HUMAN RESOURCE MANAGEMENT
Performance Management
Lecturer: Gita Desyana SE.MM, Ak
Compiled By:
Syalqia Syifa Sajida Arief (B1034231005)
Sri wahyuni Agustin (B1034231008)
Evelyn Margaretha Chen (B1034231011)
Raden Raja Nabil Nurinsan (B1034231012)
Ayu Wandira (B1934231013)
INTERNATIONAL ACCOUNTING STUDY PROGRAM
FACULTY OF ECONOMICS AND BUSINESS
TANJUNGPURA UNIVERSITY
EVEN SEMESTER 2024/2025
Introduction
Performance management is a critical function of human resource management
(HRM) that ensures employees' activities and outcomes align with an organization's
strategic goals. It encompasses defining performance expectations, measuring outcomes,
providing feedback, and implementing developmental plans. According to Noe et al.
(2014), performance management contributes to both organizational success and employee
development. We define performance management as the process through which
managers ensure that employees’ activities and outputs are congruent with the
organization’s goals. Performance management is central to gaining competitive
advantage.
Performance management system has three parts: defining performance, measuring
performance, and feeding back performance information. First, a performance management
system specifies which aspects of performance are relevant to the organization, primarily
through job analysis. Second, it measures those aspects of performance through
performance appraisal, The process through which an organization gets information on
how well an employee is doing his or her job. Third, it provides feedback to employees
through performance feedback sessions so they can adjust their performance to the
organization’s goals effectively. Performance feedback is also ful- filled through tying
rewards to performance via the compensation system (such as through merit increases or
bonuses).
Practice of Performance Management
Recent surveys indicate that most companies still rely on annual, paper-based
performance reviews assessing behaviors and business goals. While performance
management is commonly used for evaluating employee performance and making pay
decisions, fewer than 25% of companies use it to identify training needs and develop
leadership talent. Additionally, 66% of organizations apply the same performance
management system across all levels. However, over 60% of employees find that reviews do
not help improve their future performance. Among companies conducting performance
appraisals, 72% report dissatisfaction with the process. Only 45% of employees receive
consistent performance communication from their managers throughout the year, and just
28% of companies have automated their performance management systems.
The Process of Performance Management
Although performance management does include the once or twice a year formal
appraisal or evaluation meeting, effective performance management is a process, not an
event. Providing feedback and the formal performance evaluation are important but they
are not the only important parts of an effective performance management process that
contributes to the company’s competitive advantage.
An effective performance management system includes six key steps:
1. Defining Performance Outcomes – Organizations identify key goals and objectives
that align with their mission, strategy, and values. These outcomes should benefit
customers, employees, and the company.
2. Developing Employee Goals and Behaviors – Measurable goals, behaviors, and
actions are established to guide employees in achieving performance expectations.
3. Providing Support and Ongoing Feedback – Organizations offer training,
resources, and frequent feedback to help employees improve and overcome
challenges.
4. Evaluating Performance – Managers and employees compare performance
outcomes with goals, typically through annual or biannual reviews. Regular
performance discussions help make evaluations more constructive.
5. Identifying Improvements – Employees and managers discuss strengths and areas
for improvement, leading to adjustments in performance goals and training needs.
6. Providing Consequences for Performance – Performance results influence rewards
such as salary increases, bonuses, promotions, and development opportunities. Poor
performance may lead to further training or disciplinary actions.
For example, Google is known for its modern, data-driven, and employee-focused
performance management system that aligns with today's workplace needs. The company has
moved beyond traditional annual performance reviews and instead focuses on continuous
feedback, goal-setting, and employee development.
Why Google's system is effective in today's workplace:
● Encourages ongoing conversations rather than one-time annual reviews.
● Focuses on growth and learning rather than just evaluation.
● Uses technology and data to improve fairness and reduce biases.
● Aligns individual goals with company objectives to drive business success.
king it highly relevant in today’s fast-changing business environment.
Purposes of Performance Management
The purposes of performance management systems are of three kinds: strategic,
administrative, and developmental.
Strategic Purpose
Performance management, particularly from a strategic perspective, is essential for
aligning employee actions with organizational goals. This alignment is achieved by
defining the necessary results, behaviors, and employee characteristics that are crucial for
executing company strategies. Effective measurement and feedback systems are then
developed to encourage employees to demonstrate these characteristics, engage in the
desired behaviors, and achieve the expected results.
