MGT-555 PERFORMANCE AND CAREER MANAGEMENT LECTURE NO - 25 1.

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MGT-555 PERFORMANCE AND CAREER

MANAGEMENTLECTURE NO - 25

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RECAP

• Possible Errors in Ratings• Frame of Reference Training• Steps in designing a Frame of Reference Training• Behavior Observational Training• Self Leadership Training• Steps in designing a Self Leadership Training• Self Efficacy Training• Ongoing Monitoring and Evaluation

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Agenda for Today’s Lecture

• Ongoing Monitoring and Evaluation• Compensation - Reward Systems• Legal Issues

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Ongoing Monitoring and Evaluation

• When the testing is over and the performance management system has been implemented organization wide, it is important to use clear measurements to monitor and evaluate the system.

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Ongoing Monitoring and Evaluation (Contd.)

• In a nutshell, a decision is to be made about how to evaluate the systems effectiveness, how to evaluate the extent to which the system is being implemented as planned, and how to evaluate the extent to which it is producing the intended results.

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Case Study • The United States federal government takes the evaluation of

performance management systems very seriously. Since the early 1990s, several laws have been passed that mandate federal agencies to develop a strategic plan, a performance plan, and a performance report. Although these initiatives concern agencies and not individuals, ultimately the performance of any agency depends on the performance of the individuals working in that agency. The net result of such laws as the Government Performance and Results Act is an increase in accountability and funding allocation based on performance. Thus, federal agencies are required to evaluate the relative efficiency of their various management techniques including performance management systems.

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Case Study (Contd.)• Evaluation data should include reactions to the system and

assessments of the system's operational and technical requirement. For example, a confidential survey could be administered to all employees asking about perceptions and attitudes regarding the system. This survey can be administered during the initial stages of implementation and then at the end of the first review cycle to find out if there have been any changes. In addition, regarding the system's results, one can assess performance ratings over time to see what positive effects the implementation of the system is having. Finally, interviews can be conducted with key stakeholders including managers and employees who have been involved in developing and implementing the performance management system.

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Several additional measures can be used on a regular basis to monitor an evaluate the system:

• Number of individuals evaluated: – One of the most basic measure is to assess the

number of employees who are actually participating in the system

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• Distribution of performance ratings: – An indicator of quality of the performance

assessments is whether all or most scores are too high, too low, or clumped around the center of the distribution.

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• Quality of information: – Another indicator of quality of the performance

assessment is the quality of information provided in the open ended section of the form.

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• Quality of performance discussion meetings: – Confidential survey can be distributed to all

employee on a regular basis to gather information about how the survivor is managing the performance discussion meetings.

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• System satisfaction: – A confidence survey can also be distributed to

assess the percentage of system users, both raters and ratees.

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• Overall/cost benefit ratio: – A fairly simple way to address the overall impact

of the system is to ask a participants to rate the overall cost/benefit ratio for the performance management system .

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• Unit level and organizational level performance: – Such performance indicator might be customer

satisfaction with specific units and indicators of the financial of various units or the organization as a whole.

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Case Study• Returning to the performance management system at the Washington

State Patrol, we can examine how it has evaluated effectiveness since the system was implemented. The patrol has several measures in place for continual evaluation of the effectiveness of the program. First, before all employees were reviewed using the system, they were surveyed regarding their satisfaction with the new system. This input was then used to further improve the appraisal process. In addition, the patrol uses the results of a biyearly citizen's survey conducted by Washington State University. The results of this survey are used to determine whether the state patrol's customers are satisfied with its performance, and the data are also used to adjust and reprioritize performance objectives. In addition, the data are used to measure division-level performance, one indicator of the success of the performance management process. The Washington State Patrol collects other types of data as well.

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Case Study(Contd.)• For example, every six months, division managers give presentations

regarding performance management to their peers and to several executives. Initially, the meetings focused on efforts to implement the new performance management system and increase quality, but this will change as new issues arise. The presentation is 30-40 minutes long, followed by 20-30 minutes of questions from peers and executives. The feedback from these presentations is used to measure how well the system is being implemented, and feedback on the success of the meetings will be used to make any necessary changes to the system. The Washington State Patrol may also want to consider measuring how many people are participating in the system. The patrol would also benefit from assessing whether the new system is distinguishing high- from low-level performers and from ascertaining the overall cost/benefit ratio of implementing the system.

