UNIT-1

Performance Management :Pre requisites - Objectives - Principles -

Elements of effective performance management; Performance
Management System: Functions – Competency based PMS – Electronic
Performance Management; Challenges to Performance Management;
Performance Counseling: Principles - Skills.

Performance Management: Definition and Importance

Definition of Performance Management

Performance management is a continuous process that involves planning, monitoring,
evaluating, and improving individual and organizational performance. It aligns individual
performance with organizational goals through feedback, coaching, and rewards.

According to Armstrong (2006):

"Performance management is a systematic process for improving organizational performance

by developing the performance of individuals and teams."

Importance of Performance Management

1. Alignment with Organizational Goals:

Ensures that individual and team objectives are in line with the organization’s mission and
vision.

2. Enhanced Employee Performance:

Encourages employees to understand their roles, set clear expectations, and work effectively
to achieve targets.

3. Motivation and Engagement:

Recognizing and rewarding employees boosts morale and job satisfaction, leading to higher
engagement.

4. Skill Development:

Identifies training needs and promotes continuous professional development to enhance

competencies.

5. Improved Decision-Making:

Provides data-driven insights to guide decisions about promotions, rewards, and succession
planning.

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 6. Effective Communication:

Facilitates open and constructive dialogue between managers and employees, fostering trust
and collaboration.

7. Increased Accountability:

Encourages employees to take ownership of their performance and outcomes.

8. Organizational Growth:

By optimizing individual and team performance, the organization achieves sustainable

growth and competitiveness.

Nature of Performance Management:

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Objectives of Performance Management :
The major objectives of performance management are discussed below:

1. To enable the employees towards achievement of superior standards of work performance.

2. To help the employees in identifying the knowledge and skills required for performing the job effi
ciently as this would drive their focus towards performing the right task in the right way.

3. Boosting the performance of the employees by encouraging employee empowerment, motivation

and implementation of an effective reward mechanism.

4. Promoting a two way system of communication between the supervisors and the employees for
clarifying expectations about the roles and accountabilities, communicating the functional and
organizational goals, providing a regular and a transparent feedback for improving employee
performance and continuous coaching.

5. Identifying the barriers to effective performance and resolving those barriers through constant
monitoring, coaching and development interventions.

6. Creating a basis for several administrative decisions strategic planning, succession planning,
promotions and performance based payment.

7. Promoting personal growth and advancement in the career of the employees by helping them in
acquiring the desired knowledge and skills.

Principles of Performance Management :

Some of the major principles of performance management are as follows:

1. Performance management is considered a process, not an event. It follows good management

practice in which continual coaching, feedback and communication are integral to success.

2. The Performance Management is primarily a communication tool to ensure mutual understanding

of work responsibilities, priorities and performance expectations.

3. Elements for discussion and evaluation should be job specific – not generalized personality traits.
The major duties and responsibilities of the specific job should be defined and communicated as the fi
rst step in the process.

4. Performance standards for each major duty/responsibility should be defined and communicated. 5.
Employee involvement is encouraged in identifying major duties and defining performance standards.

6. Professional development should be an important component of the plan.

7. The formal evaluation period should be long enough to allow for full performance and to establish
a history such that evaluations are fair and meaningful. One year is a common evaluation period.

8. Documentation of performance will occur as often as needed to record the continuum of dialogue
between supervisor and employee.

9. If formal ratings are included, they should reflect the incumbent’s actual performance in relation to
the performance standard for that major duty

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10. The supervisor should be evaluated on the successful administration of the plan and ongoing
performance management responsibilities.

11. Training for supervisors and employees is encouraged and will be provided by University Human
Resource Services.

Elements of Performance Management

These refer to the core components or building blocks of the system, outlining the process or
key activities involved.

Goal Setting: Establishing clear and measurable objectives.

Monitoring: Regularly tracking and assessing progress.

Feedback and Communication: Providing constructive and timely input.

Rewards and Recognition: Motivating employees through tangible and intangible incentives.

Performance Evaluation: Formal review of individual and team performance.

Development Plans: Creating opportunities for skill enhancement and career growth.

Elements of Effective Performance Management

Performance management is a continuous process designed to improve individual and
organizational performance. The following are the critical elements of an effective
performance management system, explained in detail for MBA students:

1. Goal Setting
Establishing clear, specific, and measurable objectives for employees and teams. Aligns
individual efforts with organizational goals and provides a sense of direction.

Goals must be SMART (Specific, Measurable, Achievable, Relevant, Time-bound).

Collaborative approach: Goals are set jointly by employees and managers.

Ensures clarity and focus.

Increases motivation by creating a clear understanding of expectations.

2. Performance Planning

Outlining how goals will be achieved, including timelines, required resources, and
performance standards. Provides a structured roadmap for achieving individual and team
objectives.

Clearly defined roles and responsibilities.

Identification of required support and resources.

Establishment of key performance indicators (KPIs).

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Reduces ambiguity and confusion.

Encourages accountability and preparedness.

3. Performance Monitoring

Regularly tracking progress and assessing employee performance against set goals.
Ensures employees stay on track and allows for timely intervention if required.

Use of tools like dashboards, progress reports, and real-time data.

Frequent check-ins and updates between managers and employees.

Helps identify issues early and implement corrective measures.

Encourages continuous improvement.

4. Feedback and Communication

Providing constructive, timely, and actionable feedback to employees.

Reinforces positive behaviors and helps address areas for improvement.

Feedback should be specific, clear, and supportive.

Emphasis on two-way communication to foster dialogue and trust.

Builds strong manager-employee relationships.

Encourages employees to take ownership of their performance.

5. Performance Evaluation

A systematic review of employee performance over a specific period.

Assesses the extent to which goals were achieved and identifies areas of strength and
development.
Incorporates self-assessments, peer reviews, and manager evaluations.

Relies on predefined goals and KPIs for fairness and accuracy.

Provides a basis for promotions, rewards, or performance improvement plans.

Ensures fairness and objectivity in appraisals.

6. Rewards and Recognition

Acknowledging and incentivizing employees for their contributions and achievements.

To motivate and retain employees by recognizing their efforts.

Rewards can be monetary (bonuses, salary increments) or non-monetary (certificates, public
acknowledgment).

