9 Module 9: Performance
management
Introduction
For an organisation to survive and prosper in the competitive environment of
today, continuous improvement of both organisational and individual
performance is essential. The pressures of rapid change and requirements for
meeting various stakeholders’ needs result in a greater emphasis on
organisational performance management. Performance management translates
organisational objectives and strategies into individual job objectives and
performance standards. The behaviour and attitudes of individuals that support
the achievement of objectives are reinforced by performance related rewards.
Organisational culture can be subsequently shaped by its value on
performance, that is the degree to which an organisation focuses on outcomes,
rather than the process. Therefore, how performance management is conducted
affects morale and the organisational climate in significant ways.
Previous modules examined job design and job analysis, recruitment and
selection, and concluded the importance of having alignments between jobs
and organisational goal achievements, and between organisational strategic
planning and HR planning. An ongoing evaluation of various HR activities
and functions is required to maintain alignments. The evaluation involves in
examining how well each job is being performed. If it is not being performed
effectively and efficiently, changes are required. The process of continuous
evaluation and changes is the essence of performance appraisal.
Performance appraisal is defined by De Cieri and Kramar (2003, p. 287) as
‘the process through which an organisation gets information on how well an
employee is doing his or her job.’ Measuring and managing performance is a
challenging enterprise and one of the keys to gaining competitive advantage.
Performance management systems serve strategic, administrative and
developmental purposes; their importance cannot be overestimated. A
performance measurement system should be evaluated against the criteria of
strategic congruence, validity, reliability, acceptability and specificity.
Measured against these criteria, the comparative, attribute, behavioural, results
and quality approaches have different strengths and weaknesses. Thus,
deciding which approach and which source of performance information are the
best depends on the job in question.
Note that performance management is much more than performance appraisal.
It incorporates a broader set of HR activities, that cover ‘job design,
recruitment and selection, training and development, career planning and
compensation and benefits, as well as performance appraisal’ (Stone 2005,
p. 140). Nevertheless, performance appraisal is an important part of
performance management. The outcomes of performance appraisal are to
ensure that organisational, functional, unit and individual performance are
improved to achieve overall organisational objectives.
This module is set to describe the performance appraisal process. The systems
and approaches related to effective performance appraisal and how these fit in
the overall organisational performance management within the HRM cycle
will be explored.Objectives
On completion of this module you should be able to:
Identify the major determinants of individual performance.
Discuss the three general purposes of performance management.
Identify the five criteria for effective performance management systems.
Discuss the six approaches to performance management, the specific
techniques used in each approach and the ways in which these approaches
compare with the criteria for effective performance management systems.
Choose the most effective approach to performance measurement for a given
situation.
Discuss the advantages and disadvantages of the different sources of
performance information.
Choose the most effective source or sources of performance information for
any situation.
Distinguish types of rating errors and explain how to minimise each in a
performance evaluation.
Identify the characteristics of a performance measurement system that follows
legal guidelines.
Conduct an effective performance-feedback session.
Activity 9–1
Write a brief description on your performance appraisal experience. Discuss
how you felt at the time, and later. Describe how and why they affected your
performance.
Performance appraisal
Performance appraisal is the assessment aspect of performance management. It
is the method by which employees’ performances are measured, evaluated,
and influenced. The usual justification and rationalisation for appraisal is to
improve individual performance. Other reasons include:
the determination of rewards
assessment of training and development needs
assessment of potential and future promotion
assistance in career planning decisions
the setting of performance objectives and
assistance in further organisational human resource planning (Stone, 2005;
Kramar et al. 2014).
Think about: Is performance appraisal really about achieving the above goals,
or is it a reflection of the needs of managers to control and manipulate? Still
remember our earlier discussion on the ‘soft’ and ‘hard’ HR approaches? It is
noted that control and compliance does not foster organisational commitment.
Textbook
Kramar et al. 2014
Ch. 10.Organisational commitment is generated by the shared beliefs and values that
compose culture, and has some sense of individual employees’ emotional
attachment and identification with the organisation’s objectives (Beer et al.
