PMS UNIT 1

 PERFORMANCE MEANING

The action or process of carrying out or accomplishing an action, task, or function can be termed
as performance.

The action or process of performing a task or function.

 PERFORMANCE DEFN

The accomplishment of a given task measured against preset known standards of accuracy,
completeness, cost, and speed. In a contract, performance is deemed to be the fulfillment of an
obligation, in a manner that releases the performer from all liabilities under the contract.

Performance is completion of a task with application of knowledge, skills and abilities

 ELEMENTS OF PERFORMANCE
  PERFORMANCE MANAGEMENT

Bates and Holton 1995. Performance management can be defined as a strategic and
integrated approach to delivering sustained success to organisations by improving the
performance of the people who works in them and by developing the capabilities of terms and
contributors.

Mc Bain 2004. Performance management systems are increasingly seen as the way to
manage employees performance rather than relying on appraisal alone. Such systems offer
advantage of being tied closely into the objectives of the organisation, and therefore the resulting
performance is more likely to meet organisational needs.

Weiss and Hartle 1997, Performance management is a process for establishing a shared
understanding about what is to be achieved, and how it is to be achieved; an approach to
managing people which increases the probability of achieving job-related success.

 MODELS OF PMS:

There is no single universally accepted model of performance management. Various experts

have explained the concept in their own ways. Mabey has prescribed the model in the form of
‘performance management cycle’. This cycle has 5 elements which suggest how performance
management system should be implemented in an organization. The elements of performance
management system cycle includes:

1. Setting of objectives.

2. Measuring the performance.

3. Feedback of performance results.

4. Reward system based on performance outcomes

5. And amendments to objectives and activities (Mabey et al, 1999).

  THEORIES OF PERFORMANCE MANAGEMENT

1. The goal setting theory.

2. Expectancy theory.
3. Social Cognitive Theory
4. Control Theory

1. Goal setting theory:

Proposed by Edwin Locke in the year 1968. This theory suggests that the individual goals
established by an employee play an important role in motivating him for superior
performance. This is because the employees keep following their goals. If these goals are not
achieved, they either improve their performance or modify the goals and make them more
realistic. In case the performance improves it will result in achievement of the performance
management system aims (Salaman et al, 2005).

The important features of goal-setting theory are as follows:

 The willingness to work towards attainment of goal is main source of job motivation.
  Specific and clear goals lead to greater output and better performance. Unambiguous,
measurable and clear goals accompanied by a deadline for completion avoids
misunderstanding.
 Goals should be realistic and challenging.
 Better and appropriate feedback of results directs the employee behaviour and
contributes to higher performance than absence of feedback. Feedback is a means of
gaining reputation, making clarifications and regulating goal difficulties. It helps
employees to work with more involvement and leads to greater job satisfaction.
 Employees’ participation in goal is not always desirable.
 Participation of setting goal, however, makes goal more acceptable and leads to more
involvement.

Goal setting theory has certain eventualities such as:

a. Self-efficiency- Self-efficiency is the individual’s self-confidence and faith that he has

potential of performing the task. Higher the level of self-efficiency, greater will be the
efforts put in by the individual when they face challenging tasks and vice cersa
b. Goal commitment- Goal setting theory assumes that the individual is committed to the
goal and will not leave the goal. The goal commitment is dependent on the following
factors:
i. Goals are made open, known and broadcasted.
ii. Goals should be set-self by individual rather than designated.
iii. Individual’s set goals should be consistent with the organizational goals and
vision

2. Expectancy theory had been proposed by Victor Vroom in 1964. This theory is based on the
hypothesis that individuals adjust their behavior in the organization on the basis of
anticipated satisfaction of valued goals set by them. The individuals modify their behavior in
such a way which is most likely to lead them to attain these goals.
Vroom realized that an employee's performance is based on individual’s factors such as
personality, skills, knowledge, experience and abilities.

The theory suggests that although individuals may have different sets of goals, they can be
motivated if they believe that:

 There is a positive correlation between efforts and performance,

 Favorable performance will result in a desirable reward,
 The rewardwill satisfy an important need,
 The desire to satisfy the need is strong enough to make the effort worthwhile.

