XAVIER INSTITUTE OF SOCIAL SERVICE

RANCHI

A REPORT ON PERFORMANCE MANAGEMENT AND DEVELOPMENT UNDER THE GUIDANCE OF

PROF: I.BANERJEE [H.R.M]

SUB -HUMAN RESOURCE MANAGEMENT

XISS DR. CAMIL BULCKE PATH

RANCHI

PREPARED BY

MARKETING -1

SUB -HUMAN RESOURCE MANAGEMENT

2ND TRIMESTER

DENNIS JOSE -06

SUDEEP BANERJEE-23

ARUN KUMAR-04

SURBHI AGGARWAL-56

GAUTAM KUMAR-53

ABSTRACT

The role of HR in the present scenario has undergone a sea change and its focus is on evolving such functional strategies which enable successful implementation of the major corporate strategies. In a way, HR and corporate strategies function in alignment. Today, HR works towards facilitating and improving the performance of the employees by building a conducive work environment and providing maximum opportunities to the employees for participating in organizational planning and decision making process. Today, all the major activities of HR are driven towards development of high performance leaders and fostering employee motivation. So, it can be interpreted that the role of HR has evolved from merely an appraiser to a facilitator and an enabler.

Performance management is the current buzzword and is the need in the current times of cut throat competition and the organizational battle for leadership. Performance management is a much broader and a complicated function of HR, as it encompasses activities such as joint goal setting, continuous progressreview and frequent communication, feedback and coaching for improved performance, implementation of employee development programmes and rewarding achievements. The process of performance management starts with the joining of a new incumbent in a system and ends when an employee quits the organization. Performance management can be regarded as a systematic process by which the overall performance of an organization can be improved by improving the performance of individuals within a team framework. It is a means for promoting superior performance by communicating expectations, defining roles within a required competence framework and establishing achievable benchmarks.

INDEX

TOPIC PAGE NUMBER

ABSTRACT

3

INTRODUCTION

5

CHAPTER 1

8

CHAPTER 2

14

CHAPTER 3

18

CHAPTER 4

23

CHAPTER 5

48

CONCLUSION

52

BIBLIOGRAPHY

54

Introduction

The role of HR in the present scenario has undergone a sea change and its focus is on evolving such functional strategies which enable successful implementation of the major corporate strategies. In a way, HR and corporate strategies function in alignment. Today, HR works towards facilitating and improving the performance of the employees by building a condusive work environment and providing maximum opportunities to the employees for participating in organizational planning and decision making process. Today, all the major activities of HR are driven towards development of high performance leaders and fostering employee motivation. So, it can be interpreted that the role of HR has evolved from merely an appraiser to a facilitator and an enabler.

Performance management is the current buzzword and is the need in the current times of cut throat competition and the organizational battle for leadership. Performance management is a much broader and a complicated function of HR, as it encompasses activities such as joint goal setting, continuous progressreview and frequent communication, feedback and coaching for improved performance, implementation of employee development programmes and rewarding achievements. The process of performance management starts with the joining of a new incumbent in a system and ends when an employee quits the organization. Performance management can be regarded as a systematic process by which the overall performance of an organization can be improved by improving the performance of individuals within a team framework. It is a means for promoting superior performance by communicating expectations, defining roles within a required competence framework and establishing achievable benchmarks.According to Armstrong and Baron (1998), Performance Management is both a strategic and an integrated approach to delivering successful results in organizations by improving the performance and developing the capabilities of teams and individuals. The term performance management gained its popularity in early 1980’s when total quality management programs received utmost importance for achievement of superior standards and quality performance. Tools such as job design, leadership development, training and reward system received an equal impetus along with the traditional performance appraisal process in the new comprehensive and a much wider framework.

Performance management (PM) includes activities which ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, employee, or even the processes to build a product of service, as well as many other areas. . A performance management system includes the following actions.

Developing clear job descriptions and employee performance plans which includes the key result areas (KRA) and performance indicators.

Selection of right set of people by implementing an appropriate selection process.

Negotiating requirements and performance standards for measuring the outcome and overall productivity against the predefined benchmarks.

Providing continuous coaching and feedback during the period of delivery of performance.

"The key to an effective performance management system is to equip managers to give feedback on an ongoing basis. The HR community over-engineered the performance management systems and lost touch with the employee whose performance, the process was supposed to enable", told Shubha K, Director-HR, SunGard to TJinsite, research and knowledge arm of TimesJobs.com, during an interview about post-appraisal feedback.

A research conducted by TJinsite underlined that in an effective organisation, assignments and projects are monitored continually. According to 46% of surveyed organisations, ongoing monitoring - periodic reviews and managerial feedback - provides the opportunity to check how well employees are meeting pre-determined standards and to make changes in unrealistic or problematic standards.

Relating performance feedback process with IPL matches, Shubha says what makes these cricket matches so exciting is the instant feedback. Performance of every ball bowled, hit and fielded is delivered instantaneously. From an HR perspective, it is idyllic as success is not measured in the forms and templates, but dovetailed with the performance as quickly as possible.

According to Job Buzz, a premier product by TimesJobs.com to help employees make intelligent career decisions, an effective performance management process is a major criterion that distinguishes best employers.

In view of Anuraag Maini, Executive VP, Head HR and Training, DLF Pramerica Life Insurance Company, most employees receive a formal appraisal annually and a midyear review can help make it more robust as it will not bring surprises during annual assessment. And, informal reviews will always need to compliment formal appraisals. He also stressed that frequent appraisals /feedback sessions are often needed for new employees, for longer serving employees who have moved to new roles or for those who are below acceptable performance standards

Elaborating the role of HR in the appraisal system, Shubha says while managers should be delivering instantaneous, task based, operational level feedback and advice, HR should complement this at a more long term and importantly strategic level. This is where HR should pull in the metrics that track performance delivery, giving an opportunity to the employee to step back from the daily routine and see where his efforts are taking him.

To sum up, experts agreed that the frequency of appraisals needs to be such that you give the appraisee sufficient time to perform and yet, not enough time for appraisers to forget. Having two appraisals a year is a good solution, with one focusing on the increments and promotion and the other focusing on the development and role areas.

CHAPTER 1

PERFORMANCE MANAGEMENT DEFINED

What is Performance Management?

Performance management is the process of creating a work environment or setting in which people are enabled to perform to the best of their abilities. It is the main vehicle by which managers communicate what is required from employees and give feedback on how well they are achieving job goals (CIPD, 2009). It brings together many of the elements that make up the practice of people management, including in particular learning and development.Performance management establishes shared understanding of what is to be achieved and provides an approach to leading and developing people that will ensure it is achieved; as such it is an essential element of your role and will support your relationship with individuals in your team.

As a manager, you need to adopt performance management practices that will facilitate continuous review and ongoing development of your department/ team in order to deliver departmental/faculty and University objectives. The underlying assumption is that by managing the performance of the individual and team, departmental and organisational performance will follow and by raising individual and team levels of performance, organisational performance will also improve.Equally when performance of individuals is not managed, this can lead to frustration and discontent amongst team members. The department for Business Innovation and Skills recently calculated that disengaged employees cost the UK economy between £59.4 and £64.7 billion.

“Why don’t people do what they’re supposed to do?”

Perhaps because…

they don’t know why they should do it they don’t know what they’re supposed to do they don’t know how to do it they think your way will not work they think their way is better they think something else is more important there is no positive consequence to them for doing it they think they are doing it they are rewarded for not doing it there is - or they anticipate – a negative consequence for doing it there is no negative consequence to them for unacceptable performance

they don’t have the resources to do it obstacles beyond their control

Performance management is a whole work system that begins when a job is defined as needed and starts from the assumption that most people want to perform well. Performance management is about helping your team to perform well and removing any obstacles to this.

