Performance management

Introduction

Performance management has evolved from the growing demand in organisations for better people management in order to realise better results. The emphasis has shifted from what employees are supposed to do, to what they are expected to achieve – results. Employees’ output is a critical issue because it determines how much an employee is worth to the organisation. This topic lays the foundation for skills development and management of the employee performance process. Therefore, at the end of the chapter learners should be able to:

· Analyse the key issues in the performance management system.

· Introduce and manage performance management systems in an organization.

· Examine the strengths and challenges of performance contracting.

The meaning of performance management

No understanding of the meaning of performance management is complete without focus on the management process, which aims at ensuring continuous individual, team and organisational performance. Although the mainstream literature on performance management is not short of good definitions on performance management, it is difficult to resist the power of the definition commonly used by Michael Armstrong who is one of the most renowned human resource management experts. In his view, performance management is a process owned and driven by line management that aims at getting better results from the organisation, teams, and individuals by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements (Armstrong 2008: 1)

The key words in this definition are:

1. An agreed framework of planned goals, standards and attribute/competence requirements – the basis of performance management is an agreement between the manager and the individual on expectations in relation to each of these headings. Performance management is largely about managing such expectations.

2. A process – performance management is not just a system of forms and procedures. It is about the action, which people take to achieve the day-to-day delivery of results and manage performance improvements in themselves and others.

3. Shared understanding – to improve performance, individuals need to have a shared understanding about how high levels of performance and competence look like and how they should work towards it.

4. An approach to managing and developing people – performance management is focused on three things. First, how managers and team leaders work effectively with those around them. Second, how individuals work with their managers and with their teams and third, how individuals can develop to improve their knowledge, skills and expertise (their attributes) and their levels of competence and performance.

5. Achievement – ultimately, performance management is about the achievement of job-related success for individuals so that they can make the best use of their abilities, realise their potentials and maximise their contribution to the success of the organisation.

6. Owned and driven by line managers – performance management is a natural process of management, not a procedure forced onto line managers by top management and the personnel department.

Therefore, performance management should be seen as a collective responsibility of employees and employers to ensure that there is continuous improvement in the tasks, activities and jobs that are agreed upon for achieving the organisation’s vision, mission, goals and objectives.

The environment for the evolution and development of performance management

Performance management emerged in the late 1980s partly as a reaction to the negative aspects of merit rating, management by objectives and performance appraisal but also the growing knowledge on the experiences and lessons learned from strategic management and strategic aspects of human resource management (Torrington et al. 2005; Leopold et al. 2005; Hook & Foot 2008; Armstrong 2008). Factors that made performance management the best option for achieving individual and organisational objectives are summarised into a number of key areas in human resource management:

· Increasing competition between businesses and the drive to cut down costs by improving employee efficiency and effectiveness through better utilisation.

· The decline of the power of trade unions noted in chapter 1 also led to the change in working relationships. Individuals had to negotiate for a job and demonstrate how best they could support the organisation in realising specific objectives and targets. This formed the basis of performance agreement.

· The acceptance of human resource management (HRM) as a strategic approach in people management driven mainly by the American school. The strategic approach to employee management brought line managers closer in developing performance management strategies in their departments.

· Knowledge emerging from different theories including systems theory whereby performance depends on how each of the components of production systems was effectively managed. Human resources were seen as one of the key components of the system, which had to be well managed.

· The recognition of the importance of continuous improvement through learning and adaptation as part of the qualities of excellent organisations. Therefore, the emphasis shifted from performance appraisal, which is provide feedback on what could already have gone wrong to creating enabling environment for better and better performance as dictated by the business environment.

· The increased stress on achieving commitment by integrating organisational and individual goals and hence reducing the feeling of ‘us’ against ‘them’.

· The recognition that academic qualifications and experiences were not main drivers for excellent organisations’ talents and competencies, which should be explored, nurtured and developed during the job performance process.

· A realisation that managing performance was the concern of everyone in the organisation, and not just managers. Total employees’ commitment to the organisational tasks, activities, processes, targets and objectives through performance agreements as part of partnerships between the line managers, staff managers and employees became the way to remain competitive.

Theoretical and conceptual framework for performance management

Performance management as a system which constitute tools for effective management of organisational performance is grounded in many theories but here the focus is on goal setting and systems theories because they also provide a useful framework for managing performance (Locke & Luthans 1990). Goal setting theory predicts that employees will be motivated to work harder if:

· The organisation provides challenging but attainable goals.

· If goals and objectives are made specific enough for the employee to understand.

· If the employee participates in setting the goals and objectives.

· If the employee has a benchmark from previous performance objectives to compare with expected performance.

· Employees receive frequent feedback on their performance so they can improve.

Systems theory analyses employee performance in terms of a process that involves inputs, process, outputs and outcomes (Bacal 1999; Marchand & Raymond 2007; Armstrong 2008).

