Human Resource Management – Performance Management Systems

Benefits and Importance of Performance Management Systems

A performance management system is an integrated method to ensure that an employee’s performance strengthens and contributes to the organisations strategic aims (Dessler, Griffiths, Lloyd-Walker 2007).

A performance management system directly connects the operations of individuals and teams to an organisation’s performance strategies. The three steps in a successful performance management system are at the organisational level; the operational level; and the individual level (Dessler et al 2007).

Strategic performance is at the organisational level, where the organisation’s strategy is considered. This will include: the organisation’s mission statement and vision; the organisation’s goals and objectives; and the organisation’s key performance areas.

Operational performance is at the unit level, where the organisation consists of functional and operational teams, or units. These teams will be assigned key results areas, key performance indicators (KPIs) and performance targets.

Individual performance is at the individual level. Each individual will have a job description, performance objectives and an action plan.

Performance management concentrates on maximising outputs, by ensuring employees and teams can competently and effectively utilise inputs. Inputs in relation to performance management are the knowledge, skills, attributes, attitudes, behaviours and experience that employees contribute through their work (Dessler et al 2007).

The main benefits of performance management systems are: team and individual operations to realise organisational success; motivate a performance orientated organisational culture; facilitate change; promote creativity and innovation; expand individuals and teams to their complete performance potential.

Nankervis and Compton (2006) conducted studies that showed the importance and main purpose of performance management systems in Australia. About 90% of organisations focussed equal importance on determining training and development needs, as well as appraising past performance. Individual and organisational objective alignment and the development of individual competencies were also found to be important. Other important purposes included career planning, prospects for future promotion and salary increases.

The benefits of performance management systems include the setting, planning, alignment and development of goals. Other benefits include direction sharing, job role clarification, progressive monitoring of performance, progressive feedback, coaching, support, assessment of performance, rewards, recognition, compensation, workflow, process control and return on investment (Dessler et al 2007).

These benefits come from a specialised component of the performance management system, the performance appraisal. There are many different types of performance appraisal methods. Four common methods are described below.

Management by Objectives (MBO)

In MBO, objectives are defined so that the organisation and employees agree to the objectives, and know what is required of them within the organisation. The foundation of MBO is to participate in goal setting, choose a course of action, and make decisions. Integral to MBO is measuring and comparing the employee’s actual performance with the set standards (Dessler et al 2007).

Employees should be involved in determining the goals that are set, choosing the courses of action they are to follow. In this way, there is more likelihood they will realise their requirements.

Dessler at al (2007) identifies six steps for the implementation of MBO: setting the organisation’s goals; setting the department’s goals; discussion of the departments goals; setting the individual’s goals by defining expected results; conducting regular performance reviews; provide performance feedback.

There are several main features and benefits of MBO (Dessler et al 2007)

• Motivation is generally regarded as the main feature and advantage of MBO (Dessler et al 2007). Employees are involved in the whole process of setting goals and increasing empowerment. This in turn leads to increased job satisfaction and commitment.

• Better communication and coordination result from regular evaluation and interaction between managers and employees. This then creates better associations and relationships inside the organisation, ultimately helping to solve many problems.

• Clarity of goals is another feature, and also a benefit. Because the goals are clearly defined, both management and the employee should have no doubt as to what the expectations of both parties are.

• Employees tend to better accept and commit to self-set objectives, rather than objectives set upon them.

• Managers can ensure that employees objectives are linked to the goals of the organization.

However, MBO also has some limitations (Dessler et al 2007):

• It can put too much emphasis on the setting of goals to drive outcomes, rather than the working of a plan.

• It can put too little emphasis on the organisational environment in which the goals o are set.

• Employees are evaluated against a fictional ideal employee, and not necessarily recognised for their individual optimal endeavours.

An example of the use of objectives is in a small business. A regular goal set for an employee might be to improve efficiency, measured by the amount and quality of the work involved. A goal could also be set to identify and eliminate problems within the organisation. A third goal, or objective, could be the personal development of the employee through the acquisition of new skills.

360 Degree Appraisals

360 degree appraisals involve the employee or worker to receive feedback from subordinates, peers, supervisors and even customers (Dessler et al 2007). In effect, from all around, hence the name 360 degrees. Self-assessment is also included. They are often called multirater feedback, multisource feedback, or multisource assessment.

The feedback for the appraisal is usually on a form showing job skills, abilities, attitudes and behaviour. Each of these is marked using a quantitative scale. The results are often used to plan training and development. Some organisations also use them for making administrative decisions, such as pay or promotion.

The 360 degree appraisal is reportedly more accurate over a period of years, rather than short term (Dessler et al 2007). This is possibly due to the length of time that the reviewers have known the person being reviewed.

The 360 degree appraisal appears to be most accurate for people who have been known to the appraisers for 1-3 years. After that, the appraisals are less accurate, as the reviewers appraise more favourably.

The appraisal form typically contains items including:

• Key skill or capability area
• Key skill or capability element
• Feedback question
• Feedback score

In reality, the form is a questionnaire built directly from the employee’s key skill areas. Each skill area is then broken down into key skill elements. Each element is measured individually by carefully worded questions. The appraisers answer the questions and rate the employee according to a predetermined scale. The question sheets are often devised in employee workshops. This is especially effective for questions used to assess each key skill are or key skill element.

As an example, these types of appraisals are generally favoured by organisations of more than 100 employees. In smaller organisations, familiarity tends to lead to less accurate appraisals. Nankervis and Compton (2006) report that it is expected that use of the 360 degree appraisal method will increase in the future.

A prime example of the use of 360 degree appraisal is in military or paramilitary organisations. In my previous positions as a Prison Guard, Fire Fighter, Rescue Worker and St John Ambulance Officer, most of my reviews were done using this method, but often in conjunction with other methods. This appraisal system actually developed in the military.

