Performance management is a way of systematically managing all such people for innovation, goal focus, productivity and satisfaction- it is a goal-congruent win-win plan.

Performance management’s main aim is to ensure success for all managees – and all task teams- who believe in its approach, and implement it with sincerity and commitment. The managees’ success must reflect in the organizations bottom-line in terms of fulfilment of its planned goals.

Performance management at the workplace is concerned with the plan­ning, coordination, utilization, motivation and development of employees in order to achieve organizational outcomes and goals. Recent studies have identified trends in effective performance management systems and determined the impact of these systems on organizational success.

According to Armstrong, performance management is a means of getting better results from the organization, teams and individuals by under-standing and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process for establishing shared understanding about what is to be achieved and an approach to managing and developing people in a way that increases the probability that it will be achieved in the short and longer term.


Learn about:-

1. Introduction to Performance Management 2. Meaning and Definition of Performance Management 3. Historical Developments 4. Scope 5. Characteristics 6. Key Elements 7. Importance 8. Factors Affecting 9. Concerns

10. Principles 11. Difference between Performance Management and Performance Appraisal 12. Process 13. New Approach 14. Advantages and Disadvantages 15. Practices.

Performance Management: Meaning, Definition, Characteristics, Importance, Factors, Principles, Process and Scope


  1. Introduction to Performance Management
  2. Meaning and Definition of Performance Management
  3. Historical Developments in Performance Management
  4. Scope of Performance Management
  5. Characteristics of Performance Management
  6. Key Elements of Effective Performance Management
  7. Importance of Performance Management
  8. Factors Affecting the Effective Use of Performance Management
  9. Concerns of Performance Management
  10. Principles of Performance Management Plan
  11. Difference between Performance Management and Performance Appraisal
  12. Process of Performance Management
  13. New Approach of Performance Management
  14. Advantages and Disadvantages of Performance Management
  15. Good Practices of Performance Management in the Organisation

Performance Management – Introduction

Performance management is a way of systematically managing all such people for innovation, goal focus, productivity and satisfaction- it is a goal-congruent win-win plan. Its main aim is to ensure success for all managees – and all task teams- who believe in its approach, and implement it with sincerity and commitment. The managees’ success must reflect in the organizations bottom-line in terms of fulfilment of its planned goals.


Performance management is an unending spiral, linking processes such as performance planning, managing performance throughout the year, taking stock of manage performance and potential, at the same time recognizing and rewarding success are the end of the year. It links these processes in a manner that an individual manager’s performance targets continuously subscribe to those of the total organization- providing consistent super coordination to create positive goal-oriented task motivation and reduce intra-organizational conflict.

It is realism that an organization does nothing if it doesn’t manage performance. Each manager devices his own system for managing performance within which he perceives the organization’s norms to be. These are often not explicitly clear even to the manager. Standards or expectations, which define good performance, may be generally understand, but are rarely specific.

Performance management is a holistic – largely participatory and goal-congruent process of managing and supervising managees at work, in their task team or groups. It arises from the awareness that a systematic, organized approach to managing and rewarding performance better generates and sustains positive manage motivation.


It is neither the familiar kind of performance appraisal, nor the almost-forgotten system of ‘Management by Objectives’. Although some relevant features of those are palpable in the design of performance management system. Its high points of performance standards- representing the organizational goals and objectives, manage recognition and awards corresponding to manage needs and aspirations.

Performance Management – Meaning and Definition (by Armstrong and Baron)

The term performance has several meanings.

It can be referred as:

1. The act of performing or the state of being performed.


2. The act or style of performing a work or role before an audience.

3. The way in which someone or something functions.

“Performance refers to all activity of an individual which occurs during a period marked by his continuous presence before a particular set of observers and which has some influence on the observers.” (Goffman)

The act of performing; the carrying into execution or action; execution; achievement; accomplishment; representation by action; as, the performance of an undertaking of a duty is also performance.


Performance management at the workplace is concerned with the plan­ning, coordination, utilization, motivation and development of employees in order to achieve organizational outcomes and goals. Recent studies have identified trends in effective performance management systems and determined the impact of these systems on organizational success.

The messages from these studies are dramatic – Performance management is an important business system; it makes a difference in organizational perfor­mance; approaches to performance management are changing; and senior managers must be attentive to the performance management systems in their organizations.

Organizations, today, are relying on providing career opportunities, job challenge, employee involvement in decision making, employee develop­ment, culture management and supportive line manager behaviour to manage the performance and potential of key talent.

Companies with performance management programmes have higher profits, better cash flows, stronger stock market performance, and a greater stock value than companies without performance management. Produc­tivity in firms without performance management is significantly below the industry average, while productivity in firms with performance manage­ment is on par with the industry average.


It is, therefore, imperative for organizations to pay attention to the developing impactful performance management systems and potential appraisal systems in order to better manage their in-house talent.

Performance Management is another way of envisioning the totality of a manager’s function. It views the managerial function holistically-not a random collection of activities that most managers recognize and undertake as their core function. It provides a systematic dimension to the managerial activities-highlighting their mutual inter-relatedness and interdependence.

It emphasizes the dynamic, sequential and cyclical nature of these activities, essential-to actualize their potential synergistic impact, which is the source of high performance and excellence. By implication, it also explains why focusing on only one or a few of these activities doesn’t deliver the results wished-for.

According to Armstrong, performance management is a means of getting better results from the organization, teams and individuals by under-standing and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process for establishing shared understanding about what is to be achieved and an approach to managing and developing people in a way that increases the probability that it will be achieved in the short and longer term.

Baron define performance management as a ‘strategic and integrated approach to delivering sustained success to organizations by improving performance of the people who work in them and by developing the capabilities of teams and individual contributors’. They consider performance management as strategic since it concerns the achievement of long-term organizational goals and effective organizational functioning in its relevant external environment.

