Topic 7: Performance Management

What is Performance Management?

 Performance management is a systematic process where managers ensure that employees' tasks
and results align with organizational goals. It involves monitoring, providing feedback, and
problem resolution.
Performance Management Process:
1. Define Performance Outcomes:
o Set clear outcomes for the company, division, and department.
2. Develop Employee Goals:
o Formulate employee-specific objectives, behaviors, and strategies to attain those
outcomes.
3. Provide Ongoing Support:
o Ensure consistent feedback, training, tools, and resources for employees. Regular
interactions, not just annual meetings!
4. Evaluate Performance:
o Contrast actual outcomes with targeted objectives and behaviors. This stage includes the
annual performance assessment.
5. Identify Needed Improvements:
o Understand and highlight areas of strength and address weaknesses collaboratively.
6. Consequences for Performance:
o Implement rewards or corrective actions based on performance, such as pay hikes,
bonuses, or action plans.
Benefits of Effective Performance Management:
 Affirms top performers.
 Fosters open communication.
 Establishes uniform evaluation standards.
 Highlights top and low performers, assisting organizational decisions.
Remember! Effective performance management is not just a once-a-year event but an ongoing process.
Senior management's visible support is crucial. Consistency, timely evaluations, and integrating
performance feedback into the company culture are essential.
Review Regularly: Annually reassess the performance management process to ensure alignment with the
broader organizational goals and vision.
In Sum: Effective performance management boosts individual and organizational success by bridging
gaps between expectations and outcomes. Regular feedback and support are keys.
Purposes of Performance Management
1. Strategic Purpose: Performance management aids the organization in achieving its business
objectives by linking employees' behavior with the company's goals. It involves defining
employee expectations, measuring performance against these expectations, and taking corrective
 actions when needed. An example provided is Merck Group in Brazil, which derives performance
insights from team meetings to identify decisions leading to project outcomes, enabling them to
recognize valuable behaviors and individuals.
2. Administrative Purpose: Performance management systems are used to gather information for
daily decisions about salaries, benefits, recognition programs, retention, termination, hiring, and
layoffs. The data from performance appraisals significantly impact an employee's future, making
managers sometimes uncomfortable when conveying negative feedback that may lead to layoffs or
reduced pay.
3. Developmental Purpose: This focuses on developing the employee's skills and knowledge.
Regular feedback can enlighten employees about their strengths and areas of improvement. Adobe
Systems, for instance, emphasizes informal discussions between managers and employees to
discuss performance against objectives, focusing on changes that can aid success rather than on
past mistakes.
Criteria for Effective Performance Management
1. Fit with Strategy: The performance management system should align with the organization’s
strategy, goals, and culture. For instance, if customer service is pivotal, the system should measure
behaviors leading to superior customer service.
2. Validity: Validity ensures that the performance appraisal measures all relevant performance
aspects and excludes irrelevant ones. Referring to Figure 10.2, it depicts that a performance
appraisal should encompass all relevant job performance indicators. Irrelevant information in the
appraisal is termed "contamination," while relevant but omitted information indicates a
"deficiency."
3. Reliability: This refers to the consistency of performance measurement results. Interrater
reliability ensures consistency when multiple people measure performance, while test-retest
reliability ensures consistent results over time.
4. Acceptability: Beyond being valid and reliable, performance measures need to be practical and
acceptable to users. They shouldn't be overly time-consuming, and if deemed unfair by employees,
it's less likely they will utilize the feedback for improvement.
5. Specific Feedback: Performance measures should provide clear, specific feedback, detailing
employee expectations and ways to meet them. Specificity ensures alignment with organizational
strategy and guides employees on areas of improvement.
Methods for Measuring Performance
1. Overview: Organizations utilize various methods to evaluate employee performance, including
ranking systems, attribute ratings, behavior evaluations, and results-based assessments. The
effectiveness of these methods can vary based on specific criteria.
2. Comparative Approaches:
o Simple Ranking: Managers rank employees from best to worst. A variation, the
alternation ranking, alternates between selecting the best and worst until all are ranked.
