Why PMS cannot succeed without alignment with OD and Recruitment

Performance Management Systems (PMS) are inherently complex, continuously evolving to align with an organization's strategy. A PMS designed for a company entering the market will differ significantly from one that is well-established in its industry. Reflecting on various performance evaluation, growth, and promotion formats across my experiences in both public and private sectors, I've realized that market forces and other HR departments subtly yet significantly influence Performance Systems.

In this article, I aim to explore these influences through examples and analogies. Let's begin by revisiting the objectives of a PMS:

1. To recognize each member's contribution and reward it with proportionate growth or decrements.

2. To align individual performance with organizational performance.

3. To define an employee's future growth trajectory based on a performance record that should be as close to a holistic and idealistic evaluation of the member's true performance as possible.

Consider a hypothetical company, Alpha, with 26 employees named A to Z. O oversees Organizational Development, P manages Performance Management, and R is in charge of Recruitment. They are part of an HR team led by H, the Head of HR. Other key members include M, the Marketing Head; S, the Supply Chain Head; F, the Finance Head; C, the CEO; and I, the IT Head. Alpha's strategy is to maximize revenue from car sales. At 15 years old, it's the third-ranked player in the Automobile industry. C, the ambitious new CEO, dreams of making Alpha the industry leader and has instructed H, M, S, F, and I to work proactively towards this goal.

Historically, Alpha's PMS was organized, with promotions based on scaled scores from monthly goal sheets averaged over six months. Top performers received hikes. Alpha's recruitment strategy favored experienced professionals, indirectly saving on training costs. Organizational Development was dormant due to high attrition, with employees often leaving for market leaders.

O, a referral hire, was trying to revitalize the department by taking HR and OD training. With revenue as the key focus, P included it as a mandatory goal sheet parameter. O introduced an initiative to incentivize training among members. H applauded this and asked P to add "number of trainings imparted" as a KPI.

Proactive members began delivering trainings to maximize their PMS scores. However, with established SOPs and experienced staff, the scope for meaningful training was limited. Members started training on irrelevant topics to meet PMS requirements, which diverted time from sales activities. As a result, Alpha's revenue began to decline.

C convened a meeting with the functional heads, leading to blame being placed on H. H questioned R's recruitment policy and decided to shift focus to hiring less aggressive employees and removing the training KPI. This mitigated the crisis temporarily, but revenue dropped again. M felt the new hires lacked the aggression to meet targets. C demanded H's resignation, despite H's belief in his actions.

Amidst the turmoil, P became frustrated as the PMS failed to meet its objectives and resigned. The lesson here is clear: while alignment with a firm's strategy is crucial for a proactive PMS, internal alignment among departments and policies is equally vital. Without it, even a logical PMS can fail, leaving the entire HR system ineffective.