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Chapter 1

Performance Management
and Reward Systems
in Context

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1.pdf

Performance management third edition

herman aguinis www.pearsonhighered.com

ISBN-13: ISBN-10:

978-0-13-255638-5 0-13-255638-3

9 7 8 0 1 3 2 5 5 6 3 8 5

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Overview

Definition of Performance Management (PM)

The PM Contribution

Disadvantages/Dangers of Poorly Implemented PM Systems

Definition of Reward Systems

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Overview (continued)

Purposes of PM Systems

Characteristics of an Ideal PM System

Integration with Other Human Resources and Development Activities

PM Around the World

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Definition of PM

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Continuous process of …
Identifying
Measuring
Developing

… the performance of individuals and teams

Aligning performance with the strategic goals of the organization

Definition of PM (continued)

Performance management (PM)

is NOT

performance appraisal (PA)

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Definition of PM (continued)

Strategic business considerations
Driven by line manager
Ongoing feedback

So employee can improve performance

Driven by HR
Assesses employee

Strengths

Weaknesses

Once a year
Lacks ongoing feedback

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Contributions of
Performance Management

For Employees

For Managers

For Organization/HR Function

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Contributions of Performance Management for Employees

Clarify definitions of

Job

Success criteria

Increase motivation to perform

Increase self-esteem

Enhance self-insight and development

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Contributions of Performance Management for Managers

Communicate supervisors’ views of performance more clearly

Managers gain insight about subordinates

Better and more timely differentiation between good and poor performers

Employees become more competent

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Contributions of Performance Management for Organization/HR Function

Clarify organizational goals

Facilitate organizational change

Fairer, more appropriate administrative actions

Better protection from lawsuits

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Disadvantages/Dangers of
Poorly Implemented
PM Systems

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For Employees
For Managers
For Organization/HR Function

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

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Disadvantages/Dangers of Poorly Implemented PM Systems for Managers

Increased turnover

Decreased motivation to perform

Unjustified demands on managers’ resources

Varying and unfair standards and ratings

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Disadvantages/Dangers of Poorly Implemented PM Systems for Organization/HR Function

Wasted time and money

Unclear ratings system

Emerging biases

Increased risk of litigation

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Reward Systems

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Definition
Tangible Returns
Intangible Returns
Returns and their Degrees of Dependency on PM
For Organization/HR Function

Reward Systems
Definition

Set of mechanisms for distributing…

Tangible returns

Intangible or relational returns

… as part of an employment relationship

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Reward Systems
Tangible Returns

Cash compensation

Base pay

Cost-of-Living and Contingent Pay

Incentives (short- and long-term)

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Base pay

Hourly wages

Salary

Cost-of-Living & Contingent Pay

Usually permanent increases in pay based on either cost of living or performance

Covered in more detail in Module 11

Incentives (short- and long-term)

Used to increase performance

E.g., bonuses (short term) or stock options/ownership (long term)

Income Protection

Sometimes required under law, such as

Social Security (what about unemployment insurance in the USA?) Disability pay,

medical insurance,

pension plans,

savings plans

Allowances

E.g., housing

transportation (e.g., company provides car)

Reward Systems
Tangible Returns (continued)

Benefits such as

Income Protection

Allowances

Work/life focus

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Reward Systems
Intangible Returns

Relational returns such as

Recognition and status

Employment security

Challenging work

Learning opportunities

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Work/life focus (to help employee balance work/home life)

Such as vacation time,

flextime and telecommuting,

services (e.g., counseling, financial planning, fitness activities)

Relational Returns

Such as recognition,

status,

employment security,

challenging work,

opportunities to learn,

opportunities to form personal relationships

Returns and Their Degrees of Dependency on the Performance Management System

Low Dependency

Cost of Living Adjustment

Income Protection

Moderate Dependency
High Dependency

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Returns and Their Degrees of Dependency on the Performance Management System (Continued)

Low Dependency
Moderate Dependency

Work/Life Focus

Allowances

Relational Returns

Base Pay

High Dependency

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Returns and Their Degrees of Dependency on the Performance Management System (Continued)

Low Dependency
Moderate Dependency
High Dependency

Contingent Pay

Short-Term Incentives

Long-Term Incentives

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Purposes of PM Systems

Strategic
Administrative
Informational
Developmental
Organizational maintenance
Documentation

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Purposes of PM Systems
Strategic Purpose

Link individual goals with organization’s goals

Communicate most crucial business strategic initiatives

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Note: the following is slide used before (some of this is not in Module 1)

Links employee activities with organization’s mission and goals

Identifies results and behaviors needed to carry out strategy

Maximizes extent employees exhibit those behaviors and results

Only 13% of organizations use PM to communicate organizational purpose and goals

Purposes of PM Systems
Administrative Purpose

Provide information for making decisions regarding:

Salary adjustments

Promotions

Retention or termination

Recognition of individual performance

Layoffs

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Purposes of PM Systems
Informational Purpose

Communicate to employees:

Expectations

What is important

How they are doing

How to improve

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Purposes of PM Systems
Developmental Purpose

Performance feedback/coaching

Identification of individual strengths and weaknesses

Identification of causes of performance deficiencies

Tailor development of individual career path

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Purposes of PM Systems
Organizational Maintenance Purpose

Plan effective workforce

Assess future training needs

Evaluate performance at organizational level

Evaluate effectiveness of HR interventions

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Purposes of PM Systems
Documentation Purpose

Validate selection instruments

Document administrative decisions

Help meet legal requirements

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An Ideal PM System:
15 Characteristics

Strategically congruent

Contextually congruent

Thorough

Practical

Meaningful

Specific

Identifies effective and ineffective performance

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An Ideal PM System:
15 Characteristics (continued)

Reliable

Valid

Acceptable and fair

Inclusive

Open (No Secrets)

Correctable

Standardized

Ethical

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An Ideal PM System:
15 Characteristics
Strategically Congruent

Consistent with organization’s strategy
Aligned with unit and organizational goals

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An Ideal PM System:
15 Characteristics
Contextually Congruent

Congruent with the organization’s culture as well as the broader cultural context of the region or country

Example: A 360-degree feedback is not effective where communication is not fluid and hierarchies are rigid

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An Ideal PM System:
15 Characteristics
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

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An Ideal PM System:
15 Characteristics
Practical

Available
Easy to use
Acceptable to decision makers
Benefits outweigh costs

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An Ideal PM System:
15 Characteristics
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

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An Ideal PM System:
15 Characteristics
Specific

Concrete and detailed guidance to employees

What’s expected

How to meet the expectations

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An Ideal PM System:
15 Characteristics
Identifies effective and ineffective performance

Distinguish between effective and ineffective:

Behaviors

Results

Provide ability to identify employees with various levels of performance.

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An Ideal PM System:
15 Characteristics
Reliable

Consistent
Free of error
Inter-rater reliability

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An Ideal PM System:
15 Characteristics
Valid

Relevant (i.e., measures what is important)
Not deficient (i.e., doesn’t measure unimportant facets of job)
Not contaminated (i.e., only measures what the employee can control)

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An Ideal PM System:
15 Characteristics
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

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An Ideal PM System:
15 Characteristics
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.

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An Ideal PM System:
15 Characteristics
Open (No Secrets)

Frequent, ongoing evaluations and feedback
Two-way communications in appraisal meeting
Clear standards and ongoing communication
Communications are factual, open, and honest

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An Ideal PM System:
15 Characteristics
Correctable

Recognizes that human judgment is fallible
Appeals process provided

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An Ideal PM System:
15 Characteristics
Standardized

Ongoing training of managers to provide
Consistent evaluations across:

People

Time

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An Ideal PM System:
15 Characteristics
Ethical

Supervisor suppresses self-interest
Supervisor rates only where (s)he has sufficient information about the performance dimension
Supervisor respects employee privacy

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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

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PM Around the World

PM used in United States, Mexico, Turkey, India, Australia, China, and so on

Common across countries: Need to align individual and organizational goals to enhance the performance of individuals and groups

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PM Around the World (continued)

Yet, different countries emphasize different components of PM

EX 1: PMs in Japan tend to emphasize behaviors to the detriment of results

EX 2: The current challenge among many organizations in South Korea is how to reconcile a merit-based approach with more traditional cultural values

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Quick Review

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
PM Around the World

1-*

Herman Aguinis, University of Colorado at Denver

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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Base pay

Hourly wages

Salary

Cost-of-Living & Contingent Pay

Usually permanent increases in pay based on either cost of living or performance

Covered in more detail in Module 11

Incentives (short- and long-term)

Used to increase performance

E.g., bonuses (short term) or stock options/ownership (long term)

Income Protection

Sometimes required under law, such as

Social Security (what about unemployment insurance in the USA?) Disability pay,

medical insurance,

pension plans,

savings plans

Allowances

E.g., housing

transportation (e.g., company provides car)

Work/life focus (to help employee balance work/home life)

Such as vacation time,

flextime and telecommuting,

services (e.g., counseling, financial planning, fitness activities)

Relational Returns

Such as recognition,

status,

employment security,

challenging work,

opportunities to learn,

opportunities to form personal relationships

Note: the following is slide used before (some of this is not in Module 1)

Links employee activities with organization’s mission and goals

Identifies results and behaviors needed to carry out strategy

Maximizes extent employees exhibit those behaviors and results

Only 13% of organizations use PM to communicate organizational purpose and goals