 The drawback is its lack of clarity on what constitutes as 'best' or 'worst', leading to
questions about fairness.
o Forced Distribution: Assigns predefined percentages of employees to various
performance categories (e.g., 5% exceptional, 55% meets standards). It's effective when
there's a varied performance range among the team and helps avoid favoritism. But it can
be demoralizing and inaccurate if most employees perform well.
o Paired Comparison: Each employee is compared with every other employee. The one
with the most points post comparison is the top performer. It's comprehensive but
becomes time-consuming with larger groups.
3. Advantages and Disadvantages of Rankings:
o Pros:
 Counters the habit of rating everyone favorably to avoid confrontation.
 Levels out biases where some managers might be stricter or lenient than others.
 Useful for decisions related to pay raises or layoffs.
 Some systems are straightforward and manager-friendly.
o Cons:
 Often not aligned with organizational goals.
 Ambiguous ranking criteria can be unhelpful for employee growth, potentially
harm morale, and might lead to legal challenges.
4. Effective Performance Management Criteria: As illustrated in Table 10.1, performance
measurement methods can be evaluated based on their alignment with organizational strategy,
validity, reliability, acceptability, and specificity. Different methods offer varying degrees of these
criteria.
In summary, while there are multiple approaches to evaluate performance, each has its benefits and
challenges. An effective system should ideally be aligned with the organization's goals, be valid, reliable,
and acceptable to both managers and employees.
Performance measurement in organizations evaluates employee performance relative to a uniform set of
standards. It can either assess employees based on specific attributes or behaviors:
1. Rating Attributes:
o Uses a graphic rating scale listing traits with a corresponding scale.
o Challenges: Vague definitions might lead to varied interpretations, causing low reliability.
o Mixed-standard scales: Multiple statements describe each trait to provide a final score.
These scales rearrange sentences to describe high, medium, and low levels of a trait.
o While rating attributes is popular, it may not be linked to organizational strategies and can
seem arbitrary to employees.
2. Rating Behaviors:
o Focuses on specific behaviors that align with organizational goals.
o Critical-incident method: Managers document specific instances of effective or
 ineffective behavior.
o Behaviorally anchored rating scale (BARS): Defines performance with statements
representing various performance levels. However, these can influence a manager's
memory.
o Behavioral observation scale (BOS): Uses critical incidents to define behavior levels,
requiring managers to remember frequency. While comprehensive, it provides better
feedback and objectivity.
o Organizational Behavior Modification (OBM): Uses feedback and reinforcement to
manage employee behavior. It has four main components:
1. Define key behaviors.
2. Measure employee behavior.
3. Inform employees of key behaviors/goals.
4. Provide feedback and reinforcement.
o These methods have been effective in diverse settings, such as mental health agencies and
processing plants.
Behavioral methods are particularly effective as they provide specific feedback and are usually well-
accepted by employees. They work best when raters are well-trained but might not be suitable for complex
roles where behavior and results are not easily linked. For instance, feedback on communication style
might overlook the content's value, especially in sectors where forceful communication is judged
differently.
Measuring Results Summary:
Performance measurement evaluates objective results of a job or group. Two primary methods include
measuring productivity and management by objectives (MBO).
 Productivity: Measures success by evaluating output efficiency relative to resources. The
organization sets expected activities or objectives, then determines how to measure their
achievement. This system tracks these metrics and provides feedback to employees, thus
potentially boosting productivity. However, setting it up can be time-consuming.
 Management by Objectives (MBO): A top-to-bottom goal-setting system aligning employee
goals with overall organizational objectives. MBO involves:
1. Establishing specific, challenging, and objective goals.
2. Collaborative goal-setting between managers and employees.
3. Ongoing objective feedback to track progress towards goals. Studies have shown MBO
enhances productivity, especially when top management is committed to it. MBO bridges
individual performance with overarching company objectives.
While result-oriented performance measurement aligns well with organizational goals and is generally
well-received, it can sometimes miss aspects of performance not directly tied to results. It may not account
for external factors affecting results or provide guidance on performance improvement.
