Performance MGMT and Rewards Sys 530 v1 PDF

Performance Management And
Rewards System
Sub Code 530
!
Developed by
Prof. Sujata Bhosale
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
!  
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe  2. Dr. B.P. Sabale  3. Prof. Dr. Vijay Khole  4. Prof. Anuradha Deshmukh 
Group Director  Chancellor, D.Y. Patil University, Former Vice-Chancellor  Former Director 
Welingkar Institute of Navi Mumbai  (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
Program Design and Advisory Team
Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant
Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai
Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ
Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.
Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.
Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai
Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai
Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai
Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Assistant Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai
Mr. A.S. Pillai Mr. Kishor Tamhankar

Faculty – Services Excellence Manager (Diploma Division)
Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai
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1st Edition, May 2016

CONTENTS
Contents
Chapter Chapter Name Page No.

No.
1 Introduction and Overview of Performance Management 4-39

and Reward Systems
2 Key Elements and Standards of Performance Management 40-59

Plan
3 Performance Management and Performance Appraisal 60-106

4 Various Approaches to Performance Management and 107-116
Review
5 Strategy Formulation and Implementation of Performance 117-132

Management
6 Strategic Imperatives in Performance Management and 133-146

Reward Systems
7 Overview of International Performance and Rewards 147-168

Management
8 Rewards Management and Linkage to the Performance 169-211

9 Types of Rewards Systems 212-264
10 Reward Strategies in the Technology / Knowledge 265-274
Economy
11 Implementation of Reward Strategy and Latest Trends in 275-330

Reward Systems
12 Measuring Effectiveness of PMS and Reward Systems 331-338

Case Studies 339-348
! !3
INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS
Chapter 1
Introduction and Overview of Performance
Management and Reward Systems
Objectives
After studying this chapter, you will be able to:
• Understand the key features and characteristics of Performance

Management
• Gain overall perspective of Reward Systems
• Understand the important linkages between Performance Management

and Reward Systems
• Understand the Concepts, Principles and Role of Performance

Management in an Organisation
• Appreciate the key features of Performance Management and Reward

System
• Understand the Benefits of Performance Management and Reward

Systems
! !4
Structure:
1.1 Introduction to Performance Management and Reward Systems
1.2 Key Objectives of Performance Management System
1.3 Performance Management Concepts
1.4 Essentials of Performance Management System
1.5 Key Activities Involved in a Robust Performance Management System

(PMS)
1.6 Challenges in the Implementation of an Effective and Efficient

Performance Management System
1.7 Evolution of Performance Management System
1.8 Key Difference Between Performance Appraisal and Performance

Management
1.9 Need for Robust Performance Management and Reward System
1.10 Reward System
1.11 Key Objectives of Reward Systems
1.12 Types of Rewards and the Features
1.13 Activity
1.14 Summary
1.15 Self-Assessment Questions
1.16 Multiple Choice Questions
! !5
1.1 Introduction to Performance Management and Reward

Systems
The key business objective of any organisation is to maximise the value

addition or returns for its stakeholders. The key stakeholders may consist
of the common stock holders / shareholders, Management, Employees,
Vendors, Customers, Government and Society in general. To ensure that
the business objectives are met, there is a need for motivation of
employees and all the participants in the business. The major contributor
to the motivation is the reward expectation by the business participants.
However, organisations across the globe face a unique challenge in
structuring appropriate reward system. The reward system needs to ensure
that the performance of the participants in the business is effective and
enriching. In order to assess the performance of each contributor and the
overall organisation, there is also a need for robust performance
management system.
A robust performance management system thus inspires, motivates high

performers in an organisation and integrated reward system enables the
organisation to cultivate a performance driven culture. Every day,
organisation and its participants encounter a new set of business
challenges and to effectively meet the challenge and deliver superior
performance, a good performance management system coupled with a
good reward mechanism is the key.
Performance management is the systematic process of planning work and

setting expectations, continually monitoring performance, developing the
capacity to perform, periodically rating performance in a summary fashion
and rewarding good performance.
The performance management and reward systems have evolved over a

period of time significantly with the changing business scenario and
economic environment.
E.g. Management’s performance in a large Multi-National Corporation

(MNC) is not only evaluated on the basis of revenue or growth achieved,
but also focus is on the following key parameters-
! !6
★ Profitable Growth
★ Incremental contribution from new sales
★ Entry into new geography
★ Mergers and Acquisitions
★ Cash Flow accretion
★ Innovation
★ Social and Environmental performance
★ Regulatory compliance levels
Most of the above performance evaluation parameters are organisational

level factors. The performance management and evaluation system is thus
aligned the overall organisation strategy.
1.2 Key objectives of Performance Management System
Aim of the performance management system is to build a high

performance culture in an organisation. It should enable the team to take
charge of their responsibility of improving business processes on a
continual basis and also to enhance the competencies and performance
standards. It should clearly enable the employees with right skills and
attitudes to climb the ladder and foster leadership. Some of the key
objectives are as follows-
★ Enabling goal clarity for employees
★ Explorationof full potential of employees in their as well as in favour of

organisation
★ Adequately define the role, responsibility and the evaluation parameters

for all employees
★ Understand the accountabilities, competencies and expectations
★ Createenvironment which enables achievement of superior standards of

work performance
★ Assistemployees in clear identification of the knowledge and skills

required for performing the job efficiently and effectively
! !7
★ Help employees to engage more with the organisations business

processes and drive their focus towards performing the right task in the
right way at right time
★ Encouraging employee empowerment, motivation and implementation of

an effective reward mechanism
★ Establishment of two-way system of communication between the

managers and the employees for clarification of expectations about their
key roles and accountabilities, communicating the individual,
departmental and strategic organisational goals,
★ Providing a regular, periodic feedback for improving employee

performance and continuous coaching. Ensure complete transparency in
the employee engagement, feedback and reward mechanism
★ Helps identification of barriers to effective performance and timely

resolution of the barriers through constant monitoring, coaching, and
training and development interventions
★ Ensure that right basis for several management decisions related to

strategic planning, succession planning, promotions, recognitions and
performance based payments of rewards
★ Assistance in promoting personal growth of individual employees and

advancement in the career of the employees by helping them in
acquiring the desired knowledge and skills required for development
1.3 Performance Management Concepts
Let us discuss some of the key concepts around the performance

management in an organisation.
Performance management is a broad concept that involves understanding

and acting on the performance issues at each level of organisation, from
individuals, teams and departments to the organisation itself. These issues
include leadership, decision making, motivation, encouraging innovation
and risk taking among others.
! !8
Performance management is the systematic process by which the

organisation involves its employees, as individuals and members of a
group, in improving organisational effectiveness in the accomplishment of
organisational mission and goals.
Performance management is a broad system of defining and measuring

performance, besides developing incentives for individuals and
organisations. It touches the processes of planning, implementing,
reviewing, evaluating and reporting to gauge the impact of policies and
programmes. It promotes growth and learning, and recognises that
capacity building and improvement in individual performance leads to
better achievement of organisational goals.
Performance management requires a performance information system that

can be audited and related to financial management and policy cycles. Its
elements include planning, monitoring, capacity building, performance
rating and a system of rewarding good performance.
It is also crucial to distinguish between performance management and

performance measurement. Let us also evaluate performance
measurement at the conceptual level.
Performance measurement tracks processes (such as compliance to formal

rules), results (such as use of inputs, outputs produced or policy goals
achieved) or more complex ratios (such as efficiency, productivity,
effectiveness or cost effectiveness). It is a very important component of
the larger performance management system as the performance that
cannot be measured cannot be managed and cannot, therefore, be
improved. The measurement of performance also involves the design of
balanced and well calibrated key performance indicators, usually supported
by an appropriately designed Management Information System.
E.g. Illustrative performance management system in the Government

Organisation 
! !9
1.4 Essentials of Performance Management System
A good performance management system will have most of the following

key components-
★ Process of defining and setting appropriate goals
★ Process of monitoring or capturing performance
★ Set up of Key Performance Indicators (commonly referred as KPIs)
★ Process for identification and allocation of resources to meet the KPIs
★ Process to periodically evaluate the performance and review mechanism
! !10
★ An effective and efficient feedback system
★ Reward system to motivate the team to achieve excellence in

performance
Role of Human Resource Function has undergone a significant change over

a period of time to ensure that the Performance Management System
(PMS) is aligned to the strategic objectives and changing business priorities
of the organisation. While setting up and implementation of a robust PMS,
the HR professional need to ensure some of the following key aspects-
★ Building a conducive work environment
★ Providingan appropriate platform to employees to perform and creation

of opportunities for development and growth
★ Environmentthat enables the maximum participation and involvement of

employees at all levels
★ Enhance motivation of employees and create high performance driven

culture
★ PMS should touch upon all aspect of employee lifecycle i.e. from
induction to exit
★ PMS must enable promotion of superior performance, communication of

expectations, defining roles as per the competency mapping and also
help organisation set up realistic and achievable benchmarks
E.g. Employee Policy Manual- Section “Performance Management” of a

leading International Airport (Rochester International Airport) highlights
the following key features
★ Promotescomplete involvement and participation of employees in the

performance management process
★ Performance expectations are clearly aligned and reflect the job specific
duties of all employees
! !11
★ Requireswritten feedback to employees at least once a year and

promotes continuous / periodic feedback to employees
★ Places
responsibility on the reporting managers to perform competency
assessment and providing regular feedback
★ Freedom given to the employees to consult management at all times for

any issues related to the performance management process
★ Considers
collaborative goal setting and self-assessment as an integral
component of the performance management framework
★ Emerging Trend in Performance Management
- Technology in the form of computer and telecommunication device will

be omnipresent
- Multiple company alliances will result in a more amorphous global

business environment
- World-wide business economy will become dramatically more

competitive
- The new world of boundary less companies and workers will result in
less control by companies
- Global economies will require leaders to think beyond local markets and
understand the conditions that drives the international system
- Global communication mechanism such as the Internet, will have

profound impact on how we engage in commerce
- The evolution of true world-wide telecommuting will be a reality
- A high percentage of the workforce will consist of transportable

professionals, specialists and executive engaging in consulting services
- New investment markets will emerge, especially in those developing

counties that consume more goods and service. A shift in the world-
! !12
wide professional and skilled workforce may lead to issue of balancing

human resource functions
★ Performance management refers to the comprehensive system of
- Developing employee performance plans, including the key result areas

and indicators of performance
- Communicating to the employees in clear terms the performance plan

at the commencement of the period of performance
- Monitoring and supporting employees for moving effectively towards

attainment of performance goals
- Evaluating the performance of each employee on the basis of the

performance plan during the period of performance
- Recognising and rewarding those employees whose performance had

meet/exceed the performance plan
- Enabling the employees to improve the unacceptable performance and
- Reassigning reducing in grade or removing those employees who could

not improve their performance even after providing adequate
opportunities to improve
★ Implementing Performance Management
- Most experts agree that a successful system of performance

management involves four basic components
- A clear organisational definition of performance
- A training and development programme that focuses on improving

performance
- An objective evaluation system to review employee performance and
- A method of recognising and reward performance
! !13
★ Performance management is an on-going communication process

that involves establishing clear expectations and understanding
about
- The essential job functions the employee is expected to do
- How the employees job contributes to the goals of the organisation
- What doing the work will mean in concrete terms
- How employee and supervisor will work together to sustain improve or

build on existing employee performance
- How performance management will be measured and
- Identifying barriers to performance and removing them
★ Performance Management include
- Performance management ensures congruence of individual and

organisational goals
- Performance management is a process involving planning, reviewing,

development and enhancing performance
- Managers are catalyst of employee performance through effective

policies and practices
- Employees get an opportunity to seek organisational support and

resources for overcoming barriers to performance
★ Philosophy of Performance Management
- Support management philosophy and contribute to the business plan

achievement
- Emphasise personal development
- Improve communication
! !14
- Develop leadership
- Foster teamwork
- Facilitate succession planning
- Improve organisations effectiveness and bottom-line performance
- Achieve results while modelling, reinforcing core value behaviours
- Communicate clear objective for reinforcing excellence
- Setting challenging, yet achievable performance expectations
- Continually developing personal management skill
- Concern for both internal and external customers
- Providing coaching, counselling and career development and
- Providing ongoing feedback
★ Principles of Performance Management
- Principle of outcome orientation
- Principle of evidence
- Principle of transparency
- Principle of focus
- Principle of ownership
! !15
★ Features of Performance Management
- The organisation develops a vision, mission and ethical values that is

being communicated to all employees for seeking employee
commitment
- Employee performance is viewed as consequence of integration of

individual objectives with organisational goals and objectives
- Performance expectations is established against which individual

achievement can be measured and developed further
- Tracking of employees progress towards performance expectation is

regular with feedback provided to the employee on one-to-one basis
- Review of progress of employees performance leads to identification of

areas of competency development
- Measuring performance of employees against individual, team,

departmental and organisational performance expectations is linked to
reward outcomes
- Propels employees to continually improve performance
- The organisation evaluates the effectiveness of performance

management as a system so that modifications and improvement can
be made
★ Significance of Performance Management
- Clarifies organisations strategic plan
- Business process improvement
- Talent management
- Personnel development
- Validation of talent acquisition
! !16
- Work-life balance
- Improved adaptability
- Individual relationship management
- Sustainable competitive advantage
- Culture building
★ Performance Management strategy outcome
- Cost containment
- Reward and compensation linked to performance
- Optimum compensation ration
- Quality efforts and outputs
- Ingraining quality work practices and mind set
- Quality is part of organisational culture
- Innovative products and services
- Managerial nurturing of ideas
- Employees are entrepreneur
- Talent is competitive advantage
★ Approach to Performance Management
- Performance driven integration
- Development driven integration
- Team oriented
! !17
★ Performance Management Process
- Performance planning
- Performance Development
- Performance management process
- Performance Appraisal
★ Performance Planning
- Role clarity
- Understanding and setting performance expectation
- Setting performance standards
★ Performance Development
- Developing job related skills knowledge and expertise
- Supporting employee for performance at or above performance

standards
- Establishing training and development interventions
1.5 Key Activities involved in a robust Performance

Management System (PMS)
Key Activities involved in a robust Performance Management System are as

follows-
★ Job Description and performance plans: Development of clear job

descriptions and employee performance plans which includes the
establishment of key result areas (KRA) and key performance indicators
(KPIs).
! !18
★ Selectionprocess: Identification and selection of right set of people by

implementing an appropriate recruitment and selection process.
★ Negotiation of Expectation and Reward: Negotiating requirements

and performance standards for measuring the results and achievement of
overall productivity against the pre-set benchmarks / performance
indicators
★ Feedback: It is very crucial that the performance management system

is capable of generating reports, providing continuous coaching and
feedback during the entire duration of performance delivery.
★ Results evaluation and assessment of skill development

requirements: Identifying the need for skills, training and development
by measuring the results achieved against the set performance standards
and implementing effective development programmes for improvement
over a period of time
★ Periodic review meetings and discussions: The PMS should facilitate

holding monthly /quarterly performance development discussions and
evaluating employee performance on the basis of performance plans
developed by the management
★ Linkage of the compensation or rewards to the performance

indicators: Designing effective and robust compensation and reward
systems for recognising those employees who perform well in their jobs
by achieving the set standards in accordance with the performance plans
or rather exceed the performance benchmarks as set by the performance
management system
★ Continualguidance to employees: A robust and effective performance

management system, helps employees in identification of promotional/
career development support and guidance over the lifecycle of the
employees
★ Discussion during the exit interviews: It is very important to perform

exit interviews for understanding the cause of employee dissatisfaction
and thereafter exit from an organization
! !19
1.6 Challenges in the implementation of an effective and

efficient performance management system
HR Function across the world faces a unique challenge in implementation of

the performance management system. Some of the key challenges are as
follows-
★ Balancing the performance expectations and the reward mechanism
★ Measurement of results
★ Defining business plans
★ Setting up a learning culture in an organisation
★ Enduring fairness in the decision making process
1.7 evolution of Performance Management System
Over a period of time, the performance management systems have

undergone a significant change. The key phases in the evolution of PMS is
as follows-
★ Stage 1: The initial performance management system primarily involved

annual performance appraisal. There was a system to maintain
confidential reports of employees, which were used for performance
evaluation. The key traits or parameters that were evaluated were
primarily the traits job knowledge, expertise, sincerity, dynamism,
punctuality in reporting the organisation, leadership, loyalty to the
organisation inter alia. This kind of system has number of limitations and
was not considered transparent in term of maintenance of employee
relations.
★ Stage 2: Formal written communication to employees periodically to

provide an update about their performance on various aspects in an
organisation. In this process of appraisal of the performance, the
reviewing officer or manager used to enjoy a discretionary power of
overruling the ratings given by the reporting officer or manager.
! !20
★ Stage 3: During this phase the employees were given an opportunity to

self-describe their accomplishments, provide highlight of the
achievements, including skill development or training needs. However, at
this stage also the organisation used to maintain complete confidentiality
in the process of evaluation and providing feedback to the employees.
★ Stage 4: Stage 4 is a welcome phase in the overall performance

management system implementation. This system focused on
performance planning, review and development of an employee by
following a methodical approach. In the entire process, the reporting
employee or subordinate and the reporting officer/ manager mutually
decided upon the key result areas in the beginning of a year itself to
avoid any future conflict and disagreements. The process also enabled
periodic review mostly every quarter / six months. During the review
period various issues were identified and addressed. Some of the key
issues involved include-
- Factors affecting the performance
- Training and development needs of an employee
- Need for set up of fresh targets
- Discussion on ratings
During this stage the discussion were conducted with the appraisee /
employee in a collaborative environment. This stage promoted a good
level of transparency and trust in the entire performance management
system
★ Stage 5: Most matured stage in the evolution of the performance

management system. Some of the key characteristics of an evolved
stage are as follows-
- Maturity in handling people issues
- Importance to team building, culture building
- Use of quality circles
! !21
- Transparency in the end to end process of performance management
- Communication and establishment of clear linkage of the strategic

business goals and the performance management systems
- Continuous feedback and review mechanism
- Opportunity to employee to present his / her perspective
E.g. Infosys – Performance Management and Reward System after

induction of Mr. Vishal Sikka as the CEO.
In the IT-enabled services industry, for instance, the supply of employees

now outstrips demand, and the ability to differentiate between individuals
becomes a major focus of appraisals, with companies trimming 3% to 5%
of their employee base every year. At companies like Infosys, Wipro, HCL,
etc., which employ over a 100,000 people each, a system designed to
clearly demarcate a section of relatively low performers is necessary.
Most companies follow the normal distribution curve or the bell curve
during appraisals but it's a system that has been debated for a while now
because it forces ranking on employees to fit the nature of the curve. This
means a few employees get placed on the extreme left; employees with
very good and average ratings are placed in the middle and few on the
extreme right.
Vishal Sikka, who took charge as Infosys CEO in August 2014, wants to do
away with the existing bell curve process. Instead, he wants to create a
system that will reward the rainmakers and align bonus pay-outs to
customer delights that they execute. He believes this will foster a culture of
innovation and performance.
! !22
1.8 Key difference between Performance Appraisal and

Performance Management
While there is a clear shift seen in the industry from merely conducting
performance appraisals to moving to a matured and robust performance
management system. It is important to evaluate some of the key
differences between the traditional performance appraisal and the new age
performance management system.
Economic Times Report 16 June, 2015 Infosys' CEO Vishal Sikka mulls changes to
appraisal process, plans to reward rainmakers
Performance Appraisal Performance Management
The primary focus and approach Objective setting and review is a mutual
followed a top down process or a collaborative process
Limited involvement and contribution of High level of involvement and

employees / reporting subordinates in engagement of reporting employee in
the process of defining objectives the overall process
Performance review conducted less Frequent discussions and dialogue

frequently e.g. Annual Review between the team and reporting
manager on various aspects of
performance, training need analysis,
course corrections inter alia
Use of limited ratings framework more Less use of ratings and more use of
common subjective analysis
Focus on personality and behavioural Focus on value system, quantifiable

traits objectives, potential of the employee
Directly linked with the compensation, Indirectly related to the compensation of

incentives and annual increments employee
! !23
!
Price water house Coopers (PWC) Performance Consultation –
Taiwan - 2015
• Key Benefits of Appraisal System
- Deeper Understanding of the Job

- Focus is on the Real Needs of the Business
- Improved Communication
- Management Commitment
• Different appraisal procedure purpose
- Evaluation
- Auditing
- Construction succession plans
- Discovering training needs
- Motivating staff
- Developing individuals
- Checking
! !24
1.9 Need for Robust Performance Management and Reward

System
Any organisation on a growth path needs to have a robust performance

management and reward system primarily to maintain and deliver superior
performance and also people attract and retain talent. Some of the key
factors that define the need are as follows-
a. Attracting, Retaining and Motivating Employees: A robust

performance management and reward system reinforces the
commitment of the organisation and its top management. Efficient and
effective reward practices help the organisation to attract result driven
professionals who thrive and foster in performance based work
environment. If implemented properly, the system can become a core
of overall performance framework of an organisation. Innovation in
performance management and impromptu reward mechanism seems to
be the new trend for employee engagement.
E.g. One of the leading Airline Company has implemented a policy of

rewarding the operations staff with few US Dollars every time the
flight completes the operation in time.
E.g. A leading telecom company shares interim rewards of gift

vouchers with employees for providing and implementing process
improvement suggestions at work.
E.g. A leading company in Steel manufacturing offers instant rewards

to the employees under “Shabashi” scheme.
b. Promotion of healthy work environment and performance based

culture: A performance based pay system which not only offers a good
reward but also focussed on learning opportunities tends to promote
healthy work environment. The performance management and reward
system needs to instil a sense of ownership amongst the employees.
Some of key areas which it should address are as under-
i. Focus on continuous improvement
ii. Reduction in the operational costs
iii. Promotion of team work
iv. Reduce or minimise dissatisfaction of employees
v. Increase the interest level of employees
! !25
E.g. Numbers of MNCs like General Mills, Vodafone promote

employees to take up additional learning programmes which will help
them to enhance skills. Some of the companies partially sponsor the
advanced education and expect the employee to apply the skills
learnt on the job. Some of the companies also reward the employee
for attaining new skill which may improve the individual as well as
departmental performance.
c. Mechanism to identify and reward exceptional performance:

Robust performance and reward system also helps the management to
identify and reward the exceptional performers. This also helps in
ensuring the commitment of the employees and assists the organisation
in terms of achievement of long term beneficial results.
d. Adequately consider appropriate Role and Responsibility in the

Organisation in evaluating performance and determining
reward: The Senior Management in an organisation is expected to be
accountable for the overall performance. The hierarchy of the key
performance measures and the basis for rewards can be determined on
the basis of “Pay for Performance Strategy” model
Pay for Performance Strategy
Category Performance Measures Basis for Rewards
Senior Balanced Score Card, Higher Role

Management /
Leadership /
Profitability, Induction as a Board
Corporate
Member
Leaders
Growth achieved Regional Role within the
Global Management
Improvement in Market Employee stock ownership

Capitalisation
Dividends / Shareholders Profit sharing

returns
Economic Value Added
! !26
Strategic Revenue of the Unit Results / Profit Sharing

Business Unit
Cost Control Higher Role in the Company
(SBU) Leaders
Management
Profitability of the Business

unit
Functional Level of contribution towards Milestone based Awards

Leaders the corporate goals
New Business addition / Higher Role at SBU Level

Opportunity creation
General Specific Key Result Areas Performance incentives

Employees (KRAs) / Ley Performance
Indicators (KPIs)’s achieved
measured periodically
Profit/gain sharing, bonuses
Examining the compensation and linkage to performance: Re-

examine the compensation system to make sure it answer the following
questions:
★ Whose performance is to be rewarded?
★ How does one group differ from others?
★ What are the different conditions under which the same job is
performed?
★ How employee performance is evaluated?
★ How frequently is employee performance evaluated?
★ What types of accomplishments are rewarded by the organisational

goals?
★ What is the relationship of different types of performance to

organisational goals
! !27
★ If there is no direct link between individual performance and

organisational productivity, how can the two be related?
★ Who will evaluate performance?
★ Who is responsible for suggesting appropriate incentives?
★ What recourse does the employee have if he or she disagrees with a

performance evaluation?
e. Motivation for employees: Rewards mechanism can be an important

enabler for enhancing motivation of employees. The administration of
the rewards needs to be done under appropriate business conditions.
Strategies that could improve the effectiveness of rewards in business
are as follows-
i. Establishment of rewards to the Performance Management

System.
ii. In case of jobs which are interdependent on each other, implement
reward scheme at a team level.
iii. Need to ensure that the rewards are relevant to the employee
expectations and time.
iv. The organisation needs to ensure that the rewards are valued by
all employees.
v. The organisation should also evaluate and adverse impact of any

reward programmes on sales or other practices.
E.g. Wal-Mart, the largest retailer, has implemented a reward bonus

scheme for the top management which is based on the company’s
overall performance (sales and profitability target) whereas the
frontline employees and the field staff earn bonus on the basis of the
sales figure or targets attained by their respective store.
E.g. In companies with excessive focus on Sales Targets and Reward

mechanism having limited focus on sales, tends to encounter
challenges of misspelling or malpractices in the selling process. This
may lead to an adverse impact on the customer confidence.
! !28
f. Adequate consideration to non-monetary aspects: Employees not

only have monetary expectations from the organisation, but also non-
monetary aspects. A robust performance management and reward
system is capable of taking care of some of the non-monetary rewards
like better career opportunities, higher roles, skill enhancements,
recognition programmes etc.
E.g. Number of companies in IT industry, Service Sector where the

employee base is knowledge workers, non-monetary benefits like
recognition assume high importance.
E.g. New Employee Study Shows Recognition Matters More Than Money -
New research on employee engagement examines the relationships
among motivation (/basics/motivation), money, and recognition, and
finds, not entirely surprisingly, that how you feel is often more important
than what you earn.
Funded by Make Their Day, an employee motivation firm, and Badgeville, a

gamification company, surveyed 1,200 U.S. employees from a broad cross-
section of industries. Among the study’s highlights:
★ 83% of respondents said recognition for contributions was more

fulfilling than any rewards or gifts;
★ 76% found peer praise very or extremely motivating;
★ 88% found praise from managers very or extremely motivating;
★ 90% said a “fun work environment (/basics/environment)” was very or

extremely motivating.
Workers of all ages, especially the rising Millennial population are

motivated by real-time feedback, fun, engaging work environments, and
status based recognition over tangible rewards. People leave managers,
not companies. In general, the study reinforced the centrality of the
aspect. As the saying goes, “People leave managers, not companies.”
Usually for emotional, not financial, reasons. Employee motivations
naturally can evolve over time. Speaking from a purely personal
perspective, in the first decade of my career (as a journalist) I was highly
motivated by the nature of the work itself and recognition resulting from it.
! !29
After that I went into business got married, owned a home, raised a
family... had much greater financial needs and consequently became much
more money motivated. So individual motivations can change, depending
on personal needs and circumstances.
1.10 Reward System
Over a period of time, rewards in organisations in not only limited to

monetary compensation, bonuses, incentives, stock options and others, but
also include timely recognitions, opportunity for growth, higher roles,
promotions, additional assignments and responsibilities, secondments inter
alia. An effective reward system should have most of the following key
components-
★ Balancereview of Financial aspects, customer requirements, business

processes and employee expectations
★ The monetary compensation should consider factors at various levels i.e.

Organisational level factors, Departmental Factors, Personal Factors and
also other baseline expectations
E.g. In number of MNCs the compensation of an employee is linked to

various levels as illustrated below-
★ Organisational Factors: Overall profitability, Cash Flow, Regional

Expansion
★ Departmental Factors: Cost, Budget achievement
★ Personal Factors: Individual contributor
★ Baseline expectations: Standard performance parameters across all

functions of process, quality, cost control etc.
! !30
Principles for Reward System Design
Rewards may include monetary as well as non-monetary aspects. As

broadly defined Reward system set to include all the monetary, non-
monetary and psychological payments that an organisation provides for its
employees in exchange for the service delivery and performance”. Some of
the key components of tangible rewards can be financial payments,
Working conditions and comfort whereas the intangible rewards can include
personal / job satisfaction, sense of contribution to the society.
1.11 Key objectives of Reward Systems
It is important to understand, what do organisations would like to achieve

through the reward systems. Some of the key objectives to be attained are
as follows-
★ Gain commitment and support of the employees for achievement of the

overall strategic goals of the organisation
★ Attract the right talent and retain
★ Motivation of employees
★ Ensure that the employees / managers take calculated risks
★ Ensure compliance with the legal regulations
! !31
★ Ensure high level of ethics
★ Ease of administration
1.12 Types of Rewards and the Features
Organisation design different components as a part of rewards to achieve

different objectives. Some of the key components, types and features are
as follows-
Type of
Rewards /
Key Features
Components of
Compensation
Basic Pay Minimum amount that the employee should be receiving for
the work performed
Mainly, fixed component of the pay
This component is also supplemented by additional

components and other types of remuneration
This rewards address the bare minimum or basic expectations

of the employees
Variable Pay – Motivates the employees to work harder and deliver higher
Pie-cework productivity
based pay
Helps organisation to achieve greater savings and efficiency
Price is paid for each unit of output
Advantageous for the employer as no payment is required for

idle time or inefficiencies
Employee bears the commercial risks if the demand for

product manufactured reduces / falls in the market
E.g. Manufacturing companies, Textile Industries follow the

piece work system under the traditional format of payment
! !32
Individual Either bonus or increase / increment in the basic pay is given

performance to the individual employees
related pay
Applicable generally to middle level managers in any
organisation
Employees are motivated to achieve the goals of organisation

and also ensure that the individual goals are aligned
Employee has good level of control of the rewards
Has a risk that the objectives that do not get rewarded may
not get achieved
Also has a risks of lack of team work
Group linked Similar to the individual performance schemes however, a

performance pool of rewards is shared with the group
scheme
Applicable to organisations where it is difficult to measure
and quantify individual performance and the achievement
depends on team work
Group scheme encourage team work
Also has a risk that the non-performing individual may get

rewarded and this issue may create conflict within the team
Knowledge Paid on employee achieving a new skill level

based reward
E.g. Number of accounting and auditing firms reward their
staff after achievement of a global certification like ACCA,
CMS, CPA or professional accreditation
E.g. Educational institutes also reward the Teaching Staff in

case they complete an Doctoral programme and earn a Ph. D.
Commissions Primarily a major component of commission to the sales staff.

Commission is paid on the basis of sales achieved
Risks that the sales staff may engage in misrepresenting the

sales achievement through fraudulent methods like window
dressing, selling on a “sale and return basis”. This also carries
the risks of more focus on short term than on the long term
customer engagement
! !33
E.g. Misspelling of Insurance policies by employees or agents

of number of insurance companies
E.g. Excessive selling of credit cards
Profit based Employee remuneration is linked to profits earned by the

reward organisation
mechanism
In most of the organisation’s the Senior Management
remuneration is linked to profitability
Risk with profit-linked pay is that it may match the primary

objective of commercial organisations, which is to maximise
the wealth of the shareholders and value creation
Stock Options Staff receive the right to buy shares in their company at a
certain date in the future, at a price agreed today
Long waiting time for the employees to realise the benefit of

stock option plans
Rewarding for employees only if the share price in the market

goes up at the time of exercising the option
E.g. ABC Limited is listed on the National Stock Exchange in

India. Today, shares of ABC Limited are trading at Rs. 100
each. The company has just awarded the CEO of the
company an option to buy 500000 shares for Rs. 120 each in
exactly ten years time. These options have no intrinsic value
at the granting date.
If the share price rises to say Rs. 200 in 10 years time, the
CEO could exercise his options, buying 500000 shares at a
price of Rs. 120 each. Since the shares would be worth Rs.
200 each by then the CEO would make a gain of Rs. 80 per
share, or Rs. 4 crore in total
E.g. Separating annual reviews and pay discussions at Google.
At Google, annual reviews take place in November and pay discussions

happen about a month later. The hope is that employees want to improve
for the sake of contributing more to the company — not because they're
motivated by the prospect of a higher salary. Bock cites research that
suggests employees perform better in the absence of external incentives
like more money.
! !34
E.g. Non-Financial rewards to employees.
Number of MNCs has been providing gifts on various occasions at times on

festive season or at a moment of achievement of the goals by the
organisation, department or function or individual.
A robust and effectively designed reward system aims to motivate

employees to work harder, smarter and align their goals with the
organisation. The latest trend towards performance-related reward systems
is designed to lead the employees with a potential to greater rewards and
motivation for those who contribute to the bottom-line and the cash flow of
the organisation most. However, designing such reward systems remains a
complex activity as it aims to significantly create an impact on the human
behaviour.
1.13 Activity
1. Obtain the copy of performance management and evaluation policy of

2-3 companies in a sector of your choice and study the key components,
features, tools and techniques adopted. Highlight the common points,
identify the key differences and identify key limitations.
…………………………………………………………………………………………………………………………
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…………………………………………………………………………………………………………………………
2. Perform primary and secondary research for 5-10 companies in a sector

of your choice and understand the latest trends in the financial and Non-
Financial reward mechanism. Highlight the success stories and
limitations.
…………………………………………………………………………………………………………………………
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! !35
1.14 Summary
Performance management is the systematic process of planning work and

setting expectations, continually monitoring performance, developing the
capacity to perform, periodically rating performance in a summary fashion
and rewarding good performance.
In the planning process, the getting employees involved in the planning

process will help them appreciate and understand the key objectives and
important goals of the organisation, what needs to be done, why it needs
to be done, and how well it should be done and how does it fits in the
overall strategy of the organisation.
Monitoring the performance of the employees includes consistently

measuring performance and providing on-going / regular constructive
feedback to employees and work groups on their progress toward reaching
their goals.
Organisation perform training and developmental needs analysis and the

outcome of the exercise is used in the Developing stage to provide
employees with training and developmental opportunities, encourage good
performance, strengthen job-related skills and competencies, and help
employees keep up with changes in the workplace, business environment,
such as the introduction of new technology, merger and acquisition inter
alia.
Rating periodically helps the organisations to summarise employee

performance. This also helps with comparing performance over a longer
period of time or across a set of employees. This also assists the
organisations to identify and carve out their best performers are.
Rewarding means identifying and recognising employees, individually and

as members of groups, for their performance and acknowledging their
contributions to the organisational objective, vision and mission.
Organisation’s performance management system should take into

consideration the level of the service, which directly or indirectly affects by
employee benefits policy and the sustainability of the service
! !36
1. ABC Limited, a company engaged in the Information Technology

Services, is keen to set up a robust performance management
framework. You are required to help the company in identification of the
key requirements of a good PMS.
2. Harish, Head of HR at a large conglomerate, is keen to initiate various

non-financial rewards to motivate employees. You are required to assist
Harish in listing various non-financial rewards to help achievement of his
objective.
3. Identify and highlight the important differences between Performance

Appraisal and Performance Management.
! !37
1. Which of the following statement is not likely to be correct about

performance appraisal?
a. Approach is collaborative and engaging for the employees

b. Conducted less frequently
c. Use of limited ratings framework
d. Direct linkage with compensation
2. ABC Limited is in the process of formulating performance management

framework for its growth. Which of the following is most likely to be the
first step in the overall performance management framework?
a. periodically rating performance in a summary fashion

b. continually monitoring performance
c. planning work and setting expectations
d. developing the capacity to perform
3. Which of the following is not likely to be an important objective of an

effective performance management framework?
a. Enabling goal clarity for employees

b. Exploration of full potential of employees in their as well as in favour
of organisation
c. Increase attrition of high performing employees
d. Adequately define the role, responsibility and the evaluation
parameters for all employees
Answers
1. (a), 2. (c), 3. (c) 
! !38
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture - Part 1
Video Lecture - Part 2 
! !39
KEY ELEMENTS AND STANDARDS OF PERFORMANCE MANAGEMENT PLAN
Chapter 2
Key Elements and Standards of
Performance Management Plan
Objectives
★ Understand
the important trends and changes in the performance
management at Corporate India
★ Gain an understanding related to performance management contribution

in an organisation
★ Gaining
a CEO’s perspective about the contribution of performance
management systems
★ Understand
the disadvantages of poorly implemented performance
management systems
Structure:
2.1 Trend and Changes in Performance Management at Corporate India

