The document discusses various performance management systems (PMS) and their influence on employee performance. It reviews several PMS approaches, including management by objectives, balanced scorecard, total quality management, and productivity measurement and enhancement systems. The literature suggests that an effective PMS should align individual goals with organizational objectives, provide continuous feedback, and involve employees in the design process. When implemented properly with the right design that considers both internal and external factors, PMS can help improve overall organizational performance by motivating employees and linking their work to strategic goals.

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An exploratory study of Performance Management Systems and their influence
on better performance – A literature review
Sabnam Shaji Razack
Amitabh Upadhya

2. Electronic copy available at: https://ssrn.com/abstract=2906625
2
ABSTRACT
This paper through literature review attempts to explore different types of Performance
Management Systems prevalent in organizations across the UAE and to find out its
influence on employees for better performance. The paper proposes an extensive
organized assessment of PMS design on the basis of established theories; presenting
both concepts and frameworks that feature on the ground. It also suggests for more
studies on a complete PMS framework and screening of PMS related to development of
both, competence and innovation resulting in long-term employee retention. By
analyzing various PMS designs it is concluded that PMS has to be designed effectively
in such a way that is contingent on both internal and external variables. Both the
financial performance measures and non-financial performance measures are assessed
together, the link between PMS and Strategic Organizational objectives should be
ratified through various methods of PM mechanisms.
KEY TERMS
Performance Management System (PMS), Organizational Objectives, Poor
Performance, Employee Retention,
INTRODUCTION
Performance Management Systems (PMS) can be explained as the prearranged, proof
grounded Practices and activities which management makes use of to stand or amend
policies in organizational occasions. These structures ponder on communicating
economic and non-economic facts that controls judgment and organization act. (Andr´e
A. de Waal, 2006)
Performance Management holds the uninterrupted advanced upgrading of the people
within the organization. When the staff is not meeting the rational capacities or the
prospects of their obligations and accountabilities it leads to a condition of Poor
performance. The employees’ inefficiency to achieve the expected results in
organizations is observed as the poor performance. Nonetheless, such cases has been

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identified that the features linked to the Performance Management system can be
considered as the cause for declining of the performance of the people below their
capability level. By developing motivation and people’s confidence and trustworthiness
in Performance Management system of the organization can help in eradicating poor
performance.
Though Performance Management system is initiated with different forms of appraisal
methods, the significance should be on studying the attainment of the people’s
objectives with objectives and goals of the Organizations.
In the above context many factors have to be given attention:
 Fairness and integrity.
 Identification of the Performance Gap.
 Corrective actions.
 Training, Coaching and Counselling.
 Improvement of the people.
 Uninterrupted development prospects.
 Reward Management.
Many of the Companies of any levels were not able to handle the poor performance in
an efficient method. The victory of any organization relies on how proficiently the
superiors can evaluate the performance. For many organizations poor performance is a
chief zone of alarm.
There are different understandings on poor performance. Each and every example and
explanation leading to poor performance need to be evaluated and assessed in a
different manner. The change of the working environment can be tested as a practical
solution for managing the poor performance caused due to excess workload,
unachievable targets beyond the capability level of the employees, or objectives that is
not clear to them.

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The management has clear confusion in understanding and segregating poor
performance from problems caused due to attitude, behavioral issues, misconduct,
incapability or carelessness. (Strebler.M. 2004)
The different behavioral and attitudinal ways of expressing the poor performance are
teamwork inability, repetition of the mistakes, inability to learn and accept new skills
inability to meet the deadline for achieving the targets.
The objective of the study is to explore different types of Performance management
System to understand its influence on employees for better performance.
METHODOLOGY
This paper is entirely based on review of existing literature available in public domain in
the field of employee Performance Management Systems (PMS). This literature review
is a part of a larger study conducted by quantitative and qualitative methods during the
period 2014 to 2016, to explore the perception of employees working in various sectors
in the UAE (United Arab Emirates) and the impact of PMS on the decision factors like
termination of employees on the basis of poor performance and retention methods.
LITERATURE REVIEW
The incorporation of factors like Leadership, Vision of the Organization, Business
Management, Customers Management etc. have a significant role in the success of
Organizations. Managers are responsible to efficiently handle such factors with the view
of understanding the importance of their role in maintaining the sustainability.
The success of any organization is detected by the performance of the employees’.
(Hussain Ali.M.A.M & Opatha H.H.D.N.P, 2008). Key performance indicators have to
be developed which should be in close correlation with the Organizational objectives.
Both the employee and the employer have a significant role to be played together as a
team in bringing the progress to the Company. (McAfee and Champagne, 1993)
Nevertheless both groups (employee and employer) have their own insights, on various
methods of PMS system in their Company.

