What is performance management ? What is the difference between performance management and performance appraisal?

Performance management is the practice of actively using performance data to improve the organization's health. This practice involves strategic use of performance measures and standards to establish performance targets and goals, to prioritize and allocate resources, to inform managers about needed adjustments or changes in policy or program directions to meet goals, to frame reports on the success in meeting performance goals, and to improve the quality of management and organization practice.

Performance Management is an ongoing dialogue between manager and employee that links expectations, ongoing feedback and coaching, performance evaluations, development planning, and follow-up.

Why performance management is so important within an organization?

• Enhanced employee performance in the organizational context requires more organizational support in terms of goal setting systems, learning/training systems, appraisal systems and rewards systems in addition to mere self motivation of the employees. A well designed and well implemented performance management system fulfils these requirements.
  
• In globally competitive environment there is a need for continuous improvement of the performance of the organization which in turn depends on the continuous improvement of the performance of the employees year after year. Performance management aims at that.
  
• Performance management system makes performance appraisal more objective and useful otherwise, when the traditional performance appraisal carried out in isolation it may prove to be counterproductive.
  
• Performance management focuses the efforts of the entire organization and particularly those of its human resources to the ultimate goals of the organization.
  Every organization should customize it to its specific objectives and requirements as different organizations have different policies.
  

What is Performance appraisal?
1.Appraising the employees on how well they did in the past period, say for past six months to a year.

2.Appraising the employees for their potentials and achieved goals.

Why should we do performance appraisal?

• To find out the levels of performance of the employees by deciding and awarding appropriate motivational packages to the employees in terms of recognition; salary raise, promotion, special rewards, bonus, profit sharing, stock options etc.
• To differentiate the competency gaps of the employees as compared to what competencies they should have. This helps in training and development needs identification.
• To identifying the areas of weaknesses and strengths and working out appropriate interventions for the employees for their training and development.
• To increase in improving employees' effectiveness and efficiency.
• To work out additional development interventions for employees like job rotation, job enrichment, transfers between various sites/offices, foreign assignments etc.
• To develop career progression of the employees based on the analysis of their past performance and future potentials.

What is the difference between performance management and performance appraisal?
Performance Management is a new name being given to Performance Appraisal system. Here the thrust is on management of performance by planning, reviewing and developing it and not just judging the performance. The performance targets are set by superior subordinates and a quarterly review of the employee’s performance is undertaken to correct the shortcomings identified and accordingly take appropriate action to review problems encountered. In previous performance appraisal system, the performance was merely judged at the end of the year and the manager assumed the role more of a judge than a mentor or a coach. The method used was not appreciated by the employees and hence it was creating a growing frustration and feeling against the system. In Performance Management the motive is to manage the performance of every individual throughout the year and not just judging it at the end of the year. The main aim is development of performance in order to reach to the level of excellence.

Performance appraisal is but only one part of the bigger process of performance management. So, the short answer is that performance appraisal (annual review, employee review) fits under performance management.

What's important to understand is that performance appraisal, on its own, should serve only one purpose otherwise their value is seriously undermined. For example, an employee who may have shown vast improvement in performance yet still only be above average. The ratings allocated to him under reward and performance reviews will be different from the potential review. (The individual’s potential is still limited, despite the improvement in performance).