1. Organization Development and Change
Chapter Seventeen:
Performance Management
Thomas G. Cummings
Christopher G. Worley

2. Learning Objectives for Chapter Seventeen
To present a model for understanding the components and relationships associated with performance management
To explore three interventions concerned with managing the performance of human resources: goal setting, performance appraisal, and reward systems
Cummings & Worley, 8e (c)2005 Thomson/South-Western

3. A Performance Management Model
Business Strategy
Reward
Systems
Goal
Setting
Individual
and Group
Performance
Workplace Technology
Employee Involvement
Performance
Appraisal
Cummings & Worley, 8e (c)2005 Thomson/South-Western

4. Characteristics of Effective Goals
Goals are Challenging
Challenging but realistic
Goals are set participatively
Goals are Clear
Goals are specific and operationally defined
Resources for goal achievement are negotiated
Cummings & Worley, 8e (c)2005 Thomson/South-Western

5. Management by Objectives (MBO)
MBO attempts to align personal goals with business strategy through increased communications and shared perceptions between managers and subordinates
MBO programs may go beyond manager and subordinate roles to address individuals, work groups, and to reconcile conflicts.
Cummings & Worley, 8e (c)2005 Thomson/South-Western

6. MBO Application Stages
Involve the whole work group
Goals set jointly by manager and subordinate
Action plans are established
Criteria and yardsticks are established
Work progress and contract reviewed and adjusted periodically
Records of meetings are maintained
Cummings & Worley, 8e (c)2005 Thomson/South-Western

7. Performance Appraisal Elements
Cummings & Worley, 8e (c)2005 Thomson/South-Western

8. Performance Appraisal Application Stages
Select the appropriate stakeholders
Diagnose the current situation
Establish the system’s purposes and objectives
Design the performance appraisal system
Experiment with implementation
Evaluate and monitor the system
Cummings & Worley, 8e (c)2005 Thomson/South-Western

9. Characteristics of Effective Appraisal Systems
Timely
Accurate
Accepted by the users
Understood
Focused on critical control points
Economically feasible
Cummings & Worley, 8e (c)2005 Thomson/South-Western

10. Reward System Design Features
Definition
Person/Job Based vs.
Performance Based
The extent to which rewards are based on the person, the job or the outcomes of the work
Market Position
(External Equity)
The relationship between what an organization pays and what other organizations pay
Internal Equity
The extent to which people doing similar work within and organization are rewarded the same
Hierarchy
The extent to which people in higher positions get more and varied rewards
Centralization
The extent to which reward system design, decisions and administration are standardized
Rewards Mix
The extent to which different types of rewards are available and offered to people
Security
The extent to which work is guaranteed
Seniority
The extent to which rewards are based on length of service
Cummings & Worley, 8e (c)2005 Thomson/South-Western

11. Characteristics of Effective Reward Systems
Availability
Timeliness
Performance Contingency
Durability
Equity
Visibility
Cummings & Worley, 8e (c)2005 Thomson/South-Western

12. Cummings & Worley, 8e (c)2005 Thomson/South-Western
Types of Rewards
Pay
Skill-based pay plans
Performance-based pay systems link pay to performance
Gain sharing involves paying bonuses based on improvements in the operating results
Promotions
Benefits
Cummings & Worley, 8e (c)2005 Thomson/South-Western

13. Salary-Based Pay for Performance Ratings
Ties pay to
performance
Negative
side effects
Encourage
cooperation
Employee
Acceptance
Individual Plan Productivity
Cost effectiveness
Superiors’ rating
Group Productivity
Cost effectiveness
Superiors’ rating
Organization- Productivity
wide Cost effectiveness
Cummings & Worley, 8e (c)2005 Thomson/South-Western

14. Cummings & Worley, 8e (c)2005 Thomson/South-Western
Stock/Bonus Pay for Performance Ratings
Ties pay to
performance
Employee
Acceptance
Negative
side effects
Encourage
cooperation
Individual Plan Productivity
Cost effectiveness
Superiors’ rating
Group Productivity
Cost effectiveness
Superiors’ rating
Organization- Productivity
wide Cost effectiveness
Profit
Cummings & Worley, 8e (c)2005 Thomson/South-Western

15. Gain Sharing Pay Plan Considerations
Process of design - participative or top-down?
Organizational unit covered - plant or companywide?
Determining the bonus - what formula?
Sharing gains - how and when to distribute?
Managing change - how to implement system?
Cummings & Worley, 8e (c)2005 Thomson/South-Western