Performance Management And Rewards

The following essay critically evaluates the relative importance of Performance Management and the role it plays in effective Human Resource Management in organisations today, whilst referring to relevant HRM theories, models and tools. The importance of PM in relation to other HRM functions will also be discussed, including the need for integration across HRM practices and management of the organisation as a whole.

People are undoubtedly the most important, valuable and costly resource for an organisation and how this resource is managed can have a direct impact on an individual’s performance and the organisation as a whole. Many organisations have set up a Performance Management Process. In its simplest form, it is based on the concept of, in order to be the best; everyone needs to continually improve their performance. A PM process supports this and all people managers are responsible for ensuring that the process is effectively carried out. In their study, Armstrong and Baron (2009) define PM as a process which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance. As such, it establishes shared understanding about what is to be achieved and an approach to leading and developing people which will ensure that it is achieved. They stress that PM is a “strategy which relates to every activity of the organisation set in the context of its human resource policies, culture, style and communications systems. The nature of the strategy depends on the organisational context and can vary from organisation to organisation”. Michael Armstrong states that Performance Management is a process which is designed to improve organisational, team and individual performance and which is owned and driven by line managers.

In order to drive effective PM, line managers are required to set clear objectives for performance and communicate these to individuals in their team. They are required to provide timely and appropriate feedback on performance levels, including regular one to one discussions and to develop each individual’s ability to perform at their best. In their article, Sally Selden and Jessica E. Sowa (2011), state that in exploring PM, one must start with an explanation of the process of managing individual employee performance. Typically, the process starts at the top of the organization with management developing a performance management policy. Managers generally control performance by influencing inputs and by feedback provided by outputs. They state that the ultimate objective of a PM process is to align individual performance with organisational performance. An organisation’s PM process, however, is subject to interpretation by individual employees who may not necessarily react to signals in the same way. David Guest (1997) in particular suggests that the impact of HRM practices, such as PM depends upon the employee’s perception and evaluation, prompting the need for scholars studying PM to recognise the crucial role of employee perceptions and to incorporate them into the analysis and construction of PM in organisations.

An analysis of a typical Performance planning in organisations today would involve the creating of a Performance Development Plan (PDP) for an individual. A PDP may consist of the following sections: 1. what am I going to achieve? (My objectives) – linked to the organisation’s strategy and possibly mission statement 2. How am I doing? – used to track progress against objectives 3. How I will achieve my objectives? (my competencies) and 4. My PDP, which would include areas for the individual’s development, actions to take, support needed and from whom and how the individual will know they have been successful – Most organisations today use SMART objective setting (Specific, Measurable, Achievable, Relevant, Time-bound). The PDP would also record a review of discussions and include career aspirations and time frames. Santander (2012) state that the PDP is a living document; it should be amended as and when required. It is recommended that monthly reviews are held to make sure any issues or changes to the PDP can be discussed. In addition, they state that Formal Reviews of an individual take place twice a year – mid year and end of year. During these informal and formal review meetings, the following elements should be considered : assessing performance against agreed targets and objectives, providing feedback, positive reinforcement ( emphasising what has been done well and making only constructive criticism about what might be improved ), two-way conversation – an open exchange of views about what has happened and agreement – jointly coming to an understanding about what needs to be done to improve performance generally and overcome any issues raised in the course of the discussion.

Managing staff performance should be managing for the individual to succeed – not fail. The centrepiece of a PM system is typically the performance appraisal. A Performance Appraisal (Review) is an opportunity for individual employees and line managers to engage in a dialogue about the individual’s performance and development, as well as support required from the manager (CIPD, 2011). A performance appraisal has many purposes such as clarifying expectations, reviewing past performance, motivating employees and assessing potential/promotability. There are many benefits of appraisal but equally there are potential problems such as the over reliance on outcomes rather than performance and the interviews themselves can cause anxiety.