2.2 Elements of Performance Management Plan
2.3 The Performance Management Contribution
2.4 What CEOs Say About the Contribution of Performance Management
Systems?
2.5 Disadvantages of Poorly Implemented PM Systems
2.6 What can go Wrong with Performance Management Systems?
2.7 Activity
2.8 Summary
! !40
2.1 Trend and Changes in Performance Management at

Corporate India
Performance management is one of the most debated practices that

organisations undergo on a regular basis. While there is not much debate
on the value of performance management, the effectiveness of the process
and how organisations can use it for building a high performance workforce
are of paramount concern. The parameters that make for an effective
performance management system in the workplace.
It should set clear and unambiguous expectations and goals across

distance and boundaries to cater to the geographically dispersed workforce
in today's organisation. Second, the expectations and goals set should be
agile enough to respond to the frequent changes as a result of external
factors. Third, a mechanism should be available for effective and regular
feedback among all team members as there is a greater degree of
interdependence due to matrix organisation structures used in the
organisation.
India Inc., however, is making improvements in their appraisal systems,

according to People Business. Some of the trends spotted include — direct
feedback from employees on the rolled out initiatives. Firms have started a
multi-pronged feedback, where many peers rate an employee's work.
Some are encouraging a culture of coaching. Managers should learn the art
and science of formal and informal feedback throughout the year. The
employee needs to be engaged in these discussions and be open.
Case Study
Sunita is a sales manager at a large pharmaceutical company. The fiscal

year will end in one week. She is overwhelmed with end-of-the year tasks
including reviewing the budget. She is likely to get for next year,
responding to phone calls of customers, and supervising a group of 10
salespeople. It’s a very hectic time, probably the most hectic time of the
year. She receives a phone call from the HR Department: ‘Sunita, we have
not received your performance reviews for your 10 employees; they are
due by the end of the fiscal year.’ Sunita thinks ‘Oh, those performance
reviews… What a waste of my time!’ From Sunita’s point of view, there is
no value in filling out those meaningless forms. She does not see her
subordinates in action because they are in the field visiting customers most
! !41
of the time. All she knows about their performance is based on sales
figures, which depend more on the products offered and geographic
territory covered than the effort and motivation of each salesperson. And
nothing happens in terms of rewards regardless of her ratings. These are
lean times in her organisation, and salary adjustments are based on
seniority rather than merit. She has less than 3 days to turn in her forms.
What is she going to do? She decides to go down the path of least
resistance: to please her employees, she gives everyone the maximum
possible rating. In this way, she believes they will be happy with their
ratings, and Sunita will not have to deal with complaints or follow-up
meetings. Sunita fills out the forms in less than 20 minutes and gets back
to her ‘real job’.
There is something very wrong with this picture, which, unfortunately, is a

frequent situation in many organisations. Although Sunita’s HR department
calls this process ‘performance management’, it is not. Performance
management is a continuous process of identifying, measuring and
developing performance in organisations by linking each individual’s
performance and objectives to the organisation’s overall mission and goals.
Let’s consider each of the definition’s two main components:
1. Continuous process – Performance management is on-going. It involves

a never-ending process of setting goals and objectives, observing
performance, and giving and receiving on-going coaching and feedback
2. Link to mission and goals – Performance management requires that

managers ensure that employees’ activities and outputs are congruent
with the organisation’s goals and, consequently, help the organisation
gain a competitive business advantage. Performance management,
therefore, creates a direct link between employee performance and
organisational goals, and makes the employees’ contribution to the
organisation explicit.
Note that many organisations have what is labelled a ‘performance

management’ system. However, we must distinguish between performance
management and performance appraisal. A system that involves employee
evaluations once a year, without an on-going effort to provide feedback
and coaching so that performance can be improved, is not a true
performance management system. Instead, this is only a performance
appraisal system. Although performance appraisal (i.e., the systematic
! !42
description of an employee’s strengths and weaknesses) is an important

component of performance management, it is just a part of the whole.
E.g. As an illustration, consider how Merrill Lynch has changed from having
simply a performance appraisal system to now having a performance
management system. Merrill Lynch is one of the world’s leading financial
management and advisory companies, with offices in 36 countries and
private client assets of approximately US$1.1 trillion. As an investment
bank, it is a leading global underwriter of debt and equity securities and
strategic advisor to corporations, governments, institutions and individuals
worldwide. Recently, Merrill Lynch started the transition from one
performance appraisal per year to focusing on one of the important
principles of performance management: the conversation between
managers and employees where feedback is exchanged and coaching is
given if needed. At the first review of the year, employees and managers
set employee objectives. Mid-year reviews assess what progress has been
made toward the goals, and consider personal development plans. Finally,
the end of the year review incorporates feedback from several sources,
evaluates progress toward objectives, and identifies areas that need
improvement. Managers also get extensive training on how to set
objectives and conduct reviews. In addition, there is a website that
managers can access for information on all aspects of the performance
management system. In sharp contrast to their old performance appraisal
system, Merrill Lynch states that the goal of the newly implemented
performance management programme is to say: ‘This is what is expected
of you, this is how we’re going to help you in your development, and this is
how you’ll be judged relative to compensation. Performance management
systems that do not make explicit the employee contribution to the
organisational goals are not true performance management systems.
Making an explicit link between an employee’s performance objectives and
the organisational goals also serves the purpose of establishing a shared
understanding about what is to be achieved and how it is to be achieved.
This is painfully clear in the case of Sunita described above: from her point
of view, the performance review forms did not provide any useful
information regarding the contribution of each of her subordinates to the
organisation. In subsequent modules we shall describe best practices on
how to design and implement performance management systems. For now,
however, let’s say that well-designed and implemented performance
management systems make substantial contributions to the organisation.
Let’s describe these contributions in detail.
! !43
2.2 Key Elements of Performance Management Plan
The key elements of performance management plan are stated as under:
★ Reliable measures: We all know that performance measures are the

key to performance management; how could you direct and improve
performance without tracking how it changes? Measures must be tightly
tied to the organisational results that really count and the factors that
drive those results; in different words, performance measures must
reflect how your organisation creates value. As a practical matter,
measures must also be well known and accepted as fair and complete.
Strong performance measures will generally be quantitative, but well-
conducted assessments and other qualitative processes can also meet
your measurement need.
★ Clear goals: Goals can be directed toward implementing your strategy

or directed toward improving operational effectiveness. In either case a
clear, challenging goal calls forth action and aligns effort. In the best
performance management programmes, goals are:
- Based on careful study and a strong vision of what’s possible

- Linked and cross-tied to your performance measures
- Clearly announced and well known
- Accepted by individuals and groups as part of their accountabilities
★ Performance monitoring: You’d be surprised how many organisations

have strong, detailed performance measures and yet do not use them
effectively as management tools; that is, the measures are not
thoroughly and periodically reviewed by senior leaders. To manage
performance, senior people must:
- Regularly inspect performance measures

- Interpret trends and study root causes
- Let everyone know the measures are reviewed and used
- Set new actions and initiatives according to what is learned
★ Rewards and recognition: Rewards and recognition are crucial

components of performance management. You have many options and
ways for using them, but the three keys are: they must be present; they
! !44
must be meaningful to those on the receiving end; and they must be

truly contingent on performance
★ Initiatives and corrective actions: Finally, a performance

management programme must include new initiatives and corrective
actions. We must do something based on what we’ve learned:
- Set new, higher goals when they seem achievable

- Institute mid-course corrections when performance is off track
- Always strive to inspire new action rather than assign blame
Some of the other aspects of the Performance Management process is

stated as under-
★ Key Objectives of the PMS Process
- Evaluation objective
- Development Objective
★ Performance Management Steps
- Performance Planning
- Performance Monitoring and Coaching
- Individual Evaluation
- Linking the evaluation with pay and other areas
★ Performance Management Cycle consists of five elements
- Setting performance objectives

- Measuring outcomes
- Feedback of results
- Rewards linked to outcomes
- Amendments to objectives and activities
★ Performance Management Cycle
- Phase I Performance Planning

- Phase II Performance Execution
- Phase III Performance Assessment
- Phase IV Performance Review
! !45
- Phase V Performance Development

- Phase VI Performance Audit
★ The three major steps in performance management process
- Performance Planning
- Performance Development
- Performance appraisal
★ The Goal Oriented PMS Cycle
- Achieving clarity about the job to be done

- Setting goals
- Reviewing performance in the job
- Preparing for the performance discussion
- Concluding the performance discussion
The Three Most Important Aspects of Performance Management –

What to Focus On
Performance management is basically a system of different processes that

combine to create an effective workforce within your company that can
effectively reach your business goals. There are many different aspects of
performance management, but in most cases it can be broken down into a
few simple steps. If you're adopting a performance management process
for the first time or want to modify your current one to maximise its
effectiveness, there are three key aspects that are the most important in
your performance management system. Obviously these are up for debate,
but in most cases of performance management you can plan on these to
have the most impact on the success or failure of your performance
management efforts.
Planning: The first step in any good performance management process is

likely also the most important. Haphazardly stumbling towards goals will
usually only end in disaster, so it's important that proper planning is used
during performance management. This applies not only to the performance
management system itself, but also to the inner workings of the business.
Speaking strictly about performance management, good planning begins
by analysing the exact goals you want your company to attain and to
develop realistic ways to achieve them. It's vital that your goals be
! !46
realistic, otherwise your performance management plan will fail. It's also
important to take the time to create a realistic plan that can achieve your
goals.
Monitoring: If any performance management system is to succeed it

needs to involve a very rigorous monitoring process. Closely surveying
your overall company, each department, and individuals is vital for
performance management and for you to reach your goals. Monitoring
during performance management involves not just monitoring the progress
of each department and employee but also providing them with constant
feedback whether it is in the form of praise and reward or in constructive
criticism. If you want your performance management efforts to succeed
you'll have to monitor each step towards your goal very closely to ensure
everything is going according to plan. If areas seem to be lacking, you'll
need to be able to take steps to improve them such as providing training.
Rewards: While some experts place this lower in importance than other
aspects of performance management, the truth is that your employees
deserve rewards and that few things will influence not only the success of
your performance management efforts but also the success of your entire
company quite like appropriate rewards. Whether it is simple public
recognition or actual monetary rewards, no performance management
process will be complete or effective without good use of rewards. They
can improve morale and employee satisfaction, boost productivity, and help
you move closer to your goals. If you want your performance management
to be successful, take the time to utilise rewards.
2.3 The Performance Management Contribution
There are many advantages associated with the implementation of a

performance management system. A performance management system
can make the following important contributions:
★ Motivation to perform is increased: Receiving feedback about one’s

performance increases the motivation for future performance. Knowledge
about how one is doing and recognition of one’s past successes provide
the fuel for future accomplishments
! !47
★ Self-esteem is increased.: Receiving feedback about one’s

performance fulfils a basic need to be appreciated and valued at work.
This, in turn, is likely to increase employees’ self-esteem
★ Managers gain insight about subordinates: Direct supervisors and

other managers in charge of the appraisal gain new insights into the
person being appraised. The importance of knowing your employees is
highlighted by the fact that the Management Standards Centre has
recognised that developing productive relationships with colleagues is a
key competency for managers gaining new insights into a person’s
performance and personality will help the manager build a relationship
with that person. Also, supervisors gain a better understanding of each
individual’s contribution to the organisation. This can be useful for direct
supervisors as well as for supervisors once removed
★ The job definition and criteria are clarified: The job of the person
being appraised may be clarified and defined more clearly. In other
words, employees gain a better understanding of the behaviours and
results required of their specific position. Employees also gain a better
understanding of what it takes to be a successful performer (i.e., which
criteria define job success)
★ Self-insight and development are enhanced: The participants in the

system are likely to develop a better understanding of themselves and of
the kind of development activities of value to them as they progress
through the organisation. Participants in the system also gain a better
understanding of their strengths and weaknesses, which can help them
better define future career paths
★ Personnel actions are more fair and appropriate: Performance

management systems provide valid information about performance,
which can be used for personnel actions such as merit increases,
promotions and transfers, as well as terminations. In general, a
performance management system helps ensure that rewards are
distributed on a fair and credible basis. In turn, such decisions based on
a sound performance management system lead to improved
interpersonal relationships and enhanced supervisor–subordinate trust
! !48
★ Organisational goals are made clear: The goals of the unit and the
organisation are made clear, and the employee understands the link
between what he or she does and organisational success. This is a
contribution to the communication of what the unit and the organisation
are all about and how organisational goals cascade down to the unit and
the individual employee. Performance management systems can help
improve employee acceptance of these wider goals (i.e., organisational
and unit level)
★ Employees become more competent: An obvious contribution is that

the performance of employees is improved. In addition, there is a solid
foundation for developing and improving employees by establishing
developmental plans
★ There is better protection from lawsuits: Data collected through

performance management systems can help document compliance with
regulations (e.g., equal treatment of all employees regardless of sex or
ethnic background). When performance management systems are not in
place, arbitrary performance evaluations are more likely, resulting in an
increased exposure to litigation
★ There is better and more timely differentiation between good and

poor performers: Performance management systems allow for a
quicker identification of good and poor performers. Also, they force
supervisors to face up to and address performance problems on a timely
basis (i.e., before the problem is too costly and cannot be remedied)
★ Supervisors’ views of performance are communicated more

clearly: Performance management systems allow managers to
communicate to their subordinates their judgements regarding
performance. Thus there is greater accountability in how managers
discuss performance expectations and provide feedback. Both assessing
and monitoring the performance of others are listed as key competencies
for managers by the Management Standards Centre. When managers
possess these competencies, subordinates receive useful information
about how their performance is seen by their supervisor
! !49
★ Organisational change is facilitated: Performance management

systems can be a useful tool to drive organisational change. For example,
assume an organisation decides to change its culture to give top priority
to product quality and customer service. Once this new organisational
direction is established, performance management is used to align the
organisational culture with the goals and objectives of the organisation to
make change possible. Employees are provided with training in the
necessary skills, and are also rewarded for improved performance so that
they have both the knowledge and the motivation to improve product
quality and customer service
E.g. This is precisely what IBM did in the 1980s when it wanted to switch
focus to customer satisfaction: the performance evaluation of every
member in the organisation was based, to some extent, on customer
satisfaction ratings regardless of function (i.e., accounting, programming,
manufacturing, etc.). For IBM, as well as for numerous other
organisations, performance management provides tools and motivation
for individuals to change, which, in turn, helps drive organisational
change.
2.4 What CEOs Say About the Contribution of Performance

Management Systems
A study conducted by Development Dimensions International (DDI), a

global human resource consulting firm specialising in leadership and
selection, found that performance management systems are a key tool that
organisations use to translate business strategy into business results.
Specifically, performance management systems influence ‘financial
performance, productivity, product or service quality, customer satisfaction,
and employee job satisfaction.’ In addition, 79 per cent of the CEOs
surveyed say that the performance management systems implemented in
their organisations drive the cultural strategies that maximise human
assets.
! !50
Contributions of performance management systems
★ Motivation to perform is increased
★ Self-esteem is increased
★ Managers gain insight about subordinates
★ The definitions of job and criteria are clarified
★ Self-insight and development are enhanced
★ Personnel actions are more fair and appropriate
★ Organisational goals are made clear
★ Employees become more competent
★ There is better protection from lawsuits
★ Thereis better and more timely differentiation between good and poor
performers
★ Supervisors’ views of performance are communicated more clearly
★ Organisational change is facilitated
2.5 Disadvantages of Poorly Implemented PM Systems
What happens when performance management systems do not work as

intended, as in the case of Sunita’s organisation? What are some of the
negative consequences associated with low-quality and poorly implemented
systems? Consider the following list:
★ Employees may quit due to results: If the process is not seen as fair,
employees may become upset and leave the organisation. They can
leave physically (i.e., quit) or withdraw psychologically (i.e., minimise
their effort until they are able to find a job elsewhere)
! !51
★ Falseor misleading information may be used: If a standardised

system is not in place, there are multiple opportunities for fabricating
information about an employee’s performance
★ Self-esteem may be lowered: Self-esteem may be lowered if feedback

is provided in an inappropriate and inaccurate way. This, in turn, can
create employee resentment
★ Time and money are wasted: Performance management systems cost

money and quite a bit of time. These resources are wasted when systems
are poorly designed and implemented
★ Relationships are damaged: As a consequence of a deficient system,

the relationships among the individuals involved may be damaged, often
permanently
★ Motivation to perform is decreased: Motivation may be lowered for

many reasons, including the feeling that superior performance is not
translated into meaningful tangible rewards (e.g., pay increase) or
intangible rewards (e.g., personal recognition)
★ Employees suffer from job burnout and job dissatisfaction: When

the performance assessment instrument is not seen as valid, and the
system is not perceived as fair, employees are likely to feel increased
levels of job burnout and job dissatisfaction. As a consequence,
employees are likely to become increasingly irritated
★ There is increased risk of litigation: Expensive lawsuits may be filed

by individuals who feel they have been appraised unfairly
★ Unjustified demands are made upon managers’ resources: Poorly

implemented systems do not provide the benefits that well-implemented
systems provide, yet they still take up managers’ time. Such systems will
be resisted because of competing obligations and allocation of resources
(e.g., time). Worse, managers may simply choose to avoid the system
altogether
★ Standards and ratings vary and are unfair: Both standards and
individual ratings may vary across and within units, and may also be
unfair
! !52
★ Biases can replace standards: Personal values, biases and

relationships are likely to replace organisational standards
★ Mystery surrounds how ratings were derived: Because of poor

communication, employees may not know how their ratings are
generated or how the ratings are translated into rewards
Example and Case Study providing insight into consequences of

poorly implemented Performance Management System
One example of a poorly implemented performance management system

resulted in a $1.2 million lawsuit. A female employee was promoted several
times, and succeeded in the organisation until she started working under
the supervision of a new manager. She stated in her lawsuit that, once she
was promoted, her boss ignored her and did not give her the same support
or opportunities for training that her male colleagues received. After 8
months of receiving no feedback from her manager, he called her into his
office to tell her that she was failing, was being demoted, and would
receive a $20 000 reduction in her annual salary. When she won her sex
discrimination lawsuit, a jury awarded her $1.2 million in emotional
distress and economic damages.
2.6 What can go wrong with Performance Management

Systems?
Performance management is a process for setting up a shared

understanding of what is to be achieved at an organisation level. It
involves the alignment of organisational objectives with the individual’s
agreed measures, skills, competency requirements, development plans and
the delivery of results. The focus is on performance improvement through
learning and development in order to achieve the overall business strategy
of the organisation. Holistically, performance management integrates a
multitude of elements that contribute to effective management of the
human resource.
Performance management is a systematic process which a manager can

use to get the team members to achieve the team’s objectives and targets,
improve overall team effectiveness, develop performance capabilities,
review and assess team and individual performance, and reward and
motivate. Effective performance management requires:
! !53
★ Identifying tasks and accountabilities
★ Defining competencies necessary to be successful in a position
★ Ensuring that team members have the required competencies
★ Having in place a system to develop competencies
★ Providing timely feedback on how effectively the team members are

applying their respective competencies to accomplish their tasks and
achieve the goals
★ Rewarding and motivating effective performance
★ In the event that performance does not meet established requirements,

the manager must understand the corrective processes and methods
that can help improve employee performance
The basic objective of performance management is to develop and improve

the performance effectiveness of team members. The manager and the
team member work together to plan, monitor, review and appraise the
latter’s work objectives and overall contribution to achieving the
organisation’s goals. Various types of tools are used in this process,
ranging from traits based or behaviour based to result based. Both formal
and informal communications are used to provide feedback. The feedback
could be regular or irregular. A lot of time and energy is spent in getting
the goals and measures right, reviewing performance, and appraising it.
However, things could go wrong and the required effectiveness of employee
performance is not obtained.
Some of the major challenges in managing performance could be as

follows:
★ Wrong Design: The performance management system and tools must

fit with the specific needs of the organisation. It cannot be a duplication
of a system designed and implemented in another organisation, even an
organisation in the same industry or the same business group. Intense
consultation with various stakeholders and users of the system is
necessary. User trust is an absolute necessity for the success of the
system. The design should be tried out on a pilot basis before it is rolled
! !54
out to the organisation as a whole. All documents and forms must be in

place. The system should be fair and equitable. Performance
management should be viewed as a continuous process and not an
activity conducted once or twice a year. The design should also include
mechanisms for rewarding performance and handling poor performers
★ Absence of Integration: The performance management system has to

be integrated with the strategic planning and human resource
management systems as well as with the organisational culture,
structure and all other major organisational systems and processes
★ Lack of Leadership Commitment: Leadership commitment and

support is a must for smooth implementation of the system. Leaders
must drive the process and make performance management an integral
part of the management of the company. Leaders contribute not only in
setting the strategic direction and performance measures but also in
monitoring and reviewing performance across the organisation. They also
reinforce the performance cycle by recognising and rewarding
performance
★ Ignoring Change Management in System Implementation:

Strategic management of change is a vital part of implementing the
system. Driven by the top management, it involves careful management
of resistance. Communication would be a major intervention and a key
tool in managing the change. Implementation milestones and schedules
must be followed. Proper documents must be in place
★ Incompetence: Competence to use the performance management

system is necessary to ensure smooth implementation of the system.
Some of the major skills would include:
- Defining strategic objectives, performance indicators, core

competencies and performance contracts
- Defining performance measures that correspond to the KPIs
- Giving and taking feedback, conducting appraisal interviews, and active

listening
- Performance coaching
! !55
The focus would be on designing and implementing training and

development interventions that would help in developing the competence
of various job holders. Special emphasis would be on building the
behavioural dimensions of performance.
2.7 Activity
1. Study Performance Management System of a large company through

interviews with the Senior Management or HR Department Heads and
identify the important features of their PMS.
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2. Compare key features of performance management system of any two

large companies and assess the key drivers that are working. Also
identify limitations, if any.
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2.8 Summary
Performance management is strategic HRD function which develops

organisational capability to sustain in competition. The age-old use of
performance management was to validate the compensation design and
other HR-related decisions like promotion, demotion, transfer etc. With the
realisation that people are the only sustainable drivers of achieving
organisational excellence, the performance management focuses have
shifted towards HRD activities like identification of training needs, providing
performance feedback directly to employees to enable them to make an
informed choice about their career development.
! !56
Over a period of time the trends in performance management at Corporate

India are changing drastically. CEOs of India Inc. looks for performance
management system as a key contributor to the drive organisational
strategies.
An organisation needs to carry out continual improvements in the

performance management systems. There are number of reasons for
failure of performance management systems and one of the key is lack of
commitment from the management. Absence of right design, inadequate
integration with the business processes as well leads to failure of
performance management systems.
1. Highlight the key reasons, with examples that will lead to failure of a
performance management systems in an organisation?
2. Explain the key elements and broad process involved in setting up a

performance management system.
3. Your company is a renowned company in the business of knowledge

process outsourcing. You have been recruited as Leader with 5
subordinates reporting to you. The major responsibility is managing
payroll of the employees, process employee claim form and processing
medical reimbursements. The job is absolutely protocol bound and
requires your mandate instantly. Accuracy in decision and speed of work
both are essential parts of your and other team members’ job. Identify
what could be your performance domains and dimensions. Develop your
answer with specific examples.
4. Explain how performance management can benefit the organisation.
! !57
1. Which of the following is least likely to be a reason for failure of

performance management systems?
a. Robust management commitment

b. Lack of design
c. Inadequacies in integration
d. Lack of periodic review mechanism
2. Which of the following are key requirements of effective performance

management?
a. Identifying tasks and accountabilities

b. Defining competencies necessary to be successful in a position
c. Ensuring that team members have the required competencies
d. All of the above
3. Which of the following is least likely to be a disadvantage of poorly

implemented performance management system?
a. Employee attrition
b. High level of motivation for performance
c. Self-esteem may be lowered
d. Wastage of time and money
Answers
1. (a), 2. (d), 3. (b)
! !58
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !59
PERFORMANCE MANAGEMENT AND PERFORMANCE APPRAISAL
Chapter 3
Performance Management and Performance
Appraisal
Objectives
★ Gainan understanding of the latest methods deployed by Corporate India

and MNC for performance management and performance appraisal
★ Understand the key alternatives to traditional annual performance review

cycle
★ Gainan understanding of areas where technology can be leveraged for

performance management and appraisal
★ Gain an insight into continuous performance review and appraisal

process
★ Gain an insight into new appraisal system implemented by India

Incorporate and MNCs
! !60
Structure:
3.1 Ways and Methods to Measure the Employee Performance
3.2 Managing Performance Failure and Initiating Improvement Measures
3.3 Performance Appraisal Process
3.4 Alternatives to Annual Performance Review
3.5 Shift at Leading Multinationals from Annual Performance Review to

More Frequent Feedback
3.6 Use of Technology in Performance Appraisal
3.7 Round the Clock Performance Review
3.8 Key Aspects of Continuous Performance Evaluation
3.9 Insight into New Appraisal System Implemented by India Incorporate

and MNCs
3.10 Activity
3.11 Summary
! !61
3.1 Ways and Methods to Measure the Employee

Performance
Businesses globally are faced with number of questions and challenges for
measuring performance of the employees across functions. Some of the
key challenges and questions are
★ How do you assess their performance levels?

★ Do they understand organisation’s goals and expectations?
★ Are they meeting their personal objectives?
Every company should continually monitor and evaluate their employees;

here are seven easy ways to quickly gauge performance and ensure that
the organisation is on the right track. Those key seven parameters and
ways that can be considered for evaluation are as under-
★ Evaluation of Punctuality and Absenteeism: The evaluation of

punctuality and absenteeism has been the most traditional measure for
the employee evaluation. Based on an established survey, employees
who regularly arrive late for work or are frequently absent from the office
are unlikely to be meeting their performance objectives. The late
reporting and frequent absenteeism could possibly on account of poor
discipline. The underlying issue needs to be addressed here –
- Have they received adequate training?

- Do they get along with their co-workers and manager?
Issues with punctuality mean an employee is not doing their job to their
full potential and a negative attitude may also be affecting their colleagues.
First and foremost, it’s important to look at whether an employee shows up
to work or not. Attendance is definitely worth tracking. Employee
attendance can be a useful performance metric as well. Automating time
and attendance is a great way to keep an eye on things.
If an employee is consistently showing up late, leaving early or taking an

unusual number of sick days, they’re likely not showing their full potential.
Poor attendance can be caused by any number of things including a lack of
motivation, health issues or employee burnout.
! !62
Absenteeism can put extra pressure on other employees who have to make
up for missing co-workers. Furthermore, if the organisation is understaffed
and employees are overworked in general, it’s best to address the problem
as soon as possible to avoid putting employee health and well-being at
risk.
★ Quality of work: The timely completion of projects to the desired

standard is a key indicator in measuring employee performance. Some of
the key questions to be evaluated here are as follows-
- Is the work being carried out average or outstanding?
- Are they committing maximum effort to projects?
- Is their attitude affecting their ability to meet your expectations?
- Do they understand their personal performance objectives?
The answers to those questions will help you to understand the root causes
of any problems. The quality of work employees put out is perhaps the
most important metric, but also the most difficult to define. Employees who
care about what they do and are engaged at work will likely perform better,
and it’s a good idea to recognise resulting achievements.
Productivity is a little more complicated than simply looking at the number

of sales calls put out or the number of blog posts published. How many
meaningful connections did your salesperson actually make with leads?
How much of your content actually gets viewed and shared?
Measuring the amount of work that gets rejected or needs to be redone as

a proxy for quality of work, but it’s best to pick (or design) the method that
suits your business best.
! !63
3.2 Managing performance failure and initiating

improvement measures
E.g. Snapdeal an E-commerce Giant Snapdeal puts 200 employees

on "performance improvement", failure may result in termination.
Amid growing competition from rivals like Amazon and Flipkart, e-

commerce major Snapdeal has put its 200 employees on a 'performance
improvement' notice under which they need to improve within a month or
get terminated. The PIP process is expected to cover about 200 team
members.
As part of the on-going performance management and development

programme, some team members at our contact centre have been offered
a performance improvement plan (PIP). Under PIP, employees have been
given 30 days to improve performance, and failure to improve will result in
termination of services. Many of the employees have opted for PIP, some
have decided not to go for it and instead move on voluntarily.
Strategies to improve performance
★ Positive reinforcement system

★ Positive discipline programmes
★ Employee assistance programmes
★ Employee Counselling
While most of these companies continue to be driven by investor money,

concerns around profitability are being raised and many of these firms
are now looking at restructuring their business model to run leaner
operations. Snapdeal like organisations are also thus need to initiate
Performance Improvement Initiatives at an early employment stage.
★ Observe personal habits: Perpetual bad habits can detract from

employee performance. This may include indulging in office gossip,
taking unauthorised breaks, disruptive behaviour and the use of
computers for personal reasons (such as social media, online shopping).
In order to prevent these habits from being adopted by their co-workers,
you must be clear on what is acceptable in your business and issue an
appropriate behavioural code
! !64
★ Evaluate whether employee carry right attitude: A bad attitude will

often manifest itself in insubordinate behaviour. Again, this is indicative
of an individual who is unlikely to be meeting their performance
objectives. Typically, these employees will not comply with company
policies and are likely to display disrespect for your company and co-
workers
★ Helpfulness towards co-workers: Helpfulness is important for

fostering a culture of teamwork, allowing your team to perform better
when tackling difficult tasks together. It might be difficult to measure
helpfulness; however, most of the organisations float an award for
honouring and rewarding “Collaborator of the Year”. Such awards are
meant to promote helpfulness towards the co-workers and reward
employee’s initiative to prove him/herself as a great team player
★ Efficiency and Productivity Levels: Employees need to be able

to complete their work on time. They should have a good handle on the
limitations provided by the time and resources available, and should be
able to prioritise to get things done as efficiently as possible. The
organisation should also look for missed deadlines – or work that suffers
as a result of cramming for deadlines – for clues as to how efficiently an
employee is working. Attendance at work is also very important here. If
an employee is clocking large amounts of overtime every day, it is crucial
to engage with employee and train in better time management.
★ Assess whether has an ability to take initiative: Ability and

demonstration to initiative is definitely a sign of employee
satisfaction and engagement. Looking at workers who take initiative is
also important for growing businesses and for rapidly changing
workplaces that require employees who can adapt and be proactive.
Initiative is definitely a difficult metric to measure, but a good parameter
to start with
★ Review personal presentation: Most companies operate a professional

dress code appropriate to their industry sector and company culture.
Employees who disregard your expectations and present a dishevelled or
careless appearance reflect badly on your brand image. It’s likely that
their performance will be failing to meet your expectations too
! !65
★ Conducting a client survey: The consequences of poor employee

performance will ultimately manifest themselves in customer service. A
client survey can quickly identify issues with individuals and enable you
to get your business goals back on track. A positive response means that
your employee performance is meeting or exceeding your expectations.
What is the overall customer service experience of your company?
★ Performing random checks: Depending on the nature of your business

consider implementing random checks against quality standards. This
may include reviewing telephone calls and project meetings and
inspecting records. While your employees may be aware of this policy,
the random nature of the checks can motivate staff to put in a consistent
performance.
Evaluating employee performance should be carried out on an on-going

basis and encompass all areas of their work ethic and individual
achievements. Remember too that poor performance or negative
behaviours can also be symptomatic of an underlying problem with your
organisation’s culture, so have a plan in place to address any issues
arising.
! !66
3.3 Performance Appraisal Process
Table of performance appraisal

Type of
Rewards /
Key Features
Components of
Compensation
Six performance Proficiency in handling administrative detail

dimensions
Proficiency in supervising personnel
Proficiency in planning and direction action
Proficiency in technical job knowledge
Acceptance of organisational responsibilities
Acceptance of personal responsibility
Performance is There is immediate improvement in the work

considered
Relations between the subordinate and his superior and
satisfactory
improved
Conditions conductive to the growth of the employee are

established
Social pressure on the group causes high standards to be set
Self-appraisal is made easier .
There is opportunity to see how logical the thinking of the

group member is
A well designed Performance planning

development
Performance Development
objective of
performance Culture Building
appraisal are
classified Performance Monitoring and Control
Specific To help the employee to overcome his weaknesses and

objective of improve his strengths so as to enable him to achieve the
performance desire performance
appraisal
To generate adequate feedback and guidance from the
immediate superior to an employee working
! !67
To contribute to the growth and development of an employee

through helping him in realistic goal setting
To provide inputs to system of rewards and salary

administration
To help in creating a desirable culture and tradition in the

organisation
To help the organisation to identify employees for the

purpose of motivating, training and developing them
To help supervisors to observe their subordinates more

closely and to do a better coaching job
To improve organisation development by identifying people

with promotion potential and pinpointing developments
needs
To generate significant, relevant free and valid information

about employees
Sample To improve employee job performance

objectives of the
To create opportunities for frank discussion with employees
performance
appraisal Encourage employees to express their views and to seek
clarification on any doubts or standards
Record improvement in employees performance between

successive appraisals
Identify training needs
Broaden employees outlook capacity and potential
Bring to life current outside activities or accomplishment of

significance
Promote more effective utilisation of manpower
Facilitate selection, reward and promotion of the best

qualified employees
Provide a channel for employee to express his own future

interest regarding job area and location
! !68
Use of Determining appropriate salary increases and bonuses for

performance workers based on performance measure
appraisal
Determining promotions or transfers depending on the
demonstration of employees strengths and weaknesses
Determining training needs and evaluation techniques by

identifying areas of weaknesses
Promoting effective communication within organisation

through the interchange of dialogue between supervisors and
subordinates
Motivating employees by showing them where they stand

and establishing a data bank on appraisal for rendering
assistance in personnel decisions
Purpose of Administrative
performance
Employee
appraisals
Development
Programme assessment
To bring about better operational or business results
To meet an individual’s development needs
To provide information useful for manpower planning by

identifying men with a potential for advancement and men
with abilities not currently being used
To provide basis for compensation action
The appraisal systems do not operate in isolation they

generate data that can contribute to other HRM systems for
example to succession planning and manpower planning
Benefits It offers a rare chance for supervisor and subordinate to have

time out for one on one discussion of important work issues
that might not otherwise be addressed
It offers a valuable opportunity to focus on work activities

and goals
It creates a profound effect on level of employee motivation

and satisfaction
! !69
It provide employees with recognition for their work efforts
It indicates to an employee that the organisation is genuinely

interested in their individual performance and development
This alone can have a positive influence on the individuals

sense of work, commitment and belonging
It offer an excellent opportunity for a supervisor and

subordinate to recognise and agree upon individual training
and development needs
It makes the need for training more pressing and relevant by

linking it clearly to performance outcome and future career
aspiration
It creates appraisal data which can provide a regular and

effective training needs audit for the entire organisation
Appraisal data can be used to monitor the success of the

organisation recruitment and induction practices
Performance Establish Performance Standards

appraisal
Communicate the Standards
Process
Measure Actual Performance
Compare Actual Performance with Standards and Discuss the

Appraisal
Taking Corrective Action
Requirements of Reliability and validity

an effective
appraisal system Job relatedness
Standardisation
Practical validity
Legal sanction
Training appraiser
Open communication
Employee access to results
Due process
! !70
Approaches to Personality Based System

performance
Generalised descriptive system
appraisal
Behaviour descriptive system
Results–centred systems
Key components Key Performance Areas (KRA) /Key Result Areas (KRA)
of performance
Task/target/objectives; attritubes/qualities /traits
appraisal
Self-appraisal
Performance analysis
Performance ratings
Performance review, discussion or counselling
Identification of training /development needs
Rating /assessment by appraiser
Assessment /review by reviewing authority
Potential appraisal
Rating methods The Rank-order Procedure

in the
Paired-comparison System
performance
appraisal The Forced Distribution Procedure
process
The Forced Choice Technique
The Critical Incident Method
Behaviourally Anchored Rating Scales Methods
The Field Review
Feature of Performance appraisal provides reassurance to employees

Performance that they are contributing and doing the right things
Appraisal
Performance appraisal creates awareness of the impact on
desired results such a customer satisfaction
Performance appraisal reveals the adequacy of performance

in terms of quantity quality speed timelines etc.
! !71
Performance appraisal provides means for recognition of the

importance and value of performance of employees
Performance appraisal provides opportunities for self-

development of employees
Performance appraisal provides for administrative decisions

and reward management of employees
Performance appraisal is a critical tool for training and

development of employees
Performance appraisal is a foundation of career and

succession planning
Performance appraisal is a basis for legally defensible

management actions
Performance appraisal is valuable source of talent

management
Significance of Feedback
performance
Self-evaluation
appraisal
Performance expectations
HR decision-making
Fair play and justice
Identifying potentialities
HR policies and practices
Retaining top talents
Team spirit
Accountability and ownership
Appraisal Address relevant performance, achievements, needs and

interview must interests
consist of the
Provided immediately as soon as information is available
following
characteristics Factual based on actual performance
Provide suggestions for improvement of performance
Give directly to the individual involved
! !72
Given in a way that the respect, needs and integrity of the

individuals is maintained
Tailed to meet individuals specific need and circumstances
Motivate the individual to continue and to increase efforts
Realistic and based upon established measurement standards
External evaluations should be congruent with the personal

standards
Evaluation standards should be clear, descriptive, specific and

developed
Understanding Why Employees Don’t Do What They Are Supposed

To Do?
★ They don’t know that they are supported to do

★ They don’t know how to do it
★ They don’t k now why they should do it
★ They think they are doing
★ They are obstacles beyond their control
★ They think it will not work
★ They think their own way is better
★ They think something is more important
★ There is no positive consequence to them for doing it
★ There is a negative consequence to them for doing it
★ There is a positive consequence to them for not doing
★ Personal limits
★ Personal problem
★ Fear
★ No one could do it
Performance Appraisal Process — Key Steps
★ Before the Appraisal Strategy

- Establish key task areas and performance goals
- Set performance goals for each key task areas
- Get the facts
- Schedule each appraisal interview in advance
! !73
★ During the Appraisal

- Encourage two-way communication
- Discuss and agree on performance goals for the future
- Think about how you can help the employee to achieve more at work
- Record notes of the interview
- End the interview on an upbeat note
★ After the Appraisal

- Prepare a formal record of the interview
- Monitor Performance
Concern of issues in the appraisal process
★ Identifyingjob responsibilities and duties and performance dimensions

standards and goals
★ Prioritising and weighing performance dimensions and performance goals
★ Determining appropriate methods of appraising performance
★ Developing suitable appraisal instruments and scoring devices
★ Establishing procedure that enhance fair and just appraisals of all

employees
★ Providing performance feedback to all employees
★ Relating observed and identified performance to the rewards providing
★ Designing, monitoring and auditing processes to ensure proper operation

of the system and to identify areas of weakness
★ Granting employees opportunities for appeal whenever and whenever

such action is appropriate
★ Training of employee in all phases of the appraisal system
! !74
Measuring Performance Through Use of Balanced Score Card
★ Organisation should consider responding through the following questions
★ Is the company viewed as a great place to work?
★ Is HR viewed as providing effective support system to employees?
★ Are the HR plans and programmes competitive?
★ Is HR viewed as an enabler to attracting and retaining top talent?
★ Is the HR service delivery cost effective?
★ What is the return on investment in the people?
★ Are the staffing support system fostering better recruiting and selection?
★ Are other HR processes/transaction efficient and effective?
★ Is technology used to improve HR efficiency?
★ Is there considerable talent and leadership to meet future requirement?
★ How is HR helping to meet the customer needs?
★ Is HR creating an environment that encourage integration and shared

vision?
★ Is the company investing in developing HR capabilities?
! !75
A Result-based Appraisal System has Some Solid Benefits to Offer

An Organisation
★ It produces improved short and long term planning
★ The focus on result communicates the important of achieving measurable

results to all members of the organisation
★ The system encourage more effective performance
★ Both appraiser and appraisal accept the approach as fair
★ It results in increased commitment to the organisation
★ Result-based approaches are highly defensible
A Result-based Appraisal System Has some Limitation and

Potential Problems Too
★ It may be excessively result oriented
★ It may be inflexible
★ It is neither easy to create or easy to use
★ The approach may not provide adequate personal incentives to improve

performance
★ It may not fit all aspect of a job.
Use of Self-assessment in the Appraisal Process
★ Which aspects of your job have you done well?
★ What do you think of your main achievement during the review period?
★ Did you face any difficulty in achieving your objectives or meeting

performance standards? If so, please describe them and why you think
occurred?
! !76
★ What do you think could be done to avoid these difficulties occurring

again in the future?
★ Arethere any aspects of a job in which you think your performance could
be improved?
★ Doyou feel that you need more guidance in what you expected to do and
achieve?
★ Do you think you would benefit from any further training?
★ Do you make full use of your experience and abilities in your jobs?
Insights into Key Challenges and Problems in the Performance

Appraisal Process
★ Drawback and problems in performance appraisal
- Halo effect: This is a tendency to let the assessment of a single trait

influence the evaluation of the individual
- Horn effect: This is a tendency to allow one negative trait of the

employee to colour the entire appraisal
- Leniency or constant error: Depending upon the appraiser own

value system which act as a standard
- Varying standard: When appraisal employees a rater should avoid

applying different standards and expectation for employees performing
similar jobs
- Contrast error: Rating should be done using established standards.

