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Performance Management Systems in Mexico: The Dual Logics of Evaluating Performance

March 10, 2013 • Business Process, Global Business, OPERATION, STRATEGY & MANAGEMENT

By Anabella Davila & Marta M. Elvira

Understanding Performance Management systems implementation is critical for multinationals operating in countries with contrasting cultures. For firms interested in Mexico, we share our findings on how successful companies tackle the problematic nature of performance management in practice. First, problems derive from difficulties in defining the content of what is perceived and apprised as performance. Second, problems arise because superior and subordinate face a culturally subjective situation that is difficult to manage: providing and receiving feedback about performance. Subjacent in effective performance management practices is the assumption that improving employee performance will help grow organizational performance, thus appraisal systems acquire strategic importance.

Economic development in Mexico over the last two decades has contributed to an attractive environment for business investment and growth. As one of the world’s largest economies, Mexico enjoys regional economic and political power among other Latin American countries and is home to major multinational corporations such as Cemex (cement), Cinepolis (movie provider), Nemak (autoparts), Gruma (tortilla maker) and Bimbo (bakery). Contrasting with the endemic economic instability and crises of the past, Mexico experiences a rather stable economic environment today. Nevertheless, for business to succeed in this setting, leaders need to be aware of its particular management style. This article’s objective is to describe effective performance management (PM) processes in the context of Mexico, a country that is rarely studied in the general management and human resources management (HRM) literatures.

[su_pullquote]As one of the world’s largest economies, Mexico enjoys regional economic among other Latin American countries and is home to major multinational corporations.[/su_pullquote]

From their foundations on traditional values around social bonds and a paternalistic leadership style, Mexican companies are making serious efforts to develop a culture of performance and competitiveness. Our studies on best HRM practices suggest that modern systems are explained and implemented under contrasting logics.1 On the one hand, we observe HRM practices that cater to employees’ silent needs and demands, and positively affect employee commitment and loyalty toward their immediate supervisor and, in turn, toward their company.2 On the other hand, we also note HRM practices aiming to improve firms’ financial results, which are not quite well understood when implemented. The latter is the case of performance management.

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Concerning specifically PM systems, our studies of major Mexican companies illustrate this duality of logics when it comes to implementation. In what follows, we summarize these findings.

 

Setting the Stage

To be effective, PM systems tend to be complex, require significant amounts of resources and entail a redefinition of the roles of human resources (HR) vs. front-line managers. PM systems fulfill a strategic role in organizations and their implementation requires paying particular attention to the establishment of work goals, performance measurement, work evaluation and appraisal, and feedback processes. PM practices can also have notable benefits for individual workers, because they provide relevant information about training and development needs, while helping define rewards and recognition opportunities. Finally, PM systems potentially enable companies to set standards for attracting and retaining key human talent.

In Mexico, the main challenge faced by HR executives is how to design strategies that link individual and organizational performance in practice. Developing innovative strategies for managing this link requires the development of specific competencies. For example, there is a need to design and use instruments that measure different types of performance, and to manage a diverse range of PM tools. Managing a diversity of tools tests front-line managers’ work, especially when it comes to giving and receiving feedback on employees’ performance. The case of CompuSoluciones, a medium-size IT company often ranked top in the Great Places to Work rakings, may serve as an illustration.3 CompuSoluciones devotes much effort to manage the strategic positioning of its PM systems. First, it carefully defines the different meanings that performance may have depending on the employees’ position in the hierarchy and accompanying responsibility within the organization. Top management’s performance is linked to overall company goals; supervisors’ performance stress employees’ individual results; and employees’ measures focus on attitudes towards collaborative work and a harmonious work environment. As a result, CompuSoluciones is able to implement multiple appraisal tools targeting each specific aspect of performance.

In additional data from interviews we have conducted, it appears that in Mexican organizations the manager tends not to become involved in the PM process because it does not register in his/her psychological contract: PM is viewed as the responsibility of HR. For example, behaviors such as avoiding feedback sessions could be indicative of this. In parallel, employees tend to distance themselves from feedback received. Understanding this post-evaluation process could explain much of the typical negative behavior and rejection of unfavorable appraisal, and contribute to more effective evaluation outcomes.

[su_pullquote]It appears that in Mexican organizations the manager tends not to become involved in the PM process because it does not register in his/her psychological contract.[/su_pullquote]

PM Instruments and Tools

Because of the diverse meanings that organizational members grant to performance nowadays, there are different models and tools available according to the organizational level at which performance is appraised. The best-known appraisal tools in Mexico are: Management by Objectives, Economic Value Added, Balanced Scorecard, 360-degree Evaluation, Critical Incident Method, and Top Talent Ranking (forced curve).

