121

Performance Management System

UNIT 1

UNIT III
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Performance Management:
Systems and Strategies
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LESSON Performance Management System

5
PERFORMANCE MANAGEMENT SYSTEM

CONTENTS
5.0 Aims and Objectives
5.1 Introduction
5.2 Features of PMS
5.2.1 Focus on Objective Setting
5.2.2 Develops Systems for Ongoing Review of Objectives
5.2.3 Develop Personal Improvement Plans
5.2.4 PMS aligns with Training and Development
5.2.5 Ensures Formal Appraisal with Feedback
5.2.6 Helps in Pay Review
5.2.7 Develops Competence Based Organizational Capability
5.3 Dimensions of Performance
5.3.1 Output or Result Dimension
5.3.2 Input Dimension
5.3.3 Time Dimension
5.3.4 Focus Dimension
5.4 Who Manages Performance?
5.5 Purpose of Performance Management System
5.6 Supervisor's Responsibilities under PMS
5.7 Components of the Performance Management System
5.7.1 Performance Planning
5.7.2 Monitoring
5.7.3 Development
5.7.4 Performance Summary
5.7.5 Recognition
5.7.6 Compliance
5.8 Building a Performance Management System
5.9 Performance Management System (PMS) and Organizational Strategy
5.9.1 Main Features of a Performance Management System
5.10 Performance Management Objectives
5.10.1 Objectives for Top-level Performer
5.10.2 Good Performer

contd…
124 5.10.3 Poor Performer
Performance Management:
Systems and Strategies 5.10.4 Setting Performance Objectives
5.11 Analyzing Performance Problems
5.12 Possible Outcomes from Effective Performance Management
5.12.1 Performance Planning
5.12.2 Guidelines for Providing Feedback Effectively
5.12.3 Performance Management Scale
5.12.4 Sample Performance Rating Form
5.12.5 Behavioral Assessment of Competencies
5.13 Four Pillars of Managing Performance
5.13.1 Pillar One: Defining Performance
5.13.2 Pillar Two: Guiding the Development of Individuals
5.13.3 Pillar Three: Manage the Motivation
5.13.4 Pillar Four: Providing Data about Human Capital
5.14 A Crucial Challenge that Pays Off
5.15 Performance Management Theatre
5.16 Let us Sum up
5.17 Lesson End Activity
5.18 Keywords
5.19 Questions for Discussion
5.20 Suggested Readings

5.0 AIMS AND OBJECTIVES

After studying this lesson, you should be able to:
z Understand performance management strategies
z Learn how to build a performance management system

5.1 INTRODUCTION
Performance Management involves thinking through various facets of performance,
identifying critical dimensions of performance, planning, reviewing and developing
and enhancing performance and related competencies. It is simple, commonsensical
and enjoyable.
Performance Management System (PMS) is set of techniques and procedures for
improving organizational performance. To sustain competitive advantage,
organization not only requires of recruit the best people but also focus on their
continuous development through an effective PMS. While development of people is
possible through ongoing training and development and skill and knowledge renewal,
it must precede PMS, as PMS, inter-alia establishes the basis for identifying training
and development needs.
They suffer flaws in many organizations, with employees and managers regularly
bemoaning their ineffectiveness. A recent survey by Watson Wyatt showed that only
three out of 10 workers agree that their company’s performance management system
helps improve performance. Less than 40 percent of employees said their systems
established clear performance goals, generated honest feedback or used technology to
streamline the process. While these results suggest that there may be poorly designed 125
Performance Management System
performance management systems in many organizations, it is typically not poorly
developed tools and processes that cause difficulties with performance management.
Rather, difficulties arise because, at its core, performance management is a highly
personal and often threatening process for both managers and employees.
Managers are reluctant to provide candid feedback and have honest discussions with
employees for fear of reprisal or damaging relationships with the very individuals they
count on to get work done. Employees feel that their managers are unskilled at
discussing their performance and ineffective at coaching them on how to develop their
skills. Many complain that performance management systems are cumbersome,
bureaucratic and too time consuming for the value added. This leads both managers
and employees to treat performance management as a necessary evil of work life that
should be minimized rather than an important process that achieves key individual and
organizational outcomes. In spite of the difficulties, performance management is an
essential tool for high performing organizations, and it is one of a manager’s most
important responsibilities.

5.2 FEATURES OF PMS

In line with Bevan and Thompson (1992), main features of PMS can be outlined as
follows:

5.2.1 Focus on Objective Setting

Objectives are the targets, which an organization set for its employees. It is in the
form of an action statement and it starts with a verb. At the strategic or corporate
level, overall organizational objectives are decided. PMS helps to percolate the
organization objectives to employees translating organizational objectives to
individual targets.

5.2.2 Develops Systems for Ongoing Review of Objectives

Through the process of periodic performance review, PMS helps to keep a track on
achievement of objectives. Such review system largely depends on type of PMS
techniques used by an organization. It may be an age-old MBO systems or a 360
Degree PMS (multi dimensional) or a more recent performance tracking technique
like a balanced score card. Review of objectives helps in performance control and
initiate steps to correct deviation in performance or to revise the targets.

5.2.3 Develop Personal Improvement Plans

Since PMS helps in individual performance monitoring, it ensures developing of
personal improvement plans for the employees. A particular employee may lack in
performance or he/she may exceed the targets given. In both the cases, it is important
to design the personal improvement plan. While in the first case, it may be importance
to provide performance counseling and training and development reinforcement, in
the second case, the employee may be motivated further through proper reward
system. Thus PMS helps in developing personal improvement plans in both the cases.

5.2.4 PMS aligns with Training and Development

Since focus of PMS is to manage and develop employee performances, to sustain
competitive advantage of an organization through proper alignment, PMS helps in
identifying training and development needs. This helps in developing need-based
training and also in measuring the Return on Investment (ROI).
126
Performance Management:
5.2.5 Ensures Formal Appraisal with Feedback
Systems and Strategies
By introducing a formal appraisal system, PMS helps in giving performance feedback
to employees. Both negative and positive feedback sensitize employees and help them
to objectively analyse their shortfalls and positive aspects. While shortfalls can be met
by learning reinforcement and setting the right direction, positive aspects can be
leveraged by the employee concerned to further develop himself setting higher targets
and accordingly grow.

