PERFORMANCE MANAGEMENT

MODULE 1.
INTRODUCTION TO
PERFORMANCE
MANAGEMENT

Reference:

Aguinis, Herman (2013). Performance Management, 3e. Pearson

Education, Inc.
Kohli, A.S., T. Deb. (2008). Performance Management. Oxford
University Press

Jaika Almira R. Agena

INSTRUCTOR
MODULE CONTENT
This module is intended for the introduction to
Performance Management. Topics in this module
include performance management defined,
important key features of performance
management, and problems arising from poorly
implemented performance management systems.

LEARNING OBJECTIVES
1-1 Define what performance management is
1-2 Describe performance management systems
1-3 Distinguish performance management and
performance appraisal
1-4 Explain the concept of performance
management
1-5 Recognize the importance and key features of
ideal performance management in an
organization
1-6 Recognize the problems arising from a poorly
implemented performance management system
HUMAN RESOURCE MANAGEMENT
INTRODUCTION
Human resource management (HRM) is the "general term used to describe a variety
of functions aimed at effectively managing an organization's employees or human
resources." Organizations are believed to gain their competitive advantage by
using their people effectively, exhausting their expertise and ingenuity to achieve
the organization's goals and objectives.

With organizations crossing borders through the globalization of the world

economy, the marketplace has become highly complex, turbulent, and
competitive. People are at the heart of business success. Because of this,
organizations need to build, sharpen and leverage on the source of their
competitive advantage - their people, their employees.

Human resource management plays an important role in the proactive

management of employees for effective orientation of people philosophies with
organizational objectives. Therefore, HRM should be able to respond to the
enhancement of organizational performance. And so, an organization committed
to HRM performs better, thus making HRM the foundation of excellent corporate
performance.

Concept of Competitive Advantage

Competitiveness is a complex term and can be defined in several ways, ranging
from the domestic resources cost ratio concept to the competitive advantage
concept encompassing segmented markets, differentiated products, and economies
of scale. In recent years, the concept of competitive advantage has taken center
stage in discussions of business strategy.

Competitive advantage may be defined as an advantage over competitors gained

by a firm’s ability to create value for the stakeholders most notably the customers,
either by lowest cost or most differentiated position. It is the result of an
organization's planned strategy.

Competitive advantage is achieved by continuously creating new resources and

capabilities and developing existing ones that are superior to its competitors, in
response to rapidly changing market conditions. While an organization's
technologies, products, and structures can be copied by competitors, no one can
match its highly charged, motivated people who care for their organizations.

Human resources are an important source of a competitive advantage that can be

realized through performance management—a key HR strategy. Therefore,
performance management is a business strategy for attaining and sustaining
competitive advantage through human resources.
PERFORMANCE MANAGEMENT
Performance management is a "continuous process of identifying, measuring, and
developing the performance of individuals and teams and aligning performance with
the strategic goals of the organization." (Aguinis, 2013)

Two Main Components

Continuous process. Performance management is 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 mangers ensure that employees' activities and
outputs are congruent with the organization's goals and,
consequently help the organization gain a competitive
advantage.

Performance Appraisal
It is important to distinguish between performance management and performance
appraisal. Performance appraisal is the systematic description of an employee’s
strengths and weaknesses. Thus, it is an important component of performance
management, but it is just a part of a bigger whole because performance
management is much more than just the measurement of performance.

Performance management systems that

do not make explicit the employee
contribution to the organizational
goals are not true performance
management systems.

Making an explicit link between an

employee’s performance objectives and
the organizational goals also serves
the purpose of establishing a shared
understanding about what is to be
achieved and how it is to be achieved.
PERFORMANCE MANAGEMENT
THE PERFORMANCE MANAGEMENT CONTRIBUTION
There are many advantages associated with the implementation of performance
management. Some of them are discussed below:

Motivation to perform is increased. Receiving feedback about one’s

performance increases the motivation for future performance. Knowledge
about how one is doing and recognition about one’s past successes
provide the fuel for future accomplishments.

