Essay: Report recommending a system of Performance Management and Appraisal

Performance Management
For
The Partial Fulfilment of the Module
‘Corporate Management’
April 2017
Executive Summary
Your firm has expanded rapidly over the last few years, and your Managing Director has expressed concern that some of the informal systems used to manage the business are no longer suitable for the larger firm. In particular there is no proper performance management system, and there is a widespread impression that rewards and promotions are awarded according to informal networks and favouritism. Your MD has asked you to prepare a report recommending a system of Performance Management and Appraisal to make the process more objective.
‘ Your report should include an assessment of what difficulties and disadvantages may be encountered and how they could be overcome.
‘ Your report should be supported by academic theory and fully referenced using the Harvard referencing system.
‘ You should concentrate on the application of theory, not simply the description of theory. Descriptions of theory, where relevant, should be placed in the appendices. You may prepare your report from the perspective of either a consultancy practice or construction company as you feel appropriate.
Having read this report, do I now know what a PM system is, what it consists of, what it achieves, how it will benefit me, and is it likely to come with costs and disadvantages as well?
Have you considered all the options and presented me with the best ones?
Do I know that what is recommended will work? How have you persuaded me? (using theories or the experience of other firms).
What exactly are the recommendations? What should I do first? How long will it all take?
Can I be bothered to read it, i.e. does it flow well, with a start, middle and end that leads me to accept the recommendations you make?
Table of Contents
Executive Summary 2
1.0 Introduction 4
2.0 What is Performance Management 4
2.1 Process of Managing Performance 6
2.2 Annual Performance Appraisals 8
2.4 Advantages, Disadvantages and the Difficulties faced when implementing Performance Management Systems 8
3.0 Recommended Performance Management and Appraisal System 8
3.1 Planning 8
3.2 Monitoring 8
3.3 Developing 8
3.4 Reviewing 8
3.5 Rewarding 8
4.0 Conclusion 10
5.0 References 10
6.0 Appendices 11
Appendix B 12
SM
PM
PA
1.0 Introduction
This report has been developed in response to KS Project Solution’s rapid growth over the past few years. Due to an increased number of projects and a growing workforce, a formal performance management (PM) system is to be introduced to direct and supervise individuals. The goal is to continually encourage and develop employees personal skills to match the company’s performance.
Dainty, Cheng and Moore (2004), indentified that increasing demands in the construction industry has prompted a growing need to develop and improve the performance of project managers. They emphasised that there is a direct correlation between the competency and authority of the project manager and the performance of projects. As a project management consultancy, improved project performance would be considered a critical target, therefore it is important that managers and employees relationships promote leadership whilst personal goals are set, monitored and aligned with company targets.
The beginning of the formal PM system is thought to date back to the mid 1950’s, since then it has developed into a number of theories and practices that suit a variety of organisations (Brooks, 2017). This report aims to identify the key components of performance management systems and to evaluate their possible implications once employed. Using theories and experience gained through other organisations, a suitable performance management and appraisal system will be developed for KS Project Solutions.
2.0 What is Performance Management
There are a number of varying definitions for performance management, yet they all lead to the same overall implication. Gallantt (2012), provided a description of the process and indicated that it is used to provide feedback, accountability and documentation for performance outcomes. It helps employees channel their talents towards organisational goals. He continued to state that the ownership of the performance management system is often overlooked, employees must feel accountable for the success or failure of their actions. It is suggested that a company’s culture must reflect cross-organisational accountability, otherwise the PM system will fail. PM is closely linked with company culture, because for any PM system to work effectively, each individual must be motivated to work.
PM is instigated by setting goals to which each employees performance can be measured against. An annual performance appraisal is used to monitor overall progress and to assist with setting new goals. Fallon (2017), indicated that the PM system also implements periodic review meetings that follow the system cycle, this ensures a continual push for progress, rather than a sudden rush to meet objectives at review time.  An overview of the typical stages of a PM system can be seen in figure 1, below.
Figure 1: Performance Management System Overview (reference).
Fallon (2017), continued to explain that the PM system also emphasises the importance of learning and developing skills to improve workplace performance. This relies on employees being motivated to improve on their own skills, build competencies and improve the development and delivery of results whilst being supported by employers developing the capacity for employees to perform. The idea is that once an employee meets their performance goals, they will be rewarded.
2.1 Process of Managing Performance
Managing performance constitutes two main processes. First, in order to develop a PM system the organisation must develop a Strategy Management Process (SMP); this identifies their core values, which are used to develop the PM system. This process includes organisational goals, forecasts, strategy, culture and structure. This is shown in figure 2, below.
Figure 2: Integrated strategy and corporate performance management processes (Daum, 2002)
The relationship between both processes is formed by the mutual performance reporting and forecasting stage. This is due to the PM systems’ requirement to ensure that employees personal goals align with those set in the SM process.