The theory is based upon the following beliefs: (3 components)

1. Valence

Valence refers to the emotional orientations people hold with respect to outcomes [rewards]. The
depth of the want of an employee for extrinsic [money, promotion, time-off, benefits] or intrinsic
[satisfaction] rewards). Management must discover what employee’s value.

2. Expectancy

Employees have different expectations and levels of confidence about what they are capable of
doing. Management must discover what resources, training, or supervision employees need.

3. Instrumentality

The perception of employees as to whether they will actually get what they desire even if it has
been promised by a manager. Management must ensure that promises of rewards are fulfilled
and that employees are aware of that.

3. Social Cognitive Theoery

This theory is all about learning from watching what others do, and then replicating their
behaviour. It is common everywhere in the world, children learn from their parents, then from
their teachers and later on in life they learn how to work by following others with more
experience. Albert Bandura (1925)

4. Control Theory:

Control theory helps in sustaining the performance management system by defining forms of
control between the organization and the systems within. According to control theory, actions of
all systems should be in sync with the overall goals and objectives of an organization (Barrows
& Neely, 2012).

Control theory focuses on control mechanism which should be imposed at all levels of an
organization. There are different forms of control which an organization can use in order to get
the desired results such as:

 organizational structure,

 behavioral controls like norms and policies of an organization or

 performance measurement mechanisms.

 EVOLUTION OF PMS :

The term performance management gained its importance from the times when the competitive
pressures in the market place started rising and the organizations felt the need of introducing a
comprehensive performance management process into their system for improving the overall
productivity and performance effectiveness.

The performance management process evolved in several phases.

1. First Phase: The origin of performance management can be traced in the early 1960’s
when the performance appraisal systems were in practice. During this period, Annual
Confidential Reports (ACR’s)which was also known as Employee service
Records were maintained for controlling the behaviors of the employees and these
reports provided substantial information on the performance of the employees.

Any negative comment or a remark in the ESR or ACR used to adversely affect the
prospects of career growth of an employee. The assessments were usually done for ten
traits on a five or a ten point rating scale basis. These traits were job knowledge,
sincerity, dynamism, punctuality, leadership, loyalty, etc. The remarks of these reports
were never communicated to the employees and strict confidentiality was maintained in
the entire process. The employees used to remain in absolute darkness due to the absence
of a transparent mechanism of feedback and communication. This system had suffered
from many drawbacks.

2. Second Phase: This phase continued from late 1960’s till early 1970’s, and the key
hallmark of this phase was that whatever adverse remarks were incorporated in the
performance reports were communicated to the employees so that they could take
corrective actions for overcoming such deficiencies. In this process of appraising the
performance, the reviewing officer used to enjoy a discretionary power of overruling the
ratings given by the reporting officer. The employees usually used to get a formal written
communication on their identified areas of improvements if the rating for any specific
trait used to be below 33%.
3. Third Phase: In this phase the term ACR was replaced by performance appraisal. One of
the key changes that were introduced in this stage was that the employees were permitted
to describe their accomplishments in the confidential performance reports. The
employees were allowed to describe their accomplishments in the self appraisal forms in
the end of a year. Besides inclusion of the traits in the rating scale, several new
components were considered by many organizations which could measure the
productivity and performance of an employee in quantifiable terms such as targets
achieved, etc. Certain organizations also introduced a new section on training needs in
 the appraisal form. However, the confidentiality element was still being maintained and
the entire process continued to be control oriented instead of being development oriented.
4. Fourth Phase: This phase started in mid 1970’s and its origin was in India as great
business tycoons like Larsen & Toubro, followed by State Bank of India and many others
introduced appreciable reforms in this field.

In this phase, the appraisal process was more development driven, target based
(performance based), participative and open instead of being treated as a confidential
process. The system focused on performance planning, review and development of an
employee by following a methodical approach.

In the entire process, the appraisee (employee) and the reporting officer mutually decided
upon the key result areas in the beginning of a year and reviewed it after every six
months. In the review period various issues such as factors affecting the performance,
training needs of an employee, newer targets and also the ratings were discussed with the
appraisee in a collaborative environment.

This phase was a welcoming change in the area of performance management and many
organizations introduced a new HR department for taking care of the developmental
issues of the organization.

5. Fifth Phase: This phase was characterized by maturity in approach of handling people’s

issues. It was more performance driven and emphasis was on development, planning and
improvement. Utmost importance was given to culture building, team appraisals and
quality circles were established for assessing the improvement in the overall employee
productivity.