Any system needs certain pre-requisites to function smoothly. So does performance management.

Performance management is more productive to the extent that:

a. It is used holistically, as a system.

b. The relevant sub-systems are in place and accepted.

c. The organizations philosophy and human environment is conducive to high morale.

d. The manager is oriented to, and equipped with, high performing attitudes and leadership skills.

Performance management system represents a concrete participatory dyadic relationship between each managee’s aspirations and roles, and the organization’s objective and activities. As such, an effective performance management system can set into motion a tremendous ripple effect, releasing productive managee enthusiasm, high retention, and improved client satisfaction.

Performance Management – 4 Phases of Historical Development over the Years From Early 1960s to Mid 1970s

Performance Management is most often used in the workplace, and applies where people interact such as – school, colleges, community meetings, sports teams, governmental agencies, etc., which has evolved positively over a period of time. Let us look at the historical development of performance management.

The term performance management gained its importance from the times when the competitive pressures in the market started rising and the organisations felt the need of introducing a comprehensive performance management process into their system for improving the overall productivity and performance effectiveness.

Performance Management is about the success of individuals in their jobs, making the best use of their abilities, realising their full potential and ensuring their alignment to the corporate agenda, thereby maximising their contribution to the success of the organisation.

1. First Phase:

The origin of performance management can be traced to the early 1960s when the performance appraisal systems were in practice. During this period, Annual Confidential Reports (ACRs) were maintained for controlling the behaviours of the employees and these reports provided substantial information on the performance of the employees.

Any negative comment or feedback would have a very serious impact on the career path of the employees. The remarks of these reports were never communicated to the employees, and strict confidentiality was always maintained. There was absence of transparent mechanism for feedback and communication. This system suffered from a lot of drawbacks.

2. Second Phase:

This phase continued from late 1960s till early 1970s. The drawbacks of the first phase were removed to some extent during this phase. The feedback / ratings received by the employees were communicated to them so that they take some corrective actions to improve their performance. The employees usually used to get a formal written communication on their identified areas of improvements if the rating for any specific trait used to be below 33%.

3. Third Phase:

In this phase, the term ACR was replaced by performance appraisal. One of the key changes introduced during the year was that the employees were permitted to write down their accomplishments in confidential performance reports. The employees were allowed to write about their accomplishments in the self-appraisal form in the end of the year. In spite of these changes, the entire process was control oriented rather than development oriented.

4. Fourth Phase:

This phase started in the mid-1970s and its origin was in India as the great business tycoons like Larsen and Toubro introduced appreciable reforms in this field. The appraisal process during this phase was more development driven. The system focused on performance planning, review and development of an employee by undertaking transparent and methodical approach. This phase was a warm change in the area of performance management.

Performance Management Scope

Performance management should conform to a broad organizational framework and exude a shared organizational flavor; but there must be adequate space for the mangers and the managee, individually as well as together, to make a difference. Performance management assumes that the manager and his team members share accountability for performance by jointly agreeing on what they need to do and how they need to do it, and then by jointly implementing the agreed plans and monitoring outcomes.

According to Armstrong, performance management concerns the whole organization-how the various constituents of performance contributes to the planned ‘outcomes at the organizational, departmental, team and individual levels, and what need to be done to improve this outcomes’. Performance management believes that everything that people do at work at any level influences achievement of the overall organizational purpose.

To him, it is ‘concerned with what people do, how they do it and what they achieve’. It embraces all formal and informal measures adopted by an organization to increase corporate, team and individual effectiveness and continuously to develop knowledge, skill and competence. The combined impact of a number of related aspects of performance management may be expected to achieve more to improve organizational effectiveness than the various parts if they function separately. While designing an operating performance management, it is necessary to consider the interrelationship of each process.

Data generated by appraising process is used primarily as a basis for deciding rewards, including performance- related pay, but it is not an integral part of performance management concept and must be carried out with due caution so as not to vitiate or undermine the inherent process of performance management.

Performance management have a wide and comprehensive area to involve different parts and segments to be covered.

There are different scope of Performance Management which are given as under:

1. Human Resources Planning:

i. Objectives, plans and methods of skill and career development

ii. Strength and weaknesses of employees

iii. Potentialities for employee’s development.

2. Recruitment and Selection:

i. Determine the requirements of employee

ii. Effective and justified recruitment and selection

iii. Work standards and strategies for induction of employees towards performance evaluation.

3. Career Planning and Development:

i. Identifying future career opportunities

ii. Employees potentialities and development

iii. Contents of counselling and assisting towards realistic career plans.

4. Personnel Decisions:

i. Focus on career development

ii. Aspects for selection, job work, job requirements, promotion, lay off, rewards and fringe benefits

iii. Growth opportunities of employees.

5. Compensation and Rewards:

i. Determine different reward system

ii. Rewards by results

iii. Motivational fringe benefit.

6. Organisational Development:

i. Organisational change

ii. Key elements of organisation behaviour

iii. Work environment/organisational culture.

7. Training and Development:

i. Job analysis for training

ii. Sensitivity and team formation training

iii. Key areas for training and development.

8. Employees Relations:

i. Better working environment

ii. Fair and justified rewards for job performance

iii. Grievance and complaint redressal system.

Performance Management – Top 6 Characteristics

Performance management has the following characteristics:

Characteristic # 1. Continuous Process:

The performance management is a continuous process. It involves communication from top to bottom and feedback from bottom to top. It takes place round the year. The process cannot be completed within a short period. When one year performance process is completed then it starts for the next year.