When examining the individual stages of a PM process, Joseph (2012), indicated that every PM system can be broken down into further basic stages: Planning, Monitoring, Developing, Rating and Rewarding. This is demonstrated in figure 3, below.
Figure 3: Performance Management System (Joseph, 2012)
Motivational theories act as a facilitator for the effective implementation of a PM system, however, some theories are more beneficial than others. Theories such as Maslow’s hierarchy of needs, have weak connections to the distinctiveness of an organisation and are therefore less effective. Ugaddan (2013), identified Equity Theory, Expectancy Theory, Cognitive Evaluation Theory, Goal Setting Theory, and Control Theory as those that are given the most attention in modern PM systems. These theories will be examined more closely during the recommendations and further details surrounding these theories can be found in appendix A.
2.2 Annual Performance Appraisals
Following the PM system goals being identified/ aligned with those of the organisation. The employees competencies are assessed and a strategy is implemented to help achieve those goals. The final stage is the Performance Appraisal (PA), this review process is a way of assessing employee’s performance and behaviour by comparing it with preset standards that were previously communicated to employees. This process subsequently provides feedback and shows were improvements are needed and why (WIHR, 2014).
2.4 Advantages and Disadvantages of a Performance Management System
It was stated by Patricia (2016), that when a PM system is poorly managed and implemented it is often considered a nuisance and ultimately adds no value to the employee or the organisation. To help provide clarity and direct recommendations for KS Project Solutions, a number of basic advantages and disadvantages surrounding PM systems are provided in the table below by Patrcia (2016) and Hirsh et al., (2011).
Advantages Disadvantages
Performance Based Conversations
Managers are forced to interact with employees to discuss performance related issues. This continuous monitoring and coaching is what affects changes in behaviour and employee development. Time Consuming
Fully implementing and maintaining a functional PM system is a time consuming task. Managers can spend hours writing PA’s for each employee and hours meeting with staff. It is know that managers often spend weeks writing reports and PA’s for 100’s of employees.
Directed Staff Development
PM systems help identify employees strengths and weaknesses which can lead to targeted development in preparation for increased responsibility and rewards. Discouragement
If the PM system does not run effectively it may discourage employees. The process must incorporate positive encouragement and positive reinforcements for employees accomplishments.
Rewards Staff for a Job Well Done
Rewards are typical used with PM systems because when pay increases and/or bonuses are tied to the performance process, employees can see a direct correlation between performance and financial rewards. This can motivate and encourage employees to perform at higher level. Inconsistent Message
If managers do not keep accurate records of meetings and employee behaviour, then improvements and developments cannot be consistently monitored. It is important that the message to employees is consistent and encourages development otherwise the employee may feel like the PM system is pointless.
Under-performers Identified and Eliminated
The PM system is not only used to support and develop employees skills to achieve the organisation’s goals, but also to highlight employees who regularly underperform. The documented process allows for a smooth transition if the employment contract needs to be terminated. Biases
Some employees may be more proactive with their managers when discussing targets and development plans. Managers must ensure to give each employee equal commitment and to keep biases out of the PM system.
Documented History of Employee Performance
Documenting performance for each employee is essential for setting new goals and benchmark levels of performance for new employees. It can also be used to record the performance and development of an employee’s journey in the organisation. Assessment Errors
Employee performance assessments are based on human perception and are subject to errors and biases.
Allows for Employee Growth
An effective PM system can help employees’ reach their full potential. This can be a positive experience for both the employee and organisation. A good manager takes pride in watching an employee grow and develop professionally. Associated Costs
Due to the time consuming nature of the PM review and appraisal system, managers will need to spend a large amount of time organising and documenting employee information.
Table 1: Advantages and Disadvantages of a typical PM system
2.5 Organisational Difficulties faced when Implementing a new PM System
Hirsh et al., (2011) stated that a poorly implemented PM system is often viewed by employees as a simple task of completing forms and submitting them to their managers with no real purpose. The author continues to identify a number of levers that affect the successful implementation of a PM system.
2.5.1 Explaining the Real Purpose of the PM System and the Desired Outcomes
PM systems are often thought of as a series of forms and administrative processes as opposed to a management system that supports and manages employees in achieving individual and organisational goals. Organisations must clarify the purpose of their PM system to its employees; what happens as a result of the performance assessment? What is the performance rating scored against and what is the rating used for? How are employees expected to reach their goals and development targets? What happens if an employee fails to reach their targets? What if performance targets are met but an employee does not want more responsibility/promotion?
Hirsh et al. (2011), explains that unsuccessful implementation often leads to a directed interest in high performers and their talent rather than the development of poor performers, this spins the PM system in a talent identification system rather than a management system.
