PERFORMANCE MANAGEMENT

What is Performance Management?

What is Performance?
The term performance refers to the achievement of pre-planned
goals by either an individual or an institution.

Management
Classically management is understood as the process of
planning, organizing, leading and controlling activities and
people towards the achievement of preplanned goals.

Performance Management
Performance management is an approach to managing the
performance of an organization by systematically managing the
performance of individuals who work in it. Armstrong
(2001:467) defines performance management as a strategic and
integrated approach to delivery sustained success to
organizations by improving the performance of the people who
work in them.
Performance management is the most strategic HR system (or
arguably), which directly seeks to address an organization’s
bottom line (profit or any other objectives) by carefully,
systematically and scientifically planning, organizing, leading
and controlling (managing) the performance of the individuals
who work in it.
Thus performance management philosophy is born out of the
understanding that what constitutes an organization’s
performance in essence is a product of the combined
performance of each individual within that organization (is this
a prudent assumption). Performance management therefore
answers the following questions critical to the organization’s
survival and growth.
 What if the individuals in the organization do not know
what the organization wants to achieve i.e. its goals and
objectives
 What if the individual’s daily output is far less that what
the organization needs if it is to achieve its goals and stay
alive and grow.
 What if the individuals daily output is quite significant but
is not in line with the organization’s goals and objectives
(perfectly doing a wrong thing)
 What if the individuals know the organization’s objectives
but do not know what they should do to achieve these
objectives
Performance management answers all these questions

Principles of Performance Management

The Evolution of Performance Management
As a management concept performance management has
evolved three fold. It was initially known and practiced as
performance appraisal around the onset of the HRM concept in
the early 80s. It later changed in character to become what is
generally known as performance management in the 1990s. At
the turn of the century two American scholars, Kaplan and
Norton had popularized the newest version of performance
management called the Balance Score card approach to
performance management

Performance Performance Appraisal

(1980s)
Management
Approaches Performance Management
(1990s)

Balance score card (2000)

The Performance Appraisal Approach

This approach was based on reviewing individual performance
i.e. appraisal. Thus the key element of the system was the
review of an employee’s performance after a specified period –
usually a year. At the end of the year employees would be
assessed by their supervisors on elaborately designed
assessment forms, which were generic to all employees within
the organization. The form would measure such performance
criteria as
 Time consciousness
 Cost consciousness
 Teamwork
 Initiative
 Quantity and quality of work
 Growth potential etc
Ana employee would be rated on each of these criteria and
given an overall mark that would be his/hrs performance
standard for that period. This performance standard e.g. 50%,
80% would then be used to make various HR decisions such as
promotion or demotion or reward. It later became obvious that
this approach to managing individual performance had serious
shortfalls as it failed to enable organizations to realize enhanced
individual and over ally organizational performance. A new
approach to address this critical question was then found in the
performance management approach. (Why do you think it failed
to address this question)

The Performance Management approach

To differentiate this approach from the other two, we shall call it
the ‘objectives based approach’. This approach has three distinct
elements which are executed in a chronological manner
 Performance planning
 Performance managing
 Performance appraisal
It is worth noting that performance appraisal is in this approach
not the system itself but just an element of the system. The
distinguishing factor of this approach especially from the
appraisal approach is that it is based on the presetting of
SMART objectives between an employee and hi supervisor and
concerted effort during the specified time between the two to
ensure that the objectives are actually achieved. Mondy etal
(1999; 337) argue that performance appraisal is the key
component of the system. However the reality of performance
management is such that the performance management
component is the one that directly seeks to guarantee desired
individual and overally organizational performance –which is
what any performance management system must address. This
approach to performance management is the one that will be
studied in detail in the chapter.

The Balanced Score Card

This is an approach to performance management which
combines performance management (the objective based
approach) and strategic management. This approach categorizes
objectives into four broad perspectives or performance criteria
 The customer perspective
 The learning and growth perspective
 The financial perspective
 The internal processes
An organization’s strategic goals are set at the top level and
these are cascaded down to an individual’s performance goals,
which are also categorized into the four perspectives.

