Unit- 1. Performance Management and reward systems in Context

Herman Aguinis, University of Colorado at Denver
.
Performance Management in Context:
Overview
Prof. Preeti Bhaskar
Symbiosis Centre for Management Studies, NOIDA

Chapter Outline
 Definition of Performance Management (PM)
 The Performance Management Contribution
 Disadvantages/Dangers of Poorly-implemented PM
systems
 Definition of Reward Systems
 Aims and role of PM Systems
 Characteristics of an Ideal PM system
 Integration with Other Human Resources and
Development Activities
.

Performance Management: Definition
Continuous Process of
Identifying performance of individuals and teams
Measuring performance of individuals and teams
Developing performance of individuals and teams
and
Aligning performance with the strategic goals of
the organization
.

.
Performance Management
vs.
Performance Appraisal

PM is NOT performance appraisal
 Performance
Management
 Strategic business
considerations
 Ongoing feedback So
employee can improve
performance
 Driven by line manager
 Performance appraisal
 Assesses employee
Strengths &
Weaknesses
 Once a year
 Lacks ongoing
feedback
 Driven by HR
.

.
Contributions of PM Systems
For Employees
The definitions of job and
success are clarified
Motivation to perform is
increased
Self-esteem is increased
Self-insight and development
and enhanced
For Managers
Supervisors’ views of
performance are
communicated more clearly
Managers gain insight about
subordinates
There is better and more
timely differentiation
between good and poor
performers
Employees become more
competent
For Organization
Organizational goals are
made clear
Organizational change is
facilitated
Administrative actions are
more fair and appropriate
There is better protection
from lawsuits

.
Disadvantages/Dangers of
Poorly-implemented PM Systems
For Employees
Lowered self-esteem
Employee burnout and
job dissatisfaction
Damaged relationships
Use of false or
misleading
information
For Managers
Increased turnover
Decreased motivation
to perform
Unjustified demands
on managers’
resources
Varying and unfair
standards and ratings
For Organization
Wasted time and
money
Unclear ratings system
Emerging biases
Increased risk of
litigation

Reward Systems: Definition
Set of mechanisms for distributing
 Tangible returns
and
 Intangible or relational returns
As part of an employment relationship
.

Tangible returns
 Cash compensation
Base pay
Hourly wages, Salary
Cost-of-Living Adjustment (COLA)
To combat the effect of inflation in an attempt to preserve the
employee buying power
Contingent Pay/ Merit Pay
Additional pay based on employee level of performance
Incentives (short- and long-term )
bonuses (short term) or stock options/ownership (long term)
.

Tangible returns
 Benefits, such as
Income Protection Program
Serve as a Backup to employee salaries in the event when employee is sick,
disabled, or no longer able to work .
E.g. Disability pay, medical insurance, pension plans, savings plans.
Allowances
E.g., housing, transportation, mobile , gym facility, phone bills.
Work/life focus
E.g., vacation time, counseling, financial planning, flexible work schedules (e.g.,
telecommuting, non-paid time off).
.
In fact, a recent survey including both employees in general and HR professionals in particular showed
that health care/medical insurance is the most important benefit, followed by paid time off and retirement
benefits

Intangible returns
 Relational returns, such as
Recognition and status
Employment security
Challenging work
Learning opportunities
.

Returns and Their Degree of Dependency on the
Performance Management System
Return
 Cost of Living Adjustment
 Income Protection
 Work/life Focus
 Allowances
 Relational Returns
 Base Pay
 Contingent Pay
 Short-term Incentives
 Long-term Incentives
Degree of Dependency
 Low
 Low
 Moderate
 Moderate
 Moderate
 Moderate
 High
 High
 High
.
Degree of DependencyReturns

Role of PM Systems
.

