Performance Management: Researches and Process


Dr. Deepak Kumar Sahoo
Department of Management
S.C.S. (A) College

Chandrakanta Sahoo
Sr. Lecturer
Bhubaneswar Institute of Management and Information Technology


Every year thousands of employees around the world struggle to make out the nuances of their performance measurement and feel deceived and dejected. Indeed, success of all industrial establishments is largely relied on the effectiveness of their performance management system. In the early years, a systematic and a well designed and directed approach to the same were not devised. Later on, executable plans and strategies have been implemented and followed by man of the establishments. The increasing need and requirement for managing performance of employees led corporate managements to opt for this sort of a plan in order to ensure optimized performance. This paper discusses purposes, uses, practices and process of a sound performance management system.


Rahul felt let down by his manager end of the year. He thought he had given his best and given innumerable innovative ideas that benefited the company but end of the year he was simply rated as Average by his boss. What else could he have done to get a A+ rating? He felt demotivated and contemplated quitting his job. He could not accept that he can be a victim of the so called "bell curve".

The above is not an exception. Rahul as a character represents a type. There are thousands of Rahuls who might be wandering for the cup of teas they deserve. "Where do they stand in their respective designations? They might be toiling both day in and day out with the hope that their dream would turn reality. But in many cases, the gap in between exists as usual. The reasons could be rater's bias or faulty performance management system or role ambiguity etc. A sound performance management system is very systematic and transparent which eliminates all such problems, but ensures that employees' performance is properly aligned with the strategic aim of the organization.


Performance appraisal means evaluating an employee's current and/or past performance relative to his or her performance standards. Performance appraisal always assumes that the employee make out his or her performance standards and the supervisor renders timely and apt feedback, development., and incentives required to assist the person eliminate performance deficiencies or to persist to perform above the performance index. The aim should be to improve performance.

The concept of employees' appraisal is not new though new approaches and methods have been experimented and successfully employed for effective appraisal over the period of time. During global economic downturn, employees' performance appraisal has become stringent to segment talent from the poor performance as in case of the whiff from the wheat. So there are certain situational factors to determine to what extent the quality and quantity of employees' performance will be rewarded. Many managers take the integrated nature of the process of setting goals, training employees, and then appraising and rewarding them more sincerely today than the earlier. They call this total integrated process performance management. We may define performance management as a process that consolidates goal setting, performance appraisal and development into a single, common system, the aim of which is to ensure that the employee's performance is aligned with the company's strategic aims. Performance management includes the practices through which the manager defines the employee's goals and work, develops the employee's capabilities, and evaluates and rewards the persons' effort all within the framework of how the employee's performance should contribute to accomplish the company's goals.


Some studies have already been conducted to critically examine the various needs and uses of employees' appraisal. An extensive study by The Conference Board revealed that employees' appraisal has the following objectives on the priority basis:

1. Management development,
2. Performance appraisal,
3. Performance improvement,
4. Compensation,
5. Potential identification,
6. Feedback,
7. Work-force planning and
8. Communication

However, when respondents were asked how the companies used appraisals, the ranking differed and showed the following results:

(1) Performance feedback
(2) Compensation administration
(3) Promotion decisions
(4) Identification of management development needs
(5) Work-force planning and
(6) Validation of selection procedures.

The differences between the stated objectives of appraisals and the way they were used may be an important reason for the employees' grievances with appraisals that was indicated by some of the personnel managers participating on this study. Indeed, the objectives and uses of appraisals have a different orientation. In determining compensation, or often even in evaluating performance, superiors assume the role of judges. In contrast, when the aim is to develop subordinates, managers need to be counselors, helpers, and teachers.

The General electric Studies:

Some of the best-known studies on performance appraisals were done at the General Electric Company. The findings of the initial study revealed that

(1) Criticism had a negative impact in goal accomplishment,

(2) Praise had little effect,

(3) Specific goals improved performance,

(4) Critical appraisal resulted in defensiveness and inferior performance,

(5) Coaching should be done on a day-to-day basis rather than once a year.

(6) Joint objective setting, not criticism improved performance,

(7) Meetings with the primary purpose of improving performance should not be conducted at the same time that salary or promotion is being considered, and

(8) Subordinates participation in setting objectives improved performance.