The contrast error is the tendency to rate people relative
- Similar to Different from me: Sometime raters are influenced by

whether people show the same or different characteristics from the
rater, Against the error comes in measuring someone against another
person
! !77
- Sampling error: If the rater has seen only a small sample of the
person work, an appraisal may be subject to sampling error
- Central tendency: This is the most common error that occurs when a
rater assigns most middle range scorers or value to all individuals
- Spill over effect: This refer to allowing past performance to influence

the evaluation of present performance
- Personal bias: Perhaps the most important error of all arises from the
fact that very few people are capable of objective judgement
Various problem associated with performance appraisal are as

follows:
- The measurement problem

- The organisational problem ‘
- The judgement problem
- The communication problem
- The feedback problem
- The perception problem
- The rating problem
- The fear of failure problem
- The top management support problem
- The perceived meaning problem
- The bias problem
★ Common pitfall in performance appraisal are
- Performance appraisal programme demand too much from supervisor

- Standards and rating tends to vary widely and often unfairly
- Personal values and bias can replace organisational standards
- Due to lack of communication employees may not know how they are
rated
- Appraisal technique tend to used as performance panaceas
- Performance appraisal rating can boomerang when communicated to
employees
- Negative feedback
- Performance appraisal interfere with the more constructive coaching
relationship that should exit between a superior and his subordinates
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★ How to improve performance appraisal
- Encourage discussion
- Constructive intention
- Remunerative justice
- Employee participation
- Appraiser credibility
- Set performance goals
- More feedback
- Training
Key Steps in an Appraisal Interview
★ Setting the stage: A major part of the interview is the employees

presentation of his or her self–evaluation with respect to each job
performance area and performance expectation
★ Employees assessment: Once the preliminaries are out of the way, the
employee selects a particular job performance area and performance
expectation for review
★ Manager assessment: It is now the managers turn to respond to the

employee’s performance. It should cover everything mentioned by the
employee as well as any other factor the manager feel is important.
★ The employee reaction: It is unlikely that serious disagreements

between manager and employee will emerge during the appraisal
interview. However employee sometime become upset during the
appraisal interview
★ Resolving differences: This step involves getting down to a careful

review of each job performance areas and its associated performance
expectation
★ Ending the session: The manager wraps things up by summarising the

discussion that has taken during this session
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Following Question can Provide an Assessment of Performance

Appraisal System
★ What purpose does the organisation want its performance appraisal

system to serve?
★ Do the appraisal forms really get the information to serve the purpose?
★ Are the appraisal forms designed to minimise error and ensure

consistency?
★ Are the processes of the appraisal effective?
★ Aresupervisor rewarded for correctly evaluating and developing their

employees?
★ Are the evaluation and developmental component separated?
★ Aresuperior relatively free from task interference in doing performance

appraisal?
★ Are the appraisals being implemented correctly?
The Following Questions Serves as Guideline for Assessing the

End-product of Performance Appraisal
★ Did the appraisal session motivate the subordinate?
★ Didthe appraisal build a better relationship between the supervisor and

the subordinate?
★ Didthe subordinate come out with a clear idea of where he or she

stands?
★ Did the superior arrive at a fairer assessment of the subordinate?
★ Didthe superior learn something new about the superior and pressure he
or she faces?
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★ Does the subordinate have a clear idea of what corrective action to take
to improve his/her own performance?
The Criteria on Which Performance is Appraisal Must Satisfy the

Following:
★ It must be genuinely related to success or failure in the job
★ It must be amenable to objective not subjective judgement
★ It must be easy for the manager to administer
★ It must appear fair and relevant to the employee
★ It must strike a fair balance between sensitivity to the needs of the

present job, and applicability to the company as a whole
Twelve Specific Factor to be Assessed for Employees with Direct

Supervisory Responsibility
★ Coaching
★ Effective Communications
★ Encouraging teamwork
★ Establishing high standards and getting results
★ Effective delegation
★ Rewarding Performance
★ Developing employees
★ Building consensus
★ Supporting reasonable risk taking
★ Forward thinking
★ Improving the organisation
★ Managing diversity
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The Objective of Performance Review
★ To let subordinates know where they stand
★ To recognise their good work
★ To point out how and where they can improve
★ To develop them on their present job
★ To develop and train them for higher job
★ To let them know how they may progress in the company
★ Toserve as a record for assessing the department or unit as a whole

showing where each person fits into the larger picture
★ To warn some employee that they must do better
★ Complement the appraisal for his accomplishment and good qualities
★ Understand and appreciate his difficulties and make action plans to help
him in the future
★ Understand the appraise perception of the situation and correct the

perception necessary
★ Help him to recognise his strong points and weak points
★ Communicate the expectations of the appraiser from the appraise
★ Identify development needs of the appraise and chalk out a course of

action
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Performance Review Meeting – Ten Golden Rules
★ Be prepared
★ Create the right atmosphere
★ Work to a clear structure
★ Use praise
★ Let individuals do most of the talking
★ Invite self–assessment
★ Discuss performance, not personality
★ Encourage analysis of performance
★ Don’t deliver unexpected criticisms
★ Agree measurable objectives and a plan of action – by Armstrong,
Michael
Main Problem Which Arises in Conducting Performance Review as

Identified by Clive Fletcher
★ Identifying criteria for evaluating performance
★ Collating
accurate and comprehensive information about employee
performance
★ Resolving conflict between reviewers and the people they review
★ Defensive behaviour exhibited by individuals in response to criticism
Success of Appraisal Depends on Effective Feedback
★ Honest
★ Specific —do not beat about the bush
★ It should meet the needs of all parties
★ Meaningful
★ Accurate
★ It could be acted upon
★ Instantly followed up in writing
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Guidelines on Providing Feedback as Suggested by Michael

Armstrong
★ Build feedback into the job

★ Provide feedback on actual events
★ Describe, don’t judge
★ Refer to specific behaviours
★ Ask questions
★ Select key issues
★ Focus on improvement in performance
★ Provide positive feedback
Important of Training Programme in Appraisal
★ Point out the value of an appraisal programme to management
★ Point out the value of an appraisal programme to executives
★ Instruct in the techniques of writing appraisals
★ Pointout the pitfalls to be avoided in writing appraisals for example the

halo effect the error of recent events and personal prejudices
★ Give the participant an opportunity to write a sample appraisal
★ Offer each participating training in the fundamentals of conducting an

appraisal interview with an opportunity to role-play in the mock appraisal
interview
★ Point
out the steps to take in creating an effective personal development
programme with an employee
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Ethics of Appraisals (Managers Checklist to Keep the Appraisal

Ethical).
★ Don’t appraise without knowing why the appraisal is required
★ Appraise on the basis of representative information
★ Appraise on the basis of sufficient information
★ Appraise on the basis of relevant information
★ Be honest in your assessment of all the facts you obtain
★ Don’t write one thing and say another
★ Inoffering an appraisal make it plain that this is only your personal

option of the facts as you seen them
★ Pass
appraisal information along only to those who have good reason to
know it
★ Don’t imply the existence of an appraisal that hasn’t been made
★ Don’t
accept another’s appraisal without knowing the basis on which it
was made
Appraisal interview Hints

★ Prepare in advance
★ Focus on performance and development
★ Be specific about reasons for rating
★ Decide on specific steps to be taken for improvement
★ Reinforce desired behaviour
★ Focus on future performance
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Outcome of General Electrics’ Study in to the Test Effectiveness of

Performance Appraisal. The GE Studies Found That –
★ Criticism has a negative effect on achievement goals
★ Praise has little effect on way or other
★ Performance improve most when specific goals are established
★ Defensiveness resulting from critical appraisal produces inferior

performance
★ Coaching should be a day-to-day, not a once a year activity
★ Mutual goal-setting not criticism improve performance
★ Interviewdesigned primarily to improve a man’s performance should not

at the same time weigh his salary or promotion in the balance
★ Participate
by the employee in the goal-setting procedure helps produce
favourable results
How Fortune 100 Companies use Performance Appraisal Data
★ Improving work performance

★ Administering merit pay
★ Advising employees of work expectations
★ Counselling employees
★ Make promotion decision
★ Motivating employees
★ Assessing employee potential
★ Identifying training need
★ Better work relationship
★ Helping employees set career goals
★ Assigning work more efficiently
★ Making transfer decisions
★ Making decision about layoffs and terminations
★ Assisting in long range planning
★ Validating hiring procedures
★ Justifying other managerial actions
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Ten Strategies for Revamping Appraisal System
★ Secure top management support and participation
★ Put together an implementation team for developing successful

performance appraisal forms, policies, procedures and practices
★ Theappraisal system’s goal must be clear and map out the purpose the
system will be expected to serve
★ Design the appraisal form, involve people and obtain feedback
★ Address all critical administrative issues and executive biases
★ Ensure on-going communication, keep the development process invisible

and invite suggestions
★ Train appraisers to make the programme fully effective
★ Explain
the programmes purpose and procedure in advance to all those
who are likely to be affected by it
★ Apply the result of appraisal in making promotions, giving rewards,

effecting transfers and developing training programmes
★ Regularly
audit the quality of appraisal, the extent to which the system is
being used and the extent to which the original objectives have been
made
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3.4 Alternatives to Annual Performance Review
The days of the annual performance review appear to be numbered. In

recent years, employees and managers have grown increasingly
dissatisfied with the traditional system. This year, several influential
companies, including Deloitte and Accenture, even announced plans to
drop it.
So what comes next? Last spring, Deloitte announced plans to replace its
traditional assessment system by asking managers to respond to four
simple statements:
★ Given what I know of this person’s performance, and if it were my

money, I would award this person the highest possible compensation
increase and bonus
★ Givenwhat I know of this person’s performance, I would always want

him or her on my team
★ This person is at risk for low performance
★ This person is ready for promotion today
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But Deloitte’s tilt toward simplification may not be the dominant trend. In
fact, the stronger current may be running in the other direction. A variety
of companies are working on technology that assesses employee
performance not once a year, but minute-to-minute, tracking workers more
closely than they track packages. Others are using social media to enable
workers to rate each other, as they do vendors on eBay, even as
enterprising analysts use Big Data to avoid ways to prevent hiring mistakes
altogether.
3.5 Shift at Leading Multinationals from Annual

Performance Review to more frequent feedback
The annual performance review has been a ubiquitous and generally

loathed fixture of the corporate world for decades. But haters can rejoice:
It’s finally starting to topple. The best part? Even the company that
popularised the toughest form of formal annual review is moving away
from them.
For decades, General Electric practiced (and proselytised) a rigid system,

championed by then-CEO Jack Welch, of ranking employees. Formally
known as the “vitality curve” but frequently called “rank and yank,” the
system hinged on the annual performance review, and boiled the
employees’ performance down to a number on which they were judged and
ranked against peers. A bottom percentage (10% in GE’s case) of under
performers were then fired.
Dealing with Under performers
★ Terminationsare always difficult even when they are clearly necessary.

These points are worth remembering
★ Termination may be especially traumatic for junior employees because it

could be their first experience of losing a job
★ Mid-level employees might be qualified for lateral transfers
★ Termination of senior executive affect the whole organisation
★ When senior people are terminated other employees want to know how
they will be affected
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★ Severance pay should always be commensurate with the individuals year

of service
The company got rid of formal, forced ranking around 10 years ago. But
now, GE’s in the middle of a far bigger shift. It’s abandoning formal annual
reviews and its legacy performance management system for its 300,000-
strong workforce over the next couple of years, instead opting for a less
regimented system of more frequent feedback via an app. For some
employees, in smaller experimental groups, there won’t be any numerical
rankings whatsoever.
With the decision, GE joins other high-profile companies—like Microsoft,

Accenture, and Adobe—that have started dumping or have already gotten
rid of formal annual reviews. GE may not have invented stack ranking, but
it’s the company most identified with it. And given the longstanding and
pervasive influence GE has had over the business world, its move could
represent the beginning of the end for a practice that has been at the heart
of how corporations have managed people for many decades.
A Century Old Icon, Shifting Rapidly
There are few companies in America that have General Electric’s legacy.
Founded by none other than the great inventor Thomas Edison, it’s well
into its second century of existence. Its move to dump the annual review
for large swathes of its workforce underscores a sweeping shift underway
at the blue-chip conglomerate. It’s selling off billion-dollar pieces of the
lucrative financing business that imperiled it during the 2008 crisis and led
to a “too big to fail” designation. It’s fundamentally restructuring to refocus
on its increasingly high tech and industrial businesses, emphasising things
like power and water infrastructure, advanced jet turbines and imaging
equipment. By the end of the transition, industrial businesses will provide
over 90% of earnings (PDF), and the only lending the company will do will
be to customers buying industrial machinery.
It’s made broad changes in its management style too, under current CEO
Jeff Immelt. They mark an emphatic break from the hard-charging style
Welch embodied as CEO from 1981 to 2001. Welch’s intense and widely
imitated approach made sense for the GE of yesteryear. It was a bloated
industrial conglomerate that was facing extraordinary competition from
Asian manufacturers. In 1994—near the mid-point of Welch’s tenure—
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nearly 60% of GE sales came from a vast number of industrial businesses

that were becoming increasingly commoditised. That economic reality led
to obsessions with cost, efficiency, and operational excellence, which were
embodied in Welch’s management style.
Management via App
The new app is called “PD@GE” for “performance development at GE” by

the admittedly acronym-happy company, and was built by a team from its
large and growing group of software engineers in Silicon Valley’s San
Ramon. The HR group has been one of the first to adopt it, including the
experiment with no numerical ratings.
Each employee has a series of near-term goals, or “priorities.” Managers

are expected to have frequent discussions, called “touchpoints,” on
progress toward those goals and note what was discussed, committed to,
and resolved. The app can provide summaries on command, through typed
notes, photographs of a notepad, or even voice recordings. The focus isn’t
on grading how well people are doing, but on constant improvement.
Employees can give or request feedback at any point through a feature

called “insights,” which isn’t limited to their immediate manager, or even
their division. Normally, you never get that feedback unless you manage to
track someone down the next day, which people rarely do, and only from a
direct manager. If you wait for an annual review, any specifics are probably
long forgotten.
“This allows me to ensure that I’m in a position to change tomorrrow,”

Krishnamoorthy says, pointing at the app. “But this is just the tool. The
most important thing is the conversation. [The app] makes it incumbent on
me to be a coach.”
There’s an emphasis on coaching throughout, and the tone is unrelentingly

positive. The app forces users to categorise feedback in one of two forms:
To continue doing something, or to consider changing something.
“We’ve found that that terminology has been extremely helpful,” Peters
says. “You know that humans don’t really like to give negative feedback,
it’s just not something that anybody does well, I think it’s just not in
! !91
human nature. So if you want the person that’s working for you to
improve, you have to think about it in true coaching terms.”
Managers will still have an annual summary conversation with employees

around December where they look back at the year and set goals, but it’s
far less consequential and fraught than the formal review the company is
replacing. It’s not meant to be all that different from the conversations
expected to occur throughout the year, and entirely unlike the sort of
formal review that sets decisions on things like pay or advancement.
The rollout is going to be slow. There are about 25,000 to 30,000 people
using the new system now, and Peters estimates there will be 80,000 on
board by the end of this year. The rest will transition by the end of 2016.
The shift in how GE employees think about and track their performance
mirrors the broader transition underway at the company to substantially
simplify its business. “FastWorks” is a successor in many ways to Six Sigma
and consciously mimics the way that companies in Silicon Valley work.
There’s a focus on rapid and frequent experimentation, learning from the
market, only funding projects that prove themselves, and acceptance and
willingness to move on from failures.
“It is a really important element of what we’re trying to do, which is to

make a major shift of the company’s culture towards simplification,
towards better, faster outcomes for customers,” Peters says.
A long time coming
The move by more and larger companies away from annual reviews and
ratings is well past due, say management theorists. Years of research, from
both business school professors and neuroscientists, has found that the
practice is ineffective at boosting performance, actively alienates
employees, is based on a flawed understanding of human motivation, and
is often arbitrary and biased. People simply don’t fit neatly (pdf) on a bell
curve. It ends up being an exercise in paperwork and bureaucracy instead
of an agent of change.
“When you look at the evidence about stack ranking…. The kind of stuff
that they were doing, which was essentially creating a bigger distribution
between the haves and the have nots in their workforce, then firing 10% of
! !92
them, it just amazed me,” Bob Sutton, a professor at Stanford’s Graduate

School of Business, told Quartz. “We looked at every peer reviewed study
we could find, and in every one when there was a bigger difference
between the pay of the people at the bottom and the top there was worse
performance.”
As much as researchers and many employees might applaud the decision,

it doesn’t mean it’s going to be easy. There’s a reason reviews have stuck
around for so long, and it’s hard to overemphasise how entrenched the
annual review has become. It’s the way most were raised as employees, a
huge part of their workload, and a comfortable framework to administer
and to defend pay, promotion, and firing decisions. Adobe’s Morris says
that one of her biggest obstacles was actually convincing her own people
that this could work.
Even if companies claim loudly that they’ve done away with annual reviews
and rankings, there are often “shadow rankings,” where companies still do
effectively the same thing, but more informally, in the background.
Meanwhile, HR executives get particularly nervous about the pay piece,
about how they can pay for performance in the absence of a formal
performance measurement system.
“If you get rid of the performance ratings, how are you going to get rid of a
fair and equitable and measurable system to blame the distribution of pay
on?” Paul Rubinstein, a partner in Aon Hewitt’s talent strategy consultancy
asks, rhetorically. “Because why did performance ratings come into
existence? So there’s some mechanism to force pay decisions. People
wonder, which came first the rating or the pay decision.”
Support and training on how to make pay decisions without rankings has
taken a lot of investment at Adobe, Morris says. Even within GE, there’s
still a sense of conflict, which might help explain why the company seems
hesitant to fully commit to removing numerical rankings.
“One thing we do know is that we will maintain our culture of meritocracy

and differentiation,” Peters says. “So we have to make sure what ever
other aspects or factors come into play, to make sure you still have that.
We’re trying to figure this out and keep some of the fundamentals of the
culture and also move to a place where it’s more contemporary. I don’t
know what the answer on that’s going to be yet.”
! !93
In early pilots, the company saw no difference in pay differentiation when

managers didn’t use ratings. But it has a lot of people to convince of that,
so different pilot groups will continue doing different things until there’s
more longitudinal data.
The harshest critics of performance reviews and ratings argue that

numerical rankings and pay differentiation are perhaps the most damaging
parts of the system, and that any regime that preserves them can’t hope
to truly change. And many companies like the idea of getting rid of reviews
and rankings, but struggle to follow through.
If GE has one thing going for it, it’s a uniquely deep bench of management
talent, and a culture that emphasises constant improvement and helping
other people succeed. That made stack ranking less harmful at GE than it
was at other companies, according to Bob Sutton, and it might help it
overcome the rockier parts of the transition.
“Although Jack believed in it like a religion, I think that they figured out
[stack ranking] was something that didn’t work, that was faith based,”
Sutton says. “One thing I will give them credit for, going back to Jack and
continuing to today, is that they’ve clearly defined a star employee as
someone who does great work and who helps others succeed as well.
3.6 Use of Technology in Performance Appraisal
A number of companies have begun to use technology to solve one of

business’s oldest and most vexing problems: how do we make sure
employees are getting the job done?
Use of Surveillance Systems: Surveillance systems that track truck fleet

movements and employee computer use have been a familiar feature of
corporate life for years now, but the boss’s watchful eye had plenty of blind
spots. Now, however, that’s beginning to change: a new generation of
technology is tracking what employees are up to not just online or on the
highway, but all over the office.
Use of small wearable computer device: The Theatro Communicator,

for instance, is a small wearable computer designed to track the
movements of hourly workers in the retail and hospitality industries. The
Richardson, Tex., start-up includes analytics that “measures social
! !94
interaction data to understand what’s impacting productivity and who the

top performers are,” according to the company website.
Use of Business Microscope: The Hitachi Business Microscope is another

technology that not only measures who workers talk to but how they talk
to them: wearable sensors make it possible to record the energy level in an
employee’s voice and even how often he or she makes hand gestures.
Recently, Hitachi High-Tech, a unit of the Japanese electronics giant, used

the Business Microscope sensors to collect 5 billion points of data on the
physical movements of 468 employees working at seven companies. The
Japanese electronics firm used this data to identify “distinctive patterns in
physical movements that have strong correlations with a group’s
happiness,” according to a February 2015 press release. As they analysed
the data, Hitachi scientists found a correlation not only between high
happiness and long duration of physical movement, but also between
happiness and sales productivity.
Hitachi is careful to position its use of technology as a problem-solving tool

for the organisation rather than a surveillance device. The stated goal of
Hitachi’s Human Big Data/Cloud Services is to “objectively and efficiently
evaluate the effectiveness of management policies and workplace
environments in a company, where it had been difficult to achieve such
objective evaluations in the past.”
However, others worry that an obsession with measurement could create

counter-productive incentives. A challenge with data-driven systems is that
they fail to consider context, which is qualitative rather than quantitative.
Measurement mania has infected organisations and has compromised long-
term value, encouraged people to cut corners and reinforced command-
and-control.
Use of Social Media for rating employees: Other companies are trying
to use social media to rate employees, in much the same way e-commerce
sites such as eBay or Airbnb now rate reputations. In a social evaluation
system, people who steal ideas, achieve results through aggression,
coercion, etc., are more likely to be identified and that behaviour
addressed. Social evaluation also provides the positive opportunity to
reward those who are helpful, collaborative, and supportive in a workplace.
! !95
On aspect to consider that cautions that social evaluations can have their
own set of shortcomings. Humans are not always good at making people
decisions. We oversimplify, we are strongly biased to people who are like
us—which stifles diversity and can, therefore, be lethal to an organisation.
We judge favourably people who make us feel good about ourselves, which
means our ratings are more about us than them.
In addition, social evaluations can be dangerous in a different way: instead

of feeling forced to compete with co-workers for the boss’s favour, an
employee can feel ganged-up on by the whole office. If used in conjunction
with other measures of performance, social evaluation tools have an
interesting role to play. But taken too far, they switch the paradigm from
Hunger Games to Survivor.
Use of personality tests: Another company, Cangrade, compares the

results of a personality test with those of 200,000 employees to assess the
candidate’s personality, motivation, and suitability for a particular job. The
Cambridge, Mass., firm claims its evaluation can predict employee
performance several times better than interviewing and up to 10 times
better than common pre-screening measures such as employment history
and college GPA.
In the end, however, traditionalists argue that despite all the bells and
whistles, assessments will still come down to honest and sometimes
difficult conversations.
3.7 Round the Clock Performance Review
How do you separate the high performers in an organisation from the

average performers? How do you ensure the high performers continue to
perform better and the non-performers do not end up becoming a drag on
the bottom line?
Traditionally, companies have used the annual performance review system

to keep employees accountable, rewarding those that excel, and tracking
performance over time. But many companies are realising that
performance reviews cause as many problems as they try to solve. Instead
of guiding managers to offer honest feedback to their teams and coach
employees, companies are actually training them to "make the most of
available resources" or "cover their bases". Some have discovered that
! !96
traditional incentive systems are failing to propel the best employees

forward.
A survey report by Deloitte says, "Today's widespread ranking and ratings

based performance management is damaging employee engagement,
alienating high performers, and costing managers valuable time... Leading
organisations are scrapping the annual evaluation cycle and replacing it
with ongoing feedback and coaching designed to promote continuous
employee development.”
Organisations such as Accenture, Delloite and Cisco are among a handful of

companies that have jettisoned the bell curve-based annual appraisal
system and have opted for an always-on appraisal system which is ongoing
and real time. These companies would be joining the likes of Microsoft and
Adobe, which have also realised that the traditional way of conducting
performance reviews is ineffective.
Key questions to answer-
★ But is the new system any better?
★ What are the new tools the human resources department has at its
disposal to review people's performances?
★ More importantly, how are organisations linking performance to rewards?
E.g. Infosys: has created a new system for performance evaluation and
goal management that stresses on continuous feedback culminating in the
annual rating. The iCount process helps the company in identifying the best
performers against standards of performance as opposed to relative
comparison of individuals. Under the new process, evaluation is done
against well-defined goals and it is transparent to the employee. This has
eliminated some of the angst associated with the forced ranking under the
bell-curve system. The company has baked into it a mechanism to keep
goals and tasks relevant at all times with a focus on continuous feedback
and a review once the goals are achieved.
E.g. Insecticides India Limited: According to Sanjay Vats, general

manager, HR, Insecticides India Limited, the formal yearly performance
assessment system is time-consuming, involves a lot of paperwork and
! !97
creates friction between employees and managers. The system is often

rigid and doesn't involve timely feedback
E.g. Atterro: The company moved away from the annual review and now
does weekly evaluation of employee performance. The HR team has
developed a feedback network comprising online-offline and casual-formal
meetings for managers which allow timely feedback on goals set for their
teams. Equal emphasis is laid on self-assessment by employees to avoid
any unpleasant surprises at the end of the year. To achieve and sustain
fast-paced growth, organisations need to measure good and bad
performance instantly, instead of waiting for the year to end. Quick
feedback is important for helping an individual improve her performance on
a regular basis.
E.g. Autoportal India: Now companies are trying to get more

accountability in place for employee rating. That means individual
contribution is relevant rather than just relative performance. The need to
attract and keep talent is also pushing organisations to remove the annual
ratings system. There is a need for organisations to get managers talk to
each employee about their development more than once or twice a year.
This is truer in the case of a millennial workforce that craves for learning
and career growth.
With the disappearance of the bell curve system, identification of critical

positions for future leaders through workforce projection or demographic
analysis will be critical. With continuous evaluation of performance, HR
managers will have to develop skills and expertise to spot and nurture
future leaders by identifying relevant qualifications and behavioural and
technical competencies required to perform particular tasks.
The success of any new idea lies in its effective execution and
implementation. As organisations do away with the traditional systems of
assessment, HR heads will face the challenge of quantitatively and
qualitatively measuring the impact of the newly introduced processes. It
will also be critical for the HR teams to communicate effectively within the
organisation – to explain why established or familiar processes are being
overhauled and how the new processes could help
! !98
E.g. Tata Strategic Management Group: Organisations eager to sound

the death knell for the annual review should analyse if the new alternatives
are able to assess and differentiate performance objectively. Most
importantly, doing away with the bell curve may lead to reward
neutralisation. For instance, if the rewards budget is pre-fixed, it may be
spread too thin among employees.
E.g. WorkAmmo: Stresses on the importance of getting the rewards and

recognition right as part of any new HR process. "At the end of the day you
need a way to share. Either all get the same or you find a process to
reward different levels of contribution. Any comparison or calibration
demands that you do similar actions to similar people. This can, of course,
really demotivate high performers. Organisations replace the traditional
systems they need to be clear on the evaluation metrics that will drive
individual, team, and company success. "Don't miss the collective
calibration element. Leaders are human, and come with their own set of
biases. These biases will need to be challenged to ensure a consistent way
of looking at performance. Even as organisations gradually move away
from traditional assessment and customise it, the basic principles of fair
pay for performance and objectivity need to be respected.
3.8 Key Aspects of Continuous Performance Evaluation
Five things to watch out for as organisations move away from the
traditional bell curve-based annual appraisal systems to continuous
performance evaluation
★ Constant communication: The regularity of the review is paramount;

ideally there should be at least four face-to-face discussions for
accomplishing the requirement of continuous feedback and open
conversation and managing confrontation, if required
★ Accountability: The continuous performance review needs a much

higher degree of accountability and ownership, where managers hold full
responsibility.
★ Training: The new system – of constant communication – will need a

systematic change – management for the managerial cadre. Managers
will need coaching and other interventions to help them have "difficult
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conversations". Without these interventions, the quality of feedback from

manager to employee risks is likely to become sub-optimal.
★ Acceptability: After decades of using the bell curve, there is a need for
countering the initial resistance to this change, as sceptics question the
process, such as how to make pay decisions without rankings. People
need to be convinced that the new system will actually work
★ Setting up the employee for success: How does the corporation

ensure that the employee is in a role that plays to their strengths? Most
job roles get identified with the hard, that is, functional skills. However,
employers will need to know "tag" individual roles with the specific
competencies required to succeed in that role. Therefore, it is incumbent
upon the employer to use various interventions to ensure employees are
in job roles where the competencies match their profile
3.9 Insight into New Appraisal System implemented by

India Incorporate and MNCs
HCL Technologies has implemented a new performance management

system that's focused on giving regular feedback and goals-setting. Those
part of this process will not have to be part of the bell curve method of
evaluation.
The company is twisting it around and putting the responsibility for getting
feedback and appraisal on the employees. It won't be with the
organisation. So the employee is now the CEO of his own career. The new
system is part of HCL's iSuccess, a people practices platform. Some
94.06% of their FTEs (full-time equivalents) have received two levels of
feedback; 43% of women employees and 42% of male employees have
discussed their career aspirations for the coming year. They believe that
employee shouldn't outsource their career to HR and they need to take
control of their career. If in a team they see feedback being given at least 2
or 3 times in a year and the goals are set, it means performance is being
managed well and, therefore, they don't need to worry about the bell
curve.
! !100
The bell curve methodology places the bulk of employees in the mid
segment of an evaluation scale (those that are seen to be meeting
expectations) and distributes the rest on both sides of this segment -- so
some will be graded as poor performers and others will be ranked as
exceptional performers. Those who seek feedback will not be force-fitted
into a normal curve. But where they see teams not getting enough
feedback and where goals have not been set, for them they will have a bell
curve.
Performance Review and Appraisal at Google
Google separates annual reviews and pay discussions so employees focus

less on the financial incentive. Performance reviews are a critical part of
managing any business, but they're often time-consuming and ineffective.
To help solve this problem, in the early 2000s, Google adopted an

innovative internal grading system known as Objectives and Key Results,
or OKRs. The OKR system came from Intel. Google took to OKRs pretty
much immediately and has been using it ever since. OKRs are simple way
! !101
to create structure for companies, teams, and individuals. Even if your

company doesn't use OKRs, they can be helpful in your personal life, or for
yourself at work. Here are a few keys to what make OKRs work at Google:
★ Objectives are ambitious, and should feel somewhat uncomfortable
★ KeyResults are measurable; they should be easy to grade with a number

