HANDBOOK OF PERFORMANCE MANAGEMENT armstrong Handbook

i ARMSTRONG’S HANDBOOK OF PERFORMANCE MANAGEMENT ii THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK iii ARMSTRONG’S HANDBOOK OF PERFORMANCE MANAGEMENT An evidence-based guide to delivering high performance TH EDITION Michael Armstrong London and Philadelphia iv Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and author cannot accept responsibility for any errors or omissions, however caused No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or the author First published in Great Britain and the United States in 1994 by Kogan Page Limited as Performance Management Second edition 2000 Third edition 2006 Fourth edition 2009 published as Armstrong’s Handbook of Performance Management Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road London N1 9JN United Kingdom www.koganpage.com 525 South 4th Street, #241 Philadelphia PA 19147 USA © Michael Armstrong, 1994, 2000, 2006, 2009 The right of Michael Armstrong to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988 ISBN 978 7494 5392 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Armstrong, Michael, 1928– Armstrong’s handbook of performance management : an evidence-based quide to delivering high performance / Michael Armstrong — 4th ed p cm Rev ed of: Performance management 3rd ed 2006 ISBN 978-0-7494-5392-3 Employees—Rating of Performance standards Performance I Armstrong, Michael, 1928– Performance management II Title III Title: Handbook of performance management HF5549.5.R3A758 2009 658.3Ј125 dc22 2009016886 Typeset by Saxon Graphics Ltd, Derby Printed and bound in India by Replika Press Pvt Ltd v Contents Introduction Part I The Background to Performance Management The Foundations of Performance Management Performance management defined A short history of performance management Merit rating Management by objectives Developments in assessment techniques Performance appraisal (1970s version) Enter performance management Why performance management? Comparison of different approaches 9 10 11 14 18 18 20 25 27 The Conceptual Framework of Performance Management Underpinning theories Performance management values The meaning of performance Contextual factors Performance management and motivation Performance management and the psychological contract 28 28 29 30 34 38 40 Critiques of Performance Management The critical arena Views of commentators Implications 41 41 42 51 vi Contents Part II The Practice of Performance Management 53 Performance Management Systems Performance management defined Performance management as a system Objectives of performance management Principles of performance management Characteristics of performance management The performance management cycle Performance and development planning Performance measures The performance and development agreement Managing performance throughout the year Formal performance reviews Analysing and assessing performance The ethical dimension Issues in performance management Effective performance management 55 55 58 59 61 61 62 64 68 70 71 72 72 72 73 74 Managing Performance Management How should performance management be managed? What needs to be managed? The approach to managing performance management Performance management documentation Web-enabled performance management The role of HR 77 77 78 78 79 82 87 Managing Under-performance The problem of under-performance Dealing with under-performers 89 89 90 Performance Management Processes 95 Part III Goal Setting Principles of goal setting Goals and feedback Types of goals Smart objectives Good objectives 97 97 98 98 100 100 Contents vii Integrating goals How to set goals 101 102 Feedback Feedback