2.5.2 Reviewing and Rewarding
PM systems often rely on generic rating systems for all employees, organisations are often particularly interested in indentifying high and low performers. This raises the issue of fairness and objectivity, especially when the performance ratings of individuals are linked to financial or other rewards.
An organisations simplistic reviewing process can have an undesirable effect; in a larger organisation, the majority of employees will have a satisfactory rating, which is not very exciting and mildly de-motivating. Individual objectives vary with job role and responsibility and therefore require some kind of individual performance rating. An example of this may be when an employee is told my their manager than they have had a good year but then their reward does not seem to reflect this comment (Hirsh et al., 2011).
2.5.3 Aligning Objectives
Setting objectives is an undisputed aspect of a PM system, both employer and employees see this as effective. However, Hirsh et al. (2011), explained that setting ‘good’ objectives is a huge challenge. Some of these issues highlighted in the report are:
‘ Employees may be completely unaware of the vision or goals of the organisation they work for.
‘ A manager may have a good understanding of their own objectives and those of the organisation, but has limited knowledge on how to tailor individual objectives to align those of the organisation.
‘ Differentiating between long-term and short-term targets which are often associated with project based work.
‘ Ensuring that each employee has a sufficient degree of challenge in each of their objectives whilst ensuring they are also achievable.
A fairly frequent observation, especially from employees, was that the idea of annual ‘objectives’ does not suit all types of job. For example, jobs which stay much the same over time really require people who meet professional standards in their work, as the objectives may be much the same from year to year. At the other extreme, jobs which are very unpredictable cannot have fixed objectives in advance.
3.0 Recommended Performance Management and Appraisal System
The first stage for an effective PM system begins with a comprehensive strategy management plan, this is fundamental to begin the PM system. KS Project Solutions must identify key organisational goals, visions and strategy that can be communicated to managers and employees to assist in setting individual objects that align with the company’s – this leads to the first stages of the PM system.
3.1 Planning and Monitoring
‘ KS Project Solutions must effectively communicate their organisational goals to their managers so that individual performance goals can be aligned. This report identified that there is often difficulty during the process of translating organisational goals into individual goals. It is recommended that managers and directors develop a clear understand of the generic job roles within the organisation to formulate a number of preset objectives that suit those outlined by the company. These broad objectives can then be tailored specifically to suit each individuals competencies within their PM system. An example of this is provided by Hirsh et al. (2011): BT has begun reporting costs, efficiency, customer satisfaction and leadership behaviours to its employees. This sends a clear message to employees about what is expected and to help them understand their own job priorities.
‘ During this stage it is inherent that managers clarify the purpose of the PM system to the employee. To prevent the system from appearing as a formality for administrative purposes, managers must explain the overall function of the PM system, alongside what is done with the collected information, how it will be used and how each employee can be benefited.
‘ Managers may have limited knowledge over a certain employees actual day to day tasks, it is suggested that by allowing the employee to provide feedback and suggestions for their own objectives promotes greater participation in the PM system.  This links to assessing how challenging each objective is, finding the right balance is key to improved performance. Unachievable objectives are seen as un-motivating whilst the same can be said for ones that are easily achievable.
‘ The purpose of the PM system is to provide objective feedback to improve employee performance, it is recommended that interim performance review meetings take place every 2/3 months. This ensures a continual push for progress, rather than a sudden rush to meet objectives at the end of each year (Fallon, 2017). The purpose of these interim meetings is to report and monitor progress as well as making adjustments to suit developing competencies.
3.3 Development
‘ Following the development of clearly understood objectives and the feedback gained from  interim performance reviews, a number of development measures must be taken to support each employee to achieve their objectives.
‘ The development stage of a PM system is often overlooked and leads to generalised training and teaching. It is recommended that individual behavioural characteristics are identified in the form of competencies.
‘ Competency assessments are used as a process of progression from ‘what needs to be done’ to ‘how it can be done’ as displayed in figure 4, below.
Figure 4: Relationship Between What and How in Performance Management (Simpson, 2012).
‘ Competencies assessments can be done through psychiatric analysis, although this is a costly technique and relies on the ability of the psychiatrists. A recommended technique is through group assessment days, this process analyses employees performance during a number of tasks.
‘ An example of employee competencies was provided from an investigation conducted by Dainty, Cheng and Moore (2004).  Spencer and Spencer, (1993) identified 11 key competencies that influence the performance of a generic managerial role. This can be seen on the left side of the table 2. In comparison Dainty, Cheng and Moore (2004), lists the 12 competencies of a construction project managers profile.
Table 2: Comparison of Competency Profiles for a Generic Manager vs. Construction Project Manager (Cheng and Moore, 2004)
‘ The investigation by Dainty, Cheng and Moore (2004), found that although the 12 competencies, as a whole, defined the profile of a superior project manager. If individuals possessed two key competencies in their behavioural characteristics: ‘composure’ and ‘team leadership’, it was established  “that an individual was likely to either be endowed with a significant degree of competency in the others, or have the capacity to develop their behaviours in line with the requirements of their role” (p.883).