EVOLUTION:

The term performance management gained its importance from the times when the competitive pressures in the market place started rising and the organizations felt the need of introducing a comprehensive performance management process into their system for improving the overall productivity and performance effectiveness.

The performance management process evolved in several phases.

First Phase: The origin of performance management can be traced in the early 1960’s when the performance appraisal systems were in practice. During this period, Annual Confidential Reports (ACR’s) which was also known as Employee service Records were maintained for controlling the behaviors of the employees and these reports provided substantial information on the performance of the employees. Any negative comment or a remark in the ESR or ACR used to adversely affect the prospects of career growth of an employee. The assessments were usually done for ten traits on a five or a ten point rating scale basis. These traits were job knowledge, sincerity, dynamism, punctuality, leadership, loyalty, etc. The remarks of these reports were never communicated to the employees and strict confidentiality was maintained in the entire process. The employees used to remain in absolute darkness due to the absence of a transparent mechanism of feedback and communication. This system had suffered from many drawbacks.

Second Phase: This phase continued from late 1960’s till early 1970’s, and the key hallmark of this phase was that whatever adverse remarks were incorporated in the performance reports were communicated to the employees so that they could take corrective actions for overcoming such deficiencies. In this process of appraising the performance, the reviewing officer used to enjoy a discretionary power of overruling the ratings given by the reporting officer. The employees usually used to get a formal written communication on their identified areas of improvements if the rating for any specific trait used to be below 33%.

Third Phase: In this phase the term ACR was replaced by performance appraisal. One of the key changes that were introduced in this stage was that the employees were permitted to describe their accomplishments in the confidential performance reports. The employees were allowed to describe their accomplishments in the self appraisal forms in the end of a year. Besides inclusion of the traits in the rating scale, several new components were considered by many organizations which could measure the productivity and performance of an employee in quantifiable terms such as targets achieved,

etc. Certain organizations also introduced a new section on training needs in the appraisal form. However, the confidentiality element was still being maintained and the entire process continued to be control oriented instead of being development oriented.

Fourth Phase: This phase started in mid 1970’s and its origin was in India as great business tycoons like Larsen & Toubro, followed by State Bank of India and many others introduced appreciable reforms in this field. In this phase, the appraisal process was more development driven, target based (performance based), participative and open instead of being treated as a confidential process. The system focused on performance planning, review and development of an employee by following a methodical approach. In the entire process, the appraisee (employee) and the reporting officer mutually decided upon the key result areas in the beginning of a year and reviewed it after every six months. In the review period various issues such as factors affecting the performance, training needs of an employee, newer targets and also the ratings were discussed with the appraisee in a collaborative environment.

This phase was a welcoming change in the area of performance management and many organizations introduced a new HR department for taking care of the developmental issues of the organization.

Fifth Phase: This phase was characterized by maturity in approach of handling people’s issues. It was more performance driven and emphasis was on development, planning and improvement. Utmost importance was given to culture building, team appraisals and quality circles were established for assessing the improvement in the overall employee productivity.

The performance management system is still evolving and in the near future one may expect a far more objective and a transparent system.

CHAPTER 2

NEED FOR PERFORMANCE MANAGEMENT

In the era of cut throat competition and globalization, organizations have realized the importance of strategic HR practices for gaining a competitive edge over the competitors. A well designed performance management system can play a crucial role in streamlining the activities of the employees in an organization for realizing the ultimate corporate mission and vision. Performance management is a useful tool for aligning all the major organizational functions and sub functions so that the focus is directed towards attainment of the organizational goal.

Performance management is a much broader system as it is linked with the processes of planning, implementing, reviewing and evaluating, for augmenting growth and productivity at both the individual and organizational level.

By clearly defining both individual and team based responsibilities in the form of KRA’s as well as by creating an understanding of shared mutual accountabilities, a good performance management system enables, empowers and facilitates the development of staff members.

Managing the performance of the employees is one of the toughest challenges which the organizations are facing today as this completely depends upon the employee’s commitment, competence and clarity of performance. If managed efficiently through a well planned reward practice and feedback mechanism, a performance management system can serve as an important tool for employee motivation and development. The need for the introduction of a robust system of performance management was felt during the period when the traditional performance appraisal mechanism started failing and its limitations were surfacing up. The performance appraisal system of the earlier period was missing objectivity as the diameters or the parameters for measuring performance were not clearly specified and the focus was on traits instead on behaviors or measurable targets. As a result, the employee’s morale and motivation to work was adversely affected due to an absence of a transparent feedback mechanism and lack of employee involvement in the entire process of appraisal. A performance management system overcomes the drawbacks of the traditional performance appraisal system by maintaining a futuristic approach instead of assessing the past contributions of the employees for evaluating the performance of the employees.

Performance management is a strategic tool and is holistic in nature as it pervades in every activity of the organization which is concerned with the management of individual, team and the overall organizational performance. The process is indispensable and very important for an organization as it is concerned with establishing a culture in which the individuals and teams can excel by continuously improving in terms of skill sets and the business processes.

Performance management facilitates improvement of quality of relationship amongst the members of the organization by encouraging sharing of expectations and building a climate of openness and mutuality. The significance of performance

management has grown in recent times because most of the organizations are giving a lot of importance to employee development and talent management. The contemporary organizations are working towards grooming the competencies of the employees for maintaining a leadership in the competitive market and performing outstandingly. Arvind Mills of Lalbhai Group, realized the importance of strategic HRM practices and the implementation of a pro active performance management system in their organization after facing serious threats from the business competitors. The company created a Manpower Planning and Resource Group which took the charge of preparing job descriptions and structuring the jobs for the employees and was responsible for implementing the recruitment and selection procedures. An innovative online recruitment system was introduced which was known as Selection Information System, for fixing interviews, generating call letters, etc. This system was linked with the Compensation Information System and Training Information System. The training requirements of the employees were taken care by the Management and Organizational Development Group. The company also introduced MBO system, for setting smart goals for the employees which may motivate them for a superior performance.

Performance management has attracted the attention of many organizations and in the near future its importance will still grow as it will become more integrated with the processes like talent management, career management, pay based on performance, development and talent management.

PM is sometimes confused with human resources and personnel systems, but it is much more encompassing. PM comprises the methodologies, metrics, processes, software tools, and systems that manage the performance of an organization. PM is overarching, from the C-level executives cascading down through the organization and its processes. To sum up its benefits, it enhances broad cross-functional involvement in decision making and calculated risk taking by providing tremendously greater visibility with accurate, reliable, and relevant information—all aimed at executing an organization’s strategy. But why is supporting strategy so key? Being operationally good is not enough. In the long run, good organizational effectiveness will never trump a mediocre or poor strategy. But there is no single PM methodology, because PM spans the complete management planning and control cycle. Think of it as a broad, end-to-end union of solutions incorporating three major functions: collecting data, transforming and modelling the data into information, and Web-reporting it to users. Many of PM’s component methodologies have existed for decades, while others have become recently popular, such as the balanced scorecard. Some of PM’s components, such as activity-based management (ABM), are partially or crudely implemented in many organizations, and PM refines them so that they work in better harmony with its other components. Early adopters have deployed parts of PM, but few have deployed its full vision. This book describes the full vision. The term “knowledge management” is frequently mentioned in business articles. It sounds like something an organization needs, but the term is somewhat vague and does not offer any direction for improving decisions. In contrast, the main thrust of PM is to make better decisions that will be evidenced, and ultimately measured, by outputs and outcomes. Many organizations seem to jump from improvement program to program, hoping that each one might provide that big, elusive competitive edge. Most managers, however, would acknowledge that pulling one lever for improvement rarely results in a substantial change—particularly a long-