(at Google we use a 0–1.0 scale to grade each key result at the end of a
quarter)
★ OKRs are public; everyone in the company should be able to see what
everyone else is working on (and how they did in the past)
★ The“sweet spot” for an OKR grade is .6 — .7; if someone consistently

gets 1.0, their OKRs aren’t ambitious enough. Low grades shouldn’t be
punished; see them as data to help refine the next quarter’s OKRs.
Employees set a goal for themselves and outline a series of quantifiable

results that will help them achieve that objective. Google's CEO does the
same for the entire company. OKRs are the first step in Google's
performance-management process.
★ Measuring performance: Googlers are rated by their managers on a

five-point scale, from "needs improvement" to "superb"
★ Soliciting peer feedback: Googlers and their managers select a group

of peer reviewers that also includes employees who are junior to them.
The peer reviewers are asked to list one thing the person they're
reviewing should do more of and one thing the employee could do
differently to have a greater impact on the company
★ Calibrating: Groups of managers meet and review all their employees'

tentative ratings together. This process is designed to reduce managers'
bias because they have to explain their decisions to each other
At the start of the meeting, managers are given a handout that lists
potential biases, such as the recency effect, which refers to the tendency
to disproportionately value an employees' latest behaviours. Keeping those
cognitive stumbling blocks in mind, they decide on employees' final ratings.
! !102
Separating annual reviews and pay discussions
At Google, annual reviews take place in November and pay discussions

happen about a month later. The hope is that employees want to improve
for the sake of contributing more to the company – not because they're
motivated by the prospect of a higher salary. Bock cites research that
suggests employees perform better in the absence of external incentives
like more money. Ultimately, employees want to be evaluated because they
want to grow and eventually become the best at their job. It's up to the
employer to show them how to do that.
3.10 Activity
1. Meeting the Head of HR of few companies and understand the new tools
and techniques developed by the company for conducting performance
review and appraisals
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2. Evaluate the performance review and appraisal process adopted by your

organisation and compare with the other practices adopted by the
industry, competition and the emerging sectors
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! !103
3.11 Summary
Performance is the true litmus test for survival in the marketplace. High-
performing employees contribute superior performance, giving the
companies they work for a competitive advantage and their extra effort
differentiates great organisations from merely good ones.
It's crucial for businesses to have systems in place to identify, recognise,

reward, and retain their top performers to achieve sustainable growth.
Most companies understand this and spend enormous sums acquiring a
performance management system to help ensure their success. Yet wide
variation in employee performance persists despite this investment.
Most of the companies in India and abroad are moving away from annual
performance evaluation cycle and switching to continuous evaluation and
feedback mechanism.
1. Identify the key trends and shifts in the annual performance review
mechanism adopted by the industry. Assess the impact of such
measures on organisational performance.
2. Highlight the various types of biases that can impact the performance
management and evaluation appraisal process and also evaluate how
the biases can be eliminated from the evaluation cycle.
3. Highlight the key advantages and limitations of round the clock

performance review in a fast growing company.
! !104
1. Which of the following most likely to be a very traditional parameter in

the process of performance evaluation?
a. Punctuality and absenteeism

b. Adequacy of training needs
c. Quality of work
d. Work rejections and rework
2. Which of the following is most likely to be useful parameter for

performance evaluation of employees in the emerging markets and
knowledge economy?
a. Observation of personal habits

b. Social media skills
c. Right attitude
d. All of the above
3. Which of the following is likely to be least effective use of technology in

performing the performance appraisals?
(a) Track the operational performance
(b) Keep watch on all activities of employees
(c) Physical movements, time and motion study
(d) Use of personality tests
Answers
1. (a), 2. (d), 3. (b)
! !105
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !106
VARIOUS APPROACHES TO PERFORMANCE MANAGEMENT AND REVIEW
Chapter 4
Various approaches to Performance
Management and Review
Objectives
★ Understand
the key factors involved in design of robust performance
management system
★ Understand the reasons as to why the companies discontinue the

traditional bell curve method of evaluation
★ Gainan insight into the way and means in defining the performance and
reward for Top Management Role
★ Understand the various aspects that help the companies to use

performance management mechanism to nurture right potential
Structure:
4.1 Essential Factors in Designing a Robust Performance Management

Programme
4.2 Discontinuance of the Bell Curve Evaluation by Companies in India
4.3 Performance and Top Management Compensation and Rewards

Management
4.4 Performance Management – Nurturing the Right Potential in

Appropriate Manner
4.5 Activity
4.6 Summary
! !107
4.1 Essential Factors in designing a robust Performance

Management Programme
Performance measurement programmes must be modernised in order to

impact behaviour and motivate staff. Older measurement practices
attempted to measure every step in a process and often added overhead to
the execution effort. Many existing programmes, in fact, are characterised
as being convoluted, time-consuming and prone to providing misleading
information. Of course, if an organisation undercooks its measurement
practices it should skip using them at all because weaker programmes will
make no material change to business results.
Preferred approach is to design a performance measurement programme

that places emphasis on the "big picture" and bases all staff measurements
on desired outcomes as translated from the organisation's long-term vision
and strategic plan, and, not be one intended to institute measures for
every incremental step that encompasses every business process.
If a leadership team takes this advice, it will "right size" its performance
measurement programme--producing a system that is simple to use for
management and staff, alike. Further, instituting a programme that
measures results, and, not effort, will likely drive more extensive business
transformation because staff will be better motivated to change the way
that they work in order to deliver the business results that garner reward.
As a result, greater overall organisational alignment is achieved because
succeeding transformation will be aligned with the desired results that
came from the vision and strategic plan of the enterprise.
The key four parameters consider when designing your performance

management programme:
★ Make It Real Time: The performance measurement programme must

be able to capture and measure performance information as the work is
performed
★ Place Emphasis on Strategy and Vision: Put into place a

measurement system that monitors the skills and performance levers
that correspond with where the organisation is going, instead of where it
has been
! !108
★ Commit to Requisite Training: If you want to raise the performance

bar, you must be willing to invest in your people by training them to think
and work better
★ Reward Results: Nothing reinforces desired behaviour in someone than

being rewarded for it. Be sure to recognise, celebrate and reward
outstanding performance.
Indeed, driving the performance programme design from a "desired

results" viewpoint helps to define what is important to the business and
focuses staff's attention on the work and behaviours that matter most, and
de-emphasises focus on the pro forma activities that seldom make a
difference to the bottom-line.
4.2 Discontinuance of the Bell Curve Evaluation by

Companies in India
Number of companies are moving from traditional performance review

practices and moving on to new measures.
E.g. Wipro Limited: During the middle of last year, India's third largest
software exporter Wipro rolled out an ambitious pilot exercise across the
company where it ditched its traditional "bell-curve" appraisal system for a
large majority of its 1,70,000-odd employees.
The trigger for this exercise was clear. Employees, mid-level executives and
top managers needed to be more accountable for the company's
performance, which in recent years has lagged larger peers such as
Infosys, TCS and US-based Cognizant Technology Solutions. Wipro is now
implementing a new evaluation system where feedback will be more
frequent and quarterly, as opposed to a one-time annual process.
Wipro looked at elements including bell curves, building differentiation,

categorisation, etc. They wanted to make the process of giving feedback
more frequent and our performance management system to be an on-
going coaching based process rather than just a one-time annual exercise.
! !109
India's $160-billion IT industry is undergoing the biggest transitional period

in its history, at a time when technology and business models are changing
at the very core and the outsourcing industry's classic "pyramid model" is
being disrupted by automation, rendering traditional metrics obsolete
Last year, they rolled out a pilot of our revised performance appraisal
system. In the first phase of the pilot they did away with the bell curve for
80 per cent of the workforce. Following the pilot, Wipro has now allocated
performance-linked compensation budgets to its managers, as part of the
new appraisal system. The new system significantly empowers managers
to take individual decisions related to employee appraisals, as opposed to
the previous system where managers had to go through just one annual
review.
4.3 Performance and Top Management Compensation and

Rewards Management
One of the key input to design of the CEO compensation is increasing focus
on the performance. CEOs of top companies are no exception. Let us
evaluate the CEO compensation and linkage to performance at Infosys.
E.g. Top management performance based reward at Infosys –

Vishal Sikka: Infosys CEO Vishal Sikka has raked in big moolah following
the company's stellar performance in the last few quarters. Sikka will be
getting a total compensation of $11 million annually that includes a base
salary of $1 million, $3 million in variable pay, $2 million in restricted stock
units and another $5 million in stock options that would be awarded to him
based on Infosys's performance. The revision in his overall compensation
coincides with the $9.2 billion company extending Sikka's tenure by
another 2 years up to 2021.
Sikka's total package has gone up substantially from $7.08 million

previously that included up to $5.08 million in annual salary, besides a
stock option of $2 million. Sikka has emerged as one of the top-paid CEO
in the Indian IT sector. His compensation comes close to Cognizant CEO
Francisco D'Souza's $11.3 million package for 2014-15. The latest available
data showed that TCS CEO N Chandrasekaran took home $3.15 million
during 2013-14, while former Wipro chief executive TK Kurien's total
package was nearly $1.5 million in 2013-14 excluding earnings from his
Wipro shares.
! !110
The company's nomination and remuneration committee and board

recognised the outstanding initiatives taken by Dr. Vishal Sikka towards
restoring the company to industry leadership, which have already begun to
show results. The management under the leadership of Dr. Sikka has
drawn up goals for revenue, margins and people productivity for the
financial year 2020-21, which are expected to be progressively achieved in
the next five years. The board believes that Dr. Sikka's leadership will be
essential to achieve these goals. The board has thus recommends that Dr.
Sikka's present contract of employment be replaced with a new contract
that is fully aligned to the period and goals, as well as to shareholder value
creation.
If Dr. Sikka fails to achieve minimum performance targets, his

remuneration as proposed will fall to $3,000,000 annually, consisting of
$1,000,000 of base salary and $2,000,000 of time-based RSUs. During the
term of his employment, Sikka will be entitled to participate in the
employee benefit plans currently and hereafter maintained by the company
of general applicability to other whole-time directors of the company.
Sikka has energised the company's performance by setting an ambitious

target to become a $20 billion business by 2020. Infosys has set an
internal target of 16% revenue growth, with an operating margin of 27%,
for the 2016-17 financial year, an ambitious goal, but reflective of the big
strides made under Sikka's leadership. The targeted growth is significantly
higher than the 13% that it might achieve this year in constant currency
terms, and importantly, higher that the 10-14% guidance for 2016
provided by Cognizant, the company that in recent years has been the
bellwether for the industry and which grew by 21% in 2015.
4.4 Performance management – Nurturing the right

potential in appropriate manner
Within the corporate space there has been a huge transformation of HR

roles and responsibilities. Now the focus of HR is on evolving functional
strategies that assist in successful implementation of major corporate
plans. Better collaboration and alignment between HR policies and
organisational strategies are emerging within the corporate ecosystem. The
role of HR has magnified to encompass more responsibilities facilitating
employees to improve their performance. This is achieved by creating an
! !111
optimum work environment and by providing maximum opportunities to

employees for participating in organisational planning.
Employees are given the opportunities to participate in the decision making

process within the organisation. Therefore, the emphasis is on creating a
collaborative environment in the corporate space through HR policies
directed towards better employee engagement. HR activities, in present
times, are all driven towards the making of leaders in organisations, who
could lead with high performance. Fostering motivation in employees is
amongst the major emphasis of HR responsibilities. The concept of
Performance Management emerged against this backdrop as a tool to
facilitate HR in creating leadership roles among the work force. In the
organisational battle for leadership, the method emerged as an effective
concept.
Diverse activities such as joint goal setting, continuous progress review,

frequent communication and feedback comprises performance
management. Furthermore, it encompasses activities such as coaching for
improved performance, implementation of employee development
programmes and rewarding achievements. It is a comprehensive and a
continuous process that follows throughout the career of an employee in
the organisation. It is a systematic process that improves performance of
individuals within the framework of the team, which in return improves the
whole operational process holistically. High performance is achieved by
communicating expectations and underlining achievable goals for the
teams. The roles and responsibilities are defined within the competence
framework through the process of performance management.
Recent developments show that performance management is a strategic

and integrated approach to deliver successful results in the organisation by
improving the performance and developing the capabilities of teams and
individuals. The objective of performance management is achieving
superior standards of work and quality performance. The process is
employee intensive and HR functionalities such as job design, leadership
development, and training and reward systems received equal impetus
comprehensively and within a wider framework. Constant communication
with employees is the primary trait of the process. Performance
management is cyclical and ongoing.
! !112
Performance management begins as soon as an employee begins working

in an organisation, it helps the management to understand the capabilities
and improve the employee as a resource. The performance indicators are
determined in the first stage of the process that includes Key Result Areas.
The selection process is devised with a comprehensive view towards these
factors as implementing the right selection process ensures recruitment of
right candidates. Performance management involves negotiating
requirements and performance standards for measuring the outcome.
Identification of training and development needs by measuring these
outcomes is also under the ambit of performance management.
Furthermore, programmes and new strategies are to be devised reviewing
the previous strategies for effective implementation.
Nurturing employees through performance management involves designing

reward systems for effective compensation and reward system. The system
follows a pervasive evaluation method of employee performance based on
predefined performance plans. Providing career development support and
guidance to employees is an objective of the process. The process includes
performing exit interviews for understanding the cause of employee
discontentment and finding out the underlying reasons of their resignation.
Employees are motivated through the culture of the organisation and

engagement programmes. Therefore, work culture of the company must be
transparent enough. Employees should feel collaborated with healthy
mindset of being competent to each other in an uncomplicated
environment. The HR industry is focusing on methods and processes to
bring out the best in employees and performance management
materialised as the right tool to attain the objective. The process is
connected to actions and behaviour of employees moulding them in the
right direction. It is the harmonious engagement of HR and employees for
accomplishment of excellent performance.
! !113
4.5 Activity
1. Conduct an interview with at least 5 HR Department Heads and

understand the limitations, challenges involved in the traditional bell
curve method of evaluation
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4.6 Summary
The key attributes of a successful performance management system is

that, the system should be real-time, it should place good emphasis on the
strategy and vision of the organisation, the alignment with training needs
to be ensured and lastly the performance management system should be
able to identify, assess and reward for the results.
While there are many approaches to deal with performance management

system, many of the companies in India and across the globe are dumping
the traditional bell curve fitting exercise and moving to more interactive,
specific and employee focussed performance management and review
systems.
Defining right standard for the Top as well as bottom of the pyramid is very
crucial. In case of the top management, the performance management and
reward system is more focussed on wide range of parameters. Significant
components in the reward are linked to the profitability, growth and
realisation of the business strategy.
! !114
1. Highlight the benefits and limitations of Bell Curve Method of evaluation.
2. Review the top management Performance Management, Compensation

and Rewards Policy for Top companies in any sector and identify the
common aspects as well as the key differences.
1. Which of the following is least likely to be an important factor to be

considered in the process of designing a robust performance
management programme?
a. Must be tradition
b. Must be modernise
c. Alignment to strategy and vision
d. Reward the performing employees
2. Which of the following parameters is least likely to make any

performance management programme successful?
a. Making it real-time
b. Placing emphasis on competitor’s strategy and business plan
c. Committing requisite resources for training and development
d. Policy for rewarding the results
3. Which of the following is most likely to be an important reason for

companies to discontinue the use of Bell curve methods of annual
performance evaluation and grading of employees?
a. Traditional and very rigid

b. Creates more accountability
c. Facilitates year round review
d. Flexibility
Answers
1. (a), 2. (b), 3. (a)
! !115
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !116
STRATEGY FORMULATION AND IMPLEMENTATION OF PERFORMANCE MANAGEMENT
Chapter 5
Strategy formulation and Implementation
of Performance Management
Objectives
★ Understand the broad objective, role of performance management

systems
★ Understand the key implementation aspects of performance
★ Understand the key steps involved in implementation of a robust

performance management system
Structure:
5.1 Key Aims, Objective and Role of Performance Management System
5.2 Characteristics of an Ideal Performance Management System
5.3 Implementation of Performance Management – A Perspective
5.4 Key Steps in Development and Implementation of Robust

Performance Management Strategy
5.5 Legal and Ethical Considerations in formulation of Performance

Management and Rewards under Regulatory Scanner
5.6 Activity
5.7 Summary
! !117
5.1 Key Aims, Objective and Role of Performance

Management System
The information collected by a performance management system is most

frequently used for salary administration, performance feedback and the
identification of employee strengths and weaknesses. In general, however,
performance management systems can serve the following purposes:
★ Strategic
★ Administrative
★ Information
★ Developmental
★ Organisational maintenance
★ Documentation.
Let’s consider each of these purposes in turn.
Strategic Purpose
The first purpose of performance management systems is to help top
management achieve the strategic business objectives. By linking the
organisation’s goals with individual goals, the performance management
system reinforces behaviours consistent with the attainment of
organisational goals. Moreover, even if for some reason individual goals are
not achieved, linking individual with organisational goals serves as a way to
communicate what are the most crucial business strategic initiatives.
Administrative Purpose
A second function of performance management systems is to furnish valid
and useful information for making administrative decisions about
employees. Such administrative decisions include salary adjustments,
promotions, retention or termination, recognition of individual
performance, identification of poor performers, layoffs and merit increases.
So the implementation of reward systems based on information provided
by the performance management system falls within the administrative
purpose.
Information Purpose
Performance management systems serve as an important communication
device. First, they inform employees about how they are doing, and
provide them with information on specific areas that may need
! !118
improvement. Second, related to the strategic purpose, they provide

information regarding the organisation’s and the supervisor’s expectations,
and what aspects of work the supervisor believes are most important.
Developmental Purpose
As noted above, feedback is an important component of a well-
implemented performance management system. This feedback can be used
in a developmental way. Managers can use feedback to coach employees
and improve performance on an ongoing basis. This feedback allows for the
identification both of strengths and weaknesses and of the causes of
performance deficiencies (which could be due to individual, group or
contextual factors). Of course, feedback is useful only to the extent that
remedial action is taken and concrete steps are implemented to remedy
any deficiencies. And feedback is useful only when employees are willing to
receive it. Organisations should strive to create a ‘feedback culture’ that
reflects support for feedback, including feedback that is non-threatening
and is focused on behaviours, and coaching to help interpret the feedback
provided.
Another aspect of the developmental purpose is that employees receive

information about themselves that can help them tailor their career paths.
Thus, the developmental purpose refers to both short-term and long-term
development aspects.
Organisational Maintenance Purpose

A fifth purpose of performance management systems is to provide
information to be used in workforce planning. Workplace planning is a set
of systems that allows organisations to anticipate and respond to needs
emerging within and outside the organisation, to determine priorities, and
to allocate human resources where they can do the most good. An
important component of any workforce planning effort is the talent
inventory, which is information on current resources (e.g., skills, abilities,
promotional potential and assignment histories of current employees).
Performance management systems are the primary means through which
accurate talent inventories can be assembled. Other organisational
maintenance purposes served by performance management systems
include assessing future training needs, evaluating performance
achievements at the organisational level, and evaluating the effectiveness
of HR interventions (e.g., whether employees perform at higher levels after
participating in a training programme). These activities cannot be
! !119
conducted effectively in the absence of a good performance management

system.
Documentation Purpose
Finally, performance management systems allow organisations to collect
useful information that can be used for several documentation purposes.
First, performance data can be used to validate newly proposed selection
instruments.
E.g., A newly developed test of typing skills can be administered to all

administrative personnel. Then scores on the test can be paired with scores
collected through the performance management system. If scores on the
test and on the performance measure are correlated, then the test can be
used with future applicants for the administrative positions. Second,
performance management systems allow for the documentation of
important personnel decisions. This information can be especially useful in
the case of litigation.
5.2 Characteristics of an Ideal Performance Management

System
Following is a set of characteristics that is likely to allow a performance

management system to be successful. Practical constraints may not allow
for the implementation of all these features. However, we should strive to
place a check mark next to each of these characteristics, as the more
features that are checked, the more likely it is that the system will live up
to its promise.
★ Strategic congruence: The system should be congruent with the unit’s

and organisation’s strategy. In other words, individual goals must be
aligned with unit and organisational goals
★ Thoroughness: The system should be thorough regarding four

dimensions. First, all employees should be evaluated (including
managers). Second, all major job responsibilities should be evaluated
(including behaviours and results;). Third, the evaluation should include
performance spanning the entire review period, and not just the few
weeks/months before the review. Finally, feedback should be given on
positive performance aspects as well as those in need of improvement
! !120
★ Practicality: Systems that are too expensive, time-consuming, and

convoluted will obviously not be effective. On the other hand, good
systems are available and easy to use (e.g., performance data are
entered using user-friendly software), and are acceptable to those who
want to use them for decisions. Finally, the benefits of using the system
(e.g., increased performance and job satisfaction) must be seen as
outweighing the costs (e.g., time, effort, money)
★ Meaningfulness: The system must be meaningful in several ways. First,

the standards and evaluations conducted for each job function must be
considered important and relevant. Second, performance assessment
must emphasise only those functions under the control of the employee.
For example, there is no point in letting an employee know she needs to
increase the speed of service delivery when the supplier does not get the
product to her on time. Third, evaluations must take place at regular
intervals and at appropriate moments. Usually, just one formal evaluation
per year is not sufficient, so informal quarterly reviews are
recommended. Fourth, the system should provide for continuing skill
development of evaluators. Finally, the results should be used for
important personnel decisions. People will not pay attention to a system
that has no consequences in terms of outcomes they value
★ Specificity:A good system should be specific, meaning that it should

provide detailed and concrete guidance to employees about what is
expected of them and how they can meet these expectations
★ Identification of effective and ineffective performance: The

performance management system should provide information allowing
for the identification of effective and ineffective performance. That is, the
system should allow for distinguishing between effective and ineffective
behaviours and results, thereby also allowing for the identification of
employees displaying various levels of performance effectiveness. In
terms of decision-making, there is no use having a system that classifies
or ranks all levels of performance, and all employees, similarly
★ Reliability:A good system should include measures of performance that

are consistent and free of error. For example, if two supervisors provided
ratings of the same employee and performance dimensions, ratings
would be similar
! !121
★ Validity: The measures of performance should also be valid. In this

context, validity refers to the fact that the measures include all relevant
performance facets and do not include irrelevant performance facets. In
other words, measures are relevant (i.e., include all critical performance
facets), are not deficient (i.e., do not leave any important aspects out),
and are not contaminated (i.e., do not include factors outside the control
of the employee)
★ Acceptability and fairness: A good system is acceptable to and

perceived as fair by all participants. Perceptions of fairness are
subjective, and the only way to know whether a system is seen as fair is
to ask the participants. We can ask about distributive justice, which
includes perceptions of the performance evaluation received relative to
the work performed and perceptions of the rewards received relative to
the evaluation received. If a discrepancy is perceived between work and
evaluation, or between evaluation and rewards, then the system is likely
to be seen as unfair. In addition, we can ask about procedural justice,
which includes perceptions both of the procedures used to determine the
ratings and of the procedures used to link ratings with rewards. Because
a good system is inherently discriminatory, some employees will receive
ratings lower than those received by other employees. However, we
should strive to develop systems seen as fair from both a distributive
and procedural perspective. This is because each type of justice
perception leads to different outcomes. For example, a perception that
the system is not fair from a distributive point of view is likely to lead to
a poor relationship and lowered satisfaction with the supervisor. On the
other hand, a perception that the system is unfair from a procedural
point of view is likely to lead to decreased commitment towards the
organisation and intentions to leave
★ Inclusiveness: Good systems include input from multiple sources on an

ongoing basis. First, the evaluation process must represent the concerns
of all the people who will be affected by the outcome. Consequently,
employees must participate in the process of creating the system by
providing input regarding what behaviours and/or results will be
measured and how. Second, employee input about their performance
should be gathered from the employees themselves before the appraisal
meeting
! !122
★ Openness: Good systems have no secrets. First, performance is

evaluated frequently, and performance feedback is provided on an
ongoing basis. So employees are continually informed of their
performance. Second, the appraisal meeting consists of a two-way
communication process, where information is exchanged and not just
delivered from the supervisor to the employee. Third, standards should
be clear and communicated on an ongoing basis. Finally, communications
are factual, open and honest
★ Correctability: The process of assigning ratings should minimise

subjective aspects. However, it is virtually impossible to create a
completely objective system because human judgment is an important
component of the evaluation process. So, when employees perceive an
error has been made, there should be a mechanism through which this
can be corrected. Establishing an appeals process through which
employees can challenge what may be unjust decisions is an important
aspect of a good performance management system
★ Standardisation: As noted above, good systems are standardised. This

means that performance is evaluated consistently across people and
time. To achieve this goal, the ongoing training of the individuals in
charge of appraisals, usually managers, is a must
★ Ethicality: Good systems comply with ethical standards. This means that
the supervisor suppresses her personal self-interest in providing
evaluations. In addition, the supervisor evaluates only performance
dimensions for which she has sufficient information, while respecting the
privacy of the employee
5.3 Implementation of Performance Management – A

Perspective
Performance management is a vital component of human resource

management that ensures the effective use of scarce resources.
Performance management is a continuous process of identifying,
measuring and developing the performance of individuals or teams and
aligning that performance to the strategic goals of the organisation
Performance management has three main functions which are classified as
strategic, administrative and developmental. The strategic function links
the workers’ performance to the overall organisational strategy.
! !123
Administratively, performance management provides valuable information

to help the managers make important decisions such as salary increments,
promotions, recognition and rewards. The developmental function of
performance management is realised through the provision of information
on the strengths and weaknesses of health care workers. Performance
management involves six main steps, which include having knowledge of
the job and organisation mission, performance planning, performance
execution, performance assessment and performance review, as well as
performance renewal and re-contracting. Some of the key strategies to
enhance and improve the implementation aspects of performance
management system are as under-
★ Understand the business environment impacting the performance

★ Proper performance management planning
★ Periodic performance review
★ Objective feedback on performance
★ Coaching and mentoring approach
★ Adequate rewards and recognition aligned to the business strategy
5.4 Key Steps in Development and Implementation of

Robust Performance Management Strategy
★ Steps in Organisational Goal Linked Performance Appraisal Model

- Define the Mission of the Organisation
- Develop Vision for the Organisation
- Set Goals for the Organisation
- Set Departmental and Section Goals
- Set Goals for Individual Jobs
- Decide other Competency Parameters
- Measure Performance Against Set Individual Goal and Performance
Parameters
- Conduct Performance Review Discussion and Feedback
- Performance Appraisal Document acts as a basis for Reward
★ Understanding and communicating the key reasons for measuring

employees performance
- It is a means of communicating corporate objective
- It is a way of synchronising departmental or team objective with
strategic objective
! !124
- Establish congruence between employees expectations and corporate

goals
- People feel they are valued
- It is doing SWOT analysis for employee
- It is used as a motivation vehicle
- It provide assessment of employees development needs
- It provide information to update skills
- In some organisation, it is used for salary review or promotion of
employees or even transfer of employees
- It forms a basis for counselling coaching and mentoring
★ Action Planning After Goal Setting

- Set Goals
- Outline major Action for each Goal
- Break each Action into Task
★ Constraints in Linking Reward with performance

- Statutory Compulsions
- Industry – wise Wage Boards
- Operative Long Term Settlements
- Labour Unrest in the Event of such a Venture
- Lack of Mutual Trust
- Lack of Vision and Innovative Approaches on the part of the
Management
- Lack of Concerted Efforts and Commitments
- Lack of System Based on Fairness
- Fear of Personal Authority and Whims
★ Insight required to effective practice of performance

management
- Clarity organisational goals
- Translate organisational goals into individual, team, department and
divisional goals
- Rely on consensus and co-operation rather than control or coercion
- Improve performance, over a period of time on a continuous basis
- Encourage self-management of individual performance.
- Promote open and honest leadership styles that encourage a two-way
communication
- Ensure continuous feedback
- Monitor and measure performance against jointly agreed goals
! !125
- Don’t limit linking performance only to financial rewards
★ Examples of high performance work practices

- Self-directed work teams
- Job rotation
- High level skill training
- Problem solving groups
- Total quality management procedure and processes
- Encouragement of innovation and creative behaviour
- Coaching and mentoring
- Contingent pay based on performance
- Significant amount of information sharing
- Use of employee attitude surveys
- Cross functional integration
- Comprehensive employee recruitment and selection procedure
★ Performance Audit
- Identify accomplishments
- Identify requirements
- Identify exemplary performance
- Measure exemplary performance
- Measure typical performance
- Assess the potential for improving performance
- Translate this potential into stakes a measure of economic potential
★A seven-factor Model for Diagnosing Performance Problems

- Aptitude
- Skill Level
- Understanding of Task
- Motivation
- Degree of Effort
- Choice to Persist
- Outside Factors
★ General Conditions of task performance

- Task Clarity
- Task Competence
- Task Competition
- Task Co-operation
- Task Control
! !126
- Task Commitment
- Task Charter and Context
5.5 Legal and Ethical Considerations in formulation of

Performance Management and Rewards under Regulatory
Scanner
CEOs and compensation committees are increasingly concerned about

reward effectiveness and understanding the returns received for the
company’s investment in rewards. To do that they are looking not only at
benchmarked levels of remuneration for top talent, but increasingly they
are also examining the total cost of their pay bills against their
competitors, and asking the question: are we paying too much in
aggregate?
Reward Under the Spotlight
The banking crisis and subsequent focus on executive pay has led to a
marked increase in the oversight and governance of reward. In particular,
the role of the compensation committee has expanded beyond the
management of executive pay to include oversight of all reward-related
risks.
Increased scrutiny from shareholders, the media and other stakeholders is

leading many organisations to be more circumspect in their reward
strategies. The end result is that at a time when management is looking for
ways to be more nimble and innovative, they find themselves increasingly
constrained. Strategic planning is in danger of being crowded out of the
agenda as organisations struggle to tackle the rise in regulation and
minimise the risks they face.
Case Study – Financial Services – Regulations a key driver for

design and implementation of Performance Management and
Reward Systems
While the financial services sector has been the focus of much of the
increased regulation and scrutiny over reward practices in the wake of the
financial crisis, this survey suggests that many organisations in the sector
are taking governance changes in their stride. They may be most heavily
! !127
impacted by regulation, but they were some of the least concerned about
it. The most likely explanation is that compliance is a fact of life for these
organisations and they already have the resources and skills in place to
deal with it.
That said, most financial services organisations are changing their reward
strategy to align with their business strategy and the changed regulatory
and governance environment. Many are concerned about their ability to
attract and retain talent with increasing restrictions on reward. In an
attempt to address these concerns many are intensifying their talent
development programmes or turning to other sectors in the search for
skills. As a result organisations continue to watch their competitors’ reward
strategies carefully and place great value on external benchmarks.
Performance management is also a focus for many. Current performance

management is seen as too complex, not aligned with overall corporate
performance and weak in differentiating between high and poor
performers. Many organisations are also struggling to find ways to address
risk within the performance management process, and to incorporate non-
financial measures in the assessment of performance.
The aim for many, ultimately, is a reward approach that achieves a better
balance between short and long-term performance, between tangible and
intangible benefits and between base and variable pay. There is a strong
desire to involve line management in the process of reward and to improve
transparency of communication for employees. For the time being,
however, the issues of the day stand in the way of immediate progress.
Reward Risk Audit
The increasing globalisation of business has created an enormously

complex environment for managing reward, with organisations juggling
with the demands of local regulation, market conditions, culture and tax
structures. This complexity will be a concern for compensation committees
struggling to come to grips with their expanded responsibilities.
Many will need to begin at the beginning, by identifying and assessing the
risks inherent in their reward programmes. A risk audit should be
conducted across the organisation, to provide senior management and the
! !128
compensation committee with the information they need to make informed

decisions.
Those decisions, however, should not be solely focused on reducing risk at

the cost of innovation and competitiveness. An overly risk-averse approach
to reward can be just as damaging to performance as an unmanaged,
unrecognised risk. The answer lies in transparency and clarity from
leadership about why the organisation is doing what it is doing, and how
reward strategy will drive performance.
5.6 Activity
1. Conduct an interview with the HR Department Heads of few companies,

ideally in the same sector and understand the key challenges that are
involved in implementation of a robust performance management
system for their company.
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5.7 Summary
In any organisation, the performance management system is meant to

serve the key purpose which includes, strategic, administrative,
information, developmental, maintenance and documentation purpose.
An ideal performance management system should have key characteristics

that should demonstrate congruence with the strategic vision,
thoroughness, practicality, meaningfulness, specific to the organisations
business, ability to identify and differentiate performance effectiveness,
reliability, acceptability by the key stakeholders, fairness towards
employees, inclusiveness, openness, ability to include corrective measures
and coarse corrections, ability to scale up and standardise, compliance with
ethics inter alia.
In the process of implementation of the performance management

framework the key aspects to be considered include, understanding of the
business environment impacting the performance, proper performance
! !129
management planning, periodic performance review, objective feedback on

performance, coaching and mentoring approach, adequate rewards and
recognition aligned to the business strategy.
1. Highlight and explain with examples the key steps involved in

development of a robust performance management system.
2. Explain the key challenges involved in design and implementation of a

robust performance management system in an e-commerce based
organisation.
3. Highlight the key steps involved in execution of the performance

management system audit.
1. Which of the following is not likely to be an important step in the

performance management audit planning purpose?
a. Identify accomplishments
b. Identify the requirements
c. Exclude the exemplary performance
d. Assess the potential for improvement in performance
2. Which of the following is least likely to be a key constraint in the process

of linking reward with performance in an organisation?
a. Robust Management commitment
b. Statutory compulsions
c. Industry wage boards and regulations
d. Lack of mutual trust
3. Which of the following is most likely to be the first step in the process of
organisational goals being linked to performance appraisal model?
a. Set the goals for the organisation
b. Develop a vision for the organisation
c. Define the mission for the organisation
d. Decide other competency parameters
! !130
Answers
1. (c), 2. (a), 3. (c)
! !131
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !132
STRATEGIC IMPERATIVES IN PERFORMANCE MANAGEMENT AND REWARD SYSTEMS
Chapter 6
Strategic Imperatives in Performance
Objectives
★ Gain an insight into the key strategic imperatives involved in the

performance management and reward systems
★ Understand the linkage of overall HRM and Performance Management
★ Understand how to align the performance management decisions with

business strategy
Structure:
6.1 Background and Overview
6.2 Linking HRM and Performance Management
6.3 Insight into key Strategic Imperatives
6.4 Aligning Performance Management Decisions with Business Strategy
6.5 Activity
6.6 Summary
! !133
6.1 Background and overview
Before we start understanding the strategies issues in performance

management in an organisation, it is important to address some of the
following key questions-
★ What makes some businesses more successful than others?
★ What is today’s key competitive advantage?
The answer is very obvious i.e. people. Organisations with motivated and
talented employees offering outstanding service to customers are likely to
get ahead of the competition, even if the products offered are similar to
those offered by the competitors. Customers want to get the right answer
at the right time, and they want to receive their products or services
promptly and accurately. Only people can make these things happen. Only
people can produce a sustainable competitive advantage. Performance
management systems are the key tools to transform people’s talent and
motivation into a strategic business advantage.
Performance management is a continuous process of identifying,

measuring and developing performance in organisations by linking each
individual’s performance and objectives to the organisation’s overall
mission and goals. Performance management is critical to small and large
organisations – for-profit and not-for-profit, domestic and global – and to
all industries. After all, the performance of an organisation depends on the
performance of its people, regardless of the organisation’s size, purpose or
other characteristics.
Unfortunately, however, if they have one, few organisations use their

existing performance management systems in productive ways.
Performance management is usually vilified as an ‘HR department
requirement’. In many organisations, performance management means
that managers must comply with their HR department’s request and fill out
tedious, and often useless, evaluation forms. These evaluation forms are
often completed because it is a requirement from the ‘HR cops’.
Unfortunately, the only tangible consequence of the evaluation process is
that the manager has to spend time away from his or her ‘real’ job duties.
! !134
A manager is responsible for the application and performance of knowledge
– Peter F. Drucker
Strategic Imperatives in Performance Management and Reward

Systems
Across all sectors and regions, organisations are struggling to rebuild

profitability following the recession. With revenue growth hard to come by,
they are focusing on cost containment and performance improvement as
the paths to profit growth. This requires them to balance four, often
conflicting, challenges: cost containment, performance improvement,
talent engagement and risk management.
In particular, the tension between cost containment and talent engagement

was a very strong theme to come out of the research. Organisations are
very concerned about retention and motivation, particularly for top
performers, high potentials and those with scarce skills. However, the
option of paying more for retention or performance is often no longer
available and companies are focusing more on intangible rewards (such as
motivational leadership, challenging work and career development) to
boost engagement.
E.g. Key Insights into Issues with performance management system in

Government Organistaions in India.
! !135
Key issues in Performance Management in Government
Issues at Absence of quantification of targets and evaluation against

individual achievement of targets
level
Unclear performance standards
Neglect of job fit in appointments, and frequent transfers
Lack of mechanism to motivate for good performance
Absence of appropriate punishment/reward mechanisms
Absence of clear linkages between individual, organisational

and programme performance
Issues at Funds granted to ministries are never linked with progress of

Ministry/ work or the targets set out in the performance budget
department
Lack of clarity regarding purpose and objectives of Action Plans
level
Inability to measure performance in the absence of appropriate
indicators
Issues at Most PSEs rated excellent or good despite declining

Public performance
enterprise
Tendency of PSEs to show profits in the short-run by sacrificing
level
long term interests
Lack of scope for true negotiation
No mechanisms to enable the movement of accountability to

lower levels
Issues at Focus on inputs and process compliance neglects the outcomes

programme/ and impacts
project level
Lack of measurable indicators
Dichotomy between plans and budgets
! !136
6.2 Linking HRM and Performance Management
The performance management perspective stresses the need to align HRM

practices with the aim of affecting employee and organisational
performance. Thus, an integrated set of HRM practices is central to
performance management. The relationship between HRM and (firm)
performance has been the topic of a heated debate over the last decade.
Although significant progress has been made in unraveling the links

between HRM and performance, several theoretical and empirical problems
remain. Most studies suffer from methodological limitations. For example,
many are conducted at a single point in time (cross-sectional). Most use
single respondents (mostly HR managers) as their source of information.
They tend to focus on the managerial view and seldom assess the
employees’ perspective. Often sample sizes are limited. Also, the
theoretical foundation for how and why measured HRM practices might
affect performance is not always clear.
In modelling the relationship between HRM and performance, HRM

practices are typically expected to increase employees’ organisational
commitment and motivation, which in turn affects employee performance
and ultimately organisational performance.
! !137
6.3 Insight into key Strategic Imperatives
Many organisations view performance management through a narrow lens.

