THE USE OF A PERFORMANCE MANAGEMENT SYSTEM FOR STIMULATING INTERNAL MOBILITY
Master thesis, Human Resource Management
University of Groningen, Faculty of Management and Organization
October 31, 2011
KARIN KOETSIER Studentnumber: 1906852
Oosterhamrikkade 54a 9714 BE Groningen tel.: +31 06-48328288 e-mail: k.koetsier@student.rug.nl
Supervisor/ university
J. van Polen
2 ABSTRACT
A performance management system (PMS) can be seen as a good instrument for stimulating internal mobility. Within the department of the organization PMS is used insufficiently to stimulate internal mobility. Therefore the main question in this research is: “What are reasons that using PPM to
stimulate the internal mobility is not working as expected? This research evaluates the PMS by amodified framework which is based on the framework of Armstrong (2009) and additional literature.
From interviews and company documents, information is gathered about the situation at the organization.
From the results it appears that many requirements are in place. Nevertheless, the results show that some requirements are partly and some requirements are not met. The requirements that are not met are: there is given guidance to all employees and supervisors on how to identify learning needs, how these needs can be satisfied and how they should make use of the facilities and opportunities that can be made available for them, goals and specific criteria are articulated clearly for forced distribution, and the PMS motivates the employees to develop their skills.
Keywords: performance management, performance management system, internal mobility
3 TABLE OF CONTENT
1. INTRODUCTION ………. 4
1.1. Problem situation ……….. 4
1.2. Previous research ……….. 5
1.3. Problem definition ……… 5
1.4. Structure thesis ……….. 6
2. THEORETICAL FRAMEWORK ………... 6
2.1 Performance Management ……… 6
2.2 Performance Management System ……… 7
2.3 Evaluation of Performance Management System ………. 7
2.4 Input ………. 9
2.5 Performance and development planning ……….. 9
2.6 Performance measures ……….. 11
2.7 Performance and development agreement ………. 11
2.8 Managing performance ……….. 11
2.9 Formal performance review ……….. 13
2.10 Analyzing and assessing performance ………. 13
2.11 Performance Management outcomes ……….. 15
3. METHOD ………... 17
3.1 Procedure and participants ……… 17
3.2 Measures ……… 18
3.3 Data Analysis ……… 19
4. RESULTS ……….. 20
4.1 Performance Management System ……… 20
4.2 Input ……….. 21
4.3 Performance and development planning ……….. 22
4.4 Performance measures ………. 23
4.5 Performance and development agreement ……… 23
4.6 Managing performance ………. 24
4.7 Formal performance review ……….. 25
4.8 Analyzing and assessing performance ……….. 26
4.9 Performance Management outcomes ……… 28
5. DISCUSSION ……… 29
5.1 Main findings ……… 29
5.2 Practical implications ………... 32
5.3 Research strengths and limitations ……… 33
5.4 Suggestions for further research ……… 34 REFERENCES
APPENDIX I: FRAMEWORK
APPENDIX II: INTERVIEWS
4 1. INTRODUCTION
Due to changes in the economy, technology, and business environment of the last decades, the people‟s career attitudes and experiences have been changed (Hall, 2002; Pinnington and Lafferty, 2003; Barnett &
Bradley, 2007). To be successful, organizations must continually improve performance by reducing costs, innovating processes and products, and improving their quality and productivity (Tansky & Cohen, 2001). This often leads to a large number of organizational downsizings, restructuring and de-layering.
Since these evolvements, employees are more aware that job security is no longer part of the employee contract and they may live in fear of being laid off (Tansky & Cohen, 2001). The relationship between the employee and organization has clearly been changed. Cappelli (1999) stated that „career jobs‟ as defined by long-term, advancement prospects in the same organization with employment practices that served internal concerns, are in decline, and their future prospects are poor. In addition, employees are more aware that there is a more flexible or „boundaryless‟ career environment with expectations that employees will self-manage their career, rather than rely on the direction of the organization (Arthur, Khapova, &
Wilderom, 2005; Barnett & Bradley, 2007). For organizations it is getting more difficult to maintain, attract, manage, and motivate their employees (Tansky & Cohen, 2001).
