ACCTG 3245: Performance Management

PERFORMANCE MANAGEMENT PROCESS

By the end of this chapter, you will be able to do the following:

 Understand that performance management is an ongoing process that
includes the interrelated components of prerequisites, performance
planning, performance execution, performance assessment,
performance review, and performance renewal and recontracting.
 Conduct a job analysis to determine the job duties, knowledge, skills,
and abilities (KSAs), and working conditions of a particular job.
 Understand that the poor implementation of any of the performance
management process components has a negative impact on the
system as a whole.
 Understand important prerequisites needed before a performance
management system is implemented, including knowledge of the
organization’s mission and strategic goals and knowledge of the job in
question.
 Distinguish results from behaviors, and understand the need to
consider both in performance management systems.
 Describe the employee’s role in performance execution, and
distinguish areas over which the employee has primary responsibility
from areas over which the manager has primary responsibility.
 Understand the employee’s and the manager’s responsibility in the
performance assessment phase.
 Understand that the appraisal meeting involves the past, the present,
and the future. Understand the similarities between performance
planning and performance renewal and recontracting.

Prerequisites

There are two important prerequisites that are required before a

performance management system is implemented:
1. Knowledge of the organization’s mission and strategic goals.
Knowledge of the organization’s mission and strategic goals is a result
of strategic planning. Strategic planning allows an organization to
clearly define its purpose or reason for existing, where it wants to be in
the future, the goals it wants to achieve, and the strategies it will use
to attain these goals. Once the goals for the entire organization have
been established, similar goals cascade downward, with departments
setting objectives to support the organization’s overall mission and
objectives. The cascading continues downward until each employee
has a set of goals compatible with those of the organization.

1
 ACCTG 3245: Performance Management

2. Knowledge of the job in question. The second important

prerequisite before a performance management system is
implemented is to understand the job in question. This is done through
job analysis. Job analysis is a process of determining the key
components of a particular job, including activities, tasks, products,
services, and processes. A job analysis is a fundamental prerequisite of
any performance management system. Without a job analysis, it is
difficult to understand what constitutes the required duties for a
particular job. As a result of a job analysis, we obtain information
regarding the tasks carried out and the knowledge, skills, and abilities
(KSAs) required of a particular job.
- Knowledge includes having the information needed to perform the
work, but not necessarily having done it.
- Skills refer to required attributes that are usually acquired by having
done the work in the past.
- Ability refers to having the physical, emotional, intellectual, and
psychological aptitude to perform the work, but neither having done
the job nor having been trained to do the work is required.

Performance Planning
Employees should have a thorough knowledge of the performance
management system. In fact, at the beginning of each performance cycle,
the supervisor and the employee meet to discuss and agree upon what
needs to be done and how it should be done. This performance planning
discussion includes a consideration of both results and behaviors as well as a
development plan.
1. Results. Results refer to what needs to be done or the outcomes an
employee must produce. A consideration of results needs to include
the:
- Key accountabilities, or broad areas of a job for which the employee is
responsible for producing results. This information is typically obtained
from the job description.
- A discussion of results also includes specific objectives that the
employee will achieve as part of each accountability. Objectives are
statements of important and measurable outcomes.
- Finally, discussing results also means discussing performance
standards. A performance standard is a yardstick used to evaluate how
well employees have achieved each objective. Performance standards
provide information about acceptable and unacceptable performance
(e.g., quality, quantity, cost, and time).

2
 ACCTG 3245: Performance Management

2. Behaviors. Although it is important to measure results, an exclusive

emphasis on results can give a skewed or incomplete picture of
employee performance. For example, for some jobs it may be difficult
to establish precise objectives and standards. For other jobs,
employees may have control over how they do their jobs but not over
the results of their behaviors. For example, the sales figures of a
salesperson could be affected more by the assigned sales territory
than by the salesperson’s ability and performance. Behaviors, or how a
job is done, thus constitute an important component of the planning
phase.
3. Development Plan. An important step before the review cycle begins
is for the supervisor and employee to agree on a development plan. At
a minimum, this plan should include identifying areas that need
improvement and setting goals to be achieved in each area.
Development plans usually include both results and behaviors.

