Identifying the key performance indicators for performance management

Since the 1980s there has been an increasing emphasis on the importance of performance management systems. It involves the identification of certain parameters, also known as key performance indicators to effectively evaluate the performance of an employee. Key performance indicators can be defined as,

the physical values which are used to measure, compare and manage the employees’ as well as overall organizational performance (Gosselin, 2005).

HR managers need to specify certain measurable goals against which the employees are evaluated and then their progress needs to be discussed with them periodically in order to keep them on track. It is vital that the managers set the key performance indicators in consultation with the employees and provide feedback accordingly. According to Eckerson (2009), a transformation takes place in a company if the key performance indicators are planned and implemented.

Key performance indicators to measure the performance of the employees

Performance indicators must be assessed by measurable means. Therefore, the key performance indicators need to be “S-M-A-R-T”, i.e. Specific, Measurable, Attainable, Relevant and Time-bound (Eckerson, 2009).

Quantity and quality of work produced by employees

Performance measurement uses a plethora of indicators of performance, including measuring the number of units produced, processed or sold by the employees (UC Riverside, 2016). This is regarded as the primary and most important indicator of the performance of an employee. However, along with the quantity, the quality of the work is also important. The quality of work is usually a measure of the percentage of work output that needs to be redone or is rejected or the percentage of inquiries converted to sales.

Speed of work

Another good indicator of an employee’s performance is the speed with which they can perform, indicating efficiency (Harvey, 2005). It leads to reduced cost of production. Speed in this context refers to the output time taken to complete the assigned tasks, address problems, and also coordinate with other stakeholders such as vendors and customers.

Absence from work

Another obvious measure of the performance of an employee is their regularity in the workplace (Parker, 1995; Wynne-Jones et al, 2009). A person who is habitually late or absent from work shows his tardiness towards his work. According to Parker (1995), absence from work can be caused by various factors such as lack of motivation and morale. A good performance management system inculcates absenteeism.

Employee’s conduct

Employees also need to adhere to the company’s policies as deviations from them may mean that the goals of that employee are not aligned with that of the organization (Medori & Steeple, 2000). While some personal habits, like gossip, tardiness cannot be directly correlated with the performance of an employee, yet it is evident that they can detract from job performance and also interfere with other’s performance. For this purpose, specific behaviours need to be spelt out clearly in order to ensure that they are being followed in the company. These indicators mostly help managers in drawing an employee’s attention on desirable behaviour and motivating change in them (Ulrich & Brockbank, 2005).

Implementation of key performance indicators in performance appraisal techniques

Bean & Geraghty, (2003) have stated that owing to their experience; they have seen that key performance indicators are the most effective when they are applied in a reliable and all-inclusive manner. Moreover, measurement, as well as the evaluation of performance, represents a vital part of HR management. Implementation of Key performance indicators while observing the performance executed at lower levels of management. Heckl & Moormann (2010) found in their research that Key performance indicators only cover the basic criteria like costs, price and quantity in an organization.

Connections between Key performance indicators of the employee individually as well as the indicators at the company level were the same. Both were aimed at attaining the maximum utilization of production capacity and to increase labour productivity. This eventually led to the main objective of the business, i.e. profitability. It is important to implement the key performance indicators properly in the performance appraisal techniques as the wrong metrics can cause chaos in an organization and demoralize employees (Parmenter, 2009).

Appraisal techniques to implement key performance indicators

The various appraisal techniques include the assessment centre, 360-degree appraisal, manager appraisal, peer appraisal and self-appraisal.

Assessment centre

Under the assessment centre, the employees are appraised by professional assessors who tend to evaluate simulated as well as actual activities performed during work. The main advantage of assessment centres is that they provide objectivity in their appraisal by providing reviews that are not clouded by any personal feelings or emotions.

360-Degree Appraisal

The other techniques include 360-Degree or “Full-Circle” appraisal under which the employees are appraised by all the people with whom they interact, which includes managers, co-workers, customers as well as employees of other departments. This is a relatively new concept which is regarded as the most comprehensive and expensive way to measure the performance of employees and it is generally used only for key employees.

Manager, peer and self-appraisals

The main advantage of manager, peer and self-appraisals are that matching the appraisals of managers as well as the employees tends to show any discrepancy in the goals of the employee and the organization. A few companies also ask employees in similar positions to appraise each other’s performance which has been quite effective in various organizations as it is based on the presumption that co-workers are most familiar with an employee’s performance.

Thus, it can be seen that there is a variety of key performance indicators used in performance management systems. It is mostly seen that no one particular method is used by an organization. Usually, a combination of them helps in having a comprehensive performance management system in place (Cronin, 2007). The companies need to ensure that the chosen KPIs align the goals of the employees with the goals of the company and that they effectively appraise those indicators.

References

  • Bean, C., & Geraghty, K. (2003). Navigating the road to KPI success. Focus, 5(6), 37–41.
  • Cronin, G. (2007). Measuring strategic progress. Choosing and using KPIs. Accountancy Ireland, 39(4), 30–31.
  • Eckerson, W. W. (2009). Performance Management Strategies. Business Intelligence Journal, 14(1), 24–27.
  • Gosselin, M. (2005). An empirical study of performance measurement in manufacturing organizations. Int. J. Prod. Perform. Manag., 54(5), 419–437.
  • Harvey, J. (2005). KPIs – The Broader strategic context. Credit Control, 26(4), 65–66.
  • Heckl, D., & Moormann, J. (2010). Process Performance Management. Handbook on Business ProcessManagement, 2, 115–135.
  • Medori, D., & Steeple, D. (2000). A framework for auditing and enhancing performance measurement systems. International Journal of Operations and Production Management, 20(5), 520–534.
  • Parker, S. (1995). Performance Indicators: Sickness and Absence Rates asIndicators of Staff Morale. Northumbria International Conference on Performance Measurement in Libraries and Information Services, England, August 30-September 4, 1995.
  • Parmenter, D. (2009). Key Performance Indicators:Developing, Implementing, andUsingWinning KPIs. New Jersey: Wiley.
  • Tootell, B., Blackler, M., Toulson, P., & Dewe, P. (2009). Metrics: HRM´s Holy Grail? A New Zealand case study. Human Resources Management Journal, 19(4), 375–392.
  • Ulrich, D., & Brockbank, W. (2005). The HR value proposition. Massachusetts: Harvard Business School Publishing.
  • UC Riverside (2012). Performance Factors & Behavior Indicators. [online]. Available at https://hr.ucr.edu/docs/performance/2016_2017_performance_factors_behavior_indicators_4.12.16.pdf
  • Wynne-Jones, G., Buck, R.,. and Varnava, A. (2009). “Impacts on work absence and performance: what really matters?”Occupational Medicine, 59, 556-562.

Priya Chetty

Partner at Project Guru
Priya is a master in business administration with majors in marketing and finance. She is fluent with data modelling, time series analysis, various regression models, forecasting and interpretation of the data. She has assisted data scientists, corporates, scholars in the field of finance, banking, economics and marketing.

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