HRM-755 PERFORMANCE MANAGEMENT

1. LECTURE: THIRTY HRM-755 PERFORMANCE MANAGEMENT OSMAN BIN SAIF

2. Summary of Previous Lecture • Coaching Process • Observation and Documentation of Developmental Behavior and Outcomes • Constraints in Observing and Evaluating Performance • Reasons for Documentation of Progress • Recommendations for Documentation of Progress

3. Summary of Previous Lecture (Contd.) • Giving Feedback • Purposes of Feedback • Enhancing Feedback • Praise

4. Agenda for Today’s Lecture • Negative Feedback • Reasons for Negative Feedback Discomfort • Improving Defensive Response • SECTION 4: REWARD SYSTEMS, LEGAL ISSUES AND TEAM PERFORMANCE MANAGEMENT • CHAPTER 10: REWARD SYSTEMS AND LEGAL ISSUES • Traditional Pay Plans • Contingent Pay Plans • Reasons for Introduction of Contingent Pay Plans

5. Agenda for Today’ Lecture (Contd.) • Conditions necessary for a Successful CP Plan • Possible Problems Associated With Contingent Pay Plans • Types of CP Systems • Recommendations for Rewards • Pay Structures • Performance Management and Legislation • Legislations Examples, U.K , U.S

6. Negative feedback • Negative feedback includes information that performance has fallen short of accepted standards. • The goal of providing negative feedback is to help employees improve their performance in the future; • it is not to punish, • embarrass, or • chastise them.

7. Negative feedback (Contd.) • It is important to give negative feedback when it is warranted because the consequences of not doing so can be detrimental for the organization as a whole. • In spite of need to address poor performance, managers are usually not very comfortable providing negative feedback. Why is this so?

8. Reasons for Negative Feedback Discomfort Consider the following reasons, why managers are not comfortable providing negative feedback; • Negative reactions and consequences: • Manager may fear, the employee may react negatively

9. Reasons for Negative Feedback Discomfort (Contd.) • Negative experience in the past: • Managers themselves may have received negative feedback at some point in their careers and have experienced firsthand how feelings can be hurt. • Playing “god”: • Manager may be reluctant to play the role of an all knowing, judgmental god.

10. Reasons for Negative Feedback Discomfort (Contd.) • Need for irrefutable and conclusive evidence: • Managers may not want to provide negative feedback until after they have been able to gather irrefutable and conclusive evidence about a performance problem.

11. Improving Defensive Response What can supervisor do to improve defensive response? • Establish and maintain rapport: • It is important that meeting take place in a good climate. • This can be achieved by choosing a meeting place that is private and by preventing interruptions from taking place.

12. Improving Defensive Response (Contd.) • Be empathetic: • It is important for the supervisor to put herself in the shoes of the employee. • The supervisor need to make an effort to understand why the employee has performed at a certain level during the review period.

13. Improving Defensive Response (Contd.) • Observe verbal and non verbal cues: • The supervisor should be able to read verbal and non verbal signals from the employee to determine whether further clarification is necessary.

14. Improving Defensive Response (Contd.) • Minimize threats: • The performance review meeting should be framed as a meeting that will benefit the employee, not punish him. • Encourage participation: • The employee needs to have her own conversational space rather, she should listen without interrupting and avoid confrontation and argument.

15. SECTION 4: REWARD SYSTEMS, LEGAL ISSUES AND TEAM PERFORMANCE MANAGEMENTCHAPTER 10: REWARD SYSTEMS AND LEGAL ISSUES

16. CHAPTER 10: REWARD SYSTEMS AND LEGAL ISSUES You have to get rewarded in the soul and the wallet. The money isn't enough, but a plaque isn't enough either… you have to give both. --JACK WELCH

17. Traditional Pay Plans • A traditional approach in implementing reward system is to reward employees for the positions they fill as indicated by their jobs and not necessarily by how they do their work. • In other words, employees are rewarded for filling a specific slot in the organizational hierarchy.

18. Traditional Pay Plans (Contd.) • Typically, there is a pay range that determines minimum, midpoint, and maximum rates for each job. For example, a university may have five ranks for professors who just have been hired: • Instructor(pay range:$30,000-45,000) • Senior instructor(pay range:$40,000-55,000)

19. Contingent Pay Plans • Contingent pay(CP) also called pay for performance, means that individuals are rewarded based on how well they perform on job. • Thus, employees receive increase in pay based wholly or partially on job performance.

