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Performance evaluation has existed for many years, being restricted often to supervisory groups or management. It has been focused on historical performance, and has not sought to explore a strategic approach. The concept of Performance Management is a recent development, which focuses on a future-oriented strategy.
The Concept of Performance Management
Performance Management (PM) represents a company-wide concept that has developed as an integrated, strategic process, which incorporates development, performance appraisal, and goal-setting into a coherent and unified framework, with the aim of aligning the organizations wider objectives with individual performance goals. It relies on the notion that organizational success can be achieved through developing the capabilities of employees, as well as a strategic and integrated approach to improving the performance (Armstrong & Baron, 2005). Except the competitive pressures, organizations have used PM processes to shift the emphasis to self-development and individual performance.
The Types of Performance Management Plans
Performance Management could be divided roughly into three types: short-cycle, micro and long-cycle. Hybrid approach, which contains elements of all three, is considered to be the most efficient way to manage performance. Long-cycle PM is usually manifests through annual, every 6 months, or quarterly performance reviews, and is the dominant approach from implementations standpoint. However, in case it is the only PM process, it might be extremely ineffective, being a part of unnecessary corporate bureaucracy.
Short-cycle Performance Management is done on a monthly, bi-weekly, or weekly basis. The given sort of management overlaps with principles of Agile Software Development, and is considered to be industry-specific. The approach includes such activities as tracking customer needs, quick adjusting, and iteration. Its methodologies traditionally provide the company with short-cycle PM tools, which help to overlay the natural rhythm of the organization in order to make adjustments, and keep track on the go. Micro PM is usually done on a by-day/hour/minute basis. It represents tools, which help to address immediate needs of a process or specific function through day-to-day performance reviews.
Impact of Performance Management on the Organization and Employees
Most of the contemporary organizations have a strong focus on PM systems in order to generate high levels of job performance (Gruman & Saks, 2011). PM has a direct impact on the organizational outcomes, such as employee job satisfaction, customer satisfaction, product quality, productivity, and financial performance. There is a very clear and immediate association between organizational competitiveness and performance. Evans (2004) argues that a good Performance Measurement Model proves a key to the alignment of strategic direction of a company and its actions. To achieve it, a company can use the modern technology-based PM systems, balanced scorecard and benchmarking. A well-developed Performance Measurement System elicits better market, financial and customer performance.
Employee PM may deliver a great return on investment through several indirect and direct benefits, which may include:
Management control that provides well-communicated process documentation, helps audit to comply with the legislative requirement, and displays data relationships.
Motivated workforce that creates transparency in achievement of goals, improves employee engagement, and optimizes plan to specific goals for over achievement.
Direct financial gain that aligns the company directly behind the CEO’s goals, stops project overruns, reduces costs in the organization, and grows sales.
The Relationship between Performance Management and Compensation
Compensation, as well as PM practices, determines the organizational performance, and subsequently, organizational effectiveness. Employee support is bolstered by a documented, fair and well-considered compensation plan, based upon position within a pay grade salary band and performance level. The relationship between Compensation Systems and PM relies on the company’s strategy and philosophy, external market information, clear communication of expectations with employees, and accurate job descriptions. The alignment leads to the concept of contingency perspective of fit of HR Management practices, where HRM must be aligned with internal and external contingencies in order to impact the company’s performance. Aligning PM to integrate with other systems, and support the company’s goal, proved to be a critical differentiator in system efficiency (Sumlin, 1998). PM supported with positive justice perceptions on HRM practices, such as impression management behaviors of rates, perceived organizational support, organizational culture and due process characteristics, better enhance the outcomes of PM programs. Therefore, if performance is more accurately observed, the link between pay and performance should be stronger.