Employee Performance Management is a process for
establishing a shared workforce understanding about what is
to be achieved at an organisation level. It is about aligning the organisational
objectives with the employees’ agreed measures, skills, competency requirements,
development plans and the delivery of results. The emphasis is on improvement,
learning and development in order to achieve the
overall business strategy and to create a high performance workforce.
History of Performance Management
Performance Management began around 60 years
ago as a source of income justification and was used to determine
an employees wage based on performance. Organisations used
Performance Management to drive behaviours
from the employees to get specific outcomes. In practice this
worked well for certain employees who were solely driven by
financial rewards. However, where employees were driven by
learning and development of their skills, it failed miserably.
The gap between justification of pay and the development of
skills and knowledge became a huge problem in the use of Performance Management. This became evident
in the late 1980s; the realisation that a more comprehensive
approach to manage and reward performance was needed. This
approach of managing performance was developed in the United
Kingdom and the United States much earlier than it was developed
in Australia.
In recent decades, however, the process of managing people
has become more formalised and specialised. Many of the old
performance appraisal methods have been
absorbed into the concept of Performance Management, which aims to be a
more extensive and comprehensive process of management. Some
of the developments that have shaped Performance Management in recent years
are the differentiation of employees or talent management,
management by objectives and constant monitoring and review.
Its development was accelerated by the following factors:
- The introduction of human resource management as a strategic driver and integrated approach to the management and development of employees; and
- The understanding that the process of Performance Management is something that’s
completed by line managers throughout the year – it
is not a once off annual event coordinated by the personnel
department.
How Annual Appraisals are Different But Part of Performance Management
Most organisations have some type of employee appraisal system, and many are experiencing
the shortcomings of manual staff evaluation systems. When discussing workforce performance the most commonly
asked question is “How does Performance Management differ from performance appraisals or staff reviews”? Performance Management is used to ensure that
employees’ activities and outcomes are congruent with
the organisation’s objectives and entails specifying those activities
and outcomes that will result in the firm successfully implementing
the strategy (Noe et al. 2000, p.55). An effective Performance Management process establishes
the groundwork for excellence by:
- Linking individual employee objectives with the organisation’s mission
and strategic plans. The employee has a clear concept on
how they contribute to the achievement the overall business
objective,
- Focusing on setting clear performance objectives and expectations through the use of results, actions and behaviours,
- Defining clear development plans as part of the process,
and
- Conducting regular discussions throughout the performance
cycle which include such things as coaching, mentoring,
feedback and assessment.
Performance appraisal properly describes a process of judging past performance and
not measuring that performance against clear and agreed objectives. Performance Management shifts the focus away
from just an annual event to an on-going process. Figure 2.1
is a process diagram that provides a graphical view of the
major differences between the two processes.
Figure 2.1 – Graphical view of the difference between
Performance Appraisal and Management www.peoplestreme.com
Typical Outcomes from Annual Appraisals
Most recent research suggests that annual staff reviews are generally perceived as a difficult
and painful process by both managers and employees. As there
are typically no objectives which are set in appraisal systems, there is no link to
strategic or operational outcomes. If the CEO’s objective
was to increase margins by 3%, employees may be aware of the
CEO’s intent but they are usually not measured on this
objective in their individual appraisal. Therefore, there is no linkage
in the appraisal review and no linkage at a team or department
level.
Misdirected Bonuses
This situation has been illustrated many times where
employees and managers have received favorable reviews and
bonuses and yet the organisation has not achieved its goals.
The organisation may be losing millions of dollars and yet still paying
out bonuses to its managers and employees.
Too Painful, Emotionally Charged
High stress levels
for both managers and employees also become a factor. They
both know they will be judged on the outcome of the appraisal and the fallout is often destructive
rather than constructive. The reasoning behind this is that
there are rarely any pre-defined mesaures or objectives and the employee review is not based on any considered
evaluation criteria. The employees’ remuneration and
future are at stake and the goodwill of the managers future
resources are also at stake. This leads to high stress in
the case of both individuals and this is a poor emotional
state in which to have a thorough discussion about employee
performance.
Poor Understanding of Expectations
Where the appraisal system is poorly communicated,
both the employee and manager enter these discussions with
low confidence levels. This is due to a lack of “rules”
as to how to go about the appraisal process and a lack of understanding
of the expected outcomes. As this process is infrequent, it
is viewed by the employee as an opportunity to discuss remuneration,
promotion prospects and other issues related to the employee.
This means the discussion is dominated by employee content
rather than what the manager needs the employee to do for the next year. This leads to
vague definition of performance goals and perpetuates the
system of poorly defined and executed appraisals.
