Performance Management is often left to be one of the last HR systems that are developed in the HR department. However, establishing a Performance Management System is crucial for successful operation and linking of all other systems and tools in the modern Human Resources Management.

Performance Management is often left to be one of the last HR systems that are developed in the HR department. Most commonly, right after the HR operations processes are set, the HR managers turn their attention to establishing the learning and development models, talent management and compensation and benefits systems leaving the Performance Management to be one of the last systems on the list. This is often due to the fact that it is one of the most complex systems and that errors can affect the company in whole. However, establishing a Performance Management System is crucial for successful operation and linking of all other systems and tools in the modern Human Resources Management. Even more, the Performance Management System is the crucial tool that enables execution of the company strategy through support of the specific company goals and targets.

Base for the Other HR Systems

Performance Management represents a base that feeds and links the other HR systems such as:

Learning and Development – through offering valuable inputs which employees need improvement of their knowledge and skills in order to be able to achieve their personal goals on target

– through offering valuable inputs which employees need improvement of their knowledge and skills in order to be able to achieve their personal goals on target Career and Succession Planning – through offering a clear picture which employees can cope with more demanding and more responsible tasks

– through offering a clear picture which employees can cope with more demanding and more responsible tasks Employee Motivation, Recognition and Rewarding - the reward and recognition systems are usually linked to employee’s performance, so they need the inputs from the Performance Management System in order to recognize and reward the right employees for their outstanding performance

- the reward and recognition systems are usually linked to employee’s performance, so they need the inputs from the Performance Management System in order to recognize and reward the right employees for their outstanding performance Compensation and Benefits – many compensation and benefits packages include occasional or regular bonuses that are directly linked to the results evaluated within the Performance Management System

– many compensation and benefits packages include occasional or regular bonuses that are directly linked to the results evaluated within the Performance Management System Planning and Monitoring of the Activities – the results from the evaluations within the Performance Management System offer valuable input and “lessons learned” for the planning of all the future activities

Without a properly set Performance Management System it will be difficult for the HR manager to successfully operate all other systems that are fed by this system.

For example, let’s say that in the Company XY the management wants to define and set a development plan for sales personnel. So if they do not have properly set targets and measurement methods and tools, how will they know which employees to train? They can measure and compare the performance between the employees, but that doesn’t mean that they know who is underachieving or overachieving. For instance, even the best salesman can be an underachiever if compared to the target that the shop needs to achieve. However, because in this case there is no proper target setting in place, the managers don’t have a clear picture of the realistic performance of the salesmen. The opposite situation can be true as well. The company can constantly spend resources to improve the salesmen that have the worst results when compared to the other employees, but even they can be overachievers if comparison to higher ranked targets was possible.

Supporting the Accomplishment of Company Goals and Targets

A well established Performance Management System focuses employees’ energy and time on successful accomplishment of company goals.

The above comes from properly set personal goals and targets for each employee. Each personal target and each target of a lower rank in general should support a higher target. In that direction targets should always be set top down. After the top management get the company goals and targets and their own personal goals and targets their duty is to cascade them down to the layer below them, and they to the layer below them etc. all the way to the lowest layer of employees in the company. That way, reaching a lower rank target directly supports the accomplishment of a higher ranked one. Eventually, this is not only the proper way to set targets, but it should be the only way to set targets because setting targets that do not support a greater goal or target does not make sense.

Well established Performance Management System focuses employees’ energy and time towards successful accomplishment of company goals

Namely, let’s say that we have an employee named John to whom we have set 3-4 personal goals and targets which are not directly nor indirectly linked to achieving a greater target. Throughout the year John is focused on achieving his targets. At the end of the year or at the end of the evaluation period, John has reached or, even more, overachieved all of his targets. So John has been evaluated as an overachiever. Having a couple of more employees like him in our team should help us achieve our team’s targets. However, this would not be the case in our situation because instead of focusing the employees to achieving the right goals we have focused them to achieving goals that aren't related to the goals that we want to achieve as a team.

Each target of a lower rank should always support a higher target

Then, even more, according to the bonus system, linked to the evaluations of the performance management system we will have to pay pretty big bonus to John no matter that his performance hasn't helped the overall company performance at all.

Basic Components of Performance Management Systems

Performance Management Systems should be as simple as possible

Concluding the above, performance management shouldn't be left unorganized and relying to the best knowledge and skills of the managers in the company no matter how skillful the managers might be. The Performance Management System should be a well designed and structured system that includes all the necessary elements offering consistency and transparency but also being as simple as possible. Many HR managers tend to design complex Performance Management Systems out of the idea that only that kind of a system can support the company performance, or just because they want to show how knowledgeable and competent they are. The practice, however, has shown that complex systems are not practical and that the managers and employees usually resist them. Also, many of the employees cannot fully understand them, and tend to think that there is always something hidden in them.

The basic elements or phases of the performance management cycle should be:

Planning –This is the first and the most important step of the cycle. The planning phase is where the goals and targets are set, so all phases after this one highly depend on the quality of work that is done when defining and cascading the goals and targets.

–This is the first and the most important step of the cycle. The planning phase is where the goals and targets are set, so all phases after this one highly depend on the quality of work that is done when defining and cascading the goals and targets. Monitoring and Adjusting –This is the longest phase of the Performance Management System which unfortunately many organizations tend to neglect. In this phase the managers should constantly monitor the performance and the achievement of the targets of their employees in order to avoid surprises and to be sure that the targets will be met at the end of the evaluation period. Besides the monitoring, this phase also includes foreseeing measures for adjustment and improvement of the performance, as well as regular formal or informal feedback sessions.

–This is the longest phase of the Performance Management System which unfortunately many organizations tend to neglect. In this phase the managers should constantly monitor the performance and the achievement of the targets of their employees in order to avoid surprises and to be sure that the targets will be met at the end of the evaluation period. Besides the monitoring, this phase also includes foreseeing measures for adjustment and improvement of the performance, as well as regular formal or informal feedback sessions. Evaluation –In this phase the managers evaluate the accomplishment of the goals. The evaluation is made by comparison of the value of the targets and the value of achievement.

–In this phase the managers evaluate the accomplishment of the goals. The evaluation is made by comparison of the value of the targets and the value of achievement. Reward and Recognition –At the end of the cycle the top performances should be rewarded and recognized.

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