A well-tuned performance management system has become a new way to attain organizational success by some. Performance management means matching employees with tasks and functions equivalent to their skill and knowledge. The system encompasses employee training and development, team dynamics and organizational restructuring. As such, a performance management system is complex because it involves employees, supervisors and strategic managerial personnel. As a system, its advantages have been broadly advertised, but the system has to be carefully monitored for smooth functioning.
Risk of Internal Competition
Under this system, employees compete with each other for job status, position and pay. This could amount to backstabbing, failure among team members to communicate efficiently and strong employee rivalry. It could lead to dysfunction of the department and/or team, resulting in failure to achieve performance standards.
Managers and supervisors tend to trust and depend on one employee more than the others. This employee could be the foreman or the team leader. This employee is entrusted with responsibility of explaining new job roles and duties to other employees. It leads to dissension and distrust among the group members. It causes team fraction and adversely effects employee morale and satisfaction. The attitude is "Why should I even try when the boss will only trust Employee A?”
Expensive and Time-Consuming
Performance management systems are costly, requiring a lot of administrative work, patience and time. Usually, the areas impacted negatively include the human resources department, finance and organizational development. Performance management demands equipping employees with the "right" skills and knowledge. This means conducting extensive training, retraining and career development workshops for every division and employee level. This turns out a costly process. Further, projects are lost as employees are getting trained with new improved skills. This means a negative organizational performance as the time when employees could have been working was spent in a workshop.
The manager is unable to perform his tasks efficiently because he spends too much time supervising employees about their job functions. He is faced with value-based appraisal systems. It becomes challenging and tough to decide value and performance indicators for measurement. It is not possible to have common indicators as each job has different job requirements. Managers are faced with information overload.
Convoluted and Bureaucratic
The company ends up hiring and training new personnel. Performance management creates new organizational layers. The employee population increases. Now, instead of one team to do a project, two teams are doing it. This actually affects the financial structure of the organization.