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PERFORMANCE MANAGEMENT
Performance management is a continuous process of
identifying, measuring, and developing the performance
of individuals and aligning performance with the
strategic goals of the organization.
TWO MAIN COMPONENTS OF
DEFINITION
• Continuous process
Process Management is ongoing. It involves a never
ending process of setting goals and objectives, observing
performance, and giving and receiving ongoing coaching
and feedback.
• Alignment with strategic goals
Performance Management requires that managers
ensure that employee’s activities and outputs are
congruent with the organizational goals.
CONTRIBUTION OF PERFORMANCE
MANAGEMENT SYSTEM
• Motivation to perform is increased (feedback
makes people eager to learn)
• Self-esteem is increased (By recognizition and
appreciation)
• Managers gain insight about subordinates. 
• The definitions of job and criteria are clarified
• Self- insight and development are enhanced
• Administrative actions are more fair and
appropriate
• Organizational goals are made clear
CONTRIBUTION OF PERFORMANCE
MANAGEMENT SYSTEM
 Employees become more competent
 There is better protection from lawsuits (data
collected during performance evaluation can
help document compliance with regulation)
 There is better and more timely differentiation
between good and poor performance
 Supervisor’s views of performance are
communicated more clearly
 Organizational change is facilitated (Any change
can be facilitated by continuous feedback and
improvement)
DISADVANTAGES/ DANGERS OF
POORLY IMPLEMENTED PM SYSTEM
• Increased turnover
If the process is not seen as fair employees may
become upset and leave the organization.
 
• Use of misleading information
If a standard system is not in place there ere
multiple opportunities for fabricating
information about employee’s performance.
 
• Lowered self esteem
Self esteem may be lowered if feedback is
DISADVANTAGES/ DANGERS OF
POORLY IMPLEMENTED PM SYSTEM
• Wasting time and money
Performance management systems cost money and quite a
bit of time.
 
• Damaged relationship
As a consequence of a incomplete system the relationship
among the individual involved may be damaged. 
• Decreased motivation to perform.
Motivation may be lowered for many reasons, include the
feeling that superior performance is not translated into
tangible or intangible rewards.
 
DISADVANTAGES/ DANGERS OF
POORLY IMPLEMENTED PM SYSTEM
• Varying unfair standards and ratings
Both standards and individual ratings may vary across and
with in units and also be unfair.
 
• Emerging biases
Personal values, biases, and relationships are likely to
replace organizational standards.
 
• Unclear ratings system
Because of poor communication employees may not know
how their ratings are generated and how the ratings are
translated into rewards.
REWARD SYSTEM
 A reward system is the set of mechanisms for distributing
both tangible and intangible returns as part of an
employment relationship.
 Various type of return:
 Base pay
 Cost-of living Adjustments and contingent pay (Merit Pay)
 Short-Term Incentives
 Long-Term Incentives
 Income Protection
 Work/Life Focus
 Allowances
 Relational Returns (Include recognition, status,
employment security, learning opportunities etc)
PERFORMANCE MANAGEMENT
SYSTEM
  
 Cost-of-living
adjustment
 Income protection
 Work/life focus
 Allowances
 Relational returns
 Base pay
 Contingent pay
 Short-term incentives
 Long-term incentives
 
 Low
 Low
 Moderate
 Moderate
 Moderate
 Moderate
 High
 High
 High
RETURNS DEGREE OF
DEPENDENCY
PERFORMANCE MANAGEMENT
SYSTEM
1. Strategic:
To help top management achieve strategic
business objectives.
2. Administrative:
To furnish valid and useful
information for making administrative decisions about
employees
3. Informational:
To inform employees about how they are
doing and about the organization’s and the
supervisor’s expectations. 
PURPOSES SERVED BY A
PERFORMANCE MANAGEMENT
SYSTEM
4. Developmental:
To allow managers to provide
coaching to their employees.
5. Organizational maintenance:
To provide information to
be used in workplace planning and allocation of
human resources.
6. Documentational:
To collect useful
information that can be used for various
purposes.
CHARACTERISTIC OF AN IDEAL
PM SYSTEM
 Strategic Alignment: 
The system should be aligned with the unit and
organization's strategy.
 Thoroughness:
The system should be thorough regarding four dimensions
 