So, does a performance appraisal constitute a PM? While performance appraisal is an important part of PM, in itself it is not PM, rather it is one of the range of tools that can be used to manage performance. The performance appraisal is often the central pillar of PM. Our 2009 PM survey found that a large majority of organisations use individual appraisals as part of PM programmes. However, it is a common mistake to assume that if organisations implement performance appraisals, they have PM. This is not the case. PM is a holistic process bringing together many activities that collectively contribute to the effective management of individuals and teams in order to achieve high levels of organisational performance. The process is strategic, in that it is about broader issues and long-term goals, and integrated in that it links various aspects of the business, people management, individuals and teams. Performance appraisal on the other hand is operational, short-to-medium-term and concerned only with individual employees and their performance and development. While it is one of the tools of PM, and the data produced can feed into other elements of PM, appraisal by itself does not constitute PM.

Bratton and Gold (2012) state that ideally an organisation should have a variety of techniques to encourage appraisal and PM culture including downward appraisal – immediate manager, self appraisal, peer/team appraisal, upward appraisal, multisource and 360 degree appraisal. The latter is where feedback is gathered from a wide range of “commentators” – typically including the individual’s direct reports, customers and colleagues, as well as the line manager. Its supporters claim that this gives managers and individuals better information about skills and performance, as well as working relationships, compared with more traditional appraisal arrangements based on line managers’ assessments. With 360 degree feedback, typically eight to ten people complete questionnaires describing the individual’s performance (including themselves). The questionnaire usually consists of a number of statements rated on a scale. The ensuing report should summarise the answers given. It often shows the actual ratings given for each question, as well as averages for each question and for each competency, and any written comments. Ideally the feedback from the whole process should be made anonymous and presented to the recipient by a skilled coach. Like other forms of appraisals, the 360 degree feedback should not bring any great surprises to individuals. Its focus, rather, should be on helping them to understand how their behaviour is perceived by others and confirming the behaviour that is most likely to get results. If implemented correctly, those supporting 360 feedback feel it can achieve certain key objectives 1) identifying differences between the way individuals see themselves and how they are perceived by others, 2) establishing differences between the perceptions of different groups of respondents and 3) in doing so, helping to make PM a more objective and fair process.

Numerous studies of PM have been conducted over the years, one of which is the Fine Intentions article by Duncan Brown and Wendy Hirsh (2011). Their article questions whether PM is a worthy successor to appraisals, PM systems are seen by HR as a route to fulfilling many complex requirements – beyond simply linking people to organisational success – but is that too tall an order, they question? There are many studies showing powerful links between people management practices and organisational performance, and appraisal usually comes out as a key practice in this regard. The key conclusion, they state, to be drawn from their work is that PM is indeed a vitally important process for employers. But it is also extremely difficult to implement effectively. They lost count of the number of times that the process was described to them in their studies as a turgid exercise in “box ticking” or “form filling” – “something you do to keep HR quiet”. In their article, they site two case studies to illustrate the current trends and improvements that can be made to PM processes 1. BT Operate – a sharp focus on getting personal objectives aligned throughout the organisation, clarity about performance standards, and a clear line of sight between individual, team and business performance. There has also been significant support and training for “people managers” to enable them to deliver great performance practice. 2. Oxfam GB – presents both opportunities and challenges for PM. Staff here are highly motivated by the mission, but that can tempt them to set unrealistic work goals and to be reluctant to take time away from immediate tasks in order to focus on their own performance and development. Following the case studies, Brown & Hirsh highlight the following 4 areas that HR could adopt to build more effective PM – Get strategic (HR thinking less about PM as a process and more about how it can support all employees to achieve individual goals in support of organisation’s strategy); Keep it simple (simplify and clarify their processes); Focus on the feedback; and Equip the managers (training tailored to needs).

