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333 25 Performance management Key Con Ce Pts and terms Objectives Personal development Performance appraisal planning Performance management 360-degree feedback Learn Ing out Comes On completing this chapter you should be able to define these key concepts. You should also know about: ● The meaning of performance ● Reviewing performance ● The theories underpinning ● Assessing performance performance management ● Performance management ● Principles of performance issues management ● The impact of performance ● The aims of performance management on performance management ● Performance management and ● The performance management reward cycle ● 360-degree feedback systems ● Performance planning ● Introducing performance ● Managing performance management throughout the year334 Part 6 Performance and Reward ‘performance review’, which signifies that perform- Introduction ance management is a joint affair, based on dialogue and agreement. As defined by Aguinis (2005: 2): ‘Performance As considered initially in this chapter, performance management is a continuous process of identifying, management is founded on an understanding of measuring and developing the performance of indi- what the word ‘performance’ means and is under - viduals and teams and aligning performance with the pinned by a number of behavioural theories. It is strategic goals of the organization.’ Its five elements also based on a number of principles that have are agreement, measurement, feedback, positive emerged from experience in operating it. The chapter reinforcement and dialogue. continues with a definition of the aims of perform- Cappelli (2008: 196) wrote that: ‘When employees ance management and an examination of a concep- fail in their jobs, part of the organization also fails.’ tual model of performance management consisting Performance management aims to eliminate or at of the plan-act-monitor-review cycle. The problems least significantly reduce this possibility. Pulakos of making this concept work are then explored and (2009: 3) emphasized that: ‘Performance management the chapter ends with analyses of the impact of is the key process through which work gets done. performance management on performance and re- It’s how organizations communicate expectations ward, a description of a special type of performance and drive behaviour to achieve important goals; it’s management: 360-degree feedback, or multisource also about how organizations identify ineffective assessment, and notes for guidance on introducing performers for development programmes or other performance management. personnel actions.’ The earliest mention of performance management in the literature was made by Warren (1972). Another early reference to performance management was The basis of performance made by Beer and Ruh (1976). Their thesis was that ‘performance is best developed through practical management challenges and experiences on the job with guidance and feedback from superiors’. Performance manag-e Performance management should be based on an ment developed out of merit rating, which originated understanding of what the word ‘performance’ means. in the early 20th century and was influenced by the Those concerned with introducing and operating scientic fi management movement. This was followed performance management should be aware of the by performance appraisal and management by underpinning theories and the principles evolved by objectives. But it is said that the first known use practitioners from their experience. of merit rating took place during the Wei dynasty (ad 221–265) when the emperor employed an ‘imperial rater’ whose task it was to evaluate the The meaning of performance performance of officials. Performance is defined as behaviour that accom- Today, the term performance management as plishes results. As noted by Brumbach (1988: 387): an overall description of a process of performance planning and review conducted by managers and Performance means both behaviours and results. Behaviours emanate from the performer and individuals has largely replaced the term perform- transform performance from abstraction to action. ance appraisal. The latter has often been relegated Not just the instruments for results, behaviours are to a description of the performance assessment and also outcomes in their own right – the product of rating aspect of performance management. Indeed, mental and physical effort applied to tasks – and there are those, including the writers of this handbook, can be judged apart from results. who prefer to avoid the use of the phrase performance appraisal altogether because of its connotations Brumbach observed that because of the significance with the worst aspects of traditional merit rating, of behaviour there was more to success or failure ie a top-down pronouncement by managers on what than whether results were achieved: ‘Success is not they think of their subordinates, which is used as always positive nor failure always negative’ (ibid: an instrument for command and control. We prefer 388). This concept of performance leads to the Chapter 25 Performance Management 335 conclusion that when assessing and rewarding the can or cannot do powerfully impacts on their per - performance of individuals a number of factors have formance. Developing and strengthening positive to be considered including both outputs (results) self-belief in employees is therefore an important and inputs (behaviour). performance management objective. Any attempt to manage performance should also bear in mind that it is a complicated notion. Campbell (1990) suggested that performance is the Principles of performance outcome of three determinants: management 1 knowledge about facts and things (termed The research conducted by Armstrong and Baron declarative knowledge); (1998, 2004) identie fi d the following 10 principles of 2 knowledge about how things are done and performance management as stated by practitioners: the skills to do them (termed procedural 1 It’s about how we manage people – it’s not knowledge and skills); a system. 3 motivation to act, to expend effort and to 2 Performance management is what managers persist (termed motivation). do: a natural process of management. 3 A management tool that helps managers to Underpinning theories manage. 4 Driven by corporate purpose and values. The following three theories underpin performance management. 5 To obtain solutions that work. 6 Only interested in things you can do something about and get a visible Goal theory improvement. Goal theory, as developed by Latham and Locke 7 Focus on changing behaviour rather than (1979), highlights four mechanisms that connect paperwork. goals to performance outcomes: 1) they direct at- tention to priorities; 2) they stimulate effort; 3) they 8 Based on accepted principle but operates challenge people to bring their knowledge and skills flexibly. to bear to increase their chances of success; and 9 Focus on development not pay. 4) the more challenging the goal, the more people 10 Success depends on what the organization will draw on their full repertoire of skills. This theory is and needs to be in its performance culture. supports the emphasis in performance management on setting and agreeing objectives against which performance can be measured and managed. Aims of performance Control theory management Control theory focuses attention on feedback as a means of shaping behaviour. As people receive feed- Performance management is a means of getting back on their behaviour they appreciate the discrep- better results by providing the means for individuals ancy between what they are doing and what they to perform well within an agreed framework of planned are expected to do and take corrective action to goals, standards and competency requirements. It overcome the discrepancy. Feedback is recognized as involves developing a shared understanding about a crucial part of performance management processes. what is to be achieved and how it is to be achieved. The aim is to develop the capacity of people to Social cognitive theory meet and exceed