By Subhransu Mohanty

HR Leader | Coach | Talent Strategist

One of the biggest misconceptions in organisations today is how we view PMS (Performance Management Systems).

In principle, PMS was never meant to be only an annual increment exercise. It was designed as a structured process to evaluate:

  • How effectively a role is contributing
  • Whether organisational goals are being achieved
  • What is enabling performance
  • What is restricting performance
  • What capability gaps exist
  • What support, learning, or structural changes are required

A good PMS should help an organisation to learn.

It should answer questions like:

  • Why did we achieve results?
  • Why did we miss targets?
  • Was the role clearly defined?
  • Did the employee have the required tools, authority, capability, and ecosystem to perform effectively?

Unfortunately, in many organisations, PMS has gradually become synonymous with:

“Appraisal = Salary Increment.”

The moment PMS discussions become compensation discussions, the real purpose gets diluted.

Because the reality is:

Annual increments are not driven only by individual performance. They are also influenced by:

  • Organisational profitability
  • Business performance
  • Market conditions
  • Industry benchmarks
  • Internal parity
  • Affordability and sustainability
  • Future business outlook

An organisation may genuinely appreciate a strong performer and still be unable to offer a high increment because business conditions do not permit it.

Similarly, someone may receive a reasonable increment in a good business year even when the PMS process itself is weak.

This confusion creates frustration on both sides.

Employees begin to see PMS only as a reward mechanism.

Managers avoid honest developmental feedback due to fear of compensation-related conflict.

HR struggles to balance business affordability with employee expectations.

Eventually, the entire PMS exercise becomes a yearly formality instead of a true performance improvement system.

Perhaps organisations need to separate these two conversations more clearly:

  • Performance evaluation and development
  • Compensation and reward decisions

When PMS becomes a tool for learning and building a performance culture rather than merely an increment discussion, organisations become more transparent, mature, and future-ready.

Performance management should not merely measure people.

It should help organisations improve performance itself.

Would love to hear your thoughts and experiences on this.

Do you think organisations today are using PMS more as a compensation tool than a true performance development system?