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The Process of Performance
Management
Key concepts and terms
- Control theory
- Objectives
- Performance management
- Social cognitive theory
- Goal theory
- Performance appraisal
- Personal development planning
- SMART objectives
On completing this chapter you will know about:
Learning outcomes
- Objectives of performance management
- The performance management cycle
- Types of objectives
- Managing performance throughout the year
- Rating performance
- Introducing performance management - Characteristics of performance management - Performance and development agreements - Performance planning - Reviewing performance - Dealing with under-performers - Line managers and performance management
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Introduction
Performance management is an important HRM process that provides the basis for improving and developing performance and is part of the reward system in its most general sense. This chapter starts by defining performance management and discussing its objectives, characteris- tics and underpinning theories. It continues with a description of the performance manage- ment cycle and its three constituents: performance agreement, managing performance continuously, and reviewing and assessing performance. Finally, the chapter deals with man- aging under-performers, introducing performance management and the role of line managers.
Performance management defined
Performance management is a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of getting better results by understanding and managing performance within an agreed framework of planned goals, standards and competency requirements. As Weiss and Hartle (1997) commented, perform- ance management is: ‘A process for establishing a shared understanding about what is to be achieved and how it is to be achieved, and an approach to managing people that increases the probability of achieving success.’
The main concerns of performance management
Performance management is concerned with:
- aligning individual objectives to organizational objectives and encouraging individuals to uphold corporate core values;
- enabling expectations to be defined and agreed in terms of role responsibilities and accountabilities (expected to do), skills (expected to have) and behaviours (expected to be);
- providing opportunities for individuals to identify their own goals and develop their skills and competencies.
It is sometimes assumed that performance appraisal is the same thing as performance manage- ment. But there are significant differences. Performance appraisal can be defined as the formal assessment and rating of individuals by their managers at or after a review meeting. It has been discredited because too often it has been operated as a top-down and largely bureaucratic
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as objectives (management by objectives). In this respect it focuses on targets, standards and performance measures or indicators. It is based on the agreement of role requirements, objec- tives and performance improvement and personal development plans. It provides the setting for ongoing dialogues about performance, which involves the joint and continuing review of achievements against objectives, requirements and plans.
It is also concerned with inputs and values. The inputs are the knowledge, skills and behav- iours required to produce the expected results. Developmental needs are identified by defining these requirements and assessing the extent to which the expected levels of performance have been achieved through the effective use of knowledge and skills and through appropriate behaviour that upholds core values.
Performance management is not just a top-down process in which managers tell their subor- dinates what they think about them, set objectives and institute performance improvement plans. It is not something that is done to people. As Buchner (2007) emphasizes, performance management should be something that is done for people and in partnership with them.
Performance management is a continuous and flexible process that involves managers and those whom they manage acting as partners within a framework that sets out how they can best work together to achieve the required results. It is based on the principle of management by contract and agreement rather than management by command. It relies on consensus and cooperation rather than control or coercion.
Performance management focuses on future performance planning and improvement and personal development rather than on retrospective performance appraisal (Armstrong, 2006). It functions as a continuous and evolutionary process in which performance improves over time. It provides the basis for regular and frequent dialogues between managers and individu- als about performance and development needs based on feedback and self-assessment. It is mainly concerned with individual performance but it can also be applied to teams. The empha- sis is on development, although performance management is an important part of the reward system through the provision of feedback and recognition and the identification of opportu- nities for growth. It may be associated with performance- or contribution-related pay but its developmental aspects are much more important.
Underpinning theories
The following three theories underpinning performance management have been identified by Buchner (2007).
Goal theory
Goal theory, as developed by Latham and Locke (1979), highlights four mechanisms that connect goals to performance outcomes: 1) they direct attention to priorities; 2) they stimulate
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effort; 3) they challenge people to bring their knowledge and skills to bear to increase their chances of success; and 4) the more challenging the goal, the more people will draw on their full repertoire of skills. This theory underpins the emphasis in performance management on setting and agreeing objectives against which performance can be measured and managed.
Control theory
Control theory focuses attention on feedback as a means of shaping behaviour. As people receive feedback on their behaviour they appreciate the discrepancy between what they are doing and what they are expected to do and take corrective action to overcome the discrep- ancy. Feedback is recognized as a crucial part of performance management processes.
Social cognitive theory
Social cognitive theory was developed by Bandura (1986). It is based on his central concept of self-efficacy. This suggests that what people believe they can or cannot do powerfully impacts on their performance. Developing and strengthening positive self-belief in employees is there- fore an important performance management objective.
