Competitive pressures that exist in the international business environment are compelling most
companies to adopt new and progressive ways of managing human capital. Strong emphasis is
being placed on performance management systems (Pulakos, 2004).
- Performance management entails joint teamwork between management and employees in
reviewing, monitoring and planning overall work objectives and its contribution to organization
Effective performance management results in clear job classification and enumeration of
responsibility and employee expectations. Performance management enhances productivity for
both individuals and group while also developing individual employee capabilities that makes it
possible for employees to realize their full potential through effective feedback systems.
Performance enables the organization to integrate the organization goals and the employees
expectations by aligning the company’s core values, strategies and goals together with the
employees goals (Hillgren & Cheatham, 2000).
Performance management provides a basis for making critical human capital decisions for
example decisions on pay increment and reward systems while also improving effective
communication between the management and the employees.
Performance management is a critical tool in successful companies and other high performing
companies and it’s also one of the most important responsibilities for managers.
Performance management can be used for decision making mostly relating to promotions,
transfers or pay increases or for development purposes and which relates to job training,
evaluations and mentoring.
- Reward systems are applied to motivate employees to be more productive and committed to
the company’s goals and objectives. Reward systems are mostly classified into two basic
categories. These are financial and non financial reward systems. Financial or extrinsic rewards
relate to individual merit which is solely dependent on performance while non-financial rewards
(intrinsic) include development, recognition, career guidance and other forms of schemes that
target non financial benefits to employees. The debate is basically whether the two systems draw
the same effect on employees or if one of them is better that the other but main role of good
reward system is to motivate the employees to continue working hard for the organization, boost
their morale encourage them to be more productive (Lado & Wilson, 1994).
The role of performance management
- The role of performance management is to provide the basis for decision making both in other
decision making efforts and developmental purposes. Performance management assists in
making decisions that affect the employee pay structure and bonus compensation while
developmental performance involve staff training, transfer, promotions and development training
(Hillgren & Cheatham, 2000).
Performance management is practically the foundation of HR human capital management. It
provides the policies and procedures for hiring and terminating the services of the employee
including the procedures for promoting and review of salaries and other staff remuneration. The
performance management system (PMS) coordinates the functions of the HR department
regarding staff performance.
Characteristics of a good Performance Management system
Strategic and Context Congruence
- The major characteristic of a good performance management system is that it must contain
staff input in order for it to attract the cooperation of all the staff in the organization. The goals of
the organization and those ones of individual employees should be aligned so as ensure that the
company is moving in the right direction for the interest of both parties i.e. the organization and
also the employees besides it should also be and be congruent with the norms that are based on
the culture where the organization is located (Pfeffer, 1994).
Thoroughness, Practicability and effectively communicated
The performance management system should include all employees. The performance measures
that are applied in performance management should be practical and acceptable to all employees.
Performance management should utilize performance measures that are consistent, reliable, free
of errors and effective. The performance management systems should be perceived as fair by the
employees in terms of practicability in order for it to acceptable by all the employees. The
system should also have adequate system of communication together with an inclusive way of
communicating with all the employees.
Meaningfulness and Reliability
Employee evaluation should regularly take place at specific intervals and which employees ae
aware of. Performance management system should also provide the skills necessary to develop
the evaluators as the results of the exercise are used to make critical management decisions
hence they should be accurate and reliable.
The PMS should be able to identify the effectiveness of the system for the behaviors of the
employees. Systems that result in staff ineffectiveness should be re-evaluated and adequate steps
taken to reverse any negative effects on the system.
Acceptability and Fairness
The whole system should not only be fair but must also be perceived to be fair by the employees.
For the employees to be effective, they should have the right attitude in order for the to be
productive and effective.
The system should have a process that they can appeal to incase of unjust reactions from the
management. The process will create more trust for the system among the employees.
Employees whose services have been terminated can seek redress and appeal against decisions
that may be seen as unjust.
However, the whole system should have effective checks and balances to ensure that before the
management takes drastic action against employees then all the channels have been exhausted.
For example, before the services of an employee is terminated several warnings must have been
communicated to the employee including sessions of counseling, retraining, transfers to other
departments and termination should be the last option.
Integration with other HR activities
- The functions of performance management system and human resource activities actually
overlap. Performance management is more involved in performance of the employees and the
methods of evaluating and measuring the output of the employees compared to the expected
performance. Employees are constantly evaluated to ensure that their productivity is at par with
the management’s standards (Schuler, 1992).
Human resource department major roles of staffing and development of manpower including
staff promotion, transfers, terminations and reward system are effectively managed under a good
performance management system. Innovative human resource management systems include
systems of performance management. Traditionally the human resource department was mostly
concerned with personnel duties in most organizations but currently the major functions include
getting the right employees for different jobs while at the same time providing training,
experience, motivation and also ensuring that the employees have the right attitude for the job
and is well oriented with the requirements of the employment environment (Collis &
Montgomery, 1995). The relationship between the employer and the employee can be described
as related to principal-agent relationship and the human resource obligation is to ensure that the
relationship has competitive advantage over other competitors just as much as the functions of
performance management are supposed to be bring out the best from individual employees.
Collis, D.J., 7 Montgomery, C.A. (1995) competing on Resources: Strategy for the 1990’s,
Harvard business Review, pp. 118 -128
Lado, A. A. & Wilson, M.C. (1994) Human Resources Systems and Sustained Competitive
Advantage; A Competency-based Perspective, Academy of Management Review, 19, 699
Pfeffer, J. (1994) Competitive Advantage through People, Boston: Harvard Business School
Schuler, R.S. (1992) Strategic Human Resource Management: Linking People with the Needs of
the Business, Organizational Dynamics, 22, 19 – 32.
Hillgren, J.S., & Cheatham, D.W. (2000). Understanding Performance Measures: An Approach
to Linking Rewards to Achievements of Organization Objectives, Scottsdale, AZ:
Pulakos, E.D. (2004) Performance Management: A Roadmap for Developing Implementing and
Evaluating Performance Management Systems, SHRM Foundation.