We can see that the key issue related to the determination of the wage/effort bargain is not simply a matter of setting a wage relative to the level of effort and letting things ‘tick along’. From the dawn of the industrial era managers have sought to control the effort side of the agreement by utilising their power to determine the wage. Performance management (or more accurately forms of performance-related pay) has formed a key activity for managers and management in the quest to increase the benefits gained by the application of labour power.
There have been various mechanisms applied in order to secure this advantage which were based on the ‘current fad’ or understanding of the labour process (for a discussion of the influence of the emergence of SHRM, see Schuler and Jackson, 1999). The choice of which management system to adopt has been driven by the answer proposed to the basic question ‘what motivates workers to perform at higher levels?’ and more often than not can be located within the various schools of thought outlined above.
We can see the development of reward management along the lines suggested by Etzioni (1975) in terms of coercive (work harder or lose your job), remunerative (worker harder and receive more money) and normative (worker harder to achieve organisational goals). Current trends in the management of worker performance fall to be considered in the area of normative managerial practices, but are fraught with difficulty in an era where emotional labour and the knowledge worker hold such a central place in organisational success.
These developments need to be considered alongside the evolution of an ambiguous employment relationship (the breakdown of the psychological contract) and the rise of insecurity within modern organisations (reflected in the growth of ‘butterfly workers’). As Fisher notes, ‘Insecurity is a common phenomenon in organisations’ (1999: 167), be it the feelings of insecurity within line managers who have not previously been responsible for the range of issues they now enjoy or that of the HR manager attempting to demonstrate they have put in place all the necessary procedures required to measure performance and show their organisational worth in a modern competitive environment.
HR managers, lost in a landscape where memory no longer serves the function of creating security (Schama, 1995), argue that they can apply the techniques presented within expectancy and/or goal-setting theory to the development of procedures which will secure competitive advantage for the organisation. Such procedures are borne within the all-encompassing ‘HRM mantra’ which declares, for self-assurance as much as public consumption, that the HR function is a strategic player in the organisation network bringing new understanding to the application of personnel practices and organisational changes.
We can suggest from Figure that the HRM mantra, which can be considered as the ‘self-reassuring’ chant of HR managers, indicates the importance of HR procedures in the success of the organisation and note how a number of these link into our discussion of reward systems and performance management. The notions of ‘productivity through our people’, customer focus, strong(er) leadership, flatter structures and cohesive cultures all suggest a management framework which seeks to improve individual and organisational performance in ways that can be measured, a concentration on competence (inputs) alongside attention to attainment (outcomes).
These elements turn attention to the fact that in modern organisations it is the quality and behaviours of the employees that generate, as much as other inputs, competitive advantage. While much of the business strategy literature since the 1980s has concentrated on the ‘setting and achievement’ of organisational goals, what has often been lost is the role of human resources in the attainment of competitive advantage (a trend addressed by the application of the ideas associated with the resource-based view of the firm in recent years;).
However, a set of key questions still remain: ‘what motivates workers to perform at higher levels?’, ‘how do we manage this motivation to the best effect?’ and ‘how do we measure resulting performance levels?’ Some attempt has been made to answer the first of these questions in the preceding sections using the theoretical constructs offered by Maslow, Herzberg, Taylor, Vroom and Locke. These, as our discussion of the psychological contract suggested, leave us with some confusion and inconsistencies which present management with as many questions as answers. The recent developments in this area involve two themes:
As Lowry (2002) argues, the management of employee performance is usually seen as a necessary function of the managerial cadre. Centrally, it links a number of themes, including the extent to which the organisation has identified strategic goals reflecting the needs of the business and the degree to which these are communicated to and shared by each employee. We can further note that general definitions suggest that performance management involves a formal and systematic review of the progress towards achieving these goals.
In response to the problems this creates, theorists have developed the idea of a performance management cycle within which the elements of the process can be identified, investigated and implemented by HR managers in the attempt to create organisational advantage. The cycle consists of five elements which provide a framework within which we can audit the delivery of strategic objectives with a view to developing continuous improvement.