Performance Execution
Once the review cycle begins, the employee strives to produce the
results and display the behaviors agreed upon earlier as well as to work on
developmental needs. The employee has primary responsibility and
ownership of this process. Employee participation does not begin at the
performance execution stage, however. As noted earlier, employees need to
have active input in the development of job descriptions, performance
standards, and the creation of the rating form. In addition, at later stages,
employees are active participants in the evaluation process in that they
provide a self-assessment and the performance review interview is a two-
way communication process. At the performance execution stage, the
following factors must be present:
1. Commitment to goal achievement. The employee must be
committed to the goals that were set. One way to enhance
commitment is to allow the employee to be an active participant in the
process of setting the goals.
2. Ongoing performance feedback and coaching. The employee
should not wait until the review cycle is over to solicit performance
feedback. Also, the employee should not wait until a serious problem
develops to ask for coaching. The employee needs to take a proactive
role in soliciting performance feedback and coaching from her
supervisor.
3. Communication with supervisor. Supervisors are busy with multiple
obligations. The burden is on the employee to communicate openly
and regularly with the supervisor.

3
 ACCTG 3245: Performance Management

4. Collecting and sharing performance data. The employee should

provide the supervisor with regular updates on progress toward goal
achievement, in terms of both behaviors and results.
5. Preparing for performance reviews. The employee should not wait
until the end of the review cycle approaches to prepare for the review.
On the contrary, the employee should engage in an ongoing and
realistic self-appraisal so that immediate corrective action can be
taken if necessary. The usefulness of the self-appraisal process can be
enhanced by gathering informal performance information from peers
and customers (both internal and external).

Although the employee has primary responsibilities for performance

execution, the supervisor also needs to do his or her share of the work.
Supervisors have primary responsibility over the following issues:
1. Observation and documentation. Supervisors must observe and
document performance on a daily basis. It is important to keep track of
examples of both good and poor performance.
2. Updates. As the organization’s goals may change, it is important to
update and revise initial objectives, standards, and key accountabilities
(in the case of results) and competency areas (in the case of
behaviors).
3. Feedback. Feedback on progression toward goals and coaching to
improve performance should be provided on a regular basis certainly
before the review cycle is over.
4. Resources. Supervisors should provide employees with resources and
opportunities to participate in developmental activities. Overall,
supervisors have a responsibility to ensure that the employee has the
necessary supplies and funding to perform the job properly.
5. Reinforcement. Supervisors must let employees know that their
outstanding performance is noticed by reinforcing effective behaviors
and progress toward goals. Also, supervisors should provide feedback
regarding negative performance and how to remedy the observed
problem. Observation and communication are not sufficient.
Performance problems must be diagnosed early, and appropriate steps
must be taken as soon as the problem is discovered.

Performance Assessment
In the assessment phase, both the employee and the manager are
responsible for evaluating the extent to which the desired behaviors have
been displayed, and whether the desired results have been achieved.

4
 ACCTG 3245: Performance Management

Although many sources can be used to collect performance information (e.g.,

peers, subordinates), in most cases the direct supervisor provides the
information. This also includes an evaluation of the extent to which the goals
stated in the development plan have been achieved.

It is important that both the employee and the manager take

ownership of the assessment process. The manager fills out her appraisal
form, and the employee should also fill out his form. The fact that both
parties are involved in the assessment provides good information to be used
in the review phase. When both the employee and the supervisor are active
participants in the evaluation process, there is a greater likelihood that the
information will be used productively in the future. Specifically, the inclusion
of self-ratings helps emphasize possible discrepancies between self-views
and the views that important others (i.e., supervisors) have of our behavior.
It is the discrepancy between these two views that is most likely to trigger
development efforts, particularly when feedback from the supervisor is more
negative than are employee self-evaluations.

Performance Review
The performance review stage involves the meeting between the
employee and the manager to review their assessments. This meeting is
usually called the appraisal meeting or discussion. The appraisal meeting is
important because it provides a formal setting in which the employee
receives feedback on his or her performance. This is because many
managers are uncomfortable providing performance feedback, particularly
when performance is deficient. This high level of discomfort, which often
translates into anxiety and the avoidance of the appraisal interview, can be
mitigated through training those responsible for providing feedback.
Providing feedback in an effective manner is extremely important because it
leads not only to performance improvement but also to employee
satisfaction with the system.

Performance Renewal and Recontracting

The final stage in the performance process is renewal and
recontracting. Essentially, this is identical to the performance planning
component. The main difference is that the renewal and recontracting stage
uses the insights and information gained from the other phases. For
example, some of the goals may have been set unrealistically high given an
unexpected economic downturn. This would lead to setting less ambitious
goals for the upcoming review period.