The tactical and transactional aspects of performance management often
overshadow its strategic role. All too frequently, performance management
is viewed primarily as a tool that aids in compliance with certain critical HR
processes including goal setting, mid- and year-end reviews, etc., that help
to ensure the balanced distribution of compensation and other rewards.
As a result of this narrow perspective, companies overlook the greater

opportunity to leverage the power of performance management as a
business management tool that aligns decision making differentially across
various roles, reflects the unique aspects of the business model and
culture, and considers the risk profile of the industry. By ignoring these
facets of performance management, companies are missing out on
opportunities to generate economic value. Because they have limited
visibility into the value of different employee groups and roles,
organisations will often opt to spread HR investments equally across
organisational units.
! !138
E.g.Investing a comparable amount in critical-skill employees as in

employees whose skills contribute less economic value.
Companies also face similarly negative consequences when key

performance management activities such as goal setting are not aligned
with a company’s vision and business model. For instance, a company
focused on delivering a superior customer experience may fall short of
achieving this objective — and realising the corresponding economic value
— if it uses a rigid top-down approach to goal setting that fails to take into
account the unique demands of different customer segments. Lastly, value
is also lost when organisations fail to fully consider the implications of their
industry’s risk and performance tolerance.
E.g., A computer chip manufacturer that uses too broad a range of

performance goals faces a significant risk that its product will not meet the
tightly defined set of quality standards demanded by customers and it will
lose significant market share as a result of the variance in its product
quality.
But not all companies are ignoring the power of performance management
as a business management tool. Our work reveals that a number of
organisations are making strides in aligning performance management with
their companies’ business drivers. These players routinely analyse how
variances in business models and risk tolerance can influence the
performance requirements placed on different employee segments. This
knowledge enables these organisations to better calibrate performance
management to get the best return on their HR investments and achieve
their strategic priorities.
! !139
6.4 Aligning Performance Management Decisions with

Business Strategy
Unlike many HR processes, performance management has a direct and

often-missed connection to a company’s business strategy and key value
drivers. While much has been written about cascading goals and the
importance of aligning individual key performance indicators (KPIs) with
business objectives, research would suggest there is plenty of room for
improvement.
37 per cent of the global employee sample gave either a negative or

neutral response when asked if they understood their company’s business
goals. A similar percentage (38 per cent) gave either a negative or neutral
response when asked if they understood how their job contributes to their
organisation achieving its business goals. Moreover, in companies that do
attempt to align individual KPIs with broader company objectives, the
process of cascading goals is often purely a strategy agnostic, financial
exercise. While financial goals may be relevant to executive leaders, they
often have minimal relevance to employees at lower levels.
High-performing companies emphasise specific cultural attributes based on

their chosen strategy. Some of the key attributes are as under-
★ Efficiency: An organisation focused on efficiency seeks to attract and

retain talent that is productive in a way that optimises processes,
technology and resources. Key characteristics of this type of organisation
include an emphasis on comprehensive training in basic processes and
very precise role descriptions accompanied by disciplined workload
allocation. In terms of performance focus, the “what” weighs more
heavily than the “how” in an 80/20 ratio. An efficient organisation values
top down goal setting and quantitative performance metrics.
★ Quality: A quality organisation looks to focus its workforce on

excellence, precision and continuous improvement. Employees in this
type of organisation are empowered to improve processes and share best
practices. A quality-driven company typically relies on multi-rater
feedback systems, including peer reviews and top-down metric-driven
goal setting. While the what weighs more heavily than the how in
performance assessment, it does so to a lesser degree (60 per cent what
! !140
versus 40 percent how) than in an efficient organisation. The tolerance

for performance variance is typically minimal.
★ Innovation: An organisation that prioritises innovation requires its

employees to be entrepreneurial, creative and proactive. Its culture
encourages diverse thinking and supports risk taking. The emphasis is
typically on competency-based goals (the how) that are aligned with the
company’s long term vision. In this type of organisation, there is a
tolerance for wide performance differentiation and less formal top-down
goal setting.
★ Customer Service: A service-oriented organisation seeks talent it can

empower to build strong customer relationships. It promotes teamwork
and focuses on long-term development. There is strong support for
information sharing, which results in an improved understanding of
customer needs and preferences. Because there is significant
performance differentiation in this type of organisation (as a result of its
continuous pursuit of individual excellence), it is important to identify top
performers. Goals aligned with customer requirements are typically set
on a unit-specific basis to recognise differences in customer requirements
★ Brand: An organisation pursuing a brand strategy seeks employees

capable of serving as its brand ambassadors. These employees focus on
building a community in which there is deep pride in the brand and a
strong belief in the product. A brand-focused organisation emphasises
team-based goals aligned with its vision and typically relies on a multi-
rater feedback system, which includes peer reviews
These cultural attributes have significant implication for all aspects of

performance management, including determining the types of goals to use,
how targets are set, the degree of variance between targets across a given
employee population, etc. Yet it is rare for an organisation to start with the
cultural attributes required to execute its strategy when it thinks about
designing its performance management process.
! !141
Case Study in Alignment of Performance Management Framework

with Business Strategy
FTSE 250 – member IG Group is a provider of financial spread betting and

derivatives trading. It employs fewer than 1,000 people. Over the past 18
months, it has customised its HR software, linking it to its financial
systems, to provide a more performance-related approach to staff ratings
and pay reviews.
They were funnelling the information down to individual sales and they
could see if a new account has made a difference to profitability. There is a
lot of healthy competition, but people share ideas which impact on their
draw. They have tried to engender in IG a sense that it is a group effort, as
95% of our employees are covered by the same bonus pot.
While the traders and other front office staff are in the 'firing line' in terms
of revenue generation, the HR team ensures the vital contribution to
corporate success of back office staff is appreciated. Around a third of IG's
staff – 350 people – work in IT and the company invests heavily in the
area, as it believes it is a competitive differentiator and long-term driver of
profitable growth. Approximately 40 IT staff work on mobile platforms,
such as the creation of an iPhone spread betting app.
IG's figures speak for themselves. In a given financial year they saw a
7.3% rise in trading revenue to £320 million and 13.5% leap in active
financial clients to 117,252. Staff shared a performance-related bonus and
commission pot of £18 million.
6.5 Activity
1. Select 5 companies in a particular sector, document their key business

strategy and seek insights into their performance management
framework. Assess whether the company’s performance management
framework is in alignment with their business strategy.
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6.6 Summary
In challenging economic times, amid market volatility, certainties are thin

on the ground. But when the going is tough, one thing we can be sure of is
that employers will need to maximise the return they get from their staff.
If employers are to succeed in aligning performance management strategy

with the business, they need the right tools. Today's performance
management solutions provide a complete suite of competency
measurement tools – i.e. more than just performance reviews and
appraisals. They should help employees understand how they can develop
skills and talents – even better, if they are linked to learning resources.
Technology is a valuable enabler, but commitment and buy-in from the top
down are essential for a high-performance culture.
All too often, employees in the challenging economic climate, see

performance management as little more than a box-ticking activity. The
problem is many employers can't see a personal incentive to achieve
stretch goals with pay freezes and training budgets being squeezed to their
limit. Line managers need to re-engage with their staff to regain their trust
and commitment.
There is a split among organisations – and indeed different groups within

organisations. There are those managers who invest time and effort in
regular, high-quality performance discussions, and those who just see it
going through the motions. Frequently, the quality of the performance
process is related to the culture of the organisation or the particular
division within the organisation.
If performance management is taken seriously within the senior team and

they lead by example, then this tends to cascade through the organisation.
In organisations where the process is HR-driven and senior management is
not committed to performance management, it tends to be more of a box-
ticking exercise.
The five key “Performance Management Framework” elements are: setting

SMART targets; monitoring and evaluating 'what' colleagues achieve and
'how' they achieve it; ensuring colleagues are supported to achieve;
determining an overall rating annually on performance; and agreeing and
supporting training and development needs.
! !143
1. Highlight the key attributes of a performance management framework

that is aligned to the evolving business strategy.
2. You are the Head of HR for one of the large e-commerce company,
where the long term business strategy and short term business
strategies are under constant evolution. What are the key steps that
you are likely to initiate to ensure that the performance management
framework of the organisation is fully aligned to the dynamic business
strategy?
1. Which of the following is least likely to be an important attribute of a

performance management framework that is aligned to the business
strategy?
a. Focus on efficiency
b. Focus on quality
c. Tick in the box exercise driven
d. Includes customer focus and innovation
2. Which of the following HRM practices have a complete linkage with the
performance management framework?
a. Selection
b. Training
c. Job design
d. All of the above
3. Which of the following is not a financial outcome expected from the

performance management and strategy alignment?
a. Improve morale and reduced attrition

b. Return on investment
c. Value creation for shareholders
d. Profitability
! !144
Answers
1. (c), 2. (d), 3. (a)
! !145
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !146
OVERVIEW OF INTERNATIONAL PERFORMANCE AND REWARDS MANAGEMENT
Chapter 7
Overview of International Performance and
Rewards Management
Objectives
★ Gain a broader perspective of international performance management
★ Understand the methods and approach adopted for evaluation of

performance of employees spanning multiple generations
★ Gainan insight into the checklist of best practices for multi-generational

recognition and reward programmes
★ Gaina perspective on best practices adopted international for recognition

and rewards programmes
! !147
Structure:
7.1 Overview of International Performance Management
7.2 Characteristics, Needs and Preferences of Multiple Generations:

Defining and Applying Psychographics
7.3 Categorisation of Employees for Defining the Reward Systems
7.4 Best Practices in Recognition and Reward Programmes for Multiple

Generations
7.5 Checklist of Best Practices in Multi-Generational Recognition and

Reward Programmes
7.6 Performance Management Framework – Recommendations of

Organisation for Economic Cooperation and Development (OECD)
7.7 Activity
7.8 Summary
! !148
7.1 Overview of International Performance Management
With four generations working side-by-side in many organisations, the

need to recognize multi-generational characteristics in the workplace has
never been greater. Propelled by an increasing retirement age and high
labour market competition due to talent shortage, understanding
intergenerational dynamics has become an imperative to many leading
organisations.Growing evidence shows, and forward-thinking managers
know, that there is a direct link between addressing age diversity in the
workplace and achieving success in several dimensions of business
performance.
According to the Sloan Center on Aging and Work, aligning an age diversity
strategy (that is, programmes and policies that are inclusive of different
generations within the workplace) with the organization’s mission and
values can help employers enhance employee recruitment, retention, and
engagement, and improve organisational culture and customer service
Individual Outcomes – of a Multi- Organisational Outcomes – of a

generational Recognition and Multi- generational - Recognition
Rewards and Rewards
Strategy (Person-Centric) Strategy (Business-Centric)
Improved workplace experience Increase in sales and profitability
Needs are better fulfilled through Cost savings

targeted approach
Increased loyalty to company because Increase in productivity

of feeling “understood” and “cared for”
Improved workplace motivation Improved customer service
Stronger sense of team cohesion Increase in quality
Improved relationship with supervisor Decreased turnover
Improved business image
! !149
To human resource managers, the demographic and social shifts of the

workforce represent both a challenge and an opportunity. On one hand, the
increasing generation gap often creates tension among employees’ wide-
ranging experiences, perspectives, expectations, priorities and work styles.
Conflicts, frustration, and poor morale arising from age differences are
common in the workplace and can generate a lack of engagement at the
individual level as well as, damage the workplace culture at the
organisational level. Alternatively, multigenerational representation in the
workforce offers unique opportunities to leverage the diversity in
knowledge and skills of all employees. In this capacity, reward and
recognition programmes play a fundamental role. By capitalising on the
strengths and values of different generations, recognition programmes can
realize the full potential of an organisation’s talent pool and create an
enduring competitive edge.
! !150
Most importantly, we must emphasise that simply comprehending

generational demographic preferences is not enough. In addition to the
typical age, race, and gender breakdown in the workforce and work-style
proclivities across generations, companies need to understand the unique
psychographic characteristics of their population. Psychographic data
typically provides insight into the attitudes, lifestyle, personality, and
values of an individual or group. Without some understanding of these
characteristics among your workforce, companies can unintentionally
devalue their rewards and recognition programmes. Employees may feel as
if leadership lacks authenticity behind their actions – or worse, that the
organisation does not even have a basic comprehension of the people who
essentially “make the company run.”
People of all ages have much in common, on a fundamental level and also
with respect to expectations about the workplace and work experience.
Regardless of age and type of work, people consistently rank family,
integrity, love, spirituality and happiness as top priorities. In the workplace,
employees across all age groups share a fundamental desire for flexibility
and a supportive work environment, as well as a need for career
development and commitment to their organisations. The intergenerational
differences come into play in subtle ways, which can cause substantial
harm if not understood and managed. For instance, employees from
different generations usually have different perspectives on issues like
leadership, authority and work ethics. They also tend to differ with respect
to learning and communication styles, recognition preferences, and work-
life balance needs, all of which are psychographic characteristics.
Let us evaluate the Similarities and Differences as under-
! !151
Similarities Differences
Core values Recognition preferences
Desire for flexibility Communication style
Desire for supportive work Work-life balance needs

environment
Commitment to organisation Learning style
Need for career development Perspectives on leadership, authority

and work ethics
Fundamental need for recognition Desired rewards
Need to maintain loyalty to a specific

employer
Perspectives on how and when to

socialise during (and outside of) work
7.2 Characteristics, Needs and Preferences of Multiple

Generations: Defining and Applying Psychographics
While it is important to avoid stereotyping people from different age

groups, the concept of “generations” provides some general insight into the
values and expectations of different individuals in the workplace.
Individuals from different generations have lived through shared
experiences – including significant events, advancements, and
circumstances – which collectively shape their approach to work and life.
For example, the baby boom generation (1946–1964) grew up in a post-
world war era of rebuilding economies. As a result, this cohort developed
strong work ethics and team orientation. On the other hand, the millennial
generation (1980–2000) grew up in the fast-paced Internet era, defined by
unprecedented global interconnection. This shared context led this group to
develop unique technology savviness and the ability to multi-task, as well
as a strong sense of collective action. Following table is a summary of key
shared traits of each generation, along with the unique motivators, needs
and preferences that they present on recognition, rewards and
communication in the workplace
! !152
Components World War Baby Generation X Generation Y

II Boomers (1965–1980) (1980–2000)
(Before (1946–1964)
1946)
Defining Experience, Team Independence, Optimism,

characteristics stability, perspective, adaptability, ability
loyalty, service tech to multi-task,
emotional orientation, literacy, tech-
maturity, experience, creativity, orientation,
focus, knowledge willingness to social
dedication, challenge responsibility,
perseverance status quo drive to
learn and
grow
Leadership Directive, fair, Democratic, Flexible, Motivational,

style consistent, mission informal, collaborative,
preferences respectful, oriented, direct, positive,
clear, logical warm and competent, structured,
caring, equal results- achievement-
treatment oriented, oriented,
supportive, coaching
genuine
Rewards and Tangible Personal Free time, Awards,

recognition symbols of appreciation, opportunities certificates,
preferences loyalty, promotion, for tangible
commitment recognition. development, evidence of
and service, Help with upgraded credibility.
including retirement resources, Immediate
plaques and planning, certifications concrete and
certificates. sabbaticals, to add tangible
Flexible work training on to resume. awards,
hours, technology Skill similar to
temporary development, those desired
work, flex-work by Gen X
hourly shifts schedules, fun
if close to activities
retirement
! !153
Communication Memos, Phone calls, E-mail, Instant

preferences for letters, personal voicemail, messages,
recognition personal interactions, casual, direct text
delivery notes, face-to- and messages, e-
individual face, immediate mail,
interactions structured collaborative
networking interaction
7.3 Categorisation of Employees for defining the reward

systems
For recognition and reward purposes, this map could be used to determine
which types of rewards and which forms of recognition would be most
valuable based on individual personality characteristics. In general, the six
families are characterised as the following:
★ Protectors: View workplace services as part of their employee

entitlement and are averse to change and very defensive when their
routines are altered or their organisation frame of reference is disturbed.
In terms of rewards and recognition:
- They need structure and predictability of rewards programmes
- Rewards must be functional and of value
- Rewards and recognition should be equitable across the company
★ Achievers: Are often in multi-tasking mode and are concerned about

how they can progress within the company and reach their professional
goals efficiently and in due time. In terms of recognition and reward:
- The way recognition and rewards are presented are as important as

the rewarded behaviour itself.
- Rewards must be able to be redeemed quickly and efficiently
- They expect very high value of the rewards pool the company is
offering
! !154
- Recognition and reward strategies must be uniquely tailored to this

group
★ Freestylers: Tend to go by their own tune and rhythm, are good at

working in teams that are formed and dissolved according to their needs,
and work according to projects rather than fixed schedules. In terms of
recognition and reward:
- Rewards programmes should have a wide variety of choices
- Some participants may elect to “save up” for an experiential award –

like a mini vacation
- Recognition should be varied, with an emphasis on authenticity
★ Networkers: Socialise and interact with colleagues and look for ways to
facilitate the quality of relations and exchanges among people who work
onsite. In terms of recognition and reward:
- The programme must meet the needs of the entire group
- On-site recognition strategies should facilitate the quality of relations

and exchanges
- Participants might prefer group rewards that create shared experiences

and allow time for social interactions
- Some special rewards should offer an element of “entertainment” in

order to recognise the high value placed on rewards; for instance,
providing a wellness day event with demos, booths, giveaways, etc.
! !155
★ Traditionalists:
Are very loyal to their employer and need to feel valued
and protected by their employer as compensation for their strong
corporate engagement. In terms of recognition and reward:
- The recognition and reward strategy must support the company’s

image and reputation
- There must be a large choice of delivery systems and offers for rewards
- Any services provided as rewards should demonstrate that the

company is rewarding staff for the effort they put in, e.g., subsidized
meals, concierge service
★ Realists: Are experienced buyers, have a sixth sense to detect value

and price-to-quality ratios, need to “renew and refresh” themselves
during breaks, and strive to effectively balance their work/life priorities.
In terms of recognition and reward:
- They appreciate rewards options that hint at a bit of decadence, like

gift cards for a coffee shop, a dessert store, or high-end shopping
! !156
- They prefer when recognition is impactful, but not drawn out and
overly flashy
- They appreciate rewards that make sense for the environment and/or
individual well-being
Performance Management of Expatriates
360-degree feedback – also referred to as multi-rater or multi-source

feedback – is the process whereby individuals receive feedback from a
variety of stakeholders about the way they carry out their jobs.
Performance feedback is typically collected from colleagues, direct reports,
line managers, internal and external customers, as well as the individual.
The rationale behind such multiple evaluations is that an individual obtains
a breadth of information which would not normally be available, and that
other people, beyond the immediate line manager, who observe or
experience an individual’s behaviour are in a strong position, and in some
aspects uniquely qualified, to evaluate it. 360-degree feedback was
introduced initially for development purposes, and in this context the aim
was to provide constructive feedback, greater awareness and,
consequently, individual growth and performance enhancement, leading
ultimately to organisational development and change. Although this is still
one of its main functions, more recently it has been used to improve
decision-making in performance appraisal, pay determination, succession
planning, job placement and downsizing.
Cultural differences affect not only how the process is viewed and whether
it is accepted, but also the rating and feedback processes as well. Any
system which delivers assessments across hierarchical boundaries may be
problematic or even offensive in countries with high power distance and
low levels of openness such as China, Japan, Korea, Mexico and India. For
example, the respect for authority generally in high power distance
cultures, together with more specific cultural values such as the importance
of saving face in certain Far Eastern countries, might create concern for
both the relevance and appropriateness of subordinate feedback, and
result in overrating from subordinates.
! !157
Use of 360 Performance Appraisals
★ Employee Development
★ Performance Appraisal
★ Performance Management
★ Training Need Assessment
★ Evaluation of Training
★ Attitude Survey
★ Organisational Climate Survey
★ Customer Satisfaction Survey
How 360 Performance Appraisal Conducted Key steps
★ Develop questionnaire
★ Ensure confidentiality of participants
★ Provide training /orientation
★ Administer the feedback questionnaire
★ Analyse the data
★ Develop and Distribution Result
The Steps in the 360 Degree Assessment Includes
★ Identify
and define the key competencies for organisational success
based on the organisation
★ Expressthe key competencies as attitudes against which participants can

be assessed
★ Select
the person to be evaluated –peers, customers, subordinates,
manager, and so on
★ Compile the result. Feedback is to be kept confidential
★ Provide feedback to the individuals
★ Create an action plan to improve the individuals performance
! !158
The Procedure for Conducting 360 Degree Appraisal are as Under
★A questionnaire is developed which includes from 50 to 100 items to

measure different dimensions of job performance such as
communication, teamwork, leadership, initiative, judgement etc.
★ Stepsmust be taken to maintain strict confidentiality of feedback results

for e.g. Feedback rating from several subordinates may be combined
averaged to mask the identify of an individual subordinate
★ Training a 360–degree appraisal is to be given to all employees and why

it is being implemented in an organisation
★ Feedback to employees could be provided through printed forms or post

the form in company website for easy access to employees
★ Analysis of data may include performance dimension summary

performance v.s expected individuals item ratings, item ratings
performance v.s expected highest or lowest rated items (shows individual
strengths and weakness) and recommendations for development
★ Feedback should be shared with the employee it should not be

mandatory that the employee share the results with their managers
Use 360 Degree Performance Appraisal to
★ Set clear, specific goals

★ Establish measurement to determine outcomes and results
★ Evaluate the degree to which outcome and results were achieved
★ Determine based on performance what reward is to be given
Use 360 Feedback to
★ Identifythe skills, competencies behaviours and practices needed to

successfully achieve performance criteria
★ Measure proficiencies in skills, competencies, behaviours and practices
★ Assess where improvement is needed to achieve performance criteria
! !159
★ Create targeted development plans that increase capabilities and

performance
★ Assess what environment will bring out the best result from the
employees
Merit of 360 Feedback
★ Provide a well-rounded view

★ Avoids individual bias
★ Can have more impact than a single source
★ Can establish consensus
Demerit of 360 Feedback
★ Responses from colleagues and external customers may be biased or

simply the result of trade offs
★ It ignores performance in terms of achieving goals
★ The rate may deny the truth of negative feedback
7.4 Best Practices in Recognition and Reward Programmes

for Multiple Generations
With more and more human resource leaders incorporating multi-

generational strategies into recognition and reward programmes, a set of
best practices has emerged. While each organisation has a particular
approach that best fits its culture and mission, successful programmes
possess specific characteristics that are aligned throughout the entire
management cycle, from planning to implementation and evaluation.
★ Integrate into Overall Business Strategy: It is crucial to fully

integrate a multi-generational rewards and recognition programme into
the broader talent retention and business strategy. Formalising the
programme and managing its performance systematically will ensure that
the necessary levels of resource and leadership commitment are in place
to enable it to deliver on its full potential
! !160
★ Set Goals & Measure Outcomes: Managers should set clear goals and
utilise specific outcome metrics with respect to the multi-generational
aspect of the rewards and recognition programme. For example, an
organisation might aim to increase collaboration and knowledge sharing
among certain generational groups, or improve engagement among other
groups
★ Get Employee Input: Another powerful, yet simple practice is to

periodically survey employees on what they value and their reward
preferences. Building the recognition strategy around employees’
preferences avoids wasting resources and increases the impact of
recognition on worker behaviour. Indeed, sometimes a “thank you” note
provided to the right person at the right time is of more value than an
annual formal award dinner; for other workers, having the opportunity to
save up points toward a large prize is motivating and rewarding in itself
★ BeInclusive: Offering opportunities for recognition to all workers is also

a defining trait of successful programmes. While the type of rewards may
vary, being inclusive drives the organisational culture more effectively,
not to mention the increased perception of fairness from the workers’
perspective
★ Be Flexible: Reconciling the diverse needs and desires of people from

different generations requires flexibility in programme implementation,
particularly as it refers to communication and recognition tactics. The key
to striking a balance between rigorous standardisation and uncontrolled
variability is to prioritise a product or service mix that matches the
workforce profile, while presenting high leverage for behaviour change
★ Leverage Technology: As workforce dynamics are becoming

increasingly complex, technology has taken on a central role. Best-in-
class rewards and recognition programmes make extensive use of
technology, not only as a means to deliver timely and targeted
recognition, but also to enable management oversight and real-time
monitoring even in large-scale, multi-site projects
★ Evaluate & Improve: Lastly, managers should consistently evaluate the

impact of their rewards and recognition programmes, in order to
determine their value-on-investment to the organisation, as well as
opportunities for continual improvement
! !161
7.5 Checklist of Best Practices in Multi-Generational

Recognition and Reward Programmes
The statements below can help HR managers assess the degree to which
their recognition and reward programmes are designed to meet the needs
and preferences of multiple generations. The more statements that match
practices in your workplace, the more your organisation is likely to be
effective in engaging employees of all ages.
★ Approach our recognition and reward programme as a key talent

retention and development strategy
★ Haveclearly defined objectives and metrics related to managing multiple

generations in the workplace
★ Askour employees what they value and build our recognition and reward
programme around their needs and preferences
★ Offer opportunities for rewards and recognition to all
★ Areflexible in the ways we communicate with employees from different

generations
★ Are flexible in the ways we recognise and reward employees from

different differences within the generations
★ Use technology to deliver timely and consistent recognition and rewards
★ Evaluate our recognition and reward programmes frequently and

systematically
★ Actupon the results of our evaluations to continuously improve our

programmes
★ Understand employee psychographic characteristics and realise that

there are differences within the generations
! !162
Recognition programmes are a powerful tool to engage the workforce and

achieve business goals. Building bridges across generations and tailoring
recognition programmes according to the characteristics of each age group
impact key business indicators, such as productivity, organisational growth,
customer service, and profitability. As the makeup of the workforce
continues to trend toward increasing age diversity and as individual needs
and preferences evolve, empowering and supporting workers from multiple
generations must become a priority in human capital management.
Flexibility, effective use of technology, and systematic management are
defining features of recognition programmes that truly align all employees
around an organisation’s core mission and values. When designed and
managed with age diversity in mind, recognition programmes can create a
competitive edge that endures generation after generation.
7.6 Performance Management Framework –

Recommendations of Organisation for Economic
Cooperation and Development (OECD)
Key aspects Particulars
Properties of Clearly identified and described

Output /
Contribute to achievement of planned outcomes
Outcome
Should generate information that is a basis for performance
comparisons over time or with others
Achievable in the specified time frame
Possible to monitor and assess the achievement of the outcome
Clarity in definition and description to be easily reported

externally
Reporting Be Open: Provide feedback of the results and explain the

performance reasons for collection of information and the use to which it will
information be put
Be Selective: Do not report all measures to everyone, so as not

to overload users with information that is not relevant to them
Be Focused: When a specific issue is under review it is necessary

to report only the measures relevant to that issue
! !163
Be Proactive: Take action to indicate where a response or an

action is required as a result of the information being provided
Be Pragmatic: Concentrate on what can be influenced
Be Reasonable: Take or suggest action that is reasonable in the

circumstances
Alignment Should cover general or strategic goals and objectives for the
with organisation’s main functions and operations
Business
Identification of external factors crucial to the organisation which
Strategy
are beyond its control and which could have a significant impact
on the attainment of general goals and objectives
Description of programme evaluation
The plan is used to define or revise general goals and objectives
Operating Operating objectives defining the targeted level of programme

Plan implementation, i.e., outputs
Output goals expressed in an objective, quantifiable, and

measurable manner
Description of how annual goals or operating objectives will

relate to the general goals of the strategic plan
Indicators for use in assessing the value of relevant products,

level of service, and the results of each programme activity
Bases for comparing programme results with established

implementation targets
Description of the methods to be used in checking and validating

the measurements obtained
! !164
7.7 Activity
1. Study performance management practices at a large multinational

company and identify the broad practices as defined in their
performance management framework
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
7.8 Summary
Critical evaluation of performance management which begins with a

consideration of the argued importance of performance management,
moves through discussion of its inherent processes and associated key
issues, and ends with a critique of such processes and their organisational
contribution. This evaluation permits insight into why organisations adopt
performance management systems (PMS) and the challenges they face in
achieving their goal: the improvement of individual and organisational
performance. Technology and change are again broadly argued to have
driven an enhanced need for organisational performance, and consideration
is given within the final section on future issues to the emerging role of
technology within PMS.
Performance management may have a number of aims, the most common,

however, being developmental and judgemental. With reference to
performance management, financial (extrinsic) rewards relate usually to
merit or contingent pay – that is, where an element of pay is at risk and
dependent on performance, adopting performance management as the
process by which decisions on the allocation of such reward are made.
Non-financial (intrinsic) rewards include recognition, development, and
access to other assignments, career guidance and the quality of working
life, many of which can be delivered by developmental forms of
performance management.
While performance management has typically focused on individual

performance, there is increasing recognition of the need to consider team
performance. Team-working has increased in prevalence in the past 20
years because it is argued to provide a source of competitive advantage,
! !165
enabling cost reduction and improved quality, facilitating the completion of

increasingly complex organisational tasks beyond the means of any one
individual, and enabling the empowerment of employees as decision-
making is decentralised.
The best practices adopted in International Performance Management

include consideration of integration of Performance management
framework into overall business strategy, setting goals and measuring
outcomes, seeking the inputs from employee where applicable, promoting
an inclusiveness in the framework, leveraging the technology aspects inter
alia.
1. Highlight the key best practices that are adopted by Multi-National

companies in evaluating performance of multi-generation employees.
Support the practices by examples.
2. Explain the importance of international performance management and

its key features.
1. Which of the following is least likely to be an individual outcome of

Multi-Generational recognition and rewards strategy?
a. Improved work experience

b. Increased loyalty to the company
c. Improved workplace motivation
d. Enhanced business image
2. Which of the following is least likely to be an organisational outcome of

Multi-Generational recognition and rewards strategy?
a. Increase in sales and profitability

b. Improved relationship with supervisor
c. Cost savings
d. Increase in productivity
! !166
3. Which of the following is not likely to be an expectation from the

performance management and reward systems for employee falling
within the category of Protector?
a. They need structure and predictability of rewards programmes.

b. Rewards must be functional and of value.
c. Rewards and recognition should be equitable across the company.
d. They expect very high value of the rewards pool the company is
offering.
Answers
1. (d), 2. (b), 3. (d) 
! !167
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !168
REWARDS MANAGEMENT AND LINKAGE TO THE PERFORMANCE
Chapter 8
Rewards Management and Linkage to the
Performance
Objectives
★ Gain an understanding of linkage of pay to performance measurement
★ Understandand gain insights into the various approaches adopted by

Indian Companies to establish linkage of performance to pay
★ Understand the relationship of Rewards and Performance
★ Understand the mechanism for management of the rewards in various

organisations
★ Learnthe tools and techniques to differentiate performers and non-

performers
★ Understand the mechanics of total rewards optimisation
★ Understand the approaches adopted by companies across the globe to

build an irascible organisation for employees through robust performance
and rewards framework
! !169
Structure:
8.1 Linkage of Pay to Performance
8.2 Insight into “Perform and Prosper Policy” Adopted by Corporate India
8.3 Relationship Between Financial Rewards and Performance
8.4 Relationship Between Promotion and Performance
8.5 Relationship Between Non-Financial Rewards and Performance
8.6 Other Key Factors Impacting Employee Performance
8.7 Establishment of Linkage of Rewards to Team Performance
8.8 Managing Rewards
8.9 Differentiate and Recognise High Performance and Potential
8.10 Total Rewards Optimisation
8.11 Building Irresistible Organisation
8.12 Concern of Indian Companies over Annual Performance Pay Increase
8.13 Activity
8.14 Summary
! !170
8.1 Linkage of Pay to Performance
Pay for performance is an important element of good management. The

key question here to look at is what kind of pay for what kind of
performance. Historically, the employee favour schemes designed to
reward long-term as well as short-term performance, encourage retention,
recognize special needs of an organisation, be based on the achievement of
both financial and non-financial objectives, and in general create value for
shareholders.
It is possible that the pay may not at times reflect the performance
parameters. Some of the key reasons are highlighted as under-
★ Many of the larger pay packages are negotiated by those being hired
from outside the organization. An outside hire is prompted by poor
performance by insiders. Bargaining power of the outsider is increased,
regardless of the performance that may be delivered later
★ Paypackages are determined on the basis of what others in comparable

jobs, regardless of performance, are being paid. This creates a natural
disconnect between pay and performance
★ Currentpay often reflects past performance, not current or expected

performance
The key guiding principles for establishment of right performance measures

are as under-
★ Understand clearly what results you desire

★ Understand what benchmark (average) results would be
★ Understand the individual's ability to influence results
★ Establish clear targets for performance which warrants merit pay
★ Ensure that the measurement of results is rock solid
! !171
8.2 Insight into “Perform and Prosper Policy” adopted by

Corporate India
That's the message India Inc is sending out to employees this appraisal
season with many corporates readying to pay their top performers up to
200% higher increments and bonuses than average performers.
Many leading companies across sectors, including Tata Motors, Future

Group, Flipkart, Paytm, Panasonic, Mahindra & Mahindra, Vodafone, Godrej
and RPG Group, say sharper differentiation between their best and average
lot is the only way to prevent shifting of loyalties at a time when there is a
scramble for the right talent. So, most firms particularly e-commerce
players and start-ups are rolling out bigger incentives, roles and bonuses
for their top-rated employees.
E.g. paytm: In this high growth phase you have to reward your lead
people much more significantly since they are the ones driving the growth.
It motivates people to go all out. The digital wallet and e-commerce
company plans to offer its top performers up to three times higher hikes
than average performers besides bonus of up to 200% of their CTC (cost to
company). Bonus for average performers would be pegged at about 20%
of CTC. Paytm has set aside a $3-4 million budget for its top performers
who are also rewarded with employee stock options and better promotions
and opportunities. Top e-commerce player Flipkart, too, will toe the pay-
for-performance line.
E.g. Flipkart: By design, their philosophy works in a manner to reward

and accentuate high performance as it motivates employees to give in their
best at work. The variable bonus that an employee receives can be as high
as 2X for a top performer compared to an average performer.
E.g. Tata Motors: Brick-and-mortar firms, too, plan to reward their top
performers handsomely. The top performers are just 15-20% but
contribute to 80% of the business. There is a need to tell them they are
valued. Until a few years ago, all Tata Motors would fit all its employees in
an increment range of 8-12%, but now the automaker has changed its
rewards plotting drastically. Non-performers do not get an increment at all,
while the average get about 10% raise and the best get 15-20%, officials
said. Bonus for the latter, too, is 50-100% more than average performers.
! !172
E.g. Godrej Consumer Products: Consumer major Godrej Consumer

