Performance

Management &
Reward System
 Human Resource Management System

Responsibilities Of
HRM

Orientation, Performance Compensation

Human Recruitment
Training Appraisal &
Resource &
& And Benefits
Planning Selection
Development Management Management
 Performance Management & Reward System

Performance Management
 A continuous process
 Identifying
 Measuring
 Developing
 Performance of individuals and teams
 Aligning Performance
 Strategic goals
 Organization
 Performance Management & Reward System

Components of Performance Management

Continuous Process
 Never ending Process
 Setting Goals & Objectives
 Observing Performance
 Giving & Receiving
 Ongoing coaching & feedback
Alignment with Strategic Goals
 Employees Activities & output
 Competitive Advantage
 Link
 Employees Performance
 Organizational Goals
 Performance Management & Reward System

Advantages of PMS
 Motivation to perform is increased
 Self esteem is increased
 Managers gain insight about subordinates
 Definitions of job and criteria are clarified
 Self-insight and development are enhanced
 Administrative actions are fair and appropriate
 Organizational goals are made clear
 Employees become more competent
 Legal actions can be justified
 Differentiation between good and poor performance
 Performance measures are communicated more clearly
 Organizational change is facilitated
 Motivation and retention is enhanced
 Performance Management & Reward System

Disadvantages of Poor PMS

 Increased turn over
 Use of misleading information
 Lowered self esteem
 Wasted time and money
 Damaged relationship
 Decreased motivation
 Employee burnout and job satisfaction
 Unjustified demands on resources
 Varying and unfair standards and ratings
 Emerging biases
 Unclear ratings system
 Performance Management & Reward System

Reward System
 Tangible Returns:
 Base pay
 COLA
 Merit pay
 Short-term Incentives
 Long-term Incentives
 Benefits:
 Income Protection
 Work/life Focus
 Education Reimbursement
 Allowances
 Performance Management & Reward System

Reward System
 Relational Returns:
 Recognition & Status
 Employment Security
 Challenging Work
 Learning Opportunities
 Performance Management & Reward System

Degree of Dependency on PMS

Return Degree of
Dependency
Long-term Incentives High
Short-term Incentives High
Contingent Pay High
Base Pay Moderate
Relational Returns Moderate
Allowances Moderate
Work/Life Focus Moderate
Income Protection Low
COLA Low
 Performance Management & Reward System

Aims & Role of PM Systems

 StrategicPurpose
 Administrative Purpose
 Informational Purpose
 Developmental Purpose
 Organizational Maintenance Purpose
 Documentational Purpose
 Performance Management & Reward System

Characteristics of An Ideal PM System

 Strategic Congruence
 Thoroughness
 Practicality
 Meaningfulness
 Specificity
 Identification of Effective & Ineffective Performance
 Reliability
 Validity
 Acceptability & Fairness
 Inclusiveness
 Openness
 Correctability
 Standardization
 Ethicality
Performance
Management
Process
 Performance
Management Process

Prerequisites

Performance
Planning

Performance
Execution

Performance
Assessment

Performance
Review

Performance
Renewal &
Recontracting
 Performance
Management Process

Prerequisites
 Knowledge of the organization’s mission and strategic goals
Once the goals of the organization have been established then
departments set their objectives to support organization’s
overall mission and objectives.

 Knowledge of the job in question

This is done through the job analysis which determines the
activities, tasks, products, services and processes. It also
provides the requirement of KSAs.
 Performance
Management Process

Job Analysis
Frequency Criticality
 0: Not performed  0: Not critical
 1: every few months to  1: low level of criticality
yearly
 2: every few weeks to  2: Below average level of
monthly criticality
 3: Every few days to  3: Average level of
weekly criticality
 4: every few hours to  4: Above average level of
daily criticality
 5: hourly to many times  5: Extremely critical
each hour
 Performance
Job Analysis Management Process
 Job analysis is a fundamental prerequisite of any PMS
Job analysis is a process of determining the key componenets of particular
job including activities, tasks, products, services and processes.
Knowledge of the organization’s mission and strategic goals.
It can be conducted using observation, off-the-shelve questionnaires, and or
interviews.
http://www.delawarepersonnel.com/class/forms/jaq/jaq.html
http://www.alexandriava.gov/class_comp/job_analysis.html

Job Description
 JD provides the criteria that will be used in measuring performance
It covers tasks, knowledge, skills, abilities, behaviors and outcomes.
http://online.onecenter.org/find/
 Performance
Performance Planning Management Process
 Results
It refers to what needs to be done or the outcome an employee must produce. It
should include accountabilities, specific objectives, performance standards

 Behaviors
It means how the job is done. It includes competencies e.g.
customer service, written or oral communication, creative
thinking, dependability.