Recognition should be consistent and based on merit.

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Boosts morale and job satisfaction.

Promotes a culture of high performance and achievement.

7. Development Planning

Identifying opportunities for employees to enhance their skills and advance their careers.
Ensures employees are equipped for current and future roles.

Based on gaps identified during evaluations.

Includes training programs, workshops, and mentoring.

Encourages continuous learning and personal growth.

Improves organizational capabilities and employee retention.

8. Continuous Improvement
Using insights from the performance management process to improve systems, processes,
and individual capabilities.
Enhances the overall effectiveness of the performance management system.

Regular review of goals and KPIs to ensure relevance.

Incorporation of employee feedback for system enhancements.

Keeps the system dynamic and aligned with organizational changes.

Encourages innovation and adaptability.

Performance Management System:

Performance management system is another way of envisioning the totality of a manager’s
function. It views the managerial function holistically – not a random collection of activities
that most managers recognize and undertake as their core function. It provides a systemic
dimension to the managerial activities – highlighting their mutual interrelatedness and
interdependence. It emphasizes the dynamic, sequential and cyclical nature of these activities,
essential to actualize their potential synergistic impact, which is the source of high
performance and excellence. By implication, it also explains why focusing on only one or a
few of these activities doesn’t deliver the results wished-for.

Any system needs certain prerequisites to function smoothly. So does PMS. PMS becomes
easier to do and more productive to the extent that:

1. It is used holistically, as a system

2. The relevant subsystems are in place and accepted

3. The organization’s philosophy and human environment is conducive to high morale

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4. The manager is oriented to, and equipped with, high performing attitudes and leadership
skills.

Functions of Performance Management System

Performance management system can fulfi ll different functions for different organisations. The
given below are the key functions of PMS:

1. Helps in clarifying the mission, vision, strategy, and values of the organization to the employees in
order to enable them achieve the same

2. Helps in improving various business processes as the defi ciencies are highlighted.

3. Helps in attracting and retaining talents in the organization and helps in establishing a robust talent
review system.

4. Facilitates competency mapping, training and development needs identifi cation, and
implementation as part of the performance development tool (employees have the competencies to
met both the present and emerging requirements of the organization).

5. Assists management in validating their recruitment and selection process and techniques.

6. Helps employees attain their full potential and attain a balance between work and personal life.

7. Improves organization’s ability to change faster by highlighting the gap between potential
capabilities and present ability.

8. Helps in making a shift from industrial relations to individual relations with a focus for employee
growth an development

9. Enables sustainable organizational competitiveness, innovation, and low employee turnover by

helping in reviewing organization structure and plan succession.

10. Builds the intellectual capital not only at managerial level but at front-line level also. In a nutshell,
performance management seeks to balance business alignment with learning and development and
performance reward.

Competency-Based Performance Management System (CBPMS)

A Competency-Based Performance Management System (CBPMS) focuses on evaluating and
managing employee performance based on specific competencies required for success in a job role.
Competencies are the knowledge, skills, abilities, and behaviors necessary for effective performance.

Elements of CBPMS
Competency Framework Development:

Identifies job-specific and organization-wide competencies.

Creates a detailed competency matrix that defines expected proficiency levels.

Competency-Based Goal Setting:

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Aligns performance goals with required competencies.

Incorporates behaviors and skills as part of the assessment criteria.

Assessment and Measurement:

Utilizes competency-based tools like 360-degree feedback, self-assessments, and peer reviews.

Tracks both qualitative (e.g., leadership behavior) and quantitative (e.g., sales targets) aspects of
performance.

Feedback and Development Plans:

Provides competency-focused feedback for strengths and improvement areas.

Tailors development initiatives (training, mentoring, coaching) to enhance specific competencies.

Competency-Based Rewards and Promotions:

Rewards employees not only for achieving results but also for demonstrating critical competencies.

Facilitates career progression based on skill enhancement.

Electronic Performance Management

Electronic performance management (or e-performance management) offers great value for
money to the organizations and addresses its needs aptly. e-performance management is
essentially a PMS in the form of an online software package with multiplication modules that
is fully integrated with the organizational metrics. It provides greater flexibility, tracking, and
access of performance management to large number of employees and managers across the
organization, across the world at the press of a button. Bititciet al. (2000) point out that the
main benefit of using an IT platform for managing the performance management within an
organization is that the maintenance of the information contained within the systems becomes
much simpler. They also set up some requirements for an IT platform, which is suitable in
such a situation. This e-performance management software is readily available in the market
as standard product, or can be customized to meet a specific need of the organization. The e-
performance management product allows organizations to maintain a record of core skills and
competencies into the employee’s performance management process. e-performance
management provides templates for a wide application that could be used across
organizations spread in different parts of the world through one software module.

E-performance management template provides the following features:

1. Job – or individual – centered performance contracts

2. Uploading of performance criteria

3. Secure online appraisal with password

4. Automatic e-mail notifi cation of completed appraisal to employee and manager

5. Workfl ow system to monitor appraisal progress

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6. Archive retrieval possible for retrieval of previous period appraisals

7. Assigning different weighting protocols

8. Viewing competency ratings

9. Viewing compensation details

10. Career advancement and opportunities available

Implementing performance management across and organization creates the potential for a
large amount of administrative overhead. Performance management process must be
completed and approved, feedback and counseling must be provided fro multiple reviewers,
documents rated, deadlines monitored, and many of these activities must be performed
multiple times during each performance cycle for each and every employee. e-performance
management (e.g., Oracle’s PeopleSoft Applications) helps organizations automate many of
the administrative processes surrounding performance management. e-performance
management enables rule-based routing of performance documents for editing and approval,
the delivered language editor and results writer tools enable standardized content to be
suggested at the time of appraisal, and the status dashboard enables all parties to track their
documents as they move the performance management process, that is, from planning to
monitoring and beyond.

e-performance management offers numerous benefits, some of which are listed below:

For Managers

1. Focused and aligned performance goals have a direct influence on organizational

performance

2. Employee performance and focus areas are accessible in and instant

3. Performance management is a key part of an organization’s integrated human resource

strategy 4. Easy to drill down through performance data for initiating root cause analysis for
marginal performers

5. Getting instant feedback on performance with drill down to individual employee

performance

6. No need to write performance contracts each year, simply upload and edit from a previous
period

7. Development needs emanating from performance discussions are automatically fed into the
individual development plan For HR Professionals Organization-wide quality assurance of
goals and Key Performance Indicators (KPIs).

