Background of Performance Management Program - Research Paper Example

Background and evolution of Performance management Human nature is to strive for meritocracy. Performance is important to every individual and everyone wants to emerge a winner. Organizations recognize that each individual is unique and given an opportunity, each individual is capable of improving performance over time. At the same time, performance of the organization is also important. Performance management has become essential today as the relationship between the organization and the people is changing. Companies are no longer able to offer the job security and hence a new relationship needs to be developed that rewards performance and skills which contribute to personal growth as well as improve organizational efficiency. People today are a company’s greatest asset and the primary source of competitive advantage. To ensure that the people are treated in the right manner, a PMP helps the supervisors to decide on the right development needs of the individual. Earlier firms would have a loyalty contract and reward the employee with adequate pension plans but globalization, rise of technology and the increasing demand for knowledge workers has made the loyalty contract unrealistic and undesirable as far as the organization is concerned (Lawler, 2005). Doing away with loyalty contract has affected the cost, availability and attitudes of good labor. Organizational practices have changed as organizations realize the importance of a challenging job and career, the significance of respect and opportunities for learning. Organizations now have to compete for talent and hence have to focus on attracting and retaining the right talent. This brought about a change in the approach to management which would be beneficial both to the organization and the employee. This approach led to higher and higher levels of performance. Gradually firms became high-performance organization and then had to devise strategies to reward these high-performing employees. While this helps to reward the employees better, it helps to provide motivation and increase commitment. This paper will discuss the perceived benefits and pitfalls in performance management plan in an organization. The concept of Performance Management Plan A performance management program (PMP) is supposed to be an ongoing process of communication between the supervisor and the employee. It focuses on issues of performance, development and achieving workplace results. The right PMP should be such that individual performance is aligned with the organization’s missions and goals. The planning process starts with clear and defined goals set before the employee along with the expectations. The job description is also reviewed at the beginning of the performance cycle along with the employee should any changes be felt necessary. At regular intervals or at fixed periods, a feedback is taken on the performance which brings out the strengths and weaknesses of the employee and highlights the areas where development is needed. While many believe an annual feedback or appraisal or attention is enough, according to Cascio (1995) it demands daily attention (cited by Connell & Nolan, 2004). Once a year has not been considered sufficient to identify and discuss job strategies and weaknesses of individuals or teams. The process of review is part of the planning process where there is a two-way communication between the supervisor/manager and the employee with focus on development. Regular communication is an integral part of performance management. The purpose of the PMP is to enhance two-way communication which could further the interests of the organization. The focus is on motivating the individuals to be committed to the organization and to enhance the customer service. It is a business tool that helps organizations as well as individuals to achieve their visions, goals, and strategic objectives in the work environment. It is not a one-time event but an ongoing process for development and is critical for the individual and the organization. Each employee shares the responsibility and is accountable for making it a success. Not only are the objectives defined but the means of attaining these objectives are also clearly laid down. Training forms an important component of the PMP. It encourages communication to build trust and develop a work environment that focuses on continuous improvement and increased productivity. Importance of Performance management Performance management is also known as performance appraisal. Performance appraisal has been defined as "formal evaluation of an employees job performance in order to determine the degree to which the employee is performing effectively" (Griffin and Ebert 200, cited by Schraeder, Becton & Portis, 2007). An organization needs to measure performance because it helps to determine if a function is productive and where to focus energies on (Hendry, Woodward, Bradley & Perkins, 2000). It is essential to understand where to use the quantifiable data effectively thereby justifying the need for additional resources. An efficient PMP can help to formulating the mission, strategy and objectives of the organization, translate the objectives to the various management levels of the company (Waal, 2004). It also enables the firm to measure the objectives with critical success factors (CSF) key performance indicators and the balanced scorecard. Quick corrective action can be taken based on regular reporting of the indicators. An organization needs to measure performance because it helps to determine if a function is productive and where to focus energies on (Hendry, Woodward, Bradley & Perkins, 2000). They must know where to use the quantifiable and data effectively thereby justifying the need for additional resources. At the same time, PMP need not always result in positive outcome and its success depends on several factors. A well planned performance management plan would include a well designed performance appraisal system, pay related to performance, all of which are aimed at improving the overall performance of the organization Perceived benefits of the PMP for the organization A PMP has to be well planned because many times firms make the mistakes of offering rewards that are able to attract the right talent but fail to motivate them (Lawler, 2005). The performance plan should offer rewards for high performance and not just to attract the right talent. In addition to attracting and motivating them the plan should also be