Whatever the case, when setting objectives, especially when they are expressed and
agreed in the form of outcome, a clear definition of the criteria used to measure results
is of pivotal importance. Things do not work differently when in the performance
assessment process also input and behaviour come to play. Also in this case in fact a
clear definition of expected behaviour needs to be provided in addition to the description
of examples of what good behaviour and possibly bad behaviour are considered to be
within an organization and of how these will be assessed.
When assessing inputs, the reference here is to the knowledge and set of skills and
competencies gained by individuals, the competency frameworks and statements of core
values available within organizations will clearly turn to be particularly useful (Armstrong,
2006). In this case the “metrics” against which to measure the effectiveness and
consistency of the attained results could be devised considering the standards included
in these documents.
It could be concluded, as suggested by the CIPD (2011), that in order to organizations
effectively and properly manage performance, these need to thoroughly inform and
make aware individuals of the basis and principles on which their performance will be
measured. To inspire integrity, sense of belonging and ultimately engagement within the
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organization the measures identified to assess performance should be transparent and
applied fairly across the business.
Ideally, employers should resort to a mix of individual and team assessment methods
and use a set of measures relevant to both input and output (CIPD, 2011).
Performance measurement, nonetheless, should not be completely considered as
substitute for analysis and judgment. In order to find out what actually did not work
properly and why individuals did not achieve their goals, for instance, a thorough and
detailed analysis of the means, resources and procedures which were actually used
would clearly be required; “What gets measured gets done, and what gets recognised,
gets done best” (Oregon Benchmarks).
Performance management
The concept of performance management is strictly associated with an employer, or
rather, its management ability not only to control performance, but first and foremost to
encourage and foster it within the workplace. Whereas the meaning of management is
relatively easier to explain and more promptly identifiable; the concept of performance,
in the light of the different ways it has been defined and formulated over time, leaves
grounds to different interpretations.
The different and numerous definitions of performance developed so far can essentially
be classified into three main groupings, which associate performance with either
outcome, behaviour or a mix of them.
Advocates of the identification of performance with individual outcome aver that
performance is what an individual produces and can be hence identified with an
employee past results, achievements and feats. In contrast, supporters of the idea of
performance as behaviour maintain that performance cannot be assessed on the basis of
employee results because these could be affected by external factors, that is, factors
which are not under individual direct control. Performance should consequently be
intended as the method, way or approach used by individuals when performing their
tasks and working activities, which are all under their full direct control.
These two contrasting definitions of performance are actually recalling the concepts of
performance-rated and competency related pay. The former essentially determining pay
and pay increases on the basis of past results and outcome, the latter associating pay
decisions with the way things are done thanks to individual capabilities, competencies
and skills. It seems to assist once again to the struggle between the “what” and the
“how.”
Even though individuals should approach their tasks and working activities in a very
good way, final results cannot be really overlooked by both employers and managers.
The way things are done definitely counts, but when we are looking at performance
outcome can actually hardly be neglected. Brumbach (1998), therefore, suggested a
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definition of performance which takes into duly consideration both individual past results
and behaviour, the third grouping of definitions; which is actually recalling the concept of
contribution pay, that is, a pay management approach according to which both past
performance and competencies are taken into consideration.
In the very self-explanatory Brumbach’s words “behaviours emanate from the performer
and transform performance from abstraction to action” as such “behaviours are also
outcomes in their own right.”
To the extent of performance management definition, performance has therefore to be
identified as a combination of actions and results. More in particular, by means of the
performance management process, amongst the other things, managers have to identify
what output individuals are able to produce by means of their behaviour and agree,
where necessary, with individuals how they have to adjust their behaviour in order to
produce the desired and expected output.
Factors affecting performance
Albeit the concept of performance management does not pose considerable problems in
terms of rhetoric and definition, by reason of the different organizational aspects
influencing it, effective performance management is likely to reveal very difficult to
implement in practice.
In general, although strictly associated the one with the other, there are two different
dimensions affecting individual performance:
The exogenous factor - associated with the workplace features,
The endogenous dimension – linked to the individual character and feelings.
On the one hand individual performance is very likely to be affected by corporate culture,
management integrity and the leadership style to which managers have recourse to, on
the other hand employee performance is influenced by the degree of motivation,
engagement and individual perception of the organizational climate. Indeed, the latter
grouping of variable may be sensibly and strictly influenced by the variables included
into the other grouping.
Individuals are likely to perform at their best and go the extra mile only when they feel
at ease and comfortable within the business. This occurs when employees are not
distracted from other events or elements, which impacting their day-to-day existence
within the business cause these to focus on how to carry on and cope with difficulties
within the workplace, rather than on how to perform their working activities and come
up with innovative and valid approaches to more effectually carry out their tasks.
For mundane it might appear to be, managers should constantly consider that Maslow’s
(1954) hierarchy of needs is still influencing individual perceptions and behaviour.
Individuals will never seek self-fulfilment whether these still suffer from low self-esteem.
Discretionary behaviour will never occur as long as individuals do not find the adequate
working conditions and are not respected, listened at and guided by their managers.