1.1 Problem situation
Many organizations are dealing with this problem, including this organization. It is increasingly
difficult for this organization to fill high level vacancies within their innovation department. The number
of candidates and the number of leaders grown within the organization are decreasing (van Egmond,
2011). Consequently, the organization is more dependent on the external labor market for these functions,
however external candidates are very hard to find. The organization needs to act on these changes. An
effective internal mobility policy can be seen as a legitimate, flexible strategy relying on internal
resources, as opposed to depending on the external labor market (Mignonac & Herrbach, 2003). In
addition, the global ambition of the organization is to go from an average 25 to 40% internal hires of
employees in 2012 (Schol, 2010). Therefore, it is important that the internal mobility is stimulated within
the department. Although an internal mobility policy is a genuine strategy, the department does not have
an explicit policy regarding internal mobility. The department persists on the Employability section in the
Collective Labour Agreement of the organization. The organization expects the employees to be
responsible for their own employability. However, the organization is expected to create the conditions
for development, and career opportunities. The organization sees mobility as a criterion to maintain their
employability (CAO, 2010).
5 1.2 Previous research
A performance management system (PMS) can be seen as a good instrument for stimulating the internal mobility. The information out of the PMS can be used for employment decisions, such as transfers (Cascio & Aguinis, 2011). In addition to this, a PMS can also be used for communication purposes. It shows employees how they are doing and what the expectations are from the organization.
Not only in relation to their performance, but also their mobility (Cascio & Aguinis, 2011). This is in line with what Riedstra (2008) argues. She investigated which factors influence the willingness to accept internal mobility of technical professionals within the organization. Based on that, she presented recommendations to stimulate internal mobility. She suggested that the yearly appraisal conversation could be a good moment to discuss the ambitions, personal situation, and abilities of the technical professionals. This is currently undertaken by the organization through the People Performance Management (PPM) approach. People Performance Management is a performance management system.
For example, in PPM there is a part devoted to career development. In this part the employee can state his development activities, career aspirations, and the manager can suggest career scenarios. The employee can also state to what extent he or she is mobile. The HR manager of the department indicates when the employee should move to another position.
1.3 Problem definition
There was enough time to take action; the recommendation was given three years ago.
Apparently the organization is still expecting a higher internal mobility rate. The internal mobility within
the department was 23% in 2010. This is not in accordance with the 40% global ambition of the
organization. Although PPM was implemented nearly eight years ago, PPM is used insufficiently to
stimulate internal mobility. For example, employees and supervisors are often very vague in the section
about their career and sometimes they do not fill it in at all. The question arises to what extent employees
and supervisors make use of PPM for mobility purposes? Are there other moments where they talk about
the employee‟s career outside the formal moments? If this is so, how and when? And how is PPM used in
general? This is important to know because the performance and development purpose of a PMS
influence each other (Meyer et al, 1965). Consequently, all aspects of the PPM are interlinked. Also, for
HR the input in PPM is the only visible aspect for career development and internal mobility. When it is
visible it is more controllable for the HR department. The aim of this research is to find ways of how
PPM can be used to stimulate the internal mobility. Therefore, the following research question is central
in this research: What are reasons that using PPM to stimulate the internal mobility is not working as
6
expected? The answer to this question can help managers use the PPM system better to help stimulateinternal mobility.
1.4 Structure thesis
This research will begin by reviewing existing research and theory to deepen the research question. The paper will move on to discuss the theoretical framework and outline the data collection and data processing methods. After the methods section, the results are presented. Finally, the results are discussed and recommendations for the organization are given.
2. THEORETICAL FRAMEWORK
To gain a deeper understanding of what a good Performance Management System is, Performance Management must be defined. After defining the Performance Management System, this paper clarifies the requirements for a good Performance Management System.
2.1 Performance Management
During the last years there has been a shift from performance appraisal to performance management. Performance appraisal was an isolated, mechanical, and HR-driven approach, whereas performance management is a comprehensive and integrated business-driven system targeting people development (Spangenberg & Theron, 2001). Characteristics of performance appraisal include individual objectives, only annual appraisal, a top-down rating system, and HR department ownership. As opposed to performance appraisal, characteristics of performance management include integrating organizational, team and individual goals, making use of continuous reviews, a joint process of both manager and employee, and owned by line management (Armstrong and Baron (1998) cited in Spangenberg & Theron, 2001).
Due to the switch there are many definitions of performance management. Noe et al. (2008, page 343) define performance management as “the means through which managers ensure that employees‟
activities and outputs are congruent with the organization‟s goals.” Aguinis (2009) has a broader view of performance management. He argues that it is not only the focus on the individual, but also on the team.
Team performance should be aligned with the strategic goals. He stated that it is a continuous process of
identifying, measuring and developing performance. According to Armstrong (2009) processes exist for
establishing shared understanding about what is to be achieved, and for managing and developing people
in a way that increase the probability that it will be achieved in the short and longer term. Looking to
these definitions it can be concluded that performance management is a systematic process, a joint
7 process, it is about improving performance, it is future-oriented, and the intention is to accomplish strategic goals.
