BHARATHIAR UNIVERSITY

MBA (HR)

COURSE 2.6

PERFORMANCE
MANAGEMENT: SYSTEMS
AND STRATEGIES
(Notes For Examination)

Prepared By
Dr Abbas T. P
drtpabbas@gmail.com

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 2.6. PERFORMANCE MANAGEMENT: SYSTEMS AND
STRATEGIES
UNIT I
Q.1. PERFORMANCE MANAGEMENT
Performance management is a communication process by which managers
and employees work together to plan, monitor and review an employee’s
work objectives and overall contribution to the organization. More than just
an annual performance review, performance management is the continuous
process of setting objectives, assessing progress and providing ongoing
coaching and feedback to ensure that employees are meeting their objectives
and career goals.
Performance management is a continuous process of identifying, measuring
and developing performance in organisations by linking each individual’s
performance and objectives to the organisation’s overall mission and goals.
Objectives of Performance Management
The major objectives of performance management are:
 To enable the employees to achieve superior standards of work
performance.
 To help the employees in identifying the knowledge and skills required
for performing the job efficiently.
 Boosting the performance of the employees by their empowerment,
motivation and implementation of an effective reward mechanism.
 Promoting a two way system of communication between the
supervisors and the employees for improving the performance.
 Identifying and resolving barriers to effective performance through
constant monitoring, coaching and development interventions.
 Creating a basis for administrative decisions, strategic planning,
succession planning, promotions and performance based payment.
 Promoting personal growth and advancement in the career of the
employees by helping them acquiring the desired knowledge and
skills.
The Performance Management Cycle
Performance management is a continuous process of planning, monitoring
and reviewing employee performance.
Phase 1 — Plan

2.6 – Performance Management: Systems & Strategies 2 | Page

The planning phase is a collaborative effort involving both managers and
employees during which they will:
 Review the employee’s job description to determine if it reflects the
work that the employee is currently doing.
 Identify and review the links between the employee’s job description,
his work plan and the organization’s goals and objectives.
 Develop a work plan that outlines the deliverables and standards that
will be used to evaluate performance.
 Identify three to five areas that will be key performance objectives for
the year.
 Identify training objectives that will help the employee grow his or her
skills, knowledge, and competencies related to their work.
 Identify career development objectives that can be part of longer-term
career planning.
Phase 2 — Monitor
For a performance management system to be effective, employee progress
and performance must be continuously monitored.
During this phase, the employee and manager should meet regularly to:
 Assess progress towards meeting performance objectives
 Identify and overcome any barriers that may prevent the employee
from accomplishing performance objectives
 Share feedback on progress relative to the goals
 Identify any changes that may be required to the work plan as a result
of a shift in organization priorities or change in responsibilities
 Determine if any extra support is required from the manager or others
to assist the employee in achieving his or her objectives
Phase 3 — Review
The performance appraisal meeting is an opportunity to review, summarize
& highlight the employee’s performance over the course of the review period.
In the performance assessment meeting, employees and managers will:
 Summarize the work accomplished during the previous year relative
to the goals that were set at the beginning of the performance period.
 Document challenges encountered during the year and identify areas
for training and/or development

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  Identify and discuss any unforeseen barriers to the achievement of the
objectives
Components of Performance Management
Performance management system includes the following components:
1. Performance Planning: During performance planning, the employees
decide upon the targets and the key performance areas which can be
performed over a year, which is finalized after a mutual agreement
between the reporting officer and the employee.
2. Performance Appraisal and Reviewing: In this process, the
appraisee submits the self-appraisal form and also describes his
achievements over a period of time in quantifiable terms. The final
ratings are provided by the appraiser.
3. Feedback & Counselling on the Performance: This is the stage in
which the employee receives feedback from the appraiser about the
areas of improvements and also information on whether the employee is
contributing the expected levels of performance or not. The feedback
also identifies the training and development needs of the employee.
4. Rewarding good performance: During this stage, an employee is
publicly recognized for good performance and is rewarded. This may
have a direct influence on the self-esteem and achievement orientation.
5. Performance Improvement Plans: In this stage, fresh set of goals
are established for an employee and new deadline is provided for
accomplishing those objectives.
6. Potential Appraisal: By implementing competency mapping and
various assessment techniques, potential appraisal is performed.
Potential appraisal provides crucial inputs for succession planning and
job rotation.
Benefits of a Performance Management System
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.

2.6 – Performance Management: Systems & Strategies 4 | Page

Q.2. PERFORMANCE APPRAISAL
People differ in their abilities and their aptitudes. There is always some
difference between the quality and quantity of the same work being done by
two different people. Therefore, performance appraisal is necessary to
understand each employee’s abilities, competencies and relative worth for
the organization.
After the candidates are recruited, selected, placed and trained they are
given certain standards to maintain and targets to achieve over a
predetermined period of time. Performance appraisal evaluates the
employee’s performance over a period of time against these standards and
targets
Objectives of Performance Appraisal: Below are the main objectives of
performance appraisal
(1) Pay Rise: It plays a role in making decision about salary increase.
(2) Promotions: It plays a role in making decision about promotion.
(3) Feedback System: It provides feedback to employees about their
performance.
(4) Training and development program: The information collected
from performance appraisal can be used for devising training and
development programmes.
(5) Improves Supervision: Since performance appraisal happens
periodically, supervisors observe their subordinates closely and
continuously.
(6) Career Planning: Performance appraisal facilitates career planning
for the employees.
(7) Healthy and Productive work environment: Since the
achievements and hard work of the employees are identified and
awarded, there is a sense of satisfaction amongst the workers and are
motivated to achieve higher standards and quality.
(8) Improves communication: Being a continuous process, performance
appraisal improves communication between the supervisor and the
subordinate.
Basis of Performance Appraisal: The basis of Performance appraisal
may include the following
 Knowledge about the job
 Quantum of work
 Quality of work

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  Ability to plan, organize, delegate and control
 Cost consciousness
 Use of discretion and judgment
 Initiative
 Leadership skills
 Power of expression and communication
 Personality traits such as Integrity, Adaptability, Dependability and
Loyalty
Performance Appraisal Process: Performance appraisal can be
undertaken either on informal basis or on formal and systematic basis.
Following is the steps in the systematic performance appraisal
1. Defining Objectives: Whether the appraisal is reward providing
appraisal, such as salary revision or promotion or it is an appraisal for
training and development.
2. Defining Appraisal Norms: Appraisal is done in the context of certain
standards. These may be in the form of various traits of the appraisee
or their expected work performance results.
3. Designing Appraisal Programme: In the design for appraisal
programme, types of personnel to act as appraisers, appraisal
methodology and types of appraisal are all to be decided.
4. Implementation: In implementing appraisal programme, the
appraisal is conducted by the appraisers.
5. Appraisal Feedback: The appraisal feedback with plus and minus
points should be listed out and communicated to the appraisees.
6. Post – Appraisal Action: Rewards, promotions, training, etc., follow
in the post-appraisal action
Methods of Performance Appraisal
There are several methods of performance appraisal that can be broadly
classified into
1. Traditional methods of performance appraisal
a) Ranking Method: In ranking, a person is ranked against others on the
basis of certain traits or characteristics. This is very simple method
when the number of persons to be ranked is small.
b) Paired comparison: In this method, each person is compared with
other persons taking only one at a time. The appraiser puts a tick mark
against the person whom he considers the better of the two, and the final
ranking is determined by the number of times that person is judged

