Performance & Compensation Management

Performance & Compensation Management Shah M Saad Husain Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management Shah M Saad Husain B Engg, MS Engg, PE, MBA, FICS, FIMM • 33 years senior management experience with government, Pakistani private sector and multinational companies. • in Project Management, Engineering Operations, General Management, Business Development, External Affairs, Marketing, HR, Corporate Planning, CSR and Customer Relations. • with PIDC, Habib Group, British Petroleum, BHP Billiton, Indus Motor, Pak-Arab Refinery. • 22 years teaching experience at IBA, CBM, PIQC, PIM, NIPA, LUMS. Subjects: HRM, Performance & Compensation Management, Marketing Management, Strategic Management, Project Management, Industrial Marketing, Japanese Management, CSR, Customer Ascendancy. Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management – Course Contents HR and Organizational Strategy 1 HR in the 21st Century 2, 3 The Strategic Role and Outcome of HRM 4, 5 HR Strategies and Organizational Performance Performance Management 6,7 Objectives of Performance Management 8, 9 Performance Management Systems 10 Employee Training & Development 11 Manpower Planning & Recruitment 12 Succession Planning Reward Management 13 Objectives of Reward Management 14, 15 Job Evaluation, Internal and External Equity 16, 17 Compensation 18, 19 Grade & Pay Systems 20 Factors Influencing Pay 21 Impact of Environment on Reward Management 22, 23 Reward Model – Strategy & Implementation 24, 25 Motivation, Reward & Organizational Commitment 26, 27 Rewarding Contribution and Performance 28 - 29 Student Presentations, Case Studies Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management Course Objectives • Knowledge of P & R Management Theory, Concepts, Processes and Practices. • Identifying Sources of Information and using them. • Class Interaction, learning from the Marketplace. • Practical Application of course, developing Strategies for Organizations. • Performance Assessment: Students nTeacher. Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management Course Requirements • Readings from selected texts, journals • Theory, Concepts discussed in Class • Student Projects and Reports • Real Life Cases • Examinations • Presentations and Class Evaluations • Class Participation, Quizzes, Home Assignments Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management Instructions for Students • Bring Course File to each class • Read reading materials before class • Write notes as slides are explained and discussed • Keep track of Course Calendar, Class Timings, Grades, etc., on e-group and with CR • Maintain contact with CR and SSH • Meet Attendance and Punctuality requirements • Discipline is key. Adhere to IBA Rules. Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management- Grading • Midterms ( 2 x 20 ) = 40 • Final = 30 • Project Report, Presentation = 25 • Home Assignments, Quizzes = 5 • All Quizzes are open book • For an overall A grade in the course: • A in Final • A in Project Report • Active Class Participation Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management - Readings I. Luis R. Gomez – Mejia, David B. Balkin, Robert L. Cardy (2008) : Prentice Hall “Managing Human Resources” ii. Michael Armstrong (2008): Kogan Page “Employee Reward Management & Practice” iii. Wayne F. Cascio (2006): Tata McGraw-Hill “Managing Human Resources” Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management 1 – HR in the 21st Century 2 – The Strategic Role and Outcome of HRM 3 - HR Strategies & Organizational Performance

Performance & Compensation Management by Shah M Saad Husain

HRM and the 21st Century • Due to Internet technologies, organizations are undergoing a complete transformation. The 21st century organization must adapt itself to management via the web. • Intellectual capital will be critical to success. Advantage of bringing new technologies to the market will be shorter. Technologies will let competitors match them almost immediately. • In such times, it will be critical to attract and retain the best thinkers. • Retaining and attracting the top talent will require more than just paychecks. It will require a culture of empowering people, and a reward system that rewards the best as if they were the owners of the company. • Intellectual capital will be called on from around the globe. A global corporation might be based in the US but does its software programming in Sri Lanka, engineering in Germany, its manufacturing in China, and is linked via the Internet to allow employees to interact and work in real time. Performance & Compensation Management by Shah M Saad Husain

HRM and the 21st Century Corporation Performance & Compensation Management by Shah M Saad Husain

Introduction to HRM • Human Resources Strategy in a firm is a firm’s deliberate and planned use of human resources to help it gain a competitive advantage. • The HRM strategy of a firm is its grand plan to ensure that it effectively uses its people to accomplish its mission. Performance & Compensation Management by Shah M Saad Husain

