Handbook of Improving Performance in the Workplace: Volumes 1-3 (ISPI/Handbook of Improving...

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S SCHAPTER TWELVE

PerformanceManagement Systems

David G. Gliddon

INTRODUCTION

A performance management system combines and coordinates an organiza-

tion’s efforts to grow or becomemore efficient bymotivating employees through

evaluation, development, reward, and promotion. A 1999 article by David Otley

of Lancaster University’s Management School defines performance manage-

ment as a practical framework that improves both employee skills and opera-

tional activities to increase organizational efficiency. For an organization, a

performance management system provides a structured and legally defensible

approach to cascading goals, objectives, and expectations to employees. By

integrating these tasks using technology, the organization creates an inter-

dependent dialogue among senior leaders, managers, employees, and its human

resource function. Establishing performance as the basis for this dialogue

creates a positive framework for the holistic evaluation of an employee’s

contribution to the profit and growth of an organization.

DESCRIPTION

Inherent in this systems-based approach is a multi-faceted strategy for mea-

surement of human performance that encourages excellence in each process in

the organization’s workflow system. Performance data should be gathered and

aggregated using an exhaustive variety of resources including, but not limited

to: financial metrics, production statistics, customer service feedback, project

299Handbook of Improving Performance in the Workplace, Volume TwoEdited by K. H. Silber, W. R. Foshay, R. Watkins, D. Leigh, J. L. Moseley and J. C. DessingerCopyright © 2010 by International Society for Performance Improvement. All rights reserved. ISBN: 978-0-470-52543-2

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management data, team-based evaluations, employee development progress,

competency development, and employee performance appraisals. The respon-

sibility of the non-technology aspects of administering an organization’s per-

formance management system typically rests with the human resource

function. A 1996 Academy of Management article by Delaney and Huselid

reports that HR professionals typically lead these efforts in the areas of com-

pensation, benefits, training, development, and employee relations. Key stake-

holders in each team provide their skills and efforts to ensure that the processes,

policies, and workflow in the system are aligned to an employee-focused,

service-driven perspective. An ethical performance management system should

demonstrate an organization’s commitment to the mutual growth of the

employees who comprise it.

A performance management system requires senior leaders of organizations

to communicate in their mission and vision statements that they commit to the

understanding that a shareholder’s and owner’s profit and success are funda-

mentally based on the performance and growth of its employees; this is the

foundation of success in a capitalist economy. When providing input into the

design of a performance management system, senior leaders should leverage

their power to demonstrate this commitment by encouraging the use of goal-

setting theory and crafting SMART (specific, measurable, attainable, realistic,

and timely) objectives emphasized by Mertins, Krause, and Schallock in their

1999 book Global Production Management. When adopted at all levels in the

organization, the performance dialogue that exists between managers and

employees shifts to a forward-thinking, positive, and improvement-based

form of feedback through coaching, mentoring, and applied leadership.

Performance management systems have emerged in organizations as a

combination of many theoretical perspectives. Research in 1993 by Jeffrey

S. Yalowitz and his colleagues supports W. Edwards Deming’s 1981 findings

that in the frame of total quality management theory, performance manage-

ment systems apply the standard of total quality to the employee and the

organization to encourage a long-term focus on performance improvement.

As I reported in my own dissertation work, which supports Konovsky and

Fogel’s 1988 work, among others, innovation leadership theory encourages

employee creativity and their ability to create and diffuse innovations to

drive an organization’s overall performance and competitiveness. Perfor-

mance management systems that are competency-based support employee

development and promotion by encouraging organizational learning activities

to increase employee performance; this is supported by Rothwell, Hohne,

and King’s 2007 research. According to Warren Bennis’ landmark 1969

book Organization Development, the practice of organization development

provides change management support and interventions that can be applied

to organizations with performance or motivation challenges. Performance

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management systems simplify and streamlinemany commonHR duties to create

a more efficient and accurate means of servicing employees’ needs. For example,

Becker and Gerhart’s research shows that performance management systems

provide a multi-disciplinary approach to promotion for succession planning.

