The evolution of performance management

According to one commentator, performance management has "come of age and is proving to be a process capable of transforming organisations."¹ Yet, as the previous chapter outlined, it is the performance management process itself that is changing as employers attempt to remedy the deficiencies of conventional PM systems and make them more appropriate for today's fast-changing business environment.

It should come as no surprise that performance management is changing as the process has gone through several different modes since it supplanted the largely-discredited management by objectives (MBO), and the moribund merit ratings and appraisal systems of the 1980s.

The difference between MBO and performance management was highlighted by Alan Fowler in a 1990 article for Personnel Management (the former title of the CIPD's journal People Management).² Fowler described how MBO was a packaged system applied only to managers, whereas early PM arrangements were tailor made and covered all staff. And while MBO divided jobs into key results areas, PM split them into principal accountabilities with appropriate objectives.

Fowler's typical PM process has now evolved further. Research by the CIPD in 1998 revealed the changing nature of performance management in the UK. According to this study, conventional performance management, which was typically a system characterised by top-down appraisal, owned by HR and focused on outputs, was being replaced by a process owned by its users which focused on development based on multi-source feedback. Recent changes to the performance management process are described in detail in figure 2.1.

Figure 2.1: The changing performance management system

Source: "Performance management and the psychological contract", Philip Stiles, Lynda Gratton, Catherine Truss, Veronica Hope-Hailey and Patrick McGovern, Human Resource Management Journal, vol 7(1), 1997

TIME FOR A NEW APPROACH

Most HR management systems, including job and role descriptions, reward systems, how jobs are classified and career advancement criteria, are based on a formal hierarchy of jobs. These define reporting relationships, performance measures and rewards. Organisations are changing to meet shifting economic and competitive pressures, and these corporate shifts render previous people-management processes redundant. Discarding the rigid structures of the past and implementing extensive alterations to the content of jobs (see below) requires a redesign of HR systems such as performance management.³

In the past, HR has designed its systems around the person-job fit - that is, individuals were fitted into jobs that were principally task based. More complex jobs tended to attract a higher position in the organisational hierarchy. The traditional top-down appraisal process, in which line managers rate performance based on the achievement of specified objectives, normally outputs, simply reinforces the hierarchical system. Appraisal performed in this way causes many problems (see chapter four), one of which is to discredit pay-for-performance. According to HR academics Paul Sparrow and Mick Marchington: "The rewards systems - and most of the other jobs-based personnel management systems - break down under pressure from technological change and downsizing".⁴

The new organisational forms emerging, such as flatter, non-hierarchical structures, in which the boundaries between departments, functions, staff, customers and suppliers have become increasingly blurred, require something different. Sparrow and Marchington believe the job-based system, in which the individual is matched to a job, is being increasingly replaced by the person-related approach, requiring a change to the performance management process. As they explain:

"As organisations reallocate knowledge, information, power and rewards in response to the failure [of appraisal and pay-for-performance], a shift to person- as opposed to job-related performance management systems becomes inevitable because the evolving set of tasks and activities built into internal roles can no longer be accurately priced in the labour market. According to this argument, it is no longer jobs which have value, but people."

Today's business conditions mean that jobs constantly change. The person-based approach recognises the need for greater flexibility and adaptability, so that the range of skills and behaviours people possess is as important as specific job capabilities. Now, lower-level employees have more autonomy and responsibility. These new realities must be reflected in the performance management system, which is why PM arrangements are altering to include: more regular and better performance feedback; greater emphasis on employee development; additional focus on how people do their jobs and achieve objectives; and reward systems that reinforce these features.

EVOLUTION NOT REVOLUTION

Competencies

The big performance management change, and one reported by several sources, is the introduction of competency frameworks which look at how individuals and teams achieve their objectives, not just what they accomplish. Whether firms assess competence was not even a question asked by the Industrial Society's 1994 survey of PM.⁵ By 1998, 43% of respondents said it was one of the main purposes of their PM systems. A 1999 IRS survey of appraisal also noted the increased use of competencies, reporting that the introduction of a competency framework was the most frequently reported recent change.⁶

The IRS journal Competency & Emotional Intelligence, which publishes an annual benchmarking survey of employers' use of competencies, found in 1999 that performance management was the second most common non-pay use of competencies (after training and development), with almost 85% of respondents stating that this was the case.⁷

Feedback

Aside from the growth of competencies, the speed of change in performance management is not dramatic, and the shift that is taking place should be seen as one of evolution rather than revolution. For example, although the uptake of multi-source feedback is on the increase, the proportion of UK firms using the most popular form of this, 360-degree appraisal, is still relatively small. This is illustrated by the CIPD's 1998 survey.⁸ It found that 360-degree feedback featured in only 11% of PM systems. The 1998 study of PM by the Industrial Society also reported a relatively low number of firms with 360-degree appraisal. In this case just 16% of the 480 organisations participating in the research used this form of performance measurement.⁵

In addition, the use of less conventional means of performance review that are in keeping with more holistic feedback, such as peer assessment and self-appraisal, appear to be applied only to higher level employees. This was the finding of the 1999 study of appraisal in 140 organisations by IRS.⁶ It reported that top-down conventional appraisal appears to remain the norm for lower-level clerical staff and manual employees. A study of 360-degree appraisal in 15 countries by Towers Perrin confirmed this view, reporting that the "more senior you are, the more likely you are to be subject to 360-degree feedback."⁹