The performance management cycle
Performance management takes the form of a continuous self-renewing cycle, as illustrated in Figure 38.1 and described below.
Performance review and assessment
Managing performance throughout the year
Performance and development agreement
Figure 38.1 The performance management cycle
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Criteria for objectives
Many organizations use the following SMART mnemonic to summarize the criteria for objectives:
S = Specific/stretching – clear, unambiguous, straightforward, understandable and challenging. M = Measurable – quantity, quality, time, money. A = Achievable – challenging but within the reach of a competent and committed person. R = Relevant – relevant to the objectives of the organization so that the goal of the indi- vidual is aligned to corporate goals. T = Time framed – to be completed within an agreed timescale.
Measuring performance in achieving objectives
Measurement is an important concept in performance management. It is the basis for provid- ing and generating feedback, it identifies where things are going well to provide the founda- tions for building further success, and it indicates where things are not going so well, so that corrective action can be taken.
Measuring performance is relatively easy for those who are responsible for achieving quanti- fied targets, for example sales. It is more difficult in the case of knowledge workers, for example scientists. But this difficulty is alleviated if a distinction is made between the two forms of results – outputs and outcomes. An output is a result that can be measured quantifiably, while an outcome is a visible effect that is the result of effort but cannot necessarily be measured in quantified terms.
There are components in all jobs that are difficult to measure quantifiably as outputs, but all jobs produce outcomes even if they are not quantified. It is therefore often necessary to measure performance by reference to what outcomes have been attained in comparison with what out- comes were expected, and the outcomes may be expressed in qualitative terms as a standard or
- Behavioural – behavioural expectations are often set out generally in compe- tency frameworks but they may also be defined individually under the frame- work headings. Competency frameworks may deal with areas of behaviour associated with core values, for example teamwork, but they often convert the aspirations contained in value statements into more specific examples of desir- able and undesirable behaviour, which can help in planning and reviewing performance.
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level of competency to be attained. That is why it is important when agreeing objectives to answer the question, ‘How will we know that this objective has been achieved?’ The answer needs to be expressed in the form, ‘Because such and such will have happened.’ The ‘such and such’ will be defined either as outputs in such forms as meeting or exceeding a quantified target, completing a project or task satisfactorily (what is ‘satisfactory’ having been defined), or as outcomes in such forms as reaching an agreed standard of performance, or delivering an agreed level of service.
However, when assessing performance it is also necessary to consider inputs in the shape of the degree of knowledge and skill attained and behaviour that is demonstrably in line with the standards set out in competency frameworks and statements of core values. Behaviour cannot be measured quantitatively but it can be assessed against definitions of what constitutes good and not so good behaviour, and the evidence that can be used to make that assessment can be identified.
Performance planning
The performance planning part of the performance management sequence involves agree- ment between the manager and the individual on what the latter needs to do to achieve objec- tives, raise standards, improve performance and develop the required competencies. It also establishes priorities – the key aspects of the job to which attention has to be given. The aim is to ensure that the meaning of the objectives, performance standards and competencies as they apply to everyday work is understood. They are the basis for converting aims into action.
Agreement is also reached at this stage on how performance will be measured and the evidence that will be used to establish levels of competence. It is important that these measures and evi- dence requirements should be identified and fully agreed now because they will be used by individuals as well as managers to monitor and demonstrate achievements.
Personal development planning
A personal development plan provides a learning action plan for which individuals are respon- sible with the support of their managers and the organization. It may include formal training but, more importantly, it will incorporate a wider set of learning and development activities such as self-managed learning, coaching, mentoring, project work, job enlargement and job enrichment. If multi-source assessment (360-degree feedback) is practised in the organization this will be used to discuss development needs.
The development plan records the actions agreed to improve performance and to develop knowledge, skills and capabilities. It is likely to focus on development in the current job – to improve the ability to perform it well and also, importantly, to enable individuals to take on wider responsibilities, extending their capacity to undertake a broader role. This plan therefore contributes to the achievement of a policy of continuous development that is predicated on
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which the five primary performance management elements of agreement, measurement, feed- back, positive reinforcement and dialogue can be put to good use. It leads to the completion of the performance management cycle by informing performance and development agreements. It involves some form of assessment, as considered in the next section of this chapter.
The review should be rooted in the reality of the individual’s performance. It is concrete, not abstract and it allows managers and individuals to take a positive look together at how per- formance can become better in the future and how any problems in meeting performance standards and achieving objectives can be resolved. Individuals should be encouraged to assess their own performance and become active agents for change in improving their results. Managers should be encouraged to adopt their proper enabling role; coaching and providing support and guidance.
