Executive summary
Basing on my analysis and divergent literature review, it is evident that performance management is paramount concern in corporate governance. This is because entities ought to monitor the performance of their staff. It is thus vital to set up a system that executes tasks. The reference entity is AIG, an organisation that is in the transformational phase due to the liquidity crisis.
Such problems arose from the ineffectiveness of the work force. It is evident that The “US Federal Reserve intervention” saved the entity from collapse as evident in a massive bailout. Reconstruction meant that AIG had to institute new policies. Assuming the position of a consultant, the discussion below outlines a valuable “performance management system” PMS for AIG.
These incorporate the identification of goals, establishment of standards, rating of performances, employee development and rewarding system. The above are pivotal to the development of a pristine system. Evidently, the development of a system is a continuous process due to various changes that occur in entities.
It is essential for those conducting performance evaluations to identify a suitable criterion. This is because job descriptions vary and some tasks require the employee’s behavioural qualities. This paper introduces the reference organisation, AIG, and briefly describes the current PMS. In addition, it highlights the major steps involved setting up a PMS.
For the system to work superbly, it must have appropriate performance evaluation criteria. This paper further elaborates the recommendation made in the PMS plan, the outcomes expected from the system and the means to estimate its effectiveness. In summary, this paper circumnavigates around setting up of a PMS and performance management concerns in modern organizations.
Organization’s background
After conducting secondary research, I denoted that the organization was founded over two decades ago in 1987. Since then, it has evolved into a dominant player in the insurance industry. The insurance entity has diversified its business interest into securities whose value depends on underlying economy. (Selden 2010). The entity began with minimal operations but made a rapid rise being a market leader in insurance and security trade.
The entity earned returns in excess of $ 60million, three years into its establishment. AIG rose swiftly into prosperity, evident when it went global in 1990, opening branches in large cities like Tokyo, Japan and London. Creativity, innovation and successful credit swaps characterised this entity in the first decade of its operation (Selden 2010).
The entity entered a phase that led to its collapse in 2000. However, the downfall of this giant has resulted from the assortment of several factors. Change in leadership at AIG brought in managers who got into complex insurance dealing and mortgages. These deals utilized computer systems to ascertain the financial risk that AIG would bear. Lack of knowledge on the impending devaluation of real estate ventures at the time contributed to AIG’s downfall.
It was latter discovered that the top hierarchy of the management had prevented proper audit of operations and dealings of the entity. AIG collapse was evident as it lost over a quarter of their value; however the government issued a massive ail out thus placed it in an appropriate position (Selden 2010).
Performance Management System Plan
In order to outline a project management plan, there is a need to comprehend the problems that the reference company faces. AIG is an entity that evaded collapse through a bailout. For a sharp revival, the entity needs to have an elaborate plan. Currently, the system enacted at AIG does not manage but measures performance. The quantification of performance assists in determination of the employee’s salary.
While modern management emphasizes on the need for teams, performance system enacted at AIG will erode the gains resulting from the teams. This is because employees will focus on individual performances. Essentially, performance management is not a onetime activity but an on-going process conducted periodically. Assuming the position of a consultant, I intend to cover the six essential steps in PMS design (Aguinis 2000, p.31).
Pre-requisites
Prior to designing a PMS, there are issues I would address as a consultant. I should have clear understanding of AIG’s vision, mission and strategic objectives. This will help align the PMS to the entity’s ideologies and its long-term objectives thus making it relevant (Aguinis 2000, p. 37). The coupling of the three pillars of an organisation namely mission, vision and strategic policy results in the entity’s objectives.
The strategic management cannot achieve the company objectives in isolation therefore necessitating delegation to the ordinary employee. It is paramount to ensure that the goals set by workers are in tune with the overall goals of AIG. Other than understanding AIG’s goals, it is equally important that I understand the job description of the various workers.
This is an imperative step, as I would understand the various activities and duties that constitute a certain job. Moreover, it reveals the technical requirements of each job. Questionnaires and interview are crucial in amassing facts on jobs, which should be subsequently analysed.
Additionally, observation of incumbent workers executing their duties is also an alternative means to gather data. During this stage, workers in any position should give details of the tasks they have to accomplish daily (Aguinis 2000, p. 31).
Accountant’s job description
The primary task is preparation of precise and timely financial records. The accountant ought to institute appropriate controls processes. Preparation of records implies that the accountant should also compile all information necessary to update accounts. The accountant has to ensure that the records adhere to statutory requirements.
The accounting department is pivotal in assessment of organisation‘s performance thus the accountant has to prepare management reports. The individual has to be a certified public accountant and fluent communicator in English. An accountant should be conversant with the law especially statutes that relate to the accounting field and the consequences that follow when such statutes are broken.
The accountant should also have relevant knowledge in auditing and possess more than three years experience in the accounting world. Once the job description is complete, a list of activities done under this job should be created and a corresponding column for the frequency of each activity.
