The Environmental Context of Performance Management

Based on Human Resource Management (4th Edition) by Alan Price - published by Cengage

The effects of context variables on appraisal processes and outcomes have been the object of speculation but have not been empirically examined in the detail that these effects warrant. We believe that context is the key to understanding appraisal in organizations... (Murphy and Cleveland, 1995: 407).

The business environment exercises both a direct and an indirect influence on the conduct of performance assessment. Whereas legislation has specific consequences, particularly in the USA, most environmental factors have a diffuse and often unrealized effect on assessment and pay structures. It is likely that different individuals - and organizations - will respond in varying ways to these factors. Some will be highly sensitive to possible legal implications, practice elsewhere, and the state of the job market; others will be virtually immune to these influences. The main environmental factors identified as having a contextual influence on performance management include:

1. Business culture - At a national level, culture affects performance management through sociopolitical traditions and attitudes which determine whether assessment is acceptable, and to what degree. Cultural norms dictate 'acceptable' standards of performance and the management methods by which they are assured. For example, in a number of Asian societies, the employment relationship is a matter of honour, and obligations are regarded as morally, rather than contractually, binding between the two parties. In a situation where people are automatically expected to do the job as agreed, the role of performance assessment is questionable. Conversely, 'commitment' in western organizations is rarely a 'hearts and minds' phenomenon and this is exemplified in the policing nature of performance management. It is a modern version of scientific management in which the detail of work is supervised in a sometimes overbearing way.

2. The Work Ethic - The belief that work is virtuous in itself. Work can be defined as 'an activity directed to valued goals beyond enjoyment of the activity itself' (Warr, 1987). Hard work is to be admired and leisure is equated with laziness. Spare time is perceived as evil: 'the devil makes work for idle hands'. In some societies the work ethic became a fundamental religious principle, the Puritans and Calvinists holding it to be such a virtue that Max Weber termed it the protestant work ethic. Nineteenth century factory owners used the principle to justify 11 and 12 hour days. The concept is sometimes extended to include the virtue of frugality as against waste. It justifies regarding the poor as sinful, since success and ambition are virtuous and wealth is a sign of god's favour. Within English-speaking countries, performance-related pay encapsulates a fusion of the protestant work ethic and free market ideology: work is virtuous and virtue should be rewarded generously. It fits particularly well with the free market ideology of right-wing politics.

3. Legislation - In free market economies, the employment relationship between workers and employing organizations is seen as a contractual matter. This relationship is expressed in formal or legalistic statements of obligation between the two, such as written employment contracts, job descriptions and performance objectives. Performance measurement has the purpose of ensuring that the employee fulfils the contract. Performance measurement has become a sensitive legal issue in the USA because of possible consequences on equal opportunities (Murphy and Cleveland, 1995: 11). Since the 1970s, assessments have been regarded as tests and are subject to guidelines enforced by the Equal Employment Opportunities Commission. Employers taking personnel decisions on the basis of performance assessment have to be mindful of possible legal action on one of two grounds:

• Validity or accuracy of assessment ratings as predictors of future performance and promotion potential.
• Validity or accuracy of ratings as measures of past behaviour.

This legislation is specific to the USA, but all human resource managers have to be mindful of possible breaches of equal opportunities legislation in their own countries.

4. General economic conditions - Prevailing attitudes towards employees and, in turn, their response to performance assessment are considerably affected by issues such as unemployment. Growth and shrinkage in the job market are conventionally believed to be followed by changes in the behaviour of workers and employers. At times of high unemployment, workers are thought to be concerned about losing their jobs and hence more conscientious and tolerant of strict management. When suitable employees are scarce, managers must be cautious - unflattering assessments can trigger an employee's move to another organization.

The relationship between the economy and assessment is circular and complex. Performance management is justified by organizational efficiency, and the overall efficiency of organizations in a country is crucial for its economic well-being. Income generated by effective, as opposed to inefficient, performance encourages economic wealth. Performance management has become the chosen western instrument to drive out ineffective activity. It incorporates both stick and carrot: the first in terms of sanction, criticism or discipline; the latter in the form of praise or cash.

5. Industry sector - Methods of performance management vary considerably between different industrial sectors, partly as a matter of the nature of the work involved, tradition and fashion. Sales-dominated industries, such as financial services, tend to have clear individual or team objectives which can be translated readily into performance targets. Performance-related pay is common in this sector and commission-only contracts are not unusual. In other sectors, objectives are more diffuse and difficult to measure so that PRP is not easily justified.

6. Technological change - Technology has the power to provide extensive statistics such as the the time an individual spends logged on to a system, number of key strokes and volume of output; but does this information provide a meaningful measure of job performance? If the employee's task involves elements of creativity, accuracy and thoroughness, how can these be assessed? If managers become dependent on 'objective' measures of work, they may be forced to bring their personal asseesments into line. Advanced technology requires expert users. It is common for managers not to possess the same level of expertise as their subordinates. Such managers are not qualified to assess their performance and, moreover, subordinates are well aware of the fact. In these cases, supervisors have neither the competence nor the credibility necessary for effective performance management.

7. Flexibility and diversification - As we have already seen, in the 1980s and early 90s, the traditional nature of the employment relationship in free market countries changed, moving the balance of power firmly in favour of employers. Job descriptions have disappeared or, at least, have been diluted, so that employees can be asked to do virtually anything required by the organization. Conversely, performance criteria have been more tightly defined, typically expressed in the form of demanding objectives: forever-moving goalposts. Performance assessment has become the crucial means of monitoring this relationship.

8. Employee relations - Performance management is a means of enhancing managerial control, particularly through individual performance-related pay schemes. The individualization of pay diminishes or neutralises the role of collective bargaining. The purpose and influence of trade unions is undermined, reducing both their effectiveness and attractiveness as an alternative focus for employee commitment.

9. Workforce composition - Largely forgotten in the controversy over PRP, the other main function of performance assessment is the identification of individual strengths and weaknesses. The latter can be targeted for improvement through training and development. Strengths may indicate a potential star performer, worthy of a management career route and promotion. Assessment employed to determine development needs ultimately serves to increase a nation's human capital.

Less positively, demographics and a history of unequal opportunities affect the conduct of assessment, since they largely determine who assesses whom. For example, in countries such as the UK, it is likely that performance assessments are largely carried out by white male managers, whereas the people they assess are probably of mixed gender and ethnic origin. this is one of a series of organizational issues whch we consider further in the next section.

Introduction to Performance Management   >  The Organization and Effective Performance