CIPD - Performance management: an overview

Performance management

Revised February 2010

This factsheet gives introductory guidance. It:

considers the performance management process and how it works
outlines the tools used in performance management
includes the CIPD viewpoint.

Fully realised, performance management is a holistic process, bringing together many of the elements which go to make up the successful practice of people management, including in particular learning and development. But for this very reason, it is complex and capable of being misunderstood. This factsheet cannot go into all the details, but it gives an overview so that readers will have a better understanding of the fundamentals when they undertake the necessary further reading.

What is performance management?

In their definitive text¹ upon which this factsheet is based, Armstrong and Baron define performance management as 'a process which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance. As such, it establishes shared understanding about what is to be achieved and an approach to leading and developing people which will ensure that it is achieved'. They go on to stress that it is 'a strategy which relates to every activity of the organisation set in the context of its human resource policies, culture, style and communications systems. The nature of the strategy depends on the organisational context and can vary from organisation to organisation.'

In other words performance management should be:

Strategic - it is about broader issues and longer-term goals
Integrated - it should link various aspects of the business, people management, and individuals and teams.

It should incorporate:

Performance improvement - throughout the organisation, for individual, team and organisational effectiveness
Development - unless there is continuous development of individuals and teams, performance will not improve
Managing behaviour - ensuring that individuals are encouraged to behave in a way that allows and fosters better working relationships.

Armstrong and Baron stress that at its best performance management is a tool to ensure that managers manage effectively; that they ensure the people or teams they manage:

know and understand what is expected of them
have the skills and ability to deliver on these expectations
are supported by the organisation to develop the capacity to meet these expectations are given feedback on their performance
have the opportunity to discuss and contribute to individual and team aims and objectives.

It is also about ensuring that managers themselves are aware of the impact of their own behaviour on the people they manage and are encouraged to identify and exhibit positive behaviours.

So performance management is about establishing a culture in which individuals and groups take responsibility for the continuous improvement of business processes and of their own skills, behaviour and contributions. It is about sharing expectations. Managers can clarify what they expect individual and teams to do; likewise individuals and teams can communicate their expectations of how they should be managed and what they need to do their jobs. It follows that performance management is about interrelationships and about improving the quality of relationships - between managers and individuals, between managers and teams, between members of teams and so on, and is therefore a joint process. It is also about planning - defining expectations expressed as objectives and in business plans - and about measurement; the old dictum is 'If you can't measure it, you can't manage it'. It should apply to all employees, not just managers, and to teams as much as individuals. It is a continuous process, not a one-off event. Last but not least, it is holistic and should pervade every aspect of running an organisation.

Over time, the focus and emphasis of performance has shifted away from individual output to inform development or pay decisions, to individual contribution to organisational objectives through output, behaviour and capability. As such, performance management is now as much about driving engagement and collecting information and data to provide better insight into the drivers of performance as it is about providing information about individuals.

See our recent publications which review how the practice of performance management has evolved since the early ‘90s and look at the current trends and practice.

How does performance management work?

Because performance management is (or should be) so all-pervasive, it needs structures to support it. These should provide a framework to help people operate, and to help them to help others to operate. But it should not be a rigid system; there needs to be a reasonable degree of flexibility to allow people freedom to operate.

Performance management is a process, not an event. It operates as a continuous cycle.

Corporate strategic goals provide the starting point for business and departmental goals, followed by agreement on performance and development, leading to the drawing up of plans between individuals and managers, with continuous monitoring and feedback supported by formal reviews.

CIPD members can use our practical tool which sets out the five stages of a development programme to help organisations improve performance management.

Go to our Developing performance management tool

Tools of performance management

It is impossible to go into details of each of the tools used by performance management, so the following paragraphs simply provide an outline.

Performance and development reviews

Many organisations without performance management systems operate 'appraisals' in which an individual's manager regularly (usually annually) records performance, potential and development needs in a top-down process - see our factsheet on performance appraisal for more information on this topic.

Go to our Performance appraisal factsheet

It can be argued that the perceived defects of appraisal systems (that line managers regarded them as irrelevant, involving form-filling to keep the personnel department happy, and not as a normal process of management) led to the development of more rounded concepts of performance management. Nevertheless, organisations with performance management systems need to provide those involved with the opportunity to reflect on past performance as a basis for making development and improvement plans, and the performance and development review meeting (note the terminology; it is not appraisal) provides this chance. The meeting must be constructive, and various techniques can be used to conduct the sort of open, free-flowing and honest meeting needed, with the reviewee doing most of the talking.

Learning and development

Employee development is the main route followed by most organisations to improved organisational performance, which in turn requires an understanding of the processes and techniques of organisational, team and individual learning. Performance reviews can be regarded as learning events, in which individuals can be encouraged to think about how and in which ways they want to develop. This can lead to the drawing up of a personal development plan (PDP) setting out the actions they propose to take (with the help of others, not least their managers) to develop themselves. To keep development separate from performance and salary discussions, development reviews may be held at other times, for example, on the anniversary of joining an organisation.

