Organizational interest in performance management has increased as a result of competitive pressures, the influence of HRM and the individualisation of the employment relationship. Storey and sisson define performance management as 'an interlocking set of policies and practices which have as their focus the enhanced achievement of organisational objectives through a concentration on individual performance', the key elements of performance management are:
= the creation of a shared vision of the organisation's strategic objectives
= the establishment of performance objectives (derived from the organisation's strategic business objectives) for each function, group and individual to ensure that their performance is aligned with the needs of the business
= the use of a formal review process to evaluate functional group and individual progress towards goal achievement
= the linking of performance evaluation and employee development and rewards to motivate and reinforce desired behaviour. Thus, performance management involves goal establishment, performance evaluation, employee development and reward.
It provides the link between the organisation's strategic business objectives, employee performance, development and rewards and organisational results.
Performance appraisal may be viewed as an overall measure of organisational effectivenss: organisational objectives are met through the effort of individual employees. If employee performance is improved, the organisation will lift its performance. However, it should be noted that some experts do not accept these assumptions. Deming, for example, argues that:
= individual employees do not differ significantly in their work performance and that any observed differences are simply the result of sampling error
= any variation in employee performance is predominantly a result of factors outside the individual's control
= management appraisers are incapaple of distinguishing between employee-caused and system-caused variations in performance.
Nevertheless, appraisal of employee performance remains a critical and ongoing management activity. This is because managers are continually observing and judging their employees.