In light of the findings, General Electric developed a new appraisal program called Work Planning and Review (WP&R). This new approach emphasized frequent discussions of performance without summary ratings. Moreover, salary actions were discussed at separate meetings. Finally, problem solving and joint objective setting were emphasized. The experience at General Electrical suggests that the two purposes of performance appraisal should be separated because if the appraisal is used as the basis for salary action, the superior assumes the role of a judge, while in the attempt to motivate employees the manager takes the role of a coach. It is through recognizing the split roles in performance appraisal and by setting specific goals mutually agreed upon by the superior and the subordinates that productivity can be improved.


Performance management is Futuristic, i.e. how to plan, strategize, organize, ensure and extract the desired performance in the coming year or in near future. Performance Management consists of following mechanism.

It starts with Benchmarking and ends with Appraisals.

  • Performance Benchmarking
  • Performance Indicators / KRAs
  • Performance Requirements
  • Performance Planning
  • Performance Policy
  • Performance Agreement/Contract
  • Performance Improvement Plan (PIP)
  • Reward & Award Mechanism
  • Performance Appraisal System

Performance Benchmarking

It starts from Performance Benchmarking. An organization needs to set clear performance goals for the entire organization starting from Top Management, to Business Groups level, Business Unit level, Department level, Team Level and finally scaling down to Individual levels. Organization performance goal can be defined in terms of business strategies i.e. increasing market share from 15 to 20%, or increasing revenue limits from 20 crore to 27 crore, or increasing sales from 7 lacs units to 9.6 lacs units, increasing current clientele from 33 clients to 47 clients in the next year, or improving organizational productivity from x level to y level etc. It can be anything that goes with organization's business strategies or goals. These expectations and plans can be further cascaded to department level, business unit level, and individual level. Performance standards can be set like this year the business enterprise needs to expand its sales figures from A level to B level, our brand equity in the industry needs to move from X level to Y level, to increase our market leadership, sustainability in the industry, improve our core competencies and augment our competitive advantage etc.

Performance Indicators

Proper performance strategies can be worked out once performance goals have been clearly set. Performance strategies must prioritize on areas, factors that reflect benchmarked Performance, i.e. the Key Performance Indicators, or Key Result Areas (KRA). These indicators have to be clearly explained to each department, team and individual so everybody sees clearly what is expected of him or her.

Performance Requirements

Performance strategies may also define requisite resources both human and non-human; compare these with the current available resources in terms of existing manpower/skills available, competencies available in the organization and their current proficiency levels,

And find the gaps in between and thereby formulating strategies to bridge the resources gap within the requisite time frame for the same, so that the business enterprise has the adequate resources at the earliest to extract desired performance objectives.

Performance Planning

Once performance requirements have been identified, the business enterprise or the HR department of the business enterprise can plan performance extraction in terms of the following:

  • The HR department has to identify and understand whether current job profiles, roles are consistent to extract desired performance. In case of existence of role conflict or need to realign or redefine certain job profiles or positions, work and people have to be reengineered and job profile has to be properly structured in each function (technical, frontline, operational, support functions) that enables the job holder to give expected results as per KRAs. Over and above, there should be clear division of labor to ensure that each employee has enough workload (avoid overloading or under loading) so that performance doesn't get stressed and stretched. Optimum level of employee engagement is required.
  • Manpower planning is absolutely imperative at this stage. A thorough analysis of existing manpower structure has to be conducted , desired manpower has to be estimated , gaps have to discovered and strategies to build desired manpower have to be formulated and implemented whether through internal movements or external hiring, or building future/buffer manpower by taking some portion of Trainees, providing for attritions etc.
  • The organization must ensure that it has the right infrastructure resources like required technology, tools & equipments, facilities, infrastructure etc. that facilitates performance without any disturbances to deliver requisite performance.
  • Also performance extraction can be phased out to simplify the delivery of results where say in a first quarter we should be able to achieve X, in second quarter Y and in the last two quarters Z,A,B,C etc.

Performance Policy

Right Policy Framework is also a key to make out company's performance philosophy, performance expectations and the manner in which performance has to be delivered. A detailed Performance Management Policy needs to be defined which outlines company's performance framework, time of appraisal, measurement and assessment methodologies, rewarding and awarding mechanisms, and performance improvement facilities etc.

