FACTSHEET Performance Management

Definition: A performance management process is a cyclical process organisations adopt to assess and develop employees to ensure effective contribution to organisational objectives. It normally includes setting objectives for employees to achieve, rating the performance against set objectives and outlining future development activities to assist with achieving objectives. What is Performance Management? Performance management is a system by which an organisation evaluates and develops its peoples skills, behaviours and individual performance in order to improve organisational performance. Performance Management can be useful as a tool for maintaining a consistent approach to managing people across an organisation. This is particularly beneficial to global organisations or organisations with distributed workforces. Typically a performance management system will incorporate some or all of the following features: Performance and development reviews Personal development plans Learning and development activities Coaching & Mentoring Objectives and performance standards Competences and competencies Measurement Reward and remuneration Team working 360 degree feedback Training on the performance management process

No longer focused exclusively on the annual appraisal, performance management has grown to incorporate the above features and has evolved into a more holistic approach to people management. As a consequence of this evolution, an added benefit of a good performance management system is that the system itself can become an effective tool for retention of high performing people.

The History of Performance Management The origins of performance management can be traced back to the 1940s. Primarily the process was developed by managers to justify whether the salary that was being paid to the individual was justified. Since then, performance management processes have become much more sophisticated and have evolved to encompass variations on the usual line manager employee appraisal to encompass areas such as competencies, 360 degree feedback, and development planning. Why is Performance Management important? Performance management is highly important to both employers and employees. From the employer perspective, it is vital to understand how your employees contribute to the objectives of the business. A good performance management system enables the organisation to understand how its employees are currently performing, and to identify those employees that contribute most, or least. It allows organisations to undertake a thorough assessment of the training needs of its employees, set development plans and gives them the option of using the results of the performance management process to influence an individuals remuneration. From the employees perspective, the performance management process provides transparency over performance in the workplace, provides a framework for documenting issues relating to performance, and can be used to assess future career development requirements. Why is Performance Management important to the finance profession? External stakeholders have increasingly high expectations of the competencies they expect accountants to demonstrate in the workplace. This interest has been generated particularly as a result of recent incidences of corporate mismanagement where the behaviour and actions of accounting firms has come in to question. It is therefore vital that accountants are seen to act with competence and professionalism in the workplace. A sound performance management process ensures accountants develop and retain the necessary skills and knowledge. Similarly, there is greater emphasis on those individuals who run organisations to be personally accountable for the performance and conduct of their businesses. Such individuals seek assurances further down the value chain from their accountants that the necessary financial controls within organisations are fundamentally sound. As a result of corporate collapses, increased regulation has resulted in a growing demand for finance professionals with specialist skills. A robust performance management process enables organisations to assess the skill levels their accountants hold, and to identify any gaps. The assessment of competencies and performance is particularly important for accountants in a business world which is increasingly complex and sophisticated owing to growing economic inter-dependence of countries, increased movement of international capital and evolving technologies. Accountants are also more mobile owing to a disparity between the supply and demand for finance professionals, so good performance management processes can assist with retention of key staff.

Finally, a sound performance management process will enable finance professionals to understand how they contribute to the strategy of the finance division, which in turn should contribute to the overall organisational strategy Principles of Performance Review Performance Review is a critical component of a Performance Management process. There are some guiding principles that organisations should adhere to when developing effective performance review programmes. The core principles are: The performance review process is clearly understood It is imperative that all employees understand what is expected of them through the performance management process. This applies both to individual being appraised, who should be briefed on the process and their role, and to the appraiser, who must conduct the performance review process professionally in accordance with expected procedures. The performance review process links strategic goals to operational objectives Organisations can ensure employees are effectively bought into corporate strategy by linking the strategic goals of the organisation through operational objectives linked to employees individual objectives. Many organisations adopt a process of cascading objectives, which filter through the organisation from senior management so that the employees objectives contribute directly to their immediate supervisor or manager. Performance review ratings are agreed Organisations that agree performance ratings are more able to quantify an individuals performance. This may be based on the achievement of specific objectives, or the demonstration of competencies and behaviours. Agreeing ratings for overall performance will also enable the organisation to compare relative performance of employees. The performance review process is undertaken at least annually Regular review of performance objectives and development plans is a critical requirement for any appraisal process to be effective. This is because circumstances and operational requirements are constantly changing. Leading organisations adopt formal quarterly reviews of performance as well as having processes and systems in place to provide and receive feedback on performance on an ongoing basis. Training is provided to support the performance review process. Training must be provided across the organisation to ensure all employees are aware of how the performance management and appraisal process works. This is critical in obtaining employee buy-in to the appraisal programme, and will provide both appraisees and appraisers with assurance regarding the programme

 Performance Review is at least a two-way process between line manager and employee There are many different ways of conducting a performance review process, such as peer review, line manager appraisal, or 360 degree feedback where feedback is sought from a range of internal and external customers. A core principal of a performance review process is that it is at least a two way process involving the employee and their line manager, who has a clear and detailed understanding of the performance in the workplace. Feedback on performance is given and individual development plans are set The performance review process is a forum to exchange ideas and provide feedback. Employees should be encouraged to view this as a two way process, and this is often achieved through organisations requesting individuals undertake a self assessment of their own performance as part of the performance review process. In providing feedback, appraisers should ensure sufficient impartial evidence has been obtained to validate the comments made. The feedback given should directly link to the establishment of development plans, either to redress identified areas of weakness, or to undertake new areas of development in line with departmental or corporate objectives. Future potential as well as actual performance is analysed As part of the performance review process, organisations should not focus solely on past performance. It is vitally important that organisations use the process to consider future potential. This is more motivational for participants, and enables the organisation to identify possible future leaders The performance management system is objective, fair, open and transparent Objectivity in a performance review process is critical. Employees must be engaged in the process and deem the process to be fair and transparent. Many organisations link the performance review process to remuneration, often through performance related or competence related pay.