2.6 – Performance Management: Systems & Strategies 6 | Page

 better than others.
c) Grading: This is a method where certain categories of abilities of
performance are defined well in advance. Persons are put in a particular
category depending on their traits and characteristics. The categories
may be outstanding, good, average, poor, very poor or may be in terms
of letter like A,B,C,D etc., with A indicating the best and D indicating
the worst.
d) Forced Distribution Method: As there is a tendency to rank many of
the employees high, the basic assumption in this method is that the
employee’s performance conforms to a normal statistical distribution.
For example, 10 percent of the employees may be rated as excellent, 20
per cent as above average, 40 per cent as average, 20 per cent below
average and 10 per cent as poor.
e) Forced – Choice Method: This system is adopted to avoid subjectivity
and the tendency of the rater to give consistently high or low ratings to
the employees. The rater will be given a group of statements out of which
he will have to choose the one that best describes the characteristics of
the employee being evaluated. The choices may consist of both negative
and positive statements.
f) Check List Method: Under this method HR department prepares a
series of questions. Each question has alternative answers ‘Yes’ or ‘No’.
The appraiser concerned has to tick appropriate answers relevant to the
appraisals.
g) Critical Incidence Method: This method involves three steps. A test
of noteworthy on the job behaviour (good or bad) is prepared. A group of
experts then assigns scale values depending on the degree of desirability
for the job. Finally, a check list of incidents which define good and bad
employees is prepared. The appraiser is given this checklist for rating.
h) Graphic Scale Method: In this method, a printed appraisal form is
used for each appraisee. The form contains various employee
characteristics and his job performance information. The degree of
quality may be measured on three point or five point scale. On five point
scale, ‘excellent, very good, average, poor or very poor’ may be used for
measurements.
i) Essay Method: Instead of using structured forms for performance
appraisal, some companies use free essay method. In essay method
appraiser assesses the employees on certain parameters in his own
word.
j) Field Review Method: To get a more objective view in appraisal, in

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 this method, an employee is not appraised by his direct superior but by
another person. The appraiser appraises the employee based on his
records of output and other quantitative information. The appraiser also
conducts interviews of the employees and his superior to ascertain
qualitative aspects of job performance.
2. Modern methods of performance appraisal
a) Appraisal by Results or Objectives: Appraisal by results draws its
root from management by objective.
b) BARS: Behaviorally anchored rating scales (BARS) approach measures
observable, critical behaviors that are related to specific job dimensions.
c) Assessment Centre Method: This method is to test candidates in a
social situation by a number of assessors, using a variety of criteria. The
assessors or evaluators are drawn from experienced executives, working
at different levels of management.
d) 360 Degree Appraisal: In 3600 appraisal, appraisal of an employee is
done by his superior, his peers, his subordinates clients and outsiders
with whom he interacts in the course of his job performance. In this
appraisal, besides appraising the performance of the assessee, his other
attributes such as talents, behaviour, values, and technical
considerations are also subjected to appraisal.

2.6 – Performance Management: Systems & Strategies 8 | Page

UNIT II
Q.2. JOB ANALYSIS
Meaning of Job Analysis
Job analysis is a formal and detailed investigation of the tasks, duties and
responsibilities necessary to do a job.
Aspects of JA
There are two major aspects of job analysis:
1. Job Description: Job description is a written description of the
activities and duties to be performed in a job, the relationship of the
job with other jobs, the equipment and tools involved, the nature of
supervision, working conditions and hazards of the job, etc. Thus,
job description differentiates one job from the other.
2. Job Specification: While job description focuses on the job, job
specification focuses on the job holder. Job specification is a
statement of the minimum levels of qualifications, skills, physical
and other abilities, experience, judgment and attributes required for
performing job effectively.
Uses of Job Analysis
The uses of job analysis are:
1. Human resource planning: Job analysis helps in forecasting
human resource requirements in terms of knowledge and skills.
2. Recruitment and Selection: Job analysis is used to find out how and
when to hire people for future job openings.
3. Placement and orientation: As job analysis provides information
about what skills and qualities are required to do a job, the
management can gear orientation programmes towards helping the
employees learn the required skills and qualities.
4. Training and Development: Since job analysis provides information
about the knowledge and skills required to perform a job, it enables
the management to design the training and development programmes
to acquire these job requirements.
5. Counselling: Managers can properly counsel employees about their
careers when they understand the different jobs in the organization.
6. Employee safety: Since job analysis reveals unsafe conditions
associated with a job, it helps managers find unsafe practices.

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 7. Performance appraisal: By comparing what an employee is
supposed to be doing to what the individual has actually done, the
worth of that person can be assessed.
8. Job design and redesign: Once the jobs are understood properly, it
is easy to locate weak spots and undertake remedial steps.
9. Job evaluation: Job analysis helps in finding the relative worth of a
job, based on criteria such as degree of difficulty, type of work done,
skills and knowledge needed, etc.
Process of Job Analysis
The major steps involved in job analysis are as follows:
1. Organizational analysis: First of all, an overall picture of various
jobs in the organization has to be obtained. This is required to find the
linkages between jobs and organizational objectives, inter-
relationships between jobs and contribution of various jobs to the
efficiency and effectiveness of the organization.
2. Selection of representative positions to be analyzed: It is not
possible to analyze all the jobs. A representative sample of jobs to be
analyzed is decided keeping the cost and time constraints in mind.
3. Collection of job analysis data: This step involves the collection of
data on the characteristics of the job, the required behaviour and
personal qualifications needed to carry out the job effectively.
4. Preparation of job description: This step involves describing the
contents of the job in terms of functions, duties, responsibilities,
operations, etc.
5. Preparation of job specification: This step involves conversion of
the job description statements into a job specification.
Methods of Job Analysis
A variety of methods are used to collect information about jobs. None of
them, however, is perfect. In actual practice, therefore, a combination of
several methods is used for obtaining job analysis data. These are discussed
below.
1. Job performance: In this method, the job analyst actually performs
the job in question. The analyst thus receives first-hand experience of
contextual factors on the job including physical hazards, social
demands, emotional pressures and mental requirements. This method
is useful for jobs that can be easily learned. It is not suitable for jobs
that are hazardous (e.g., fire fighters) or for jobs that require extensive

