The Concept of Performance Management (PM)
Performance management (PM) is process that involves organizational leaders working together with their employees to formulate a plan, monitor and review employee performance with a view of aligning organizational goals to employee performance and recognition (DeNisi & Murphy, 2017). Performance management (PM) was developed as a response to the short-comings of the appraisal systems. Recent attempts to improve employee performance have shown that appraisal systems could not align employee expectations to organizational direction and expected outcomes. Unlike appraisal systems, PM is a system whose success is contingent upon all the individual parts being implemented rather than how well each part is implemented. In that regard, PM touches on many employee processes; designing job descriptions, formulation of recruitment plans, adopting a comprehensive employee selection process, implementing an effective employee integration process, employee education and training, performance evaluations and reviews, coaching and feedback, recognition and compensation as well as career development and promotions (DeNisi & Murphy, 2017). As such, successful formulation and implementation requires the allocation of adequate resource and time, both by managers and employees. This might require the appointment of a board constituting of executive directors, managers and employees.
Prominent Types of Performance Management Plans
Strategic performance management is defined as, “organizational approach to define, assess, implement and continuously refine organizational strategy” (Marr & Gray, 2012). Under this PM plan, employees are empowered with strategic insights that guide their decision-making and thought processes within the workspace and on a daily basis, align their actions to the strategy. Here, specific tools may be adopted to implement this type of PM. Such tools may be balanced scorecards, value-based management, the six sigma model and performance prisms. Operational performance management focuses on aligning the operations of the different parts of an organization to ensure that they work harmoniously to achieve a centralized business objective (Demartini, 2013 ). Under this PM plan, key strategic changes are mainly targeted at individual components or parts of the organizations rather than the overall organization even though their aim is to harmonize the overall performance towards achievement of a common goal. Other types of performance management include individual performance management which deals with how individual employees are incentivized, led and engaged in achieving set organizational goals. Organizational performance management on the hand, touches on various core aspects such as the organizational culture, remuneration schemes, promotions and how these aspects affect employee performance (Demartini, 2013 ). In addition, there are also internal and external governance performance management plans.
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PM Plans’ Impact on Employee and the Organization
This paper focuses on strategic performance management and operational performance management plans as a basis for argument through this section. Strategic performance management furnishes employees with critical insights that enable them to make informed choices within their areas of specialization in the organization. It also fosters self-drive and an innovative culture amongst employees since the availability of self-assessment tools enables them to keep track of their progress over time and helps them see the need to improve on various specific aspects of their work (de Waal, Goedegebuure, & Geradts, 2011). Besides, strategic performance management also provides a breathing room when managers and employees have to engage in performance-related aspects of their work. As such, this provides time to re-group and share strategic ideas that ultimately help individuals grow professionally within the organization.
While performance reviews in operational performance management serve as the litmus test for employees’ actual contribution towards realization of the overall organizational objectives, this type of performance management reminds employees to push themselves to their limits since it tends to focus on operational aspects of the organization. For this reason, organizations are easily able to identify under-performers and if necessary, make replacements (Demartini, 2013 ). Under this style of PM, organizations are able to benefit from the rapid improvement in employee productivity. Similarly, under this type of performance management, the organization can easily identify exceptional performers, recognize them and consequently, such employees may perform better. However, in operational performance management, organizations may incur high costs in hiring human resource necessary for designing such a plan, implementing and constantly refining it.
The Relationship Between Performance Management & Compensation
In this section, it is necessary to make the assumption that higher levels of job satisfaction have a positive correlation with high performance among employees. While many scholars have committed considerable time and resources in researching about the relationship between compensation and performance management, findings show that it is still difficult to state the exact relationship between the two. The Herzberg’s motivation-hygiene theory identifies two independent factors that come into play when evaluating job satisfaction; hygiene factors that prevent dissatisfaction with work and motivators that positively influence satisfaction at work (or those that drive performance) (Pandţa, Đeri, Galamboš, & Galamboš, 2015). In this theory, Herzberg suggests that compensation is merely a hygiene factor but does not necessarily drive performance. As such, satisfactory compensation is seen to attract and retain top performers but does not necessarily drive them to work harder.
On the other hand, what would happen if an organization suddenly decided to over-compensate their employees? Is it likely to significantly drive better performance and higher productivity among employees? Research reveals that the opposite is true. This is probably because over-compensation almost always elicits an increased pressure to reciprocate the high pay, something that ends up inhibiting employees’ abilities to effectively perform tasks (Kohn, 1993). However, there is an exception to this rule, that pay-for-performance schemes might be excellent in those positions where performance is easy to evaluate such as a sales representative position. All things considered, it is necessary that an organization strikes the right balance between compensation and performance management because this would determine whether such an organization would be able to secure and retain a talented workforce in the long run.
Factors to Consider in Implementing Performance Management in an Organization
So as to successfully adopt a performance management plan, change leaders need to do a thorough assessment of the work environment . Why does the organization need this type of performance management plan? How effective will the performance management plan be relative to the existing performance appraisal system? Secondly, it is important to consider the users , those who will utilize and be directly affected by the new system. Here, the change leader needs to stimulate open conversations that seek to obtain key information necessary to ensure inclusiveness (Demartini, 2013 ). Information collected from such conversations should be carefully analyzed and integrated into the new system. Inclusiveness is crucial in ensuring that there is minimal resistance and that there’s acceptance of the new performance management system.
Thirdly, the availability of excellent project management skills needs to be ascertained beforehand. Good change leaders would always draw a detailed road map of the entire process specifying the scope of the project, the timelines to work with, the risks involved and how to evaluate progress along the way. Effective change leadership would also try to implement the change in phases, providing necessary training and education to other leaders and employees whilst taking care not to make the entire process too complicated to follow through and understand. Lastly, there is need to set key performance indicators (KPIs). KPIs might be any critical points of measuring the performance of the system such as revenue improvement, market share indicators, customer satisfaction index, cost reduction and the average process age (Marr & Gray, 2012). However, it is important to note that KPIs should not only be easily measurable but also useful to the organization. While performance management implementation might prove to be a difficult process, it often is worth the pain due to the huge potential it holds in boosting productivity among employees.
References
de Waal, A., Goedegebuure, R., & Geradts, P. (2011). The impact of performance management on the results of a non-profit organization. International Journal of Productivity and Performance Management, 60 (8), 778-796. doi:10.1108/17410401111182189
Demartini, C. (2013 ). Performance Management Systems: Design, Diagnosis and Use. Berlin: Springer Science & Business Media.
DeNisi, A. S., & Murphy, K. R. (2017, March 1). Performance appraisal and performance management: 100 years of progress? Journal of Applied Psychology, 102 (3), 421-433. doi:http://dx.doi.org/10.1037/apl0000085
Kohn, A. (1993, October 20). Why Incentive Plans Cannot Work. Retrieved November 12, 2017, from hbr.org: https://hbr.org/1993/09/why-incentive-plans-cannot-work
Marr, B., & Gray, D. (2012). Strategic Performance Management. New York: Routledge.
Pandţa, J., Đeri, L., Galamboš, A., & Galamboš, T. (2015). Two-factor Analysis of Employee Motivation at "Postal Traffic – Department in Novi Sad". European Journal of Economic Studies, 12 (2), 101-111. doi: 10.13187/es.2015.12.101