Challenges to Performance Management

Some of the key challenges to performance management are as follows:

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1. Concerned with the output (the results achieved), outcomes, processes required for reaching the
results and also the inputs (knowledge, skills and attitudes).

2. Concerned with measurement of results and review of progress in the achievement of set targets. 3.
Defining business plans in advance for shaping a successful future.

4. Striving for continuous improvement and continuous development by creating a learning culture
and an open system.

5. Establishing a culture of trust and mutual understanding that fosters free flow of communication at
all levels in matters such as clarification of expectations and sharing of information on the core values
of an organization which binds the team together.

6. Procedural fairness and transparency in the process of decision making.

Performance Counseling:
Performance counseling is a structured process in which managers or supervisors provide
constructive feedback to employees, helping them understand their strengths, address
weaknesses, and enhance overall performance. It focuses on improving employee
performance, motivation, and career development.

Principles of Performance Counseling

1. Clarity of Purpose:

Clearly define the objective of the counseling session, whether it's about addressing
performance gaps, discussing career growth, or providing feedback.
2. Mutual Respect:

Build a foundation of trust and respect to ensure an open and honest dialogue.
Avoid blame or criticism; focus on behaviors and outcomes, not the individual.

3. Confidentiality:
Maintain confidentiality to create a safe space for the employee to express concerns and
receive feedback.

4. Constructive Feedback:
Use constructive and specific feedback that focuses on observable behavior and outcomes
rather than vague or generalized remarks.

5. Two-Way Communication:

Encourage employees to share their perspectives and concerns.

Actively listen to understand their challenges and viewpoints.

6. Action-Oriented Approach:

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The session should result in actionable takeaways, with clear steps for improvement or
development.
7. Empathy and Support:

Demonstrate understanding of the employee's situation and offer encouragement to help them
succeed.
8. Focus on Development:

Emphasize skill enhancement, personal growth, and career progression rather than just
highlighting deficiencies.

Skills Required for Performance Counseling:

1. Active Listening:

Pay close attention to what the employee says without interrupting.

Show understanding through verbal and non-verbal cues, such as nodding or summarizing
their points.
2. Questioning:

Ask open-ended questions to encourage employees to express their thoughts and feelings.

Examples: "What challenges are you facing in achieving this goal?" or "How do you think we
can address this issue?"

3. Empathy:
Understand and relate to the employee’s perspective, demonstrating genuine concern for their
well-being.

4. Feedback Delivery:

Provide clear, specific, and actionable feedback. Use examples to illustrate points and avoid
overly critical language.
5. Conflict Resolution:

Address disagreements calmly and objectively, focusing on solutions rather than assigning
blame.
6. Emotional Intelligence:

Manage emotions effectively during discussions, remaining composed and non-judgmental.

7. Goal Setting and Planning:

Collaboratively define goals and create actionable plans for performance improvement or
skill development.
8. Patience and Persistence:

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Allow employees time to process feedback and implement changes. Be persistent in offering
support.
9. Positive Reinforcement:

Acknowledge achievements and improvements to motivate employees and reinforce desired

behaviors.

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 UNIT-2
Performance Management Process: Planning: Objectives - Importance
- Theories of Goal Setting -Process - Barriers; Performance Managing:
Objectives - Importance - Process – Performance Appraisals:
Traditional Methods - Modern Methods; Performance - Common
Pitfalls of Performance Appraisal - Elements of Good Performance
Appraisal System - Appraising Employees Objectively; Monitoring:
Meaning -Importance -Process.

Performance Management Process:

The performance management process is a systematic approach designed to
align individual performance with organizational goals, enhance employee
productivity, and foster a culture of continuous improvement. Below is a
detailed explanation of each stage of the process:

1. Planning
Setting clear expectations, goals, and performance standards at the beginning
of the performance cycle.
Define job roles and responsibilities.
Establish SMART goals (Specific, Measurable, Achievable, Relevant, Time-
bound).
Develop Key Performance Indicators (KPIs) to measure success.
Provides direction and clarity to employees.
Ensures alignment between individual, team, and organizational objectives.
2. Monitoring
Continuously tracking and assessing progress toward goals throughout the
performance period.

Conduct regular check-ins and status updates.

Use tools like dashboards, performance reports, and metrics to track progress.

Identify potential issues and address them proactively.

Encourages accountability and keeps employees focused.

Allows managers to provide timely feedback and support.

3. Developing
Providing employees with opportunities to enhance their skills, competencies,
and overall performance.
Offer training programs, workshops, and mentoring.

Implement individual development plans (IDPs) tailored to employee needs.

Encourage continuous learning and professional growth.

Addresses skill gaps and prepares employees for future roles.

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Enhances job satisfaction and retention.

4. Reviewing

Conducting a formal evaluation of employee performance over a specified

period.

Assess achievements against pre-set goals and KPIs.

Collect input from multiple sources, such as 360-degree feedback.

Encourage self-assessment by employees to promote reflection.

Provides a comprehensive understanding of performance.

Forms the basis for decisions on rewards, promotions, or corrective actions.

5. Feedback and Coaching

Delivering constructive and actionable feedback to employees and guiding

them for future improvement.
Provide feedback on strengths and areas for improvement.

Use the SBI Model (Situation-Behavior-Impact) to ensure feedback is specific

and effective.

Foster a two-way dialogue to address concerns and clarify expectations.

Builds trust and enhances employee engagement.

Motivates employees to take ownership of their performance.

6. Rewarding
Recognizing and rewarding employees for their contributions and
achievements.

Offer monetary rewards (e.g., bonuses, salary hikes) or non-monetary

recognition (e.g., awards, public appreciation).

Ensure transparency and fairness in reward allocation.

Reinforces positive performance and behavior.

Boosts morale and encourages a high-performance culture.

7. Documentation
Recording performance-related data and outcomes for future reference.

Maintain performance review reports, feedback records, and development

plans.
Document achievements and challenges for accountability.

Provides evidence for decisions related to promotions, appraisals, or

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terminations.