These elements are presented as a common link between organisational and individual performance which underlies the development of a committed, motivated, loyal workforce. In simple terms, it is suggested that the cycle indicates a system within which performance objectives are set, outcomes are then measured, results are fed back, rewards are linked to outcomes and changes are made before new objectives are set for which the outcomes can be measured. We now consider each of these elements individually.
The HRM mantra
There is any amount of prescriptive advice which indicates that the objectives need to be achievable and linked to organisational objectives. Where the purpose of setting such objectives is to direct, monitor, motivate and audit individual performance they must fulfil both of these criteria, otherwise the process will result in the opposite effects being secured. The application of expectancy and goal-setting theories implies that this is best achieved where the individual has an important role in the determination of the objectives for the period concerned.
As suggested in the discussion above, this will encourage the selection of appropriate goals which are specific, attainable and owned by the individual. The process, as a management tool, is established on the basis that organisational objectives can be broken down and translated into individual goals, the attainment of which can then be effectively measured. In recent debates we find that organisations are said to make frequent use of the acronym SMART to assist in establishing effective objectives:
S – Specific or Stretching
M – Measurable
A – Agreed or Achievable
R – Realistic
T – Time bound
There are, however, difficulties in setting objectives for some jobs, e.g. doctors, lecturers and lower levels in the organisation hierarchy, as they may not have the opportunity to improve their performance or demonstrate merit, and may be unable to identify or relate to organisational goals.
Where the objectives relate to numbers, increased sales or an increased production of widgets, for example, the measurement appears unproblematic. However, not all of us are ‘sales’ representatives or ‘widget’-makers; indeed, in the current economic climate such crude measures may be inappropriate and in some respects a return to ‘old pay’ notions of piecework. The growth of ‘knowledge’ workers has been accompanied by a change to competence-based approaches to measurement which centre on the three stages of competence development (know-what, know-why and know-how; see Raub, 2001).
Therefore the outcomes can be measured in relation to the individual’s success in deploying, integrating and improving their competence in the identified field of activity. This allows the organisation to refocus on the development of competitive advantage through the application of ‘core knowledge’, including tangible and intangible assets. It allows the application of ‘just enough discipline’ to establish a relevant ‘core knowledge’ base which is defined by strategic business drivers and monitored to maintain balance (see Klien, 1998).
The outcomes are often measured by the application of appraisal schemes. The purpose of performance planning, review and appraisal needs to be made clear if employees at all levels in the organisation are to play an active part in the process. It is possible that some employees and line managers may meet performance appraisal schemes with distrust, suspicion and fear, but an integrated and effective process can lead to increased organizational performance and employee motivation.
It is important for employees to be genuinely involved in the design of an appraisal scheme, the evaluation of performance, and the objective-setting process. An appraisal scheme should be set up in an atmosphere of openness, with agreement between management, employees and employee representatives on the design of the scheme (Grayson, 1984: 177). Employees need to have a clear understanding of the purpose of the process (evaluative or developmental).
From this we can suggest that the key principles in the design of a performance appraisal scheme are that it should be congruent with the organisation’s competitive strategy. It needs to provide direction for continuous improvement activities and identify both tendencies and progress in performance. Manifestly it needs to facilitate the understanding of cause and effect relationships regarding performance while remaining intelligible to those employees to which it applies.
It ought to be dynamic, covering all of the company’s business processes, and provide real-time information about all aspects of performance. A scheme that does not include employees’ attitudes is unlikely to allow performance to be compared against benchmarks because it will not be composed of effective performance measures. Finally, we can note that a performance appraisal system should provide a perspective of past, present and future performance which is visible to both employees and management.
On the basis of seven case studies, IDS produced the following list of factors which were typically appraised:
From this we can suggest that assessment of these factors is achieved by a mixture of ‘subjective’ and ‘objective’ measures, almost alway carried out by the employee’s immediate superior. The most commonly used measures will therefore relate to the individual’s attitude to work as well as the quality of their work and their attendance and time keeping. These will be assessed alongside their knowledge of the job and productivity, while more subjective measures involving a judgement of their ability to interact with others will be included in a good scheme in order to develop an insight into the effectiveness of recruitment procedures. In terms of ‘rating’ or ‘scoring’ individual employees, a number of ‘target areas’ can be identified for assessment.