The performance management system is still evolving and in the near future one may expect a
far more objective and a transparent system.
 DIFFERENCE BETWEEN PERFORMANCE APPRAISAL, POTENTIAL APPRAISAL
AND PERFORMANCE MANAGEMENT

BASIS PERFORMANCE PERFORMANCE POTENTIAL APPRAISAL

FOR APPRAISAL MANAGEMENT
Appraisal involving identification
COMPARI
of the hidden talents and skills of
SON
a person, might/might not be
aware of them.

Meaning Performance Appraisal, Performance Management is the Potential appraisal is a future –

means the analysis of an management of human resources oriented appraisal whose main
employee's performance and in an organization. objective is to identify and
their caliber for future growth evaluate the potential of the
and development. employees to assume higher
positions and responsibilities in
the organizational hierarchy.

What is it? It is a system. It is a process. It is a process.

Nature Rigid Supple Future Oriented

Type of tool Operational Tool Strategic Tool Strategic Tool

Owned by Human Resource Department Managers Human Resource Department

Conducted Annually Continuously Annually or when a vacancy

arises

Approach Individualistic Holistic Individualistic

Focused on Quantitative Aspects Qualitative Aspects Quantitative Aspects

Corrections Retrospective Prospective Prospective

Potential Appraisal is forward looking process whether performance appraisal is backward

looking process. Any good or worse assessment results of performance appraisal may not be a
good factor for potential appraisal. But current performance of an employee could show evidance
somewhere whether he/she is flexible for new working conditions.

 PERFORMANCE MANAGEMENT CYCLE

What is the performance management cycle?

The performance management cycle is a model that allows management and employees to better
achieve organizational goals through a structured process of employee development.

The performance management cycle utilizes a continuous four-step procedure of planning,

monitoring, reviewing and rewarding. Benefits of utilizing this system include increased
competitiveness, more structural flexibility, and higher employee motivation.

1. Performance Planning
2. Managing Performance
3. Development Planning
4. Managing Employee Satisfaction

1. PERFORMANCE PLANNING
 In the planning stage, the groundwork for success is laid down. Before management talks
to the employee, the management team decides the organization’s goals and objectives
for the year.
  This involves the overall strategy for the business and personal objectives for all
employees and teams, including development goals, specific tasks, targets, actions and
behaviors.
 Once it’s done, management meets with the employee to make a strategic plan for the
year.
 This should be a collaborative process between employee and employer.

In this meeting, the goals should be clearly outlined using the S.M.A.R.T. method.

SMART goals are:

 Specific: Goals that are clear and specific to what employees do

 Measurable: The goals must be measurable so that the performance can be tracked
 Achievable: The goals must be attainable by the employee
 Relevant: It must be worthwhile and related to the specific talent of the employee
 Time-based: It must have an end-date or a target within which it must be attained.

Each of the employee goals set should align with the organization’s goals, and contribute to
achieving them.

2. MANAGING PERFORMANCE

Regular communication is critical during the managing phase of the cycle. Through formal and
informal conversations, both parties are kept abreast of progress toward the successful
completion of goals and expectations. This helps provide timely feedback and coaching. As the
performance cycle spans several months, track of key performance highlights and challenges are
maintained to discuss about it later.

3. DEVELOPMENT PLANNING

Career planning and professional development are essential tools used to develop talent and to
increase employee satisfaction and engagement. Career planning allows employees to align their
annual development plans with long-term career goals and organizational needs.

4. MANAGING EMPLOYEE SATISFACTION

 a) Reviewing:

At the end of the year, the management and the employee meet to review the previous year and
see if goals were met.

This evaluation should include questions such as:

 Was the original goal realistic?

 Was the goal in line with the organization’s objectives?
 Did the employee gain useful experience or skills?
 How well did the employee complete their tasks?
 Did the organization offer the proper support to achieve the goal?
 In what ways could future goals be set differently to ensure success?
 What aspects of this process could be streamlined or improved?

The performance review meeting is the means through which the five primary performance
management elements of agreement, measurement, feedback, positive reinforcement and
dialogue can be put to good use.

b) Rewarding

The final stage of the performance management cycle plan is the reward. and most important for
employee motivation.