2.2 Performance Management System
To monitor the processes of performance management, organizations often use a Performance Management System (PMS). A PMS can be defined as “a set of interrelated activities and processes that are treated holistically as an integrated and key component of an organization‟s approach to managing performance through people and developing the skills and capabilities of its human capital, thus enhancing organizational capability and the achievement of sustained competitive advantage”
(Armstrong, 2009, page 59). From this definition it becomes clear that a PMS is a complex process. It involves continuous dialogue, discussion, and debate of different levels in the organization: individuals, teams, and the entire organization (Rao, 2008). Moreover, performance management activities that occur at one level of analysis are assumed to have effects at other levels of analysis too (DeNisi, 2000).
Therefore it can be difficult to meet the goals of a PMS. According to Lee (2005, page 53) these goals should be to “correct poor performance, replicate good performance, and improve all performance.”
Williams (1998, cited in Fletcher 2001) draws a distinction between models of performance management.
According to him there are three different models of performance management: performance management as a system for managing organizational performance; performance management as a system for managing employee performance; performance management as a system for integrating the management of organizational and employee performance.
Besides these goals it can be stated that a PMS has several purposes. According to Noe et al.
(2008) the three main purposes of a PMS are strategic, administrative & developmental. The strategic purpose of a PMS is that the system should link employee activities with the organization‟s goals. The information from the PMS can be used for administrative decisions. Examples of these decisions are pay raises, promotions, and lay-offs (Noe et al., 2008). When PMS is used for development purposes, managers help to develop employees who are effective at their job and help employees who do not perform sufficiently to improve their performance. It can be argued that the strategic purpose is the basis for the other two purposes. As a PMS is a complex system and has several purposes it is difficult for organizations to implement and make total use of a PMS. However, Cascio & Aguinis (2011) suggest that a PMS should be easy to use and the benefits should outweigh the costs.
2.3 Evaluation of Performance Management System
The characteristics of an effective PMS are explained by the performance management sequence
of Armstrong (2009). This model can be found in figure 1. This model includes the sequence of processes
8 and outcomes of performance management. It illustrates that performance management is a continuous process. Armstrong (2009) notes that in practice this sequence is unlikely to happen in this order.
However, these activities should be part of a PMS. He claims that the most important activities of the performance management process are: performance and development planning, defining performance measures, concluding performance agreements, managing performance throughout the year, and reviewing, analyzing and assessing performance. To gain a complete picture of the performance management process, this research also includes the input and outcomes of a PMS. All these categories are explained to understand what a good PMS entails.
FIGURE 1
9 2.4 Input
Factors at higher levels of analysis, such as organizational strategy, in the organization serve as constraints on the performance of teams and individuals (DeNisi, 2000). Therefore, the organizational strategic goals and the purpose of a PMS are described.
Corporate mission and strategic goals. The corporate mission and strategic goals are main reasons for using a PMS. Performance management‟s most important organizational link is driving the implementation of the strategy (Spangenberg & Theron, 2001). In addition, a PMS can be used to help implement business strategies (Lawler, 2003). PMS should only be done if it is an integral part of the management system and if it helps both to develop the organizations and the individuals full potential (Bowman, 1999 cited in Spangenberg and Theron, 2001). Therefore, the corporate mission and strategic goals should be translated and integrated to business, departmental, and individual plans and goals. This step can be found in figure I. Additionally, the corporate mission and strategic goals should be communicated through the organization. According to DeNisi (2000) “a strategic approach is required that involves fitting the performance management strategy to the firm‟s business strategy and context, and supporting the business and HR strategies through activities designed to improve organizational effectiveness”.
Purpose PMS. Although a PMS should entail the corporate strategy, it is also important that the purpose and the vision of the PMS are clear for the organization and employees. This purpose or purposes should not enclose contradictory elements. A PMS functions best when the purposes are clear, specific, and limited (Murphy and Cleveland (1995) cited in Furnham, 2004). The system should be supported by leaders, and understood and accepted by all (Spangenberg & Theron, 2001).
2.5 Performance and development planning
According to Rao (2008) a PMS can be a good tool to reduce unplanned work through correct
performance planning. The performance and development planning involves the agreement between the
manager and the employee of how he or she is expected to perform in terms of results and behaviors. The
expected results of performance planning can be divided into; the role profile and goals or objectives
(Armstrong, 2009). Personal development plans are particularly based on “an understanding of what
people do, what they have achieved, what knowledge and skills they have, and what knowledge and skills
they need” (Armstrong, 2009, page 248). This can be regarding their current performance or actions for
the progress in their career. The expected result of development planning is learning. Other requirements
are the same as in the goal setting process.
