Performance management (PM) is an essential part of managing a company. Almost every company, whether it is a small business or a big corporation, uses PM to review and improve the productivity of individuals and teams. When PM functions productively, it can create a significant competitive advantage. However, evidence from the academic literature suggests that most employees do not believe PM works in the way it should. Hence, the main objective of this paper is to investigate whether this argument is true. The first part of the essay answers the question why PM is viewed as broken and what factors strengthen this assumption. The second part of the paper focuses on how an employer can implement a functioning performance management system (PMS) to improve the overall efficiency of an organisation.
Why is PM broken?
The main reason why PM appears broken is that it focuses on formal processes and aspects of reviewing an employee`s work, and is seen as an administrative exercise rather than a process aimed to deliver improvements. These administrative steps are `disconnected from day-to-day activities that determine PM effectiveness` (Pulakos & O`Leary, 2011, p. 146). Moreover, it appears to be broken since it is usually disliked by both managers and employees, is seen as an activity that brings low value and wastes time and resources (Aguinis et al., 2011). Many employees simply want advice and guidance from their managers rather than a documented list of “Do’s” and “Don’ts” (Pulakos & O`Leary, 2011). However, in the majority of cases, managers adhere to a formal approach. As a result, only 3 out of 10 individuals believe that implemented PMS helps to enhance their performance (Aguinis et al., 2011).
Another issue suggesting that PM is flawed is that it is often confused with performance appraisal (PA) (Torrington et al., 2017; Aguinis et al., 2011). PM is a continuous process driven by management aimed to review and improve the performance of an individual, ensure ongoing feedback, and alignment of one`s objectives with those of an organisation (Aguinis et al., 2011; Torrington et al., 2017). It also takes into consideration both past and future performance and prescribes specific courses of action that should be undertaken by an individual to improve productivity (Aguinis et al., 2011). By contrast, PA is the process of evaluating of individual`s strengths, and weaknesses driven by HR and often exercised once a year (Torrington et al., 2017). However, not all scholars distinguish PM from PA. Some define PA in a way that is quite similar to what is usually meant by PM: `The primary aim of performance appraisal is for line management to provide guidance to its employees on how to apply their resources for the benefit of the organization, creating an ongoing process of identifying, measuring, and developing performance, and aligning this with the strategic goals of the organization` (Farndale & Kelliher, 2013, p.882). It seems that discrepancies in the definition of terms among academics create even more confusion when a theory is applied to practice and vice versa.
Furthermore, even if PM is implemented correctly and functions within an organisation, such factor as organisational justice may impact on its results. Scholars distinguish four types of organisational justice: distributive, procedural, informational (Scott et al., 2009), and interactional justice (Townsend & Wilkinson, 2013). Different types of organisational justice have independent effects and influence an individual’s commitment, trust, and citizenship behaviour (Townsend & Wilkinson, 2013), however, procedural and interactional justice in particular focus on cooperation between employees and their direct managers. By measuring these two types of organisational justice, we can see whether PMS is implemented successfully by line managers (Farndale & Kelliher, 2013). Moreover, disruption of one of these types may cause divergence in PM not only on an individual level but also on the level of a team, especially if PMS is closely linked to reward. If someone feels they are treated unfairly in relation to another person, this may cause feelings of resentment, and if a person is overpaid, it may give rise to feelings of guilt (Townsend & Wilkinson, 2013). If PM is linked to promotions and one`s promotion is perceived as unfair by other team members, it can lead to the decline of cooperation within a team or damage relationships.
Other factors may disrupt PM and strengthen the assumption that it is broken. On a company`s level, it may be following the universalistic approach and implementing` the best practices` (Delery & Doty, 1996) without taking into consideration the culture of a specific country or company (Aguinis et al., 2011). On the level of managers, there is such issue as leniency in evaluation: when a manager simply does not want to be a `bad guy` and gives everyone grades that are above average, this leads to a convergence of ratings (Pulakos & O`Leary, 2011). This neglects the whole point of implementing PMS within the organisation since each employee gets a similar rating.