HUMAN RESOURCE MANAGEMENT • Employer/Organizational Objectives • Organizational Structure • Job Identification, Analysis & Design • Job Specification (Before Joining) • Job Description (After Joining) • Tasks, Activities, Responsibilities, Accountabilities • Power (Financial/Administrative) • Reporting Structure • Manpower Planning, Recruitment, Induction • Training & Development Employer Objectives Employee Objectives JOB (Scope & Depth) Work • Growth in • Goods & Services • Customer Satisfaction • Revenue Generation • Profits • Return on Equity (ROE) • Expansion of Business • Corporate Reputation • Growth in • Family & Self • Profession • Career • Security • Social Status Services Employee – Employer Relationship EMPLOYER EMPLOYEE Performance Management Compensation & Rewards • Performance Evaluation • Increments • Bonus • Incentives • Career Development • Ultimate Potential • Salary • Benefits • Facilities and Perks • Allowances • Professional, Career, Societal Recognition • Internal + External (Mkt) Equity Performance & Compensation Management by Shah M Saad Husain

Outcomes of HRM Practices • HRM practices make an important practical difference in three key organizational outcomes. • Productivity • Quality of Work Life • Profit : Total Revenue minus the Total Cost Performance & Compensation Management by Shah M Saad Husain

A measure of the output of goods and services relative to the input of labor, capital, and equipment. Higher productivity Leads to higher wages without boosting inflation. Is not working harder, it is working smarter. Is about doing more with fewer people, less money, less time and space, and fewer resources. Outcomes of HRM Practices: 1. Productivity Performance & Compensation Management by Shah M Saad Husain

MORE PRODUCTIVE ORGANIZATIONS GET MORE GOODS AND SERVICES FROM A GIVEN AMOUNT OF LABOR, CAPITAL, EQUIPMENT. Performance & Compensation Management by Shah M Saad Husain

Outcomes of HRM Practices: 1. Productivity Improvement • Rebuild employee loyalty. • Establish a clear link between rewards and production. • Say no to ‘Quick Fix’ approach. • Emphasize on Continuous Improvement. Performance & Compensation Management by Shah M Saad Husain

Outcomes of HRM Practices: 2. Quality of Work Life • Two ways of looking at Quality of Work Life (QWL) • Organizational Conditions and Practices such as promotion from within, democratic supervision, participative management, employee involvement, safe working conditions, mutual trust, team work. • Employees’ Perceptions that they are respected, relatively well satisfied, and able to grow and develop as human beings and professionals. Performance & Compensation Management by Shah M Saad Husain

Outcomes of HRM Practices: 3. Profit • Management Systems that produce profits through people share the following dimensions: • Employment Security. • Selective Hiring. • Self-managed teams and decentralization. • High Compensation contingent on organizational performance. • Extensive Training, Development and Professional grooming. • Reduced differences in status. Respect for competence and performance. • Sharing of information, effective communication systems. • Employee Care and Satisfaction. • Trust. Performance & Compensation Management by Shah M Saad Husain

Outcomes of HRM Practices: 4. Roles of HR Professionals Today“ The greatness of an Organisation is due to the Greatness of its People”, Eiji Toyoda • Strategic Partners: work with multiple stakeholders to achieve business plans. • Innovators: create an environment that supports continuous learning and improvement. • Collaborators: create win-win situations with internal and external stakeholders. • Change facilitators: anticipate the need for change, think, conceptualize, articulate, execute and energize organization to bring change. Performance & Compensation Management by Shah M Saad Husain

HRM and Corporate Strategic Goals • Human Resource Management is essential to advance a firm’s strategic goals. CORPORATE STRATEGIC GOALS Linking Corporate Strategic Goals with HRM CORPORATE STRATEGY HR STRATEGY HR TACTICS HR PLANS HR POLICIES, SYSTEMS, SOPs HR PRACTICES Performance & Compensation Management by Shah M Saad Husain

HR’s Strategic Role • Successful firms align their HR strategies and tactics with: • Environmental Opportunities and Threats. • Business Strategies. • Organizational Unique Characteristics. • Organization’s Competence. Performance & Compensation Management by Shah M Saad Husain

Planning and Implementing Strategic HR • Strategic HR Planning involves: • Formulation of HR strategies • Designing Programs and Tactics • Execution • Monitoring Results Performance & Compensation Management by Shah M Saad Husain

The Benefits of HR Planning • Encouragement of proactive rather than reactive behavior • Explicit communication of Company Goals • Stimulation of critical thinking and ongoing examination of assumptions • Identification of gaps between Current Situation and Future Vision • Encouragement of Line Manager’s Participation • Identification of HR constraints and opportunities • Teamwork and creation of common bonds Performance & Compensation Management by Shah M Saad Husain

The Challenges of Strategic HR Planning • Maintaining a competitive advantage • Reinforcing overall business strategy • Avoiding excessive concentration on day-to-day problems • Developing HR strategies suited to unique organizational features • Coping with the environment • Securing management commitment • Translating the strategic plan into action • Combining intended and emergent strategies • Accommodating change Performance & Compensation Management by Shah M Saad Husain

Selecting HR Strategies to Increase Firm’s Performances • HR Strategy’s effect on a firm’s performance depends on how well it ‘fits’ with other factors • Fit refers to the consistency and compatibility between HR strategies and other important aspects of the organization Performance & Compensation Management by Shah M Saad Husain

