What is Performance Management System (PMS)? Strategies, Process

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What is Performance Management System (PMS)?

Performance Management System (PMS) is a process used to communicate organizational goals and objectives, reinforce, individual accountability these goals, and track and evaluate individual and organizational performance results.

A performance management system is another way of foreseeing the totality of a manager’s function because it views the managerial function holistically. It is not a random collection of activities that most managers recognize and undertake as their core function.

Performance management provides a systemic dimension to managerial activities by highlighting their mutual interrelatedness and interdependence. It emphasizes the dynamic, sequential and cyclical nature of these activities. These things are essential to actualizing their potential synergistic impact, which is the source of high performance and excellence.

Concept of Performance Management

The concept of performance management arrived in the late 1980s partly as a reaction to the negative aspects of merit-rating and management by objectives referred to earlier.

At first, it incorporated many of the elements of earlier approaches; for example, rating, objective-setting and review, performance pay and a tendency towards trait assessment; of which some of these features have changed.

Conceptually, human resource management has frequently been substituted for personnel management without any discernible change in approach; likewise, performance management is significantly different from previous approaches, although in practice the term has often simply replaced performance appraisal.

Performance management may often be no more than new wine in old bottles but it exists, and our research demonstrates that interest is growing. In this order, we must try to find the reasons.

Components of Performance Management System

  • Developing clear job descriptions and employee performance plans which includes the key result areas (KRA’) and performance indicators.

  • Selection of right set of people by implementing an appropriate selection process.

  • Negotiating requirements and performance standards for measuring the outcome and overall productivity against the predefined benchmarks.

  • Providing continuous coaching and feedback during the period of delivery of performance.

  • Identifying the training and development needs by measuring the outcomes achieved against the set standards and implementing effective development programs for improvement.

  • Holding quarterly performance development discussions and evaluating employee performance on the basis of performance plans.

  • Designing effective compensation and reward systems for recognizing those employees who excel in their jobs by achieving the set standards in accordance with the performance plans or rather exceed the performance benchmarks.

  • Providing promotional/career development support and guidance to the employees.

  • Performing exit interviews for understanding the cause of employee discontentment and thereafter exit from an organization.

Objectives of Performance Management System

The following are the key objectives of performance management system:

  • To leverage the performance of the organization, given that goals are complex to achieve.

  • To ensure role clarity in performance objectives at all levels of the organization.

  • To encourage high-performance work culture in the organization. §

  • To encourage team building and spirit in the organization to achieve unachievable things.

  • To develop employees by systematically identifying training and development needs.

  • To improve the relationship between manager and employees through a two-way communication process and by developing mutual connect.

  • To focus on the process rather than on format to meet the demand and expectation.

  • To encourage performance-based rewards and recognitions in the organization for increasing overall productivity.

One more very important thing which should be considered is that the use of performance management in the best practice companies is not because it is a better technique than performance appraisal, but because it can form one of a number of integrated approaches to the management of performance.

The appeal of performance management in its fully realized form is that it is holistic. It pervades every aspect of running the business and helps to give purpose and meaning to those involved in achieving organizational success.

Functions of Performance Management System

The functions of performance management system are:

  1. Performance management system helps in clarifying the mission, vision, strategy, and values of the organization to the employees in order to enable them to achieve the same.

  2. It helps in improving various business processes as the deficiencies are highlighted.

  3. This process assists in attracting and retaining talents in the organization and helps in establishing a robust talent review system.

  4. The performance management system facilitates competency mapping, training and development need identification and implementation as part of the performance development tool. The employees have the competencies to meet both the present and emerging requirements of the organization.

  5. It also assists management in invalidating their recruitment and selection process and techniques.

  6. PMS helps employees to attain their full potential and attain a balance between work and personal life.

  7. It improves the organization’s ability to change faster by highlighting the gap between potential capabilities and presentability.

  8. PMS helps in making a shift from industrial relations to individual relations with a focus on employee growth and development.

  9. Performance management system enables sustainable organizational competitiveness, innovation, and low employee turnover by helping in reviewing organization structure and plan succession.