1984; Guest 1997). Therefore, the development of commitment is about the
management of cultural change, not the carrot and stick motivation principles
on which performance appraisal systems, as we currently know them, are built.
Activity 9–2
Make a list of some issues challenging organisations that seek to gain
competitive advantage through people. One of the difficult challenges is
how to develop indicators by which the performance of individuals and
teams can be measured. As the ‘people factor’ and organisational culture are
unique to each organisation, these indicators must not only be specific to the
industry, but also to each workplace.
Discuss what indicators might be used to assess the performance of
knowledge workers such as research scientists and academics.
Also read:
Ali, M & Kulik, CT 2011, ‘The gender diversity–performance relationship
in services and manufacturing organizations’, The International Journal of
Human Resource Management, vol. 22, no. 07, pp. 1464–1485.
Dany, F, Guedri, Z & Hatt, F 2008, ‘New insights into the link between
HRM integration and organizational performance: the moderating role of
influence distribution between HRM specialists and line managers’, The
International Journal of Human Resource Management, vol. 19, no. 11, p.
19.
Issues important to performance appraisal
Many organisations formally appraise staff at predetermined intervals.
Assessment is made by collecting data about an individual’s past and current
work performance and behaviour, and reviewing it. This is followed by a
discussion or interview between the manager and the individual. As mentioned
earlier, one purpose of performance appraisal is to make administrative
decisions such as rewards, promotion, and work responsibilities. The other
purpose is to develop performance improvement strategies (Stone 2005). Thus
a number of decisions pertaining to the employee’s future job situation are
dependent on the results of performance appraisal. Therefore, it is an
important tool, yet its effectiveness must be questioned. Both purposes require
judgements to be made, yet judgements can be quite subjective and inaccurate.
For some jobs, tasks can be quantifiably measured. For others, quantifiable
criteria are impossible, as quantitative measurements fail to consider attitude
and ability, which are important to performance. For example, how to evaluate
a manager’s performance? There is no tangible end product from a manager.
Therefore, any quantifiable criteria are difficult to set. Often such positions are
subject to the influence of a range of stakeholders who may have differing
views on which criteria are appropriate. Also, it is difficult to identify valid
performance criteria for work that is highly speculative and uncertain in terms
of output (e.g., research and development), or where the job provides little
scope for ongoing variation and performance improvement (e.g., routine
administration work).Activity 9–3
Managing and retaining high performers during uncertain times
Search the internet (Google it) to update how organisations managed during
the global financial crisis. Was it a case of mass layoffs and cuts in spending
or were organisations more innovative?
You may find HR Monthly (Australian Human Resource Institute—AHRI
publication) and People Management (Chartered Institute of Personnel and
Development—CIPD) and Human Resources Leader as good sources for
these types of information.
The setting of specific appraisal criteria can have secondary repercussions. For
example, focus on individual performance goals defies the development of
teamwork. On the other hand, the setting of group goals may encourage freeloading. If employees focus on those aspects of the job that are measured,
other aspects may be neglected. Certainly, the exercise of initiative and
flexibility will be inhibited.
In addition to the complexity of establishing accurate criteria that reflects the
expectations of the position, qualitative assessment is prey to subjectivity and
inconsistency. People have a limited capacity to process, store and retrieve
information, making them prone to bias when evaluating others (Ilgen, Major
& Tower 1994).
Effective managers need to be aware of the issues involved in determining the
best method or combination of methods for their particular situations. In
addition, once performance has been measured, a major component of a
manager’s job is to feed that performance information back to employees in a
way that results in improved performance, rather than defensiveness and
decreased motivation. Managers should take action based on the causes for
poor performance: ability, motivation or both. Managers must be sure that
their performance management system can meet legal scrutiny, especially if it
is used to discipline or fire poor performers.
