Concerns of Performance Management

Keywords: performance management features

In this chapter the nature, aims, characteristics, concerns and guiding principles of performance management are described. In addition, the differences between performance appraisal and performance management are examined and reference is made to the views of a selection of practitioners on performance management. The chapter concludes with a summary of the process of 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. Processes exist for establishing shared understanding about what is to be achieved, and for managing and developing people in a way that increases the probability that it will be achieved in the short and longer term. It is owned and driven by line management.

Other definitions are:

Performance management is: ‘The development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organisation which supports and encourages their achievement’ (Lockett, 1).

‘Performance management is managing the business’ (Mohrman and Mohrman, 2).

Performance management is: the process of ‘Directing and supporting employees to work as effectively and efficiently as possible in line with the needs of the organisation’ (Walters, 3).

‘Performance management is a strategic and integrated approach to delivering sustained success to organisations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors’ (Armstrong and Baron, 4).


The overall aim of performance management is to establish a high- performance culture in which individuals and teams take responsibility for the continuous improvement of business processes and for their own skills and contributions within a framework provided by effective leadership. Its key purpose is to focus people on doing the right things by achieving goal clarity.

Specifically, performance management is about aligning individual objectives to organizational objectives and ensuring that individuals uphold corporate core values. It provides for 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). The aim is to develop the capacity of people to meet and exceed expectations and to achieve their full potential to the benefit of themselves and the organization. Importantly, performance management is concerned with ensuring that the support and guidance people need to develop and improve are readily available.

The following are the aims of performance management as expressed by a variety of organizations (source: IRS Employment Trends, 1 August 2003, pp 12-19):

  • Empowering, motivating and rewarding employees to do their best (Armstrong World Industries).
  • Focusing employees’ tasks on the right things and doing them right. Aligning everyone’s individual goals to the goals of the organization (Eli Lilly & Co).
  • Proactively managing and resourcing performance against agreed accountabilities and objectives (ICI Paints).
  • Linking job performance to the achievement of the council’s medium- term corporate strategy and service plans (Leicestershire County Council).

The alignment of personal/individual objectives with team, department/divisional and corporate plans. The presentation of objectives with clearly defined goals/targets using measures, both soft and numeric. The monitoring of performance and tasking of continuous action as required (Macmillan Cancer Relief).

All individuals being clear about what they need to achieve and expected standards, and how that contributes to the overall success of the organization; receiving regular, fair, accurate feedback and coaching to stretch and motivate them to achieve their best (Marks & Spencer Financial Services).

Systematic approach to organizational performance aligning individual accountabilities to organizational targets and activity (Royal Berkshire and Battle Hospitals NHS Trust).

The process and behaviours by which managers manage the performance of their people to deliver a high-achieving organization (Standard Chartered Bank).

Maximizing the potential of individuals and teams to benefit themselves and the organization, focusing on achievement of their objectives (West Bromwich Building Society).


Performance management is a planned process of which the primary elements are agreement, measurement, feedback, positive reinforcement and dialogue. It is concerned with measuring outputs in the shape of delivered performance compared with expectations expressed as objectives. In this respect, it focuses on targets, standards and performance measures or indicators. It is based on the agreement of role requirements, objectives 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.

But it is also concerned with inputs and values. The inputs are the knowledge, skills and behaviours 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 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.

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Performance management focuses on future performance planning and improvement rather than on retrospective performance appraisal. It functions as a continuous and evolutionary process, in which performance improves over time; and provides the basis for regular and frequent dialogues between managers and individuals about performance and development needs. It is mainly concerned with individual performance but it can also be applied to teams. The focus 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 opportunities for growth. It may be associated with performance- or contribution-related pay but its developmental aspects are much more important.


The following are the main concerns of performance management:

Concern with outputs, outcomes, 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.

Concern with planning. Performance management is concerned with planning ahead to achieve future success. This means defining expectations expressed as objectives and in business plans.

Concern with measurement and review. ‘If you can’t measure it you can’t manage it. Performance management is concerned with the measurement of results and with reviewing progress towards achieving objectives as a basis for action.

Concern with continuous improvement. Concern with continuous improvement is based on the belief that continually striving to reach higher and 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. As Armstrong and Murlis (5) wrote, this involves: ‘Establishing a culture in which managers, individuals and groups take responsibility for the continuous improvement of business processes and of their own skills, competencies and contribution.’

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.

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 takes place to define expectations and share information on the organization’s mission, values and objectives. This establishes mutual understanding of what is to be achieved and a framework for managing and developing people to ensure that it will be achieved (Armstrong and Murlis, 5).