In addition, performance management is critical to a company's talent management
strategy. It helps in identifying employee strengths and weaknesses, connecting employees
with suitable training and development opportunities, and rewarding good performance
through compensation and other incentives. Ultimately, the purpose of performance
management is to maximize employees' abilities and contributions in line with the
company's objectives.
Administrative Purpose
Performance management plays a crucial role in organizations, not only as a tool for
employee development but also as a foundation for various administrative decisions.
Information generated from the performance management process, especially through
performance appraisals, becomes the basis for organizations in making decisions related to
compensation, promotions, retention, termination, and recognition of individual performance.
These administrative objectives ensure that HR decisions are based on objective and
measurable data, reducing the potential for bias and unfair practices.
One of the main functions of the administrative objective is in compensation management.
Performance appraisals provide a basis for determining salary increases and bonuses.
Employees with outstanding performance can be rewarded with increased compensation,
while employees with unsatisfactory performance can be given opportunities for
improvement or, if necessary, be subject to sanctions. In addition, performance management
also plays an important role in promotion decisions. Performance appraisals help identify
employees who have the potential and ability to fill higher positions within the organization.
Retention and termination are also greatly influenced by information obtained from
performance management. Employees with consistently good performance are likely to be
retained by the organization, while employees with poor performance may be considered for
termination after adequate improvement efforts have been made. In difficult situations such
as layoffs, performance management provides an objective basis for determining which
employees will be affected, taking into account their performance and contributions to the
organization.
In addition, performance management is also used to provide recognition to high-
performing employees. This recognition can take the form of awards, promotions, or other
forms of appreciation that motivate employees to continue improving their performance.
Although important, the effectiveness of the administrative objectives of performance
management is often hampered by the negative perceptions of managers. Many managers feel
uncomfortable giving performance appraisals, especially if those appraisals have a negative
impact on employees. As a result, they tend to give uniform or excessively high ratings,
reducing the objectivity and validity of the information produced. This can interfere with the
organization's ability to make appropriate and fair administrative decisions.
Developmental Purpose
Beyond its administrative functions, performance management serves a crucial
developmental purpose within organizations, focusing on enhancing employee
effectiveness and fostering continuous improvement. When employees fall short of
performance expectations, performance management systems aim to identify the root
causes of these deficiencies and implement targeted interventions to improve their
performance. This developmental aspect is not merely about identifying weaknesses; it's
about understanding the underlying factors contributing to those weaknesses and creating
opportunities for growth.
The feedback provided during performance evaluations plays a pivotal role in this
process. Ideally, the system pinpoints specific areas where the employee is struggling and
delves deeper to uncover the reasons behind these struggles. This could involve identifying
skill gaps that require training, addressing motivational issues that may be hindering
performance, or recognizing external obstacles that are preventing the employee from
reaching their full potential. By understanding the underlying causes, managers can tailor
development plans to meet the specific needs of each employee, maximizing their potential
for growth and contribution.
However, the developmental purpose of performance management often faces
challenges due to the discomfort managers experience when confronting employees about
their weaknesses. Delivering constructive criticism, even with the best intentions, can strain
working relationships and create tension within the team. As a result, some managers may opt
to avoid these difficult conversations by inflating ratings or glossing over areas for
improvement. While this approach may minimize conflict in the short term, it ultimately
undermines the developmental purpose of the system. When employees are not given honest
and accurate feedback, they are deprived of the opportunity to learn, grow, and improve their
performance.
Furthermore, effective performance management requires a well-defined set of
performance measures that accurately reflect the expectations of the job. These measures
should be clear, specific, and aligned with the overall goals of the organization. The process
of developing these measures is critical, as they serve as the foundation for evaluating
performance and providing meaningful feedback. Without clear and relevant measures, it
becomes difficult to identify areas for improvement and track progress over time.
Performance Measure Criteria
Although people differ about criteria to use to evaluate performance management
systems, there are some that are believed to stand out: strategic congruence, validity,
reliability, acceptability, and specificity.
● Strategic Congruence
Strategic congruence is the extent to which a performance management sys-
tem elicits job performance that is congruent with the organization’s strategy,
goals, and culture.
● Validity
Validity is the extent to which a performance measure assesses all the relevant
—and only the relevant—aspects of performance. This is often referred to as
“content validity.” For a performance measure to be valid, it must not be
deficient or contaminated.
● Reliability
Reliability refers to the consistency of a performance measure. The measure
should be reliable over time (test–retest reliability). A measure that results in
dramatically different ratings depending on when the measures are taken lacks
test–retest reliability.