Self-esteem is increased. Receiving feedback about one’s performance

fulfills a basic human need to be recognized and valued at work. This, in
turn, is likely to increase employees’ self-esteem.

Managers gain insight about subordinates. Direct supervisors and other

managers in charge of the appraisal gain new insights into the person
being appraised.

The definitions of job and criteria are clarified. The job of the person
being appraised may be clarified and defined more clearly.

Self-insight and development are enhanced. The participants in the

system are likely to develop a better understanding of themselves and of
the kind of development activities that are of value to them as they
progress through the organization.

Administrative actions are more fair and appropriate. Performance

management systems provide valid information about performance that
can be used for administrative actions such as merit increases,
promotions, and transfers as well as terminations.

Organizational goals are made clear. The goals of the unit and the
organization are made clear, and the employee understands the link
between what she does and organizational success.

Employees become more competent. An obvious contribution is that

employee performance is improved. In addition, there is a solid
foundation for helping employees become more successful by
establishing developmental plans.

Employee misconduct is minimized. Although some individuals are more

likely to engage in misconduct compared to others, having good
performance management in place provides the appropriate context so
that misconduct is clearly defined and labeled as such and identified early
on before it leads to sometimes irreversible negative consequences.
 PERFORMANCE MANAGEMENT
There is better protection from lawsuits. Data collected through
performance management systems can help document compliance with
regulations.

There is better and more timely differentiation between good and poor
performers. Performance management systems allow for quicker
identification of good and poor performers.
Supervisors’ views of performance are communicated more clearly.
Performance management systems allow managers to communicate to
their subordinates their judgments regarding performance.

Organizational change is facilitated. Once this new organizational

direction is established, performance management is used to align the
organizational culture with the goals and objectives of the organization
to make change possible.

Motivation, commitment, and intentions to stay in the organization are

enhanced. When employees are satisfied with their organization’s
performance management system, they are more likely to be motivated
to perform well, to be committed to their organization, and not try to
leave the organization.

Voice behavior is encouraged. For example, the performance review

meeting can lead to a conversation during which the employee provides
suggestions on how to reduce cost or speed up specific process.

Employee engagement is enhanced. Employee engagement is an

important predictor of organizational performance and success and,
consequently, engagement is an important contribution of good
performance management systems.

What CEOs Say About the Contribution of Performance Management Systems

A study conducted by Development Dimensions International (DDI), a global human

resources consulting firm specializing in leadership and selection, found that performance
management systems are a key tool that organizations use to translate business strategy
into business results. Specifically, performance management systems influence “financial
performance, productivity, product or service quality, customer satisfaction, and employee
job satisfaction.” In addition, 79% of the CEOs surveyed say that the performance
management system implemented in their organizations drives the “cultural strategies that
maximize human assets.”
PERFORMANCE MANAGEMENT
DISADVANTAGES / DANGERS OF POORLY IMPLEMENTED PM SYSTEMS
Here is a list of possible negative consequences when performance management
systems are low quality or are poorly implemented:

Increased turnover. If the process is not seen as fair, employees may

become upset and leave the organization. They can leave physically (i.e.,
quit) or withdraw psychologically (i.e., minimize their effort until they
are able to find a job elsewhere).

Use of misleading information. If a standardized system is not in place,

there are multiple opportunities for fabricating information about an
employee’s performance.

Lowered self-esteem. Self-esteem may be lowered if feedback is

provided in an inappropriate and inaccurate way. This, in turn, can create
employee resentment.

Wasted time and money. Performance management systems cost money

and quite a bit of time. These resources are wasted when systems are
poorly designed and implemented.

Damaged relationships. As a consequence of a deficient system, the

relationship among the individuals involved may be damaged, often
permanently.

Decreased motivation to perform. Motivation may be lowered for many

reasons, including the feeling that superior performance is not translated
into meaningful tangible (e.g., pay increase) or intangible (e.g., personal
recognition) rewards.

Employee burnout and job dissatisfaction. When the performance

assessment instrument is not seen as valid and the system is not
perceived as fair, employees are likely to feel increased levels of job
burnout and job dissatisfaction. As a consequence, employees are likely
to become increasingly irritated.