As an annual staff review is so infrequent, both managers and employees
find it difficult to remember what actually happened during
the year. Both typically come to the meeting ill prepared
with little meaningful content to discuss. This makes the appraisal more difficult and frustrates both
the employee and manager.
Bad Timing
More often than not, the annual appraisal is executed on the employees’
anniversary which does not coincide with any particular performance
period. If appraisals are conducted annually on the
anniversary date, it is only possible to align at best only
50% of your staff with future objectives, assuming there is an even distribution
of start dates across the employee workforce. Given that most appraisal systems are not automated, there
is poor reporting and therefore low visibility as to who did
or did not achieve their objectives.
Subjective Manager Opinion
This means that an employees’
future is wholly dependent on their manager's highly subjective opinion. The CEO or other executive
management does not have clear vision as to who achieved their
objectives and who did not. The outcome for the CEO is that
they do not have the ability to see failure as it is occurring. Instead, they see failure after the fact and radical adjustments
are then required to repair the situation. By using standalone appraisal systems, the outcome for the
line manager is that they have additional pressure applied to them, to fix a problem
which has become a major issue and which could have been otherwise
identified and fixed in a very timely fashion.
Performance Not Aligned to Promotions
Given that annual appraisals are only conducted once yearly,
most line managers only seriously think and plan once a year.
The consequences are poor resource management, put-out-the-fire
management and costly and reactive problem fixing on the fly.
Given that most appraisal systems are manual and on paper,
the data arising from an excellent performance typically does
not find its way into the succession planning process. Employees
are therefore often disillusioned to find that they have been
passed over for further development or a promotion when they
have performed strongly for several years.
Poor Development Opportunities
This is a primary
cause for employees leaving the organisation. Most appraisal systems do not feature a competency
assessment or an active development plan that both the employee
and manager have mutually agreed to. Staff often get disillusioned
and leave the organisation if they can see no personal development
prospects or if personal development has not occurred in practice
for the last several years, despite numerous promises.
No Consequence For Non-Participation
Given
that most appraisal systems are manual, reporting
is weak and therefore compliance reporting is not visible.
This inevitably means that managers learn that they do not
have to perform reviews and therefore they don’t because
there is no negative consequence for them. Equally, employees
learn that there is no consequence to not being reviewed,
they lose faith in management and invariably look for somewhere
else to work. Most manual appraisal systems suffer from sub 30%
compliance and can get to this point after only 18 months
of operation i.e. roughly one to one and a half performance
terms.
Typical Outcomes from Performance Management
If Performance Management is implemented
correctly with specific objectives tied to the strategic and operational
plan, organisational performance outcomes will likely increase very quickly.
For example, if the CEO asked for a 3% increase in gross margin,
this objective would be cascaded down to every department,
team and individual who can influence the increase in gross
margin. Those who are successful at achieving this objective
will get a favorable review, those that could not, will get
an unfavourable performance evaluation in the absence of extenuating circumstances.
The process of Performance Management therefore drives
organisational performance outcomes. Employees that achieve
the organisational goals are rewarded with favourable reviews
and bonuses in line with their performance and contribution
to the organisation.
Communication Improves
The employee and manager communicate more frequently and agree
on changed objectives to suit continuing changes in conditions
and priorities. This is an inclusive and collaborative process,
which ensures that the employee has input and does not feel
they have wasted the year. The employee works towards specific objectives that are relevant. If the organisation
is using a Performance Management product that has a
performance diary, both the manager and employee attend the
review meeting with copies of their performance diary notes.
This contains content from the performance period to be reviewed.
Given that both have content, they feel much better prepared
and stress is lower than if they were attending a meeting
not aware of the subject matter.
Everyone Knows the Rules
Where there is a well structured Performance Management system that is
effectively communicated, both the employee and manager enter
the process with better levels of confidence as there are
“rules” that clearly stipulate what is being assessed
and how. Employees are assessed on achievement of objectives
that have been clearly identified and agreed to. Managers
have a better framework to assess an employees’ performance
as they are familiar with the criteria to assess the employee.
The outcome is that both individuals have an informed discussion
and focus on achievement of both personal and business objectives,
not on issues that are irrelevant.
Better Recording Opens Up Communication
If the organisation has
a system with a performance diary, then both parties are prepared
with relevant content to discuss. They have diary notes that
relate to performance during the entire performance period.
This raises confidence and reduces stress levels. Both
parties feel more comfortable and they can have a content
rich and factual discussion about performance.
