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PERFORMANCE MANAGEMENT SYSTEM

Performance management includes activities to ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on performance of the organization, a department, processes to build a product or service, employees, etc. Information in this topic will give you some sense of the overall activities involved in performance management. Then you might enhance your understanding by reviewing closely related library topics referenced from the sidebar.

IMPORTANCE OF PERFORMANCE MANGEMENT SYSTEM

Setting up a good performance management system doesn’t happen overnight or by accident. You need to consider its design and carefully plan how it will work before managers begin using it to evaluate employees.

Benefits

Managing employee or system performance facilitates the effective delivery of strategic and operational goals. There is a clear and immediate correlation between using performance management programs or software and improved business and organizational results.

A performance management system should provide employees with these four basic benefits:

1. A clear understanding of job expectations
2. Regular feedback about performance
3. Advice and steps for improving performance
4. Rewards for good performance

4 Key Benefits of Performance Management system

1. PM focuses on results, rather than behaviors and activities

A common misconception among supervisors is that behaviors and activities are the same as results. Thus, an employee may appear extremely busy, but not be contributing at all toward the goals of the organization. An example is the employee who manually reviews completion of every form and procedure, rather than supporting automation of the review. The supervisor may conclude the employee is very committed to the organization and works very hard, thus, deserving a very high performance rating.

2. Aligns organizational activities and processes to the goals of the organization

PM identifies organizational goals, results needed to achieve those goals, measures of effectiveness or efficiency (outcomes) toward the goals, and means (drivers) to achieve the goals. This chain of measurements is examined to ensure alignment with overall results of the organization.

3. Cultivates a system-wide, long-term view of the organization.

Richard A. Swanson, inPerformance Improvement Theory and Practice(Advances in Developing Human Resources, 1, 1999), explains an effective performance improvement process must follow a systems-based approach while looking at outcomes and drivers. Otherwise, the effort produces a flawed picture. For example, laying off people will likely produce short-term profits. However, the organization may eventually experience reduced productivity, resulting in long-term profit loss.

4. Produces meaningful measurements

These measurements have a wide variety of useful applications. They are useful in benchmarking, or setting standards for comparison with best practices in other organizations. They provide consistent basis for comparison during internal change efforts. They indicate results during improvement efforts, such as employee training, management development, quality programs, etc. They help ensure equitable and fair treatment to employees based on performance

PERFORMANCE MANAGEMENT SYSTEM

A Performance Management System enables a business to sustain profitability and performance by linking the employees’ pay to competency and contribution. It provides opportunities for concerted personal development and career growth. It brings all the employees under a single strategic umbrella. Most importantly, it gives supervisors and subordinates an equal opportunity to express themselves under structured conditions. Managing this process effectively isn’t easy. It calls for a high level of co-ordination, channeled information flow, and timely review. Whether employees are at a single place, or spread across multiple locations, the use of technology can help simplify the complete process for more effective information management.

Customize Performance Management to Fit Global Cultures

Experts say companies often impose an American style of performance management on employees based in other countries, even when such a system conflicts with local cultural norms. A better approach, they say, is to adapt the system to fit the culture. U.S. firms pick up their existing performance management program … philosophy, intent, forms, everything … and try to force-fit them into non-U.S. cultures, forgetting that the nature of the employer/employee relationship varies widely from place to place, But this is a mistake. What works in Dallas might not work so well in Dalian or Dubrovnik. In some cultures you simply cannot transpose culturally offensive management styles.

The 360-degree approach is a good example of this. It requires a fundamentally egalitarian mindset and value system in order to be effective.

It’s a rather Western concept to evaluate performance management scientifically and with a process that is valid and reliable and rational company. The management and assessment of performance has always been done [around the world], but it’s been done more intuitively and organically, and not in a rational, organized process. In the West that people will say things clearly, that are problems, and that’s not the case in many other cultures around the world.

However, because the American business model is accepted and admired, many companies outside the United States will simply accept the American way of doing business rather than expecting to have practices adapted to fit their culture, said

A good performance appraisal process is an integral part of the performance management system and it works seamlessly with the other components. This article takes a holistic approach to performance management and gives an overview of the components. A performance management system has the following components and interfaces: goal-setting, regular reviews, annual appraisal, development process and linkages to other systems.

Goal-setting

This process is the foundation for a good performance management system. It brings in the clarity required to deliver the required results. The organization’s expectations are set in the form of “key result areas” (KRAs), along with strong indicators of the required standards (also termed “measures of performance”). The benefits of giving clear directions are many. It helps increase productivity by enabling people to focus on the requirement; it minimizes frustration and enables employee satisfaction.