There should be no surprises in a formal review if performance issues have been dealt with as they should have been – as they arise during the year. Traditional appraisals are often no more than an analysis of where those involved are now, and where they have come from. This static and historical approach is not what performance management is about. The true role of per- formance management is to look forward to what needs to be done by people to achieve the purpose of the job, to meet new challenges, to make even better use of their knowledge, skills and abilities, to develop their capabilities by establishing a self-managed learning agenda and to reach agreement on any areas where performance needs to be improved and how that improvement should take place. This process also helps managers to improve their ability to lead, guide and develop the individuals and teams for whom they are responsible.
The most common practice has traditionally been to have one annual review, which was the practice of 44 per cent of the respondents to the 2008 IRS survey (Wolff, 2008). But twice- yearly reviews are becoming more common (39 per cent of the IRS respondents). These reviews lead directly into the conclusion of a performance agreement (at the same meeting or later). It can be argued that formal reviews are unnecessary and that it is better to conduct informal reviews as part of normal good management practice to be carried out as and when required. Such informal reviews are valuable as part of the continuing process of performance manage- ment (managing performance throughout the year, as discussed in the previous chapter). But there is everything to be said for an annual or half-yearly review that sums up the conclusions reached at earlier reviews and provides a firm foundation for a new performance agreement and a framework for reviewing performance informally, whenever appropriate.
Criteria for reviewing performance
The criteria for reviewing performance should be balanced between:
- achievements in relation to objectives;
- the level of knowledge and skills possessed and applied (competences or technical competencies);
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- behaviour in the job as it affects performance (competencies);
- the degree to which behaviour upholds the core values of the organization;
- day-to-day effectiveness.
The criteria should not be limited to a few quantified objectives as has often been the case in traditional appraisal schemes. In many cases the most important consideration will be the job holders’ day-to-day effectiveness in meeting the continuing performance standards associated with their key tasks. It may not be possible to agree meaningful new quantified targets for some jobs every year. Equal attention needs to be given to the behaviour that has produced the results as to the results themselves.
Conducting a performance review meeting
There are 12 golden rules for conducting performance review meetings.
- Be prepared. Managers should prepare by referring to a list of agreed objectives and their notes on performance throughout the year. They should form views about the reasons for success or failure and decide where to give praise, which performance problems should be mentioned and what steps might be undertaken to overcome them. Thought should also be given to any changes that have taken place or are contemplated in the individual’s role and to work and personal objectives for the next period. Individuals should also prepare in order to identify achievements and problems, and to be ready to assess their own performance at the meeting. They should also note any points they wish to raise about their work and prospects.
- Work to a clear structure. The meeting should be planned to cover all the points identified during preparation. Sufficient time should be allowed for a full discussion – hurried meet- ings will be ineffective. An hour or two is usually necessary to get maximum value from the review.
- Create the right atmosphere. A successful meeting depends on creating an informal envi- ronment in which a full, frank but friendly exchange of views can take place. It is best to start with a fairly general discussion before getting into any detail.
- Provide good feedback. Individuals need to know how they are getting on. Feedback should be based on factual evidence. It refers to results, events, critical incidents and significant behaviours that have affected performance in specific ways. The feedback should be pre- sented in a manner that enables individuals to recognize and accept its factual nature – it should be a description of what has happened, not a judgement. Positive feedback should be given on the things that the individual did well in addition to areas for improvement. People are more likely to work at improving their performance and developing their skills if they feel empowered by the process.
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- Agree measurable objectives and a plan of action. The aim should be to end the review meeting on a positive note.
These golden rules may sound straightforward and obvious enough but they will only func- tion properly in a culture that supports this type of approach. This emphasizes the importance of getting and keeping top management support and the need to take special care in develop- ing and introducing the system and in training managers and their staff.
Assessing performance
Most performance management schemes include some form of rating, which is usually carried out during or after a performance review meeting. The rating indicates the quality of perform- ance or competence achieved or displayed by an employee by selecting the level on a scale that most closely corresponds with the view of the assessor on how well the individual has been doing. A rating scale is supposed to assist in making judgements and it enables those judge- ments to be categorized to inform performance or contribution pay decisions, or simply to produce an instant summary for the record of how well or not so well someone is doing.
The rationale for rating
There are four arguments for rating:
- It recognizes the fact that we all form an overall view of the performance of the people who work for us and that it makes sense to express that view explicitly against a framework of reference rather than hiding it. Managers can thus be held to account for the ratings they make and be required to justify them.
