1. Global Performance Management
Chapter 9
Global
Performance Management
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Haier’s Legacy as a State-Owned Enterprise
Company as danwei – provider of social welfare
Hierarchical, compliance-driven, risk averse
Reliance on informal contacts (guanxi )
Paternalistic – “iron rice bowl” mentality
Limited differentiation – the importance of face
Attitudinal and input control
Ambiguous, non-transparent
9-2

3. What are the Distinctive Features of Performance Management at Haier?
OEC: Overall, Every, Control & Clearance
80/20 principle
Racetrack Model – everyone can compete
Tracking Individual P&L- Resource Bankbook
Footprints - Red, Green & Yellow Faces
Bottom 10% training and dismissal
Transparent performance appraisal – for ALL!
9-3

4. Questions for Discussion
What is your opinion about Haier's people strategy?
What do you like? What don't you like?
Why does it seem to work, even though it is rather different from other companies in China?
9-4

5. Performance Management in Haier
Market-driven
OEC/80-20
Individual P&L
Resource bankbook
Timely feedback
Promotion
Racetrack model
Accountability
Performance Management
Egalitarian spirit
Procedural justice
Open talent pool
Promotion from within
Internal training opportunities
Social welfare
HR Strategy
Quality
Service
Innovation
Business Strategy
Meritocracy
Fairness
Transparency
Values
Fit
9-5 5

6. Supporting Performance Management at Haier
Recruit from everywhere and anywhere
Everyone has talent and everyone can be in the race
Promotion based on performance not seniority
Extensive training and job rotation
Haier University: One of the first for Chinese firms
Continuous emphasis on community welfare
9-6

7. Why Global Performance Management?
Creating alignment between corporate, business, geographic and functional objectives- critical for horizontal collaboration
Providing input to all functional HR processes and linking them to corporate objectives
Providing clarity about people’s roles, objectives, and contributions to the business
Three elements of the performance management process
Setting objectives (what is desired)
Review, evaluation and feedback
Linking the results to rewards and development
9-7

8. Performance Management Cycle
Customer Value Added
Performance Management
Employee Value Added
Profitable Growth
Shareholder Value
Setting Objectives
Rewards and Recognition
Feedback
Coaching and Development
Appraisal
9-8

9. Performance Management “Upstream”
Developing a Shared Meaning of Objectives
Playing the same game with the same rules
Measurement Scorecards
When should performance be measured?
How much to communicate?
What are the key criteria?
Who should assess performance?
Building Commitment
Making sure that the strategic logic is well understood
Involvement in goals setting has positive performance implications across cultures
9-9

10. Tensions in the Upstream Cycle
The mix of financial versus nonfinancial targets
The growing popularity of balanced scorecards
Short-term versus long-term goals
The danger of excessive reactivity
Unit-level versus corporate-level objectives
Achievable goals vs. local sub-optimization
Incremental versus breakthrough initiatives
Avoiding built-in bias towards replication and predictability
Standardized measures versus local objectives
Local goals must reflect competitive reality
9-10

11. Balanced Scorecard Dimensions
Financial Measures
Growth, profitability and risk
Market and Customer Perspective
Value and differentiation
Internal Process Measures
Priorities for operating processes (e.g. HR)
Innovation and Improvement
Climate that supports change and innovation
Measuring results, not activities!
9-11

12. Performance Management “Downstream”
At the core, performance appraisal & feedback
Global performance appraisal serves multiple objectives – from development to pay and promotions – that may be in conflict with each other
Because implementing PM is inherently difficult, criticism of performance appraisals is common:
Weak, error-filled processes
Undermines teamwork
Promotes setting safe/mediocre goals….
Buy-in globally and follow-through from senior management is essential
9-12

13. Fitting Appraisal to the Local Environment
Although “Western” style performance management may not always suit other contexts, there is increasing evidence of global convergence of PM practices
Without global performance management in place, many other global HR policies will be difficult to implement
Being different may be difficult, but acceptable; complying with local laws is essential
Training in how to conduct appraisals is vital in all settings
Commitment to implement a rigorous PM process is more important then the sophistication of methodology
9-13

14. The “Forced Ranking” Debate
BENEFITS
RISKS
Upgrading the team with “A-Players”
Tolerance of poor performance de-motivates employees
Channels resources to the best
Necessary to manage workforce reductions
Poor implementation creates conflict
Stifling teamwork and cooperation
Too rigid if linked tightly to pay
Lack of “cultural” fit
Violates “social contract”
9-14