term, sustained change. The key to improving is integrating and balancing multiple improvement methodologies. You cannot simply implement one improvement program and exclude the other programs and initiatives. It would be nice to have a management cockpit with one dial and a simple steering mechanism, but managing an organization, a process, or a function is not that easy. Even with a clearly defined strategy, conflicts are a natural condition in organizations. For example, there will always be tension between competing customer service levels, process efficiencies, and budget or profit constraints. Managers and employee teams are constantly faced with conflicting objectives and no way to resolve them, so they tend to focus their energies on their close-in situation and their personal concerns for how they might be affected. PM escalates the visibility of quantified outputs and outcomes—in other words, results. PM provides explicit linkage between strategic, operational, and financial objectives. It communicates these linkages to managers and employee teams in a way they can comprehend, thereby empowering employees to act rather than cautiously hesitate or wait for instructions from their managers. PM also quantitatively measures the impact of planned spending, using key performance indicators born from the strategy map and balanced scorecard. Knowing these strategic objectives and their relative importance, managers and employee teams then use tools from the PM suite, such as activity-based costing data and customer relationship management information, to objectively evaluate the trade-offs. Everyone recognizes that employee teams are very knowledgeable in their own space. When management communicates to them what is wanted, employees can reply with an understanding of what initiatives it will take and how much it will cost. Internal politics and gaming are replaced by the preferable behavior of employees taking responsibility like independent business owners. As problems constantly surface, the context for making trade-off decisions is framed. This applies to the ultimate value creators, the executive management team, who struggle with short-term versus long-term trade-offs. The CEO and CFO also wrestle with those conflicting cost and customer service objectives governing financial earnings that investors and hand-wringing stock analysts anxiously anticipate each quarter. Differentiating customer value from share- holder value is a tricky exercise, and PM brings objectivity and balance to the process of making spending and investment decisions. Budgeting becomes a profit-fostering funding mechanism rather than an accounting police control weapon. Prioritizing and coordinating begin to displace control.3 The appeal of PM is that it realizes there is no sun around which lesser improvement programs, management methodologies, or core processes orbit. PM is about sense-and-respond balancing, always striving for better organizational direction, traction, and speed. PM involves constructing powerful combinations linking software, such as business intelligence analytics, with core processes enhanced by improvement initiatives (e.g., lean and/or six sigma) to prioritize ef- forts and align an organization’s work activities with its corporate strategy. If PM is properly implemented, it can produce an epidemic of common sense within an organization—and also probably with the trading partners (e.g., suppliers and customers) with whom it interacts. Maximizing everywhere is not equivalent to optimizing—it is sub optimizing. Optimizing acknowledges constraints. PM facilitates balancing conflicts.

BENEFITS OF PERFORMANCE MANAGEMENT

A good performance management system works towards the improvement of the overall organizational performance by managing the performances of teams and individuals for ensuring the achievement of the overall organizational ambitions and goals. An effective performance management system can play a very crucial role in managing the performance in an organization by:

Ensuring that the employees understand the importance of their contributions to the organizational goals and objectives.

Ensuring each employee understands what is expected from them and equally ascertaining whether the employees possess the required skills and support for fulfilling such expectations.

Ensuring proper aligning or linking of objectives and facilitating effective communication throughout the organization.

Facilitating a cordial and a harmonious relationship between an individual employee and the line manager based on trust and empowerment.

Performance management practices can have a positive influence on the job satisfaction and employee loyalty by:

Regularly providing open and transparent job feedbacks to the employees. Establishing a clear linkage between performance and compensation Providing ample learning and development opportunities by representing the

employees in leadership development programmes, etc. Evaluating performance and distributing incentives and rewards on a fair and

equated basis. Establishing clear performance objectives by facilitating an open

communication and a joint dialogue. Recognizing and rewarding good performance in an organization. Providing maximum opportunities for career growth.

An effectively implemented performance management system can benefit the organization, managers and employees in several ways as depicted in the table given below:

Organization’s Benefits

Improved organizational performance, employee retention and loyalty, improved productivity, overcoming the barriers to communication, clear accountabilities, and cost advantages.

Manager’s Benefits Saves time and reduces conflicts, ensures efficiency and consistency in performance.

Employee’s Benefits Clarifies expectations of the employees, self assessment opportunities clarifies the job accountabilities and

contributes to improved performance, clearly defines career paths and promotes job satisfaction.

Clearly defined goals, regular assessments of individual performance and the company wide requirements can be helpful in defining the corporate competencies and the major skill gaps which may in turn serve as a useful input for designing the training and development plans for the employees. A sound performance management system can serve two crucial objectives:

Evaluation Objectives

By evaluating the readiness of the employees for taking up higher responsibilities.

By providing a feedback to the employees on their current competencies and the need for improvement.

By linking the performance with scope of promotions, incentives, rewards and career development.

Developmental Objectives

The developmental objective is fulfilled by defining the training requirements of the employees based on the results of the reviews and diagnosis of the individual and organizational competencies. Coaching and counseling helps in winning the confidence of the employees and in improving their performance, besides strengthening the relationship between the superior and the subordinate.

In a nutshell, performance management serves as an important tool for realizing organizational goals by implementing competitive HRM strategies. It helps in aligning and integrating the objectives with the KPI’s in an organization both vertically and horizontally across all job categories and the levels and thus helps in driving all the activities right from the bottom level towards one single goal.

CHAPTER 3

PREREQUISITES FOR PERFORMANCE MANAGEMENT

Performance management can be regarded as a continuous process managing the performances of people for getting desired results. Performance management is beneficial to all the major stakeholders of an organization by clearly describing what is supposed to be done for attaining certain desired goals. Performance management is the heart of any HR processes in an organization as it influences the rest other HR functions or processes. Focus on performance management may be fruitless without the existence of proper organizational design and management systems.

Some of the essential pre requisites without which performance management system will not function effectively in an organization are:

Should attract very high levels of participation from all the members concerned in an organization. It should be a participative process.

Top management support and commitment is very essential for building a sound performance culture in an organization.

Organizational vision, mission and goals should be clearly defined and understood by all levels so that the efforts are directed towards the realization of the organizational ambitions.

Clear definition of the roles for performing a given job within the organizational framework which emanates from the departmental and the organizational objectives. The system should also be able to explain the linkages of a role with other roles.

Open and transparent communication should prevail which will motivate the employees for participating freely and delivering high performance. Communication is an essential pre requisite for a performance management process as it clarifies the expectations and enables the parties in understanding the desired behaviors or expected results.

Identification of major performance parameters and definition of key performance indicators.

Consistency and fairness in application. A commitment towards recognition of high performance. Rewards and

recognitions should be built within the framework of performance management framework.

Proper organizational training should be provided to the staff members based on the identification of training needs from periodic evaluation and review of performance. This will motivate the employees for a superior performance.

Tata Iron and Steel Company (TISCO), a flagship company of India involved in manufacturing of cost effective steel can be appreciated for their initiatives in the implementation of an effective performance management framework and innovative HR practices. TISCO initiated a management restructuring programme for

transforming into a high performing and a growing organization. In the HR front, the management focused on providing exciting career opportunities and building a team of high performing professionals for which they hired Mckinsey and Co. The consultants firstly started with building a lean and a flat strategic business unit with enriched jobs, increased accountabilities and autonomy. A Performance Ethic Programme (PEP) was also introduced for promoting young and dynamic professionals and this was a replacement of seniority based promotions. A new Performance Management System (PMS) was introduced for aligning the KRA’s with the business strategies and identifying superior performers in the organization by defining clear career paths and accountabilities. The rewards and recognitions were linked with the PMS. The new measures in the direction of performance management boosted the employee’s motivation and performance. The job satisfaction also improved due to the introduction of a fair and transparent reward system. Before we can begin the performance management process, two important prerequisites must occur. First, strategic planning must be completed because the performance management process builds on an organization’s goals. Once organizational goals are established, employee goals cascade from there. Remember, an important objective of the performance management process is to enhance employees’ contributions to the organization’s goals. The second prerequisite is a thorough understanding of the job. This is done through job analysis. If it has been some time since a job analysis was conducted for a position, it may be necessary to conduct a new analysis before starting the performance management process. If you are working with job descriptions that read like the last century, it’s time to update them if you expect to be successful in today’s highly competitive, technology-driven workplace. Once strategic planning goals are established and the job analysis information is current, the performance management process can begin. Once the prerequisites are in place, the next step in the process is performance planning where the organization establishes the criteria and expectations for employee performance. Supervisors must communicate this to employees in such a way that everyone understands the expectations. It would not be appropriate to expect outstanding performance from employees if they had no idea how the organization describes and measures outstanding. Clear communication is a central part of the

performance management process. In this step, the manager and employee together identify what needs to be done and how it will be accomplished. This includes consideration of results and appropriate behaviors to accomplish tasks. The supervisor and the employee must agree on the objectives to be accomplished. These are the specific outcomes the employee is expected to achieve. Outcomes must include specific, measurable performance standards.