The Performance Management Approach (objectives based

approach)
10 characteristics /principles of performance management
(Armstrong 2001:469)
 It translates corporate goals into individual, team,
department and individual goals.
 It helps clarify corporate goals
 It is a continuous and evolutionary process in which
performance improves over time
 It relies on consensus and co-operation rather than control
and coercion
 It encourages self management of individual performance
 It is based on open two –way communication between
management and labour
 It relies on continuous feedback
 It measures performance against preset and jointly agreed
goals
 It applies for all members of the organization
 Its chief concern is the improvement of performance at
individual, team and organizational level

The Difference between Performance Management and

Performance Appraisal
Because of the common misunderstanding of the concept of
performance management especially by practitioners it is
necessary to distinguish it from performance appraisal –
which is often misunderstood as performance management.
The following rare the key differences

Performance Appraisal Performance Mgt

Concerns itself with the performance Concerns itself ultimately with

of the individual the performance of the org.

Is an event – usually once every year Is a lengthy and continuous

process

Is top-down in nature with mgt Is bottom- up in nature with

setting performance objectives the individual setting his own
objectives

Is all encompassing –with appraisal Has three elements – with

being the only component of the appraisal being infact one of
system the elements of the system
 Usually focused on managerial focuses on everyone in the
employees (managers responsible for organization
the performances

The Process Cycle of Performance Management

Performance planning

Performance appraisal review

Performance managing
( supporting performance)

Performance Planning
The process of performance management begins with the
planning of the desired or necessary performance expectations.
The outcome of this exercise is a performance agreement or
performance contract defining results to be achieved.

The Performance Agreement/Contract

A performance contract is a document mutually authored by the
supervisor and his subordinate essentially covering what the
subordinate will achieve over a specified period – and how or
what he/she will need to achieve it. In practice the subordinate
will submit a draft of performance objectives to the supervisor
who will modify them here and there before calling on the
subordinate to discuss and agree on the final objectives. Because
it takes the form of a contract it is endorsed/signed and becomes
an official document, which can be cited in cases of dispute or
other legal issues. The performance agreement contains the
following:

Performance objectives
Performance objectives are the key elements of the performance
agreement. These are essentially written statements stating what
the subordinate will achieve over the specified time period i.e.
the targets can be measured by such means as volumes of sales
general output, return on investment, cost savings, speed of
service delivery etc.

Characteristics of good objectives

 Must be integrated – because performance management is
about managing the organization’s performance,
individual’s performance objectives must be integrated
with departmental and eventually organizational
objectives. Thus if a sales man’s performance objective is
to sell 500 policies ‘insurance’ by mid year, it must be
clear how these (selling 500 rather than say 200 or 300)
 will lead to the achievement of the marketing departmental
goals – thus the objective must be well integrated.
 Must be SMART- S- specific. An objective that says ‘to
sell many insurance policies by mid year’ is not specific
rather unclear and ambiguous. A good objective must say ‘
to sell 500 insurance by mid year ‘ thus 500 being specific
and clear
M- measurable. This means that an objective must be
expressed in terms of quantity, quality, time or money. An
objective, which says ‘to make a lot of money’, is not
measurable but one which says ‘to make $1 million’ is
measurable.
Achievable – an objective must not be a far-fetched dream
but should be within the reach of a competent and
committed person.
Relevant – must be relevant to what the department and
organization wants to achieve i.e. aligned to corporate
goals.
Time framed – must have a clear time within which to be
completed. A poorly done objective will say ‘ to sell 500
insurance policies by 31 June 2004’

Performance Measures and Indicators

Performance objectives must also have performance measures to
indicate how well they are being achieved. Armstrong
(2001:480)
Note that performance measures should provide evidence of
whether or not the intended result has been achieved and the
extent to which the jobholder has produced that result. This will
be the basis for generally feedback information. In practice this
usually takes the form of a 5 level rating from unsatisfactory to
below average – above average – outstanding. There should be
an agreement of what each of the ratings means visa avis the
achievement of the goals.

Performance Managing/Supporting Performance

The most significant and important characteristic of
performance management is that rather than being an event it is
a continuous process with performance being managed
continuously throughout the year. It infact has made
performance management a normal or natural process of
management in general. Performance management is supported
throughout the year the logic behind this is very clear- having
set clear SMART objectives is not in itself a guarantee that these
objectives will be achieved. There are various barriers that come
into play to hinder an individual from achieving set objectives.
During the process of supporting/ managing performance the
supervisor and his subordinate share clearly defined roles. The
subordinate plays the player role (army scenario) while the
supervisor plays a leading and enabling role. It is important to
note that both these roles are necessary if performance will be
realized.