WHAT WE KNOW FROM RESEARCH

A 1999 article by J. S. Bowman for Public Personnel Management journal reports

that many common forms of employee evaluation are more subjective than

objective in nature, differentiating in the degree of subjectivity likely in

the judgments made. Thus, both the employee and the organization are

responsible for an employee’s performance, motivation, and fair evaluation

of performance to strive for a less subjective, more objective measurement of

performance. The organization’s responsibility is to provide or improve a

performance management system that motivates employee and encourages

organizational growth. To answer the question, ‘‘What motivates my employ-

ees?’’ is to discover an employee’s and organization’s needs by completing a gap

or needs analysis that includes both statistical measures and employee feed-

back. Ang and colleagues, in a 2006 article entitled ‘‘The Cross-Section of

Volatility and Expected Returns,’’ describe understanding how employees are

motivated as understanding what outcomes they value, how much of the

outcome they expect to receive based on their performance, and the amount

of effort they will put forth to achieve the outcome.

Fairness Theory

The organizational culture within this adaptive environment must maintain, as

a fundamental principle, fairness with all employees. A 1998 article by Judge,

Locke, Durham, and Kluger describes the basis of fairness theory as justice

within an organization that encourages employee accountability. Unless fair-

ness theory is applied effectively in an organization’s culture, political forces

may arise to create a culture that is demotivating, breaking down an employee’s

commitment and accountability. Greenberg and Colquitt also address this in

their 2005 Handbook of Organizational Justice. Fairness theory combines two

perspectives that create a fair playing field for all employees. The first perspec-

tive, equity theory, focuses on maintaining a careful balance between perfor-

mance and reward to ensure legal defensibility and job satisfaction. The second

perspective, procedural justice, focuses on the process of how employees are

rewarded for performance. Procedural justice is necessary to ensure that HR

processes are applied reliably to each employee. When creating or redesigning a

compensation strategy and process or performance appraisal tool, the same

strategy, process, and appraisal should be applied to each employee or relevant

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employee group. This provides additional support to the legal defensibility of a

performance management system. Siegel, Schraeder, and Morrison’s 2008

article, ‘‘A Taxonomy of Equity Factors,’’ further emphasizes these issues.

When theorganizational culture reflects anapplicationof fairness theory, it can

begin to design or redesign its form of employee evaluation. The most common

form of employee evaluation is a performance appraisal. In a 2008 article for

Industrial and Organizational Psychology journal, Harris, Ispas, and Schmidt

outline the performance appraisal as consisting of two components: the perfor-

mance evaluation criteria to be appraised and the discussion that takes placewith

theappraiserorappraisers. If anorganizationusesonlya singleappraiser, bias can

occur because there are fewer sources of data to review to determine the employ-

ee’s performance contribution holistically. Likewise, differences in personality

type, values, attitude, mood, perceived power, or social influence of a single

appraiser can skew the feedback given in an interdependent performance dia-

logue. Daly and Geyer report in a 1994 article concerning fairness and change that

this can cause the performance appraisal to become a less-meaningful event to

employees, can demotivate them, and lower their performance.

To avoid these pitfalls, performance appraisals should instead use multiple

appraisers to increase the quality of the employee evaluation and performance

discussion. A common form of using multiple appraisers is the 360-

degree feedback evaluation. Kein’s 1999 article ‘‘Searching 360 Degrees for

Employee Evaluation’’ describes a 360-degree evaluation as including an

appraisal from an employee’s internal and external contacts in addition to

internal and external performance data. This begins a more interdependent

performance discussion that applies multiple points of view on the employee’s

level of performance (see Chapter Nine). Aggregating the quantitative measures

with qualitative feedback, say Harris and colleagues in a 2008 article for

Industrial and Organizational Psychology, is critical to ensuring a clear under-

standing of the employee’s level of performance. When closing a performance

discussion, David Cooperrider and colleagues explain in their 2003 Appreciative

Inquiry Handbook that an appreciative inquiry approach can be used to provide

detailed and specific praise for the employees’ strengths and, more importantly,

their efforts to develop strengths from their weaknesses (see Chapter Six).

Competency Theory

The basis for the discovery of employee strengths and weaknesses in a

performance management system is established with applied competency

theory. Competencies are the foundation of the modern organization’s human

resource function and are typically expressed as a competencymodel. Rothwell,

Hohne, and King explain in Human Performance Improvement that competency

models provide a description of the (1) knowledge, (2) skills, (3) capabilities,

and (4) behaviors required to perform a job or function, or to sustain the desired


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organizational culture. Competency models can be created for each position

within an organization and can be multi-dimensionally used as a tool for

measuring employee development. Gresh and colleagues assert in a 2007 article

concerning supply chain optimization that a performance appraisal built on the

foundation of employee development aids in increasing employee motivation

and inspiration through leadership, and it provides the ability for detailed

statistical analysis of employee development data for workforce planning needs.