- Employees should be evaluated
- Major Job responsibilities should be evaluated
- Evaluate performance spanning (Entire Review Period
rather just few weeks)
- Feedback is provided on both positive and negative
performance
CHARACTERISTIC OF AN IDEAL PM
SYSTEM
 Practicality:
Systems that are too expensive, time-consuming, convoluted will
obviously not be effective. Good systems that are
-Easy to use
-available for use
-it is acceptable for those who use it for decision.
-Benefits of the system out weight the cost. 
 Meaningfulness:
The system must be meaningful in several ways.
- Standards and evaluations for each job function are important and
relevant.
- Only the functions that are under the control of the employee are
measured.
CHARACTERISTIC OF AN IDEAL PM
SYSTEM
- System provides for continuing skill development of
evaluation.
- Results are used for important administrative decisions.
 Specificity:
Detailed guidance is provided to employees
about what is expected of them and how they can meet
these expectations. 
 Identification of effective and ineffective
performance:
The system distinguishes between effective and
ineffective behavior and results, thereby also identify
employees displaying various levels of performance
effectiveness.
CHARACTERISTIC OF AN IDEAL PM
SYSTEM
 Reliability:
Measures of performance are consistent and are free of
error. 
 Validity:
- Measure includes all critical performance factors
- Measures do not leave out any important performance
factor
-Measures do not include factors outside employee control.
 Acceptability and fairness:
Employees perceive the performance evaluation and
rewards received relative to the work performed as fair.
(Distributive justice)
Employees perceive the procedure used to determine the
rating and subsequent rewards as fair. (Procedural justice)
CHARACTERISTIC OF AN IDEAL PM
SYSTEM
 Inclusiveness:
Employees participate in the process of creating the
system by providing input on how performance should
be measured. 
 Openness:
Good systems have no secrets.
-performance is evaluated frequently and feedback is
provided on an ongoing basis.
- Appraisal meets in a two-way communication process
and not one-way communication delivered from the
supervisor to the employee.
-Standards are clear and communicated on an ongoing
basis.
-Communications are factual, open, and honest.
 
CHARACTERISTIC OF AN IDEAL PM
SYSTEM
 Correct ability:
There is an appeals process, through which employees
can challenge unjust or incorrect decisions. 
 Standardization:
Performance is evaluated consistently across people
and time.  
 Ethicality:
- Supervisors suppress their personal self-interest in
providing evaluations.
- Employee privacy is respected.
- Supervisors evaluate performance dimensions for
which they have sufficient information only.
 
RESOURCES AND DEVELOPMENT
ACTIVITIES
 
 Performance management system serves as important
“feeders” to other human resources and development
activities.
 Performance management training.
Performance Management provides information on
developmental needs for the employees. In the absence
of good performance management system, it is not
clear that organizations will use their training
resources in the most efficient way.
 
DEVELOPMENT ACTIVITIES
 
 Work force planning
Performance management also provides key
information for the workforce planning.
Specifically, an organization’s talent inventory is
based on information collected through the
performance management system.  
 Recruitment and hiring
Knowledge of an organization’s current and
future talent is important when deciding what
type of skills need to required externally and
what types of skills can be found within
organization.
DEVELOPMENT ACTIVITIES
 
 Performance management compensation
Compensation and reward decisions are likely to be
arbitrary in the absence of a good performance
management system.
Chapter 1 (performance management and reward systems) 2

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Chapter 9 PPT 4th edition.pdf internal audit
 