Products, too, plans to roll out hefty increments and bonuses for its best lot
to maintain retention. "The differentiation between top and average
performers could be as high as 70%, both in increments and bonuses.
E.g. Aon Hewitt India-HR Consulting: On an average increments of top

performers will be almost double that of average performers. This year the
base salary increase is 10.3% average and with an average multiplier of
1.8X. So you can assume the pay increase for the top performers to be in
the region of 19% this year. The highest multipliers are 2.1X -2.2X in new-
age startup companies and in financial Institutions.
E.g. Siemens India: At Siemens India, where the appraisal cycle is

already over, 60% of employees who got a rating of 3, which reflects
average performance, got an increment of around 10%. The 5% talent at
the top end with a rating of 5, in comparison, got increments of up to 20%.
E.g. Panasonic India: The consumer electronics would hand out 7-8%
hikes to its average performers while for top performers it would be
15-18%. Top retailer Future Group follows a markedly different strategy in
that all its employees get a flat hike.
E.g. Future Group: The real differentiation, however, in terms of

performance, is in terms of the total rewards package. An average
performer stands to earn 50-60% of variable while a top performer would
get 120-150% along with ESOPs and long-term incentives.
E.g. Vodafone India: There is intense competition for top talent across
industries. "While the overall labour market has expanded, the competition
for top talent is only getting more and more intense. The company would
offer 25-50% higher variable pay to its top performers compared with
average employee.
E.g. RPG Group: Annual increments and bonuses reward employees

purely based on performance. The performance bonus scheme has an
accelerated benefit as you move up the performance rating table. In
addition, they also have recognition schemes.
E.g. Mahindra and Mahindra: The auto major's high performers would
get much better rewards than those in the middle.
! !173
8.3 Relationship between Financial rewards and

Performance
Extrinsic rewards are external to the job and include elements like fringe
benefits, pay, promotions, private office space, the social climate, and job
security. Other examples are competitive salaries, merit bonuses, pay
raises, and indirect payment forms as compensatory time off.
Extrinsic rewards are often applied to demonstrate that the firm is serious
about valuing group contributions to quality. In this regard and as a
subgroup, the financial rewards include cash as bonus paid to team
members. In fact, the bonus is paid separately from the wage and salary.
On the other hand, team rewards should be used in a way so that
managers can avoid destroying staffs intrinsic motivation in doing their
jobs. Indeed, the application of extrinsic rewards which are tightly related
to team’s performance can teach the members to become hungry to
money and to destroy their intrinsic interest in the job. Extrinsic rewards
also drive worker’s morale and the distribution of these rewards always has
loomed large in companies, especially in accordance with performance
evaluations in present globalisation eras. Furthermore, giving rewards has
become a part of firm’s policies as it has been shown to improve workers’
performance and the organisation’s productivity.
Based on all current literatures and by focusing on the links between all of
the findings, one can understand that an appropriate compensation
package, including financial rewards, will cause a higher performance and
efficiency for the firm. This compensation package consists of both
extrinsic and intrinsic rewards. Extrinsic rewards include tangible and
external rewards to the attempts and performed tasks in terms of salary/
pay, promotions, bonuses, job security, incentives, etc. Overall, the highly
involved workers who are oriented more to their occupations are
dependent more on intrinsic than extrinsic rewards.
In addition, a significant and direct association exists between extrinsic

rewards and the motivation of employees; however, it is verified that the
companies do not spend sufficient budget on financial rewards.
Two extrinsic reward types, which include suitable earnings (bonus and
pay), and job security are the most important factors between intrinsic and
extrinsic rewards. Paying is a vital factor which affects employees
! !174
motivation. Both motivation and satisfaction, as the antecedents of job and

pay security, are the most important job simulations to determine the
future events and also satisfaction with promotion opportunity is another
striking motivator type. The motivation by pay is based on seniority and is
a reward when the staffs do the job well and tend to receive monetary
reward; and in such a system, the pay level is because of the staffs’ skills,
attempt, and doing their responsibilities as well as the job status.
8.4 Relationship between Promotion and Performance
An optimistic link exists between job uncertainty and intentions to

turnover; and also there is a small negative association between job
insecurity and employees’ commitment. Furthermore, there is a direct link
between job satisfaction elements like pay, promotion, co-workers, and the
work condition itself and the performance of the employees. Promotion is
an important feature of employees’ life style and occupation, affecting
other job experience levels and can have an obvious impact on other job
aspects like job attachment and responsibilities. In this case, the firms can
apply promotions as a compensation factor for high-performance
employees, developing an encouragement for them to do their superior
effort. Additionally, promotion can influence the instrument of exerting
better attempts, if employees put an important value on it. If not, the
companies would focus on pay increase to reward high effort and
productivity. Indeed, the employees may be worth the promotions since
they make an increase in job services like spending account or a bigger
office (the visible elements which managers do not have enough
information about) or since they enjoy good performance; and this is the
result of the promotion.
8.5 Relationship between Non-Financial rewards and

Performance
Non-financial rewards may include higher status, recognition, more

responsibility, positive feedback, and more assertiveness. In hindsight,
recognition is one of the main significant non-financial rewards that are
specifically valued by some staffs. In this regard, being noticed and valued
can be a majestic motivator which encourages workers to stay with a
manager
! !175
Although the extrinsic rewards enhance a subsistence level, the intrinsic

ones are strong motivators just as much. In fact, staffs need to be
motivated by intrinsic rewards such as being satisfied by doing an effective
job and a feeling to do something valuable and worthwhile. However, both
extrinsic and intrinsic rewards stimulate the employees to have higher
levels of performance and productivity.
On the other hand, other rewards should not be noted as a substitution for
a valid pay plan. However, they can also motivate and inspire employees to
stay with the firm. Some of these rewards are additional birthday and
holidays presents, work-life balance benefits (e.g. flexible working hours,
free tea and coffee, cinema tickets, and subsidised different sport facilities,
subsidised services or goods related to business networks or suppliers).
These benefit types are valued by staffs since they enhance the working
life. Furthermore, rewarding the employees’ attempts and causing them to
feel appreciated will add value to the hiring contract. In fact, researchers
should consider the outcomes that the rewards may cause for both
employee and employer. To redefine intrinsic rewards, remember that they
exist in the job itself like satisfaction of being prosperous in performing a
task, getting admiration from management, and autonomy; however,
extrinsic ones are tangible rewards such as pay, fringe benefits, bonuses,
and promotions.
8.6 Other Key Factors impacting Employee Performance
In addition to the rewards, there are other aspects which impact the
employee performance. Some of the key factors are depicted in the table
below.
! !176
8.7 Establishment of linkage of rewards to team

performance
E.g. Team performance to decide appraisals at HCL.
The weakest link in the team will decide the bonus for about one
lakh HCL Technologies employees. In a step that turns the performance
appraisal system on its head, the company is introducing an "engagement
bonus". The bonus for individuals will be decided on team performance,
including the performance of under performers in the team. This will
replace the current "performance bonus" that is based on individual
performance, Chief HR Officer Prithvi Shergill told ET. This is being done to
increase collaboration and achieve customer satisfaction. "We will be
encouraging teams to see what outcomes they can meet as a collective
rather than individually. Performance will be linked directly to client
engagement that you are working on as a team," he said.
! !177
A few teams have already made this transition and others are to follow this
in the next few quarters. "We want the mind set of employees to shift to
how they can help others to become more productive," he added. With this
change, poor performers are set to gain the most.
On how would the employee performance bonus be measured, Shergill

said, "Engagement Performance Bonus is measured by engagement score
card. Since this is an employee led approach, the score card is decided in
collaboration with line leaders.”
"In services sector like IT, it is extremely important to engage teams as

any organisation's success hinges on how well teams are able to work
together," said Anandorup Ghose, rewards consulting practice leader at Aon
Hewitt India. "This is something rare." Further, HCL Tech is also looking at
doling out more equity stock option plans as rewards to employees.
8.8 Managing Rewards
Leading organisation follow as growth driven model for establishment of

appropriate rewards systems. The key factors can be depicted as per the
chart provided-
As organisations face intensifying competition in attracting and retaining

talent, they are increasingly being called upon to define and articulate a
rewards management strategy, which is unique, differentiated, market-
competitive and aligned to the organisation’s talent objectives and business
goals. However, most organisations often fall into the trap of blindly
following the ‘hottest trends’ in the market. While there are several
advantages of adopting market practices, a disproportionate emphasis on
the same often leads organisations to skip the basics and therefore, set
themselves up for disappointment. Let us understand in detail-
! !178
Make it Relevant for Business
Best organisations align their rewards strategy with their overall business
objectives and employee aspirations and also constantly calibrate and
ensure that rewards programmes continue to stay relevant amidst rapidly
changing business context and priorities.
★ Aligning Rewards Philosophy With the Business Objectives:

Employers place a much higher emphasis on strategic alignment with
businesses in framing their rewards policy than the rest of the
organisations. Second most important factor in their rewards strategy
after pay-for-performance and ahead of other factors such as
maintaining internal equity and market focus
★ Focusing Employee Efforts in the Right Direction through Variable

Pay: Most organisations today have a variable pay plan in place. While
the penetration in the leading organisations is deeper and the proportion
of variable pay is higher at every level, the real differentiating factor is
how the Best use variable pay as a critical lever to align employees’
interests with that of the organisation. At these organisations, the
objectives of the variable pay plans are clearly articulated and aligned
with business needs, strategies and stage of maturity. The Best
Employers choose measurable metrics and goals that are easy to
understand and provide employees’ with a direct line of sight. They are
! !179
also more likely to choose a balanced mix of financial and non-financial

measures (customer satisfaction, engagement, etc.) as compared to the
rest
★ Staying Relevant in the Long-Term: The Aon Hewitt study found a

growing prevalence of Long-Term Incentives (LTI) in India, even though
the pay mix continues to be conservative as compared to developed
economies such as the US and the UK. LTI, in fact, has become a critical
component of employee compensation today, with a higher prevalence at
the Best (76%) as compared to the Rest (54%). Though very nascent,
there has been a shift from Employee Stock Option Plans (ESOPs) to
restricted stock plans linked to performance metrics. Additionally, there is
a growing recognition that different LTI vehicles serve different objectives
and hence, a shift towards a basket of LTI vehicles instead of a single-
plan structure has been observed
As they set out to look at what makes an LTI plan successful in an

organisation, they found three clear themes:
★ Communication of LTI plans as a part of the annual compensation

plan: One way organisations have implemented this is by making the
grant cycle annual, thereby ensuring that employees don’t see LTI as a
transient or ‘add-on’ rewards initiative but recognise it as a critical part of
their annual compensation package
★ Independent and transparent decision making: Organisations

ensure that the grants are awarded by independent bodies such as
compensation committees and more importantly, are based on clearly
articulated performance metrics
★ Clear line of sight: Organisations ensure that participants have a clear

line of sight of how and the degree to which they can impact the metrics
that determine the pay outs. Metrics for a particular group are chosen in
such a manner that the degree of influence is reasonably high for that
particular group
! !180
Make it Relevant for People
Even the best designed and well-executed programmes can be ineffective if

they do not cater to employee aspirations. While defining their Total
Rewards strategy, organisations usually consider external competitiveness,
budget constraints and talent priorities driven by business objectives.
However, they often ignore a critical differentiator – employee interests and
preferences. The task of managing employee preferences is made even
more challenging by the fact that organisations today have to
accommodate greater diversity in their talent pool along with varying
aspirations of employees. The Best Employers use multiple levers to tailor
rewards solutions to meet employee preferences. The reported success of
these programmes in helping organisations attract and retain the best
talent is increasingly making this one of the most critical levers.
★ Making Flexible Benefit Programmes Work: A flexible benefits

programme is a benefits delivery system that allows employees to make
choices about how they prefer to receive some of the benefit items
offered by the organisation. It positions the organisations favourably
from an attraction and retention perspective and enhances the value of
the money spent. At the same time, it enables employees to cater to
their hanging lifestyle needs, gives them access to a new or a wider
range of benefits and provides them more value. While organisations in
the west have experimented with and in many cases, adopted flexible
benefits as a part of their rewards strategy, organisations in India remain
concerned about the cost, compliance and tax issues involved, besides
the credible vendor support required to administer benefits such as
insurance. However, leading organisations are now beginning to
cautiously evaluate and experiment, bringing in some flexibility to their
benefits programmes.
★ Transitioning from Rationalised to Flexible Structures: The Best

Employers are more likely to leverage flexible compensation structures
(either in isolation or in combination with fixed structures) to provide
flexibility to their employees. The initiatives being adopted by these
organisations include fixed structures for front line employees and
flexible for middle management and above, fixed basic salary along with
a cafeteria approach for other components and flexibility on certain
components such as car, housing and superannuation. Flexibility provided
! !181
in rewards structures is mainly tax-related, followed by employee life

stage or lifestyle induced
★ Extending Flexibility to Work Arrangements: Flexible work

arrangements have transitioned from being a perk or benefit provided
as-and-when-needed to a few employees to a deliberate talent strategy
being deployed by leading organisations and offered to a significant
portion of their workforce. Flexible work arrangements range from
working virtually (particularly from home), working part-time to working
with flexible schedule or compressed work weeks. One leading
organisation, in fact, described it as the shift from ‘work-life balance’ to
‘work-life integration’. Benefits range from the more tangible and
immediate ones such as real estate cost savings, increase in employee
satisfaction and productivity to more long-term benefits like enabling
organisations to de-risk their talent strategy. With flexible work
arrangements, organisations are able to hire diverse, geographically
dispersed talent and bring back to the workforce a large fringe population
of home-based mothers and retirees. Add to that, the benefits of
business continuity, reduced carbon emissions and therefore, a greener,
more environmentally sustainable organisation and what you have is a
clear competitive advantage. Organisations that have deployed this
strategy have identified manager/team leader sensitisation along with
ensuring enabling processes as key success factors
Communicate Effectively
Effective communication of rewards strategy is a clear differentiator for the
Best Employers and is perhaps the single largest factor behind the success
of rewards programme. Organisations that invest in developing a
comprehensive and competitive compensation and benefits package, but
not so much in explaining it to employees, do not fare better than their
peers that provide fewer, but clearly understood benefits. The Best
Employers are more likely than the rest to enlist line managers to hold pay
discussions with their people. This gives both employees and managers an
opportunity to arrive at a consensus about how performance will be
monitored and measured locally in relation to the organisation's stated pay
practices. These messages are then reinforced by both the HR and the
senior management. In addition, face-to-face meetings with the manager
ensure that employees understand that they have control over their own
rewards and benefits.
! !182
The Best Employers also employ a diverse mix of communication channels,

depending on the intent of communication, ranging from face-to-face
meetings and group meetings to town halls and communication through
the intranet.
8.9 Differentiate and Recognise High Performance and

Potential
Though not a new theme, differentiated rewards for high performing and
high potential employees continues to be one of the most prominent
strategies adopted by organisations till date. This is further reinforced with
the Best differentiating more aggressively than the Rest.
Differentiating Pay by Performance and Potential, a Business

Imperative for Organisations: Over 70% of the Best Employers rank
‘performance’ as the first or most important overarching principle for their
rewards programme. Leading organisations further reinforce this
performance culture by using differentiated and more aggressive rewards
strategies for top and critical performers. Leading organisations are willing
to pay their top performing employees nearly twice as much fixed salary
increase as compared to their average performing employees, clearly
recognising their contribution.
They are also increasingly recognising and rewarding high potential

employees, in addition to the high performers, through a host of
approaches which include mid-year corrections, retention-linked bonuses,
discretionary stock options and additional discretionary budgets during
salary increment processes.
The Best Employers are visibly more successful at retaining and ring-
fencing their critical talent and building leaders from within, by additionally
leveraging non-monetary levers such as capability building, exposure to
senior management, global assignments and cross-functional mobility.
★ Encouraging and Reinforcing Desired Employee Behaviours

Through Differentiated Recognition Practices: Recognition helps
shape employee behaviours, engage employees and develop a culture of
appreciation, which in turn drives gains in performance, productivity,
profits and pride. While the prevalence of recognition programmes is high
! !183
among all employers (100% of the Best and 91% of the Rest), the Best
clearly do a better job of designing and communicating the programmes,
leading to greater satisfaction amongst their employees. Recognition
programmes are most effective when they are immediate, simple,
transparent, objective, involve senior leadership and promote a
widespread culture of recognition – peer to peer, manager to employee,
employee to manager and leaders to employees.
★ Imbibe Good Governance: Best Employers pay more than just lip
service to good governance and go beyond the statutory norms to ensure
a credible and open decision making process for rewards. The study
revealed that the compensation governance committees in leading
organisations typically work at three levels, with the constitution and
accountability varying at each level. The head of compensation and
human resources are typically at Level 1 and are entrusted with the
responsibility of programme design, implementation and delivery,
depending on the nature and expense of rewards programme. Level 2
has cross-functional representation (CFO, COO and audit) and provides
inputs on programme design and mandate. The last level is typically the
group or global compensation committee (depending on whether the
organisation is a part of an Indian conglomerate or an Indian subsidiary
of a multinational), which mostly provides inputs on strategy, objective
and productivity of the rewards programme. The increased scrutiny of
compensation issues by shareholders and regulators is leading to a more
thorough approach to decision making by compensation committees.
Organisations want to provide their stakeholders with transparent
disclosures, and build a sustainable compensation programme for
employees on the pillars of ‘trust’ and ‘transparency’. Developing and
delivering a rewards programme that is ‘cost-efficient’, ‘responsible’,
‘drives performance’, ‘promotes transparency’ and ‘delicately balances
risk and rewards’ is defined as mission-critical for compensation
governance committees. There is thus, a visible shift in the approach of
governance – from an outside view of 'are we competitive' to an inside
view of 'are we productive’?
★A typical charter for compensation governance committees in leading

organisations suggests that the committee is not only responsible for
both short-term and long-term incentive plans, but also plays a
significant role in high cost and high impact decisions such as executive
and directors’ pay. In addition, the committee acts as a watchdog against
! !184
excessive risk or exposure and ensures compliance with major financial

and taxation regulations related to compensation.
★ While HR and compensation committees continue to be in charge of

compensation governance, organisations are increasingly roping in their
internal audit and finance teams to monitor compensation, mitigate risks
and measure returns. This collaboration for discussing and conducting
due diligence around compensation practices and programmes is another
encouraging trend that shows how governance standards in leading
organisations have come of age, with rewards management no longer
being the domain of just the C&B experts.
★ Continuously Monitor and Measure Results: The cost of Total

Rewards is usually one of the largest expenses for an employer and yet,
is perhaps one of the most poorly managed. At the best organisations,
however, compensation is not viewed as an expense but as an
investment like any other with an expected rate of return. Therefore, on-
going evaluation and improvement of compensation programmes
emerged as a recurring theme among the Best Employers.
★ The leading organisations also displayed a keen focus on benchmarking

and monitoring manpower and productivity norms across organisations
including headcount and cost metrics, with the intent of translating the
impact of human capital on business into something tangible and
measurable. With no one ‘magic’ set of metrics, organisations need to be
selective about their measures and pick those that are relevant to their
context and drive the desired rewards objectives. The Best Employers
typically use a strategic mix of financial and non-financial metrics
compared to an over-reliance on mostly non-financial measures among
the other organisations.
★ Step in Calculating the top performer differential

- Average Output per Employee
- Top Performer Output
- Top Performer Increase Factor
- Revenue per Employee
- Revenue Increase for Top performers
- Value Difference Between Top and Average Performer
- Add other Jobs
! !185
High Performance Teams Demonstrate the Following Characteristics and

Behaviours
★ Shared vision: All team members share and support a common vision
that the team is working towards.team members are highly focused on
attaining objectives
★ Time Oriented: The team operates under specific deadline for achieving
results
★ Communication: The team makes extraordinary efforts to make certain

that everyone on the team understand the plan and progress towards its
completion
★ Zoneof Concerns: The work of the team is beyond the teams zone of
comfort, it either doesn’t know how to achieve the desired result
★ Review Quality: The team stops at appropriate time to check the

quality of its recent work. This is done to determine where the process
could be improved
★ Involves Everyone: Team members work to make certain that every

member of the team is involved. Every team member has a unique
insight or contribution it can make toward team goal achievement
★ Self-Directed: High performance team members are self-directed. The

management must focus on the achievement of the team in terms of
how the work is to be accomplished
★ Celebrate success: High performance team take the time to celebrate

small victories toward goal achievement. This activity builds a sense of
team success as the work of the team progresses
! !186
Evaluating Team Performance
Common Approaches to Building Team Performances
★ Establish
urgency and direction. All team members need to believe that
the team has urgent and worthwhile purpose and they want to know
what the expectation
★ Selectmembers based on skill and skill potential not personalities. Three

categories of skill are relevant (a) technical and functional (b) problem-
solving (c) interpersonal The key issue for potential teams
★ Payparticular attention to first meeting and actions Initial impressions

always mean a great deal
★ Setsome clear rules of behaviour. All real teams develop rules of conduct
to help them achieve their purpose and performance goals
★ Setand seize upon a few immediate performance-oriented task and

goals most teams trace their advancement to key performance-oriented
events that forge them together
★ Challengethe group regularly with fresh facts and information, new

information cause a potential team to redefine and enrich its
understanding of the performance challenge thereby helping the team
shape a common purpose set clearer goals
★ Spend a lot of time together: Common sense tells us that teams must
spend a lot of time together especially at the beginning
★ Exploitthe power of positive feedback, recognition and reward. Positive

reinforcement works as well in a team context
! !187
Seven Steps for Measuring Team Performance
★ Review the existing organisation measures’
★ Define team measurement points in terms of teams accomplishments
★ Identify individual accomplishments which supports the team
★ Weigh the accomplishments in terms of their priorities, and agree on

what is really important
★ Create measurers for each accomplishment to know the quantity, quality

and cost
★ Develop performance standards by setting the level of performance for

each of the measurers identified
★ Initiate
a feedback system i.e documents and procedures to collect and
summarise the data for feedback purpose
8.10 Total Rewards Optimisation
Deploying TRO as a Tool to Maximise Return on Investment (RoI)

on Compensation Spends
Total Rewards Optimisation (TRO) ensures a fine balance between business

objectives and employee aspirations effectively. It provides quantitative
insights to align rewards with employee aspirations ensuring targeted
spending by the organisation. It uses conjoint analysis to understand what
trade-offs employees are willing to make, and identify what is most
important to them by asking them to make choices. By modelling
employee preferences, organisations can identify the critical value drivers
for them. This helps them learn what is nice to have, versus what is a must
have, and how sensitive or receptive employees are to change. Putting
employee preferences together with cost data can help organisations
design, deliver and communicate new or existing rewards programmes that
maximise the value to the employee while ensuring that financial
considerations are met.
! !188
The Bottom Line: Building a Differentiated Rewards Strategy
The Best Employers in India 2011 study by Aon Hewitt highlights some
common themes that reverberate across best-in-class organisations. In
addition to these themes around alignment, communication,
differentiation, governance and measurement, one underlying approach
that weaved the strategy together for them was a clear understanding of
what they wanted to focus on. Most of them were able to articulate their
differentiators, just as their marketing counterparts are able to articulate
their product USPs.
One of the reasons that many organisations are not able to do that is due
to the complexity of their rewards programme. Over the years, they have
added programme upon programme under their ‘Total Rewards’ umbrella
and have often given them equal weightage or focus. Richard Kantor,
leader of Aon Hewitt’s Total Rewards Global Center of Excellence, in his
article ‘Transforming Total Rewards’ presents an interesting concept.
Amongst other things, he talks about how we can take the concept of
catalytic mechanisms and apply it to the transformation needed in Total
Rewards.
According to him, the key problem lies in the fact that most discussions
about changes to the Total Rewards programme involve incremental
thinking and relatively minor change. Transformation requires bolder
thinking and more sweeping changes. He urges organisations to consider
the following as they set out to build a differentiated rewards strategy.
★ Don’t just add programmes, remove

★ Create, don’t copy. Make the programmes relevant to your context
★ Make use of money, but not only money
★ Allow your mechanisms to evolve. This is a system/process; corrections
will be required
★ Build an integrated set. One mechanism is good, but many reinforcing
ones are better
Organisations that aim to truly leverage their biggest assets – their

employees – to drive business growth need a winning rewards strategy
customised to their goals and needs. They need not and should not have
an equal focus on all elements of their rewards programme. They need to
identify the two or three programmes that are their ‘differentiators’ and re-
! !189
channelise their resources to invest in building a truly differentiated

rewards strategy.
Compensation and Reward Practices in Essar Group, An interview

with Mr. Adil Malia, Group President, Human Resources, Essar
Group
Question: Essar has successfully managed to transform its employer

brand, which is perhaps a more daunting task than building a new one.
What, in your opinion, are the key success factors that drive such an
intervention?
Adil Malia. The first and perhaps the most critical aspect in my opinion is
finding a proper alignment for your organisation’s work culture. An
organisation must understand where it currently stands in relation to
where it wants to go, and then identify the missing values, skills and
behaviours that help close the gap. Only then can the organisation bring its
structure, training and development efforts and compensation approaches
in proper alignment with the new work culture that it seeks to create.
How people and critical stakeholders perceive your employer brand is

becoming increasingly critical. Leading organisations, irrespective of
market conditions, have consistently focused and invested their resources
in building a positive brand.
! !190
As you rightly said, the employer brand perception in the market is very
difficult to transform because it is based on real-time experiences of its
people and critical stakeholders – when they interacted or transacted with
that brand. To change the emotional recall of those experiences is a
challenge. Essar undertook the journey of repositioning its employer brand
along the time it started redefining its vision “to be a respected global
entrepreneur through the power of positive action”. We see positive
receptivity to the brand programmes and initiatives from our existing
people, potential employees and other critical stakeholders in the market.
Question: What role did rewards play in helping you reshape your
employer brand?
Adil Malia. Many organisations don’t really understand what they are
trying to accomplish with pay. Or how best to motivate employees. The
danger is that they often jump to the latest trend in compensation without
knowing where precisely they want to land. Firstly, let me eliminate this
wrong belief that some employers have about 'people'. People are not
mercenaries and therefore, compensation singularly cannot be your
employer brand proposition. Reality is that people also have higher order
needs along with their basic physiological and safety needs. The employer,
therefore, has to continuously be mindful of these composite value
propositions that the employees are seeking and endeavour to fulfil these
expectations. To that extent, Essar’s employer brand value proposition
encompasses a wide range of segment-specific offerings which include,
amongst other things, compensation, rewards, recognition, work-life
balance, learning opportunities and multiple career growth alternatives.
Question: How have your people practices evolved to support the new
‘global’ entity?
Adil Malia. Our HR practices have evolved significantly as a result of the

organic and inorganic growth that Essar has recently witnessed. Some of
the key practices operationalised, by taking into account the expectations
of our employees in domestic and global operations, have been in the
areas of performance, Total Rewards and learning and knowledge
management. eCompass, our performance and talent management
initiative, is one such programme being launched to manage not only
performance but also learning, career and succession planning. Our
internal mobility which earlier focused on domestic movements, supported
! !191
by a local rewards structure, is augmented by our global mobility

programme that includes an exchange programme called ‘Confluence’. The
focus is on reducing cultural polarisation and realising the prospects of
cross-cultural learning. In addition, the short-term and long-term overseas
assignment programmes help foster individual development by providing
an opportunity to work in different geographic locations and markets.
A new world needs new programmes and practices. I firmly believe that
the future is not merely an extension of the present, it is a whole new
paradigm! The human resources function, therefore, has to constantly
evolve and in many cases, take the lead in ushering the organisation into
its new phase.
Question: What are the key elements of your rewards strategy and how
do you ensure that they are understood by current and prospective
employees?
Adil Malia. Compensation as a subject in most organisations continues to

be a 'black box'. At Essar, we have tried to demystify our Total Rewards
strategy. The three highlights of our rewards strategy are:
★ We are competitive in our compensation offerings; our 'median' is mark-

to-market.
★ We recognise positive display of behaviours, reward performance and

promote potential.
★ Atthe time of taking compensation anchored decisions, we are always

mindful of the three ‘P' of our compensation programme, i.e., Position or
the job, Profile of the person and Performance on the job.
Our compensation programmes are not designed in isolation by

compensation specialists. While they anchor it, the CEOs continue to be a
part of the process at the design stage, its application and its actual
implementation. In fact, we have a special committee called the 'People's
Committee' which is the ultimate counsel responsible for the approval of all
compensation and rewards offering and it comprises of various business
CEOs and function heads selected on rotation basis.
! !192
Question: If you were to define two rewards programme as being your

'signature' programmes, which would they be? Do share with us what in
your opinion differentiates them.
Adil Malia. One of the distinct rewards programme at Essar is the 'Long-
Term Incentive (LTI)' programme that we have introduced this year. The
purpose of this programme is to ensure retention of senior management
associates as well as engaging and rewarding them for building long-term
value for the group. The LTI programme covers two schemes, i.e.,
Employee Stock Options (ESOPs) and Stock Appreciation Rights Scheme
(SARS). The prominent feature of this program is the alignment of people
performance to business results as any eligible associate, who has been
granted ESOPs/SARS, will be able to encash value only if his/her business
has actually created value i.e., the positive difference between valuation in
the year of grant and valuation at the end of pre-decided period. The other
unique offering to our employees is the value proposition and differentiated
rewards that we offer to our high performers and high potential employees
under a programme called 'GenEssar'. A customised Total Rewards plan is
developed to plan their career moves and aligns individual aspirations to
organizational opportunities. From a compensation perspective, a
differentiated reward structure is developed to keep them motivated and
this includes benchmarking the compensation at a higher percentile to the
market and offering a retention bonus.
Question: The spiralling cost of Total Rewards and an increased focus on

productivity have forced organisations to scrutinize and evaluate the
effectiveness of their rewards programme. What in your opinion would be
the most effective measures that organisations could use to determine the
RoI on their compensation spend?
Adil Malia: Unless leaders in organisations really understand the spiraling

cost implication of their Total Rewards programme, they will tend to make
their organisations cost ineffective and their rewards programme unviable.
There are many cost elements in the Total Rewards programme which are
hidden and may not be obvious on the face of it like paying for 'deferred
benefits' in a pension programme compared to 'defined contributions'. It,
therefore, becomes a mandate for compensation specialists to continuously
scrutinise and communicate to the leadership, the real cost implications of
their offerings. In volatile markets, it is better to structure as many
elements of Total Rewards into the variable bucket. The Total Rewards
! !193
architecture becomes a critical output of your people: business alignment

process. Such variable costs become due for payment either on 'use and
pay basis' or on enhanced performance and contribution basis. There are
several measurements to determine the RoI on compensation spend, but
the most effective is the one that determines RoI on total spend on human
capital. This measurement is to be approached holistically rather than
using linear metrics (like revenue or profit per FTE) to determine returns
on compensation spend for an enterprise. This can be mathematically
expressed as: Revenue-Non-People Cost/Total Investment in People (Total
Rewards). RoI on human capital in its true nature monitors the core of
sustainable profit i.e. bottom line performance improvement in combination
with a managed investment in people.
Question: Rising raw material costs, delayed infrastructure projects, slow

decision making by the government, increasing interest rates and the
looming fear of a double-dip in the economy are beginning to cloud the
growth outlook in India. How do you see this impacting compensation at
Essar both in the short and long-term?
Adil Malia. The purpose of business is value creation. And value creation
does not happen in the short run. It has a reasonably long-term
perspective to it. However, economic sustenance of business is directly
linked to the prosperity of the economy in which it thrives. Economies are
generally in one of the four stages – zooming, booming, glooming or
dooming. The growth outlook of the economy in which the business
operates and also the sector in which your business exists, have a huge
implication on the quantum and architecture of compensation programmes.
We, as an organisation, are always mindful of the growing labour costs as a
push factor on the one hand, and the prevailing talent market pull factors
on the other. Drawing a mature balance between the two positive and
negative vectors that influence one's compensation strategy, is the only
way we are able to insulate ourselves.
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8.11 Building Irresistible Organisation
The employee-work contract has changed: People are operating more like
free agents than in the past. In short, the balance of power has shifted
from employer to employee, forcing business leaders to learn how to build
an organisation that engages employees as sensitive, passionate, creative
contributors. We call this a shift from improving employee engagement to a
focus on building an irresistible organisation. There are three key issues to
be address to make the work environment irresistible for the employees-
★ Companies need to expand their thinking about what “engagement”

means today, giving managers and leaders specific practices they can
adopt, and holding line leaders accountable. 5 elements and 20 specific
practices can be adopted by the company (See Picture below)
★ Companies need tools and methods that measure and capture employee
feedback and sentiment on a real-time, local basis so they can
continuously adjust management practices and the work environment at
a local level. These tools include employee feedback systems as well as
data analytics systems that help identify and predict factors that create
low engagement and retention problems
★ Leadersin business and HR need to raise employee engagement from an

HR programme to a core business strategy
Meaningful Hands-on Positive Growth Trust in

work management work opportunity leadership
environment
Autonomy Clear, Flexible work Training and Mission and

transparent environment support on the purpose
goals job
Select to fit Coaching Humanistic Facilitated Continuous

workplace talent mobility investment in
people
Small, Invest in Culture of Self-directed, Transparency

empowered management recognition dynamic and honesty
teams development learning
! !195
Time for slack Modern Inclusive, High-impact Inspiration

performance diverse work learning
management environment culture
5 Elements and 20 Practices model
★ Make work meaningful: The first and perhaps most important part of
employee engagement is job-person fit. We need to make sure jobs are
meaningful, people have the tools and autonomy to succeed, and that we
select the right people for the right job. This is anything but a simple
undertaking
★ Nearlyevery job has been changed and often transformed by technology,

and we constantly look for ways to do more with less. Well-run
companies constantly look at the work they do, trying to find ways to
outsource more to technology and produce more output with less
expensive human input. Despite these pressures to improve productivity,
research shows that when we enrich jobs, giving people more autonomy,
decision-making power, time, and support, the company makes more
money
★ Foster great Management: The second element of an irresistible

organisation is the one business and HR leaders think about the most:
management. And we use the word “management” here, not leadership,
to refer to the daily, weekly, and monthly activity managers use to guide,
support, and align their people. In many ways, management is the most
important capability we have. CEOs can create strategies, investors can
optimise capital, and marketers can create demand, but when it comes
to building products and offerings, serving clients, and developing
internal processes, middle managers make things happen. We each
thrive on our ability to contribute to a greater good, and management’s
job is to set goals, support people, coach for high performance, and
provide feedback to continuously improve. Investment in fundamental
management practices has a tremendous impact on engagement,
performance, and retention
★ Establisha flexible, humane, inclusive workplace: The third major

element of an irresistible organisation is the need to build a flexible,
humane, and inclusive workplace. Most employees today have
complicated lives. Studies show that 68 per cent of women would rather
! !196
have more free time than make more money, and while 40 per cent of
professional men work more than 50 hours per week, 80 per cent would
like to work fewer hours. Given the nature of work today, if leaders want
people to engage with their organisations, they have to give them a
flexible and supportive work environment. SAS, the No. 2 place to work
for the last 15 years, has an in-house daycare centre, gym, and pool,
and the company’s turnover rate is below 2 per cent. Similarly, Google
has a bowling alley and yoga rooms. Free food, yoga classes, happy
hours, commute buses with Internet access, and even free laundry
service have now become commonplace in high-pressure companies
across a wide range of industries. These are no longer just “perks”; they
are essential elements of making work fit into our lives
★ Create ample opportunities for growth: When top performers leave a

company, the most popular comment they make is, “I just didn’t see the
right opportunities here.” Let’s face it: We often go to work with selfish
interests. If we don’t feel we are going to progress in our chosen role or
career, we are likely to look elsewhere. Most engagement research shows
that learning opportunities, professional development, and career
progression are among the top drivers of employee satisfaction.
Employees under the age of 25 rate professional development as their
number one driver of engagement, and this is the number two priority
for workers up to age 35. As employees get older, their focus on
development shifts away from workers up to age 35. As employees get
older, their focus on development shifts away from mobility and upward
progression in favour of aligning a job with long-term career goals.
Building opportunities for growth is a complex and systemic challenge.
First, there must be developmental opportunities, both formal and
informal, that let people learn on the job, take developmental
assignments, and find support when they need help. This means
designing on-boarding and transition management programmes,
developing a culture of support and learning, and giving people time to
learn
★ Establish vision, purpose, and transparency in leadership: The

final and perhaps most important element in the irresistible organisation
is leadership. Our research suggests that four leadership practices most
directly impact employee engagement. The first is to develop and
communicate a strong sense of purpose. When organisations define their
success through the eyes of their customers, stakeholders, or society,
! !197
people come alive. Our research shows that “mission-driven” companies

have 30 per cent higher levels of innovation and 40 per cent higher levels
of retention, and they tend to be first or second in their market segment
Focus on Simplicity at Work
Highly engaged companies work very hard to make work simple. They
remove administrative overhead (compliance processes, formal check-off
processes, multistep processes) in favour of trust, autonomy, and a focus
on cooperation. Simplicity, or the removal of formal bureaucratic overhead,
can have a dramatic impact on work satisfaction. A series of work-
productivity studies by the University of Rotterdam shows that workers
who operate in highly complex environments tend to have increased levels
of cardiovascular and other illnesses, unless they are given extraordinary
amounts of autonomy and local support. Without increased amounts of
empowerment and local control, complexity can lead to high levels of error
and stress.
E.g. Southwest Airlines, one of the top 20 rated employers in 2014, has
honed simplicity and empowerment in its business model. The company
focuses heavily on employee empowerment in its management training,
letting the local team (the airplane crew) make all the decisions they need
to run safely, on time, and on budget. The company also works hard to
keep its entire business simple: Southwest uses a single airplane model
(Boeing 737) and common boarding and reservations processes for every
flight. The company has celebrated more than 40 years of profitability and
continues to score among the highest in customer satisfaction year after
year.
Capturing Real-Time Feedback
How do organisations implement these 20 practices in an integrated and

holistic way?
First, HR and leadership must develop a complete understanding and mind

set of these factors and how they all are interrelated. Almost every
management practice impacts employee engagement, so while we focus on
performance, growth, and innovation, we must simultaneously focus on the
impact each strategy has on individual people.
! !198
Second, it’s important to instrument your company so you obtain regular,

unbiased, and anonymous feedback. People always want to talk about
what’s working and what’s not in their company. An annual employee
survey is far too slow and limiting. Today pulse survey tools, sentiment
monitoring tools, and employee sensing tools give employees a variety of
ways to express their feelings and provide direct feedback to managers and
peers. Four new tools— Culture Amp, BlackbookHR, TINYhr, and
BetterCompany—each have different ways of actively measuring employee
feedback and sentiment. Consider these tools as the anonymous
“heartbeat monitors” of your business.
Putting Employee Engagement at the Centre of Everything We Do