When managers makes judgements for the first purpose of appraisal, they are
required to make a decision about the current and future value of the
employee. Back in 1957, McGregor stated that appraisal failed because
managers dislike ‘the use of power in such a personal way’ (McGregor 1957,
p. 89). This attitude continues to prevail (Newton & Findlay 1996). Also,
appraisal can be seen by managers as an act of hostility and aggression, which
neither enhances the relationship between manager and employee, nor
establishes a constructive environment in which to discuss performance
improvement. This feeling results in conflict between the use of appraisal as a
judgmental process and as a provision for development support.
As qualitative assessments do not have an objectively set benchmark, the
decisions are made against the standard based on the assessor’s value system.
Some appraisers make high judgements, and others low, relative to the actual
performance of the individual. Thus individuals’ performances are either
overstated (rated higher than they should), or understated (rated lower than
they should).
Another error that can occur is the ‘halo effect’ (Kramar et al. 2014). Anappraisers allow their judgement on one trait to influence judgements on
others, or the overall impression affects evaluations of specific traits.
Other factors that affect decision include office politicking and the social
context. Wayne et al. (1997), suggest that employees use influence tactics to
affect their manager’s perceptions of their interpersonal skills. Should such
tactics be successful, they are likely to influence the appraisal. Managers tend
to rate those employees they like higher than those they dislike (Heneman,
Greenberger & Anonyuo 1989), and they tend to give special consideration to
those qualities that they perceive and value in themselves.
For many years, performance appraisal literature (e.g., Bolino1999; Hartle
1997, Nankervis & Leece 1997; Randell 1994; Wallace & Baumeister 2002)
has expressed concerns and warnings about the pitfalls and dangers of
designing and implementing performance appraisal systems. Yet organisations
persist with them. Why? It seems that there must be some methods by which
performance can be measured, monitored and controlled. Indeed, a failure to
demonstrate that management is in control would be regarded as incompetence
by the organisation’s stakeholders. Hence, it may be that the prime purpose of
appraisal systems was to convince stakeholders that employee performance is
under control, or at least to give the appearance of control?
Activity 9–4
Think about your answers to Activity 9–1 again. List a number of issues
related to performance appraisal. Are these issues similar to what you have
experienced? How could you, if you were an HR manager better address
these issues?
Performance appraisal systems
The making of judgements about an employee’s value, contribution, capability
and potential is a prime dimension in the manager/employee relationship.
Appraisal will be interpreted by the employee as feedback, which will impact
on the employee’s perception of ‘self’—self-esteem and self-efficacy (the
belief in one’s own capability to successfully perform). Unfortunately,
employees tend to often perceive communications from managers as less
positive than their managers believed them to be (Schnake et al. 1990). In
attempts to mitigate the negative results and outcomes, a number of different
ways of appraising employees were explored and tried.
Multi-source appraisal
In recent years, there has been an increase in the use of multi-source feedback.
This concept is based on the assumption that the greater the number of
assessors, the higher the probability of attaining more accurate information
and assessment. This may be so if all the assessors have relevant knowledge of
the individual and they are appropriately trained in assessing. But if these are
not so, the result may be even less accurate than single-source appraisal
(Haworth 1998).
Multi-source feedback includes assessment of self. These are more likely to be
used in organisations that promote a less authoritarian culture and encourage
employee participation. Prior research findings tend to argue that selfevaluation has some merit as it tends to result in: more effective review discussion
less employee defensiveness
greater commitment to organisational goals, therefore improved job
performance (Stone 2005).
Disadvantages of self-appraisal include gender-bias. Research has found that
women judge the quality of their work lower than do men (White 1999;
Fletcher 1999). Other problems include leniency, disagreement between
manager assessment and self-assessment, and bias, particularly when used for
promotion and salary decisions (Stone 2005).
Irrespective of the formal process, informal feedback should be given on a
continuous basis. Employees tend to accept criticism if useful, timely, and
relevant to their work, thus this type of feedback is likely to impact on
performance. In addition, continuous feedback provides opportunities for
dialogue between manager and employee, from which mutual understanding
on the employee’s development needs and aspirations can emerge. In turn,
employees are more ready to accept feedback and feed it into improving their
performance.