Performance Agreement

Once the performance is premeditated, organization and employees have to reach at a consensus through a formal process which has to be documented for future reference. Performance Contract, Agreement or KRA Form or Deliverable Forms are the tools used to agree upon performance for the coming year. Both the superior and subordinates need to understand expectations from both ends very clearly and document them on the paper. The agreement could be to deliver certain performance tasks within a given time frame with specified measurement parameters as well as predefined ranking-rating-weighing-assessing techniques. Further, it could also include certain developmental tasks or new learning initiatives, which either of them proposes to implement in the next year. Also the organization may agree to provide all the required support and facilities like training and developments needed by an employee to deliver his tasks and results.

Performance Improvement Plan (PIP)

Once performance goals and objectives have been planned and agreed upon, the next thing could be how the organization or the HR department ensures that goals or targets are achieved. Here comes the real HR challenge and comprehensive plan to improve and create difference in performance levels.

Here the employees are expected to raise their performance from X level to Y level as per our business strategies. Gaps in human resources and the current proficiency level have already been identified. In order to improve employee productivity we need to fill the gaps in following ways:

  • Skills Gaps: Requisite training programs have to be conducted to bridge the skill gaps or employees may be encouraged to undergo certificate or educational programs to acquire the requisite skills.
  • Competency Gap: Competency Analysis & Mapping, Behavior Interviews & Psychometric tools should be used to make out current proficiency levels. The organization could also initiate job rotation to uncover the latent talent of the employees and accordingly they might be placed on the job where they might better capitalize their competence. Over and above, competency Development / Personality Development Programs could also be designed accordingly to build up needed competencies / behaviors in the organization.
  • Knowledge / Information Gaps: The Company must ensure that it has the right forums, avenues and communication channels where information is shared consistently on continual basis. It would create wider awareness about the surrounding world and competition industry.
  • Motivational Gaps:  Job should be the biggest motivator for the employees. So employees have to be ensured that their jobs are properly designed and enriched. This is only possible if we design and allocate jobs to employees, which they are passionate to do. Other things like, incentives, welfare events, etc. can keep employee happy, may not be motivated, not necessarily.
  • Compensation Gaps: Industry Benchmarking added with best practices must be implemented to ensure a sound and transparent compensation structure. It is very important to have a Performance based Pay structure combined with Differential pay system. It means it should have an attractive variable and incentive scheme directly linked to KRAs of the employees as well as Salaries will be defined as per performance only, not on the basis of qualifications or number of years of experience etc. A sound compensation plan should also include 'common benefits plan' for all employees of any business division/unit/group etc.
  • Promotion / Career Planning / Succession Planning Gaps Promotions should not be only based on performance; it should also be based on Potential. For example up to middle management it could be fully performance based but above middle and senior management should be a provision to mark key employees having strong potential to hold senior posts. These employees can be emphasized for special development programs to make them eligible and competent to take next senior role/position.
  • Management Development Plan Managers are the most indispensable entities in any organization. Managers play crucial and direct role in terms of extracting performance from their team, team motivation, stability, team performance evaluation and feedback to HR and Top Management. Managers are supposed to lead from the front that must render right direction to their subordinates and ensure they are always motivated to contribute more and more. Hence an effective Management Development Program can help build up competent management force and good managers directly help to cut attrition and increase sustainability of the manpower. Various Management Development initiatives such as Leadership Skills, Problem Solving Skills, Delegation skills, and Interpersonal Skills, Team Building and Coaching skills, Retention Skills etc. can be introduced to ensure that Managers play very active and value added role not only to improve performance but also to maintain employee stability and continuity.

Reward & Award Mechanism

It is very important to link high performance with efficient rewards mechanism or system in the organization. However, we should know golden rules of rewarding:

  • What to Reward / Punish The organization must cherish, promote and reward on the priority basis certain behaviors and achievements that are desirable to accomplish the organizational goals. Other things which are not in line with organization and performance objectives can be given second priority.
  • When to Reward It is very important to reward employee instantly when he achieves the results or at least recognize his endeavor; delivery of rewards may come later. It is not good to reward the employee after 6 or 12 months in the next appraisal cycle as it renders no meaning or value to his achievement.
  • How to Reward Some like it in public, some in private. Each one has his own likings about how he should be recognized and rewarded. Cash, Kind, Stocks, Profits, Promotions, Relocations etc. The list could be endless.