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Performance management, by establishing a continued and steady relationship and open
communication process between employees and their managers, can definitely help
organizations to attain satisfactory level of performance.
Performance management and pay management
One of the issues which employers and reward managers have to face from the outset,
when making decisions about the introduction of a performance management process, is
determining what type of link, if any, has to be established between performance
management and pay management.
There are, indeed, two prevailing and opposite views about the way to address the
conundrum. These are essentially based and diverge according to the dissimilar founding
principle underpinning the type of performance management system or process which an
employer wants to introduce. More in particular a direct link between pay and
performance management is identified or otherwise according to the circumstance that
performance management is considered development driven or reward driven
(Torrington et al, 2008).
Those who back the idea that pay decisions have to be based on performance consider
necessary to carry out individual performance assessments. This usually requires the
development of a formula on the basis of which individual ratings are identified and pay
decisions made accordingly. Advocates of the idea of performance management as a
process aiming at favouring a constant open communication and dialogue between
managers and employees, in order these to discuss the way the current activities are
unfolding and progressing and agree future development and training needs, suggest
separating performance management from pay decision making.
As we will see later, the two processes are not necessarily conflicting and a combination
of both of them could actually be used. Performance appraisals, held with the intent of
discussing the reward aspect, could be kept separated from the performance
management process, where employees and managers would discuss and agree only
about the measures concerning individual development. This approach, usually referred
to as decoupling, can reveal to be particularly effective for those organizations aiming at
fostering productivity and boosting performance in that the exercise of making pay
decisions without reference to any form of performance assessment is very likely to
reveal trickier to execute in practice. First and foremost managers could find it difficult
identifying sustainable and objective grounds to support their decisions; and, essentially
as a consequence of that, because such an approach risks being perceived as biased and
unfair by the employees.
Integrity and consistency, as usual, are paramount. Business with a performance-related
pay system in place should not a priori avoid establishing a direct link between pay
decisions and performance; as we have seen, decoupling will enable these employers to
also care with individual development. Similarly, companies where competency-related
pay programmes have been developed should not introduce performance appraisal
systems whose intent is just that to asses, usually on an annual basis, individual
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performance and make pay decisions accordingly. Employers wanting to get the
message across that they want to encourage individual development, whilst fostering
individual performance and productivity, should definitely introduce a programme whose
mechanism is based on a double-channel, that is, performance appraisal for making and
discussing pay decisions and performance management for agreeing and planning
individual development and growth. This process can reveal to be rather demanding and
time consuming, but the required resources will be well-worth the efforts and would
definitely pay off in the end.
Financial reward to support sustained performance
Albeit cash may not reveal to be an effective motivator in the mid- to long-term, it can
surely effectively help employers to support and reinforce organizational values, that is,
corporate culture and the practices and policies developed on the basis of these. Indeed,
financial reward can reveal to be a powerful communicator and as such enable
employers to make individuals understand what the employers are expected from them
both in terms of performance and behaviour. Consistency and integrity are once again of
paramount importance. Whether financial reward would not be managed with fairness
and objectivity the drawbacks are likely to be severe and once triggered difficult to
manage and settle.
As suggested by Armstrong (2010), financial rewards can also enable employers to make
individuals understand how they value and consider important sustained performance
and the need to improve it over time.
It can be argued that as long as individual performance improves also the overall
business performance should. Despite the lack of empirical studies supporting this
assumption, whether it is assumed that individual targets are identified by managers in
order to enable employers to attain their objectives, the consequence should actually be
that if individuals attain their objectives also the organization does. This reasoning is
actually based on the idea that performance and target achievement are at least
somewhat of overlapping the one with the other. This is absolutely acceptable, it would
not make any practical sense in fact thinking of sustained and improved performance
whether this would not be associated with the attainment of practical objectives enabling
individuals to achieve their pre-identified goals and the business its strategy.
Performance management and performance appraisal
According to Hibberd (2011), performance appraisal after dismissing people is the task
managers detest to carry out the most. Many managers in actual fact consider it as a
waste of time, at best and a process hampering performance, rather than improving it,
at worst. Hibberd (2011) also suggests that a large number of managers, for a whole
range of reasons, are to put it mildly ill at ease during appraisals meetings insofar as
often cancelling these on account of other more urgent obligations.
In general, the reasons for managers feeling uncomfortable during appraisal reviews are
linked to the need for them to justify their assessment and ratings with practical
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examples and to their lack of skills to effectively perform, and of time to properly
prepare for, the meetings. Furthermore, appraisal reviews are supposed to put managers
under pressure because of the influence these exercise on the future career prospect of
every employee concerned.
Another motive for managers actually disliking to hold appraisal meetings is associated
with the link organizations establish between it and pay decisions and for the role of
“assessors or judge” (Torrington, 2008) managers have to play in such circumstances.
All in all, it can be concluded that, for a variety of reasons, if managers would have the
latitude to decide whether to hold appraisal meetings or otherwise, many of these would
gladly decline. The fundamental question arising at this point is: “can organizations
actually avoid holding appraisal meetings?” Yet, “can eventually appraisal be considered
as a stand-alone process or should it rather be considered part of a more systematic and
comprehensive process?”