Accountabilities define the responsibilities of a certain job and the results that jobholders are expected to achieve. The employees’ actual output in terms of measurable productivity, timeliness and quality may be directly assessed as part of the appraisal scheme. This presupposes the employees’ job role is open to such quantitative assessment.
Employees may be assessed on their acquisition of new skills required to further improve their performance in the job or the continued development of essential skills. Jones the Bootmaker, a footwear company in the Midlands, have recently developed a new performance appraisal scheme in which they specifically appraise managers on the job they are currently required to do rather than place undue emphasis on developing skills and competences for future positions. Andrew White, company representative, stated ‘We found that the previous scheme was appraising managers on competences beyond their current job role, which in some cases led to demotivation’ (White, November 2002).
This approach is mainly concerned with the identification of self-development needs by the actual employee. Margerison (1976) has suggested that self-assessment is the only way to give a complete picture of the performance of the employee and to avoid a ‘criticise– defend’ scenario. It does, however, require the employee to have a detailed and informed understanding of both the current and future needs of the job role and the organizational needs against which they can accurately assess their current performance and so their future development needs.
This is a comparative method of performance assessment in which a superior assesses the performance of pairs of individuals, until each employee has been judged relative to each other employee, or until every possible combination of employees has been considered. A rating scale is then devised to show the number of times an individual employee was judged as ‘better’ (Roberts, 2001: 542).
This is another comparative measure of assessment in which employees are assessed against pre-set and documented measures of effectiveness and placed in a hierarchy from best to worst. At Cummins Engines the appraisal system is based on a 10:80:10 ranking scheme. Those employees ranked in the top 10 per cent are identified for promotion and special development. Those identified within the next 80 per cent are maintained within the organisation and the remaining 10 per cent are effectively ‘managed out’ of the organisation. In Cummins the appraisal scheme is very open and there are no ‘secrets’ over how it operates in practice!
This is considered to be an ‘absolute’ method of performance assessment. The method, according to Roberts (2001: 542), lists a number of factors such as job-related qualities or behaviours or can include certain personality traits. Individual employees are then rated on the extent to which they possess these factors. The rating scale can be numerically, alphabetically or graphically represented on a continuum, i.e. from ‘very high’ to ‘very low’. However, when scoring is involved it can get ugly.
The attraction of rating systems – the school-report model that ranks you as a team player from one to five, or rates your customer focus from A to E – is that the feedback is easy to gather and produces lots of data that can be aggregated and turned into bar charts. In this respect the HR department is happy because they’ve made a ‘fuzzy’ process look scientific, and someone from client services is proud because they got a 4 on knowledge leadership and their colleague only got a 3. But a number may not offer much insight on how to improve. For that you need thoughtful, qualitative comments – harder to gather, but much more helpful.
This is an attempt to assess actual performance and behaviour, so, for example, it is concerned not with whether an employee has ‘initiative’, but with specifically identifying what he or she actually does that demonstrates initiative – or the lack of it! The development of a BARS approach typically involves the following stages:
Essentially these define the ‘most efficient’ through to the ‘least efficient’ behavior and performance for the job.
The underlying job analysis is critical to the success of this approach and many proponents argue that the employee and their superiors should be actively involved in the process to ensure it is relatively realistic.
In some organisations the link between personal development and the business strategy is weak but is crucial to effective performance management. Effective development plans consider the future skills, knowledge and experiences that will be required by the employee to enable them to do their current job effectively. The identification of needs should also be linked to what the employee may require in the future – needs identification must therefore be closely linked to organisational succession and business plans. The plan may be in the style of an essay or a controlled report which asks for responses to certain headings or sections.
This approach to performance management has grown in popularity and when undertaken correctly is effective, reasonably inexpensive, widely applicable and clearly focused on individual performance.