Behaviors include competencies as well as traits like teamwork, leadership and communication. If employees accomplish their tasks but they are horrible to work with and have alienated their entire department–that’s not a good outcome! Open

communication, working with a team and meeting deadlines so other staff members can accomplish their parts of the process are all areas that should be addressed in the performance review.The last part of the performance plan is to establish employee developmental goals. If there are areas that need improvement, they should be identified and plans made to correct the deficiency. Even without needed improvement, though, employees need an opportunity to grow in their careers and to learn new skills. Improvement plans should be identified and progress toward goals measured as part of the review process. Employee growth adds value not only to the employee personally but to the employee’s manager and to the organization as a whole.

CHAPTER 4

PERFORMANCE MANAGEMENT MODELS

We are in an instant information age. Between computers, smart phones, and tablets we can access information 24/7/365 and likewise we can be accessed by many of these same devices. As a result there is an expectation that organizations can readily access analytics and metrics related to performance measurement and the same information will be available to others. For example, the Federal government, under the Government Performance and Result Act of 1993, boldly mandated that federal agencies annually prepare a review of performance relative to targets set in alignment with the agency’s strategic plan. Seventeen years later, the GPRA Modernization Act of 2010, changed the mandate to performance data being updated quarterly and that the information be easily accessible by the public. A recent report (Abramson, Mark, et. al. Seven Management Imperatives. IBM Center for the Business of Government, Washington DC, 2011) noted “Technology has made it easier to collect, aggregate, and display data, making it available to a wide range of users.” The authors then cite the use of real-time performance data as one of the seven management imperatives. Real-time performance data emphasizes the need for the currency of the information provided. So both within and outside of government there is a dual push to 1) having current information for managing, and 2) that the information is available outside of the “inner” circle.

To accommodate this push, organizations can no longer remain on the sideline and question whether they should collect performance data to improve management; rather organization need to move onto the playing field and address the following questions: Can we collect the right information for decision- making? When we have the right information will our manager know how to use it?

In the field of statistics there is a concept known as ‘construct validity”. It is defined as “… the degree to which inferences can legitimately be made from the operationalizations in your study to the theoretical constructs on which those operationalizations were based” (William Trochim, Research Methods Knowledge Database, http://www.socialresearchmethods.net/ kb/constval.php). Though there is no similar term in performance measurement the concept is critical. If an improper

metric (operationalization) is used, it will be a poor indicator of program performance. To avoid using the improper metric it is important that the metrics be developed in a systematic fashion consistent with the goals and objectives of the program. This model provides a framework for developing meaningful metrics that are consistent with other planning documents of the organization and can be incorporated into management decisions.

The terms “performance measurement” and “performance management” are often used in a manner that appears to be interchangeable. For the purposes of this paper it will be helpful to differentiate them.

Performance Measurement is the process of defining, monitoring, and using objective indicators of the performance of organizations and programs on a regular basis.(Poister, Theodore H. Measuring performance in public and non profit organizations. Josey Bass, San Francisco, CA. 2003)

Performance Management is the process of directing and control- ling employees and work units in an organization and motivating them to perform at higher levels. (Poister, Theodore H. Measuring performance in public and non-profit organizations. Josey- Bass, San Francisco, CA. 2003)

The key for performance measurement is that it occurs on a regular basis. Performance management uses that information to make changes to the organization so that it functions at a higher level. This becomes a cycle, because the changes recommended based on performance management then need to be monitored to determine that they are having the desired impact on performance. Hence the model (Figure 1) is termed “measurement-based performance management” because it incorporates what the organization does with both generating the proper performance metrics and using that for management.

The model consists of six stages; the first four relate to performance measurement and the last two relate to performance management. The stages surround an inner circle that focuses on the environments in which this process is being conducted. For example, when the Program Assessment Rating Tool (PART) was instituted by the Bush administration, many agencies reluctantly complied. When done in that environment the result is that poor metrics are developed (i.e., the agency uses what it already has) and the agency spends precious resources gathering information that is not very useful. The internal and external environments influence how managers approach the process and what they hope to achieve. Under ideal circumstances the manager understands the value of this information and how it will result in their group accomplishing their work more efficiently. That type of attitude results in better metrics being developed, a greater willingness from the employees to gather and use the data, and better decisions for improving performance.

The remainder of the chapter presents a description of each of the stages in the model. Because the model is circular, one can enter at any point. Thus if an agency or organization has metrics, the model can be used to merely describe how to use the results for management.

Stage 1: Understand the Context Organizations spend a great deal of time and money to create strategic plans and then undertake activities that do not always support those efforts. Stage 1 is to review existing documents like the strategic plan to determine where the organization is heading and how it proposes to get there, i.e., what is its map. The map that is often used is a logic model. The logic model indicates the impact the organization hopes to achieve and the inputs, activities, outputs and outcomes (short-term, intermediate and long-term) that result in the impact being obtained. Ideally it is the impact that should be the focus of performance measurement, but that is often not feasible. Either it is difficult to measure the impact or the data are not readily available for that. The outcomes then become the focus for performance measurement, because if those are being achieved, then the impact will follow.

This approach of using the strategic plan and/or logic model as the guide posts for developing performance metrics will result in the metrics being aligned (Stage 2).

Stage 2: Develop Metrics and Align The logic model will identify the outcomes of interest. The staff of the organization should be able to assist in noting what data they are currently gathering, what data may be gathered by other departments of the organization that can be relevant, and whether it is feasible to gather additional data. It is too easy at this stage to fall into the trap of using what is readily available. Often those data do not directly relate to the impact or the outcomes of interest. If that is what the organization uses, then it will move in a direction contrary to what is noted in the strategic plan.

Metrics can be a double edged sword. On the one hand they serve as a tool to measure progress. On the other hand what is measured is what gets done. Therefore, if you are measuring the wrong thing that is what will get done; and the right thing will not be accomplished.

Internal & External Environments Develop Metrics & Align Analyze Make Changes Internalize Implement Understand Context Performance Measurement Performance Management

Stage 3: Implement Once the metrics (definition, source, and how frequently they will be gathered) have been determined, the next step is to implement the data

collection. If grantees or other organizations are involved in the data collection, it is useful to let them know why this is being done and provide them guidance on how to gather the information and what definitions to use.

Stage 4: Analyze Contrary to common opinion, data speak; and for statisticians this is accomplished by a thorough data analysis. Before analyzing the results, program personnel need to review the data to determine whether they are reliable. For example, did all the reporting entities use the same definitions? This may seem trivial but it is not. If the outcome of interest is increased exercise, determined by the percentage of program participants who exercised for thirty or more minutes three times per week, the following questions may arise: 1. Do the thirty minutes have to be consecutive? 2. Is walking to school exercise, or does exercise have to be something else? If the latter, how is that defined?