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COMPENSATION AND LEGAL ISSUES

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Compensation- Reward Systems: Overview

• Traditional and Contingent Pay (CP) Plans–Reasons for Introducing CP Plans–Possible Problems Associated with CP– Selecting a CP Plan

• Putting Pay in Context• Pay Structures

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Traditional Pay• Salary and salary increases are based on–Position– Seniority

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Contingent Pay (CP)• Salary and salary increases are based on– Job performance

• Also called: Pay for Performance• If not added to base pay, called:–Variable pay

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Reasons for Introducing CP• Performance management is more effective

when rewards are tied to results• CP Plans force organizations to:–Clearly define effective performance–Determine what factors are necessary

• CP plans help to recruit and retain top performers

• CP plans project good corporate image

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CP plans help improve motivation when:

• Employees see clear link between their efforts and resulting performance (Expectancy)

• Employees see clear link between their performance level and rewards received (Instrumentality)

• Employees value the rewards available (Valence)

motivation = expectancy x instrumentality x valence

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Possible Problems Associated with CP• Poor performance management system• Rewarding counterproductive behavior• Insignificant rewards• The reward becomes the driver • Extrinsic vs. intrinsic motivation• Disproportionately large rewards for

executives

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Selecting a CP Plan: Issues to consider

A. Culture of organizationB. Strategic direction of organization

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A. Culture of organization: Types of organizations

• Traditional– Top-down decision making–Vertical communication– Jobs that are clearly defined

• Involvement– Shared decision making– Lateral communications– Loosely defined roles

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CP systems for different organizational cultures:

• Traditional organizations–Piece rate– Sales commissions–Group incentives

• Involvement organizations–Profit sharing– Skill-based pay

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B: CP Plans to enhance Strategic Directions:

• Employee development– Skill based pay

• Customer service– Competency based

pay– Gainsharing

• Overall Profit– Executive pay– Profit or stock sharing

• Productivity– Individual

• Piece rate• Sales commissions

– Group• Gainsharing• Group incentives

• Teamwork– Team sales commissions– Gainsharing– Competency based pay

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Putting Pay in ContextA reward increases the chance that• Specific behaviors and results will be

repeated, or• Employee will engage in new behavior and

produce better results

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Rewards can include:• Pay• Recognition– Public– Private– Status

• Time

• Trust & Respect• Challenge• Responsibility• Freedom• Relationships

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How to Make Rewards Work• Define and measure performance first

and then allocate rewards• Only use rewards that are available• Make sure all employees are eligible• Rewards should be both– Financial– Non-financial

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How to Make Rewards Work (continued)

• Rewards should be:–Visible–Contingent– Timely–Reversible

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Pay Structures

• Job Evaluation• Broad-banding

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Pay structuresAn organization’s pay structure• Classifies jobs• Into categories• Based on their relative worth

• Is designed by job evaluation methods

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Job evaluation• Method of data collection–Determine the worth of various jobs to–Create a pay structure

• Consideration of –KSAs required for each job–Value of job for organization–How much other organizations pay

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Types of job evaluation methods:

• Ranking• Classification• Point

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Job evaluation methods: Ranking• Create job descriptions• Compare job descriptions • Rank jobs

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Advantages of using Ranking method• Requires little time• Minimal effort needed for administration

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Disadvantages of using Ranking method

• Criteria for ranking may not be clear:• Distances between each rank may not

be equal

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Job evaluation methods: Classification

• A series of classes or grades are created

• Each job is placed within a job class

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Advantages of using Classification method

• Jobs can be quickly slotted into structure• Employees accept method because it seems

valid

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Disadvantages of using Classification method

• Requires extensive time and effort for administration

• Differences between classification levels may not be equal

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Job evaluation methods: Point method• Identify compensable factors (job

characteristics)• Scale factors (e.g. on a scale of 1 – 5)• Assign a weight to each factor so the sum

of the weights for all factors = 100%

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Advantages of using Point method

• Establish worth of each job relative to all other jobs within organization

• Comprehensive measurement of relative worth of each job in organization

• Easy to rank jobs when total points are known for each job

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Disadvantages of using Point method• Requires extensive administrative– Time– Effort

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Does job evaluation method matter?

– Fairness– Evaluators• Impartial• Objective

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Compensation surveys• Information on–Base pay–All other types of compensation

• Conducted in-house or by consultants.

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Broad-banding:Pay structure collapses job classes into fewer

categoriesAdvantages:• Provides flexibility in rewarding people• Reflects changes in organization structure• Provides better base for rewarding growth in

competence• Gives more responsibility for pay decisions to

managers• Provides better basis for rewarding career

progression

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Reward Systems: Summary• Traditional and Contingent Pay (CP) Plans– Reasons for Introducing CP Plans– Possible Problems Associated with CP– Selecting a CP Plan

• Putting Pay in Context• Pay Structures

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Legal Issues: Overview• Performance Management and the Law• Some Legal Principles Affecting PM• Laws Affecting PM

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Performance Management and the Law

Although we have not discussed legal issues in depth, several books have touched upon how to design and implement performance management systems to be fair and acceptable. Usually performance management systems that are fair and acceptable to employees are also legally sound. A basic principle that guides the design of a fair system is that procedures are standardized and the same procedure are used with all employees. In other words, when the rules and procedures are known by everyone and they are applied in the same way to everyone, the system is likely to be regarded as a fair one. This is also the basic principle that underlies the implementation of performance management system that are legally sound.

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Performance Management and the Law(contd.)