2.6 – Performance Management: Systems & Strategies 10 | Page

 training (e.g., doctors, pharmacists).
2. Personal observation: The analyst observes the worker(s) doing the
job. The tasks performed, the pace at which activities are done, the
working conditions, etc., are observed during a complete work cycle.
This method allows for a deep understanding of job duties. It is
appropriate for manual, short period job activities. On the negative
side, the method fails to take note of the mental aspects of jobs.
3. Critical incidents: The critical incident technique (CIT) is a
qualitative approach to job analysis used to obtain specific,
behaviourally focused descriptions of work or other activities. Here
the job holders are asked to describe several incidents based on their
past experience. The incidents so collected are analyzed and classified
according to the job areas they describe. The job requirements will
become clear once the analyst draws the line between effective and
ineffective behaviours of workers on the job.
4. Interview: The interview method consists of asking questions to both
incumbents and supervisors in either an individual or a group setting.
The reason behind the use of this method is that job holders are most
familiar with the job and can supplement the information obtained
through observation. Workers know the specific duties of the job and
supervisors are aware of the job’s relationship to the rest of the
organization.
5. Panel of experts: This method utilizes senior job incumbents and
superiors with extensive knowledge of the job. To get the job analysis
information, the analyst conducts an interview with the group. The
interaction of the members during the interview can add insight and
detail that the analyst might not get from individual interviews.
6. Diary method: Several job incumbents are asked to keep diaries or
logs of their daily job activities and record the amount of time spent
on each activity. By analyzing these activities over a specified period
of time, a job analyst is able to record the job’s essential
characteristics. However, it is a time consuming and costly exercise in
that the analyst has to record entries for a painfully long time.
7. Questionnaire method: The questionnaire is a widely used method
of analyzing jobs and work. Here the job holders are given a properly
designed questionnaire aimed at eliciting relevant job-related
information. After completion, the questionnaires are handed over to
supervisors. The supervisors can seek further clarifications on various
items by talking to the job holders directly.

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Q.3. EMPLOYEE BENEFITS REQUIRED BY LAWS
An employee in the organized sector is entitled to several types of financial
as well as non-financial benefits:
Basically there are two types of compensation:
1. Direct compensation and
2. Indirect compensation
Direct compensation refers to the monetary benefits offered and provided to
employees in return of the services they provide to the organization. They
are given at a regular interval at a definite time.
Indirect compensation refers to non-monetary benefits offered and provided
to employees in return of the services provided by them to the organization.
Below is given the different types of compensation:
1. Wages and Salaries: In payroll accounting, wages refers to the
earnings of employees whose pay is calculated on an hourly basis and
salary refers to the earnings of employees whose pay is calculated on
a weekly, bi-weekly, semi-monthly, or monthly basis.
2. Pension: Pensions are a kind of deferred pay that provides a
guaranteed income on retirement. They are financed by contributions
from the company, with facilities for contribution by employees as
well.
3. Gratuity: This is a statutory component appearing in the salary
break-up, but is paid only at the time of employee’s exit after serving
more than five years.
4. Sick Pay: Sick pay is any amount paid to an employee because of
illness or injury under a plan providing for such benefits.
5. Maternity Leave and Maternity Pay: Benefit given to the female
employees of the organization
6. Holidays with Pay: Many of the organizations provide holidays with
pay such as public holidays, vacations, paternity leave, maternity
leave, casual leave, sabbatical leave, etc.
7. Transport Assistance: Examples may include loans for the purchase
of annual season tickets, or bulk buying of tickets by employers for
distribution to staff.
8. Housing assistance: In the form of allowances like removal and
traveling expenses, lodging, convincing fees and so on or assistance
with house purchase to staff who have been transferred or relocated.

2.6 – Performance Management: Systems & Strategies 12 | Page

 9. Medical Benefits: In the form of medical insurance and medical
reimbursements. Some medical services may also be provided at the
workplace: for example eye and hearing tests.
10. Catering Services: Most commonly, subsidized food and drink at the
workplace or Luncheon Vouchers.
11. Recreational Facilities: It is a subsidy and organization of social
and sports clubs or provision of facilities such as a gymnasium or
clubs.
12. Educational Programmes: In-house study opportunities, or
sponsorship of external study.
13. Family-friendly Policies: Such as workplace nurseries, term-time
hours contracts, career break schemes.
14. Fringe Benefits: Fringe benefits are marginal extra earnings to
make workers feel comfortable at the workplace. These include
employee benefits such as provident fund, gratuity, medical care,
hospitalization, accident relief, health and group insurance, canteen,
uniform, recreation and the like.
15. Employee Security Payments: These include
 Employers contribution to old age, survivor, disability, health
and unemployment insurance,
 Accident insurance,
 Pensions,
 Contributions to saving plans and health and welfare funds
16. Payment for Time not Worked: These include holiday pay, layoff
pay, paid lunch periods, pay for rest periods, paid sick leave, vacation
pay, etc.
17. Commission: When compensation is based on volume or some form
of performance, this is known as commission based remuneration.
18. Incentives: Incentives are paid in addition to wages and salaries.
Incentives depend upon productivity, sales, profit, or cost reduction
efforts. Incentives can be either individual or group incentive plans.
19. Allowances: Various allowances like Dearness allowance, House
Rent Allowance (HRA), Conveyance Allowance and Leave Travel
Allowance (LTA) also form part of compensation.
20. Bonus and Awards These consist of financial amenities and
advantages such as holiday, over-time and shift premiums,
attendance bonus, festival bonus, year-end bonus, etc

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21. Profit Sharing Payments: A profit sharing plan, like a bonus plan,
can be structured in a number of different ways. An employer may
elect to pay cash to employees, give them stock in the business, or set
up a deferred compensation fund for retirement.
22. Draws: Draws are often given to salespeople who work only for
commission. A draw is an advance given to a salesperson that will be
collected when future sales transactions are closed.
23. Reimbursements: Employees, depending upon their gradations in
the organization may get reimbursements based on the expenses
incurred. Some examples are: travel expenses, entertainment
expenses, refreshments expenses, etc.
24. Claims: A part of monthly salary may be made up by billed claims.
These include telephone/mobile allowance, Internet allowance,
medical allowance and the like. These are subject to a limit and are
generally paid against submission of valid bills.
25. Tips: In certain businesses, employees receive compensation in the
form of tips. A tip is an additional amount from a customer for services
rendered.
26. Supplemental Wages: Supplemental wages differ from regular
wages only in that they may be based on a different payroll period,
computed on a different compensation plan, or paid at a different time
than regular wages.
27. Perquisites: In addition to the normally allowed perks like provident
fund, gratuity and the like, executives enjoy special parking, plush
office, vacation travel, membership in clubs and well-furnished
houses, etc.
28. Disability Benefits: When employees are unable to work because of
an accident or some health-related problem, weekly or monthly
disability payments in place of the regular earned income assist them
in maintaining their existing lifestyle without major modification.
29. Non-monetary Benefits: These include challenging job
responsibilities, recognition of merit, growth prospects, competent
supervision, comfortable working conditions, job sharing and flexi
time.
30. Voluntary Retirement Scheme (VRS): Voluntary Retirement is a
legally acceptable facility provided to employees for early retirement
with all retirement benefits plus a particular percentage of the salary
for the remaining years of service.