Concern for stakeholders. Performance management is concerned with satisfying the needs and expectations of all the organization’s stakeholders – owners, management, employees, customers, suppliers and the general public. In particular, employees are treated as partners in the enterprise whose interests are respected, whose opinions are sought and listened to, and who are encouraged to contribute to the formulation of objectives and plans for their team and for themselves. Performance management should respect the needs of individuals and teams as well as those of the organization, recognizing that they will not necessarily coincide.

Concern for fairness and transparency. Four ethical principles that should govern the operation of the performance management process have been suggested by Winstanley and Stuart-Smith (6). These are:

  • respect for the individual;
  • mutual respect;
  • procedural fairness;
  • transparency of decision making.


There are five issues that need to be considered to obtain a full understanding of performance management:

1. the meaning of performance;

2. the significance of values;

3. the meaning of alignment;

4. managing expectations;

5. the significance of discretionary behaviour.

The meaning of performance

Performance is often defined simply in output terms – the achievement of quantified objectives. But performance is a matter not only of what people achieve but how they achieve it. The Oxford English Dictionary confirms this by including the phrase ‘carrying out’ in its definition of performance: ‘The accomplishment, execution, carrying out, working out of anything ordered or undertaken.’ High performance results from appropriate behaviour, especially discretionary behaviour, and the effective use of the required knowledge, skills and competencies. Performance management must examine how results are attained because this provides the information necessary to consider what needs to be done to improve those results.

The concept of performance has been expressed by Brumbach (7) as follows: ‘Performance means both behaviours and results. Behaviours emanate from the performer and transform performance from abstraction to action. Not just the instruments for results, behaviours are also outcomes in their own right – the product of mental and physical effort applied to tasks – and can be judged apart from results.’ This definition of performance leads to the conclusion that when managing performance both inputs (behaviour) and outputs (results) need to be considered. It is not a question of simply considering the achievement of targets as used to happen in management-by-objectives schemes. Competence factors need to be included in the process. This is the so-called ‘mixed model’ of performance management, which covers the achievement of expected levels of competence as well as objective setting and review.

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Performance management and values

Performance is about upholding the values of the organization – ‘living the values’ (an approach to which much importance is attached at Standard Chartered Bank). This is an aspect of behaviour but it focuses on what people do to realize core values such as concern for quality, concern for people, concern for equal opportunity and operating ethically. It means converting espoused values into values in use: ensuring that the rhetoric becomes reality.

The meaning of alignment

One of the most fundamental purposes of performance management is to align individual and organizational objectives. This means that everything people do at work leads to outcomes that further the achievement of organizational goals. This purpose was well expressed by Fletcher (8) who wrote: ‘The real concept of performance management is associated with an approach to creating a shared vision of the purpose and aims of the organisation, helping each employee understand and recognise their part in contributing to them, and in so doing, manage and enhance the performance of both individuals and the organisation.’

Alignment can be attained by a cascading process so that objectives flow down from the top and at each level team or individual objectives are defined in the light of higher-level goals. But it should also be a bottom-up process, individuals and teams being given the opportunity to formulate their own goals within the framework provided by the defined overall purpose, strategy and values of the organization. Objectives should be agreed, not set, and this agreement should be reached through the open dialogues that take place between managers and individuals throughout the year. In other words, this needs to be seen as a partnership in which responsibility is shared and mutual expectations are defined.

Managing expectations

Performance management is essentially about the management of expectations. It creates a shared understanding of what is required to improve performance and how this will be achieved by clarifying and agreeing what people are expected to do and how they are expected to behave and uses these agreements as the basis for measurement, review and the preparation of plans for performance improvement and development.

Performance management and discretionary behaviour

Performance management is concerned with the encouragementof productive discretionary behaviour. As defined by Purcell and his team at Bath University School of Management (9), ‘Discretionary behaviour refers to the choices that people make about how they carry out their work and the amount of effort, care, innovation and productive behaviour they display. It is the difference between people just doing a job and people doing a great job.’ Purcell and his team, while researching the relationship between HR practice and business performance, noted that ‘the experience of success seen in performance outcomes help reinforce positive attitudes’.


Egan (10) proposes the following guiding principles for performance management:

Most employees want direction, freedom to get their work done, and encouragement not control. The performance management system should be a control system only by exception. The solution is to make it a collaborative development system in two ways. First, the entire performance management process – coaching, counselling, feedback, tracking, recognition, and so forth – should encourage development. Ideally, team members grow and develop through these interactions. Second, when managers and team members ask what they need to be able to do to do bigger and better things, they move to strategic development.