 Developmental Plan
It is the important step before the review cycle. At a
minimum, this plan should include identifying areas that
need improvement and setting goals to be achieved in each
area.
 Performance
Performance Execution Management Process

1. Commitment to goals
2. Ongoing performance feedback and coaching
3. Communication with supervisor
4. Collecting and sharing performance data
5. Preparing for performance reviews

 Prime Responsibilities of Supervisors

1. Observation and Documentation
2. Update
3. Feedback
4. Resources
5. Reinforcement
 Performance
Performance Assessment Management Process

 Both the employee and the manager are responsible for

evaluating the extent to which the desired behaviors have
been displayed, and whether the desired results have been
achieved.

Performance Review
 The meeting between the employee and the supervisor to
review their assessment.
It is also known as appraisal meeting, it emphasizes what
has been done and how it has been done.
It should also focus on present and the future.
 Performance
Performance Assessment Management Process

 Both the employee and the manager are responsible for

evaluating the extent to which the desired behaviors have
been displayed, and whether the desired results have been
achieved.

Performance Review
 The meeting between the employee and the supervisor to
review their assessment.
It is also known as appraisal meeting, it emphasizes what
has been done and how it has been done.
It should also focus on present and the future.
 Performance
Management Process

Performance Renewal & Recognition

 It is identical to the performance planning component but it
uses the insights and information gained from other phases.
The adjustments are made and may be some new key
accountabilities and competencies added.
Incentive
Pay
 Incentive Pay

Incentive Pay
 Incentive or variable pay rewards employee for partially or
completely attaining predetermined work objectives.
 It is defined as the compensation other than base wages or
salaries, that fluctuates according to employee’s attainment
of some standards.

Assumptions of IP
1. Difference of individual and team work contribution to the
company in perspective of “what they do and how well
they do”.
2. Overall company’s performance is dependent on
performance of individuals and teams/groups.
3. To attract, retain and motivate high performers, the
company has to reward performance.
 Incentive Pay

Incentive Pay Plans

1. Individual incentive plans reward
employees whose work is performed
independently.
2. Group Incentive plans apply to
interdependent teams. It promotes
supportive, collaborative behavior.
3. Company-wide plans tie employee
compensation to a company’s
performance
 Incentive Pay

Individual Incentives
1. Quality 1. Quantity of work
2. Productivity output
3. Customer 2. Quality of work
Satisfaction output
4. Safety 3. Sales Achievement
5. Attendance 4. Work safety
record
 Incentive Pay

Individual Incentives
1. Piece work plans reward employees based on their
individual hourly production against an objective
output standard which is determined by the
machine output capacity.
2. Management Incentive Plans award bonuses to
managers when they meet or exceed multiple
complex objectives such as sales, profit,
production etc for their division, unit, department.
3. Behavioral Encouragement Plans reward
behavioral accomplishments such as good
conduct, good attendance, safety records.
4. Referral Plans reward based on new customers
referrals and help in recruiting successful job
applicants.
 Incentive Pay

Advantages of Individual Incentives

1. Individual incentive plans can promote
the relationship between pay and
performance.
2. Individual incentive plans promote
equitable distribution of compensation
within companies. It help to retain the
talent.
3. Individual incentive plans provide
compatibility with individualistic
national culture.
 Incentive Pay

Disadvantages of Individual Incentives

1. It can promote inflexibility because any
performance above defined standards may not
be rewarded. So it may not motivate to
improve the performance further.
2. It has to be matched with changing
circumstances such as improved work process
or equipments. Otherwise employees will
resist the new methods.
3. It can lead to undesirable work behavior by
concentrating only on those dimensions of job
performance which can lead to incentives.
 Incentive Pay

Individual Incentives
1. Team-based or small group incentive plans: A
small group of employees shares a financial
reward when a specific objective is met.