2.6 – Performance Management: Systems & Strategies 14 | Page

UNIT III
Q.4. PERFORMANCE MANAGEMENT SYSTEM
Performance Management System is a powerful management tool that help
management to perform the Performance Management Process
Performance management is a continuous process of identifying, measuring
and developing performance in organisations by linking each individual’s
performance and objectives to the organisation’s overall mission and goals.
The Performance Management Process
Performance management is a continuous process of planning, monitoring
and reviewing employee performance.
Phase 1 — Plan
The planning phase is a collaborative effort involving both managers and
employees during which they will:
 Review the employee’s job description to determine if it reflects the
work that the employee is currently doing.
 Identify and review the links between the employee’s job description,
his work plan and the organization’s goals and objectives.
 Develop a work plan that outlines the deliverables and standards that
will be used to evaluate performance.
 Identify three to five areas that will be key performance objectives for
the year.
 Identify training objectives that will help the employee grow his or her
skills, knowledge, and competencies related to their work.
 Identify career development objectives that can be part of longer-term
career planning.
Phase 2 — Monitor
For a performance management system to be effective, employee progress
and performance must be continuously monitored.
During this phase, the employee and manager should meet regularly to:
 Assess progress towards meeting performance objectives
 Identify and overcome any barriers that may prevent the employee
from accomplishing performance objectives
 Share feedback on progress relative to the goals

15 | Page 2.6 – Performance Management: Systems & Strategies

  Identify any changes that may be required to the work plan as a result
of a shift in organization priorities or change in responsibilities
 Determine if any extra support is required from the manager or others
to assist the employee in achieving his or her objectives
Phase 3 — Review
The performance appraisal meeting is an opportunity to review, summarize
& highlight the employee’s performance over the course of the review period.
In the performance assessment meeting, employees and managers will:
 Summarize the work accomplished during the previous year relative
to the goals that were set at the beginning of the performance period.
 Document challenges encountered during the year and identify areas
for training and/or development
 Identify and discuss any unforeseen barriers to the achievement of the
objectives
Components of PMS
Performance management system (PMS) as a whole is a series of activities
consisting of the following components:
1. Performance Planning: During performance planning, the employees
decide upon the targets and the key performance areas which can be
performed over a year, which is finalized after a mutual agreement
between the reporting officer and the employee.
2. Performance Appraisal and Reviewing: In this process, the
appraisee submits the self-appraisal form and also describes his
achievements over a period of time in quantifiable terms. The final
ratings are provided by the appraiser.
3. Feedback & Counselling on the Performance: This is the stage in
which the employee receives feedback from the appraiser about the
areas of improvements and also information on whether the employee is
contributing the expected levels of performance or not. The feedback
also identifies the training and development needs of the employee.
4. Rewarding good performance: During this stage, an employee is
publicly recognized for good performance and is rewarded. This may
have a direct influence on the self-esteem and achievement orientation.
5. Performance Improvement Plans: In this stage, fresh set of goals
are established for an employee and new deadline is provided for
accomplishing those objectives.

2.6 – Performance Management: Systems & Strategies 16 | Page

6. Potential Appraisal: By implementing competency mapping and
various assessment techniques, potential appraisal is performed.
Potential appraisal provides crucial inputs for succession planning and
job rotation.
Features of PMS: The main features of PMS can be outlined as follows:
a. Focus on Objective Setting: Objectives are the targets, which an
organization sets for its employees. PMS helps saturate these
organizational objectives to the employee level.
b. Systems for Review of Objectives: Through the process of periodic
performance review, PMS helps keep track of achievement of objectives.
Review of objectives helps in performance control and initiates steps to
correct deviation in performance or to revise the targets.
c. Developing Personal Improvement Plans: Since PMS helps in
individual performance monitoring, it ensures developing of personal
improvement plans for the employees.
d. Training and Development: As the focus of PMS is to manage and
develop employee performance to sustain competitive advantage of the
organization through proper alignment, it helps in identifying training and
development needs.
e. Ensuring Formal Appraisal with Feedback: By introducing a formal
appraisal system, PMS helps in giving performance feedback to employees.
Both negative and positive feedback sensitize employees and help them to
objectively analyse their shortfalls and positive aspects.
f. Compensation Review: Performance based pay is the prevailing concept.
PMS used it in objective designing of compensation packages for employees,
thus rewarding good performance and reducing the performance linked pay
of non-performers.
g. Developing Competence-based Organizational Capability:
Competence based organizational capability helps in appropriate
organizational change, keeping pace with competition. It also helps in
human resource (HR) planning.
Benefits of a Performance Management System
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.

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Q.5. PfM THEATRE & PfM PROCESS
Performance Management System
Performance management system (PMS) as a whole is a series of activities
consisting of identification of critical performance dimensions, planning of
performance, setting of performance goals and objectives, reviewing
performance, sharing feedback, and finally developing the future
performance through training.
PMS, therefore, is a set of tools and techniques to improve the
organizational performance. To sustain a competitive advantage,
organizations need to recruit the best-fit and at the same time to focus on
their continuous development so that they do not become redundant and
obsolete in their skills and knowledge.
PMS provides opportunities for personal development and career growth,
bringing all the employees under a single strategic umbrella.
PfM THEATRE
In his book Managing as a Performing Art: New Ideas for a World of Chaotic
Change Peter B Vaill parallels the act of management with a performing
art.
According to him the management and leadership are no freestanding
functions, which can be visualized irrespective of the perception and the
style of people in positions of management or leadership and the concept of
success cannot be de-linked from the value systems of those involved in the
process of performing.
Vaill offers a process model of a manager's role – performed by a whole
person in a whole environment in relation to other whole persons, with all
actions viewed as concrete processes, and the entire process thoroughly
covered with turbulence and change.
Vaill calls management as a performing art that draws several lessons for
the manager from performing arts. To him, the performing aspect of
management picks up the dynamic, fluid quality that the other approaches
seem to miss out.
If, as Vaill says, management is a performing art, it must need a studio or
a theatre. What is the context in which it performs? What constitutes the
stage? What is the action and what is the climax and what is the overall
effect of the action? Who are its group of actors?
The group of actors are easy to identify — the manager, the managee, and
the task group. Other stakeholders constitute the audience. PfM is dynamic,