Activity 9–5
A learderless organisation: performance success
You can learn more on W.L. Gore (above case study) through a number of
sources. For example, there is information on the careers section of the
company website: www.gore.com/en_xx/careers/.
There is also an interview with the HR Manager available at the following
URL: www.humanresourcesmagazine.com.au/articles/6a/0c05936a.asp.
There are some useful clips on YouTube including an interview with Terri
Kelly, CEO of W.L. Gore. The clip called ‘Terri Kelly: W.L. Gore's
Original Management Model’ is 8.39 minutes and available at the following
URL: www.youtube.com/watch?v=47yk2upT7tM
Activity 9–6
Discuss with another student, or in a group, some effective performance
appraisal approaches, which are useful in encouraging employees to
improve their performance.
Performance management
The definition of performance management differs significantly. Kramar et al.
(2014) define performance appraisal as a process that ‘allows for assessing
(employees’) progress towards the achievement of the desired goals or other
performance standards’ (p. 336), and performance management as
performance definition, facilitation, encouragement, measurement and
feedback (p. 335). Stone’s (2005) definition of performance appraisal is not
just the determination of employee performance, but includes feedback to the
employee and the development of a plan for employee improvement. And toStone (2005), performance management embraces all aspects of HRM that
impact on the performance of the employees, as expressed in his quote in the
Introduction to this module.
It is vital that performance management involves using all the HRM processes,
and ensuring linkage and alignment. This includes alignment of objectives—
the strategic objectives of the organisation, the objectives of HRM, and the
objectives of employees (Stone 2005).
Performance = Abilities × (effort + motivation) × organisational support
(can do) (want to do) (helped to do)
But is it this simple? This equation depends on management support as
appraisers and facilitators of other people’s development. Besides, our
knowledge and understanding of what really happens in relationships, in
appraisals and in organisations generally is incomplete. Also, it is assumed
that all employees want to achieve the objectives, but this may not be so. Even
if they have participated in the development of objectives, some may have
only a tangential interest in workplace performance.
The pressure for rationality, control and efficiency continues to increase,
encouraging a short-term attitude toward employee’s performance evaluation.
In addition, the lean and flat organisations of today have resulted in the
removal of layers of management and investment in employee development,
leading to lack of commitment.
The creation of commitment, pride and trust requires nurturing within a culture
that supports long-term development of people. Central to such a process of
building commitment culture is to conduct ongoing assessment and appraisal,
effective to employee development as well as performance improvement.
Whilst the need for control involves a concentration on techniques,
commitment involves a shift towards values, beliefs and attitudes. Therefore,
conversion from the former toward the latter requires acknowledgement of the
necessity of control, but arguing for the importance of building employee
commitment. Thus appraisal develops into more of a process of mutual goal
setting and articulation of expectations between employer and employee.
Activity 9–7
Evaluate some of the difficulties that are associated with attempting to
develop a global performance management system which must
accommodate different cultures.
Performance management in the global arena
Effective performance appraisal must keep cultural compatibility in mind. It is
quite clear that simply exporting the head office program to a subsidiary will
not work successfully, unless the two are culturally similar (Dowling & Welch
2004). This creates fundamental complexities. For instance, in a multinational
company, even at the operational level, irrespective of the cultural
environment, achievement of the organisational objectives is elemental. Thus,
the design must have consistencies throughout the organisation to ensure
global integration, yet it must take into the consideration of each subsidiary’s
cultural environment. Otherwise, it may jeopardise overall global
competitiveness of the organisation. This is another situation of ‘think global,
act local’ paradox of multinational companies (Dowling & Welch 2004)For each culture, a number of underlying issues that require addressing in
terms of performance appraisal are:
what is meant by performance
what the expectations are
what criteria are acceptable, have value, and are understood
if individual or group performance is of greater value, how the results are
conveyed inoffensively and effectively
how feedback and relevant planning are communicated (Dowling & Welch
2004).
