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Performance management (PM) is one of the most important and positive developments in human resource management (HRM) in recent years (Lussier & Hendon, 2017; Armstrong & Taylor, 2014). The growth of performance management stems out of the realization that a more continuous and integrated approach was needed to manage and reward performance because performance-related pay and appraisal systems were failing to deliver the results that were expected (Armstrong, 2017).
Performance management is a strategic and integrated process of achieving organizational goals and sustained success by improving the performance of the people who work in these organizations (Lilis, 2018; Armstrong, 2017). The approach that an organization takes to implement performance management is referred to as a performance management system (PMS). A well-defined system is required in order to achieve the aim of performance management; it should clarify the outcomes and how they should be achieved this, in turn, outlines the major tools and components of that particular performance management system and further clarifies how these tools and components are related with regards to achieving the aim of performance management.
An effective performance management system offers a set of tools to improve the performance of the organization at all levels. The tools must be relevant to organization and tailored to its mission, vision and values. Performance management tools include performance appraisals, 360-degree performance feedback, key performance indicators (KPI), etc. However, often times, employees, as well as supervisors, are confused by the differences between performance management systems and performance appraisals (Huprich, 2008). Performance appraisals are formal assessment and rating of individuals by their managers. They are tools within performance management that are used to measure the effectiveness of an employee and they are typically conducted on an annual basis during an annual evaluation process (Armstrong, 2017). Performance appraisal should be distinguished from performance management, which is a much more dynamic and more comprehensive process of management that makes use of performance evaluation tools such as appraisals but also incorporates other elements into the performance management cycle with the aim of clarifying mutual expectations and emphasizes the support role of managers with a view on the future thereby aligning individual or team goals to those of the organization (Pulakos, 2009; Armstrong, 2017).
Essentially, performance management is a shared process between managers and the individuals and teams they manage. It is based on the mutual agreement between managers and employees on objectives, knowledge, skill and capability (competence) requirements, performance improvement, and personal development plans. It involves the joint and continuing review of performance against these objectives, requirements and plans and the agreement and implementation of improvement and further development plans (Chubb, Reilly & Brown, 2011). Further, performance management specifically addresses the type of jobs that various employees need to do, how to measure their performance in these jobs, and how to design and implement systems to reinforce performance standards that have been set (Smither & London, 2009).
Generally, performance management systems have several agendas and functions which include strategic; administrative; communication; developmental; organizational maintenance; evaluative and documentation functions, however, the most important functions are the evaluative and developmental functions (Chubb, Reilly & Brown, 2011; Armstrong, 2017).
Evaluative functions include the use of performance appraisal for salary administration, promotion decisions, retention/termination decisions, recognition of individual performance and the identification of poor performance. To conduct this evaluative function, the appraiser takes the role of the ‘judge’ and focuses primarily on differentiating between people (Chubb, Reilly & Brown, 2011).
Developmental functions include the identification of individual training needs, providing performance feedback, determining transfers and attachments, the identification of individual strengths and weaknesses. For this developmental function, the appraiser takes the role of a coach or mentor and focuses primarily on improving people (Chubb, Reilly & Brown, 2011).