The concept of performance management incorporates some of the notions and approaches of management by objectives and performance appraisal but it includes a number of signifi - cantly different features as described below.
Early days
The earliest reference to performance management in the literature was made by Warren (1972). On the basis of his research in a manufacturing company he defi ned the features of performance management as follows.
The Foundations of Performance Management 21
Features of performance management as defi ned by Malcolm Warren in 1972
Expectations – a large group of employees – preferably all – must be told
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clearly, objectively and in their own language what is specifi cally expected of them.
Skill – a large group of employees must have the technical knowledge and skill
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to carry out the tasks.
Feedback – workers must be told in clear terms, without threats, how they are
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doing in terms of expectations.
Resources – employees must have the time, money and equipment necessary to
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perform the expected tasks at optimal level.
Reinforcement – employees must be positively reinforced for desired
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performance.
These requirements may not be expressed in quite the same language today, but they are just as relevant.
Another early use of the term performance management was made by Beer and Ruh (1976).
Their thesis was that: ‘performance is best developed through practical challenges and experi- ences on the job with guidance and feedback from superiors.’ They described the performance management system at Corning Glass Works, the aim of which was to help managers give feedback in a helpful and constructive way, and to aid in the creation of a developmental plan.
The features of this system that distinguished it from other appraisal schemes were as follows:
emphasis on both development and evaluation;
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use of a profi le defi ning the individual’s strengths and development needs;
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integration of the results achieved with the means by which they have been achieved;
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separation of development review from salary review.
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Although this was not necessarily a model performance management process it did contain a number of characteristics that are still regarded as good practice.
The concept of performance management then lay fallow for some years but began to emerge in the United States as a new approach to managing performance in the mid-1980s. However, one of the fi rst books exclusively devoted to performance management was not published until 1988 (Plachy and Plachy). They described what had by then become the accepted approach to performance management as follows.
Performance management as described by Plachy and Plachy in 1988
Performance management is communication: a manager and an employee arrive together at an understanding of what work is to be accomplished, how it will be accomplished, how work is progressing toward desired results, and fi nally, after effort is expended to accomplish the work, whether the performance has achieved the agreed-upon plan. The process recycles when the manager and employee begin planning what work is to be accomplished for the next performance period.
Performance management is an umbrella term that includes performance planning, performance review, and performance appraisal. Major work plans and appraisals are generally made annually. Performance review occurs whenever a manager and an employee confi rm, adjust, or correct their understanding of work performance during routine work contacts.
In the UK the fi rst published reference to performance management was made at a meeting of the Compensation Forum in 1987 by Don Beattie, Personnel Director, ICL, who described how it was used as ‘an essential contribution to a massive and urgent change programme in the organization’ and had become a part of the fabric of the business.
By 1990 performance management had entered the vocabulary of human resource manage- ment in the UK as well as in the United States. Fowler (1990) defi ned what has become the accepted concept of performance management:
Management has always been about getting things done, and good managers are con- cerned to get the right things done well. That, in essence, is performance management – the organization of work to achieve the best possible results. From this simple view- point, performance management is not a system or technique, it is the totality of the day-to-day activities of all managers. (Emphasis added)
Performance management established
Full recognition of the existence of performance management was provided by the research project conducted by the Institute of Personnel Management (1992). The following defi nition of performance management was produced as a result of this research: ‘A strategy that relates to every activity of the organization set in the context of its human resources policies, culture, style and communications systems. The nature of the strategy depends on the organizational context and can vary from organization to organization.’
It was suggested that what was described as a ‘performance management system’ (PMS) com- plied with the textbook defi nition when the following characteristics were met by the organization.
The Foundations of Performance Management 23
Institute of Personnel Management (1992): defi nition of a performance management system
It communicates a vision of its objectives to all its employees.
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It sets departmental and individual performance targets that are related to
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wider objectives.
It conducts a formal review of progress towards these targets.
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It uses the review process to identify training, development and reward
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outcomes.
It evaluates the whole process in order to improve effectiveness.
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It expresses performance targets in terms of measurable outputs,
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accountabilities and training/learning targets.
It uses formal appraisal procedures as ways of communicating performance
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requirements that are set on a regular basis.
It links performance requirements to pay, especially for senior managers.
