Performance Management: Purposes and Components

Purposes of Performance Management and its Relationship to Business Objectives

Research is consistent in that performance management frameworks are developed with the primary objective of enhancing the performance of the employee and the organization by not only identifying performance requirements but also providing regular feedback and helping individual employees to progress in their careers (Ammons 2015). As such, one of the main purposes of performance management is to manage employee performance by identifying the obstacles to effective performance and addressing those obstacles through regular monitoring, coaching, as well as development interventions.

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This purpose is strategic in nature as it helps the management to use performance management systems to align employee behaviors with the goals and objectives of the organization (Aguinis 2005). The second purpose of performance management is to motivate employees to perform better. Here, available literature shows that receiving feedback about one’s performance and recognition of one’s past successes enhance the motivation for future accomplishments (Ammons 2015). This purpose is developmental in nature as it allows managers and supervisors to use performance management strategies such as coaching and feedback to motivate employees to perform better.

Performance management and business objectives are intricately linked due to the fact that the former is tasked with the main role of developing employees with the right commitment and competencies that could be used to achieve the shared meaningful objectives set by the organization. According to Aguinis (2005, p. 2), “performance management requires that managers ensure that employees’ activities and outputs are congruent with the organization’s goals and, consequently, help the organization gain a competitive business advantage.” Consequently, performance management not only generates a direct correlation between employee performance and business objectives but also makes the employees’ contribution to the organization to become explicit.

Components of Performance Management Systems

The three components identified in this paper include induction (setting expectations), performance reviews, and 360-degree feedback. An induction component is a form of performance planning that is jointly conducted by the appraisee and the reviewee at the commencement of a performance session with the view to deciding upon the targets and the key performance areas that can be performed by the employee within a given time-frame. Here, it is important to not only go through the position description for the role with the view to explaining the expectations of the job to the employee but also to explain to them that you will be reviewing their performance using the performance feedback form.

The component of performance reviews details how the job performance of an employee is documented and evaluated, meaning that it provides the time-frame for evaluation (annually or biannually), the methodologies for evaluation (self-appraisal followed by the final ratings by the appraiser), and how the review process is to be undertaken (through active participation of both the employee and the appraiser). Finally, the component of 360-degree feedback aims to provide employees with confidential, anonymous feedback from their line managers, peers, direct reports, and internal and external customers with the view to creating awareness about the areas of improvement and also providing information on whether they are contributing the expected levels of performance or not (Aguinis 2005).

Relationship between Motivation and Performance Management

The relationship between motivation and performance management is anchored in two key areas. First, available scholarship demonstrates that performance management systems are used in contemporary contexts as the main tools to transform the talent and motivation of employees into a strategic business advantage (Ammons 2015). The second key area concerns the fact that effective performance management systems increase the motivation of employees to perform, while defective performance management systems serve to decrease their motivation to perform (Aguinis 2005).

Using the second relationship area, it is possible for business practitioners and managers to apply the theory of Maslow’s hierarchy of needs as a guiding framework to identify the various benefits and rewards that could be included in a performance management system with the view to motivating them to perform better according to their needs (physiological, safety, love and belonging, self-esteem, and self-actualization). Since needs that have already been met are no longer motivators according to Maslow’s theory (Udechukwu 2009), it should be the task of managers to design more high-order incentives or rewards in their performance management systems to motivate employees to achieve a higher level of performance in order to satisfy their next set of needs.

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Herzberg’s motivation-hygiene theory is based on the premise that job satisfaction and job dissatisfaction result from divergent causes, with satisfaction depending on motivators that are intrinsic to the job and dissatisfaction depending on hygiene factors that are extrinsic to the job (Udechukwu 2009). Since the absence of hygiene factors (e.g., working conditions, pay and benefits, job security and company policies) lead to job dissatisfaction and the presence of motivators (e.g., variety of work, responsibility, and recognition) encourage higher employee performance, Herzberg’s theory could be applied in actual business settings to design effective performance management systems that include the components of the two factors as the foundation for increasing employee motivation to drive performance.

Purposes of Reward

One of the foremost purposes of reward within a performance management system is to motivate employees to perform according to the expectations set by the organization. For example, it is a well-known fact that employees who work for organizations offering intangible or relational rewards such as recognition and status, employment security and learning opportunities, in addition to tangible rewards such as cash compensation and benefits, are more motivated to perform according to the set business goals than employees working for organizations that offer tangible rewards only. The second purpose of reward is to retain key staff and attract new employees with the needed skills and competencies to drive the organizational agenda forward. Here, it can be argued that organizations with an effective and efficient reward system are able to retain their critical human resources and attract more competent employees, while organizations with a defective reward system are forced to shoulder huge costs related to high employee turnover (Aguinis 2005).

Components of a Total Rewards System

A total rewards system, defined in the literature as the whole package of financial and non-financial rewards, serves as an inducement for talented and innovative individuals to join an organization, to perform at levels that generate the required business results, and also to remain with the organization as long as they continue to generate the desired outcomes (Aguinis 2005). The financial components of a total rewards system that will be described in this section include a base salary and bonus, while the non-financial component will be employee recognition.