Frequent Communication Reduces Stress
Given that these performance reviews happen more frequently,
the discussion centers on performance of objectives rather
than being dominated by the employees’ needs. The needs
of the business are discussed more frequently to achieve specific
performance outcomes. This means both the employee and manager
communicate more effectively and achieve better outcomes.
Emotionally charged discussions tend to be displaced by business
focused discussions on achievement of objective outcomes.
As
expectations are modified when a Performance Management system is introduced,
most organisations switch to defined performance periods.
This means that strategic and operational objectives are set at the beginning of the
performance period. Formal performance reviews are then conducted
quarterly or half yearly and enable management to direct and
fine tune effort in relation to the objectives.
Appraisals Become Relevant for Everyone
By conducting
more frequent reviews, objectives can be adjusted and modified
to suit changing business conditions. This dramatically increases
the probability that the objectives are relevant and are able to
be acted upon during the performance period.
By performing frequent performance reviews, visibility is
increased dramatically. Areas of non performance receive much
more focus and attention and problems can be acted upon much
quicker. Most Performance Management systems provide
reporting as to who has or has not achieved their objectives
(departments and individuals). Adjustments to objectives or strategy can then be made to
ensure expectations can be met. Alternately, expectations
can be modified as appropriate. By reviewing more frequently,
all managers and employees start to plan and execute to clearly
thought out objectives. This results in better resource
management and enables managers to work on the business, not
in the business.
Employee Learning and Development Starts to Happen
Given that most Performance Management systems require managers
and employees to commit to a development plan, employees experience
real personal development and become more engaged with the
organisation. They feel part of the organisation and start
to understand that they and the organisation are interdependent.
The organisation is developing the employee and the employee
is working towards developing the organisation by achieving
its goals. The majority of Performance Management systems are able to
provide graphical compliance reports. Therefore, the setting
of objectives and development plans for employees
can no longer be ignored. Employees see real planning, are
involved in setting meaningful objectives and have input into personal development
plans which benefit both themselves and the organisation.
In all, this results in an engaged workforce who are extremely committed
to achieving real outcomes for the organisation.
Performance Management Research
Several studies have been conducted in Australia that indicates
the predominant method of assessing employees in Australia
is appraisal. During 2004, Associate Professor Alan Nankervis of
Royal Melbourne Institute of Technology conducted a study of 992 Australian organisations.
One of the outcomes was that only 2.4% of organisations reviewed
their employees against objectives, the remaining 97.5% were
a combination of some type of appraisal.
Furthermore, The Performance Management Institute of Australia conducted a survey of Australian employees’ attitudes
towards Performance Management in the workplace . Approximately 450 employees responded from a wide variety
of businesses and enterprises. The research found that, over
59% of employees received performance reviews once per year
or less. This implies that the majority of Australian managers
are failing to properly engage their employees. Effective management
requires a continual goal setting and review process which
gives employees regular feedback of management expectations
and frequent praise for achievement of desired goals.
Australian Managers Still Doing Standalone Appraisals
What
the survey results imply is that Australian managers are performing appraisals, not performance reviews and objective
setting. The results may also mean that managers are not targeting
their teams to achieving strategic goals which are at all
time-bound. Usually, employees who are not formally reviewed
for a year or more are expending work effort in a manner or
direction which is not readily visible to their manager. This
lack of employee engagement is leading to disaffection
from the employees who can make and want to make a difference
to the organisation. In our view, appraisals add very little
value to the performance of an organisation and in some circumstances
may actually be detrimental to organisations who wish to move
towards Performance Management. A contributing
factor may be that line managers who have been conducting
appraisals have also seen little, if any, impact on departmental
or team performance as a consequence of conducting these appraisals.
PeopleStreme conducted several
research studies in focus groups over the last four years
and during seminars on Performance Management. To summarise the findings,
87% of organisations have some type of appraisal system. However, this is usually
referred to as the Performance Management system. Of the 87%
that have these systems, 95% were manual systems without performance
objectives or development plans. It was clear from the research
that many organisations incorrectly view manual annual appraisal systems as Performance Management systems. Organisations
are increasingly adopting Performance Management systems. However, organisations
in both Australia and the USA are experiencing 100% to 300%
yearly increases in organisations acquiring Performance Management systems exceeding the
existing forecast rate.
In contrasting Performance Appraisal with Performance Management, it suggests that performance appraisals are indeed an evaluation
of an employees work. However, Performance Management reflects the continuous
nature of performance improvement and employee development, recognising the importance
of effective management, work systems and team contributions.
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