● Acceptability
Acceptability refers to whether the people who use a performance measure
accept it. Many elaborate performance measures are extremely valid and reli-
able, but they consume so much of managers’ time that they refuse to use
them. Alternatively, those being evaluated by a measure may not accept it.
● Specificity
Specificity is the extent to which a performance measure tells employees what
is expected of them and how they can meet these expectations. Specificity is
relevant to both the strategic and developmental purposes of performance
management. If a measure does not specify what an employee must do to help
the company achieve its strategic goals, it does not achieve its strategic
purpose.
Approaches to Measuring Performance
An important part of effective performance management is establishing how we evaluate
performance. To effectively contribute to organizational business strategy and goals, effective
performance evaluation systems should measure both what gets accomplished (objectives)
and how it gets accomplished (behaviors). There are some different ways to evaluate
performance:
Comparative Approach
● Evaluates employee performance by comparing individuals against each other rather
than against set performance standards.
● Techniques include ranking (listed from best to worst), forced distribution (grouped
into predefined performance categories e.g., top 10%, middle 70%, bottom 20%), and
paired comparisons (compared directly to each other in pairs).
● Strengths: Simple to use and differentiates employee performance levels.
● Weaknesses: Can create competition among employees and lacks clear performance
standards.
Attribute Approach
● Evaluates employees based on specific traits or attributes (e.g., teamwork, leadership,
problem-solving, communication skills).
● Common methods include graphic rating scales (numerical scale e.g., 1-5) and
mixed-standard scales (evaluates employees based on descriptions representing high,
medium, and low levels of a trait).
● Strengths: Easy to develop and applicable to many jobs.
● Weaknesses: Subjective, lacks clear connection to job performance.
Behavioral Approach
● Focuses on their actions rather than their traits or results.
● Methods include Behaviorally Anchored Rating Scales (BARS) (Uses specific
examples of behaviors to define different performance levels (e.g., "Always responds
to customer inquiries within one hour" vs. "Rarely responds to customer inquiries")),
Behavioral Observation Scales (BOS) (Similar to BARS, but focuses on how
frequently an employee demonstrates specific behaviors) and competency models.
● Strengths: Provides specific feedback and is legally defensible.
● Weaknesses: Time-consuming to develop and difficult to use for complex jobs.
Results Approach
● Emphasizes measurable outcomes such as sales targets or project completion.
● A common method is Management by Objectives (MBO) (Employees and managers
set specific, measurable goals together. Performance is assessed based on whether
these goals are achieved).
● Strengths: Objective, aligns with company goals.
● Weaknesses: May overlook behaviors and external factors affecting performance.
Quality Approach
● Focuses on continuous improvement and customer satisfaction.
● Uses both qualitative and quantitative performance measures (Customer Feedback &
Peer Reviews where employees are evaluated based on input from customers and
colleagues, Statistical Process Control or SPC uses data and metrics to monitor
performance trends over time, and Six Sigma & Total Quality Management or TQM
where employees are evaluated based on their contributions to process
improvements).
● Strengths: Encourages teamwork and process improvement.
● Weaknesses: Requires a strong organizational culture of quality.
Choosing a Source for Performance Information
Whatever approach to performance management is used, it is necessary to decide
whom to use as the source of the performance measures. Each source has specific strengths
and weaknesses. We discuss five primary sources: managers, peers, subordinates, self,
and customers. To increase the effect of performance management systems include many
companies both managers and self-assessment of performance. This helps facilitate a
conversation about performance during the appraisal meeting and on a more frequent basis.
The “Competing through Sustainability” box illustrates the importance of using multiple
sources of performance information to ensure that the needs of all stakeholders are being
met.
1. managers
Managers are the primary source of performance information, likely due to their extensive
knowledge of job requirements and ability to rate employees accurately. Feedback from
supervisors is strongly related to performance and employee perceptions, especially when
observing behavior or discussing performance issues.
2. peers
Peers provide valuable performance information, especially in law enforcement where
supervisors may not always observe employees. They have expert knowledge of job
requirements and can praise and recognize each other's performance daily. International
Fitness Holdings uses peer-to-peer feedback to recognize employees' day-to-day behaviors,
despite the initial excitement of a pencil-and-paper system.
3. Subordinates
Subordinates are an especially valuable source of performance information when managers
are evaluated. Subordinates often have the best opportunity to evaluate how well a
manager treats employees.