10 Role profiles. Role profiles define a function of a profession in terms of the key results expected, what employees who fulfill that role are expected to know and be able to do, and how they are expected to behave in terms of behavioral competencies and keeping up the core values of the organization (Armstrong, 2009). This makes it possible to make distinction between people instead of jobs (Cascio &
Aguinis, 2011). It is a continuous process and it needs to be updated every time a formal performance agreement is developed.
Goal setting. A goal is a level of performance proficiency that we wish to attain, usually within a specified time period. Thus goal setting is first and foremost a discrepancy-creating process, as the goal creates constructive discontent with the present performance (Latham & Locke, 2006). According to the theory of Locke (1968) hard goals result in a higher level of performance than easy goals do, and specific hard goals result in a higher level of performance than no goals or a generalized goal like “do your best”.
Challenging goals provide a basis for increasing an individual‟s personal effectiveness. Thus, to goal attainment leading to a person‟s sense of achievement, the attainment of challenging goals is likely to lead to rewards such as recognition, pay raises, and promotions (Latham & Locke, 2006). The setting of a goal that is both specific and challenging leads to an increase in performance because it makes clear to individuals what they are supposed to do. In addition, the employee is not only encouraged to expend greater effort, but he may invent better or more creative ways for attaining the goal (Latham & Baldes, 1975). There can be concluded that goals should be SMART; Specific, Measurable, Achievable, Relevant and Time framed.
Employee goals and performance standards should be related to organizational goals and should be negotiated for teams and individuals (Spangenberg and Theron, 2001). As stated earlier, a defining characteristic of performance management is the importance of the integration of individual goals with departmental and organizational objectives. The aim is to focus people on doing the right things in order to achieve a shared understanding of performance requirements throughout the organization (Amstrong, 2009). In addition, it is important that the employee participates in the goal setting process. Consequently, it is essential that the employee understands the organizational objectives to set his own goals. According to Burke et al (1978) mutual goal setting of the employee‟s goal helps with performance improvements.
Learning. According to Armstrong (2009) development planning is always related to work and the possibility to do the work effectively. To create a good development plan there are a few requirements. He stated that besides training courses, other learning activities may be part of the development plan, such as a role model. The second requirement is that everyone concerned with the planning should be involved in deciding how the planning process will work, and what their roles will be.
The third requirement Armstrong (2009) mentioned is that there should be a culture in which employees
11 have to take responsibility for their own learning. This will need time and support. Therefore, the last requirement is that all employees and supervisors should be given guidance on how to identify learning needs, how these needs can be satisfied, and how they should make use of the facilities and opportunities that can be made available for them.
2.6 Performance measures
Performance can be measured at an organizational or individual level (Armstrong, 2009).
Armstrong stated that individual performance is often measured by using Key Performance Indicators (KPIs) and metrics. There is a difference between measuring quantitative targets or qualitative outcomes.
Measuring quantitative targets, like units sold, is easier than measuring qualitative outcomes, such as change in behavior. According to Spangenberg (1994, cited in Williams, 2002), there are several other problems with performance measures. He argues that performance measures are often vague and incomplete, not based on the role profile, not specific and behavior-based, irrelevant, and that criteria is not communicated. Therefore, performance measurements should include only matters under the control of the employee and all key job-related responsibilities should be measured (Cascio & Aguinis, 2011).
According to Cascio & Aguinis (2011) this means that a PMS should provide specific guidance to both manager and subordinate about what is expected of them and also how they can meet these expectations.
2.7 Performance and development agreement
The performance agreement records the outcomes of performance planning, how performance will be measured, and the evidence that will be used to establish levels of competency (Armstrong, 2009).
It is the conclusion of the performance and development plan and the performance measures. This agreement is important because it will be used by employees as well as managers to monitor and demonstrate achievements. For a PMS it means that it should be designed to generate information and data exchange so that the individuals involved can properly analyze performance to prevent problems and improve performance (Lee, 2005).
2.8 Managing performance
As stated previously, performance management is a continuous process. Therefore, there should
be a focus on performance management throughout the year. This means monitoring the outcomes against
plans and intervening when necessary (Armstrong, 2009). The main activities of managing performance
according to Armstrong (2009) are updating objectives, coaching, providing feedback, and dealing with
underperformance.
12 Updating objectives. During the year the objectives may need to be updated, for example when the role profile of the employee changes (Armstrong, 2009). When the role profile changes the old objectives may not be meaningful anymore. In addition to this, when new requirements, opportunities, or threats come across during the year, the objectives need to be updated.