Tailored to the organization’s compensation strategy, a competency-based

system of performance encourages higher levels of performance while also

providing an increase in the growth and performance of the organization as

employees apply their increased competence to their work.

Goal-Setting Theory

Goal-setting theory provides the basis for the vision statement of an organiza-

tion and defines its next steps in growth. This desire to grow is inherently driven

in a capitalist economy, Hirshleifer asserted in 1994. Henry Mintzberg, in The

Rise and Fall of Strategic Planning, points out that goals should be lofty in terms,

defining the future state of the organization in five to ten years to ensure they

incorporate future market opportunities and focused strategic planning efforts.

Likewise, goals help an organization to focus on long-term survival and

encourage its ability to generate societal-level innovations. When broken

down into SMART (specific, measurable, attainable, realistic, and timely)

objectives, goals define the basis for an organization’s project management

system. According to Meredith andMantel’s Project Management: AManagerial

Approach, project management tools can provide organized cascading of

objectives and strong evaluation data for an individual’s, team’s, or depart-

ment’s appraisal of performance. Combined with external market performance

data, an organization may evaluate its progress toward its goals.

Goal setting, when applied to an individual employee, should focus primarily

on the employee’s career goals within the organization. Career goals provide a

basis to encourage employees to seek developmental opportunities, improve

their capacity to complete objectives, and take on responsibilities until they

have the competencies to be promoted or included in succession planning

efforts. This matter is discussed further by Greenhaus and Parasuraman in their

1993 article for Organizational Behavior and Human Decision Processes. When

the employees reach their career goals, they may then choose to pursue others.

In their seminal 2002 article for American Psychologist, Edwin A. Locke and

Gary P. Latham report that individual employee goals are also impacted by

social factors such as a supervisor’s management style, leadership approach, or

personality-type. Managers who adopt the role of a mentor, coach, or leader

demonstrate a focus on employee development in their interactive performance

discussions. In a performance management system, mentoring, coaching, and


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leading provide inspiration and motivation to encourage an employee’s long-

term pursuit of their career goals.

Innovation Leadership Theory

In my 2006 dissertation at Pennsylvania State University, I define innovation

leadership as a collection of practical evolution strategies that organizations can

implement to create a culture of innovation, develop innovation leaders,

increase performance, and become more innovative. According to innovation

leadership theory, success in the adoption of innovations is increased when

leaders collaboratively interact with their employees and support high levels

of teamwork, providing opportunities to share innovations. There is a vast body

of literature exploring innovation leadership theory concepts. Some of these

include Damanpour’s ‘‘Organizational Complexity and Innovation,’’ Gifford’s

‘‘Innovation, Firm Size, and Growth in a Centralized Organization,’’ Martin-

sons’ ‘‘Strategic Innovation,’’ ‘‘Factors Affecting a Firm’s Commitment to

Innovation,’’ by Schoenecker, Daellenbach, and McCarthy, and Prather and

Turrell’s ‘‘Involve Everyone in the Innovation Process.’’ Curious readers are

also advised to examine works by Gruber (1972), Lee (1995), Lewis (1993),

Meyer (1988), Ripley and Ripley (1992), Roffe (1999), Russel (1990), and

Tannenbaum and colleagues (1994), all listed within the references section

at the end of this chapter

In a 2000 qualitative study, Jones reviewed leadership programs that pro-

moted innovation in organizations. Results suggested that, in order to lead

others in an innovation, leaders should be trained to promote (1) imagination,

(2) community, and (3) the application of the innovation in the workplace.

Rogers in 1995 explains that once an innovation has been shared, employees

should be empowered to then adopt the innovation if it is useful. Employees can

then support the innovation leader by initially adopting the innovation and

encourage the diffusion of the innovation throughout the organization’s social

system. In his research published in 2003, Peter Bingham links innovation to the

economic growth of existing enterprises and development of new enterprises.

As new products, services, technologies, and enterprises are created, new

opportunities for employment arise. Pagano and Verdin note in their 1997

text The External Environment of Business that innovation can support the

creation of new jobs in an economy.

