Performance Management System (PMS)

1. What Is Performance Management?

From "Performance Management - A Briefcase Book" by Robert Bacal (McGraw-Hill)

Performance management is an on-going communication process, undertaken in partnership, between an employee and his or her immediate supervisor that involves establishing clear expectations and understanding about:

  • the essential job functions the employee is expected to do
  • how the employee's job contributes to the goals of the organization
  • what "doing the job well" means in concrete terms
  • how employee and supervisor will work together to sustain, improve, or build on existing employee performance
  • how job performance will be measured
  • identifying barriers to performance and removing them

What Are The Components of A Performance Management System?

Many people mistake performance appraisal for performance management. Actually, performance management is a much bigger system, and is much more valuable to managers and companies (and employees) than performance appraisal. The essential components or parts of an effective performance management system include:

  • Performance Planning (includes employee goal setting / objective setting)
  • On-going Performance Communication
  • Data Gathering, Observation and Documentation
  • Performance Appraisal Meetings
  • Performance Diagnosis and Coaching
3. What Is Performance Appraisal?

Performance appraisal is usually considered to be the process and time when manager and employee sit down to review the employee's performance over the last year, or month, or even shorter time spans. Most of the time people think of it as a once a year event, which is a recipe for disaster.

During performance appraisal meetings, a number of methods can be used to document, or record, or summarize performance discussions, ranging from narratives, rating scales, critical incident summaries, etc. Usually there is an expectation that some sort of paperwork will result.

However, performance appraisal is probably the LEAST important component of performance management. To quote Robert Bacal

If all you do is appraisal -- if you don't do planning and have on-going communication, collect data, and diagnose problems, you are wasting your time.

(Performance Management - A Briefcase Book, p. 34, Robert Bacal)

In fact it's even worse than that. If all you do is performance appraisal, you will almost be guaranteed that morale will suffer, performance problems will increase, and the manager's job will become much harder.

4. Is A Performance Review The Same As a Performance Appraisal?

Basically, the terms performance review and performance appraisal mean exactly the same thing. Different companies use somewhat different words to describe the process of sitting down (manager and employee) to discuss, appraise, or review performance. There are other terms that also mean the same thing. Here are some synonyms:

  • Employee review
  • Annual review
  • Annual performance review
  • Performance evaluation
  • Employee evaluation

We prefer terms that stress that the employee and manager work together to discuss performance, rather than terms that focus on the idea that it's the manager's job to appraise or evaluate employee performance. We recommend that companies call them reviews or discussions rather than appraisals or evaluations.

However, it's worth noting an important exception. Performance management does not mean the same thing as these other terms.

5. Is Performance Management Related To Strategic Planning?

Yes, there is indeed a very important relationship between strategic planning and performance management. Performance management is really about setting and achieving goals at the employee level, and identifying and fixing barriers related to achieving those goals. But where do the goals come from?

That's where strategic planning comes in. Strategic planning (and also tactical planning), are methods a company, and its individual work-units define their goals and objectives. In turn, those goals and objectives are used to determine and analyse the goals and objectives of each employee in a work unit. This is called cascading of goals.

When done properly, setting employee goals should rely on the goals of the particular work-unit, which gets its goals from the planning done by the next bigger work unit, and so on.

That's why the setting of individual goals and objectives should be done once the goals and objectives of the work-unit are established.

6. What Are The Purposes of Performance Management?

There are a number of reasons why it's useful to undertake performance management, provided it's done properly. If it's not done properly, there is no point in doing it, and in fact improper implementation can be damaging.

Let's face it. Performance management requires an investment of time and energy on the manager's part, so it stands to reason that there should be a return on that investment. One of the most important, and often neglected reasons to do it is that it results in the manager having to spend less time "managing", or micro-managing. Since one of the reasons we do performance management is to help employees understand what they should be doing, and how well they should be doing it, when it's done well, it allows employees to consult with their managers less frequently. They make less mistakes, since they are clear about their jobs and authority levels, and they can make more decisions on their own. The result?Less work for managers over the year.

Another reason, also often forgotten, is that performance management is a good tool to prevent problems from occurring during the year. Most people think performance management involves looking backwards, because they focus on the appraisal, but in fact, goal setting, and communication about performance all year long, helps to identify barriers to performance before they impact on performance. The result? Better productivity, and less "fire-fighting" or dealing with performance problems after the fact.

7. Are There Legal Reasons To Do Performance Management Correctly?

The answer is yes. There are some legal reasons for companies and managers to undertake performance management AND do it properly. However, the reasoning is sometimes misunderstood.

The major legal rationale for doing performance management properly is that it a) helps protect companies from frivolous law suits from employee who allege that they may have been discriminated against by virtue of being a "protected class" -- a visible minority, or suffering from a disability and b) having proper documentation produced by an effective performance management system helps a company defend against such charges if they go to court.

The key legal issue in legal cases is that the company will be expected to show that any adverse decisions made about an employee (e.g. termination, denial of promotion, etc), were made legally (i.e. not based on illegal discrimination). Proper documentation (part of the performance management process), AND, notification of employee of performance problems, working with the employee to address them, etc. protects the company.

In countries or states where the company can fire or promote without additional constraints, performance management does not make a difference, except in relation to anti-discrimination laws.

8. Should I Continue To Do Performance Management & Staff Appraisals Even If Pay Is Not Based On The Results?

Yes. You should communicate about performance, and continue to do performance management and staff appraisals, even if salary and raises are not tied to the results. Often managers stop doing staff appraisals once an employee has reached a salary ceiling, and that's based on a misconception that the only reason to do appraisals is to determine pay. Nothing could be further from the truth.

The major reason to use the performance management system is to improve performance (and every employee CAN improve with your help), and to assist the employee in getting aimed at the important goals and objectives you need to achieve in your work unit. Without that performance management process, you will get "drift" in performance over time.

That's why you should continue to do staff appraisals, with an eye to improving performance and helping employees know where they stand. It's easily worth the investment even when salary levels are no long on the table.

9. What Is Employee Self-Appraisal?

Employee self-appraisal, within a performance management or annual performance review system involves asking the employee to self-evaluate his or her job performance.

Typically, prior to meeting with an employee, the manager will ask the employee to complete an evaluation form on his or her own, to be used as a basis for discussion during the annual performance review meeting. Then at the meeting, the manager and employee discuss the self-appraisal results, and negotiate final evaluations based on both the manager's perceptions and those of the employee.

It's rare that self-appraisal or self-evaluation results are used without discussion and negotiation and they should not be.

Actual self-evaluations as part of performance management can take the form of evaluating progress towards pre-defined annual objectives and performance standards, involve the employee in rating him or her self using the same rating form the manager uses, or even involve self-ranking.

10. What Are The Benefits of Employee Self Evaluation or Self-Appraisal?

There are a number of benefits to having employees self-evaluate or self appraise, either as part of the formal performance management system, or informally. Here are a few of them:

  • By having employees do some sort of self-evaluation before the actual review meeting, the review meetings can be shorter.
  • If done properly and tactfully, encouraging employees to self-evaluation or self-appraise at any time during the year, including around the actual review meetings, help convey the message that the process of performance management and appraisal is a team effort, and not something the manager does to the employee. This greases the wheels of the process, making it more effective.
  • Whey self-appraisal is an accepted and integrated part of the performance management process, it encourages employees to self-evaluate throughout the year. That's exceedingly valuable, because what most managers want is employees who can do their jobs, monitor their own progress, and self-correct all year long. When that happens managers can spend far less time fire fighting or micromanaging.