- It is useful to sum up judgements about people – indicating who are the exceptional per- formers or under-performers and who are the reliable core performers so that action can be taken (developmental or some form of reward).
- It is impossible to have performance or contribution pay without ratings – there has to be a method that relates the size of an award to the level of individual achievement. However, many organizations with contribution or performance pay do not include ratings as part of the performance management process – 23 per cent of the respondents to the e-reward 2005 survey.
- It conveys a clear message to people on how they are doing and can motivate them to improve performance if they seek an answer to the question, ‘What do I have to do to get a higher rating next time?’
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Types of rating scales
Rating scales can be defined alphabetically (a, b, c, etc), or numerically (1, 2, 3, etc). Initials (ex for excellent, etc) are sometimes used in an attempt to disguise the hierarchical nature of the scale. The alphabetical or numerical points scale points may be described adjectivally, for example, a = excellent, b = good, c =satisfactory and d= unsatisfactory.
Alternatively, scale levels may be described verbally as in the following example:
- Exceptional performance: Exceeds expectations and consistently makes an outstanding contribution that significantly extends the impact and influence of the role.
- Well-balanced performance: Meets objectives and requirements of the role; consist- ently performs in a thoroughly proficient manner.
- Barely effective performance: Does not meet all objectives or role requirements of the role; significant performance improvements are needed.
- Unacceptable performance: Fails to meet most objectives or requirements of the role; shows a lack of commitment to performance improvement, or a lack of ability, which has been discussed prior to the performance review.
The e-reward 2005 survey of performance management found that overall ratings were used by 70 per cent of respondents, and the most popular number of levels was five (43 per cent of respondents). However, some organizations are settling for three levels. There is no evidence that any single approach is clearly much superior to another, although the greater the number of levels the more is being asked of managers in the shape of discriminatory judgement. It does, however, seem to be preferable for level definitions to be positive rather than negative and for them to provide as much guidance as possible on the choice of ratings. It is equally important to ensure that level definitions are compatible with the culture of the organization and that close attention is given to ensuring that managers use them as consistently as possible.
Problems with rating
Ratings are largely subjective and it is difficult to achieve consistency between the ratings given by different managers (ways of achieving consistent judgements are discussed below). Because the notion of ‘performance’ is often unclear, subjectivity can increase. Even if objectivity is achieved, to sum up the total performance of a person with a single rating is a gross over-sim- plification of what may be a complex set of factors influencing that performance – to do this after a detailed discussion of strengths and weaknesses suggests that the rating will be a super- ficial and arbitrary judgement. To label people as ‘average’ or ‘below average’, or whatever equivalent terms are used, is both demeaning and demotivating.
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Forced distribution
Forced distribution means that managers have to conform to a laid down distribution of ratings between different levels. The pattern of distribution may correspond to the normal curve of distribution that has been observed to apply to IQ scores, although there is no evi- dence that performance in an organization is distributed normally – there are so many other factors at work such as recruitment and development practices. A typical normal distribution of ratings is: A=5 per cent, B = 15 per cent C = 60 per cent, D = 15 per cent and E = 5 per cent. This is similar to the academic practice of ‘rating on the curve’, which distributes grades in accordance with the distribution represented by the normal or bell-shaped curve.
Forced distribution achieves consistency of a sort, but managers and staff rightly resent being forced into this sort of straightjacket. Only 8 per cent of the respondents to the CIPD 2004 performance management survey (Armstrong and Baron, 2004) used forced distribution.
Forced ranking
Forced ranking is a development of forced distribution. It is sometimes called the ‘vitality curve’. It is more common in the United States than in the UK. Managers are required to place their staff in order from best to worst. Rankings can be generated directly from the assignment of employees to categories (eg A, B and C) or indirectly through the transformation of per- formance ratings into groups of employees. The problem with forced ranking, as with forced distribution and other overall rating systems, is that the notion of performance is vague. In the case of ranking it is therefore unclear what the resulting order of employees truly represents. If used at all, ranks must be accompanied by meaningful performance data.
Some organizations, mainly in the United States, have gone as far as adopting the practice of terminating annually the employment of 5 to 10 per cent of the consistently lowest perform- ers. It is claimed that this practice ‘raises the bar’, ie it is said that it improves the overall level of performance in the business. There is no evidence that this is the case.