Approaches to Employee Evaluation

Traditionally, performance evaluations are an annual, semi-annual, or quarterly

event that at times can be seen by employees as routine and trivial. In order to

fend off this negative stereotype, Woodford and Maes suggest in their 2002

article ‘‘Employee Performance Evaluations’’ that an organization should

support a valid set of employee evaluation criteria that measures performance

as the basis for compensation and brings meaningfulness and motivation in


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the interdependent performance dialogue. A foundation for evaluation criteria

of the interdependent performance dialogue is found in Kirkpatrick’s four levels

of learning evaluation. At Level 1, an initial reaction is expressed about the

performance dialogue. At Level 2, the participants in the performance dialogue

reflect upon their leaning experiences. At Level 3, employees transfer informa-

tion learned in the performance dialogue to their daily work activities. At Level

4, an employee’s performance data is reviewed for increased employee

effectiveness.

Performance management systems are developed using a specific approach

to employee evaluation depending on the areas for improvement or coordina-

tion of performance management system components discovered in the needs

or gap analysis. The approaches can be grouped as trait-based, behavior-based,

or results-based systems. Likewise, elements of each approach can be combined

together to produce a hybrid-system tailored specifically to an organization

focusing on its relevance to the values instilled in its culture. Each approach

provides the fundamental basis and reasoning for specific employee evaluation

criteria included in a performance appraisal.

Banner and Blasingame describe in their 1988 article regarding a developmen-

tal paradigm of leadership that a trait-based system is one that evaluates an

employeebasedon thedegree towhich theemployeesdemonstratecharacteristics

deemed important to theorganizationor to their positions.Appraisal tools such as

personality profiles, tests, and measurements are commonly used to discover

employees’ personality types to more clearly understand their work behaviors.

Although personality testing is useful in the establishment of or analysis of an

organizational culture or as part of organization development interventions,

Bowman, in his 1999 article ‘‘Performance Appraisal,’’ notes that it lacks reliabil-

ity andvalidity as ameasureofperformance. Furthermore, it shouldnotbeused to

establish anemployee’s compensationbecausea trait-based systemhaspoor legal

defensibility.However, trait-basedsystemsaremoreuseful thanotherapproaches

for employee self-discovery within an organization’s social system. Trait-based

measurements are beneficial in development planning to discover an employee’s

learning style and approach to group dynamics. This knowledge can increase

performance within the context of employee development.

A behavior-based evaluation system reviews an employee’s job activities and

rewards an employee based on work effort. Behavior-based evaluation, using

competency theory as its foundation, rates employees on how well they

demonstrate the competencies defined in the competency model for their

positions when compared to their actual work behavior. This activity is central

to the employees’ development as it clearly outlines their areas of improvement.

According to Edvardsson and Roos’ 2001 article of the same name, the ‘‘Critical

Incident Technique’’ can also be used in behavior-based evaluation in situations

in which the employee’s work has high visibility in the organization or is

necessary for the successful completion of an important objective. Critical


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incidents can be evaluated using data from personal interviews, focus groups,

and employee observations. Halinen and Tornoos describe in 2004 how this

data is used to create a case of the activities and approach of the team or

employee completing the objective during the critical incidence.

Results-based evaluation systems attempt to discern an employee’s contri-

bution to the success of the organization. Using goal-setting theory as a

foundation, Banner and Blasingame argue that this common form of employee

evaluation establishes an organization’s objectives from its goals and delegates

this work in a cascading fashion to appropriate work groups, managers,

and employees. Dreyer noted in 1988 that the challenge in this form of employee

evaluation is to ensure the alignment of each organizational objective with each

employee. In this, the employee and manager, as part of the performance

discussion, talk about the relevance of the objective to the employee’s career

goal. The disadvantages of this form of evaluation, as described by Mahoney

and Sanchez in 2004, include: measurements are more focused on business or

financial outcome, rather than the level of performance or effort that is put forth

to achieve the outcome; conflicting cascading objectives at the manager or

employee level; focus on short-term results, rather than long-term market

growth; discouragement of team building; and employee preoccupation with

objectives.

Organizations may create performance management systems that employ a

hybrid approach to employee evaluation, using the most reliable and valid

appraisal tools from among the previous three traditional approaches. This is

summarized in my 2004 article for Performance Improvement journal and dis-

cussed at some length inmy 2006 dissertation, as well as in Edwards’ 1990 article

‘‘An Alternative to Traditional Appraisal Systems.’’ The foundational theory

behind this type of employee evaluation is innovation leadership theory. It

suggests that the interdependent dialogue that is critical to employee evaluation

should be based on a perspective of leader-follower interactions, rather than

solely on a management-by-objectives approach, which is supported by

Kuczmarski’s 1996 article ‘‘What Is Innovation? The Art of Welcoming Risk.’’

