Effective Performance Management: Concepts and Methods

Posted on Mar 5, 2025 in Other subjects

What is Performance Management?

A continuous process of identifying, measuring, and developing individuals and teams, and aligning their performance with the strategic objectives of the organization. It’s not restricted to performance appraisal (PA).

Performance Management Activities

Performance management involves activities such as:

  • Definition of organizational, departmental, team, and individual goals.
  • Implementation of a performance appraisal system.
  • Design of compensation systems suitable to the strategy and that reinforce performance.
  • Training and development strategies.
  • Feedback, communication, and coaching – that allow to define improvements over past performance.
  • Career planning.
  • Management of/through culture.

Explanatory Factors of Poor Performance

Organizational Practices

Poor internal communication; lack of requirements; HRM policies that disrespect employees.

Leadership Practices

Autocratic behaviors; dishonesty; technical incompetence; missing relational skills.

Personal Problems

Marital difficulties; emotional instability; financial problems; conflict between work and family demands.

Workstation

Work overload; routine tasks; mismatch between the competencies of the individual and the requirements of the job; ambiguity; role conflict.

External Factors

Uncontrolled trade union disputes; economic recession.

Performance Management Objectives

Strategic

Standards of results and overall organizational values (resulting from organizational strategy, longitudinal analysis, and benchmarking).

Individual Development

Diagnose the potential of employee development and improve future performance.

Management and Organization of Human Capital

Implications of PM in decisions about salaries, variable merit compensation, promotions, transfers and exits of the members of the organization, new hires, outsourcing solutions.

Conditions of PM Systems Effectiveness

  • Relevance – Are the dimensions used to evaluate performance really important for the workstation? Are the performance standards defined for a given job relevant to the achievement of organizational goals?
  • Sensitivity – Is the system able to distinguish between good and bad performance?
  • Faithfulness – Are judgments and procedures consistent?
  • Acceptability – Do people accept the system?
  • Practicability – Do employees and supervisors understand the system and see it as practical and useful?
  • Trust – Is there trust between all stakeholders?

Important Notes on Performance Management

  1. Performance appraisal should be understood as one of the elements, among others, of a broader system of performance management.
  2. It is not an end in itself, but a means to foster individual performance and development, as well as organizational performance.
  3. PM is a continuous process, which must be well defined, whose efficacy should be measured, whose produced data should be analyzed, and which must be subjected to continuous and controlled improvements.

A Continuous Process of PM

Prerequisites for cascading goal setting:

  1. Knowledge of organizational strategy and objectives.
  2. Knowledge of the jobs/functions through job analysis.

Performance appraisal planning: (discussion between managers and employees about the results to be achieved, the behaviors to be adopted, and the action plan to follow).

Implementation:

  1. The employee has the responsibility to act in accordance with what has been planned.
  2. The manager: to observe and to document the evaluation, to update the plan in case of changes, to provide feedback, provide the necessary resources for good performance, and to praise or draw attention to certain behaviors.

Performance appraisal: (evaluation of the extent to which the objectives have been achieved or not achieved through self- and hetero- evaluation).

Performance appraisal review: (meeting to discuss evaluation and future development actions).

Renewal of the process for setting objectives for the next evaluation period.

Conditions of Effectiveness of Performance Management Systems

Good Practices to Ensure Effectiveness

  • Communicate frequently with the employee about their performance.
  • Training in evaluation interview techniques.
  • Encourage employee preparation.
  • Encourage participation and communication.
  • Judge performance and not personality.
  • Be specific and listen actively.
  • Mutual trust.
  • Joint definition of objectives.

Best Practices to Ensure PM Effectiveness (Aguinis)

  • Strategic compatibility: alignment between organizational and individual objectives.
  • Completeness: all employees, including managers, should be evaluated. All the most relevant responsibilities of the job should be evaluated. The whole period should be considered, and not just the last few weeks prior to the rating assignment. Both positive and negative feedback should be provided.
  • Practicability: the system should be easy to use and understandable, and its costs should be lower than the benefits.
  • Meaning / relevance: the evaluation criteria should be important and relevant. The evaluation should only focus on the aspects that the employee can control. There should be regular evaluations. The system should have consequences (e.g., for wage increases).
  • Specificity: the system should be specific about what people expect and how they should meet those expectations.
  • Effective and ineffective performance differentiation: the system must distinguish effective and ineffective behavior and results. Equal ranking for all employees is not desirable.
  • Trust Evaluations should be reliable (e.g., two superiors should evaluate a given employee in the same way).
  • Validity: the criteria used to measure performance should be valid (i.e. relevant, covering all important factors, not contaminated by matters beyond the control of the employee).
  • Acceptance and justice: the system must be accepted by people and considered fair.
  • Scope/inclusion: the system must be built and implemented taking into account the interests of all parties involved (e.g., “having voice” in the process).
  • Openness / transparency: the system must be transparent. Employees should be continuously informed of their progress. Communication between the evaluator and the evaluated should go two-way and be based on factual data.
  • Correction: errors must be assumed and the evaluated ones must have mechanisms that allow them to proceed with the correction.
  • Standardization/consistency: performance should be evaluated consistently over time and for different people.
  • Ethics: the system must be ethical, respecting the principles of honesty, privacy, and dignity.

