1. MGT-555 PERFORMANCE AND CAREER MANAGEMENT LECTURE NO - 25 1

2. RECAP Possible Errors in Ratings Frame of Reference Training Steps in designing a Frame of Reference Training Behavior Observational Training Self Leadership Training Steps in designing a Self Leadership Training Self Efficacy Training Ongoing Monitoring and Evaluation 2

3. Agenda for Today’s Lecture Ongoing Monitoring and Evaluation Compensation - Reward Systems Legal Issues 3

4. Ongoing Monitoring and Evaluation When the testing is over and the performance management system has been implemented organization wide, it is important to use clear measurements to monitor and evaluate the system. 4

5. Ongoing Monitoring and Evaluation (Contd.) In a nutshell, a decision is to be made about how to evaluate the systems effectiveness, how to evaluate the extent to which the system is being implemented as planned, and how to evaluate the extent to which it is producing the intended results. 5

6. Case Study The United States federal government takes the evaluation of performance management systems very seriously. Since the early 1990s, several laws have been passed that mandate federal agencies to develop a strategic plan, a performance plan, and a performance report. Although these initiatives concern agencies and not individuals, ultimately the performance of any agency depends on the performance of the individuals working in that agency. The net result of such laws as the Government Performance and Results Act is an increase in accountability and funding allocation based on performance. Thus, federal agencies are required to evaluate the relative efficiency of their various management techniques including performance management systems. 6

7. Case Study (Contd.) Evaluation data should include reactions to the system and assessments of the system's operational and technical requirement. For example, a confidential survey could be administered to all employees asking about perceptions and attitudes regarding the system. This survey can be administered during the initial stages of implementation and then at the end of the first review cycle to find out if there have been any changes. In addition, regarding the system's results, one can assess performance ratings over time to see what positive effects the implementation of the system is having. Finally, interviews can be conducted with key stakeholders including managers and employees who have been involved in developing and implementing the performance management system. 7

8. Ongoing Monitoring and Evaluation (Contd.) Several additional measures can be used on a regular basis to monitor an evaluate the system: Number of individuals evaluated: – One of the most basic measure is to assess the number of employees who are actually participating in the system 8

9. Ongoing Monitoring and Evaluation (Contd.) Distribution of performance ratings: – An indicator of quality of the performance assessments is whether all or most scores are too high, too low, or clumped around the center of the distribution. 9

10. Ongoing Monitoring and Evaluation (Contd.) Quality of information: – Another indicator of quality of the performance assessment is the quality of information provided in the open ended section of the form. 10

11. Ongoing Monitoring and Evaluation (Contd.) Quality of performance discussion meetings: – Confidential survey can be distributed to all employee on a regular basis to gather information about how the survivor is managing the performance discussion meetings. 11

12. Ongoing Monitoring and Evaluation (Contd.) System satisfaction: – A confidence survey can also be distributed to assess the percentage of system users, both raters and ratees. 12

13. Ongoing Monitoring and Evaluation (Contd.) Overall/cost benefit ratio: – A fairly simple way to address the overall impact of the system is to ask a participants to rate the overall cost/benefit ratio for the performance management system. 13

14. Ongoing Monitoring and Evaluation (Contd.) Unit level and organizational level performance: – Such performance indicator might be customer satisfaction with specific units and indicators of the financial of various units or the organization as a whole. 14

15. Case Study Returning to the performance management system at the Washington State Patrol, we can examine how it has evaluated effectiveness since the system was implemented. The patrol has several measures in place for continual evaluation of the effectiveness of the program. First, before all employees were reviewed using the system, they were surveyed regarding their satisfaction with the new system. This input was then used to further improve the appraisal process. In addition, the patrol uses the results of a biyearly citizen's survey conducted by Washington State University. The results of this survey are used to determine whether the state patrol's customers are satisfied with its performance, and the data are also used to adjust and reprioritize performance objectives. In addition, the data are used to measure division-level performance, one indicator of the success of the performance management process. The Washington State Patrol collects other types of data as well. 15

16. Case Study(Contd.) For example, every six months, division managers give presentations regarding performance management to their peers and to several executives. Initially, the meetings focused on efforts to implement the new performance management system and increase quality, but this will change as new issues arise. The presentation is 30-40 minutes long, followed by 20-30 minutes of questions from peers and executives. The feedback from these presentations is used to measure how well the system is being implemented, and feedback on the success of the meetings will be used to make any necessary changes to the system. The Washington State Patrol may also want to consider measuring how many people are participating in the system. The patrol would also benefit from assessing whether the new system is distinguishing high- from low-level performers and from ascertaining the overall cost/benefit ratio of implementing the system. 16

17. COMPENSATION AND LEGAL ISSUES 17

18. Compensation- Reward Systems: Overview Traditional and Contingent Pay (CP) Plans – Reasons for Introducing CP Plans – Possible Problems Associated with CP – Selecting a CP Plan Putting Pay in Context Pay Structures 18

