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Performance Managementand Reward Systems

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INTRODUCTION: PMSR-1,2

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Caselet

One of the employees, who reports to you, Sunamika, is over confident

and seems to think she is destined for great things at the companywhere you work. The problem is that you dont agree with Sunamikasassessment of her potential. Nor does your boss. Sunamika has anoutgoing personality and generally gets along well with people.However, she has a tendency to get on everyones nerves in thedepartment with her hour-long personal phone calls. She also has a

tendency to blow events out of proportion. For example, she was quiteupset with the comments you made during her last performancereview. You reviewed a number of her shortcomings concerning misseddeadlines and substandard work, yet she had an excuse for everyexample offered. Since that discussion, she has avoided talking to youon matters that do not require your direct approval. Recently anotherstaff member has informed you about what Sunamika has been

spreading about you to others that you feel threatened by her and havereacted by giving her an unfair performance review. You are concernedabout the news and feel that it is just another example of Sunamikaslack of readiness for promotion. Of particular concern is that of late herwork has been slipping and she no longer is motivated to do her best.

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Caselet: Siemens Standard Drives

Employs 430 people in the Electronic Control equipment business (design &

manufacturing)

Its change programme involved process re-engineering over a 9 month

period.

The new management team and HR manager restructured the

organisation

Operations are now based on 9 production teams of 20 peopleeach

Each of the 9 teams is accountable for its output and operation

If a team member is under-performing, the team leader is empowered to remedythe situation (counsellingdismissal). 10% of employees left voluntarily The team leaders role is vital. They are in charge of:

team building running quality meetings and morning briefing meetings selection, training & appraisal of team members

Team working values: openness, honesty, trust, respect.

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Siemens Standard Drives-Contd.

The team leader s job involves performancemanagement

setting individual performance objectives for teammembers

two way dialogue

explains to each member how they can make progressthrough the performance-related pay structure

Employees who do not add value are held accountable:

disciplinary procedures (including dismissals) are seen tooperate

Efficiency & customer responsiveness haveimproved.

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Even today:

Majority of organizations employ a basic process

This approach produces significant organizational gaps:

Historically organizations defined strategy and objectives

and the measurement of employee and organizational

performance as completely separate processes

Little connection between learning and developmental

functions and the people management processes

Integrated Performance Management System is a key component

of emerging requirement to tie the strategy and organizational

processes to HR processes

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Annual Performance Appraisal of workers began with adventofIndustrial Revolution in late 18th century, when idea of

division of labor was recognized

Gained prominence from Scientific Management perspective

S

ole purpose of performance appraisal was to assess theproductivity of a worker retrospectively with a view to find

ways of improving individual performance

PA process was primarily judgmental and practical in nature-

no attention paid to human aspect of worker

Approach changed after Hawthorne studies, which

established that the relationship between fellow workers

played a significant role at work

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Gradually, it was felt that productivity of workers can be increased by skillfully

maneuvering both:

External factors, including organizational structure

Internal factors- the psychological wellbeing of workers

MBO approach advocated by Peter F. Drucker gained much popularity- as it took both factorsinto consideration and claimed to have overcome the trait rating problem

1970S- Renewed interest in revising performance appraisal process- practitioners

frustrated by negative effect of both: Merit rating- focused on aspects that individual could not change,(such as personality traits)

MBO (focus on the end results-objectivity)

On account of subjectivity, inconsistency etc and exclusion of the process in between such as

communication, and training

Nickols (2000)- advocated the scrapping of the formal performance appraisal

system because an honest, fair, valid and objective assessment of all employees

is literally impossible

Concept ofPerformance Management(M. Beer and R. A. Ruh-1976) gradually

evolved, addressing both performance appraisal and consequently training and

development measures

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Conceptual evolution of performance management between 1991

and 1997

System

Appraisal

outputs

Reward oriented

Ratings common

Top down

Directive

Monolithic owned by HR professionals

Profession/cadre based

FROM

TO

Process

Joint review

Outputs/inputs

Development oriented

Less rating

360 degrees feedback

Supportive

Flexible owned by users

Service based

Adapted from: Armstrong and Baron (2000)

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Employees were forced to endure a once-a-year paperwork exercise of

performance appraisals Not very effective

Dreaded by employees and managers alike

According to Healthfield(2000)- Second only to firing an employee, managers citeperformance appraisal as the task they dislike the most