Visual methods of assessment
An alternative approach to rating is to use a visual method of assessment. This takes the form of an agreement between the manager and the individual on where the latter should be placed on a matrix or grid, as illustrated in Figure 38.2. A ‘snapshot’ is thus provided of the individu- al’s overall contribution that is presented visually and as such provides a better basis for analy- sis and discussion than a mechanistic rating. The assessment of contribution refers to outputs and to behaviours, attitudes and overall approach.
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High achievement, but behaviours, attitudes and approach needs to improve
High all-round performance
Not meeting requirements
Behaviour, attitudes, overall approach to work
Positive approach but poor level of achievement Achievement of role objectives
Figure 38.2 Performance matrix
The review guidelines accompanying the matrix are as follows.
You and your manager need to agree an overall assessment. This will be recorded in the summary page at the beginning of the review document. The aim is to get a balanced assessment of your contribution through the year. The assessment will take account of how you have performed against the responsibilities of your role as described in the Role Profile; objectives achieved and competency development over the course of the year. The assessment will become relevant for pay increases in the future. The grid on the annual performance review summary is meant to provide a visual snap- shot of your overall contribution. This replaces a more conventional rating scale approach. It reflects the fact that your contribution is determined not just by results, but also by your overall approach towards your work and how you behave towards col- leagues and customers. The evidence recorded in the performance review will be used to support where your manager places a mark on the grid. Their assessment against the vertical axis will be based on an assessment of your per- formance against your objectives, performance standards described in your role profile, and any other work achievements recorded in the review. Together these represent ‘outputs’. The assessment against the horizontal axis will be based on an overall assessment of your performance against the competency level definitions for the role. Note that someone who is new in the role may be placed in one of the lower quadrants but this should not be treated as an indication of development needs and not as a reflec- tion on the individual’s performance.
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on the basis of this factual analysis that decisions can be made on what to do about it by the individual, the manager or the two of them working together. It is necessary first to identify any causes external to the job and outside the control of either the manager or the individual. Any factors that are within the control of the indi- vidual and/or the manager can then be considered. What needs to be determined is the extent to which the reason for the problem is because the individual:
- did not receive adequate support or guidance from his or her manager;
- did not fully understand what he or she was expected to do;
- could not do it – ability;
- did not know how to do it – skill;
- would not do it – attitude.
- Decide and agree on the action required. Action may be taken by the individual, the manager or both parties. This could include:
- the individual taking steps to improve skills or change behaviour;
- the individual changing attitudes – the challenge is that people will not change their attitudes simply because they are told to do so; they can only be helped to under- stand that certain changes to their behaviour could be beneficial not only to the organization but also to themselves;
- the manager providing more support or guidance;
- the manager and the individual working jointly to clarify expectations;
- the manager and the individual working jointly to develop abilities and skills – this is a partnership in the sense that individuals will be expected to take steps to develop themselves but managers can give help as required in the form of coaching, training and providing additional experience. Whatever action is agreed, both parties must understand how they will know that it has succeeded. Feedback arrangements can be made but individuals should be encouraged to monitor their own performance and take further action as required.
- Resource the action. Provide the coaching, training, guidance, experience or facilities required to enable agreed actions to happen.
- Monitor and provide feedback. Both managers and individuals monitor performance, ensure that feedback is provided or obtained and analysed, and agree on any further actions that may be necessary.
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Introducing performance management
The programme for introducing performance management should take into account the fact that one of the main reasons why it fails is that either line managers are not interested, or they don’t have the skills, or both. It is important to get buy-in from top management so that their leadership can encourage line managers to play their part. To ensure buy-in, the process has to be simple (not too much paper) and managers have to be convinced that the time they spend will pay off in terms of improved performance. The demanding skills of concluding perform- ance agreements, setting objectives, assessing performance, giving feedback and coaching need to be developed by formal training supplemented by coaching and the use of mentors.
Excellent practical advice on introducing performance management or making substantial changes to an existing scheme was given by the respondents to the e-reward 2005 survey. Comments in the form of dos and don’ts are set out below in the order of frequency with which they were mentioned.
Do:
- consult/involve;
- communicate (process and benefits);
- align and ensure relevance to organizational/business/ stakeholder needs;
- get ownership from line managers;
- monitor and evaluate;
- plan and prepare carefully;
- run a pilot scheme;
- treat as a business process;
- define performance expectations;
Don’t:
- just make it a form-filling, paper- intensive exercise; - get buy-in from senior management; - keep it simple; - ensure clear purpose and processes; - align to culture; - align with other HR processes; - clarify link to reward; - be realistic about the scale and pace of change; - make the process mandatory. - make it too complicated;
Introducing performance management – dos and don’ts