It is a never-ending process. There are continuous dialogues between supervisors, managers and employees regarding communication, coaching, counselling, motivation and feedback. The objective behind these dialogues is to make the people to understand and perform as per the expectation so that the goals can be achieved.

Characteristic # 2. Use of Ranking and Ratings:

In this process for evaluation purpose repeatedly and ranking and ratings have been used for different factors. The ranking and ratings are used for communication, coaching, performance standards, behaviour, discipline, level of commitment to achieve the tasks, leadership quality shown, initiatives taken for problem-solving, etc.

There are different ratings and rankings required for completion of the assessment work. For example, meets standards/does not meet standards/exceeds standards or first, second, third, fourth ranking in the lot.

Characteristic # 3. Focus on Behaviours:

The tasks have been assigned to the employees and their accountability has been fixed. While performing the tasks the employees express their actions and reaction relating to the work. It is called the behaviour of the persons at work. It is very important aspect and management give special focus on it.

During work employees shows different aspects of behaviour such as – happy, unhappy, like, does not like, arguments, not arguments, obey, disobey, support, does not support, cooperate, does not cooperate, initiatives, not initiatives, discipline, indiscipline, commitment, no commitment, etc. There are many aspects like this. For evaluation purpose different agencies have developed different performance appraisal system. The employees are rated on the basis of these factors.

Characteristic # 4. Cooperative Approach:

The performance management process involves a cooperative approach between managers, supervisors, employees, focusing on regular discussions about responsibility, accountabilities, performance standards expectations, performance appraisal, and review of action, development and compensation plans.

They begin the year with an extensive discussion regarding these points time-to-time. All concerned persons take initiatives for giving expected performance standards and better behaviours during the work. The approach among them is very cooperative and contributes in accomplishment of the targets fixed.

Characteristic # 5. Training for All Concerned:

Training provides knowledge, skills and contributes in development of overall competencies of the persons. The training is needed for all persons working at different levels. For managers they should be trained in planning process and communication. The supervisor will be required to go through a training programme for counselling, coaching, motivation and performance appraisals.

They should be trained regarding these points so that he can do the needful to help the employees whenever they need the help. It will solve many problems and employees can be guided and motivated to do the work so the expected results can be easily achieved.

Characteristic # 6. Scope for Performance Improvement:

In performance management process the efforts have been put to find out the strengths and weaknesses of all concerned so that the action and development plans can be prepared. This will help in overcoming the problems and strengths will be further strengthened. Ultimately the performance of everyone will improve.

Further, the companies are facing tough competition in the markets. The company which gives better performance will take the competitive advantages over their competitors. So the focus is to improve the performance with better teamwork. Management is looking forward for further improvement repeatedly.

Performance Management – 12 Key Elements

The different key elements are the structural component which are needful for making perspective viewpoints and methodologies for performance management.

Briefly the key elements are given here:

1. Job Specification – It provides basic target oriented features by which the job contents may be developed. The composition and divisions of job contents may be included here. On this basis, the job requirement and the parameters of job performance may be determined.

2. Job Expectation – It deals some expected norms and standards to be required for performing the job. Here, the required and expected key elements like knowledge, skill and efficacy are also determined for better performance.

3. Rewards and Compensation – It has also an important and decisional part of performance management. It gives a fair and justified ground to provide some consideration to employees on the basis of their performance.

4. Work Culture – It is a foremost and important element of HR management within its performance scenario. It shows the amicable, trustfulness, congenial and healthy environment which is needful for better performance of jobs.

5. Motivation and Inspiration – The employees are inspired to motivate better work recognition and produce better results. It is a part of commitment by managers to employees for achieved better work performance. A large part of performance evaluation is based on higher and better motivational systems and approaches.

6. Process – It denotes the line of action by which individual performance is directed, assessed and rewarded. It should be continuous and be carried out regularly.

7. HRD Programmes – Different HRD methods and programmes are key element to develop welfare, job security and different amenities to employees. These are the motivational aspects for better work performance.

8. Role of HR Professional – The HR professional introduce various learning and research programmes which focus on the aspects of performance management. They develop performance design and appraisals on the basis of some learning aspects.

9. Ethical Performance and Behaviour – The behavioural approaches based on the morale and ethical norms can develop a congenial work environment. It motivate and develop a new and devoted feelings in employees.

10. Skills and Knowledge – The skill and knowledge are the basement on which the performance criteria can be follows. Both are very decisional part in performance management.

11. Learning Organisation – In order to develop intellectual growth and development, every part and its sub parts tries to create a learning environment specifically with training and development programme. It is a foremost part for performance management.

12. Job Satisfaction – It is a final part of HR programme both for the employees and managers also. Almost it is an individual set up to achieved through a comprehensive role of performance management.

Performance Management – Importance

Employees are an integral and the most critical part of the organisation. They help run the business smoothly and in an efficient manner. Out of this value and worth of the employees, the system of performance management has come into existence.

Performance management does not only monitor the performance of the employees but also helps them enhance their capabilities by providing them feedback from time and time and up to the expectations of the organisation. Performance management allows the organisation to fully utilise the capabilities and potential of the employees. Let us now look at the importance of performance management process in the organisation.

The job market these days has become extremely dynamic and challenging in nature. It always wants employees who have updated knowledge and skills and a positive attitude towards the work. To create such employees it is very important and essential to improve their current level of performance to the expected level of performance.

When their performance is improved, automatically there is a change in their attitude and behaviour. A motivated employee is not only good at his work but he also tries to encourage others, help others to get the desired level of output. Such kind of employees are wanted everywhere. Hence if performance management activity is taken seriously by all the organisations, they would be able to produce most competent, passionate and encouraged employees.

1. Involving Employee in the Planning Stage:

Performance management provides an opportunity to the organisation to include the employees in the performance planning process. By setting the performance goals with the employees, the organisation gains a lot of advantage. This is so because management does not have to invest separate time in making the employees understand what goals are set for them and how they need to execute them.

