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

Chapter 1Chapter 1

Performance Performance Management Management

and Reward Systemsand Reward Systemsin Contextin Context

1-1-11Copyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

OverviewOverview

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 SystemsImplemented PM Systems

Definition of Reward SystemsDefinition of Reward Systems

Copyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-1-22

Overview (continued)Overview (continued)

Purposes of PM SystemsPurposes of PM Systems

Characteristics of an Ideal PM Characteristics of an Ideal PM SystemSystem

Integration with Other Human Integration with Other Human Resources and Development Resources and Development ActivitiesActivities

PM Around the WorldPM Around the World


Definition of PMDefinition of PM


1.1. Continuous process of …Continuous process of …• Identifying Identifying

• Measuring Measuring

• DevelopingDeveloping

… … the performance of individuals and the performance of individuals and teamsteams

2.2. Aligning performance with the Aligning performance with the strategic goals of the strategic goals of the organizationorganization

Definition of PM (continued)Definition of PM (continued)

Performance management (PM)Performance management (PM)

is NOT is NOT

performance performance appraisalappraisal (PA) (PA)


Definition of PM (continued)Definition of PM (continued)

PMPM Strategic business Strategic business

considerationsconsiderations

Driven by line Driven by line managermanager

Ongoing feedbackOngoing feedback

• So employee can So employee can improve performanceimprove performance

PAPA Driven by HRDriven by HR

Assesses employeeAssesses employee

• StrengthsStrengths

• WeaknessesWeaknesses

Once a yearOnce a year

Lacks ongoing Lacks ongoing feedbackfeedback


Contributions of Contributions of Performance ManagementPerformance Management

For EmployeesFor Employees

For ManagersFor Managers

For Organization/HR FunctionFor Organization/HR Function


Contributions of Performance Contributions of Performance Management for EmployeesManagement for Employees

Clarify definitions of Clarify definitions of • JobJob

• Success criteriaSuccess criteria

Increase motivation to performIncrease motivation to perform Increase self-esteemIncrease self-esteem Enhance self-insight and developmentEnhance self-insight and development


Contributions of Performance Contributions of Performance Management fManagement for Managersor Managers

Communicate supervisors’ views of Communicate supervisors’ views of performance more clearlyperformance more clearly

Managers gain insight about Managers gain insight about subordinatessubordinates

Better and more timely differentiation Better and more timely differentiation between good and poor performersbetween good and poor performers

Employees become more competentEmployees become more competent


Contributions of Performance Contributions of Performance Management fManagement for Organization/HR or Organization/HR

FunctionFunction

Clarify organizational goals Clarify organizational goals

Facilitate organizational changeFacilitate organizational change

Fairer, more appropriate Fairer, more appropriate administrative actionsadministrative actions

Better protection from lawsuitsBetter protection from lawsuits


Disadvantages/Dangers of Disadvantages/Dangers of Poorly Implemented Poorly Implemented

PM Systems PM Systems


For EmployeesFor Employees

For ManagersFor Managers

For Organization/HR FunctionFor Organization/HR Function

Disadvantages/Dangers of Poorly Disadvantages/Dangers of Poorly Implemented PM Systems for Implemented PM Systems for

EmployeesEmployees

Lowered self-esteemLowered self-esteem

Employee burnout and job Employee burnout and job dissatisfactiondissatisfaction

Damaged relationshipsDamaged relationships

Use of false or misleading informationUse of false or misleading information



ManagersManagers

Increased turnoverIncreased turnover

Decreased motivation to performDecreased motivation to perform

Unjustified demands on managers’ Unjustified demands on managers’ resourcesresources

Varying and unfair standards and ratingsVarying and unfair standards and ratings



Organization/HR FunctionOrganization/HR Function

Wasted time and moneyWasted time and money

Unclear ratings systemUnclear ratings system

Emerging biasesEmerging biases

Increased risk of litigationIncreased risk of litigation


Reward SystemsReward Systems


DefinitionDefinition Tangible ReturnsTangible Returns Intangible ReturnsIntangible Returns Returns and their Degrees of Returns and their Degrees of

Dependency on PMDependency on PM For Organization/HR FunctionFor Organization/HR Function

Reward Systems Reward Systems DefinitionDefinition

Set of mechanisms for distributing…Set of mechanisms for distributing…

• Tangible returnsTangible returns

• Intangible or relational returnsIntangible or relational returns

… … as part of an employment as part of an employment relationshiprelationship


Reward Systems Reward Systems Tangible ReturnsTangible Returns

Cash compensationCash compensation

• Base payBase pay

• Cost-of-Living and Contingent Cost-of-Living and Contingent PayPay

• Incentives (short- and long-term)Incentives (short- and long-term)


Reward Systems Reward Systems Tangible Returns (continued)Tangible Returns (continued)

