SMB2H2 2

Performance Management and Reward Systems
Block
II
DEVELOPING, IMPLEMENTING AND
EVALUATING PERFORMANCE
MANAGEMENT
UNIT 4
Developing the Performance
Management Framework
1-15
UNIT 5
Designing and Launching the Performance
Management System
16-33
UNIT 6
Motivation and Its Importance in
Performance Management
34-54
UNIT 7
Evaluation and Maintenance of
55-69
Expert Committee
Dr. J. Mahender Reddy
The Vice Chancellor
IFHE (Deemed to be University), Hyderabad
Prof. Y. K. Bhushan
The Vice Chancellor
IU, Meghalaya
Prof. G P Srivastava
The Vice Chancellor
IU, Dehradun
Dr. O. P. Gupta
The Vice Chancellor
IU, Nagaland
Dr. Lata Chakravorty

Director
IBS Bangalore
Prof. D. S. Rao
Director, IBS, Hyderabad
IFHE (Deemed to be University),
Hyderabad
Course Preparation Team

Mr. Debapratim Purkayastha
IFHE (Deemed to be University)
Hyderabad
Mr. Amrit Chaudhari

IFHE (Deemed to be University)
Hyderabad
Mr. Ajay Kumar Saini

IU, Dehradun
Mr. Sanjeev Kumar

IU, Dehradun
Mr. Ajit Karki

IU, Sikkim
Mr. Manoj Kumar De

IU, Tripura
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Ref. No. PMRS SLM 09 2K11R 198 B2
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The ICFAI University Press, Hyderabad
Block II
Developing, Implementing, and

Evaluating Performance Management
The second block on the course on Performance Management and Reward
System (PMRS) deals with understanding the development, implementation,
and evaluation of the performance management system itself. The block
contains four units. Unit four deals with developing an appropriate
performance management framework. Unit five deals with the designing and
launching of a performance management system. Unit six discusses
motivation and its importance in performance management. Unit seven takes a
look at ways in which the performance management system can be evaluated.
The fourth unit, Developing the Performance Management Framework, opens
with a discussion on the factors that affect performance management. This is
followed by an in-depth analysis on how to develop the performance
management framework. The unit then describes three important performance
measurement techniques Budgeting, Economic Value Added, and Balanced
Scorecard. Subsequently, there is an examination of the important
characteristics of a good measure of performance. The unit closes with an indepth discussion on the desirable features of a performance management
system.
The fifth unit, Designing and launching the Performance Management
System, begins with a discussion on the various stages in the designing of the
performance management system. It also discusses the possible barriers that
can arise in the launching of the performance management process.
The sixth unit, Motivation and its importance in Performance Management,
discusses the various theories of motivation. The unit touches on the
importance of motivation, especially in the context of performance
management. It then goes on to discuss the various theories such as Maslows
Need Hierarchy theory, Vrooms Expectancy theory, McGregors theory X
and theory Y, McClellands theory of needs and the model of motivation
given by Porter and Lawler.
The seventh unit, Evaluation and maintenance of performance management
thoroughly examines the various desired areas of evaluation. It then goes on to
discuss the different evaluation methods along with their consequences. This
is followed by an in-depth discussion on performance monitoring along with
its objectives. The unit closes with a discussion on the various methods of
monitoring performance.
Unit 4
Developing the Performance Management Framework

Structure
1.
Introduction
2.
Objectives
3.
Environmental factors
4.
Devising a performance management framework
5.
Performance measurement techniques
6.
Characteristics of good performance measures
7.
Desirable features of a performance management system
8.
Summary
9.
Glossary
10. Self-assessment exercises

11. Suggested readings
12. Answers to exercises
1. Introduction
In the previous units, we have discussed the overall concept of performance
management, performance appraisal, as well as the tools to measure performance. In
this unit, we take a close look at the development framework and the contextual
factors that affect performance management.
Understanding the development of the performance management framework is
necessary as organizations differ greatly from each other with regard to their
organizational culture and the operating environment. In many cases, organizations
lack a formal performance appraisal system altogether. This means that the entire
performance management system has to be devised from scratch; in other cases, the
organization may want to make changes in its present system in order to achieve the
desired results. There cannot be a ready standard model that suits all the
organizations and can be readily applied. Thus, it is vital to have an understanding of
how the performance management framework can be devised. Along with this, it is
necessary to have an understanding about the various measures of performance
management.
This unit opens with a discussion about the environmental factors that affect
performance management. This is followed by an in-depth analysis on how to develop
the performance management framework. The unit then describes three important
performance measurement techniques Budgeting, Economic Value Added, and
Balanced Scorecard. This is followed by an examination of the important
characteristics of a good measure of performance. The unit closes with an in-depth
analysis on the desirable features in a performance management system.
Developing, Implementing and Evaluating Performance Management
2. Objectives
By the end of this unit, students should be able to:
Understand the impact of environmental factors on performance management
Explain how a performance measurement framework can be developed
Examine the role of Budgeting, Economic Value Added and Balanced Scorecard
in performance measurement
Discuss the features of good performance measures
Discuss the features of a good performance management system
3. Environmental Factors
The framework of performance management is greatly influenced by the internal
environment of the firm. The internal factors that principally affect the environmental
factors are organizational culture and organizational structure.
Organizational culture is a collection of values and norms that are shared by the
members of the organization. It defines the way in which the members of the
organization interact with each other and with external stakeholders. The performance
management system must be devised in such a manner that it fits in with the existing
culture and value system of the organization. Otherwise, it will result in an
undesirable friction between the management and employees which might even lead
to the dismantling of the performance management framework.
Example: Fords Appraisal System

Ford Motor Corporation (FMC) came under immense pressure to change its
evaluation system, given the numerous discrimination suits that were being
filed against the company. The earlier rating system gave the mid-level
managers of the firm ratings ranging from A, B and C for their annual job
performance. If a person got a C rating for the entire year, it would mean that
there would be no bonus for him. A C grade for two continuous years would
mean dismissal or demotion. Moreover, the system was designed in such a
way that those at the lowest 10% of performance got the lowest grade.
Given the pressure, many changes were made in the appraisal system. The
changes ensured that appraisals would continue on the basis of mutually
agreed objectives between managers and supervisors. The appraisals would use
the terminology of top achiever, achiever and improvement required'.
Moreover, there would no more grouping of employees into the lowest
category. Managers with the poorest rating would no longer be barred from
receiving bonuses or merit pay increases. Though two years in the poorest
performing category could still lead to dismissal, it would only be in the worst
case scenario. These moves were seen as a major setback for its earlier chief
executive Jacques Nasser who wanted to use the system to shake up the
companys corporate culture and focus on bottom-line results.
Adapted from Ford's Performance Appraisal System LO27128,http://www.learningorg.com/01.08/0043.html. August 20, 2010.

Organizational structure refers to the hierarchical structure that helps achieve the
organizational objectives in the best possible way. It determines the way in which the
organization operates. Organizational structure has an impact on the way performance
management is carried out. For instance, in centralized organizations, a particular
approach is followed by the entire organization toward performance management.
However, if there is a high degree of decentralization, each department has the
freedom to devise the performance management function in the way that is most
suitable for them. Take, for example, a shoe company that designs and manufactures
high fashion shoes. While its designing department would judge employees on the
number of creative and winning designs they come up with, the manufacturing
department would examine people on the basis of how well they are able to comply
with established manufacturing procedures to ensure consistent quality.
4. Devising a Performance Management Framework

The first step in devising a framework is doing an in-depth diagnostic review that
examines various aspects. This review would go into what, why, and how the things
have to be done. It would also look into the strengths and weaknesses of any current
arrangement for the appraisal of employees. Subsequently, the driving factors behind
the present need for a performance management system are examined. During this
entire process, various procedural issues regarding the performance management
come to light and have to be looked at in detail. The final stage involves pilot testing
before the performance management system is formally launched.
Diagnostic review: A diagnostic analysis is required to determine what needs to be
done, why it has to be done, and how it should be done. The starting point should be a
thorough examination of the strengths and weaknesses of any previous arrangement
for reviewing performance. An understanding of the strategic plans under operation in
the organization and an identification of the various stakeholders would be pertinent.
During the process, there has to be utmost clarity on what would have to be done in
order to achieve the key objectives of the organization. This would lead the appraiser
to look for the skills and competencies that exist in the organization and would be
required in the future to achieve the key objectives of the organization. Essentially, a
fit between the organizational and individual objectives must be ensured. The
diagnostic process should evaluate in terms of the costs and the benefits that accrue to
the organization.
Identifying the crucial drivers: The drivers are the long-term organizational goals
that are desired to be achieved through the performance management system. For
instance, an organization may desire to have a greater level of motivation among its
employees and increased co-ordination among the various departments. The Key
Performance Indicator (KPI) would measure the progress in achieving this difficult
aim by taking a measureable objective which can be one of the outcomes of achieving
the organizational goal. For example, the benefits of greater motivation and coordination in an organization should result in greater revenue earnings for the firm.
Typically, KPIs being formulated must have the qualities of being specific,
measureable, achievable, relevant, and time-based. These qualities are summed up by
the popular acronym SMART. For instance, a KPI may involve increasing the revenue
by Rs. 500 million during one financial year.

Procedural issues in performance management: Usually, performance management
systems are introduced throughout the organization, from the senior level employees
down to the line management. However, there are various issues that remain
entangled here. For example, a division of a decentralized organization may have the
freedom to decide if it wants to adopt the performance management system. Further, if
it decides to adopt such a system, it might have considerable freedom to decide on
how it is going to go about it. Taking the line management and employees along is
essential. Some experts feel that the best way to do this is to establish a working group
for the same purpose.
The framework: A crucial step while determining the framework would be to
develop an understanding of the various objectives or goals of the organization, in the
order of importance. Related issues are defining and identifying the related
competencies that would be required to achieve the desired goals, along with the
desired performance measures that would be required.
Implementation: An important aspect while devising the performance management
system would be to see how it will be implemented. An important aspect in
implementation is communication, which play an important role in ensuring the
organizational aims and the desired objectives and the various nuances of the
performance management system are clearly understood by all the employees. There
should be a clear understanding of the level of performance that has to be attained in
order to achieve the desired objectives. The information flows would have to be
considered including the feedback and feed-forward loops that would be necessary
for an organization to learn from its experience.
Pilot-testing: The framework should incorporate pilot-testing of the important aspects
of performance management. This would enable the management to have a hands-on
experience of the working of the system, so that any changes can be made in time
before the results of the system start showing in their entirety after a span of one year.
This is necessary to develop confidence in the performance management system.
Thus, the set of issues just mentioned would be very important in devising a
framework for performance management. Each and every organization, depending on
its requirements, would address each of these issues in its own way.
Check Your Progress

1.
Which of these are important environmental factors that impact the performance
management system?
i.
Structural factors
ii.
Organizational culture
iii. Linguistic reasons

iv. None of these
a.
Only i and ii
b.
Only ii and iii
c.
Only i and iii
d.
iv only

2.
The performance management system has to be devised in such a manner that it

fits into the existing ________ of the organization.
a.
Communication
b.
Culture
c.
Contingency factors
d.
Members
3.
In __________ organizations, each department has the freedom to devise the

performance management function in its own way.
a.
Centralized
b.
Vertical
c.
Decentralized
d.
Fragmented
4.
In devising a performance management framework, which of the following steps

deals with what would need to be done, why it has to be done, and how it should
be done?
a.
Procedural issues
b.
Diagnostic review
c.
Implementation aspects
d.
Drivers for introducing performance management
5.
Which of these is the last step in devising the performance management

framework?
a.
Procedural issues
b.
Diagnostic review
c.
Pilot-testing
d.
Implementation aspects
5. Performance Measurement Techniques

Measurement is the logical basis for deciding and taking action. Put simply, the use of
a measure is essential in performance management, since one cannot improve
something if it cannot be measured. Performance measurement is the process of
gauging how much has been achieved against the stated goals. It relies greatly on
devising SMART indicators that are used to measure and track organizational success.
We discuss one traditional measure of performance management which is given by
the budget and two modern measures - Economic Value Added and Balanced
Scorecard.
5.1 Budget as Performance Measurement

Budgeting has historically been very popular with organizations, as it can summarize
the entire organizational activity in coherent measures. A budget is a form of financial
planning that explains how an organization will spend money and how it will arrange
5

to meet these expenses. This means that a budget is a measurement aid that sets
desired limits on the working of the organization. By setting limits, budgets stop
chaotic activity from occurring in organizations and ensure that the important needs of
an organization are met first and others get deferred until there are sufficient funds to
pay for them. Budgeting would see performance through the eyes of profitability: the
output is measured through revenue, and input is measured through cost. This allows
a budget to be used as an instrument for developing and enforcing the strategy of a
company through an encompassing framework in which the organizations activity is
encapsulated into a single set of financial statements.
However, budgeting has drawbacks which can cause substantial dissatisfaction. First,
budgeting makes decisions about the future that are based on past performance.
Second, the budget is a lagging indicator rapid changes in the operating
environments mean that an annual budget will not be able to keep track of all the
changes taking place. Third, budgeting works on the principle of hierarchy which can
lead to inflexibility in times of rapid change. Fourth, a budget only looks at the
financial results; it pays no attention to the means by which those results are achieved.
Fifth, there are measurement issues as the various divisions or departments of a
business may have inconsistent measures.
It should be noted that budgets influence employee behavior. For instance, the
attainability of budgetary goals has substantial effects on employee behavior. Goals
that are easy to attain may not lead to much effort from employees. If however, the
goals are too difficult, there is the danger that the employees and managers will use
unethical means to achieve the targeted goals. Thus, many experts feel that budgets
should be set in such a manner that they are challenging, but attainable.
Example: Conspiracy at Enron

The US Department of Justice in its indictment charges held that Chairman and
Chief Executive Officer Kenneth L. Lay (Lay) and others had participated in a
massive conspiracy to cook the books at Enron. Through the books of accounts,
there was an attempt by Lay, who was personally benefiting from the rise in
Enrons stock price, to create an illusion that it was a robust, growing company.
The reality being hidden was that it was an increasingly troubled business kept
afloat only by a series of deceptions. As a part of the scheme, unrealistic and
unattainable earnings goals were set for the firm. These goals were not based on
analysts expectations or any other rational business logic. It was merely done to
show growth when in fact there was none. As expected, the company consistently
fell short of those goals and its senior officers orchestrated a series of accounting
gimmicks designed to make up for the shortfall between actual and predicted
results. The budget and the books of accounts were heavily manipulated to serve
ulterior motives. The firm kept announcing that it had met or exceeded analysts
expectations even though its senior executives knew that it had been done by
engaging in fraud.
Adapted from, Former enron chairman and chief executive officer kenneth l. lay charged with
conspiracy, fraud, false statements, http://www.justice.gov/opa/pr/2004/July/04_crm_470.htm
The Enron example depicts an extreme case of the problem with budgeting: figures
can be manipulated and may not represent something tangible. This problem with
budgeting can apply at any level from the top, as seen in the example, to the lowest
6

where the person is appraised for meeting targets on a day to day basis. These issues
have led practitioners to favor modern methods of management: the first is a purely
financial performance measure of the Economic Value Added and the second is the
Balanced Scorecard approach developed by Kaplan and Norton which explicitly
adopts a multi-dimensional framework. It is emphasized here that these approaches
should not be seen as competing, but taken as complementary to budgeting.
5.2 Economic Value Added

The Economic Value Added is a single, value-based measure that evaluates business
strategy with the objective of maximizing shareholder wealth. The primary objective
of maximizing shareholder wealth enables it to have the entire organization pointing
in one direction that of maximizing shareholder wealth. This enables it to avoid
inconsistencies of traditional measures like budgets. It promotes value-maximizing
behavior among the managers of a firm. It works on the principle of creating value by
comparing the profits with the cost of capital required to produce them. This makes
managers focus on projects that create shareholder wealth. The EVA approach sets
performance targets and links them to the reward system. Rewards are given to those
managers who are able to turn investor capital into profit in the most efficient manner.
Research shows that in effect, the EVA system makes the managers think like owners.
The system removes the risk of short-run behavior to maximize gains by rewarding
only performance that is consistently maintained over a substantial time period.
Example: EVA at the Coca-Cola Company