Increasing emphasis on talent management also means that many organisations are re-defining performance management to align it to the need to identify, nurture and retain talent. Development programmes are reflecting the needs of succession plans and seeking to foster leadership skills. However, too much of an emphasis on talent management may be damaging to overall development needs and every effort needs to be made to ensure that development is inclusive, accessible and focused on developing organisational capability.

Objectives and performance standards

Objectives (some organisations prefer to use 'goals') describe something to be accomplished by individuals, departments and organisations over a period of time. They can be expressed as targets to be met (such as sales) and tasks to be completed by specified dates. They can be work-related, referring to the results to be attained, or personal, taking the form of developmental objectives for individuals. Objectives need to be defined and agreed. They will relate to the overall purpose of the job and define performance areas - all the aspects of the job that contribute to achieving its overall purpose. Targets then need to be set for each performance area, for example, increase 'sales by x per cent', 'reduce wastage by y per cent' …

Alongside objectives are performance standards. They are used when it is not possible to set time-based targets, or when there is a continuing objective which does not change significantly from one review period to the next and is a standing feature of the job. These should be spelled out in quantitative terms if possible, for example, speed of response to requests or meeting defined standards of accuracy.

Measurement

To management performance effectively, individuals should know on what basis their performance will be measured. Measures should be transparent and applied fairly across the organisation. Ideally there should be a mix of individual and team measures, and measures relevant to both the inputs and the outputs of performance.

The following examples of performance measures are by no means exhaustive as performance measures are highly contextual and often job specific.

Individual output measures:

Achievement of objectives.
Achievement against agreed standards of performance, which might be descriptions of excellent, good, satisfactory or poor performance.
Behaviour, measuring the extent to which individuals exhibit behaviours associated with performance such as respect for others, trust etc.
Specific instances of performance for example commendations for specific pieces of work.

Individual input measures:

Competence.
Skills and experience and the extent to which news skills are applied in the job.
Potential to develop and/or acquire new skills and progress to next career level.
Behaviours associated with developing and knowledge sharing.
Communication skills and other traits which enhance team roles.

Team measures:

Individual contribution to the team through involvement in cross team projects.
Support for other individuals to achieve their objectives and participation in cross organisation initiatives by providing timely input.
Understanding of team role.
Engagement scores.

Pay

Performance management is often linked with performance-related pay (PRP), although by no means all organisations claiming to use performance management have PRP. Nevertheless, PRP is an important element in many performance management schemes because it is believed to motivate; it is said to deliver the message that performance and competence are important, and it is thought to be fair to reward people according to their performance, contribution or competence. Others, though, believe that other factors are more important than PRP in motivation; that it is usually based on subjective assessments of performance, that it inhibits teamwork because of its individualistic nature, and that it leads to 'short-termism'. See our factsheet for more information on performance pay.

Go to our performance-related pay factsheet

An alternative to PRP is competence-related pay, which provides for pay progression to be linked to levels of competence that people have achieved, using a competence profile or framework. The difficulty here is measuring competence, and some organisations use a mix of PRP and competence-related pay. Further possible pay systems are team-based pay, a kind of PRP for teams; and contribution-related pay which means paying for results plus competence, and for past performance and future success.

Performance may be used to determine all or some aspects of pay. In many instances only non-consolidated bonus payments are linked to performance which tend to reflect organisational, team and individual performance whilst salary progression is linked to service, market rates and pay scales.

Many organisations believe that when performance management is linked to pay the quality of performance discussions will inevitably deteriorate.

360 degree feedback

360 degree feedback became increasingly talked about in the 1990s, if not widely used. It consists of performance data generated from a number of sources, who can include the person to whom the individual being assessed reports, people who report to them, peers (team colleagues or others in the organisation), and internal and external customers. It can also include self-assessment. 360 degree feedback is used mainly as part of a self-development or management development programme, and is felt to provide a more rounded view of people, with less bias than if an assessment is conducted by one individual. See our factsheet on 360 feedback for more information.

Go to our factsheet on 360 feedback

CIPD viewpoint

Performance management has a significant role to play in enhancing organisational performance by:

ensuring everyone understands their contribution to organisational goals and objectives
ensuring each individuals understanding what is expected of them and has the skills and support to achieve this
driving engagement
ensuring effective communication throughout the organisation and linking of objectives
enhancing the individual/line manager relationship, encouraging line managers to build positive relationships with individuals based on trust and empowerment.

The keys to the successful introduction and application of performance management are:

being clear about what is meant by performance
understanding what the organisation is and needs to be in its performance culture
being very focused on how individual employees will benefit and play their part in the process
understanding that it is a tool for line managers and its success will depend on their ability to use it effectively.

References

ARMSTRONG, M. and BARON, A. (2004) Managing performance: performance management in action. London: Chartered Institute of Personnel and Development.