Performance Management: Term Definition


Performance management is ideally the management process that involves all strategies and activities that are geared towards ensuring that employees remain focused, motivated, and committed to their work. In addition it ensures that workers are optimally productive, efficient and effective as well as generate their autonomy of working toward helping the organization or the institution that employs them to achieve its goals, mission, and vision (Hume, 1995). Consequently, it contains three stages or rather sets of activities which includes, setting the goals or expectations that one wants employees to achieve, managing the relationships between the managers, supervisors and the employees as well as measuring or appraising the actual employees’ performance relative to the set objectives (State Personnel Manual, 2007). The success of performance management therefore depends – to great extents – on the relationship between the employers and the employees and the extent to which such relationship motivates the workers.

One of the strategies that firms use as a motivating factor and a strategic means of inducing performance from the workers is use of pay or what is known as employees’ remuneration. Pay poses as the reward of the work, efforts and contribution of the latter towards the achievement of the organizational goals, mission, and vision. However, the ability of the reward system to succeed in motivating employees and inducing higher performance will depend on its popularity and degree of satisfaction among the subjects (workers) (Michael & John, 1999). An example, of a payment system that employers may use to motivate employees and perhaps induce higher performance, efficiency, and effectiveness based on the firm tenets of accurate performance appraisal is the Performance -Based Remuneration System. This paper therefore presents an in-depth review of the performance-based remuneration system and explores the employees’ perspective of the Performance-Based Pay Scheme introduced into the Australian Public service in 1992 and 1993.

The Australian performance- based pay system

The Australian Performance-Based Remuneration system was mainly established with a key objective of creating a favorable environment for employees’ motivation, inducing commitment and high performance as well as supporting of the achievement of the overall organizational objectives (O’Donnell & O’Brien, 2009). The development of the enumeration based payment system involved therefore singling out all those jobs where performance based salaries and wages could be efficiently and effectively applied, as well as those jobs whose performances levels by the employees could be easily ascertained (Fortes, 2002). Therefore, the system involved well established and highly coordinated/ organized performance appraisal to ascertain the performance of each worker and consequently applying differentiated pay based on the performance of each employees.

Ideally, the authenticity and absolute success of this system of rewarding employees greatly relies on a fair performance appraisal in which the workers are duly appraised in a manner that reflects the most accurate way the performance of each employee in relations to the set expectations as defined by the work plan. In addition, the performance appraisal must be devoid of any externals influenced by factors outside performance if at all it is to be fair and support the performance based pay system (State Personnel Manual, 2007).

The underlying principles in the establishment of APS

The rationale behind the development of the performance related payments system is absolute motivation of employees and which presents system via which the employees’ performances are enhanced through creation of a clear relationship between the employees’ performance (measured using established and fair systems) and payment or rather the reward. According to auditor-general (1993), the Australian Performance Based Pay Approach to employees’ compensations also sought to create a relationship between the measurement of individuals’ performance and the company’s overall goals, mission, and vision (Graham, 1995). Ideally, the Australian Performance-Based Pay System was built on the tenets of the expectancy theory i.e. by rewarding employees on the basis of their performance, the firms expects the employee to set his performance targets to the levels that best meets his or her interests or rather setting performance standards that maximizes his or her performance.

Under normal employees’ behavior, motivation would increase with a promise of higher reward for higher performance. As a result, the expectancy theory underpins this system of employees reward. On the other hand, the management advisory board for the Australian Performance Based Pay System concluded that the performance appraisal and the remuneration offered an opportunity for the establishment of a clearer relationship between the individual goals and performance to those of the organization and helped build close ties between the workers and the employer via improved communication in the organization and reward for good performance on an individual basis.

Argument against the Australian performance-based

In spite of the optimism by the Australian policy makers and corporate that the performance based pay system would foster employees’ motivation and consequently enhance performance, the new pay system which greatly relies on accurate performance appraisal has received criticism from across the board. For instance, the critics of the systems have often argued that performance-based pay system is unsuitable for the public sector if the little success that has greeted the performance pay system in the private sector is anything to go by. According to Ingraham (1993) few organizations have been able to institute effective relationships between compensation and better performance.

