Holmes Institute HC2101: Performance Management Systems Analysis

This essay examines performance management systems, crucial for optimizing employee performance and organizational efficiency. It delves into key components, including planning and expectation setting, which emphasizes measurable, aligned, and communicated goals. Performance appraisal and reviewing are discussed as vital tools for evaluating employee performance and providing feedback. The essay highlights the significance of performance-related rewards, categorizing employee needs to create effective incentive systems. Furthermore, it emphasizes the importance of performance improvement planning and potential appraisals for identifying skill gaps and succession planning. The conclusion stresses that effective performance management requires a carefully designed system that reinforces desired employee behavior and contributes to long-term market survival.

Performance Management Systems
PERFORMANCE MANAGEMENT
FOR HUMAN RESOURCES – 957785
1

Performance Management Systems
Table of Contents
Introduction.......................................................................................................................3
Performance Management..........................................................................................................3
Components of an Effective Performance Management System.........................................3
Planning and Expectation Setting.................................................................................................3
Performance Appraisal and Reviewing.........................................................................................4
Performance Rewards..................................................................................................................5
Performance Improvement Planning...........................................................................................5
Potential Appraisal.......................................................................................................................6
2

Performance Management Systems
Introduction
Performance Management
Performance management system is a planned approach that helps business organizations in
formulating performance objectives for their employees, measuring their performance levels
and in identifying gaps between actual performance levels and expected performance levels
(Van Dooren, et al., 2015). Performance management systems are proving to be a great tool
for human resource managers in optimising the performance levels of individuals. Not only
do they make the workplace environment more competitive and performance oriented, but
also assist business organisations in increasing their overall productivity and efficiency
(Buckingham & Goodall, 2015). Therefore, performance management has become one of the
most important core-functions in human resource management in the contemporary business
world.
A lot of research is being done in the field of performance management systems in order to
validate their effectiveness. Performance appraisal has been considered as a measurement
technique by most of the human resource personnel in the past few decades. Therefore, in this
report, we will discuss certain important components of a performance management system
that make it effective.
Components of an Effective Performance Management System
Performance management systems can have a huge impact on the overall productivity and
efficiency of a company but a dysfunctional performance management system can prove to
be determinantal to the market position of a company. Therefore, it is important that human
resource managers keep in mind certain key elements that can make a performance
management system effective, so that it can measure and promote the right behaviour
amongst the employees. Some important components of an effective performance
management system are discussed below:
Planning and Expectation Setting
The first and the most important component of a performance management system is the
planning of performance objectives, goals and expectations. A number of times, business
organisations have been found to have set wrong performance objectives or goals, which
3

Performance Management Systems
foster a negative behaviour amongst the employees and makes the system of performance
management ineffective.
The most important component in an effective performance management system are the goals
or objectives set up by an organisation. An organisation should ensure that the performance
goals or objectives that it formulates for its employees are measurable, acceptable to the
employees, time-bound, specific and realistic (Audia & Tams, 2017). The performance goals
set for the employees should be aligned with the overall organisational goals and objectives
so that the employees feel motivated to show higher performance levels.
Once the performance goals and objectives are set for the employees, it is also important to
communicate these goals to the employees as clearly as possible. The employees should have
a clarity of what their organization expects from them. Proper planning and expectation
setting lays a strong foundation for an effective performance management system (Graziano,
2016).
Performance Appraisal and Reviewing
In simple words, performance appraisal and reviewing is a technique that allows business
organisations to document and evaluate the job performance of their employees. Performance
appraisal is another key element in a performance management system that organisations
conduct annually as well as semi-annually. Business organizations can chose from a wide
variety of performance appraisal techniques, such as 360 degree performance appraisal, etc.
that can help in providing the employees with a feedback on the performance levels that they
have managed to achieve over a period of time (DeNisi & Murphy, 2017).
In performance appraisals, employees as well as the employers take active participation in
order to identify any loopholes in the performance levels of the employees and finding out
techniques to overcome the loopholes. Performance appraisals are considered highly
important by employees as they have a need to know what their organisation thinks about
them and how much does it value the efforts that they have put in for its success. In absence
of proper performance appraisal and reviewing strategies in a performance management
system, the employees become more likely to lose their morale as they would have goals to
4

