Performance Management (E)
What is performance management? What is the role of objective setting and performance review within performance management?
Posted: Aug 2009
Performance is making the things to be done right. Performance is the personal output of every individual within the company. The overall business result depends of aggregated performance outputs of all employees. Therefore, the care for the optimal performance output from every employee is the job of every manager. In order to make more uniformed and efficient approach to performance management, there are different performance management tools developed. The Human resources department is initiating, supporting and tracking the performance management process, but the process is conducted by managers with their teams.
Performance management is the ongoing, collaborative relationship between employee and their supervisor. This relationship is focused on continuous and systematic planning of work, setting of expectations, providing the right feedback and establishment of mutual understanding. All this is with purpose of developing employee’s capacity to execute tasks and to develop within the position and organization.
The performance management is the process where the employee is creating value for the company and opportunity for personal development. From the perspective of the company, performance management is the opportunity to recognize contributions and achievements of employees. The company is rewarding the employee for the achievements, through the compensation program.
The performance management is composed of two main process elements: Objective Setting and Performance Review.
Objective Setting is the segment of performance management with the aim to create objective, align targets and to finalize tracking and measurement details. Objective setting is done aligned with strategic priorities of the company. The objective are cascaded top-down to the individual level. Objective setting is the process where the line manager and employee mutually agree about goals and expectations that are supposed to be achieved during the period defined by objective setting process, usually one business year.
Objective setting is focusing on important business goals from the areas of management, financials, people development, leadership, relationships, innovation and corporate social responsibilities. Depending of the function and level the priorities of areas can be different. Objectives should be targeted to be stretched but achievable. Stretching of targets is leading to company growth. Without stretching the company wouldn't grow. Still, targets must be achievable, otherwise they will not be motivator for the employee. Objective setting should be conducted at the beginning of business year.
Performance review is the segment of performance management with the aim of periodic reviews, self-review, manager's review, calibration meeting and annual performance review.
Performance review has a goal of measuring What and How an individual employee performed versus previously defined objectives. The Fishbone Diagram is one of the tools for root cause analysis. The output of performance review is the input for rewarding.
Why is performance review important? It is a formal opportunity of employee and manager to review performance in a structured way. They can determine what are the achievements of defined objectives. During the performance review both manager and employee agree about rate of implementation of objective. The total score of implementation is the basis for calculation of compensation. The performance review should be done at the end of the year. As an addition, it is recommended to conduct half-year review and adjustment of objectives. It is not recommended to set the objectives for employees who just took the new position, until they step into next full business annual cycle.
As it is described previously, the performance management is the process of created for defining, measuring, reviewing and rewarding of employee's performance.