Another aspect of reliability is “Are the data accurately reported?” One may want to periodically examine the trends in reporting at the level of the unit reporting (i.e., grantee, school district, etc.) to determine whether the 63% reported this period is a typo and should really be 36%, the same as reported last period. Large changes in outcomes should always be suspect.

Stage 5: Changes can be of two types. One, the data being gathered are not meeting the needs and different metrics should be developed. The other change is that the data indicate a program is not performing as envisioned and there need to be changes to the program to enhance its performance. The latter is performance management, making changes based on performance information to enhance the impact of the program. If changes are made to the program, it then becomes necessary to go through stages 1-3 to verify that the changes being made are consistent with the mission of the program, that you have the proper metrics, and have defined the metrics so that data are gathered consistently.

Stage 6: Internalize If Stage 6 is done correctly, it will impact the inner circle as well, the internal environment. “Internalize” means that the organization uses the information gathered to both monitor performance and to improve performance. The various components of the organization see the value of this and support its use on a regular basis. As new programs are developed a logic model should be developed for the program and a plan should immediately be put into place to gather performance metrics.

What do organizations need to do? If your organization is regularly gathering analytics and generating performance metrics, jump to Stage 5. Examine whether the metrics derived from the analytics are meaningful or merely being gathered because they are convenient. Do the metrics help the organization move forward to meeting its strategic objectives? If your organization is not gathering analytics and generating performance metrics, then the model presented here should help you get started. Regardless of where your organization is in the process of performance measurement and management, DRC has an experienced staff of evaluators and

organizational psychologists who can work with you to improve existing systems or work with you on cost effective methods for beginning.

Different types of High Performance Management Models

THE OPTIMISTIC MODEL

Extrinsic Satisfaction

Management Relations

HPM Practices Commitment Organisational Performance

Discretion

THE EXPLOITATION MODEL

Work Intensification

Insecurity

HPM Practices Job Strain Organisational Performance

Discretion

Under the optimistic model the impact of HPM is wholly benign. Employees’ experiences of work are enhanced and the outcomes are thus beneficial to both capital and labour. Increased task discretion and autonomy engender behavioural traits reflected in the state of the psychological contract manifest in enhanced commitment that, in turn, feeds into performance gains. As noted, the exploitation position likewise, and ‘somewhat ironically’ (Edwards 2001, p. 5), assumes a positive association between HPM and performance gains. However, the distinction is that any benefits take the form of minor gains in discretion, granted as a means of securing compliance with managerial aims. Such advances are far outweighed by work intensification, insecurity and stress (Ramsay et al. 2000, p. 505). Stress arises because of the added responsibility associated with the new production mode allied to increased pressure within the working environment due to the absence of buffers within lean production formats.

Unfortunately, there are only a handful of studies that have collected systematic data informing this debate. One of the most cited accounts in support of the optimistic model is that provided by Appelbaum et al. (2000). This study investigated inter alia the effects of HPM in three manufacturing sectors: steel, clothing and medical products with data collated from around 4000 workers. HPM was associated with positive performance gains and evidence was found linking various HPM practices to job satisfaction. The results did, however, vary markedly by industry. Nevertheless, the study provided scant support for the notion that HPM gives rise to work related stress:

In general, our findings suggest that the opportunity for substantive participation is generally related to lower, not higher levels of job stressors. In particular, workers who have autonomy over task level decisions and those who are more likely to communicate with people outside their work groups appear to have lower levels of job stress.

Such findings were echoed in Harmon (2003) study in the US health care sector. The research was based upon 112,000 employee responses in 146 separate medical centres. The results indicated a correlation between HPM and lower costs (e.g. employee turnover and leaves of absence) with the relationship mediated by employee satisfaction prompting the comment that, ‘HIWS [high involvement work systems] may be justified both on humanistic and financial terms.

Managing performance in organizations: a conceptual model

The model proposes an impact of the aligned set of HRM practices involved in Performance Management on employee perceptions and attitudes and proposes that front-line managers play a crucial mediating role in implementing these practices. Employee perceptions and attitudes affect employee performance, which in turn affects organizational performance. The model also addresses reversed causality and some of the contingencies. We did not include overall strategy or business strategy or even HRM strategy in the model for two reasons. First, there is still little empirical evidence for a link between (a) business strategy and HRM strategy, and (b) HRM strategy and HR practices or bundles of HR practices. Second, we want to keep the model as clear and parsimonious as possible. For the same reason, the organizational performance box was not further refined. Obviously, distinctions are possible between more proximal outcomes such as productivity, turnover and more distal financial performance measures.

However, for our purposes, organizational level outcome measures are placed together. As compared to other models, employee perceptions, reversed causality and the role of direct supervisors/managers are more prominent. Below, we briefly discuss these three points and provide a summary of the key assumptions and propositions of the model.

Managers put Performance Management into practice, and by doing so will affect employees’ perception as well as their commitment, motivation, and trust. Work on leadership, leader-member exchange, goal-setting and motivation, perceived supervisory and organizational support, and procedural and interactional justice may help further delineate the importance of direct supervisors and front-line managers in implementing HR practices.

An HR department can develop (or buy in) sophisticated Performance Management tools. However, whether these really sort effect depends on the appropriate enactment by line managers. Their consistency, fairness and skill in using tools such as holding consultation meetings and conducting appraisal interviews will to a large degree determine whether such tools indeed generate positive effects on commitment and employee performance. The role of first line managers in carrying out policies set by the firm is mentioned in the HRM literature (e.g. Storey, 1995), however, studies have mostly ignored this role. Performance Management clearly and directly involves managers in the process. Managers set challenging yet attainable objectives, appraise performance and give feedback. They ensure

possibilities for subordinates’ development and stimulate a climate in which high performance is stressed. Thus, managers’ skill and fairness in performing these tasks as well as their relationships with their different subordinates will play a key role in the success of Performance Management.

Employee perceptions

HRM practices can be seen as ‘signals’ of the organizations’ intentions towards its employees and are interpreted as such by individual employees (e.g. Rousseau & Greller, 1994). However, employees do not necessarily perceive such ‘signals’ similarly or react to them in a similar manner. Guest (1999) noted that only little research focuses on employee’s reactions to HRM. He suggests that the impact of HR practices on employees’ commitment and performance depends on employees’ perception and evaluation of these practices. Perception and attitudes may mediate and moderate the relationship between HRM practices and employee performance related behavior.

Variation may exist in employees’ perceptions of HRM practices or benefits offered by the organization even when in objective terms what is offered to different employees is very similar. Individual differences in perceptions and reactions to what the organization has to offer may, for instance, follow from an employee’s previous experience, their beliefs, comparison to others, or the type of employment contract. Also, different promises made to prospective employees in the recruitment process may result in different evaluations of what the employer offers (e.g. Rousseau, 1989). This latter perspective is related to research on the psychological contract, which studies employees’ evaluation of the content of their exchange relationship with the organization. Rousseau (1989, p. 121) defined the psychological contract as ‘individual beliefs in a reciprocal obligation between the individual and the organization’.

Research has focused mostly on the aftermath of contract formation, breach and associated responses. For instance, research on violation of the psychological contact shows the consequences of contract breach such as a loss of trust and decrease in commitment (e.g. Robinson, 1996). Also, research indicates that workers with different types of psychological contracts respond differently to violation of the contract and organizational change. Similarly, research in the area of met expectations and person-organization fit (e.g. Kristoff, 1996) call attention to the effect that individual differences in the employment relationship may have on outcomes such as commitment and employee performance.

Reversed causality

Much of the research on HRM and performance is cross-sectional. Thus, directionality of the linkages is often assumed rather than tested. HRM is proposed to be one of the causes of a better competitive position and better financial performance of firms. However, there are also compelling arguments for a reversed link. Organizations that perform better in financial terms may have more opportunities to invest in High Performance Work Systems. Thus, the model proposes that besides HRM influencing performance, there is also a reverse loop.