· Inputs: the skills, knowledge and expertise individuals bring to their jobs (their attributes).

· Process: how individuals carry out their work – the talents and behavioural competencies they use in order to fulfil their responsibilities.

· Outputs: the measurable results achieved by individuals according to the level of performance they demonstrate in carrying out their tasks.

· Outcomes: the impact of what has been achieved by the performance of individuals on the results of their teams, departments, units or functions and ultimately the organisation. This is their contribution, which is the ultimate measure of their effectiveness in their jobs.

However, despite guidance on the main principles of performance management, every organisation has to introduce performance management systems of their own to suit their needs. The framework the theory stipulates will only help to form the basis on which managers, individuals and teams should enter into performance agreements and evaluations. The theories help to form the logical link between corporate strategic plans and how individuals fit in realising the same through operational, annual action plans and activities. Thus, performance management system will cover:

1. Aspects of corporate vision, mission and values as they are linked to strategic business objectives and to the desired performance management system.

2. The establishment of performance agreements and plans. Agreement of accountabilities, tasks, objectives, knowledge, skill and competence requirements as part of goal setting, within the context of employment contracts. See Appendix 6.1 on the open performance appraisal form for the Tanzania public service. Agreement on work plans and personal development and performance improvement action plans (these can form part of a performance agreement).

3. Continuous management of performance throughout the year. This is a process of getting regular feedback daily, weekly, and monthly.

4. Formal performance reviews. This covers the preparation by the manager and the individual for the formal review at the middle of the year (usually in January) and the annual performance review (at the end of June). The mid and annual performance appraisals are technical activities which require thorough preparation on the part of the employee and immediate supervisor.

5. Development and training. This involves formal development and training programmes prompted by the performance review. Less formal development throughout the year should take place in the form of coaching, counselling, on-the-job training and self-development activities (self-managed learning)

6. Rating. Although rating or ranking performance is common in any formal performance appraisal, in which different measurement instruments including the likert scale of 1-5 points or grading ranging from A - D are used, this is not an ideal performance management method because the subjectivity of the technique may overshadow the importance of focusing on performance improvement more than on measurement.

7. Performance related pay. Performance related pay (PRP) – is again not always associated with performance management, but because an increasing number of organisations are introducing PRP, the link between performance, as measured by a performance management process, and pay is becoming more common. However, decisions on PRP may be made at a separate time from the performance review so as not to prejudice the essential developmental nature of the performance management process.

8. Performance measurement. This involves any process, which includes the collection and analysis of outcome or performance data, providing comparative information for assessing the progress towards the achievement of specific objectives (Marchand & Raymond 2007). It can be done at the level of the individual task, department, organisation and country. For example, individual measurement may take place through the annual performance appraisal process. Measurement at the country level includes methods such as budget analysis, annual balance of payments figures etc. Performance measurement is an overall description for a wide range of activities and processes, which are used by a huge variety of people for different reasons. Accordingly, there are macro and micro measures; macro measures relate to very high level activities and include things such as the rate of inflation, the balance of payments figures, and the government‘s revenue. Micro measures relate to smaller and more specific activities, such as the turnover of one bank, stock exchange trading for one day and sales of one commodity. The performance measure is the result of the collection process in terms of the raw data collected. Examples here include the numbers of pupils in a primary school, the numbers of hospital beds in a hospital or the number of civil servants in a ministry.

9. Performance indicators/measures. These are the products of the analysis and comparison of performance data. They are the indication of trends and changes in performance. For example, there may be a policy objective to introduce universal primary education. A performance management system could be introduced to measure the achievement of this objective. The measure of performance would be the number of pupils in primary education in a given year. A Performance indicator is the comparative analysis, which can be derived from the performance measure.

10. Continuous improvement. This is a management culture that is based on the belief that improvements in performance can be achieved each year, and standards and targets are adjusted for each year accordingly. This may not be appropriate or realistic in many public sector environments where the demand for services is open ended, but resources are finite.

11. Results oriented management. These are names of particular techniques, which are used to introduce performance management methods to a process or activity. They are based on defining the levels of desired performance and output.

Benefits of performance measurement

The benefits of introducing performance management are:

· It encourages rigorous objective and target setting.

· It ensures regular performance review and detection of areas for improvement.

· It can identify problem areas or poor performance and intervene in time.

· It provides a basis for resource allocation based on targets, activities, outputs, and outcome priorities.

· It provides evidence for the appraisal of individuals; that is, was what expected to be achieved actually realised?

· It can demonstrate whether value for money is being achieved and indicates what measures should be taken.

· It focuses on outputs rather than inputs. The results are more important than what went into the inputs and the process of production or service delivery.

· It increases awareness of production or service delivery and also increases greater participation in policy choices in areas where performance can be measured.

· It can help to inform policy decisions by demonstrating the impact of different choices.

It improves accountability for the resources, power, and authority granted to perform