Helps in tracking performance trends over time.

8. Continuous Improvement
Using insights from the performance management process to refine strategies
and practices.

Analyze trends and patterns in performance data.

Update goals, competencies, and performance metrics as needed.

Incorporate feedback from employees and managers into process

improvements.

Ensures the performance management system remains relevant and effective.

Drives long-term success by fostering adaptability and innovation.

Performance Planning:
The performance-planning part of the performance-management sequence is
primarily a joint exploration of what individuals need to do and know to
improve their performance and develop their skills and competences, and how
their managers can provide the support and guidance they need. This requires
Competence Mapping & Machine & potential development. The performances
aspect of the plan obtained agreement on what has to be done to achieve
objectives, raise standards and improve performance. It also establishes
priorities—the key aspects of the job to which attention has to be given.
Agreement is also reached at this stage on the basis upon which performance
will be measured and the evidence that will be used to establish levels of
competence. It is important that these measures and evidence requirements
should be identified and fully agreed now, because they will be used jointly by
managers and individuals and collectively by teams to monitors progress and
demonstrate achievements.

Characteristics of Performance Planning

The given below are the key characteristics of performance planning:

1. Performance planning is the key essential for an effective performance

management system.

2. Performance planning is a continuous process which starts with

understanding of organisational objectives and ends with setting of
performance criteria.

3. Performance planning helps in attaining the goals and objectives of the

organisation.
4. Performance planning motivate the employees to contribute their best in
achieving the key goal of the organisation.

5. Performance planning is an integral part of performance management

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system.

6. Performance planning identifies the criteria for assessing the employee’s

performance.

7. Performance planning helps in setting the basis for making distinguish

between the different levels of performance.

8. Performance planning helps in deciding the criteria for rewarding the

employee as per their achievements.

Objectives of Performance Planning

The development of an employee performance management plan is paramount
to the success of any performance management system. A performance plan
establishes the development researcher’s essential job tasks, responsibilities,
and critical performance objectives that need to be achieved or performed
during the performance period. The performance plan is mutually developed
during the planning conference and reflects the individual aspects and nature of
the employee’s job.
The key objective of performance planning as given as below:

1. Performance planning clearly defines the purpose of the organisation and to

establish realistic goals and objectives consistent with that mission in a defined
time frame within the organization’s capacity for implementation.

2. Communicate those goals and objectives to the organization’s constituents.

3. Ensure the most effective use is made of the organization’s resources by
focusing the resources on the key priorities.

4. Provide a base from which progress can be measured and establish a

mechanism for informed change when needed.

5. Listen to everyone’s opinions in order to build consensus about where the

organization is going.

6. Provides clearer focus for the organization, thereby producing more

efficiency and effectiveness.

7. To clearly identify the performance metrics used to measure employee’s

success in meeting predetermined targets.

8. Produces great satisfaction and meaning among planners, especially around

a common vision.

9. Increases productivity from increased efficiency and effectiveness.

10. Solves major problems in the organization

11. To provide an ongoing on-the-job feedback

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Importance of Performance Planning :
Coaches work with performance plans or work plans to keep their employees
motivated. They operate with such plans in place for each and every one of
their team members.

The following points discuss the importance of performance planning:

1. Performance planning helps in aligning the individual goals with the

organisational goals.

2. Performance planning makes the process of performance management more

accountable and objective.

3. Performance planning focus on key results area and key performance area.

4. Performance planning helps in maximum utilisation of resources.

5. Performance planning is important to make clarity in role and

responsibilities of employees..

Goal Setting Theory (Locke’s Goal Setting Theory)

Overview: The Goal Setting Theory, developed by Edwin Locke in the 1960s,
posits that goal-setting is one of the most powerful tools for improving
individual and organizational performance. It suggests that specific and
challenging goals, when accompanied by proper feedback, lead to higher levels
of performance than vague, easy, or unstructured goals.

Key Principles of Goal Setting Theory

1. Specificity:
Goals must be clear and well-defined. Vague goals, such as "do your best," are
less effective than specific goals like "increase sales by 15% in the next
quarter."

Specific goals provide a clear focus, helping individuals understand what is

expected and guiding their actions toward achieving those goals.

2. Challenge:
Goals should be challenging yet attainable. The theory suggests that goals that
are too easy do not motivate individuals, while very difficult goals can
overwhelm or demotivate.

Challenging goals require greater effort and increase motivation, leading to

higher performance. However, they must still be realistically achievable with
effort and persistence.

3. Commitment:

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Employees must be committed to achieving the goal. Goal-setting is most
effective when the individual or team is committed to the goal.

Commitment is influenced by factors like involvement in goal setting, belief in

the goal’s importance, and the perceived attainability of the goal.

4. Feedback:
Continuous feedback is crucial to monitor progress toward the goal and keep
individuals on track. It allows them to adjust their approach if necessary.
Feedback helps individuals understand whether they are progressing toward the
goal and informs any changes or improvements to their performance strategies.

5. Task Complexity:
When tasks are complex, goals need to be broken down into smaller, more
manageable components. This prevents feelings of being overwhelmed and
increases the likelihood of success.
For simple tasks, the focus can be on a single goal, but for more complex tasks,
sub-goals and milestones should be set.

Key Components of Goal Setting Theory

1. Clarity:
Goals must be specific and unambiguous. The clearer the goal, the better the
individual will understand what is expected and how to achieve it.

2. Measurability:
Goals should be measurable so progress can be tracked. This can include
metrics, deadlines, or tangible outcomes that make it easy to assess whether the
goal has been achieved.

3. Achievability:
Goals should be realistic and attainable, given the available resources, skills,
and time. If goals are set too high, they may demotivate individuals if they
seem impossible to achieve.

4. Relevance:
The goal must be aligned with both the individual’s and the organization's
priorities. Relevant goals are more likely to engage individuals and increase
their motivation to succeed.

5. Time-bound:
A time frame should be set for the goal to ensure a sense of urgency and focus.
Time-bound goals help individuals prioritize tasks and work towards deadlines.

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Benefits of Goal Setting Theory
1. Enhanced Performance:
Goal setting has been shown to significantly improve performance. When
individuals know exactly what they need to accomplish and are challenged to
achieve it, they tend to perform better.

