Strategic HRM

Lesson # 6
Performance Management
PIQC
USMAN Saeed

PERFORMANCE

Performance can be defined as efforts along with the ability to put efforts supported with the
organizational policies in order to achieve certain objectives.

Performance is the function of:

a) Ability: The basic skills possessed by the individual that are required to give certain performance
enhance the level of performance.

b) Motivation: Activities in HRM concerned with helping employees exert high energy levels and to
get performance in desirable direction.

c) Opportunity: Circumstances under which performance is made they can be ideal or vice versa.

Determinants of Job Performance

There are three basic determinants of the job they are as following:

1) Willingness to perform: If employee is performing tasks and responsibilities in the organization

with willingness level of the performance will be high and will be up to the standards.

2) Capacity to Perform: If the basic qualifications abilities and skills required performing specific
tasks are possessed by the employees the level of performance will be in accordance with the set
standards and vice versa.

3) Opportunity to Perform: Favorable circumstances and opportunities to perform the challenging

tasks which are more contributory towards achievement of the organization’s mission and objective
can be reasons to have more effective performance from employees.

Sample Core Performance Indicators

These indicators are used to measure Organizational Effectiveness. Researchers see primary
management tasks as control, innovation, and efficiency. Control means dominating the external
environment, attracting resources, and using political processes. Innovation entails developing skills
to discover new products and processes and designing adaptable structures and cultures. Efficiency
involves developing modern plants for rapid, low-cost production, fast distribution, and high
productivity.

a. The External Resource Approach: Control

Using the external resource approach, managers evaluate a firm’s ability to manage and control the
external environment. Indicators include stock price, profitability, return on investment, and the
quality of a company’s products. An important factor is management’s ability to perceive and
respond to environmental change. Stakeholders value aggressiveness and an entrepreneurial spirit.

b. The Internal Systems Approach: Innovation

Using the internal systems approach, managers evaluate organizational effectiveness. Structure and
culture should foster flexibility and rapid response to market changes. Flexibility fosters innovation.
Innovation is measured by the time needed for decision making, production, and coordinating
activities.

c. The Technical Approach: Efficiency

The technical approach is used to evaluate efficiency. Effectiveness is measured by productivity and
efficiency (ratio of outputs to inputs). Productivity gains include increased production or cost
reduction. Productivity is measured at all stages of production. Service companies could measure
sales per employee or the ratio of goods sold to goods returned. Employee motivation is an important
factor in productivity and efficiency.

d. Measuring Effectiveness: Organizational Goals

Organizational effectiveness is evaluated by both official and operative goals. Official goals are the
formal mission of an organization. Operative goals are specific long-term and short-term goals that
direct tasks. Managers use operative goals to measure effectiveness. To measure control, managers
examine market share and costs; to measure innovation, they review decision-making time. To
measure efficiency, they use benchmarking to compare the company to competitors. A company may
be effective in one area and ineffective in another. Operative goals must be consistent with official
goals.

Why is performance measured?

• Enhances motivation & productivity

• Assists in validation studies

• Detects problems

• Helps evaluate change efforts

• Provides basis for making decisions

• Differentiates employees in job-related areas

• Helps ensure legal compliance

Performance Management

A process that significantly affects organizational success by having managers and employees work
together to set expectations, review results, and reward performance. Performance management is a
means of getting better results… by understanding and managing performance within an agreed
framework of planned goals, standards and competence requirements. It is a process to establish a
shared understanding about what is to be achieved, and an approach to managing and developing
people so that it will be achieved. The Goal of measuring performance is to improve the
effectiveness & efficiency of the organization by aligning the employee’s work behaviors & results
with the organization’s goals improving the employee’s work behaviors & results. It is on-going,
integrative process.

PERFORMANCE APPRAISAL

Performance Appraisal

Performance appraisal is a system of review and evaluation of an individual or team’s job

performance. An effective system assesses accomplishments and evolves plans for development.
Performance management is a process that significantly affects organizational success by having
managers and employees work together to set expectations, review results, and reward performance.
Its goal is to provide an accurate picture of past and / or future employee performance. To achieve
this, performance standards are established.