Performance Management Systems
achieve but a system to measure their progress would be absent (DeNisi & Gonzalez, 2017).
Therefore, it is another key element that makes a performance management system effective.
Performance Rewards
Performance related rewards are a key element in an effective performance management
system as their absence can make it difficult for business organizations to keep their
workforce motivated and on the right track. Business organizations associate rewards in the
form of monetary as well as non-monetary incentives, which are given to the employees on
the basis of the performance levels achieved by them in an assessment period.
The zeal of the employees to accept performance challenges and objectives and to fulfil them
is solely dependent on the rewards that they would get by the end of an assessment period.
Employees have different sets of needs when they work in an organisation. For example,
some employees might have financial needs whereas another group of employees can have a
need to prove themselves and to gain recognition in the workplace (Shields, et al., 2015). By
categorizing the employees on the basis of their needs, business organizations can formulate
optimum reward systems for them, which would be helpful in keeping them motivated to
perform better and ultimately make the performance management system more effective.
The reward system in a performance management system can therefore be based on the
Maslow’s Need Hierarchy Theory, which emphasis on the importance of considering
employee needs to motivate them and to optimise their performance levels.
Performance Improvement Planning
Performance management systems must include performance improvement planning as a key
component to prove their worth in an organisational setup. One of the main objectives of a
business organisation is to ensure long term survival in the market and to retain its talented
employees. A company can achieve these two goals only by having an effective performance
management system in place.
Performance improvement planning allows business organizations to identify the gaps that
exist between actual employee performance levels and the performance objectives set up for
them in the beginning of an assessment period. Once these performance gaps are identified,
5

Performance Management Systems
business organizations can plan for the improvement of employee skills and competencies,
which can be done through training and development programs. Training and development
programs allows employees to learn new skills and competencies that allows them to perform
better in their job and contribute more towards the success of an organisation. Ultimately, an
organisation is able to perform better than its competitors by improving the performance
levels of its employees and ensure a long term survival in the market (Luxem, n.d.).
In absence of an performance improvement plan, business organizations can fail to bridge the
gap between the actual performance levels of the employees and the performance objectives
set up for them. The failure to do this will make it impossible for the employees to improve
their performance, which would consequently defeat the purpose of a performance
management system.
Potential Appraisal
Last, but not the least, potential appraisal is another key element that makes a performance
management system effective. Potential appraisal is a future oriented approach that allows
human resource managers to carry out succession planning of their workforce by mapping
their competencies.
Using potential appraisals, human resource managers can identify employees who have the
capabilities to take up higher job positions and responsibilities in their companies. Based on
their findings, human resource managers can prepare such employees for a promotion and
can promote them to a higher position in the organisational hierarchy whenever there is a
vacancy. This not only allows human resource managers in workforce planning but also
opens up career development opportunities for the employees (Tziner & Rabenu, 2018). The
employees start to perceive that fulfilling their performance objectives is the only way that
can help them in developing their careers or fulfilling their needs. As a result, the workplace
environment becomes performance driven and the employees are ready to accept work
related challenges in order to prove themselves.
Conclusion
Performance management systems can prove to be a double sided coin for many business
organizations. There have been a number of contemporary business organizations that have
6

Performance Management Systems
lost their market position as a result of their ineffective performance management systems,
which fostered a negative behaviour amongst the employees. The implications of
implementing an ineffective performance management system can go beyond the control of
business organizations, which makes it imperative for them to increase the effectiveness of
their performance management systems.
To make a performance management system more effective, business organizations can look
into the above recommendations and make sure to include key elements like, performance
planning, performance appraisal, performance rewards, performance improvement planning
and potential appraisals in it. Working on the design of a performance management system
step by step can ensure that it is carefully planned to measure and reinforce the right
behaviour amongst the staff members, which would ultimately make it more effective.
7

Performance Management Systems
Bibliography
Audia, P. & Tams, S., 2017. Goal setting, performance appraisal, and feedback across
cultures. The Blackwell Handbook of Cross‐Cultural Management, pp. 142-154.
Buckingham, M. & Goodall, A., 2015. Reinventing performance management.. Harvard
Business Review, 93(4), pp. 40-50.
DeNisi, A. & Gonzalez, J., 2017. Design performance appraisal systems to improve
performance.. The Blackwell Handbook of Principles of Organizational Behaviour, pp. 63-
75.
DeNisi, A. & Murphy, K., 2017. Performance appraisal and performance management: 100
years of progress?.. Journal of Applied Psychology, 102(3), p. 421.
Graziano, M., 2016. The 5 Elements of Performance Management Success. [Online]
Available at: https://www.linkedin.com/pulse/5-elements-performance-management-success-
margaret[Accessed 15 April 2019].
Luxem, C., n.d. 6 Components of a Well-Designed Performance Management System.
[Online] Available at: https://joinhomebase.com/blog/6-components-of-a-well-designed-
performance management-system/[Accessed 16 April 2019].
Shields, J. et al., 2015. Managing employee performance & reward: Concepts, practices,
strategies.. s.l.:Cambridge University Press..
Tziner, A. & Rabenu, E., 2018. Performance appraisal and beyond: Directions for future
research and application. Improving Performance Appraisal at Work.
Van Dooren, W., Bouckaert, G. & Halligan, J., 2015. Performance management in the public
sector. s.l.:Routledge.
8

Performance Management Systems
9