expectations and to achieve their Social cognitive theory was developed by Bandura full potential to the benefit of themselves and the organization. A further aim is to clarify how indi- (1986). It is based on his central concept of self- efficacy. This suggests that what people believe they viduals are expected to contribute to the achievement 336 Part 6 Performance and Reward of organization goals by aligning individual objectives ● Provide the basis for personal development with the strategic objectives of the organization. – 37 per cent. Performance management provides the basis for ● Develop a performance culture self-development but, importantly, it is also about – 32 per cent. ensuring that the support and guidance people need ● Inform contribution/performance pay to develop and improve are readily available. decisions – 21 per cent. Performance management can play an important role in rewarding employees by providing them Note the relatively small emphasis on pay. with positive feedback and the recognition of their The following is a statement of objectives from accomplishments. one respondent to the e-reward survey: ‘To support Performance management is often seen as pri- culture change by creating a performance culture marily a developmental process and may therefore and reinforcing the values of the organization with be referred to as ‘performance and development an emphasis on the importance of these in getting a management’. It can also be used to generate ratings balance between “what” is delivered and “how” it is that inform performance pay decisions. delivered.’ Shields (2007: 24) explained that a performance management system has a fourfold purpose: 1 Strategic communication – convey to people The performance what doing a good job means and entails. management cycle 2 Relationship building – create stronger work relationships by bringing managers and those Performance management is a natural process of they manage together regularly to review management: it is not an HRM technique or tool. performance achievements. As a natural process of management the perform- 3 Employee development – provide performance ance management cycle, as modelled in Figure 25.1, feedback as a basis for the joint analysis corresponds with Deming’s (1986) plan-do-check- of strengths, weaknesses and areas for act model. improvement and an agreement on a personal The processes of performance planning, managing development plan and learning contract. performance, performance reviews, performance 4 Employee evaluation – assess the assessment recording the agreement and review, and performance of employees (performance the use of web-enabled technology involved during appraisal) as a basis for making decisions the cycle are described below. on job reassignment, promotion or performance-related reward. Performance planning Shields noted that: ‘the relationship between the developmental and evaluative purposes is frequently Performance planning is based on performance a troubled one and maintaining a harmonious rela- agreements. Expectations are defined generally in tionship between the two is undoubtedly one of the role profiles that specify key result areas; the know- greatest challenges that awaits the unsuspecting ledge, skills and abilities (KSAs) required and the human resource manager’ (ibid: 25). behavioural competencies needed to perform well. Respondents to an e-reward survey in 2005 What has to be accomplished in key result areas identified the following performance management can be defined in the form of objectives or targets. objectives: An important aspect of performance planning is the process of aligning individual goals with the strategic ● Align individual and organizational goals of the organization. objectives – 64 per cent. The acronym ‘SMART’ is often used to define a ● Improve organizational performance – good objective. Traditionally, S stands for specific 63 per cent. (sometimes ‘stretching’), M for measurable, A for ● Improve individual performance – agreed, R for realistic and T for time-related. But as 46 per cent. Chamberlin (2011: 26) argued, ‘the real aim of setting Chapter 25 Performance Management 337 FIgure 25.1 The performance management cycle PLAN Performance planning – performance agreement • Role definition • Objectives • Competencies • Performance improvement • Personal development REVIEW ACT Joint analysis of performance Performance activities • Dialogue and feedback • Carry out role • Performance assessment • Implement performance • Agree strengths improvement plan • Build on strengths • Implement personal • Agree areas for improvement development plan MONITOR Manage performance throughout the year • Monitor performance • Provide continuous feedback • Provide coaching • Deal with under-performers objectives is for people to know exactly what it is Agreement is reached at this stage on how per - they have to do, when they’ve done it, that they are formance will be measured and the evidence that able to do it, why they have to do it (ie who for) and will be used to establish levels of competency. It is that it is something they should be doing, and how important that these measures and evidence requir- e they are progressing along the way’. Following ments should be identified and fully agreed now Blanchard (1989) he suggested that the last three because they will be used by individuals as well as letters of the mnemonic should be amended to read managers to demonstrate and monitor achieve- A for attainable, R for relevant and T for trackable. ments. The manager and the individual also agree He attached particular importance first to ‘relevant’, on what the latter needs to do to achieve objectives, meaning that the objective is to do with the business raise standards and improve performance. and its customers. Second, he emphasized ‘trackable’ The agreement may incorporate a personal because the important thing to do with objectives is development plan that provides a learning action to monitor progress over time, ie track it (he rejected programme, which individuals are expected to ‘time-related’ because it did not convey this essen- follow with the support of their managers and the tial feature and was in any case covered already by organization. It may include formal training but, ‘specific’). more importantly, it will incorporate a wider set of Performance agreements emerge from the analysis learning and development activities such as self- of role requirements and the performance review. managed learning, coaching, mentoring, project An assessment of past performance leads to an work and e-learning. If multisource assessment analysis of future requirements. The two processes (360-degree feedback) is practised in the organization can take place at the same meeting. this will be used to discuss development needs.338 Part 6 Performance and Reward There should be no surprises in a formal review Managing performance if performance issues have been dealt with as they throughout the year should have been – as they arise during the year. Traditional performance appraisals were often no Perhaps one of the most important features of more than an analysis of where those involved are performance management is that it is a continuous now, and where they have come from. This static process that reflects normal good management and historical approach is not what performance practices of setting direction, monitoring and meas- management is about. The true role of performance uring performance and taking action accordingly. management is to look forward to what needs to be Performance management should not be imposed done by people to achieve the purpose of the job; to on managers as something ‘special’ they have to do. meet new challenges; to make even better use of It should instead be treated as a natural function their knowledge, skills and abilities; to develop their that all good managers carry out. capabilities by establishing a self-managed learning This approach contrasts with that used in con- agenda; and to reach agreement on any areas where ventional performance appraisal systems, which were performance