2. Gain Sharing Plans: A group of employees,

generally a department or work unit is
rewarded for productivity gain.
 Incentive Pay

Group Incentives Plans

1. Customer Satisfaction
2. Labor Cost Saving
3. Material Cost Saving
4. Reduction in Accidents
5. Services (utilities) Cost Saving
 Incentive Pay

Team-based or small group Incentive Plans

Each group member receives a financial reward for the
attainment of a group goal. reward employees
based on their individual hourly production
against an objective output standard which is
determined by the machine output capacity.

Basis:
1. Equal incentive payments to all team members
2. Deferential incentive payments based on their
contribution in the team’s performance.
3. Differential incentive based on base pay contribution
to the total base pay of the group.
 Incentive Pay

Gain Sharing Plans

It provides participating employees with an incentive
payment based on improved company
performance for productivity, increased customer
satisfaction, lower cost, better safety records.

Components:
1. Leadership Philosophy (trust, open communication and
participation)
2. Employee involvement system based on open suggestion system
3. Gain sharing bonuses based on exceptional productivity level
against defined targets.
 Incentive Pay

The Scanlon Plan

It emphasizes on employee involvement. According to
it employees will exercise self-direction and self-
control if they are committed to company’s
objectives and they will accept and seek
responsibility if given opportunity.

Components:
1. An emphasis on team work to reduce costs
2. Suggestion system that route cost saving ideas from
the work force through a committee
3. Monetary reward based on productivity improvement
to encourage employee involvement.
 Incentive Pay

The Rucker Plan

It emphasizes employee involvement and provide
monetary incentives to encourage employee
participation. It uses a value-added formula to
measure productivity.
The Improshare Plan
It emphasizes on improved productivity through
sharing- measure productivity physically rather
than in value.
Labor Hour Ratio, productivity based on standard
and actual labor hours.
Buy Back Provision, a maximum productivity
improvement payout level is placed on
productivity gains.
 Incentive Pay

Advantages of Group Incentives

1. There are fewer groups in the company
therefore group incentive plans can be
developed much easily than individuals.
2. Cohesive groups usually work more
effectively towards achieving common
goals than individuals who focus more
on individual tasks.
 Incentive Pay

Disadvantages of Group Incentives

1. The biggest limitation is the free-rider
effect. Some employees may make fewer
contributions to the group goals because
they posses lower ability, skills and
experience. In some cases few members
may put less efforts because of equal
incentive compensation.
 Incentive Pay

Company-wide Incentives
It rewards employees when the company exceeds
minimum acceptable performance standards, such
as profits or the overall value of the company
based on its share price.

Types:
1. Profit Sharing Plans: in which employees earn a
financial reward when their company’s profit
objectives are met. Current profit sharing &
deferred profit sharing
2. Employee Stock Options: companies grant
employees right to purchase shares of company.
 Incentive Pay

Advantages of Profit Sharing Plans

1. It enables employees to share in
companies growth and development
2. Companies get more financial flexibility
 Incentive Pay

Disadvantages of Profit Sharing Plans

1. It undermines the economic security of
employees because of lack of
predictability. More the fluctuation the
more will uncertainty.
2. The turnover of excellent performers can
affect the overall performance.
 Incentive Pay

Designing Incentive Pay Programs

1. Group Versus Individual Incentives
2. Level Of Risk
3. Complimenting or Replacing Base Pay
4. Performance Criteria
5. Short-term Versus Long-term
Defining Performance
&
Choosing a
Measurement
 Performance Measurement

Defining Performance
1. Behavior: What an employee does?
2. Results: The outcome of an employee’s
behavior
 Evaluative: such as negative, neutral or
positive
 Multidimensional: many different kind of
behaviors
 Performance Measurement

Determinants of Performance
1. Declarative Knowledge: Facts, Principles and
Goals
2. Procedural Knowledge: Cognitive,
Psychomotor, Physical, Interpersonal Skills
3. Motivation: Choice to Perform, Level of Effort,
Persistence of Effort

Performance = Declarative Knowledge x

Procedural Knowledge x Motivation
 Performance Measurement

Implications For Addressing Performance Problems

1. The performance is affected by the combined
effect of three different factors
2. So PMS does not only need to measure
performance but also to provide information
about the source of any performance deficiencies.