5.2.6 Helps in Pay Review

Performance based pay is the modern concept. PMS helps in objective designing of
compensation package for employees, thus rewarding the performance and reducing
the variable pay (performance linked) of non-performers. This way organization can
remain competitive optimizing the cost of compensation.

5.2.7 Develops Competence Based Organizational Capability

Competence based organizational capability helps in appro0priate organizational
change, keeping pace with competition. It also helps in human resource planning.
PMS through qualitative and quantitative appraisal can assess the prevailing
competency level of employees and thus helps in organizational capability review.

5.3 DIMENSIONS OF PERFORMANCE

Performance is what is expected to be delivered by an individual or a set of
individuals within a time frame. What is expected to be delivered could be stated in
terms of results or effort, tasks and quality, with specification of conditions under
which it is to be delivered.
Performance has many dimensions:
z Output or result dimension;
z Input dimension;
z Time dimensions;
z Focus dimension;
z Quality dimensions; and
z Cost dimension.

5.3.1 Output or Result Dimension

The most acceptable and visible as well as measurable dimension of performance is
result or the output. It describes the consequence of inputs in a summary form or a
final or semi-final product form or service form. It describes the standard. It is easily
measurable. For example 95 percent is the result. Salary figures, customer numbers,
financial targets, production targets, completion of tasks to meet some deadlines etc.
are all stated in result form/output form. Sometimes these are also called key result
areas.

5.3.2 Input Dimension

The input dimension deals with the activities or tasks to be accomplished by the
individual. The nature of activities to be undertaken by the individual, the time frame,
the quality of inputs to be given, etc. constitute the input dimension. Performance can
be managed better if the nature of inputs required to be put in can be envisaged
without mistake, planned properly and implemented.
5.3.3 Time Dimension 127
Performance Management System
Another dimension of performance is time. Performance can be defined for a task, for
a day, for a week, for a month, year or for life. The time period for performance is
important. Time for information technology organizations is limited to a quarter or a
three-month period. They may also be defined by tasks or project and not time. Time
may become the target.

5.3.4 Focus Dimension

Performance also has a focus dimension. The focus can be on anything. In defining
the focus of a sales executive, the focus of performance can be on market share,
profits, or new areas covered, or some of these or most of these. The focus of
performance can be on many other dimensions. It could be on quality or on cost or
financial dimensions.

5.4 WHO MANAGES PERFORMANCE?

The answer is obvious. The performer or the candidate whose performance is being
planned, analyzed, assessed, developed, etc. It is he who manages his performance. It
is a mistaken notion to think that the primary responsibility for managing the
performance of a person lies with his boss. The boss is an important instrument in
managing performance. He has the responsibility to ensure that is defined, planned,
analyzed, measured, reviewed and developed. He is a partner in this. It is the
performer who has to manage his performance. The roles of the performer and the
boss etc. are also highlighted in various lessons.

5.5 PURPOSE OF PERFORMANCE MANAGEMENT

SYSTEM
The purpose of the performance management system is to assist the agency, lines of
business, and staff offices in meeting their goals and objectives by having in place a
systematic process designed to articulate individual (or team) standards, measure
employee performance, help each employee reach his/her full performance potential
in his or her current position, and help prepare each employee to progress in his or her
career field.

5.6 SUPERVISOR’S RESPONSIBILITIES UNDER PMS

Supervisors are responsible for conducting substantive discussions and taking
conclusive performance-related actions. These actions include selecting or developing
performance plans, communicating outcomes and expectations to employees,
establishing employees' development plans, providing performance-related feedback
to employees at prescribed intervals, preparing end-of-cycle summaries, and
discussing the summaries with employees.
This does not mean that team leaders and other senior employees should be excluded
from the process. In fact, it's normal for them to provide work-related guidance to
employees and report employees' accomplishments and problems to supervisors.
Furthermore, there's no bar to including leaders in the full range of PMS activities if
supervisors believe that their contributions would be productive; however, supervisors
may not delegate the performance management responsibilities for which PMS holds
them accountable.
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Performance Management: 5.7 COMPONENTS OF THE PERFORMANCE
Systems and Strategies
MANAGEMENT SYSTEM
5.7.1 Performance Planning
A performance plan is a written document between an employee (or team) and his or
her supervisor. The performance plan contains two parts. The first part describes what
has to be done during the performance cycle, how well it has to be done, and how the
accomplishment will be measured. This part of the plan is based primarily on the
goals of the organization and the employee's position description or career level
definitions. The second part identifies training, developmental work assignments, and
individual development desires and/or other developmental needs proposed for/by the
employee for the upcoming cycle.

5.7.2 Monitoring
Monitoring is the process of making accurate and objective performance observations
based on the outcomes and expectations contained in an employee’s performance
plan. In addition, the supervisor will provide timely feedback throughout the
performance cycle to encourage employees to maximize their performance.
Performance observations will be provided from multiple sources.

5.7.3 Development
Development is the process of identifying and pursuing personal development training
and learning experiences for one of the following:
z Position essential (category I)- training and developmental activities designed to
enable an employee to perform in his or her current position/performance plan and
achieve full performance level.
z Career development (category II)- designed to help qualify the individual for a
different job (lateral or promotional).
z Personal development (category III)- may or may not have relevance to current
job.
z When applicable, position essential development shall be incorporated as a
component of the performance plan.

5.7.4 Performance Summary

The performance summary is a consolidation, discussion, and acknowledgement of
employee accomplishments and effectiveness throughout the performance cycle. It
z Provides an assessment of actual achievements based on the outcomes and
expectations contained in the performance plan.
z Includes a synopsis of formal feedback received during the performance cycle.
z Contains highlights of developmental activities undertaken during the period.
z The performance summary represents the review of record for the performance
cycle.

5.7.5 Recognition
A means of acknowledging employees for sustained outstanding performance/service
and providing incentives to continue provide outstanding performance/service.
Recognition should be linked to performance outcomes. For example, employees
should be recognized/rewarded for being results-oriented and customer-focused. Other
contributing factors could be increased morale, contribution to team cohesiveness,
contribution to the success of the performance management process, etc. The types of 129
Performance Management System
recognition available are: time-off, monetary and other types of recognition (e.g.,
tickets to a local event, dinner).