Critical Incident Techniques (CIT)

The critical incident technique (CIT) involves collecting data through direct observation of employee behaviour. The observations are of incidents or events that have critical significance to a set of methodically defined criteria (Dessler et al 2007).

The observations, referred to as incidents, are recorded and then used to find practical solutions to problems, and build wide-reaching psychological principles. An incident is defined as critical if it makes a significant contribution to activities in the workplace.

The most widespread way of collecting data for critical incidents is to get the employee to relate their experience of the incident.

There are five major steps involved in implementing CIT:

• Determine and review the incident
• Find the facts and collect details from all participants
• Identify the issues
• Decide how to resolve the issue considering various possible solutions
• Evaluate if the selected solution will solve the cause of the incident, and avoid future problems

The major advantage of CIT is that it is flexible, and can be used to improve systems involving multiple users. Also, the data collected is from the perspective of the people involved, so they aren’t constrained by predefined frameworks. It can identify an employees ability to utilise pre-existing knowledge in unexpected circumstances, thus assisting to indicate the employees overall benefit to the organisation. In most circumstances, questionnaires can also be devised to assist the respondents.

A major disadvantage is that the reports depend on the memories of the individuals involved, and are often varied. This is especially true if a considerable amount of time has elapsed between the incident and the gathering of the reports. Also, respondents may not have the skills to relate the complete circumstances of the incident, or are reluctant to do so.

CIT can be used in a wide variety of areas. From my own personal experiences, I have been involved in it’s use in my work in emergency services. Also, it was used in the early stages of construction on major projects while working with a civil engineer on major development sites, including a two kilometre racecourse.

Behaviourally Anchored Ratings Scale (BARS)

These scales are used to rate an employee’s performance. As the name suggests, they are usually presented vertically. Scale points are generally used, with ratings from 5 to 9. The BARS method combines the advantages of critical incidents, narratives and quantified ratings. It fixes a quantified scale to identifiable narrative examples of good, moderate and poor work performance (Dessler et al 2007).

BARS are an alternative to the subjective traditional ratings systems, such as graphic rating scales. Data collected through the critical incident technique, can be used to contribute to BARS:

• Effective and ineffective behaviour relating to jobs can be collected by people with expert knowledge of the job. Data may also be collected from recent task analysis facts and figures
• The data is converted to performance dimensions, and then written and grouped as behavioural performance dimensions.
• Experts translate the behavioural examples to res[pective performance dimensions, and discard dimensions for which majority agreement is not reached.
• Retained behaviours are scaled by the experts for their relative effectiveness of each behaviour, usually on a Likert-style scale of 5 to 9
• Behaviours with a low standard deviation are retained, and behaviours with a high standard deviation are discarded.
• Behaviours for each individual performance dimension are then used as anchors for the BARS evaluation

The main advantage of BARS is that the rating format is strong if it measures the performances which occur, rather than drawing distinctions between behaviours and numerical ratings. BARS also make possible more accurate measures of an employee’s behaviour or performance.

A disadvantage or weakness of BARS is that it can sometimes be unreliable, produce leniency bias illusion, or the information does not correlate.

Issues to Consider in Performance Appraisal

Performance appraisal relies heavily on the job description, and how well the employee contributes to the goal and objectives of the organisation. As such, the issues raised by Townley (1994) regarding job descriptions need to also be considered in any performance management system, or performance appraisal system.

Additionally, with e-recruitment, as described by Hinton (2003) and Galanaki (2002), special conditions arise with brevity of job description, and screening the higher number of applicants. Some consideration should be taken for these recruits when appraising performance.

Campbell & Campbell (2001) describe reasons why people voluntarily leave the workplace, and amongst these seems to be shortcomings or dissatisfaction with the management and appraisal systems.

In the past, many companies have used performance appraisal to as part of the basis for downsizing. However, recent research indicates that this may not be in the best interests of the organisation (Farrell & Mavondo 2005). This has also been addressed by Cascio & Wynn (2004).


The literature seems to suggest that not only are performance appraisal systems changing, but the traditional uses of them are changing also.

Reference List

Campbell, D. & Campbell, K. 2001, ‘Why individuals voluntarily leave: Perceptions of human resource managers versus employees’, Asia Pacific Journal of Human Resources, vol. 39, no. 1, pp. 23-41.

Cascio, W.F. & Wynn, P. 2004, ‘Managing a downsizing process’, Human Resource Management, vol. 43, no. 4, pp. 425-436.

Dessler, G., Griffiths, J. & Lloyd-Walker, B. (2007). Human Resource Management: Theory, Skills and Application (3rd ed.). Pearson, Australia

Farrell, M. & Mavondo, F. 2005, ‘The effect of downsizing – Redesign strategies on business performance: Evidence from Australia’, Asia Pacific Journal of Human Resources, vol. 43, no. 1, pp. 98-116

Galanaki, E. 2002, ‘The decision to recruit online: A descriptive study’, Career Development International, vol 7, no. 4, pp. 243–251

Hinton, S.H. 2003, ‘The rhetoric and reality of e-recruitment: Has the Internet really revolutionalised the recruitment process?’, in Human Resource Management: Challenges and Future Directions, eds R. Wiesner & B. Millett, John Wiley & Sons, Sydney, pp. 187-194

Nankervis, A. & Compton, R. 2006, ‘Performance Management: Theory in practice?’, Asia Pacific Journal of Human Resources, vol. 44, no. 1, pp. 83-101

Townley, B. 1994, Reframing Human Resource Management: Power, Ethics and the Subject at Work, Sage Publications, London, pp. 33-43.


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