Performance Appraisal Mechanism

PM system must have a robust and clear evaluation or assessment methodologies in place. Certain deliverables are quantitatively assessable; some are not, some need to be just observed and some needs to be evaluated against specific standard etc. The evaluation or appraisal system should have good rating-weighing mechanism, which quantifies performance, in both absolute and subjective terms. Further the appraisal system should be able to capture overall growth and performance of an individual in terms of his skills, knowledge, and personality and future potential etc. so that a concrete, motivating and constructive feedback can be extracted rather than criticizing employees.

The approach to Appraisal system can be as follows.

  • Goals evaluation: Any appraisal system should document previous year's goals and objectives and their status whether they are achieved, not achieved, still in process etc.
  • Deliverables Achievement: Current performance should be evaluated using good rating system and weighing mechanism. For example, each deliverable agreed in the Performance Contract should be rated on the scale that could be either 0 5 or 10 etc. 0 means not achieved and 5 or 10 could mean over achieved. Further each deliverable should be given due weightage in terms of its priority, criticality and importance. For example total weightage of all deliverables is 20, and each deliverable can be given weightage out of 20 so that total of all weights given to each deliverable sums up to 20. The multiplication of each deliverable and weight assigned to it gives a final score of achievement.
  • Competencies: Appraisal System should also include Competencies evaluation and rating. Competencies can be Managerial, Behavioral, Technical, Functional, etc. Competency rating is very complex and should be done independently along with Competency Mapping program. However following rules regarding competencies should be kept in mind.
  • Competencies are behaviors and attitudes of people. Competencies are Never Constant. They keep varying between various ranges. It can never be calculated in absolute figures. It always falls between ranges of two rating numbers.

    For example, we cannot say, Leadership Skill competency is rated 3 out of 5. It will always be either between 3 to 3.50 or 4 to 4.25 or 1.50 to 2.25. While defining competency proficiencies these rating ranges can be appropriately labeled such as Leadership Skill between 3 3.50 is considered to be good, but need improvement. Rating between 4 to 4.50 can be said excellent, and needs to be kept consistent, or rating between 2.00 to 2.50 needs immediate training program. It is also possible that ratings may fall and rise periodically because behaviors are not always constant; they change, improve or decline.

    A competency alone does not guarantee performance and there is no direct link between competencies and performance. Performance is more of a function of Skills and Attitude. Hence along with competencies job related functional/technical skills are major drivers, which enables a person to perform. Also each competency can further be weighted as done in deliverables to indicate prioritized competencies and consolidated competency scores can be obtained.

  • Strengths & Weaknesses discussion: From a personality point of view, it is also important to understand strengths and weaknesses of a person. This is helpful not only to assess his existing potential but also current and perspective performance. It is important to make out certain strengths that have remained disused or untouched but can be capitalized in future for the betterment of the organization and employees as well.
  • Roadblocks for non-achievements:  Under what circumstances an employee was not able to deliver certain tasks could guide us towards improvement required either in terms of resources provided for employees or infrastructure loops or market forces or any other personal reasons.
  • Overall Evaluation: It includes deliverable scores and competency scores can give you final ratings of candidate's performance appraisal.
  • Training Needs: Training needs is also an important issue where employees perform below the performance index. Employees showing improvements consistently can also be considered for additional training and grooming programs so that their capabilities can be strengthened.


Performance Appraisal is essentially a historic activity. It is an assessment of what has already been done in the past. It cannot be changed though can be commented. In addition to it, performance management has future implication. This is the major difference in Performance Management and Performance Appraisals.

To ensure that appraisal is not just seen as an annual ritual to be got over as quickly as possible it is necessary to emphasis the continuing nature of the process on briefing and training. Performance appraisal should not be imposed on managers as something special they have to do. It should be treated as a natural process which all managers should carry out.

Performance appraisals are an integral part of every organization and if they are properly developed and implemented, they can help the organization achieve its goals by developing productive employees.



Dr. Deepak Kumar Sahoo
Department of Management
S.C.S. (A) College

Chandrakanta Sahoo
Sr. Lecturer
Bhubaneswar Institute of Management and Information Technology

Source: E-mail December 27, 2009


Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399 / Articles No. 400-499
Articles No. 500-599 / Articles No. 600-699 / Articles No. 700-799 / Articles No. 800 to 899
Back to Articles 900-1000 / Articles 1001 Onward / Faculty Column Main Page