2.6 – Performance Management: Systems & Strategies 18 | Page

it is multi-faceted and it is exciting. When we configure the dynamic
interplay of its components, we will be tempted to call it the PfM Theatre.
This is the theatre that the manager creates with each one of his managees,
and provides it with life. The more functional the theatre, the greater the
joy in delivering performance to the stakeholders and achieving success,
self-actualization and esteem for the performing team.
Pillars of PfM Theatre
Some invisible, but powerful, value-based processes support the PfM
Theatre as its pillars. Essentially, these integrate the system to deliver what
it promises: overall performance of the organization, constituting optimal
performance of all its parts, large or small, representing their most
appropriate fit.
These processes are explained here:
a. Goal Congruence: Goal Congruence means that the goals of all roles
and aggregations of roles are such that these converge on the overall
organizational goal or purpose, creating space for productive synergy in the
process.
b. Win-Win Approach: Win-Win Approach means generating and
preserving synergy, by avoiding dysfunctional competition. Dysfunctional
competition places the different interdependent roles in the organization
and their interdependent structured aggregations ultimately result in no-
win for all concerned.
c. Mutual Trust: Mutual Trust means that all the roles and their
structured aggregations relate and interact with each other; practicing a
shared belief that each of them will act only in a manner that is also
conducive to the interests of the other relevant people.
d. Dyadic Communication: Dyadic Communication means
communicating with relevant others, on a one-to-one basis, honestly,
without defensiveness or hidden agenda, to share and resolve issues and
problems at dyadic levels and to promote bilateral collaboration.
e. Data Exchange: Data Exchange means timely sharing of accurate and
relevant information openly and authentically with others in the
organization.
These processes lubricate the system and if promoted, facilitate the
manager’s task of systematically developing and leading high-performing
teams.
The Process of PfM: The process of Performance Management is
comprised of three important parts

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 (1) Planning Managee Performance and Development;
(2) Monitoring Managee Performance and Development and
(3) Annual Stock Taking.
These occur in a specified sequence. Planning is made at the beginning of
the year while monitoring and mentoring is continued throughout the year
as the plans are executed. Stocktaking takes place at the end of the year.
Performance standards naturally cascade from organizational mission,
goals, strategy and operational plans. Since performance management aims
to improve quality of coordination among people in the organization, role-
wise performance plans and expectations must flow from both.
Organization‘s mission, strategy and operational plan, and individual
managee’s role and his/her contribution to organizational process are basic
inputs to performance plans. The performance plans of all the managee’s in
the organization must finally add up to the organizational goals to be
achieved during the year. Managee’s performance and development plans
are subjected to monitoring and mentoring.
Stock taking both periodical and annual attempts to continuously assess the
extent of work as well as learning opportunity that have been optimally
avail by the managee. Inputs to stocktaking are provided by performance
plans and monitoring and mentoring records. Stock taking also provides
several inputs to future performance plan. Review in task assignments, task
systems and tools are also possible through stocktaking. An assessment of
managee’s development needs of future tasks and responsibilities is done
more realistically to stocktaking.

2.6 – Performance Management: Systems & Strategies 20 | Page

Q.6. TEAM BUILDING
Team building is the most important, widely accepted, and applied OD
intervention for organizational improvement.
In an organization, there may be different types of teams. It may be based
on their constitution, purpose, power entrusted, duration, etc.
Types of Teams
The more common type of teams that may be found in an organization are:
 Lead teams,
 Cross-functional teams,
 Problem-solving teams, and
 Self-managing teams.
Lead Teams: The approach in teamwork adopted is ‘do as I do’ rather than
the conventional ‘do as I say’ approach. This creates the team spirit among
its members which is essential for effective performance. It is the most usual
form of team which works in every part of an organization.
Cross-Functional Teams: It is constituted by drawing personnel from
different functional areas, particularly which have high interdependence.
The objective is to solve problems and take decisions in those areas which
cannot be done by a particular functional department. Because of the
interdependence of various functions in an organization, cross functional
teams are created at various levels.
Problem-Solving Teams: It is constituted to solve specific problems which
an organization may be facing. Team members are drawn from those areas
where the problems requiring solution exist. They may be from a single
department or more than one department depending on the situation. It
applies the problem solving methodologies and techniques to get deep into
problems, draws different alternatives solution to the problem, evaluates
the likely outcomes of each alternative, and finally suggests a particular
solution and its implications.
Self-Managing Teams: Self-managing teams (also known as empowered
or self-directed team) have the following characteristics:
1. They are empowered to share various management and leadership
functions.
2. They plan, control and improve their own work processes.
3. They set their own goals and inspect their own work.
4. They often create their own schedules and review their performance
as a group.

21 | Page 2.6 – Performance Management: Systems & Strategies

 5. They prepare their own budgets and coordinate their work with other
departments.
6. They usually order materials, keep inventories and deal with
suppliers.
7. They are frequently responsible for acquiring any new training they
might need.
8. They may hire their own replacement or assume responsibility for
disciplining their own members.
9. They, and no others outside the team, take responsibility for the
quality of their products or services.
The process of creating empowered teams should be slow process because it
requires attitudinal change on the part of both management and employees.
If organizational climate is not conducive, empowered teams perhaps may
become liabilities as it has happened in many cases.
Life Cycle of a Team
When a number of individuals begin to work at interdependent jobs, they
often pass through several stages as they learn to work together as a team.
These stages are:
1.Forming: At the first stage of the life cycle, team members get introduced
to each other. They share personal information, start to accept others, and
begin to turn their attention towards the group tasks.
2.Storming: After the forming stage, members start interaction among
themselves in the form of competing for status, jockeying for relative control,
and arguing for appropriate.
3.Norming: After storming stage, team members start setting. The team
begins to move in a cooperative fashion and a tentative balance among
competing forces is struck. At this stage, group norms emerge to guide
individual behaviour which forms the basis for cooperative feelings among
members.
4.Performing: When team members interact among themselves on the
basis of norms that have emerged in the team, they learn to handle complex
problems that come before the team. Functional roles are performed and
exchanged as needed, and tasks are accomplished efficiently.
5.Adjourning: Adjourning is the end phase of life cycle of a team. The
adjournment phase takes place in the case of those teams which are created
for some special purposes like task force, committee, etc. Other types of team
like a department in an organization run on the basis of some permanency