 

The Dual Logic of Implementation

Management by objectives is most popular among Mexican businesses. However, organizations have learned that this system works best at the managerial level, for which company’s performance objectives are established. Implementing this system for clerical and manufacturing jobs has not been effective because of the difficulties in determining the contribution of the employee’s to the organizational performance. Organizations that use this single system face challenging contradictions when assessing their personnel. For example, in Mexico front-line managers feel obliged to give high-performance evaluations in order to justify increases in employee salary, yet evaluations have to be low in order to justify career development plans. The challenge is to design performance instruments that comply with the two objectives and requirements of the company.

[su_pullquote]Management by objectives is most popular among Mexican businesses. However, this system works best at the managerial level, for which company’s performance objectives are established. Implementing this system has not been effective for clerical and manufacturing jobs.[/su_pullquote]

To complement management by objectives, other practices such as performance-based incentive systems are often implemented too. Bonuses are typically tied to the organization’s performance outcomes and the executive’s area of responsibility. To overcome the dual logic in this case, firms need to define a meaningful performance indicator that could measure the company’s effectiveness of the company or one specific functional area. Critical industry success factors also influence performance indicators for top management levels. In our experience, this system is implemented weighting percentages according to the organizational objectives.

Nowadays, various appraisal methods are used simultaneously; for example, management by objectives is used together with Economic Value Added (EVA) or Balance Scored Card systems. Multi-source instruments such as 360-degree evaluations are also used for top management.

PM methodologies are also affected by modern work systems. This was suggested by interviewees who work in U.S. MNCs. For example, work systems such as Six Sigma, Lean Manufacturing or Quality Star alter the instruments’ performance criteria because employees are asked to document their specific objectives or projects generated by these systems. For one of the interviewees, this PM evolution arises often from management systems “in fashion” and is one of the reasons why HR began to lose credibility in Mexican organizations. Only this interviewee views PM in Mexico as unrelated to performance because it is not associated to the organization’s business plan. From his viewpoint, PM instruments are no longer descriptive but rather evaluative, leaving many gaps for subjective judgments by both superiors and subordinates.

For clerical and manufacturing jobs, Mexican business organizations apply merit systems. A common problem we have observed in implementing merit-based instruments is their reliance on qualitative elements for performance assessment. Employees are rated on scales ranging from very good, to good, neutral, bad and very bad; or using achievement or non-achievement ratings. In the simplest method, percentiles were used, such as achieving 80, 90 or 100 per cent of goals. When we interviewed supervisors we noted severe dissatisfaction with this method, because it typically requires classifying employees into rigid categories. HR executives recognize that as a result of this difficulty, front-line managers often avoid rating employees in the middle range of normal distribution curves. Despite these criticisms, merit-based tools, also known as comparative/relative evaluation, forced curve, or Top Talent ranking, are still the most common appraisal methods among the executives we interviewed.

The behavioral response of managers in Mexican organizations indicates a clear adherence to bureaucratic procedures. Yet they also control their participation on setting compensation and foster informality in the appraisal process, according to our interviews. It is possible that PM be used as a rational justification for emotional decision making. Both HR directors and line managers need to be sensitive regarding how to apply performance evaluation tools to validate ‘intuitions’ or feelings towards employees.

[su_pullquote]The behavioral response of managers in Mexican organizations indicates a clear adherence to bureaucratic procedures. Yet they also control their participation on setting compensation and foster informality in the appraisal process.[/su_pullquote]

Concerning unionized employees, performance appraisal is limited in Mexico. Blue-collar workers are subject to a collective bargaining agreement containing fixed salary for each job category. Labor laws require adherence to the salaries stipulated in the collective agreement. Consequently, salary raises based upon work performance do not apply. Increases in salaries may only result from a worker being promoted into a higher job category or when the employee is no longer a union member. Nevertheless, depending on specific collective bargaining agreements, blue-collar workers could be offered rewards based on performance as well as on attitudes and behaviors. For example, one interviewee mentioned that in his organization – a Latin American multinational corporation – productivity indicators such as efficiency, waste, work attendance and punctuality are used at the plant level, and variable compensation based on these factors is offered every three months. At the end of the year, a worker may have obtained 36 days of extra pay, an incentive that is also extended to non-unionized employees working in the same plant. More examples of performance – and attitude-based compensation include rewards for contributing useful ideas and suggestions. The purpose of these rewards is to foster worker awareness of the need for discipline, responsibility, professionalism, dedication, and keeping a clean working space. In many organizations these rewards are not monetary but in kind, taking the form of vouchers and certificates, or commodities and goods for the home – e. g. a refrigerator, stove or television.

