Performance Management

Overview
 Definition of Performance Management (PM)

 The Performance Management Contribution

 Disadvantages/Dangers of Poorly Implemented

PM Systems

 Definition of Reward Systems

 Aims and Role of PM Systems

 Characteristics of an Ideal PM System

 Integration with Other Human Resources and

Development Activities
 Definition of
Performance Management
(PM)
 Definition of PM

1. Continuous Process of
 Identifying
 Measuring
 Developing

The performance of
individuals and teams
 Definition of PM (continued)
and
2. Aligning performance

with

Strategic Goals of the organization

Performance Management
is NOT
performance appraisal
PM is NOT performance appraisal
• Performance Management

▫ Strategic business considerations

▫ Driven by line manager

▫ Ongoing feedback

 So employee can improve performance

PM is NOT performance appraisal
• Performance Appraisal

– Driven by HR

– Assesses employee
• Strengths &
• Weaknesses
– Once a year

– Lacks ongoing feedback

 Parts of Performance Management
System
• 1. Job Analysis ( Define ) - specifies which
aspect of performance are relevant to the
organization
• 2. Performance Appraisal ( Measure ) -
measures aspect of performance, how well an
employee is doing his job
 Parts of Performance Management
System
• 3. Performance Feedback - provides feedback
to employee, tying rewards to performance
through compensation system - employees
effectiveness
Major Determinants of
Individual Performance
 Contributions of
Performance Management
 Contributions of Performance Management
For Employees

Clarify definitions of job success criteria

Increase motivation to perform

Increase self-esteem

Enhance self-insight and development

 Contributions of Performance Management
For Managers
Communicate supervisors’ views of performance more
clearly

Managers gain insight about subordinates

Better and more timely differentiation between good

and poor performers

Employees become more competent

 Contributions of Performance Management
For Organization/HR Function

 Clarify organizational goals

 Facilitate organizational change

 Fairer, more appropriate administrative actions

 Better protection from lawsuits

Disadvantages/Dangers of
Poorly-implemented
PM Systems
Disadvantages/Dangers of Poorly-implemented
PM Systems

For Employees
• Lowered self-esteem

• Employee burnout and job dissatisfaction

• Damaged relationships

• Use of false or misleading information

 Disadvantages/Dangers of Poorly-implemented
PM Systems

For Managers
• Increased turnover

• Decreased motivation to perform

• Unjustified demands on managers’ resources

• Varying and unfair standards and ratings

 Disadvantages/Dangers of Poorly-implemented
PM Systems

For Organization
• Wasted time and money

• Unclear ratings system

• Emerging biases

• Increased risk of litigation

Purpose of PM System
 Purposes of PM Systems:
Overview

 Strategic
 Administrative
 Informational
 Developmental
 Organizational maintenance
 Documentational
 Strategic Purpose
 Link individual goals with organization’s goals

 Communicate most crucial business strategic

initiatives
 Administrative Purpose
 Provide information for making decisions:
Salary adjustments
Promotions
Retention or termination
Recognition of individual performance
Layoffs
 Informational Purpose
Communicate to Employees:
 Expectations
 What is important?
 How they are doing?
 How to improve??
 Developmental Purpose
 Performance feedback/coaching

 Identification of individual strengths and

weaknesses

 Causes of performance deficiencies

 Tailor development of individual career path

 Organizational Maintenance Purpose
 Plan effective workforce

 Assess future training needs

 Evaluate performance at organizational level

 Evaluate effectiveness of HR interventions

 Documentational Purpose
 Validate selection instruments

 Document administrative decisions

 Help meet legal requirements

Five Criteria for Effective Performance
Management
• 1. Strategic Congruence - extent to which the
performance management system elicits job
performance that is consistent with the
organization’s strategy, goals and culture -
guide employees in contributing to the
organization’s success
• 2. Validity - assesses all the relevant and only
the relevant aspects of job performance
Five Criteria for Effective Performance
Management
• 3. Reliability –
• consistency of a performance measure, free
from random error –
• interrater reliability
• internal consistency reliability
• test - retest reliability: reliable over time
Five Criteria for Effective Performance
Management
• 4. Acceptability - satisfactory or adequate for
those who use it - 3 categories of perceived
fairness: > procedural > interpersonal >
outcome fairness