Coaching. Employees will only improve their performance when they receive proper coaching, guidance, training, and support for their current performance (Lee, 2005). Coaching is a personal on-the- job approach to helping employees develop their skills and levels of competence (Armstrong, 2009).
Furthermore, it is unlocking employee‟s potential to maximize their own performance. It is not just a technique, but also a way of managing, and treating people (Whitmore, 2009). Consequently, it should be a day-to-day activity, not a once-a-year event (Meyer, 1965). The supervisor should understand that good coaching is about encouraging employees to think through issues, getting them to see things from other perspectives enabling them to work out solutions for themselves that they can „own‟, and empowering them to do things more effectively differently (Armstrong, 2009). Coaching will be most effective when the supervisor understands that his or her role is to help the employee to learn, and when employees are motivated to learn (Whitmore, 2009).
Feedback. Feedback is the provision of information to employees on how they have performed in terms of results, events, critical incidents, and significant behaviors (Armstrong, 2009). Normally, the employee receives feedback from his or her supervisor in the form of their evaluation. The supervisor hopes that the employee will acknowledge, understand, and act on this information and then correct, sustain, or improve performance (Lee, 2005). Lee (2005) argues that performance conversations should involve a two-way exchange to ensure that the employee understands the feedback. To make the feedback effective, accurate description or diagnoses of the performance are crucial. Therefore, it is important that the feedback occurs close after the performance takes place. Otherwise it is difficult to remember clearly the character of the performance event. Moreover, informal feedback is more important and powerful than feedback that occurs during the annual performance review in terms of its impact on performance and attitudes (Farr, 2003).
Managing underperformers. Managing underperformers has a lot to do with feedback and coaching. According to Armstrong (2009) there are five steps required to manage underperformance. The first step is to indentify the problem and the agreement of this problem between supervisor and employee.
The second step is to establish the reasons for the underperformance. It is important that both supervisor
and employee stick to the facts. The third step is to decide what action should be taken by the employee,
supervisor or both to improve the performance. The fourth step is to resource the action. For example, this
13 can be done with training, coaching, and guidance. The resources are what is necessary to make the action happen. The last step is to monitor and provide feedback so that there will be no drawback.
2.9 Formal performance review
The formal performance review is the meeting between the manager and the employee in which the performance of the employee is analyzed systematically (Armstrong, 2009). This meeting takes place once or twice a year. In this conversation the performance and results are discussed against the agreements and plans. In addition, it provides the basis for new performance and development planning, and agreement. This conversation should be a dialogue between the supervisor and the employee. The employee has to be involved in the analysis of the performance. Therefore, the employee and the manager are both responsible for the performance review. Also, the supervisor should bring up the feedback that he has given through the year and not come up with only new things (Amstrong, 2009). According to Rao (2007) a performance review should be analytical, objective and honest. This is essential because this meeting is in many cases the basis for rating the performance, actions to deal with poor performance and administrative decisions (Dickinson, 1993; Amstrong, 2009).
According to Burke et al. (1978) there are many factors that influence the effectiveness of the performance review meeting. He argues that the employee should have a high level of participation in the review process; the supervisor should have a helpful and constructive attitude, time for solving problems which may obstruct the employee‟s current performance, the supervisor should give a balanced amount of criticism, he should make sure that the proportion of time spoken by the employee and the amount of preparation the employee (and supervisor) undertake before the meeting should be sufficient.
A formal performance review meeting can attempt to accomplish two objectives (Meyer et al., 1965). When administrative decisions, such as financial rewards and employee development are involved, the supervisor‟s role can exist in conflict. Administrative decisions require acting as a judge, while employee development asks for a facilitator (Meyer et al., 1965). Therefore, organizations may split up these functions and discuss both separately.
2.10 Analyzing and assessing performance
Analyzing and assessing performance is necessary for achieving goals and implementing
development plans. This involves analyzing the hard measurement if the objectives are achieved and
analyzing the behavioral part of the performance (Armstrong, 2009). According to Armstrong (2009)
planning should be the foundation for analysis. The analysis should be based on reliable evidence, not on
opinions.
14 Rating. According to Lee (2005) ratings are conclusions of feedback that come attached to performance over a period of time. The rating is often part of the performance review meeting. There is a danger that these ratings may become the main subject of the meeting. The focus of the meeting is then on the past instead of on the future, while the focus of the meeting should be future-oriented (Lee, 2005).
There are many factors that influence the rating process. Furnham (2004) argues that the following factors are the most important: the way performance information is observed and recorded, the availability of performance standards, the process of how raters rate their employees, the goals of the raters, and the rater‟s accuracy and the source of errors. The obtainment of performance information can come from several sources. Besides the supervisor, peers, employees themselves and customers are all possible sources to measure the performance of the employee (Williams (2002) cited by Koopman, 2009).