Coca-cola leads the world beverage industry in terms of volume. It has adopted the
EVA concept to measure performance and create shareholder wealth. The system
was adopted by Coca-Cola in the early 1980s. The EVA system at Coco-Cola
determines its objectives through company products (volume) and economic profit
(profit). These two objectives are turned into the targets of each division. At the
end of the year, the performance of each division is assessed versus its objectives
by the means of a funding matrix. If the divisions are able to meet their targets,
then the incentives are funded at 100% of the target; in case they exceed objectives,
the rewards are increased in proportion to the better performance. Once the division
has its pool being funded, the division management decides to distribute the exact
pool. In the process, the division sets the specific team and individual level
objectives that link into the total division objectives. Based on the individual and
team performance against these objectives, each participant gets an annual incentive
award that typically falls between the range of no award to maximum award. In this
entire process, the divisions have to ensure that the total incentives do not exceed the
amount allocated and that the total awards balance against the pool.
Adapted from Linking Incentive Compensation and EVA to Drive Shareholder Value at The
Coca Cola Company, http://www.wilsongroup.com/ecr/case/Coca-Cola.pdf. August 20, 2010.
However, there are also areas of concern with regard to the EVA approach. First,
EVA does not consider areas of social responsibility which means that expensive
investments like effluent treatment plants are not set up as they impede maximizing
shareholder wealth. Second, the single minded concern for maximizing shareholder
wealth can lead to falling levels of customer satisfaction. Third, the system does not
focus on the means by which the ends are achieved.
7
5.3 The Balanced Scorecard

The Balanced Scorecard was developed as a performance measurement system by
Robert Kaplan and David Norton at the Harvard Business School in 1992. It was
conceptualized as a multi-dimensional approach to performance management with deep
links to organizational strategy. It primarily suggests that along with financial measures
of performance, attention should be paid to various other perspectives, such as the
consumer perspective, innovation, learning, and the long-term sustainability of the firm.
The balanced perspective is created due to the unique combination of leading and
lagging indicators. Leading indicators show where the performance of the
organization is headed and so enables proactive action. Leading indicators tend to be
characterized by the particular organization concerned: for instance, if there is a piling
up of high priority orders over the span of the next few months along with medium to
low priority orders which was caused by sloppy schedule compliance it means that
the capacity of the manufacturing process is going to be stretched to the core and is
highly likely to collapse in the coming days. Other common examples of leading
indicators are customer satisfaction levels to the on-time delivery record of the firm.
Lagging indicators are given by all the other remaining indicators. A common lagging
indicator is the Mean time between failures (MBTF) that gives the predicted time that
has elapsed since the breakdown of a system. Other common examples of lagging
indicators are profitability and revenue generation in an organization.
The balanced scorecard identifies four perspectives of performance: financial,
customer, internal, and innovation and learning. Each perspective has its own
measures. For instance, the innovation and learning perspective would look at
measures like the percentage of revenue growth from new services, number of
employee suggestions received, and revenue per employee. The internal business
perspective would look at the safety index, tender success rate, and the time spent
with customers in new work. The financial perspective looks at, among other things,
the return on capital employed and cash flow. The consumer perspective would look
at the pricing strategy, market share, and customer satisfaction index. Further, the
inter-linkages between each of these perspectives would also have to be looked into.
There is a close link between business unit strategy and the selected performance
measures. In fact, a major strength of the Balanced Scorecard approach is its emphasis
on linking performance measures with business unit strategy for many organizations
there is no other way of addressing this issue except through a Balanced Scorecard. It
has to be noted that the Balanced Scorecard has undergone considerable evolution and
is a leading performance measurement system.
However, the Balanced Scorecard approach also has its drawbacks. There are few
details given on how to select the specific performance measures. Though some of
these should be from the key result areas, in other areas we need to incorporate the
strategic plans of the organization in reflecting the choices made to achieve the
desired results. For instance, though customer service levels and satisfaction may be a
key result area, strategic choices have to be made concerning the means of delivering
such service, which touches on speed of delivery, product quality, technical advice,
etc. Thus substantial work is needed to be done in determining how to map the
necessary pattern of means-end relationships: clearly, for example, a customer
objective can very well be achieved through improving the internal organizational
processes, instead of going in for improving the direct consumer service. However,
little guidance is given on how means and ends should be linked analytically. Further,
8

there has been little attention paid to the role of feedback from the Balanced
Scorecard. Feedback gives information to the extent to which a company is achieving
its key strategic aims.
However, most of these drawbacks have been addressed in the newer versions of the
Balanced Scorecard, which has continued to evolve over time. Most importantly, the
device enables double loop learning to take place which leads to substantial
improvement in organizational performance. For instance, the double loop would go
into examining if the strategies are working in the desired manner or not. If not, it will
examine if it is due to inadequate implementation or because the strategy itself is faulty.
Thus, we see that the Balanced Scorecard has emerged as a dynamic tool, the contents
of which will change over time as strategies develop and key success factors change.
Example: Using the Balanced Scorecard at Philips

In the 1970s, Philips began acquiring businesses in the US. In 1974, the company
acquired Magnavox, followed by Signetics in 1975. It launched the laserdisc player
in 1978. In 1981, the television business of GTE Sylvania, a US-based lighting and
electrical equipment maker, was acquired. In 1983, it acquired the lamps business
of Westinghouse. In the same year, Philips brought the compact disc (CD) to the
market in collaboration with Sony. After 1983, Philips scaled many new peaks and
in 1984, it produced its 100 millionth TV. However, Philips could not respond to
the rapid changes in the external environment and the growing competition. By the
1990s, it was showing dismal financial performance.
Restructuring efforts began in response to the Asian competition as well as the need
to transform itself into a flexible organization. One of the tools in this restructuring
process was the Balanced Scorecard. According to Peter Geelen of Philips Corporate
Control, who was responsible for the Balanced Scorecard Project, its aim was to
consistently communicate strategy deep down into Philips 80 businesses and support
more than 10,000 managers with tools to turn strategy into action by sharing
knowledge, aligning actions, monitoring progress, and learning.
The system called Business Excellence through Speed and Teamwork (BEST), which
was largely based on the Balanced Scorecard, enabled the employees to understand
the existing policies and plans for the future. The initiative to implement the Balanced
Scorecard came from the top management. The top management and all the divisions
identified the factors that were important to create value and they were grouped under
four perspectives competence, process, customers, and financial. After establishing
the Critical Success Factors (CSFs), key indicators to measure the CSFs were
decided. Some of the indicators like achieving revenue growth, employee
satisfaction, and customer satisfaction were common for all the business units while
other indicators differed. The Balanced Scorecard was also used to measure corporate
results. According to the company, BEST was integrated in every business
performance review cycle of the company. It gave measurement tools and focus
through the Business Balanced Scorecard process. During the periodical management
reviews, the Balanced Scorecard was used as an instrument to evaluate actual
performance against the targets and to monitor future plans. Philips used the traffic
light system with the green light indicating a target that had been met, amber
indicating performance in line with the target, and red denoting a problem area, to
measure the level of achievement of the key indicators. If any of the indicators was
Contd
Contd
reported with red next to it, the employees were supposed to immediately fix the
problem. The data was shared across the company so that other employees could
avoid making similar mistakes. The implementation of the BEST strategy of which
the Balanced scorecard was an important part, ensured that Philips was once again
lean and focused, and sustained profits.
Adapted from Balanced scorecard implementation at Philips,
http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR270.htm
6. Characteristics of Good Performance Measures

The characteristics of good performance measures are as follows:
Have a quantitative or qualitative orientation as per the requirements:
Though performance measures can be either of the two, it is only by taking
qualitative measures that the objective and strategies get linked and the various
cost/effect relationships are understood.
Data is valid, reliable, and accurate: The performance measures should be of
good quality. For this, they have to satisfy three conditions. This means that they
would have to be valid (actually measuring what they are supposed to measure)
and reliable (given a set of conditions, the information collected would not
greatly vary) along with being accurate (conforming to the actual value being
measured) and timely. In case the management feels it is necessary, expert
statistical advice may be relied on to improve the data collection techniques.
Promote performance and accountability: Various measures should be used for
assessing the overall performance of the program. The measures should be
selected in such a way that they consider various aspects of performance and
promote greater accountability.
Balance costs against profit: It should be kept in mind that the benefits of
collecting more and more accurate measures should be balanced against the cost
of collecting, storing, and using the information. In making these decisions, one
can look into the following aspects: a) Are there strong chances of the
information getting redundant in the future? b) There may be poor data collection
procedures followed while considering large data sets, which render the entire
exercise meaningless c) What are going to be the relevant costs of the data
collection procedures being followed.
Use of appropriate number of measures: Although there can be no ideal
number of measures to be used, the emphasis should be on quality and usefulness.
However, it should be kept in mind that a smaller set of measures can sometimes
be more manageable and thus, useful.
Check Your Progress

6.
Match the following with their definitions:

i.
Reliability
p.
Actually measuring what they are supposed to

measure.
ii.
Validity
q.
Conforming to the actual value being measured.
r.
Given a set of conditions, the information

collected would not greatly vary.
iii. Accuracy
10

i.
i/p,ii/r,iii/q
ii.
i/r,ii/q,iii/p
iii. i/q,ii/p,iii/r
iv.
i/r, ii/p, iii/q
7.
The Balanced Scorecard and the Performance Management system should be

considered as ___________ to the Budgeting system.
a.
complementary
b.
competing
c.
divergent
d.
convergent
8.
Of the following, which has been a historically popular measurement technique?
a.
Economic Value Added
b.
Balanced Scorecard
c.
Budgeting
d.
None of these
9.
Which of the following statements describes a strategic drawback of budgeting?
a.
Deciding on the future based on the past performance
b.
Balancing cost against profit
c.
Having a quantitative orientation
d.
None of the above
10. Who among the following developed the Balanced Scorecard?

a.
Stern Stewart Corporation
b.
Philips
c.
Kaplan and Norton
d.
None of the above
11. Which of these performance measures best links with the strategy of the firm?
a.
The budget
b.
Balanced scorecard
c.
Economic Value added
d.
None of the above
12. A good performance measure can have which of the following measurement
features?
i.
Quantitative
ii.
Qualitative
iii. Abstract
iv. Variable
11

a.
Only i
b.
Both i and ii
c.
i, ii and iii
d.
Only iv
7. Desirable Features of a Performance Management System

An examination of the performance management system being practiced in various
organizations reveals the following integral features:
i.
Agreement among the line managers on various aspects of the performance

management system.
ii.
Complete support being extended by supervisors toward the plan.
iii. Both the appraiser and appraisee should be aware of the nuances of the
performance management system. Moreover, they should have a clear
understanding of the desired goals and behaviors.
iv. A good fit between the performance management plans as well as the structure
and operations of the concerned organization.
v.
A climate of trust in the organization, which enables appraisals to be constructive.
vi. Stress on the organizational needs in the performance appraisal system. For instance,
some organizations stress the determination of the potential of the person for the next
higher level; others look purely at his/her current technical competencies.
vii. Existence of appeals against an unfair appraisal, so as to build greater confidence
among the employees.
Activity: Tablot FMCG services
Tablot, a Fast Moving Consumer Goods company, was established during the early
1970s. Over the years, it built up a reputation for quality products and being a great
organization to work with. However, there was a substantial change in the
operating environment and a downturn that forced firms to go in for cost cutting.
Given this downturn, the organization revised its performance management system
to becoming more output and result oriented and heavily penalizing the
underperformers. As a consequence of the new performance management system,
many people lost their seniority in the organization and there were cases of
demotion as well. This caused substantial employee unrest.
Imagine yourself in the place of the HR director, who has justified these changes in
the policy on account of the recent economic downturn. How will you take the
employees along, and yet ensure that the business survives the downturn?
Answer:
12
8. Summary
The framework for performance management is highly dependent on the
contextual factors of organizational culture as well as the way in which the
organization is structured. The performance management system should be in
tune with the organizational culture. Further, structural considerations impact the
way in which the performance management system is introduced into the
organization.
In order to devise a performance management framework, the first step would be
to start with an in-depth diagnostic review that would look at various aspects such
as the strengths and weaknesses of the current arrangements. Subsequently, there
should be an understanding of the drivers behind the performance management
framework. During this, various procedural issues would have to be looked into.
The last stage would comprise going in for pilot testing before the final
implementation of the entire process.
There are three commonly used performance measurement techniques. One of
these is the traditional technique of Budgeting while Economic Value Added and
Balanced Scorecard are comparatively new. A budget is a form of financial
planning that explains how an organization will spend money and how it will
arrange to meet these expenses. This means that a budget is a measurement aid
that sets desired limits on the working of the organization. The Economic Value
Added is a single, value based measure that evaluates business strategy with an
objective of maximizing shareholder wealth. The Balanced Scorecard was
conceptualized as a multi-dimensional approach for performance management
that has deep links with organizational strategy. It suggests that along with
financial measures of performance, attention should be paid to various other
perspectives, such as the consumer perspective, innovation, learning, and the
long-term sustainability of the firm.
There are five characteristics of good performance measures. First they should
have a quantitative or qualitative orientation as per the requirements. Second, the
measures should be valid, reliable, and accurate. Third, they should promote
performance and accountability in the system. Fourth, they should strike a
balance between accuracy and costs of collecting, storing and using the data.
Fifth, an appropriate number of measures should be used to capture various
aspects of the working of the organization.
9. Glossary
Environmental factors: These are the contextual factors of organizational
culture as well as the way in which the organization is structured.
Organizational culture: This can be seen as a collection of values and norms
that are shared by the members of an organization; it defines the way in which the
members of the organization interact with each other as well as with external
stakeholders.
Organizational structure: Organizational structure refers to the hierarchical
structure which exists in order to best achieve the organizational objectives. It
determines the way in which an organization operates.
Diagnostic review: The diagnostic analysis is necessary to understand what
would need to be done, why it should be done, and how it should be done by the
concerned organization.
13

Budgeting: A budget is a form of financial planning that explains how an
organization will spend money and how it will arrange to meet these expenses.
Economic value added: The Economic Value Added is a single, value based
measure that evaluates business strategy with the objective of maximizing
shareholder wealth.
The balanced scorecard: It was conceptualized as a multi-dimensional approach
for performance management having deep links with organizational strategy.
10. Self-assessment Exercises

Q1. How do the environmental factors impact the development of the performance
management framework?
Q2. Explain in detail the steps in devising a performance management framework.
Q3. How can budgeting be used as a performance measure?
Q4. What is Economic Value Added? Are there any drawbacks associated with using
it?
Q5. Explain the use of the Balanced Scorecard as a technique of performance
measurement.
11. Suggested Readings

1.
Performance Management Systems

< http://www.indianchild.com/management/performance-management systems.htm>
2.
Aswathappa, K.: Human Resource and Personnel Management, 1999,

Himalaya Publishing House, New Delhi.
3.
Jucius, Micheal, J.: Personnel Management, 1995, Richard Irwin.
4.
Philip, Tom: Making Performance Appraisal Work, 1983, McGraw Hill, U.K.
5.
Saiyadain, Mirza S.: Human Resource Management, 2003, Tata McGraw-Hill,

New Delhi.
6.
Bhatia, S K.: Performance management: concepts, practices and strategies for

organization success, 2007, Deep & Deep Publications Private Limited, New
Delhi.
7.
Michael, Armstrong and Angela Baron: Performance management: The new

realities, 2002 Jaico Publishing House, New Delhi.
8.
Tripathi, P.C.: Human Resource Development, 2003, Sultan Chand and Sons,
New Delhi.
12. Answers to Exercises

1.
(a)
The framework for performance management is highly dependent on the
contextual factors of organizational culture as well as the way in which the
organization is structured.
14

2.
(b)
Cultural considerations have a great effect on performance management. The
performance management system has to be devised in such a manner that it fits in
with the existing culture and value system of the organization.
3.
(c)
In decentralized organizations, each department may be given the freedom to
devise the performance management function in its own way.
4.
(b)
The diagnostic review is necessary to understand what would need to be done,
why it has to be done, and how it should be done by the concerned organization.
5.
(c)
The framework should incorporate pilot-testing of the important aspects of
performance management. This would be required since the complete
performance management cycle would take at least one year.
6.
(d)
Being valid means to actually measure what they are supposed to measure. Being
reliable means given a set of conditions, the information collected would not
greatly vary. Lastly, being accurate means that one confirms to the actual value
being measured.
7.
(a)
The Balanced Scorecard and the Performance Management system should be
considered as complementary to the Budgeting system.
8.
(c)
Budgeting has historically been very popular with organizations, as it can
summarize the entire activity of an organization in coherent measures.
9.
(a)
In Budgeting, along with the advantage of being an encompassing framework for
which the organizations activity is encapsulated into a single set of financial
statements, there is also the great drawback of deciding about the future based on
past performance.
10. (c)
The Balanced Scorecard Approach was given by Kaplan and Norton of the
Harvard Business School.
11. (b)
A major strength of the Balanced Scorecard approach is its emphasis on linking
performance measures with business unit strategy for many organizations there
is no other way of addressing this issue except through the Balanced Scorecard.
12. (b)
A good performance measure can have both the quantitative or qualitative
orientation as per the requirements of the situation.
15
Unit 5
Designing and Launching the