Employees who do not receive a proper reward after a year of striving to meet organizational
goals, and succeeding in doing so, will lose motivation for the next year and might nit stay
engaged.

When management fairly rewards employees and gives them recognition for their efforts, they
are ensuring that those employees will continue to work hard to achieve organizational goals and
stay with the same organization.

Some rewards that might be offered are:

 An increase in compensation
 A one-time bonus
  Increased vacation time
 Special projects
 A promotion
 A positive written review
 Company-wide acknowledgment

 REASONS FOR PM FAIL :

1. Lack of strategic focus

The company’s overall strategy and goals must be integrated into performance management
process to deliver real business value. A well-designed process begins with focus. Having too
many company goals and relying on a “cascade” process will likely leave employees feeling
confused, unaligned, and inefficient. Simplify and prioritize your company goals, and focus your
performance management on a few critical goals that are key to your business growth. Then help
companies, employees understand how their everyday work and individual goals will help
achieve these objectives.

2. Lack of timely, meaningful feedback

It is important to provide timely, meaningful feedback when positive behaviors or performance

issues occur. Waiting too long to give feedback hurts your company’s employee morale,
engagement, and ultimately your business performance.

3. Lack of leadership support

Leaders have to be committed and actively engage their teams in performance management.
Leader has to be actively, and provide support and recognition to managers and employees who
exhibit the expected behaviors and actions. Without leadership support, performance
management will not be successful no matter how well-designed the process is.

4. Lack of stakeholder review

When designing your performance management process, it is important to involve your major
stakeholders early on in the planning phase since they are the future users of the system. Without
proper consultation with key stakeholders, performance management process may not address all
the needs of the business.

5. Lack of proper training and communication

Without proper training and development, leaders and managers may not fully understand what
performance management is and what’s in it for them. In the implementation phase, it is crucial
to have good, relevant communications to explain the benefits of performance management, and
provide ongoing training to help leaders and managers obtain the appropriate knowledge,
behaviors, and skills to properly engage their teams in performance management activities.

6. Lack of appropriate recognition and rewards

Rewards are extremely important in recognizing and promoting top performance, and to keep
employees engaged, motivated, and inspired about their future with the company. An effective
rewards and recognition program should have clear expectations and criteria around what types
of behaviors and actions are rewarded that drive your company forward.

7. Lack of simplicity

Whether there is performance management in place or not, the process ultimately needed to be
implemented should be simple, easy to understand and use. Managers and employees should not
have to spend hours to learn your new processes and tools.

“Bad performance management is costly and delivers very little value, and can actually lower
your employee engagement level and harm your business growth. But when done right, the
impact of effective performance management is significant. Not only will you see an increase in
your revenue growth and bottom line, you will also stop your top performers from walking out
the door.”

 ROLES OF HR IN PMS :
 1. Ensure a Fair Performance System

Human resource personnel are in charge of ensuring that performance reviews are executed
in a non-discriminatory fashion. This can be done by calculating the percentage of employees
that receive top rankings by gender, age and any other applicable criteria. In a fair work
environment, the percentage of top-ranking employees will be relatively equal across
demographic groups.

2. Train Managers on the Performance System

Human resources conducts performance system training for every manager in the company.
This ensures that each manager is utilizing the system in the same way and is rating each
employee based on the same standards and have fair evaluation across the business.

3. Manage Relationship between Employee and Manager

Poor performance reviews can lead to tense employee-manager relationships. Often, both
the employee and manager are unsure how to improve the relationship. Human resources serve
as a manager and mediator of any troubled relationships. After performance reviews, human
resources can check in with employees and managers and allow them to voice any concerns that
they have. Regular meetings with the manager and employee can help. During these meetings,
the HR representative can discuss the nature of the relationship and provide feedback as to how it
can improve.

4. Record and Store Performance Reviews

Store performance evaluation records in a secure location or a digital database. Previous

performance reviews can then be used as a scorecard for employee progress and can be accessed
to assess promotions. Only authorized people should be able to view performance reports.

5. Assist in creating an environment that promotes effective performance management.

6. Champion performance management best practices
7. Encourage managers to establish and build trust relationships with their employees
8. Assist in communicating performance management information and important dates
9. Provide guidance and coaching to employees and managers throughout the process
10. Ensure every eligible classified employee and manager has a performance discussion (at
least once a year) and that the discussion is documented