Unit 1: Performance management fundamentals
Performance and Compensation Management notes · PTU syllabus (MBA 936-18)
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Unit summary
Performance management is a continuous process of setting expectations, developing people and reviewing results. This unit covers the performance management system, counselling, performance planning and appraisal, potential appraisal, problems and errors, monitoring and implementation, the role of HR professionals, and ethics in performance management.
After this unit you can
- Explain the performance management system and its stages
- Explain performance counselling, planning and appraisal
- Identify appraisal problems and errors
- Explain implementation, HR's role and ethics in performance management
PTU syllabus topics
- Performance management system
- counseling
- planning
- appraisal
- potential appraisal
- problems and errors
- monitoring and implementation
- role of HR professionals
- ethics in performance management
- 1. Plan: Set goals and KRAs
- 2. Monitor: Regular check-ins
- 3. Develop: Coaching and training
- 4. Review: Appraisal
- 5. Reward: Pay and recognition
Topic 1
The performance management system
Performance management is a continuous process of identifying, measuring and developing the performance of individuals and teams and aligning it with the strategic goals of the organisation (Aguinis).
- 1. Performance planning: Goals, KRAs, competencies
- 2. Performance execution: Work, coaching, resources
- 3. Monitoring and feedback: Ongoing check-ins
- 4. Performance review: Formal appraisal
- 5. Renewal and recontracting: Rewards, development plans, new goals
Nature
Periodic, event
Continuous process
Focus
Past performance rating
Alignment, development, future performance
Owner
HR-driven
Line managers with HR support
Link
Mainly pay decisions
Strategy, development, rewards, careers
Topic 2
Performance counselling
- Performance counselling: helping employees understand their performance, recognise strengths and gaps, and plan improvement.
- 1Rapport
Build trust
- 2Exploration
Employee reviews own performance
- 3Feedback
Specific, behaviour-based, balanced
- 4Problem solving
Identify causes and support needed
- 5Action planning
Development goals and follow-up
- Principles: two-way dialogue, focus on behaviour not personality, listen, agree on actions, follow up.
Topic 3
Performance planning
- Key result areas (KRAs) and key performance indicators (KPIs); SMART goals; competencies (how work is done); development goals; agreement documented in a performance plan.
- OKRs: ambitious objectives with measurable key results, reviewed quarterly.
Topic 4
Performance appraisal and potential appraisal
Performance appraisal is the systematic evaluation of an employee's performance and potential for development.
- 1
Set performance standards
- 2
Communicate standards
- 3
Measure actual performance
- 4
Compare with standards
- 5
Discuss results with the employee
- 6
Take corrective action and plan development
| Method | Description |
|---|---|
| Ranking / paired comparison | Employees ranked against each other |
| Graphic rating scale | Rating on traits from poor to excellent |
| Critical incidents | Record of notable good and bad behaviour |
| Checklist and forced choice | Statements ticked by the rater |
| MBO | Performance against jointly set goals |
| 360-degree feedback | Feedback from superiors, peers, subordinates and customers |
| BARS | Behaviourally anchored rating scales |
Problems: halo effect, leniency or strictness, central tendency, recency effect, personal bias and unclear standards.
Potential appraisal
- Potential appraisal assesses an employee's capacity to handle higher responsibilities in future, unlike performance appraisal which assesses past performance.
- Tools: assessment centres, psychometric tests, simulations, 360-degree feedback, leadership competency models; used for succession planning and high-potential (HiPo) programmes.
Topic 5
Monitoring and implementation
- Monitoring: regular check-ins, dashboards, mid-year reviews, real-time feedback tools.
- Implementation steps: top management support, clear policy and forms, training raters, communication to employees, pilot and rollout, link to rewards and development, periodic review of the system.
- Calibration meetings ensure consistent ratings across managers.
Topic 6
Role of HR professionals
- Design the system and tools, train managers, communicate and support, monitor quality and fairness, analyse data, link outcomes to rewards and development, handle grievances and appeals.
Topic 7
Ethics in performance management
- Principles: fairness and consistency, transparency of criteria, accuracy, confidentiality, respect, no discrimination, right to appeal.
- Ethical problems: biased ratings, using appraisal for political ends, forced distribution harming morale, misuse of performance data, retaliation.
- Safeguards: multiple raters, documentation, rater training, review committees, grievance mechanisms.
Key terms
- Performance management
- Continuous alignment and development of performance
- KRA
- Key result area of a job
- Performance counselling
- Helping employees understand and improve performance
- Calibration
- Aligning ratings across managers
- Potential appraisal
- Assessing capacity for future roles
Quick revision
- PM system and cycle; appraisal vs management.
- Counselling process and principles.
- Planning: KRAs, KPIs, SMART goals, competencies, OKRs.
- Appraisal methods, potential appraisal, rating errors.
- Monitoring, implementation, calibration; HR's role; ethics.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define performance management.
- Q2.Distinguish performance appraisal and performance management.
- Q3.What is performance counselling?
- Q4.What are KRAs?
- Q5.Name three rating errors.
- Q6.State two ethical principles in performance management.
Long-answer questions
- Q1.Explain the performance management system and cycle.
- Q2.Discuss performance counselling and planning.
- Q3.Explain methods of performance appraisal and potential appraisal and their problems.
- Q4.Discuss the implementation of performance management, the role of HR and ethical issues.
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