2. Increased Motivation:

Specific, challenging goals create a sense of purpose and motivation, as

individuals are more likely to be engaged in the process of achieving
something meaningful.

3. Clarity and Focus:

Clear goals provide direction and eliminate confusion. Employees understand
exactly what is expected, which enhances focus and reduces distractions.

4. Improved Job Satisfaction:

Achieving goals leads to a sense of accomplishment, which boosts job
satisfaction and self-confidence.

5. Alignment of Organizational and Individual Goals:

When organizational goals are aligned with individual performance goals, it
creates a unified purpose and drives collective success.

Limitations/Barriers of Goal Setting Theory

1. Overemphasis on Performance Goals:
A focus solely on performance goals may lead to unethical behavior (e.g.,
cutting corners) or may cause individuals to prioritize one goal at the expense
of others.

2. Stress and Pressure:

Highly challenging goals, if not managed properly, can lead to stress, burnout,
and a decrease in overall well-being.

3. Neglect of Creativity:
Overly rigid goal setting may limit creativity and innovation, as employees
may focus too heavily on meeting specific targets rather than exploring new
approaches or ideas.

4. Lack of Flexibility:

In dynamic environments, goals need to be flexible. Rigid goals that do not

allow for adjustments based on new information or changes can be
counterproductive.

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 Application of Goal Setting Theory
1. Individual Performance Goals:

Organizations can set specific and measurable performance targets for

employees, such as sales quotas or customer satisfaction scores. Feedback
should be provided regularly to track progress.

2. Team and Organizational Goals:

Goals can be set at the team or organizational level, ensuring that each team’s
objectives align with the broader goals of the organization. Clear, challenging
goals can drive the whole organization toward common outcomes.

3. Personal Development Goals:

Employees can set development goals, such as learning new skills or
completing certifications, to enhance their performance and career progression.
These goals can be integrated into their performance management and
appraisal systems.

Performance managing:
• It is the process of working towards performance expectations established in
the performance planning stage.
• It pertains to analysing the ongoing performance of employees, reinforcing
good efforts, helping to remove performance deficiencies and improve
performance.
• This means that performance managing is a process to realise performance
planning.

Objectives of Performance Managing:

1. Defining mutual expectations

2. Actualising the performance plans of all employees

3. Analysing the ongoing efforts of the employees in order to remove

performance deficiencies.
4. Managing performance as a relationship.

5. Keeping employees focused on their performance objectives and standards.

Importance of Performance Managing:

• It helps in developing skills of the employees

• It motivates employees to evaluate their own performance vis-à-vis their

performance plans

• It corrects performance deficiencies before they become performance

disablement

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• It paves the way for optimal utilisation of organisational resources

• It provides opportunity to employees to enhance their contributions.

Performance Managing Process

Improvement
Plans

Analysing Removing performance

Performance deficiencies

Reinforcing
right efforts

Methods of Performance Appraisal

Performance appraisal methods are categorized in two ways traditional and modern
methods. Each organization adopts a different method of performance appraisal according
to the need of organization. In small organization, it may be on an informal basis where
personal opinion of a superior about his subordi-nates may consider for appraisal.
Methods of Performance Appraisal

Traditional Methods Modern Methods

Ranking method Management by Objectives (MB0)
Paired comparison Behaviorally anchored rating scales
Grading method Assessment centers
Forced distribution method 360-degree appraisal
Forced choice method Cost accounting method
Checklist method
Critical incidents method
Graphic scale method
Essay method
Field review method

1. Ranking Method: It is the oldest and simplest method of performance appraisal in

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which employees’ are ranked on certain criteria such as trait or characteristic. The
employee is ranked from highest to lowest or from worst to best in an organization. Thus if
there are seven employees to be ranked then therewill be seven ranks from 1 to 7.
Rating scales offer the advantages of flexibility comparatively easy use and low cost. Nearly
everytype of job can be evaluated with the rating scale, the only condition being that the
Job-performance criteria should he changed’.In such a way, a large number of employees
can be evaluated in a shorter time period.
Thus, the greatest limitation of this method is that differences in ranks do not indicate
how much an employee of rank 1 is better than the employee whose rank is last.

2. Paired Comparison: In method is comparatively simpler as compared to ranking

method. In this method, the evaluator ranks employees by comparing one employee
with all other employees in the group. The rater is given slips where, each slip has a pair
of names, the rater puts a tick mark next those employee whom he considers to be the
better of the two. This employee is compared number of times so as to determine the
final ranking.
This method provides compari-son of persons in a better way. However, this increases
the work as the large number ofcom-parisons has to be made. For example, to rank 50
persons through paired comparison, there will be 1,225 comparisons. Paired comparison
method could be employed easily where the numbers of employees to be compared are
less.
This may be calculated by a formula N (N — 1)12 where N is the total number of persons to
be compared. Where N is the total number of persons to be evaluated.
For example

If the following five teachers have to be evaluated by the Vice Chanceller of a University :
Chinmay( c), Mohan (M), Rohit (R), Vishal (V), and Basanti (B), the above formula gives
5 (5— 1)/2 or 10 pairs. These are;

CwithM,
CwithR MwithR
CwithV MwithV RwithV
CwithB MwithB RwithB VwithB

Thus, the pairs to be compared give the maximum possible combinations in which an
employee could be compared with one another. If an employee sores better number of
times as compared to other employee is considered better, makes his/her score. Such
scores are considered for each worker and he/she is ranked according to his/her score.
This method cannot work when large number of employee is compared.

3. Grading Method: In this method, certain categories are defined well in advance and

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employees are put in particular category depending on their traits and characteristics.
Such categories may be defined as outstanding, good, average, poor, very poor, or may
be in terms of alphabet like A, B, C, D, etc. where A may indicate the best and D indicating
the worst. This type of grading method is applied during Semester pattern of
examinations. One of the major limitations of this method is that the rater may rate
many employees on the better side of their performance.
4. Forced Distribution Method: This method was evolved to abolish the trend of
rating most of the employees at a higher end of the scale. The fundamental assumption
in this method is that employees’ performance level conforms to a normal statistical
distribution. For example, 10 per cent employees may be rated as excellent, 40 per cent
as above average, 20 per cent as average, 10 per cent below average, and 20 per cent
as poor. It eliminates or minimizes the favoritism of rating many employees on a higher
side. It is simple and easy method to appraise employees. It becomes difficult when
the rater has to explain why an employee is placed in a particular grouping as compared
to others.