Paying for performance

There is conflicting evidence about the main purpose of performance management. MR2 suggested that employers should abandon any link between performance management and reward and focus on employee development instead if they are to realise the potential benefits.¹⁰ Yet, the reward link remains in many organisations. IRS reported in 1999 that more than three-quarters of surveyed firms with performance-related pay linked the results of appraisals to pay decisions.⁶ The 1998 CIPD survey also noted the continued popularity of PRP with 43% of employers reporting that it was a feature of their approach.⁸ This was despite finding that the majority of respondents disliked the link between PM and reward.

Interestingly, research suggests that the link between performance management and reward may be getting stronger. Although the Industrial Society's survey of PM reported that only a third of organisations said one of the main functions of appraisal was to link performance to pay, this was an increase on the 19% of respondents doing so in 1994.⁵ The greater use by employers of performance management to determine pay levels is also highlighted by Towers Perrin's examination of 360-degree feedback. The management consultancy found this method of performance review was beginning to be used by companies to make pay decisions.⁹ The previous chapter acknowledged the growing use of competency- and team-based reward schemes, some of which are linked to performance management systems.

Team-based pay arrangements are not common in the UK, although interest in such arrangements is fairly high in some quarters, notably as an alternative to individual performance pay in the civil service (see chapter five). The annual Pay and Benefits Bulletin (PABB) survey of pay prospects in the private sector for 2000 reported that less than 5% of the 226 firms questioned operated team-based pay; down from more than 6% the previous year.¹¹ And whereas more than 14% of participants in the earlier PABB study were exploring the use of team-based reward, the proportion of employers in the later research contemplating this as option had fallen to 7.5%.

Michael Armstrong and Angela Baron describe competency-based pay as a form of contribution-related pay - that is a method of rewarding people for what they do to bring about a result, instead of solely what they achieve.⁸ Competency & Emotional Intelligence has monitored the growth of competency-based pay. Its annual benchmarking survey for 1999 found that over 41% of the 138 participating companies used competencies in some way to determine individual pay rises.⁷ In 1998, this figure was 34%.¹² PABB has also observed a gradual increase in the use of competency-based reward by employers. Its 1999 annual survey found it was operated by around 14% of survey respondents (marginally up on 1998), and its use was being contemplated by a further 23%.¹¹

The continued popularity of merit pay, which is typically based on an assessment of individual performance, also confirms the view that many employers are keen to retain a link between performance and pay. Although the Pay and Benefits Bulletin's latest annual survey in 1999 reported a slightly lower proportion of private sector companies using this reward mechanism than in the past (down from nearly 62% to 58% in 12 months), several large groups of workers in the public sector, including teachers, are in line for individual performance-related pay.¹¹ Despite the slowdown in the use of merit pay, the survey also reported that a growing proportion of employers were planning to introduce a link between performance and pay - the first upturn in plans to establish merit pay recorded by PABB since 1994. The Government's support for PRP among teachers and other public sector employees is part of its attempt to improve productivity and service delivery. It involves the introduction of more effective performance management systems that help to deliver clear targets and reward individual achievement (see below).¹³

Performance rating

A further change in performance management that has been identified by several studies, and which is related to the issue of pay, is modification to rating scales - that is, how performance is categorised. Changes to rating scales were noted by the American Compensation Association, which commented in 1996 that:

"To reduce the subjectivity of performance management systems and increase the focus on continuous improvement, organisations have tended to move away from rating categories or labels toward summary statements that are behaviour orientated and more focused on future improvements."¹⁴

Some organisations have simply abandoned performance rating altogether. This is illustrated by the latest CIPD survey of performance management which recorded a 10% fall in the use of ratings between 1991 and 1998.⁸ Armstrong and Baron have explained why rankings are becoming less popular:

"Staff deride them because they see them as inevitably inconsistent and subjective. Managers dislike them, because they feel as if they are writing school reports. And senior managers loathe them because they see how ludicrous it is to spend time establishing mutual understanding and then to end the process by ticking a box. As one group personnel director said to us: 'Ratings denigrate the whole performance management process'."¹⁵

Others have altered their rating systems to differentiate better between levels of performance or achieve better consistency across the process. One way of differentiating between individual performance is to adopt forced distribution. This means that a pre-determined proportion of ratings, say 5%, are allocated the highest score, with the remainder similarly placed in the other performance categories. A typical distribution would be: box A= 5%; box B= 15%; box C = 60%; box D = 15%; box E = 5%. Forced distribution overcomes the perennial problem encountered in many organisations whereby the majority of staff are placed in the higher ranking assessment categories. For example, in 1995 almost nine in 10 (88.7%) grade 2 civil servants (the highest level below permanent secretary) and almost three-quarters (73.2%) of those in grade 3 were rated in the two highest rating brackets - "outstanding" or "significantly exceeds expected achievement".¹⁶