Performance Appraisal Methods

Absolute

Individual behaviors/attributes:

  • Essay method
  • Graphic or attribute rating scale
  • Behavioral checklist
  • BARS (behaviorally anchored ranking scale)
  • Assessment centers

Results:

  • Management by objectives (MBO)
  • Balanced scorecard

Relative

Individual behaviors/attributes:

  • Simple ranking
  • Paired ranking
  • Forced distribution

Results: same as above

Performance Appraisal Methods: Behavior-Centered (Absolute)

Essay Method

  • The most simple form of evaluation.
  • The evaluator describes in writing the employee’s strengths and weaknesses, as well as their potential – and presents suggestions for improvement.
  • If correct, the descriptions provide valuable feedback to those being evaluated.
  • However, the method tends to make impossible the comparisons between departments or between individuals within the same department, since evaluators rely on different criteria to evaluate each individual.

Graphic or Attribute Scale

Classify performance on a scale (between “unsatisfactory” and “excellent”, for example) for several attributes.

Behavioral Checklist

  • One of the most popular ways.
  • The evaluator is placed ahead a set of statements.
  • Score the performance of the contributor in each statement.
  • The scores are added to obtain the performance rating.

Critical Incidents

  • Work events with a significant impact on performance.
  • Evaluators regularly describe especially positive and / or especially negative behaviors / events
  • Evaluation (and discussion for development) focuses on these incidents.
  • Incidents can serve as first step in defining the evaluative dimensions of the two previous methods.

BARS (Behaviorally Anchored Rating Scales)

  • Variation of graphic ordering scales.
  • Describes evaluation criteria in behavioral terms, and can use critical incidents to describe the various levels of performance.
  • Provides a common frame of reference for evaluators, reducing the risk of inconsistency between them.

Assessment Centers

Effectiveness depends on factors such as:

  • adjustment of job analysis and consequent classification of behavior and skills
  • use of good assessment techniques
  • diversity of evaluations
  • appropriate simulations
  • good skills and good training of the evaluators
  • behavior records and reports
  • data integration

Main errors: weak planning; weak job analysis ; poor definition of dimensions to be assessed; poor quality job; absence of pre-test; inadequate preparation of the evaluators; poor behavioral documentation and classification; misuse of results

Performance Appraisal Methods: Behavior-Centered or Results-Oriented (Relative)

Simple Ranking

  • Evaluator lists all employees from the best to the worst, considering certain dimensions (such as overall or potential performance).
  • Can be used in organic units or companies with small numbers of people.
  • Although it allows a comparison for the purposes of management decisions (e.g., compensation, promotion), it is less suitable for the transmission of feedback with an impact on individual development.

Paired Ranking

  • Compare each person with each other (comparison can be performed for several criteria).
  • Evaluator chooses the best of each “pair“.
  • Individual position: number of times a given person has been classified as superior.
  • It does not make the feedback easy
  • Complex when persons under evaluation are numerous.

Forced Distribution

The evaluators are forced to distribute the evaluated ones according to a given distribution

  • Advantages and strengths
  • Obliges the evaluators to differentiate the classifications, avoiding the lenient tendency to assign high quotations to all employees.
  • Clearly differentiates the merit, being therefore motivating for the individuals with better performance (and also for those of lower performance who want to improve).
  • It is compatible with a culture of merit and with organizations focused on the best talent and who want to be leaders.
  • Disadvantages and risks
  • Can generate arbitrary classifications.
  • Can have a negative effect on cooperation and teamwork (e.g., helping a colleague may lead to personal harm, even though the support is favorable to team performance).
  • Can generate loss of motivation in individuals who, at some point, perceive that they are not able to receive the high score (or in those who understand that this classification is “guaranteed”).
  • People may feel unfair because of factors that overtake them (e.g., a seller because they have lower relative sales because their market has weak potential – not because their performance is actually weak).
  • People seek to move away from tasks and responsibilities that make it difficult for them to access a higher classification.
  • Emotional costs in both evaluators and evaluated.