Chapter 1 (performance management and reward systems) 2

  • 1. PERFORMANCE MANAGEMENT Performance management is a continuous process of identifying, measuring, and developing the performance of individuals and aligning performance with the strategic goals of the organization.
  • 2. TWO MAIN COMPONENTS OF DEFINITION • Continuous process Process Management is ongoing. It involves a never ending process of setting goals and objectives, observing performance, and giving and receiving ongoing coaching and feedback. • Alignment with strategic goals Performance Management requires that managers ensure that employee’s activities and outputs are congruent with the organizational goals.
  • 3. CONTRIBUTION OF PERFORMANCE MANAGEMENT SYSTEM • Motivation to perform is increased (feedback makes people eager to learn) • Self-esteem is increased (By recognizition and appreciation) • Managers gain insight about subordinates.  • The definitions of job and criteria are clarified • Self- insight and development are enhanced • Administrative actions are more fair and appropriate • Organizational goals are made clear
  • 4. CONTRIBUTION OF PERFORMANCE MANAGEMENT SYSTEM  Employees become more competent  There is better protection from lawsuits (data collected during performance evaluation can help document compliance with regulation)  There is better and more timely differentiation between good and poor performance  Supervisor’s views of performance are communicated more clearly  Organizational change is facilitated (Any change can be facilitated by continuous feedback and improvement)
  • 5. DISADVANTAGES/ DANGERS OF POORLY IMPLEMENTED PM SYSTEM • Increased turnover If the process is not seen as fair employees may become upset and leave the organization.   • Use of misleading information If a standard system is not in place there ere multiple opportunities for fabricating information about employee’s performance.   • Lowered self esteem Self esteem may be lowered if feedback is
  • 6. DISADVANTAGES/ DANGERS OF POORLY IMPLEMENTED PM SYSTEM • Wasting time and money Performance management systems cost money and quite a bit of time.   • Damaged relationship As a consequence of a incomplete system the relationship among the individual involved may be damaged.  • Decreased motivation to perform. Motivation may be lowered for many reasons, include the feeling that superior performance is not translated into tangible or intangible rewards.  
  • 7. DISADVANTAGES/ DANGERS OF POORLY IMPLEMENTED PM SYSTEM • Varying unfair standards and ratings Both standards and individual ratings may vary across and with in units and also be unfair.   • Emerging biases Personal values, biases, and relationships are likely to replace organizational standards.   • Unclear ratings system Because of poor communication employees may not know how their ratings are generated and how the ratings are translated into rewards.
  • 8. REWARD SYSTEM  A reward system is the set of mechanisms for distributing both tangible and intangible returns as part of an employment relationship.  Various type of return:  Base pay  Cost-of living Adjustments and contingent pay (Merit Pay)  Short-Term Incentives  Long-Term Incentives  Income Protection  Work/Life Focus  Allowances  Relational Returns (Include recognition, status, employment security, learning opportunities etc)
  • 9. PERFORMANCE MANAGEMENT SYSTEM     Cost-of-living adjustment  Income protection  Work/life focus  Allowances  Relational returns  Base pay  Contingent pay  Short-term incentives  Long-term incentives    Low  Low  Moderate  Moderate  Moderate  Moderate  High  High  High RETURNS DEGREE OF DEPENDENCY
  • 10. PERFORMANCE MANAGEMENT SYSTEM 1. Strategic: To help top management achieve strategic business objectives. 2. Administrative: To furnish valid and useful information for making administrative decisions about employees 3. Informational: To inform employees about how they are doing and about the organization’s and the supervisor’s expectations. 
  • 11. PURPOSES SERVED BY A PERFORMANCE MANAGEMENT SYSTEM 4. Developmental: To allow managers to provide coaching to their employees. 5. Organizational maintenance: To provide information to be used in workplace planning and allocation of human resources. 6. Documentational: To collect useful information that can be used for various purposes.
  • 12. CHARACTERISTIC OF AN IDEAL PM SYSTEM  Strategic Alignment:  The system should be aligned with the unit and organization's strategy.  Thoroughness: The system should be thorough regarding four dimensions   - Employees should be evaluated - Major Job responsibilities should be evaluated - Evaluate performance spanning (Entire Review Period rather just few weeks) - Feedback is provided on both positive and negative performance
  • 13. CHARACTERISTIC OF AN IDEAL PM SYSTEM  Practicality: Systems that are too expensive, time-consuming, convoluted will obviously not be effective. Good systems that are -Easy to use -available for use -it is acceptable for those who use it for decision. -Benefits of the system out weight the cost.   Meaningfulness: The system must be meaningful in several ways. - Standards and evaluations for each job function are important and relevant. - Only the functions that are under the control of the employee are measured.
  • 14. CHARACTERISTIC OF AN IDEAL PM SYSTEM - System provides for continuing skill development of evaluation. - Results are used for important administrative decisions.  Specificity: Detailed guidance is provided to employees about what is expected of them and how they can meet these expectations.   Identification of effective and ineffective performance: The system distinguishes between effective and ineffective behavior and results, thereby also identify employees displaying various levels of performance effectiveness.
  • 15. CHARACTERISTIC OF AN IDEAL PM SYSTEM  Reliability: Measures of performance are consistent and are free of error.   Validity: - Measure includes all critical performance factors - Measures do not leave out any important performance factor -Measures do not include factors outside employee control.  Acceptability and fairness: Employees perceive the performance evaluation and rewards received relative to the work performed as fair. (Distributive justice) Employees perceive the procedure used to determine the rating and subsequent rewards as fair. (Procedural justice)
  • 16. CHARACTERISTIC OF AN IDEAL PM SYSTEM  Inclusiveness: Employees participate in the process of creating the system by providing input on how performance should be measured.   Openness: Good systems have no secrets. -performance is evaluated frequently and feedback is provided on an ongoing basis. - Appraisal meets in a two-way communication process and not one-way communication delivered from the supervisor to the employee. -Standards are clear and communicated on an ongoing basis. -Communications are factual, open, and honest.  
  • 17. CHARACTERISTIC OF AN IDEAL PM SYSTEM  Correct ability: There is an appeals process, through which employees can challenge unjust or incorrect decisions.   Standardization: Performance is evaluated consistently across people and time.    Ethicality: - Supervisors suppress their personal self-interest in providing evaluations. - Employee privacy is respected. - Supervisors evaluate performance dimensions for which they have sufficient information only.  
  • 18. RESOURCES AND DEVELOPMENT ACTIVITIES    Performance management system serves as important “feeders” to other human resources and development activities.  Performance management training. Performance Management provides information on developmental needs for the employees. In the absence of good performance management system, it is not clear that organizations will use their training resources in the most efficient way.  
  • 19. DEVELOPMENT ACTIVITIES    Work force planning Performance management also provides key information for the workforce planning. Specifically, an organization’s talent inventory is based on information collected through the performance management system.    Recruitment and hiring Knowledge of an organization’s current and future talent is important when deciding what type of skills need to required externally and what types of skills can be found within organization.
  • 20. DEVELOPMENT ACTIVITIES    Performance management compensation Compensation and reward decisions are likely to be arbitrary in the absence of a good performance management system.