Peer reviews or "grandparenting" arrangements, in which groups of managers review the pattern of each other's rankings to ensure consistency across a department or organisation, are becoming more common, according to the CIPD survey - with 51% of respondents using one or other of these methods.⁸ The 1999 IRS survey of appraisal also reported an increase in the use of grandparenting reviews. Examples from the survey of organisations using this method to ensure consistency include: Oxford City Council, Northern Ireland Electricity, South Durham Healthcare NHS Trust and Stroud & Swindon Building Society.⁶

Competencies are also being applied as additional measures to the performance review process. At ABB, the world's biggest electrical engineering business, for example, staff assessment is based on competencies and the achievement of objectives. Chris Hudson, personnel manager at ABB's UK power transmission and distribution business, believes that "combining objectives with competencies in this way makes it clear to people that how they achieve is as important as what they achieve."¹⁷

Employee development

Employee development is seen by advocates and practitioners as the raison d'être for performance management, since equipping staff with the skills and capabilities to perform their job better should translate into improved corporate performance. MR2 explained that an effective performance management system should make employee development central to the process.¹⁰

Armstrong and Baron say this is occurring and provide examples of companies, such as 3M Healthcare and Severn Trent Water, which are shifting the emphasis of PM towards development.⁸ The tendency towards making competencies a key feature of performance management systems also suggests that employers are focusing more on employee development. This is because the vast majority of companies use competencies for training and development purposes. Competency & Emotional Intelligence's annual benchmarking survey in 1999 reported that this was the most important non-pay use of competencies, with more than 88% of the 145 respondents using them in this way.⁷

A further indication of the increasing support for performance management that is geared towards employee development comes from Armstrong and Baron's 1998 survey for the CIPD. It revealed that 73% of respondents either fully or partly agreed with the statement: "The focus of PM is developmental." This compares with the 59% of participants fully or partly disagreeing with the declaration: "PRP is an essential part of PM." The reality is somewhat different, however. Philip Stiles and colleagues examined performance management in three organisations and found that management rhetoric espousing support for employee development was not put into practice.¹⁸

Reward and development sit uneasily together. MR2 reported that employers were split on whether pay or development should be the main focus of performance management.¹⁰ It also gave examples of companies, including Mitel Telecom, that have eschewed the reward approach in favour of employee development. Several studies have observed the downgrading by employees of development goals as they pursue activities most likely to offer the greatest potential for financial rewards. Where pay is included in the review, it tends to dominate proceedings, preventing an honest discussion of performance and any meaningful assessment of development needs. As Michael Armstrong concludes from the findings of the 1998 CIPD survey:

"People involved in performance reviews directly linked to pay decisions focus on the financial reward rather than the developmental aspects of performance management."⁸

The continued use of performance-related pay, despite a preference among practitioners for placing greater emphasis on employee development, suggests that the tension found by MR2 in many performance management systems has still to be resolved. Armstrong and Baron say some employers have attempted to solve the reward or development conundrum by separating the development and pay reviews.⁸ A 1997 survey by SHL also found a growing number of firms operating separate review schemes for development and reward purposes.19 The HR consultancy reported that 41% of those surveyed now operate two review arrangements. This was a 19% increase on a similar study conducted by SHL in 1995.

Thus, the common changes occurring to many performance management systems can be summarised as:

Chapter one outlined some of the reasons why many employers are altering their performance management systems. Generally, change has been introduced to remedy problems or to make poorly functioning arrangements more effective (these difficulties and the solutions being implemented by employers, are explored in more detail in the following chapters). The previous chapter also noted that workplace changes are fuelling alterations to the conventional performance management process. The impact of these changes on performance management, such as the redrafting of the psychological employment contract and major revisions to working practices, is now examined.

PSYCHOLOGICAL CONTRACT

The psychological contract is the set of reciprocal expectations and obligations that exist between an employer and employee.²⁰ It is largely informal. Individual understanding of it is implicit rather than explicit. Much of it is based on previous corporate behaviour, so employees come to expect how the organisation will act in any given circumstances. Staff will also have general expectations about fairness and equity.

Changing economic conditions, particularly heightened competitive pressures, has led to a complete redrafting of the previous psychological contract. Whereas the old contract was characterised by job security, cost-of-living pay increases and career progression, the new one is more likely to consist of employee flexibility, performance-related pay and the concept of employability (see figure 2.2). And while the old contract provided certainty and consistency, the redrafted version is associated more with insecurity and unpredictability.

Figure 2.2: The old and new psychological contract at NatWest UK

Source: "Building a new proposition for staff at NatWest UK", Stephen Bendall, Christopher Bottomley and Patricia Cleverly (1998), in Human resource management: the new agenda, Paul Sparrow and Mick Marchington (eds), Financial Times/Pitman Publishing, ISBN 0 2736 2823 2.

Redrafting of the traditional psychological contract has been fuelled by changes to working practices and the content of jobs (below). Mutual trust underpins the psychological contract and this has been severely tested on the employees' side by workplace change that has invariably involved large-scale job losses.