On the other hand, Marsden & Richardson (1994) argues that, little evidence to suggest that employee performance in the public sector is improved by performance-based pay exists hence the system is purely based on the assumption of the expectancy theory or rather the assumption that promise of better remuneration is the prime motivator for public service workers. Moreover, critics argue that public sector in Australia lacks well organized systems for just assessment of individual workers performance. As a result, the performance appraisals are inherently subjective and have the possibility of to strengthening managerial privileges and controls over the employees (Wright & the Australian Centre for Industrial Relations Research and Teaching, 1994).

Performance -based pay system in the private sector

Typically, the performance based pay system was a reserve of the Australian public sector. However, in a move that seemed as latest approach to adopt the performance based pay among the private sector, several major private firms in Australia have confirmed that they have the intention of embracing this new reward system in which they will pay their employees based on their performance, instead of the previous system where such employees were being rewarded based on the number of years they have served the reorganizations or rather the amount of experience. Irrespective of the fact that many such firms had already moved to performance based payment for their partners’, majority were still paying workers on the basis of seniority, length in time of service, and experience (Chris, 2009).

According to Mr. Fagan, Clayton UTZ had already initialized merit based remuneration the latter of which he said would ensure that the wages, salaries, and allowances of the workers will have differential based on employees’ merit. Trend also indicate the performance based remuneration system was slowly but steadily entrenching itself in the United Kingdom law firms prior to the global financial crises of 2006 hence there is a great level of optimism that it will root itself in the world legal industry once the tides caused by the economic crises eases out. Under this payment system the author argues that the industry will be self-selecting thus making it possible to attract and retain the highest level of skills, talents, efficiency and overall high performance on the part of the workers.


Employees’ motivation forms the core of performance management since it induces high performance among the employees. Among the strategy that agencies or employers use to motivate employees for higher performance is use of reward or payment for the contributions of the employees toward the attainment of the organizational goals. Consequently, the Performance- Based Payment Scheme example of which was introduced and adopted in the Australian public sector between 1992 and 1993 is a system via which workers performance is used as the basis of rewarding them, the former of which is established through fair performance appraisal. The underlying principle of this scheme is employees’ motivation. Furthermore, the scheme is based on the assumption that workers are predominantly motivated by increased pay thus higher pay relative to performance would motivate them. Also, the scheme has its tenets based on the expectancy theory of motivation thus the policy makers believes that by promising employees higher reward with higher performance, they would adjust their goals to maximize their interests thus motivating them to improve performance.


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Graham L. O’Neill (1995) Linking Pay to Performance: Conflicting Views and Confecting Evidence: Asia Pacific Journal of Human Resources, Vol. 33, No. 2, 20-35: 10.1177/103841119503300203

Hume, D. A. (1995) Reward management: Employee Performance, Motivation and Pay. Oxford, Blackwell Publishers

Ingraham, P. W. (1993), ‘Of Pigs in Pokes and Policy Diffusion’ Another look at Pay-for-Performance’ Public Administration Review, 53 (4): 348-55.

Marsden, D. and Richardson, R. (1994), ‘Performing for pay? The Effects of ‘Merit pay’ on Motivation in a Public Service’, British Journal of Industrial Relations, 32 (2): 243-61.

Michael O’Donnell and John O’Brien (1999), ‘Performance – Based Pay in the Australian Public Service: Employee Perspectives, School Of Industrial Relations

And Organizational Behavior’: The University of New South Wales Sydney, NSW 2052. Web.

O’Donnell, M. and O’Brien, J. (2009) “Performance – Based Pay in the Australian Public Service”: Employee Perspectives. Web. 

State Personnel Manual (2007) Performance management Section 10, Page 1. WEb. 

Wright, C. and the Australian Centre for Industrial Relations Research and Teaching (1994) “Incentive payment Systems in Australia”, Canberra: Department of Industrial Relations. Industrial Relations Research Series, Number 9.

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