5.7.6 Compliance
At an appropriate time during the performance cycle, upward feedback will be used to
assess supervisor/manager compliance in supplying performance feedback based on
the agreed upon outcomes/expectations found within the supervisor/managerial
performance plan. Since the feedback is for self-development, it shall be confidential
between the employee and his or her supervisor.
Check Your Progress 1
State whether the following statements are true or false:
1. Performance Management involves thinking through various facets of
performance, identifying critical dimensions of performance, planning,
reviewing and developing and enhancing performance and related
competencies. It is simple, commonsensical and enjoyable.
2. Performance Management System (PMS) is set of techniques and
procedures for improving organizational performance.
3. Managers are reluctant to provide candid feedback and have honest
discussions with employees for fear of reprisal or damaging relationships
with the very individuals they count on to get work done.
4. Competence based organizational capability helps in appro0priate
organizational change, keeping pace with competition.

5.8 BUILDING A PERFORMANCE MANAGEMENT

SYSTEM
A performance management system that helps a company easily obtain and analyze
relevant performance data is, therefore, critical to any company's risk management
strategy. How can you get such a system? First, define your performance review
process. A good performance review will have a combination of numeric ratings and
subjective comments. In addition, each performance review should have a place to
note objectives and performance against those objectives. Once you have the review
form in mind, develop a schedule of quarterly, semi-annual or annual performance
reviews. Make sure that timely completion of performance reviews is one of the
performance criteria for all managers. Next, develop a system to gather, report and
analyze performance data. Computers make this easy to do, and there are many
software vendors who provide applications to help you.
Be wary of performance reviews not specifically tailored to your business. Things like
wizards can be useful, but they assume a certain level of sameness that is generally
not present in the dynamic workplace environment. Generic performance reviews can
result in performance data being out of context, which could convey unintended
meanings that are harmful to the company. To be effective, performance reviews need
to capture what is going on in the business, and since business changes, make sure
your system gives you the ability to easily change how performance is measured.
Ideally, a performance review system should give you an easy way to design, publish
and modify performance reviews.
Once your format and process are set up, the next thing to do is to build in a process to
communicate with the managers. Most people working in HR will be familiar with the
ritual of chasing managers to get their reviews submitted. I find that email alerts and
notifications make this process easier. Most performance review systems worth
130 buying will have an alert system to automatically remind managers when reviews are
Performance Management:
Systems and Strategies due. The better systems will provide the manager with a way to enter the data online.
Performance reviews should be taken seriously. A good performance review process
will help HR protect both the company and individual managers from damaging
employment discrimination claims. This is one area where HR can add real, tangible
value. The cost of implementing a performance review system is small; the cost of not
having a good performance review process can be disastrous.

5.9 PERFORMANCE MANAGEMENT SYSTEM (PMS) AND

ORGANIZATIONAL STRATEGY
Strategy is the direction and scope of an organization over long term, matching its
resources to its changing environment and in particular its markets, customers or
clients, so as to meet stakeholders’ expectations.
Strategic Human Resource Management (SHRM) is a competency-based approach for
management. There are many definitions on SHRM, including:
A human resource system that is tailored to the demands of the business strategy'
(Miles and Snow 1984).
'The pattern of planned human resource activities intended to enable an organization
to achieve its goals' (Wright and McMahan 1992).
Reviewing such definitions we can relate SHRM as a 'reactive' management field,
where human resource management is a tool with which to implement strategy, to a
more proactive function in which HR activities can actually create and shape the
business strategy (Sanz-Valle et al, 1998) of HR. It focuses on developing HR for
sustainable competitive advantage. Strategic human resource management requires
formulation of HR objectives, strategies and policies. These enable the provision of
the skills and abilities needed to meet the requirements of an organization’s overall
objectives. In other words, they provide the framework, which ensures that an
organization’s people needs are met.
PMS is one of the most important HR strategy factors. HR strategy factors are largely
encompass six areas like; recruitment and selection, career development, performance
appraisal, training and development, compensation designing and human resource
planning. Career development and performance appraisal have direct linkage with
PMS. While career development considers career mapping, succession planning and
management development, integrating career development with OD initiatives;
performance appraisal designs appropriate tools and aligns such appraisal with
training needs, promotion, transfer and relocation.
PMS involves thinking through various facets of performance, identifying critical
dimensions of performance, planning, reviewing and developing and enhancing
performance and related competencies.
Performance is what is expected to be delivered by an individual or a set of
individuals within a time frame. What is expected to be delivered could be stated in
terms of results or effort, tasks and quality, with specification of conditions under
which it is to be delivered.
Therefore, PMS reinforces strategic human resource management principles as it
helps an organization to achieve the strategic intent, i.e., goals and objectives by
ensuring and developing the desired set of competencies among people in the
organization through various strategic interventions, as explained above.
5.9.1 Main Features of a Performance Management System 131
Performance Management System
Performance Management is the day-to-day management of the performance of an
individual or a workgroup, by both the immediate manager and the individual
employees themselves. Having an established framework and set of conditions, which
takes care of these aspects, is called as system, and having such a system completes
the term- Performance Management System (PMS). The new economy today has
identified ‘people’ of the organization as the sole competitive advantage, which on
being leveraged in the proper way can lead the firm to a favorable position. It is
exactly here where the concept of Performance Management takes up a strategic role.
Effective performance management can only be ensured when the top management is
committed towards employee development and believes in discussing with the
employees about the performance parameters in order to arrive at an agreement
regarding the performance standards. The dimensions for employee development can
be shown through the following figure:

Task Skills

Output Capability

Task Knowledge Ability PMS

Competence
Personal Qualifications
attributes

Figure 5.1

In the context of our discussion we have divided PMS into two parts, which intends to
show performance management system from two perspective (a) Organizational
Perspective (b) Societal Perspective. In doing so we believe that we have gone to the
root of the subject.