  10. It builds the intellectual capital not only at the managerial level but at the front-line level also.

In a nutshell, we can say that performance management seeks to balance business alignment with learning and development and performance reward.

Characteristics of Performance Management System

For understanding the characteristics of performance management system, these points should be considered:

  1. The emphasis is given on performance improvements of individuals, teams and the organization.

  2. It is a continuous process in which quarterly performance review discussions are held.

  3. The emphasis is on performance planning, analysis, review, development, and improvements.

  4. As per this system, performance rewarding may or may not be an integral part.

  5. The system is designed by HR department but could be monitored by the respective departments themselves.

  6. Under this system, the ownership is with line managers, HR facilitates its implementation. KPAs or KRAs are used as planning mechanisms.

  7. The developmental needs are identified on the basis of the competency requirements for the coming year.

  8. To bring performance improvements, there are review mechanisms because it is a system with deadlines, meetings, input, output and a format.

  9. The whole process is driven with an emphasis on the format as an aid to convenient the whole process.

  10. It is linked to performance improvements and through them to other HR decisions as and when necessary.

  11. PMS is changing in the managerial style of doing work and it creates and nurtures performing culture.

Competency Based Performance Management System

Performance management is a strategic and integrated approach and it is used for delivering sustained success to organizations. It is done by improving the performance of those who work in them and by developing the capabilities of teams and individual contributors.

In any organization, development is perhaps the most important function of performance management and it is concerned with outputs.

It means the achievement of results, and with outcomes- the impact made on performance. It is also concerned with the processes required to achieve these results and the inputs in terms of capabilities (knowledge, skill, and competence) expected from the teams and the individuals involved.

In any organization, there are indicators of behavior for achieving higher levels of performance which are as follows:

  • Personal drive
  • Impact on results
  • Analytical power
  • Strategic thinking
  • Creative thinking
  • Decisiveness
  • Commercial judgments
  • Team management and leadership
  • Interpersonal skills
  • The ability to communicate
  • The ability to adapt and cope with change and pressures
  • Ability to plan and control projects.
The core of performance management is the development of individuals with competence and commitment, working towards the achievement of shared meaningful objectives within an organization. This thing always supports and encourages their achievement.Lockett (1992)
  1. Interpersonal Understanding
  2. Influence
  3. The orientation towards customer service
  4. The adaptability
  5. Team Work
  6. Oral Communication
  7. Achievement Orientation
  8. Organizational Commitment.

We can relate performance measurement for teams to the purpose of the team and its particular objectives and standards of performance.

Electronic Performance Management System

Electronic performance management or e-performance management; it offers great value for money to the organizations and addresses its needs aptly. E-performance management is essentially a PMS in the form of an online software package.

It is with multiplication modules that are fully integrated with the organizational metrics. It provides greater flexibility, tracking, and access of performance management to a large number of employees and managers across the organization, across the world at the press of a button.

It allows organizations to maintain a record of core skills and competencies into the employee’s performance management process.

E-performance management provides templates for a wide application that could be used across organizations spread in different parts of the world through one software module and it provides the following features:

  1. Job or individual-centered performance contracts.
  2. Uploading of performance criteria.
  3. Secure online appraisal with a password.
  4. An automatic e-mail notification of completed appraisal to employee and manager.
  5. Workflow system to monitor appraisal progress.
  6. Archive retrieval possible for retrieval of previous period appraisals.
  7. Assigning different weighting protocols.
  8. Viewing competency ratings.
  9. Viewing compensation details.
  10. Career advancement and opportunities available

Implementing performance management across an organization creates the potential for a large amount of administrative overhead.

The process of performance management must be completed and approved, feedback and counselling must be provided from multiple reviewers, documents rated, deadlines monitored, and many of these activities must be performed multiple times during each performance cycle for each and every employee.

Process of Performance Management System

The following steps should be followed while designing a competency-based performance management system:

  1. Categorizing Competencies
  2. Mapping Competencies
  3. Building Competency Models
  4. Profiling Competency Framework for a Particular Role
  5. Potential Assessment Centre for Competency Mapping

Categorizing Competencies

The competencies can be divided into two categories i.e. “threshold” and “differentiating” according to the performance criterion they predict.

