Performance Management System - Meaning, Importance, Components & Process

Published in Human Resources Terms by MBA Skool Team, Last Updated: September 06, 2021

What is Performance Management System?

Performance management system is tool which is used to communicate the organizational goal to the employees individually, allot individual accountability towards that goal and tracking of the progress in the achievement of the goals assigned and evaluating their individual performance. Performance management system reflects the individual performance or the accomplishment of an employee, which evaluates and keeps track of all the employees of the organization.

Importance of Performance Management System

Performance Management System is the tool that helps the managers to manage their resources and eventually result in the success of the organization. Performance management system is a very broader and complicated function of HR. It includes activities such as joint goal setting, frequent communications, continuous progress review, feedback of the performance and rewarding the achievements.

Following are the actions included in performance management systems:-

1. Providing career development support and promotional guidance to the employees.

2. Performance management system helps in giving regular feedback and coaching during the period of delivery of performance.

3. By proper selection process, selecting the right set of people.

4. Making clear a job description and employee performance plan.

5. Arranging training and development programs based on the evaluations of the performance of the employees.

6. Conducting the exit interviews in order to know the reason for the discontentment and from the organization.

Components of Performance Management System

Performance Management System helps in ensuring high quality, efficiency, good productivity and constant monitoring of performances, A typical performance management system has the following components:

1. Establishing Performance Standards

a) Identifying the relevant standards

b) Selecting the indicators

c) Specifying the goals and targets

d) Communicating the expectations

2. Performance Measurement

a) Refining the existing indicators and define the measures

b) Developing data systems

c) Collecting data

Performance Management

3. Quality Improvement Process

a) Decision making using the data and improve policies, programs and outcomes

b) Change management

c) To create a learning organization

4. Progress Reporting

a) Analyzing the data

b) Provide feedback to the staff, managers, policy makers etc.

c) To establish a proper and regular reporting cycle

Advantages of Performance Management System

Several benefits of performance management systems, which can improve a company's performance are listed as below:

1. Performance based conversation- This enables the managers to talk about the performance of the employees individually. They may help the employees in case he is not performing well, on the other hand appreciate him in case he does good work.

2. Performance management system can also help to identify the employee development opportunities, which could be the crucial part of the succession planning process.

3. It rewards the employees who are good performers as employees deserving the promotions can easily be identified.

4. The under performer can be identified and eliminated or helped improving his performance with various training and development programs.

5. Proper maintenance of the past performance records of the employee in a systematic order, which can be used for future references.

6. Employee himself can gauge his performance and work upon it accordingly.

All these show the how performance management system can boost the productivity and output of a company.

Hence, this concludes the definition of Performance Management System along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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