able to retain such talent. High rate of attrition leads to high costs of recruitment and frequent loss of talent leads to dissolution of knowledge and ultimately the performance of the organization. The changed working environment also demands that people remain in the company for a limited period to allow for changes as situation demands (Lawler, 2005). Thus, a long-term commitment or retention plan is not advisable and suitable performance plan suffices to maximize the benefit for the company in short-term. Long-term commitments or loyalty contracts binds the organization which may not be in the larger interest of the organization. Change is an essential feature today and change is necessary to develop new core competencies and new organizational capabilities. A performance based plan serves the right purpose for the individual as well as the organization. Organizations now stress that reward will be granted for high-performance and skill development. When the right combination of reward system is applied, people are motivated to excel and when they excel they are rewarded which motivates them to stay on and remain committed. This even helps to handle change effectively. People too realize that the process of learning, developing and growing is an ongoing process and they would lose with stagnancy. Performance-related-pay Performance measurements too have come under increased scrutiny in recent years. Ninety percent of the human resources executives are dissatisfied with the current performance feedback system. Many argue that lack of objectivity in their completion, inappropriate timing of such a review and the lack of appropriate content have lead to their unpopularity among managers and subordinates alike. Organization use performance-related-pay (PRP) as a part of the Performance Management Plan. With the increased competitive environment due to globalization, PRP has become an important toolkit for optimizing human resources in the face of competition. PRP influences not just the economic performance but also impacts the issue of pay inequality. PRP has been defined as a “method of payment where an individual employee receives increases in pay based wholly or partly on the regular and systematic assessment of job performance” (ACAS, cited by Lewis, 1998). Lewis (1998) agrees that introduction of performance-related-pay (PRP) was to enhance employees’ motivation but organizations do not always meet with success. Incentives depend on the business cycle stage of the firm. The reward system is based on the assumption to attract, motivate and retain people and PRP attempts to restructure these assumptions. Money linked to performance targets has varied opinion – some feel it is the sole motivator while others feel that motivation is purely intrinsic and money should never be linked to it (Hendry et al.,). Belfield and Marsden (2003) cite Prendergast (1997: p7) who notes that incentives are provided to workers through the compensation practices of their employers. In maximizing his own interest, the worker also enhances the firm’s position. The problem for the managers arises when they have to determine an individual worker’s contribution to the overall performance of an organization. Amidst uncertainties managers risk overpaying the workers for their contribution, in which case the workers are likely to withdraw the effort they put in for the compensation. Under the circumstances it is better to pay the workers on the basis of input. The workers are also likely to withdraw their effort if they consider the compensation unfair. The PMP can be rendered ineffective if the employees are made to produce results under pressure and pay is always related to performance, as in the case of Snow Brand Milk in Japan. The support of senior management is essential is determining the PRP. At the same time, pressure can result in disastrous results. Snow Brand Milk was the largest producer of milk and dairy products by 2000 in Japan. The brand was so powerful that consumers in blind taste test preferred the competitor but when they saw the Snow Brand, they wanted nothing else. As deregulation increased competition, even Snow Brand had to bring down prices as private brands were found on the shelves. The pressure to cut costs was paramount and the factory units resorted to unethical and unhealthy production conditions until a disaster struck affecting 13000 people. One of the three primary reasons was attributed to pressure for results which forced the plant managers to resort to unethical and illegal actions (Finkelstein, 2005). Research suggests that PRP is associated with higher intra-workplace inequality. This in turn is negatively associated with organizational performance but Belfield and Marsden contend that any negative effect is overpowered by the positive incentive effect provided by the pay structure. Managers are aware that there cannot be a perfect system in place to implement PRP. They have to take into account the pay system’s interaction with workplace specific factors. Managers too realize that this is a complex issue and hence resort to trial and error method to determine the best possible system. When compensation pay or rewards are related to pay, it has often been found to be unsuccessful which demonstrates employee discontentment. Lewis (1998) states that if the performance management is in place employees are better able to meet the increased market competition and key decisions can be pushed down to the line managers who accept accountability. The four stages of the PRP process include setting objectives in line with the organizational objectives, measuring performance, giving performance feedback and translating performance into rewards. Study revealed that if there is no congruence between the different managers’ views, it would affect ratings. It was also found that most often managers are not aware what rating to give to staff. Sometimes they gave high rating because they did not know what rewards it would be translated into. If the four stages are conducted properly and the information flows around the cycle, then the objectives are more likely to be achieved. Organizational impact of PRP Linking competency system to PRP is with the motivation to control not only the outputs of behavior but also the inputs (Hendry et al.,). Appraisal should be concerned about development but this too fails. The failures of such control system are not due to defects in design but due to the inadequacy of the psychological assumptions. Incentives tend to control