Benefits such asBenefits such as

• Income ProtectionIncome Protection

• AllowancesAllowances

• Work/life focusWork/life focus


Reward Systems Reward Systems Intangible ReturnsIntangible Returns

Relational returnsRelational returns such assuch as

• Recognition and statusRecognition and status

• Employment securityEmployment security

• Challenging workChallenging work

• Learning opportunitiesLearning opportunities


Returns and Their Degrees of Returns and Their Degrees of Dependency on the Performance Dependency on the Performance

Management SystemManagement System Low DependencyLow Dependency

• Cost of Living AdjustmentCost of Living Adjustment

• Income ProtectionIncome Protection

Moderate DependencyModerate Dependency

High DependencyHigh Dependency


Returns and Their Degrees of Returns and Their Degrees of Dependency on the Performance Dependency on the Performance Management System (Continued)Management System (Continued)

Low DependencyLow Dependency Moderate DependencyModerate Dependency

• Work/Life FocusWork/Life Focus

• AllowancesAllowances

• Relational ReturnsRelational Returns

• Base PayBase Pay

High DependencyHigh DependencyCopyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-1-2121

Returns and Their Degrees of Returns and Their Degrees of Dependency on the Performance Dependency on the Performance Management System (Continued)Management System (Continued)

Low DependencyLow Dependency

Moderate DependencyModerate Dependency

High DependencyHigh Dependency

• Contingent PayContingent Pay

• Short-Term IncentivesShort-Term Incentives

• Long-Term IncentivesLong-Term IncentivesCopyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-1-2222

Purposes of PM SystemsPurposes of PM Systems

StrategicStrategic AdministrativeAdministrative InformationalInformational DevelopmentalDevelopmental Organizational maintenanceOrganizational maintenance DocumentationDocumentation


Purposes of PM SystemsPurposes of PM SystemsStrategic PurposeStrategic Purpose

Link individual goals with Link individual goals with organization’s goalsorganization’s goals

Communicate most crucial business Communicate most crucial business strategic initiativesstrategic initiatives


Purposes of PM SystemsPurposes of PM SystemsAdministrative PurposeAdministrative Purpose

Provide information for making decisions Provide information for making decisions regarding:regarding:

• Salary adjustmentsSalary adjustments

• PromotionsPromotions

• Retention or terminationRetention or termination

• Recognition of individual performanceRecognition of individual performance

• LayoffsLayoffs


Purposes of PM SystemsPurposes of PM SystemsInformational PurposeInformational Purpose

Communicate to employees:Communicate to employees:

• ExpectationsExpectations

• What is importantWhat is important

• How they are doingHow they are doing

• How to improveHow to improve


Purposes of PM SystemsPurposes of PM SystemsDevelopmental PurposeDevelopmental Purpose

Performance feedback/coachingPerformance feedback/coaching

Identification of individual strengths and Identification of individual strengths and weaknessesweaknesses

Identification of causes of performance Identification of causes of performance deficienciesdeficiencies

Tailor development of individual career pathTailor development of individual career path


Purposes of PM SystemsPurposes of PM SystemsOrganizational Maintenance PurposeOrganizational Maintenance Purpose

Plan effective workforcePlan effective workforce

Assess future training needsAssess future training needs

Evaluate performance at Evaluate performance at organizational levelorganizational level

Evaluate effectiveness of HR Evaluate effectiveness of HR interventionsinterventions


Purposes of PM Systems Purposes of PM Systems Documentation PurposeDocumentation Purpose

Validate selection instrumentsValidate selection instruments

Document administrative decisionsDocument administrative decisions

Help meet legal requirementsHelp meet legal requirements


An Ideal PM System: An Ideal PM System: 15 Characteristics15 Characteristics

1.1. Strategically congruentStrategically congruent2.2. Contextually congruentContextually congruent3.3. ThoroughThorough4.4. PracticalPractical5.5. MeaningfulMeaningful6.6. SpecificSpecific7.7. Identifies effective and ineffective Identifies effective and ineffective

performanceperformance


An Ideal PM System: An Ideal PM System: 15 Characteristics 15 Characteristics (continued)(continued)

8.8. ReliableReliable9.9. ValidValid10.10. Acceptable and fairAcceptable and fair11.11. InclusiveInclusive12.12. Open (No Secrets)Open (No Secrets)13.13. CorrectableCorrectable14.14. StandardizedStandardized15.15. EthicalEthical



Strategically CongruentStrategically Congruent Consistent with organization’s Consistent with organization’s

strategystrategy

Aligned with unit and Aligned with unit and organizational goalsorganizational goals



Contextually CongruentContextually 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 countrycountry

• 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 rigidnot fluid and hierarchies are rigid