needs to be improved and how that usually built around an annual event – the formal improvement should take place. This process also review – which tended to dwell on the past. This was helps managers to improve their ability to lead, carried out at the behest of the personnel department, guide and develop the individuals and teams for often perfunctorily, and then forgotten. Managers whom they are responsible. proceeded to manage without any further reference There are 12 golden rules for conducting per - to the outcome of the review, and the appraisal formance review meetings: form was buried in the personnel records system. However, formal reviews that include assessments 1 Be prepared. Managers should prepare by of performance, as described below, are essential referring to a list of agreed objectives and parts of the performance management cycle. their notes on performance throughout the year. They should form views about the reasons for success or failure and decide The performance review where to give praise, which performance problems should be mentioned and what A performance review provides a focal point for the steps might be undertaken to overcome them. consideration of key performance and development Thought should also be given to any changes issues. The performance review meeting is the that have taken place or are contemplated in means through which the five primary performance the individual’s role, and to work and personal management elements of agreement, measurement, objectives for the next period. Individuals should feedback, positive reinforcement and dialogue can also prepare in order to identify achievements be put to good use. It leads to the completion of and problems, and to be ready to assess their the performance management cycle by informing own performance at the meeting. They should performance agreements. It involves some form of also note any points they wish to raise about assessment, as considered in the next section of this their work and prospects. chapter. 2 Work to a clear structure. The meeting should The review should be rooted in the reality of the be planned to cover all the points identified individual’s performance. It is concrete, not abstract, during preparation. Sufficient time should be and it allows managers and individuals to take a allowed for a full discussion – hurried meetings positive look together at how performance can will be ineffective. An hour or two is usually become better in the future and how any problems necessary to get maximum value from the review. in meeting performance standards and achieving objectives can be resolved. Individuals should be 3 Create the right atmosphere. A successful encouraged to assess their own performance and meeting depends on creating an informal become active agents for change in improving their environment in which a full, frank but friendly results. Managers should be encouraged to adopt exchange of views can take place. It is best to their proper enabling role: coaching and providing start with a fairly general discussion before support and guidance. getting into any detail.Chapter 25 Performance Management 339 4 Provide good feedback. Individuals need to 10 Encourage analysis of performance. Don’t know how they are getting on. Feedback just hand out praise or blame. Analyse jointly should be based on factual evidence. It refers and objectively why things went well or badly to results, events, critical incidents and and what can be done to maintain a high significant behaviours that have affected standard or to avoid problems in the future. performance in specific ways. The feedback 11 Don’t deliver unexpected criticisms. The should be presented in a manner that enables discussion should only be concerned with individuals to recognize and accept its factual events or behaviours that have been noted nature – it should be a description of what at the time they took place. Feedback on has happened, not a judgement. Positive performance should be immediate; it should feedback should be given on the things that not wait until the end of the year. The the individual did well in addition to areas for purpose of the formal review is to reflect improvement. People are more likely to work briefly on experiences during the review at improving their performance and period and, on this basis, to look ahead. developing their skills if they feel empowered 12 Agree measurable objectives and a plan of by the process. action. The aim should be to end the review 5 Use time productively. The reviewer should meeting on a positive note. test understanding, obtain information, and These golden rules may sound straightforward and seek proposals and support. Time should be obvious enough but they will only function properly allowed for the individual to express his or in a culture that supports this type of approach. This her views fully and to respond to any emphasizes the importance of getting and keeping comments made by the manager. The meeting top management support and the need to take spe- should take the form of a dialogue between cial care in developing and introducing the system two interested and involved parties, both of and in training managers and their staff. whom are seeking a positive conclusion. 6 Use praise. If possible, managers should begin with praise for some specific achievement, but Performance assessment this should be sincere and deserved. Praise helps people to relax – everyone needs Most performance management schemes include encouragement and appreciation. an assessment, which is usually carried out during or after a performance review meeting. This may be 7 Let individuals do most of the talking. This carried out by overall assessment, rating or visual enables them to get things off their chest and assessment, as described below. helps them to feel that they are getting a fair hearing. Use open-ended questions (ie questions that invite the individual to think Overall assessment about what to reply rather than indicating the An overall assessment is based on a general analysis expected answer). This is to encourage people of performance under the headings of the perform- to expand. ance agreement. The aim is to reach agreement about 8 Invite self-assessment. This is to see how future action rather than to produce a summarized things look from the individual’s point of and potentially superficial judgement. Managers are view and to provide a basis for discussion – expected to reach an understanding with each mem- many people underestimate themselves. ber of their team as a result of the analysis, which 9 Discuss performance not personality. will ensure that the latter will appreciate how well or not so well they are doing. The analysis should Discussions on performance should be based on factual evidence, not opinion. Always refer also identify the high-y fl ers and those who are failing to meet acceptable standards. An overall assessment to actual events or behaviour and to results compared with agreed performance measures. is recorded in a narrative consisting of a written summary of views about the level of performance Individuals should be given plenty of scope to explain why something did or did not achieved. This at least ensures that managers have to collect their thoughts together and put them happen.340 Part 6 Performance and Reward down on paper. But different people will consider ● Exceptional performance: exceeds different aspects of performance and there will be expectations and consistently makes an no consistency in the criteria used for assessment, so outstanding contribution that significantly it is necessary to have a framework for the analysis. extends the impact and influence of the role. This could be provided on a ‘what’ and ‘how’ basis. ● Well-balanced performance: meets objectives The ‘what’ is the achievement of previously agreed and requirements of the role, consistently objectives related to the headings on a role profile. performs in a thoroughly proficient manner. The ‘how’ is behaviour in relating to competency ● Barely effective performance: does not meet framework headings. The results