A good performance management system can have a substantial impact upon an organisation's business success. Good performance management relies upon communicating an organisation's objectives for each role and its expectations of the individual performing it. Whilst it should link into a formal appraisal process, where progress against objectives and development needs are discussed, if properly developed and communicated it should form part and parcel of a business's day-to-day activities.
The key components of an effective performance management system are:
- A clear line of sight between the objectives of the organisation and the objectives set for individual job holders. This can be achieved by using a model such as a Balanced Business Scorecard that defines the competencies the organisation needs to develop to ensure business success; the key financial measures, the customer acquisition and service requirements, the type of people it will need and the skill sets they need to possess and the cultural values and work ethic demanded, for example. From this strategic level, individual job objectives and development paths can be defined and objective measures used to assess performance against these;
- Obtain employee involvement, wherever possible, in deciding upon and defining relevant performance measures;
- Construct performance criteria that are as objective and as quantitative as possible;
- Set a manageable number of objectives for each individual;
- Ensure simple and non-bureaucratic systems are in place that support the performance management process;
- Ensure that ownership of the system & the process should lie with business units and their managers as opposed to the human resources department;
- Develop a culture where performance management is viewed as being a continuous, dynamic process as opposed to something that happens once a year;
- Align remuneration systems to the objectives demanded by the system (i.e. don't expect behaviour A if you're paying for behaviour B);
- Draw linkages between performance appraisals and development and training activity, not just to reward and retribution.
Above all, effective performance management relies on open, honest and fear-free communication. A good system should actively encourage this and create a virtuous circle that can bring significant benefits to the organisation as a whole.