Supervisors are most often used for rating because they are able to evaluate the performance of the employee in light of the organizational goals and they are responsible for reward decisions (Cascio &
Aguinis, 2011).
Accuracy in measuring performance is also an important issue in the rating process, because the actions based on the information from these ratings have critical implications for both the employee and the organization (Lee, 1985). To get an accurate rating, each behavior should be rated independently and the rater has to observe behaviors that are relevant to the job (Borman (1978) cited by Koopman, 2009).
Lee (1985) claims that feedback that is given through the year can increase the accuracy of the rating. In addition, training increases the rater‟s accuracy in observing and recalling specific behavioral events (Thornton and Zorich (1980) cited by Lee, 1985).
Besides problems with accuracy, there can also be other problems with rating. According to Cascio & Aguinis (2011) there are several judgment biases in rating; leniency and severity, central tendency, and halo. Central tendency is the effect that the supervisor tends to rate all employees in the middle of the scale, while their performance is more extreme (Furnham, 2004). This effect can be minimized by clearly specifying the meaning of the anchors (Cascio & Aguinis (2011). Furthermore, Villanova et al. (1993, cited in Koopman, 2009) stated that multiple observations seem appropriate and that each rater should evaluate more ratees to control central tendency. The halo effect is the inappropriate generalizations from one aspect of an individual‟s performance to all areas of that employee‟s performance (Furnham, 2004).
Another problem with rating systems is that it is almost impossible to track and measure
performance across departments or professions. And if this was possible, supervisors can easily
manipulate the ratings for different (political) reasons. A reason for this could be to achieve a financial
reward. Other reasons could be that supervisors may find it difficult to confront employees with the truth
15 or that supervisors do not want to show that they have problems with managing their employees (Lee, 2005).
Forced distribution. Because managers rank their employees higher than adequate, and most often in the middle, forced distribution is a solution. It controls the rater biases rather effectively (Cascio
& Aguinis, 2011). Forced distribution means that the raters have conform to a laid-down distribution of ratings at different levels. For example, a certain percentage has to fall in category A, the low performers.
Another certain percentage, the middle performers, has to fall in category B. And another certain percentage has to fall in category C, the high performers. Forced distribution is used to overcome central leniency (Armstrong, 2009). With forced rating employees are rated against each other instead of judged against performance standards (Bates, 2003). This requires the manager to indentify poor and outstanding performances (Lawler, 2003). Forced distribution can be successful for several reasons; it helps managers who find it difficult to tell the employee where they really stands, it identifies the employees with high- potential who can be included in a development or talent program and it helps to identify the employees who need support (Bates, 2003; Armstrong, 2009). According to Armstrong (2009) forced distribution only works if employees understand what is expected of them, if they perceive that the procedures are fair, and if they trust their managers in this process. Another requirement is that the ranking should be done with meaningful performance data (Armstrong, 2009). In addition, the size of the group should be large enough to improve statistical validity (Meisler (2003) cited Koopman, 2009).
2.11 Performance Management outcomes
Although the Performance Management System is a sequence, there are possible outcomes. These outcomes can be divided into non-financial rewards and financial rewards (Armstrong, 2009). Through the years there has been a change from what the rewards are based on. In the past, seniority and reward were based on the years of experience, loyalty and commitment to the organization. Moreover, it was based on equality. Now rewards are based more on equity and it is managed by means of performance (Furnham, 2004). This is a totally different mind-set for the performance review meeting. Furnham (2004) argues that the annual meetings were not taken seriously, because pay and promotion were not dependent on the performance.
Financial rewards. Pay decisions are most often based on ratings. When the financial rewarding
depends on performance, this is referred to as performance related pay (PRP). For most employees pay is
the major outcome of a PMS. When this is the case, employees have a different view to a PMS (Furnham,
2004). Booth & Frank (1999) argue that PRP attracts people of higher ability and stimulate workers to
provide great effort. In addition, the research of Lawler (2003) strongly supports the view that a PMS is
16 more effective when there is a connection between the results and the reward system of the organization.
However, it demotivates employees when they deliver great performance and do not see it in their pay increase (Heneman, 1992 cited by Koopman, 2009). Consequently, it is important that the procedure of pay decision is fair. Therefore, it must be communicated to the employees how the assessment has been made and how it has been transformed into a pay increase (Armstrong, 2009).
Non-financial rewards. According to Armstrong (2009) the non-financial rewards are provided through recognition, the stipulation of opportunities to succeed, skill development and career planning.