defined The nature of feedback Use of feedback How effective is feedback? Guidelines on providing feedback Feedback expert systems 105 105 106 106 107 108 109 360-degree Feedback 360-degree feedback defined The rationale for 360-degree feedback Use of 360-degree feedback 360-degree feedback: methodology 360-degree feedback and appraisal Effectiveness of 360-degree feedback 360-degree feedback: advantages and disadvantages Introducing 360-degree feedback 112 112 113 114 114 115 117 118 119 10 Performance Reviews The process of reviewing performance The formal performance review meeting Problems with formal performance reviews Preparing for formal review meetings Self-assessment Conducting a formal performance review meeting 122 122 124 125 135 137 139 11 Analysing and Assessing Performance Evidence-based performance management Analysing performance The process of rating Rating scales Forced distribution Behaviourally anchored rating scales Behavioural observation scales Arguments for and against rating Alternatives to rating Conclusion 142 143 143 145 147 151 154 155 156 160 165 viii Contents 12 Coaching Coaching defined The process of coaching Approach to coaching Techniques of coaching Coaching skills Developing a coaching culture 166 166 167 168 169 171 171 Performance Management in Action 173 13 Performance Management Surveys CIPD E-reward Houldsworth and Jirasinghe (2006) Lawler and McDermott The Institute of Employment Studies The Work Foundation 175 175 177 178 179 180 181 14 Performance Management Models Astra-Zeneca company CEMEX Centrica DHL HalifaxBoS Pfizer Inc Raytheon Royal College of Nursing Standard Chartered Bank Victoria and Albert Museum Yorkshire Water 183 184 184 184 185 186 186 186 187 188 189 189 15 Reactions to Performance Management The focus groups Focus groups: organization A (a financial services company) Focus groups: organization B (a manufacturing company) Focus groups: organization C (a call centre) Focus groups: organization D (an oil exploration company) 191 191 193 195 196 200 Part IV Contents ix Focus groups: organization E (a local authority) Focus groups: organization F (a charity) Overall comments on the focus group findings 203 206 208 The Impact of Performance Management How performance management is expected to improve performance Establishing the impact Evidence from research Conclusions 210 210 211 213 216 The Application of Performance Management 217 17 Managing Organizational Performance The process of managing organizational performance The strategic approach to managing organizational performance Business performance management systems Organizational capability Performance management and human capital management Performance management and talent management Developing a high-performance culture Measuring performance 219 219 221 224 226 227 228 228 231 18 Managing Team Performance Teams and performance The performance of individual team members Team competencies Definition of a team Performance measures for teams Team performance management processes 239 239 240 240 241 241 243 19 Performance Management and Learning Helping people to learn through performance management Learning opportunities Personal development planning 246 246 247 248 20 Performance Management and Reward Performance management and non-financial rewards Performance management and pay 250 250 251 16 Part V 376 Subject Index pay 251–54 Pearl Assurance 241 peer reviews of rating 159 performance agreements 70–71 analyzing and assessing 72 contextual factors 34–35 factors affecting 32–37 meaning of 30–32 output and outcome measures 69 and performance management 210 planning 62 self-regulation 107 systems