When the goal setting is happening together, whatever doubts or confusion the employees have can be removed in the discussion and/or alternative solution to the problem can be identified.

By involving employees in the performance planning process, employees tend to perform more carefully as they know the importance and consequence of doing a particular task in a particular way and hence it increases the overall productivity of the employees.

In a manufacturing company set-up it is also called as – “workers participation in management”. When the employees are involved in the performance management process right from the planning phase, they get a better understanding of what the organisation is expecting from a long term perspective.

Once the vision and mission of the organisation is clear to the employees they tend to look at the work given to them with a larger perspective in mind. They start realising the impact the smallest mistake can have on the overall vision and mission of the organisation and they become more careful at their work. This promises superior performance of the employees and a more motivated workforce in the organisation.

2. Monitoring the Progress of the Employees:

Having a performance management process set in the organisation, the performance of the employees can be managed in the most efficient, systematic and practical way. Monitoring the performance of the employees, the supervisors understand the run time problems that the employees are facing and appropriate solutions can be provided immediately. This reduces the lead time of understanding the problem and providing solutions. This makes the overall achievement of objectives very easy and at an early stage.

Monitoring does not mean micro-management in the organisation but it simply includes checking the progress and performance of the employees regularly. In case of the performance management process, it is very essential to provide timely feedback to the employees. When the employees receive timely feedback they understand the seriousness of it. And necessary changes can be made at the earliest to avoid future losses.

3. Ensuring All Round Development of the Employees:

The way an organisation has goals to achieve, employees also have certain goals to achieve other than what the organisation has set for them. Performance management process gives a chance to the employees to discover their hidden talents and strengths which can be utilised for the achievement of personal goals.

And because of the strong process in existence where the feedback is provided on a regular basis, the employees feel free to share their performance progress and gaps, if any with their superiors. This creates a win-win situation across the organisation and performance management proves to be an important activity in the organisation.

Performance management process always aims at overall development of the employees and hence the programme is designed keeping in mind the strengths and weaknesses of the employees. The organisation must always focus on the development of the employees along with its own development and hence the employee should have personal as well as professional growth through the performance management process.

4. Evaluation of Individual Performance:

Performance management is meant to be person specific. Each person has a different set of goals and objectives to achieve in relation to the strengths and weaknesses that he/she possesses. Evaluating the employees on individual basis is very essential for the growth and development of the organisation. Organisations can thus focus more on the improvement areas of the employees and at the same time enhancing their strong areas for generating the highest level of performance from them.

The overall development of the employee should be the main concern of the performance management process, similarly evaluation of the performance demonstrated by the employees must happen at regular intervals and most importantly, the feedback of the same must be shared with the employees as and when it is with the management. This helps the employees to improve their performance and meet the goals set by the organisation for them.

Performance Management – 5 Major Factors Affecting the Effective Use

Performance management system is the most critical part in the organisation and hence it must be implemented with utmost care and knowledge. But at the same time, this process involves the entire organisation involving human and non-human resources and hence there is a possibility that they might have an impact on the use and implementation of performance management in the organisation.

The factors affecting the effective use of performance management are listed below:

Factor # 1. Design:

The performance management system must be designed in such a way that it is in sync with the organisational structure. It is actually advisable to have existing employees of the organisation to be a part of designing performance management system for the organisation.

If employees are made part of the designing section, they will better understand the process followed in the organisation, at the same time the managers will not have to spend extra time in explaining them the process of performance management.

But if this system is not designed properly i.e., the goals established for this process are not related to the organisation’s strategic goals, then this system might not work well for the organisation in the long run. While designing the performance management system, the existing structure of the organisation, reporting relationships, processes and policies etc., must be given more importance in order to have desired level of results.

Factor # 2. Training:

Training is another critical factor that affects the effectiveness of performance management system. A study has shown that if managers are using a particular tool for appraising the performance of the employee, they must receive complete training as to how the tool needs to be used and how the results could be generated. If the rater himself is not aware of the rating scale and their implications, the purpose of performance management will not be served.

The training in this regards involves explaining the use of performance appraisal methods, documenting the records of employees for further appropriate use, communicating the feedback to the employees in a constructive manner and helping them further to manage their performance in order to meet career goals and strategic goals of the organisation and of self. Hence, if training is not provided to the managers, it can affect the effectiveness of the performance management system.

Factor # 3. Employee Development:

The main objective of the performance management system must be to develop the performance of the employees rather than focusing on the administrative goals like pay raises and incentives etc. When the development of the employees is made the focus point, it automatically results into salary hike and other related benefits.

But when the employee is told that he is going to receive benefits, then it might happen that he/she always expects something in return and focus only on getting rewards instead of focusing on the performance management. If the goals are not made clear to the employees as to why performance management is important for them, the employee development might prove to be the most important factor affecting the effective use of performance management.

Factor # 4. Corporate Culture:

Corporate culture basically defines the way employees complete their tasks and their relationships with others in the organisation. The corporate culture comprises of values, beliefs, trusts, rituals that are followed by the people working in a particular organisation. Culture always brings everything together. Organizational culture has a changeable impact on the employee’s performance levels and motivational levels.

Employees work really harder if they consider themselves a part of the corporate culture and vice-versa. The corporate culture thus must be adopted by everyone in a similar manner in order to get the desired results. Otherwise the performance levels of all the employees working in the same environment would be different and may not contribute to the final output in an expected way.

Factor # 5. Review and Update:

This is the last but the most powerful factor affecting the effective use of performance management system. If employees do not receive satisfactory review of their performance and subsequent update or feedback on the way they are performing, it is very likely that they lose their interest in the system and might not co-operate with full heart.