Considering the arguments above, does a solution to these issues exist? And how can companies implement PMS that works? The next part of the paper attempts to answer these questions.
Introducing a functioning PMS in the organisation
Implementing an effective PMS is a challenging task even for the most experienced practitioners. PMS is a complicated setup, the development of which requires considerable time and effort. The success of a particular system may also depend on the industry where it functions (Chuang & Liao, 2010). It appears that it is even more difficult task to ensure PMS operates efficiently over time. However, there are some suggestions that can be taken into account by the companies to develop an effective system.
Emphasis on a continuous process. The solution for developing a functioning PM lies in the definition of the term. As mentioned above, an ideal PM is a continuous process that should be reviewed and updated constantly by all participants. When implementing PMS, an organisation should make sure there are no unnecessary disruptions in the functioning of the system and that everyone is on the same page and understands the importance of involvement. However, no system is free of occasional errors and employers should also establish a channel through which individuals can address suggestions for improvements (Aguinis et al., 2011).
Make sure that the goals of an organisation are aligned with the goals of each individual. Pulakos & O`Leary (2011) discuss four popular PM practices. Common issues of most of them are that high-level goals are either too vague or that line managers may interpret the objectives of an organisation from their point of view. This creates a disparity within the company and may have an impact on a company`s performance in the long term. Consequently, one of the focuses should be on communication and especially on employee-manager communication (Pulakos & O`Leary, 2011). Furthermore, if the firm wants to keep its people up-to-date, management can arrange weekly or biweekly meetings (for distributed teams – calls). These meetings would update everyone on current strategies, objectives, and challenges.
Set clear and reachable goals. The study conducted by Locke & Latham (2002) investigates the difficulty of connecting a goal to performance: `speci?c, dif?cult goals consistently led to higher performance than urging people to do their best… when people are asked to do their best, they do not do so` (Locke & Latham, 2002, p.706). Evidence also showed that specific and challenging goals facilitated higher performance since they reduced the ambiguity over what is to be achieved by an individual. There are also other factors involved in goal-setting theory, for example, self-efficacy, the importance of a task, commitment, feedback (Locke & Latham, 2002). So, an important thing to keep in mind when implementing a PMS is that it cannot function without goal setting.
Ensure Person-Job and Person-Organisation fit on the stage of recruitment. Person-job fit is matching individuals with the right job, and ensuring employee possess competencies to perform it; person-organisation fit is a match between an applicant`s values and broader organisational values (Kristof-Brown, 2000). An employee can have all necessary KSAs to be successful in the job; however, if individual`s values differ from the organisational, a person may not be motivated to perform well and be involved in current PMS. One may illustrate this by a person who supports `green` policies working for an oil-mining company. Though an extreme example, people do not always get to choose a firm they work for due to different circumstances: e.g. mergers and acquisitions or because they have a family to support. It is doubtful whether this employee will be fully committed to reaching the objectives of an organisation.
Use a configurational approach. In order to implement an effective PMS, an organisation should follow a configurational approach to strategic human resource management (Delery & Doty, 1996). It means not to apply blindly `the best practices`, but perhaps do it consciously and, as mentioned above, with acknowledgement of organisational and local culture. It is also worth to add that understanding the differences among various nations can be helpful in dealing with the perception of an organisational justice for those managers who supervise a diverse workforce (Kim & Leung, 2007).
This paper has aimed to evaluate whether PM is broken and how an organisation can introduce a functioning PMS. To sum up, employees consider PM to be broken since it focuses on formal procedures and administrative processes in assessing one`s work. Instead of helping an individual to set goals aligned with those of a company and improve productivity, it is often implemented as an administrative exercise. A one-size-fits-all solution that can be used in every organisation simply does not exist. Moreover, a particular PMS may work in one environment and be completely useless in another one depending on the country and organisation. That is why companies should use a configurational approach when it comes to introducing a PMS within a firm and adjust it to company`s objectives, realities, and culture.