for each ‘what’ and all objectives or role requirements of the ‘how’ heading could be recorded following a joint role; significant performance improvements analysis during a review meeting. are needed. One problem with this form of assessment, indeed ● Unacceptable performance: fails to meet any form of assessment, is that we can recognize most objectives or requirements of the role; people at either extreme (top performers and in- shows a lack of commitment to performance adequate performers) but cannot accurately distin- improvement or a lack of ability, which has guish performance differences in the bulk of people been discussed prior to the performance lying between those extremes. What managers can review. do is to tell an individual that he or she has done exceptionally well and that they will therefore be The e-reward 2005 survey of performance manage- included in the talent management programme, ment found that overall ratings were used by 70 per or managers can inform another individual that he cent of respondents. The most popular number of or she has not done very well and that they must levels was v fi e (43 per cent of respondents). However, discuss what needs to be done about it. The others some organizations settled for three levels. There can be told that they are doing a perfectly good job is no evidence that any single approach is clearly and discussions can take place on how they can superior to another, although the greater the number build on their strengths or on any learning activity of levels the more is being asked of managers in the (preferably self-directed) that might help them to do shape of discriminatory judgement. It is, however, even better. Another problem with overall assess- preferable for level definitions to be positive rather ments is that they can be bland, superficial and than negative and for them to provide as much overgeneralized. This is why many schemes use guidance as possible on the choice of ratings. It is rating. equally important to ensure that level definitions are compatible with the culture of the organization and that close attention is given to ensuring that Rating managers use them as consistently as possible. Rating summarizes on a scale the views of the The main problem with ratings is that they are rater on the level of performance achieved. A rating largely subjective and it is difficult to achieve scale is supposed to assist in making judgements consistency between the ratings given by different and it enables those judgements to be categorized managers. Because the notion of ‘performance’ is to inform performance- or contribution-pay deci- often unclear, subjectivity can increase. Even if sions, or simply to produce an instant summary for objectivity is achieved, to sum up the total per- the record of how well or not so well someone is formance of a person with a single rating is a gross doing. oversimplification of what may be a complex set of Rating scales can be defined alphabetically (a, b, factors inu fl encing that performance. To do this after c, etc), or numerically (1, 2, 3, etc). Initials (ex for a detailed discussion of strengths and weaknesses excellent, etc) are sometimes used in an attempt suggests that the rating will be a superficial and to disguise the hierarchical nature of the scale. arbitrary judgement. To label people as ‘average’ or The alphabetical or numerical points scale may be ‘below average’, or whatever equivalent terms are described adjectivally, for example, a= excellent, used, is both demeaning and demotivating. b = good, c = satisfactory and d = unsatisfactory. The whole performance review session may be Alternatively, scale levels may be described verbally, dominated by the fact that it will end with a rating, as in the following example: thus severely limiting the forward-looking and Chapter 25 Performance Management 341 developmental focus of the meeting, which is all the individual delivers. The assessment can place important. This is particularly the case if the rating someone anywhere in one of the four quadrants governs performance- or contribution-pay increases. according to behavioural style and delivery. Examples Another problem is that managers may inflate of possible actions are provided. A picture is thus ratings to avoid confrontation with the individuals provided of the individual’s overall contribution, concerned. Some organizations (8 per cent of the which is presented visually and as such provides a respondents to the performance management better basis for analysis and discussion than a mec- h survey conducted by Armstrong and Baron (2004)) anistic rating. attempted to counter this by using forced distribu- tion, which requires conforming to a laid down distribution of ratings between different levels, for Recording the performance example: A = 5 per cent, B = 15 per cent, C = 60 per agreement and review cent, D = 15 per cent and E = 5 per cent. This achieves consistency of a sort but managers and The performance agreement and outcomes of a re- staff rightly resent being forced into this sort of view can be recorded on a performance management straitjacket. form. This should serve as a working document. It An alternative to forced distribution is forced should be regularly used by managers and individu- ranking. It is most common in the United States als as a reference document on objectives and plans where the outcome is sometimes known as a ‘vital- when reviewing progress. It is a means of recording ity curve’. Managers are required to place their staff agreements on performance achievements and actions in order from best to worst. The problem with to be taken to improve performance or develop forced ranking, as with forced distribution, is that competence and skills. It should be dog-eared from the notion of performance may not be defined and much use – it should not be condemned to moulder is therefore not measurable. In the case of ranking away in a file. Examples of forms are given in it is therefore unclear what the resulting order of Figures 25.3a and 25.3b. employees truly represents. Some organizations, mainly in the United States, have gone as far as adopting the practice of an - Web-enabled performance nually terminating the employment of 5 to 10 per management cent of the consistently lowest performers. This is referred to colloquially as ‘rank and hank’. It is Web-enabled or online performance management claimed that this practice ‘raises the bar’, ie it is said makes it easier for managers and employees to that it improves the overall level of performance in record role profiles and performance agreements, the business. There is no evidence that this is the monitor progress against the plans, access perform- case. ance documents, and gather multisource (360-degree appraisal) comments. All this data can be used to assist in performance reviews and record further Visual assessment agreements emerging from the reviews. The aim is Visual assessment is an alternative to rating. This to reduce paperwork and simplify the process. takes the form of an agreement between the man- ager and the individual on where the latter should be placed on a matrix or grid, as illustrated in Figure 25.2. The vertical axis of the grid in this Performance management example assesses the behavioural style adopted by issues the individual in carrying out the role, ie inputs. The elements of behaviour to be assessed would be defined in a competency framework and this would The many-faceted nature of performance was com- mented on as follows by Cascio (2010: 334): ‘It is be amplie fi d in schedules of what would be regarded as acceptable or unacceptable behaviour for each an exercise in observation and judgement, it is a feedback process, it is an organizational intervention. area of competency. The horizontal axis measures the level of business performance, ie outputs or what It is a measurement process as well as an intensely 342 Part 6 Performance and Reward FIgure 25.2 Visual performance assessment matrix High Employees placed here Employees placed here are top have an effective behavioural style performers but are not delivering well Possible actions: Possible actions: • medium reward • full recognition and high reward • provide feedback • challenge/stretch • coach/train to improve delivery • fast-track career (talent • set milestones management programme) • coaching Employees placed here have both Employees placed here have behavioural and performance good business results but need problems to focus on style Possible actions: Possible actions: • provide feedback • medium reward • coach/train • recognize contribution • set milestones • provide feedback • monitor • coach to improve style • decision whether to continue or end employment Low Low High Business performance emotional process. Above all, it is an inexact, human Throughout our work lives, most of us have struggled with performance appraisal. No matter process.’ how many times we redesign it, retrain the As a human process, performance management supervisors, or give it a new name, it never comes can promise more than it achieves. Some years ago out right. Again and again, we see supervisors Keith Grint (1993: 62), referring to performance procrastinate or just go through the motions, with appraisal, asserted, famously, that: ‘Rarely in the little taken to heart. And the supervisors who do history of business can such a system have promised take it to heart and give it their best mostly meet so much and delivered so little.’ More recently, Shields disappointment. (2007: 6) argued that: ‘Ill-chosen, badly designed Performance management can be modelled con- or poorly implemented performance management schemes can communicate entirely the wrong mes- vincingly as a system (see above) but the acts or failures to act of fallible human beings prejudice sages as to what the organization expects from its employees.’ Coens and Jenkins (2002: 1) delivered the effectiveness of the system in practice. Duncan Brown (2010) commented that: the following judgement: Behavioural style Chapter 25 Performance Management 343 FIgure 25.3a Performance management form (part 1) PERFORMANCE AGREEMENT AND PERSONAL DEVELOPMENT PLAN Name: Forename(s): Job title: Department: Reviewer’s name: Job title: PERFORMANCE AGREEMENT Objectives Performance measures Competencies Agreed actions PERSONAL DEVELOPMENT PLAN Development need How it is to be met Action by whom Target completion date344 Part 6 Performance and Reward FIgure 25.3b Performance management form (part 2) PERFORMANCE REVIEW Objectives Achievements Competencies Actions taken Development needs Actions taken Comments by reviewer: Signed: Date: Comments by person reviewed: Signed: Date:Chapter 25 Performance Management 345 The problems of performance management are... 1 Line managers do not have the skills required not of ambition or intent, but rather practice and – 88 per cent. delivery. Low rates of coverage and even more 2 Line managers do not discriminate sufc fi iently frequently low quality conversations and non- when assessing performance – 84 per cent. existent follow-up are commonplace, in the wake 3 Line managers are not committed to of uncommitted directors, incompetent line performance management – 75 per cent. managers, uncomprehending employees and hectoring HR with their still complex and 4 Line managers are reluctant to conduct bureaucratic HR processes. performance management reviews – 74 per cent. On the basis of research conducted in 2011 by the Institute for Employment Studies, Brown also When asked how they coped with these problems, respondents to the e-reward survey emphasized the observed that: ‘The main areas of concern about performance management were the skills and importance of doing the following: attitudes of reviewing managers, the consistency and ● Involve line managers in the development quality of approach across large organizations, and introduction of performance the complexity of the paperwork and the value of management. outputs... Performance management, it appears, ● Train and coach line managers – existing isn’t working’ (2011: 16). managers and, importantly, potential and A survey by WorldatWork and Sibson (2010) newly appointed managers. established that the top three performance manage- ● Get top management to stress the ment challenges reported by respondents were: importance they attach to performance 1) managers lack courage to have difficult perform- management – by example as well as ance discussions (63 per cent); 2) performance exhortation. management is viewed as an ‘HR process’ instead of as a ‘business critical process’ (47 per cent); and ● Keep it simple – do not impose 3) that they experienced poor goal setting (36 per a bureaucratic system. cent). ● Emphasize whenever possible that However well-designed a performance manage- performance management is a normal ment system is, its effectiveness mainly depends on process of management and that one of the the commitment and skills of line managers. Postuma criteria for assessing the performance of and Campion (2008: 47) remarked that: managers is how well they do it. One of the most dreaded tasks managers face ● Do whatever can be done to persuade line is meeting with employees to discuss their job managers that formal performance reviews performance. These meetings present a dilemma need not be stressful occasions if they are for managers. On one hand, managers need to conducted properly, but that they can in fact give constructive criticism so that employees can provide ‘quality time’ for the two parties to improve their performance. On the other hand, engage in a dialogue about performance and managers do not like to give negative feedback development opportunities (eliminating because of the bad feelings that often result. It is formal ratings helps). not surprising, then, that managers avoid giving accurate evaluations, give overly generous evaluations or avoid the process altogether. The impact of performance They also noted that: ‘Too much attention has been placed on the design of a performance manag-e management on ment system and not enough on how it works performance when implemented’ (ibid: 50). The e-reward 2005 survey of performance management established that the top four issues Performance management is expected to improve organizational performance generally by creating concerning respondents about their performance management processes were: a performance culture in which the achievement of 346 Part 6 Performance and Reward high performance is a way of life. More specifically, correlations in the shape of a demonstration that X effective performance management ensures that is associated with Y; it is much more difficult and individual goals are aligned with organizational sometimes impossible to prove that X causes Y. goals, so that key performance indicators for em- ployees are linked to those of the organization, and the contribution people can make to organizational Evidence from research performance is therefore defined. Research projects and other analytical studies that A description of what performance management deal with the impact of performance management should contribute was defined by Jones et al (1995) on overall firm performance, or as aspects of indi- as follows: vidual performance, are summarized below. ● communicate a shared vision throughout the organization to help to establish and Latham and Locke support appropriate leadership and As reported by Latham and Locke (1979) field management styles; research in a logging company involving 292 super- ● define individual requirements and visors established that those who set specific pro- expectation of all employees in terms of the duction goals achieved the highest productivity. inputs and outputs expected from them thus A further study of 892 supervisors produced the reducing confusion and ambiguity; same result. ● provide a framework and environment for Another study in a logging company involved teams to develop and succeed; setting a difficult but attainable target for loading ● provide the climate and systems which trucks. Loggers were told that they would receive support reward and communicate how no reward for achieving the target but that no one people and the