What Is Performance Management System in HRM?

The Performance Management System is understood as a digital tool to assist in tracking task productivity, and today it bills itself as a necessary platform for HRs and managers. But what does that actually mean?

From now on, we will call the performance management system by its short name, PMS.

So, PMS in Human Resource Management (HRM) is a one-stop platform for managing every KPI, OKR, and ABC to XYZ of employees’ performance throughout their employment lifecycle. Here’s a list of some of the general functions that a PMS offers, just to give you an idea of how wide-ranging its features are:

• Clear goal-setting and sharing with each employee.
• Regular tracking of goal completion rates.
• Simplify and automate the appraisal process.
• Use multiple metrics to evaluate performance.
• Conduct and exchange feedback with employees.
• Offer fair raises with performance data.

And that’s just the tip of the iceberg. It’s worth understanding everything PMS can do because choosing the right performance evaluation platform can really change the company culture and its revenue for good. Now, let’s take a look at various goals and types of performance management systems.

Goals of Performance Management System

Performance management has several important goals, such as identifying areas for improvement:

• Align the work of each employee with the company’s objectives, establishing clear goals that are in line with the overall strategy.
• Continuously improve employee performance and, consequently, that of the company as a whole.
• Provide ongoing feedback so employees understand what is expected of them in their roles.
• Implement continuous improvements in jobs, hiring, training and learning to make everything better.
• Identify areas for improvement within the business and in the employee’s day-to-day work, as well as develop strategies to address them effectively.
• Detect ongoing training needs in the organisation to improve results.
• Improve overall company performance and profitability.
• Increase employee job satisfaction.
• Detect and resolve potential problems in internal processes and compliance policies.

Types of Performance Management System

Your project’s needs, risks, and urgency will ultimately determine which performance management type is right for you.

For example, a project-based company that hires freelancers will spend more time assessing performance based on project quality, delivery, and outcome. On the other hand, for regular employees, a better way to evaluate their performance may be 360-Degree Feedback or maybe a combination of multiple performance management systems.

This need for different approaches has spawned several performance management methodologies.

Let’s look at seven of the most common methodologies and their pros and cons:

1. Organisational vs. Personnel Performance Management

Organisational Performance Management

Sometimes called corporate performance management, it is a good choice to align and achieve company goals with available resources. The system allows you to be creative with what you have and what you want to achieve with those limited resources. Simple as that! It includes systems like the Balanced Scorecard, which evaluates the performance of four different business perspectives: financial, customer, internal processes, and people. Management By Objectives (MoBs) and Budget-Driven Business Plans are also good methodologies to include here.

Pros:

• Aligns goals with organisational results
• Improves accountability and governance
• Drives mission accomplishment effectively

Cons:

• Complex statutes may pose challenges
• Requires significant strategic planning
• The transformation phase can be difficult

Personnel Performance Management

Also called human resource (HR) performance management, the personnel performance management method centres on developing and evaluating individual employee contributions. This framework is simple: link and align the strategy of your divisions, departments, or the company with individual competency and then assess the performance of that personnel. To do that, there are several methods used, like performance appraisals, objectives and key results (OKR), 360-degree feedback, and competency assessments.

Pros:

• Have digital tools to make this task easy
• Identifies skill gaps within the team
• Boosts individual motivation & productivity

Cons:

• Can be time-consuming
• Risk of biased ratings
• May increase employee stress

2. Performance Appraisal Systems

As the name suggests, this method is more focused on making appraisal decisions. There are various methodologies that could be included in the performance appraisal system. Some common ones are:

• Forced Distribution: Rates employees on a bell curve, categorising them as poor, good, or excellent performers.
• 360-Degree Feedback: Collects feedback from managers, peers, and subordinates to provide a holistic view of an employee’s performance.
• Competency-Based: Evaluates performance based on specific competencies required for each position.
• Management by Objectives (MBO): Involves setting common goals for the organisation and individuals.
• Graphic Rating Scales: Assesses employees based on parameters such as behaviour and skills.