  • Threshold Competencies: The threshold competencies are the essential characteristics (usually knowledge or basic skills, such as the ability to read) that everyone in a job needs to be minimally effective. But it will not distinguish superior from average performers. For example, the threshold competency for a salesperson is knowledge of the product or ability to fill out invoices.

  • Differentiating Competencies: These are the competencies that include such factors that distinguish superior from average performers. We can state that achievement orientation expressed in a person’s setting goals higher than those required by the organization, is a competency that differentiates superior from average salespeople.

Mapping Competencies

It begins with identifying key competencies for an organization and/or a job and incorporating those competencies throughout the various processes i.e. job evaluation, training, recruitment of the organization. When competency is based on job description, the second step involves mapping those competencies throughout the organization’s human resources processes.

The competencies of the respective job description are used as factors for assessment on performance evaluation. Using this method, it helps in more objective evaluations based on displayed or not displayed behaviours.

Taking competency mapping one step further, the assessment is that the results of performance evaluation can be used to identify in what competencies individuals need additional development or training.

Building Competency Models

For developing the model, there are three ways in which competencies will be used:

  • Behavioral Indicators: These indicators describe the behaviors, thought patterns, abilities and traits of the people that contribute to superior performance.

  • Evaluative Competency Levels: The organizations are setting exceptional competencies of high performers as standards for evaluating competency levels of employees.

  • Competencies Describing Job Requirements: This approach is useful for those types of organizations having multiple competency models. In this connection, the competencies required in a particular job are described. Job-specific competency models help in structuring focused appraisal and compensation decisions which is useful to the organization.

Profiling Competency Framework for a Particular Role

To identify rolespecific competencies anywhere, it required industry specific, functional and behavioral competencies. Then it needs to be developed for enhanced performance. The approach for developing a competency framework for a particular role is as suggested below:

  1. The first thing is to understand the strategic business context of the organizations in terms of its structure and environmental variables.

  2. Then the second thing is to detail role descriptions for different positions. After this, defining and scaling (relative importance and mastery level) of specific behaviors for each identified competency as a measure of performance.

  3. After defining and scaling, develop a competency framework taking into consideration the core values and the culture of the organizations in addition to specific functional and level requirements. This should align with the vision and mission of the company.

  4. At last, validate the competency framework through a workshop, which should include functional experts and top management personnel in order to define critical and desirable competencies.

    In this process, it is required to substantiate the extent to which the competencies differentiate between high and average performers by validating the content and criteria.

The competency framework includes technical competencies, behavioural competencies and the proficiency levels required for each competency and each competency should be detailed in terms of behavioural indicators that enable observation and assessment.

Potential Assessment Centre for Competency Mapping

The competency mapping exercise is exercised to know the linkage between competencies and roles through which the most critical, success driving behaviors for specific roles are established. Against the validated competency framework, an individual’s potential is identified through an Assessment Centre process and it is outlined below:

  • First of all, design assessment centre.
  • Conduct an assessment centre.
  • Map individual competencies and gaps as per designed assessment centre.
  • Finally assess organizational capability and gaps.

Through an effective system of measuring the proficiency of an individual on the desired competencies for the role, a link between people and competencies is established. To design and conduct a potential Assessment Centre, it should follow basic principles in terms of accuracy, fairness, reliability, legality, efficiency, multiple assessors, multiple tests and optimal stress to increase performance.

Factors Affecting Performance Management Implementation

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

  1. Corporate culture
  2. Skilled Staff
  3. Leadership and Commitment
  4. Alignment
  5. Ongoing Monitoring and Mentoring
  6. Effective Communication and Reporting
  7. Employees Participation
  8. Reward link Pay

Corporate culture

It is the culture of the organization on which the implementation of a performance management system depends. The corporate culture should be such that it encourages team working, ownership of problems, risk-taking or entrepreneurship, and orientation towards continuous improvement.

Skilled Staff

The dedicated, knowledgeable and skilled staff required in performance management.

Leadership and Commitment

Leadership and commitment are very much required and it actively supports and sustains performance management throughout the organization.


It is a must condition that the alignment of individual goals and strategies with the organizational goals because it helps in the effective implementation of a performance management system.