A clear difference exists between the role of a leader and the role of amanager in a

performance management system. Amanager is tasked with the efficient delega-

tion of work and distribution of resources, whereas a leader is tasked to provide

inspiration to employees. Employees with supervisory responsibilities take on

both of these roles but, as is noted in two 1995 articles by McNerney and by

Houston, they should leverage their leadership skills to encourage motivation

through praise, while also providing inspiration through leadership. This ap-

proach to employee evaluation provides a fundamentally stronger level of

motivation built into a performance management system. Yoon argues in 2002

that this isbecause innovation leadership theoryplacesvalueoncreativity and the

generation of innovations as a critical aspect of employee motivation.


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The advantages of performance management systems are numerous. In a

2000 article, Panktrantz asserts that performance management systems encour-

age motivation through collaboration and encourage active manager and

employee participation in appraisal of performance. Likewise, the inter-

dependent dialogue that is necessary as the basis for a performancemanagement

system is supported as evaluations become more peer-based, providing in-

creased reliability through the use of multiple raters. As early as 1982, Bricker

contended that ratings in the form of comments on an employee’s work, based in

praise, create motivation, encourage the employee to generate innovations in his

or her work, and allow those innovations to be diffused and adopted more

effectively in an organization. In performance management systems, perfor-

mance can be appraised in real time, providing a quicker and more employee-

relevant feedback loop. During an annual performance review process to deter-

mine compensation, additional multi-faceted qualitative data is available to

make reward decisions, and data can be analyzed in a more systematic manner.

Performance management systems address many of the weaknesses associ-

ated with current methods of employee evaluation. Martinez’s 1995 article and

Merit’s in 1999 suggest that these can include being seen as a trivial routine

annual event, rating errors, inconsistencies, cost, turnover, emotional impact on

employees, conflict, increased fear, short-term focus, reduced motivation and

productivity, increased job-related stress, reduced employee privacy, lawsuits

trigged by demotion, failure to promote, layoff, and dismissal. Considering

ongoing feedback and coaching, performance management systems increase

the quantity and quality of employee feedback by framing the perfor-

mance discussion positively, and embracing emergent technologies that can

increase the volume of employee, peer, and manager participation in the

evaluation process. The emotional impact of some current methods of employee

evaluation can demotivate an employee by focusing only on short-term results.

Within a 1981 article for Academy of Management Journal, DeNisi and Stevens

argue that this causes a limiting of the employee’s long-term planning abilities,

increasing employee fear, increasing employee rivalry, undermining teamwork,

and causing political conflict. In the same year, Buschardt and Schnake

observed that an employee’s attitude toward his or her manager can often

skew the results of performance appraisal. These rating biases are addressed in

performance management systems by encouraging active multi-rater appraisal.

Legal Considerations

Performance appraisals are a key source of evidence when employees are suing

former employers for wrongful termination or discrimination. A legally defen-

sible performance appraisal process evaluates employees based on their merit.

If merit is evaluated by only a few limited, rudimentary measures, the legal

defensibility of a performance appraisal process is reduced. Eyres in 1989


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categorized four types of actions that may typically trigger a lawsuit: demotion,

failure to promote, layoff, and dismissal arising from an employee’s view of

unfairness, inconsistency, and illegality. High court costs, attorney fees, and lost

management time, disruption of employee performance, low motivation, and

public relations challenges characterize the obstacles that are created to an

organization’s profit and growth because of employment lawsuits. In cases in

which the organization has developed an ineffective performance management

system that does not allow for employee feedback, Belanger in 1991 observed

that the organization will be less likely to have strong evidence to support its

employment decision. Likewise, organizations are increasingly using perform-

ance evaluation tools that may invade employees’ privacy and reduce their level

of autonomy, such as screening employee telephone calls, reading their e-mails,

and monitoring work on video displays without their knowledge. Per Clement,

this type of evaluation can reduce employees’ motivation by increasing their

stress and thus provides a bias because employees’ knowledge of observation

does not allow for a true assessment of their performance.

According to a 1991 article by North Carolina State University’s Dennis M.