The Performance Appraisal Process

Many of the external and internal environmental factors previously discussed can influence the
appraisal process. Legislation requires that the appraisal systems be nondiscriminatory. The labor
union might affect the appraisal process by stressing seniority as the basis for promotions and pay
increases. Factors within the internal environment can also affect the performance appraisal process.
The type of corporate culture can serve to help or hinder the process. Identification of specific goals
is the starting point for the PA process.

After specific appraisal goals have been established, workers and teams must understand what is
expected from them in their tasks. Informing employees of what is expected of them is a most
important employee relations task. At the end of the appraisal period, the appraiser observes work
performance and evaluates it against established performance standards. The evaluation results are
then communicated to the workers.

The performance evaluation discussion with the supervisor serves to reestablish job requirements.

Steps in the performance appraisal process

􀂄 Identify the specific performance appraisal goals.

􀂄 Establish job expectations (job analysis).

􀂄 Examine work performed.

􀂄 Appraise performance.

􀂄 Discuss appraisal with employee.

Uses Of Performance Appraisal

Performance appraisal serves two types of the objectives one is to make the evaluation decisions and
other is to provide the need assessment source for the training and development if there is a gap
between actual and expected performance. For many organizations, the primary goal of an appraisal
system is to improve performance. A system that is properly designed and communicated can help
achieve organizational objectives and enhance employee performance. In fact, PA data are
potentially valuable for use in numerous human resource functional areas.

a. Human Resource Planning—In assessing a firm’s human resources, data must be available that
describe the promotability and potential of all employees, especially key executives.

b. Recruitment And Selection—Performance evaluation ratings may be helpful in predicting the

future performance of job applicants.

c. Training And Development—A performance appraisal should point out an employee’s specific
needs for training and development. By identifying deficiencies that adversely affect performance,
human resource and line managers are able to develop T&D programs that permit individuals to
build on their strengths and minimize their deficiencies.

d. Career Planning And Development—Career planning and development may be viewed from
either an individual or organizational viewpoint.

e. Compensation Programs—Performance appraisal results provide the basis for decisions

regarding pay increases.

f. Internal Employee Relations—Performance appraisal data are also frequently used for decisions
in areas of internal employee relations including motivation, promotion, demotion, termination,
layoff, and transfer.

g. Assessment Of Employee Potential—Some organizations attempt to assess employee potential

as they appraise job performance.

What to Evaluate

What aspect of a person’s performance should an organization evaluate? In practice, the most
common sets of appraisal criteria are traits, behaviors, and task outcomes.

a. Traits—Many employees in organizations are evaluated on the basis of certain traits such
as attitude, appearance, initiative, etc.

b. Behaviors—When an individual’s task outcome is difficult to determine, it is common to evaluate

the person’s task-related behavior.

c. Task Outcomes—If ends are considered more important than means, task outcomes become the
most appropriate factor to evaluate.

d. Improvement Potential—Some attention must be given to the future and the behaviors and
outcomes that are needed to not only develop the employee, but also to achieve the firm’s goals. This
involves an assessment of the employee’s potential.

IV. Performance Appraisal Methods

The type of performance appraisal system utilized depends on its purpose. If the major emphasis is
on selecting people for promotion, training, and merit pay increases, a traditional method such as
rating scales may be most appropriate. Collaborative methods are designed to assist employees in
developing and becoming more effective.

a. 360-Degree Feedback—Involves input from multiple levels within the firm and external sources
as well.

b. Rating Scales—Rates employees according to defined factors. The factors chosen for evaluation
are typically of two types: job related and personal characteristics.

c. Critical Incidents—Requires written records be kept of highly favorable and highly unfavorable
work actions.

d. Essay—The rater simply writes a brief narrative describing the employee’s performance. This
method tends to focus on extreme behavior in the employee’s work rather than routine day-to-day
performance.

e. Work Standards—Compares each employee’s performance to a predetermined standard, or

expected level of output.

f. Ranking—The rater simply places all employees in a given group in rank order on the basis of
their overall performance. Paired comparison is a variation of the ranking method that involves
comparing the performance of each employee with every other employee in the group.