Regular reviews

Reviews are a critical component of the system. Reviews give timely feedback to the individual. It is important to schedule formal reviews during the course of the year. These can be half-yearly or quarterly depending on the need. Structured mid-term reviews enable the organisation to take stock of the performance during the given period. It gives the individual an opportunity to discuss his/her achievements during the given period and to look at areas of improvement. In a dynamic environment, it is important to keep abreast of market situations. Reviews can be utilised to make midcourse correction in the KRAs.

It is possible that the macro environment has changed and that some of the objectives have to be reviewed. For example, certain sectors in the economy may be doing extremely well and the organisation may see a need to review sales numbers based on these indicators. Reviews need to be structured on a regular basis to ensure that there are no surprises in the annual appraisal. Regular and structured reviews are a critical component of the performance management system and this is essential to ensure that the performance management system is not the same as the annual performance appraisal. As a part of this sub-system, we have processes such as coaching, mentoring, performance improvement plans, etc.

Annual appraisal

A typical appraisal system could be designed on one of the following

• Confidential report: The report is written by the supervisor and is, typically, not shown to the individual. Decisions, such as promotions and changes in compensation are made, based on this report.
• Report by supervisor that is shown/given to the individual and discussed.
• Self-appraisal by the individual, value-added comments by the supervisor and a discussion: In this system, the individual writes a self-appraisal vis-à-vis KRAs set at the start of the year. The manager adds his or her comments. Organisations follow one of the following methods of ratings-(a) rating given by the manager or (b) the individual and the manager give ratings and the organisation has a mechanism to deal with differences between the two. There is an opportunity for the individual and the manager to discuss the contents of the appraisal.

People working in the software industry or in a project environment may raise a question about the relevance of the annual appraisal. Then there are also professionals who work with different project teams during the course of the year. In this case we could have reviews signed-off at the end of each project. These could be collated at the end of the year to look at overall performance and linkages to other systems.

Development plan

This pertains to the training and development sub-system. A part of the development plan stems out of the annual appraisal. This is the result of the areas of improvement that emerge from the appraisal and competencies required for new roles, if relevant. A good training and development process will also take the necessary inputs from the organisation’s business plan. This is required if the organisation is investing into new business or entering new markets.

Linkage to rewards system

Linkages to processes such as compensation, rewards, progression and successionplanning-the performance appraisal system, in many organisations, has a link to the rewards system. Individuals judge the performance management system and the culture of the organisation based on the message sent by the rewards system. If the rewards system recognises individual contribution and ignores contributions made to team objectives, the people in the organisation start focusing on individual tasks.

Therefore, linkage to many of these systems need to be contemplated upon, articulated to the people and implemented with consistency.

MEANING OF PERFORMANCE APPARISAL

Performance appraisal system has been defined in many ways. The simplest way to Understand the meaning of performance appraisal is as follows:

“A regular and continuous Assessment of the quality, quantity and style of the Performance along with the assessment of the factors influencing the Performance and behavior of an individual is called as performance Appraisal.”

Performance appraisal also means an appraisal of the growth potential of an Employee, with a view to providing information to the organization leading to positive Action and enabling feed-back to the individual aimed at his performance Improvement, personal growth and job-satisfaction. In short, we can say that Performance appraisal is expected to result in an assessment of:

• Growth potential of the employees;
• Corresponding training needs for the employees;
• Capabilities for their placement in higher posts,
• Conduct and discipline of the employees; and
• The need of the organization to evolve a control mechanism

OBJECTIVES OF PERFORMANCE APPRAISAL

The main objective of the system of performance appraisal is to reward those who are Working efficiently and honestly in the organization. At the same time, it also aims at eliminating those who are inefficient and unfit to carry out their responsibilities. It has to be done almost continuously, so that no injustice is done to a deserving individual. It is, therefore, necessary to clearly define the organizational objectives, targets and priorities. It is further necessary to define clearly the rote and responsibilities of the persons involved in the functioning of the organisation.

Performance appraisal also aims at helping the management in carrying out their tasks more effectively. A sound system of performance appraisal results in framing:

• A sound selection ?policy.
• An effective promotion and placement policy;
• An improved system of career and manpower planning;
• A realistic training programme;
• A good reward and punishment system; and
• An effective system of control and discipline in the organization.

These elements are essential for any modern management system. No country can neglect them for long.

