1. Performance Management System in M&M Ltd
Following is overall process of Goal Setting in M&M Ltd.
STRATEGY, VISION, MISSION & BUDGET
BUSINESS GOALS
ORGANIZATION’S OBJECTIVES
DEPARTMENTAL / FUNCTIONAL OBJECTIVES
ROLE / INDIVIDUAL OBJECTIVES
KEY RESULT AREA (KRAs)
The PMS process starts with setting of business goals & organisation’s
objectives. In M&M Ltd., organizational goals are set in the month of March every
year. After this step, departmental and individual goals are set. Here, in M&M Ltd.,
Top Down approach is followed for goal setting.
Departmental Goal Setting:
For departmental goal setting, Balanced Score Card approach is adopted. It is
derived from the Business Plan and Functional Strategies.
In 1992, Robert S. Kalpan and David P. Norton’s concept of the Balanced Score
Card revolusionised conventional thinking about performance metrics. The balanced
scorecard measured performance on four perspectives:
a. Customer
b. Internal processes
c. Learning & Development
d. Financial

2. The balanced scorecard allows managers to look at the business from these four
important perspectives. The scorecard wasn’t a replacement for financial measures;
it was their complement.
It provides answers to four basic questions:
a. How do customers see us? (Customer perspective)
b. What must we excel at? (Internal processes perspective)
c. Can we continue to improve and create value? (Learning and
Development perspective)
d. How well do we look to our stakeholders? (Financial perspective)
In M&M Ltd., weightages are assigned to all four perspectives. The weightages may
vary according to the department. Balanced Score Card also depends upon
business plans for the particular year.
Individual Goal Setting:
After setting Departmental goals, Individual goals are set. Following diagram shows
various steps in the process of individual goal setting:
process
PMS
Survey for Communication
Feedback Workshop
Feedback &
Counseling KRA Setting
Performance Mid-Term
Appraisal Review
(Review)
Step 1: Communication Workshop:
Communication workshop is conducted in months of May or June every year. It is
compulsory for all employees, right from operational level to strategic level. This
workshop is conducted for two days.
KRA setting and How to conduct appraisal are the topics which are covered on first
and second day respectively. It is useful to both appraisers as well as appraisees. It
helps appraisers for KRA setting and review meetings. It helps appraisees as they

3. get to know the whole procedure of KRA setting and the review which is useful for
them during review discussions.
Step 2: KRA setting:
Measurable goals for every individual, linked with the business goals are set before
the beginning of the financial year. Each individual has 3 to 5 KRAs. Each KRA set
has a weightage and the total of weightages is 100%.
All the targets i.e. KRAs are set after discussion between superior i.e. appraiser and
subordinate i.e. appraisee. Performance with respect of KRAs forms a basis for the
calculation of Performance payout amount for an individual.
There is a particular format in which KRAs are set (Annexure E). Level of
Performance (LOP) and Measure of Performance (MOP) are decided at the time of
setting KRAs.
MOP means a measurable parameter which will indicate progress of GOAL set. E.g.
Goal - cost reduction has MOP - reduction in Variable Cost / Vehicle - 5%
LOP i.e. Level of performance is method to set targets for MOPs to indicate good,
superior and excellent performance.
E.g. Reduction in variable Cost per vehicle -
Level 3 - 5%
Level 4 - 10%
Level 5 - 15%
Normally, KRAs for the next year are set before the final review. Signatures of both
i.e. appraiser as well as appraisee are taken on the KRA sheet. The KRA sheets are
sent to Corporate HR Department.
Step 3: Mid – Term Review:
Mid – term reviews are conducted in the month of October. Mid – term reviews are
done with a view to know how much goals the appraisee has achieved. If the
appraisee has failed to achieve the targeted level then the superior can have a
discussion with the appraisee regarding this and the reason for not achieving the
desired level of performance is found out.
Step 4: Performance Appraisal (Review):
Performance appraisal or reviews are done in the month of May. Appraisees are
reviewed on the basis of achievement of KRAs, assessment of significant tasks other
than KRAs, if any, leadership competencies (M&M Ltd has adopted 7 leadership
competencies) and strengths of the appraisee.
Employee & Superior together fill up the appraisal form based on which the
assessment is carried out.

4. Performance appraisal is a one to one discussion between the appraiser & the
appraisee about
* Performance based on goals set & results achieved
* Training and the developmental needs for the employee
At the end of the appraisal process employee’s comment on the process of appraisal
feedback is recorded, to validate transparency & fairness of the appraisal process.
Discussion is held between appraiser & reviewer to jointly arrive at overall rating of
the employee. There is validation & moderation by Corporate HR. Distribution of
letters to all employees is carried out on 1st August.
In M&M Ltd., employees are rated on two scales:
 Performance Pay Rating
 Overall Rating
Performance Pay Rating:
• The rating scale 5, 4, 3, 2, 1
• Rating would be based on the level of Performance on a specific KRA based
on the Achievement levels agreed at the beginning of the Financial Year.
• No Distribution norms will be applicable.
Overall Rating:
• The rating scale ES, S, G, MI, U
• DH level and above:-
50% competencies + 50% performance
• Below DH level:-
40% competencies + 60% performance
• Agreed distribution norms would be applicable.
For the performance pay calculation, the overall performance is divided into two
parts:
• Business Performance
• Individual Performance
As an employee goes higher on hierarchy, the share of business performance
increases and that of the individual performance starts reducing. The following table
shows hierarchy wise (band wise) performance pay distribution:
Step 5: Feedback and Counseling:
In M&M Ltd., superior gives the feedback to the subordinate immediately after the
final performance appraisal. Following points explain the very purpose of
Performance Dialogue:

5. • The appraiser and the appraisee together review overall performance of an
individual against agreed targets.
• Helps in identifying Areas for Improvement.
• Provides development opportunities for the growth of people.
• Agree / Generate Data for actions relating to Increments, Promotions, etc.
The next step that the Corporate HR department takes after collecting all
performance appraisals is checking whether all the performance appraisals are
normally distributed. If they are normally distributed, then Corporate HR department
contacts the relevant departments and then after discussion, final letters are sent to
the employees on 1st August every year.