Chapter 1 Performance Management and Reward System

CHAPTER 1 PERFORMANCE MANAGEMENT SYSTEMS IN CONTEXT
PERFORMANCE MANAGEMENT
is a continuous process of identifying, measuring and developing the performance of individuals and teams and
aligning performance with the strategic goals of the organization.
1. Continuous process – performance management is ongoing. It involves a never ending process.
2. Alignment with strategic goals – employees’ activities and outputs are congruent with the organization’s
goals.
PERFORMANCE APPRAISAL
A system that involves employee evaluations once a year without an ongoing effort to provide feedback and
coaching.
Is a systematic description of an employee’s strengths and weaknesses.
Advantages of a Performance Management System

From the perspective of employees:
1. Motivation to perform is increased – increases the motivation for future performance.
2. Self-esteem is increased – fulfils a basic human need to be recognized and valued at work.
3. The definitions of job and criteria are clarified – employees gain a better understanding of the behaviors
and results required to their specific position.
4. Employees become more competent – employee performance is improved.
5. Self-insight and development are enhanced – help employees better define future career paths.
6. Organizational goals are made clear – employee understands the link between what she does and
organizational success.
7. Motivation, commitment and intentions to stay in the organization are enhanced
8. Employee engagement is enhanced – leads to enhanced employee engagement.
From the perspective of managers:

1. Managers gain insight about subordinates – help manager build a better relationship with that person.
2. Voice behaviour is encouraged – allows employees to engage in voice behaviour that can lead to improved
organizational processes.
3. There is better and more timely differentiation between good and poor performers – quicker identification
of good and poor performers.
4. Supervisors’ views of performance are communicated more clearly – allows managers to communicate to
their subordinates their judgements regarding performance.
5. Organizational change is facilitated – to drive organizational change.
6. Administrative actions are more fair and appropriate – provide valid information about performance
From the perspective of HR function

1. Employee misconduct is minimized – provides appropriate context so that misconduct is clearly defined and
labeled.
2. There is better protection from lawsuits – help document compliance with regulation.
Disadvantages/Dangers of Poorly Implemented PM Systems
1. Increased turnover – employees become upset and leave the organization.
2. Use of misleading information – multiple opportunities for fabricating information about an em
ployee’s performance.
3. Lowered self-esteem – can create employee resentment
4. Wasted time and money – when systems are poorly designed and implemented
5. Damaged relationships – as a consequence of a deficient system
6. Decreased motivation to perform –superior performance is not translated into meaningful tangible or
intangible rewards.
7. Employee burnout and job dissatisfaction – when the performance assessment is not seen as valid
8. Increased risk of litigation – expensive lawsuits may be filed by individuals who feel they have been appraised
unfairly.
9. Unjustified demands on managers’ and employees’ resources – employees may feel increased levels of
overload.
10. Varying and unfair standards and ratings
11. Emerging biases – personal values, biases and relationships are likely to replace organizational standards.
12. Unclear rating system – employees may not know how their ratings are generated.
REWARD SYSTEMS Is the set of mechanisms for distributing both tangible and intangible returns as part of an
employment relationship?
1. Tangible returns – includes cash compensation and benefits.
2. Intangible/relational returns – recognition and status, employment security, challenging work, and learning
opportunities.
TYPES OF RETURNS
1. Base Pay – given to employees in exchange for work performed. Focuses on the position and duties
performed rather than an individual’s contribution.
2. Cost-of-Living Adjustments – imply the same percentage increases for all employees regardless of their
individual performance.
3. Contingent Pay/Merit pay – an addition to the base pay based on past performance.
4. Short-term incentives – temporary pay adjustments based on the review period. Are one-time payments,
variable pay.
5. Long-term incentives – influence future performance over a longer period of time.
6. Income Protection – a backup to employees’ salaries in the event that an employee is sick, disabled, or no
longer able to work. (medical insurance, pension plan, savings plans)
7. Work/Life Focus – programs that help employees achieve a better balance between work and nonwork
activities. (vacation time, counselling)
8. Allowances – typical for expatriate personnel.
9. Relational returns – intangible in nature. (recognition and status, employment security)
AIMS AND ROLES OF PM SYSTEMS

1. Strategic purpose – to help top management achieve strategic business objective.
Onboarding process, refers to the processes that lead new employees to transition from being organizational
outsiders to organizational insiders.
2. Administrative purpose – to furnish valid and useful information for making administrative decisions about
employees.
3. Informational purpose – to inform employees how they are doing and proved them with information on
specific areas that may need improvement.
4. Developmental purpose – to allow managers to provide coaching to their employees.
5. Organizational maintenance purpose – to provide information to be used in workplace planning and
allocation of human resources.
6. Documentational purpose – to collect useful information that can be used for several documentation
purposes.
CHARACTERISTICS OF AN IDEAL PM SYSTEM

1. Strategic congruence – individual goals must be aligned with unit and organizational goals.
2. Context congruence – the system should be congruent with the organization’s culture as well as the broader
cultural context of the region or country.
3. Thoroughness – they include all relevant performance dimensions.
4. Practicality – they do not require excessive time and resources.
5. Meaningfulness – they have important consequences.
6. Specifity – it should provide detailed and concrete guidance to employees about what is expected of them
7. Identification of effective and ineffective performance – provide information that allows for the
identification of effective and ineffective performance.
8. Reliability – include measures of performance that are consistent and free of error.
9. Validity – measures include all relevant performance facets and do not include irrelevant performance facets.
10. Acceptability and fairness – a good system is acceptable and is perceives as fair by all participants.
11. Inclusiveness – include input from multiple sources on an ongoing basis.
12. Openness – they are transparent and there are no secrets.
13. Correctability – minimize subjective aspects. They include mechanisms so that errors can be corrected.
14. Standardization – performance is evaluated consistently across people and time.
15. Ehticality - they comply with ethical standards.
PERFORMANCE APPRAISAL PERFORMANCE MANAGEMENT

Top down assessment Joint process through disclosure
Annual appraisal meeting Continuous reviews with one or more formal reviews
Use of ratings Ratings less common
Focus on quantified objectives Values and behaviors, objectives
Monolithic system Flexible process
Often linked to pay Less likely a direct link to pay
Bureaucratic – complex paperworks Documentation kept to a minimum

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CHAPTER 1 PERFORMANCE MANAGEMENT SYSTEMS IN CONTEXT

Advantages of a Performance Management System

From the perspective of managers:

From the perspective of HR function

AIMS AND ROLES OF PM SYSTEMS

CHARACTERISTICS OF AN IDEAL PM SYSTEM

PERFORMANCE APPRAISAL PERFORMANCE MANAGEMENT

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