2.6 – Performance Management: Systems & Strategies 22 | Page

though there may be changes in team members. After the adjournment of
team, intense social relationship among members comes to an end.
Effective Team
An effective team is one which contributes to the achievement of
organizational objectives by performing the task and providing satisfaction
to its members. The factors that help to form an effective team are
Skills and Role Clarity: While skills are relevant for job performance,
understanding of roles helps members to meet the requirement of one
another thereby solving the problems which the team faces.
Supportive Environment: A team loaded with skilled members cannot
perform well if the organizational climate is not supportive for that.
Therefore, managers at higher levels should set organizational climate and
culture which enthuse team members to put in their best.
Super-ordinate Goals: Super ordinate goals are those which are above the
goals of a single team or a single individual. Organizational goals have
hierarchy and a lower order goal is derived out of a higher-order goal.
Team Rewards: Team performance depends on how reward is linked to
team performance. If team members perceive that reward, both financial
and non-financial, is depending on team performance, they will put their
maximum.

23 | Page 2.6 – Performance Management: Systems & Strategies

UNIT IV
Q.7. ORGANIZATIONAL CHANGE MANAGEMENT
Organizational Change
Organizations are required to constantly innovate and update their
processes and operational efficiencies to collaborate with the expanding
markets. Organizations that refuse to change or move forward are forced to
exit the market or may be wiped out by forward looking companies.
Why Organizations Need to Change
Organizational change is often a response to changes in the internal and
external environment. Some of the reasons prompting changes are:
a. Market Dynamics: The changing market conditions cause unexpected
changes which organizations find hard to adjust to. To stay in business and
continue to serve the customers, organizations have to align themselves to
these variations.
b. Globalization: Globalization has created enormous opportunities as
well as global challenges to organizations. To cater to global market,
organizations have to understand the global environment and market
behaviour, and align the organizations to these new situations.
c. Organizational Development: As organizations grow and develop in
size, the policies, procedures, strategy and direction, organizational
structure and hierarchy, etc. that forms the core, also needs to evolve.
d. Reaction to External Environments: External pressures come from
many areas, including customers, competition, changing government
regulations, shareholders, financial markets, and other factors in the
organization's external environment.
e. Performance Gaps: Performance gaps can be identified in several areas
like production, sales and marketing, service, etc. Such companies need to
conduct a serious study and identify factors causing gaps and change
accordingly to succeed.
f. Mergers & Acquisitions: Mergers and acquisitions create reorganization
in a number of areas. When two organizations merge, significant changes
are expected.
Organisational Change Management
Organisational change management is the process of managing any change
in organisational structure, culture or business process.
Organizational change management guides, prepares, and equips

2.6 – Performance Management: Systems & Strategies 24 | Page

organizations to successfully adopt change in order to drive organizational
success.
Planning Organizational Change
Organizational change is a shift from the current comfort state for any
organization. The key steps in the John Kotter’s 8-step change model are:
1. Create a sense of urgency: By making employees aware of the need
and urgency for change, support will be created. This requires an open,
honest and convincing dialogue. This could be accomplished by talking with
them about potential threats or by discussing possible solutions.
2. Create a guiding coalition: It is a good idea to establish a project team
that can occupy itself with the changes the organization wants to
implement. This group manages all efforts and encourages the employees to
cooperate and take a constructive approach.
3. Create a vision for change: Formulating a clear vision can help
everyone understand what the organization is trying to achieve within the
agreed time frame. The ideas of employees can be incorporated in the vision,
so that they will accept the vision faster.
4. Communicate the vision: The most important objective of this step is
to create support and acceptance among the employees. This can only be
achieved by talking about the new vision with the employees at every chance
you get and by taking their opinions, concerns and anxieties seriously.
5. Remove obstacles: Before change is accepted at all levels, it is crucial
to remove obstacles that could undermine the vision. By entering into
dialogue with all employees, it will become clear who are resisting the
change. To encourage acceptance of the vision by the employees, it helps
when their ideas are incorporated and implemented in the change process.
6. Create short-term wins: Nothing motivates more than success. Create
short-term goals so that the employees have a clear idea of what is going on.
When the goals have been met, the employees will be motivated to fine tune
and expand the change.
7. Consolidate improvements: Be careful not to declare victory too early.
Kotter suggests this can undo achievements already made. Real change
takes time and needs to become part of the culture. If change is not
embedded into the culture it is easy for the organisation to slide back into
comfortable old behaviours which undo the changes.
8. Anchor the changes: A change will only become part of the corporate
culture when it has become a part of the core of the organization. Regular
evaluation and discussions about progress help consolidate the change.

25 | Page 2.6 – Performance Management: Systems & Strategies

Resistance to Changes
Organizational change can generate uncertainty and resistance in
employees. Reasons why change is resisted in organizations are:
a. Impact of Change: Employees resist change if it is not favourable to
them.
b. Self-Interest before Organizational Well-being: Some employees
resist changes as it comes in the way of their personal interest and agenda.
c. Personality Trait: Employees having a positive and optimistic approach
are more willing to accept changes than employees who have a negative
approach.
d. Uncertainty: Change often brings feelings of uncertainty as the end
result is usually unknown.
e. Fear of Failure: Changes in the work processes can create uncertainty
over their capabilities in employees as they fear that they may not be able
to adapt to the new requirements.
f. Fear of Job Loss: Another important factor that causes employees to
resist change is the fear that they may lose their job in the organization once
the transformation is affected.
Overcoming Resistance to Change
Implementing change can be made smooth if the management goes through
it with empathy and compassion after thorough analysis, planning, and
strategizing. Some of the ways to overcome the resistance to change are:
a. Address Employee Concerns: Address and deal with the concerns of
the employees first, by giving them confidence and assuring that the change
will bring positive results and then focus on the organizational benefits.
b. Effective Communication: As a change agent, the leader rather than
communicating with the employees what they stand to gain from the
change, can have a greater impact by telling them what they stand to lose if
they don’t accept the change.
c. Creating an Atmosphere of Trust: Exercises such as teambuilding,
trust-building, and open and honest communication with the employees
prior to the introduction of change will help create an atmosphere of trust.
d. Link Changes to Employee Concerns: Employees’ perception of change
can be made positive and welcoming by associating the need for change to
other issues that they are concerned about like issues of health, job security,
and better working atmosphere.