Performance Management System
Structure
1.
Introduction
2.
Objectives
3.
Steps in designing the performance management system
4.
Barriers in the implementation of the performance management system
5.
Overcoming the barriers
6.
Summary
7.
Glossary
8.
Self-assessment exercises
9.
Suggested readings
1. Introduction
The previous unit elucidated the broad framework which is required for performance
management. It also discussed the various measurement techniques that are involved
in the performance management system. This unit moves forward to describe the
stages in designing a performance measurement system. This is followed by a section
that brings out the possible barriers that may arise during the designing and
implementation of the performance management system. The unit closes with a
discussion on how to overcome the barriers that may arise in the implementation of
the performance management system.
Given the fact that organizations have their own unique experiences and dynamics as
they mature, one cannot have a universal performance management system that fits all
organizations. Thus, there is a need for every organization to have its own
performance management system that is in tune with its own culture, requirements,
and experience.
This unit begins with a discussion on the various stages in the designing of the
performance management system. It closes with an examination of the possible
barriers that can arise in the launching of the performance management process.
2. Objectives
Understand the steps in designing a performance management system
Explain the barriers in implementing the performance management system
Overcome the barriers in implementing the performance management system
Designing and Launching the Performance Management System
3. Steps in Designing the Performance Management System

These steps serve as a guiding light in designing a performance management system.
They work toward ensuring two important objectives. First, by working along these
steps, the performance management system gives a sense of direction to the activities
of the entire organization. Second, while doing so, it creates and nurtures a sense of
ownership about the performance management system throughout the organization.
Both these objectives are essential in ensuring that the performance management
system is able to achieve the desired result.
STEP I: The most crucial aspect is that a sense of ownership and commitment to the
performance management system should be created in the management. It is only with
this kind of commitment that the performance management system has a chance of
being well planned and executed constructively throughout the system over a long
period of time. Thus, the most important step at this stage would be to describe the
program to the various corporate or divisional managers of the organization on an
individual basis. The divisional managers in turn should be aware that any attempt to
force a system down the throats of line managers would generate resentment toward
the performance management system and would doom it to eventual failure. The same
rule would apply to line managers when they try to force the system on employees. It
is most important to ensure that the employees down the line are taken into confidence
and made to understand the working of the performance management system. Thus,
the creation of a sense of ownership and commitment among both the managers and
the employees is vital to ensure the eventual success of the system. This would ensure
that the managers will be committed to the system, no matter what difficulties arise in
the implementation of the process. In the absence of trust, the performance
management system can lead to substantial employee unrest and resentment.
Infosys Hires Mercer to Redesign

Human Resources Management System
It was in 2009 that Infosys Technologies hired global HR consultant Mercer to
overhaul its previous performance management system PerformMagic - which
had been in use for over five years, on the grounds of increasing employee strength.
The new system called Infosys Role and Career Enhancement (iRace) was
implemented by Mercer. The new system gives employees designations that are
based on their domain knowledge and the unit to which they belong. Nandita
Gurjar (Senior VP and Global HR Head at Infosys) explains that iRace is meant to
give employees better depth both in domain and technology, and offer
interchangeability in different career streams. She feels that over a period of time,
the employees will realize the usefulness of the system as they will be competent
enough to move both vertically and horizontally on their jobs.
However, iRace led to a substantial amount of employee discontent. The system led
to the wiping out of various traditional designations such as Vice President, and the
introduction of new ones such as Head of Sales. This led to a number of people
being bunched at the same level. To add fuel to the fire, over 4,500 people got
lowered in terms of designation, while another 2,000 got some time to perform and
get their promotions.
Contd
17

Contd
The website glassdoor.com that gives an insiders look at the state of an

organization, saw Infosys employees using strong words against the company,
which seemed to arise out of the frustration with the performance appraisal system.
The erstwhile reputation of the firm as being employee-friendly' seemed to be at
stake: for instance, some employees went on to question the company getting the
Best Employer Award in 2009.
On the other side, Nandita Gurjar remarked that this was not the first time that the
companys HR had seen such high antagonism and attributed it to its young
employees access to social media. However, seeing the discontent grow, Infosys
has designated a 15-member task group to listen to employees on the iRace issue.
Adapted from http://www.blonnet.com/2010/04/16/stories/2010041656220400.htm;
http://www.glassdoor.com/Reviews/Employee-Review-Infosys-RVW245879.htm
The best way forward would be to introduce the system to one division at a time on a
voluntary basis. Care should be taken to avoid putting unnecessary pressure on the
line managers. While selecting the divisions, the management should consider those
that are the most receptive to intervention and would be most willing to benefit from
the program.
STEP II: The second step focuses on the creation of an overall approach that the
entire organization has to take toward the performance management system. This
requires the following aspects:
At the outset, it has to be clarified what are the various aspects that the system
would try to achieve. For instance, it could be made clear if the system is aimed at
assisting in making personnel decisions such as promotion, demotion, or firing, or
at the development of the employee concerned.
The linkages of the performance management system with the organizational
objectives should be strong and made clear to all members of the organization.
There should be development of a clear sense of understanding of the levels at
which the performance management system shall operate and how it will be used
to deliver organizational outcomes like promotions.
There should be the creation of a clear understanding of the benefits that are
being anticipated through the use of the system.
The various performance measures that would be used should be decided on,
along with the desirable competencies and traits of the employees that would be
considered during the appraisal.
Timelines should be fixed for the entire review process.
The role of the Human Resources department in the forming and running of the
performance management system should be determined, as well as the need and
feasibility of employing external consultants, in case of any gaps in the
proficiency of the HR department to devise and execute the desired performance
management system.
To achieve a clear understanding on these objectives, a series of training workshops
can be organized throughout the organization. Other instructional techniques like
films, role play, and discussion groups would also be useful.
18

STEP III: This step works at creating an overall direction for the performance
management system that fits the needs of the organization. To expedite the entire
process with the greatest possible attention being paid to details, organizations
generally create teams comprising competent professionals who have had substantial
experience. The teams discuss the desired performance appraisal process with the
employees in order to understand and incorporate their baseline perspectives. Such
discussions lead to the emergence of useful new ideas that ensure the acceptability of
the system. The following aspects need to be looked into:
What are the objectives/purposes of the system is the system meant to be
developmental, administrative, or something else in nature?
Can there be benefits from linking the performance management system with the
other human resource sub-systems that are already in place within the
organization?
The main feature of the approach of the performance management system should
be highlighted, through the involvement of the rating system and the feedback
mechanism.
Who are the people that are going to be covered by the performance management
system?
What is the area with the greatest potential in the performance management
system for instance, are better results to be expected from introducing the
system in the marketing department or the production department?
Last, what is the role of the human resources department in the entire exercise?
Most importantly, it has to be understood that if the current HR team is strong
enough to rise up to the challenges or if there is a need for outside experts.
STEP IV: The fourth step principally involves summing up the entire developments
of the previous three stages and then presenting the entire conceptualized performance
management system for the comments of the senior management. It has to be ensured
that the system is so designed that all the employees are involved in executing the
various aspects of the performance management system. It is only after the
employees, especially at the junior and middle levels, agree to give their consent about
participating in the system that the system in its entirety should be presented to the
senior management for its approval.
STEP V: This step considers the suggestions made and discussions held with the
senior management and the project team on giving shape to the performance
management system. There should be complete documentation of the discussions, so
that the source faults, if any, can be identified and there can be a complete monitoring
of the system. The desired changes should be incorporated. During this deliberation
process, the following aspects must be considered by the top management:
What are the primary objectives that the system wants to achieve?
What are the results that the system emphasizes?
To what extent has an in-depth understanding of the rating system been
developed by the candidates?
What kind of role is the HR department going to play?
What is the feasibility of going in for a pilot test of the performance management
system before its full scale adoption?
What are the linkages of the performance management with the other training and
reward systems in the organization?
19

STEP VI: The sixth step ensures that the performance management system gets
introduced slowly as a step-by-step approach. Most of the organizations go in for pilot
testing. It is only after the outcomes of these tests are examined and the desired
changes made, that the system gets implemented throughout the organization. In this
way, any inconsistencies in the performance management system can be removed and
there can be greater confidence and monitoring over the entire process. This goes a
long way in ensuring the success of the performance management system.
It is clear that the development of a new performance management system is a
complex process. It should be taken forward step by step and has to be carefully
monitored. Last but most important, the performance management system should not
deteriorate into a blind race to achieve targets that may no longer be relevant under a
changed scenario. This can be avoided only if everyone has an understanding of
where the organization is headed. This requires a very sensitive and careful approach
to the entire performance system. It is this very approach and its results that separate
the winners from the losers.
Example: Performance Management?

The recent financial crisis in the banking system has shown the performance
management systems of the institutions concerned in a poor light. Take the Royal
Bank of Scotland which has gone through immense financial turmoil. To overcome
the financial crisis at the bank, it received immense bailouts from the British
government. According to some experts, the seeds of the problem lay in two areas.
One was the performance management system while the other was the banks
accumulation of toxic debt.
The bank followed a performance management system which aimed at achieving
targets based on the Key Performance Indicators. For instance, before the crisis,
almost every role at the bank was being described in a number of specific job targets.
This meant that each and every individuals performance was measured on the basis
of achieving the targets. The employees were rewarded on the basis of achieving
targets. The RBS employees would discuss and agree on their job objectives with
their seniors at the beginning of every year. The performance was measured
throughout the year. Payments were made on the basis of the targeted results that
could be achieved. For instance, if a banker was able to sign up a certain number of
new customers every year, he/she would get paid for his/her achievements.
However, in this process, the big picture of where the bank was headed was lost. It
seemed as if everyone was working toward securing their individual targets, while
ignoring what was happening to the bank. The focus was on doing what the KPIs
required, instead of what was required for the bank. This essentially meant that the
executives did not use their discretion to do what was required; they only followed
their KPIs, with a view to earning the maximum possible bonuses.
This was combined with a very positive outlook of the senior management that led
to deals that increased the banks exposure to toxic assets and pushed the bank to
the brink of collapse. The bank was bailed out with taxpayers money. There was a
public outcry when the tax payers money was used to give out bonuses for the
very actions that had led to the collapse of the bank. This put pressure on the bank
management to make drastic changes to the performance management system.
Adapted from Government takes 68% stake in Royal Bank of Scotland,
http://www.guardian.co.uk/business/2009/jan/19/rbs-second-bailout;
20
Check Your Progress

1.
What should be placed as step one in the development of a performance

management system?
i.
Sense of ownership and commitment of the management with the performance

management system
ii.
Creating an overall direction in order to fit the needs of the organization
iii. Both the above

iv. Neither of the above
2.
Which of the following options best describes step four?
a.
Placing the performance management system before the senior management for
approval
b.
Understanding the linkages of performance management with other systems
c.
The competency of the HR department in playing the desired role
d.
None of the above
3.
Which of the following options would best describe step five of the performance
management system?
i.
Clarification of the objectives that the system is trying to achieve.
ii.
Bringing out the linkages of the performance management system with the
organizational objectives.
iii. Deciding upon the various performance measures to be used.

iv. None of the above.
a.
i and ii only
b.
ii and iii only
c.
i, ii and iii
d.
iv
4.
Of the following, which step would stress complete documentation of the

discussions so that the source of any faults can be identified?
i.
Step V
ii.
Step VI
iii. Step I
iv. None of the above
a.
i and iii
b.
ii and iii
c.
d.
iv
21

5.
Which stage is concerned with the slow and step by step implementation of the
performance management system?
a.
Stage V
b.
Stage VI
c.
Stage III
d.
None of the above
Activity: Nicci Retailing

Nicci heads the retailing department of an established fashion retailing house. The
performance of the firm has been good, but of late, she has been noticing that the
firm stores are not stocked with merchandise that is keeping up with the fashion
trends. Nicci is concerned and wants to implement performance management to fix
accountability in the organization. How do you think she should go about designing
a performance appraisal system for the employees with an eye on fixing
accountability?
Answer:
4. Barriers in Implementing the Performance Management System

A sound performance management system is an invaluable asset for an organization.
As such, substantial investments are made in creating a new performance appraisal
system or even tweaking the existing one to achieve the desired ends. There are
various instances of successful achievement of performance management by
companies such as Mobil, DHL, and General Motors. However, experience has
shown that for the successful implementation of a performance management system,
various processes would have to be systematically followed. Most importantly, it
should not be perceived as an easy task. For instance, the legendary CEO of General
Electric Jack Welch after successfully implementing the performance management
system remarked that it took nearly five years of preparation before its successful
implementation. Similarly, it took the Swedish firm ABB almost three years to put a
performance measurement system in place. Thus, there are high chances that results
may not always match up with the desired expectations. The fact is that for a
majority of the organizations who have tried out performance management, many
could not achieve the desired results. Studies have revealed that a substantial
number of firms are not able to carry on with the implementation of various
performance measurement measures, given the various difficulties faced during
implementing the process.
22

This fact is recognized by the proponents of the Balanced Scorecard, Kaplan and
Norton, who have remarked that it would take several years to derive the full benefit
of performance measurement. Kaplan and Norton describe four barriers that can come
in the way of successful implementation of the performance management system.
First, it may happen that the vision and strategy are not actionable. This may occur as
the senior management fails to arrive at a consensus in achieving the desired vision.
As a consequence, different groups having varied interests act in their own way,
without linking their actions to the overall strategy of the organization. Second, the
employees concerned follow the traditional performance criteria that hinder the
introduction of a new strategy. This happens as the strategy may not be linked to
department, team, and individual goals. Further problems are caused if the incentive
system is not aligned with that of the organization. Third, the long-term strategic
planning process and annual budgeting process get separated. This might happen as
the strategy may not be linked to resource allocation, so that funding and capital
allocations become unrelated to the strategic priorities. Fourth, the feedback may only
look at the short-term results. This can happen if the feedback system is tactical and
not strategic. There is a focus on short-term results (such as financial measures) and
little time to review strategic indicators.
Example: Poor Performance Management

Hindering UK Companies
A survey done by Mercer HR consultancy shows that there is an immense
productivity gap in Britain when compared to other European countries. The
consultancy attributes this dismal showing to the failure of British companies to
effectively manage employee performance. The study covering 3,500 British
workers reveals that only 1 in 5 employees felt that good performance was being
rewarded. Even worse, only 1 in 3 felt that there was an adequate link between pay
and performance!
The increasing competition means pressure on costs and performance and
organizations have attempted to get around the pressures by trying to have a
performance based culture where high performance leads to a greater financial
reward. Yet, as the results of the survey show, the link between pay and
performance remained as weak as ever. Theory says that the link between pay and
performance requires an effective appraisal process and supporting line managers
who give shape to the performance management system. However, in practice, the
survey established that a substantial number of managers either lacked the training
or support to conduct this process. The firms were performing at a mediocre level
as the good performers were not being rewarded and the poor performers were not
being checked.
Training and development activities were seen lagging behind. The survey
indicated that managers were not investing the time required for employee
development: only 1 in 5 employees said that their line manager regularly coached
them. Experts felt that this happened since the immense competitive pressure that
managers faced made them feel sometimes that they had no option but to focus on
activities with a short-term return. Since employee development got results only in
the long-run, it was placed on the back burner.
Contd
23

Contd
Further dismal results showed that only 1 in 3 employees felt that promotions were
generally given to the most capable people. And only 4 of 10 employees felt a
strong sense of commitment to the organization. According to experts, this is very
harmful to the competitive advantage of organizations: during the downturns,
employees are highly sensitive about promotion and career development. This can
lead to negative word of mouth that costs the organization the ability to attract and
retain the best people. It is clear that organizations are not getting the best out of
their people.
Adapted from Poor performance management hindering UK companies,
http://www.management-issues.com/2006/8/24/research/poor-performance-managementhindering-uk-companies.asp.
5. Overcoming the Barriers

This section looks at trying to overcome the various problems that might emerge in
the implementation of the performance management system. It deals with trying to
understand the purpose of performance management, promoting openness and
objectivity. It also highlights how a better understanding of the operating environment
could lead to fewer difficulties in implementing the performance management system.
The barriers in meeting the purpose of the performance management system can be
dealt with through the following measures:
5.1 Better Understanding of the Purpose of Performance Management

