What is Performance Management?

Performance Management is a continuous and systematic approach that ensures the achievement of organizational business goals by streamlining employee performance and efforts to match the set goals efficiently.   Performance Management builds a communication system between a Manager and an employee that occurs throughout the year, in support of accomplishing the strategic objectives of the organization.

Performance management is an important aspect in HRM. It is used to create a work environment where people are motivated to provide their best performance and do quality work.

In the existing business scenario, the role of Performance Management in HRM is very huge and important.  The Performance Management compiles all the functions such as Goal Setting, regular performance review in accordance with the set goals, set instant communication amongst the team member for coaching,  providing performance feedback and its report for creating better employee training and development programs, and finally connect performance with reward and recognition

Performance Management Definition and Its Meaning in HRM

Managing the Performance of the employee is the most important function of Human Resource.. Performance management is defined as an ongoing process of identifying, measuring, and developing the performance of the employees in the organization.  Its main objective is to focus on employee performance and direct their efforts towards achieving the business goal of the organization.

Performance management is a tool that is widely used by managers to monitor and evaluate the work performance of employees.

The tools start working from Job design followed by coaching, training and development and connect performance with reward and recognition and ultimately result to achieve the organization's goals and objectives

Definition by World Renowned Eminent Authors

Please find below that how these eminent authors have defined “Performance Management”         

Armstrong and Baron “A strategic and integrated approach to increasing the effectiveness of organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors”

Lockett "Performance Management is – ‘The development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organization which supports and encourages their achievement’

Mohrman and Mohrman ‘Performance Management is managing the business’

Walters "Performance Management is the process of ‘Directing and supporting employees to work as effectively and efficiently as possible in line with the needs of the organization’

Ronnie Malcom ‘Performance management may be defined as a planned and systematic approach to managing the performance of individuals ensuring their personal development and contributing towards organisational goals.’

John Storey ‘Performance management includes the whole cycle of agreeing goals and objectives (which may vary in their degree of specificity), providing feedback, offering coaching and advice and motivating staff to perform at a high level.’

Dr. T. V. Rao ‘Performance management involves thinking through various facets of performance, identifying critical dimensions of performance, planning, reviewing and developing and enhancing performance and related competencies.’

Manuel Mendonca and R. N. Kanungo ‘Performance management refers to the process of setting and communicating performance targets, defining evaluative criteria to be employed at different levels of performance, monitoring performance, reviewing performance, providing feedback and taking corrective measures to remove performance snags.’

Brumbrach 'Performance management is a process for establishing a shared understanding about what is to be achieved, and how it is to be achieved; an approach to managing people which increases the probability of achieving job-related success.'

Bates and Holton 'Performance management can be defined as a strategic and integrated approach to delivering sustained success to organizations by improving the performance of the people who works in them and by developing the capabilities of terms and contributors.'

Performance Management vs Performance Appraisal

Often people misconstrue performance management with performance appraisal. However, performance management is quite different than performance appraisal. It is an extension of performance appraisal after the feedback or review of the performance.

The three additional steps in performance management are:

a) Performance interview

b) Archiving performance data

c) Use of appraisal data.

Types of Performance Management in HRM

The types of performance are determined based on the vertices included in the performance appraisal or review system. It can range from the self-assessment of the employee to the review from different members of the organization such as managers, peers as well sometimes extend to check the review of customers and investors.

1. General Appraisal: In this type of performance management there is continuous communication between the manager and employee regarding the performance throughout the year. They communicate about the pre-set goals, the objectives, the performance feedback, and set the new goals.
2. 360-Degree Appraisal: In 360-degree appraisal the feedback about the performance and behavior of the employee is provided by peers and the manager of the employees.
3. Technological Performance Appraisal: This appraisal is totally based on the technical knowledge of the employee. The technical expertise and capabilities of the employee are throughput and identified by the manager.
4. Employee Self-Assessment: The employee compares their own performance with the standard performance expected from them. The manager has discussions with employees about their performance achievements or failure.
5. Manager Performance Appraisal: This system is designed for the appraisal of the manager. Here the feedback from the team members and client is collected to evaluate the performance of the manager.
6. Project Evaluation Review: This is considered the best way to identify the performance of an employee at work. After completion of each project, the performance of the employee is evaluated, and based on the review another project is assigned to the employee.
7. Sales Performance Appraisal: A specific monthly or yearly sale target is assigned to the employee at the beginning of the year. At the end of the financial year, the salesperson is judged on the set target and the sales result of the employee. In this system, it is important to set a realistic sales target for the employee.

Performance Management Purpose & its Objectives in HRM

1. It enables the employee to achieve the work performance of set standards
2. It helps to identify the skills and knowledge required to perform a job efficiently.
3. It is a very important factor to motivate employees and boost employee empowerment
4. It provides a communication channel between the team and supervisor. It makes the goal-setting process more transparent.
5. It identifies the issues which leads the low performance and also resolve the issues by providing suggestion about development interventions.
6. It provides data for several important decisions such as promotions, strategic planning, succession planning, and performance-based compensation.