organization can achieve would be criticized for failing to do so. After the improved performance; third month performance exceeded 90 per cent of the trucks’ capacity compared with 58–63 per cent ● help people manage ambiguity. previously. This level has been sustained for the It is assumed that managers and their team members seven years to date. working together on a continuing basis throughout An analysis of 10 field studies conducted by the year to use performance management processes various researchers for a range of jobs showed such as goal setting, feedback, performance analysis that the percentage change in performance after and coaching will create a situation in which con- goal setting ranged from 11 per cent to 27 per cent tinuous improvement in results will be guaranteed. (median 16 per cent). This could be regarded as an unrealistic aspiration – an optimistic belief – but it is the one that under- McDonald and Smith pins the concept of performance management. The Research was conducted by McDonald and Smith holy grail of performance management is to provide (1991) covering 437 publicly quoted US companies. evidence that this belief is justified. But it isn’t easy The findings were that the 205 respondents with – for the reasons given below. performance management as opposed to the others without had: Establishing the impact ● higher prot fi s, better cash o fl ws, stronger stock market performance and higher stock value; Establishing the impact between human resource ● significant gains over three years in financial management (HRM) practices – including per - performance and productivity; formance management – and firm performance is problematic. This is because causality – determining ● higher sales growth per employee; the link between independent and dependent vari- ● lower real growth in number of employees. ables (cause and effect) – is a major issue in research, The researchers commented that: ‘In the successful especially in the HRM field. Correlation does not imply causation. It may be relatively easy to establish companies the difference in managing employee Chapter 25 Performance Management 347 performance seems to be that it is regarded as a mai- n surveyed by Armstrong and Baron in 1998. The key stream business issue, not an isolated “personnel criteria used for determining the effectiveness of problem”.’ performance management were the achievement of This is a classic case of reversed causality. n fi ancial targets, development of skills, development Performance management systems may have gen- of competence, improved customer care and im- erated successful companies but it is just as likely proved quality. Against these criteria, over 90 per that the successful companies were the ones with the cent of respondents rated performance management inclination and money to introduce sophisticated as being moderately or highly effective. The personnel practices such as performance management. managers, who in the main responded to the survey, believed that others, and more particularly senior managers, are even more positive in their evaluation. Institute of Personnel Management Many also believe that the overall performance of It was reported by the IPM in 1992 that their exten- their organization, judged by internal criteria such as sive research found no evidence that improved quality, productivity and cost, and external criteria performance in the private sector is associated with such as market share and profitability, are at least the pursuit of formal performance management as good and are often better than that of their main programmes. Poor financial performers were as competitors. likely to introduce performance management as But there were caveats. The analysis indicated good performers. There was no readily available that the views of respondents to the survey should and comparable measures of performance in the all be viewed with extreme caution since they are public sector to test this link, even through per- often based on a very limited form of formal evalu- formance management is more likely to be adopted ation, or on an absence of any formal evaluation. in the public sector. This raises serious questions about the basis for However, one positive theme that was traced the generally positive assessment of performance throughout the research was the extent to which management. performance management raised awareness of the Further, more detailed statistical analysis of the pressures on the organization to perform. replies to the questionnaire failed to demonstrate consistent evidence of any link between the practice of performance management and outcomes such Rodgers and Hunter as the achievement of financial targets, achievement A meta-analysis by Rodgers and Hunter (1991) of of quality and customer service goals and employee 70 studies in goal setting, participation in decision- development goals. The conclusion reached was that making and objective feedback (as included in typical this survey has produced no convincing evidence management-by-objectives programmes) found that that performance management has an impact on 69 of them showed productivity gains and only two overall organizational performance. showed productivity losses. This led to the conclu- sion that management by objectives programmes Gallup when properly implemented and when supported by top management had an almost universal positive As reported by Risher (2005) Gallup has analysed effect on productivity. its Q 12 survey and found that employers with a formal performance review process have more en- gaged employees – 33 per cent versus 21 per cent – Bernadin, Hagan and Kane and fewer disengaged employees – 12 per cent versus Bernardin et al (1995) found improvement in sub- 29 per cent. ordinate and peer ratings following 360-degree feedback, but no changes in customer ratings or Sibson and WorldatWork sales volume. As reported by Kochanski (2007) a survey by Sibson and WorldatWork found that high performing firms Guest and Conway have strong leadership support for performance An analysis by Guest and Conway (1998) covered the management. An analysis of total return to share- 388 organizations with performance management holders over a three-year period (2003–05) revealed 348 Part 6 Performance and Reward that 64 per cent of the top performing companies Performance management is, of course, also had performance management systems that were associated with pay by generating the information rated as effective, compared to only 36 per cent of required to decide on pay increases or bonuses the bottom performing companies. The companies related to performance, competency or contribution. that excelled at performance management: 1) used In some organizations this is its main purpose, but their systems as the primary way to manage indi- performance management is, or should be, much vidual performance throughout the company; 2) have more about developing people and rewarding them strong leadership support; and 3) have more line in the broadest sense. champions. Watson Wyatt 360-degree feedback As cited by Pulakos et al (2008) a recent Watson Wyatt survey found that only 30 per cent of workers Also known as multisource feedback, 360-degree is felt that their performance management system assessed and feedback is given by a number of helped to improve performance. Less than 40 per cent people who may include their manager, subordinates, said that the system established clear performance colleagues and customers. Assessments take the form goals or generated honest feedback. of ratings against various performance dimensions. The term ‘360-degree feedback’ is sometimes used loosely to describe upward feedback where this is Conclusions given by subordinates to their managers. This is The results of these studies are mixed. But it is still the most common approach and is more properly possible to believe in the benefits of performance described as 180-degree feedback. Feedback may be management to organizations on the assumption presented direct to individuals, or to their managers, that people are more likely to respond positively or both. Expert counselling and coaching for indi- and are more likely to work to improve their per - viduals as a result of the feedback may be provided formance and develop their capabilities if they by a member of the HR department or an outside share in the processes of defining expectations and consultant. The 360-degree feedback or a variant of reviewing performance and competency against it was used by 30 per cent of the respondents to the those expectations, and are involved in creating and 2005 e-reward survey. implementing plans for developing their skills and Data from questionnaires forms the basis of competences. If this happens generally (admittedly, 360-degree feedback, which measure from different often a big if), and if the organization provides the perspectives the behaviours of individuals against managerial and systems support necessary, than a list of competencies. In effect, they ask for an evalu- the presumption that this will contribute to overall ation: ‘How well does... do...?’ The competency performance improvement is not unreasonable, even model may be one developed within the organization if it cannot be proved. or the competency headings may be provided by the supplier of a questionnaire. A typical questionnaire may cover aspects of performance such as leadership, teamwork, communication, organizational skills, Performance management decisiveness, drive and adaptability. Questionnaires as a rewarding process are normally processed with the help of software developed within the organization or, most com- Performance management, if carried out properly, monly, provided by external suppliers. can reward people by recognition through feed- Feedback is presented to individuals, often an- back, the provision of opportunities to achieve, the onymously but sometimes by their manager. If the scope to develop skills, and guidance on career paths. purpose of the system is primarily developmental, All these are non-financial rewards that can encour- as is most frequently the case, the action may be left age job and organizational engagement and make to individuals as part of their personal development a longer-lasting and more powerful impact than plans, but the planning process may be shared be- financial rewards such as performance-related pay. tween individuals and their managers if they both Chapter 25 Performance Management 349 have access to the information. Even if the data are not interested, or they don’t have the skills, or only goes to the individual it can be discussed in a both. It is important to get buy-in from top manage- performance review meeting so that joint plans can ment so that their leadership can encourage line be made, and there is much to be said for adopting managers to play their part. Line managers should this approach. be involved in planning the scheme and its imple- The disadvantages can all be minimized if not mentation. They have to be convinced that the avoided completely by careful design, communica - time they spend will pay off in terms of improved tion, training and follow-up. But it is still possible performance. To encourage buy-in, the process has to argue, as did Grint (1995: 68–69), that 360-degree to be simple (not too much paper). The demanding feedback ‘merely replaces single-assessor subjectivity skills of concluding performance agreements, setting with multi-assessor subjectivity’. objectives, assessing performance, giving feedback and coaching need to be developed by formal training, supplemented by coaching and the use of mentors. Introducing performance Excellent practical advice on introducing perform - ance management or making substantial changes to management an existing scheme was given by the respondents to the e-Reward 2005 survey. Comments in the form of The programme for introducing performance man- dos and don’ts are set out in Figure 25.4 in the order agement should take into account that one of the of frequency with which they were mentioned. main reasons why it fails is that either line managers FIgure 25.4 Introducing performance management: dos and don’ts Do Don’t • consult/involve; • just make it a form‐filling, paper‐intensive exercise; • provide training; • make it too complicated; • communicate (process and benefits); • rush in a new system; • get buy-in from senior management; • underestimate the time it takes to • align and ensure relevance to introduce; organizational/business/stakeholder needs; • keep changing the system; • keep it simple; • assume managers have the skills • get ownership from line managers; required; • ensure clear purpose and processes; • link to pay; • monitor and evaluate; • blindly follow others; • align to culture; • neglect communication, consultation and • plan and prepare carefully; training; • align with other HR processes; • assume that everyone wants it. • run a pilot scheme; • clarify link to reward; • treat as a business process; • be realistic about the scale and pace of change; • define performance expectations. 350 Part 6 Performance and Reward To which could be added two further points. First, the Requirements for success comment made by Lawler and McDermott (2003: Research by Haines and St-Onge (2012) established 55) that: that performance management is more likely to be Managers at all levels in a hierarchy can play successful when: an important role in the operation of the performance management system. If the ● there is more performance management performance management system is going to be training for managers covering tied into the business strategy, it is critical that performance coaching and constructive senior management take a role and make the tie feedback; between business strategy and the performance ● employee recognition is emphasized; management system. The behaviour of ● the corporate culture values engagement; management is also an indication of how important the performance management ● performance management is strategically system is and as a result is likely to have integrated with human resource a strong influence on how the system is management and the business plans of the actually executed. organization; ● human capital is valued; Secondly, performance management systems are more likely to be successful when the culture of the ● there is a positive employee relations organization is performance-oriented. climate. Case stud Ies Performance management at CEMEX UK CEMEX UK is a supplier of cement, ready-mixed concrete and aggregates, with 4,000 employees. It is a subsidiary of The annual cycle the Mexican company CEMEX. Cemex’s performance management scheme runs over the calendar year as follows: Aims 1 The company’s overall budget is set in January and The aims of the Performance and Potential Assessment from this the most senior managers’ objectives are scheme at CEMEX UK are to: established, which are then cascaded down the ● promote strategic alignment and respond to business organization. needs; 2 Around July, there is a mid-year review of ● facilitate clear communication and understanding initial objectives set and discussions on how the of standards; individual is progressing over the first part of the year. ● ensure objective grading and differentiation of potential levels; 3 Finally, between November and January an ultimate meeting takes place where line managers and ● promote continuous feedback and development; individuals meet and staff are rated between one ● reinforce high-performance attitudes. and five by their line managers.Chapter 25 Performance Management 351 Performance management at DHL ● DHL is a global market leader in the international express A performance evaluation template: this template and logistics industry, with 45,000 staff in Europe. enables the appropriate competency model to be DHL’s annual performance management process begins reviewed and evaluated. in August when the bonus framework and core elements of ● An objective agreement template: this template is the scheme are designed at the top level. Following this, in located within the performance evaluation template mid-November, based on the aims decided upon in August, and is used to