We can thus say that the main objectives of performance appraisal are as follows:

• To carry out a fair and impartial assessment of the quality, quantity and stvle 01 the work performance of the individuals working in the organisation.
• To assess the extent of the various factors which influence the performance of the individuals.
• To reward the capable and efficient employees.
• To provide opportunity for improvement of their potentialities to those who are less capable and efficient.
• To make optimum utilisation of the available human resources for the fulfilment of the organisational goals.
• To help management in evolving and framing sound policies and programmes relating to selection, placement, promotion, training, discipline, control and man

Global Trends in Performance Appraisal Program

The performance appraisal process has become the heart of the human resource management systemin the organizations. Performance appraisal defines and measures the performance of the employees and the organization as a whole. It is a tool for accessing the performance of the organization.

The important issues and points concerning performance appraisal in the present world are:

• The focus of theperformance appraisalsis turning towards career development relying on the dialogues and discussions with the superiors.
• Performance measuring, rating and review systems have become more detailed, structured and person specific than before.
• Performance related pay is being incorporated in the strategies used by the organizations.
• Trend towards a360-degree feedbacksystem
• The problems in the implementation of the performance appraisal processes are being anticipated and efforts are being made to overcome them.
• In India, the performance appraisal processes are faced with a lot of obstacles, the most prominent being the lack of quantifiable indicators of the performance.

GLOBAL TRENDS

The emergence of following concepts and the following trends related toappraisal can be seen in the global scenario:

360 Degree Appraisal

360 degree feedback, also known as ‘multi-rater feedback’, is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job. Organisations are increasingly using feedback from various sources such as peer input, customer feedback, and input from superiors. Different forms with different formats are being used to obtain the information regarding the employee performance.

Team Performance Appraisal

According to a wall street journal headline, “Teams have become commonplace in U.S. Companies”. Most of theperformance appraisal techniquesare formulated with individuals in mind i.e. to measure and rate the performance of the individual employee. Therefore, with the number of teams increasing in the organizations, it becomes difficult to measure and appraise the performance of the team. The question is how to separate the performance of the team from theperformance of the employees. A solution to this problem that is being adopted by the companies is to measure both the individual and the team performance. Sometimes, team based objectives are also included in the individual performance plans.

Rank and Yank Strategy

Also known as the“Up or out policy”, the rank and yank strategy refers to the performance appraisal model in which best-to-worst ranking methods are used to identify and separate the poor performers from the good performers. Then the action plans and the improvement opportunities of the poor performers are discussed and they are given to improve their performance in a given time period, after which the appropriate HR decisions are taken. Some of the organisations following this strategy are Ford, Microsoft and Sun Microsystems.

Global Variations

In the United States it is common for each employee’s performance over the previous six months or year to be documented and followed by a one-on-one meeting between the employee and their supervisor, at which time the employee will receive their rating and discuss expectations for the next rating cycle. In some cases employees are expected to complete a self-appraisal, which might be factored into their review, while in other cases feedback from peers and customers might be included as part of a 360-degree assessment of an individual’s performance. Though far from perfect, and often dreaded, the American performance appraisal process suits the American culture, which is regarded as highly individualistic and egalitarian. For example, in the Unites States the performance rating is often used to determine pay. The basic belief in the acceptability, the rightness, the virtue of pay for performance.

“Those who contribute the most should get the greatest rewards.”

In the U.S. employees tend to rate themselves and others very highly, such as a 4 or a 5 on a 5-point scale-using an “everyone gets a prize”. In many European cultures the highest rating might be a 3, and in Asian cultures they wouldn’t rate themselves.

A pay-for-performance system is inappropriate in cultures that focus on interpersonal relations and collectivism.

In Japan compensation is not based on performance. In fact, it’s hard to identify the individual performance, because the focus is the team. “If an individual were identified as performing so well that they got compensation in return for it, it would be anathema to the group’s collaborative ethos.”

In some countries, such as Korea and Germany, use performance management processes that closely parallel those used in the United States. The same is true for France, though he noted that there is less of a connection between performance and pay in that nation. However, the Japanese and American processes have “diverged significantly” over the years. The Japanese system is frequently, and even intentionally and openly, used as a means of discriminating against ‘undesirable’ employees, a practice that is prohibited under U.S. civil rights laws. And although the performance appraisal process involves filling out the appraisal form and discussing it with the employee, In Japan the appraisal process often involves only the completion of the form without the discussion between boss and subordinate of the results of assessment. Those who work in the U.S. often put a great deal of value on the information that comes from 360- degree feedback, according to. But in a country like India-which tends to be more collective than individualistic and which embraces a high-power distance, or inequality of power, there is less value placed on the opinions of others and it would be seen as inappropriate culturally to ask employees to fill out a questionnaire on their boss. Similarly it would be difficult to implement a system that includes self-appraisal in cultures that are defined as collaborative, consultative and consensus oriented. People simply don’t speak in the capital I and are very uncomfortable doing so. “In a culture like China or Japan, asking a person to speak about themselves in a way that is honest and direct and that will be appraised by their superiors is a waste of time.”