because of the threat of punishment or withholding of rewards but this can have a negative impact on performance. Today performance of a company cannot be measured in terms of the overall financial performance but it is translated in terms of time, service and quality levels. The balanced scorecard assesses overall performance from four different perspectives - the customer, internal competencies and efficiencies, innovation and improvement activities and financial measures, including increased shareholder value. Performance appraisal and feedback system Performance management was introduced as it was expected to improve organizational efficiency and enhance productivity. Facilitating communication can even help reduce employee uncertainty. Feedback is essential for employees as failure to provide a feedback can have negative implications. Without a system of feedback employees keep guessing whether they are on the right track or whether they should chart another course of path. A properly structured and applied appraisal system can help reduce distractions and promote an increased level of trust within the organization (Schraeder, Becton & Portis, 2007). PMP provides a forum for collaboration in setting goals for the employees. During the appraisal when individual goals and objectives are aligned with those of the organization, it may reduce uncertainty. Appraisals lead to the right decision regarding the training and development needs of the employees. It can be useful in establishing and monitoring employees’ career goals. The performance appraisal can provide employees with a feedback about their performance which would reduce errors, increase productivity, improve service quality for customers, motivate the employees and give them a sense of commitment (Nikols, 2007). They also provide an opportunity for discussing work related goals and objectives that relate both to the individual and the organization. It helps to identify training and development needs and engage in career planning. It also affords the organizations legal protection against law suits by employees for discrimination and wrongful termination. Performance appraisals have been considered important as employees want encouragement and freedom rather than being subject to control mechanisms (Connell & Nolan, 2004). Nevertheless, the practice of performance appraisal has been exerted by the management as a sophisticated control mechanism. Research suggests that performance data is used by management in a way that encourages defensive behavior. The same information can be used for improvement and identification of the problems and the weaknesses. Performance rating does not take place in a vacuum and no matter how well designed the system is, the human dimension can interfere with the manager’s ability to be completely rational and objective. They can alter information and performance for their own ‘good reasons’. People try to manipulate the target-setting to ensure targets are achievable but this jeopardizes the very purpose of appraisal. Managers lack soft skills that are essential in consultation and participation. Research suggests that PA is merely a game that appraisers and appraisees play to gain the support of the right mentors, sponsors or decision makers which would help them to forge ahead. Criticisms of performance appraisals PA has been subjected to criticism and not always for the wrong reasons. The most common complaints that PA attracts are that they are all the same, take too much time, are subjective and make distinctions without a real difference. They are also untimely and result in degrading employees. Subjectivity according to Kennedy & Grogan (2001) is not really a negative trait. In order to improve performance, immediate goals are designed which include motivating changes in behavior, developing competencies, promoting success and terminating failure. Most often the PA system has been used as a means to gather information for personal decisions like rewards and promotions, rather than using it as a tool to identify weakness that could determine the training needs of the employees. The PA system is also believed to encourage short-term performance at the expense of long-term planning, discourage risk-taking, build fear by pitting people against each other, and undermine teamwork as people are encouraged to work for themselves instead of the company. In nutshell, it has been considered unreliable and inconsistent as a tool. Appraisals can be meaningful if they are provided immediately after an incident or as soon as the behavior to be appraised has been perceived. If there is a time lapse, then the recollections of the performance results fade. Even if the accuracy may remain intact months later, the opportunity to provide motivation and useful feedback is lost. Rensis Likert had criticized the system of performance appraisal even in 1959 emphasizing that instead of increasing effectiveness, it de-motivates and discourages employees and fails to make any positive contribution. Appraisal continues to be linked to compensation, succession planning and promotion decisions. Both employees and their supervisors find the process painful and demotivating. They find it a stressful process with no perceived connection to their compensation. The decision rests on the managers and the bias control mechanism cannot be eliminated due to the human element involved (Davis & Landa, 1999). In fact, PA system has been considered an impediment to the pursuit of quality. Receiving a performance appraisal can be unnerving and frightening experience for some employees and it also leads to tensions and conflicts between the employees and their supervisors. Research suggests temporary reduction in productivity following PA which could range from three to six months. Companies like Nokia have also experienced that it actually erodes performance over time as people realize that goals are achievable and hence a positive appraisal assured (Nikols, 2007). PA systems hamper organizational agility. They provide financial leverage to employees and unions as well as to management. Disadvantages of an ineffective PMP Performance management system may support employee development but here too inherent problems have been perceived. Objectives have to be defined and aligned properly but often the objectives laid out for the chief executives remains almost exclusively financial. It should be so clearly laid out that people should be able to see clearly behind the targets and measures. PMP can be ineffective