Organizational success, for example, in terms of high profits or significant growth of market share, has a positive effect on the willingness to invest in HR practices (e.g. Hiltrop, 1999; Paauwe & Richardson, 1997). Unraveling what causes what is not easy. Using subjective performance indicators, Guest, Michie, Conway and Sheehan (2003) find links between HRM and both productivity and financial performance, but their longitudinal study fails to show that HRM causes higher performance. Their analyses support the view that profitability creates scope for more HRM rather than vice versa. This also holds at other levels. High performance is proposed to positively affect employees’ commitment, trust, and motivation.

Employees will be motivated by personal as well as organizational success. For example, performance affects commitment as much as vice versa. Empirical support for such processes is available (see e.g. Locke & Latham, 2002)

The model: key propositions

A summary of the key assumptions of the proposed model is:

• Most Performance Management practices (e.g. performance appraisal, feedback training, coaching, information sharing) are facilitated and implemented by direct supervisors or front-line managers. Therefore the behavior of line-managers will mediate the effect of (most) practices on employee perception (and behavior).

• HRM and Performance Management practices (as implemented by managers) first affect the employee’s perception and evaluations. For example, only if information sharing is seen and interpreted as such (and not as a manipulative form of commanding), it will have the opportunity to positively affect intentions and behavior.

• Employee behavior in turn will have its impact on organizational performance (e.g. productivity). Contextual factors can constrain the impact individual performance has on organizational level outcomes.

• Reversed causality plays a role. Organizational success (e.g. high profits or growth of market share) could increase (a) the willingness of top management to invest in HR practices, and (b) the employees’ commitment, trust, and motivation.

• Organizational contextual factors, both internal (e.g. capital intensity) and external (e.g. degree of unionization in the industry), and individual employee characteristics (e.g. age, gender and level of education) and preferences (e.g. preferred job type, level of autonomy) may constrain the proposed relationships between HR practices and organizational performance.

Discussion and future research

Performance Management involves aligning the total set of an organization’s HRM practices in such a way that employee and, ultimately, organizational performance is maximized. Thus, the link with the field of HRM is clear and many of the research challenges outlined in the HRM and performance field also hold when considering Performance Management (see e.g. Delery, 1998; Gerhart, Wright and McMahan, 2000). The model presented above also suggests a research agenda that is more specific for Performance Management, for example through clearly addressing the role of employee perceptions and supervisors in research. Research is needed on the differences in enactment of HRM practices and the effects thereof.

Also, research could assess whether the type of relationship the front line supervisor has with each subordinate (LMX) moderates the link between HRM practices and employee perceptions. Other such hypotheses can be developed and tested.

Research on different levels of analysis as well as cross-level influences are of interest. For example, how and when do individual and group performance influence organizational performance (and vice versa)? The ‘middle section’ of the model describes the impact of direct supervisor/front-line managers, employee’s perceptions and attitudes, and employee behavior suggesting research on individual employee level. Organizational performance is on the organizational level and HRM practices are set out at the organizational level, although organizations may differentiate between employee groups (e.g. Den Hartog & Verburg, 2004). Other levels (such as groups/teams) are also of interest (e.g. how does individual performance relate to team performance, when do group norms constrain individual behaviour). Future research will also need to consider the many methodological challenges involved in multiple and cross-level research (see e.g. Kozlowski & Klein, 2000).

As stated the measurement of performance plays an important role in Performance

Management and some of the interesting challenges for future research are related to Performance Appraisal (PA). For instance, Fletcher (2001) suggests that the content of appraisal nowadays goes beyond task performance to incorporate contextual performance. A key challenge in this area is determining what constitutes

good performance (and hence what should be measured and stimulated), which is also highly relevant for the wider Performance Management process. For example, Molleman and Timmerman (2003) describe the impact of shifts in organizational performance indicators on those of employees. They argue that as organization’s leading performance indicators shift towards innovation and the creation of knowledge, more non-routine work and interdependence between workers is found and performance criteria at lower levels should shift to reflect this.

The context of Performance Management is changing, and Fletcher (2001) mentions cultural differences and the impact of new technology as interesting emerging areas of research. For instance, as more and more organizations work internationally, collaboration and coordination of people located in different nations increases. Often this collaboration within organizations takes the form of global work teams. Performance Management is problematic in such teams as members are likely to have widely differing viewpoints about appropriate ways to reward, recognize, evaluate and train and develop team members

(Kirkman & Den Hartog, 2003). Another point to consider are legal implications that the use of certain practices may have, which will differ for different countries. Thus, future research on the wider (and sometimes cross-cultural) context is of interest.

Obviously, additional theory building in the area of Performance Management is needed. Although our model proposes a general process involving several different steps, it does not yet specify all of the processes taking place in detail. Research can focus on the model as a whole or try to flesh out in more detail what happens in specific parts of the process. Gaining insight in the processes and variables that play a role in the process performance management is not only of academic interest.

Companies in many different areas are trying to improve their output by implementing performance management systems and finding that this is an arduous and complicated task. Research may help improve such systems. Such similarity of interests of academics and practitioners may help academics gain better entrance to the empirical reality, which is badly needed to perform the multilevel research needed to enhance understanding of how and why Performance Management works.

CHAPTER 5

MERITS AND DEMERITS OF PERFORMANCE MANAGEMENT

The following are some of the advantages of implementing a Performance Management process within a company:

1. Increased Performance of individuals and department/organisation:

The main goal of performance management is to improve the performance of individuals to eventually improve the performance of the organisation as a whole. The correct application of performance management will identify development areas of each individual as well as good performance areas. By planning specific outputs linked to specific standards and measuring the success of the individual against this on a continuous basis will have a direct impact on the performance of the individual and indirectly the organisation as a whole. Utilising the results of the performance management discussions to identify focused development programs for employees will further assist in attaining the department/organisation goals. Existing and future problems can be identified and addressed and eliminated before becoming major obstacles in realising organisational goals and strategies.  

2. Better Communication:  

Performance Management focuses on the improvement of communication between the manager and his subordinates. The feedback and planning interview create opportunity for the creation and development of communication channels as well alignment between the manager and his subordinate.

It creates an opportunity for the manager to communicate organisational / departmental goals, policies, strategies and information to the subordinate and to ensure that the outputs of the subordinate is in line with policies and strategies. It also creates an opportunity for the manager to give recognition for good performance.

It creates an opportunity for subordinates to express their views and opinions as well as suggestions for improvement of performance and identification of obstacles. The subordinate gets the opportunity to discuss personal and company goals ant together with the manager fins a balance between them.

3. Performance Standards and indicators:

Performance Management focuses on specific valuable outputs that the individual must deliver which is linked to specific goals and

standards that must be achieved during the evaluation period. By clearly defining the outputs, performance standards and performance indicators the subordinate can understand exactly what is expected from him. The impact of the subordinate’s outputs on the department and organisation can be explained much easier during the planning phase.

4. Succession and Career planning:

The Performance Management process provides valuable information that can be used during succession and career planning. Employee aspirations can be clarified and where possible incorporated into overall planning of the employee's goals and outputs as well as his development plan. Clarification of the managers goals and direction regarding the employee and his role within the department. Compilation of formal training and development plans per employee to ensure the development of the employee based on the results of the performance evaluation phase of the process.  

5. Training and development:  

The Performance Management process, when applied correctly, will supply valuable information regarding developmental areas of a subordinate. The information is used during the compilation of the subordinate's development and training plan after evaluating the individual's performance. This will also provide a "check point" to determine whether the past training had any positive effect on the employee's performance.  

6. Remuneration:  

Performance Management simplifies the linkage of salaries, bonus and allowances because it is comparable and explainable.  

7. Recruitment and selection:  

The latest requirements and specifications of a specific job and the readiness for promotion of the subordinate, are supplied by the Performance Management system. It is a tool that can be used for the selection of the most appropriate candidate for a specific job.