2.6 – Performance Management: Systems & Strategies 26 | Page

Q.8. REWARD MANAGEMENT
Reward management is concerned with the formulation and
implementation of strategies and policies that aim to reward people fairly,
equitably and consistently in accordance with their value to the
organization.
Reward management consists of analyzing and controlling employee
remuneration, compensation and all of the other benefits for the employees.
The Aims of Reward Management
The aims of reward management are to:
 Reward people according to the value they create;
 Align reward practices with business goals and with employee values
and needs;
 Reward the right things to convey the right message about what is
important in terms of behaviours and outcomes;
 Help to attract and retain the high-quality people the organization
needs;
 Motivate people and obtain their engagement and commitment;
 Develop a high-performance culture.
Types of Rewards
Reward is the generic term for the totality of financial and non-financial
compensation or total remuneration paid to an employee in return for work
or service rendered at work.
There are two kinds of rewards:
a. Extrinsic Rewards: Extrinsic rewards are concrete rewards that
employee receive. Extrinsic rewards come from an external source
(employers) only. An extrinsic reward is also directly related to job
performance of the employees and it depends upon the policy of the
company.
Some examples of extrinsic rewards are:
 Pay
 Bonus or commission
 Fringe benefits
 Profit sharing
 Gifts
b. Intrinsic Rewards: Intrinsic rewards are the non-physical rewards.
They are emotionally connected with the employees. They tend to give

27 | Page 2.6 – Performance Management: Systems & Strategies

personal satisfaction to individual.
Intrinsic reward is directly related to job performance as a successful task
automatically produces it. Higher the success rate, higher will be the rate of
intrinsic rewards one receives.
Some forms of intrinsic rewards are:
 Words of praise from the seniors
 Recognition
 Work freedom or autonomy
 Trust/empowerment
Elements of a Reward System
A brief description of each element follows.
a. Business strategy: The starting point of the reward system is the
business strategy of the organization. This identifies the business drivers
and sets out the business goals.
b. Reward strategy and policy: The reward strategy will define longer-
term intentions like pay structures, contingent pay, employee benefits, etc.
Reward policy will cover such matters as levels of pay, achieving equal pay,
approaches to contingent pay, use of job evaluation and market surveys etc.
c. Base or basic pay: The base rate is the amount of pay that constitutes
the rate for the job. It may be varied according to the grade of the job or the
level of skill required.
d. Contingent pay: Contingent Pay are the additional financial rewards
provided that are related to performance, competence, contribution, skill or
experience.
e. Employee benefits: Employee benefits include pensions, sick pay,
insurance cover, company cars and a number of other perks.
f. Allowances: Allowances are paid in addition to basic pay for special
circumstances (e.g., living in London) or features of employment (e.g.,
working unsocial hours).
g. Total earnings: Total earnings consist of the value of all cash payments
(base pay, contingent pay and allowances, i.e. total earnings).
h. Total remuneration: Total remuneration consists of the financial
rewards represented by total earnings plus the value of the benefits received
by employees.
i. Job evaluation: Job evaluation is a systematic process for defining the
relative worth of jobs within an organization in order to establish internal

2.6 – Performance Management: Systems & Strategies 28 | Page

relativities and provide the basis for designing an equitable grade structure.
j. Market rate analysis: Market rate analysis is the process of identifying
the rates of pay in the labour market for comparable jobs to inform decisions
on levels of pay within the organization and on pay structures.
k. Performance management: Performance management processes
define individual performance expectations, assess performance against
those expectations, provide for regular constructive feedback and result in
agreed plans for performance improvement, learning and personal
development.
l. Non-financial rewards: These are non-physical rewards, for example
achievement, autonomy, recognition, scope to use and develop skills,
training, career development opportunities and high-quality leadership.
m. Total reward: Total reward is the combination of financial and non-
financial rewards available to employees.
Strategic Reward Management
Strategic reward management involves the formulation and
implementation of an equitable reward system that is consistent with the
organization’s strategic objectives.
The aim of strategic reward is to create total reward processes that are
based on beliefs about what the organization values and wants to achieve.
It does this by aligning reward practices with both business goals and
employee values.
Guiding Principles Strategic Reward Management
Strategic reward management is based on a set of beliefs and guiding
principles of the organization.
Typical guiding principles are
(1). Align reward strategies with the business and HR strategy
(2). Align reward policies with the culture of the organization.
(3). Reward people according to what the organization values
(4). Value employees according to their competence and contribution
(5). Aim to achieve equity, fairness and consistency in the operation of
reward policies and practices.
(6). Ensure that reward processes are transparent
(7). Adopt an integrative approach that ensures that no innovations
take place and no practices are changed without considering how
they relate to other aspects of human resource management

29 | Page 2.6 – Performance Management: Systems & Strategies

Q.9. 360 DEGREE FEEDBACKS
360 Degree Feedback is a process in which employees receive confidential,
anonymous feedback from the people who work around them.
Most often, information solicited in a 360-degree feedback process will
include feedback from an employee's subordinates, colleagues, and
supervisor(s), as well as a self-evaluation by the employee himself or herself.
Such feedback can also include feedback from external sources who interact
with the employee, such as customers and suppliers or other interested
stakeholders.
A mixture of about eight to twelve people fill out an anonymous online
feedback form that asks questions covering a broad range of workplace
competencies. The feedback forms include questions that are measured on
a rating scale and also ask raters to provide written comments.
Managers and leaders within organizations use 360 feedback surveys to get
a better understanding of their strengths and weaknesses. The 360 feedback
system automatically tabulates the results and presents them in a format
that helps the feedback recipient create a development plan.
How is 360 Degree Feedback Used?
Companies typically use a 360 feedback system in one of two ways:
1. 360 Feedback as a Development Tool
When done properly, 360 feedback is highly effective as a development tool.
The feedback process gives people an opportunity to provide anonymous
feedback to a co-worker that they might otherwise be uncomfortable giving.
Feedback recipients gain insight into how others perceive them and have an
opportunity to adjust behaviours and develop skills that will enable them to
excel at their jobs.
2. 360 Feedback as a Performance Appraisal Tool
Using a 360 degree feedback system for Performance Appraisal is a common
practice, but not always a good idea.
What a 360 Feedback Survey Measures:
 360 feedback measures behaviours and competencies
 360 assessments provide feedback on how others perceive an employee
 360 feedback addresses skills such as listening, planning, and goal-
setting
 A 360 evaluation focuses on subjective areas such as teamwork,
character, and leadership effectiveness