Pros:

• Motivates employees to improve
• Provides a structured feedback process
• Aligns goals with performance

Cons:

• Subject to rater biases
• Creates a stressful environment
• Misleading numbers turn into loopholes

3. Performance Management Models

Performance management systems employ various models and frameworks designed to evaluate and improve the alignment of organisational goals to employees’ competencies. Some of the models I would like to mention are:

• Traditional: Annual reviews focusing on past performance for employee appraisal purposes or to get a brief view of the company’s yearly performance.
• Biannual: Evaluations conducted twice a year, suitable for long-term objectives. They are performance reviews to view the past six months’ progress and discuss achievements, areas of improvement, and goals for the next six months.
• Project-Based: Evaluates performance on a project-by-project basis, which is the best methodology in an agency or in a company hiring on a project basis.
• Stack Ranking: Often referred to as a forced ranking performance management system, which rates employees as top, average, or low performers. In its traditional form, you reward the top 20% of performers and fire the bottom 10%.
• High Growth: Involves frequent reviews to identify and track the key indicators that lead to high levels of growth and document feedback for continuous improvements.

4. Objectives and Key Results (OKRs)

It is a standout goal-setting framework that has become much more popular in recent years. This system involves setting ambitious, measurable goals (objectives) and key results that define how those goals will be achieved. In other words, OKRs are how you track progress, create alignment, and encourage engagement around measurable goals. It somehow manages to give you both flexibility and an almost guaranteed planned outcome.

Pros:

• Clear goals, as everyone knows what to achieve.
• Focus & alignment as teams work together better.
• Measurable progress makes it easy to see if you’re on track.

Cons:

• Overly rigid process that can stifle creativity.
• Hard to set, because good OKRs take time.
• Focus on numbers and may ignore other important factors.

5. Continuous Performance Management

Continuous performance management is a modern approach and cyclical process that happens over and over again throughout the year. It focuses on providing continuous feedback and coaching to employees. This system involves regular check-ins between managers and employees to discuss progress, improvements, and development opportunities.

Pros:

• Real-time feedback, which helps improve quickly.
• Regular support that encourages growth and development.
• Better engagement. Employees feel valued and heard.

Cons:

• Time-consuming, as it requires frequent manager-employee meetings.
• Feedback fatigue because too much feedback can be overwhelming.
• Subjective bias and feedback might not always be fair.

6. Balanced Scorecard

The balanced scorecard allows managers to look at the business from four important perspectives: financial, customer, internal processes, and learning and growth. The system tries to answer the four basic questions: 

1.  How do we appear to shareholders? (financial perspective)
2. How do customers see us? (customer perspective)
3. What do we need to excel at? (internal perspective)
4. Can we continuously improve and create value? (innovation and learning perspective)

Thus, this performance management system provides feedback on internal business processes and external outcomes to continuously improve performance.

Pros:

• Strategic focus that aligns actions with big goals.
• Holistic view as it considers all aspects of the business.
• Clear measures because it tracks progress in key areas.

Cons:

• Complex to implement and needs careful planning.
• Data heavy since it requires accurate, consistent data.
• Can be rigid as the process may not adapt to quick change.

7. Behaviourally Anchored Rating Scales (BARS)

The BARS is a scale that assesses the performance of new employees or trainees based on well-defined behavioural patterns. These patterns are used to rate each individual employee. A behaviourally anchored rating scale is an essential component of any structured interview. It provides the advantages of narratives, quantified ratings, and critical incidents, as well as both qualitative and quantitative data. It was created with the goal of reducing rating errors that are common when using traditional rating scales.

Pros:

• Helps set clear expectations as specific behaviours are defined.
• Objective examples guide ratings and help reduce bias.
• More precise performance evaluation.

Cons:

• Developing scales is lengthy and time-consuming.
• Scales may not fit all roles.
• Raters need proper instruction or maybe training.

Each type of performance management system has its unique benefits and can be tailored to suit different organisational needs and cultures.

Importance of Performance Management System

Performance is a non-negotiable metric for every business to keep growing. Mid- to large companies have to review the performances typically half-yearly or annually and present a document report that further helps in key decision-making about the future for success.

In addition to this, an organisation must have a clear idea of what its employees are doing. Without that knowledge, it is much more difficult for management to guide employees and accurately direct their efforts. Performance management creates a system designed to establish roles and responsibilities, recognise each person’s strengths and weaknesses, convey feedback, reward exceptional behaviour, and promote continuous innovation.

Furthermore, a performance management software is not just a single tool. It is not about employee reviews, surveys, or self-assessments, or about technologies that help improve performance. Performance management is broader, encompassing and including a variety of actions and associated resources. However, performance management itself is a process that continues to affect the employee’s entire career.