15. 360 Degree Evaluation And Feedback
Primary Potential Assessment Group
Boss’s Peers
Colleagues
Boss’s Boss
Direct Boss
Peers
Self
Clients
Subordinates
9-15

16. Implementing 360° Feedback
Understanding the context
Clarity on consequences of ratings – evaluation vs development
Quality of supervisor - subordinate relationships
Cultural fit with the organization
Benefits of 360° Feedback
Increases objectivity
Increases readiness to change
Pinpoints what to do
Reduces blind spots
Don’t know - can’t grow !
9-16

17. Performance Appraisal Outcomes
Performance evaluation often includes differentiation
Consistency and comparability challenge
Critical components:
Pay/promotion decisions
Development/mobility plans
Employees differ in what outcomes they value the most!
Two frequent questions to debate:
How to deal with low performers?
What kind of performance pay?
9-17

18. Performance-based Pay: What We Know?
“How you pay matters”
Trends
Increasing interest in using variable pay globally
Objectives vary - cost control, risk sharing
Merit Pay (annual increases)
Widely criticized
Negative compounding effects on costs and commitment
Profit Sharing
Increase in “leverage” improves organizational performance
Increase in scope improves organizational performance
Difficult to sustain – global vs. local performance?
Risk-Sharing
Highest impact
Most problematic!
9-18

19. The Dark Side of Performance-Based Pay
Incentives and rewards are a source of competitive advantage, but…
You get what you pay for - be careful what you measure
Aligning performance with pay incentives may decrease employees’ intrinsic motivation
The “New Deal” shifts risk and uncertainty to employees; many may not be prepared for the consequences
The biggest hurdle for incentive plans: Low performance means no payment
It is not all just money… more may not always be better
9-19

20. Questions for Discussion
What aspects of Haier’s Performance Management system can/should be “exported” to overseas operations? What should remain the same?
9-20

21. Supporting Collaboration
The underlying approach to measuring and evaluating performance has to be global
Start with an emphasis on internal consistency and coherence
Having a global scorecard does not mean that everyone has to have the same priorities
Need clear guidance and principles on how to resolve tensions
Recognize the conflict between the demands of the individual job and those of lateral coordination
Requires explicit recognition of the need for collaborative behavior
9-21

22. Appraising Global Collaboration at Bain
Client contributions: What have you done to build our relationship with customers or clients?
People development: What have you done to recruit and develop the talent for future partners?
Knowledge contribution: What have you done to increase the intellectual capital of the firm?
Reputation building: What have you done to enhance the reputation of the firm?
One firm behavior: What have you done to build relationships within the firm?
Source: J.R. Galbraith, Designing Matrix Organizations that Actually Work (San Francisco: Jossey-Bass, 2009).
9-22

23. Rewarding Global Teams: Some Observations from Research
Team-based reward strategies require stability of group membership
Some cultures (e.g. US) may prefer rewards based on individual performance, although there is no conclusive evidence about other work contexts
Independently of cultural differences, recognition and career opportunities are often as motivating as financial rewards
Involvement of team members in designing the reward structure may help foster its future effectiveness
High task interdependence increases the valence of team rewards relative to individual-based rewards
In project-based global teams, both objective setting and the focus of appraisals/rewards should be tailored to the project stage
9-23

24. Appraising and Rewarding International Employees
As a group, expatriates have the biggest impact on global coordination
Key questions for expatriate performance management:
What standards and criteria to use?
Importance of local context
Consideration of long-term impact
Who should conduct the evaluations?
- At least some variant of 360° appraisal is advisable
- Input from host managers – a test of “localization”
Does one system fit all?
- Increasing interest in a differentiated approach – based on assignment purpose – but complex to execute
9-24

25. Approaches to International Compensation I
For whom most appropriate
Advantages
Disadvantages
Negotiation
Special situations
Organizations with few expatriates
Conceptually simple
Breaks down with increasing numbers of expatriates
Localization
Permanent transfers and long-term assignments
Entry-level expatriates
Simple to administer
Equity with local nationals
Expatriates usually come from different economic conditions than local nationals
Usually requires negotiated supplements
Headquarters-based balance sheet
Many nationalities of expatriates working together for extended periods
Very few TCNsA
No nationality discrimination
Simple administration
High compensation costs
Difficult to repatriate TCNs A
Home-country-based balance sheet
Several nationalities of expatriates on out-and-back-home assignments
Low compensation costs
Simple to repatriate TCNs A
Discrimination by nationality
Highly complex administration
A TCN = Third Country Nationals, as discussed in Chapter 4
Source: Reynolds, 2001
9-25