Recognition can be given through feedback and showing appreciation. The stipulation of opportunities can be done by providing training. Further, the PMS gives the opportunity to motivate the employees to develop their skills. Also, on the basis of the role profile, the supervisor and employee can agree on how they can develop their skills to improve their job performance. For career planning, the performance management reviews provide opportunities to discuss this. In this meeting the direction in which the careers of individuals are going and what they can do to ensure that they follow the best career path for themselves and the organization (Armstrong, 2009). In addition, promotions, demotions, and transfers may be used by the organization as rewards or punishments contingent on job performance (Anderson et al, 1981). Catano et al. (2007) noted that performance ratings demonstrated prediction of upward organizational mobility likely to result in management promotions within a business environment. For good functioning it is important that the management is taking care in individual‟s career aspiration, employees need to feel that they are supported (Rao, 2007). Also, it is important that line managers understand the requirements of the roles for which their employees may have potential. This is because performance in the current role is not necessarily a good predictor of potential unless it includes actions related to dimensions that are also present in the expected new role (Armstrong, 2009).
Recapitulation
It is clear that the performance management system is a complex system. It asks a lot of the manager.
Managers should have the right skills for managing performance. As stated previously the responsibility of the PMS should be with the line-manager, instead of the HR manager. However, the HR manager should support the line-manager, so they can conduct the sequence properly.
After this section it is clear what the requirements are for a good performance management process.
As in the research of Koopman (2009), who evaluated the PMS of an international information
technology services company, there is a framework created out of this theoretical outline (appendix I). In
this framework all the requirements of a good PMS are obtained. This framework can be used to evaluate
the PPM of the organization. How this framework will be used is described in the next section.
17 3. METHOD
In the previous chapter a theoretical outline has been given of the criteria of a good performance management system. This outline is the basis for the framework which provides the requirements of a good performance management system. Using this framework, it can be seen to what extent PPM meets these requirements. In this chapter an overview is given of the research methods used for this purpose.
After this, the participants are described, the measures and data analysis are explained.
3.1 Procedure and participants
The focus of this research was an innovation department of a big company. This department has 214 employees and is divided into several departments. To see to what extent PPM meet the requirements of the framework, interviews with employees and company documentation have been used. Which knowledge was expected to be possessed by the participants and what information should be obtained from the company documentation was analyzed by scanning the documentation.
Interviews. Interviews were conducted because this method allows for elaboration on the answers immediately to collect qualitative information. With elaboration it became clear what the participant‟s perspective was on the issue and the interviews lead to documents that corroborate information obtained (Blumberg et al., 2005). The construction of the interviews was based on the research of Koopman (2009). The questions in this research had to be answered by employees who had experience with using PPM as an evaluator and by employees who had experience with using PPM as evaluatee. This distinction was made because some questions were not applicable for both. Therefore, there were two different interviews used in this research. One interview was used for the evaluators and the other interview for the evaluated employees. The managers, group leaders and employees were chosen at random. In total there were eight evaluators and ten evaluated employees involved in this research. The average age of the participants was 42 years. The average amount of years working for the organization was 14 and the average years that the participants hold his current position was 4.5. There was a difference between managers and employees regarding the average years in the current position. The average of the managers was 2.5 years and the average for employees was 6.5 years. All participants were contacted and asked to participate in the research. The invitation was sent with an explanation of the research. Two approached managers could not participate. One was too busy with two functions, and the other manager was working for the organization for only three months. Consequently, he did not have enough experience with PPM.
The interviews took about an hour. They were recorded and were drawn afterwards literally. This to
overcome subjectivity and to make sure details were not missed (Baarda, de Goede & Teunissen, 2005).
18 Company documentation. All appropriate documents from the organization have been scanned for relevant information for this research. Sources of information were: intranet, handbooks, survey data, completed PPM of employees, and documents of HR. Company documentation has been chosen because it saves time and it is an important supplement to illustrate how the system works within the organization (Baarda, de Goede & Teunissen, 2005).
3.2 Measures
Some requirements could be derived from company documentation. The answers that were not available in company documentation were obtained in the interview. All the interview questions were derived from literature from the theoretical outline. To ensure that the information from the interview was comparable, the participants were asked if the requirement was in place, not in place, or partly in place.
This made it easier to see which parts of a good PMS the PPM encloses. Participants could always elaborate on their answers if they thought their answer needed explanation. The following questions were asked per item.
Input. In this section the employees and manager were asked almost the same questions.
Examples of these questions are: „To what extent are the purpose and the vision of the PPM clear to you?‟
and „Do you feel that the system is supported by leaders and accepted by all in the organization?‟ These questions were derived from Furnham (2004) and Spangenberg & Theron (2001).