factors 33–34 underperformance, management of 89–94 performance agreement 64–65, 70–71, 168, 247 performance analysis 72, 142, 143–44 performance appraisal criticism of 12–14, 19, 41–42, 47–48, 50 features of 27 and merit rating 10 and performance management 10, 26, 27 requirements for success 19 results orientated 18 schemes 18–19 and 360-degree feedback 115–17 performance assessment 18, 72, 142, 161–62 performance and development agreement 70–71 performance and development planning 64–65 performance management activities 64 case studies 333–58 characteristics 61–62 as communication 22 contextual factors 259–60 critiques of 41–52 cycle 16, 62 defined 9–10, 22, 55–58 development of 257–69 differences 25–26 documentation 79–82, 83 due process 73 early days 20–21 effective performance management 74–75 elements 61 ethical dimension 72–73 evaluation of 284–87 evidence-based 3, 106, 143, 161 factors affecting 32–37 features of 20–21, 27 and form-filling 79 guiding principles 61 impact of 210–16 issues 73–74 and learning 246–49 learning about performance management 277–83 management of 77–79 and management by objectives 16 managing the business 10 managing performance throughout the year 71 mixed model of 25, 31 models 183–90 and motivation 38–40 nature of and non-financial rewards 250–51 objectives 59 and organizational effectiveness 25 partnership approach to 35 and pay 251–54 and performance appraisal 10, 26, 27 process as a process of management 71 and the psychological contract 40 rationale for 277 Subject Index reactions to 191–209 reason for 25–26 research conclusions 24–25 role of HR 87–88 sequence 62–63 skills 278 and stakeholders 36, 51 strategic performance management 221–25 success criteria 284–85 successful surveys 175–82 system 22–23, 58–59 systems factors 33–34, 52 toolkit 288–332 values 29–30 web-enabled 82–87 performance management system defined 22–23, 58–59 integration of 56 performance measures balanced score card 234–36 dashboards 236–38 development of 238 key performance indicators 233–34 scorecards 234 types of 232–33 use of 231 performance prism 223–24 performance rating, see rating performance defined 72 dissatisfaction with 41 performance-related pay views on 24 performance reviews as communication channels 131–32 conducting 139–41 criteria 129 defined 22, 122 evaluation of 135 focus 128–29 377 formal 72, 126–27 informal 122–23 issues 126 as learning events 247–48 and management style 129–30 objectives 127 organizational issues 127–28 outcome issues 130 performance and potential 132 points to be covered 136 positive and negative elements 130–31 preparing for 135–37 problems 125, 133–34 process 122–25 reason for 126 self-assessment 137–39 skills 130 system 19 timing 132–33 personal development planning 71, 168, 248–49 Pfizer Inc 186 poor performance, see under-performance procedural fairness 29 procedural justice 73 psychological contract 40 rank and yank 152 Rank Xerox 242 rating achieving accuracy 159 achieving consistency 159 alternatives to 160–65 arguments against 156–57 arguments for 156 attacks on 158 defined 72 dissatisfaction with 41 errors 157 forced distribution 151–53 forced ranking 151–52 378 Subject Index peer reviews 159 theory 145–49 rating scales behavioural observation scales 155 behaviourally anchored rating scales (BARS) 10, 154 number of levels 148–51 positive definitions 146 positive-negative definitions 147 types 147 Raytheon 84, 186 reality checking 30 reinforcement theory 38 results orientated appraisal 18 reverse causation 212 role perceptions 39 role profile 65 Royal College of Nursing 85, 187, 346–58 scorecards 234 self-assessment 137–39 self-efficacy theory 39 Sibson 216 