Daley, many modern compensation systems attempt to fit performance ratings

on a bell curve to distribute employee rewards. This form of distribution can be

statistically valid; however, Grensing notes in a 1985 article for Manage maga-

zine that a majority of employees typically fall within the average category of

ratings. This label is subjective from the organization’s point of view and does

not provide an objective view of a single employee or team. As most employees

view themselves as above average, lower ratings than expected can demotivate

employees, alienate strong performers, and discourage weak performers. In their

1995 article ‘‘Implicit Stress Theory,’’ Fernandez and Perrewe assert that this

may be attributed to the bell curve that is used to rank employees to a

standardized descriptive statistic, rather than a mutually exclusive objective

evaluation of their individual contributions to the organization, suggesting a

need for a more complex compensation algorithm. Likewise, employee behav-

iors and outcomes are substantially affected by systemic factors that are outside

of the organization’s control, which may not be accounted for adequately in a

performance appraisal. Therefore, Carson and colleagues’ 1993 article expressed

their belief that awell-crafted performance appraisal should attempt to correct for

the influence of these factors on an employee’s performance patterns and avoid

strategies that use employee comparison to evaluate performance.

WHEN TO APPLY

A performance management system should be applied when an organization is

large enough to require an effective means of evaluating its employees. A needs


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or gap analysis should be conducted to discover areas for improvement or

coordination of performance management system components (see Chapter

Thirty-Two). Also, if an organization has implemented the components of a

performance management system but has not yet integrated these components,

a performance management system can coordinate and streamline these efforts

throughout the organization. If the organization implements emergent tech-

nologies as part of its IT infrastructure, then a performance management system

can leverage these resources to create an interdependent performance dialogue

and multi-rater approach to employee evaluation using improved web-based

evaluation, reporting, communication, or e-learning tools.

If an organization uses a pay for performance strategy of compensation

(see Chapter Twenty), an effective performance management system is neces-

sary to gather data for employee rewards. Performance management systems

integrate both quantitative measures of employee performance for statistical

measures and qualitative evaluations that holistically encourage employee

motivation as a fundamental design element of an employee evaluation system.

If an organization has recently gone through a radical change such as a merger

or acquisition, a performance management system can support the organiza-

tional integration of employee evaluation and increase the level and quality of

employee communication.

The unique aspect of a performancemanagement system is that it is tailored to

the specific needs of the organization and adaptable to change. With this

approach, members of an organization and performance management experts

complete the necessary in-depth analysis to fully uncover an organization’s

employee evaluation needs and create specific, scalable processes that coordinate

the efforts of employees to accurately measure performance while ensuring that

its customized performance management system creates motivation. Once the

performance management system is in place, performance management experts,

HR professionals, and senior leaders can evaluate the implementation of the

system and adapt it as the organization grows or changes. Change management

techniques such as organization development can be applied to ease in its

implementation, and attention should be paid to its typically positive effects

on an organization’s culture (see Chapter Thirty).

STRENGTHS AND CRITICISMS

Performance management systems have made a significant impact on employ-

ees work responsibilities. The strengths in a performance management system

are the coordination and refinement of many mutually exclusive processes that,

when combined, improve the organization’s overall efficiency. In the sameway,

the interdependent performance dialogue creates a culture that values and


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motivates employees while providing an accurate evaluation of their efforts.

The weaknesses in a performance management system arise primarily because

the performance management system is poorly designed or training on the

performance management system has not transferred into the organization to

support its utilization.

Strengths

� Performance management systems have a high rate of effectiveness.

� They streamline HR functions for managers and employees and improve

processes.

� Evaluations are legally defensible in employment-related lawsuits.

� They provide an accurate measurement of performance.

� They encourage employee development, succession planning, and

promotion.

� They strengthen links between performance and compensation.

� They support fair, equitable, ethical, and valid multiple-rater evaluations.

� They clarify organizational goals and demonstrate employee expectations.

� They encourage constructive feedback, coaching, and mentoring.

Criticisms

� Can be seen by employees as a trivial routine annual event;

� Rating errors, inconsistencies in administration;

� Costly annual process, implementation, and design;

� Can lead to turnover if not designed carefully;

� Can have emotional impact on employee, create conflict, and increase

fear;

� Can lead to short-term focus on employee objectives;

� Can reduce motivation and productivity if poorly managed;

� Can increase job-related stress and reduce employee privacy; and

� Can trigger lawsuits from demotion, failure to promote, layoff, and

dismissal.