Some issues are highly sensitive in one culture, but not in another. For
example, in collectivist societies, the singling out of one person for praise or
criticism not only implies personal humiliation to that person but also could be
life threatening to them. As explained earlier, individuals in these cultures
depend on the group for their sense of who they are. Individual performance
appraisal separates the individuals from their source of identity.
Whatever program is established, it must also harmonise with and support the
subsidiary’s goals that are the integral part of the organisation’s objectives.
This may be difficult when the cultural expectations of appraisal with
inclusions or emphasises do not reflect the objectives of the organisation. For
example, in some countries, evaluations include judgement of the employee’s
disposition, or attitude toward the organisation, rather than tangible job
performance.
Activity 9–8
Mangers and underperformers
An amusing video of the comedy ‘The Office’ shows the extreme form by
which some appraisals may actually be conducted and which they really
only represent a form filling exercise with little interest from the manager or
employee. One clip called ‘UK Office – Appraisals – David and Keith’
(3.23 mins) is available at:
www.youtube.com/watch?v=I9LLZJFBWdc
Another example of how not to conduct an appraisal is a YouTube clip
called ‘The Performance Appraisal’ uploaded by RandomButDeadly (3.22
mins) is available at:
www.youtube.com/watch?v=unmKnS5jPOc
Summary
The definitions of performance appraisal and performance management differ.
This module has explored how performance is defined, facilitated, encouraged,
measured, and fed back to the employee. Whilst Kramar et al. (2014) maintain
that performance appraisal serve important purposes, it can be argued that they
can have more sinister uses, as tools for control and manipulation.
As the different approaches have strengths and weaknesses, which approach
and which sources of information give the best outcome depend on the
particular job. But, irrespective of which approach is used, the judgements
have to be made. Whilst quantitative measurements are straightforward, non-quantitative judgements are subject to differing views and political pressures,
hence, can be subjective, inconsistent and biased.
An important component of the appraisal system is the feedback to the
employee, which should focus on improving performance. How well the
manager knows the employee impacts on the quality of the appraisal and the
interview outcomes. The appraisal system that emphasises commitment, pride
and trust likely result in mutual goal-setting and adjustment of expectations
between employer and employees on an ongoing basis. In contrast, an
appraisal system focusing on control tends to be in line with the carrot and
stick style of the traditional system.
Performance appraisal must be culturally compatible, which makes the
development of a single system for a multinational organisation problematic.
Whilst the system must be consistent throughout the organisation, it is often
challenging to be sensitive to each of the cultural environments in which it
operates.
An appraisal system must be reflective of the organisation’s values, and must
encourage those behaviours that enable it to achieve its goals. It should be
integrated into the overall human resource management system. The following
two modules will enlarge the scope of discussions on performance
management, by incorporating the topics of human resource development,
motivation and compensation as suggested by Stone (2005).
Review questions
Review question 9–1
Explain the difference between performance management and performance
appraisal.
Review question 9–2
Discuss some of the concerns and problems of performance appraisal.
Review question 9–3
List the disadvantages of self-appraisal.
Review question 9–4
What factors are involved in performance management?
Review question 9–5
What issues must be considered when developing a performance appraisal
system for an overseas branch of an organisation.
References
Ali, M & Kulik, CT 2011, ‘The gender diversity–performance relationship in
services and manufacturing organizations’, The International Journal of
Human Resource Management, vol. 22, no. 07, pp. 1464–1485.
Beer, M, Spector, B, Lawrence, PR, Mills, DQ & Walton, RE 1984, Managing
human assets: the groundbreaking harvard business school program, The FreePress, Macmillan, Inc., New York.
Bolino, MC 1999, ‘Citizenship and impression management: Good soldiers or
good actors?’ Academy of Management Review, vol. 24, no. 1, pp. 82–98.
Dany, F, Guedri, Z & Hatt, F 2008, ‘New insights into the link between HRM
integration and organizational performance: the moderating role of influence
distribution between HRM specialists and line managers’, The International
Journal of Human Resource Management, vol. 19, no. 11, p. 19.