In order to provide a consistent answer to these questions it is necessary first of all to
define performance appraisal and subsequently identify the dissimilarities existing
between this and performance management.
Despite a remarkable difference between the two processes does actually exist, some
employers, misinterpreting the meaning and scope of each of them, develop
performance appraisal systems assuming to have performance management processes
in place; misunderstanding which is very unlikely to produce truly effective and valuable
results in practice.
Performance appraisal can be broadly considered as a process aiming at assessing and
rating (Armstrong, 2006) or reviewing (Torrington et al, 2008) employees’ performance.
Appraisal is carried out by managers, usually annually, whilst the design of the system
and the documentation habitually filled by managers during the performance review
meetings is prepared by the organization’s HR function. Since performance appraisal is
typically associated with pay management, this is the occasion in which managers are
supposed to play the role of judge, accounting for the process to be deemed as a top-
down process.
Performance management, as anticipated in the preceding paragraph, is considered as a
process enabling managers to constantly stay in contact with their direct reports in order
to clarify and eventually modify, according to the business needs and organizational
development changes, mutual expectations and putting managers in the position to play
the role of employees coach and guide, rather than of judge (Longo, 2011c). As
maintained by Clark (2005), performance management aims at establishing “a
framework in which performance by human resources can be directed, monitored,
motivated and refined, and that the link in the cycle can be audited.” By extension,
performance management can be basically considered as a forward-looking process, in
contrast with performance appraisal which represents a retrospective-based system. In
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pay management terms, performance management is to competency-related pay as
performance appraisal is to performance-related pay.
The distinctive feature of performance management and performance appraisal emerged
so far is then linked first and foremost to their different nature: performance appraisal is
devised as a system, whereas performance management is intended as a process.
Moreover, whilst performance appraisal is episodic, usually carried out once a year on
occasion of the annual performance review meeting, performance management is
intended to establish a constant link between managers and individuals. Direct
consequence of this is that performance management actually aims at building between
managers and employees a relationship based on mutual respect, trust and
understanding, whilst performance appraisal is essentially based on a top-down
relationship (Longo, 2011c).
As discussed earlier, performance management is forward-looking; its aim is in fact to
coach and contribute to individual development and growth. By contrast, performance
appraisal can be considered as a retrospective journey through an individual previous
working year, where managers, very often perfunctorily, “judge” the performance of
their staff. Whereas performance management is, hence, based on the concept of
“management by agreement or contract”, performance appraisal is based on the concept
of “management by command” (Armstrong, 2006). Yet, whilst performance management
is intended to establish and nurture a constant relationship between managers and
individuals, performance appraisal is based on approaches designed and developed by
the HR function, whose hard documentation is all too often destined to be forgotten in
some remote organization’s archive.
Performance management, differently from performance appraisal, ultimately aims at
combining individual and organizational needs and objectives and to find a common
point where these two different needs can meet.
As suggested by Armstrong and Baron (2004), performance management has to be
intended as a means aiming at helping managers determining and setting the objectives
that the employer expects individuals to attain, providing people with what it takes to
achieve those objectives (in terms of development) and influencing individuals actions in
order these to behave consistently with the organizational culture and values.
Being associated with the attainment of broader and mid- to long-run goals,
performance management can clearly be considered strategic, in contrast to
performance appraisal which is concerned only with short-run goals (CIPD, 2011). Yet,
whereas performance management is embracing a whole range of activities aiming at
improving the overall organizational performance, insofar as it can definitely be
considered holistic, performance appraisal is only concerned with individual performance
and as such represents a distinct system rather than an integrated process.
As warned by the CIPD (2011), organizations within which are performed annual
appraisal reviews only cannot actually claim to have a performance management process
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in place in that performance appraisal could basically be considered as a component, or
rather, one of the tools of performance management. Carried out in isolation,
performance appraisal is likely to produce no effects at all and to also be considered
pointless and useless by both managers and staff who can perceive it, at best, just as a
mere “administrative exercise” (Torrington et al, 2008) and, at worst, as a “dishonest
annual ritual” (Armstrong and Murlis, 1998).
To accrue staff’s negative perception of performance appraisal also contributes the lack
of clarity very often associated with the purpose it actually aims at achieving (Torrington
et al. 2008). Performance appraisal can potentially focus on development, reward,
motivation and good potentials’ and poor performers’ identification. More often than not,
however, performance appraisal turns to reveal in practice an ineffective tool just
because it is expected to cover too many areas, making it difficult to find out for
employees and sometimes for managers as well its final truly aim.
More unclear and uncertain appears sometimes to be the relationship between
performance management, performance appraisal and pay. Whereas a clearer
connection can be identified between pay and performance appraisal systems, more
controversial appears to be the identification of a clear link between performance
management and pay.
Performance appraisal systems are essentially mainly used to help managers to make
decisions on salary increases, bonuses and, more in general, to grant employees other
forms of financial incentives.