Organizational Perspective
Change is an inevitable part of the system that we live in and exactly that is what has
happened in the business world, the global economy has new priorities and as a result
the same for the working man are also changing, in such a situation the impact of
globalization has resulted in the decline of the monopolization in the industrial sector,
this has resulted in competition in all spheres. In order to survive you have to find
your unique competitive advantage and fight fiercely to defend this unique
competitive advantage. The new economy today has identified ‘people’ of the
organization as the sole competitive advantage, which on being leveraged in the
proper way can lead the firm to a favorable position. It is exactly here where the
concept of Performance Management takes up a strategic role. Managing the
performance of the people requires having some Core-People-management skills
among the persons who are responsible for the task of putting into place an effective
PMS. These skills are quite common and obvious:
1. Managing Differences: Each individual in an organization is different and come
with some unique set of competencies, the task is to do a profile and job match of
the individual and deploy him to the correct area, this will certainly lead to better
performance. JRD Tata once said, that the only credit, which he can take as being
the chairman of Tata Sons, was his ability to identify the correct men and put
them into the right place. One can do the profile-job match through psychometric
132 analysis such as Myers-Briggs Type Indicator, FIRO- B and the DiSC Behavioral
Performance Management:
Systems and Strategies Profile but howsoever scientifically one goes with this process the insight and
vision of the top management is the sole decisive factor.
2. Questioning and Listening: Managers must understand that the basic nature of
human being is being recognised at their respective fields. We always look for
somebody who will listen to our problem and come up with some solution.
Because of their position of authority managers tend to ‘tell’ more often than ‘ask’
or ‘listen’. This leads to poor communication and ineffective performance
management.
3. Bias and Assumptions: In a multicultural country like ours we are prone to suffer
from regional biasness. It is our tendency to quickly come to a biased view about
an individual who originates from a particular region of the country. If such kind
of biasness is encouraged in the organization, it leads to dysfunctionality in the
organization culture and the organization as a result suffers from not having
diversity in the workforce and in the ways of doing work. Everything becomes too
much standardised. One must realise that too much standardisation may increase
quality and consistency of the deliverables but takes out innovation and
geniusness. These human attributes of Biasness and Assumption are useful
shortcuts to making sense of our world, but when these attributes are wrong it
creates a lot of strife among the employees and the business.
We have used the above model as our reference for carrying out subsequent
discussions leading to the introduction of the Balanced Score Card, as an effective
PMS, which we think, is quite ideal for the current business situations. The term
work assignment in the figure describes the process of delegating work
responsibilities and accountabilities to the employees. The point here is that
before making a work assignment to an individual are we actually carrying out an
audit among the employees to see whether they are prepared for it, and if not,
whether the organization is taking necessary steps to bridge the gap between the
competencies. Exactly this kind of problem was faced by us when we were
engaged with a project of implementing Balanced Score Card for a traditional
manufacturing concern. Most of the people there did not understand the concept
and hence were not responding to our questionnaires. We therefore feel that three
steps should be taken to ensure successful work assignment:
(a) Establish purpose and relevance of the assignment (b) Define the work
(c) Agree Performance Management of the work. Work Planning increases the
probability and magnitude of success, whenever you plan your work keeping in
mind the organizational objectives, the quality of work improves beyond
expectation. The planning of work is dependent to a large degree upon the
criticality of the work and the expected pay-off.
We have been saying that we need to consider PMS from a holistic view, in the
sense that effective Performance Management can only be ensured when the top
management is committed towards employee development and believes in
discussing with the employees about the performance parameters in order to
arrive at an agreement regarding the performance standards.
After taking care of employee development the next step is to arrive at a
Performance Agreement, which must be realistic, achievable and oriented towards
the business goals of the organization, we present here a typical example of
performance agreement for a pharmaceutical company:
 Goals: Business Unit, work Individual goals and/or tasks Measures and Targets 133
group or key process Performance Management System

Contribute to the company’s Manage staff in execution of • Completion, on time

bio chemical research program
Achieve effective and efficient
technical effectiveness
Operational Effectiveness
assigned research projects
Complete own assigned
projects and present reports
Contribution to the project
team on laboratory systems
improvement
Carry out administrative roles
and tasks
• Professional standards, met
• Interim and final reports,
complete and on time
• Completion, on time
• Professional standards, met
• Interim and final reports,
complete and on time
• Meeting attendance, all
• Contribution, full
• Team report, complete and
on time
• Timeliness, accuracy and
service, meet agreed
standards

The management aspect of PMS becomes crucial when it comes to managing the
variations in performance of the different individuals in an organization.
Understanding the nature of variation, and how to respond to it, should increase the
ability to manage work and personal performance. When it comes to the management
of performance variation of individuals, it is necessary to know where each member
of the work group fits into the spectrum to allow an individualistic approach to
management of people’s performance.
Coaching the underperformers means engaging them to follow standards and make
them perform. Coaching the good performers is a difficult task, as you are required to
hold up the level of performance and ensure that it is a sustained affair, much contrary
to the laws of nature, yet denied by the Australian Cricket Board management.
Managing difficult performers requires continuous guidance and communication
about the expectations and showing the results and rewards that lies beyond the
accomplishment of a desired standard. They have to be lured into performance. We
propose to juxtapose our discussion above into the organizational framework, which
we believe would lead to results.
Before concluding our discussion regarding PMS from organizational perspective we
would like to bring in the concept of Balanced Score Card as an efficient tool of PMS.
We feel that if the organization follows the BSC approach and links the performance
appraisal of an individual with it, that means the level of achievement of the
individuals towards the four perspectives will determine the level of performance and
would provide a more comprehensive look towards the entire structure of PMS.
134
Performance Management:
Systems and Strategies
Financial Perspective
Goals Measures
Maximize Value at least Cost Cost-to-spend Ratio
Maximize cost savings Purchase influenced Savings
Timely payment under prompt pay Delinquent Payment Penalties
Maximize productivity Ratios

Internal Business Perspective

Goals Measures
Acquisition Excellence Assessment of Internal quality
Accurate, timely& effective Data collection Assessment of MIS

Customer Perspective
Goals Measures
Timeliness On-Time delivery as defined By customer
Quality Quality of product/service As defined by
customer
Service/partnership Responsiveness as defined By customer