The idea behind 360-degree feedback is that employees benefit from feedback gathered from a wide range of sources. Characteristically this includes peers, superiors, subordinates and customers; essentially it is designed to obtain comments from ‘all directions’, above, below and to the side of the employee concerned. It is intended to give a more complete and comprehensive picture of the individual’s performance and contribution.
The process typically follows a procedure in which competences have been established and defined and employees are then requested to nominate up to six significant others who cover the range of suitable respondents. Those giving feedback are then asked to use a rating scale or comment on each of the dimensions. For example, Roberts (2001: 543) suggests managers might be assessed by their employees on ‘softer’ people issues such as communication and support, and their peers on issues such as teamwork. Indicators of both internal and external customer satisfaction may be used, and suppliers and subcontractors may also be asked to give feedback on the individual manager’s performance and demonstration of competences.
Whatever approach to performance appraisal is used, there will inevitably be issues and concerns. In essence, to assess an employee’s performance necessarily involves some form of assessment against predetermined standards or behaviours. In both situations there will be an element of human judgement which, as we know, suffers from problems of reliability, validity and bias.
Kinnie and Lowe (1990: 47) state that ‘appraisers may find it difficult to identify and measure, the distinct contribution of each individual’; this can be because the appraiser doesn’t really know the appraisee or because, as suggested by Howell and Cameron (1996: 28), employees are constantly moving from one project to another.
There may also be many external factors beyond the control of the individual employee which affect their performance, such as resources, processes, technology, corporate and HR strategy, working environment, external business context and management. Equally, the appraisal might be skewed because if there is a long time span between appraisals, managers may place greater importance on more recent performance, called the ‘recency effect’, thereby possibly ignoring incidents that had occurred earlier.
Line managers/supervisors may lack the required technical skills and people management skills to be able to conduct an effective appraisal. In addition, a lack of time and resources may hinder line managers in providing comprehensive and effective performance reviews and objective-setting. Managers may perceive the appraisal process as a bureaucratic nuisance and form-filling exercise.
An appraisal outcome that labels an employee as simply ‘average’, or determines that he or she is not a ‘high flier’, may lead to demotivation. To state the general principle: when one person begins to make a judgement on another, unless that judgement is favourable, reaction and resistance begin to set in (Margerison, 1976: 32).
Roberts’ (2001: 545) suggestion of the ‘cascading’ approach, of progressive levels of management setting objectives for the level below and consequently being assessed themselves by the attainment of these objectives can result in the manipulation and ‘fudging’ of standards. Further, there is a tendency to retain ‘understanding’ in the language rather than ‘cascade’ this to lower levels. Managers attempt to maintain their ‘hierarchical’ authority by using the interpretation of the ‘spin’ to reinforce relationships of power within the organisation; by so doing they lessen the effectiveness of the communication mechanisms and therefore of the process.
Newton and Findlay (2000: 129) make reference to the writings of McGregor who draws attention to the issues of the conflicting roles of the appraiser as both disciplinary ‘judge’ and helpful ‘counsellor, suggesting the modern emphasis of appraisal is on the manager as a leader who strives to assist employees achieve both their own and the company’s objectives – acting as a sort of ‘mentor’ or ‘counsellor’ concerned with the personal growth and development of the employee.
At the same time the manager is charged with identifying (and hopefully agreeing) strict targets for achievement and performance. This can involve identifying areas where previous performance has been less than satisfactory – leaving the manager in the role of ‘judge’. There are obvious tensions between the two roles. Much of the literature suggests that this tension can, in part, be overcome by the employee taking an active role in the process.
But that is assuming the employee wants to be involved and really wants to take responsibility for improving themselves by taking an ‘active role’ in the process – and they may not. For example, they may see the whole appraisal process as an attempt to control and manipulate them. Newton and Findlay (2000:130) suggest employees may view this as a way of removing the responsibility for their development from the organisation, and placing it on their shoulders.