Healthfield believes that the process of performance appraisal, as traditionallypracticed, is fundamentally flawed for the following reasons:

o Incongruence with value based, vision driven, participative work environment

o Smacks top down, autocratic mode of management

o Biased mostly with recent events

o Mostly based on hunches and opinions

o Managers usually delay appraisals because they find it uncomfortable- subordinates feelde motivated because their annual rise, normally tied to appraisals gets delayed

o Managers avoid giving honest feedback, because they will need to justify both wayextremes, which they find uncomfortable

o The appraisee becomes defensive because he views his performance, normally muchabove than actually appraised

o Tendency of managers to rate mostly outstanding, because performance appraisals tied

to salary increases

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Stephen Mouten: Performance Appraisals are administered byhuman beings, most of whom are not experts in giving and receiving

feed back His reasons, why performance reviews are so disliked by managers and

managees alike:1) Fundamental premise: PA system based on work of behavioral scientists

conducting tests on rats, dogs and pigeons. Unlike the animals, people think,develop their own logic, have their own views of life- there is no comparison

2) one size fits all: one or two forms- do not fit for all kind of skills and jobsituations

3) The rating system: higher ratings given to maintain a positive work groupclimate

4) Supervisor as judge and jury: natural resistance of people to be judged byothers

5) They are waste of time

Employees and managers were evaluated on traits such as:yDependability

yPunctualityyLoyalty

not on their accomplishments

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Other common problems and complaints:

Appraisal events take away too much of the appraiser managersproductive time- not seen as part of normal managerial function, but asimposition from HR department

Appraisals are poor instruments for managee comparison- making HR

decisions and actions inconsistent and inequitable- an arguments getsrooted that personnel appraisals are carried out subjectively

Value and biases of appraising managers tend to function as standards Managees dont know what constitutes performance- what precisely is

expected of them

Performance Appraisal versus Performance Management

Ongoing porocesses used to

identify, encourage, measure,

evaluate, improve, and reward

employee performance

Performance ManagementPerformance Appraisal

Periodic process of evaluating how

well employees perform their jobs

and then communicating that

information to the employees

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THENE

WAPPROACH

Personality trait

rating forms have

been replaced

with more

objective

measures of

performance

focusing on job-

related outcomes

and behaviors

Employees and

supervisors

jointly list specific

objectives to be

accomplished

during the

appraisal period

Performance

measurement

levels (Meet and

Exceed) are

defined

How PfM is different from appraisals?Pfm operationalizes supervisory role of a managerto maximize performanceNot something that line managers have to do in

addition to normal choresProperly implemented, it saves managerial timeWhat is new in PfM?PfM is another way of envisioning the totality ofmanagers function

oProvides systematic dimension to managerialactivities- highlighting their mutual inter-relatedness and interdependence

PfM:oHolistic as a systemoRelevant sub systems are in place andacceptedoOrg. philosophy and human environment isconducive of high moraleoManager is oriented and equipped with high

performing attitudes and leadership skillsoRepresents concrete form of participatingdyadic relationship

Effective PfM can set into ,motion:oA tremendous ripple effect releasingproductive managee enthusiasmoHigh retention

oImproved client satisfaction

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Performance means outcomes achieved or accomplishments at work- the

actual contribution of an individual or teams to organizations strategic goals

oLike shareholders satisfactionoClean image

oEconomical sustainability

J.V.Campbell (1990) believes that performance as behaviors, should be

distinguished from its outcomes, which can be facilitated or hindered by

systemic factors

G.B. Brumbach (1988):o views performance by encompassing both behavior and results

oConsiders behaviors and outcomes in their own right, which can be judged apart

from results. Performance is an impact

Managers role can be seen in three parts:

oBeing: concerns the competencies of managee relevant to performance- meansmanagee has prepared his/her mind

oDoing: focuses on managee activities that are variably effective at different levelsin the organization

Ideas are funny little things. They wont work unless you do

oRelating: emphasizes the nature of relationships with members, the role network-vertical, horizontal or otherwise

Performance: realizing ones potential

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Performance Framework

Managee Potential- is determined when a set of tasks is allocated to a

managee, or certain performance expectations are otherwise set Task related activities and contents: are what a managee or her

supervisor indulge in to achieve the allocated tasks or meet theexpectations in the given task environment

Managee performance or effectiveness, is what the managee actually

achieves. Performance in a role is the extent to which a manageeachieves the purpose for which the role has been created

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Framework to Understand Role Performance

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According to Carkhuff(1983): The great source of an age of

Productivity is human processing or thinking. Human

productivity will expand in direct proportion to the processingcapabilities of the human brain. Human processing

emphasizes not only what we knew but how we come to

know it and we grow by sharing it.

A

n organizations productivity is a function of integrationbetween organizational productivity systems and individual

performance systems

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Performance management is the process through which managers ensure that

employees activities and outputs contribute to organizational goals - (Louis R.Gomez & David B. Mejia 1999)

Performance management is a strategic and integrated process that delivers

sustained success to organizations by improving the performance of the people

who workin them and by developing the capabilities of individual contributors

and team - (MichaelArmstrong 2000)

Performance management involves thinking through various factors of

performance, identifying critical dimensions of performance, planning, reviewing,

and developing and enhancing performance and related competencies - ( Dr. T.V.Rao2004)

Performance management may be defined as a planned and systematic approach

to managing the performance of individuals ensuring their personal development

and contribution towards organizational goals- (Ronnie Malcom 2007)

Competency based Performance Management System may be defined as a

preferred strategy that critically assess competencies and links competencies,

enable assessment of skills required for the successful performance of a given job

and helps managers to conduct better evaluation by rating specific behaviors

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It is the systematic process by which an agency involves itsemployees, as individuals and members of a group, in

improving organizational effectiveness in the accomplishmentof an agencys mission and goals.