Learning and Growth Perspective

Goals Measures
Meet present Mission goals Self-Assessment For continuous
improvement
Meet future Mission goals Self-Assessment for Strategic/Tactical
Planning

The above figure proves how an employee is expected to perform in an organization

meeting all the roles that surrounds his job, in the present scenario it is not all to meet
and execute your present job successfully one has to keep the business goals in mind
and then perform reflecting the performance on every aspect of the organization. We
propose that the way in which an individual achieves these objectives as shown in the
figure should serve as a criteria for the Performance Appraisal, this will lead to an
effective PMS. In our following figure we have shown how a personal appraisal card
can be linked with the four perspective of the BSC:

Corporate Objectives
z Double corporate value in seven years
z Increase our earnings by an average of 20% per year
z Achieve an internal rate of return of 2% above the cost of capital
z Increase both production and reserves by 20% in the next decade

Corporate Targets Scorecard Business Unit Targets Team/Individual

1997 1998 1999 Measures 1997 1998 1999 Objectives
Financial 160 180 250 Earnings 1.
(mn. $)
200 210 225 Net Cash Flow
80 75 70 Overhead 2.
& Operating
expenses
Operating 73 70 64 Production
costs
93 90 82 Development
costs
108 108 110 Total Annual 3.
Production
Name of the Employee:
Location:
This mechanism enables the business and corporate level strategy to be translated and 135
Performance Management System
communicated down among all the employees and teams.

Social Perspective
We now enter into the framework of Societal Perspective that is our second approach
in the paper. We feel that business is an extension of the society and the elements of
society and its nature and characteristics are revealed on the way a business operates
in a particular society. Our country is passing through an exciting phase, and the
words of Swami Vivekananda are proving to be true that “the country is a sleeping
giant, the day it rises others will take cover”. The industries of our nation are doing
well globally and we feel a new spirit especially in people like us. When the society
rejuvenates, the business will also rejuvenate and the society will be such that the
effective and efficient performance will be imbibed in the nature of our people we
would not be required to be supervised and work as self managed teams. We feel that
the systems, which aim at creating such kind of circumstances, are the real building
blocks of PMS. Our nation must think over certain points in order to create new
dimensions of doing business and the way people feel about working.
Embrace global information and knowledge: There is no way to for a nation to
remain vital unless it keeps up with the latest information and knowledge around the
world. The role of ISRO, the Universities of India are to be defined in such a way that
quality information and knowledge through the use of technology is dissipated
throughout the length and breadth of the nation. How will performance come if the
ordinary people do not know about the gap existing between them and the people in
USA, Japan or China? The hunger for more has to be created, throw open knowledge
choupals (like ITC’s e-choupal) and let everyone become a tiger in his sphere of work,
at least provide the opportunity.
Redefine the role of our political leaders: Is leadership all about mobilising the
people and taking them to burn a mosque or raise the national flag to raise tensions.
Our politicians have been reduced to such kind of scrap. “Give me blood and I will
give you Freedom” this was the call of Netaji, where has that kind of spirit gone,
where is the clarion call. How can we expect performance if there is no worthy leader
in the country capable of reaching out to the entire country and make them work
towards the sole mission of the nation.
The role of our Family: How can performance come if we are conditioned right from
our childhood to lead a standard lifestyle, which does not tolerates deviations. We
have to study well so that we can get a good job and have a successful life. Is this life
all about? Since the country has been following this kind of system it has given rise to
mediocricity. A child deviating from studies towards sports or painting is discouraged
by the society, if this continues to be the situation India will produce world-class
managers but we doubt if it can produce world-class leaders. We ask for a change in
the family system as a root solution to foster better performance.

Performance Competencies
Performance competencies requirement varies from organization to organization,
depending on the nature of activities. Hence it is difficult for us to draw a tentative list
of competencies, which employees should have to achieve the results. Here we are
attempting to draw a tentative set of competencies, which are generic in nature for an
organization.
136 Strategic/customer Process/improvement People/empowerment Risk/value creation
Performance Management: focus focus focus focus
Systems and Strategies
• Anticipation • Analytical Ability • Coaching Ability • Attention to Detail
/Proactive • Change-Handling • Communication • Cost-
Thinking Ability • Drive/Motivation Consciousness
• Commercial • Creativity • Emotional • Dependability
Awareness /Innovation Intelligence • Diversity Focus
• Customer Focus • Delegation • Empathizing Ability • Planning and
• Decision-Making • Persistence • Empowerment Organizing
Ability /Perseverance Ability • Safety Focus
• Leadership Ability • Problem-Solving • Feedback (Giving • Stress-
• Perception Ability and Receiving) Management
/Judgment • Quality Focus • Listening • Taking Initiative
• Results Focus • Technology • Self-Development /Responsibility
• Strategizing Ability Application • Teamwork Ability
• Time Management • Written
Communication

5.10 PERFORMANCE MANAGEMENT OBJECTIVES

5.10.1 Objectives for Top-level Performer
z Has highly developed job skills
z Has a high degree of accuracy
z Is able to produce at a high level of accomplishment
z Is highly dependable
z Demonstrates a consistently cooperative manner
z Shows appropriate initiative without overstepping bounds
z Is punctual and regular in attendance
z Adapts well to changing situations and demands
z Is well-organized
z Is comfortable and receptive to appropriate criticism

5.10.2 Good Performer

z Has competent job skills
z Has a reasonable degree of accuracy
z Is able to produce at an acceptable level of accomplishment
z Is generally dependable and cooperative
z Sometimes shows initiative, but sometimes oversteps bounds
z Has adequate attendance
z Can usually handle changing situations and demands
z Is generally organized, but sometimes loses control of the details
z Is usually comfortable and receptive to appropriate criticism

5.10.3 Poor Performer

z Has less-than-competent job skills
z Is lacking in job accuracy
z Produces at a less-than-acceptable level of accomplishment
z Is inconsistent in dependability 137
Performance Management System
z Sometimes shows an uncooperative manner
z Shows no initiative or has little skill at determining what areas of initiative are
appropriate
z Has less-than-adequate attendance
z Is weak in adjusting to changing situations and demands
z Lacks organizational skills
z Is defensive and does not handle criticism well