Fit with Organization Strategies • Corporate Strategy is referred to as the mix of businesses a corporation decides to hold and the flow of resources among those businesses. e.g., PARCO • Business Unit Strategies are those that are formulated and implemented by a firm that is relatively autonomous, even if it is part of a larger corporation. eg. PAPCO Performance & Compensation Management by Shah M Saad Husain

Effective HR Strategy Formulation and Implementation Performance & Compensation Management by Shah M Saad Husain

HR Strategies to Fit Three Major Types of Business Strategies Performance & Compensation Management by Shah M Saad Husain

HR Strategies That Fit Two Major Types of Business Strategies Performance & Compensation Management by Shah M Saad Husain

Fit with the Environment • HR strategies should help the organization better exploit environmental opportunities or cope with the unique environmental forces that affect it • The relevant environment can be measured in terms of four dimensions: • Degree of uncertainty: how much accurate information is available to make appropriate business decisions • Volatility: how often does the environment change • Magnitude of change: how drastic the changes are • Complexity: how many different elements in the environment affect the firm either individually or together Performance & Compensation Management by Shah M Saad Husain

HR Strategies for Firms with Different Environmental Characteristics Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Characteristics • The production process for converting inputs into outputs • Routine production process benefits from HR strategies that emphasize control example: Specific job description and job specific trainings • Firms with non-routine production processes such as advertising firms, custom printers, and biotechnology companies, benefit from flexible HR strategies that support organizational adaptability, quick response to change and creative decision making example: Broad job classes, loose work planning, and generic training Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Characteristics • The Firm’s Market Posture • Firms that experience high sales growth and engage in product innovation for a wide market segment benefit from HR Strategies that support growth and entrepreneurial activities example: External recruitment or buying skills, decentralized pay decisions, customized appraisal • Firms with low rates of sales growth and limited product innovation for a narrow market segment benefit from HR strategies that emphasize efficiency, control, and firm specific knowledge example: Internal recruitment or ‘making skills’. On-the-job training, and high dependence on superiors Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Characteristics • The firm’s overall managerial philosophy • Companies whose top executives are risk-averse and operate with an autocratic leadership style, and are inwardly focused use HR strategies that match this outlook example: Seniority based pay, formal hiring and socializing of new employees, selection decisions made by the HR department and use of top-down communication channels. • Management characterized by high risk taking, participation, egalitarianism, and external, proactive environmental orientation use HR strategies that fits this outlook example: include variable pay, giving supervisors a major role in hiring decisions, up-and-down communication channels, and multiple inputs for performance appraisals Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Characteristics • The firm’s organizational structure • Highly formal organizations that are divided into functional areas like marketing, finance, production, etc, and concentrate decision making on top: HR strategies for such organizations include a control emphasis, centralized pay decisions, explicit job descriptions, and job-based pay. • Firms whose structures are less regimented benefit from HR strategies that include informal hiring and socializing of new employees, decentralized pay decisions, broad job classes and individual-based pay. Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Characteristics • The firm’s organizational culture • Companies that foster an entrepreneurial climate have loose work planning, informal hiring and socializing of new employees and variable pay. • Firms that discourage entrepreneurship generally prefer a control emphasis, detailed work planning, formal hiring and socializing of new employees, and fixed pay. • Firms with emphasis on moral commitment-the extent to which a firm tries to foster a long-term emotional attachment between the firm and the employees have emphasis on preventive vs. remedial disciplinary action to handle employee mistakes, and explicit ethical codes to monitor and guide behavior. • Firms that are low on moral commitment rely on authoritarian relationship between employee and company. Performance & Compensation Management by Shah M Saad Husain

Fit with Organizational Capabilities • Distinctive competencies of a firm are its capabilities such as technology, management systems, reputation, etc, that give it a Competitive Edge • HR strategies should enhance a firm’s performance by: 1.helping the company exploit its specific advantages or strengths while avoiding weaknesses 2. assisting the firm in better utilizing its unique blend of human resource skills and assets Performance & Compensation Management by Shah M Saad Husain

Choosing consistent and appropriate HR tactics to implement HR strategies • The best-laid HR strategies may fail when specific HR programs are poorly chosen or implemented • In addition to fitting with each of the four organizational characteristics; organizational strategy, environment, organizational capabilities and characteristics, a firm’s HR strategies should be mutually consistent • HR strategies are likely to be successful if they reinforce one another rather than work at cross-purposes. example: Working in teams, but traditional individual based performance appraisals Performance & Compensation Management by Shah M Saad Husain

Choosing Consistent and Appropriate HR Tactics to Implement HR Strategies Performance & Compensation Management by Shah M Saad Husain

Reckitt Benckiser diagram Performance & Compensation Management by Shah M Saad Husain

Performance & Compensation Management