This can be achieved by using performance management as a performance
increasing tool as well as through giving constructive and regular feedback to
employees. First, Performance management should be used as an performance
increasing tool. Earlier, the performance management system was used principally
as a rating device for the employee. This meant that it was used for deciding on and
giving promotions, increments, extension of service, etc. Using the system solely
for the purpose of giving ratings to employees turns out to be a barrier in the
development of employees. There has to be an emphasis on the development of
employees through the proper use of the performance management system. The
senior management can ensure that the performance management system is working
in the right direction by measuring and comparing the extent of improvement taking
place among the employees. Second, there should be constructive and regular
feedback to employees. Employees are keen to know about their on-the-job
performance. The performance management system should cater to this demand of
the appraisal system through regular feedback and guidance to the employees. This
can happen if the appraisal system identifies the needs and strengths of each and
every employee. Only then will the organizations be able to extend the desired help
through appropriate training and development. It should be ensured that the
sensitive areas in which the employee needs to improve are brought out into the
open and constructive steps are taken to help employees better their performance.
The supervisors have the desired qualities of being observant, analytical, and
communicative with innate leadership abilities to understand their subordinates.
Any area of deficit in the personality should be improved over time, as it will affect
the quality of analysis and intervention being given to the subordinates.
24
5.2 Greater Openness

Traditionally, organizations had the tendency of keeping the process of employee
evaluation and its results confidential. Given such a system, the employee had no
means of knowing on which parameters he/she was being assessed. In fact, this led to
various situations where the very purpose of the performance management and the
appraisal system was defeated as the employee was not explicitly aware of the
parameters on which he/she was being assessed.
It is only when there is greater trust between the managers and employees that the
performance management system achieves its desired objectives. There is a positive
change being witnessed in the human resources policies of various organizations with
a move toward greater transparency in the system. The current performance
management appraisals have no place for confidential reports except at the highest
levels of management. Organizations now have a greater number of workshops
throughout the year, as well as ensuring that the performance appraisal forms are
being circulated among the employees, in order to familiarize them with the process.
The greater stress on self-appraisal implies that the employee himself/herself gives an
assessment of the work done by him/her and where he/she thinks that further
improvements are required.
A related aspect is the adoption of performance counseling that gives feedback for
future growth of the employee. These sessions focus on the extent to which an
employee can achieve results. It helps the employee overcome the various obstacles
that come in the way of his/her achieving the desired goals. Suggestions are tactfully
made for the betterment of the employee so that he/she takes the desired steps for
improving his/her performance.
Example: Online Performance Management at BIC Group

The Bic Group is a popular manufacturer of stationery and shaving products. It
recently roped in a consultant for facilitating a global scheme that enables online
talent management. The new online system enables employees to update their
objectives and development plans. Since managers have access to this data, they
can make quick decisions on decision support and development planning. This
allows the company to make organizational changes instantly and provide up-todate metrics. Further, the online system is much better than the previous manual
process which was more like a chore. Manuel Martinez, HR development director
at Bic, says he is satisfied with the functioning of the system: "From an
international standpoint, we needed a system that would appeal to managers around
the world, regardless of location. This system (allows us to) address performance
management from the top down."
Adapted from Online talent management system,
http://www.hrmagazine.co.uk/news/search/908480/Online-talent-management- systemdesigned-improve-performance-management-Bic-Group/
5.3 Ensuring Objectivity

It is of utmost importance to ensure that the entire appraisal process is objective.
Objectivity means that the evaluation process is free of the judgment of a particular
person. Only then would the entire performance management and appraisal process be
considered fair and lead to the desired benefits.
25

There are various threats to objectivity from the use of point rating scales and the
tendency of centering of ratings. Given the use of point rating scales, there is a great
chance that the evaluator would have a tendency to inflate or deflate the results. This
can turn into a serious threat for maintaining objectivity. Then there can be situations
where an inexperienced or biased evaluator would give average ratings to a majority
of the employees which are not reflective of their true performance. It is only a culture
of openness that can save an organization from being vitiated by biased appraisals.
However, sometimes the internal workings of organizations do not allow for
openness. In such cases, checks and balances have to be devised to ensure validity in
the appraisal. For example, companies set up committees comprising the heads of
various departments to look into the entire appraisal process. To break the tendency of
centering, companies like General Electric devised the forced distribution system
which instructs the evaluator about the percentage of cases to be placed into each
category on the grading scale. For instance, guidance may be given that 10% of the
employees should be placed as poor and below average; 40% as average; 40% as
above average, and 10% as exceptionally good. The forced distribution system has
proven its usefulness when used for large groups of employees. Furthermore, this
grading system is easy to understand and administer. Another method of ensuring
objectivity is to give a write up or justification for the grading of employees, with
detailed write ups. Last, organizations are taking steps to ensure that officers are more
sensitized toward giving more objective appraisals, especially when the appraisal
systems have more plans and are increasingly rooted in psychology. The process of
sensitization is both comprehensive and fast when the training begins with senior
officers first and they in turn train those down the line.
Data-based appraisal systems can also help to ensure objectivity in the appraisal
system. Critical-incidence based techniques can also ensure objectivity, since the rater
has to make a note of the various instances of positive or negative behavior that have
had implications for performance.
However, mere experimentation with various types of appraisal should not become an
end in itself. In the end, depending on the needs of the organization, greater
objectivity should be ensured. Otherwise, there would be a risk that the elaborate
procedures only result in empty paperwork that serves no purpose.
Example: HR Directors Must Try Harder

An increasing volume of research finds that appraisals are turning simply into a
waste of time. They are not being linked to rewards decisions, career development,
or promotions. The shortcomings of the appraisal process means that talent is not
being identified or engaged. A recent survey of 175,000 employees in the U.K.
shows that 38% were unhappy with the employers appraisal system.
In this depressing scenario, there are organizations that are trying harder. For
example, consider Standard Chartered Banks 'conversations that count' appraisal
system. These are the four conversations managers have with staff each year that
embody their talent management process. There is a booklet for each conversation,
guiding managers on how to use them. The four conversations are with reference
to: First, performance ie, appraisal; Second, learning and development- the learning
they need to meet their objectives and how to access it; Third, building careers Contd
26

Contd
once the employee has mastered the core aspects of their job; and Fourth, an
engagement review where managers are guided to ask questions under the headings of
'know me', 'care about me', 'focus me', and 'build strengths'. The engagement review
focuses on building competencies. The 'performance' conversations are planned in
January, reviewed in July, and assessed in December. Aside from this, conversations
would also take place on a flexible basis when an employee is ready for it.
Adapted from HR directors must try harder to engage employees with the appraisals process,
http://www.hrmagazine.co.uk/news/search/947945/HR-directors-try-harder-engage-employeesappraisals-process/
5.4 Moving from Traits to Targets

There is an increasing realization among organizations that the managements should
have a more target-oriented approach than a trait-based approach in their performance
management and appraisal systems. Organizations should lay stress on what the
employee does i.e., emphasize performance. The earlier systems had placed
emphasis on merits like personality, initiative, and dependability. However, many
organizations are now shifting toward ratings that are based on behavior: these
comprise indices such as relations with subordinates, relations with colleagues, etc
that have led to substantial improvements in performance.
5.5 Ensuring Constructive Appraisal Rather than a Cold Analysis

It should be ensured that the appraisal process is a constructive one that tries to find
ways and means of improving employee organizational performance. A cold appraisal
which is poorly communicated as a formal judgment would cause a defensive
response among the employees, defeating the very purpose of appraisal.
5.6 Considering the Organizational Environment

The appraisal system being followed by the organization should be consistent with its
managerial style and culture. For instance, an organization that has historically had a
large amount of power distance among the managers and employees would not find its
employees very enthusiastic about self-evaluation. On the other hand, in organizations
where the power distance has been very little or almost negligible, the employees will
easily come forward to do a self-review. Thus, it is required that the policies should be
consistent with the prevailing environment. For this, the respective managements will
have to make a choice about the desired managerial style along with the beliefs about
employee development.
Toward the end of the unit, it will suffice to say that the performance evaluation
system is indispensible for the modern organization. However, if not used properly, it
can cause a heightened level of frustration. However, the various issues discussed here
will ensure the creation of an effective performance management system.
Activity: Sonotoro candy
Santos is a manager at Sonotaro candy bars, a firm based in California that makes
candies in 50 flavors. Being a closely knit family held company, the company had
a strong culture of taking employees along and ensuring that they were delivering
what was required of them as well as getting adequately rewarded for their efforts.
Contd
27

Contd
The firm required a new performance management system when two branches of
the family business were reunited as one. One of these branches was using an
outdated performance management system. The task of consolidating the
performance management system fell on Santos. What advice would you give
Santos while he goes about his task? Remember that this is a traditional candy
making company, and hence ease of use would be very important.
Answer:
Check Your Progress

6.
Match the barriers in performance management with their likely causes:

i.
Employees concerned follow

the traditional performance
criteria
a.
The senior management fails to

achieve consensus in achieving the
desired vision
ii.
Traditional performance
criteria are still being followed
b.
Strategy may not be linked to

resource allocation
iii. The vision and strategy are not

actionable
c.
Strategy is not linked throughout

the organization throughout the
teams, departments and individuals
iv. The long-term strategic

planning process and annual
budgeting process get
separated
d.
Strategy may not be linked to

department, team and individual
goals
a.
ii/c, iii/a, i/d, iv/b
b.
ii/a, iii/b, i/c, iv/d
c.
ii/d, iii/a, i/b, iv/c
d.
None of the above
7.
What can be an outcome of a poorly run performance management system?
i.
A high level of frustration
ii.
High levels of turnover
iii. High level of motivation

iv. All
28

a.
i and ii.
b.
i, ii, and iii
c.
iii
d.
iv
8.
In case the feedback mechanism in performance management has tactical

feedback, what is its likely implication?
a.
Actions would have a short-term orientation
b.
It is highly likely that strategic actions would be absent in the firm
c.
Both the above
d.
Neither of the above
9.
Which of the following options promotes greater understanding of the purpose of

the performance management system?
i.
i. Leading by example
ii.
ii. Giving regular and constructive feedback
iii. iii. Use as a performance increasing tool

iv.
a.
i and iii
b.
iii and ii
c.
i, ii and iii
d.
iv
10. Over time, the performance management system has become more
a.
Open
b.
Closed
c.
Stayed unchanged
d.
None of the above
11. What does objectivity imply in the case of performance management?

a.
Being influenced by the judgment of a particular person
b.
Being free of the judgment of a particular person
c.
Being beyond the influence of a particular person
d.
None of the above
12. Which of the following does the modern performance appraisal system
emphasize?
a.
Trait-based approach
b.
Target-based approach
c.
Both the above
d.
29
6. Summary
The first step in designing a performance management system is creating a sense
of ownership and commitment in the management with regard to the performance
management system. The second step focuses on the creation of an overall
approach that the entire organization has to take toward the performance
management system. The third step works on creating an overall direction that
fits the needs of the organization. Step four deals with summing up the entire
developments of the previous three stages and then presenting the entire
conceptualized performance management system for the comments of the senior
management. Step five considers the suggestions from and discussions with the
senior management and the project team in giving shape to the performance
management system. Step six ensures that the performance management system
gets introduced slowly as a step-by-step approach. Most of the organizations go
in for pilot testing. It is only after the outcomes of these tests are examined and
the desired changes made that the system gets implemented throughout the
organization.
Kaplan and Norton describe four barriers that can come in the way of successful
implementation of the performance management system. First, it may happen that
the vision and strategy is not actionable. This may occur as the senior
management fails to arrive at a consensus in achieving the desired vision. As a
consequence, different groups having varied interests act in their own way,
without linking their actions to the overall strategy of the organization. Second,
the employees concerned follow the traditional performance criteria which hinder
the introduction of a new strategy. This happens as the strategy may not be linked
to department, team, and individual goals. Further problems are caused if the
incentive system is not aligned with that of the organization. Third, the long-term
strategic planning process and annual budgeting process get separated. This might
happen as the strategy may not be linked to resource allocation, so that funding
and capital allocations become unrelated to the strategic priorities. Fourth, the
feedback may only look at the short-term results. This can happen if the feedback
system is tactical and not strategic. There is a focus on short-term results (such as
financial measures) and little time to review strategic indicators.
For overcoming the barriers in the performance management system, various
steps can be taken. First, there should be a better understanding of the purpose of
the performance management system. It should be kept in mind that the
performance management system is essentially a performance enhancing tool. It
will involve giving constructive feedback to the employees. The management will
have to lead by example to set the correct standards. Second, there should be
greater openness in the operation of the performance management system through
the development of trust between the managers and employees. Third, it should
be ensured that the entire appraisal process is objective. Objectivity ensures that
the entire evaluation process is free of the judgment of a particular person.
Fourth, the managements should have a more target-oriented approach than a
trait-based approach in their performance management and appraisal systems.
Organizations should stress what the employee does. Fifth, it should be ensured
that the appraisal process is constructive and that it tries to find ways and means
of improving an employees organizational performance. Last, the appraisal
system being followed by an organization should be consistent with its
managerial styles and culture.
30
7. Glossary
Personnel decisions: These are decisions regarding the personnel regarding
hiring, firing, demotions or employee development.
Timeline: a device used to show the events as they would occur over a long
period of time.
Role plays: business games that look into what-if scenarios.
Discussion groups: These are groups of people with similar interests.
8. Self-Assessment Exercises
1.
Explain in a step-by-step manner how you would go about designing a

performance management system for your organization.
2.
Conceptualize the barriers one may face while designing and executing the
performance management system.
3.
Explain the steps that can be taken to overcome the barriers in the implementation
of the performance management system.
4.
What is the role of ensuring objectivity in the entire performance appraisal

process?
1.
2.
3.

New Delhi.
4.

Delhi.
5.

realities, 2002, Jaico Publishing House, New Delhi.
6.
New Delhi.
7.
Ahuja, K K. : Personnel Management, 2004, Kalyani Publishers, New Delhi.
8. Armstrong, Michael, A Hand Book of Human Resource Management Practice,

2004, Pearson Education (Singapore) Pvt. Ltd, New Delhi.
9.
Rao, T.V.: Appraising and Developing Managerial Performance, 1999, Excel

Books, New Delhi.

1.
(a)
The most crucial aspect is the creation of a sense of ownership and commitment
in the management with regard to the performance management system. It is
only with this sense of commitment that the performance management system has
31

a chance of being well planned and executed constructively throughout the
system over a large period of time. Under step four, there is a summing up of the
entire developments of the previous three stages and then presenting the
conceptualized performance management system for the comments of the top
management.
2.
(a)
It is in step four, after the employees, especially at the junior and middle levels,
have given their consent to the form of the system, that the system in its entirety
should be placed before the senior management for its approval.
3.
(c)
At the outset, it has to be clarified what are the various aspects that the system is
trying to achieve. For instance, it could be made clear if the system is aimed at
assisting in making personnel decisions such as promotions. Next, the linkages of
the performance management system with the organizational objectives should be
strong and made clear to all members of the organization. Finally, there has to be
a decision on the various performance measures that would be used, along with
the desirable competencies and traits of the employees that would be considered
during the appraisal.
4.
(c)
Step five considers the suggestions made and discussions held with the senior
management and the project team on giving shape to the performance
management system. There should be complete documentation so that the source
of any faults can be identified and there can be a complete monitoring of the
system.
5.
(a)
Step five would consider the suggestions from and discussions with the senior
management and the project team on giving shape to the performance
management system. There should be complete documentation so that the source
of any faults can be identified and there can be a complete monitoring of the
system.
6.
(a)
First, it may happen that the vision and strategy are not actionable. This may
occur as the senior management fails to achieve a consensus in achieving the
desired vision. As a consequence, different groups having varied interests act in
their own way, without linking their actions to the overall strategy of the
organization. Second, the employees concerned follow the traditional
performance criteria that hinder the introduction of a new strategy. This happens
as the strategy may not be linked to department, team, and individual goals.
Further problems are caused if the incentive system is not aligned with that of the
organization. Third, the long-term strategic planning process and annual
budgeting process get separated. This might happen as the strategy may not be
linked to resource allocation, so that funding and capital allocations become
unrelated to the strategic priorities. Fourth, the feedback only looks at the shortterm results. This can happen as the feedback system may be tactical and not
32

strategic. This occurs when feedback only looks at the short-term results (such as
financial measures) and has little time for review of indicators or the strategy
involved.
7.
(a)
A poorly run performance management system would lead to high levels of
frustration and turnover among the employees.
8.
(a)
The feedback mechanism may look only at the short-term results. This can
happen if the feedback system is tactical and not strategic. There would only be a
focus on short term results (such as financial measures) and little time to review
strategic indicators.
9.
(c)
A better understanding of the purpose of performance management can be
achieved by trying to use it as a performance increasing tool, giving constructive
and regular feedback to employees, and ensuring that supervisors lead by
example.
10. (a)
Traditionally, organizations had the tendency of keeping the process of employee
evaluation and its results confidential. However, there is an increasing trend
towards greater openness in the performance management systems being
followed by organizations.
11. (b)
It is of the utmost importance to ensure that the entire appraisal process is
objective. Objectivity means that the evaluation process is free of the judgment of
a particular person. Only then would the entire performance management and
appraisal process be considered fair and lead to the desired benefits.
12. (b)
There is an increasing realization among organizations that the managements
should have a more target-oriented approach than a trait-based approach in their
performance management and appraisal systems.
33
Unit 6
Motivation and Its Importance in Performance