In an era in which the notion of ‘employability security’ as distinct from ‘job security’ characterizes the employment relationship, it is interesting to consider where the responsibility for investing in development lies – with the organisation, or increasingly as seems likely, directly with the employee. The interesting thing is that even as the appraisal process continues to be utilised as part of a spreading audit culture, some companies are already looking to cast it aside – or if they keep appraisals, making them, as Freeserve does, a process whereby employees solicit feedback rather than having it thrust upon them. It will be interesting to monitor how far this marks a turning of the tide against performance management appraisals.
The interest in appraisals and other PBR systems draws on the long-standing tradition to divide reward packages between base and contingent elements. The changes in the mechanisms used to identify and quantify these contingent elements currently focus on the notion of rewarding the person rather than the role and links into the notion of ‘new pay’ which increases the emphasis on the motivational qualities of PBR systems.
By linking pay to achievement, whether such achievement relates to production targets attainment of competencies or objectives set within an appraisal meeting, organisations are seeking to quantify and reward individual contribution to the attainment of business goals or strategic aims. Individuals, whether pay is determined by position on a spine determined by job evaluation or otherwise, may receive increments based on length of service alongside performance elements; these ‘service awards’ reward experience and loyalty.
However, such awards can be withheld where performance fails to meet the desired targets and are useful once ‘poor’ performance is identified as signals to other workers. Armstrong (2002) lists 15 features of performance management which were identified as being used by organisations in the 1998 CIPD survey. The results suggest that the most common of these (identified by over 60 per cent of the respondents) were objective-setting and review, annual appraisal and personal development plans (2002; 387).
At the bottom of the ladder, despite all the discussion in various HR texts, with under 15 per cent acknowledgement were the balanced scorecard (5 per cent) peer appraisal (9 per cent), 360-degree feedback (11 per cent) and rolling appraisals (12 per cent). The results showed that organisations viewed performance management as integral to the employment relationship, thus an important part of managerial activity despite (as noted by 60 per cent of the respondents) being bureaucratic and time-consuming (2002: 388).
In contrasting the results of the 1998 survey to those of the 1991 survey, Armstrong suggests a move from performance management ‘systems’ to a more holistic performance management ‘process’. This process, it is suggested, focuses on inputs/outputs, development, flexibility and a shift of ownership towards the users and away from the HR function. Interestingly, taking the results into account, Armstrong suggests that the process also involves an increase in the application of 360-degree feedback (2002: 389).
The development of a process within which performance is related to both input and output is in part the result of th application of an objective-based approach located in the work of Kaplan and Norton (1992). The so-called balanced scorecard, although acknowledged as a feature by only 5 per cent of the respondents in the CIPD survey, underlies much of the discussion relating to the development of a strategic role for the HR function.
In this approach there are four stages which start with a vision of the future, whether in the form of a vision statement per se or in terms of an answer to the question ‘where do we want to be in x years?’ From this we can identify how the organization will be different if the targets are achieved in terms of four key areas (Financial, Customer, Internal and Innovation/Learning) which will determine the success of the organisation in a competitive environment.
Reward strategies will impact on all of these areas to a greater or lesser extent by identifying as performance targets those elements which are critical to the successful acquisition of the vision for the future. The scorecard method can be used to identify specific instruments/measurements which can be used to set interim targets and therefore individual performance objectives. These may be competencies (can do), knowledge indicators (know-what) and/or commitment levels (know-why); critical elements in the attainment of these objectives are a strong psychological contract based on open communication, active participation and high-trust employment relationships.
Recent research (The Work Foundation, 2003) indicates that where employers are seeking to promote this type of performance management they will allow their employees to identify their own training needs (86 per cent), run regular team briefings (75 per cent), allow and encourage the development of transferable skills (73 per cent), tie reward to service by offering long-service awards (67 per cent) and operate a system of in-house brainstorming sessions or focus groups (66 per cent).
The report suggests that employers are acknowledging that performance management ties broader HR policies into the attainment of the strategic goals of the organisation and that this objective can be achieved by the development of a strong psychological contract. Despite these moves, we can suggest that poor levels of goal attainment within organisations can be the fault of bad management of individual employee performance.