capture both performance and targets are set for the year by a panel of senior staff. Once personal objectives. devised, these targets are cascaded down the organization ● into individual personal objectives following discussions Competency models: available as support tools for between line managers and HR. personal development planning. The cascading process is designed to ensure that tar- ● Technical competencies: these represent a support gets are refined and altered to align with each individual’s framework for identifying core technical actual job. Further discussions then take place to decide competencies for key operational roles. what each target means for employees in practice and ● their implications for competencies. Around the same time, Development guides: guidelines for use in the attainment levels and scoring based on the previous year’s support of developing a personal development performance take place to determine bonus levels and plan. salary rises. Following this, with targets already set, around ● Personal development plan (PDP): a template for the middle of January an outline for recording performance assessing an individual against management targets for personal and financial performance for the competencies and developing actions for them to coming year is designed, and in mid-February the company’s progress their career. financial results become known. This makes it possible to ● determine the pot available for bonus payments and salary Career ladder: a guide to support the development increases relating to the previous year. Bonuses are paid of a personal development plan. in either March or April, while salary reviews take place ● Passport of success: a small booklet retained by in April. the individual (non-management) that identifies The initial stage of establishing overall objectives and completed training. the target-setting framework sets the tone for the year. ● From year to year, conditions change, with the priorities of Site succession plan: a plan developed utilizing senior management reflecting the current state of affairs. information from the performance review and PDP As a result, each year there are a number of overarching process. themes such as serving customers, for example, or health and safety. These core individual key objectives (IKOs) are The annual face-to-face meeting strictly adhered to, although local managers can determine A key element of the performance management cycle is themselves how to manage their attainment. In contrast, the face-to-face meeting between line managers and more flexibility exists for other objectives, with managers each member of their teams. For operational employees at lower levels able to alter them to align with their particular (non-management) the company recommends that, as a needs. There is further flexibility in the system with regard minimum, this should be a discussion of around 30 minutes, to its timing. while for managers a one-hour meeting is suggested. During the meeting, the managers and their direct reports Performance management tools examine performance over the last 12 months with refer- To ensure the smooth running of the system, managers ence to the previous year’s objectives. Discussions cover and staff alike are provided with a number of tools to help what was achieved, whether support provided was them during the performance management process. These sufficient and, if relevant, what could have been done include: differently for a more effective result.352 Part 6 Performance and Reward Following this they agree performance objectives for the want to move upwards or into a different role, or perhaps coming year, along with any support in the form of training to change location. and development that can be offered. Objectives are docu- mented in a ‘target agreement form’, information on levels Performance measurement/scoring of attainment captured on the ‘performance evaluation At the end of the year in the subsequent annual meeting tool’, while training and support needs are recorded in the the process begins again, while at the same time, ratings ‘performance development plan’. In addition, as mentioned, for the last 12 months are given based on performance further support tools used include competency models, against objectives and the individual’s competencies. To development guides, technical competencies and career aid in the evaluation process, the ‘performance evaluation ladders. tool’ is used, which includes a competency and development Unlike performance objectives, development objectives needs assessment. Using this, progress against last year’s are primarily the individual’s responsibility to identify, with performance evaluation is discussed, particularly drawing support provided by managers via the supply of appropriate on successes during the year. Individual achievement is resources and by contributing objectivity in discussions on based on a combination of two ratings. First, there is a staff potential. In some circumstances, DHL guidance says measure of achievement against personal objectives – that it may be appropriate to develop a full performance also known as personal targets or individual key objectives development action plan, while in others this may not be (IKOs). This concentrates on what is achieved, as distinct necessary. In either case, though, the tools mentioned from a second rating that examines how things are above are available to assist. DHL says it is committed to achieved, drawing on competencies. While there is no par- personal development planning because it supports the ticular formula, both ratings are taken into account when growth of individuals across the organization, stating that making decisions on pay, bonuses and career progression. ‘growing its people develops talent to meet the organ- Under the first measure, target achievement level is linked ization’s future management and leadership requirements’. to IKOs and scores are on a scale of 0 to 133.33 per cent. Further, it is a ‘motivator for the individual and allows On-target performance gives a score of 100 per cent. development priorities to be clearly identified, creating Competency ratings are on a scale of 1 to 5 where 5 is opportunities to fully achieve their potential’. exceptional and 1 unsatisfactory, as follows: 1 Far exceeds: consistently demonstrating the Competencies competency behaviours effectively, role model. Closely linked to objectives, competencies play an im- 2 Exceeds: demonstrates the competency behaviours portant part throughout DHL’s performance management beyond what is expected. process. In addition to the management of performance, they are used for recruitment, selection, induction and job 3 Fully meets: behaviours fully correspond with what sizing and feed into decisions on pay increases. There are is expected in the current role. different competencies for different roles. 4 Partially meets: demonstrates minor deficiencies (coachable) in behaviour. Progress meetings 5 Does not meet: does not demonstrate behaviours expected in the current role. In addition to the main performance management meetings, managers are advised to arrange progress meetings When it comes to decisions on salary increases, ratings throughout the year. The number will depend on the indi- are moderated by employees’ positions in their pay bands, vidual in question, but the company suggests that there local budget constraints and the market. Ratings are used should be at least one every 12 months. In this meeting, to determine bonus levels and they also tie in to decisions discussions cover how attainment against objectives on promotion and succession planning. and competencies is progressing, whether training and development support aligns with expectations and whether Succession planning additional support can be provided. Moreover, in some cases, certain senior employees are consulted on their own Following the evaluation and rating stage, the line man- aspirations, and questions are asked such as whether they ager’s immediate superior reviews the results and, in the

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