Management
Structure
1.
Introduction
2.
Objectives
3.
The concept of motivation
4.
Importance of motivation for the organization
5.
Role of motivation in performance management
6.
Maslows need hierarchy theory
7.
Vrooms expectancy theory
8.
McGregors theory X and theory Y
9.
McClellands theory of needs
10. Porter And Lawlers model of motivation

11. Summary
12. Glossary
13. Self-assessment exercises
1. Introduction
In the previous unit, we discussed how the performance management system is
designed and launched. In this unit, we go on to discuss how the performance
management system tries to ensure that the set targets are achieved. The performance
of employees depends upon two factors their ability and their level of motivation. Of
these two factors, it is motivation that determines if employees are doing their best to
achieve the desired goals.
The performance management system functions through the process of
motivation. By engaging employees through the process of motivation, it ensures
that they work toward achieving their desired goals. These achievements of the
employees ensure that the organization in turn benefits as it continues to achieve
its set goals. Thus the entire process revolves around motivation. Motivation is an
important area of psychology that has received a significant amount of attention
during the recent years.
In this unit, we will discuss the various theories of motivation. Some of these operate
at a basic biological level while the others are quite abstract. The unit begins by
touching on the importance of motivation in the context of performance management.
It then goes on to discuss the various theories that determine motivation as given by
Maslow, Vroom, McGregor, McClelland, Porter and Lawler.
Motivation and Its Importance in Performance Management
2. Objectives
Explain the concept of motivation
Understand the importance of motivation
Understand the role of motivation in performance management
Explain Maslows Need Hierarchy Theory
Explain Vrooms Expectancy Theory
Explain McGregors Theory X And Theory Y
Explain McClellands Theory Of Needs
Explain Porter and Lawlers Model Of motivation
3. The Concept of Motivation

The concept of motivation is becoming increasingly pervasive in performance
management and reward literature. Motivation is an important factor in understanding
what drives employees.
Motivation has been defined by various scholars. According to Stephen Robbins,
motivation is the willingness to exert high levels of effort towards organizational
goals, conditioned by the efforts ability to satisfy some individual need. According
to Robert Dubin, Motivation is the complex of forces starting and keeping a person at
work in an organization.
Motivation is linked with both the strength and direction of the goal-directed behavior.
Hence, motivation is said to take place when people begin to expect that a course of
action will lead to the achievement of a goal. The achievement of this goal should lead
to a valued reward which satisfies their particular needs. Thus we can say that
highly-motivated people are those who have clearly defined goals, which induce
them to take action to achieve the goals. This leads to effective contribution at work
both for the organization and themselves. Hence, in simple terms, we can say that
motivation is the psychological force that drives an individual to achieve various
desired goals. It accounts for an individuals intensity, direction, and persistence of
effort toward attaining various goals.
It is emphasized that motivating employees is an important function of the manager. It
is essential to motivate employees in order to ensure that they are performing to their
optimum potential. It is only through a highly motivated workforce that the
organization can progress and excel.
Motivation at work can operate through the intrinsic or extrinsic channel. Intrinsic
motivators arise out of self-generated factors that influence people to behave in a
particular way. This can be out of a sense of responsibility, freedom of action, a
challenging job, and opportunity for advancement. Intrinsic motivators are by their
very nature intangible. Intrinsic motivators have a deeper and longer effect on
individual performance as they are not imposed from outside. By their very nature,
they are quite subtle and hard to measure. They cannot be replicated.
35

Extrinsic motivation is which is done to employees in order to motivate them.
Examples include increased pay, better working conditions, paid holidays, rewards or
even punishments such as disciplinary action or loss of pay. Extrinsic motivators have
an immediate and powerful effect. However, their effect does not last long. Moreover,
rival organizations find it easy way to replicate extrinsic motivators - for instance, it is
easy for a rival firm to match the pay increase that was given by another organization.
However, it would be very difficult for the firm to re-create the same work
atmosphere and challenge that drives an employee to put in his best.
Check Your Progress

1.
Motivation is linked with the _______ and ________ of goal directed behavior.
i.
Want
ii.
Direction
iii. Feeling
iv. Strength
a.
i and ii
b.
ii and iii
c.
ii and iv
d.
i and iv
2.
Who gave this definition of motivation: The willingness to exert high levels of
effort toward organizational goals, conditioned by the efforts ability to satisfy
some individual need?
a.
Stephen Robbins
b.
Robert Dubin
c.
Fred Luthans
d.
None of the above
3.
Motivation at work can operate through the _________ or __________ channel.
i.
Visible
ii.
Intrinsic
iii. Observable
iv. Extrinsic
a.
i and ii
b.
ii and iii
c.
ii and iv
d.
i and iv
4.
A sense of responsibility, freedom of action, and a challenging job are examples

of which type of motivator?
a.
Extrinsic
b.
Intrinsic
36

c.
Both the above
d.
5.
Out of the following, which ones are easier to replicate?
a.
Intrinsic motivation
b.
Extrinsic motivation
c.
Both the above
d.
4. The Importance of Motivation for an Organization

Management tries to utilize all the sources of production in the best possible manner.
This can be achieved only when employees co-operate in this task. Efforts should be
made to motivate employees to contribute their best. Highly motivated employees
become an asset to the organization and contribute to its growth. The absence of
motivation can have disastrous consequences for the employees. The following are the
important outcomes of motivation:
i.
High performance: If the employees are given incentives for performance, they
act as motivational factors that stimulate employees to perform. Incentives
typically lead to motivation, and motivated employees will put in great effort for
achieving organizational goals. This enables high performance standards to be
achieved.
ii.
Low employee turnover and absenteeism: Employees lacking motivation feel

frustrated and unhappy with their jobs. Being dissatisfied, it is highly likely that
they will switch to other jobs. This will increase the turnover of the firm.
Moreover, dissatisfaction among employees also leads to absenteeism. Hence, it
becomes essential to ensure that employees are kept motivated.
iii. Positive organizational image: Organizations offering better monetary and nonmonetary benefits to the employees have a better reputation among the pool of
workers. This positive image attracts and helps in recruiting good talent to the
organization.
iv. Better industrial relations: A good motivational system will create job
satisfaction among employees. This creates an atmosphere of confidence among
employers and employees. This in turn contributes to reduced chances of conflict
among the employers and employees.
v.
Acceptability towards change: Usually when changes are introduced in an

organization the employees have a tendency to oppose them due to the fear of
negative consequences. However, employees that have high levels of motivation
do not resist change they do not perceive it as a threat but as an opportunity to
better themselves.
vi. Reflective of a positive organizational culture: Motivated employees indicate

that the organization is alive and functioning and the concerns of the employees
are being listened to. It shows a strong connection between the employees and the
organization which is essential in todays knowledge driven organizations.
37
Example: Employee Motivation and Retention Strategies at

Microsoft Corporation
Since its inception in 1975, Microsoft had been considered a great place to work,
given its work culture, generous compensation, and benefit programs which
enabled the company to attract and retain the best talent. However, the company
grew rapidly in size and along the way it lost the elements of work culture such as a
challenging work environment, risk taking, and innovation which were its
hallmark. HR experts felt that Microsoft was turning bureaucratic, much to the
frustration of many employees. Multiple racial discrimination lawsuits and antitrust proceedings cropped up. To add fuel to the fire, there was a cutback in
employee benefits to improve its profit margins that had come under strain. There
was less vacation time, co-payment for prescription drugs, and reduced discounts in
buying Microsofts stock. By the early 2000s, these changes had begun to affect
Microsoft adversely as they were causing massive discontent and demotivation
among the workforce. For instance, the employees referred to themselves as
Microserfs and posted blog messages such as Its a dark and dreary day at One
Microsoft Way so do yourself a favor and stay away!
The HR department did not expect such an outburst from the employees. In 2005,
Steve Ballmer appointed Lisa Brummel (Brummel) as the Senior Vice President,
HR. Amongst her first steps was to make the companys HR policies transparent.
She identified four focus areas where change had to be implemented
communication with employees, performance appraisal & compensation system,
employees benefits program and workplace design. Brummel realized that the
employees did not communicate much with the HR department: she had received
two e-mails a day from employees during her first week at office! According to
Brummel, There was no communication with employees none. It was a gulf.
People werent connected to the company or our mission any more. In an effort to
connect with the employees, Brummel launched a listening tour in which she held
several meetings wherever Microsoft offices were located. Microsofts
performance review system was also modified in line with the suggestions given by
employees. Brummel also changed the stock option plan at Microsoft by
announcing a 15% increase in the budget for stock options.
With significant changes in the HR management practices, Microsoft was able to
boost employees morale. The employee attrition rate went down to 8.3 percent in
2007 from 10 percent in 2005. Analysts attributed this success to Brummels
attitude in dealing with the problems and her capacity to take the employees along.
Adapted from Employee Motivation and Retention Strategies at Microsoft Corporation,
http://www.icmrindia.org/casestudies/catalogue/Human%20Resource%20and%20Organizatio
n%20Behavior/HROB129.htm
5. The Role of Motivation in Performance Management

Performance can be defined as the ability to accomplish a particular task. It is
measured in terms of established standards of accuracy, speed, and costs involved.
Performance is a function of two variables: ability and motivation. Of these, ability is
a function of the skills, competencies, and experience of an employee. It takes
substantial investment and time to build employee ability. Keeping ability constant, it
is only when the employee has high levels of motivation that he/she is able to deliver
high levels of performance. It is essential that managers be able to adequately
motivate the employees, so as to ensure that standards of performance are maintained.
38

Some of the ways of motivating employees are:
Positive reinforcement: The concept of reinforcement was given by Skinner (1938).
It essentially says that a positive reinforcement is any stimulus that strengthens the
probability of a specific response. For example, when a manager gives a raise to an
employee for doing good work, it makes the employee understand that to earn the
raise, the best way is to do good work. The most common types of positive
reinforcements are praise and reward. Although there are other types of reinforcement,
positive reinforcement gives the best results for motivating employees. To get the best
rewards from positive reinforcements, the most effective way would be to ensure that
their skills match the task at hand.
Setting high expectations: By setting high expectations of employees, managers
communicate their confidence in the employees ability to rise to higher standards.
This makes the employee feel special and he/she works harder to achieve the target.
Research has shown that the setting of high expectations acts like a self-fulfilling
prophecy. This phenomenon is also termed as the Pygmalion-effect.
Disciplinary measures: There are two aspects to disciplinary action at the workplace.
First, it should be ensured that the workers are treated as mature adults and that they
are given an environment in which they can practice self-discipline. An essential
ingredient is to set out broad policies instead of point by point rules to follow. For
this, it is also essential that people know what is expected of them. A basic job
description must be given to each and every employee. Managers must spend time
interacting with employees and trying to understand them. Most importantly, in case
an employee shows consistent initiative and self-discipline, he/she should be
publically praised. Second, in case there are instances where some behavior is
inappropriate, the behavior should be checked immediately. In case inappropriate
behavior is not checked, it will lead to a declining morale at the workplace.
Treating employees fairly: Employees should be treated fairly. This does not mean
that all employees have to be treated equally. For example, if a person is very diligent
at his/her work and his/her performance contributes to the profit or image of the
organization, he/she should be given extra benefits that may not available to other
employees. Similarly, if an employee has a genuine need to take leave, he/she should
be granted leave, even if the company policy says otherwise. Last, the organization
must ensure at all costs that there is no discrimination on account of an employees
religion, gender, race, sexual orientation or disability status.
Determine work-related goals: The organization can help employees set specific
work-related goals. These goals are specific and act as a rudder for employees to put
in efforts in the right direction and work.
Rewarding on job performance: Rewarding is related with compliance of
employees. Those who comply are rewarded, and those who do not are streamlined
either by the rewards being withheld or by disciplinary action being taken.
Check Your Progress

6.
Which of the following will lead to better industrial relations?
a.
Job satisfaction
b.
Job switching
39

c.
Job resignations
d.
None of the above
7.
What is the best option to describe a stimulus that strengthens the probability of
a specific response?
a.
Work related goals
b.
Positive reinforcement
c.
Fair treatment
d.
None of the above
8.
One way to motivate employees is to ensure that the workers are treated as
________ adults and that they are given an environment where they can practice
_________.
a.
immature, self-discipline
b.
mature, organizational-discipline
c.
selfish, strategies
d.
mature, self-discipline
9.
The Pygmalion effect is related to which of the following?
a.
Positive reinforcement
b.
Treating people fairly
c.
Setting high expectations
d.
Rewarding job performance
6. Maslows Need Hierarchy Theory

Work motivation theories examine the psychological aspects of what motivates people
in a formal organizational setting. Motivation and rewards are interrelated in an
organization as rewards are given on the understanding that the employees are
sufficiently motivated to perform the desired tasks.
The process of motivation begins with an assumption that behavior, at least in part, is
directed towards the satisfaction of needs. Maslow proposed that human needs can be
arranged in a particular order from the lower to the higher. Maslow considers
effectiveness as a function of matching the available opportunity with an employees
position on the hierarchy of needs.
Maslows theory of motivation is important as it is held that the behavior of an
individual at a particular moment is an outcome of his/her strongest need. A
particular reward or organizational outcome may satisfy the particular need of the
employee and motivate him/her. Maslow holds that when the needs at a particular
level are fulfilled, they will no longer to be able to motivate. The person then moves
on to the subsequent level of motivation where the needs of that level become active.
It is through this step by step process that the person working at the physiological
level of needs can graduate from level to level to reach the highest level of selfactualization.
40

i.
Physiological needs: These are basic needs necessary to sustain life and are at
the top of the hierarchy. They are placed at the top of the list as they have the
highest strength until they are somewhat satisfied. These needs consist of needs
for oxygen, food, water, and a relatively constant body temperature. At the
workplace, this need can be seen in the attempts to have clean, well-designed, and
well lit work surroundings that have plenty of fresh air. Until the basic needs of
the body are satisfied, a persons activity will largely be at this level. There will
be very little or no motivation that will emerge from other needs.
ii.
Safety Needs: When all physiological needs are satisfied and they are no longer
controlling thoughts and behaviors, the need for security becomes active. This is
the need for self-preservation. At the workplace, this can be seen in the concern
from preserving ones job so that the person has resources to provide for him/her
in the present day as well as the future. In case this need is under threat, the other
higher needs seem unimportant.
iii. Love, Affection, and Belongingness: When the needs for safety and
physiological well-being are satisfied, the next class of needs -- for love,
affection, and belongingness can emerge. Maslow states that people are social
beings who have a need to belong and be accepted by various groups with which
they interact. This involves both giving and receiving love, affection, and the
sense of belonging. With social needs being dominant, a person desires to strive
for meaningful relations with others. At the workplace, time and effort are spent
to ensure that trainees understand the new organization and feel a sense of
belongingness with it.
iv. Self-esteem Needs: After achieving a need for belonging for a period of time, an
individual wants to earn self-esteem and recognition from others. Self esteem is
boosted when the person gets high evaluation, recognition, and respect from the
members of his/her group. The individual feels confident and valuable as a person
in the world. When these needs are frustrated, the person feels inferior, weak,
helpless, and worthless. From the workplace perspective, this means that if
employees are not given a sense of confidence and self-worth at the workplace,
the natural tendency would be to shift to disruptive behavior in order to feel
important. This can take the form of angry outbursts and quarrels to even strikes
and lockouts.
v.
Self-actualization Needs: It is only when all these needs have been satisfied that
the need for self-actualization becomes activated. This need is related to a
persons desire to maximize his/her potential: in Maslows words, this means
doing what a person was born to do. Hence, a person who feels that he/she has
a strong potential in music, will learn how to play music. Another person who
feels strongly about painting will go on to learn painting. Remember that a person
is not doing this in order to get affiliation into a group (social need) or for
recognition and status (self-esteem needs). The self-actualization needs make a
person do something as he or she feels that doing that particular action is
important in itself. These needs make a person restless a person feels on the
edge, tense and lacking something. For example, a person walking down the road
who sees a small child walk into the path of a rushing vehicle may put his/her life
at risk in order to save the child. The individual is self-actualized: he/she was
maximizing the potential of what was important to him/her at that time.
41