If we don’t have teams committed to our mission, passionate about their
work, and willing and ready to work together, we cannot possibly succeed
over time. While 90 per cent of executives understand the importance of
employee engagement, fewer than 50 per cent understand how to address
this issue. Today’s technology-flooded world of work has become complex,
demanding, and integrated into our lives. Even though 79 per cent of
companies today find it daunting and difficult, they can plot their path to
the future and design organisations that will thrive with passion,
performance, and engagement by focusing on the five elements of
irresistible organisations
Rewarding High-Performance Team

In order to create a high performance team in the 21st century, managers
and entrepreneurs need to shift from the traditional hierarchy to a team-
based management system. The basic or core elements of team structure
should consist of the following:
★ Work should be structured based on customer needs

★ Training programmes should be provided to move to new levels
★ Rewards should be based on productivity and performance
★ Employees should get more responsibility as they become ready for them
★ No waiting for attrition or wearing out of the team
★ Cross training and different levels of skill should be required
★ Job responsibilities should emphasise results and not tasks or techniques
It is also important to point out that after understanding the culture of the
organisation, managers and entrepreneurs will need to “unlearn” the
traditional management practices. The new practice should develop
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systems of accountability and it should measure the right “KPIs” (key

performance indicators). The new system should also encourage risk taking
on the part of management as well as employees, and failure should be
tolerated to an extent where it does not go out of control. It is believed
that most people have capabilities beyond those which they are called for
to complete their jobs. They can go deeper into their jobs and make better
and stronger methods of getting work done more effectively and efficiently.
This is a major shift from the traditional hierarchy into a team-driven
management system and it will take time and planning on the part of
executives. This reward programme should be result-oriented and should
not just concentrate on techniques because people can be creative and
invent far more superior methods of accomplishing the results. Managers
should keep in mind that their employees deserve to know what needs to
be done and how it should be completed and they will often handle the
responsibilities better than what is expected. Communication should flow
horizontally, from side-to-side, and vertically, up and down, to all
employees. The new pay system to reward high performance teams could
(be):
★ Focused on the mission of the company

★ Team-based but employee focused
★ Market driven
★ Allow for strategic decisions at the employee levels
★ Control growth of base pay
★ Compatible with the market or industry pay structure
★ Provide fair incentives for the high level executives to meet customer
needs
★ Differentiate between levels of performance
★ Eliminate the “one size fits all” mentality or strategy
The completion of job analysis should provide relevant information about

key performance indicators that need to be reinforced in the reward
programmes. After clarifying those KPIs that need to be reinforced, human
resource professionals can design the new compensation plan which should
reward ethical decision-making and the output. The reward programmes
should be individually focused because the value of certain rewards varies
between different individuals.
! !200
Pay for Performance - Key Considerations and Actions
★ Introducing differentiated reward structures where available rewards

increasingly go to the top performers and high potentials; those critical
to the survival of the business, now and in the future
★ Building
line management skills in setting goals, coaching performance
and recognising and rewarding performance
★ Clarifying definitions of performance
★ Balancing individual and enterprise targets for bonuses
★ Aligning individual targets to overall strategy
★ Making greater use of multiple rewards, mixing short and long-term

incentives with the motivational stimulus of better career development
and varied and interesting work
Right Performance Matters Most
Organisations are seeking to realign their performance metrics to their

strategies and goals. There is increasing recognition of the need to manage
risk by driving the ‘right’ performance – behaviour as well as output,
results not activities.
While there are no easy answers and different approaches will be adopted
for different reasons, the overall instinct is to find a better balance between
short and long-term metrics, between corporate and individual
performance, and between financial, operational, customer and human
capital metrics.
False Security of Hard Measures
It is clear from the survey that some organisations are placing more
emphasis on financial measures in rewarding performance. Times are tight,
and organisations want to know that they are going to get a return on the
money they invest into their reward programmes. While peer companies
apply performance metrics to executives that are focused on operational
excellence, profits or revenue, the most admired companies go further by
! !201
adding measures around long-term thinking, teamwork, building human

capital and customer loyalty.
There is a risk that concern for bottom-line performance may drive some
companies to ignore the risky side effects that come with an over-focus on
narrow performance goals. These include a rise in unethical behaviour, an
over-emphasis on one area of the business at the expense of others, and
distorted risk preferences – look no further than Enron and the sub-prime
mortgage lending that triggered the credit crunch for evidence.
Whatever goals are set, it will never take away the need to arrive at a
‘holistic’ view of an individual’s performance over a given period that takes
into account financial impact, behaviours and values. Responsible reward,
in other words, is the key to a truly successful reward strategy.
Trends in Variable Pay
An increasing trend as organisations emerge from the recession is a shift in

balance between fixed and variable pay. This is partly cost-driven, as those
organisations with higher proportions of variable pay (and therefore the
flexibility to cope with economic volatility) have often been better placed to
survive without shedding jobs. Variable pay is also a critical lever for
motivating performance and engaging employees in the organisation’s
goals. The best organisations are using variable pay not purely as a cash
flow tool but as a support mechanism for their performance management
strategy.
In these organisations the challenge is to develop an appropriate balance

between short and long-term incentives based on the nature of the role,
with many organisations increasing the opportunities for long-term
incentive awards. Short-term incentives are pushed further down the
organisation to convey that individual performance affects the success (or
otherwise) of the business.
★ Linkingbonuses to medium and longer-term targets that support

sustainability and organisation performance over the longer-term
★ Ensuring bonuses are properly funded, with a focus on growing the

bottom line as the main driver
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★ Balancing individual and enterprise performance in designing bonuses
★ Simplifying programmes, in particular by reducing the number and

variety of bonus schemes
★ Clarifying and communicating the intent and design of variable pay
Variable pay does not look the same in every organisation. How it works
and how it is structured depends heavily on organisational culture and the
interdependencies with other elements of the reward programme.
One of the most significant challenges in implementing a variable pay

structure lies in balancing competing stimuli and risks. If a bonus scheme
fails to pay out in a bad year, one of the consequences can be employees
who are disengaged at a time when the organisation needs them most.
Conversely, a bonus scheme that pays out regardless of corporate
performance will quickly be seen as an entitlement and will fail to drive
discretionary effort.
Here are two very different approaches – both of them valid – that
illustrate how variable pay works in different contexts.
E.g. The automotive company Pirelli and the global cement manufacturer
Italcementi are two of Italy’s best-known large companies. Both were
impacted sharply by the global downturn, although Pirelli felt the effects
earlier than Italcementi. Pirelli went through a restructuring early in 2009,
with the aim of achieving a more performance-focused culture. It
introduced a new system where 75 per cent of variable pay is long-term
and targets are based on company performance.
System at Pirelli: Our reward system is strongly impacted by our

performance culture – we have a very practical and serious approach to
variable pay. Just to give you an example, there are two threshold
objectives before you can get the bonus. In 2009 – a critical year for the
business – the majority of our management didn’t receive any bonus
payout.
In contrast, Italcementi was dealing with a workforce that had already

been hit by staff reductions and wage freezes. Continuing to set highly
! !203
challenging targets for variable pay risked further reducing the motivation
of employees.
System at Italcementi: We have a good variable pay system in place

that allows us to be competitive in the market. In 2009, we set a budget
and MBO targets in line with the economic environment. This year those
targets will be reached and reasonable bonuses will be paid. We think that
in hard times it is important to have targets that are reasonably
challenging and can sustain performance exactly when you need the
highest motivation.
The challenge for organisations is not only identifying the right measure,
but the right target. Should the target be absolute or relative? Should it be
in line with this year’s budget or with last year’s performance? A further
consideration is the level at which performance targets are set. Should you
award average performance? Or only excellent performance? There is no
one correct answer. Organisations need to consider their culture, business
needs and overall reward programme to decide the best road to follow.
Watching the Market
While there is clear evidence that organisations are paying enormous

attention to the link between pay and performance, they are still keeping a
close eye on the reward strategies of their competitors and on market
trends. Participants in this study were very clear that market benchmarking
remains a primary design factor in reward. A high proportion of
organisations were looking to refine how they benchmarked, driven by a
desire to make sure they were not paying over the odds, and by a general
need for greater transparency. With senior management taking an active
interest in reward, they want to know why the organisation is paying what
it is.
Benchmarking, as a result, remains critical, but market data is being used

in a different way. Organisations are looking for a better context for their
data so they can clearly justify decisions made on the basis of it. They are
also using that data in different ways – the focus on benchmarking is
particularly strong in developing markets and in high-growth companies,
and when considering key roles and talent. In developed markets and slow
or no-growth companies, they are more likely to be looking for ways to
balance evidence from market benchmarks with affordability. The focus is
! !204
now less on competitiveness and more on maximising the return on

investment from reward spend. Changes to the way organisations
benchmark, and the data they use, are also on the horizon.
Many organisations are looking to measure and, increasingly, communicate

to their employees the total value of their reward package. The increasing
centralisation of reward management and the desire to have greater
visibility over total reward spend also means organisations are looking
more at total remuneration rather than just total cash.
The new trends in reward strategy cannot succeed without a solid

foundation of good communication, based on strong leadership. At every
stage – the drive towards variable pay, a closer link between performance
and reward, differentiation of high and low performers, retention of talent
and a trend towards total reward – there is a risk that the return on
investment will be lost because leaders and managers have not clearly
communicated the organisation’s intention and strategy.
8.12 Concern of Indian Companies over Annual

Performance Pay Increase
Companies across industries are continuing to take a cautious stance and

are not going for aggressive pay increases, according to Aon Hewitt's
annual Salary Increase Survey in India. Indian companies are taking very
clear steps to arrest the steady increase in compensation budgets. The
lower inflation rates in the economy has also helped companies in deciding
on the reduced salary increases without creating too much of a disruption
in the lives of employees.
In many cases, the industries have taken a marginal dip in their overall
budgets as compared to 2015 actual spends.
Sectors such as Life Sciences, Media, and Consumer Products are

projecting a higher increase than the market average. These industries
have also consistently led the salary increase numbers since 2012.
The ‘Early stage companies/Start Ups’ stand out despite being in the pre-
profit stage for over three years and continue to have an aggressive stand
on pay. At 15.6% salary increase projected for 2016, they feature as
number one, with the closest second being Life Sciences at 11.6%.
! !205
New Strategies adopted by companies in over annual performance pay

increase are as under
★ Increasing Focus on Talent and Merit: Over the last few years, while
employee expectations have gone up, Aon Hewitt’s data shows that
companies are managing these higher expectations carefully and are not
getting swayed by it. The focus on performance differentiation is far
higher with a larger proportion of budgets being allocated to higher
performers. Investing in key talent emerged as a major trend. Key talent
would mean high potential and hot skills apart from high performers. The
payout gap between an average performer and key skills is growing year
on year. At 63%, this is the highest differentiation India Inc. has
observed.
Additionally, in the last five years, the percentage of employees with top
performance rating has dropped by close to 30%, implying that
organisations are not hesitating to differentiate sharply on the basis of
performance and are allocating the share of the total increase budget
accordingly. India places 8.2% of its overall population at top rated. This
number has significantly dropped in the last five years.
An average pay increase budget of 10.3% across India, HR managers

will be pushed to ensure they are being more innovative and thoughtful
in how they reward their top performers while ensuring they are able to
retain and motivate the rest of the organisation as well.
★ Maintaining low attrition rate: Attrition rate at its lowest for five years
– The attrition rate in India is dropping. At 16.3%, it is the lowest that
corporate India has observed since the 2009 financial crisis. While
attrition was controlled at a broader level, key talent attrition increased
from 5.9% in 2014 to 7.3% in 2015.
Increasingly, organisations are developing separate retention plans and

policies for their top talent. While rewards continues as a retention tool
to ring fence top talent, programmes around leadership opportunities
and coaching, overseas assignments, fast track programmes for hi –
potentials are fast gaining prominence.
! !206
8.13 Activity
1. Select few companies in a particular sector and capture the strategies

adopted by the companies to establish the linkage between rewards and
performance. Understand the challenges involved and compare with
your organisational practices.
…………………………………………………………………………………………………………………………
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8.14 Summary
While a company can calculate its return on investment for expenditures

such as IT and marketing, measuring the value of its workforce is much
more challenging. CEOs are increasingly asking themselves, "Am I getting
what I'm paying for?" That is, is the pay people are getting accurately
reflecting their performance?
Over the past two decades, many companies have re-engineered their
performance management systems to ensure that companywide goals
cascade down through the organisation driving everyone toward a common
result. During the same period, but rarely at the same time, companies
have retooled their reward strategies, devising incentive schemes, in order
to retain talent and encourage appropriate business behaviours. There is a
strong conceptual argument that suggests that keeping the two separate
ensures that dialogues with employees about pay will not get confused with
those about development. Unfortunately, the gap between the two has left
the phrase "pay for performance" somewhat hollow.
As these reward and performance processes have often preceded

independent of one another, they have resulted in some systems that are
misaligned at best and disconnected at worst. Little wonder when you
consider that performance and reward is fractured in many large Australian
corporates with Finance holding the purse strings over the reward strategy,
while line managers and HR take turns at managing performance
measurement. The result? A low return on human capital investment.
! !207
42% of organisations "improving the linkage between performance and

reward" is among their top two reward priorities for the coming year, with
38% stating they intend to take action within the next 12 months. But if
you want to take the breath away from any HR director, you might ask,
"So, what do you propose to do about it?”
In an organisation where there is a high degree of sophistication in reward

but a low degree in performance, the chance of differentiating an
individual's contribution is low. But it is possible to improve the situation by
setting up programmes that highlight the individual and his/her
performance. These include eligibility to participate in reward vehicles,
such as a trip away; short-term variable pay plans (profit share or
discretionary bonus plans); and public recognition including monthly award
events, team dinners and peer appreciation.
In conclusion, in order to determine whether you're getting value from

your reward spend, you need to be able to do the following:
★ Understand what you want your current performance and reward

systems to measure
★ Design a simple and flexible performance and reward strategy that fits
with the overarching business strategy
★ Executewell, by measuring and actually differentiating individual

performance and rewards.
Once you have established a linked performance and reward strategy, you
will be able to get what you're really paying for from your workforce –
without it you may never know.
! !208
1. You are a CEO of a Multi-National Technology Services Company which

is struggling to improve the organisational performance. You have been
asked by the Board of Directors to change the way performance
management framework operates and establish a clear linkage between
performance pay. Document your strategy and action.
2. Explain the various methods that can be deployed by a Manufacturing

Company to establish a linkage between Productivity and Rewards.
! !209
1. “Pay may not always reflect the performance parameters”- Which of the
following is least likely to be the reason for such an issue?
a. Pay packages negotiated on the basis of salary outside the

organisation
b. Performance linked to the key result areas
c. Pay packages determined on the basis of comparable jobs
d. Inflation adjusted pay
2. Which of the following is least likely to be a guiding principle for

establishment of right performance measures?
a. Understand clearly what results you desire

b. Understand what benchmark (average) results would be
c. Understand the individual's ability to influence results
d. All of the above
3. Which of the following is least likely to work as a strategy to establish a

clear linkage between rewards and performance?
a. Making it irrelevant for people

b. Making flexible benefits programme work
c. Extending flexibility to work arrangements
d. Effectively communicate the rewards and pay linkage
Answers
1. (b), 2. (d), 3. (a)
! !210
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !211
TYPES OF REWARDS SYSTEMS
Chapter 9
Types of Rewards Systems
Objectives
★ Understand the innovation brought by the companies in the process of

defining the reward systems
★ Understand the finer details of monetary and non-monetary rewards
★ Gain an understanding of the concept of total rewards
★ Understand the use of rewards to enhance the engagement of employees
★ Gain an understanding of best practices in the total rewards management
Structure:
9.1 Background and Overview of Rewards Systems
9.2 Need for Rethinking and Innovation in the Design of Rewards Systems
9.3 Changing Perception of the People as to How they Find Gratification in

Organisations
9.4 HR Managers Need to Recognise the New Age Networked

Organisations
9.5 What Organisations Need to Consider While Defining the Rewards

Structure?
9.6 Types of Rewards that is as Important as the Main Compensation
9.7 Innovation in Rewards and Recognition System
9.8 Comparison of Employee Expectations with the Maslow’s Theory of

Hierarchy of Needs
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9.9 Non-Monetary Rewards
9.10 Concept of Total Rewards
9.11 Best Practices in Employee Reward and Recognition Programme
9.12 Key Components of Employee Engagement
9.13 Tips for Effective Multigenerational Employee Recognition – Best

Practices
9.14 Type of Rewards implemented by large Multi-National Companies

across the Globe
9.15 How Indian Companies are using Rewards to Motivate Employees to

Perform – In Times of Slow Down
9.16 Categories of Various Reward Schemes
9.17 Activity
9.18 Summary
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9.1 Background and Overview of Rewards Systems
An employee’s compensation, usually referred to as tangible returns,

includes cash compensation (i.e., base pay, cost of living and merit pay,
short-term incentives, and long term incentives) and benefits (i.e., income
protection, work/life focus, tuition reimbursement and allowances).
However, employees also receive intangible returns, also referred to as
relational returns, which include recognition and status, employment
security, challenging work and learning opportunities. A reward system is
the set of mechanisms for distributing both tangible and intangible returns
as part of an employment relationship. It should be noted that not all types
of returns are directly related to performance management systems. This
is the case because not all types of returns are allocated based on
performance. For example, some allocations are based on seniority as
opposed to performance.
★ Base Pay: Base pay is given to employees in exchange for the work
performed. The base pay focuses on the position and duties performed
rather than on an individual’s contribution. Thus the base pay is usually
the same for all employees performing similar duties, and ignores
differences across employees. However, differences may exist based on
such variables as experience and differential performance. In some
countries (e.g., the United States), there is a difference between wage
and salary.
★ Cost-of-Living Adjustments and Contingent Pay: Cost-of-living

adjustments (COLA) imply the same percentage increase for all
employees regardless of their individual performance. Cost-of-living
adjustments are given to combat the effects of inflation in an attempt to
preserve the employees’ buying power
★ Short-Term Incentives: Similar to contingent pay, incentives are

allocated on past performance. But incentives are not added to the base
pay, and are only temporary pay adjustments based on the review period
(e.g., quarterly or annual). So incentives are one-time payments, and
this is why they are also referred to as variable pay. A second difference
between incentives and contingent pay is that incentives are known in
advance.
! !214
E.g. Salesperson in a pharmaceutical company knows that, if she meets

her sales quota, she will receive a $3000 bonus at the end of the quarter.
She also knows that if she exceeds her sales quota by 10 per cent, her
bonus will be $6000. In contrast, in the case of contingent pay, in most
cases the specific value of the reward is not known in advance
★ Long Term Incentives: Whereas short-term incentives usually involve

an attempt to motivate performance in the short term (i.e., quarter,
year) and involve cash bonuses or specific prizes (e.g., two extra days
off), long-term incentives attempt to influence future performance over a
longer period of time. Typically, they involve stock ownership or options
to buy stocks at a pre-established and profitable price. The rationale for
long-term incentives is that employees will be personally invested in the
organisation’s success, and this investment is expected to translate into a
sustained high level of performance
★ Income Protection: Income protection programmes serve as a back-up

to employees’ salaries in the event that an employee is sick, disabled or
no longer able to work. Some countries mandate income protection
programmes by law. Other types of benefits under the income protection
rubric include medical insurance, pension plans and savings plans. These
are optional benefits that organisations provide, but they are becoming
increasingly important, and often guide an applicant’s decision to accept
a job offer. In fact, a recent survey including both employees in general
and HR professionals in particular showed that health care/medical
insurance is the most important benefit, followed by paid time off and
retirement benefits
★ Work/Life Focus: Benefits related to work/life focus include

programmes to help employees achieve a better balance between work
and non-work activities. These include time away from work (e.g.,
vacation time), services to meet specific needs (e.g., counselling,
financial planning, on-site fitness room) and flexible work schedules
(e.g., telecommuting, non-paid time off)
E.g. For example, Sun Microsystems actively promotes an equal balance

between work and home life, and closes its Broomfield, Colorado,
campus from late December through till early January every year. This
benefit (i.e., vacation time for all employees in addition to their yearly
vacation time) is part of Sun’s culture
! !215
★ Allowances: Benefits in some countries and organisations include

allowances covering housing and transportation. This is typical for
expatriate personnel, and is also quite popular for high level managers in
many countries
E.g. In South Africa, for example, it is common for a transportation

allowance to include one of the following choices:
- The employer provides a car and the employee has the right to use it
both privately and for business
- The employer provides a car allowance, more correctly referred to as a

travel allowance, which consists of reimbursing the employee for the
business use of the employee’s own car
★ Relational Returns: Relational returns are intangible in nature. They

include recognition and status, employment security, challenging work,
opportunities to learn, and opportunities to form personal relationships at
work (including friendships and romances).
E.g. Sun Microsystems allows employees to enrol in SunU, which is Sun’s

own on-line education tool. SunU encapsulates a mix of traditional
classroom courses with on-line classes that can be accessed anywhere in
the world at any time. Sun offers its employees enormous scope for
development and career progression, and there is a commitment to
ensuring that all employees are given the opportunity to develop
professionally. Furthermore, the new knowledge and skills acquired by
employees can help them not only to advance their careers within Sun,
but also to take this knowledge with them if they seek employment
elsewhere. Thus some types of relational return can be long lasting.
Contains a list of the various returns we have discussed, together with

their degree of dependence on the performance management system. As
an example of the low end of the dependence continuum, cost of living
adjustment has a low degree of dependence on the performance
management system, meaning that the system has no impact on this
type of return. In other words, all employees receive this type of return
regardless of past performance. At the other end of the continuum,
short-term incentives have a high degree of dependence, meaning that
the performance management system dictates who receives these
! !216
incentives and who does not. Between the high and low end, we find
some returns with a moderate degree of dependence on the performance
management system, such as base pay, a type of return that may or
may not be influenced by the system.
Return Degree of Dependence
Base pay Moderate

Cost of living adjustment Low
Contingent pay High
Short-term incentives High
Long-term incentives High
Income protection Low
Work/life focus Moderate
Allowances Moderate
Relational returns Moderate
9.2 Need for Rethinking and Innovation in the Design of

Rewards Systems
It is very crucial for the HR Manager to rethink and continuously innovate

the rewards and recognition programmes that are aligned to changing
business environment. One of the reasons why rewards programmes often
misfire is that they are too mechanical. Compensation or benefits
managers talk about benchmarking, comparative compensation ratios and
market levels when discussing rewards strategies. For many companies,
rewards management has become a purely technical tool. It has drifted
away from its original purpose – to align an organisation's rewards strategy
with its mission, vision and values, and to use rewards management tools
to support the achievement of business goals. The current approach to
rewards often seems similar to selling a refrigerator or a washing machine
– simply on technical product specifications. Rewards has lost its marketing
appeal and the important branding messages that can accompany it. A
rethink of rewards strategy and management is required. Creative and
innovative thinking about rewards needs to replace the technical and
statistical approach that has come to characterize rewards management in
many organisations. The accelerated pace of change combined with long-
term economic, cultural and demographic trends, refers this a necessity.
! !217
Factoring Need of Changing Times

The speed of change in Asia has accelerated exponentially in the past
decade. East Asian economies grew at consistently high rates for long
periods up until the mid 90s. Since then, economic growth has faltered and
then gathered speed in an up and down spiral. In contrast to this trend,
India's economic growth stagnated at 4% per annum until the early 90s,
but since liberalisation, it has been fairly steady at 68% annual growth.
The past two decades also saw the emergence of knowledge based
industries such as software and biotechnology. The reduced capital
intensity among these profitable new industries is allowing them to morph
more easily and consolidate much faster than the more capital intensive
industries that drove growth in the past. The continued acceleration of
information, technology and innovation, as well as shorter product
lifecycles have further contributed to the rapid pace of change. These
changes have implications for rewards managers in three broad areas:
★ The information that is available to people

★ The additional ways in which people seek gratification and recognition
★ The methods that companies use to manage
★ Increasingly networked organisations.
Today, information flows at warp speed. The speed of change can be

largely attributed to the fact that information today moves more rapidly
and flows through more informal channels and networks. Just look at these
recent statistics:
★ About two billion people around the world use the internet, with nearly
half of them in Asia
★ Despite India's low Internet penetration rate, it ranks the third highest
country in Internet usage
★ With 43 million users, India currently has the second largest Facebook
user base in the world, and is expected to host the social networking
site's largest user base in the near future
★ Over 11 million Indian professionals are on LinkedIn as of October

2011, second only to the US
! !218
★ Social recruiting (hiring through social networks) accounts for 2% of all

hiring in India and is expected to rise to 20% in the future
What this means is that more people have access to more information
much faster than ever before. Compensation managers used to be the only
ones with credible rewards information at hand. Now, it can generally be
said that employees know well what their counterparts in other companies
are being paid. Water cooler conversations are much more evidence based
as compared to before.
The implications for rewards management are that it is no longer enough

to say, "we are benchmarking against the market." The facts flow faster
and no longer necessarily reside only with certain individuals in the
organisation.
9.3 Changing perception of the people as to how they find

Gratification in Organisations
People's lifestyles, interests and concerns are also changing fast, and along
with it, the way they seek gratification have changed. For instance, in
parallel life online, people are paying real money to buy virtual land or do
virtual farming. Over USD 7 billion was spent on virtual goods and online
gaming in 2010, and Asia accounted for 70% of this spend Companies are
responding to such changing social trends and encouraging employees to
pursue their interests outside of work. For instance, the number of
companies sponsoring teams in the Corporate Challenge at the annual
Mumbai Marathon (a special category for companies who sponsor
employees) rose from 44 in 2006 to 134 in 2011. Tata Consultancy
Services alone sponsored 1,500 employees in the 2011 run.
Clearly, these companies recognise that their employees are seeking

gratification in ways that differ from the generations before them.
Recognition now encompasses different things, and how people seek
satisfaction or gratification is different as well. People no longer feel
obligated or loyal to an organisation simply because the organisation is
paying them well or giving them a bonus.
! !219
9.4 HR Managers need to recognise the new age

Networked Organisations
Over the past several decades, companies have moved away from
hierarchical "command and control" structures towards networked
formations. The dynamics of a networked organisation are quite unlike
those in a traditional hierarchical organisation.
E.g. Singapore Telecom (Singtel) is a case in point. Singtel owns its

business in Singapore, but outside of Singapore, they operate as part of a
network. Their largest business outside Singapore is in India where they
own 32% of Bharti Airtel. They have similar minority shares in cellular
companies throughout Southeast and South Asia. Even where Singtel owns
and controls the company (e.g. Optus of Australia), they still operate as
network influencers. They work by influence and not so much by control.
Similarly, rewards managers must be more consultative and less technical.

They must look closely at what suits the business and what rewards will
suit different levels and groups within the business. Furthermore, if the
organisation depends on outsourcing, contractors, vendors or direct
salespeople (which is increasingly common as organisations become more
networked), then the rewards managers also have to be aware of how their
indirect workforce is being rewarded.
E.g. The lack of involvement or interest in rewards management beyond

direct employees can have dire consequences. This is what led to Lehman
Bros mini bonds failing in Singapore. The sales network was not under the
control of DBS or Lehman and the salespeople's compensation was not a
primary concern of their rewards managers. The rewards that were given
to the point of sale people were completely out of sync with the risk of the
investments that they were promoting. The focus of the rewards
programme was very short term even though the risk and payback were
medium to long term.
! !220
9.5 What organisations need to consider while defining the

rewards structure?
A technical approach to compensation does not equip rewards managers

with the tools needed to confront the problems created by the trends
outlined above. Aligning rewards strategy to business goals in the new
environment calls for quite a different perspective on rewards.
Firstly, let's be clear about "the war for talent." It is over and talent has
won. Organisations need to look at rewards from the perspective of the
employee. The classic approach to rewards management is based on the
assumption that money is the primary motivator for employees.
Performance incentives usually are primarily, if not entirely, cash based.
In fact, paying an employee fair and equitable compensation for a job well
done is just a given. Repeated research over the past 60 years clearly
shows that people are looking for interesting work and a work environment
in which they are appreciated.
Recent surveys have confirmed this and found that Gen Yers (those born
between 1980 and 1994) and Boomers (those born between 1945 and
1960) in the US, are seeking a new set of rewards that go far beyond the
size of their pay package. What they found was that Gen Yers have more in
common with the Boomers, than with the Gen Xers in between them.
! !221
9.6 Types of rewards that is as important as the main

Compensation
Generation Y Generation X or earlier
High quality colleagues High quality colleagues
Flexible work arrangements An intellectually stimulating workplace
Prospects for advancement Autonomy regarding work tasks
Recognition from one's company or Flexible work arrangements

boss
A steady rate of advancement and Access to new experiences and

promotion challenges
Access to new experiences and Giving back to the world through work
challenges
How to leverage the Understanding of Generational Differences in

Structuring the Rewards and Recognition Programme
How can we leverage this knowledge of generational differences into the

structure of a rewards programme? We can, by structuring programmes
around fulfilling employees' intrinsic desires and what they are looking for
from life. Generational differences, as well as individual differences within a
generation, create diverse needs and motivation levers. We need to
reshape our rewards proposition accordingly.
To do so, we need to look "outside the box." Keeping track of what

competitors within our own industry are doing is unlikely to surface many
creative and innovative ideas that we have not tried before. Start looking
at other industries and other geographies – not just within your own
industry or your country. Then try to analyse how their experience might
apply to your circumstances.
E.g. Why do restaurants create such an aura around the chef? It is

because the chef can attract a huge following of fans, which helps build the
business. But when the chef moves, so do the fans. Aspiring chefs will do
anything to train with a star chef even though he/she may be demanding
and tough. This is because they are not thinking only about short term
! !222
rewards; rather they regard the experience, exhausting as it may be, as a

professional development opportunity and a key to achieving long term
recognition.
E.g. How many instances can you think of where, if a leader leaves, the
best talent goes with that person? Isn't it better to creatively leverage the
draw of charismatic, high performing individuals, rather than ignoring or
resisting the attraction and influence that such a person has for others in
the workforce? Let's focus on keeping the high performer motivated and
engaged. In so doing, the company not only retains that "star" but also all
of the "fans" (both customers and employees) that the "star" inspires.
9.7 Innovation in Rewards and Recognition System
Thinking "outside the box" means also looking at what motivates

employees beyond the basic desire for fair compensation. The oldest way
of looking at human needs and desires is Maslow. Using a model based on
Maslow's Hierarchy of Needs, we can analyse whether we are using all of
the levers of rewards and recognition that are available to us. An employer
must satisfy an employee's compensation needs – that is a given. In
addition, the organisation should explore what it takes to satisfy an
employee's desire to belong, to be recognised, and to achieve his/her
sense of purpose and life goals. To do so, rewards managers need to
consider an employee's performance and the employee's employability.
Increased skills, knowledge, experience and public recognition help make a
person a more attractive candidate and thus, contribute to higher
employability. Increased employability leads to greater self-actualisation
since increased employability enables a person to achieve his/her
aspirations.
Many firms are wary of giving public recognition to their high performers
(and thus increasing their employability) for fear that competitors will
selectively poach their best people. Ironically, it seems a paradox that the
more an organisation helps to improve an employee's employability; the
more likely it is that the employee will stay with that organisation.
Assuming that the organisation has satisfied an individual's basic

compensation needs, if a manager can help actualise a subordinate's
potential and the organisation supports that person's development, then it
is more likely that person will stay with the organisation. If a high
! !223
performer does not feel he/she is realising his/her potential or fulfilling

their personal life goals, the chances increase that he/she will look
elsewhere for better avenues to self-actualisation.
9.8 Comparison of employee expectations with the

Maslow’s theory of Hierarchy of Needs
9.9 Non-Monetary Rewards
Over a period of time, in addition to the monetary rewards, organisations

have been also carefully evaluating non-monetary rewards. A lot of
organisations will engage and retain their employees if they can clearly
make the link between people, their performance and business results.
When it comes to employee engagement and retention, an organisation
that is not interested in rewarding their employees get what they put in – a
little effort means a little engagement and staff attrition. As far as staff
reward goes, in today’s economy, all organisations try to do more with less.
They look for other ways to give rewards, keep employees engaged and
! !224
maintain their staff strength via other means rather than throw money at
their employees.
When used properly, noncash awards, like merchandise and travel, have
indeed proven to be more effective and therefore more efficient than
traditional forms of compensation when used in a total rewards mix. Some
of the reasons that help employee stay in the organisation for a longer
term are as follows-
★ Career growth, learning, and development

★ Exciting and challenging work
★ Meaningful work, making a difference and a contribution
★ Great people
★ Being part of a team
★ Good boss
★ Recognition for work well done
★ Fun on the job
★ Autonomy, sense of control over my work
★ Flexibility, for example, in work hours and dress code
★ Fair pay and benefits
★ Inspiring leadership
★ Pride in the organisation, its mission, and quality of product
★ Great work environment
★ Location
★ Job security
★ Family friendly employer
★ Cutting edge technology
The above list provides a hint of what matters to employees, which is a key
point in employee motivation. As a leader, recognising that people who do
meaningful work create the most value in the marketplace is important.
employees want to be recognised about every seven days. That doesn’t
mean that employees expect something big or lavish every seven days,
often just a simple clear acknowledgement and the two words, ‘Thank You’
is enough to show that their work is valued and that they are on the right
track.
There are several simple approaches that can provide some of the most
effective strategies for rewarding and motivating staff. Other fundamentals
include-
! !225
★ Knowing your employee. Take the time to ask what they value and what
motivates them
★ Give feedback. Specific, straightforward, on the spot praise is vital!