The following are some of the disadvantages or problems of implementing a Performance Management process within a company:

1. Decreased Performance of individuals and department/organisation:  

It is possible that by implementing performance management within the company could have a negative impact on the immediate performance of individuals and indirectly the organisation. This could be because of the following reasons:

1. Lack of training of the individuals and managers2. Lack of an formal change management process3. Lack of addressing the change in the culture of the organisation4. Subjectivity level to high during evaluations5. Performance reviews used as a stick to get back at employees6. Lack of addressing the fears of employees and clarification of the whole

process and advantages to the employees7. Lack of conformity regarding Performance Management in the various

departments8. Lack of management commitment

 

2. Degrading of Communication:  

Performance Management is a two-way communication process and should managers neglect this and turn the performance review into a one-way disciplinary interview it will have a negative impact on the employee. Should the employee feel that this interview is just to be reminded of things that went wrong, it will have a negative impact on the employee's performance.

There needs to be a balance between providing negative as well as positive feedback. Negative feedback should be given in such a way that the focus is on improving the employee's performance the next time the task has to be performed and not on another parent-to-child session telling the employee he hasn't done his job. The focus should either be on giving guidance as to how to prevent this issue occurring again or even clarify the requirements should it appear that this was not understood by the employee.  

3. Lack of Management commitment:  

Even though you may spend lots of time and effort in designing and implementing a performance management process for your organisation it may have a negative impact on performance due to the level of management commitment. The most important factor to successfully implement this process is the commitment and support of Top Management as well as Line Management. Employees must "feel" that management is committed to the process and it is to their own benefit to improve their performance, as there are some rewards in the pipeline should they improve their performance.  

4. Subjectivity:

Subjectivity during the performance management process with specific reference to the manager, is one the most fatal elements that can negatively impact on an employees performance. I have noticed many times how subjective evaluations of managers can negatively impact on the employee's performance. Therefore it is extremely important to eliminate subjectivity of performance evaluation by utilising specific measurable performance indicators i.e. financial statistics to prove whether the employee has done his job or not. Usually the "gut feel" evaluations are very subjective and can be influenced by the current emotional state of the manager. To further eliminate subjectivity of performance evaluations is to implement a 360º Performance management process. Various people provide their inputs regarding the performance of the employee to provide a more objective and fair reflection thereof.  

5. Lack of Rewards:

Should there be a total lack of rewarding the employee for his performance (either negatively or positively), the performance management process will not be very effective in improving employee performance. There is always a "what's-in-it-for-me" element that you will have to address. Employee must see the benefits of the process. Whether financially or by "soft" rewards (i.e. being nominated as Employee of the Month).

6. Negative Attitudes:

Negative attitudes of managers:

1. Conflicting goals with regard to performance evaluation.

2. Lack of knowledge regarding the setting of objective performance standards.

3. Incompetence to distinguish between responsibilities that the subordinate has control over and responsibilities the subordinate does not have control over.

4. Fear of communicating performance evaluation results to the subordinate.

5. It de-motivates employees.

6. Performance evaluation is used for reprimanding poor performance.

Negative attitudes of subordinates :

 

1. Lack of understanding why performance is evaluated.

2. Lack of objectivity and fairness.

3. Subjective measuring used for performance evaluation.

4. Personality evaluation and not evaluation of outputs.

5. Managers attitude that the subordinate is in full control of his performance.

6. Nothing is done after the performance evaluation.

7. Performance evaluation is just a tool to discipline the subordinate and has no advantages for the subordinate.

This case study looks at a situation in which a manager initially wants to consider

dismissing an employee for her poor performance even though the employer has

failed to address the poor performance to date. 

It is written in the context of a commercial organisation but is procedurally correct. It

should not be used as any kind of ‘template’ for performance management and all

such formal action should be fully discussed with HR. This is for information

purposes only to give an insight for line managers. In some places it has been edited

to correct for relevance.

Performance Management: A Case Study

Carol is a claims administrator with Rest Assured plc, a life assurance company. In

her mid 60s, she is one of the company's longest-serving employees and has an

unblemished disciplinary record. David, the claims team manager, who joined the

company recently, arranges a meeting with the HR manager, Elaine, to discuss a

problem he is having with Carol. Some of Carol's colleagues have complained to him

that she is not pulling her weight and is dealing with her claims allocation very slowly.

They have to cover for her to prevent a backlog of claims building up.

David explains to Elaine that he has been told that Carol's poor performance has

been a problem for some time but the previous claims team manager did nothing

about it. There is no documentation showing that the problem was being addressed.

The previous manager allowed Carol to coast along, so much so that it appears to

Derek that she has become somewhat "set in her ways". Because of the effect that

Carol's underperformance is having on the rest of the team, David wants to take

decisive action now.

Elaine needs to outline to David the steps that he should take to address Carol's

underperformance. He should take action promptly before Carol's performance

issues escalate further, and follow a performance management procedure. He must

also take care to comply with the requirements of the  Acas code of practice on

disciplinary and grievance procedures (PDF format, 1MB) (on the Acas website),

which covers poor performance However, before he takes formal action against

Carol, David must investigate whether or not she is underperforming and, if she is,

why. He will need to meet Carol to discuss the possible cause of her below-standard

job performance. He should make it clear to her that this meeting is investigatory and

is not, at this stage, part of the formal disciplinary process.

Prior to the meeting, David should collect relevant and objective evidence, for

example customer complaints and other evidence to demonstrate that Carol has not

been dealing with claims in a timely manner. If they had been available, he would

also have needed to obtain copies of Carol's appraisals and details of discussions

that her previous manager had with her concerning her performance.

Assuming that the evidence indicates that Carol has been underperforming, based

on the evidence that he collects and his subsequent meeting with Carol, David

should try to establish whether Carol's underperformance is capability or conduct

related, and whether or not there are mitigating reasons for it.

Poor performance that is capability related may be attributable to inadequate or

insufficient training, poor communication, the employee's lack of understanding of his

or her goals and objectives, lack of feedback, poor quality supervision and/or

support, excessive workloads, unrealistic targets and deadlines, poor working

relationships and personal problems. Alternatively, poor performance may be the

result of genuine inability or lack of commitment. If Carol's poor performance is

conduct related, Rest Assured should follow its disciplinary procedure rather than a

performance management process.

If David identifies that Carol's poor performance is capability related, he should agree

specific action points and targets with her, together with a realistic timescale in which

she should achieve them. He should also arrange training or other remedial steps if

these are appropriate and schedule a follow-up meeting to review Carol's

performance.

It is essential that David keep a record of the meeting (including the agreed targets

for improvement) and of the arrangements for the follow-up meeting. He should

continue to monitor Carol's on-going performance. If Carol's performance does not

improve after Rest Assured has followed their performance management procedure,

he may be left with no alternative but to take this to a formal review panel.

To avoid Carol being able successfully to claim any kind of unlawful discrimination

against Rest Assured, for example because of her age, David should deal with her

performance in the same way as he would for other employees in the team. Prior to

this, subject to the (now repealed) statutory retirement procedure, employers could

compulsorily retire employees when they reached retirement age. As a result, many

employers overlooked performance issues in older members of staff who were

approaching retirement age because they would be leaving anyway. David cannot

use the fact that Carol may have attained what was previously the company's

retirement age as a reason to end her employment. Nor can he assume that she will

want to retire at this point. If he treats Carol less favourably than other employees

because she is close to, or has reached, a particular age, this might amount to

unlawful age discrimination. Conversely, if he treats her more leniently than other

members of the team for the same reason, Rest Assured could be vulnerable to

claims of age discrimination by them.