Losing employee support in the process of performance management is not a good sign for the organisation as for growth, development and expansion; help of competent personnel is very much needed. If this review and update process is not followed religiously, employees might not be committed to the process.

Performance Management – 5 Main Concerns

Performance management is an important function of human resource management. HRM is mainly interested for proper utilization of manpower and contribute to a good extent in achieving the objectives of the organisation. In a nutshell, it can be said that through better performance it is to make the organisation more effective in the present competitive situation.

The following are the main concerns of performance management:

(a) Concern with Productivity:

It is first of all concerned with the output per person/system/machine/ group. It is concerned with the results achieved, the performance of activities, competencies needed to perform these activities from every individual, group or tem/department and organisation as a whole. In present uncontrollable, risky and rapidly changing environment it is difficult for everyone to survive, stabilize, grow and excel in their performance.

Those who are in a position to give excellent performance they are leader in the market. They are only grabbing maximum opportunities. Performance management is mainly concerned for better result through processes, input and required competencies.

It is possible through planning, developing, measuring and review of the performance of everyone. Performance management plays an important role for effective working of HR management.

(b) Concern with Planning of Performance:

Performance management is concerned with planning of the performance of people at work for better result in future. This means defining expectations expressed as objectives and in business plans. It plans the roles of everyone, standards of performance to be given in advance so that the actual performance can be compared with these standards. The performance of individual or group is aligned with the goals of the organisation.

(c) Concern with Performance Measurement and Review:

The next concerned of it is to measure the output of individuals and systems periodically. Further it is to compare with the standards already fixed. This shows the position of the performance whether the result is in the required direction or not. If the result is as per the planning then it is to be maintained otherwise it needs the remedial action for improvement.

This position must be reviewed further for better result also. Though this concern many irregularities will be removed and there may be better and smooth performance of everyone concerned in achieving the objective of the organisation.

(d) Interest in Continuous Improvement:

Performance management philosophy is based on innovation in every area of the organisation. Concern with continuous improvement is based on the belief that continually striving to reach higher and higher standards in every part of the organisation will provide better performance and will be in a position to give competitive advantage to the organisation over its competitors.

This means clarifying what organisational team and individual effectiveness look like and taking steps to ensure that those defined levels of effectiveness are achieved. As Armstrong and Murlis said that helps in establishing a culture in which managers, individuals and groups take responsibility for the continuous improvement of business processes and of their own skills, competencies and contribution.

(e) Concern with Continuous Development:

It follows the Japanese concept of Kaizen. Performance management is concerned with creating a culture in which organisational and individual learning and development is a continuous process. HR managers are putting their efforts for creating a healthy working environment for everyone. That is very helpful for learning and work. People learn from success and face the challenges in their routine functioning.

Performance Management – Top 10 Principles

For effective working of performance management, management must keep certain guidelines in mind. These guidelines may help in proper working and avoid much confusion during work.

Experts have suggested the following principles:

Principle # 1. Continuous Coaching, Feedback and Communication:

Performance management is considered a continuous process, not an event. For its proper and effective working the principles of continuous coaching and feedback are integral to success. These will definitely coordinate the related activities properly.

Principle # 2. Effective Communication:

The performance management plan gets involved line managers, supervisors, experts and consultants. To coordinate between them a proper timely and effective communication is needed. If is not there the objective of the plan will be defeated. It will ensure mutual understanding of work responsibilities, priorities, and performance standards and measurements.

Principle # 3. Discussion and Evaluation:

Discussion and evaluation of specific job should be there. The discussion and evaluation should be regarding nature of jobs, tasks, competencies needed to perform these jobs, major duties and responsibilities and the performance standards. These must be specifically defined and communicated as the first step in the process.

Principle # 4. Performance Standards:

Performance standards for each major duty/responsibility must be defined and communicated to all concerned. These standards are to be decided in mutual discussion with line managers, manager in-charge of the job, persons performing the jobs, in-house experts and consultants. Through detailed discussion the lowest, highest and average performance of the performers are to be taken in to account before finalizing the performance standard. These must be feasible to achieve by an average performer.

Principle # 5. Employee Involvement and Development:

The performance management revolves around the manpower. The management must keep in mind that they must be involved in it and efforts must be there for their development and improvement of performance at work. They must be motivated to develop their competencies, involve in the jobs and give best output to contribute in achievement of the organisational goals. Without proper involvement and development of employees it is not at all effective.

Principle # 6. Fair Performance Evaluation:

The evaluation of the performance of people at work should be carried out timely. It should be fair without favour and fear. If it is done so then the exact position of the performance given by the employees will be clear. Otherwise misguiding result will be there. The very objective of the performance measurement will not be served. The performance evaluation should not be frequent but at least annually it should be carried out because it is time and efforts consuming.

Principle # 7. Proper Documentation:

The principle of proper documentation should be considered an important principle for effective working of the plan. The plan should be drawn and documents should be prepared It should be communicated for all concerned who have been identified. The development, recognition, compensation and reward plan should be in black and white. Proper records are to be maintained.

Further, proper documents of performance appraisal are needed for further remedial action. It these are not prepared then whenever confusion is there the documentary evidence cannot be given and management has nothing to refer in case of doubts arise regarding past decisions taken.

Principle # 8. Performance Evaluation for Everyone:

The performance appraisal of all employees should be carried out. It is not only applicable to lower and middle levels. It should be applied to the top level also. The senior level performs must be evaluation on the basis of the successful administration of the plan and ongoing performance management responsibilities.

Principle # 9. Training for Managers, Supervisors and Employees:

The training should be made available for everyone in the organisation. It should be encouraged. It will keep the knowledge of the persons up to date. With changing technology, working procedures and new methods the present competencies becomes outdated. This has the effect on the performance. Special importance must be given for training of all levels of people.