5. Forced-choice Method: The forced-choice rating method contains a sequence of

question in a statement form with which the rater checks how effectively the statement
describes each individual being evalu-ated in the organization. There may be some
variations in the methods and statements used, but the most common method of forced
choice contains two statements both of which may be positive or negative. It may be both
the statement describes the characteristics of an employee, but the rater is forced to
tick only one i.e the most appropriate statement which may be more descriptive of the
employee. For example, a rater may be given the following two statements:
(i) The employee is hard working.
(ii) The employee gives clear instructions to his subordinates.

Though both of them describe the characteristics of an em-ployee, the rater is forced to
tick only one which appears to be more descriptive of the employee. Out of these two
statements, only one statement is considered for final analysis of rating. For example, a
rater may be given the following two statements:
(i) The employee is very sincere.
(ii) Employee gives clear and fast instructions to his subordinates.

Both of the above statements are positive but the rater is supposed to rate only one
which is more appropriate of subordinate’s behavior. For ranking only one statement is
considered .As the rater is not aware about the statement to be considered the result would
be free from bias. This method may be more objective but it involves lot of problems in
framing of such sets of statements.

6. Check-list Method: The main reason for using this method is to reduce the burden of
evaluator. In this method of evaluation the evaluator is provided with the appraisal
report which consist of series of questions which is related to the appraise. Such

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questions are prepared in a manner that reflects the behavior of the concerned
appraise. Every question has two alternatives, yes or no, as given below:
1. Is he/she respected by his/her subordinates? Yes/No
2. Is he/she ready to help other employees? Yes/No
3. Does her behavior remain same for everyone in the organization? Yes/No

The con-cerned rater/evaluator has to tick appropriate answers relevant to the appraises.

When the check-list is finished, it is sent to the personnel department to prepare the final
scores for all appraises based on all questions based on yes or no. While preparing
question effort is made to establish the level of consistency of the rater by asking the
same question twice but in a different manner. This method is considered to be easy if
questions are framed properly for different categories of employees.
However, one of the disadvantages of the check-list method is that it is very difficult to
accumulate, analyze and evaluate a number of statements about employee characteristics
and contributions. It iseven costly method with lot of time and efforts required by the
organization.

7. Critical Incidents Method: This method is very useful for finding out those employees
who have the highest potential to work in a critical situation. Such an incidence is very
important for organization as they get a sense, how a supervisor has handled a situation
in the case of sudden trouble in an organization, which gives an idea about his leadership
qualities and han-dling of situation. It is also said to bea continuous appraisal method where
employees are appraised continuously by keeping in mind the critical situation. In this
method, only the case of sudden trouble and behavior associated with these incidents or
trouble are taken for evaluation.
This method is categorized in three steps. First, a list of notable (good or bad) on-the-
job behavior of specific incidents or sudden trouble is prepared. Second, selected experts
would then assign weightage or score to these incidents according to how serious a
particular incident is and their degree of willingness to perform a job. Third, finally a check-
list indicating incidents that illustrate workers as good or “bad” is formed. Then, the
checklist is given to the rater for evaluating the workers.
The strong point of critical incident method is that it focuses on behaviors and, thus, judge’s
performance rather than personalities.
Its drawbacks are that too frequently they need to write down the critical incidents which
is very time- consuming and burdensome for evaluators, i.e., managers. Generally, negative
incidents are more noticeable than posi-tives.
8. Graphic Scale Method: It is one of the simplest and most popular techniques for
appraising performances of employee. It is also known as linear rating scale. In
graphic rating scale the printed appraisal form is used to appraise each employee.
Such forms contain a number of objectives, and trait qualities and characters to be rated

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like quality of work and amount of work, job knowhow dependability, initiative, attitude,
leadership quality and emotional stability.
The rater gives an estimate the extent to which subordinates possess each quality. The
extent to which quality is possessed is measured on a scale which can vary from three
points to several points. In general practice five-point scales is used. Some organizations
use numbers in order to avoid the propensityof the rater to tick mark central points. It may
be numbered or defined. Thus numbers like 5, 4, 3, 2 and 1 may denote points for various
degrees of excellent-poor, high-low, or good-bad, and so on. Such numbers may be
expressed in terms like excellent, very good, average, poor and very poor; or very high,
high, average, low and very low.
Graphic scale method is good for measuring various job behaviors of an employee. But,
it is bound to limitations of rater’s bias while rating employee’s behavior at job.
9. Essay Method: In this method, the rater writes a detailed description on an employee’s
characteristics and behavior, Knowledge about organizational policies, procedures and
rules, Knowledge about the job, Training and development needs of the employee,
strengths, weakness, past performance, potential and suggestions for improvement. It is
said to be the encouraging and simple method to use. It does not need difficult formats
and specific training to complete it.
10. Field Review Method: In this method of appraisal direct superior is not going to
appraise an employee but appraised by another person, usually, from personnel
department .The rater, in such a case, appraises the employee on the basis of his past
records of productivity and other information such as absentee-ism, late corning, etc. It is
more suitable in a situation where an organization wants to provide promotion to an
employee. It also gives information for comparing employees from different locationsand
units. It reduces partiality to some extent as personnel department person is
supposed to be trained in appraisal mechanism. This method suffers from two limitations:

1. As employees are not rated by immediate boss, the rater from other
department may not be familiar with the conditions in an employee’s work
environment which may hamper his ability and work motivation to perform.

2. The rater from other department do not get a chance to scrutinize the
employee’s behavior or performance with different time interval and in a variety
of situations, but only in an unnaturally structured interview situation which is for
a very short period of time.

