10 Key Factors of an Effective Performance Management System - dummies

10 Key Factors of an Effective Performance Management System

By Herman Aguinis

Want to make sure your performance management system works as intended and delivers excellent results? Then you need to ensure the system has these ten key factors.

Congruence with strategy and context

Make sure the system is congruent with the unit and organization’s strategy. In other words, align individual goals with unit and organizational goals. Also, make the system congruent with the organization’s culture as well as the broader cultural context of the region or country.

If an organization has a culture in which hierarchies are rigid, an upward feedback system, in which individuals receive comments on their performance from their direct reports, will be resisted and not very effective.

Regarding broader cultural issues, in countries such as Japan, there is an emphasis on the measurement of both behaviors (how people do the work) and results (the results of people’s work), whereas in the United States, results are typically preferred over behaviors. Thus, implementing a results-only system in Japan won’t be effective.

Thoroughness and inclusiveness

Do these four tasks to make the system thorough:

  • Evaluate all employees (including managers).
  • Evaluated all major job responsibilities (including behaviors and results).
  • Evaluate performance over the entire review period, not just the few weeks or months before the formal review meeting.
  • Give feedback on positive performance aspects as well as those that are in need of improvement.

Also, in terms of inclusiveness, include input from multiple sources on an ongoing basis. The evaluation process must represent the concerns of all the people who will be affected by the outcome. Employees must participate in the process of creating the system by providing input regarding what behaviors or results will be measured and how.

Meaningfulness

Make the system must be meaningful in five ways:

  • Make sure the standards and evaluations conducted for each job function are important and relevant.
  • Assess performance only for functions that are under the control of the employee.
  • Conduct evaluations at regular intervals and at appropriate moments.
  • Provide continuing skill development of evaluators.
  • Use results for important administrative decisions.

Practicality

Systems that are too expensive, time-consuming, and convoluted will obviously not be effective. Make sure good, easy-to-use systems (for example, performance data are entered via user-friendly Web and mobile apps) are available for managers to help them make decisions. Also, the benefits of using the system (like increased performance and job satisfaction) must be seen as outweighing the costs (such as time, effort, expense).

Reliability, validity, and specificity

Regarding reliability, the system should include measures of performance that are consistent and free of error. If two supervisors provide ratings of the same employee and performance dimensions, ratings should be similar.

Also, the measures of performance should be valid. Validity refers to the fact that the measures include all relevant performance facets and don’t include irrelevant information. In other words, measures are relevant (include all critical performance facets), not deficient (don’t leave any important aspects out), and are not contaminated (don’t include factors outside of the control of the employee or factors unrelated to performance). Measures include what is important and don’t assess what isn’t important and outside of the control of the employee.

And the system should be specific: It should provide detailed and concrete guidance to employees about what is expected of them and how they can meet these expectations.

Identification of effective and ineffective performance

The performance management system should provide information that allows for the identification of effective and ineffective performance. So the system should allow for distinguishing between effective and ineffective behaviors and results, thereby also allowing for the identification of employees displaying various levels of performance effectiveness.

Standardization and thoroughness

The system should be standardized, which means that performance is evaluated consistently across people and time. To achieve this goal, the ongoing training of the individuals in charge of appraisals, usually managers, is a must.

Openness

The system should have no secrets:

  • Evaluate performance frequently and give feedback on an ongoing basis. Employees know how well they are doing at all times.
  • Turn the review meeting into a two-way communication process during which information is exchanged, not delivered from the supervisor to the employee without his or her input.
  • Make standards clear and communicate them on an ongoing basis.
  • Make communications factual, open, and honest.

Correctability

The process of assigning ratings should minimize subjective aspects. However, it is virtually impossible to create a system that is completely objective because human judgment is an important component of the evaluation process. When employees perceive an error has been made, there should be a mechanism through which this error can be corrected.

Establishing an appeals process, through which employees can challenge what may be unjust decisions, is an important aspect of a good performance management system.

Acceptability, fairness, and ethicality

The system should be acceptable and perceived as fair by all participants. Because perceptions of fairness are subjective and the only way to know if a system is seen as fair is to ask the participants about the system.

Perceptions of fairness include four aspects:

  • Distributive justice: Perceptions of the performance evaluation received relative to the work performed, and perceptions of the rewards received relative to the evaluation received, particularly when the system is implemented across countries.
  • Procedural justice: Perceptions of the procedures used to determine the ratings as well as the procedures used to link ratings with rewards.
  • Interpersonal justice: Quality of the design and implementation of the performance management system.
  • Informational justice: Perceptions about performance expectations and goals, feedback received, and the information given to justify administrative decisions.

Regarding ethicality, the system should comply with ethical standards, which means that the supervisor suppresses his or her personal self-interest in providing evaluations. In addition, the supervisor evaluates only performance dimensions for which she has sufficient information, and the privacy of the employee is respected.