 

Sources of a Dual Logic on PM Practices

We have used the psychological contract framework to understand employment relationships in Mexico and have learned how the social context plays a major role in shaping these relationships. The need to develop in the employee the commitment and performance that labor contracts do in other societies, in Mexico might be replaced by the psychological contract. Psychological contractual relationships become relevant under certain circumstances such as where labor laws do not provide structural conditions for equality or fairness; where there exists mistrust on institutional agencies that govern employment relationships; or generally, where individuals feel the need to rearrange their personal status within a firm through psychological contracts.

[su_pullquote]The need to develop in the employee the commitment and performance that labor contracts do in other societies, in Mexico might be replaced by the psychological contract.[/su_pullquote]

We have argued elsewhere that work in Latin American countries such as Mexico is paramount. Beyond providing a means of sustenance, work plays a central social and emotional role in individuals’ life. This creates an intricate implicit social contract between workers and employers at the firm level that in turn affects individuals’ psychological contracts

These phenomena relate to the historical development of employment relationships. Mexican society has not followed economic rationality as a development principle but a different rationale: that of solidarity and a sense of community. Based on this principle we expand prior work on psychological contracts in Mexico relevant to performance evaluation.

Our studies show that contextual factors such as cultural, structural and economic reasons influence the socio-psychodynamics of the manager – subordinate relationship and affect perceptions of performance evaluation.4 We also found that HR’s role is an important variable to consider in the implementation of the appraisal system.

Performance appraisals in Mexico could be better managed when considering the perceptions underlying psychological contracts. These perceptions are influenced by the social contract in which the employment relationship of this country is embedded. In particular, in Mexico individuals understand the intrinsic socio-emotional behaviors that accompany performance evaluation and engage in the process at different levels of commitment. Both parties – managers and employees – respond according to their needs and what they perceive they receive from the company. In terms of structural factors, individuals face the challenge of managing imported rigid bureaucracies that contradict cultural values. Finally, perceptions of the performance appraisal’s purpose are altered because the outcome is often more strongly linked to the country’s economic situation than that of the firm.

Our guidelines uncover the dual logic of managing performance systems in Mexico and provides an overview of the main instruments and tools, and implementation. These issues could guide the effectiveness of the implementation of such practices in a country with an incipient performance oriented culture.

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About the Authors
Anabella Davila (Ph.D. The Pennsylvania State University) is professor and the Research and Ph. D. Program Director at EGADE Business School, Tecnologico de Monterrey (Mexico). She has co-edited several books on organizational culture and human resources management in Latin America. She holds the Research Chair on Culture, Human Resources and Society. Her main research interests include culture and management practices in Latin American organizations, human development, and sustainability. Her work examines the cultural and social logic that govern Latin American business organizations. She is a member of the Mexico’s National Researchers System, Tier II.

Marta M. Elvira (Ph.D. in Organizational Behavior and Industrial Relations at U.C. Berkeley’s Haas School of Business). Dr. Elvira is the Ph.D. Program Executive Committee member (Associate Director) at IESE Business School, Spain. She has co-edited two books: Managing Human Resources in Latin America: An Agenda for International Leaders (with Davila, Routledge, 2005) and Best Practices in HRM in Latin America (with Davila, Routledge, 2008), as well as two special issues on research in Latin America. Besides human resource practices and incentives in organizations, her research interest is on social inequality and human capital development. Her work examines the political and economic processes involved in designing organizational reward structures, and the joint effects of incentive pay and promotion systems on employee earnings and performance. Her articles have appeared in leading journals including Academy of Management Journal, Organization Science, Work and Occupations, Industrial Relations, and Group and Organization Management.

References
1. Davila, A., & Elvira, M.M. (2008). Performance management in Mexico (pp. 115-130). En Varma, A., Budhwar, P.S., & DeNisi, A. (Eds), Performance Management Systems: A Global Perspective, Routledge, Oxford, UK.
2. We also recommend our work on human resources management for an overall state of the art of this area in the country: Elvira, M. M., & Davila, A. (2005a). (Eds.). Managing human resources in Latin America: An agenda for international leaders. Oxford, UK: Routledge.
3. Davila, A., & Elvira, M. M. (2009). Performance management in a knowledge-intensive firm: The case of CompuSoluciones in Mexico (pp. 113-127). In A. Davila & M. M. Elvira (Eds.). Best Human Resource Management Practices in Latin America. Oxford, UK: Routledge.
4. Davila, A. & Elvira, M. M. (2007). Psychological contracts and performance management in Mexico. International Journal of Manpower, 28(5), 384-402.

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