A performance management process can help re-engage individuals whose trust in management and commitment to the organisation has been fractured by a decade or more of downsizing and corporate restructuring. According to Philip Stiles and colleagues, performance management has taken centre stage as managers try to motivate and build commitment and loyalty among the workforce now that the certainties of a job for life and career expectations have disappeared.¹⁸

Stiles and colleagues believe performance management plays a key role in creating the framework for the psychological contract, so employers' strategies to garner support for the new proposition have entailed a "renewed focus on performance management". The contract-making features of the typical performance management system include: "Understanding the job role; the fair, timely and accurate evaluation of performance; the fair distribution of pay and development opportunities; and the provision of feedback to employees." Also, elements of the performance management process, especially appraisal (because it is face-to-face communication), can generate staff commitment for the maintenance of, or support for changes to, the psychological contract.²¹

The new performance management strategy incorporates increased incentives, greater employee voice and participation, especially in the appraisal process, and development linked to employability rather than career progression. Several companies have established new performance management arrangements encompassing many of these features to bolster employee support and acceptance for a revised psychological contract.

NAAFI, the trading arm of the UK's armed forces, provides one example.²² Faced with a declining customer base, increasing competition and the loss of key contracts, which resulted in 1,500 redundancies, the organisation embarked on a £74 million restructuring package. This process included: the implementation of a new appraisal system to replace existing arrangements that had fallen into disrepute; pay progression linked to the acquisition of new skills, and the opportunity to gain National Vocational Qualifications (NVQs); and a review of reward to ensure it is both fair and equitable. The new appraisal process forms part of an overall performance development programme. Staff have "ownership" of the process and individuals complete a self-assessment form outlining what they want to achieve and what development they require to achieve the aim prior to the annual review. Ongoing informal performance discussions between managers and staff are also encouraged.

THE CHANGING WORKPLACE

One of the most pronounced changes to working practices is the devolution of responsibility and accountability downwards as companies dismantle their traditional hierarchies and organisational boundaries by discarding swathes of middle managers and eradicating formal functional barriers. The leaner and flatter organisations that emerge from this process require workforces that are both more efficient and effective, more responsive to customers and more flexible and adaptable, able to change to suit the constantly shifting business environment.

As a result of dismantling the traditional hierarchy, lower-level jobs have become more complex and, in the absence of large numbers of supervisors, self-management is more common. Decisions are being made lower down the command chain, requiring individuals to develop a range of new skills and competencies.

Sharon Parker and Toby Wall at the Institute of Work Psychology in Sheffield have identified the following five common changes to job content:

Such workplace changes - as well as the increased use of technology and the accelerating pace of work - require firms to pay attention more to staff development; provide greater clarity between corporate goals and employees' roles in achieving them; and establish better communication between managers and staff.

These can all be secured through a well-developed performance management system. An IRS study of the engineering industry, for example, reported that 40% of organisations had altered their employee appraisal systems, and, in many cases, the changes had been made to support the introduction of new working practices.²⁴ At GEC-Marconi, for instance, the changes to the performance review system were closely linked to new working methods, with objectives aligned to the business plan incorporated into employees' appraisals alongside "role model competency standards introduced as a result of a continuous improvement drive".

Arrangements which involve regular two-way appraisal (such as informal discussions and formal reviews) and mutual goal-setting with objectives directly linked to business needs can provide an effective means of managing people in a restructured and delayered environment.

Competencies - as the GEC-Marconi example illustrates - have become a major managerial tool to reinforce the types of staff behaviour deemed necessary in today's workplaces - such as customer awareness, cooperation, problem-solving and decision making. One organisation which introduced competencies to develop the desired staff behaviour is the Centre for Applied Microbiology and Research (CAMR), which began a process of change in April 1997 that involved moving from a traditional vertical hierarchy to a matrix project management structure.²⁵ The organisational changes required a complete overhaul of the reward and performance management systems. Part of the change to the PM process was the development of a competency framework to cover the whole workforce, including scientific and technical staff, as well as employees in finance and administration.

Significantly for performance management, devolution to lower level staff of responsibility for key aspects of the process has made line management central to its effective operation. It has also forced staff to take responsibility for their own performance and development.

Line-management ownership

Giving line managers responsibility for HR matters - a key feature of current thinking in HR practice - has resulted in them gaining more control over the performance review process, including the distribution of rewards.

Several studies show the extent of line management control of the performance management process. An earlier Management Review (MR10) study found that responsibility for performance appraisal had been completely devolved to line managers between 1995 and 1998 in more than 48% of the organisations questioned. In a further 37% of cases, appraisal had been partially devolved to the line.²⁶ Largely owing to the fact that line managers are central to the review process, it (along with job interviews) was the most common HR process shifted to the line. These findings compare with those reported by MR2 where control over the performance management system was retained by HR in a third of surveyed organisations.¹⁰ The 1998 CIPD survey also identified a shift towards line management ownership of performance management, with performance review documentation more likely to be retained by managers than the HR department.⁸ In terms of reward, another CIPD study reported that where merit pay operates, HR provided the "framework, guidance and monitoring", leaving individual pay decisions to line managers.²⁷

The devolution of HR tasks is seen as removing unnecessary bureaucracy and forcing front-line managers to pay more attention to people management issues. It also "empowers" line managers, who, because they are free of the straightjacket imposed by the HR department, have more flexibility for local discretion.