.
• To help top management achieve strategic business objectives
Strategic Purpose
• To furnish valid and useful information for making administrative decisions about
employees
Administrative Purpose
• To inform employees about how they are doing and about the organization's and the
supervisor’s expectations
Informational Purpose
• To allow managers to provide coaching to their employees
Developmental Purpose
• To provide information to be used in workplace planning and allocation of human resources
Organizational maintenance Purpose
• To collect useful information that can be used for various purposes (e.g., test development,
personnel decisions)
Documentation Purpose

Strategic Purpose
.
By linking the organization's goals with individual goals,
the performance management system reinforces
behaviors consistent with the attainment of
organizational goals.
Onboarding refer to the processes that help the new
employee from being Organizational outsider to
organizational insider.

Administrative Purpose
To furnish valid and useful information for making administrative decisions
about employees.
Such administrative decisions include-:
Salary adjustments
Promotions
Retention or termination
Recognition of individual performance
Identification of poor performers
Layoffs
Merit
.

Informational Purpose
“serve as an important communication device.”
 First, they inform employees about how they are doing, and provide them with
information on specific areas that may need improvement.
 Second, related to the strategic purpose, they provide information regarding the
organisation’s and the supervisor’s expectations, and what aspects of work the
supervisor believes are most important.
 Third, How they can improve their performance
.

Developmental Purpose
 Performance feedback/coaching
 Identification of individual strengths and weaknesses
 Causes of performance deficiencies (which could be due to individual,
group or contextual factors).
 Tailor development of individual career path
.
Developmental purpose refers to both short-term and long-term
development aspects.

Organizational Maintenance Purpose
 Workforce planning
 Talent inventory, which is information on current resources (e.g., Skills, abilities,
promotional potential and assignment histories of current employees).
 Assess future training needs
 Evaluate performance at organizational level
 Evaluate effectiveness of HR interventions (e.g., Whether
 Employees perform at higher levels after participating in a training programme).
.

Documentation Purpose
Validate selection instruments
Document administrative decisions
Help meet legal requirements
.

Characteristics of an Ideal PM System
.
Strategic congruence Thoroughness Practicality Meaningfulness
Specificity
Identification of
effective and
ineffective
performance
Reliability Validity
Acceptability and
fairness
Inclusiveness Openness Correctability
Standardization Ethicality

Congruent with organizational strategy
 Consistent with organization’s strategy
 Aligned with unit and organizational goals
Thorough
• All employees are evaluated
• All major job responsibilities are evaluated
• Evaluations cover performance for entire review
period
• Feedback is given on both positive and negative
performance

Practical
 Available
 Easy to use
 Acceptable to decision makers
 Benefits costs
.
Meaningful
• Standards are important and relevant
• System measures ONLY what employee can control
• Results have consequences Evaluations occur regularly and
at appropriate times
• System provides for continuing skill development of
evaluators

Specific
Concrete and detailed guidance to employees
what’s expected
how to meet the expectations
.
Identifies effective and ineffective performance
• Distinguish between effective and ineffective
– Behaviors
– Results
• Provide ability to identify employees with
various levels of performance

Reliable
 Consistent
 Free of error
 Inter-rater reliability
.
Valid
• Relevant (measures what is important)
• Not deficient (doesn’t measure
unimportant facets of job)
• Not contaminated (only measures what
the employee can control)

Acceptable and Fair
 Perception of Distributive Justice
Work performed  evaluation received 
reward
 Perception of Procedural Justice
Fairness of procedures used to:
Determine ratings
Link ratings to rewards
.

Inclusive
 Represents concerns of all involved
When system is created, employees should help
with deciding
What should be measured
How it should be measured
Employee should provide input on performance
prior to evaluation meeting
.

Open (No Secrets)
 Frequent, ongoing evaluations and feedback
 2-way communications in appraisal meeting
 Clear standards, ongoing communication
 Communications are factual, open, honest
.
Ethical
• Supervisor suppresses self-interest
• Supervisor rates only where she has sufficient
information about the performance dimension
• Supervisor respects employee privacy

Integration with other Human Resources
and Development activities
PM provides information for:
Development of training to meet
organizational needs
Workforce planning
Recruitment and hiring decisions
Development of compensation systems
.

.

Unit- 1. Performance Management and reward systems in Context

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