Another study of PM and Appraisal in Human Organizations: Management and Staff Perspectives (Seldon & Sowa, 2011) states that PM systems have been studied extensively in the public and for-profit sectors but not adequately explored in the non-profit sector. Their study addresses this gap and identifies gaps in the perception of management and staff concerning PM, and then identifying five different models of PM systems, concluding with lessons for practice. Organisations typically develop PM processes to motivate employees. The process can motivate employees by establishing expectations and providing feedback on achievement of those expectations. Ideally, the organisation can then target training to address the weaknesses identified or areas of potential growth. In addition, they can adopt compensation systems to reward the achievement of goals. Managing individual performance should result in higher employee satisfaction and morale and lower employee turnover, a process that has been demonstrated in research on public organisations. Their findings conclude that the non-profit organisations in their study do not rely on performance-based monetary rewards and incentives as critical components of their PM systems. Therefore, they state, it is important to focus on the possibility of other rewards tied to the PM system, such as job enrichment and job enlargement. They conclude that the preferable model of PM is the multi-feedback PM system for non-profit organisations and present three lessons to drive future research and practice: 1. Management to ensure that employees understand the PM system; 2. PM tools are underutilized in this sector; 3. PM is associated with positive employee outcomes, such as turnover, job satisfaction, enjoyment of job and commitment to the job.

Many organisations today conduct regular employee opinion surveys to assess staff engagement. As Ben Willmott, senior policy adviser at the CIPD says:

“In the current environment, there is evidence that people are under increasing pressure in the workplace, that there’s a growing trust deficit between people at the bottom and the top of organisations. You’ve also got the squeeze on incomes, with people either having their pay frozen or receiving pay rises that are less than the rate of inflation. Against that backdrop, it’s difficult to build engagement.” (Willmott, 2007).

The Guest model of human resource management reflected the view that a core set of integrated HRM practices can achieve superior individual and organisational performance. According to Guest (1997), HRM differs from personnel management, and he attempts to identify the major assumptions or stereotypes underpinning each approach to employment management. He analyses HRM practices from selection, training, appraisal, rewards, job design, involvement and status and security.

Most organisations today offer a comprehensive Rewards and Benefits package which can be used to both attract and retain employees. Reward Management, as part of HRM, incorporates rewarding people in relation to their value to the organisation as measured by their actual and potential contribution, and matching rewards and incentives to people’s needs and goals. In defining their Reward packages, organisations must consider external competitiveness and internal equity, aim to maintain or improve levels of employee performance and comply with employment legislation and regulations. Packages can include benefits such as (14) – reduced rates on Apple products, all employee car scheme, partnership shares, retirement plan, childcare vouchers, performance related pay, incentive schemes linked to role and numerous others. Pay progression within companies usually depends on individual performance – linked to PM, market rate and competency. According to CIPD (2012), 66% of organisations use a combination approach to pay progression e.g. individual performance and length of service.

“Employers need to align the rewards desired by employees with the needs of business. There are various elements to reward and it is important that they choose the appropriate mix of base to variable pay, fixed to flexible packages and pay to non-pay rewards. They should be aware of the various organizational risks that are involved when making decisions on how they reward and recognize individual and collective contribution. It is important that an appropriate communications strategy is adopted to explain to staff what behaviours, values and performances the organisation is rewarding, how and why” (CIPD, 2012).

Within HRM, organisations have a sickness absence policy which clearly set’s out their policy statement and both employer and employee responsibilities. In the Annual Report 2011 – CIPD (2012) assessed their conclusions on absence management and, giving line managers primary responsibility for managing absence remains one of the most commonly used approaches for managing absence. Serious commitment to flexible working practices within HRM may help reduce absence due to stress, home/family responsibilities and “illegitimate” reasons, all of which remain common causes of absence for a sizeable proportion of organizations. Their findings conclude that investment in promoting employee well-being and managing stress at work is worthwhile. A focus on these issues and employee engagement, they state, will promote attendance and organizational performance.

To conclude, Performance Management is a crucial and fundamental function of human resource management. It focuses on setting a clear process for managers to follow in order to get the best from their people. The total rewards system and 360degree feedback performance analysis’s seem very appropriate to be used by all organizations, to enhance employee performances and involvement. Writing this essay has taught me a great deal about the pressure involved in being a line manager and the standards required to do so effectively.