Total Quality Management (TQM) Summary:
TQM offers performance assessment methods focusing on both the individual and the system in which
they operate. The ultimate aim is to elevate customer satisfaction.
 In TQM, employees and their customers (internal or external) collaborate to set performance
standards.
 Feedback is twofold: subjective feedback on personal qualities and objective feedback based on
work processes.
 TQM uses statistical quality control to identify and address problems, possibly leading to process
changes rather than blaming individual employees.
 Although TQM has its advantages, it may not be as effective in decisions about job roles, training,
or compensation.
Sources of Performance Information
Performance measurement necessitates decisions on who will collect and evaluate the performance data. A
qualified individual for this task should understand job requirements and have seen the employee in action.
Various sources can provide this information:
1. Managers: Most commonly used, managers have a thorough understanding of job requirements
and often observe their employees. They are motivated to provide accurate feedback as their
success is tied to their employees' performance. However, there can be limitations, especially
when a supervisor cannot frequently observe an employee, such as in sales roles.
2. Peers: Co-workers can offer insights, especially in roles where the supervisor doesn't regularly
observe the employee, like in law enforcement or sales. They possess a deep understanding of job
needs and offer a different perspective. However, personal relationships can potentially skew
evaluations.
3. Subordinates: Especially valuable for assessing managers. They provide insights into how
managers treat employees. Adobe, for example, uses engagement surveys to gather such
information. There are concerns, though, regarding power dynamics; subordinates might hesitate
to give negative feedback if not anonymous. Thus, these evaluations are best used for
developmental purposes.
4. Self: Employees can assess their own performance, and this often precedes feedback sessions. It
encourages self-reflection and can highlight areas of discrepancy between self and supervisor
evaluations. However, self-ratings can be biased, with individuals often inflating their
performance.
5. Customers: In service industries, customers can be primary evaluators as they directly experience
the service. This is especially relevant for roles directly serving customers or for gauging what
products and services customers desire. Marriott and Whirlpool use customer feedback for
evaluation. The downside is that thorough customer surveys can be costly.
In aiming for a holistic assessment, some organizations use a mix of these sources in a 360-degree
performance appraisal approach.
Performance Feedback Summary:
 Feedback Importance: After assessing an employee's performance, the manager should provide
feedback. This allows the employee to address any shortcomings. The feedback phase is vital but
can be uncomfortable for both parties. However, a well-handled feedback process can be more
comfortable and effective.
 Scheduling Feedback: While many organizations have annual performance feedback, it's not
enough. Immediate feedback can help rectify issues as they arise. Regular feedback ensures the
employee isn't surprised during the annual review and keeps them aligned with expectations.
Regular feedback also boosts employee motivation and engagement. As an example, Adobe saw
increased employee engagement and reduced turnover after implementing frequent check-ins.
 Preparation for Feedback: Managers should prepare adequately for feedback sessions. A neutral
location is ideal for such meetings. Managers should encourage open dialogue and ask employees
for a self-assessment beforehand. This aids in identifying discussion points. Differences in
perceptions between managers and employees can be fruitful for dialogue.
 Conducting Feedback: There are three methods:
1. Tell-and-sell: Managers explain ratings and justify them.
2. Tell-and-listen: Managers share ratings and let employees give their perspective.
3. Problem-solving: A collaborative approach where both parties address performance
issues. This method is shown to be the most effective, but many managers still use the
tell-and-sell approach. Feedback should focus on behaviors, not personal traits. The
session should end with goal-setting and a plan for the next review.
 Addressing Performance Issues: Feedback should identify areas for improvement and suggest
methods to enhance performance. Improving performance depends on the employee's ability and
motivation:
 Lack of ability: For motivated but unskilled employees, managers can provide training, coaching,
or modify the job role.
 Lack of motivation: Managers should ensure fair treatment and adequate rewards. Solutions
might include praise or even counseling.
 Lack of both: Managers might have to resort to stricter measures, including withholding rewards,
demotion, or termination.
 High Performers: Employees with both high ability and motivation are valuable. They shouldn't
be overlooked but should be offered more opportunities for growth, rewards, and direct feedback
to maintain their motivation.