5.10.4 Setting Performance Objectives

Supervisor’s/Manager’s Checklist for Setting Performance Objectives
DO
z Tie individual objectives to the objectives of the organizational unit, of the
department, and of the company.
z Set the objectives jointly and let the appraisee know that objectives can be revised
if the situation changes.
z Gather information so you can set the objectives at the appropriate developmental
level.
z Develop specific, measurable objectives that are challenging yet realistic.
z Set a manageable number of objectives discuss the importance of each objective
and prioritize importance.
z Discuss the competencies the individual will need in order to demonstrate or
achieve performance objectives.
z Ask individuals to suggest Action Plans for achieving complex objectives.
z Set checkpoints to review progress on objectives.
z Agree up front on the criteria for successful achievement of objectives.
z Use a process for periodic Progress Reviews: keep a written record of objectives,
Action Plans, and progress discussions.
z Set objectives to improve future performance.
z Keep developmental needs in mind when you set objectives.
z Gain the appraisee’s understanding and acceptance on each performance objective
and competency.

DON’T
z Don’t set objectives without looking at the big picture.
z Don’t hand an individual a copy of his/her objectives without discussing them.
z Don’t set objectives that are too easy or too difficult under the circumstances.
z Don’t develop general or vague objectives.
z Don’t set too many objectives or set trivial objectives.
z Don’t set complex performance objectives without discussing how the individual
plans to achieve the objectives.
z Don’t ignore the “how” of achieving performance objectives.
138 z Don’t assume that objectives can be set and then forgotten until the Summary and
Performance Management:
Systems and Strategies Development discussions at the end of the appraisal cycle.
z Don’t assume that the appraisee can read their supervisor’s mind or know what’s
important to the company.
z Don’t rely on memory.
z Don’t be overly critical of the individual appraisee’s past performance when
setting objectives.
z Don’t forget that continuous employee development is an important outcome of
the Janus performance and development system.
z Don’t accept performance objectives that will not lead to continuous improvement
or that will not meet the performance objectives to which the individual is held
accountable.
Check Your Progress 2
Fill in the blanks:
1. A ………………. that helps a company easily obtain and analyze relevant
performance data is, therefore, critical to any company’s risk management
strategy.
2. ………………. is the direction and scope of an organization over long
term, matching its resources to its changing environment.
3. Performance Management is the day-to-day management of the
performance of an ………………. or a………………., by both the
immediate manager and the individual employees themselves.
4. ………………. requirement varies from organization to organization,
depending on the nature of activities.
5. The ……………………. can usually handle changing situations and
demands.

5.11 ANALYZING PERFORMANCE PROBLEMS

Coaching can be provided in a wide variety of situations, but in the context of
performance management, it is most often used when there are performance shortfalls
or problems. Ideally, your monitoring processes should provide information on
performance that is going well and on performance that needs to be corrected. When
performance is not on target, you need to be very specific: analyze and describe the
specific performance that needs to be improved.

Steps for Analyzing Performance Problems

These three simple steps can be used to analyze performance problems:
1. Identify the performance gap by describing the difference between required
performance and actual performance.
2. Decide if corrective action is needed by identifying the importance of the
performance gap.
3. Determine the cause of the gap.

Identifying the Performance Gap

You can identify performance gaps by describing the difference between the
performance required for the job and the employee’s actual performance. This method
helps to focus on the facts. You want to avoid falling into the trap of making hard-to- 139
Performance Management System
support observations such as “You work slow” or “You waste too much time.”

Performance Management Systems

Performance management systems, which typically include performance appraisal and
employee development, are the “Achilles’ heel” of human resources management.

5.12 POSSIBLE OUTCOMES FROM EFFECTIVE

5.12 MANAGEMENT
1. Clarifying job responsibilities and expectations.
2. Enhancing individual and group productivity.
3. Developing employee capabilities to their fullest extent through effective
feedback and coaching.
4. Driving behavior to align with the organization’s core values, goals and strategy.
5. Providing a basis for making operational human capital decisions (e.g., pay).
6. Improving communication between employees and managers, if not the most
important responsibility.
Effective performance management systems have a well-articulated process for
accomplishing evaluation activities, with defined roles and timelines for both
managers and employees. Especially in organizations that use performance
management as a basis for pay and other HR decisions, it is important to ensure that
all employees are treated in a fair and equitable manner. Based on examination of
performance management processes in several organizations, most contain some
variation of the process shown below:
The following sections describe each phase of this process in more detail.

5.12.1 Performance Planning

At the beginning of the performance management cycle, it is important to review with
employees their performance expectations, including both the behaviors employees
are expected to exhibit and the results they are expected to achieve during the
upcoming rating cycle. Behaviors are important because they reflect how an employee
goes about getting the job done—how the individual supports the team,
communicates, mentors others and so forth. We are all familiar with employees who
may achieve exceptional results but are extremely difficult to work with, unhelpful or
exhibit maladaptive behaviors at work. Because such behaviors can be extremely
disruptive, behavior is important to consider in most work situations. On the other
hand, an employee can be extremely helpful, considerate and interpersonally effective,
yet never achieve any important results.
During the performance planning process, both behavioral and results expectations
should have been set. Performance in both of these areas should be discussed and
feedback provided on an ongoing basis throughout the rating period. In addition to
providing feedback whenever exceptional or ineffective performance is observed,
providing periodic feedback about day-to-day accomplishments and contributions is
also very valuable. Unfortunately, this does not happen to the extent that it should in
organizations because many managers are not skilled in providing feedback. In fact,
managers frequently avoid providing feedback because they do not know how to
deliver it productively in ways that will minimize employee defensiveness. For the
feedback process to work well, experienced practitioners have advocated that it must
be a two-way communication process and a joint responsibility of managers and
employees, not just the managers. This requires training both managers and
140 employees about their roles and responsibilities in the performance feedback process.
Performance Management:
Systems and Strategies Managers’ responsibilities include providing feedback in a constructive, candid and
timely manner. Employees’ responsibilities include seeking feedback to ensure they
understand how they are performing and reacting well to the feedback they receive.
Having effective, ongoing performance conversations between managers and
employees is probably the single most important determinant of whether or not a
performance management system will achieve its maximum benefits from a coaching
and development perspective.