Considerations during the process of supporting

performance
Updating performance objectives/agreement
Armstrong (2001:483) aptly describes this when he notes that
‘performance and plans are working documents. New demands
new situations arise and provision therefore needs to be made
for adapting or amending objectives.’ To update performance
objectives during the year or during the process of supporting
performance is to recognize that organizations operate in
dynamic environments where they have to constantly revise
their strategy in line with external changes. If an organization
changes its strategy, then individual performance objectives
already in place must also be revised accordingly.

Dealing with performance problems

A key aspect of this element (supporting performance) of the
performance management is to deal with performance problems.
This involves understanding and solving all barriers to
performance that become inherent during the specified time.
Continuous communication and feedback between the
supervisor and subordinate are the key ways through which
performance barriers can be overcome (later on the appraisal)

Continuous learning
The subordinate usually has to undergo continuous learning
during the process as a way of ensuring that performance
objectives are met. This becomes the center of all organizational
learning efforts (is it at the center of management and therefore
makes performance management)

How Performance is supported

The following are the main methods of supporting performance
and dealing with performance problems
 Coaching –this is an on the job development technique in
which the supervisor will provide one to one teaching and
training to the subordinate. The supervisor should be
skilled in the subject where the subordinate has
competence problems. The desired performance targets
will define the coaching agenda.
 Mentoring –this is a form of coaching –but being different
in that the coach is holistically involved in the job life and
even general life of an employee- serving as a host, friend,
confidant and advisor. The mentor does not have to be the
immediate supervisor but should be an experienced and
senior executive in the organization. Similarly the goal and
 agenda of the mentorship will be improvement of
performance.
 Training –formal training approaches such as off the job
and on the job can be used to ensure that the subordinate
has the requisite skills and competences to enable him to
perform well and be able to achieve the set performance
standards. Infact the appraisal is the most valid method of
detecting appropriate training needs.
 Work redesign/reorganization –with organizations
increasingly adopting fluid and flexible structures, jobs
within organizations are also increasingly becoming more
flexible and contently changing. If during the process of
managing performance it is discovered that the nature of
the job has infact changed then the agreement has to be
revisited and objectives revised in line with the new job at
hand.
 Resource allocation –it is often wrongly assumed that
performance problems are a result of the individual being
incapable or incompetent to perform accordingly.
However sometimes performance may be inadequate
because other resources such as machinery and finance are
lacking. Therefore the supervisor can support the
performance of the subordinate during the performance
managing stage by allocating the necessary resources.
NB –supporting performance is an ongoing activity aimed at
improving performance towards desired levels.

Performance Appraisal
Mondy etal (1999:337) defined performance appraisal as ‘a
formal system of periodic review and evaluation of an
individual’s or team performance.’
Thus performance appraisal is a backward lacking activity,
which seeks to assess historical performance with a view of
using it to influence future performance

Approaches to Performance Appraisal

Immediate supervisor
The immediate supervisor has traditionally been the main
performance evaluator. The supervisor becomes the most
suitable person in view of his close work relationship with the
subordinate and more so given that he would have directly
endorsed the performance agreement.
Subordinates
Subordinates can also review their supervisor’s performance.
However for this approach to be effective subordinates must
remain anonymous to avoid unduly influenced and biased
appraisal.
Peer Appraisal
Peers or colleagues can appraise the performance of another
colleague especially in situations where work is organized
around teams. Similarly the performance objectives of the
colleague to be appraised must be clearly predefined.
Self-Appraisal
Mondy etal (1999:337) notes that ‘if employees understand the
objectives that they are expected to achieve and standards by
which they are to be evaluated they are in a good position to
appraise their own performance. Many people know what they
do well on the job and what they need to improve. If they are
given an opportunity they will criticize their own performance
objectively and take corrective action needed to improve it. This
clarity of performance objectives is necessary if self-appraisal is
to be effective.
Customer Appraisal
Because customers are critical in the survival of any enterprise
some organizations use them to rate the performance of their
employees particularly those who work directly with customers
for this purpose it may be necessary to include the customers in
objective setting. This appraisal approach is favored in that it
leads to increased customer satisfaction, which in turn translates
to increased business success.
360-Degree Feedback
Each of the previously cited approaches have errors particular to
them. Hence a multi approach or multi rater approach
combining feedback data from more than one source has come
into being and is proving increasingly popular. Having multiple
sources of feedback generally increases the objectivity and
validity of the appraisal.

