What Are the Advantages & Disadvantages of a Performance Management System?

Written by audra bianca
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What Are the Advantages & Disadvantages of a Performance Management System?
Using performance management systems can build or destroy workplace cultures. (Jupiterimages/Brand X Pictures/Getty Images)

A performance management system offers an organisation a systematic way to get employees to achieve goals. In theory, the collective results of this system should be the successful performance of the organisation. By paying special attention to underperforming employees, managers will enhance the collective advantages of a performance management system.

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Managing for Results

Managers define the individual goals for workers and connect them to business unit and organizational goals. This goal-setting process enables managers to show employees why their work matters, in part to motivate them and in part to hold them accountable for their duties. A performance management system works if employees understand what they must achieve and if they have the capacity and tools to perform to managers' expectations.

Measurable Goals

To set good worker expectations, goals should be SMART and thereby offer further advantages to a performance management system. SMART stands for Specific, Measurable, Agreed-Upon, Realistic and Time-framed. Specific goals tell employees what must be achieved. Measurable goals enable managers to show members of their staff their progress in numbers, even using charts and graphs. Goals should be picked that employees can achieve and will agree to (agreed upon); they should also be realistic given an employee's resources and have a time frame. SMART goals pave the way for success.

Competition and Compensation

Disadvantages vary with how an organisation implements a performance management system. A system's design matters, but its implementation affects a work culture. The system can create competition among workers, a disadvantage from the perspective of building a workplace culture. A manager cannot give high ratings to all workers, for example, if performance measures rank them along with their co-workers. Also, using a system's measurements to make decisions for financial rewards (raises and bonuses) creates two groups of workers: winners and losers.

Promotion Not for Everyone

Another disadvantage stems from using a system as the sole basis for deciding which employees to promote. To overcome this disadvantage, an organisation can use a performance management system's data as only one factor. For instance, reviewing qualitative information about employees considered for a manager's job can offer insights into personal abilities, not just who achieved the highest rating. Some high performers are not suited for management.

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