An organisation’s performance not only depends on external factors (for instance competition, market situation, regulations), but also highly on individual employees’
performances as well. Managing performance of employees is highly controversial since on one hand it can be seen as a controlling process (from employees’ point of view); on the other hand managers should be helping the employees to develop in the necessary areas. According to Leopold (2002, 129-132) the role of managers who evaluate performance is very complex, due to the fact that employees’ and
organisa-Perceived goals between principal and agent
Same Different
Same No agency Problem Perceived Agency Problem
tional goals are different: employees would like to have reassurance and rewards, or-ganisation look after outputs and results, and want their employees to accept criticism and work hard on better performance.
Leopold (2002, 132-142) introduces several methods on how performance manage-ment can be done. The two main categories are formal and informal performance pro-cesses. However formal processes are mainly used in bigger organisation with high employee number and informal used by smaller companies, he states that the size of the organisation should not be the only factor when deciding which method to use.
The main advantage of formal process is its objectivity and equity for each individual, on the other hand, they tend to be time-consuming to evaluate, and might not give enough flexibility for changes. The informal process is more personal, as it requires almost daily interactions between manager and employee, it gives the possibility of immediate feedback, and disadvantage of them is that they might appear to be too sub-jective.
Methods for employee performance management range from simpler to more complex methods. All of them have their own advantages and disadvantages, so managers should carefully consider which of them should be used. Leopold (2002, 136-142) de-scribes four types of them. Trait methods which were popular few decades ago listed traits (attributes), and then each trait has been ranked for the individual employee. One problem with this kind of method is that it is focusing mainly on personal traits, not working performance, and does not describe any improvement ideas for the employee.
As trait method’s flaws have been discovered, objective-based method has been de-veloped. In this method organisational goals and sub-goals have been defined for each level throughout the organisation with a set time period by when those goals have to be achieved. After the end of the period, achievement should be evaluated, and new goals set with new time period. Critics say however that this method also has some se-rious flaws: goals might be only short-term goals, while long-term goals neglected; fo-cuses on individual, not tem-performance; fofo-cuses on the output, not on how the whole work process is carried out. Competency-based method has been developed only about a decade ago, and purely putting emphasis on achieving objectives and tar-gets that are quantifiable and easy to measure. This method not only focuses on the outputs of a certain job, but also on the whole process. 360-degree method is for evaluating an employee’s performance from different angles: performance is rated by managers and superiors, peers and subordinates, or in some cases by customers as
well. Self-evaluation should be included in this method also. The main advantage of this method is that when evaluation comes from more sources it is seen as more relia-ble and objective. However the method is time-consuming for everyone involved, and can carry extra expenses.
Measuring performance of employees should not be only carried out only for giving feedback on the individual’s performance, but it can be used for rewarding those who are performing above the average, or achieving exceptional goals and targets. Reward-ing employees can have a positive influence on the performance of the individual and as so, it can affect the company’s performance as well. According to Goetsch and Da-vis (2013, 160-1) the best way to reward is following a compensational system made up from three levels. The first level is the individual employee’s traditional basic sal-ary. As an extension, based to the person’s performance, he/she can be rewarded with incentives. The third level of rewards is a team reward: those who are working in the same team are getting incentives that are based on the team’s performance, and fairly proportioned between team members, based on each team member’s contribution to the team’s performance.
Building up a compensation system for individuals and teams should follow these steps: first management has to decide what performance will be measured for incen-tives. Secondly decision has to be made, that how those can be measured, how often they should be measured and how those data could be collected. Thirdly it has to be decided what the rewards will be: monetary, nonmonetary rewards or the combination of the two. It is also important in this phase to make the rewarding system fair and based on result-proportions. Most employees are very sensitive to fairness, and having a reward system that does not suit for that criteria might not result is better perfor-mance. The last step when building up a rewarding system is to integrate it with other performance based systems, for example promotions or evaluations. (Goetsch and Da-vis, 2013, 160-1)
Managers sometimes make the mistake of thinking that employees only want financial rewards. However this is not the case. Nonmonetary rewards in some cases might be more valuable for employees, than money. For this reason, managers and persons who are responsible for developing a reward system should examine their employees, what might work for each individual as a reward. (Goetsch and Davis, 2013, 161) Leopold (2002, 150-1) describes a few non-financial rewards, like for example: feedback and
recognition (as to show employees that their work is appreciated), job satisfaction (when the given and expected reward is close to each other, employee feels his needs has been satisfied fairly) or in some cases giving the employee more responsibility and autonomy.