19. Traditional Pay Salary and salary increases are based on – Position – Seniority 19

20. Contingent Pay (CP) Salary and salary increases are based on – Job performance Also called: Pay for Performance If not added to base pay, called: – Variable pay 20

21. Reasons for Introducing CP Performance management is more effective when rewards are tied to results CP Plans force organizations to: – Clearly define effective performance – Determine what factors are necessary CP plans help to recruit and retain top performers CP plans project good corporate image 21

22. CP plans help improve motivation when: Employees see clear link between their efforts and resulting performance (Expectancy) Employees see clear link between their performance level and rewards received (Instrumentality) Employees value the rewards available (Valence) motivation = expectancy x instrumentality x valence 22

23. Possible Problems Associated with CP Poor performance management system Rewarding counterproductive behavior Insignificant rewards The reward becomes the driver Extrinsic vs. intrinsic motivation Disproportionately large rewards for executives 23

24. Selecting a CP Plan: Issues to consider A.Culture of organization B.Strategic direction of organization 24

25. A. Culture of organization: Types of organizations Traditional – Top-down decision making – Vertical communication – Jobs that are clearly defined Involvement – Shared decision making – Lateral communications – Loosely defined roles 25

26. CP systems for different organizational cultures: Traditional organizations – Piece rate – Sales commissions – Group incentives Involvement organizations – Profit sharing – Skill-based pay 26

27. B: CP Plans to enhance Strategic Directions: Employee development – Skill based pay Customer service – Competency based pay – Gainsharing Overall Profit – Executive pay – Profit or stock sharing Productivity – Individual Piece rate Sales commissions – Group Gainsharing Group incentives Teamwork – Team sales commissions – Gainsharing – Competency based pay 27

28. Putting Pay in Context A reward increases the chance that Specific behaviors and results will be repeated, or Employee will engage in new behavior and produce better results 28

29. Rewards can include: Pay Recognition – Public – Private – Status Time Trust & Respect Challenge Responsibility Freedom Relationships 29

30. How to Make Rewards Work Define and measure performance first and then allocate rewards Only use rewards that are available Make sure all employees are eligible Rewards should be both – Financial – Non-financial 30

31. How to Make Rewards Work (continued) Rewards should be: – Visible – Contingent – Timely – Reversible 31

32. Pay Structures Job Evaluation Broad-banding 32

33. Pay structures An organization ’ s pay structure Classifies jobs Into categories Based on their relative worth Is designed by job evaluation methods 33

34. Job evaluation Method of data collection – Determine the worth of various jobs to – Create a pay structure Consideration of – KSAs required for each job – Value of job for organization – How much other organizations pay 34

35. Types of job evaluation methods: Ranking Classification Point 35

36. Job evaluation methods: Ranking Create job descriptions Compare job descriptions Rank jobs 36

37. Advantages of using Ranking method Requires little time Minimal effort needed for administration 37

38. Disadvantages of using Ranking method Criteria for ranking may not be clear: Distances between each rank may not be equal 38

39. Job evaluation methods: Classification A series of classes or grades are created Each job is placed within a job class 39

40. Advantages of using Classification method Jobs can be quickly slotted into structure Employees accept method because it seems valid 40

41. Disadvantages of using Classification method Requires extensive time and effort for administration Differences between classification levels may not be equal 41

42. Job evaluation methods: Point method Identify compensable factors (job characteristics) Scale factors (e.g. on a scale of 1 – 5) Assign a weight to each factor so the sum of the weights for all factors = 100% 42

43. Advantages of using Point method Establish worth of each job relative to all other jobs within organization Comprehensive measurement of relative worth of each job in organization Easy to rank jobs when total points are known for each job 43

44. Disadvantages of using Point method Requires extensive administrative – Time – Effort 44

45. Does job evaluation method matter? – Fairness – Evaluators Impartial Objective 45

46. Compensation surveys Information on – Base pay – All other types of compensation Conducted in-house or by consultants. 46

47. Broad-banding: Pay structure collapses job classes into fewer categories Advantages: Provides flexibility in rewarding people Reflects changes in organization structure Provides better base for rewarding growth in competence Gives more responsibility for pay decisions to managers Provides better basis for rewarding career progression 47

48. Reward Systems: Summary Traditional and Contingent Pay (CP) Plans – Reasons for Introducing CP Plans – Possible Problems Associated with CP – Selecting a CP Plan Putting Pay in Context Pay Structures 48

49. Legal Issues: Overview Performance Management and the Law Some Legal Principles Affecting PM Laws Affecting PM 49

50. Performance Management and the Law Although we have not discussed legal issues in depth, several books have touched upon how to design and implement performance management systems to be fair and acceptable. Usually performance management systems that are fair and acceptable to employees are also legally sound. A basic principle that guides the design of a fair system is that procedures are standardized and the same procedure are used with all employees. In other words, when the rules and procedures are known by everyone and they are applied in the same way to everyone, the system is likely to be regarded as a fair one. This is also the basic principle that underlies the implementation of performance management system that are legally sound. 50