Modern Methods
1. Management by Objectives (MB0): The concept of ‘Management by Objectives’
(MBO) was coined by Peter Drucker in 1954. It is a process where the employees and the
superiors come together to identify some goals which are common to them, the
employees set their own goals to be achieved, the benchmark is taken as the criteria

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for measuring their performances and their involvement is there in deciding the
course of action to be followed.
The basic nature of MBO is participative, setting their goals, selecting a course of actions to
achieve goals and then taking decision. The most important aspect of MBO is measuring the
actual performances of the employee with the standards set by them. It is also said to be a
process that integrates organizational objectives into individual objectives.
Entire program me of MBO is divided in four major steps i.e setting up of goal, action
planning, compari-son and timelyreview.
Setting up of goal-In goal setting superior and subordinate together set certain goals, i.e
the expected outcome that each employee is supposed to achieve.
In action planning, the manner in which goals could be achieved is determined i.e. identifying
the activities which are necessary to perform; to achieve pr determined goals or standards.
When the employees start with their activities, they come to know what is to be done,
what has been done, and what remains to be done and it also gives an idea about the
resources to be achieved.
In the third step, the goals set by the individual employee are compared with the actual
goals achieved. It gives an idea to the evaluator as why there is a variation in desired
outcome and actual outcome .Such a comparison helps create need for training so as to
enhance employees’ performance. Finally, in the timely review step, corrective actions are
taken so that actual performances do not deviates from standards established in
beginning.
The main reason for conducting reviews is not to humiliate the performer but to assist
him in better performances in future. Few advantages of MBO are a) it is outcome –
oriented. It co-ordinates the
planning and control functions and provides motivation) Employees are clear about the task
that theyare expected to perform and also how they may be evaluated.MBO do have
certain limitations such as it is time consuming, employees and the superiors jointly
setting the goals may lead to conflict as employee would always like to set lower goal
and the superior would like to set it on the higher side, lack of confidence in employee
by management.
2. Behaviorally Anchored Rating Scales: This method is a combination of traditional
rating scales and critical incidents methods. It consists of preset critical areas of job
performance or sets of behavioral statements which describes the important job
performance qualities as good or bad (for e.g. the qualities like inter personal
relationships, flexibility and consistency, job knowledge etc). These statements are
developed from critical incidents.

These behavioral examples are then again translated into appropriate performance
dimensions. Those that are selected into the dimension are retained. The final groupsof
behavior incidents are then scalednumerically to a level of performance that is perceived to

26
represent. A rater must indicate which behavior on each scale best describes an
employee’s performance. The results of the above processes are behavioral
descriptions, such as anticipate, plan, executes, solves immediate problems, carries out
orders, andhandles urgent situation situations. This method has following advantages: a) It
reduces rating errors) Behavior is assessed over traits. c) It gives an idea about the
behavior to the employee and the rater about which behaviors bring good Performance
and which bring bad performance.

3. Assessment Centres: It is a method which was first implemented in German Army in

1930. With the passage of time industrial houses and business started using this method.
This is a system of assessment where individual employee is assessed by many experts
by using different technique of performance appraisal. The techniques which may be
used are role playing, case studies, simulation exercises, transactional analysisetc.
In this method employees from different departments are brought together for an
assignment which they are supposed to perform in a group, as if they are working for a
higher post or promoted. Each employee is ranked by the observer on the basis of merit
.The basic purpose behind assessment is to recognize whether a particular employee
can be promoted, or is there any need for training or development. This method has
certain advantages such as it helps the observer in making correct decision in terms of
which employee has the capability of getting promoted, but it has certain disadvantages also
it is costlyand time consuming, discourages the poor performers etc.

4. 360 Degree Performance Appraisals: This method is also known as ‘multi-rater

feedback’, it is the appraisal in a wider perspective where the comment about the
employees’ performance comes from all the possible sources that are directly or
indirectly related with the employee on his job.
In 360 degree performance appraisal an employee can be appraised by his peers, managers
(i.e. superior), subordinates, team members, customers, suppliers/ vendors - anyone who
comes into direct or indirect contact with the employee and can provide necessary
information or feedback regarding performance of the employee the “on-the-job”.
The four major component of 360 degree performance appraisal are
1. Employees SelfAppraisal
2. Appraisal bySuperior
3. Appraisal by Subordinate
4. Peer Appraisal.
Employee self appraisal gives an option to the employee to know his own strengths and
weaknesses, his achievements, and judge his own performance. Appraisal by superior forms
the traditional part of the 360 degree performance appraisal where the employees’
responsibilities and actual performance is judged by the superior.
Appraisal by subordinate gives a chance to evaluate the employee on the basis of
communication and motivating abilities, superior’s ability to delegate the work,

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leadership qualities etc. It is also known as internal customers; the correct opinion given
by peers can aid to find employees’ who are co-operative, employees who ready to work
in a team and understanding towards others.
5. Cost Accounting Method: In this method performance of an employee is evaluated
on the basis of monetary returns the employee gives to his or her organization. A
relationship is recognized betweenthe cost included in keeping the employee in an
organization and the benefit the organization gets fromhim or her. The evaluation is based
on the established relationship between the cost and the benefit. The following factors are
considered while evaluating an employee’s performance:
1. Interpersonal relationship with others.
2. Quality of product produced or service given to the organization.
3. Wastage, damage, accidents caused by the employee.
4. Average value of production or service by an employee.
5. Overhead cost incurred.
Common pitfalls of Performance Appraisal
Performance appraisal technique is very beneficial for an organization for taking decisions
regarding salary fixation, demotion, promotion, transfer and confirmation etc. But,it is not
freed from problem In spite of recognition that a completely error-free performance
appraisal can only be idealized a number of errors that extensively hinder objective
evaluation. Some of these problems are as follows:
1. Biasness in rating employee: It is the problem with subjective measure i.e. the
rating which will not be verified by others. Biasness of rater may include:
(a) Halo Effect: It is the propensity of the raters to rate on the basis of one trait
or behavioral consideration in rating all other traits or behavioral considerations.
One way of minimizing the halo effect is appraising all the employees by one trait
before going to rate on the basis of another trait.
(b) The Central Tendency Error: It is the error when rater tries to rate each and
every person on the middle point of the rating scale and tries not to rate the
people on both ends of the scale that is rating too high or too low. They want to
be on the safer side as they are answerable to the management.
(c) The Leniency and Strictness Biases: The leniency biasness exists when some
raters have a tendency to be generous in their rating by assigning higher rates
constantly. Such ratings do not serve any purpose.
(d) Personal prejudice: If the raters do not like anyemployee or any group, in such
circumstances he may rate him on the lower side of the scale, the very purpose of
rating is distorted which might affect the career of employees also.
(e) The Recent Effect: The raters usuallyretain information about the recent actions
ofthe employee at the time of rating and rate on the basis of recent action taken
place which may be favorable or unfavorable at that point of time.
2. The superiors may be unsuccessful in conducting performance appraisal of employees
and post performance appraisal interviews.
3. The performance appraisal is mostly based on subjective assessment.