Factors Influencing Determinants of Performance

1. Employees (previous experience), HR practices
and the work environment.
 Performance Measurement

Performance Dimensions
1. Contextual Performance
Those behaviors which contribute to the
organization’s effectiveness by providing a
good environment in which task performance
can occur.
 The transformation process by replenishing the
supply of raw material
 Distributing the finished products
 Important planning, coordination, supervising
 Staff functions that enable the organization to
perform effectively and efficiently
 Performance Measurement

Performance Dimensions
1. Contextual Performance Behaviors

 Persisting with enthusiasm and exerting extra

effort as necessary to complete one’s own task
activities successfully
 Volunteering to carry out task activities
successfully that are not formally the part of
the job
 Helping and cooperating with others
 Following organizational rules and procedures
 Endorsing, supporting and defending
organizational objectives
 Performance Measurement

Performance Dimensions
1. Task Performance Behavior

 Task performance is usually role described

 It is the part of job description
 Influenced by abilities and skills
 Performance Measurement

Performance Dimensions
1. Comparison

Task Performance Contextual Performance

Varies across jobs Fairly similar across jobs

Likely to be role Not likely to be role

prescribed prescribed
Antecedents: abilities & Antecedent: personality
skills
 Implementing
A Performance
Management System
 Implementing A PMS

Planning

Communication

Appeals
Process

Training
Programs

Pilot
Testing
 Implementing A PMS

Communication Plan
1. Better knowledge of of the performance
management system leads to greater employee
acceptance and satisfaction.
 What is performance management ?
 How does performance management fits into
our strategy?
 What is in it for me? (benefits)
 How does it work? (process & time)
 What are my responsibilities? (role)
 How performance management related to other
initiatives? (training, promotion, succession)
 Implementing A PMS

Communication Plan
1. Selective exposure, perception and retention
biases can make communication plan
ineffective
 Involve employees
 Understand employee needs
 Strike first
 Provide facts and consequences
 Put it in writing (document)
 Use multiple channels of communication
 Use credible communication
 Say it and say it again
 Implementing A PMS

Appeals Process
1. The inclusion of an appeal process will
enhance the employees’ acceptance
 Employees can question judgmental and
administrative issues
 In case of judgmental issues the ratings can be
challenged
 In administrative issues the policies and
procedures application can be questioned
 In Level 1 or A HR department can mediate
 In Level 2 or B peers and managers will form
an arbitration panel
 Implementing A PMS

Training Programs
1. Training of the raters is another step necessary
in preparation of performance management
system
 The following areas can be included in Rater
Training Program
1. Reasons for implementing PMS
2. Info on the appraisal form and system mechanics
3. How to identify and rank the job activities
4. How to observe, record and measure performance
5. How to minimize rating errors
6. How to conduct an appraisal interview
7. How to train, counsel and coach
 Implementing A PMS

Training Programs
Rater Error Training Program
 Similar to me error
 Contract error
 Leniency error
 Severity error
 Central tendency error
 Halo error
 Primary error
 Negativity error
 First Impression error
 Spillover error
 Stereotyping error
 Attribution error
 Implementing A PMS

Training Programs
1. Frame of Reference Training
 Training for performance dimensions to be
assessed
1. Discussion on Job description and duties involved
2. Familiarization with performance dimensions and
review of various levels
3. Rating of case study or exercise based employees
 Implementing A PMS

Training Programs
1. Behavioral Observation Training
 Training to minimize unintentional errors in
BO training including how rater observe,
store, recall and use information
1. Use of the observational aids such as notes and
diaries
2. Recording and information collection for these
dimensions
3. Avoid the distortion due to social contact and
time by keeping the record for a particular period
 Implementing A PMS

Training Programs
1. Self-leadership Training
 To enhance the confidence in rater to manage
performance
1. Observe, record existing beliefs, assumptions,
conversation, mental imagery patters
2. Analyze their functionality and constructiveness
3. Substitute the more functional thinking
4. Continue monitoring and maintaining beliefs etc
 Implementing A PMS