And in some cultures, a face-to-face performance meeting never takes place.

In severely hierarchical cultures where the boss is expected to just tell you what they think, there may not be a direct conversation. “They may communicate through a mediator to help save face.”

Filipino managers engage in a practice called “smooth interpersonal relations.” If a boss has a problem with one of his subordinates, he won’t talk directly to the subordinate about it, he’ll instead tell his wife because he knows his wife’s cousin’s hairdresser is related to the problem employee. In other cultures, managers and employees go out for a drink periodically and chat informally about problems at work. The end result is that the manager knows and has a good sense of the performance of the individual, but if you ask them to assess the employee on a scale of one to 10 they can’t do so. “There is a dependent relationship in Asian cultures. Employees depend on leaders to help them solve work-related problems. “That’s at odds with Western cultures where staff members solve things on their own.”

In some cultures the relationship between the manager and subordinate is so close and ongoing that it’s sort of like a parent/child relationship. Managers know how employees are performing and give them feedback on a regular basis.

A Look at India

The business culture in India varies depending on whether it is a family-held business, an Indian company or a Western or American multinational organization, and that affects the nature of the performance management process, according to Nirmala Menon of Interweave Consulting Pvt. Ltd., a diversity consulting firm in Bangalore, India. “As most Indians are socialized to be hierarchy oriented, this often tends to spill over into the workplace,” Menon told SHRM Online. “In family-owned or the more traditionally-run organizations, the boss or manager often takes the position of the father in the family.” Organizations rely heavily on informal feedback from the senior person, which might be given indirectly and which is absorbed by the one for whom it is meant and others, Menon added.

Menon says this means that the employee’s career growth is the boss’s responsibility. “The expectation then is that “Father knows best” and what is conveyed is accepted even if they are in disagreement,” she said. “Assessments are therefore often influenced in such situations by the deference shown to the boss and the level of loyalty exhibited; compliance more important than performance.”

But Menon said that modern Indian organizations and multinational corporations, particularly IT and telecommunications firms, generally adapt to the global value systems of their companies. As a result, Assessments tend to be more structured and include face-to-face meetings, she said, followed by a written document signed by employee and manager and which typically incorporates input from peers and customers to substantiate the rating.

“While indirect feedback also exists in these organizations, given the heightened awareness of a fair and professional environment, there is more acceptance and expectation of a documented communication, keeping in mind the objectives for the period under review,” Menon added.

Annual Performance Appraisal and Assessment in Indonesia

Early in the 20th century, the biggest job as a managers is to teach a newly hired employee to fail intelligently … to experiment over and over again and to keep on trying and failing until learns what will work. As we begin 2004, many companies are struggling with the issue of employee appraisal and Assessment. While generally adopted in most western-based business cultures, such employee review and appraisal in Indonesia can be fraught with misunderstandings as to purpose and methodology, be filled with accusations of impartiality, and be slowed by hesitation to formally criticize a subordinate.

This issue comes up in easily 95 percent of my cross-cultural training programs. American companies normally wish to establish some sort of review procedure but once they begin addressing how to actually institute the process and decide what direct benefits they wish to see, they often become bogged down. The threshold question then is whether a foreign company should even try to implement such a system. There are several cultural barriers to such a system here. Among them is the difficulty with direct communication with employees and also the ‘saving up’ of problem areas until a later time.

Direct communication is difficult for most Indonesians. Indonesians generally adopt an indirect approach to problem solving to avoid the possibility of confrontation and the disruption of office harmony. The preservation of such office harmony being a prime Indonesian business value, of course, and one often having priority over work performance. Also in Indonesia an erring employee or other problem situation is addressed as soon as possible, albeit in an indirect and non-blame pointing way, and then forgotten. To bring the subject up again at some review several months later is going to be considered inappropriate.