Of course, line managers have always conducted performance appraisals. But in the past, these were often no more than box-ticking exercises that had little to do with a thorough analysis of performance. Now the trend is for line managers to actually own the process, whereas previously it was perceived as the property of the HR function which managers, often reluctantly, did. Armstrong and Baron note that "there is a shift towards line managers' accepting and owning performance management as a natural process."⁸ Their research for the CIPD shows that 78% of respondents agree with the statement: "Line managers own and operate the performance management process."

One result of the line management's previous lack of ownership of appraisal, especially in large organisations, was that some reviews simply did not take place. This is illustrated by a 1997 study of appraisal by the Industrial Society.²⁸ It found that 14% of companies with more than 2,500 employees failed to complete the appraisal process. Passing responsibility for appraisals to line managers ensures that those who want to earn the label "good manager" complete the task.

One way of establishing line management ownership of the performance management process is to engage them in its design. Research by the Manchester School of Management at UMIST found that in 44% of cases HR develops the performance management strategy with line managers.²⁹ A further 23% of organisations said line managers provide information to inform the PM strategy.

Ownership of the performance management system by line managers does not just mean responsibility for the annual review process. In many organisations, line managers are also required, sometimes at their own discretion, to discuss performance and development needs with staff between formal reviews. The extent to which this is happening is illustrated by the Industrial Society's 1998 survey of performance management. It reported that 61% of firms conducted interim reviews, with 40% holding six monthly reviews, compared with just 26% in 1994.⁵ Further evidence comes from the 1998 CIPD survey: 29% of respondents used either continuous assessment or rolling appraisal.⁸ IRS also revealed a similar proportion of companies (28%) reviewed performance more than once a year, and that several operated regular informal reviews.⁶ Informal feedback sessions can help to identify problems before they become overwhelming, as well as to revise objectives to suit changing circumstances.

One example of the formal and informal appraisal approach is the performance management system at Heathrow Express, the direct rail link between central London and the airport, which opened in June 1998.³⁰ Although employee performance is formally appraised each year, there is also scope for quarterly reviews to occur. This formal process is supplemented by ongoing and informal coaching and mentoring throughout the year.

Staff development also becomes the responsibility of line managers in tandem with individual employees once ownership of performance management passes from the HR function. Development planning is a joint exploration between managers and staff to identify what skills and competencies the individual needs to develop, and how the manager can help by providing guidance and resources.

There is ample evidence to support the view that contemporary performance management systems, with their espoused emphasis on employee development, is leading to line management taking greater responsibility for staff learning and training. The UMIST research referred to earlier shows that training was the HR activity most likely to be developed through a line management-HR partnership.²⁹ A report by MCP Consulting found that analysis of training needs, decisions on who should receive training and the assessment of the training's effectiveness were more likely to be delegated to line managers in large firms.³¹ In smaller enterprises, only the decision-making process tended to be vested with line managers, with the HR function retaining control of all other aspects of training and development. A 1998 Industrial Society study underlined line management's increasing role in deciding who should receive training. It found that training participation decisions were left to line managers in 88% of the 706 companies questioned.³²

The growth of competencies as a key ingredient of many performance management arrangements can help to direct the development agenda for both line managers and individuals. At BOC Distribution Services, for example, role profiles for managers derived from competency frameworks form the basis for development discussions between staff and their line managers, as Frank Lemon, management development manager, explains:

"At the performance review, people talk about the competencies needed in the here and now, and for the next year. But at the career review, which takes place later in the year, they look at the competencies they will need for a new position, and how to develop them."⁷

Ensuring line managers are able to mount objective, regular and consistent performance reviews and enhance their people development skills can also be achieved through the establishment of competencies. Appraisal consistency is one of the main benefits of competencies at the London Borough of Brent, for example. Training and development manager Anna Dias explains: "The competency approach has become fairly well-established across the council. It is seen as a way of ensuring consistency in recruitment and appraisal."³³ The House of Fraser Group, with 51 retail outlets in the UK, uses competencies to ensure managers regularly perform staff appraisals. Under the "leadership" competency for managers, "regularly reviews individual performance and provides feedback" is a key performance indicator.³⁴

Many management competency frameworks include "development of others" as core management behaviour. The annual Competency & Emotional Intelligence benchmarking survey found this to be the case at, among others, Bolton Council, Pasteur Mérieux MSD, Railtrack, Isle of Man-based Zurich Financial Services and at the Benefits Agency, where "staff development" is described as a core competency for line managers.⁷

Staff ownership/employability

Delayering and the devolution of functions previously performed by middle managers and departments has impacted in several significant ways on the performance management arrangements for staff. Earlier we noted that the old psychological contract had been superseded, and the concept of employability had replaced the notion of a job for life. The focus of employability, which has supplanted traditional job-specific development, is to ensure individuals have a broad range of skills, can adapt quickly to change and, if necessary, prepare themselves for employment elsewhere.