Performance Appraisal Periods

Interim appraisal
Interim appraisals are conducted during the course of the
specified time (usually a year). The purpose of interim appraisal
is merely to generate information for purposes of supporting
performance depending on the needs of the organization. It can
be done bi-annually or quarterly.

Final Rating Appraisal

At the end of the specified period a final appraisal is carried out
for purposes of rating the subordinate’s performance against the
set objectives and also generating information for the next round
of the process of performance management. The final appraisal
should be done through a performance appraisal interview,
which should include the supervisor, subordinate and HR. All
these parties must be well trained on the art of conducting a
performance interview. (Read on the performance appraisal
interview)

Performance planning (JAN)

(DEC)
Final appraisal & rating First
appraisal (MARCH)

Third appraisal Second

appraisal (JUNE)
(SEPT)

Using results of Performance Appraisal

The final performance appraisal interview represents the end of
the cycle of performance management for the specified period.
Because it runs at the center of the final appraisal and rating are
effectively used for virtually all HR functions such as reward
management etc.

Common Pitfalls in Performance Appraisal

 Lack of objectivity – this will be more pronounced if the
objectives are not smart or where the objectives are highly
qualitative in nature such as attitude or personality trait
 Hallo effect – this is where one factor is perceived as
having paramount importance and poor performance in it
results in poor overall performance while good
performance in it also results in overall good performance.
 Leniency or strictness – leniency means giving
undeservedly high marks to the subordinate while
strictness means being unnecessarily critical of a
subordinate performance and giving low marks unduly.
 Central tendency – the biggest shortcoming of appraisal
is that supervisors would usually prefer the ‘safer zone’
where they don’t award high marks or low ones but just
settle in the middle.
 Recent behavior bias - an employee’s recent performance
especially towards the final appraisal period may be used
as an overall indicator of his performance during the
specified period.
 Personal bias – a supervisor may have a personal bias
based on such things as race, religion, gender etc and
unduly rate the subordinate’s performance. However it is
worth noting that all these shortfalls can be minimized or
completely avoided if the performance management is
carefully followed and if objectives set are SMART clear
and jointly agreed upon.

Introducing Performance Management in an

Organization

The following is a checklist of what to look for if one is to

introduce performance management in an organization

 Develop a special performance management plan

with all the details of how the process will be done I
your organization (policy manual)
 The plan must answer the following questions
 -Where and how should performance management be
introduced?
-Who will be covered?
-When should reviews take place?
-How will performance be supported?
-What will the information generated in the process
be used for?
 Sell the concept to management and employees.
Preferably use an external consultant to sell the
concept
 Engage in extensive training for everyone to be
covered by the system on what performance
management is and the benefits for it
 Develop self-help manual to be distributed to all to
be covered or to be readily accessible as a resource
book.
 Implement the system on a trial and error basis in
the first year with a view to perfect the system. But
ensure that the learning takes place
 In the second year run a near perfect system
beginning it with refresher training.
 Continuously monitor and evaluate the system with a
view to continuous improvement.
The Centrality of Performance Management to overall
HR Management
With HRM having grown into a more objective
management science it has become increasingly important
for all HR Activities to be executed in a manner that
reflects this objectivity and scientific ness, objectivity of
any HR activity is measured in terms of its contributions to
an organization’s bottom line. Arguably performance
management has come in to become the source of all
objectively executed HR deficiencies and has thus
significantly changed if not revolutionized the role and
contribution of HRM to overall business success.

The Centrality of Performance Management to overall

Business Management
Performance management has emerged as the most
strategic HR function because of it direct linkages with an
organization’s bottom line. Most CEO’S have realized that
performance management permeates all organizational
activities and have identified it as the epicenter of
managing organizations in general. Infact the task of all
managers can essentially be defined as that of performance
management.

Performance Management policy

Because of its critical significance performance
management guidelines cannot ideally be adequately
accommodated in the ordinary/HR policy manual. Thus
organizations performance management policy is best
crafted separately in the form of a detailed performance
management manual/handbook. The manual will contain
all the details about how the process of performance
management will be carried out in the organization. It also
serves as a resource handbook for reference purposes

Skills Practice
Analyse existing performance management systems for
various organizations- see if it conforms to the concept of
performance management