PMS as
per their requirement and specificity. In
the field of academics also, PMS is
planned, designed, developed and
implemented. By and large, companies
appraise employees’ performance
manually/electronically. In the figure-
2, PMS of a dairy manufacturing firm
belong to private sector has been given.
have to be cascaded to the lower level
(goal cascading). Individual employees
role and goal clarity, setting individual/
team targets, designing performance
benchmark for different level of
employees, providing necessary human
and technical support to employee/s and
other related strategic and functional
aspects are the challenging areas.
277 Vol. 36 No. 3, August 2011
 Performance Management System : Issues and Challenges

Designing suitable performance policy performance feedback, inadequate

and its implementation ensuring excellent resources, unrealistic expectations,
employees performance through failure to communicate the performance
periodical review, incorporation of expectations, harassment, biasness in
rewards/recognition are really rating, harassment, lack of attention,
challenging functions for the managers. unfair treatment to employee/s are some
of the main problematic issues in
The appraisers play key role in PMS.
PMS(Kohli, 2008). Sometime lack of
The immediate boss/supervisor/ officer
management commitment results poor
has to appraise his/her subordinates
organizational performance.
achievements neutrally with irrespective
to the appraisal method. In most cases Organizational culture has paramount
based on their ratings, reviewing officer influence on employee and managerial
makes his comments on the employee’s performance. And it creates dominant
performance achievement reviews. behaviors which become crucial in the
conduct of business. Office politics is the
Appropriate method has to be followed
biggest contributor to workplace stress.
for appraising employee performance.
It causes to decline in the performance
The rater/s, reviewing officer are
of managers and employees (Roffey Park,
expected to evaluate and explore how far
2007). Performance Review Discussion
an employee can improve further.
should be conducted in a friendly and
Performance linked incentive is one of
empathetic manner by an employee’s
the controversial areas where enough
senior who has competent, knowledge
care needs to be taken with maintaining
and psychological expertise. Otherwise,
neutrality in rating. The company should
the result discussion can create not only
provide excellent communication and
negatively motivates the employee but
support system for facilitating
also can affect professional relationship.
employee/s performance. Team
Appraisal by multiple raters can result
management, leadership style of the
erroneous appraisal score creating
boss, recognition to the innovative
employee dissatisfaction and lowers the
contributor (employee) to the company,
employees’ morale depriving them from
timely employee appraisal, payment of
their well deserved rewards and career
rewards and the allied areas of PMS are
growth opportunities. In this
quite delicate which make the employee
perspective, the effective designing of
performance appraisal challenging.
the policy, method and the selection of
VI. Problematic Issues in PMS various appraisal components onus
mostly lies with the department of HRM
No Performance Management System is which has been highlighted below.
absolute and error free one how so ever
the best attempts are being taken at VII. PMS and Role of HRM Department
strategic, tactical and operational levels.
The department of human resources
The execution of appraisal policy is an
management takes a major role in
important dimension of PMS. Poor
formulating the performance policy.
judgment by the appraiser, lack of
Setting targets for different departments,

MANAGEMENT AND LABOUR STUDIES 278 Vol. 36 No. 3, August 2011

 Performance Management System : Issues and Challenges
fixing KPA for employees, selection of
appropriate appraisal method,
designing different appraisal forms for
different category of employees (both self
and appraisal by superior authority),
providing conducive climate, counseling
to the employees for their betterment
along with regaining confidence of the
low performers and rejuvenating the
poor, rewarding the best performers,
retaining the talents and in developing
a model organization in the market
ensuring best performance to all the
stakeholders with building
organizational citizenship among the
employees; in all these aspects this
department has to function. In case of
the biasness among the multiple raters,
performance scores have to be neutrally
evaluated based on principle of
normalization. And in this direction, the
Manager (HR) has to play a catalytic,
innovative and a strategic role.
VIII. Conclusion
The management of employees’
performance is full of challenges as it is
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Performance Appraisal
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MANAGEMENT AND LABOUR STUDIES
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All the actors in an organization has
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