Increased risk of litigation. Expensive lawsuits may be filed by

individuals who feel they have been appraised unfairly.

Unjustified demands on managers’ and employees’ resources. Poorly

implemented systems do not provide the benefits provided by well-
implemented systems, yet they take up managers’ and employees’ time.
Such systems will be resisted because of competing obligations and
allocation of resources (e.g., time). What is sometimes worse, managers
may simply choose to avoid the system altogether, and employees may
feel increased levels of overload.
PERFORMANCE MANAGEMENT
Varying and unfair standards and ratings. Both standards and individual
ratings may vary across and within units and 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.

What Happens When Performance Management Is Implemented Poorly?

One example of a poorly implemented performance management system resulted
in a $1.2 million lawsuit. A female employee was promoted several times and
succeeded in the construction industry until she started working under the
supervision of a new manager. She stated in her lawsuit that once she was
promoted and reported to the new manager, the boss ignored her and did not give
her the same support or opportunities for training that her male colleagues
received. After eight months of receiving no feedback from her manager, she was
called into his office, where the manager told her that she was failing, resulting in
a demotion and a $20,000 reduction in her annual salary. When she won her sex-
discrimination lawsuit, a jury awarded her $1.2 million in emotional distress and
economic damages.

One of the purposes of a performance

management system is to make
decisions about employees’
compensation (e.g., pay raises). For
many employees, this is perhaps one of
the most meaningful consequences of a
performance management system.
END OF MODULE TEST
CASE STUDY: COMPANY PERFORMANCE MANAGEMENT SYSTEM
This activity is designed to be done in groups. Collaboration is important in
completing this activity.

1. Choose your group mates. The class should have a maximum of four
(4) groups.
2. Decide on a company you will study. Make sure the company
implements a performance management system (PMS). Describe the
company and the industry it belongs to.
3. Describe the company's PMS. Include the official name, and how they
go about their PMS.
4. How has PMS changed the organization?
5. What are the identified problems with its implementation and how
were these problems resolved?

Example (simplified)
Google is an international tech company based in Mountain View, California, USA. Founded by Larry Page and
Sergey Brin, it has been acknowledged as one of the highly-sought employers of the new millennium.

Google's performance management system uses seven tools and processes to sustain company performance and
growth, namely, annual performance, monthly performance check-in, Googlegeist survey, annual upward
feedback survey, meritocracy, and objective and key-result.

The basic process of the performance review includes identifying a group or peer reviewer for each employee.
Each Google, as the employees at Google are called, is subject to a five-point rating scale ranging from "needs
improvement" to "superb". This is carried out twice a year, and each reviewer is asked to state one thing the
reviewee should do more of, and one thing that they can do in a different way.

After the cycle, managers meet to look at the peer review. Each manager is asked to justify their decisions to
avoid bias. Managers then decide the final evaluation of each Googler, and the results of the feedback are shared
to each employee. These results are shared through comparisons with other feedback results to justify the
evaluation.

Compensation is decided separately. This performance management system uses the main motivation at Google
is grow and contribute to the company's success.

Prior to the implementation of the performance review, Google used traditional ways which is numerical ratings
and annual reviews. The results showed irrelevant and sometimes "too late" for the employees. Prior to this
implementation, they also asked the reviewers

Sources:
Impraise. 2022. How they run Performance Management At Google | Impraise. [online] Available at:
<https://www.impraise.com/blog/how-they-run-performance-management-at-google> [Accessed 31 January
2022].
Li, L., 2020. How Google evolved performance management to drive top performance across its growing
workforce. [online] TINYpulse. Available at: <https://www.tinypulse.com/blog/how-google-evolved-performance-
management-to-drive-top-performance-across-its-growing-workforce> [Accessed 31 January 2022].
Rabiatul Adawiah Binti Husaini. "Google: Hiring Process and Performance Appraisal." International Journal of
Business and Management Invention (IJBMI), vol. 09(07), 2020, pp. 26- 29. Journal DOI- 10.35629/8028