• 5. Specificity - detailed guidance to

employees about what is expected and how
they can meet these expectation
 Approaches to Measuring
performance
• We can manage performance by focusing on:
• Employee attributes
• Behaviors
• Results
• Addition:
• Overall comparisons among individuals’
performance
• Emphasis on Quality
 1. COMPARATIVE Approach
• Requires the rater to COMPARE an individual’s
performance with that of others
• Uses overall assessment of an individual’s
performance
• Develop some RANKING of the individuals
within the group
 1. COMPARATIVE Approach
• Three Techniques
• Ranking
• Forced distribution
• Paired comparison
 Ranking
• Simple ranking
Rank employees within their
department from highest to
poorest performer-BEST TO
WORST
• Alternation Ranking
• List of employees, cross the
best and worst employee
 Ranking
•  Caution!
• Received attention in the courts
• Validation of the selection system using employee
rankings as the measure of performance
• Criteria of job performance may vary from one
supervisor to another
• A focused and stable body of criteria is warranted
 COMPARATIVE Approach
FORCED DISTRIBUTION
• Also uses ranking format
• Employees ranked in groups
• Employees put in
predetermined categories
• Best workers, in between,
worst workers
• Bottom 10%-No bonuses and
can be terminated
 COMPARATIVE Approach
FORCED DISTRIBUTION
• Forces manager to categorize employees
• Based on distribution rules not on performance
Advantages
• Identifies high potential employees
• Identifies poorest performers
• Provides mechanism to help align company
performance and employee performance and
compensation
 COMPARATIVE Approach
FORCED DISTRIBUTION
Disadvantages
• May be Illegal
• Cause poor morale
• Prone to discrimination-Age, minority, women
• Subjective
• Potential negative side effects on morale,
teamwork, recruiting, and shareholder
perceptions
 COMPARATIVE Approach
PAIRED COMPARISON
• Compare every
employee with every
other employee
• 1 point for every higher
performance
• Total score obtained
• TIME CONSUMING
 COMPARATIVE Approach
EVALUATION
• Effective in differentiating employee
performance
• Easy to develop and easy to use
• Common failure to be linked to the strategic
goal of the organization
• Subjective – dependent on raters
• Lack specificity for feedback
• How can the individual improve his ranking
 2. ATTRIBUTE Approach
• Focuses on extent to which individuals have
certain attributes, Characteristic or trait

•  Define a set of traits for evaluation-

Initiative, leadership, and competitiveness
 2. ATTRIBUTE Approach
Graphic Rating Scales
• List of traits evaluated by a
five point rating scale
• Legal defensibility:
• Subjective
• Criticized appraisals – should
demonstrate that rating is
objectively related to actual
work behavior
 ATTRIBUTE Approach
Mixed Standard Scales
• improved version
• Relevant performance dimensions
• Statements representing good, average and
poor performance
• Originally developed as trait oriented scales
• Instrument using behavioral statements as a
means of reducing rating errors in
performance appraisal
 2. ATTRIBUTE Approach
EVALUATION
• Most popular method in organizations
• Easy to develop and generalizable across any
organization and strategy
• Little congruence between techniques and the
company’s strategy
• Vague performance standards
• Open to different interpretation
 2. ATTRIBUTE Approach
EVALUATION
• Vague performance standards
• Different raters may provide extremely
different ratings and rankings
• Validity and reliability are low
• These technique does not provide any specific
guidance on how an employee can support
the company’s goal or correct performance
deficiencies
 3. BEHAVIORAL Approach
• Attempts to define the behaviors an employee
must exhibit to be effective in the job
• Behaviors are defined and managers assess
the extent to which employees exhibit them
 3. BEHAVIORAL Approach
Critical Incidents
• Requires managers to keep record of specific
examples of effective and ineffective
performance
• Provides specific feedback to employees -
what they do well and what they do poorly
• Can be tied to the company’s strategy
• Individual approach – not being compared to
others
 3. BEHAVIORAL Approach
Behaviorally Anchored Rating Scale (BARS)
• Builds on the critical incidents approach
• Identify critical incidents that represent
effective and ineffective performance
• Experts agree on behavioral anchors that will
serve as guide to raters
• Anchors will serve as guide to managers
• Rating becomes the employee’s score
• Bias on information recall
 3. BEHAVIORAL Approach
Behavioral Observation Scale (BOS)
• Variation of a BARS
• Developed from critical incidents
• Uses many behaviors to necessary for effective
performance
• Requires managers to rate the frequency with
which the employee has exhibited each behavior
during the rating period
• Ratings are then averaged to compute an overall
performance rating
 3. BEHAVIORAL Approach
Organizational Behavioral Modification (OBM)
• Entails managing the behavior of employees through a
formal system of behavioral feedback and
reinforcement
• Components
1. Define a set of key behaviors necessary for job
performance
2. Use of measurement system to assess whether these
behaviors are exhibited
3. Manager informs employees of these behaviors
4. Feedback and reinforcement
 3. BEHAVIORAL Approach-Assessment
Centers
•

