Performance Management and Reward Systems in Context

Chapter 1
Chapter 1
Performance
Performance
Management
Management
and Reward Systems
and Reward Systems
in Context
in Context
1-
1-1
1
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Overview
Overview
 Definition of Performance
Definition of Performance
Management (PM)
Management (PM)
 The PM Contribution
The PM Contribution
 Disadvantages/Dangers of Poorly
Disadvantages/Dangers of Poorly
Implemented PM Systems
Implemented PM Systems
 Definition of Reward Systems
Definition of Reward Systems
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-
1-2
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Overview (continued)
Overview (continued)
 Purposes of PM Systems
Purposes of PM Systems
 Characteristics of an Ideal PM
Characteristics of an Ideal PM
System
System
 Integration with Other Human
Integration with Other Human
Resources and Development
Activities
Activities
 PM Around the World
PM Around the World
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3

Definition of PM
Definition of PM
1-4
4
1.
1. Continuous process of …
Continuous process of …
• Identifying
Identifying
• Measuring
Measuring
• Developing
Developing
…
… the performance of individuals and
the performance of individuals and
teams
teams
2.
2. Aligning performance with the
Aligning performance with the
strategic goals of the
strategic goals of the
organization
organization

Definition of PM (continued)
 Performance management (PM)
Performance management (PM)
is NOT
is NOT
performance
performance appraisal
appraisal (PA)
(PA)
1-5
5

PM
PM

Strategic business
Strategic business
considerations
considerations

Driven by line
Driven by line
manager
manager

Ongoing feedback
Ongoing feedback
• So employee can
So employee can
improve performance
improve performance
PA
PA

Driven by HR
Driven by HR

Assesses employee
Assesses employee
• Strengths
Strengths
• Weaknesses
Weaknesses

Once a year
Once a year

Lacks ongoing
Lacks ongoing
feedback
feedback
1-6
6

Contributions of
Contributions of
Performance Management
Performance Management

For Employees
For Employees

For Managers
For Managers

For Organization/HR Function
1-7
7

Contributions of Performance
Management for Employees
Management for Employees

Clarify definitions of
Clarify definitions of
• Job
Job
• Success criteria
Success criteria

Increase motivation to perform
Increase motivation to perform

Increase self-esteem
Increase self-esteem

Enhance self-insight and development
Enhance self-insight and development
1-8
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Management f
Management for Managers
or Managers

Communicate supervisors’ views of
Communicate supervisors’ views of
performance more clearly
performance more clearly

Managers gain insight about
Managers gain insight about
subordinates
subordinates

Better and more timely differentiation
Better and more timely differentiation
between good and poor performers
between good and poor performers

Employees become more competent
Employees become more competent
1-9
9

Management f
Management for Organization/HR
or Organization/HR
Function
Function

Clarify organizational goals
Clarify organizational goals

Facilitate organizational change
Facilitate organizational change

Fairer, more appropriate
Fairer, more appropriate
administrative actions
administrative actions

Better protection from lawsuits
Better protection from lawsuits
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10

Disadvantages/Dangers of
Disadvantages/Dangers of
Poorly Implemented
Poorly Implemented
PM Systems
PM Systems
1-11
11

For Employees
For Employees

For Managers
For Managers


Implemented PM Systems for
Employees
Employees

Lowered self-esteem
Lowered self-esteem

Employee burnout and job
Employee burnout and job
dissatisfaction
dissatisfaction

Damaged relationships
Damaged relationships

Use of false or misleading information
Use of false or misleading information
1-12
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Managers
Managers

Increased turnover
Increased turnover

Decreased motivation to perform
Decreased motivation to perform

Unjustified demands on managers’
Unjustified demands on managers’
resources
resources

Varying and unfair standards and ratings
Varying and unfair standards and ratings
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Organization/HR Function
Organization/HR Function

Wasted time and money
Wasted time and money

Unclear ratings system
Unclear ratings system

Emerging biases
Emerging biases

Increased risk of litigation
Increased risk of litigation
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Reward Systems
Reward Systems
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15

Definition
Definition

Tangible Returns
Tangible Returns

Intangible Returns
Intangible Returns

Returns and their Degrees of
Returns and their Degrees of
Dependency on PM
Dependency on PM


Reward Systems
Reward Systems
Definition
Definition
 Set of mechanisms for distributing…
Set of mechanisms for distributing…
• Tangible returns
Tangible returns
• Intangible or relational returns
Intangible or relational returns
…
… as part of an employment
as part of an employment
relationship
relationship
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Reward Systems
Reward Systems
Tangible Returns
Tangible Returns
 Cash compensation
Cash compensation
• Base pay
Base pay
• Cost-of-Living and Contingent
Cost-of-Living and Contingent
Pay
Pay
• Incentives (short- and long-
Incentives (short- and long-
term)
term)
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17

Reward Systems
Reward Systems
Tangible Returns (continued)
Tangible Returns (continued)
 Benefits such as
Benefits such as
• Income Protection
Income Protection
• Allowances
Allowances
• Work/life focus
Work/life focus
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Reward Systems
Reward Systems
Intangible Returns
Intangible Returns
 Relational returns
Relational returns such as
such as
• Recognition and status
Recognition and status
• Employment security
Employment security
• Challenging work
Challenging work
• Learning opportunities
Learning opportunities
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19