g. Forced Distribution—An appraisal approach where the rater is required to assign individuals in
the work group to a limited number of categories similar to a normal frequency distribution.

h. Forced-Choice And Weighted Checklist Performance Reports—The forced-choice

performance report is a technique in which the appraiser is given a series of statements about an
individual and the rater indicates which items are most or least descriptive of the employee. The
weighted checklist performance report is a technique whereby the rater completes a form similar to
the forced-choice performance report, but the various responses have been assigned different
weights.

i. Behaviorally Anchored Rating Scales—A performance appraisal method that combines elements
of the traditional rating scales and critical incidents methods.

j. Results-Based Systems—In a result-based system the superior and the subordinate jointly agree
on objectives for the next appraisal period.

k. Assessment Centers—Recognizing the differences in purposes, and the difficulty that a PA

system will have in achieving both aims, some firms opt to use an assessment center as an adjunct to
their appraisal system

l. Management by objectives (MBO)—It is a goal-oriented performance appraisal method, requires

that supervisors and employees determine objectives for employees to meet during the rating period,
and the employees appraise how well they have achieved their objectives

m. The Appraisal Interview

The appraisal interview is the Achilles’ heel of the entire evaluation process.
• Scheduling the Interview—Supervisors usually conduct a formal appraisal interview at the end of
an employee’s appraisal period.

• Interview Structure—A successful appraisal interview should be structured in a way that allows
both the supervisor and the subordinate to view it as a problem solving rather than a faultfinding
session.

• Use of Praise and Criticism—Praise should be provided when warranted, but it can have only
limited value if not clearly deserved. Criticism, even if warranted, is especially difficult to give.

• Employees’ Role—Two weeks or so before the review, they should go through their diary or files
and make a note of every project worked on, regardless of whether they were successful or not.

• Use of Software—Computer software is available for recording the appraisal data.

• Concluding the Interview—Ideally, employees will leave the interview with positive feelings
about management, the company, the job, and themselves.

Responsibility For Appraisal

In most organizations, the human resource department is responsible for coordinating the design and
implementation of performance appraisal programs. However, it is essential that line managers play a
key role from beginning to end.

a. Immediate Supervisor—An employee’s immediate supervisor traditionally has been the most
common choice for evaluating performance.

b. Subordinates—Some managers have concluded that evaluation of managers by subordinates is

feasible.

c. Peers—Peer appraisal has long had proponents who believed that such an approach is reliable if
the work group is stable over a reasonably long period of time and performs tasks that require
considerable interaction.

d. Self-Appraisal—If individuals understand the objectives they are expected to achieve and the
standards by which they are to be evaluated, they are—to a great extent—in the best position to
appraise their own performance.

e. Customer Appraisal—The behavior of customers determines the degree of success a firm

achieves. Therefore, some organizations believe it is important to obtain performance input from this
critical source.

PROBLEMS IN PERFORMANCE APPRAISAL

Many performance appraisal methods have been severely criticized. Many of the problems
commonly mentioned are not inherent in the method but, rather, reflect improper usage.

a. Lack of Objectivity— A potential weakness of traditional methods of performance appraisal is

that they lack objectivity. Some subjectivity will always exist in appraisal methods. However, the use
of job-related factors does increase objectivity.

b. Halo Error—Occurs when the evaluator perceives one factor as being of paramount importance
and gives a good or bad overall rating to an employee based on this factor.

c. Leniency/Strictness—The giving of undeserved high or low ratings.

d. Central Tendency—Occurs when employees are incorrectly rated near the average or middle of
the scale.

e. Recent Behavior Bias—It is only natural to remember recent behavior more clearly than actions
from the more distant past. However, performance appraisals generally cover a specified period of
time, and an individual’s performance should be considered for the entire period.

f. Personal Bias—Supervisors doing performance appraisals may have biases related to their
employees’ personal characteristics such as race, religion, gender, disability, or age group.

g. Manipulating the Evaluation—In some instances, supervisors control virtually every aspect of
the appraisal process and are therefore in a position to manipulate the system.