David gathers his evidence and meets with Carol to discuss his concerns. At first

Carol is defensive and claims that her performance is no worse than that of the other

members of the claims team. She does not believe that there have been customer

complaints about her so she cannot see what the problem is. However, when David

shows her evidence that her closure rate of claims files has consistently been the

lowest in the team and that some customers have complained about the slow

handling of their claims, she breaks down in tears and confesses to David that she

has been struggling to cope with the volume of work since a new computer system

for handing claims records was installed over a year ago. Although she received

training when the new system was introduced, she is not as computer literate as

some of the other members of the team and has struggled with it.

Having established that Carol's performance issue is capability and not conduct

related and that her underperformance appears to be due to a training need, David

decides to take an informal approach. He tells her that she needs to improve her

performance or she may be moved to the next stage of the performance

management process, which could ultimately lead to formal warnings.

David arranges for Carol to receive one-to-one refresher training on the new claims

records system. Once the training is complete, David agrees with Carol that, over a

period of three months, she must ensure that her claim closure rates are at, or

above, the claims team's average. He also agrees with her that he will sit down with

her at the end of each month during this period to discuss how she is progressing

towards meeting the target and any concerns that she may have.

At the end of the three-month period, Carol's performance shows a consistent

improvement and the informal approach has serves its purpose without need to

move to more formal measures. He continues to monitor her performance by way of

regular meetings and Rest Assured's appraisal process.

David's experience with Carol demonstrates the benefits for employers of having

robust & fully documented processes and of dealing with performance issues as and

when they arise. Employers that have failed to address poor performance at the

outset may have to tolerate a longer period for improvement than they otherwise

would, because the employee will have become used to performing at the lower

level. It is important to have some documented evidence of a performance issue

before starting formal action and by carrying out an investigation into the poor

performance, the employer should be able to identify whether it is due to capability or

conduct, and follow the correct procedure as a result.

CHAPTER 6

PERFORMANCE MANAGEMENT AND APPRAISAL AT LARSEN & TOUBRO

Larsen & Toubro Limited (L&T) is India's largest engineering and construction conglomerate with additional interests in Electricals, Electronics and IT. A strong customer-focus approach and constant quest for top-class quality have enabled L&T to attain and sustain leadership position over 6 decades. L&T enjoys a premiere brand image in India and its international presence is on the rise, with a global spread of over 30 offices and joint ventures with world leaders.

L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf region.

The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support. It believes that progress must be achieved in harmony with the environment. A commitment to community welfare and environmental protection are an integral part of the corporate vision.

HISTORY:

The evolution of L&T into the country's largest engineering and construction organization is among the more remarkable success stories in Indian industry. L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen(4.7.1907 - 27.7.2003) and Soren Kristian Toubro(27.02.1906 – 4.3.1982). Both of them were strongly committed to developing India's engineering capabilities to meet the demands of industry. Beginning with the import of machinery from Europe, L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets global engineering benchmarks in terms of scale and complexity.

PERFORMANCE DOMAINS IN L&T

Performance domains are those that lend themselves to evaluation of outputs. The following are considered performance domains in organizations:

Mission Process Mission critical sub system Individual

The translation of an organization Vision into individual activities and work plan.

Line Manager Appraisal:

It is a mechanism to link individual goals and strategic direction. It focuses on objectives and targets. It can combine regular informal review of performance with formal appraisal to agreed timescales. It may also include rating scales for comparison purposes.

Self-Appraisal:

It is often used as preparation for the line manager/subordinate appraisal. Individuals take the

Vision/Mission

Strategy

Goals

Outcomes (KRA’s)

Activities & Tasks

Outputs Tasks Decisions Responsibility/Authorityity

lead in reviewing their own performance. It encourages individuals to think about their performance and development needs in a focused way. The combination of involvement and responsibility generates commitment to personality taking action.

Upward Appraisal:

It is appropriate in multi-level or source appraisal settings. It may take place in the context of the subordinate’s appraisal.

Peer Appraisal:

Individuals nominate their own appraiser. It allows choice of peers who are respected for relevant knowledge of professional specialization. It is relevant in situation where there may be no immediate manager in a position to appraise.

Team review and appraisal:

Its main feature is establishing team success and areas for improvement. It aids the team-building and objective-setting process. It encourages open and constructive comment among the team.

Competency-based Appraisal:

It sets targets for the roles as specific objectives or other measurable objectives. It focuses on behavioral descriptions of the standards expected in fulfilling the role. It is a development plan specifying training, development and support towards achieving targets and competencies. It is a system of periodic review leading to annual appraisal of performance against targets and achievement of competences.

360-degree feedback:

Its focus is on the development of skills and competences which will improve organizational performance. Appraises may include either direct or other managers, subordinates, peers or customers. Feedback is collected systematically through formally constructed questionnaires. It can include self-assessment for comparison with the views of others. It is essentially based on ratings which more often than not are aggregated to represent an average score.

 L&T followed the system of management by objective (MBO), the key result areas of an individual were not specific and measurable. It was suggested that the individual goals be aligned with the acronym SMART (specific, measurable, attainable, realistic, and time-linked). Also, that the organisation develop job competencies for the main job families in L&T. In addition to the key result areas not being very specific and measurable, Wadhwa noticed some grey areas in the existing Performance Appraisal System in L&T, such as:

Core competencies to rate employees was not clearly defined. Specific role related attributes were not specified. Rating by the immediate superior alone, led to a bias. The four-point scale grading system did not identify low-performers.

To overcome these, Wadhwa decided to benchmark the system with leading, non-competing companies like HLL, Pepsi, Johnson & Johnson, Cadbury India, Knoll Pharmaceuticals, Novartis, Philips and Godrej GE. Data was collected from organisations in different sectors which enabled identification of high, medium and low performers at the supervisory and management level.

This was done through a sampling exercise based on theoretical and structured questionnaires prepared by her.

Also, competency profiling was done through random sampling of L&T's main business of manufacturing. This was carried out at the three levels-covenants (assistant managers, managers and senior managers), executives and supervisory-through semi-structured interviewwith covenants and focused groups along with semi-structured interviews at the executive and supervisory level.

Improving feedback

Among other major recommendations to the company, Wadhwa pointed out that certain functions like HR and finance cannot be easily quantifiable. To make these specific and measurable:

Objectives should be prioritised as per their importance for the department by distributing 100 points among the objectives. Core competencies should be specifically defined on a 100-point scale each. Competency profiling should be done for the main job families. In order to avoid biases in the superior's ratings, six internal customers could be chosen by the employee in consensus with the immediate superior. Rating on a five-point scale given for each objective and competency could be multiplied by the points given to that objective and competency. The total number of points given to employees should be awarded out of a scale of 500 points so as to clearly demarcate low performers from outstanding/good/medium performers.

Job competency profiling can be used to identify the training needs. Identified job competencies can be used to select suitable candidates for different jobs in future,'asserts Wadhwa. Moreover, this system could also be used to identify the potential of employees-which in turn, would help build a high-performance culture at L&T.

CONCLUSION

The cost of doing performance management and employee reviews incorrectly is something that many managers, HR professionals and companies never consider. It's too bad. Yes, there is a cost, and a very heavy cost, to doing things badly in the area of appraising employee performance, or not managing performance properly.

Poor performance management practices incur direct costs through loss in productivity that happens when performance problems are not addressed quickly. For example, a manager who only reviews employee performance once a year, and rarely talks to employees about performance through the year is likely to have huge inefficiencies. If the problems were discovered and addressed during the year, many of those productivity problems could be eliminated.

Other costs occur, too. Employees subjected to poor performance management and performance review practices are likely to get upset, angry, demoralized and de-motivated. They start to believe that managers aren't serious about performance, or, even worse, are trying to find people to blame for performance problems.Further, employee performance reviews that tend to put the employee and the manager on opposite sides of the table push employees into not communicating with managers during the year.

BIBLIOGRAPHY

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Wikipedia

Human Resource Management By Ashwathappa