The purposes of the performance management system are as follows:

1. Feedback Mechanism: The purpose of the performance management system is to develop a systematic feedback mechanism. It creates a pathway through which the employees become aware of their contribution to the organization in terms of performance. It also conveys to the employee the improvement required in the performance to meet the set standards.
2. Development Concern: It addresses the development issues in the organization. It recognizes the skill and knowledge development required in the organization and facilitates the training programs which are appropriate.
3. Documentation Concern: It creates a database for the organization in which all the information about the employees is collected. The information about the performance level, skills, knowledge, expertise, and regular rewards received by the employee is maintained in this database.
4. Diagnoses of Organizational Problems: The up and down in the performance of the employee is recorded using a performance management system. This record helps to diagnose the organizational problems. It provides an idea about where the work is going wrong and what improvements are required to improve the performance status of the organization.
5. Employment Decisions: Based on the performance management records various important decisions are taken by the management. The decision includes an arrangement of training and development programs, promotion, increase or decrease in compensation, hiring decisions, and many more.

Advantages of Performance Management

The advantages of the performance management are mentioned below pointwise :

1. Documentation: With the help of a performance management system you can generate a performance document for every employee for the particular financial year. This paper can be maintained in the employee file to cover the performance graph of the employee throughout the working years.
2. Structure: It creates a formal structure for communication between supervisor and employee. It makes it necessary for supervisors and employees to take out time and discuss the performance as well as bring out a solution to improve performance.
3. Feedback: Employees are often interested to know the feedback about their performance in the organization. Here performance management system makes it mandatory for the supervisor to provide timely performance feedback to the employees.
4. Clarify Expectations: Using performance management system managers can clarify the performance and behavior expectations that employees should understand.
5. Annual Planning: It plays a vital role in the annual planning of hiring, training and development practices, and goal settings.
6. Motivation: As a part of a comprehensive compensation strategy the performance management system is very helpful to motivate the employees to improve their performance.

Disadvantages of Performance Management 

The following are the disadvantages of the performance management :

1. Creates Negative Experience: The system can create a negative experience for the employees, if the performance appraisal is not done in a fair way and feedback is conveyed in a wrong way.
2. Time-Consuming: It is very overwhelming for managers to evaluate and manage the performance of hundreds of employees working in the organization. The process becomes time-consuming and not worth it.
3. Natural Biases: As managers are responsible for several steps in the performance management system a natural bias from the manager's end is expected. The natural biases can result in rater errors.

Performance management feedback

Performance feedback is the most important part of the performance management system. It is used by the organization in the following ways:

Areas to Improve: On a timely basis the management and the supervisor provide information to the employee about the areas in which they can improve their performance. It includes tips, ways, and coaching for performance improvement.

Game Plan for Improving: Motivation and direction is provided through feedback in order to create a game plan to improve performance.

Achievements and Accomplishments: In a performance management system, the feedback includes both positive and negative information about employee performance. Managers can declare the achievements and accomplishments of the team member in public meetings or on the common communication platform to motivate the performing employee. A one-to-one meeting is suggested to convey the negative feedback to the employee.

Attitudes and Behaviors: The attitudes and behaviors of the employee are also addressed during performance management. Through performance feedback, the managers put forward the favorable behavior expected from the employee to make a teamwork success. The upbeat attitude of the employees keeps the organization thriving and inspired.

Goals for Next Year: In the yearly feedback meetings the managers discuss with the employee about the upcoming challenges and work responsibilities. New goals and objectives are set for the employees for the next financial year. The standard performance expected of the employee is also conveyed in the performance feedback meeting.

Examples of Effective organization performance management

The regular performance management system sometimes does not provide the expected results. Thus there is a need to innovate in the approach to performance management. Cargill Inc is one such company that used a creative way to effectively use organizational performance management for the betterment of the company. Cargill Inc is a food producer company in Minneapolis. It was very difficult for the company to motivate and engage its 155,000 employees located worldwide. In 2012, the company introduced the ‘everyday performance management’ system which acted as a turning point for the organization. The system is used for on job conversation which is a part of the feedback and daily work encouragement for the employees. The principles of the ‘everyday performance management system are:

a) Effective performance management is not an annual thing it is an ongoing process

b) the quality of the performance can be predicted using day to day activities and not feedback forms

c) the most important factor of an effective performance management system is the relationship between employee and their manager

d) It is essential to design a flexible performance management system to meet the different business needs of the organization.

The leadership team of Cargill recognized that in order to see the visible difference in the performance dedicated efforts of several performance management cycles are required. The process of performance management was implemented with the involvement of senior leaders and the participation of the employee. The HR team of Cargill kept special focus on :

a) Encouraging the managers who carry out day-to-day performance management by regular rewards

b) Documentation of tips and experiences of implementation of a new performance management system in the organization

c) The teams were accountable for the implementation of day-to-day performance management in the organization.

d) Special efforts were taken to build up the skills required to implement the new performance management system such as skills to deliver feedback and develop effective two-way communication and coaching.

Here is the way the ‘everyday performance management system

Learn more about Sub Category

Performance Management System

Job Performance Standards

Evaluation Procedure

Employee Self Evaluation

Training and Development Plan

Appraisal Forms

Balanced Scorecard

Bell Curve Appraisal

Performance Appraisal its purpose

360 Degree Performance Appraisal

Job Analysis

Job Description

Job Specification

Performance Management Process

Goal Setting for Performance Management

Performance Planning

SMART Goals

Performance Appraisal Failure

Performance Execution Phase

Legal & Ethical Issues in Performance Appraisal system

Performance Management Tools

Performance Management Cycle

Job Design

Employee Engagement

Job Satisfaction