social cognitive theory 29 social learning theory 39 stakeholder approach to strategic performance management 223 stakeholders 36, 51, 223 Standard Chartered Bank 188, 276 strategic performance management 221–24 strategy map 222–23 supply chain management 225 system of work 3, 259 systems factors in managing performance 33–34, 52 systems theory 33 talent management 26 team performance management, see managing team performance theory Y 14 total rewards 26 traits 13–14 TRW Inc 84–86 under-performance, management of basic steps 91–94 capability procedure 92–94 causes 91 and forced ranking 153 and performance reviews 131 the problem 89 Unilever 163 valency 38 values, performance management 29–30 Victoria and Albert Museum 189 visual methods of performance assessment 161 vitality curve 151 Watson Wyatt 216 web-enabled performance management 82–87 Wei Dynasty 10 Work Foundation 2, 181–82 work process 33 work systems 10, 222 WorldatWork 216 Yorkshire Water 189 Zambon Group 86–87 379 Author Index Adams, C 223–24, 231–32 Ainsworth, E 115–16 Ariyachandra, T R 224, 225 Armstrong, K 2, 73–74, 86–87, 88, 151–52, 181–82, 221, 272 Armstrong, M 20, 24, 31, 42, 57, 151, 175–76, 191, 253, 254 Atkinson, A A 223 Axelrod, B 228 Bailey, T 33 Balzer, W K 18 Bandura, A 29, 39 Barbiette, F 118 Barlow, G 42–43, 84 Baron, A 24, 31, 42, 151, 175–76, 191 Bartlett, C J 145, 155 Bates R A 30 Beattie, D 22 Beattie, R S 172 Beatty, R N 113, 119 Beer, M 21, 125, 226 Berg, P 33 Bernadin, H J 18, 31, 155, 215 Bevan S 23–24, 49, 57, 75, 123, 180–81, 260 Birkeland, S A 18 Bitici, U S 57 Blumberg, M 33 Boltizar, S 221 Bones, C 58 Borman, W C 18, 31 Bourne, M 222 Bowles, M L 43–44 Boyett, J H 30 Boxall, P F 33 Bradley, P 365 Briscoe, D B 10 Brumbach, G B 31 Buckley, M R 18 Buchner, T W 61 Campbell, J P 31 Cannan, K 118 Cardy, R L 33 Carlton, I 44 Carrie, A S 56 Carter, A 117–18, 119 Chell, E 13 Claus, L M 10 Cleveland, J 147 Clutterbuck, D 171–72 Coates, G 43–44 Coens, T 25, 32, 34, 44, 158, 226, 259 Coley-Smith, H 190, 232 Conn, H P 30 Conway, N 213 Cooper, C L 29 Cropanzano, R 73 380 Author Index Crosby, P 42, 45 Culinane, K 118 Cummins, T G 226 Dagan, B 234, 236 Deming, W E 32, 34, 42, 45, 62, 259 DeNisi, A S 39, 57, 107, 108, 147 Devine, M 114 Dobbins, G H 33 Dover, C 236 Drucker, P 14, 17 Egan, G 61 Ellinger, A D 166, 167, 172, 270 Ellinger, A E 166, 167, 270 Elliot, S 190, 232 Engelmann, C H 75 Epstein, S 14 Evered, R D 167, 172 Findlay, P 47–48 Fink, L S 109–10 Flaherty, J 226 Flanagan, J C 18, 160–61 Fletcher, C 20, 84 116 Folger, R 73 Fowler, A 17, 24 Franco, M 222 Frisch, M H 118 Frolick, M 224, 225 Furnham, A 45–46, 64, 157 Garvin-Kester, B 166 Gheorghe, C 219–20 Gjerde, K A 232 Gladwell, M 34 Graham, S 166 Gray, A 108 Grint, K 46–47 Gross, S E 240 Grote, D 157 Guest, D E 31, 213, 215–16 Hack, J 219–20 Hagan, C 215 Halbom, T 169 Hamlin, R G 172 Hampson, S E 14 Handfield-Jones, H 228 Handy, C 90 Handy, L 114 Harrington-Mackin, D 242 Harrison, R 32 Hartle, F 25 Heath, L 114 Hedge, L M 18 Hendry, C 57 Houldsworth, E 178 Holton, E F 30 Hughes, S B 232 Hull, C 38 Humble, J 15–16, 17 Hunter, J E 215 Hutchinson, S 239, 271–72 Jenkins, M 25, 32, 34, 44, 158, 226, 250 Jirasinghe, D 365 Jones, P 210–11 Jones, T W 33, 240 Kahn, R 58 Kane, J S 31, 157, 215 Kaplan, R S 222, 234 Katz, D 58 Keller, S B 166, 167, 270 Kendall, L M 18, 154 Kennerley, M 223–24, 231–32 Kerrin, M 117–18, 119 Kessler, I 253–54 Kinnie, N 239 Kluger, A N 107, 108 Kochanski, J 216 Author Index Konovsky, M A 73 Koontz, H 10 Newton, T 47–48 Norton, D P 222, 234 Latham, G P 1, 18, 26, 28, 30, 47, 97, 98, 155, 210, 213–14 Lawler, E E 38–39, 56, 75, 76, 179, 227, 285 Lazer, R I 19 Lee, C D 47, 