Individuals usually perform a number of
simulated tasks
• Leaderless group discussions
• In-basket management
• Role playing
• Assessors observe the individual’s behavior
and evaluate their skill or potential as
managers
 3. BEHAVIORAL Approach
Evaluation
• Strengths
• Can be very effective
• Can link the company’s strategy to the specific
behavior necessary for implementing strategy
• Provides specific guidance and feedback
• Behaviors identified are valid
• Acceptability is high
• Techniques are reasonably reliable
 3. BEHAVIORAL Approach
Evaluation
•  Weaknesses
• Behaviors and measures must be constantly
monitored and revised
• Ensure linkage with strategic focus
• Assumption of “one best way” to do the job
• Suited for less complex jobs
• Least suited for complex job
• Requires multiple ways and behaviors
 4. RESULTS Approach
• Focuses on managing the objective,
measurable results of a job or work group
• Results are the closest indicator of one’s
contribution to organizational effectiveness
•  Management by objectives
•  Productivity Measurement and Evaluation
• System
 4. RESULTS Approach
Management by Objectives
• Popular in both private and public organizations
• Top management team first defines the company’s
strategic goals
• Goals are passed on to the next layer of
management
• Goal setting process cascades down
• These goals are used as the standards by which an
individual’s performance is evaluated
 4. RESULTS Approach
Management by Objectives
• Components of the Goal
•  Specific
•  Difficult
•  Objective
 4. RESULTS Approach
Management by Objectives
• Effectiveness
•  Usually increases productivity
•  Productivity gains tend to be highest
• when top management is committed
•  Effectively links individual’s performance with
firm’s strategy
• Firm – Department – Individual -
• Rewards
4. RESULTS Approach-Productivity Measurement and
Evaluation System (ProMES)

•  Goal
• Motivate employees to higher levels of
productivity
•  Measure and feedback productivity
information to personnel
 4. RESULTS Approach-Productivity
Measurement and Evaluation System (ProMES)
•  STEPS
1. Identify what (product) the organization
expects to accomplish
2. Staff defines indicators of the product
3. Staff establishes the contingencies between
the amount of indicators and the level of
evaluation associated with that amount
• 4. Feedback
 4. RESULTS Approach
EVALUATION
• Advantages
•  Minimizes subjectivity
•  Relies on Objective, quantifiable Indicators
of performance
•  Highly acceptable
•  Managers and employees Links individual’s
results with the organization’s strategies and
goals
 4. RESULTS Approach
EVALUATION
Weaknesses
•  Affected by things beyond the employee’s
• control (ex. economic recession)
•  Deficient
•  Not all aspects of the job are amenable to
objective measurement
• May focus only on aspects of their performance that
are measurable
•  Feedback lacks behavioral aspect