Although research and experienced practitioners have identified several characteristics that are prerequisites for effective performance management systems, there are also many decisions that need to be made to design a system ideally suited to the needs of a given organization. One such decision is what purpose(s) the system will serve For example, performance management systems can support salary decisions, promotion decisions, employee development and downsizing. A performance management system that tries to achieve too many objectives can die from its own lack of focus and weight. There is no one type of system or set of objectives that is best suited for all organizations. The objectives of a given performance management system should be determined by considering business needs, organizational culture, and the system’s integration with other human resource management systems.
An important caveat to consider is that while performance management for decision-making and employee development purposes are certainly related, these two objectives are rarely equally supported by a single system. When a performance management system is used for decision making, appraisal information is used as the basis for salary increases, promotions, transfers, assignments, reductions in force, or other administrative HR actions. When a performance management system is used to develop, assessment information is used to guide training, work experience, mentoring, and other developmental activities that employees will engage in to develop their capabilities. While it is theoretically possible to have a performance management system that works well for both decision-making and development purposes, this can be difficult to achieve in practice. In addition, research has shown that the purpose of rating (decision-making vs. development) influences observed ratings. . Ratings for developmental purposes tend to be more variable, reflecting both the employee’s strengths and developmental needs.
An example will explain why it may be difficult to emphasize decision-making and development equally within the same system. The managers of these organizations rate their employees and then meet to calibrate their ratings and decide on rewards. Managers then conduct review sessions with each employee to discuss the employee’s performance, salary increases, and stock option grants. The meeting is supposed to include developmental feedback. However, the percentage growth range and stock options are large, allowing managers to effectively link performance to rewards. Because so much is at stake, most meetings usually focus on fairness on both sides rather than how the employee can develop. The meeting environment is not conducive to giving and receiving feedback, and employees are reluctant to discuss their development needs for fear that it will negatively affect their rewards. Even in this organization’s strong performance-based culture, the decision-making aspect of performance is, by default, overemphasized.
Effective performance management systems have a well-defined process for completing appraisal activities, with defined roles and deadlines for both managers and employees. Especially in organizations that use performance management as the basis for pay and other HR decisions, it is important to ensure that all employees are treated fairly and equitably. Based on examination of performance management processes in various organizations, most contain some variation of the process shown below:
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