51. Performance Management and the Law(contd.) Legislation and court cases in Pakistan, United States, the United Kingdom, and many other countries around the world indicate that discriminatory effects of a performance management system can be minimized by applying the basic principle: treat everyone in exactly the same way. Unfortunately this does not happen very often. As a consequence, there has been a 100% increase in number of employment discrimination cases filed in the United States from 1995 to 2005, and many of these cases have involved issues around the design and implementation of the performance management system. 51

52. Performance Management and the Law(contd.) Performance management systems are legally sound, if they are fair: – Procedures are standardized – Same procedures are used with all employees 52

53. Some Legal Principles Affecting PM: Overview Employment-at-will Negligence Defamation Misrepresentation Adverse Impact Illegal Discrimination 53

54. Employment-at-will Employment relationship can be ended at any time by – Employer – Employee Exceptions – Implied contract – Possible violation of legal rights 54

55. Employment-at-will Employment at will: in employment at will, the employer or employee can end the development relationship at any time. This type of employment relationship gives employers considerable latitude in determining whether, when, and how to measure and reward performance. Thus, an employer could potentially end the employment relationship without documenting any performance problems. There are two exceptions regarding an organizations ability to terminate an employee under these circumstances. First, there may be an implied contract derived from conversations with others in the organization or from information found in the company's documentation indicating that employees would be terminated for just cause only. Second, decisions about terminating an employee should consider a potential violation of public policy. 55

56. Negligence many organizations outline a performance management system in their employee manual, employment contract, or other materials. When the system is described in such documents and not implemented as described, legal problems can arise. If organization documents describe a system and It is Not implemented as described, Employee can challenge evaluation, charging negligence 56

57. Defamation Defamation is the disclosure of untrue, unfavorable performance information that damages an employees reputation. An employee can argue that the organization defamed her if the employer states false and libelous information during the course of performance evaluation, or negligently or intentionally communicates these statements to a third party, such as potential future employer, thus subjected the employee to harm or loss of reputation. Disclosure of performance information that is – Untrue and – Unfavorable 57

58. Misrepresentation Disclosure of performance information that is – Untrue and – Favorable – mispresentation is about disclosing untrue favorable performance and this information causes risk or harm to others. When a past employee provides a glowing recommendation for a former employee who was actually terminated because of poor performance, that employer is guilty of mispresentation. 58

59. Adverse Impact / Unintentional Discrimination PM system has unintentional impact on a protected class Organization must demonstrate: – Specific KSA is a business requirement for the job – All affected employees are evaluated in the same way Organization should review ongoing performance score data by protected class to implement corrective action as necessary 59

60. Illegal Discrimination or Disparate Treatment Raters assign different scores to employees based on factors that are NOT related to performance Employees receive different treatment as result of such ratings Employees can claim they were intentionally and illegally treated differently due to their status 60

61. Employee claim of illegal discrimination: Direct evidence of discrimination, or Evidence regarding the following: – Membership in protected class – Adverse employment decision – Performance level deserved reward/different treatment – How others were treated (not in protected class) 61

62. Employer response to claim of illegal discrimination Legitimate and non-discriminatory reason for action Related to performance Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provides defense 62

63. Laws Affecting PM: During past few decades, several countries have passed laws prohibiting discrimination based on: Race or Ethnicity Sex Religion National Origin Age Disability status Sexual orientation 63

64. Laws in the United Kingdom: Equal Pay Act of 1970 Race Relations Act of 1976 Sex Discrimination Act of 1975 Disability Discrimination Act of 1995 Employment Equality (Sexual Orientation) Regulations 2003 Employment Equality (Religion or Belief) Regulations 2003 64

65. Laws in the United States of America Equal Pay Act of 1963 Civil Rights Act of 1964 Age Discrimination in Employment Act of 1967 (as amended in 1986) Americans with Disabilities Act of 1990 65

66. Characteristics of Legally Sound PM Systems Organization : – The system is formally explained and communicated to all employees – The system includes a formal appeals process – Procedures are standardized and uniform for all employees within a job group – The system includes procedures to detect potentially discriminatory effects or biases and abuses in the system 66

67. Characteristics of Legally Sound PM Systems Management – Supervisors are provided with formal training and information on how to manage the performance of their employees – Performance information is gathered from multiple, diverse, and unbiased raters – The system includes thorough and consistent documentation including specific examples of performance based on first-hand knowledge 67

68. Characteristics of Legally Sound PM Systems Employees – Performance dimensions and standards are: Clearly defined and explained to the employee, Job-related, and Within the control of the employee – Employees are given Timely information on performance deficiencies and Opportunities to correct them – Employees are given a voice in the review process and treated with courtesy and civility throughout the process 68

69. Summary of Today’s Lecture Ongoing Monitoring and Evaluation Compensation - Reward Systems Legal Issues 69

70. Thank You 70