5.12.2 Guidelines for Providing Feedback Effectively

z Provide immediate positive and developmental feedback in a private location.
z Ask for the employee’s view about what could have been done differently.
z Be specific about what behaviors were effective or ineffective.
z Focus on what the person did or did not do, not personal characteristics.
z Collaboratively plan steps to address development needs.
z Offer help in addressing development needs and providing resources.
z Sample Competency Model for Human Resource Manager

5.12.3 Performance Management Scale

Example: Five-Point Scale With Defined Rating Points
5 = Almost always performs as described by the “Role Model” standards.
4 = Sometimes performs as described by the “Role Model” standards and sometimes
4 = performs as described by the “Meets Expectations” standards.
3 = Almost always performs as described by the “Meets Expectations” standards.
2 = Sometimes performs as described by the “Meets Expectations” standards and
2 = performs as described by the “Below Expectations” standards.
1 = Almost always performs as described by the “Below Expectations” standards.

5.12.4 Sample Performance Rating Form

Employee’s Name ________________ Level: Entry-Level Employee
Manager’s Name _________________ Key Work Responsibilities Results/Goals
to be Achieved
1. _____________________________ 1. ________________________________
2. _____________________________ 2. ________________________________
3. _____________________________ 3. ________________________________
4. _____________________________ 4. ________________________________

5.12.5 Behavioral Assessment of Competencies

Below Expectations
Even with guidance, fails to prepare straightforward communications, including
forms, paperwork and records, in a timely and accurate manner; products require
minimal corrections.
Even with guidance, fails to adapt style and materials to communicate straightforward
information.
Meets Expectations 141
Performance Management System
With guidance, prepares straightforward communications, including forms, paperwork
and records, in a timely and accurate manner; products require minimal corrections.
With guidance, adapts style and materials to communicate straightforward
information.

5.13 FOUR PILLARS OF MANAGING PERFORMANCE

Human capital is the most valuable and sustainable competitive asset. Appreciation of
talent by an organization could be possible if it employ proactively effective
performance management systems integrating both the individuals and the groups. It
is most valuable and sustainable competitive asset. But an organization's appreciation
of its talent can't stop with this basic understanding. It is essential for organizations to
proactively employ effective performance management systems that focus on both
individuals and groups. Effective performance management systems, among others,
require implementation of performance measurement systems, focusing on business
process as a whole. Individual performance measurement systems are so selected so
that it can facilitate team performance.
Some of the most important performance measurement systems are those that focus
on groups or teams that are responsible for a particular business process, customer or
geographical area. In many respects, the same principles that apply to measuring
individual performance are appropriate to appraise team performance. It is critical the
team as a whole be assessed on its performance and capability levels. Pillars of
performance management systems are those, which focus on accomplishing certain
things as under:
z Define and agree on what performance the organization needs.
z Guide the development of individuals so that they can have the skills and
knowledge needed to perform effectively.
z Motivate individuals to perform effectively.
z Provide data about the condition of the organization's human capital.
With these four pillars firmly in place, managers can successfully manage
performance, ultimately influencing the company's bottom line and overall success.

5.13.1 Pillar One: Defining Performance

Determining what needs to be done and how to do it is the bedrock of a performance
management system. Without this definition, it is nearly impossible to develop and
motivate individuals, and then channel their performance to support the organization's
business strategy.
Every performance management system should explicitly identify objectives and how
these will be measured once complete. Since many knowledge-based organizations
don't have bureaucratic control structures and detailed job descriptions, thorough
performance management systems are necessary to avoid confusion about what each
employee should do and what constitutes individual and overall effective
performance.
A perfect example is Best Buy's Results-Only Work Environment program that allows
employees in participating departments to work virtually anywhere at anytime, as long
as they successfully complete their assignments on time. At first, this program created
an obstacle for managers who preferred supervising work in progress and lending
assistance along the way. To help smooth the transition into its new management
approach, Best Buy trained its managers how to set performance expectations and
measure performance even when they cannot observe and manage the work of
142 employees in person. The retail giant's resulting high performance levels were realized
Performance Management:
Systems and Strategies in part because it made an effort to set clear expectations for employees.

5.13.2 Pillar Two: Guiding the Development of Individuals

A performance management system also must help employees gain the skills and
knowledge necessary to perform effectively. The first step in the process is to identify
existing competencies. Without knowing this, managers cannot fully realize the type
of performance employees are capable of. Identifying competencies also shows how
individual workers can contribute to the organizational talent strategy, how much
training is required and what kind of hiring is necessary.
This basic groundwork is especially important when business strategies experience
difficulties. With this information readily accessible, managers can quickly and easily
diagnose the root of the problem. For example, perhaps the skill sets of employees are
not properly aligned with existing business needs. To solve this may require a simple
shift in which employees are charged with executing the strategy, or perhaps the
strategy itself needs to be changed.
Skills assessments can help employees understand which skills they need and help
managers create a development and reward plan to facilitate employees acquiring
those skills. Assessments also can help upper-level management evaluate its
leadership abilities.
Michael Dell, founder of Dell computers, realized the importance of a skills
assessment firsthand. Through the results of a survey asking employees to evaluate
him as an executive, Dell found he was viewed as impersonal and emotionally
detached from the workforce. As a result, he met with his top management team and
admitted he is very shy and can appear aloof and unapproachable. Dell promised
every manager in the company he would change, and he kept reminders around his
office to continually reinforce his commitment.
This sent a message that performance improvement is expected and should be
standard operating procedure for everyone in the organization -— the CEO included.