specially the measure for performance are defined from top-down due to which they do not understand the bigger picture and end up pursuing targets blindly. Rewards and incentives have been found to generally act less as motivators and more as retrospective rewards. The performance evaluation systems have short-term goals for the purpose of measurement and thus the purpose of motivation is not served. Another problem that arises is that top managers usually base their judgments on their experience but they may have different competency files from others (Marsden, 2004). Reward systems invariably reflect the assumptions and prejudices of top managers and HR professionals. Performance management has to be seen as a management process. If it exerts more pressure on the managers, then the system is a failure. Although the purpose of relating rewards to performance is about development but it has been observed that it is more about control. Control, avoiding mistakes and stopping bad performance are necessary but the purpose of performance management system is development and improvement. There is often confusion over the objectives. Rewards help organizations to structure their relationship with employees, and PRP attempts to restructure the employer/employee relationship to emphasize performance. Attaching rewards to performance has an impact on the relationship. It thus has an effect on culture and sub-cultures of the organization. Lewis (1998) contends that if the performance management is in place employees are better able to meet the increased market competition and key decisions can be pushed down to the line managers who accept accountability. Studies reveal that it would affect ratings if the opinions of different managers differ. It was also found that most often managers are not aware what rating to give to staff. Sometimes they gave high rating because they did not know what rewards it would translate into. According to Schraeder, Becton & Portis (2007), they give high ratings that exceed true performance to avoid conflicts and unpleasant consequences. Recommendations for improvement According to Cohen (1998) managers usually know what to do to improve performance, but they often act in contradiction to their instincts or do the data available with them. Organizational performance usually declines due to lack of focus or a shift from the original organizational goals or objectives. Changed environment poses a challenge to the managers to keep up the performance, which is when the right PMP becomes necessary. Avoidance behavior on the part of the managers compels them to act contrary to the organization’s interests. It ahs been observed that high-performing companies have low tolerance. They mobilize rapidly to reconcile performance shortfalls. Over time the lower level of performance appears to be normal and accepted. Gradually problems multiply and become complicated. Managers fail to change the underlying causes. An effective PMP should be an ongoing process of improvement and development. It includes a proper feedback mechanism, two-way communication between the employee and supervisor, relating performance to pay or rewards and aligning the corporate objectives and missions with individual development. A study of all these facets suggests that opinions differ in the PRP as well as the PS system. As far as the PA system is concerned, it is an effective management tool and the leaders have to take a proactive approach in planning the appraisal process. The PA process should be ongoing and continuous where feedback is seen as a function of quality improvement. The effectiveness of the appraisal system should also be evaluated periodically. The raters need to be trained on the appraisal process, policies and the forms to evaluate effectively (Schraeder, Becton & Portis, 2007). Ratings should be less subjective in nature and must be directly related to the accomplishment of the job-related tasks. The tools used for appraising performance should include the ‘hard’ HRM approach by employing methods like management by objectives, job competencies and rating scales. A ‘softer’ approach should typically involve employees in the design and integration of the performance appraisal schemes. Attention should also be paid to the social and motivational aspect of the appraisal system which should be in alignment with the organizational culture. The management style and the skills of the appraiser are also important. The right understanding and education regarding the purpose and aim of appraisal system is essential. Nikols suggests that a formal PA system is not necessary as informal counseling sessions are known to improve employee performance. Linking PA to pay also serves no purpose as bonuses and other increases can and should be tied to more specific, visible and highly measurable results. PA should be based on pre-established set of criteria directly related to the job assignments. The ratings should provide an accurate reflection of the employees’ performance (Schraeder, Becton & Portis, 2007). Some organizations use these ratings for promotion decisions and if ratings are not accurate the resulting decisions may have negative effect on employees thus leading to legal action. Kennedy & Grogan (2001) are of the opinion that if the PA system cannot be abolished altogether, a typical approach should be to have six to ten raters per person. This would also require a good management information system to report and administer the multiple ratings but this approach requires that so many people should directly be interacting with the employee concerned. Finding such closely associated people would be the greatest deterrent to such an approach. A more effective approach would be to hold the supervisors accountable for the effectiveness of their performance management efforts and provide them adequate training in effective supervisory communication skills. There should be no preconceived notions at the time of appraisal. Waal (2004) suggests that so far the performance management system has focused on the technicalities of implementing a performance management system but of late organizations implement performance management system based on critical success factors and key performance indicators. Organizations still do not know how to improve the behavioral factors that influence performance-driven behavior. The effectiveness of a PMP depends on the organizational climate and the willingness of the people to use the system to obtain performance information which