For these two reasons, individual performance appraisals tend to have the following pattern: An employee comes in to the meeting with some misunderstandings or perhaps anxiety about what will be discussed and how it will affect their career. The supervisor can go over the ‘good’ qualities of the employee without difficulty. However, when the supervisor begins discussing areas that ‘may need improvement’ there is normally an attitude change on the part of the employee with him or her becoming either defensive or submissive. In other words, the employee may either disagree with the supervisor’s assessment or else may ask something like “Why are you doing this to me? I thought that we had a good working relationship. I did not realize that I was letting you down so badly. Do you want me to resign?”

The supervisor then is in the position once again of explaining the purpose and objective of the assessment process. In general, annual performance Assessments and reviews tend to be disruptive to the Indonesian office. In my opinion, companies should focus on immediate feedback and reprimand, if needed, and not use the annual approach.

Another difficulty is the cultural reluctance for some Indonesian managers to formally and in writing criticize their own subordinates. I often hear the example of the expatriate manager who has had one of his direct reports complain often about the performance of his own subordinates. However, when it comes time for the annual review, the direct report submits an outstanding report on that same subordinate.

The decision to have annual performance Assessments and reviews may not be up to the Indonesian subsidiary of a multi-national company. Home office may dictate such a policy and the local company’s only choice is how to implement. There seem to be three basic approaches to this situation. First is to just go through the motions, telling your employees that ‘this is a Western thing. It will not affect your salary or career’, which basically voids the process. Second, you can use the information to provide training and education of the employees turning the Assessment process into a kind of reward system. Third and most difficult, is the attempt to fully implement and effectively use this Western Assessment tool. It can and has been successfully implemented by a number of American companies operating in Indonesia, but it does need the directed will of the top management along with allocated resources and training to be successful.

At the very least, there must be a significant training period to help your employees understand what the process is and, more importantly, how it will affect them. Year one should involve a formal introduction to the process with written, quantifiable criteria for the Assessment. Year two should include mock appraisals that do not have any effect on the career of the employee. Year three could see the first recorded appraisals. Once the process is institutionalized, new employees will be told by their colleagues about this strange and foreign system and what to expect. It then becomes part of your ‘third corporate culture.’ Any attempts to speed up the process are often seen as arbitrary and unfair.

Further, you should definitely expect such accusations of being arbitrary and unfair if you take the next step after the Assessment process and tie the appraisal into bonuses or salary increases. Such performance-based bonuses or salary increases are pretty much in direct opposition to the Indonesian business values of the group working together and maintaining office harmony. Traditionally, the ideal Indonesian employee is one who is loyal to the boss for a long time. In other words, loyalty and seniority are the prime attributes, and by loyalty, I mean personal allegiance to the boss, not to the corporate entity. Pointing out a specific employee and emphasizing the fact that he is superior to and a better employee than those he or she works with on a daily basis is going to be disruptive to the office and embarrassing to the individual.

For instance, if you have an annual office party or awards dinner for your staff and you say something like: “Now here is Budi who outperformed everyone else in our office and we are giving him a new TV.” The polite clapping of his co-workers is going to be overshadowed by thoughts of ‘traitor’ and plots for revenge against the award winner. If you bring up another employee and say ‘Now here is Bambang who has worked for our company for 10 years and we are giving him a new TV’, Bambang will bask in the limelight and his co-workers will no doubt truly admire his accomplishment. The difference being that Bambang was rewarded for seniority, while Budi was rewarded for violating basic Indonesian business values.

One should not expect the same confidentiality of salary information in Indonesia that one might expect in the home country. We joke that on the day performance bonuses are given, the employees exchange pay stubs in the canteen. Even if the situation is not that extreme, you can be sure that most people in your office know what each other has received, and those employees with more seniority may soon be in your office asking for a bigger bonus or larger salary increase.

You may then once again be explaining the company’s policy on performance appraisals and Assessment but this time be met with defensive and even hostile disagreement as to whom was the better worker. Allegations that the company’s criteria for awarding bonuses or salary increases is unfair and arbitrary and lacks understanding of the situation in Indonesia may be made. Employees have certainly used the conflict resolution strategy of ‘appeal to authority’ to resolve these disagreements going to the country manager complaining that their supervisor is acting improperly. There have also been cases of employees going to Indonesian government departments like Manpower or Immigration complaining about their expatriate supervisor. With the current priorities in these departments, such complains have resulted in the early repatriation of expatriate supervisors.

The process of annual performance appraisal and Assessment of Indonesian employees is not one that foreign companies should enter into lightly. The implementation of this very Western-based management tool should be well thought out and supported by top management. Alternatives exist that may be better suited to your company’s long-term success in Indonesia. Encouraging employee performance and addressing areas of weakness remain a good m