Pilot Testing
 It is good to test a version of the entire system
so that adjustments and revisions can be made
1. Whole system has to be implemented but
informally
2. Pilot testing will provide us the opportunity to
gather information
3. Group of employees have to be carefully selected
4. It provide us crucial information to be used in
improving the system
 Implementing A PMS

Ongoing Monitoring and Evaluation

 Clear measurement have to be implemented for
monitoring and evaluation
1. Evaluation data should include reactions to the
system and assessments of the system’s
operational and technical requirements
 Number of individuals evaluated
 Distribution of performance rating
 Quality of information
 Quality of performance discussion meeting
 System Satisfaction
 Overall cost / benefit ratio
 Unit / organizational level performance
Building Internally
Consistent
Compensation
Systems
 BIC Compensation System

Internally Consistent Compensation System

It defines the relative value of each job among all
jobs within a company.
 ICCS Processes
1. Job Analysis: A pure descriptive procedure
which identifies and defines job contents.
2. Job Contents: Describes job duties and tasks
as well as pertinent factors such as skills and
efforts
Job evaluation is the key for establishing
internally compensation systems as strategic
tools. It creates a pay difference among
employees within a company.
 BIC Compensation System

Job Analysis
1. Determine a job analysis program
2. Select and train analyst
3. Direct Job analyst orientation
4. Conduct the study (methods &
sources)
5. Summarize the result (job
description)
 BIC Compensation System

Determine a job analysis program

A decision among established system
or a customized system. The
methods of collecting JA
information are:
 Questionnaire
 Interviews
 Observation
 Participation
 BIC Compensation System

Select and Train an analyst

Task force of representative from
throughout the company conducts
the analysis and HR coordinates
with them. Training should include:
 Objectives
 Info collection and usage
 Methodology
 Discussion and demonstration
 Reducing the errors
 BIC Compensation System

Units of Job Analysis Process

 Element: a smallest step of a work activity
 Task: One or more elements which results to
perform a work
 Position: Collection of tasks constituting to
total work assignment of an employee.
 Job: a group of positions within a company
that are identical with slight variations.
 Job Family: a group of two or more jobs with
similar work characteristics or tasks
 Occupation: a group of jobs in which common
set of tasks are performed.
 BIC Compensation System

Direct Job Analyst Orientation

 Understanding of context to better
understand the influencing factors.
 Organizational charts, job titles and
classification of each position, pay rates
should be analyzed
 External sources should also be explored
 BIC Compensation System

Conduct The Study

 After gathering and evaluating the
earlier data the info should be gathered
and recorded
 Data collection methods and sources of
data
 The most common are questionnaire and
observation
 BIC Compensation System

Valid Questions
 Most frequently performed tasks
 Frequency of each task
 Qualification/legalities required to
perform duties
 List of equipements, machines and tools
etc
 Coordination frequency and level with
internal departments and external
sources
 Intensity of Supervisory responsibilities
 BIC Compensation System

Conduct The Study

1. Reliable Job Analysis: Consistency of results
under the similar conditions
2. Validate Job Analysis: Acccurately assesses
each job’s duties
 BIC Compensation System

Summarize The Results

Job Description summarizes a job’s purpose and
list of tasks, duties and responsibilities as
well as KSA.
1. What to perform
2. How to perform
3. Why employee have to perform
4. Supervisory responsibilities
5. Internal and external contacts
6. KSA
7. Physical and social conditions
 BIC Compensation System

Job Description
 Job Title: indicates the name of the each job
within an organization
 Job Summary: Summarize concisely the job
within two to four descriptive statement
 Job Duties: Describes major work activates
and related responsibilities.
 Worker Specifications: It covers education,
experience, qualification, skills and abilities,
Building Market
Competitive
Compensation
Systems
 MC Compensation System

Internally Consistent Compensation System

It represents companies’ compensation policies
that represents the competitive advantage.
1. It plays vital role in attracting and retaining
the best employees
2. It supports competitive strategies