may help to improve the results. A non-committal organizational climate is a threat to the desired results. Managers have to feel responsible and to stimulate feelings of responsibility an organization ahs to look into the relevance of controls and the possibility to influence. Performance indicators act as stimulators for the managers. If the overall results for a company are lagging, the general manager would not be enthusiastic to take further action but if he is made to understand the cause of the lagging results, he would be motivated to take corrective steps. Hence the key performance indicators have to be evaluated regularly to monitor in which direction the company is moving. For the managers to be able to take responsibilities, they should be given the opportunity to influence their results favorably. Latham, Almost, Mann and Moore (2005) suggest ways in which organizations can improve performance management. The performance appraisal instrument has to be designed right so that accuracy of the instrument is improved and the employees’ perception of its fairness is established. A diagnostic instrument should be used that focuses on those areas that move the strategy from rhetoric to action steps. This instrument should be such that employees can coach themselves and on the right things. Employee acceptance of the instrument is critical which means there should be trust in the relationship. Hostility towards the appraisal system and the coaching process occurs when the employees feel they are being evaluated on the wrong things. They want appreciation of the situational constraints on their performance. Balance scorecard becomes vital as it provides as it provides a framework for coaching employees so as to contribute meaningfully to the organization’s strategy. Assessments should be factual, objective and unbiased apart from being developmental and related to the organization’s strategy. Multi-source feedback should be considered and not merely how the employee interacts with supervisor. Multi-source appraisal would include the boss, the peers, subordinates, and self-assessment. The boss has limited opportunity to interact with subordinates and hence his appraisal may not suffice. The boss should primarily be involved in collecting data for appraisal from different sources, contend Latham et al. anonymous feedback from the supervisors lead to positive changes in the behavior of the supervisors. When managers have high self-efficacy and receive a negative feedback from the subordinates, there is a high level of improvement and such improvement is sustainable. Anonymous peer ratings are the best indicators of training success and performance in jobs. This method is very popular in self-managed teams. Self-assessment is generally inaccurate as there is a tendency to give high scores to the self. Nevertheless, a multi-score feedback system provides the highest level of accuracy and is free from biases. Appraisal accuracy to a large extent also depends upon the coach or the appraiser, his temperament, gender and the attitude. To maximize accuracy training, programs for appraisers should be conducted and they should be asked to evaluate actors presented on a videotape. This would minimize rating errors and would teach the appraisers the relevant performance criteria for evaluating people, the relevant job behaviors to evaluate, and the technique to minimize errors in judgment. How the appraisers give the feedback to the employee also matters because it has been found that it could even decrease performance. This too requires training and the appraiser has to be sensitive to the needs of the employee. An employee needs to be given adequate notice of appraisal. They need a fair hearing and this would make them feel that appraisal has been fair. Organizational politics should not be allowed to interfere in the performance appraisal system. Conclusion Thus it is evident that the PMP is very critical to the overall performance of an organization. The performance management plan has to be unique to each company and depends to a large extent on the organizational climate. While there are perceived benefits its disadvantages far outweigh the benefits. Change in any organization is inevitable and the PMP should be such designed that it able to cope with the ever-changing market demands. Changes to the system could enhance its effectiveness. One of the most effective ways to bring about change is to have periodic and timely review of the PMP rather than making it an annual event. The feedback mechanism has to be effective for the success of any program. Key performance indicators have to be paid attention to. An informal and ongoing system of appraisal would go a long way in motivating the employees and establishing and maintaining a healthy relation between the employees and the supervisor. The organizational goals would also be in alignment with the goals of an individual. Performance management in organizations is conducted in a superficial way and its significance to the HR role is not really appreciated. It has to be remembered that performance is about improving performance and all actions should be taken accordingly. At the moment the way organizations function it has a detrimental effect on the organization as well as the workers. Performance measurement should be a goal driven process and hence rewards should not be the criteria. It should strive to enhance the relationship between the company and its people. The managers have to be well informed and the ground work has to be firm. Multi-source information and data collection would make the appraisal more accurate and keep the system free from personal biases. Besides, the boss has too little interaction with the subordinate and it makes sense to involve the peers and the subordinates in the process. The feedback should be communicated in a way that does not decrease performance. Diagnostic instruments help to appraise the right things in the right manner and it would instill a feeling of faith and trust between the supervisor and the employee. Motivation can be induced even without linking performance to pay, or offering any other incentive to perform. Thus, the right PMP can go a long way in improving the performance of the people and thereby the organization. References: Belfield, R., & Marsden, D., (2003), Performance pay, monitoring environments, and establishment performance, International Journal of Manpower Vol. 24 No. 4, 2003 pp. 452-471 Cohen, H. 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