Performance management
Chartered Institute of Internal Auditors
Performance management is something that is familiar to all of us. It involves setting objectives
and/or standards and then measuring performance to ensure our goals are being achieved.
This guide will help you plan an internal audit of your organisation's performance management
procedures.
'Performance management is the process of creating a work environment or setting in which people
are enabled to perform to the best of their abilities. Performance management is a whole work
system that begins when a job is defined as needed. It ends when an employee leaves your
organization.'
'An assessment of an employee, process, equipment or other factor to gauge progress toward
predetermined goals.'
Both of these definitions suggest that continuously improving the performance of individuals will
improve the performance of the organisation. The starting point for performance management is
therefore the strategic aims, objectives and goals that filter down the organisation to departmental,
team and individual level.
Employees need to know what their organisation is trying to achieve and how their role is helping to
achieve this. It follows that the process will be aligned to the strategic planning timetable of the
organisation.
1
© Chartered Institute of Internal Auditors
The performance management framework
To enable a meaningful discussion and successful outcomes sufficient time is needed for employee
and line manager to prepare.
• Reviewing of the previous plan, noting the extent to which targets have been met and any
obstacles to success.
• Receipt of feedback information from the line manager since the last meeting along with
supporting information to back it up.
• Responses to line manager feedback. Any training and development required for current and
future job roles.
As well as this approach organisations may adopt a 360 degree feedback methodology whereby
peers, team colleagues and customers provide a written assessment, often in questionnaire format.
Some organisations adopt this alternative approach for management level employees.
The next step is to record information in a performance appraisal document, as a minimum some
2
© Chartered Institute of Internal Auditors
kind of questionnaire should be used to maintain a consistent approach that includes objectives,
competences and training and development actions.
Progress against the appraisal plan is also an important part of the cycle, with reviews and updates
normally taking place every 6 or 12 month but this may be more frequent for new employees.
The timing of performance appraisal should link into the organisations planning cycle and financial
year. However feedback on performance can be given on an on-going basis to enable continuous
improvement and not just during formalised performance appraisals.
Where there is a skills gap support options include training, coaching and feedback. An engaged
employee is more likely to take pride in their job and show loyalty to the organisation.
For performance review meetings to be effective training should be provided to managers and
employees. For managers the emphasis will be upon their role in the process, objectives of
performance management and how it will operate.
While for employees training tends to focus upon being clear about how the process works, what is
expected of them, objectives setting and review.
3
© Chartered Institute of Internal Auditors
human resources designed to deliver long term sustainable success.
2. Everyone in the organisation should know what the organisation is trying to achieve and how their
role fits into the organisation to help achieve the organisation's goals.
3. To enable individuals to develop their knowledge, skills and experience, enhancing job
satisfaction and career opportunities.
4. The recruitment process will have identified the individual as being the right person for the job,
with any skill and knowledge gaps being covered through on and off the job training to achieve the
standards of performance required.
5. To ensure that customer requirements and goods and services are provided to agreed standards
and quality.
Performance management may be linked to performance-related pay (PRP). It is thought that it can
motivate people in their work; deliver a message that performance is important and be a fair way to
reward people according to their performance, such as an increase in basic pay, accelerated
progression up a salary scale, one off bonus or share options.
1. A lack of appreciation among staff of how performance appraisals will help the
organisation achieve its objectives and help them personally in the work they do and their
development.
4
© Chartered Institute of Internal Auditors
Potential impact
• Strategic plans and priorities may not be achieved, having a significant impact upon the
organisation's reputation and financial performance.
Possible response
• Corporate and departmental objectives are clearly communicated throughout the organisation.
• Design a framework with written guidelines that requires standard documentation to be completed
to ensure the relevant areas are covered.
• Training is provided to be both staff and managers on the performance appraisal process -
objective setting, monitoring, etc.
Potential impact
• Denying some people access to the training and development they need having an adverse
impact upon performance in specific departments, sections and teams.
Potential response
• Timetable to be implemented and responsibility allocated for monitoring to ensure that
performance appraisals are completed on time. HR Department enforces strict
schedules/guidelines and checks upon progress.
Potential impact
• Value for money and effectiveness in providing training courses is not achieved.
Possible response
• A process is devised for the prioritisation of training and development linked to strategic
objectives.
4. Lack of equity - some people have more training opportunities than others.
Potential impact
• Some people are denied access to training and development they need, leading to poor staff
morale, failure to develop the potential of staff and reduced performance.
Possible response
• HR department monitors and reviews the consistent use of the performance management
process.
5. Training and development that seems to have little or no relationship to a person's role
or future role.
Potential impact
5
© Chartered Institute of Internal Auditors
• Money, time and effort wasted on unstructured training with reduced performance and
revenue/profits.
Possible response
• Training and development is directly linked to job descriptions and personal targets - HR
department reviews application of budgets.
6. Managers who fail to review and evaluate the staff appraisal process, which enables
inconsistency in application.
Potential impact
• Strategic plans and priorities may not be achieved. Ineffective performance appraisal process.
Possible response
• Documentation of policies and procedures with regular review by HR.
Potential impact
• Breaches to legislation leading to fines and compensation.
Possible response
• Documentation of policies and procedures with regular assurance by third party.
2. Due to the nature of the work discuss the objectives of the audit engagement well in advance with
senior management. Place emphasis on verifying risk mitigation, particularly in relation to
compliance with legal and/or regulatory requirements.
3. Discussions on scope should consider whether there are links to manpower planning,
recruitment, turnover and whether employee surveys will be included. Also will it cover all areas
of business activity in all locations?
4. This sort of internal audit work involves files and documentation about people and is therefore a
sensitive area. While the internal auditor is likely to be interested in procedures it is
understandable and necessary to maintain confidentiality. The way that the audit will be
conducted needs to be discussed in advance to protect personal data otherwise there will be
delays.
6
© Chartered Institute of Internal Auditors
5. To what extent has management defined policies and procedures, established criteria for
success and implemented monitoring (KPIs) and reporting arrangements? Does this include
assurance as a second line of defence?
Internal audit has an important role to play in evaluating whether risk management processes in this
area are working effectively, that the reporting of risks is complete and accurate and that risk
mitigation has been applied and is working.
Where there has been no assessment of risk, internal audit could encourage management to
facilitate a risk workshop, providing advice and guidance as part of internal audit's consultancy role.
7
© Chartered Institute of Internal Auditors
5. Assess HR processes - but not be an HR expert
As a result it is important for the internal auditor undertaking an audit engagement in the area to be
competent - have sufficient knowledge, experience and appreciation of performance appraisal
processes to perform the review.
This does not mean that the internal auditor should be expert in human resources but should be
able to recognise the existence of problems or potential problems.
For in-house internal audit functions, the knowledge and application of the organisation's process
should provide a good starting point for an audit review.
For example, HR services may report on how well departments are applying performance appraisal
procedures and report against key performance indicators. Internal audit can provide an independent
opinion on whether senior management can depend upon the statements being made and scope
their work accordingly.
Employee engagement
Recruitment and selection
Reward and recognition
Talent management
Training and development
Practice advisories
Practice advisory 2050-3 provides detailed guidance on how to rely on the work of other assurance
providers.
8
© Chartered Institute of Internal Auditors