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4. The performance appraisal techniques have a low reliability and validity in terms of result.
5 Ratings an employee on the negative side may disturb interpersonal relations and
industrial relations system.
6. Appraisers opinion on the performance of the employee may lead to setback on
production.
7. An organization may give emphasis to punishment if an employee has not done a
good job rather than providing training.
8. Few ratings are based on guess work.

Various other problems of performance appraisal are:

 There was a significant relationship between rating by superior and performance after
promotions.
 Appraisal reports were completed within a short period of time.
 The circumstances were very unpleasant in feedback interview.
 The Subordinates were not given suggestion in a manner which may be helpful to them.

Elements of a Good Performance Appraisal System

A performance appraisal system is a structured process through which an
organization assesses and evaluates the performance of its employees. For the
system to be effective, it should be designed to provide clear, fair, and
actionable insights that drive both employee development and organizational
success. Below are the key elements that contribute to a good performance
appraisal system:

1. Clear and Well-Defined Objectives

A good performance appraisal system should have clear, specific, and
measurable objectives. These objectives outline the purpose of the appraisal
process, which could include improving employee performance, identifying
training needs, or making decisions related to promotions, compensations, or
career development.

2. Standardized and Objective Criteria

To ensure fairness, a good performance appraisal system should use
standardized criteria to evaluate all employees. This reduces bias and ensures
that all employees are assessed based on the same performance standards.

3. Consistency and Fairness

The system should be consistent in its application across all employees to
ensure fairness. Appraisers (managers, supervisors) must evaluate employees
based on the same standards, without bias or favoritism.

4. Timeliness of Feedback
Providing feedback promptly is crucial for the effectiveness of the performance
appraisal system. Employees should not have to wait until the annual

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performance review to receive feedback on their performance.

5. Multi-Rater (360-Degree) Feedback

A good appraisal system incorporates feedback from multiple sources,

including peers, subordinates, and supervisors, as well as self-assessments.
This 360-degree feedback provides a comprehensive view of the employee's
performance and behavior from various perspectives.

6. Clear Communication
A well-structured performance appraisal system should emphasize clear
communication between managers and employees. This includes
communicating performance expectations, providing feedback, and ensuring
that employees understand the process and its purpose.

7. Focus on Employee Development

Performance appraisals should not just evaluate past performance; they should
also focus on employee development. The system should identify areas for
growth and development opportunities, leading to career progression for
employees.

8. Flexibility and Adaptability

A good performance appraisal system should be flexible enough to adapt to the
changing needs of the organization and its employees. It should be reviewed
and updated periodically to ensure its continued relevance and effectiveness.

9. Documentation and Record Keeping

A proper performance appraisal system must include effective documentation
to track employee performance over time. Well-maintained records ensure that
decisions are based on concrete data and provide a reference point for future
appraisals.

10. Actionable Outcomes and Follow-Up

A good performance appraisal system must lead to actionable outcomes, such
as improvements in performance, career development plans, or reward and
recognition. After the appraisal, there should be a follow-up process to monitor
progress and ensure the implementation of agreed-upon actions.

11. Employee Involvement and Ownership

To ensure the effectiveness of the performance appraisal process, employees
should be actively involved in setting their own goals, evaluating their own
performance, and receiving feedback. This involvement promotes a sense of
ownership and accountability for their performance.

12. Confidentiality and Privacy

A good performance appraisal system ensures that the process is confidential,
with performance evaluations kept private between the employee and their

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evaluator (unless sharing with other stakeholders is necessary).

Performance Monitoring

Performance monitoring is an essential aspect of performance management. It

refers to the continuous process of tracking and assessing employee
performance to ensure that goals are being met, and to identify areas where
improvement is needed. Regular performance monitoring allows managers to
provide timely feedback, guide employee development, and address issues
before they become bigger problems.

The given below are the key characteristics of performance monitoring:

1. A performance monitoring plan is a critical tool for planning, managing, and

documenting data collection.

2. Performance monitoring is an important part of performance management

system.

3. Performance monitoring helps in maintaining the employees’ performance

as per the goals and objectives of the organisation.

4. Performance monitoring helps in building the strong relationships between

the management and employees.

5. It facilitates career development of employees.

6. Performance monitoring provides the training and development opportunity

to employees.

Objectives of Performance Monitoring

PfM explicitly promotes the value that a manager and her manage accept joint
responsibility for monitoring progress on the tasks and goals agreed upon
during the initial performance planning or expectation setting meeting and
subsequent review meetings.

Managers use instruments like written reports, review discussions and on-the-
spot inspections to track:

1. Timely and quality fulfillment of managee tasks and goals.

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2. Help and support legitimately needed by the managee’s tasks, including
those agreed upon during planning and review meetings.

3. To improve employees job performance as well as methods and techniques

of measuring.

4. Introducing continuous learning and development process.

Importance of Performance Monitoring

Performance monitoring is important because:

1. Performance monitoring provides scope for modification, change and/or

alteration of the existing performance management system.

2. It helps in reviewing and correcting performance objectives as linked to

mission and objectives of the organization.

3. It identifies areas for competency improvement.

4. It continually enhances performance of employees.

5. It helps in realizing the full potential of employees and organization for

excellence in performance.

Process of Performance Monitoring

The manager observes managee performance through:

1. Periodic written reports

2. Scheduled meetings

3. On-the-spot inspections, or field or site visits in case of managees whose

location is different from that of the manager.

4. Relevant and reliable information from other available sources.

In the course of monitoring, the manager provides feedback to the managee(s)

and asks for feedback from the managee(s) during

1. Group or team meetings to discuss common issues, problems, etc.

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2. One-on-one meetings to discuss

The manager and the managee, thereafter, discuss corrective measures needed,
actions to be taken by either or both of them and other help or support needed
to accomplish the requisite tasks and goals. specific issues and problems
encountered by individual managee(s).

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