It is sometimes assumed that performance appraisal is the same thing as performance management. But there are significant differences. Performance appraisal can be defined as the formal assessment and rating of individuals by their managers at, usually, an annual review meeting. In contrast performance management is a continuous and much wider, more comprehensive and more natural process of management that clarifies mutual expectations, emphasizes the support role of managers who are expected to act as coaches rather than judges and focuses on the future. Performance appraisal has been discredited because too often it has been operated as a top-down and largely bureaucratic system owned by the HR department rather than by line managers. It was often backward looking, concentrating on what had gone wrong, rather than looking forward to future development needs. Performance appraisal schemes existed in isolation. There was little or no link between them and the needs of the business. Line managers have frequently rejected performance appraisal schemes as being time consuming and irrelevant. Employees have resented the superficial nature with which appraisals have been

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conducted by managers who lack the skills required, tend to be biased and are simply going through the motions. As Armstrong and Murlis (5) assert, performance appraisal too often degenerated into ‘a dishonest annual ritual’. The differences between them as summed up by Armstrong and Baron (4) are set out in Table 1.1.

Performance appraisal

Performance management

Top-down assessment

Joint process through dialogue

Annual appraisal meeting

Continuous review with one or more formal reviews

Use of ratings

Ratings less common

Monolithic system

Flexible process

Focus on quantified objectives

Focus on values and behaviours as well as objectives

Often linked to pay

Less likely to be a direct link to pay

Bureaucratic – complex paperwork

Documentation kept to a minimum

Owned by the HR department

Owned by line managers


The research conducted by the CIPD in 2004 (11) elicited the following views from practitioners about performance management:

‘We expect line managers to recognise it [performance management] as a useful contribution to the management of their teams rather than a chore’ (Centrica).

‘Managing performance is about coaching, guiding, motivating and rewarding colleagues to help unleash potential and improve organisational performance. Where it works well it is built on excellent leadership and high quality coaching relationships between managers and teams’ (Halifax BOS).

‘Performance management is designed to ensure that what we do is guided by our values and is relevant to the purposes of the organisation’ (Scottish Parliament).

The research conducted by the CIPD in 1997 (4) obtained the following additional views from practitioners about performance management:

1. ‘A management tool which helps managers to manage.’

2. ‘Driven by corporate purpose and values.’

3. ‘To obtain solutions that work.’

4. ‘Only interested in things you can do something about and get a visible improvement.’

5. ‘Focus on changing behaviour rather than paperwork.’

6. ‘It’s about how we manage people – it’s not a system.’

7. ‘Performance management is what managers do: a natural process of management.’

8. ‘Based on accepted principles but operates flexibly.’

9. ‘Focus on development not pay.’

10. ‘Success depends on what the organisation is and needs to be in its performance culture.’

PERFORMANCE MANAGEMENT AND THE PSYCHOLOGICAL CONTRACT A psychological contract is a system of beliefs that encompasses the actions employees believe are expected of them and what response they expect in return from their employer. As described by Guest et al (12), ‘It is concerned with assumptions, expectations, promises and mutual obligations.’ Rousseau (13) noted that psychological contracts are ‘promissory and reciprocal, offering a commitment to some behaviour on the part of the employee, in return for some action on the part of the employer (usually payment)’.

A positive psychological contract is one in which both parties – the employee and the employer, the individual and the manager – agree on mutual expectations and pursue courses of action that provide for those expectations to be realized. As Guest et al (12) remarked: ‘A positive psycho- logical contract is worth taking seriously because it is strongly linked to higher commitment to the organisation, higher employee satisfaction and better employment relations.’ Performance management has an important part to play in developing a positive psychological contract.

Performance management processes can help to clarify the psychological contract and make it more positive by:

  • providing a basis for the joint agreement and definition of roles;
  • communicating expectations in the form of targets, standards of performance, behavioural requirements (competencies) and upholding core values;
  • obtaining agreement on the contribution both parties (the manager and the individual) have to make to getting the results expected;
  • defining the level of support to be exercised by managers;
  • providing rewards that reinforce the messages about expectations;
  • giving employees opportunities at performance review discussions to clarify points about their work.


Performance management should be regarded as a flexible process, not as a ‘system’. The use of the term ‘system’ implies a rigid, standardized and bureaucratic approach, which is inconsistent with the concept of performance management as a flexible and evolutionary, albeit coherent, process that is applied by managers working with their teams in accordance with the circumstances in which they operate. As such, it involves managers and those whom they manage acting as partners, but within a framework that sets out how they can best work together. This framework has to reduce the degree to which performance management is a top-down affair and it has to be congruent with the way in which the organization functions. Performance management has to fit process-based and flexible organizations. In these circumstances, which are increasingly the norm, it has to replace the type of appraisal system that only fits a hierarchical and bureaucratic organization.

The processes of performance management consist of:

Planning: agreeing objectives and competence requirements and producing performance agreements and performance improvement and personal development plans.

Acting: carrying out the activities required to achieve objectives and plans.

Monitoring: checking on progress in achieving objectives.

Reviewing: assessing progress and achievements so that action plans can be prepared and agreed.

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