Over the years, the management of human capital, commonly known as Human Resources Management, has had the final goal to enhance the performance of employees: the higher is the performance of employees the more likely is to have a competitive and successful business (Morgan and Schiemann, 1999). Hence, the majority of the companies has implemented a formal system to measure and evaluate the performance of employees (Aguinis et al., 2011). Nevertheless, in the last years some authors have highlighted the ineffectiveness of such systems in improving employees’ performance (Pulakos & O’Leary, 2011, Aguinis et al., 2011, Cunneen, 2006, ). In this essay, I will first emphasize the benefits that a well-designed performance management system can bring to the business. Then, I will argue that the ineffectiveness of performance management lies in the inability of the companies to design and implement a system aimed not only at evaluating the performance of employees but also at enhancing their performance. Finally, I will critically suggest that in order to effectively manage employees’ performance companies need to create a continuous process where formal systems are integrated with the informal aspects of performance management.
Performance management system: why companies do not manage performance properly
By definition, performance management indicates the process by which employees performance is evaluated and developed (Aguinis et al., 2011). The importance of developing an efficacious performance management system derives from the numerous benefits that performance management brings to the business. First, it allows managers to improve the current performance of employees through tailored learning plans (Baron & Kreps, 1999). Second, the design and measure of performance have direct effects on promotions and pay allocations, influencing the design of PFP schemes and evaluating whether rewards are effectively aligned with individual needs (Gerhart et al., 2009). Third, it assesses the efficacy of the organisational recruitment process, identifying best performers and low performers (Baron & Kreps, 1999). Despite its crucial role within the organisational strategy, over the years the usefulness of performance management in enhancing employees’ performance has been questioned. According to Holland (2006), only 3 in 10 employees consider their company’s performance evaluations helpful in improving their performance. Indeed, the analysis of the systems implemented by numerous companies reveals that the ineffectiveness of performance management lies not in the system itself, which if well-designed and implemented can have the positive effects described above, but in the inability of the firms to effectively manage the performance of their employees.
The first issue that has contributed to the failure of performance management regards the design of the system. Companies have completely ignored the systematic and dynamic nature of performance management reducing it to a once-a-year administrative exercise or a set of formal systems (Pulakos & O’Leary, 2011). This is particular evident in the case of performance appraisal and results driven evaluation systems. Regarding the former, the broader concept of performance management has been often confused with the narrower concept of performance appraisal (Aguinis et al., 2011). Performance appraisal is the annual performance evaluation of their staff made by line managers and usually designed by the HR department (Torrington et al., 2017). The problem with these kinds of evaluations is that often managers consider them as a waste of time and employees do not receive effective feedbacks in terms of performance improvements (Torrington et al., 2017). Moreover, since the performance appraisal is filled once a year, if the line managers did not monitor the performance of employees over time, the risk of a recency effect will be likely to occur *metti na cazzo di reference. Managers will evaluate employees based on their last activity and this could lead to a high perception of procedural and distributive injustice among employees increasing the risk of organisational retaliatory behaviour (Farndale and Kelliher, 2013).
Looking at the results-driven evaluation systems, usually companies wrongly believe that designing evaluation systems based on the achievement of SMART objectives is the most effective way of managing employees’ performance. These systems find their theoretical framework in the goal – setting theory, which argues that setting specific, attainable and complex goals can enhance employees’ performance and motivation (Locke & Latham, 2002). Although there is evidence that setting goals can have positive effects on performance (Locke & Latham, 1979), these practices reveal some limitations. Despite the positive effect of guaranteeing a higher objective evaluation of the employees’ performance, results-driven systems are time consuming and, considered the greater unpredictability and differentiation that characterise today’s job , are not a viable option for every company. Setting measurable and specific goals, for instance, can be a practical option for manufacturing companies or call centres where goals are easily quantifiable but not for the service sector or for knowledge-related jobs (Pulakos & O’Leary, 2011). Moreover, if the individual goals are not clear to employees they could engage in negative behaviours (Pulakos & O’Leary, 2011).