20. Contingent Pay Plans (Contd.) • These increases can either be added to employees base salary or be a one time bonus. • Originally, CP plans were used only for top management. • Generally the use of CP plans extended to sales jobs.

21. Reasons for Introduction of Contingent Pay Plans • The result of a recent survey of Fortune 500 companies indicated that performance management systems are not effective when results are directly not tied to the reward system. • When the performance management system has a direct relationship with the reward system, performance measurement and performance improvement are taken more seriously.

22. Reasons for Introduction of Contingent Pay Plans (Contd.) • When a CP plan is implemented, organizations need to make clear what is expected of employees, what specific behaviors or results will be rewarded, and how employees can achieve these behaviors or results. • This, in and of itself, serves as an important communication goal because supervisors and employees are better able to understand what really matters.

23. Reasons for Introduction of Contingent Pay Plans (Contd.) • For example, assume an organization is trying hard to improve customers satisfaction. • Some units in this organization decide to implement a CP plan that awards cash to employees who improve their customer satisfaction ratings. • In contrast, other units continue with a traditional pay plan in which there is no clear tie between performance levels and rewards.

24. Conditions necessary for a Successful CP Plan CP plans can help improve the motivation of employees when each of the following conditions is present: • Employees see a clear link between their efforts and the resulting performance (expectancy) • Employees see a clear link between their performance level and the reward received (instrumentality)

25. Conditions necessary for a Successful CP Plan (Contd.) • Employees value the reward available (valence) There is multiplicative relationship among these three determinants of motivation so that motivation=expectancy*instrumentality*valence

26. Possible Problems Associated With Contingent Pay Plans In spite of potential possible impact of CP plans, we should be aware that not all CP plans work as intended. Why is that the Cp plan may not succeed? Consider the following reasons:

27. Possible Problems Associated With Contingent Pay Plans (Contd.) • A poor performance management is in place: • What happens when a CP plan is paired with a poorly designed, poorly implemented performance management system, one that includes biased ratings and the measurement of unrelated performance dimensions? • This situation may lead some employees to challenge the CP plan legally.

28. Possible Problems Associated With Contingent Pay Plans (Contd.) • There is folly of rewarding A while hoping for B: • What happens when system rewards results and behaviors that are not those that will help the organization succeed? • Employees are likely to engage in these often counter productive behaviors when this behavior is what will earn them the desired rewards.

29. Possible Problems Associated With Contingent Pay Plans (Contd.) • Rewards are not considered significant: • What happens when a CP plan includes pay increases, and other rewards that are so small that they don’t differentiate between outstanding and poor performers. • For example, what happens when top performers receive a 5% pay increase and a average performer receives a 3% or 4% pay increase? • In this context, rewards are not viewed as performance based rewards and they do not make an impact.

30. Possible Problems Associated With Contingent Pay Plans (Contd.) • Managers are not accountable: • What happens when managers are not accountable regarding how they handle the performance and the performance evaluation of their employees? • They are likely to inflate ratings so that employees receive what the manager thinks are appropriate rewards.

31. Possible Problems Associated With Contingent Pay Plans (Contd.) • There exist extrinsic motivation at the expense of intrinsic motivation: • What happens when there is so much, almost exclusive, emphasis on rewards? • Employees may start to lose interest in their job, which in turn can decrease motivation. • In some cases, the extrinsic value of doing ones job can supersede the intrinsic value. • (e.g Challenging job, interesting work environment and other motivating factors)

32. Possible Problems Associated With Contingent Pay Plans (Contd.) • Rewards for executives are disproportionality large compared to rewards for everyone else: • In many organizations, executive rewards are disproportionality large compared to the rewards received by everyone else in the organization.

33. Types of CP Systems Consider the type of systems that can be implemented in cultures that we can label; • traditionally or • involvement cultures.

34. Traditional Culture of CP System Example of such CP systems are the following. • Piece rate: • Employees are paid based on the number of units produced or repaired. • This system is usually implemented in manufacturing environments. • In the service organizations, this could involve the number of calls made or the number of clients or potential clients, contracted.

35. Traditional Culture of CP System (Contd.) • Sales commission: • Employees are paid based on percentage of sales. • This system is usually implemented in car dealerships. • Group incentives: • Employees are paid based on extra group production based on result oriented measures. • This system is implemented frequently in the retail industry.