Principle # 10. Consistent Performance Management Plan:

The plan should be consistent. It should not be changed frequently. Further, it should be consistent with federal and state laws. If proper attention is not given – to this principle then confusion can be created among people those who are involved in performance management directly or indirectly.

Performance Management – Difference between Performance Management and Performance Appraisal

Performance management is the process of planning the performance, appraising the performance, giving its feedback and counseling its employees to improve his performance.

Thus performance management involves different activities.

Planning performance is that what an employee is expected to achieve with a set of given resources and a given time frame, appraisal of whether the given result have been received or not and then giving feedback to the employee concerned about where he lacks it and counseling him how he can improve his performance.

There are many people who think performance management is a new name given to well-established terms ‘performance appraisal’ and therefore, there is no difference between them. The very basis of this thinking is that in many companies where performance management has been adopted in place of performance appraisal, old practices of performance appraisal have been retained.

Thereof these companies have not been able to reap the results of performance management. This is just like replacing performance management by human resource management. There is a need for change in mind set along with the change in system. If there is a need for changing the nomenclature of a system is merely avoiding reality.

Performance appraisal and performance management should be seen in different perspectives which are as follows:

1. Performance management is more comprehensive than performance appraisal; though later is the key ingredient of the former. Besides performance appraisal, performance management involves performance planning and providing feedback and counseling to employees to improve their performance.

2. In performance management entire activities are linked to organizational objectives and strategies to achieve these objectives. Because of such a linkage the focus is on ‘why to appraise’ rather than the usual approach of what and how to appraise of performance appraisal.

Many research and evidences suggest, “The companies that have some sort of performance management system have achieved overall better financial performance than those who do not have it”. It is much more than just better strategy, planning, finance and control. We view performance as over changing form C-level executive cascading down through the organization and its processes. Performance management extends all the way from the top desk to the desktop.

In my mind performance management is a closed loop integrated system that spans the complete management planning, metrics, methodologies, system and software tools that collectively manage the implementations of an organizations strategy. It traverses the entire value chain from customer facing CRM (customer relationship management) system to supply chain management system and the operations processes in between.

The misconceptions related to performance management arise when score cards are viewed as end result of a performance management initiative. Score card are merely summaries. True performance management goes beyond summary information to provide insight and foresight into why things happened and what could happen in the future. The methods and techniques that further address the misunderstanding about performance management are still to be explored.

Performance management is the systematic process by which an agency involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of agency mission and goals.

Performance Management – 5 Steps Involved in the Process

In today’s workplace, performance improvement and the role of performance management is an increasingly popular topic. Business pressures are ever increasing and organisations are now required to become even more effective and efficient, perform better on business strategies and do more with less in order to remain competitive.

To make the employees competitive, a lot of efforts are taken by the organisation such as management development programmes and executive development programmes and a clear vision is set in front of the employees. This takes some time, as performance of the employees cannot be changed overnight and hence a simple process is followed in order to get the expected results.

Process can be explained as a set of activities and these activities are arranged in a logical sequence of occurring and these cannot be changed. The activities in performance management are similar to the other process in the organisation like planning, organising, controlling and management by objectives. In it a set of activities are involved.

To perform the functions of performance management these activities are to be carried out in their required sequence. The performance management process requires many ongoing activities in the organisation.

This includes identifying and prioritizing goals, defining what constitutes progress towards goals, setting standards for measuring results, and monitoring performance, counselling, coaching, communication, motivation and feedback of performance to employees, review of performance, development plans, implementing effective goal-oriented activities, and intervening to create improvements when needed.

The performance management process focuses on overall performance of the unit. Great importance is given to the activities for effective accomplishment of the goals of the organisation on the methods. In most of the organisations these activities are performed but it is not hard and fast for every organisation.

The steps in the performance management process may vary from one organisation to another organisation. But special focus will be given to the activities of higher priority. Most programmes include certain core activities working from the highest level of the organisation down to the smaller components.

Performance Management should be regarded as a flexible process, not as a system. The use of the term system implies a rigid, standardized and bureaucratic approach that is inconsistent with the concept itself as a flexible and evolutionary, coherent, process that is applied by managers working with their teams in accordance to the environment and text where they operate.

The process for performance management involves the following steps:

1. Plan

2. Monitor

3. Develop

4. Rating

5. Rewarding.

Step # 1. Plan:

Planning is the first very basic step while an organisation is initiating for performance management. During this stage, the employer needs to plan the goals and objectives along with the employees and design a strategy for improving performance in order to attain the set objectives. This is a collaborative phase. And it is during this phase that the employer gets an opportunity to inform the employees about how their performance can impact the organisation. Planning is basically working in advance so that expectations and goals can be set.

Step # 2. Monitor:

The manager needs to monitor the progress of the employees all-round the year and not just during the performance review. This helps to identify and correct the errors at a very early stage and performance can be improved faster. It provides an opportunity for the supervisor to make the employees aware of their performance level whether favourable or unfavourable.

Step # 3. Developing:

The manager should be able to decide by continuously monitoring the employees, whether the employees need additional development to achieve their assigned responsibilities. It is important to note that employee development does not only mean remediation but also enhancing good performance.

Step # 4. Rating:

From time to time, organisations find it useful to summarise employee performance. This can be helpful for looking at and comparing performance over time or among various employees. Organisations need to know who their best performers are.

Rating means evaluating employee performance against the elements and standards in an employee’s performance plan and assigning a summary rating of record. The rating of record is assigned according to procedures included in the organisation’s appraisal programme. It is based on the work performed during an entire appraisal period.