Performance and development planning. To be able to fill in this part of the framework the following questions were asked to participants: „Can you describe the goal setting process for performance and development planning?‟ and „Do you think that there is a culture within the organization where everyone is responsible for their own learning?‟ The questions were derived from Armstrong (2009).
Performance measures. An example of a question out of the interview for employees is: „Do performance measurements include only matters under your control and are all key job- related.responsibilities.measured?‟ Questions of this item were derived from Spangenberg & Theron (2001), Armstrong (2009) and Cascio & Aguinis (2011).
Performance and development agreement. The question that was asked for this item was: „Do you think the performance and development agreement is the conclusion of performance and development plan and performance measures?‟ This question was originated from Armstrong (2009).
Managing performance. There were several questions asked to be able to fill in this part of the
framework. The questions from this item were derived from Armstrong (2009) and Lee (2005). Examples
19 of questions asked to managers are: „Can you describe the feedback conversation you have with your employees?‟ and „Can you describe the actions you take when employees.underperform?‟
Formal performance review. Questions asked for this item were: „In which way do you prepare for the formal review meeting?‟ and „Can you describe how such a meeting goes?‟
Analyzing and assessing performance. Question asked to managers are: „Did you have training in analyzing and rating employees?‟ and „How many employees do you rate?‟ Examples of question asked to employees are: „Do you think that the manager observes behaviors that are relevant to your job?‟
and „Do you think that the process of forced distribution is fair?‟ These questions were derived from Armstrong (2009) and Lee (1985).
Performance Management outcomes. Several questions were asked to managers and employees about this item. The questions for this item were derived from Armstrong (2009), Furnham (2004) and Rao (2007). Examples are: „To what extent does PPM motivates the employees to develop their skills?‟
and „Do you think that the procedure and outcome of pay decisions are fair?‟
3.3 Data Analysis
In appendix II the questions of the questionnaires can be found. As stated earlier, the participants stated if
they thought the requirements were in place, not in place, or partly in place. These answers were count up
to get an overall picture if employees think that the requirements are in place. This method was based on
the research of Koopman (2009). If all participants till 75 % said that the requirement is in place, it was
argued that it was the case. If all or 75 % argued that the requirement was not in place it was marked as
not in place. Everything in between was marked as partly in place. The explanations to the answers were
put together for each question to see similarities and differences in their explanations. Because the
research asked for a global picture of various aspects of the research phenomenon, the answers were
compared and analyzed using themes (Baarda, de Goede & Teunissen, 2005). These themes were derived
from the elements of the theoretical framework. The answers of employees and managers were summed
up separately under these themes. The data of employees and managers were held next to each other to
see similarities and differences. Because of the descriptive research question central in this research, there
was looked for affinity of the key concepts of the themes (Baarda, de Goede & Teunissen, 2005). Data
from interviews were combined with data from company documentation. The company documentation of
the organization was analyzed using themes (Baarda, de Goede & Teunissen, 2005). The documentation
was screened for relevant information per theme to see how the organization uses PPM, and if this meets
the requirements of a PMS. With the participants answers and the data collected from company
20 documentation, it became clear which requirements were in place, which requirements were not, and which requirements were partly in place.
4. RESULTS
This section will show the results derived from the company documentations and interviews with employees and managers. In Appendix I the framework with the results if the requirements are met is presented. Because of the width of the values of the requirement there should not be too much importance attached to the values. This framework only created to give a broad overview of the results. The results will be presented in the same order as they were presented in the theoretical framework.
4.1 Performance Management System
The Performance Management System within the organization is called People Performance Management (PPM). The digital PPM tool supports the PPM process within the organization. With the tool it is possible to document individual performance and development. Likewise, it is a tool to support the PPM process and it helps the employee and manager to prepare for the PPM meeting and to document the outcomes afterwards (Intranet: HRM Global, PPM). The PPM process starts with the invitation to employees for the input of the employee. After the input of the employee, the manager and the second assessor give their input. There is a calibration when all parties have given their input. After this calibration the PPM meeting between manager and employee takes place. Here, the employee receives his performance results and behavior rating and a score indicating their growth potential. This meeting will discuss the performance and personal development of the past year and the future objectives are recorded in the system. After the completion of these records the PPM document is completed (Intranet: PPM – The Fundamentals). The PPM process can be found in figure 2.
FIGURE 2 PPM Process
Employee Manager Calibration PPM Completion Input Input Meeting
Employee
Second Assessor
Manager
Calibration Manager/
Manager
Manager/
Employee
Completed PPM document Manager/
Employee