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Performance Management can also be defined as the method of calculating the
proficiency and efficacy. In short the process is concluded as multidimensional.
Since the appraisal methods used helps in carrying out the succession Planning and
career development within the Organizations, almost all the studies reveals that every
Organization has their Performance Management system (Catherine, Peter, Duncan,
2011)
Performance appraisal is defined as arranged, measured method for evaluating the
employee’s profession linked manners and results, and to understand what is required
for improving the performance more successfully in the future. The productivity of the
organizations can be increased by getting the employees engaged in the work with a
sense of self belongingness attitude, thorough creating situations of Job satisfaction, by
motivating the employees in different ways, which can be identified by an effective
performance appraisal method (E. Deepa, R. Palaniswamy, S. Kuppusamy, 2014)
In the earlier era PMS was uni-dimensional giving importance only for monetary
aspects. (Mike. Bourne, Monica Franko, John Wikes, 2003). Since the PMS was not
observed as a continuous process, in many organizations the actual anticipated result
of PMS failed. (Henry J. Pratt, 1991)
The superiors should be able to define the KPIs for each positions/employees and the
employees have to make their own individual developmental plan for their improvement
by assessing the Data of the previous years’ in an organized way. This will eventually
help to evaluate the skills of employees’ and their proficiency thus understanding the
requirement of training and development. (Martinez, 1995)
By integrating the role of both the superiors and the work force, we can develop a
strategy that will bring into line the personal objectives with the Organizational goals.
(Klien, 2000)
The performance Management system has to follow certain guidelines like
understanding who advise the system, the role of training and development, the

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complementary role of superiors versus employees and its aligning with the
Organizational objectives, feedback rewards etc.(Edward.J.Cripe, 1997),
Based on this understandings of failure of PMS when only the monetary aspects are
considered, in the last decade, the requirement for establishing a competent and
functional performance management systems has been identified based on the fact that
such systems improves the performance and quality of a Corporate (Linge and
Schiemann, 1996; de Waal and Coevert, 2007). Unfortunately, the management
techniques has been rejected by many organizations as the success rate of PMS
implementation and practice is only 30 percent (Neely and Bourne, 2000). No research
studies have been able to give explanations for this high failure rate.
Without conducting a suitable research on the problems, Companies that practice a
PMS will be met with the same problems repeatedly, subsequently leading to
inefficiency, delay in the projects and to the extent of void and dismissed systems. To
intensify the possibility of a successful PMA, extensive research is required.
A suitable research has to be conducted in identifying the problems of the implemented
PMS in the organizations, to eliminate the repetitions of the problems with related to
inefficiency and decrease of productivity that may eventually lead to the failure of the
whole system.
Some of the problems that are faced while carrying out a PMS are the attitude of the
Management on the practical implementation phase of the system, inefficient managers
and superiors in handling the system, vague objectives of organizations, unacceptable
attitude towards the system by the employees, change management process while
implementing the system.
The most important aspect which will produce heightened results needs to be
considered while developing the Management control systems is Human Behavior.
(Simon, 2000). It has been noticed that the researchers does not give due significance
to this behavioral factors. In the view of above the academics should give an intense