Some experts feel that self-actualization needs are quite complex: First, it is easy to
understand and satiate the lower order needs; however, the higher order needs are
among the most difficult to understand. Second, it is also highly likely that the selfactualization needs will change as a person begins to age and his/her mental horizons
expand. For instance, many sportspersons who have made a mark in their respective
fields would take on coaching or try to get appointed to public positions in order to
further the cause of their games. Narayana Murthy of Infosys moved on from being
the CEO to becoming the Chief Mentor at Infosys. This he did taking into account his
age and the need for cultivating the talent in his organization. Third, there have been
cases where individuals who had remarkable self control were able suspend their
lower order needs for example, South African leader Nelson Mandela calmly spent
27 years in prison without indulging in any outburst against the treatment meted out to
him during the apartheid era.
Most people in a work situation are above the physiological level and safety/security
level, provided there is no immediate threat to their job. The majority of people
hovering around the belonging level aspire to self-actualization through self esteem. If
the management of the employee is not effective, the employee can get stuck in the
safety/security level, where he/she fears for his/her job or in the belonging level,
where he/she craves acceptance from both management and peers.
Organizational managements can use Maslows Hierarchy of Needs constructively to
achieve various ends. For instance, management should understand on which level of
need the individual is operating. Then the management should ensure that the
employees self-esteem is raised through praise and rewards. Once the management is
able to take the employee to this level, it should try to get him/her to reach the next
higher level so that newer tasks can be delegated and new skills can be continually
learnt by the employee.
7. Vrooms Expectancy Theory

Vroom proposed a model of expectancy in 1964. Vroom's theory is based on the
assumption that behavior is largely the result of the conscious choice made by
individuals from among various alternatives whose purpose is to maximize pleasure
while minimizing pain. Accordingly, the strength to act in a certain way depends on
the strength of the expectancy that the act shall be followed by a given consequence
(or outcome) and on the value of the attractiveness of that consequence (or outcome)
to the actor.
Thus, motivation translates into the choice to exert effort on a certain task. It has a
two-stage process: first, the individuals expectation that a certain level of effort will
lead to a desired performance level; second, as a result of achieving the performance
level or goal, there being a reasonable chance of achieving the desired outcomes.
The model is based on three key elements: Expectancy, Instrumentality, and Valence.
Expectancy is the belief of the individual that he/she will be able to achieve a specific
level of performance in a given task. It depicts the confidence of the person about
his/her own capability. All other things remaining the same, an individual would try
harder at a job if he/she believes that he/she can do it. Expectancy is affected by
having the right resources available (e.g. raw materials, time) to do the job, having the
right skills to do the job, and having the necessary support of the supervisors to get the
42

job done. The probability of expectancy can range anywhere from zero (the person
assumes that he/she cannot accomplish the task) to one (the person has no doubt in his
or her mind that the task will be accomplished). Instrumentality is based on the
individuals belief that by achieving a desired level of outcome, a person would be
able to get what they desire. If the outcome of the task is something that the person
wants or is gratifying, then the person will place a high value on performing that
particular task. Valence is the positive or negative value people place on the expected
outcomes. In other words, it is the strength of an individuals preference for a reward.
The valence will be positive if an individual wants to have something as opposed to
not having it. The valence of an outcome depends on the needs and personal
preferences of the individual. For example, an employee who is approaching the end
of his/her contract will have a high valence for being re-employed in case he/she is
mainly motivated by money. For such an individual, getting time off would not be of
much valence. Last, the combination of all the three factors will lead to various
outcomes. Outcome is the end-result or what people can expect from their job. There
are two levels of outcomes: one is the first-level outcome that looks at the quantity of
output or the desired performance level. The second level outcome is the end result
which is expected to follow from the first level outcome.
To sum up, it can be said that the Expectancy theory model holds that an individual
puts in a certain level of effort, depending on the value placed on the outcomes
received and the strength of the link between the effort and outcome. According to
Vroom, the motivational force of an individual is a multiplicative product of
expectancy, instrumentality, and valence. A major implication of the multiplicative
model is that motivation does not depend on one single variable but on all three
variables together. This means that if any of the three variables is zero, there cannot be
a motivational force.
Motivational force = Expectancy x Instrumentality x Valence
Check Your Progress

10. What are the three elements of Vrooms expectancy theory?
i.
Expectancy
ii.
Output
iii. Valence
iv. Instrumentality
a.
i, ii
b.
ii, iii and iv
c.
i, ii and iii
d.
i, iii and iv
11. Which of these theories works on the assumption that behavior is a result of
conscious choice?
a.
Vrooms expectancy theory
b.
Maslows need hierarchy theory
43

c.
Pygmalion effect
d.
None of these
12. Which of the following elements depicts the confidence of the individual about
his/her capability?
a.
Expectancy
b.
Instrumentality
c.
Valence
d.
Outcome
13. Which of the following options shows the individuals belief that by achieving a
desired level of outcome, a person would be able to get what he/she desires?
a.
Expectancy
b.
Valence
c.
Instrumentality
d.
None of the above
14. Which of these statements best describes the first level of outcome?
a.
The first level of outcome discusses the quantity of output or the desired
performance level
b.
The first level outcome is the end result
c.
Both of the above
d.
Neither of these
15. The motivational force of an individual is said to be a ___________ product of

expectancy, instrumentality, and valence.
a.
Multiplicative
b.
Additive
c.
Summative
d.
None of these
16. Maslows need hierarchy theory assumes which of the following?

a.
Motivation is at least in part directed by the achievement of satisfaction of needs
b.
The system of rewards is created in the organization on the basis of the

assumption that individuals are sufficiently motivated
c.
Both the above
d.
17. Which is the best statement to describe physiological needs?

a.
The need to entertain and express oneself
b.
Basic needs necessary to sustain life
c.
Psychological needs
d.
None of the above
44

18. Of the following, which need stands at the highest level of the hierarchy of
needs?
a.
Need for self-esteem
b.
Safety needs
c.
The need for self-actualization
d.
None of the above
8. Douglas McGregors Theory X and Theory Y

Douglas McGregor has come up with two opposite sets of assumptions on employees
and management views about the nature of man at work. These have been represented
by Theory X and Theory Y. Theory X stands for the set of traditional beliefs held
while Theory Y stands for the set of beliefs based upon researches into behavioral
science, which is concerned with the modern social views on man.
8.1 Assumptions of Theory X

i.
Employees inherently dislike work and, whenever possible, attempt to avoid it.
ii.
Since employees dislike work, they have to be coerced, controlled, or threatened

with punishment to achieve goals.
iii. Employees will avoid responsibilities and seek formal direction whenever
possible.
iv. Most workers place security above all other factors associated with work and will
display little ambition.
8.2 Assumptions of Theory Y

i.
Employees can view work as natural as rest or play.
ii.
People will exercise self-direction and self-control.
iii. The average person can learn to accept, even seek, responsibility.
iv. The ability to make innovative decisions is widely dispersed throughout the
population and is not necessarily the sole province of those in management
positions.
According to McGregors Theory X, in order to improve performance, the manager
will lay emphasis on discipline, incentive programs, welfare measures, close
supervision, and pension and other benefit programs. Theory X holds that external
control appropriate for dealing with irresponsible, unreliable, and immature people, if
work is to be got from them.
According to McGregors Theory Y, workers will do far more than is expected of
them if treated like human beings and permitted to experience personal satisfaction on
the job. In case there is inadequate performance due to laziness, indifference, or
absence of co-operation among the employees, the problem lies with the management.
According to Theory Y, managers should give emphasis on consultation,
participation, communication. They should give an opportunity to employees to come
forward and formulate managerial and personnel policies.
45
9. McClellands Theory of Needs

David McClelland who examined the relationship between needs and behavior
proposed in his acquired needs theory that an individuals specific needs are acquired
over time and are shaped by his/her self-experience. Most of these needs can be
classed as achievement, affiliation, or power.
i.
Achievement: People with a high need for achievement (nAch) seek to excel and
thus tend to avoid both low-risk and high-risk situations. Achievers avoid lowrisk situations because they feel that easily attained success is not a genuine
achievement. In high-risk projects, achievers see the outcome as one of chance
rather than ones own effort. High nAch individuals prefer work that has a
moderate probability of success, ideally a 50 percent chance. Achievers need
regular feedback in order to monitor the progress of their achievements. They
prefer either to work alone or with other high achievers.
ii.
Affiliation: Those with a high affiliation (nAff) need harmonious relationships

with other people and need to feel accepted by other people. They tend to
conform to the norms of their work group. High nAff individuals prefer work that
provides significant personal interaction. They perform well in customer service
and client relations.
iii. Power: A persons need (nPow) can be one of the two types personal and
institutional. Those who need personal power want to direct others, and this need
often is perceived as undesirable. Persons who need institutional power (also
known as social power) want to organize the efforts of others to further the goals
of the organization. Managers with a high need for institutional power tend to be
more effective than those with a high need for personal power.
The theories are highly relevant as they hold that each and every individual has a
different level of needs. This has important implications:
High need for achievement: High achievers should be given challenging projects
with reachable goals. Individuals with a high need for achievement would do well in
companies that have a pay-for-performance environment.
High need for affiliation: These are the employees that have a high need for
affiliation and want to perform best in a cooperative environment. The need for
affiliation is much higher in the lower cadre of employees
High need for power: Management should provide power seekers the opportunity to
manage others. Thus, top managers should typically have a high need for power and
control others.
Last, all the three types of needs are present in the individual, but are continually
being shaped by the cultural background and life experiences of the individual
concerned. However, one of these needs will be dominant, depending on the
personality of the individual.
Example: Entrepreneur at Work

According to Bernie Tenenbaum, a professor of entrepreneurship at Wharton,
entrepreneurs have quite distinct personality traits. Most importantly, they have a
high need for achievement. The knowledge of these personality traits could be very
Contd
46

Contd
important for individuals that are being employed by entrepreneurs. Tenenbaum

gives an interesting list of how to work with entrepreneurs which is based on the
assumption that entrepreneurs want hard working employees.
First, the entrepreneurs are always bubbling with ideas and about their work and do
not want time off. This means that substantial work will have to be put in by the
employees.
Second, the company should be treated as ones own, stressing on saving money in
the name of the firm. Third, the employees should be able to get new customers
Fourth, the employees should be willing to put in long working hours that shows
that he/she cares for the company. This shows that to work with entrepreneurs, one
would also require a high sense of achievement.
Adapted from: Warning: Entrepreneur at work,
http://www.businessweek.com/magazine/content/06_18/b3982053.htm
10. Porter and Lawlers Model of Motivation and Performance

Lyman Porter and Edward Lawler (1968) modified and built upon Vrooms
Expectancy (1964) and Adams Equity theories of motivation. We have already
discussed Vrooms expectancy theory. It should be noted in this regard that the Equity
theory of motivation essentially holds that people work on the basis of fairness. To
establish this sense of fairness, the employees compare the ratio of effort and reward,
with the ratio enjoyed by others who are held in relevant reference.
Thus, we see that consistent with the Vroom expectancy model, this model holds that
employee motivation is a function of the degree to which an employee values certain
rewards, as well as the extent to which the employees believe that their efforts would
result in receiving those rewards. However, in addition, the Porter-Lawler model
holds that individuals' abilities and perceptions moderate the relationship between
effort and performance. These perceptions are in turn a function of fairness of the
rewards received.
Thus, we see that according to the Porter Lawler model, the various elements are:
a.
Effort: Effort refers to the amount of energy which a person exerts on a job.
b.
Value of reward: First of all, people try to figure out whether rewards that are
likely be received from doing a job will be attractive to them. This was valence in
Vrooms theory.
c.
Perceived effort reward probability: In addition, before people put forth any
effort, they will also try to assess the probability of a certain level of effort
leading to certain kinds of rewards. Based on the valence of the reward and the
effort reward probability, people can decide to put in a certain level of work
effort.
d.
Performance: Efforts lead to performance. It is here that the model builds on the
other models. It holds that the expected level of performance depends upon the
amount of effort, the abilities, and traits of the individual along with the role
perceptions.
47

e.
Rewards: Performance leads to certain outcomes in the shapes of two types of

likely rewards namely extrinsic and intrinsic rewards. (i) Extrinsic rewards are the
external rewards given by others in the organization in the form of money,
recognition, or praise. (ii) Intrinsic rewards are internal feelings of job
satisfaction, self esteem, and sense of competence that individuals feel when they
do a good job.
f.
Satisfaction: Satisfaction will result from both extrinsic and intrinsic rewards.
However, to be satisfied, an individual will compare his/her actual rewards with
perceived rewards. If actual rewards meet or exceed perceived equitable rewards,
the individual will feel satisfied and if these are less than the equitable rewards,
the individual will feel dissatisfied.
The Porter and Lawler Model has important implications for management:
a.
The organization must ensure that the employees value the rewards that are
offered.
b.
Employees shall put in more effort if they believe that good performance will
lead to the achievement of the desired rewards.
c.
The employees must have the opportunity, ability, resources, and effective
management to carry out the tasks, and must believe that the quality of work, and
hence their reward, is directly related to and reflects the effort they put into the
job. If these conditions do not exist, then employees will not believe that working
hard etc., will lead to the required level of performance.
d.
Managers must communicate their expectations and objectives clearly.
e.
To increase the expectations that desired performance will be rewarded, the

managers must make sure that the rewards are clearly and visibly linked to
performance.
f.
Managers must recognize the important role played by comparisons in

determining employee satisfaction.
Check your Progress

19. Theory X and Theory Y are based on which type of assumptions?
a.
Identical
b.
Opposite
c.
Similar
d.
Parallel
20. The assumption that employees fundamentally dislike work and have to be
coerced to work is given by which of these options?
a.
Theory Y
b.
Theory X
c.
Neither of these
d.
Both of the above
48

21. Managers who have a belief in which type of theory would practice being
consultative, participative, and communicative?
a.
Theory X
b.
Theory Y
c.
Neither of these
d.
Both the above
22. Which of the following options best describes the theory of needs given by
McClelland?
i.
Need for power
ii.
Need for affiliation
iii. Need for achievement

iv. Need for perception
a.
i and iii
b.
iii and ii
c.
i, ii, and iii
d.
Only iv
23. In the context of the Porter Lawlers model, what do you mean by perceived
effort reward probability?
a.
The probability of a certain level of effort leading to certain kinds of rewards
b.
The probability that effort will lead to output
c.
The probability of the effort leading to satisfaction
d.
None of the above
11. Summary
The performance of non-human factors like machines, etc., depends upon the
level of technology and the competence of those who use them. The performance
of the employees depends on two factors, i.e., ability of the employees and their
motivation. These factors together, obviously, increase the efficiency of the
human resources. Motivation is an important factor which encourages the
employees to contribute their in performance and helps in reaching the goals of
the enterprise. Efforts should be made to motivate employee to contribute their
best. The efforts of management will not bear fruit if the employees are not
encouraged to work more. Motivated employees become an asset to an
organization.
Job performance is considered to be a function of ability and motivation. Ability
in turn depends on education, experience, and training. Motivation can be
achieved by positive reinforcement, effective discipline, and punishment, treating
people fairly, satisfying employee needs, setting work related goals, restructuring
jobs, and basing rewards on job performance.
According to various motivational theorists, it is difficult to understand
motivation without considering what people want and need from their work.
Maslows theory is considered to be one of the important theories of motivation
49

because it highlights the needs of the people. In the expectancy theory, the
approach is made to help us to understand how people develop and act on their
mental maps. Douglas McGregor has presented two opposite sets of assumptions
on employees and management based on the nature of men at work. David
McClelland proposed that an individuals specific needs are acquired over time
and are shaped by his/her self-experience; most of these needs are classified as
achievement, affiliation, or power. Finally, Porter and Lawler (1968) modified
and built upon Vrooms Expectancy (1964) and Adams Equity theories of
motivation. These theories can be termed process theories of motivation as they
consider the dynamic relationship between efforts and performance-reward for
each individual.
Finally, the theories of motivation encompass the dynamic relationship between
efforts, performance, and reward for each individual.
12. Glossary
Motivation: Motivation is a psychological force that drives an individual to
achieve various desired sgoals. It is the process that accounts for an individuals
intensity, direction, and persistence of effort toward attaining various goals.
Job performance: Job performance is considered to be a function of ability and
motivation.
Maslows hierarchy of needs: Maslow defines human effectiveness as a
function of matching mans opportunity with the appropriate position on the
hierarchy of needs. Motivation starts with the assumption that behavior is directed
toward the achievement of the satisfaction of needs. Maslow arranged human
needs in a particular order from the lower to the higher levels.
Vrooms expectancy theory: This approach help us understand how people
develop and act on their mental maps. It describes how an individual will decide
among behavioral alternatives. It makes an assumption that behavior is a result of
conscious choice among alternatives. Vroom says that the multiplicative product
of expectancy, instrumentality, and valence shall determine the motivational force
of an individual.
Theory X and theory Y: According to Douglas McGregors Theory X, workers
are fundamentally lazy. Thus, external control is necessary to deal with
irresponsible, unreliable, and immature people. Managers place emphasis on
discipline, incentive programs, welfare measures, close supervision, pension, and
other benefit programs. According to Theory Y, workers see work as natural as
rest or play. The workers will do far more than is expected of them if they are
treated like human beings and permitted to have personal satisfaction on the job.
Theory of needs: David McClelland proposed that an individuals specific needs
are acquired over time and are shaped by his/her self-experience. A persons
motivation and effectiveness in certain job functions are influenced by these
needs. These needs are the need for achievement, the need for affiliation, and the
need for power.
Porter and Lawlers model of motivation: Lyman Porter and Edward Lawler
(1968) modified and built upon Vrooms Expectancy (1964) and Adams Equity
theories of motivation. These theories can be termed as process theories of
motivation as they consider the dynamic relationship between efforts and
performance-reward for each individual.
50
Activity: Indian online trading company