2.6 – Performance Management: Systems & Strategies 30 | Page

Advantages of 360 Degree Feedback
360 degree feedback has many positive aspects
 Improved Feedback from More Sources: This method provides
well-rounded feedback from peers, reporting staff, co-workers and
supervisors
 Team Development: This feedback approach helps team
members learn to work more effectively together.
 Personal and Organizational Performance Development: 360
degree feedback is one of the best methods for understanding personal
and organizational developmental needs.
 Responsibility for Career Development: Multi-rater feedback can
provide excellent information to an individual about what he needs to
do to enhance his career.
 Reduced Discrimination Risk: When feedback comes from a
number of individuals in various job functions, discrimination because
of race, age or gender is reduced.
 Improved Customer Service: Each person receives valuable
feedback about the quality of his product or services. This feedback
should enable the individual to improve the quality, reliability,
promptness and comprehensiveness of these products and services.
 Training Needs Assessment: 360 degree feedback provides
comprehensive information about organization training needs and
thus allows planning for classes, cross-functional responsibilities and
cross-training.
Disadvantages of 360 Degree Feedback
360 degree feedback has the following negative aspects
 Exceptional Expectations for the Process: 360 degree feedback is
not the same as a performance management system. It is merely a
part of the feedback and development that a performance
management system offers within an organization.
 Design Process Downfalls: Often, a 360 degree feedback
process arrives as a recommendation from the HR department. Just
like any other planned change, the implementation of 360 degree
feedback should follow effective change management guidelines.
 Failure to Connect the Process: For a 360 feedback process to work,
it must be connected with the overall strategic aims of the
organization.

31 | Page 2.6 – Performance Management: Systems & Strategies

  Insufficient Information: Since 360 degree feedback processes are
anonymous, people receiving feedback have no option if they want to
further clarification on the feedback.
 Focus on Negatives and Weaknesses: The great managers focus
on employee strengths, not weaknesses. Since people don't change
that much, don't waste time trying to put in what was left out. Try to
draw out what was left in.
 Rater Inexperience and Ineffectiveness: In addition to the fact
that the raters are untrained, there are numerous ways raters go
wrong. They may inflate or deflate ratings. They may informally band
together to make the system artificially inflate everyone’s
performance. Checks and balances must exist to prevent these pitfalls.
 Paperwork/Computer Data Entry Overload: Traditional
evaluations required two people and one form. Multi-rater feedback
ups the sheer number of people participating in the process and the
subsequent time invested.

2.6 – Performance Management: Systems & Strategies 32 | Page

UNIT V
Q.10. ISSUES AND CONCERNS IN PERFORMANCE
MANAGEMENT
Performance management can be defined as a systematic process for
improving organizational performance by developing the performance of
individuals and teams.
It is a means of getting better results from the organization, teams and
individuals by understanding and managing performance within an agreed
framework of planned goals, standards and competence requirements.
The Concerns of PM
The following are the main concerns of performance management:
a. Concern with outputs, process and inputs: Performance
management is concerned with outputs (the achievement of results) and
outcomes (the impact made on performance). But it is also concerned with
the processes required to achieve these results (competencies) and the
inputs in terms of capabilities (knowledge, skill and competence) expected
from the teams and individuals involved.
b. Concern with planning: Performance management is concerned with
planning ahead to achieve success in future. This means defining
expectations expressed as objectives and business plans.
c. Concern with measurement and review: Performance management
is concerned with the measurement of results and with reviewing progress
towards achieving objectives as a basis for action.
d. Concern with continuous improvement: Concern with continuous
improvement is based on the belief that continuously striving to reach
higher standards in every part of the organization will provide a series of
incremental gains that will build superior performance. This means
clarifying what organizational, team and individual effectiveness look like
and taking steps to ensure that those defined levels of effectiveness are
achieved.
e. Concern with continuous development: Performance management is
concerned with creating a culture in which organizational and individual
learning and development is a continuous process. It provides means for the
integration of learning and work so that everyone learns from the successes
and challenges inherent in their day-to-day activities.
f. Concern for communication: Performance management is concerned
with communication. This is done by creating a climate in which a
continuing dialogue between managers and the members of their teams

33 | Page 2.6 – Performance Management: Systems & Strategies

takes place to define expectations and share information on the
organization’s mission, values and objectives. It establishes mutual
understanding of what is to be achieved and a framework for managing and
developing people to ensure that it will be achieved.
g. Concern for stakeholders: Performance management is concerned
with satisfying the needs and expectations of all the organization’s
stakeholders, management, employees, customers, suppliers and the
general public.
h. Concern for transparency: Four ethical principles that should govern
the operation of the performance management process. These are −
 Respect for the individual
 Mutual respect
 Procedural fairness
 Transparency of decision making
The Issues (Challenges) in PMS
The alignment of the organizational goals with Strategic Business
Units/Departmental goals/ Individual goals is one of the important areas in
PMS.
The policy objectives and measures taken at the strategic levels have to be
cascaded to the lower level (goal cascading).
Individual employees role and goal clarity, setting individual/ team targets,
designing performance benchmark for different level of employees,
providing necessary human and technical support to employees and other
related strategic and functional aspects are the challenging areas.
Designing suitable performance policy and its implementation ensuring
excellent employees performance through periodical review, incorporation
of rewards/recognition are really challenging functions for the managers.
The appraisers play key role in PMS. The immediate supervisor has to
appraise his/her subordinates achievements neutrally with irrespective to
the appraisal method. Appropriate method has to be followed for appraising
employee performance.
The raters and reviewing officers are expected to evaluate and explore how
far an employee can improve further. Performance linked incentive is one of
the controversial areas where enough care needs to be taken with
maintaining neutrality in rating.
The company should provide excellent communication and support system

2.6 – Performance Management: Systems & Strategies 34 | Page

for facilitating employee(s) performance.
Team management, leadership style of the boss, timely employee appraisal,
payment of rewards and the allied areas of PMS are quite delicate which
make the employee performance appraisal challenging.
Here are some performance management process challenges:
1. Combating inconsistent engagement levels of different
managers. Getting all managers on board is critical. Managers need to
be fully trained on the process and HR needs to monitor managers to
ensure that the program is being used consistently and objectively.
2. Establishing the right metrics. The metrics should be measurable,
and they need to tie into the strategic business plan of the organization.
There should also be a balance between short-term and long-term
metrics – especially when it comes to skill development.
3. Tying rewards to key compensation objectives to drive
motivation. When employees are engaged in what is expected, they
really are more motivated to achieve and to work towards a common
strategic goal.
4. Creating a system that adequately distinguishes between high
performers and average performers. Creating this distinction is key
because it provides the basis for compensation differences for different
performance levels.
5. Eliminating the entitlement mentality. Entitlement mentality
refers to employees who feel that they are entitled to a raise every year
regardless of performance. Entitlement mentality minimizes
effectiveness. In a true pay for performance environment, performance
needs to impact pay and HR actions in order to be effective.
6. Effectively using limited budgets. The budget levels obviously
impact how much the employer can differentiate pay based on
performance ratings. Nevertheless, distinctions should be made even if
they are small. This is more easily accomplished when fewer
performance levels are used.

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