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interest on this so that the implementers agree with them. (Andre´ A. de Waal and
Harold Counet, 2009)
The thoughtfulness in performance management system has expressively improved in
the last few years, and hence studies have exposed impulsive effects on its
effectiveness. (Michal Biron, Elaine Farndale, Jaap Paauwe, 2011)
As such many following explained theories and models were recognized and put into
practice.
1. Signaling Theory
2. Management by Objectives method
3. Balanced scorecard method
4. Total Quality method.
5. Break point assessment technique.
6. Productivity measurement and enhancement system
Signaling theory
Since the placement of the employees is based on unknown facts, the signaling theory
introduced by Spence (1973) recommends that all the concerned involved need proofs
that will help them in realizing the Company’s interests. Unfortunately it is observed that
assessing the efficiency and productivity of the people by the superiors are only through
the noticeable features presented by the employees and hence these features or
Signals exhibited by them are all influenced to a high magnitude, though some features
like gender, age, etc. are unvarying. As such the practical application of the signaling
theory was limited to its study at the entry level itself.
According to the study conducted by Millett 1998; & Molleman and Timmerman 2003
the performance management systems should have varied goals, which can be mainly
categorized into Strategic Goals and Tactical goals.
Performance management systems should support Organizations to attain strategic
business goals. The PMS should highlight performance consistency with the

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achievement of Organizations objectives, linking the organizational objectives with
individual goals. (Cleveland, Murphy and Williams 1989). When both the employers and
employees are ensured that both their contributions are in line with each other, a perfect
indicator is given on which, what approaches and performances have the potential to
contribute to the development of the business. (Michal Biron, Elaine Farndale, Jaap
Paauwe, 2011)
Only an effectively designed Performance Management system can help the Human
Resources department in giving the information for making HR-related decisions, like
compensation review exercises, appreciation of individual performance, classifying the
poor performers, succession planning with relation to promotions, termination,
employee retention etc. When incentive conclusions are made based on the
Performance scale of the individuals, the employees will be made conscious about what
has been appreciated by the Company. In addition to this, this system will also help the
Employers to intimate their employees on their strengths and weaknesses while
explaining the reasons of poor performances (Cleveland et al. 1989).
Management by objectives
The above understandings have led to the development of another Performance
Management system method, the concept of Management by objectives (MBO). In
1950s, this method was widely accepted, both the top management and the superiors
considered MBO, as a method to convey an expressive method for assessing the
performance of specialized and executive staffs. Accordingly two types of performance
management systems were developed, one of which was made on objectives, in which
the employees would agree themselves to achieve positive pre-defined objectives, in
line with the organizational objectives. In the second one the key accountabilities was
given significance, according to which in the key accountability areas of the individuals,
a performance standards were fixed that are required for the success of the individual.
If required feedback and corrective action in the identified areas are not done,
Performance appraisal procedure will be proving to be a failure. Moreover it should be a
continuous process as well.

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The positives and negatives of the Management by Objectives method made the
situation challenging for the Management. The requirement of a clearly expressed,
feedback with clear cut objectives was mandatory since the consequences can be
adverse if the employees are not valued with merits. (Henry J. Pratt, 1991)
Balanced scorecard
Traditionally financial aspects were the main factor of Performance Management
system and it was uni dimensional. Both the internal as well as the external factors
were considered to have a major role, combined with the opportunity of learning and
development was introduced by means of balanced scorecard. The integrated
methodology of “Strategy maps” (Kaplan and Norton, 2000), success maps and
“business models” (Eccles and Pybum, 1992) were created later.
Success Maps basically shows the communication between performance of the
employees and objectives of the organization, by explaining the purpose of objectives
and how this can be achieved.
Total Quality Management
The next method introduced was Total Quality Management. Role was given for the
members in designing the system, by way of empowering them with detailed
communication on organizational performance and work are performance. The
management should keep the data for evaluating the variation in performance by means
of a continuous method, which ultimately make the management in realizing how the
individual performance is influenced by work process. (David Antonioni, 1994)
Breakpoint assessment
The breakpoint assessment techniques were introduced to convey signal of significant
disruptions in existing performance, which will trigger performance objectives and
eventually leads to the enhanced efforts. (David Sinclair, Mohamed Zairi, 1995)