Imagine that you are an HR manager in an online training company based in India.
The company offers various training courses to clients based in the US. With a
slump in the US market, the company is going through a financial crunch. The
company has been forced to withhold the salary increments of its employees. You
have learnt that there is a strong rumor among the employees that lay-offs are
imminent. The morale of the employees is low and you feel that this is affecting
their performance. In your current role, what steps will you take to increase the
motivation levels of the employees?
Answer:
13. Selfassessment Exercises

1.
What do you mean by motivation? What is the importance of motivation for an

organization, especially with regard to performance management?
2.
Explain Maslows theory of motivation, describing the various levels of

hierarchies with appropriate examples.
3.
Describe Vrooms expectancy theory. How does one explain motivational force
in this model?
4.
Explain Douglas McGregors theory X and theory Y, Discuss the specific

assumptions made in each case.
5.
Describe McClellands theory of needs. Give simple examples of need at every

level.
6.
Describe Porter and Lawlers model of motivation and performance. How does it
build upon the earlier models?

1.
Drawbacks of performance appraisal

<http://www.work911.com/performance/particles/rating.htm>
2.
Sample Performance Appraisal forms

< http://www.neu.edu/hrm/forms/paform.doc>
3.

4. Jucius, Micheal, J.: Personnel Management, 1995, Richard Irwin.

5.
51

6.

New Delhi.
7.

Delhi.
8.

9.
New Delhi.

1.
(c)
Motivation is linked with both the strength and direction of goal-directed
behavior. Hence, motivation is said to take place when people begin to expect
that a course of action will lead to the achievement of a goal. The achievement of
this goal should lead to a valued reward which satisfies their particular needs.
2.
(a)
According to Stephen Robbins, motivation is the willingness to exert high levels
of effort toward organizational goals, conditioned by the efforts ability to satisfy
some individual need.
3.
(c)
Motivation at work can operate through the intrinsic or extrinsic channel.
4.
(b)
Intrinsic motivators arise out of self-generated factors that influence people to
behave in a particular way. This can be out of a sense of responsibility, freedom
of action, a challenging job, or an opportunity for advancement.
5.
(b)
Extrinsic factors such as increased pay, paid holidays, rewards or punishments
such as disciplinary action or loss of pay are much more easier to replicate for
organizations when compared to intrinsic motivators.
6.
(a)
A good motivational system will create job satisfaction among employees. This
creates an atmosphere of confidence among employers and employees. This in
turn contributes to reduced chances of conflict among the employers and
employees.
7.
(b)
The concept of reinforcement was given by Skinner (1938). It essentially says
that a positive reinforcement is any stimulus that will strengthen the probability of
a specific response.
8.
(d)
It is important that workers should be treated as mature adults and that they are
given an environment where they can practice self-discipline.
52

9.
(c)
The Pygmalion effect holds that by setting high expectations for employees,
managers communicate their confidence in the employees ability to rise to
higher standards. This makes the employee feel special and he/she works harder
to achieve the target. Research has shown that the setting of high expectations
acts like a self-fulfilling prophecy which leads to the term Pygmalion effect.
10. (d)
Vrooms model is based upon three key elements, which are expectancy,
instrumentality, and valence itself.
11. (a)
Vroom proposed a model of expectancy in 1964. Vroom's theory is based on the
assumption that behavior is the largely the result of the conscious choice made by
individuals among various alternatives whose purpose is to maximize pleasure
while minimizing pain.
12. (a)
Expectancy is the belief of the individual would be able to achieve a specific level
of performance in a given task. It depicts the confidence of the person about their
own capability. Ceteris Paribus, an individual would try harder at a job if he/she
believes that he/she can do it.
13. (b)
Instrumentality is based on the individuals belief that by achieving a desired
level of outcome, a person would be able to get what he/she desires. If the
outcome of the task is something that the person wants or is gratifying, then the
person places a high value on performing the particular task.
14. (a)
The first level of outcome is the first-level outcome that looks at the quantity of
output or the desired performance level
15. (a)
According to Vroom, the motivational force of an individual is a multiplicative
product of expectancy, instrumentality, and valence. A major implication of the
multiplicative model is that motivation does not depend on one single variable but
on all three variables together. This means that if any of the three variables is
zero, there cannot be a motivational force.
16. (c)
Maslows theory of motivation are based on the assumption that motivation is at
least in part directed by the achievement of satisfaction of needs. It also holds that
rewards in an organization are created on the basis of the assumption that
individuals are sufficiently motivated.
17. (b)
These are basic needs necessary to sustain life that are at the top of the hierarchy.
These are placed at the top of the list as they have the highest strength until they
are somewhat satisfied.
53

18. (c)
The highest level of need is the need for self-actualization. This is the need to
maximize ones potential: this would mean doing what a person was born to do.
19. (b)
Professor Douglas McGregor has presented two opposite sets of assumptions on
employees and management views about the nature of man at work. These have
been represented by Theory X and Theory Y.
20. (b)
According to Prof. Douglas McGregors Theory X, employees inherently dislike
work and, whenever possible, will attempt to avoid it. .
21. (b)
Managers who have belief in Theory Y will practice being consultative,
participative, and communicative.
22. (c)
McClellands theory of needs is best described by the need for achievement, the
need for affiliation, and the need for power.
23. (a)
This holds that before people put forth any effort, they will also try to assess the
probability of a certain level of effort leading to certain kinds of rewards. Based
on the valence of the reward and the effort reward probability, people can decide
to put in certain level of work effort.
54
Unit 7
Evaluation and Maintenance of Performance

Management
Structure
1.
Introduction
2.
Objectives
3.
Areas for evaluation
4.
Evaluating the Performance Management Systems
5.
Performance monitoring
6.
Objectives and methods of monitoring
7.
Summary
8.
Glossary
9.
Self-assessment test

1. Introduction
In the previous units, we looked at the framework and designing of performance
management systems. We also looked at various performance measures as the
different ways to ensure motivation. We shall now address a very different issue
how a manager can maintain and evaluate the performance management system itself.
One of the common experiences of organizations is that the visualization of
performance management systems is much easier than their actual implementation.
Thus to ensure that the performance management system delivers what was
conceptualized, the performance management system itself should be periodically
reviewed. Some of the tasks in this evaluation process would be examining the
various linked areas, conceptualizing and using diagnostic check-lists, carrying out
evaluations, and reviewing the main methods of evaluation.
This unit begins with examining the various desired areas of evaluation. It then goes
on to discuss the various evaluation methods and their consequences. This is followed
by an in-depth discussion on performance monitoring along with its objectives. The
unit closes with a discussion on the various methods of monitoring performance.
2. Objectives
By the end of this unit, you should be able to:
Identify the areas of evaluation of the performance management system
Discuss the various evaluation methods available.
Explain what performance monitoring is about

Describe the objectives of monitoring and follow-up
Explain the methods of monitoring
3. Areas for Evaluation

The following issues should be considered while evaluating a performance
management system:
Integration of the organizations objectives with its performance system.
Linkage to the organizations critical success factors.
Relationship with individual objectives.
Bond to job responsibilities and performance expectations.
Effective encouragement to personal development.
Objective or subjective, clear or ambiguous evaluation criteria.
Addressing of company policies and procedures.
Effective usage of supervisors and employees in the system.
The extent of association of performance with pay.
The fit of the performance management with the culture of the organization.
Commitment and constant support from top management.
Collective ownership with line managers and employees.
Alignment to the real work of the organization.
Coordination of organizational, team, and individual objectives.
Addition of value in terms of both short-term and longer-term development.
Integration of the performance management system with the business planning
processes.
Compatibility of the performance management system with the other HR
processes.
Involvement of all the desired stakeholders in the design, development, and
implementation of performance management system.
The way the performance management system operates whether in a
transparent, fair, and equitable way.
Whether managers are ensuring that there is a shared understanding of vision,
strategy, goals, and values of the organization.
If the performance management processes are being used by managers in a way
to help people feel that they are valued by the organization.
Performance management processes are meant to align individual and
organizational goals, but this is not a matter of a top-down flow of objectives.
Individuals and teams should be given the opportunity to put forward their views
on what they can achieve, and their views should be duly considered.
Performance management should primarily focuses on the development of
people. Financial rewards in the process should act only as a secondary
consideration.
The aim and operation of performance management and how it can benefit all
concerned are communicated thoroughly and effectively.
56
Evaluation and Maintenance of Performance Management
4. Evaluating the Performance Management Systems

Evaluation of performance is always a key area in performance management systems.
In this regard, Armstrong (2002) primarily used the following methods for evaluating
the Performance Management System. These are: Review meetings, Attitude surveys,
and Focused group discussions.
4.1 Review Meetings

Evaluation can be done by asking individuals to complete questionnaires and then
following up with a review meeting. The questionnaire asks people to rate the
effectiveness of the review meetings on a points scale. The respondents are asked to
indicate their reactions fully agree, partly agree, partly disagree, and fully disagree
to the following statements:
I was given plenty of opportunities to contribute to the formulation of my
objectives.
I am quite satisfied with the objectives I agreed to frame.
I felt that the meeting to agree on objectives helped me to focus on what I should
be aiming to achieve.
I received good feedback from my manager during the year on how well I was
doing.
The manager fully recognized my achievements during this year.
If any criticisms were made during the review, they were based on fact, not on
opinion.
I was given plenty of opportunities by my manager to discuss the reasons for any
problems with my work.
I felt that generally the comments made by my manager at the review meeting
were fair.
The review meeting ended with a clear plan of action for the future with which I
agreed.
I felt well motivated after the meeting.
4.2 Attitude Surveys

Attitude surveys are conducted using this same set of questions. These are designed to
capture the opinion that prevails after a meeting. In effect, they are an alternative to
having an immediate expression of opinion after a meeting.
4.3 Focus Groups

Focus groups are used to provide more in-depth feedback on how well performance
management is working. The questions for discussion could be along the lines of
those given above, but there would be an opportunity to hear extended views
supported by the reasons for expressing them. Interaction between members of the
group may also create useful additional insights into the effectiveness, understanding,
and acceptance of performance management.
57
Check Your Progress

1.
Before a review meeting is held, which important activity has to be carried out?
a.
Questionnaires should be completed
b.
The point of agreement should be understood
c.
Both these
d.
Neither of these
2.
After a review meeting is held, which of these could be carried out?
a.
Attitude surveys
b.
Discussions
c.
Neither of these
d.
Both these
3.
Which of the following describes interactions where there are questions for
discussion along pre-decided lines, along with the opportunity to hear extended
views that are supported by the reasons for expressing them?
a.
Focus group discussions
b.
Attitude surveys
c.
Review meetings
d.
None of the above
4.
Which of these represent ways of evaluating the performance management

system?
i.
Review meetings
ii.
Focus groups
iii. Attitude surveys

a.
i and ii
b.
ii, iii, and iv
c.
i, ii, and iii
d.
iv
5.
Which of these is designed to capture the opinion that prevails after a meeting?
a.
Attitude surveys
b.
Focused group
c.
Review meeting
d.
Coded interaction
58
5. Performance Monitoring
When implementation is carried out properly, it establishes the performance appraisal
systems in the work place. The performance management and appraisal system then
becomes an instrument to build people through the continuous attention of the top
management and the senior executives. Further, the data generated in the performance
appraisal system can be used to take various developmental and managerial decisions.
The various purposes being served by monitoring the performance management
system are as follows:
First, it gives the required direction and support to the appraisee as well as the
appraiser for executing the objectives of the system in the desired way.
Second, it establishes the significance of the performance appraisal system.
Third, it reminds the employees that the performance management system is an
integral part of the routine of the employees.
Performance management systems, by their very nature, are a product of a structured
thought process. If they are not being well implemented, the reason would have to do
more with poor monitoring and follow-up. It has been observed that managers may
not put in much effort in implementing the performance management system for
various reasons as given here:
Performance appraisal is an activity that can be postponed without immediate
damage to productivity, effectiveness, or performance of the organization, it gets
neglected.
Performance appraisal takes place only once or twice a year, which may not be
adequate to achieve desired results.
The organization may lack a well-defined corporate culture to deal with the
performance planning and review discussions. This will have a negative impact
on the performance management system.
Finally, there may be the absence of systematic ways to monitor the data as well
as give feedback to the various line mangers.
Example: Performance Review and Facebook

There are increasing instances of employers trying out social networking-style
performance management systems in the hope of improving performance and
maybe even do it in a fun and effective way. For instance, Accenture has a
Facebook-style program called Performance Multiplier. The system enables
employees to post status updates and weekly goals that can be viewed by other
staffers. There are other versions of the same Facebook-type software that lets
people post Twitter-length questions about their performance in exchange for
anonymous feedback. The software is doing well, as indicated by clients such as
Firefox developer Mozilla. Most importantly, such initiatives would make
performance feedback a much more real-time and ongoing process and so would
enable it to be much more tuned in to the desired changes and culture. These
systems ensure that the evaluations become dynamic and democratic. For instance,
employees can post brief, 140-character questions such as "How was my
presentation?" to How can I improve my meetings The questions get
automatically e-mailed to managers and peers. The software then aggregates the
Contd
59

Contd
responses and sends them back. Other versions of the software enable employees to
post brief goals for the week on their profile page, as well as a couple for each
quarter. In case this is not done, the lack of goals is visible to their managers, who
are also alerted of the omission by e-mail.
Adapted from Performance Review Takes a Page from Facebook,
http://www.businessweek.com/magazine/content/09_12/b4124058284261.htm
Check Your Progress

6.
Which of the following contributes to the lack of proper execution in a

performance management system?
i.
Performance appraisal is an activity that can be easily postponed.
ii.
Performance appraisals take place only once or twice in a year.
iii. There is a linkage of performance management with pay

iv. The performance management may not fit in with the culture of the organization
a.
i, ii, and iii
b.
i, ii, and iv
c.
i and ii
d.
All of the above
7.
Which of these explain the possible reasons for managers not putting in an effort
to implement the performance management system?
i.
Performance appraisal is an activity that can be postponed
ii.
Performance appraisal takes place a limited number of times in a year
iii. Performance monitoring is linked with the pay of employees

iv. Performance management does not lead to results
a.
i and ii
b.
ii and iii
c.
i, ii, and iii
d.
None of the above
6. Objectives and Methods of Monitoring

The principal objective of monitoring would be to understand the appraisee along with
his or her unique requirements. Performance monitoring should lead to the following:
Bring out the factors that enable the appraisee to reach the desired performance
standards in relation to the various performance parameters associated with the
job.
60

Examine the factors that have prevented the appraisee from reaching his/her
potential in various areas. The analysis should concentrate on the objective which
would bring out those factors about which the organization can do something. In
case appropriate steps can be taken, a detailed action plan to achieve the desired
objectives should be drawn up.
Opening up of various communication channels that would enhance the
understanding about the appraisee.
There are various methods being practiced in the performance monitoring process.
Armstrong gives the most commonly used methods:
6.1 Individual Contact