Base salary has been described in the literature as the fixed amount of money paid to an exempt or professional employee by an employer to compensate for the work that has been performed during a particular time-frame, in most cases bi-weekly or monthly (Chiang & Birtch 2012). The component of bonus, on the other hand, is described as the amount of money added to an employee’s wages or monthly salary as a tangible reward for good performance, commitment to the organization, or for achieving specific goals and objectives set by the organization. The non-financial component of employee recognition can be described as the management’s recognition of an employee or team’s behavior, effort and achievements that support the organization’s objectives and values with the view to encouraging repeat actions and fostering self-esteem and competence through behavior reinforcement (Chiang & Birtch 2012).

Factors to Consider when Managing Good and Poor Performance

There are different factors to consider when managing good and poor performance. When managing good performance, it is important to assess how the performance expectations have been met and what needs to be done to exceed those expectations. Additionally, it is important to evaluate the employee’s training and development needs with the view to identifying areas of concern and advice to the employee accordingly. Furthermore, it is prudent to consider the support and resources that have been availed to the employee and how they have helped them to align their behaviors with the aims and objectives of the organization. In doing so, critical areas that require further support and organizational resources are identified and resolved to enable the employee to perform even better. Lastly, it is important to consider how the feedback system has helped the employee to perform well and what needs to be done to ensure the trend is sustained or improved through continuous feedback and counseling (Demartini 2014).

Poor performance has been blamed for causing many organizational problems, including low employee motivation and morale, low service delivery standards, productivity issues, and more complaints from customers. As such, it is important to devise effective and results-oriented ways to manage poor performance. A major factor that needs to be considered in such a context is whether the knowledge, skills, and competencies of the poorly-performing employee are in alignment with the expectations set by the organization. Here, it is important to consider if the employee understands the effects of their behavior and if they have sufficient knowledge, skills, and competencies to perform their job according to the set expectations. Another factor to consider concerns the motivation attitude of the employee. Here, it is important to look at whether the employee has the right attitude or desire to perform well in the job by evaluating issues such as whether the employee undertakes the work as required, whether the employee follows directions or performs tasks as required, and whether the employee fails to acknowledge they are underperforming. Lastly, it is important to consider the issue of resources. This factor aims to develop an adequate understanding of whether the underperforming employee has the necessary equipment and training to undertake the job as required (Aguinis 2005; Demartini 2014).

Items of Data

One internal item of data relating to performance is the performance review or appraisal. Research is consistent that properly constructed and implemented performance reviews enable appraisers to collect internal data from a wide range of sources, including sales reports, call records or deadline reports, feedback from peers, results of personal observation, documentation of ongoing dialogue, as well as employee self-evaluation (Demartini 2014). These data not only increase the objectivity of the performance appraisal process but also ensure that all factors influencing employee performance are considered and successfully addressed. The second item of data that is external to the organization is reward benchmarking. This process entails collecting external industry or market data with the view to benchmarking all components of an employee package (basic pay, bonuses, benefits, incentives) together rather than in isolation (Aguinis 2005). Companies that benchmark their reward systems against industry or market standards are more able to retain their top talent than companies that offer employee rewards in isolation (Kwon & Hein 2013).

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Frequency, Purpose, and Process of Performance Review

Available literature demonstrates that the best practice for conducting performance reviews should be twice per year in order to provide an all-rounded picture of an employee’s performance (Aguinis 2005). The main purpose of undertaking a performance review is to record or document the performance of an employee with the view to assessing whether it meets the expectations set by the organization or if it is in alignment with strategic business objectives. Still, a performance review may be undertaken to not only identify possible areas for development but also to set out goals and targets or expectations for the next performance review (Demartini 2014).

The process of performance review has five important steps that commence with welcoming the employee and outlining the purpose or agenda of the meeting. The second step entails reviewing the employee’s past performance against the initially agreed-upon targets. Here, it is important to establish a collaborative two-way relationship with the employee as the manager or supervisor reviews past performance to establish why the targets have not been met in case of poor performance. The third step entails the provision of feedback or counseling aimed to guide the employee on what needs to be done to improve their productivity in case of poor performance or to sustain their productivity in case of good performance. Here, the appraiser or the manager may take time to discuss with the employee possible areas for development and the skills or competencies needed to improve. The employee can also be counseled on available organizational resources and tools that they can use to improve performance. The fourth step entails agreeing with the employee on the actions, objectives, or targets that will be evaluated in the next performance review. Lastly, the appraiser or manager should conclude the meeting on a positive note and thank the employee for taking the time to participate in the review process (Demartini 2014).

Reference List

Aguinis, H 2005, Performance management, Edinburgh Business School Publishers, Edinburgh, United Kingdom.

Ammons, D 2015, ‘Getting real about performance management’, Public Management, vol. 97, no. 11, pp. 8-11, 2017, via Business Source Premier database.

Chiang, FFT & Birtch, TA 2012, ‘The performance implications of financial and non-financial rewards: An Asian Nordic comparison’, Journal of Management Studies, vol. 49, no. 3, pp. 538-570, 2017, via Academic Search Premier database.

Demartini, C 2014, Performance management systems: Design, diagnosis and use, Springer Publishing, New York City, NY.

Kwon, J & Hein, P 2013, ‘Employee benefits in a total rewards framework’, Benefits Quarterly, vol. 22, no. 1, pp. 32-38, 2017, via Academic Search Premier database.

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Udechukwu, I 2009, ‘Correctional officer turnover: Of Maslow’s needs hierarchy and Herzberg’s motivation theory’, Public Personnel Management, vol. 38, no. 2, pp. 69-82, 2017, via Business Source Premier database.

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