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ProMES
Productivity measurement and enhancement system (ProMES) highlighted the
importance of people involvement in designing the system. By involving the people in
the designing of the Performance Management system, the performance of the
individuals can be expected to be improved in a notifiable manner. Involvement and
participation in designing the system by considering factors like Performance indicators,
goals and response which also ensure the proper feedback on the appraisal, by
providing room for discussions and improvement are the highlights of ProMES. The role
of both the Management and the people are equivalent which is controlled by a
facilitator, who also confirms that all the participating members agree to a common rule
through arguments and discussions. The effect of such a system will be improved
performance in comparison to the traditional methods (AD Kleingeld, Harrie Van Tuijl,
Jen A. Algera, 2004)
The expectancy based method guides the people on how hard to try and what to do.
When the employees are given an opportunity to work to attain their goal in self-
controlling manner better results in less time can be achieved.
The current business scenario gives significance to external factors like customers
feedback also, where the assessment is carried out by these external factors in addition
to the superiors. (Milan Moravec, 1996)
Performance Management cannot be achievable without a continuous improvement
process which eventually reports the indispensable competences of the business and
abilities of employees and teams.
In this context Organizational development (OD) which is also mentioned as BPM,
Business Performance Management, which is a set of progressions, has its importance,
which will help the Organizations to progress their existing performance and improve in
line with the Strategic goal. It is an arrangement for launching, screening and inspecting
business methods, systems, metrics, and procedures that drive business performance.
This method enables Management to apply successfully their commercial, quantifiable

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and social resources. In order to have an effective and successful performance
management, a precise responsibility for the persistent development of business
processes has to be recognized, and we have to inspire individual contributions and
skills.
These methodologies enable the Top executives to effectively utilize their social,
commercial, and quantifiable resources. To have a fruitful and operative performance
management, a precise responsibility for the determined progress of business
processes has to be recognized, and encouragement has to be given to cultivate
individual contributions and skills.
Many survey shows that global businesses tends to practice general HR management
systems that line up with their values and strategic objectives.
FINDINGS & CONCLUSIONS
Evaluating the different methodologies of Performance Management systems discussed
above, it can be observed that there exists a direct relationship between the outlook and
expectations of the top management and the design of PMS. It also is reflected in the
efforts by the organization to accomplish the objectives of the PMS.
The reliable and systematized practice of the effective Performance Management
Systems leads to the establishment of the overall performance of the organization in
terms of profit/turnover.
The study observations are summarized below:-
For the overall performance of the organization and to achieve its goals and objectives:
 Organizational Objectives/Goals should be defined and methods to attain these
goals should be designed.
 Ensure that the formulated strategies designed for attaining the objectives are
practiced and the expected results are attained.
 There should be a proper channel of communication between the various levels;
Top Management to the Line Management and thereafter to the employees
should be established.

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 Need to ensure that the Organizational objectives are informed to all and made
aware the expectations from them, and what is their status.
 Ensure timely and proper performance feedback provided.
 Rewards and appreciation methods to be implemented.
 Encourage improvement and learning process.
The literature concludes that for the Organization to achieve its goals an Effective
performance Management system should to be developed, which takes into
consideration all the factors mentioned above.
SCOPE FOR FURTHER RESEARCH
There is ample scope for further researches in these topics to understand how these
Performance Management systems can ascertain the relationship between employee
retention, employee termination and poor performance. The Performance Management
system prevailing in different Organizations by specifically selecting a geographical area
or a specific type of industry, however, can be conducted with the help of a survey by
using both Quantitative and Qualitative analysis methods. This will help to understand
the perception of the employees in the type of Performance Management systems in
their organizations, and thereby methodologies can be established to make the system
more employees friendly so that overall Organizational objectives can be attained by a
participative mechanism.
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