It is about performing-not just appraising- emphasizes the

reality of a managers work life, rather than concepts ofmanagement

Most organizations have begun to define and assess manageeperformance through measurable indices and visiblebehaviors that spell high performance

They also emphasize development of managee potential interms of systematically analyzed competencies that areessential for effective job performance- present as well asfuture

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Performance ManagementPfM is an integrated set of techniques designed to improve employees

performance through:

1. Setting clear objectives for individual employees that link to strategic goals2. Formal monitoring and review of progress toward these objectives

3. (a) Reinforcing desired behaviour through rewards

(b) Identifying training & development needs

The Performance Management Cycle

Stage 1. Set objectives

Stage 2. Measure performance

Stage3. Feed back results

Stage 4. Process outputs(e.g. training & development,

rewards)

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Continuous: having three subsystems:

Planning managee performance and development Monitoring managee performance and mentoring managee development

Annual stocktaking, sequentially feeding, sometimes overlapping eachother

Flexible: Manager and managee have sufficient flexibility to designtheir own process

Future oriented: rather than retroactive Participatory: to address performance as well as development

needs

Aim at measuring managers delivered performance againstplanned: targets, standards and performance measures orindicators

Developmental: concerns with managers personal attributes andbehavior as critical inputs to performance process

Provides framework- in which managers must support theirmanagees to succeed and to win

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Performance Planning

Identifying relevant accountabilities and standards

Selecting measures and indicators

Setting performance criteria (or objectives or expectations or standards ore goals or targets) Communicating expectations

Getting employee commitment

Refers to setting performance criteria (or objectives or expectations or standards or goals or targets)

Performance Managing

Refining indicators and defining measures

Assessing organizational resource allocation

Ensuring optimal utilization of organizational resources

Refers to working towards the performance expectations determined at performance planning level. Means resources required to

perform as per planning , is available and ensuring optimal utilization of organizational resources

PerformanceAppraisal

Analyzing performance data

Evaluating performance of employees against performances plans

Administration of performance based rewards

Refers to systematic evaluation of the employees performance on the job and his potential for development. An objective

method of judging the relative worth or ability of an individual employee in performing his task against performance plans Performance Monitoring

Providing feedback and counseling

Problem solving

Developing a regular reporting and monitoring cycle

Providing appeal mechanism

Annual stock taking

Refers to continuous overseeing of employee performance, giving feedback of results, and providing support and carrying out

correctional and developmental activities in order to ensure continual alignment with set performance objectives as identified atplanning level

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The Performance Management Process

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Parts of PfM: - occur in definite sequence Planning: done at beginning of the year

Managing: measurement, resource allocation Monitoring and mentoring: right through the year

Stock taking/apprising: at end of the year

All of the phases are dynamic and they continuously interact- they also work in actionresearch mode Plans are made at the outset- reviewed periodically to be reality- tested for relevance and feasibility in

changing context

Criteria and standards used during appraisal, while stocktaking, are largely developed and rehearsed

during the year

Individual roles, their description, indices for monitoring performance and performancestandards naturally cascade from organizational mission, goals, strategy and operationalplans

Since PfM attempts to improve quality of collaboration among people in the organization-role wise performance plans and expectations must flow from both

Managee performance and development plans feed into the monitoring and mentoring

activities Managees potential for the assigned role reveal itself on performance: here manager can

determine, what combination of individual managees unique competencies and skills willhelp him develop and grow in the organization and where the critical gaps oropportunities for helping the managee realize full potential, are

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Ties individual performance objectives to the

Organizations goal

Promotes partnership between supervisor and

employee Promotes ongoing open communication

Promotes professional development

Establishes framework for future growth

Provides employee with ongoing written feedback

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Performance Management System (PMS)

Consistent with the

strategic mission

Beneficial as a

development tool

Effectively documents

performance

Viewed as fair by

employees

Useful as an

administrative tool

Is legal and job

related

Effective

PerformanceManagement

System

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PerformancePerformance

ManagementManagement

LinkageLinkage

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Purposes of Performance Management

Three broad purposes include: Strategic purposes: helps the

organization achieve itsbusiness objectives

Administrative purposes: theways in which the

organization uses the systemto provide information forday-to-day decisions aboutsalary, benefits, andrecognition programs

Developmental purposes:

serves as a basis fordeveloping employeesknowledge and skills

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What t

houghts,questions, challenges,

or ideas do you have?