Step # 5. Rewarding:

The manager must make meaningful distinction while granting rewards. The rewards should be clearly distinguishable across various performance levels and above. Performance Management must support compensation decisions.

Performance Management – New Approach: The Balanced Scorecard Approach (BSC)

A new approach to performance management that has attracted the attention of many organisations is the balanced scorecard approach. The scorecard provides four different perspectives on performance measurement. The balanced scorecard, a new approach to strategic management was developed in the early 1990s, by Robert Kaplan and David Norton.

Recognising some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure to achieve organisational performance.

The balanced scorecard is a management process involving four main steps:

1. First, determining the vision of the organisation.

2. Second, determining how the vision can be turned into a competitive advantage.

3. Third determining how the four perspectives – financial perspective, customer perspective, learning growth perspective and internal business perspective – helps improve the performance of an organisation.

4. Fourth, determining the critical elements for ascertaining how far the organisation has proceeded on the path to success.

The balanced scorecard helps organisations gain a wider perspective on their strategies by focussing not only on financial aspects but also on other perspectives like customer perspective, learning and growth perspective, and internal business perspective. The balanced scorecard is a management system that enables organisations to clarify their vision and strategy and translate them into action.

It provides feedback regarding both, internal business processes and external outcomes, thus helping organisations improve strategic performance and results on a continuous basis. According to Robert S Kaplan and David P Norton in their book, ‘The Balanced Scorecard’ – “The Balanced Scorecard translates an organisation’s mission and strategy into a comprehensive set of performance measures that provides a strategic framework for a strategic measurement and management system.”

The Balanced Scorecard not only enables companies to track their financial results but also helps them build capabilities and acquire intangible assets.

Importance of Balanced Scorecard:

Companies are increasingly using their Balanced Scorecard to balance their short and long-term objectives. Sears has become profitable by implementing a balanced scorecard. This essentially means that companies adopting the BSC realise that long-term objectives are not automatically reached through financial short-term objectives.

The BSC can be analysed through:

1. Financial results

2. Customer satisfaction

3. Process performance

4. Competence level

Financial results are considered to be a “lagging” indicator. They indicate what has been achieved in the past. Customer satisfaction is an indication of future sales potential, and new opportunities.

Therefore, customer data provides indications of future financial results and a company’s competence level.

Customer perceptions are a result of process performance. Here, the term “Process” includes all types of processes such as production, logistics, sales promotion.

The balanced scorecard is not only a system of measurement but a management system that enables organisations to clarify their vision and strategy and translate them into action. It provides feedback about both internal business processes and external outcomes in order to continuously improve strategic performance and results.

The balanced scorecard can be viewed from four perspectives:

1. Learning and growth perspective

2. Business process perspective

3. Customer perspective

4. Financial perspective

1. Learning and Growth Perspective:

Because of changes in technology, knowledge workers have to continuously learn new concepts and techniques. Learning and growth are essential for the success of any knowledge-based organisation. This perspective is designed to keep the company focused on creativity, product development, and improvement.

It measures factors such as number of new products or services offered, new degrees or certificates earned by the employees, or some measure of involvement with the industry groups or industry education programme. This perspective is concerned with reviewing both employee training and corporate cultural attitudes. In a knowledge-based organisation, people are the biggest asset.

Kaplan and Norton emphasise that, ‘learning’ is more than ‘training’. Learning also involves the ability of mentors and tutors within the organisation, to help employees to communicate effectively which can help in organisational learning.

2. Business Process Perspective:

This perspective is concerned with the study of a company’s internal operations. The efficiency and effectiveness of the company’s internal business processes are examined. Metrics based on this perspective enable managers to find out how well their business is running, and whether its products and services conform to customer requirements.

These metrics have to be carefully designed by those who are familiar with internal business processes for example, an operations manager should design metrics for measuring different aspects of the delivery of products.

3. Customer Perspective:

This perspective helps companies identify the customers and market segments in which they should compete. Typical measures include customer satisfaction ratings, number of referrals or repeat customers, or market share. Managers are increasingly realising the importance of customer focus and customer satisfaction in any business.

4. Financial Perspective:

This perspective focuses on the study of a company’s financial strength. The measures selected for the financial perspective would be those that are most important to the long-term success of the company. For example, a cash flow measure, a profit measure, and a liquidity measure.

Kaplan and Norton are of the opinion that a financial perspective along with other perspectives will help a company perform efficiently. According to them, managers must do their utmost to provide timely and accurate financial data.

Building a Balanced Scorecard:

According to NilsGoran Olve, Jan Roy and Magnus Wetter in their book, “Performance Drivers” constructing a Balanced Scorecard involves an eleven-step process.

1. First, the firm’s internal and external framework must be analysed. External analysis involves an examination of the competitors and other external factors like the impact of the economic, political, technological environment on the organisation. Internal analysis focuses on assessing a firm’s resources, core competencies and other assets.

2. The second step involves the development of a strategic vision. The company must ensure that employees are informed of the vision of the company and are committed to the implementation of the vision.

3. Third, the company must decide which perspective (financial, customer, internal business process, and learning and growth), it must adopt. It also needs to analyse the areas (perspectives), in which it is not performing as expected.

4. Forth step, the company must examine the implication of the vision for each perspective. For example, in the customer perspective, a company should clearly define as to how it is going to build market share, build loyalty with existing customers, and acquire new customers, etc.

5. The next step involves creating top five objectives for each perspective. These objectives will help a firm in deciding the top criteria for each perspective.

6. In this step, a balanced set of measures should be created that bring in congruence between the short- term and long-term considerations of the organizations. This stage also involves assessing the costs associated with collecting the data for the proposed perspectives.

7. The measures developed in the above step should be communicated to top management for their approval. After approval, the measures must be communicated to the whole organization.