The other main issue affecting the management of employees’ performance within today’s companies regards the implementation of the system. Companies have naively underestimated that the implementation of the system is traditionally assigned to line managers because of their proximity to employees. The role of line managers, who work with employees and at the same time rate them, has been the main cause of an ineffective implementation of the performance management system. Academics have highlighted how managers tend to be lenient in their evaluations because they want to avoid unpleasant and conflictual situations with their employees (Pulakos & O’Leary, 2011). Moreover, the influence of stereotypes and sub conscious processes has to be considered. It has been further observed that, regarding competency ratings, managers tend to interpret rating scales very differently and this can create a perception of unfairness among employees that leads to negative attitudes and behaviours (Pulakos & O’Leary, 2011).
The recipe for a functioning performance management system
Considered the flaws that characterise the performance management implemented by the majority of the companies, there are some radical changes that companies can make to improve their performance management. In fact, the purpose of performance management is not only the evaluation of performance but also the development of employees’ performance (Boswell and Boudreau, 2000). Changes must involve the design and implementation of performance management and must aim at promoting the informal aspects of performance management.
Regarding the design, companies should choose their evaluation systems very carefully. It is important that the system is congruent with the organisational culture and with the culture of the country where the organisation operates (Aguinis et al., 2011). For example, systems that involve peers evaluations do not seem a viable option in organisations where there is a rigid hierarchy (Aguinis et al., 2011). Then, since the system is managed by line managers and employees are those being evaluated it might be useful to involve both subjects in the design process (Thomas & Bretz, 1994). This is particularly relevant when companies use results-driven systems. In fact, according to Latham and Locke (1979) involving employees in the setting process can increase their understanding of the individual goals and, thus, increase performance. Moreover, as pointed out by Heslin et al. (2008), goal commitment can be enhanced by increasing goal importance and self-efficacy. Effective leaders can convince people of the importance of the organisational goals through inspiring messages and supportive behaviours (Latham and Locke, 2002). Looking at self-efficacy, leaders are those who can increase the self-efficacy of employees through trainings and persuasive communication. Lastly, goal commitment can be increased also through the use of empathy boxes that, changing the employees expectancies, can align the organisational goals with the individual goals (Latham, 2001).
Looking at the implementation of performance management, since the system is implemented by line managers, it is significantly important to create a trusted and open relationship between managers and employees (Pulakos & O’Leary, 2011). In fact, according to Farndale and Kelliher (2013), trusted managers increase the perception of fair treatment during performance appraisal. However, the development of a trusted and open relationship between senior managers and employees is a challenging and demanding activity. A lot of training is needed and companies should be ready to invest on this kind of training activities. In fact, to effectively engage in open performance discussions and informal feedback activities managers need to be aware of the different effects that personality traits and gender differences can have on communication. Looking at personality traits, they determine whether the employee is more or less open to receive feedbacks on his performance (Pulakos & O’Leary, 2011). Regarding gender differences, studies have shown how the different linguistic styles of men and women can influence the effectiveness of communication between them (Tannen, 2000). An incentive for encouraging companies to invest on developing these informal aspects of performance management can be represented by the positive effects that these aspects seem to have on performance management. For example, informal feedbacks are crucial to make employees understand their mistakes and also highlight their strengths. Researches have shown that continuous feedbacks have a greater impact on employees’ performance than the formal feedbacks delivered during the performance review (Pulakos & O’Leary, 2011).
Considered that people represent one of the important assets of the firm (Chamberlain, 2011, Campbell and Wiernik, 2015), companies cannot underestimate the crucial importance of performance management. This essay has highlighted how the ineffectiveness of performance management comes from a wrong design and implementation of the system rather than from the system itself. Companies have focused too much on the formal aspects of the performance management system forgetting the human relationships that characterise this system. The improvements that have been suggested highlight the importance of integrating the design and implementation of appraisals, rating scales, goals-driven evaluation systems with the informal aspects of performance management. If well-designed, following the improvements that have been suggested, the system has numerous benefits and can contribute to the economic success of a business.