RECOMMENDED DESIGN, DEVELOPMENT, ANDIMPLEMENTATION PROCESS

The design, development, and implementation of a performance management

system can be driven by an organization’s current project management system.


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In the design process, the organization should take into account its current and

future workforce planning needs to ensure that the performance management

system is scalable. As the performance management system is developed,

documentation should be created for policy and training needs. Careful atten-

tion should be paid to communicate the benefits of the performance manage-

ment system to employees when it is introduced to counter any resistance to

change.

1. Identify the key stakeholders in the development of a performance man-

agement system.

2. Create a cross-functional team, including employees, managers, HR

functions, senior leaders, IT, and performance management experts.

3. Complete a needs analysis and/or gap analysis to discover the areas for

improvement or coordination of performance management system

components.

4. Design the performance management system and its components:

� Seek buy-in, input, agreement, and approval from key stakeholders on

designing the performance management system.

� Redesign each component of the performance management system.

� Link performance management components and compensation

strategies.

� Map new processes, including involvement of each stakeholder.

� Identify roles for each participant in the performance management

system.

� Develop policy to ensure that employees understand how and why a

performance management system is used.

� Create timelines for the administration of the performance manage-

ment system.

� Create a name or acronym for the performance management system.

� Develop, create, or purchase products to manage and coordinate

information technologies and reports for the performancemanagement

system.

5. Appoint a member of the cross-functional performance management

system design team as the ‘‘advocate’’ on the system. Appoint an in-

cumbent employee as the internal employee service contact for ques-

tions about the performance management system.

6. Develop training materials, classes, webcasts, and just-in-time e-learn-

ing simulations describing the performance management system’s tech-

niques, purpose, use, and timing.


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7. Complete beta testing of information technologies used in the perform-

ance management system and related e-learning tools.

8. Appoint a respected senior leader to announce the new performance

management system to the organization, providing an honest and posi-

tive description to employees. Host training sessions, distribute all train-

ing materials.

9. Go live. Continue to provide training materials and frequently highlight

tips on performance management in company communications and on

the company intranet.

10. Keeping the cross functional performance management system design

team permanently intact, periodically review its effectiveness, imple-

ment changes as needed, and provide updates to key stakeholders.

CRITICAL SUCCESS FACTORS

These critical success factors represent how many of the pitfalls in designing,

developing, and implementing a performance management system can be

avoided. Members of the cross-functional performance management systems

team and key stakeholders should take time during planning to discuss how

they will approach and respond to each factor. A change in a performance

management system requires the careful analysis of an organization’s processes

to ensure that efficiency is maintained or raised in that process. If the organiza-

tion finds barriers to its success, it may be helpful to seek out performance

management consultants to guide the efforts:

� Identifying, coordinating, and seeking buy-in from key stakeholders;

� Framing the implementation of or changes to a performance management

system as a project using project management tactics;

� Completing a thorough needs and/or gap analysis to identify the key areas

of improvement;

� Designing the system to motivate employee performance and avoiding

strategies that are demotivating or will create employee inequality;

� Creating employee evaluations that are fair, valid, accurate, reliable, non-

discriminatory, and legally defensible;

� Ensuring that information technologies are more efficient, quicker, and

easier for employees to use than in previous evaluation systems;

� Using competency-based initiatives to streamline performance manage-

ment in all HR functions;


E1C12_1 10/14/2009 313

� Linking performance results directly with employee compensation plans,

succession planning, and promotion;

� Creating management training programs that highlight the importance of

and effective use of all components of the performance management

system;

� Providing adequate just-in-time e-learning programs for use during per-

formance management activities;

� Providing adequate HR internal customer service for the performance

management system; and

� Ensuring that employees believe the performance management system to

be credible, motivational, and more relevant than other forms of

evaluation.

SUMMARYPerformance management systems provide organizations with a multi-rater

approach to employee evaluation that fundamentally encourages employee

performance through motivation, enriches and increases the interdependent

performance discussion through collaboration, and ensures that both qualita-

tive and quantitative appraisals are used. It streamlines and coordinates the

administration of the performance management system, links organizational

goal setting with employee objectives and expectations, focuses on employee

development, and is based on an organization’s economic need for profit and

growth. Furthermore, it effectively applies a legally defensible form of employee

evaluation and encourages positive perspectives of employees’ merit.

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