5.13.3 Pillar Three: Manage the Motivation

Motivation is the capstone to performance. The most skilled individuals in an
organization tend to perform at high levels and exceed expectations only if they are
properly motivated. High levels of motivation require directly linking success to
employee-valued rewards.
When discussing motivation, it is important to distinguish between internal and
external rewards. Internal rewards can be personal feelings of competency,
achievement and self-esteem. External rewards are tangible things employees’ value,
such as praise from a manager or a salary increase. In order for individuals to realize
internal rewards, they need performance feedback. Sometimes their performance
results are obvious. In other cases, workers can only see the impact of their behavior
on work when the organization provides constructive feedback.
External rewards should be large enough so employees feel their efforts are
worthwhile, appreciated and are helping the organization fulfill its mission. Thus,
performance management systems need to be designed so appropriate rewards are
given to individuals according to their performance.
When managers set goals, they need to keep in mind the difficulty of the goal is a key
determinant of performance. When goals are set too low, individuals settle for low
levels of performance; conversely, when goals are set too high, people give up
because they do not believe they can succeed or they cheat to give the impression of
success. Goals that are achievable but challenging should be the objective as they are
the most motivating and produce the highest levels of performance.
5.13.4 Pillar Four: Providing Data about Human Capital 143
Performance Management System
An essential factor in effective performance measurement and management is
immediate feedback. All too often, this major piece is missing from organizations'
efforts to manage their employees' performance. Too many managers wait until the
annual appraisal to give employees feedback. The importance of ongoing, immediate
feedback is captured by the typical employee comment: "It does me no good to learn
now what I did wrong eight months ago."
Information from individuals' skills assessments needs to become a matter of record in
the organization. The best way to do this is to have an intranet-based system that
profiles each individual in the organization, including information about his or her
knowledge, competencies, performance goals, development objectives and work
histories.
SAS, a privately owned software company, has an extensive skills database to help
managers analyze the fit between the organization's present skills and the skills it will
need in the future. This helps them manage change as well as assess how likely it is
SAS can make specific changes.

5.14 A CRUCIAL CHALLENGE THAT PAYS OFF

Having an effective performance management approach is clearly not simple, but it is
necessary. It requires that a number of pieces come together to create a cohesive
system to direct and motivate individuals, teams and organizations to perform
effectively, while being supported by comprehensive information and reward systems.
If an organization depends on talent for its competitive edge, an effective performance
management system for all employee levels is not optional — it is a must.

Check Your Progress 3

State whether the following statements are true or false:
1. Performance Management System (PMS) is set of techniques and
procedures for improving organizational performance.
2. Performance Management does not involve thinking through various
facets of performance.
3. Performance management helps an organization to maximise performance
in vital areas.
4. Performance management theatre practically depends on the premises that
effective business transactions rest on communication.
5. During the performance planning process, both behavioral and results
expectations should have been set.

5.15 PERFORMANCE MANAGEMENT THEATRE

Performance management helps an organization to maximise performance in vital
areas. Performance management theatre practically depends on the premises that
effective business transactions rest on communication. However, very few companies
monitor their employees' performance in this vital area of communications. Quality
performance measurement system ensures new, high levels of performance
throughout the reception services, sales and credit control department and customer
service teams. In retail excellent face-to-face communication is essential, as it
involves customer service, sales and debt collection. More than 50% of the customers
144 visiting retail counters depart unsatisfied. Hence it is essential that employees
Performance Management:
Systems and Strategies communicate effectively to help the business to succeed.
Improvement of both internal and external communications is essential. It guides the
organization’s needs to meet customers’ expectations. Communication performance or
performance management theatre methodology follow certain stages. First stage is
research, required to audit the existing communication strengths and weaknesses to
make precise recommendations tailored to organizational requirements.
Communication required for selling one FMCG product is different from selling a life
insurance policy, and so also for selling medicines. After such research, organizations
need to analyse their present communication abilities based on some unique scoring
process against standard criteria and accordingly identify changes to meet the
customer expectations. After this the proposed communication performance
development programme is drawn, assigning particular aspects of internal and
external communication. Employees are trained on the same and then assessed against
the standard scoring process, and evaluated.
The term performance management theatre is used, as theatre per se is enjoyable and
informative, and when used as a tool for training and development, it becomes more
effective.

5.16 LET US SUM UP

Performance Management System (PMS) is set of techniques and procedures for
improving organizational performance. Behaviors are important because they reflect
how an employee goes about getting the job done—how the individual supports the
team, communicates, mentors others and so forth. We are all familiar with employees
who may achieve exceptional results but are extremely difficult to work with,
unhelpful or exhibit maladaptive behaviors at work. Because such behaviors can be
extremely disruptive, behavior is important to consider in most work situations. On
the other hand, an employee can be extremely helpful, considerate and interpersonally
effective, yet never achieve any important results.
During the performance planning process, both behavioral and results expectations
should have been set. Performance in both of these areas should be discussed and
feedback provided on an ongoing basis throughout the rating period.

5.17 LESSON END ACTIVITY

Write a note on the performance management system as a set of techniques for
improving organizational performance.

5.18 KEYWORDS
Performance Management System (PMS): It is a set of techniques and procedures
for improving organizational performance.
Performance Improvement: It is any effort targeted at closing the gap between Actual
Results and Desired Results.
Performance Problem: A performance problem is any gap between Desired Results
and Actual Results.
Job description: A narrative statement of the major activities involved in performing
the job and the conditions under which these activities are performed.
 145
5.19 QUESTIONS FOR DISCUSSION Performance Management System

1. Define Performance Management Systems (PMS). What are its main features?
2. How can we develop a PMS? How PMS is linked with organizational strategy?
3. Discuss PMS from organizational perspectives. How it is different from social
perspectives?

Check Your Progress: Model Answers

CYP 1
1. T, 2. T, 3. T, 4. T.

CYP 2
1. Performance management system, 2. Strategy, 3. Individual, workgroup,
4. Performance competencies, 5. Good performer

CYP 3
1. T, 2. F, 3. T, 4. T, 5. T.

5.20 SUGGESTED READINGS

Suri, Venkata Ratnam & Gupt (ed.), Performance Measurement and Management, Excel
Books, New Delhi, 2004.
R. K. Sahu, Performance Management System, Excel Books, New Delhi, 2006.
Rao and Rao (ed.), 360 Degree Feedback and Performance Management System, Excel Books,
New Delhi, 2000.
B. D. Singh, Compensation and Reward Management, Excel Books, New Delhi, 2007.