Prentice Hall, Inc. © 2006

Performance Management in Context: Overview 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 Prentice Hall, Inc. © 2006

Performance Management: Definition Continuous Process of Identifying performance of individuals and teams Measuring performance of individuals and teams Developing performance of individuals and teams and Aligning performance with the strategic goals of the organization Prentice Hall, Inc. © 2006

PM is NOT performance appraisal Strategic business considerations Ongoing feedback So employee can improve performance Driven by line manager Performance appraisal Assesses employee Strengths & Weaknesses Once a year Lacks ongoing feedback Driven by HR Prentice Hall, Inc. © 2006

Contributions of PM For Employees The definitions of job and success are clarified Motivation to perform is increased Self-esteem is increased Self-insight and development and enhanced Prentice Hall, Inc. © 2006

Contributions of PM For Managers Supervisors’ views of performance are communicated more clearly Managers gain insight about subordinates There is better and more timely differentiation between good and poor performers Employees become more competent Prentice Hall, Inc. © 2006

Contributions of PM For Organization/HR Function Organizational goals are made clear Organizational change is facilitated Administrative actions are more fair and appropriate There is better protection from lawsuits Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

Disadvantages/Dangers of Poorly-implemented PM Systems for Organization Wasted time and money Unclear ratings system Emerging biases Increased risk of litigation Prentice Hall, Inc. © 2006

Reward Systems: Definition Set of mechanisms for distributing Tangible returns and Intangible or relational returns As part of an employment relationship Prentice Hall, Inc. © 2006

Tangible returns Cash compensation Benefits, such as Base pay Cost-of-Living & Contingent Pay Incentives (short- and long-term) Benefits, such as Income Protection Allowances Work/life focus 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) Prentice Hall, Inc. © 2006

Intangible returns Relational returns, such as Recognition and status Employment security Challenging work Learning opportunities 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 Prentice Hall, Inc. © 2006

Returns and Their Degree of Dependency on the Performance Management System Cost of Living Adjustment Income Protection Work/life Focus Allowances Relational Returns Base Pay Contingent Pay Short-term Incentives Long-term Incentives Degree of Dependency Low Moderate High Prentice Hall, Inc. © 2006

Purposes of PM Systems: Overview Strategic Administrative Informational Developmental Organizational maintenance Documentation Prentice Hall, Inc. © 2006

Strategic Purpose Link employee behavior with organization’s goals Communicate most crucial business strategic initiatives 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 Prentice Hall, Inc. © 2006

Administrative Purpose Provide information for making decisions re: Salary adjustments Promotions Retention or termination Recognition of individual performance Layoffs Prentice Hall, Inc. © 2006

Informational Purpose Communicate to Employees: Expectations What is important How they are doing How to improve Prentice Hall, Inc. © 2006

Developmental Purpose Performance feedback/coaching Identification of individual strengths and weaknesses Causes of performance deficiencies Tailor development of individual career path Prentice Hall, Inc. © 2006

Organizational Maintenance Purpose Plan effective workforce Assess future training needs Evaluate performance at organizational level Evaluate effectiveness of HR interventions Prentice Hall, Inc. © 2006

Documentational Purpose Validate selection instruments Document administrative decisions Help meet legal requirements Prentice Hall, Inc. © 2006

Characteristics of an Ideal PM System Prentice Hall, Inc. © 2006

Congruent with organizational strategy Consistent with organization’s strategy Aligned with unit and organizational goals Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

Practical Available Easy to use Acceptable to decision makers Benefits outweigh costs Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

Specific Concrete and detailed guidance to employees what’s expected how to meet the expectations Prentice Hall, Inc. © 2006

Identifies effective and ineffective performance Distinguish between effective and ineffective Behaviors Results Provide ability to identify employees with various levels of performance Prentice Hall, Inc. © 2006

Reliable Consistent Free of error Inter-rater reliability Prentice Hall, Inc. © 2006

Valid Relevant (measures what is important) Not deficient (doesn’t measure unimportant facets of job) Not contaminated (only measures what the employee can control) Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

Open (No Secrets) Frequent, ongoing evaluations and feedback 2-way communications in appraisal meeting Clear standards, ongoing communication Communications are factual, open, honest Prentice Hall, Inc. © 2006

Correctable Recognizes that human judgment is fallible Appeals process provided Prentice Hall, Inc. © 2006

Standardized Ongoing training of managers to provide Consistent evaluations across People Time Prentice Hall, Inc. © 2006

Ethical Supervisor suppresses self-interest Supervisor rates only where she has sufficient information about the performance dimension Supervisor respects employee privacy Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006