The concept of employability is explained by the Cooperative Bank's head of HR, Shelagh Everett: "[It] means people taking responsibility for their own personal development to assist their career and employment opportunities, both within the bank and - if they do take voluntary redundancy - in the wider labour market."³⁵ The emphasis on individuals taking personal responsibility for their own development is something that is popular in many contemporary performance management systems. Employer emphasis on individual ownership of development is underlined by the UK Atomic Energy Authority (UKAEA). Its guide to development planning is entitled "Planning your development", and responsibility for the six-point process lies entirely with the individual:

1.       Define your job;

2.       Identify your development needs;

3.       Decide your development priorities;

4.       Select methods of development;

5.       Undertake development activity;

6.       Review effectiveness of development activity.⁵

Personal development plans (PDPs), which are defined as a "mechanism by which employees are encouraged to shoulder responsibility for planning and carrying out their own development programmes", are a growing feature of performance management arrangements that are geared towards development.³⁶

Armstrong and Baron note PDPs had become a "major feature" of performance management in the 1998 CIPD survey, whereas they had not been heard of in 1991 (the date the HR professional body's previous PM survey).⁸ The latest CIPD research found that 67% of employers had incorporated PDPs in their performance management systems. Earlier Management Review research also showed increasing use of PDPs among employers. MR8 - Learning strategies - found that personal development plans were used in 81% of the 97 organisations surveyed.37 And 37% of these had introduced PDPs between 1996 and 1998.

For employers, PDPs can be a good way of aligning individual goals with corporate objectives. Improved communication between staff and line managers is a further benefit, and encouraging people to develop a portfolio of transferable skills and knowledge means they are more flexible and more adaptable to changing circumstances.

Aside from these potential advantages of PDPs, it is easy to understand why some employers are shifting the emphasis of performance management away from reward and towards self-managed development. Flatter structures have limited vertical career paths, so companies no longer feel they have prime responsibility for employee development. Instead it is left to the individual to determine his or her own development in line with corporate needs and their own career aspirations.

However, firms are trying to motivate a demoralised and insecure workforce following years of job losses and restructuring. People's perceptions are that workplace change is ongoing, so feelings of insecurity remain. While employers might no longer be able to offer individuals the same career opportunities as in the past, or feel it is their responsibility to do so, they recognise that giving support to staff to achieve their personal career ambitions can significantly boost commitment and loyalty. Hence, PDPs are more likely to focus on broader career aims and ambitions, rather than job-specific skills.

Research has found that PDPs, and self-managed learning in general, can improve employee morale and motivation.³⁷ PDPs allow individuals to identify where they want to go and how best to achieve this within the confines of the organisation, or outside, in their own time. Such plans have the added advantage of helping people to analyse non-work-related skills and knowledge to see how these can be applied in their day-to-day activities or to support future career aspirations.

Individual ownership of development means that HR departments and line managers provide support and learning resources, but success depends on personal commitment and drive.

BP Exploration (BPX) is one firm that encourages staff to take greater responsibility for their own development as part of the performance management arrangements. The BPX approach has been described thus: "Development rests primarily with individuals in partnership with their line manager or team leader. Support is provided by the company in the form of staff-development processes, networks and the personal development plan."⁸ Another is the financial services business State Street Bank, which employs around 1,200 staff in Europe. Describing recent changes to performance management, the US-owned company says its system is "more forward looking and places more responsibility on individuals for their own development".³⁸

EXTERNAL INFLUENCES

The rush among businesses to adopt quality standards and alternative means of measuring corporate performance, as well as government pressure on public sector organisations to improve service quality and efficiency, is also adding to the pace of change in performance management.

Investors in People/EFQM

Aside from corporate restructuring and changes to working practices, some employers have altered their performance management arrangements to achieve nationally and internationally recognised quality standards designed to boost competitiveness. The Investors in People (IiP) quality standard for people management is one example. Figures show that in June 2000 more than 19,500 enterprises have achieved IiP accreditation and a further 41,000 are committed to achieving the standard.³⁹ Organisations, including the AA, HP Bulmer, the Land Registry, Nottingham City Hospital NHS Trust, Sheffield City Council and the UKAEA, acknowledge that the desire to meet the requirements of the IiP standard has strongly influenced decisions to revamp their performance management processes.^{8,36,40,10,37,5}

IiP fits well with performance management because it focuses on employee development, including the regular assessment of development needs and achievements. The four main principles of the IiP standard are:

One of the key IiP indicators, and one which is relevant to the previous discussion of individual and line management ownership of development, is that "people are encouraged to improve their own and other people's performance".

Another quality standard, the European Foundation for Quality Management's excellence business model, has also been a factor in some employers' decisions to alter existing performance management arrangements. One such organisation is Middlesbrough Council.⁴² The EFQM model (see figure 2.3) is a framework based on nine criteria: five "enablers", which cover what the organisation does; and four "results", which cover what the organisation achieves. Organisations monitor their progress towards excellence in each area. The model's people criterion focuses on staff development and involvement. It states that:

"The full potential of an organisation's people is best released through shared values and a culture of trust and empowerment, which encourages the involvement of everyone."⁴³

Figure 2.3: EFQM Model

The EFQM excellence model can support performance management through:

The model states that how the organisation manages, supports and develops its people so they achieve their full potential depends on establishing processes to meet the following objectives, some of which are fundamental to effective performance management:

Balanced scorecard

Linking corporate and individual goals is a key aim of performance management and is often achieved by the cascading of business objectives down to lower levels within the organisation. At Xerox, for example, business strategy and goals filter through the firm in the following way. The setting of company and individual objectives begins with a statement of the Xerox vision - "a picture of us in the future" - from the US parent. The various Xerox entities around the world, including the UK, develop their own recipe, known as the "direction", for achieving that vision. It is this blueprint which determines the crucial few goals - that is, the "few actions that will have the greatest impact" and which will "deliver our desired objectives". Each level of the business discusses: "What we are going to do and how we are going to do it", resulting in teams and individuals developing their own "RROs" (roles, responsibilities and objectives) - that is, what they need to do to help achieve the vital few objectives for the coming year.⁴⁵

BUPA, the independent healthcare business, also adopts a cascade approach to determine individual objectives, although its starting point is somewhat different from many organisations.⁵ Business units each operate a balanced scorecard system to define areas of priority; individual objectives are placed in one of four key perspectives designed to ensure BUPA achieves its business plan. The four perspectives used by BUPA are:

The balanced scorecard was developed by Robert Kaplan and David Norton.⁴⁶ Ostensibly a performance measurement tool, the balanced scorecard can just as well help link individual objectives with corporate strategy. As the BUPA example illustrates, the balanced scorecard assesses organisational performance from four different perspectives: customers (factors that really matter to the customer); the internal business (what the organisation must do to meet customer expectations); innovation and learning (the ability to improve continuously products and services); and the financial.⁴⁶ The non-financial elements complement the financial measures and are the "drivers of future financial performance", say Kaplan and Norton.

According to the model, organisations should choose a small number of key indicators for each perspective reflecting the goals contained in the corporate vision. For each perspective, objectives should be achieved within a specified period. The scorecard is designed to enable organisations to focus on a small number of critical objectives, and align employees' individual performance with the overall business strategy. Kaplan and Norton explain:

"Many people think of measurement as a tool to control behaviour and to evaluate past performance. The measures on a balanced scorecard, however, should be used as the cornerstone of a management system that communicates strategy, aligns individuals and teams to the strategy, establishes long-term strategic targets, aligns initiatives, allocates long-and short-term resources and, finally, provides feedback and learning and the strategy".⁴⁷

Tesco, the UK's leading food retailer, uses its own version of the balanced scorecard, known as the "steering wheel" and encompassing four quadrants: people, finance, customer and operations.⁴⁸ Objectives relating to these elements are developed for each store. According to Catherine Glickman, Tesco's retail HR director, the steering wheel allows the company to set managers' targets for people in the same way as they are set goals for operations and finance. At store level, the steering wheel provides the main focus of the work of local personnel staff. Areas of importance are performance appraisal and employee development. Louise Armour, a store manager, says her main priorities are to ensure that employees have performance reviews and that section managers are developed.

 Shell, the international oil business, is another company using the scorecard approach to support the objective-setting process of performance management.⁴⁷ Staff have "personal scorecards", consisting of three areas of information: corporate objectives, measures and targets; business unit targets derived from the corporate objectives; and team/individual objectives and initiatives. Staff must show how their individual and group objectives are consistent with both business unit and corporate goals, and how they are going to achieve them.

Best Value/modernising government

The Labour Government's best value initiative for local government and its Modernising Government programme for the civil service is transforming how performance management systems typically operate in the public sector. An IRS survey of performance management in public sector organisations found that of the 16 local authorities that had recently made changes to their PM systems, 10 said the revisions were primarily in response the best value initiative.⁴² Best value is described by the Audit Commission as "a challenging new performance framework".⁵⁰ Local authorities are required to publish annual best value performance plans and review all services every five years.

How best value changes performance management arrangements for employees is illustrated by the London Borough of Lewisham.⁴⁹ To meet the challenge, Lewisham realised it required a wholesale modernisation programme. Part of the council's approach to change was to devise a new people management strategy. One key element of this was the establishment of a new performance management system. The new system, which should be in place across the whole council in 2003, focuses on the following three issues:

The Government's Modernising Government agenda for the civil service is having a similar impact on performance management arrangements in civil service departments as best value is in local government. The Valuation Office Agency, an executive agency of the Inland Revenue, is in the process of revamping its nine-year-old performance management system as part of the Modernising Government programme, and in response to employees' negative views of the previous arrangement.⁵⁰

The new system was introduced to the whole workforce in a rolling programme that started in April 2000. The revised PM system has moved away from the previous emphasis on numerical targets and established core behaviours that align with the agency's stated values. Also, the "whole person" is assessed on:

Finally, the old appraisal box-marking system has been replaced by a narrative approach (see chapter four ).

¹     Transforming the performance management process, Franklin Hartle (1997), Kogan Page, London, ISBN 0 7494 2478 8.

²     "Performance management: the MBO of the '90s", Personnel Management, July 1990.

³     "New organisational forms, processes, jobs and psychological contracts: resolving the HR issues", Paul Sparrow (1998), in Human resource management: the new agenda, Paul Sparrow and Mick Marchington (eds), Financial Times/Pitman Publishing, London, ISBN 1 2736 2823 2.