8. The scorecard should be communicated to the appropriate organizational units. Depending on the size of the organization, scorecards can be created for various divisions, business units, departments and, in some cases, for each employee.

9. The next stage involves creating goals for each measure, indicating short and long- term objectives.

10. The next step involves developing an action plan for the successful implementation of the organization’s projects.

11. The final step involves implementing the balance scorecard process by conducting regular reviews against the current scorecard and the effectiveness of the current scorecard and strategy. It also involves discussions about the progress of the scorecard.

Linking balanced scorecard measures to business strategy.

There are three basic principles that link an organization’s balanced scorecard to its strategy.

They are:

1. Cause and Effect Relationships:

According to this principle a balanced scorecard to be effective, should, clearly stale the sequence of relationships between the different perspectives and the performance measures of these perspectives.

2. Balance between Performance Measures and Outcomes:

A good balanced scorecard should strike a stability between the performance measures (the financial drivers of profitability, the market share) and the outcomes (such as customer satisfaction, employee skills etc.). Outcomes are called lagging indicators while performance drivers are called leading indicators.

3. Linkage to Financial Aspects:

According to this principle a balanced scorecard should be linked to financial aspects like return on capital employed or economic value added. Programs such as total quality management, employee empowerment should be linked to outcomes that directly influence customers and deliver future financial performance.

These three principles link the balanced scorecard to strategy.

Performance Management – Advantages and Disadvantages


Some of the advantages are:

1. Performance Based Conversations – Managers get busy with day-to-day responsibilities and often neglect the necessary interactions with staff that provide the opportunity to coach and offer performance feedback. A performance management process forces managers to discuss performance issues with employees. It is this consistent coaching that affects changed behaviours and employee development.

2. Targeted Staff Development – If done well, a good performance management system can be a positive way to identify developmental opportunities and can be an important part of a succession planning process. All employees are on a development journey and it is the organisation’s responsibility to be preparing them for increased responsibility.

3. Encouragement to Staff – Performance appraisals should be a celebration of all the wonderful things an employee does over the course of a year and should be an encouragement to staff. There should be no surprises if issues are addressed as they arise and not held until the annual review.

4. Rewards Staff for a Job Well Done – If pay increases and/or bonuses are tied to the performance appraisal process, staff can see a direct correlation between performance and financial rewards. This motivates and encourages employees to perform at higher levels.

5. Under-Performers Identified and Eliminated – As hard as we try, it is inevitable that some employees just won’t cut the mustard as they say. An effective performance appraisal process can help identify and document underperformers, allowing for a smooth transition if the relationship needs to be terminated.

6. Documented History of Employee Performance – It is very important that all organisations keep a performance record of all employees. This is a document that should be kept in the employee’s HR file.

7. Allows for Employee Growth – Motivated employees value structure, development and a plan for growth. An effective performance management system can help an employee reach their full potential and this is positive for both the employee and manager. A good manager takes pride in watching an employee grow and develop professionally.

Organisations should take a global look at their performance management system and have very objective goals that are tied to strategic initiatives and the performance management process. Successful organisations have learned the secret to this and while not always perfect, a constant striving to improve the process can help organisations reach their vision.


Some of the disadvantages are:

1. Time Consuming – It is recommended that a manager spend about an hour per employee writing performance appraisals and depending on the number of people being evaluated, it can take hours to write the department’s PA but also hours meeting with staff to review the PA.

2. Discouragement – If the process is not a pleasant experience, it has the potential to discourage staff. The process needs to be one of encouragement, positive reinforcement and a celebration of a year’s worth of accomplishments. It is critical that managers document not only issues that need to be corrected, but also the positive things an employee does throughout the course of a year, and both should be discussed during a PA.

3. Inconsistent Message – If a manager does not keep notes and accurate records of employee behaviour, they may not be successful in sending a consistent message to the employee. We all struggle with memory with as busy as we all are so it is critical to document issues (both positive and negative) when it is fresh in our minds so we have it to review with the employee at performance appraisal time.

4. Biases – It is difficult to keep biases out of the PA process and it takes a very structured objective process and a mature manager to remain unbiased through the process. Performance appraisal rater errors are common for managers who assess performance so understanding natural biases is important to fair evaluations.

Performance Management – Good Practices Undertaken in the Organisation

The performance management undertake some practices in the organisation, which are explained as under:

1. Defining Workers’ Participation in Management:

Engaging the employees in the goal setting process helps the smooth conduct of performance management to a very large extent. Due to involvement in goal setting the employees understand clearly their role in the performance management process and also what level of performance is expected out of them. This leads to a win-win situation in the organisation and hence the very purpose of performance management is served.

2. Performance Review Management:

Taking review, feedback and sharing it with the employees with the necessary changes in the system leads to a lot of trust and belongingness in the minds of the employees. They feel cared and become more conscious about their work and feel free to ask performance related queries. Performance review management helps to keep the overall environment of the organisation positive and healthy.

3. Educating the Leaders and Managers:

To make any system successful in the organisation, it must be carefully noted that the leaders and managers of the organisation are properly aware of the duties they need to perform and the responsibilities they are supposed to shoulder. The managers and leaders must buy into the process in order to get more results out of the system.

4. Give Employees Small and Attainable Goals:

To boost the morale and motivation of the employees, every organisation must encourage them by giving them small but attainable goals. This helps them to understand their mistakes and at the same time achievement of small goals gives them a lot of confidence to improve themselves further.

5. Be Thorough about Measurement:

The success or failure of the performance management system depends largely upon how well the performance is measured and how well the same is communicated to the employees. Performance measurement helps both, management as well as the employees to understand the gap between standard performance and actual performance and the same can be bridged at an early stage for further improvement in the overall organisational performance.