Performance Management / November 2019
1. INTRODUCTION & MANAGEMENT CONTROL SYSTEMS
1.0 Lecture
Performance management is a continuous process of identifying, measuring, and developing
the performance of individuals and teams and aligning performance with the strategic goals
of the organization.
Performance appraisal is the process by which we evaluate the individual performance of an
employee over some period of time.
Performance Management vs Performance Appraisal
Strategic business consideration Assesses employees strengths & weaknesses
Driven by managers Driven by HR
Ongoing feedback Once a year, lacks ongoing feedback
so employee can improve performance
Performance rating to Performance improvement
Individual performance to team-level/firm-level performance
Advantages of PM
Employees: Managers: Organization / HR:
o Increased self-esteem o Develop a workforce o More appropriate
o Understand required with motivation to administrative actions
behavior and results of perform o More clear
their position o Gain greater insight organizational goals
o Maximize strengths into employees and o Reduced employee
and minimize making them more misconduct
weaknesses competent o Better protection from
o Differentiation lawsuits
between poor and o Facilitate
good performers organizational
o Clearer change/maintenance
communication about o Develop increased
performance commitment of
employees
o Enhanced employee
engagement
Disadvantages of PM
Employees: Managers: Organization / HR:
o Lowered self-esteem o Increased turnover o Wasted time and
and motivation o Decreased motivation money
o Burnout and of employees o Unclear rating system
dissatisfaction o Unfair standards and o Emerging biases
o Damaged relationship ratings 1 o Increased risk of
litigation
, TOP Leadership: where is the organization headed?
HR: What is expected from the individual?
Managers: what to do, how, when, and why?
▪ Goals, objective, deliverable, activity, measures
Perspectives on Performance Management
Commitment strategy: Engagement Performance Model (Gruman & Saks, 2010)
Control strategy: Management Control Systems (Merchant, 1982):
taking steps to ensure that employees do what is best for the organization
1. Start from goals and objectives
2. Identify key results = lack of direction (result control)
3. Identify key actions = lack of direction (action control)
Lack of direction, lack of motivation or personal limitations
Result controls, action controls or personnel controls
Results Controls Advantages Action Controls Advantages
o Behavior can be o Most direct form of
influenced while allowing control
autonomy o Organizational memory
o Greater employee o Efficient way of
commitment and coordination
motivation
o Often inexpensive
o More flexible and less
constraining for
employees
Results Controls Disadvantages Action Controls Disadvantages
o No indicator whether o Only for highly
good action has been routinized jobs
taken (results are not o May discourage
always in control of creativity and innovation
employee) o Negative attitudes
o Goal displacement o Operating delays
o Data distortion o Sometimes very costly
Always keep a behavioral focus, as the benefits of a control system derive from their impacts
on behavior. Start with people controls, supplement them with action and result controls.
Personnel controls is a very desirable situation because additional controls cost money and
may have undesirable side effects.
2
, 1.1
Merchant (1982): The control function of management
This article takes a broader perspective on control.
Basic control process: 1) establishing standards 2) measuring performance against these
standards 3) correcting deviations from standards and plans.
A good management control system stimulates action by spotting the significant variations
from the original plan and highlighting them for the people, who can set things right.
Controls need to focus on results.
Why are controls needed?
Individuals are sometimes unable or unwilling to act in the organization’s best interest, and a
set of controls must be implemented to guard against undesirable behavior and to
encourage desirable actions.
▪ Personal limitations
▪ Lack of goals congruence (between individual and organizational goals)
What is Good Control?
Perfect control: complete assurance that actual accomplishment will proceed according to
plan, which is never possible of the likely occurrence of unforeseen events.
Good control:
▪ Future-oriented
▪ Multi-dimensional (good control cannot be established over one activity)
▪ The assessment of whether good performance assurance has been achieved is
difficult and subjective
▪ Better control is not always economically desirable
Out of control: A high probability of forthcoming poor performance, despite a reasonable
operating plan.
• Control-problem avoidance
o Automation
o Centralization
o Risk-sharing (to an insurance company)
o Elimination (subcontracting)
• Action control
• Result control
• Personnel control
Which control do I use? Consider:
1. The total need for control
2. The amount of control that can be
designed
3. The costs of the control, and any unintended behavioral effects
3
1. INTRODUCTION & MANAGEMENT CONTROL SYSTEMS
1.0 Lecture
Performance management is a continuous process of identifying, measuring, and developing
the performance of individuals and teams and aligning performance with the strategic goals
of the organization.