Returns and Their Degrees of
Dependency on the Performance
Management System
Management System

Low Dependency
Low Dependency
• Cost of Living Adjustment
Cost of Living Adjustment
• Income Protection
Income Protection

Moderate Dependency
Moderate Dependency

High Dependency
High Dependency
1-20
20

Management System (Continued)

Low Dependency
Low Dependency

Moderate Dependency
Moderate Dependency
• Work/Life Focus
Work/Life Focus
• Allowances
Allowances
• Relational Returns
Relational Returns
• Base Pay
Base Pay

High Dependency
High Dependency
1-21
21


Low Dependency
Low Dependency

Moderate Dependency
Moderate Dependency

High Dependency
High Dependency
• Contingent Pay
Contingent Pay
• Short-Term Incentives
Short-Term Incentives
• Long-Term Incentives
Long-Term Incentives
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
Strategic
Strategic

Administrative
Administrative

Informational
Informational

Developmental
Developmental

Organizational maintenance
Organizational maintenance

Documentation
Documentation
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Strategic Purpose
Strategic Purpose

Link individual goals with
Link individual goals with
organization’s goals
organization’s goals

Communicate most crucial business
Communicate most crucial business
strategic initiatives
strategic initiatives
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24

Administrative Purpose
Administrative Purpose

Provide information for making decisions
Provide information for making decisions
regarding:
regarding:
• Salary adjustments
Salary adjustments
• Promotions
Promotions
• Retention or termination
Retention or termination
• Recognition of individual performance
Recognition of individual performance
• Layoffs
Layoffs
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25

Informational Purpose
Informational Purpose

Communicate to employees:
Communicate to employees:
• Expectations
Expectations
• What is important
What is important
• How they are doing
How they are doing
• How to improve
How to improve
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Developmental Purpose
Developmental Purpose

Performance feedback/coaching
Performance feedback/coaching

Identification of individual strengths and
Identification of individual strengths and
weaknesses
weaknesses

Identification of causes of performance
Identification of causes of performance
deficiencies
deficiencies

Tailor development of individual career path
Tailor development of individual career path
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27

Organizational Maintenance Purpose
Organizational Maintenance Purpose

Plan effective workforce
Plan effective workforce

Assess future training needs
Assess future training needs

Evaluate performance at
Evaluate performance at
organizational level
organizational level

Evaluate effectiveness of HR
Evaluate effectiveness of HR
interventions
interventions
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28

Documentation Purpose
Documentation Purpose

Validate selection instruments
Validate selection instruments

Document administrative decisions
Document administrative decisions

Help meet legal requirements
Help meet legal requirements
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29

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
1.
1. Strategically congruent
Strategically congruent
2.
2. Contextually congruent
Contextually congruent
3.
3. Thorough
Thorough
4.
4. Practical
Practical
5.
5. Meaningful
Meaningful
6.
6. Specific
Specific
7.
7. Identifies effective and ineffective
Identifies effective and ineffective
performance
performance
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30

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics (continued)
(continued)
8.
8. Reliable
Reliable
9.
9. Valid
Valid
10.
10. Acceptable and fair
Acceptable and fair
11.
11. Inclusive
Inclusive
12.
12. Open (No Secrets)
Open (No Secrets)
13.
13. Correctable
Correctable
14.
14. Standardized
Standardized
15.
15. Ethical
Ethical
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Strategically Congruent
Strategically Congruent

Consistent with organization’s
Consistent with organization’s
strategy
strategy

Aligned with unit and
Aligned with unit and
organizational goals
organizational goals
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Contextually Congruent
Contextually Congruent

Congruent with the organization’s
Congruent with the organization’s
culture as well as the broader
culture as well as the broader
cultural context of the region or
cultural context of the region or
country
country
• Example: A 360-degree feedback is
Example: A 360-degree feedback is
not effective where communication is
not effective where communication is
not fluid and hierarchies are rigid
not fluid and hierarchies are rigid
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Thorough
Thorough

All employees are evaluated
All employees are evaluated

All major job responsibilities are evaluated
All major job responsibilities are evaluated

Evaluations cover performance for entire
Evaluations cover performance for entire
review period
review period

Feedback is given on
Feedback is given on both
both positive and
positive and
negative performance
negative performance
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34

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Practical
Practical

Available
Available

Easy to use
Easy to use

Acceptable to decision makers
Acceptable to decision makers

Benefits outweigh costs
Benefits outweigh costs
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Meaningful
Meaningful
 Standards are important and relevant
Standards are important and relevant
 System measures ONLY what employee can control
System measures ONLY what employee can control
 Results have consequences
Results have consequences
 Evaluations occur regularly and at appropriate
Evaluations occur regularly and at appropriate
times
times
 System provides for continuing skill development
System provides for continuing skill development
of evaluators
of evaluators
1-36
36