De Cieri, H & Kramar, R 2003, Human resource management in Australia,
McGraw-Hill, Sydney.
Dowling, PJ &Welch, DE 2004, International human resources management,
4th edn, Thomson, Australia.
Fletcher, C 1999, ‘The implication of research on gender differences in selfassessment and 360 degree appraisal’, Human Resource Management Journal,
vol. 9, no. 1, pp. 39–46.
Hartle, F 1997, Transforming the performance management process, Kogan
Page, London.
Haworth, S 1998, ‘The dark side of multi-rater assessments’, HR Magazine,
May, pp. 106–114.
Heneman, RL & Greenberger, DB & Anonyuo, C 1989, ‘Attributions and
exchanges: The effects of interpersonal factors on the diagnosis of employee
performance’, Academy Of Management Journal, vol. 30, pp. 354–368.
Ilgen, DR, Major, DA & Tower, SL 1994, ‘The cognitive revolution in
organizational behaviour’, in J Greenberg (ed.), Organizational behavior: the
state of the science, Lawrence Erlbaum Associates, New Jersey, pp. 1–22.
Kramar, R, Bartram, T, Ceiri, HD, Noe, RA, Heooenbeck, JR, Gerhart, B &
Wright, RM 2014, Human Resources Management, McGraw-Hill, Sydney,
NSW.
McGregor, D 1957, ‘An uneasy look at performance appraisal’, Harvard
Business Review, vol. 35, no. 3, pp. 89–94.
Nankervis, AR & Leece, P 1997, ‘Performance appraisal: two steps forward,
one step back?’, Asia Pacific Journal of Human Resources, vol. 35, no. 2,
pp. 80–92.
Newton, T & Findlay, P 1996, ‘Playing God? the performance of appraisal’,
Human Resource Management Journal, vol. 6, no. 3, pp. 42–58.
Randell, G 1994, ‘Employee appraisal’, in K Sisson (ed.), Personnel
management, Blackwell, Oxford.
Schnake, MR, Dumler, MP, Cochran, DS & Barnett, TR 1990, ‘Effects of
differences in superior and subordinate perceptions on superiors’
communication practices’, Journal of Business Communication, vol. 27,
pp. 37–50.
Stone, RJ 2005, Human resource management, 5th edn, John Wiley & Sons,
Brisbane.
Wallace, HM & Baumeister, RF 2002, ‘The performance of narcissists risesand falls with perceived opportunity for glory’, Journal of Personality and
Social Psychology, vol. 82, no. 5, May, pp. 819–834.
Wayne, SJ, Graf, IK, Ferris, GR & Liden, RC 1997, ‘The role of upward
influence tactics in human resource decisions’, Personnel Psychology, vol. 50,
no. 4, pp. 979–1006.
White, M 1999, ‘Performance, equality and staff development’, Human
Resource Management Journal, vol. 9, no. 1, pp. 47–54.
Glossary
Halo effect—An appraiser allows her(his) judgement on one trait to influence
judgements on others, or the overall impression affects evaluations of specific
traits.
Overstated—rated higher than they should.
Understated—rated lower than they should.
Further readings
Bland, A 2004, ‘Motivate and reward: performance appraisal and incentive
systems for business’, Human Resource Management Journal, vol. 14, no. 1,
pp. 99–100.
Fletcher, C 1999, ‘The implication of research on gender differences in selfassessment and 360 degree appraisal’, Human Resource Management Journal,
vol. 9, no. 1, pp. 39–46.
Grote, D 1998, ‘Painless performance appraisals focus on results’, HR
Magazine, vol. 43, no. 11, pp. 52–55.
Wallace, HM & Baumeister, RF 2002, ‘The performance of narcissists rises
and falls with perceived opportunity for glory’, Journal of Personality and
Social Psychology, vol. 82, no. 5, May, pp. 819–834.
Woods, P 2003, ‘Performance management of Australian and Singaporean
expatriates’, International Journal of Manpower, vol. 24, no. 5, pp. 527–534.