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Chapter 1

Performance management
and reward systems in
context
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Overview
1. Definition of Performance Management
2. Performance Management Contribution
3. Disadvantages/Dangers of Poorly
Implemented PM Systems
4. Definition of Reward Systems
5. Aims and Role of PM Systems
6. Characteristics of an Ideal PM System
7. Integration with Other Human Resources
and Development Activities
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Performance Management
Definition

Continuous process of identifying,
measuring, and developing the
performance of individuals and
teams
&
aligning performance with the
strategic goals of the
organization.
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Performance Management
is NOT
Performance Appraisal
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Performance Management vs.
Performance Appraisal
PERFORMANCE
MANAGEMENT
PERFORMANCE
APPRAISAL
Strategic business
consideration
Driven by line
manager
Ongoing
feedback
employee can
improve
performance
Driven by HR
Assesses employee
Strengths &
Weaknesses
Once a year
Lacks ongoing
feedback
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Contributions of PM
For Employees For Managers For Organization
Clarify definitions of
Job
Success criteria
Communicate
supervisors views of
performance more
clearly
Clarify organizational
goals
Increase motivation
to perform
Managers gain
insight about
subordinates
Facilitate
organizational
change
Increase self-esteem Better and more
timely differentiation
between good and
poor performance
Fairer, more
appropriate
administrative
actions
Enhance self-insight
and development
Employees become
more competent
Better protection
from lawsuit
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Disadvantages/Dangers of Poorly-
implemented PM
For Employees For Managers For Organization
Lower self-esteem Increase turnover Wasted time and
money
Employee
burnout and job
dissatisfaction
Decrease
motivation to
perform
Unclear rating
system
Damage
relationships
Unjustified
demands on
managers
resources
Emerging biases
Use of false or
misleading
information
Varying and
unfair standards
and ratings
Increased risk of
litigation
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Reward System Definition
Set of mechanism for distributing
Tangible returns &
Intangible or relational returns

As part of an employment
relationship
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Reward Systems

Cash Compensation
Base pay
Cost-of-living & Contingent pay
Incentives (short & long-term)
Benefits
Income protection
Allowances
Work/life focus


Tangible Returns

Relational returns, such as:
Recognition and status
Employment security
Challenging work
Learning opportunity


Intangible Returns
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Returns & Their Degree of Dependency on PM System

Cost of Living
Income Protection


Low Dependency

Work/life Focus
Allowances
Relational Returns
Base Pay

Moderate
Dependency

Contingent Pay
Short-term
Incentives
Long-term
Incentives

High
Dependency
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Purpose of PM Systems
Strategic
Administrative
Informational
Developmental
Organizational Maintenance
Documentation
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Purpose of PM Systems

Link individual goals with organizations goals
Communicate most crucial business strategic initiative


Strategic Purpose

Provide information for decision making:
Salary adjustments
Promotions
Retention or termination
Recognition of individual performance
Layoff


Administrative Purpose
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Purpose of PM Systems

Communicate to employees:
Expectation
What is important
How they are doing
How to improve

Informational Purpose

Performance feedback/coaching
Identification of individual strength and weaknesses
Causes of performance deficiencies
Tailor development of individual career path

Developmental Purpose
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Purpose of PM Systems

Plan effective workforce
Assess future training needs
Evaluate performance at organizational level
Evaluate effectiveness of HR interventions
Organizational Maintenance Purpose

Validate selection instruments
Document administrative decisions
Help meet legal requirements
Documentation Purpose
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An Ideal PM System
1. Congruent with organizational strategy
2. Thorough
3. Practical
4. Meaningful
5. Specific
6. Identifies effective/ ineffective
performance
7. Reliable
8. Valid
9. Acceptable and fair
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An Ideal PM System
10. Inclusive
11. Open (no secret)
12. Correctable
13. Standardized
14. Ethical

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1. Congruent with
organizational strategy
Consistent with organizations strategy
Aligned with unit and organizational
goals

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2. 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

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3. Practical
Available
Easy to use
Acceptable to decision makers
Benefits outweigh costs

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4. 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

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5. Specific
Concrete and detailed guidance to
employees
Whats expected
How to meet the expectations

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6. Identifies effective and ineffective
performance
Distinguish between effective and
ineffective
Behaviors
Results
Provide ability to identify employees with
various levels of performance

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7. Reliable
Consistent
Free of error
Inter-rater reliability

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8. Valid
Relevant (measures what is important)
Not deficient (doesnt measure unimportant facets
of job)
Not contaminated (only measures what the
employee can control)

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9. 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

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10. 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

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

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12. Correctable
Recognizes that human judgment is fallible
Appeals process provided

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13. Standardized
Ongoing training of managers to provide
consistent evaluations across
People
Time

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14. Ethical
Supervisor suppresses self-interest
Supervisor rates only where she has sufficient
information about the performance dimension
Supervisor respects employee privacy

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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

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