Consequently, a supervisor should ascertain the truth of the details that the worker gave thus verifying the job description details. Job descriptions assist in creation of standards for assessing performance thus they are a prerequisite to any PMS. Previous PMS never considered the behavioural aspect of jobs but this trend has changed prompting an in-depth analysis of jobs (Aguinis 2000, p. 35).
Performance plan
At this stage, I would spell out what the entity intends to achieve. For a performance plan to be successful, the targets should be set intelligently to avoid frustration (Aguinis 2000, p. 38). I will organise a meeting with the department responsible for creation of products because this department is paramount to the rejuvenation of this entity.
The meeting will set the standards for the products. The sales department should also set sales targets that they ought to achieve, essentially boosting the incomes of the organisation. However, the most crucial meeting would deliberate on the standards for evaluation of performance.
The standards should differ depending on the various job descriptions. AIG will venture into new market given the stiff competition that marks its traditional market in Europe and America. This will further advance its international presence in new emerging markets in Asia and Africa. New markets will bring on board new clientele thus increasing its incomes.
Performance execution
Workers achieve the set objectives in this stage. Some of the performance includes behavioural changes with regard to set targets. For this stage to be successful, AIG should ensure that employees are central in setting of goals. The reason for the above assertion is that where management impose goals on the workforce.
However, in instances where the employees are stakeholders, then workers clearly understand the objectives hence they work towards accomplishing them. AIG must ensure that there is continuous and effective communication between the supervisor and the workers. It is essential that supervisor maintain contact with the employee since he/she will be involved in appraisal of results and can give appropriate advice depending on the nature of performance.
The system should guarantee that workers only receive feedback on their performance after the review period is over. Furthermore, workers having trouble should receive coaching enabling them to fare well in relation to their goals (Aguinis 2000, p. 40). AIG should ensure that worker share data that relate to performance with the seniors.
The data shared will help assess the advancement made towards achievement of goals. Reviews of workers performance should take place after the evaluation cycle ends meanwhile each employee should be conducting a self-assessment. A self-assessment is crucial as the employee can undertake immediate corrective measures based on their observation.
Besides, individual assessment inculcates recommendation from peers. Despite performance execution being employee centred, supervisors make vital contribution because they monitor and evaluate workforce performance relative to the set targets. Therefore, supervisors should follow up employee performance and fully document both affirmative and negative results.
Any shift in goals should be communicated swiftly to the juniors so that individual employees’ objectives correspond to the overall goals of AIG. Employees and supervisors should realise that feedback is central to the success of any PMS because it is an indicator of advancement. Feedback helps enact appropriate corrective action where performance is unsatisfactory.
Based on feedback, the entity should reward exemplary performance and reprimand poor performance. For AIG to reward and reprimand, it needs to set up an efficient rewarding program. Achievement of set targets is not all about the employee, but the interaction of various factors in the entity (Aguinis 2000, p. 41).
Performance assessment
Performance assessment is not only a manager’s task but also the employees thus implementation of such a process should be consultative. The fundamental objective of this phase is to conclude on the accomplishment of the desired mannerism and results (Aguinis 2000, p. 41). Although there are various sources of information, supervisor’s information seems to matter most.
This information should reveal the advancement made towards realizing the targets. The employees and managers should fill evaluation forms that assist in the review stage. Where the employee and supervisor participate, the resulting information can be helpful in future reviews. Self-appraisal is a means for workers to gauge their performance.
However, it is crucial to contrast it to other ratings because the difference revealed trigger workers to seek career development opportunities. Most employees get defensive during performance evaluation hence organisations have implemented self-assessment as means to deter this trend (Aguinis 2000, p. 42). Moreover, it puts the workers in charge of performance assessment, improves job satisfaction and fosters fairness in performance management.
Performance review
At this stage, it is important for employees to meet their manager. For this stage to be fruitful rather than confrontational, AIG should hire a human resource specialist to train managers in handling reviews. If the carrying out of review is inappropriate, it will be counterproductive and lose objectivity.
The managers’ training should give proper feedback as determines reviews. Inappropriate feedback would result in misguided reviews and the action adopted would be detrimental (Aguinis 2000, p. 43). Review meetings should begin by discussing ratings that the management and employee embrace or deject.
Besides, the manager should request the employee to comment on her/his own performance thus avoiding defensive stance. Manager should apply constructive criticism and make proposals that the employee can use to boost performance. If the ratings are poor, a plan should be set to enable the worker reverse the situation.
Re-contracting
This stage utilises the information generated by the other stages. It is the last phase of PMS. This stage should recommend an effective way of setting goals depending on the extent of accomplishment of previous goals (Aguinis 2000, p. 44).In addition, it should elaborate on appropriate retraining or development needed to boost competence of the workers. This process has to begin again after this stage due to the cyclical nature of performance management and the changing customer requirements.
Essential performance criteria
Most conventional system assesses performance based on outcomes at the workplace. However, there are alternative performance assessment criteria namely behaviour and traits. The use of a definite criterion depends on the objective of the evaluator and the nature of the job.