Performance appraisal is the process by which we evaluate the individual performance of an
employee over some period of time.
Performance Management vs Performance Appraisal
Strategic business consideration Assesses employees strengths & weaknesses
Driven by managers Driven by HR
Ongoing feedback Once a year, lacks ongoing feedback
so employee can improve performance
Performance rating to Performance improvement
Individual performance to team-level/firm-level performance
Advantages of PM
Employees: Managers: Organization / HR:
o Increased self-esteem o Develop a workforce o More appropriate
o Understand required with motivation to administrative actions
behavior and results of perform o More clear
their position o Gain greater insight organizational goals
o Maximize strengths into employees and o Reduced employee
and minimize making them more misconduct
weaknesses competent o Better protection from
o Differentiation lawsuits
between poor and o Facilitate
good performers organizational
o Clearer change/maintenance
communication about o Develop increased
performance commitment of
employees
o Enhanced employee
engagement
Disadvantages of PM
Employees: Managers: Organization / HR:
o Lowered self-esteem o Increased turnover o Wasted time and
and motivation o Decreased motivation money
o Burnout and of employees o Unclear rating system
dissatisfaction o Unfair standards and o Emerging biases
o Damaged relationship ratings 1 o Increased risk of
litigation
, TOP Leadership: where is the organization headed?
HR: What is expected from the individual?
Managers: what to do, how, when, and why?
▪ Goals, objective, deliverable, activity, measures
Perspectives on Performance Management
Commitment strategy: Engagement Performance Model (Gruman & Saks, 2010)
Control strategy: Management Control Systems (Merchant, 1982):
taking steps to ensure that employees do what is best for the organization
1. Start from goals and objectives
2. Identify key results = lack of direction (result control)
3. Identify key actions = lack of direction (action control)
Lack of direction, lack of motivation or personal limitations
Result controls, action controls or personnel controls
Results Controls Advantages Action Controls Advantages
o Behavior can be o Most direct form of
influenced while allowing control
autonomy o Organizational memory
o Greater employee o Efficient way of
commitment and coordination
motivation
o Often inexpensive
o More flexible and less
constraining for
employees
Results Controls Disadvantages Action Controls Disadvantages
o No indicator whether o Only for highly
good action has been routinized jobs
taken (results are not o May discourage
always in control of creativity and innovation
employee) o Negative attitudes
o Goal displacement o Operating delays
o Data distortion o Sometimes very costly
Always keep a behavioral focus, as the benefits of a control system derive from their impacts
on behavior. Start with people controls, supplement them with action and result controls.
Personnel controls is a very desirable situation because additional controls cost money and
may have undesirable side effects.
2
, 1.1
Merchant (1982): The control function of management
This article takes a broader perspective on control.
Basic control process: 1) establishing standards 2) measuring performance against these
standards 3) correcting deviations from standards and plans.
A good management control system stimulates action by spotting the significant variations
from the original plan and highlighting them for the people, who can set things right.
Controls need to focus on results.
Why are controls needed?
Individuals are sometimes unable or unwilling to act in the organization’s best interest, and a
set of controls must be implemented to guard against undesirable behavior and to
encourage desirable actions.
▪ Personal limitations
▪ Lack of goals congruence (between individual and organizational goals)
What is Good Control?
Perfect control: complete assurance that actual accomplishment will proceed according to
plan, which is never possible of the likely occurrence of unforeseen events.
Good control:
▪ Future-oriented
▪ Multi-dimensional (good control cannot be established over one activity)
▪ The assessment of whether good performance assurance has been achieved is
difficult and subjective
▪ Better control is not always economically desirable
Out of control: A high probability of forthcoming poor performance, despite a reasonable
operating plan.
• Control-problem avoidance
o Automation
o Centralization
o Risk-sharing (to an insurance company)
o Elimination (subcontracting)
• Action control
• Result control
• Personnel control
Which control do I use? Consider:
1. The total need for control
2. The amount of control that can be
designed
3. The costs of the control, and any unintended behavioral effects
3