Ongoing Monitoring and Mentoring

In a performance management system, a continuous review of the strategy is very important. It should be used for improvement and learning, rather than control.

Effective Communication and Reporting

It is very essential for organizations to have ongoing communication and reporting of performance and feedback.

Employees Participation

Employee participation plays an important role in the implementation of PM system. The involvement of employees in the selection and definition of measures can reduce the employees’ and the manager’s resistance to performance management, and increase their usage level of performance measures.

Reward link Pay

If the reward will be linked with pay, it improves the employee motivational level and affects the performance of employees.

Performance Management Strategies

6 Strategies for Effective Performance Management are:

  1. Supportive leadership and management
  2. Performance Oriented Work Culture
  3. Providing Training and Feedback
  4. Building Participative Environment
  5. Effective Communication Strategy
  6. Benchmarking Best Practices
Performance Management Strategies
Performance Management Strategies

Supportive leadership and management

The HR professional and top management plays an important role in successful implementation of performance management and at the same time, a supportive leadership and management make the implementation strategy easy and effective.

Performance Oriented Work Culture

An organization becomes successful by developing a real and meaningful culture where performance is one of the core values because work culture drives organizational performance. If the work culture is performance-oriented, it means launching a variety of improvement efforts, including designing high-performance work systems.

Providing Training and Feedback

To enhance the performance of employees, training is an important tool. Every employee should get proper training and timely feedback.

Building Participative Environment

This is the need of the hour that the organizations should introduce a participative work culture where both the managers and employees can discuss their views.

Furthermore, the involvement of employees is also crucial but it should be handled carefully. In any organization, inviting managers and employees to assist in the development of the system facilitates their buy-in, and enhances their trust, understanding, and ownership of the performance management system.

Effective Communication Strategy

Ineffective implementation of performance management, communication is one of the most important factors. It provides feedback of work performance, clarifies all the important aspects related with performance management.

The whole process facilitates the buy-in from the people in the organization without which performance management is less likely to be successful. In the organization, there should be effective communication of performance objectives to all the employees and it should be done properly.

The performance-oriented work culture encompasses the following characteristic features:

  • The quality of work challenge, interest, achievement, freedom and autonomy, workload, quality of work relationships in the organization.

  • Work-life balance supportive environment, recognition of life cycle needs flexibility, security of income, social environment etc.

  • Future growth opportunities learning and development beyond current job, career advancement opportunities, performance improvement, and feedback system.

  • Tangible rewards competitive pay, good benefits, incentives for higher performance, ownership potential, recognition awards and fairness of reward.

  • Enabling environment caring attitude, encouragement for risk-taking and acknowledgement of failure without fear, knowledge sharing and instilling ownership among everyone.

SMARTER performance objectives mean:

S – performance objectives must be Specific
M – performance objectives must be Measurable
A – performance objectives must be Attainable
R – performance objectives must be Realistic
T – performance objectives must be Time-bound
E – performance objectives should be Exciting
R – performance objectives should be Recorded

Benchmarking Best Practices

In order to be more competitive, the organizations need to continuously improve their performance, and benchmark against best practices in performance management. If the organizations want to undertake to benchmark, they can equip themselves with insightful and measurable information on improving organizational performance.

Organizations should freely share with their employees such benchmarked information, so as to create a role model to emulate, which is appropriate for the organization.

The other key strategies for effective implementation of performance management system are as follows:

  • Relying on Objective Assessments
  • Adopting Performance Management Policies
  • Honesty and Transparency
  • Encouraging Participation without Punishing Poor Results
  • Incremental Improvements
  • Dedicating Staff and Resources
  • Clearly Defining Organization Direction

Developmental PMS

Performance management is always a forward planning process which is developmental and facilitative in nature as it involves the team leaders and the employees in a joint process of decision making for fixing smart targets. It aims at breeding performance orientation in the employees for developing high-performance organizations.

The entire process involves identification, evaluation and development of the work performance of the employees through effective management practices like continuous coaching, feedback and regular communication.

The process includes the following stages:

  • Work Planning and defining expectations
  • Monitoring performance
  • Developing the weak performance areas
  • Performance rating
  • Rewarding good performance

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