Evaluation based on results
This criterion is perfectly suited for evaluation of employees’ whose output is quantifiable. In order to compute output, indexes are a necessity. Indexes will include sales volume, units manufactured and the quality of the product. In AIG, this criterion will facilitate the evaluation of performances by the sales department employees.
The top management that includes the CEO and managers can use such a strategy to evaluate their results. For these managers, changes in business expenses, value of the entity’s stock and changes in profitability will serve as the indexes (Arvey and Murphy 1998, p.149).
Evaluation based on behaviour
This criterion evaluates the employees’ mannerism. Therefore, it has only two outcomes, which are effective or ineffective. Application of this criterion is evident in dealing with customer concerns and quality where the conduct of the employee is crucial (Arvey and Murphy 1998, p.155).
Evaluation based on trait
Traits are tricky to describe as they vary amongst individuals. Some of the common traits include reliability, consistency and aggressiveness. In the past, graphic scales were set up to evaluate workers on common traits associated to work (Arvey and Murphy 1998, p. 156).
Explanation of key recommendations
Currently, AIG’s PMS measures performance. The basic objective of this proposed system is to evaluate the employees’ performance relative to each employee’s goals. Therefore, the system begins by setting reasonable goals that are attainable to prevent frustration. However, the objectives ought to be adequately challenging to necessitate originality and novelty.
AIG is a large corporation and the objectives ought to be disintegrated so that they relevant to ordinary employees in AIG’S hierarchy. Once goals are evident, it is imperative to evaluate if the employees are accomplishing the set targets. To do the above, supervisors will need certain standards that will enable the appraisal of the employees’ performance in relation to the set goals.
The procedure of setting standards needs to be an inclusive with the employee at the centre. Involving employees during setting of the standards will ensure they clearly understand and accept them. Rating of performance should be comparative to recognized and established standards. Subsequently, elaborate feedback generated from the evaluation will indicate accomplishments by individual employees.
Feedback is critical for PMS to succeed because it guides the employee and the entity on the appropriate steps to take to accomplish the goals. Moreover, feedback assists in establishing the extent of employee development needed to achieve the set objective. Employee development involves a number of activities whose main agenda is to inculcate certain abilities in workers. AIG should create a rewarding program that acknowledges achievements by employees.
Outcomes of the system
The most noticeable ambition of the arrangement is to enable effective performance management but such a system comes with other benefits. Setting objectives will mean that employees have goals that they are attempting to accomplish thus increased productivity at AIG. The proposed system emphasizes employee advancement as the means to accomplish the objective set.
If the recommendation is pursued, it will result in an effective workforce because employee development trains the worker in areas that they are incompetent. Indeed, it culminates in well-informed employees. In the event that AIG implements the proposed PMS, it connotes to additional investment in the workforce through the personnel department.
The proposed system will change the existing system that primarily focuses on performance measurement. It will further change the fact that employee salary awarding is relative to performance measurements. Subsequently, this will foster teamwork as workers will not have to compete amongst themselves but rather merge their efforts.
Effectiveness of “performance management system”
Overall, a PMS assists an entity in evaluating performance in relation to its goals. Therefore, the extent of accomplishment of the goals will be a measure of the success of the system. (Sekhar 2007, p.2).Evaluation of PMS based on results focuses on several areas namely key responsibilities areas, targets and metric of performance. Key responsibilities areas are tasks in which the workers ought to output certain results.
To assess effectiveness of the system, there is need to identify key responsibility areas, rank them and evaluate extent of realization of targets. For this process to be a success, then objectives set should be clear, realistic and having a period. Furthermore, they ought to challenge workers to apply creativity and novelty. (Aguinis 2000, p. 96).
Performance management as an area of concern
Most human resource department are in a dilemma whether to measure or manage performance, though most have preferred the latter. Management, as opposed to measurement is multidimensional and primarily focuses on the employee development with the work force being central to this process. The current business environment is competitive, and an entity cannot afford to operate with ineffective workforce hence the continuous evaluation of the employees.
Performance management has evolved to be an integral part of corporate governance under the HR due to the changing demands of the work environment (Sekhar 2007, p. 2). Backlog of cases relating to performance management exemplifies the importance of this subject.
Conclusion
In view of the above discussion, it is evident that an organisation that focuses on developing an effective work force will need to implement a system that aids in performance management. A valuable system must identify an entity’s objectives; establish metrics for performance evaluation, means to assess performance and, an appropriate review system.
Furthermore, the entity must apportion resources to support such a system. AIG needs to switch from the current system that lays emphasis on measurement of performance rather than management because the latter is effective and dynamic. Evidently, development of an excellent system will give the entity competitive advantage due to escalating efficiency levels.
List of References
Arvey, R & Murphy, K 1998, Performance evaluation in the working setting, Annual review, Vol. 49, pp. 141-168.
Aguinis, H 2000, Performance management, Pearson international edition, New Jersey.
Sekhar, S 2007, Assessment of effectiveness of performance appraisal system: scale development and its usage, Siva Sivani Institute of Management Vol.1, no. (3/4), pp. 1-5.
Selden, B 2010, What have we learned about performance management?, Management issues. Web.