⁴     "Introduction: is HRM in crisis?", Paul Sparrow and Mick Marchington (1998), in Human resource management: the new agenda Paul Sparrow and Mick Marchington (eds), Financial Times/Pitman Publishing, London, ISBN 1 2736 2823 2.

⁵     "Performance management", Managing Best Practice 52, Industrial Society, October 1998.

⁶     "New ways to perform appraisal", IRS Employment Review 676, March 1999.

⁷     Competency & Emotional Intelligence, annual benchmarking report 1999/00.

⁸     Performance management: the new realities, Michael Armstrong and Angela Baron (1998), Chartered Institute of Personnel and Development, London, ISBN 0 8529 2727 4.

⁹     360 feedback: the global perspective, Towers Perrin (1998).

¹⁰    "Performance management", IRS Management Review 2, July 1996.

¹¹    "Pay prospects for 2000 - a survey of the private sector", Pay and Benefits Bulletin 483, November 1999.

¹²    Competency, annual benchmarking report, 1998/99.

¹³    "Merit malaise: performance pay in the public sector", Pay and Benefits Bulletin 493, April 2000.

¹⁴    Managing individual performance, C Engelmann and C Roesch (1996), American Compensation Association, Scottsdale, Arizona.

¹⁵    "Out of the tick box", Michael Armstrong and Angela Baron, People Management, 23 July 1998.

¹⁶    "Senior civil service - the new pay system", Pay and Benefits Bulletin 425, June 1997.

¹⁷    "Competencies are the 'glue' in a decentralised business", Competency vol 6 (4), Summer 1999.

¹⁸    "Performance management and the psychological contract", Philip Stiles, Lynda Gratton, Catherine Truss, Veronica Hope-Hailey and Patrick McGovern (1997), Human Resource Management Journal vol 7 (1), pp.57-66.

¹⁹    SHL (1997).

²⁰    "Violating the psychological contract: not the exception but the norm", S Robinson and D Rousseau (1994), Journal of Organisational Behaviour vol 15, pp.245-259.

²¹    "Psychological contracts and human resource practices: how employee and customer contracts are created", D Rousseau and M Greller (1994), Human Resource Management vol 33 (3), pp.385-402.

²²    "NAAFI looks to the future", IRS Employment Review 678, April 1999.

²³    "Job design and modern manufacturing", Sharon Parker and Toby Wall (1996), in Psychology at work, Peter Warr (ed), Penguin, Harmdonsworth, ISBN 0 1402 4648 7.

²⁴    "Engineering change", IRS Employment Review 628, March 1997.

²⁵    "Introducing competency-linked reward and performance management: the Centre for Applied Microbiology and Research ", Competency vol 5 (4), Summer 1998.

²⁶    "The evolving HR function ", IRS Management Review 10, July 1998.

²⁷    Personnel and the line, S Hutchinson and S Wood (1995), Institute of Personnel and Development, London.

²⁸    "Appraisal", Managing Best Practice 37, Industrial Society, July 1997.

²⁹    "Crisis and opportunity in HRM", Derek Torrington (1998), in Human resource management: the new agenda, Paul Sparrow and Mick Marchington (eds), Financial Times/Pitman Publishing, London, ISBN 1 2736 2823 2.

³⁰    "Heathrow Express takes off", IRS Employment Review 688, September 1999.

³¹    Analysis of personnel activities and costs (1995), MCP Consulting, London.

³²    "Devolving personnel to line managers", Managing Best Practice 45, Industrial Society, 1998.

³³    "Management standards kick-start development", Competency vol 6 (4), Summer 1999.

³⁴    "A competency framework is the vehicle for radical change at House of Fraser ", Competency vol 6 (4), Summer 1999.

³⁵    "From here to security?", IRS Employment Review 631, May 1997.

³⁶    "Personal development plans: a focus for performance ", Employee Development Bulletin 120, December 1999.

³⁷    "Learning strategies ", IRS Management Review 8, January 1998.

³⁸    "Employment in the global village: 2", IRS Employment Review 691, November 1999.

³⁹    Investors in People UK.

⁴⁰    Performance appraisal - a negotiators' guide, Labour Research Department, December 1997.

⁴¹    Investors in People Standard.

⁴²    "Target practice ", IRS Employment Review 701, April 2000.

⁴³    The EFQM Excellence model, http://www.efqm.org/imodel/modelintro.htm

⁴⁴    The EFQM Excellence model, http://www.efqm.org/imodel/3.htm

⁴⁵    "Xerox integrates benchmarking throughout the business ", IRS Management Review 14, August 1999.

⁴⁶    The balanced scorecard: translating strategy into action, Robert Kaplan and David Norton (1996), Harvard Business School Press, Boston, Massachusetts, ISBN 0 8784 6513.

⁴⁷    "Using the balanced scorecard - measures that drive performance", Robert Kaplan and David Norton, Harvard Business Review, January-February 1996.

⁴⁸    "In-store personnel managers balance Tesco's scorecard", IRS Employment Review 703, May 2000.

⁴⁹    "Modernising Lewisham", IRS Employment Review 701, April 2000.

⁵⁰    "An holistic approach: Valuation Office Agency", Competency & Emotional Intelligence vol 7 (4), Summer 2000.