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With the exception of the link to pay, which applies to many but not all performance manage- ment schemes, these characteristics still hold good today.
In the organizations with performance management systems, 85 per cent had performance pay and 76 per cent rated performance (this proportion is lower in later surveys). The empha- sis was on objective setting and review that, as the authors of the report mentioned, ‘leaves something of a void when it comes to identifying development needs on a longer-term basis…
there is a danger with results-orientated schemes in focusing excessively on what is to be achieved and ignoring the how.’ It was noted that some organizations were moving in the direction of competency analysis but not very systematically.
Two of the IPM researchers (Bevan and Thompson, 1991) commented on the emergence of performance management systems as integrating processes that mesh various human resource management activities with the business objectives of the organization. They identifi ed two broad thrusts towards integration:
Reward-driven integration, which emphasizes the role of performance pay in changing
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organizational behaviour and tends to undervalue the part played by other human resource development activities. This appeared to be the dominant mode of integration.
Development-driven integration, which stresses the importance of HRD. Although
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performance pay may operate in these organizations, it is perceived to be complemen- tary to HRD activities rather than dominating them.
Some of the interesting conclusions emerging from this research are set out below.
Conclusions from the IPM 1992 research
No evidence was found that improved performance in the private sector is
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associated with the presence of formal performance management programmes.
An overwhelming body of psychological research exists which makes clear that,
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as a way of enhancing individual performance, the setting of performance targets is inevitably a successful strategy.
The process of forming judgements and evaluations of individual performance is an
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almost continuous one. Most often it is a subconscious process, relying on subjective judgements, based on incomplete evidence and spiced with an element of bias.
There was little consistency of viewpoint on the motivating power of money.
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The majority (of organizations) felt that the real motivators at management levels were professional and personal pride in the standards achieved, or loyalty to the organization and its aims, or peer pressure. One line manager
commented that he was self-motivated: ‘The money comes as a result of that, not as the cause of it.’ While the principle of pay for performance was generally accepted, the reservations were about putting it into practice: ‘It was often viewed as a good idea – especially for other people – but not something that, when implemented, seemed to breed either satisfaction or motivation.’
The focus has been on the splendid-sounding notion of the performance-
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orientated culture and of improving the bottom line, and/or the delivery of services. Whilst this is well and good, the achievement of such ends has to be in concert with the aims and the development needs of individuals.
These conclusions are still relevant.
Performance management: the next phase
The 1998 IPD research project (Armstrong and Baron, 1998) revealed that in many instances performance management practices had moved on since 1992. In the organizations covered by the survey the following trends were observed:
Performance management is regarded as a number of interlinked processes.
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Performance management is seen as a continuous process, not as a once-a-year
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appraisal, thus echoing Fowler’s (1990) comment that: ‘In today’s fast-moving world, any idea that effective performance management can be tied neatly to a single annual date is patently absurd.’
The Foundations of Performance Management 25 The focus is on employee development rather than on performance-related pay.
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There has been a shift towards getting line managers to accept and own performance
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management as a natural process of management.
Some organizations reject the concept of a bureaucratic, centrally controlled and
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uniform system of performance management, and instead accept that, within an overall policy framework, different approaches may be appropriate in different parts of the organization and for different people.
Another important trend in the 1990s was the increased use of competencies for recruitment and people development purposes. This led to more focus on the nature of performance, which was recognized as being not only about what was achieved but also about how it was achieved. The result was the ‘mixed model’ of performance management as described by Hartle (1995), which covers competency levels and the extent to which behaviour was in line with the core values of the organization, as well as objective-setting and review. At the same time the notion emerged of what Sparrow (2008) calls value-based performance management:
that is, including assessments of the extent to which individuals uphold a defi ned list of core organizational values in the performance review procedure.
The next development was the recognition that performance management had to focus on organizational as well as individual effectiveness. It was not enough to hope that processes for improving individual performance would necessarily result in improvements in organiza- tional performance. As Coens and Jenkins (2002) put it: ‘An organization, because it is a system, cannot be signifi cantly improved by focusing on individuals.’ A strategic approach was required that involves fi tting the performance management strategy to the fi rm’s business strategy and context, and supporting the business and HR strategies through activities designed to improve organizational capability such as human capital management, talent management and the development of high-performance cultures (see Chapter 17).