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Specific
Specific
 Concrete and detailed guidance
Concrete and detailed guidance
to employees
to employees
• What’s expected
What’s expected
• How to meet the expectations
How to meet the expectations
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37

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
performance
performance

Distinguish between effective and
Distinguish between effective and
ineffective:
ineffective:
• Behaviors
Behaviors
• Results
Results

Provide ability to identify employees with
Provide ability to identify employees with
various levels of performance.
various levels of performance.
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38

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Reliable
Reliable

Consistent
Consistent

Free of error
Free of error

Inter-rater reliability
Inter-rater reliability
1-39
39

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Valid
Valid

Relevant (i.e., measures what is
Relevant (i.e., measures what is
important)
important)

Not deficient (i.e., doesn’t measure
Not deficient (i.e., doesn’t measure
unimportant facets of job)
unimportant facets of job)

Not contaminated (i.e., only measures
Not contaminated (i.e., only measures
what the employee can control)
what the employee can control)
1-40
40

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Acceptable and Fair
Acceptable and Fair

Perception of
Perception of Distributive
Distributive Justice
Justice
• Work performed
Work performed 
 Evaluation received
Evaluation received 

Reward
Reward

Perception of
Perception of Procedural
Procedural Justice
Justice
• Fairness of procedures used to:
Fairness of procedures used to:

Determine ratings
Determine ratings

Link ratings to rewards
Link ratings to rewards
1-41
41

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Inclusive
Inclusive

Represents concerns of all involved
Represents concerns of all involved
• When system is created, employees
When system is created, employees
should help with deciding:
should help with deciding:

What should be measured
What should be measured

How it should be measured
How it should be measured
• Employee should provide input on
Employee should provide input on
performance prior to evaluation
performance prior to evaluation
meeting.
meeting.
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Open (
Open (No
No Secrets)
Secrets)

Frequent, ongoing evaluations and feedback
Frequent, ongoing evaluations and feedback

Two-way communications in appraisal
Two-way communications in appraisal
meeting
meeting

Clear standards and ongoing communication
Clear standards and ongoing communication

Communications are factual, open, and
Communications are factual, open, and
honest
honest
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An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Correctable
Correctable

Recognizes that human judgment
Recognizes that human judgment
is fallible
is fallible

Appeals process provided
Appeals process provided
1-44
44

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Standardized
Standardized

Ongoing training of managers to
Ongoing training of managers to
provide
provide

Consistent evaluations across:
Consistent evaluations across:
• People
People
• Time
Time
1-45
45

An Ideal PM System:
An Ideal PM System:
15 Characteristics
15 Characteristics
Ethical
Ethical

Supervisor suppresses self-interest
Supervisor suppresses self-interest

Supervisor rates only where (s)he
Supervisor rates only where (s)he
has sufficient information about the
has sufficient information about the
performance dimension
performance dimension

Supervisor respects employee privacy
Supervisor respects employee privacy
1-46
46

Integration with other Human
Integration with other Human
Activities
Activities

PM provides information for:
PM provides information for:
• Development of training to meet
Development of training to meet
organizational needs
organizational needs
• Workforce planning
Workforce planning
• Recruitment and hiring decisions
Recruitment and hiring decisions
• Development of compensation systems
Development of compensation systems
1-47
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PM Around the World
PM Around the World

PM used in United States, Mexico,
PM used in United States, Mexico,
Turkey, India, Australia, China, and
Turkey, India, Australia, China, and
so on
so on

Common across countries: Need to
Common across countries: Need to
align
align individual and organizational
individual and organizational
goals to
goals to enhance
enhance the performance of
the performance of
individuals and groups
individuals and groups
1-48
48

PM Around the World
PM Around the World
(continued)
(continued)

Yet, different countries emphasize
Yet, different countries emphasize
different components of PM
different components of PM
• EX 1: PMs in Japan tend to emphasize
EX 1: PMs in Japan tend to emphasize
behaviors to the detriment of results
behaviors to the detriment of results
• EX 2: The current challenge among many
EX 2: The current challenge among many
organizations in South Korea is how to
organizations in South Korea is how to
reconcile a merit-based approach with
reconcile a merit-based approach with
more traditional cultural values
more traditional cultural values
1-49
49

Quick Review
Quick Review

Definition of Performance Management (PM)
Definition of Performance Management (PM)

The Performance Management Contribution
The Performance Management Contribution

Disadvantages/Dangers of Poorly Implemented PM
Disadvantages/Dangers of Poorly Implemented PM
Systems
Systems


Aims and Role of PM Systems
Aims and Role of PM Systems

Characteristics of an Ideal PM System
Characteristics of an Ideal PM System

Integration with Other Human Resources and
Integration with Other Human Resources and
Development Activities
Development Activities

PM Around the World
PM Around the World
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50

All rights reserved. No part of this publication may be
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
written permission of the publisher. Printed in the United
States of America.
States of America.
Copyright © 2013 Pearson Education, Inc.
Copyright © 2013 Pearson Education, Inc.
publishing as Prentice Hall
publishing as Prentice Hall
1-51
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Performance Management and Reward Systems in Context

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