A recent study by the consultants Mercer (2003) of 3500 employees concluded that a mere 20 per cent believe that their good performance will be rewarded while some 33 per cent feel their organisation operates in such a way that there is an inadequate link between pay and performance. From these results Gilbert notes that:
The Mercer survey also noted that while firms may be good at appraising individuals, many are weak on providing effective feedback and offer this as a cause for their finding that performance management systems are rarely effective. We have suggested that in part their effectiveness rests on two foundation stones, high levels of motivation and a strong psychological contract; however, research by the CIPD (2003) notes that while most worker are ‘happy in their work’, fewer than 30 per cent trust their senior managers to look after their interests, indicating a psychological contract which is far from ‘strong’.
In order to address these problems and develop high-commitment management (HCM) policies, employers are introducing greater flexibility in terms of the employment relationship. These moves include the introduction of flexible benefits, competency-based pay, merit pay and broadbanding (IRS, 2002). The survey upon which these conclusions are based indicated that more than 60 per cent of the respondents used elements of meritbased pay, while over half operated market-related pay systems, suggesting some confusion and cross-over between internal (individual performance based) and external
Linking pay to performance requires a robust performance appraisal process and the active support of line managers … our results indicate that many managers lack either the training or the support to conduct the process. (Gilbert, P. on mercerhr.com, 2003) (market equity based) rationale for the development and implementation of reward strategies. This confusion brings into sharp focus the role of HR as a function in the development and implementation of strategic objectives.
HR can measure the contribution it makes and/or impact it has against any number of measures; however, a recent IR survey found that over half of their sample used business objectives or performance indicators, suggesting a continued link to performance management as a key role for HR practitioners (IRS, 2003). The same survey noted that 64 per cent stated that the HR department maintained sole responsibility for pay determination, with only 4 per cent suggesting this was the sole prerogative of line managers.
We started by noting that reward management systems can be seen as managerial attempts to gain control over the ‘effort’ side of the wage/effort bargain which mirrors their unilateral control of the wage side. A fundamental element of performance management is the development of control in relation to employee behaviours, motivation and loyalty. In modern parlance, performance management is a mechanism to control values rather than simply actions.
With all the monitoring, discussion, measurement, evaluation and goal-setting, some performance management techniques give the impression that they are effective in controlling actions but often miss the target of securing control over effort levels because they do not develop powerful value systems. It is possible for these systems to have some effect on employee behaviours, to bring them into accord with organisation targets, while never really addressing the problem of underlying values.
If, as Grint indicates, the traditional view is that ‘good management is really concerned with good boundary management’ (1997: 10), then performance management may offer a good traditional style i that it manages the boundary between acceptable and unacceptable performance whether it moves beyond this to offer higher levels of commitment is debatable – we have suggested above that the process only secures that which it measures.
There are more serious questions to be answered with regard to those items it cannot or does not attempt to measure. Without the link to the development and implementation of a system of organisational values it is arguable that performance management, whether seen as a process or a system, lacks the attainment of a self-generated goal. Linking performance, by the use of cafeteria reward systems, to individual choice may actually achieve the opposite by reducing the opportunity to link rewards to organisational values.
However, by linking the attainment of performance levels which are sufficient to secure the desired reward the organisation could communicate to the employees that the organisation is changing by moving the goalposts to suit the new desirable set of values. In simple terms, we are suggesting that in order to achieve control over the effort side of the bargain, organisations need to acknowledge and apply management systems to the unarticulated links between
Values – Behaviours – Performance – Growth.
The argument here is that growth and performance are inextricably linked to behaviours which are founded upon personal and organisational values. Performance management is effective, therefore, only to the extent to which it can shape these values, irrespective of the measure to which it can change behaviours, as values are said to set the parameters within which people make decisions.
Organisations must define, cascade and supervise their own values as they cannot be effectively imposed or imported; no amount of wall-mounted plaques, posters, credit-card-sized personal reminders or mugs can impose a set of values. Values must be lived and the performance management proces should be designed to allow organisations to control the creation of the organizational language upon which values are based if it is to deliver control to the extent required within modern organisations.
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