36. Involvement Culture of CP System Involvement culture is different from traditional cultures. Examples of systems that work well in organizations with involvement cultures are the following • Profit sharing: • Employees are paid based on the performance of group and on whether the group has exceeded a specific final goal. This type of system is implemented in many large law firms.

37. Involvement Culture of CP System (Contd.) • Skill based pay: • Employees are paid based on whether they acquire new knowledge and skills that are beneficial to the organization. • This type of system is usually implemented in knowledge based organizations such as software development companies.

38. Recommendations for Rewards What can the organization do to ensure that actions intended to be reward are actually regarded as rewards? What can we do to make rewards work? Consider the following recommendations.

39. Recommendations for Rewards (Contd.) • Define and measure performance first, then allocate rewards: • Before rewards are allocated, there must be a good performance management system in place that defines • (1)performance and performance expectations • (2) measure performance well.

40. Recommendations for Rewards (Contd.) • Use only rewards that are available: • If the organization does not have financial rewards available, then employees expectations should be adjusted accordingly and the focus should be on non financial rewards. • Make sure that all employees are eligible: • In many organizations, top executives receive benefits such as profit sharing, stock options, executive life and liability insurance, invitations to meetings in attractive locations and permission to fly first class.

41. Recommendations for Rewards (Contd.) • Make rewards visible: • Rewards should be visible to those who receive them. Rewards should also be visible to others, together with information about what needs to happen for an employee to receive the reward in the future. • Make rewards contingent: • Rewards should be tied to performance directly and exclusively. Imagine that an outsider is asked to guess the salary levels for various employees in an organization. • Assume that she can ask the following questions: what do people do? How long have they done it? How well have they done it?

42. Recommendations for Rewards (Contd.) • Make rewards timely: • Rewards should be given soon after the occurrence of result or behavior being rewarded. • Experimental psychologist know that if a mouse is in a cage pulls a lever and lump of sugar appears 10 months later, no learning will takes place. • Make rewards reversible: • Increasing an employees base pay creates an annuity for the employees tenure with the organization. • If mistakes are made in the allocation of increase in base salary, they are usually irreversible and can be very costly over time. • This why variable pay which is not added to the employees base salary has become an attractive option for many organizations.

43. Recommendations for Rewards (Contd.) • Use Non Financial Rewards: • Unfortunately, many organizations under estimate the impact of non financial rewards, including the following: • Formal commendation and awards • Favorable mention in the company publication • Private, informal recognition for jobs well done.

44. Recommendations for Rewards (Contd.) • Public recognition, including praise, certificates of accomplishment, and letter of appreciation. • Status indictors, such as new job title, larger work area, promotion, ability to supervise more people and newer or more equipment • Time such as taking a longer break , leaving work earlier and getting time off with or without pay. • A more challenging work environment, responsibility and freedom.

45. Pay structures • Regardless of whether the organizations implemented a reward system based on performance, they face the question of what salary to assign a new employees. • An organizations pay structure classifies job into categories based on their relative worth.

46. Job evaluation • Job evaluation is a process of data collection through which an organization can understand the worth of various jobs and as a result, create a pay structure. • Job evaluation includes a consideration of skills, knowledge, and abilities that are required for each job, how valuable the job is for the organization, and how much pay other organizations allocate to these jobs.

47. Pay structures (Contd.) • Several job evaluation methods are available but the most popular are; • Ranking, • Classification, and • Point.

48. The Ranking Method • The ranking method is the fastest and simplest method to implement. • It consist of two steps, first, a job description is created for each job. • A job description which results from a job analysis, summarizes the job duties, needed knowledge, skills and abilities and working condition for each job. • Second, job descriptions are compared to each other in terms of how valuable each job is for the organization.

49. The Classification Method • The classification method also consist of two steps: • First, a series of classes or job families are created. • Each job class, sometimes referred to as a grade has a unique label and includes a sufficiently detailed description of the work performed so that it will be easy to classify all individual jobs within one class. • Second, each individual job is placed within a job class. The end result is a set of classes, each including several jobs.

50. The Point Method • The most time consuming of the three, but it is the one that provides the most accurate results in terms of pay scale for each job compared to all other jobs in the organization. • It includes identifying compensable factors or those characteristics of jobs that add value to the organization and for which the organization is willing to pay.