An Ideal PM System: An Ideal PM System: 15 Characteristics 15 Characteristics

ThoroughThorough All employees are evaluatedAll employees are evaluated

All major job responsibilities are evaluatedAll major job responsibilities are evaluated

Evaluations cover performance for entire Evaluations cover performance for entire review periodreview period

Feedback is given on Feedback is given on bothboth positive and positive and negative performancenegative performance



PracticalPractical AvailableAvailable

Easy to useEasy to use

Acceptable to decision makersAcceptable to decision makers

Benefits outweigh costsBenefits outweigh costs



MeaningfulMeaningful Standards are important and relevantStandards are important and relevant

System measures ONLY what employee can controlSystem measures ONLY what employee can control

Results have consequences Results have consequences

Evaluations occur regularly and at appropriate Evaluations occur regularly and at appropriate timestimes

System provides for continuing skill development System provides for continuing skill development of evaluatorsof evaluators



SpecificSpecific Concrete and detailed guidance Concrete and detailed guidance

to employees to employees

• What’s expected What’s expected

• How to meet the expectationsHow to meet the expectations



Identifies effective and ineffective Identifies effective and ineffective performanceperformance

Distinguish between effective and Distinguish between effective and ineffective:ineffective:• BehaviorsBehaviors

• ResultsResults

Provide ability to identify employees with Provide ability to identify employees with various levels of performance.various levels of performance.



ReliableReliable ConsistentConsistent

Free of errorFree of error

Inter-rater reliabilityInter-rater reliability



ValidValid 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)



Acceptable and FairAcceptable and Fair Perception of Perception of DistributiveDistributive Justice Justice

• Work performed Work performed Evaluation received Evaluation received RewardReward

Perception of Perception of ProceduralProcedural Justice Justice• Fairness of procedures used to:Fairness of procedures used to:

Determine ratingsDetermine ratings Link ratings to rewardsLink ratings to rewards



InclusiveInclusive Represents concerns of all involvedRepresents 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 measuredWhat should be measured

How it should be measuredHow it should be measured

• Employee should provide input on Employee should provide input on performance prior to evaluation performance prior to evaluation meeting.meeting.


An Ideal PM System: An Ideal PM System: 15 Characteristics 15 Characteristics Open (Open (NoNo Secrets) Secrets)

Frequent, ongoing evaluations and feedbackFrequent, ongoing evaluations and feedback Two-way communications in appraisal Two-way communications in appraisal

meetingmeeting Clear standards and ongoing Clear standards and ongoing

communicationcommunication Communications are factual, open, and Communications are factual, open, and

honesthonest



CorrectableCorrectable Recognizes that human judgment Recognizes that human judgment

is fallibleis fallible

Appeals process providedAppeals process provided



StandardizedStandardized Ongoing training of managers to Ongoing training of managers to

provideprovide

Consistent evaluations across:Consistent evaluations across:

• PeoplePeople

• TimeTime



EthicalEthical Supervisor suppresses self-interestSupervisor suppresses self-interest

Supervisor rates only where (s)he has Supervisor rates only where (s)he has sufficient information about the sufficient information about the performance dimension performance dimension

Supervisor respects employee privacySupervisor respects employee privacy


Integration with other Human Integration with other Human Resources and Development Resources and Development

ActivitiesActivities

PM provides information for:PM provides information for:

• Development of training to meet Development of training to meet organizational needsorganizational needs

• Workforce planningWorkforce planning

• Recruitment and hiring decisionsRecruitment and hiring decisions

• Development of compensation systemsDevelopment of compensation systems


PM Around the WorldPM Around the World PM used in United States, Mexico, PM used in United States, Mexico,

Turkey, India, Australia, China, and so Turkey, India, Australia, China, and so onon

Common across countries: Need to Common across countries: Need to alignalign individual and organizational individual and organizational goals to goals to enhanceenhance the performance of the performance of individuals and groupsindividuals and groups


PM Around the World PM Around the World (continued)(continued)

Yet, different countries emphasize Yet, different countries emphasize different components of PMdifferent components of PM

• EX 1: PMs in Japan tend to emphasize EX 1: PMs in Japan tend to emphasize behaviors to the detriment of resultsbehaviors 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 valuesmore traditional cultural values


Quick ReviewQuick 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

SystemsSystems Definition of Reward SystemsDefinition of Reward Systems Aims and Role of PM SystemsAims and Role of PM Systems Characteristics of an Ideal PM SystemCharacteristics of an Ideal PM System Integration with Other Human Resources and Integration with Other Human Resources and

Development ActivitiesDevelopment Activities PM Around the WorldPM Around the World


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 Hallpublishing as Prentice Hall


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

Documents

pearson education

prentice hall1

prentice hallcopyright

performance of individuals

teamsaligning performance

ideal pm systemintegration

organizational changefairer

strategic goals