59, 106–07, 158, 167 Levinson, H 16, 19 Lindbom, D 172 Locke, E A 28, 97, 98, 210, 213–14 Lockett, J 57 London, M 103, 107, 113, 118, 212 Long, P 19 Longenecker, C O 110 O’Brien, E J 14 O’Leary, R S 2, 48, 84, 135, 216 O’Malley, M 144, 152 Macdonald, H 1, 26, 30, 47, 157 Maier, N 125 Maurer, T 118 McDermott, M 179, 227 McDevitt, L 57 McDonald, D 212, 214 McGregor, D 12–13, 14–15, 47, 125, 143 Megginson, D 171–72 Meisler, A 152 Michaels, E G 228 Miller, E 33 Mitchell, D 118 Mohrman, A M 10, 61, 75, 245, 285 Mohrman, S A 10, 61, 245 Mone, E M 103, 107, 210 Morgan, A 118 Motowidlo, S J 31 Mueller-Hanson, R A 2, 48, 84, 135, 216 Moullin, M 224, 235 Murlis, H 20, 57, 254 Murphy, K R 145 Nadler, D A 34 Neary, D B 84–85 Neely, A 223–24, 231–32 381 Perkins, S 57 Peterson, T O 109 Pfeffer, J 153 Philpott, L 57 Plachy, R J 21–22, 122 Plachy, S J 21–22, 122 Pollack, D 116 Pollack, L 116 Porter, L W 38–39 Pringle, C 32 Pritchard, A 225 Pritchard, R D 39, 57, 147 Pulakos, E D 2, 48, 84, 135, 216 Purcell, J 33, 210, 239, 253–54, 270, 271–72 Purdey, J 168 Resnick, S M 75, 285 Reynolds, J 246 Rice, A 33 Risher, H 69–70, 76, 90, 216 Robertson, D 49, 57, 75, 123, 180–81, 260 Robertson, I T 29 Roesch, C H 75 Rodgers, R 215 Rogers, R 74 Rousseau, D M 143 Rowe, K 13 Ruh, R A 21, 125 Sandy, C 33 Schaffer, R H 17, 89 Schiff, C 233 Schneiderman, A M 104, 236 Scott, J C 107, 210 382 Author Index Scott, W D 11 Selman, J C 167, 172 Sheppard, L 57 Silverman, M 117–18, 119 Sloman, M 44 Smith, A 212, 214 Smith, M 29 Smith, P C 18, 154 Sparrow, P 26, 48 Stiles, P 48–49 Strebler, M T 49, 57, 75, 123, 180–81, 260 Stuart-Smith, K 29, 51, 72–73 Sulsky, L M 1, 18, 26, 30, 47, 155 Summers, D B 168 Summers, L 84 Sutton, R I 153 Taylor, M S 73 Thompson, M 23–24 Thompson, T 168 Townley, B 50 Turnow, W W 113 Tushman, M 34 Van Fleet, D D 109 Van Fleet E W 109 Vroom, V 32, 38 Walters, M 57 Ward, A 2, 73–74, 86–87, 88, 181–82, 221, 272 Ward, P 112 Warr, P 115–16 Warren, M 1, 20–21 Warrenton-Smith, A 169 Waterhouse, J H 223 Wedman, J F 166 Wells, R B 223 Wexley, K N 18, 155 Wherry, R J 145, 155 Wikstrom, W S 18 Wilkes, J 222 Williams, R 58 Winstanley, D 29, 51, 72–73 Wollf, C 89, 90–91 Woodruffe, C 167, 168–69 Worley, C G 226 Wortzel-Hoffman, N 221 383 THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 384 ALSO AVAILABLE FROM KOGAN PAGE ISBN: 978 7494 5242 Paperback 2009 Order online now at www.koganpage.com Sign up for regular e-mail updates on new Kogan Page books in your interest area 385 ALSO AVAILABLE FROM KOGAN PAGE ISBN: 978 7494 5618 Paperback 2009 Order online now at www.koganpage.com Sign up for regular e-mail updates on new Kogan Page books in your interest area 386 ALSO AVAILABLE FROM KOGAN PAGE ISBN: 978 7494 5417 Paperback 2009 Order online now at www.koganpage.com Sign up for regular e-mail updates on new Kogan Page books in your interest area 387 ALSO AVAILABLE FROM KOGAN PAGE ISBN: 978 7494 5077 Paperback 2008 Order online now at www.koganpage.com Sign up for regular e-mail 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Performance management defined Performance management as a system Objectives of performance management Principles of performance management Characteristics of performance management The performance management. .. I The Background to Performance Management The Foundations of Performance Management Performance management defined A short history of performance management Merit rating Management by objectives...i ARMSTRONG S HANDBOOK OF PERFORMANCE MANAGEMENT ii THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK iii ARMSTRONG S HANDBOOK OF PERFORMANCE MANAGEMENT An evidence-based guide to delivering high performance