Upward feedback is a valuable source of performance information for managers, as it
involves collecting subordinates' evaluations of their behavior or skills. Dell Inc. has added
a people management component to its performance management system, aiming for at
least 75% favorable ratings from employees. Managers are expected to work continuously
to improve their scores, but some studies suggest that anonymous feedback can inflated
ratings. However, subordinate evaluations can give subordinates power over managers,
potentially emphasizing employee satisfaction over productivity. It is recommended to use
subordinate evaluations for developmental purposes and anonymous evaluations.
4. Self
Self-ratings can be valuable for performance information, as they allow employees to
observe their behavior and access information about their job results. The YMCA of
Greater Rochester, New York, added employee self-evaluation to its performance review
process to address concerns about lack of input and dreaded meetings. Self-evaluations
allow employees to provide examples of good performance and request training to improve
weaknesses. However, self-ratings can tend to be lenient compared to other sources, as
employees may attribute poor performance to external factors. While self-ratings are less
inflated when supervisors provide frequent feedback, they should not be used for
administrative purposes.
5. customers
As discussed in Chapter 1, service industries are expected to account for a major portion of
job growth. As a result, many companies are involving customers in their evaluation
systems. One writer has defined services this way: “Services is something which can be
bought and sold but which you cannot drop on your foot.” Because of the unique nature of
services—the product is often produced and consumed on the spot—supervisors, peers,
and subordinates often do not have the opportunity to observe employee behavior. Instead,
the customer is often the only person present to observe the employee’s performance and
thus is the best source of performance information.
Service industries are increasingly utilizing customer evaluations of employee
performance. Companies like Marriott Corporation and Whirlpool conduct surveys to
assess customer satisfaction and identify customer needs. These evaluations are useful for
strategic goals, integrating marketing strategies with human resource activities and
policies. However, the expense of customer surveys can be a challenge. On-site surveys
using handheld computers can help reduce these costs. The best source of performance
information depends on the job, and eliciting information from multiple sources can lead to
accurate and effective performance management. A popular trend is 360-degree appraisals,
which involve multiple raters providing input into a manager's evaluation, minimizing bias
and being used for strategic and developmental purposes.
Use of Technology in Performance Management
Technology is transforming performance management systems in several key ways,
enhancing efficiency, transparency, and alignment within organizations:
1. Web-Based Performance Management Systems:
○ Many companies, like Sereno and Amcor Sunclipse, are adopting online,
paperless systems to streamline the performance evaluation process. These
systems allow managers to view employee performance data in real time, align
individual goals with organizational objectives, and identify discrepancies in
performance ratings. For example, Sereno's system helps senior managers spot
patterns in department productivity and performance ratings, ensuring that
employees are rated fairly. Amcor Sunclipse's system improves the timeliness
and relevance of appraisals by automating notifications and weighting
performance goals based on job importance, such as safety for manufacturing
jobs.
2. Social Media for Timely Feedback:
○ Social media platforms like Facebook and Twitter are being utilized for real-
time performance feedback. These tools allow peers and coworkers to provide
quick and often more accurate feedback than busy managers, enhancing
communication and fostering a culture of continuous improvement.
3. Electronic Tracking and Monitoring:
○ Companies are using tracking systems like GPS, fingerprint recognition, and
attendance monitoring software to improve productivity and ensure employees
adhere to work schedules. For example, Meijer uses software to track cashier
efficiency, while Automated Waste Disposal uses GPS to reduce overtime and
monitor employee routes. While these systems boost efficiency, they raise
concerns about privacy and the potential for creating an overly monitored,
stressful work environment.
In summary, technology is revolutionizing performance management by enhancing real-time
feedback, improving data access and transparency, and enabling more efficient tracking of
employee activities. However, these advances also raise ethical concerns about privacy and
employee well-being in the workplace.(Mishra, 2024)
REFERENCE
https://www.researchgate.net/publication/383846204_THE_FUTURE_OF_PERFORMAN
CE_MANAGEMENT_SHIFTING_FROM_ANNUAL_REVIEWS_TO_CONTINUOUS_
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Mishra, S. (2024). The Future of Performance Management: Shifting from Annual Reviews
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Engineering Technology, 12. https://doi.org/10.22214/ijraset.2024.64153
Google re:Work (2023). Google’s Approach to Performance Management. Retrieved from
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Bock, L. (2015). Work Rules!: Insights from Inside Google That Will Transform How You
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