26. Balance Sheet Approach
Housing
Goods and Services
Reserve
Additional costs paid by the organization
Income taxes
Premiums and Incentives
Home- and assignment- location income taxes
Home-country salary
Assignment- location cost
Home-country equivalent purchasing power
Assignment- location costs paid by company and from salary
Source: Adapted from Reynolds, 2001
9-26

27. Approaches to International Compensation II
For whom most appropriate
Advantages
Disadvantages
Modified home-country-based balance sheet
Many expatriates of many nationalities on project assignments
Moderate compensation costs
Moderately simple administration
Lack of conceptual purity
Lump-sum approaches
Resembles domestic compensation practices
Does not intrude on expatriate finances
Exchange rate variation makes unworkable for all except very short assignments
Senior executives of all nationalities
International pay structures
Consistently short assignments (less than three years), followed by repatriation
Tax- and cost-effective
Expatriates and local nationals may be on the same compensation plan
Inhibits mobility for lower levels of expatriates
Lack of consistency among locations
A TCN = Third Country Nationals, as discussed in Chapter 4
Source: Reynolds, 2001
9-27

28. Approaches to International Compensation III
For whom most appropriate
Advantages
Disadvantages
Cafeteria approaches
Senior executives
Tax- and cost-effective
To be effective, options needed for each country
Difficult to use with lower levels of expatriates
Regional plans
Large numbers of expatriates who are mobile with region(s)
Less costly than global uniformity
Can be tailored to regional requirements
Multiple plans to administer
Discrimination between regionalists and globalists
Multiple programs
Many expatriates on different types of assignments
Can tailor compensation programs to different types of expatriates
Possible lower compensation costs
Difficulty of establishing and maintaining categories
Discrimination by category
Highly complex administration
A TCN = Third Country Nationals, as discussed in Chapter 4
Source: Reynolds, 2001
9-28

29. Implementing Global Performance Management
Necessary Conditions:
Visible linkage of performance and rewards
Understood, agreed upon objectives
Meaningful, clear plan for payouts
Continuous feedback – appraisal results should not be a surprise
Organizational culture encouraging open dialogue
Built-in evolution – it is never perfect!
Management accountability for making it work
9-29

30. Best Practices in Global Performance Management I
Design principles
Coherent—aligned to global strategy, vision and values
Simple and easy to use in multiple languages
Flexible to reflect changes in the nature of the business
For everyone, not only for high performers
Processes
Line accountability/ownership
Globally consistent, but reflecting local differences
Focus on dialogue, not the process or the form
Senior management commitment
9-30

31. Best Practices in Global Performance Management II
Measures
Explicit link to global and local business goals
Not only what, also how
Customer feedback incorporated
Support for collaborative behavior
Outcomes
Understanding what needs to be delivered
Key inputs to guide global mobility and development
Link to tangible rewards
Commitment to action
9-31

32. Performance Management: Managerial Consequences?
Key Question:
Are managers evaluated on competence in managing performance?
What happens to managers who are doing a good job in performance management?
What happens to managers who are doing a poor job in performance management?
Even the most advanced performance management process is no substitute for leadership
9-32

33. Global Approach vs. Local Adaptation
Two Perspectives on Global People Strategies
The National cultural perspective sees national culture as deterministic and constraining so that performance management must adjust to the cultural specifics of a particular country
The Strategic alignment perspective emphasizes the importance of aligning people management with the company’s overall strategy, business model and values
A global template may be necessary, but local units may need some leeway to adopt it to their circumstances
Commitment of local management team is CRITICAL
9-33

34. Creating Differentiation
You cannot create differentiating capabilities through commodity people practices… most firms with enduring success feel somewhat different from the rest of us
Differentiation on the outside is connected to differentiation on the inside … There is no competitive advantage in being an “average” local firm
Performance management is one of the key drivers for differentiation. The biggest hurdle is not culture, but implementation capability
Differences within a culture are just as important as differences across cultures (a potential source of competitive advantage)
9-34

35. Fundamentals of Global Performance Management
Simple, fair and transparent
Motivational—creates energy
Key principles are not changed all the time
Should not be another bland system—Differentiate!
9-35