Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

Human resource processes and practices STAFFING Planning Job analysis and design Recruitment Selection DEVELOPMENT Job knowledge and technical skills Attitudes and abilities REWARDS Intrinsic Developmental Base pay Performance pay PERFORMANCE MANAGEMENT Evaluation Feedback Enhancement

processes and practices Human resource processes and practices Context: Competitive strategy, organisational structure and management culture Markets Regulation/industrial relations

What is performance? (Multi-stakeholder model) Environment Community Government Suppliers Customers/clients Employees Line managers Executives Shareholders/owners Main performance criteria Stakeholder group

What is performance? (Cybernetic model) Individual performance Work group performance Organisational performance Personal results e.g. quantity, quality Personal behaviour e.g. effort, citizenship Personal competencies e.g. knowledge, skills, abilities, attitudes Group results e.g. productivity, quality Work group behaviour e.g. team-working Work group competencies e.g. collective know-how Organisational results e.g. profitability, customer satisfaction, market share Organisational behaviour e.g. customer-focus, cooperation, creativity Organisational competencies e.g. core competencies and people capabilities Outcomes (Results) Processes (Behaviours) Inputs (Competencies)

performance management system do? What should a performance management system do? Communicate desired competencies, behaviours and results in order to achieve its strategic objectives Build relationships between internal stakeholders Monitor and measure individual and group performance by valid, reliable and felt-fair means Provide timely feedback on recent performance, including strengths, weaknesses and areas for improvement Develop individual and group performance capabilities Evaluate individuals for purposes of selection and promotion, and evaluate individuals and groups for the purpose of reward allocation

The performance management cycle MONITORING FORMAL REVIEW MEETING FORMAL ASSESSMENT LEARNING AND DEVELOPMENT ACTION PLANNING INFORMAL FEEDBACK COMPETENCIES BEHAVIOURS RESULTS

Key requirements for an effective performance management system 1. Validity (Are the right things being measured?) The ‘goodness’ of the performance criteria and measures used ‘Is this one of the things we should measure?’ (= construct validity) ‘Are we measuring enough of the right things?’ (= content validity) ‘Are we really measuring what we say we are trying to measure?’ (= criterion-related validity) 2. Reliability (Are valid measures being applied accurately?) Accuracy Consistency No measurement error or bias 3. Cost-effectiveness 4. Felt-fairness/procedural justice (Are the decision-making processes seen as fair?)

Key requirements for an effective performance management system Explain performance standards in advance Early and ongoing notice of areas of underperformance Opportunity (time and resources) to improve Adequate notice Have employees provide input to assessment process, e.g. self-assessment Opportunity to explain Right to refute and appeal Fair hearing (or ‘voice’) Correct standards Standards applied consistently Judgement based on evidence related to standards Validity and reliability

What are ‘rewards’? A reward can be anything that: an organisation provides to its employees either intentionally or unintentionally in exchange for the employee’s potential or actual work contribution, AND to which employees as individuals attach a positive ‘valence’ as a ‘need’ satisfier.

Components of ‘total reward’ Financial rewards/remuneration: Base pay Direct benefits Performance-related pay Social rewards: Organisational climate/management culture Performance support Work group affinity Work–life balance; well-being Developmental rewards: Learning, training and development Succession planning Career progression Extrinsic rewards Intrinsic rewards: Job challenge Responsibility/involvement Autonomy Task variety

Performance-related reward plans Share bonus plans Share purchase plans Share option plans Share appreciation and other rights plans Organisation-wide long-term incentives (LTIs) Discretionary bonuses Individual non-cash recognition awards Piece rates Sales commissions Goal-based bonuses Merit raises/increments Merit bonuses Individual How much? (=results) How? (=behaviour) Who (=performance entity/unit) and when (=time frame for payout)? Profit-sharing Gainsharing Goal-sharing Large group short-term incentives (STIs) Team incentives Team non-cash recognition awards Small group short -term incentives (STIs)

What should a good reward system do? Primary organisational aims: Attract the right people at the right time for the right jobs, tasks or roles Retain the best people by recognising their contribution Motivate employees to deliver to the best of their capability Develop employees’ performance capabilities by encouraging and rewarding them for demonstrated improvement in capability

What should a good reward system do? Associated aims: Satisfy needs (i.e. be of value to employees in satisfying their needs) Be fair (i.e. be commensurate with contribution and comparable to rewards received by other employees) Be legal (i.e. comply with relevant legal requirements and mandated minimum standards) Be affordable (i.e. be within the financial means of the organisation and cost-effective) Be strategically aligned (i.e. support the organisation’s business strategy and structure)