Legislation and court cases in Pakistan, United States, the United Kingdom, and many other countries around the world indicate that discriminatory effects of a performance management system can be minimized by applying the basic principle: treat everyone in exactly the same way. Unfortunately this does not happen very often. As a consequence, there has been a 100% increase in number of employment discrimination cases filed in the United States from 1995 to 2005, and many of these cases have involved issues around the design and implementation of the performance management system.

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Performance Management and the Law(contd.)

• Performance management systems are legally sound, if they are fair:– Procedures are standardized– Same procedures are used with all employees

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Some Legal Principles Affecting PM:Overview

• Employment-at-will• Negligence• Defamation• Misrepresentation• Adverse Impact• Illegal Discrimination

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Employment-at-will• Employment relationship can be ended at

any time by– Employer– Employee

• Exceptions– Implied contract–Possible violation of legal rights

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Employment-at-will• Employment at will: in employment at will, the employer or

employee can end the development relationship at any time. This type of employment relationship gives employers considerable latitude in determining whether, when, and how to measure and reward performance. Thus, an employer could potentially end the employment relationship without documenting any performance problems. There are two exceptions regarding an organizations ability to terminate an employee under these circumstances. First, there may be an implied contract derived from conversations with others in the organization or from information found in the company's documentation indicating that employees would be terminated for just cause only. Second, decisions about terminating an employee should consider a potential violation of public policy.

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Negligence• many organizations outline a performance

management system in their employee manual, employment contract, or other materials. When the system is described in such documents and not implemented as described, legal problems can arise.

• If organization documents describe a systemand• It is Not implemented as described,• Employee can challenge evaluation, charging

negligence

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Defamation• Defamation is the disclosure of untrue, unfavorable

performance information that damages an employees reputation. An employee can argue that the organization defamed her if the employer states false and libelous information during the course of performance evaluation, or negligently or intentionally communicates these statements to a third party, such as potential future employer, thus subjected the employee to harm or loss of reputation.

• Disclosure of performance information that is– Untrue and– Unfavorable

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Misrepresentation• Disclosure of performance information that is–Untrue and– Favorable–mispresentation is about disclosing untrue

favorable performance and this information causes risk or harm to others. When a past employee provides a glowing recommendation for a former employee who was actually terminated because of poor performance, that employer is guilty of mispresentation.

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Adverse Impact / Unintentional Discrimination

• PM system has unintentional impact on a protected class

• Organization must demonstrate:– Specific KSA is a business requirement for the job– All affected employees are evaluated in the same way

• Organization should review ongoing performance score data by protected class to implement corrective action as necessary

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Illegal Discrimination or Disparate Treatment

• Raters assign different scores to employees based on factors that are NOT related to performance

• Employees receive different treatment as result of such ratings

• Employees can claim they were intentionally and illegally treated differently due to their status

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Employee claim of illegal discrimination:

• Direct evidence of discrimination, or• Evidence regarding the following:–Membership in protected class–Adverse employment decision–Performance level deserved

reward/different treatment–How others were treated (not in

protected class)

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Employer response to claim of illegal discrimination

• Legitimate and non-discriminatory reason for action

• Related to performance

• Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provides defense

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Laws Affecting PM:During past few decades, several countries have passed laws prohibiting discrimination based on:•Race or Ethnicity•Sex•Religion•National Origin•Age•Disability status•Sexual orientation

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Laws in the United Kingdom:• Equal Pay Act of 1970• Race Relations Act of 1976• Sex Discrimination Act of 1975• Disability Discrimination Act of 1995• Employment Equality (Sexual Orientation)

Regulations 2003• Employment Equality (Religion or Belief)

Regulations 2003

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Laws in the United States of America

• Equal Pay Act of 1963• Civil Rights Act of 1964• Age Discrimination in Employment Act of

1967 (as amended in 1986)• Americans with Disabilities Act of 1990

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Characteristics of Legally Sound PM Systems

• Organization:– The system is formally explained and communicated to

all employees – The system includes a formal appeals process – Procedures are standardized and uniform for all

employees within a job group – The system includes procedures to detect potentially

discriminatory effects or biases and abuses in the system

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Characteristics of Legally Sound PM Systems

• Management– Supervisors are provided with formal training and

information on how to manage the performance of their employees

– Performance information is gathered from multiple, diverse, and unbiased raters

– The system includes thorough and consistent documentation including specific examples of performance based on first-hand knowledge

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Characteristics of Legally Sound PM Systems• Employees

– Performance dimensions and standards are:• Clearly defined and explained to the employee, • Job-related, and • Within the control of the employee

– Employees are given • Timely information on performance deficiencies and • Opportunities to correct them

– Employees are given a voice in the review process and treated with courtesy and civility throughout the process

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Summary of Today’s Lecture

• Ongoing Monitoring and Evaluation• Compensation - Reward Systems• Legal Issues

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Thank You

MGT-555 PERFORMANCE AND CAREER MANAGEMENT LECTURE NO - 25 1.

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