Four Activities of MC System

1. Strategic Analysis
2. Compensation Survey
3. Integrating the internal job structure withy
external market pay rates
4. Determining Compensation Policies
 MC Compensation System

Compensation Survey
Preliminary Considerations
 What Companies Going to Gain From
Compensation surveys
 Custom Development versus Use of an existing
Compensation System
 Survey Focus: Core or Fringe Compensation
 Sources of Published Compensation Surveys
 MC Compensation System

Compensation Survey
 Base Pay Level
 Incentive Award Structure
 Mix Benefits
 Discretionary Benefits
The alternative forms of compensation and
changes in the economic climate should also be
considered.
 MC Compensation System

Customized vs Existing Compensation

Survey
 Lack of employees to perform the task of
survey
 Unwillingness to share the information by the
competitors
 Custom survey can be costly
 MC Compensation System

Core or Fringe Compensation

Sources of Published Compensation Surveys
 MC Compensation System

Compensation Surveys
 Defining the relevant labor market
Based on occupational qualification, geography, and product
or service market competitors
 Professional, technical and related occupation
 Executive, administrative, managerial level
 Sales occupation
 Support Occupations
 Production, craft and repair
 Transportation and material moving occupation
 Service Occupation
 MC Compensation System

Compensation Surveys
 Choosing Benchmark Jobs
Determine the pay levels for job based on typical market pay
rates for similar jobs.
 Contents are well-known, stable, and agreed upon by
employees
 Jobs are common across a number of different employers
 Jobs represent the entire range of jobs that are being
evaluated within an employee
 Jobs are generally accepted in the labor market for the
purposes of setting pay level
Building Pay Structure
That Recognize
Individual
Contribution
 Building Individual Pay Structure

Constructing A Pay Structure

1. Deciding On How Many Pay Structures
To Construct
2. Determine A Market Pay Line
3. Defining Pay Grades
4. Calculating Pay Ranges For Each Pay
Grade
5. Evaluating The Results
 Building Individual Pay Structure

Deciding Number of Pay Structures

Exempt & Non-exempt Pay Structure

 Exempt job compensation is reflected in annual salary
and does subject to the overtime pay provision.
Whereas non-exempt job compensation is expressed in
hourly pay rate.
 Exempt jobs are generally supervisory, professional,
managerial and executive.
 Non-exempt jobs are non-supervisory with narrowly
defined duties.
 Building Individual Pay Structure

Deciding Number of Pay Structures

Job Family Pay Structure

 Executive, managerial, professional, technical and
craft represents distinct job families.
 Pay structures are also defined on the basis of job
family, each of which shows a distinct salary pattern
in the market.
 Building Individual Pay Structure

Deciding Number of Pay Structures

Geography based Pay Structure

 Geographically dispersed locations such as sales
offices, Manufacturing plants, service centers and
corporate offices may establish pay structure based
on going rates in different geographic locations.
 Building Individual Pay Structure

Determining A Market Pay Line

 A market pay line is representative of typical pay

rates relative to a company’s job structure.
 Pay levels that correspond with the market pay line
are market competitive pay rates
 Building Individual Pay Structure

Defining Pay Grades

 Pay grades group jobs for pay policy application. It is

based on similar compensable factors and values.
 No formula can determine the ideal grouping but can
be indicative
 Management philosophy will determine the grouping
 Job evaluation point spreads or percentage-based job
evaluation can be applied.
 Building Individual Pay Structure

Calculating Pay Ranges For Each Pay Grade

 Pay grades represents the horizontal dimensions of

pay structures (job evaluation) whereas the pay ranges
represent the vertical dimension (pay rates)
 Pay ranges include mid-point, minimum and
maximum pay rates.
 Mid point are determined earlier as per the market pay
line. No formula can determine the ideal grouping but
can be indicative
 A range spread is the difference between maximum and
pay rates of a given pay grade.
 Building Individual Pay Structure

Calculating Pay Ranges For Each Pay Grade

Pay Compression
 It occurs whenever a company's pay spread between
newly hired or less qualified employees and more
qualified employees is small.
Green Circle Pay Rates
 Below minimum pay ranges rates are known as green
circle rates.
Red Circle Pay Rates
 Above the maximum rates pay is known as red circle
rates.