And this sums up that a dedicated performance management system is important because it provides teams and individuals with the support and feedback they need to do their best work.

Benefits of Performance Management System

A performance management system in HRM exists to automate employees’ performance tracking in a specific period. The gathered data helps them optimise employee performance, so it naturally offers all the benefits that come from having a workforce that is reaching its potential. This includes increased productivity and revenue. More specifically, however, the performance management system helps address five main problems that most organisations face:

1. Employee Engagement

If your organisation prefers to conduct employee appraisals and reviews on an annual basis, you may be taking too long to provide essential feedback. Unfortunately, not receiving feedback on work performed tends to have a negative impact on engagement. To address this, a PMS helps provide more accurate, regular, and consistent communication and training to improve employee engagement, which in turn has a positive impact on absenteeism, turnover, safety incidents, product and work quality, and customer experience.

2. Retaining Top Talent

If an employee feels like they are working in an empty space with no feedback or development, they are less likely to be personally engaged with the organisation. In contrast, organisations that encourage frequent conversations to assess performance, find solutions, and provide training enjoy more loyal employees. Essentially, when employees see that you are willing to put more time and effort into them, they are motivated to put more effort into the organisation. This means that not only are they more likely to stay with the company longer, but they are also more likely to put in more and more consistent effort to improve their performance.

3. Developing Internal Leadership

Hiring from the outside can be a slow and expensive process. And if the new hire isn’t a good cultural fit, the investment can be wasted. Offering leadership roles to internal employees who have already proven themselves mitigates much of this risk. But how do you know who is the best fit to take that leadership seat? A PMS will tell you the rising star, the shining star, and the best performer you have in your organisation to help you decide. In addition, through effective performance management, you can prepare top performers for future leadership roles through training and feedback designed to help them develop the right leadership skills.

4. Future-Proofing Your Workforce

Identifying skills gaps and focusing on continuous learning and development helps organisations provide employees with the adaptability and competence they need to cope with technological advances and changing industry demands. A PMS integrates multiple methodologies, formulas, and frameworks that make all the calculations for HRs to pinpoint the skill gap in the team, tell what existing skills need training to shine, and even inform who to send on a PIP plan. All this data is presented in a visually appealing way by the PMS system. This proactive approach keeps employees engaged while fostering a culture of learning and growth.

5. Improving the Overall Organisational Performance

All of these benefits add up to a single, larger-than-life benefit: they help improve the overall performance of the organisation. This is the real power of a comprehensive performance management system. It helps to align individual objectives with organisational goals and to track progress so that managers can provide regular feedback on the chosen path. It also helps to ensure that all employees are working effectively towards the same goals. This alignment improves decision-making, increases the effectiveness of problem-solving, and creates a more cohesive and productive working environment, ultimately driving organisational success.

How to Choose the Right Performance Management System

Businesses of all sizes need a performance management tool that is suitable and has the right features. The system should streamline the performance management process and make it easy at all times. Here are some ideal tools:

• Goal management: Setting and managing goals is an integral part of performance management. A solution that offers multiple goal options, the ability to track goals, and space to incorporate relevant notes about goals should be used. This can also be helpful in implementing SMART goals, which can help employees find their way between performance reviews.
• Adaptable performance review forms: Reviewers need a process that is flexible, regardless of whether the review is simple or comprehensive. Consistent, detailed forms can avoid ambiguity and increase the quality and effectiveness of reviews.
• Recognition: A rewards management system can help implement recognition systems, such as pay-for-performance and long-term incentive programs.
• Improvement plans: Performance management systems should be able to automatically track employee performance and then implement an improvement plan if performance declines.

How Can NYGGS Performance Management System Help Your HR Improve Performance Evaluation?

NYGGS is a PMS software that can help organisations transform their performance management for a variety of reasons.

• It allows you to establish a measurement and monitoring system for key performance indicators (KPIs).
• It is effective in establishing direct, clear, and transparent communication with workers.
• Provides training and development for employees to improve their skills and expand their knowledge.
• It has tools that serve to monitor employee achievements through performance (KPI) and other relevant metrics.
• It facilitates evaluation and monitoring, as it allows tasks to be automated. For example, sending reminders, scheduling tasks, etc.
• It allows you to create personalised development plans for each employee.
• Create reports on employee and team performance as a whole. Helps you make informed decisions.

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