‘ Using this example, it could be inferred that KS Project Solutions could target the development of their project managers around composure and team leadership to harness their talents and improve performance. Similarly, a competency assessment may identify weaknesses in individuals which can also be developed to improve performance. An example of a competency assessment form can be found in Appendix B.
‘ It was found that managers and employees may need greater understanding of learning options ‘ they still often see development plans as a list of training courses to go on (Hirsh et al., 2011). It is recommended that development actions are discussed openly with senior management to identify the most suitable action for improving behavioural characteristics for different job responsibilities.
3.4 Reviewing and Rewarding
‘ The process of reviewing and rewarding employee performance is closely linked with motivational theories. Motivation can be categorised into two sections – Intrinsic motivation and Extrinsic motivation. Figure 5 illustrates the differences between the two.
Figure 5: Intrinsic and Extrinsic Motivation Illustration (Turnell, 2013)
Broadly speaking, Turnell (2013), describes intrinsic motivation as being driven by internal factors whilst extrinsic motivation is driven by external factors.
‘ Studies have shown that intrinsic motivation will decrease over time if extrinsic incentives are introduced for behaviors that an individual already found motivating.
different Annual appraisal systems
different means of rewarding employees – total rewards
evaluate and revise for next year
4.0 Conclusion
2118
5.0 References
Brooks, S. (2017). A Brief History of Performance Management. [online] Blog People. Available at: https://www.peoplehr.com/blog/index.php/2015/03/25/a-brief-history-of-performance-management/ [Accessed 23 Apr. 2017].
Dainty, A., Cheng, M. and Moore, D. (2004). A competency-based performance model for construction project managers. Construction Management and Economics, 22(877-886).
HRM (2016). Performance Appraisal Methods. [online] Human Resources Management. Available at: https://HRM.com/performance-management/performance-appraisal-methods [Accessed 26 Apr. 2017].
Hirsh, W., Brown, D., Chubb, C. and Reilly, P. (2011). Performance Management: The Implementation Challenge. [online] Institute for Employment Studies. Available at: http://www.employment-studies.co.uk/system/files/resources/files/mp89.pdf [Accessed 27 Apr. 2017].
Daum, J. (2002). Performance Management Beyond Budgeting: Why you should consider it, How it works, and Who should contribute to make it happen. [online] Juergendaum.com. Available at: http://www.juergendaum.com/news/06_08_2002.htm [Accessed 12 Apr. 2017].
Simpson, S. (2012). The Performance Cycle – How Competencies are Incorporated. [online] Blog.competencycore.com. Available at: http://blog.competencycore.com/2012/08/the-performance-cycle-how-competencies.html [Accessed 30 Apr. 2017].
Turnell, M. (2013). Intrinsic vs Extrinsic Motivation. [online] Available at: https://m0t1v8me.wordpress.com/2013/10/10/intrinsic-vs-extrinsic-motivation/ [Accessed 1 May 2017].
Fallon, N. (2017). What is Performance Management?. [online] Business News Daily. Available at: http://www.businessnewsdaily.com/4748-performance-management.html [Accessed 15 Apr. 2017].
Spencer, S.M. and Spencer, L.M. (1993) Competence at work: models for superior performance, John Wiley & Sons, New York.
Patricia, M. (2015). Advantages and Disadvantages of Performance Management. [online] Smart Church Management. Available at: https://smartchurchmanagement.com/advantages-and-disadvantages-of-performance-management/ [Accessed 19 Apr. 2017].
Ugaddan, R. (2013). Performance Management Theory. [online] Regiethinks.blogspot.co.uk. Available at: http://regiethinks.blogspot.co.uk/2013/01/review-paper-on-hrd-this-is-concise.html [Accessed 22 Apr. 2017].
UCM. (2016). CORE COMPETENCIES AND THEIR ROLE IN PERFORMANCE APPRAISALS. [online] Available at: http://hr.ucmerced.edu/files/page/documents/webchat_slide_-_core_competencies.pdf [Accessed 22 Apr. 2017].
WIHR (2014). Performance appraisal – Human Resource. [online] Whatishumanresource.com. Available at: http://www.whatishumanresource.com/performance-appraisal [Accessed 22 Apr. 2017].
Joseph, Y. (2012). Performance Management Cycle. [online] Hrisjundi2390.blogspot.co.uk. Available at: http://hrisjundi2390.blogspot.co.uk/2012_05_01_archive.html [Accessed 22 Apr. 2017].
6.0 Appendices
Appendix B
An example of the behavioural indicator scale for the core competency – ‘Teamwork and Co-opperation’ (UCM,2016).
Below, is an example of the description of performance given to each rating from the table above.