This method aims to find out the implementation status through interviews and to
provide guidance wherever necessary. Here, the human resources department plays a
lead role by contacting and interviewing the employees to find out the implementation
status, benefits, problems, etc. If the group is large it may be useful to contact all
reporting or reviewing officers or a sample of them. An interview schedule may be
developed to actualize this process.
6.2 Analysis of Forms

In this method, the forms received from the employees are analyzed to find out
appraisal trends, problems, etc., and the data is fed back to line managers for
monitoring the system. The performance plans, tasks, targets, etc., are compiled
department-wise to spot any omission in the tasks and targets. The performance
analysis data, which gets compiled department-wise in order to identify most
frequently mentioned inhibiting factors, serves as a feedback to the departmental
heads. The developmental needs will be tabulated to identify the department-wise
training needs and to take developmental decisions. The ratings could be analyzed to
identify biases, interdepartmental variations, etc., and to initiate corrective action.
6.3 Forming Departmental and Line Manager Task Forces

Organization-wide or department-based task forces can be formed to monitor the
implementation of performance appraisal system. Such task forces evolve their own
methods of monitoring the system, which include a combination of individual
contacts, questionnaire surveys, short review workshops, analysis of forms, etc.
When such line manager task forces are formed, employees tend to see a high
significance attached to the system than when the HR department alone monitors
and implements it.
6.4 Departmental Review Meetings

Each department should set aside a day or half-a-day six months or at least every year
to review the implementation of the performance appraisal system. These reviews
should be marked by the active participation of all the employees and the expression
of their views. The commonly experienced difficulties should be identified and the
desired technical assistance extended to rectify the problems. Such reviews tend to
improve the significance of the performance appraisal system.
61
6.5 Questionnaire Surveys

This is the most commonly used method. In this method, a follow-up questionnaire is
designed and sent to all employees. The questionnaire deals with one aspect or
comprehensively deals with all aspects of implementation of the system. It is designed
to solicit factual information as well as perceptions, feelings, and reactions. It can be
collected anonymously to get a free and frank response or collected by name to get
factual information and provide feedback. It is always better to collect information
from all with the help of the questionnaire.
6.6 Presentation to top Management or Head of Departments

This is not a separate method to monitor the performance appraisal system. It is used
as a potential mechanism to communicate the significance of data generated in the
performance appraisal system exercises. In this method, the personnel of the HRD
department or line manager or task forces review the implementation and make a
presentation of their recommendations for improving it. Analysis of data and
questionnaire surveys also could be presented to them. Such presentations help top
management to become aware of various issues and to communicate to the employees
about its involvement. Such presentations should be followed by some action or at
least a communication to all employees about the implementation status and concerns
of top management.
6.7 Comprehensive Reviews and Renewal

In the initial stages, there is an excitement about the new performance management
system. However, after a period of time there is a high chance that this excitement
wears off and the performance management system faces the threat of turning into a
routine chore in the organization. In case the performance management process
collapses into a formal chore that has to be followed, the employees and managers do
not look into the problems or even the benefits that flow from the performance
management system. Usually, this lack of interest points towards the scope for
improving the performance management system or its implementation. It is observed
that usually by the third or fourth year people come to realize the inadequacies,
imperfections and difficulties in the performance management system. However, it
would be a good practice for organization to review the system at least once every five
years. Such reviews and renewal exercises may be conducted internally by an
interdepartmental task force or by an external agent. Such renewal exercises may use
various methods like individual interviews, questionnaires, surveys, and workshops.
Such renewal exercises and consequent decisions go a long way in keeping the spirit
of the performance appraisal system alive.
Example: reliablesurveys.com
Performance Management Diagnostic
ReliableSurveys.com has developed Performance Management Diagnostic, an
assessment instrument to help organizations diagnose their performance
management. According to the company, it is a participative tool that examines
issues such as:
Contd
62
Contd
Performance expectations when a person is hired

Frequency of Performance Discussions
Participation in Goal Setting
Matching people to jobs that use their skills
Importance of Teamwork & Group Performance
Competence-based Promotions
Career & Succession Planning
Skill Level of Managers
Perceived Fairness of the Appraisal Process
The system details the strong points in an organizations performance management
system and areas that need improvement. This Performance Management Audit
(PMA) can be used in traditional paper and pencil forms or hosted online. The
PMA provides a clear picture of how the organizations people view its
Performance Management System at a point of time (Actual); a clear picture of
how people think the system should be improved (Ideal); a clear picture of how
experts in Performance Management think the system should be (experts' Ideal);
and a Gap Analysis that graphically depicts what's working, what's not, and
which course to take. The audit also delivers results that are based on a consensus
of stakeholders as defined by the organization. These results are based on a strong
comparative questionnaire process, the Scaled Comparison.
Adapted from Performance Management Audit, http://reliablesurveys.com/ performance
audit.html
Activity: National Sales Manager

You have newly joined as the National Sales Manager of a B2B marketing
company that sells various industrial products to certain manufacturing companies.
The organization has a flat sales organization with Sales Representatives reporting
to a Zonal Manager. There are four Zonal Managers reporting to the National Sales
Manager. The sales force is evaluated on the basis of the achievement of sales
targets and compliance with company policies. What methods will you follow to
monitor the performance of your sales force?
Answer:
63
Check Your Progress

8.
Which of these can be termed as the objectives of the monitoring process?
i.
Bringing out the factors that enable the appraisee to reach the desired
performance standards in relation to the job
ii.
Examining the factors that have prevented the appraisee from reaching his/her
potential at the job
iii. Opening up of various communication channels

a.
i, ii and iii
b.
ii, iii
c.
i, ii and iii
d.
iv
9.
Which of the following methods would find out the implementation status
through interviews and provide guidance wherever necessary?
a.
Questionnaire survey
b.
Individual contact
c.
Analysis of forms
d.
None of the above
10. Which method would have a combination of individual contacts, questionnaire

surveys, short review workshops, and analysis of forms?
a.
Departmental review
b.
Questionnaires
c.
Task forces
d.
None of the above
11. According to Armstrong, it is useful to review the system once at least after
_____ years
a.
Four
b.
One
c.
Five
d.
None of the above
12. Among the various methods being practiced in the performance monitoring
process, what would you mean by the analysis of forms?
a.
Forms got from employees are analyzed to find appraisal trends and problems.
b.
Individual contracts are made
c.
Presentations are made to the top management
d.
None of the above
64

13. Departmental review meetings should be held once every:
a.
One year
b.
Six months
c.
Less than these
d.
None of these
14. A questionnaire would be able to give which of the following types of

information?
a.
Perceptions
b.
Feelings
c.
Facts
d.
All of the above
15. In case the performance management system gets reduced to a mere routine to be
followed, which of these can be relied upon?
a.
Comprehensive review and renewal
b.
Presentations being made to the top management
c.
Questionnaires
d.
None of the above
7. Summary
It is vital to evaluate the performance of the employees in order to ensure that the
expected results are being achieved. Evaluation is one of the important parts of a
performance evaluation system, which includes integration of the organizations
objectives with the performance system, relationship with individual objectives,
association with pay, and effective encouragement to personal development etc.
A diagnostic checklist is also used to evaluate the performance of the employees.
While designing the diagnostic checklist of evaluation, the points to be
considered are the cultural fit of an organization; commitment and support from
top management; integration of the organizational, team, and individual
objectives; assimilation with other HR-processes; training in performance
management skills; etc. Methods of evaluation are review meetings, attitude
surveys, and focus groups.
Performance appraisal systems are well designed but do not get implemented
properly due to poor monitoring and follow-up. It can become an instrument to
build people, provide continuous attention of the top management and senior
executives, and demonstrate data generation in the performance management
systems. The most commonly used methods for monitoring the performance
appraisal process are: Individual contact, Analysis of forms, Forming departmental
task forces and line manager task forces, Departmental review meeting,
Questionnaire survey and Presentation to top management or head of department.
Finally, the performance appraisal systems are not merely appraisal instruments
but also the instruments to improve management practices and build
professionally effective management culture. Evaluation of performance
management helps the organization to attain the performance goals.
65
8. Glossary
Review meetings: Review meetings are done to help in evaluation. They are
done by asking individuals to complete questionnaires immediately and are
followed by a review meeting.
Attitude surveys: These are done periodically using a set of questions. These
could be an alternative to an immediate expression of opinion after a meeting.
Focus groups: These are used to provide more in-depth feedback on how well
the performance management is working. The questions of discussion are
followed by an opportunity to hear extended views supported by the reasons for
expressing them.
Individual contract: This is a method to find out the implementation status
through interviews and provide guidance wherever necessary.
Analysis of forms: In this method, the forms are analyzed to find out appraisal
trends, problems, etc., and the data is fed back to line managers for monitoring
the system.
Line manager task forces: Organization-wide or department-based task forces
that are formed in order to oversee the implementation of performance appraisal
system.
Departmental review meetings: In this, each department sets aside a day or halfa-day every year or every six months to review the implementation of
performance appraisal system.
Questionnaire surveys: This is a commonly used method where a follow-up
questionnaire is designed and sent to all employees. The questionnaire deals with
one single aspect or deals comprehensively with all aspects of implementation of
the system. It is designed to solicit factual information as well as perceptions,
feelings and reactions.
Presentation to top management or head of departments: this is a potential
mechanism where the significance of the data generated in the performance
appraisal system is communicated through the personnel of the HRD department
by means of a presentation.
Comprehensive reviews and renewal: After the initial stages of excitement,
there comes a decline in the enthusiasm for execution of the performance
management system. However, the scope for improving the system or its
implementation remains. In the third or fourth year, people begin to experience
the inadequacies, imperfections, problems and difficulties in the system. It is then
time to review the system and renew it.
9. Self-assessment Test
Q1. Prepare an exhaustive list of the issues to be considered while evaluating a
performance management system.
Q2. Describe the various methods that are available for evaluation of the performance
management system.
Q3. What are the reasons for the performance management system not being
implemented?
Q4. Explain how you would monitor the various activities of the performance
management system.
Q5. What are the objectives of monitoring and follow-up?
66

1.

2.
3.
4.

New Delhi.
5.

Delhi.
6.

7.
New Delhi.

1.
a
Evaluation can be achieved by asking individuals to complete questionnaires
immediately and then following it up with a review meeting. The questionnaire
asks people to rate the effectiveness of the review meetings on a point scale. They
are asked to indicate their reactions on the given statements.
2.
a
Attitude surveys could be conducted periodically using a questionnaire that has
already been prepared. It would act as an alternative to an immediate expression
of opinion after a meeting.
3.
a
Focus groups are used to provide more in-depth feedback on how well
performance management is working. There are questions for discussion as well
as an opportunity to hear extended views supported by the reasons for expressing
them.
4.
c
These are the Focus group discussion, Attitude survey, and Review meeting.
5.
a
Attitude surveys are conducted using the same set of questions as used for the
Review meeting. These are designed to capture the opinions that prevail after a
meeting.
6.
b
There are various instances in which managers did not put much effort into
implementing the system and they were for the following reasons: i) Performance
appraisal seems to be an activity that can be postponed without damage to
productivity, effectiveness, or performance of the organization ii) Performance
67

appraisal takes place only once or twice in a year. iii) An organization does not
have a well established HRD culture, which deals with performance planning and
review discussions. iv) There are no systemic ways to monitor the data used and
feedback provided to line managers.
7.
a
The reasons for a lack of implementation of performance management activity
would lie in performance appraisal being an activity that can be postponed.
Moreover, if the appraisals only take place a limited number of times in a year, it
wipes out the motivation of the employees.
In the analysis of forms, the forms received from the employees are analyzed to
find out appraisal trends, problems, etc., and the data is fed back to line managers
for monitoring the system. The performance plans, key performance areas, tasks,
targets, etc., are compiled department-wise to spot any omission in Key
Performance Areas, tasks, targets, etc.
8.
c
The principal objective of doing monitoring would be to understand the
appraisee, along with his or her unique requirements. The performance
monitoring should lead to the following: i)Bring out the factors that would enable
the appraisee to reach the desired performance standards in relation to various
performance parameters associated with the job. ii) Examine the factors that have
prevented the appraisee from reaching his/her potential in various areas. In this,
an analysis should concentrate on the objective which would bring out those
factors about which the organization can do something. In case appropriate steps
can be taken, a detailed action plan to achieve the desired objectives should be
drawn up. iii) Opening up of various communication channels that would enhance
the understanding about of the appraisee.
9.
b
The method of individual contact would look at the implementation status
through interviews and provide guidance wherever necessary.
10. c
Forming departmental and line manager task forces: Organization-wide or
department-based task forces can be formed to monitor the implementation of the
performance appraisal system. Such task forces evolve their own methods of
monitoring the system, which includes a combination of individual contacts,
questionnaire surveys, short review workshops, analysis of forms, etc.
11. c
According to Armstrong, it is useful to review the system
12. a
In this method, the forms received from the employees are analyzed to find out
appraisal trends, problems, etc., and the data is fed back to line managers for
monitoring the system. The performance plans, tasks, targets, etc., are compiled
department-wise to spot any omission in the tasks and targets.
13. b
Each department should set aside a day or half-a-day every six months or at least
once a year to review the implementation of the performance appraisal system.
68

14. d
This is the most commonly used method. In this method, a follow-up
questionnaire is designed and sent to all the employees. The questionnaire deals
with one aspect or comprehensively deals with all aspects of implementation of
the system. It is designed to solicit factual information as well as perceptions,
feelings, and reactions.
15. a
In the initial stages, there is an excitement about the new performance
management system. However, after a period of time there is a high chance that
this excitement wears off and the performance management system faces the
threat of turning into a routine chore in the organization. This indicates that it is
time to review the system and renew it. However, it is useful to review the system
at least once every five years. Such reviews and renewal exercises may be
conducted internally by an interdepartmental task force or by an external agent.
Such renewal exercises may use various methods like individual interview
questionnaire surveys and workshops. The renewal exercises and consequent
decisions go a long way to keep the spirit of performance appraisal system alive
and so benefit the organization.
69
Performance Management and Reward Systems

Course Structure
BLOCK I: Introduction to Performance Management
Unit 1
Unit 2
Performance Appraisals
Unit 3
Tools for Measuring Performance
Block II: Developing, Implementing and Evaluating Performance

Management
Unit 4
Unit 5
Designing and Launching the Performance Management

System
Unit 6
Unit 7
Block III: Reward Systems

Unit 8
Rewards and Recognition
Unit 9
Reward Management
Unit 10
Job Evaluation and Pay Structure
Unit 11
Performance Competence and Skill Based Pay

SMB2H2 2

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Copyright:

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SMB2H2 2

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Performance Management and Reward Systems

Dr. Lata Chakravorty

Course Preparation Team

Mr. Amrit Chaudhari

Mr. Ajay Kumar Saini

Mr. Sanjeev Kumar

Mr. Ajit Karki

Mr. Manoj Kumar De

The ICFAI University Press, All rights reserved.

The ICFAI University Press, Hyderabad

Developing, Implementing, and

Developing the Performance Management Framework

Devising a performance management framework

Performance measurement techniques

Characteristics of good performance measures

Desirable features of a performance management system

10. Self-assessment exercises

Developing, Implementing and Evaluating Performance Management

Example: Fords Appraisal System

Developing the Performance Management Framework

4. Devising a Performance Management Framework

Developing, Implementing and Evaluating Performance Management

Check Your Progress

iii. Linguistic reasons

Only ii and iii

Only i and iii

Developing the Performance Management Framework

The performance management system has to be devised in such a manner that it

In __________ organizations, each department has the freedom to devise the

In devising a performance management framework, which of the following steps

Drivers for introducing performance management

Which of these is the last step in devising the performance management

5. Performance Measurement Techniques

5.1 Budget as Performance Measurement

Developing, Implementing and Evaluating Performance Management

Example: Conspiracy at Enron

Developing the Performance Management Framework

5.2 Economic Value Added

Example: EVA at the Coca-Cola Company

Developing, Implementing and Evaluating Performance Management

5.3 The Balanced Scorecard

Developing the Performance Management Framework

Example: Using the Balanced Scorecard at Philips

Developing, Implementing and Evaluating Performance Management

6. Characteristics of Good Performance Measures

Check Your Progress

Match the following with their definitions:

Actually measuring what they are supposed to

Conforming to the actual value being measured.

Given a set of conditions, the information

Developing the Performance Management Framework

i/r, ii/p, iii/q

The Balanced Scorecard and the Performance Management system should be

Of the following, which has been a historically popular measurement technique?

Economic Value Added

Which of the following statements describes a strategic drawback of budgeting?

Deciding on the future based on the past performance

Balancing cost against profit

Having a quantitative orientation

None of the above

10. Who among the following developed the Balanced Scorecard?

Stern Stewart Corporation

Kaplan and Norton