“Praise in public” demonstrates respect and it achieves results
★ Partner with employees in achieving their goals. Ask employees about

their career goals and offer related assignments whenever possible
★ Educate employees about the “business” of the department. Such

learning can be fulfilling for employees, and can make them more
valuable assets
★ Keep employees informed and involved. Having an overview of the big

picture is important. Seeing how their role serves the greater mission
increases their feeling of being connected to their work
★ Userewards that have mutual benefit. Rewards such as skill training and
professional development is timeless
Examples of Non-Cash Rewards
! !226
This is the list of 30 best noncash rewards to give at work as incentives to

employees:
1. Collate positive hand written statements about the employee from their
colleagues, frame and present to the employee.
2. Provide the employee with some one-to-one coaching and mentoring

sessions with a senior member of the organisation for six months.
3. Register the employee for a conference or training session of their

choice.
4. Share an inspirational success story with all and make it all about the
employee.
5. Allocate a day in a week for them to do anything creative and of their

choice for a month.
6. Give them a new job title or update their current job title.
7. Start an organisational “Wall of Fame” board in a prime spot and add

their name to it.
8. Let the employee suggest a way they would like to be rewarded other
than cash reward
9. Pick up the tab to fuel their car for a week or a month.
10.Prepare, present and disseminate a short video mosaic that celebrates

the employee’s accomplishments.
11.Get the employee some career counselling sessions.
12.Find out what the employee is passionate about and give them a gift
related to it.
13.Pick up their family’s tab for a dinner at their favourite restaurant.
14.Present the employee with a pair of tickets to a concert or a show so

that they can invite their partner along.
! !227
15.Get them an iTune voucher if they own an iPod, iPad, iPhone etc.
16.Give them a day pass to a spa.
17.Present the employee with a handwritten thank you note.
18.Name a meeting room after the employee for a year.
19.Give the employee a reserved parking spot for six months.
20.Present the employee with a bouquet of flowers.
21.Make a public thank you announcement and give money to their

favourite charity.
22.Organise for the employee to take a fun class, such as jewellery

making, scuba diving or skydiving.
23.Present the employee with a tasteful framed certificate to show how

valuable the employee’s contribution to the company has been.
24.Give the employee a gift card to their favourite shop.
25.Get them a voucher to download eBooks from their favourite author.
26.Cover the cost to have a professional family portrait of the employee

taken.
27.Allow the employee to be flexible with their working hours for one
month.
28.Give the employee a day or two off work.
29.Get a mobile car valet service to do a full valet of their car.
30.Help to pay for a trade association membership of their choice.
Further, employer’s also consider special life conditions in the process of

defining the non-monetary rewards.
! !228
E.g. Bharti Airtel increases maternity leave by 10 weeks: To promote

gender diversity across all management levels, top telecom operator Bharti
Airtel has increased maternity leave for its women employees to 22 weeks
from 12 weeks. This is in addition to flexible work options for working
mothers to ensure a smooth transition to full working hours. company's
office in Gurgaon also provides modern-day care facilities for children.
Objective of the policy is to provide adequate support to employees to
balance their role as parents with professional commitments at work.
The revised policy reiterates its commitment to providing the same role or
an equivalent role to the employee on return after 22 weeks. The rating of
the employee for the assessment year will be based on the employee's
performance and contribution during the period she was working.
In case of adoption, if the child's age is less than 2 years, women

employees can avail of 12 weeks of leave and if the age is above 2 years, a
6-week leave can be availed. Male employees can take 1 week of leave in
both the cases.
E.g. For retention of the talent and attracting new talent, in promoting the
employment for working mothers, corporate India has extended the
benefits beyond the paid maternity leave. Some of the important benefits
that are being extended to working mother are as follows:
★ Fully paid maternity leave. This leave could be for 12 weeks or more,
depending on the prevailing local regulations or company best practice
policies
★ Performance rating for new and entrant mothers will not be affected by
their absence from work during maternity
★ If maternity has been availed, post mid-year, then the mid-year rating
will hold good, unless a strong case is presented for a downgrade during
ATRs
★ Low performance rating can be awarded only if there’s ample

documented evidence of non-performance
! !229
★ Women returning from maternity leave post mid-year can be treated like
a new joiner since he/she hasn’t had the scope to demonstrate
performance (this implies an average rating performance)
★ Activesupport from the team manager or business leader, to organise

the workload of expectant mothers going on maternity leave, while
ensuring continued performance of the team in their absence
★ Performance appraisal guidelines from CEO and HR must clearly

communicate that maternity, long leave and special leaves are given
appropriate ratings, and should be transparently communicated and
implemented across the organisation
★ “On-ramping” of women employees who return from maternity—re-

skilling and re-integrating as a key priority to engage them back to work
★ Flexi-time
work policies for new and entrant mothers during for the first
year of their return from maternity. This can be equally applied by
manufacturing, finance, banking, IT-related, pharma, hospitality,
telecommunications—and all sectors of the economy
★ Options
to work from home during maternity—especially if this is part of
the medical advise to expectant mothers
★ Engage or assign a mentor/“buddy” to the new mothers when they come

back—preferably, a lady who has returned from maternity leave in the
last one year and has got back to normal office work
★ Masscareer customisation for women who return from maternity—dial-

up and dial-down of work timings and performance measures
★ Gendersensitisation and awareness training programmes for other

employees and managers
★ Specific
“work initiatives” for mothers resuming work, which can be done
through women’s and diversity networks
★ Grievance
Redressal Council—especially for women employees who have
resumed post maternity
! !230
★ Re-orientationprogrammes for bringing the employees on LWP/maternity

leave up to speed regarding the changes/updates in various policy and
process
★ Creating a conducive work environment to help the associate ease back

into her work-related responsibilities more efficiently
★ Aiding through a structured programme, the re-orientation of such

associates
★ Special performance management policy for women returning from

maternity leave. This policy ensures that women who are returning from
maternity leave or childcare leave would have their final performance
band calculated based on all available performance ratings during the
year
★A leave-without-pay policy and a progressive childcare policy, which

enables employees to avail of leaves when they are required the most
★ Congratulatory triggers should be sent to those who have applied for

maternity and paternity leave. This practice is usually very well received
and has tremendous emotive appeal
★ Fulltime day care centres—as on-campus or as link-ups with external

day care centres
★ Creating a maternity resting room for pregnant women and new mothers
on the company premises
★ Healthy food counters for expectant mothers
★A “Stay Connected Programme” for women on maternity leave via email

and intra-company online programmes—to ensure that associates on
long leave continue to be updated with the latest happenings, receive
news, and information bytes—in the comfort of their personal email
boxes on a monthly basis that help them keep updated
★ “Workplace
Parents Group” should be formed across various centres to
engage working parents through child psychology and parenting
! !231
workshops. These groups bring working parents together to discuss

common problems and look for solutions
★ Extendablematernity leave—maternity leave (paid) is for 12 weeks. A

woman suffering from illness arising out of pregnancy, delivery, or
premature birth of child, miscarriage, medical termination of pregnancy
or tubectomy is entitled to an additional paid leave for a maximum period
of one month upon providing the required supporting medical documents
★ Specialtransport allowance for expecting mothers—vehicle drop to their

residence escorted by armed security guard
★ In-house 24/7 gymnasium and doctors on campus
★ Crèche on campus
★ TOS (time off scheme) to encourage work life balance is in place
★ During
prenatal, post natal and finally resuming back, no docking of
compensation is done
★ Maternity or paternity leave does not affect associate’s eligibility for ESOP
★ Exception handling in terms of transport, dress code
★ Health advisory committee to which gives health tips
★ Maternity treatment at cashless hospitals
★ Domiciliary and consulting services available on campus
★ Complaint mechanism for redressal of grievances
★ Congratulations-maternity leave benefit
★ Return to work policy for new mothers: Women can decide their date of
return to work as per the doctors advise and discussion with their
HR managers. Their employment status with the company is not affected
in any way by their maternity leave
! !232
★ Special car parking reservation for new and experienced mothers
★ Mother’s resting and feeding room
★ Personal felicitations for new mothers returning to work
★ On site rejuvenation lounge—for new and entrant mothers
★ Maternity coaching is an opportunity
★ All female employees who are returning from maternity leave get an
option to work at a reduced schedule of 50% of the normal weekly hours
per week, for a two-month transition period immediately following the
maternity leave
★ Job sharing between two women—as an option for reducing the workload
for new mothers
★ Voluntary reduced work hours after motherhood
★ Part time employment: Employees reduce their workload and

consequently their hours decrease to fewer than standard workweek
requirements. Part-time employees work between 20–30 hours per week
with a corresponding reduction in pay and adjustment of benefits
★ Sabbatical leave as an extension of maternity leave
★ Transfers/re-location made easy for spouses and married women
★ Promote internal networking platforms for women—where they can chat,

and share their experiences, and challenges
★ Concierge services—in India and globally during travel for work and
business meetings
★ Ombudsperson policy: Employees can raise an integrity concern to the

ombudsperson through various channels and immediate investigation is
done and appropriate action taken. An employee can also raise a concern
anonymously by dropping a note at the ombuds boxes placed across
locations
! !233
★ 24-hour convenience store—tied up with grocery stores where the

employees can place all their grocery orders online and the orders will be
delivered to them in office each Friday. This helps them focus on work
and personal life and leave the other odds to tie up in office
★ Providelightweight laptops and cell-phone to new mothers, so that they

are easy to carry to work
Performance Premiums
Rewarding top performers is one of the most effective tools to attract and
retain the right talent. And, rewards don’t always mean heavier pay
packets. In a rapidly growing market marked by a shortage of skills and a
high turnover of employees, companies in India are now moving away from
traditional rewards systems—skewed towards cash compensation—to ‘Total
rewards’.
9.10 Concept of Total Rewards
Total Rewards can be easily be divided into three broad categories viz. Pay,
Benefits and Careers.
★ Pay
a. base pay
b. short-term incentives
c. long-term incentives
d. recognition
★ Benefits
a. health and group benefits
b. retirement
c. work–life programmes
d. perquisites
★ Careers
a. training and development
b. lateral career movement
c. stretch assignments
d. career incentives
! !234
The picture provided here depicts the “Hay Group Model for Total Rewards”
E.g. Implementation of Total Reward Concept by many large companies in

India.
Total rewards include compensation in both cash and kind. Lifestyle

perquisites such as a house, a car or a club membership, profit-linked
incentives, deferred gratuity, and wealth building programmes in the form
of stock options and soft loans have been popular for some years. But now,
companies are adopting a slew of new rewards practices. These include
work-life balance programmes; competency pay where niche skills are
compensated; and career opportunities such as overseas assignments, new
projects, etc. “All good companies (in India) have been practising (the)
total rewards method to keep their best people,” says Prabir Jha, global
head, human resources, Dr Reddy’s Laboratories Ltd. This shift away
! !235
from cash rewards promises high returns in terms of employee satisfaction

while reining in galloping salary scales. Says Rajan Srikanth, human capital
business leader, Asia Pacific, Mercer Consulting: “There are still many
companies which use cash compensation as the primary driver for reward.
They are, however, running the risk of irresponsible compensation.” In
contrast to cash-based rewards, total rewards score higher in terms of
customisation, fungibility or exchangeability and strong differential, say
experts. These rewards can be tailored to suit the top performers’
aspirations to achieve maximum effect. However, as in the case of cash
rewards, the effectiveness of a total rewards initiative is dependent on the
selection of the top performers.
Drawing the Line
Evaluation of performance plays a key role, not just in rewarding an

individual employee, but also in setting standards for others, say experts.
“HR managers need to put in place a fair and transparent performance
management system” so that deserving employees are rewarded, says Jha.
One such example, according to Ganesh Shermon, partner and head,

human capital advisory service, KPMG India, is the performance
management system of oil and gas company Bharat Petroleum Ltd.,
which has instituted a balanced scorecard based on key result areas to
measure performance.
“Only when you have identified the performers can you create a rewards
plan which can get the desired results,” says Shermon. Also, companies
need to communicate the value of total rewards programmes and bring
about supporting organisational change for efficient rewards delivery,
Srikanth adds.
For a reward system to yield maximum dividends, however, it is necessary

to go beyond the top performers, and engage the middle rung. “Rewards
for the top rung are mostly well addressed by companies in India, but the
same can’t be said about the second rung, which is not (only) just as
critical, but is also a very dynamic part of (the) workforce,” says Srikanth.
It is easier to address this challenge through total rewards than cash
rewards as it affords more variation and customisation.
! !236
Experts say a strong differentiator is the hallmark of a good rewards

practice.
The differentiator can be based on individual aspirations, career level,

demographics, market forces and even gender. For instance, family-
oriented benefits work for IT consulting company MindTree Consulting
Ltd., where women comprise 23% of the workforce. “Most women prefer
benefits that can be enjoyed with (the) family as opposed to individual
gratification, and thus, family-oriented rewards find favour with them,”
says Srikanth.
Health care business process outsourcing (BPO) firm Ajuba Solutions

(India) Pvt. Ltd., which was recently voted one of the top emerging IT-
BPO employers by the industry body, National Association of Software and
Services Companies (Nasscom), uses training and career development as
the key differentiator to attract and retain talent. “Ours is a very
specialised business, and the guidelines we work on are very different and
unique to the US health care industry,” says Devendra Saharia, co-founder
and president, Ajuba Solutions. “Our training is recognised as a benchmark
within the industry and is one of the strongest reasons for employees to
join us,” he says.
Top performers are usually on a fast track in terms of career progression at

Ajuba, with non-cash rewards including sponsorship for higher education,
and the chance to lead new projects early on. The result: a number of
managers at the BPO are in their mid-20s.
Trust Pay
While Ajuba took the training route, HCL Technologies Ltd. appealed to
its employees by going against the market trend. Two years ago, the
software and services firm instituted trust pay—in which a company pays a
fixed salary irrespective of performance—for 85% of its employees when
rivals were moving to a performance-based pay system.
The rationale behind the move was that targets are often so high that
employees are able to get only a small portion of the variable pay.
! !237
Commenting on the success of the trust pay experiment, Vineet Nayar,

chief executive officer, HCL, says in a Harvard Business School case
study:“It increased our cost base but it was intended to reduce transaction
volume and increase trust...It re-energised the company as suddenly
people from the competition began joining us.”
Reward systems also need constant appraisal. What works for one
company at a particular time may lose effectiveness over time.
Samsung India Electronics Pvt. Ltd., which moved to a performance-

based pay system two years ago, revisits its compensation and rewards
programme every year. Says Sanjay Bali, vice-president, human resources:
“At each level, there’s a different need, and rewards should ideally be
worked around the need for them to be effective.” Giving an employee
what she doesn’t want takes the “teeth” out of the reward, he adds.
In a market short of talent, companies are seeking to spruce up their

rewards practices since they not only work as a good attraction and
retention tool, but also boost productivity and foster a strong employment
brand.
“Although you are paying for the past performance through rewards, you
are creating hope for the future. An unhappy guy is less likely to be
productive, or stick around,” says KPMG India’s Shermon.
System of Total Rewards
It is a system of rewards more comprehensive than traditional cash-based

compensation packages. Companies are now using a variety of rewards to
encourage top performers.
These include:
★ Base pay and fringe benefits in the form of perquisites in line with the
lifestyle and aspirations of employees, such as housing, car or club
membership
★ Wealth-buildingprogrammes in the form of stock options, soft loans,

annuity, Key Man insurance
! !238
★ Variable pay, including short- and long-term incentives that are profit-
linked or benefit-linked programmes
★ Benefitspackage including medical, pension, provident fund, work-life

balance programmes
★ Recognition in the form of non-cash rewards such as company-sponsored

dinners, holidays, etc.
★ Deferredgratuity programmes in recognition of the work performers are

expected to do
★ Learning- and competency-pay where niche skills are compensated
★ Performance-based career opportunities such as overseas assignments,

new projects, etc.
A Total Rewards System Helps:
★ Maintain a steady salary structure, while retaining or attracting talent.

★ Include middle-rung performers in the rewards net
★ Vary rewards to suit the individual needs of employees
★ Have more effective incentives for other employees
Employee Recognition Programmes
Happy employees mean higher productivity. Some of the innovative

programmes that the companies run are as follows-
★ Social Recognition
★ Gamification
★ Badges
★ Progress Bars
★ Unique Prizes
★ Monthly Statement
★ Peer Recognition
★ Manager recognition
★ Training programmes
★ Customer recognition
★ Suggestion programmes
! !239
★ Years of Service
Employee Recognition Objectives of Companies
It is important to understand some of the key objectives of employee

recognition measures adopted by various companies. World at Work
conducted survey of companies that draw various types of employee
recognition programmes and identified some of the following as top 5
objectives.
★ Recognise years of service

★ Creation of Positive work environment
★ Motivate high performance
★ Create a culture of recognition
★ Reinforce desired and expected employee behaviour
! !240
9.11 BEST PRACTICES IN EMPLOYEE REWARD AND

RECOGNITION PROGRAMME
Organisations establish robust Reward and Recognition Team that meets

regularly to plan and implement on-going events and initiatives, with a
goal of keeping the programme’s momentum alive and well. The following
are a few of their highly successful celebratory efforts in honour of
employees.
★ Birthday with the Boss: Each month, employees are invited to attend
their choice of breakfast or lunch with the CEO in one of the hospital’s
conference rooms to celebrate their birthday; nice meal is served and
each employee is given a special gift
★ Employee Service Awards
★ Chair massages
★ Free Thanksgiving and Christmas holiday buffets
★ Perfect
attendance recognition (special reception, certificate presented
and drawings for special prizes including a trip to a resort area)
★ Valentine’s
Day Ice Cream Social/Late Night Sweetheart Breakfast for 3rd
Shift employees (administrative team cooks and serves employees)
★ Holiday trips for employees/families that feature discounted tickets and

rides on chartered buses at no charge
★ Freetickets to sporting events including baseball, arena football, and

hockey games
★ Employee bowling league and basketball team (jerseys/fees paid by

hospital)
★ Wall of Fame recognition
★ Hospital
Connection: Daily briefings with staff for improvement of
communication and recognition of employees’ special achievements
! !241
Engaging the New Age Employee – Role of HR Department
The human resource (HR) department is an important asset of an

organisation. It helps companies in building a team of highly talented
professionals and procedures that are pivotal for success. Over a period of
time, the role of HR has also evolved to include a lot of responsibilities.
Initially, the key role of HR heads was to recruit the right candidate for a
job/ position and retain them. Today, the key functions of the human
resource management (HRM) team include recruiting people, training
them, performance appraisals, motivating employees, improving workplace
communication, ensuring workplace safety and much more. In the current
scenario, more emphasis is also given to training and engagement
programmes to inspire the employees to enhance their knowledge to
ensure career growth. This, in turn, helps motivate and encourage
employees in constantly delivering productive results. Over time,
companies have also adopted better technologies to help implement the
expanded role of the HR department.
HRM is based on three pillars — Diversity, Talent Management, and

Personnel Systems. In today’s business world, we can split functions of HR
department into two parts ie; HR-Administration and HR-Leadership and
organisation. HR administration deals with managing compensation and
benefits. There is a crucial link between compensation and the right talent.
Compensation and benefits design is core to the employee value
proposition and the employer brand.”
! !242
HR leadership involves helping the topmost management improve people

capabilities. HR leaders need to work towards identifying the employee
skills needed for business success, leading talent development, designing
organisations to deliver results, fostering a culture of agility and
responsiveness, and leading change efforts.
HR department is extremely relevant to ensure empowerment of

employees and their careers through training, development and growth
opportunities that will sustain growth. As part of its key deliverable, an
active HR department must recognise the impact of the outside
environment on the organisation, measure the impact of the competition
on the dynamics of the employment market and integrate the overall
organisational strategy and functional strategies, apart from initiating
engagement programmes.
Attrition is a major challenge faced by HR personnel in today’s competitive

market and one way of tackling this challenge is to have effective
employee engagement activities which would open up line of
communication. Today’s HR activities focus lies on engagement value
proposition that creates engagement drivers, systems and strategies
including leadership, communication, work environment, team-work,
career development, rewards and recognition and work-life balance.
The role of an HR department is to ensure that the employees stay

connected with the organisation and feel free in sharing their goals, fears
and conflicts. However, often employees face difficulties in approaching
their HR personnel due to a lot of reasons such as lack of daily
engagement, lack of open communication lines and pre conceived notions.
In the process of organisation development, one needs to have a clear
understanding of business perspective and human behaviour. Human
behaviour is a science for which one needs to have the understanding and
knowledge of the subject and hands on experience which differentiates HR
from any other support functions.
If HRM is so crucial to a company’s performance, then it follows that

companies need the right HR professionals who are up to the task. We
need to understand that this is a knowledge world. We also need to realise
the fact that HR is essentially a facilitating function rather than a frontline
one. Several of the conventional HR matters are known to the heads of
other line functions. The difference essentially happens when HR as a
! !243
function is not able to appreciate the needs of those who produce, sell and
makes the company laugh to the bank. Hence, a need has arisen for HR
function to have full knowledge of the business, in its entirety.
9.12 Key components of employee engagement
Aon Hewitt conducted a study to analyse key reasons for employee

engagement. Some of the key drivers highlighted by the study are
indicated as under-
★ Company’s Brand: Out of the employee surveyed, around 82 per cent

of employees value this aspect of a company’s brand, and a solid
reputation as an employer of choice can go a long way in engaging
employees
★ Strong leadership: Companies with the most engaging leadership are

those that invest in cultivating and developing talent, focus on talent
beyond the typical performance management cycle, have leadership
programmes and practices aligned with the business strategy and
recognise that “leadership is a way of life”. Having an engaging leader in
place, and ensuring this ethos is spread throughout the organisation, is
crucial to successful engagement
★ Performance focused reward programmes: With the range of staff

incentive and loyalty programmes available today, there is no excuse not
to take steps to implement a comprehensive reward and recognition
plan. Doing so could be the final piece in the employee engagement
puzzle
Happiness at work is counted in terms of words of appreciation,

recognition, respect, encouragement, time taken to complete a task and
issues like leave. It plays a very important role in retaining the employees
for a longer span and ensuring their loyalty to the company. Today’s
generation looks for a job which can define them, help them contribute in
the growth of the company and give them a great sense of purpose.
Pharma companies should strategies their HR plans around these aspects
to retain world-class professionals who can help them achieve new heights.
HR departments of today are key strategic partners in their organisation’s
short and long-term strategies. Engagement programmes hold significant
value in light of retaining the talent.
! !244
HR engagement activities should be directed towards organisational

development as well. Such initiatives aid in higher productivity levels
among employees and also add to their attachment and passion towards
the organisation. It is an established fact that employees turn out to be
more productive if they feel fulfilled in their jobs. Moreover, they tend to
align with the organisation’s long-term goals and thereby help in achieving
a good retention level and productivity.
The HR department should clearly define the organisational goals, create

opportunities for employees to enhance their skills from time-to-time for
their professional growth and recognise and reward their performance so
as to bring out the best in them. The HR team also helps in maintaining a
safe, clean, healthy and employee-friendly working environment. Thus, it is
imperative for companies to set up a strong and effective HR department.
Employees are the real assets of an organisation and rewarding them
appropriately provides both encouragement and motivation.
9.13 Tips for Effective Multigenerational Employee

Recognition – Best Practices
Deepen engagement by holding younger employees accountable

and building trust for older workers.
Regardless of age, the top driver of employee engagement is a sense of

opportunity for development in the organisation and that the company
cares about me. However, the number two driver of engagement for
younger workers (ages 25-44) is a sense that employees are held
accountable for their work. Younger workers want to know their work will
get noticed and see how it makes a difference for the company and their
careers. For older workers (ages 45-64), a feeling of trust for leaders and
respect by leaders is the number two engagement driver. They need to feel
that their company trusts them to perform, and trust that their managers
support their actions.
! !245
Motivate younger employees with promotions and formal

recognition for their work. Motivate older employees with variety
and autonomy.
Across the board, employees are motivated by exciting, challenging work.

But once that need is met, generational nuances matter. Younger
employees (ages 25-44) want their work to be noticed by their peers,
leaders and the organisation. Recognition and promotions help younger
employees feel a sense of opportunity and well-being. Older employees
(ages 45-64) want to feel secure in the organisation they work for; variety
and autonomy not only give them this feeling, but also allow them to feel
empowered to make a difference.
Make sure recognition is meaningful for less experienced

employees and based on performance for more experienced
employees.
Less experienced employees (those under age 25) want recognition to

come across as genuine and personal. More experienced employees (ages
26 and up) need their recognition to be specific, based on performance,
and given for very clear reasons.
Highlight unique ways less experienced employees contribute, and

make sure recognition is given fairly for more experienced
employees.
All employees want to be recognised and appreciated in a variety of ways.

Less experienced employees want to be uniquely valued, preferring more
spontaneous recognition. Recognition that appears to be given to younger
workers to “check a box” or “because it’s their turn” is not meaningful.
More experienced workers are less concerned with uniqueness and more
concerned with recognition that is fair, based on performance, and earned.
Because they typically have more senior positions/greater tenure, their
award expectations are also higher.
! !246
When planning career celebrations, keep in mind what would be

most meaningful for each individual employee.
Younger employees (ages 25-44) report wanting a more casual, party-like

environment with more opportunities to socialise, to get away from the
work location, and have greater management participation (but they’re
sensitive to presentations that are generic and not personalised). Older
employees (ages 45-64) are more comfortable with more corporate /
formal presentations, family involvement, and greater management
participation.
By recognising and appreciating your multigenerational employees

appropriately, you can engage, motivate and inspire great work from all of
them.
9.14 Type of Rewards implemented by large Multi-National

Companies across the Globe
On-site scuba lessons, desks on wheels, employee shopping sprees and

unlimited time off are just a few of the ways innovative employers recruit,
reward, retain and refresh workers. See if any of these best practices—
some simple, some extravagant—inspire you to take a fresh look at your
company’s perks:
E.g. Verizon
Verizon, the phone, wireless and cable TV giant, encourages employees to

post videos of themselves showing and telling their colleagues how to
perform job related tasks or solve common problems. Through 2013,
workers had posted more than 2,800 videos on the company’s intranet
video site, VZTube. With more than 2 million views, the videos have gone
viral—at least internally.
Videos depict employees demonstrating the use of computer software and

other business tools. One popular video—about Samsung’s Droid Charge
smartphone—logged 1,240 views within minutes of being posted.
E.g. Upstream Systems
! !247
After its research showed that consumers respond well to pitches that
involve playing games, marketing firm Upstream Systems “gamified” its
own search for job candidates.
Applicants for five marketing campaign manager positions competed for

the job by competing in an online challenge, which senior VP Guy Krief said
was designed to attract “the right kind of candidates for this role.”
The multinational Upstream, with U.S. operations in California’s Silicon

Valley, develops smartphone-based marketing campaigns for consumer-
products clients. The campaign manager selection game required would-be
employees to navigate seven online “missions” set up to reveal their
language fluency, creative thinking, understanding of basis statistics and
tolerance for challenge, Krief explains. The challenge took about an hour
and led candidates through a series of problems related to specific aspects
of the position they were seeking. They had to “decrypt” anagrams,”
answer word usage questions, solve elementary math problems, match
customer emotions to hypothetical scenarios and more. Krief said the
game-like format of the job “application” attracted candidates who might
not have applied for the job through more traditional means.
E.g. Patton Boggs Law Firm
It’s not too early for the Newark, N.J., office of the Patton Boggs law firm to
start planning its annual holiday celebrations—because it throws two
separate parties every December. The first is for the children and guests of
staff members, and includes visits from Santa, Mrs. Claus and their many
elves. The second party is for employees and their partners, and is held at
a local country club. The abundance of holiday cheer, say execs, is part of
an effort to create a family atmosphere and reinforce social ties among
staff members. Throughout the year, the firm’s employees mingle during
monthly cocktail parties. In addition, Patton Boggs offers employees extra
half-days off during the summer and on-the-spot bonuses of up to $2,000
for jobs well done. The firm’s attorneys are required to complete at least
100 hours of pro bono work each year, and the staff routinely pitches in to
help the homeless and hungry in their communities.
! !248
9.15 How Indian Companies are using rewards to motivate

employees to perform – In times of slow down
The general sentiment at an organisation during a downturn can be

draining with discussions surrounding cost control and return on
investments. Companies are, therefore, now walking the extra mile by
strengthening existing rewards and recognition programmes and setting up
new ones to drive performance.
Companies have realised that recognition can reinforce desired behaviour

in employees, helping them achieve targets. In a Gallup poll, 82% of
employees said that the recognition or praise they receive at work
motivates them to improve their performance. So companies are tweaking
such programmes to make them more attractive.
E.g. Hexaware Technologies, for instance, is launching a point based

rewards system to increase overall employee performance. Under the
programme, employees can earn points for defined behaviours that the
organisation wants to incent and recognise. The earned points can be
redeemed for appealing rewards, including merchandise, gift certificates,
movie tickets and more which would be linked to an online brand store.
E.g. Siemens, on the other hand, has created a special employee reward
and recognition mechanism called 'Puraskar', which includes non monetary
and monetary rewards. The concept is unique because any employee can
recognize any other employee through an ecard, which is available on a
special portal created for recognition.
While India has suffered less than many other economies during the global
downturn, there has been a marked change in the outlook of employees
and employers. The opportunistic, job hopping Indian employees of recent
times are realising they cannot sustain that trajectory, with its lack of
opportunities for learning and development.
Employers are also finding themselves under examination from candidates

who are looking for longterm career prospects. Recruitment discussions are
moving away from the boom time focus on "how much money?" and "when
will I get an increase?" to "what is the business plan?" and "how will this
enrich my career?"
! !249
Performance is the key driver in the post recession world. Reward — and a
new focus on total reward that is closely tied to performance — will play a
crucial role in allowing organisations to compete in this new environment.
Siemens, which introduced the system of ecards, evaluated that there was
scope to track the programme on the intranet through the backend to
understand which employee gets the largest number of ecards. This can
help the organisation understand the link between recognition and
performance.
E.g. At Blue Dart, recognition does not wait for a special ceremony. It is
segmented under Bravo Blue Darter, Super Darter and True Blue Darters,
among others. Increased recognition of employees gives a good feel about
the organisational health and motivation of the employees, leading to
voluntary contribution and ownership.
E.g. Ambuja Cements - Engaging the entire team in the potential success
of the organisation in tough times helps in extending the success during
the recovery, and beyond that. Employee engagement at Ambuja Cements
is aimed at working towards improved outcomes on safer work places,
improved productivity, better customer satisfaction and enhanced
profitability. The company wants to build this into the culture of the
organisation through a programme which has been aptly termed 'Umang'.
It was launched after Ambuja conducted a survey to see how it can work
around employee engagement. The focus is to have a more engaged
workplace. As part of a recognition initiative, Ambuja Cements has also
introduced a 'frame' of recognition for employees, which is basically a
photo frame with two slots where one slot has an inserted recognition card.
E.g. H & R Johnson - H&R Johnson (India) has an employee engagement

programme called 'Life Beyond Work', where a homelike atmosphere is
created at the office to enable informal interaction between employees. The
philosophy behind Life Beyond Work employee engagement programme is
based on the fact that motivated and engaged employees drive high
performing organisations through increased productivity, lower turnover,
and better customer service.
! !250
9.16 Categories of Various Reward Schemes
Base pay
Base pay, or basic pay, is the minimum amount that an employee receives
for working for an organisation.
E.g. For example, the employee may be paid $10 per hour for a minimum
of 40 hours per week. The employee will therefore earn at least $400 per
week. This will be paid regardless of how many of those 40 hours the
employee is actually working. A fixed annual salary is another example of
basic pay.
Basic pay may be supplemented by other types of remuneration. A blue

collar worker may be paid overtime for example if he works more than 40
hours per week, and a manager may receive some form of performance
pay in addition to the base pay. Basic pay is likely to address the lower
levels of Maslow’s hierarchy of needs mentioned above.
Performance-related Pay
Performance-related pay is a generic term for reward systems where

payments are made based on the performance, either of the individual
(individual performance-related pay) or a team of employees (group
performance-related schemes).
In recent decades there has been a move toward performance-related pay

schemes in many organisations. This has lead to a situation where a higher
portion of the employees pay is dependent on performance. This rationale
for performance-related pay is that it motivates employees to work harder,
and rewards those who make a greater contribution to the organisation’s
goals.
This should lead to efficiency savings. There are many types of

performance related pay, and the most popular ones are described below.
! !251
Piecework Schemes
Under Piecework schemes, a price is paid for each unit of output.
Piecework schemes are the oldest form of performance pay, and were used
for example in the textile industries in Great Britain during the industrial
revolution. Piecework schemes are appropriate where output can be
measured easily in units. They are typically used for paying freelance,
creative people.
E.g. Freelance writers for example are often paid based on the number of
words. The benefit of piecework schemes is their inherent fairness. The
higher the output, the more the employee (or subcontractor) receives.
From the employer’s perspective, the employer does not have to pay for
idle time or inefficiencies.
From the employee’s perspective, such schemes mean that the employee
bears commercial risk if demand for their product falls. A further
disadvantage of piecework schemes is that the payment is not based on
the quality of output. However, some sort of quality control is likely, and if
the quality is not of a required standard, the employee or subcontractor
will not be paid.
Individual Performance-related Pay Schemes
Individual performance-related pay schemes are where the employee

receives either a bonus, or an increase in base pay on meeting previously
agreed objectives or based on assessment by their manager, or both. They
are typically used for middle managers in private sector organisations and
for professional staff.
The advocates of individual performance-related pay schemes claim that

their they are an obvious way to align to objectives of middle managers
with the goals of the organisation. If performance targets set are based on
the goals of the organisation, then it appears obvious that making part of
the rewards of employees’ contingent on achieving those targets will mean
that employees are motivated to achieve the goals of the organisation.
Individual performance-related schemes also have the advantage over

group schemes that the employee has control over her rewards, as they do
not depend on the effort (or lack of) of other members of the team.
! !252
Critics of such schemes point out that the link between rewards and
motivation is far from clear, as discussed above. It is also argued that
performance related schemes lead a situation of tunnel vision whereby if
something is not measured, and then rewarded, it won’t get done.
Individual reward schemes may lead to a lack of teamwork and may lead
to variances in pay among individuals, which can lead to ill feeling.
E.g. An example of an individual performance-related pay scheme is one

that is operated by a UK bank. Under the scheme, a bonus pool is allocated
to each region based on the performance of that region. From this pool,
individual awards are made based on assessment of performance, taking
into account the rating on a five-point scale. Those with scores of 1 to 3
qualify for a discretionary bonus. The assessment depends on how much
new business the individuals have brought in, or how much efficiency
savings they have generated. The rewards are usually paid in cash,
although for senior employees receive a portion as deferred stock.
Group-related Performance-related Pay Schemes
Group-related performance-related schemes are similar to individual, in

that rewards are paid based on the achievement of targets. However, the
targets are set for a group of employees, such as a particular department,
or branch of a company, rather than for an individual. Since the rewards
apply to a group, they are likely to be based on a pre-determined
quantitative formula, rather than on assessment of staff.
A bonus pool is calculated based on the performance of the team, and this
is shared among the members of the team. Bonuses may be paid up at the
end of the year, or may be deferred, and paid at a later date, as this may
encourage staff and managers to take a longer term view, rather than
simply focusing on the current year’s bonus.
The advantage claimed for group schemes is that they encourage

teamwork. The disadvantage is that the lazier members of the team benefit
from the hard work of the more dedicated.
! !253
E.g. Hope and Fraser give the example of a scheme operated by Svenska
Handelsbanken, where each year, a portion of the banks profits are paid to
a profit sharing pool for employees, provided that certain conditions are
made. The main conditions are that the Handelsbanken Group must have a
higher return on shareholder’s equity than the average of its peer group.
The upper limit of the amount paid into the scheme is 25% of the total
dividends paid to shareholders. Employees do not actually receive anything
from the pool until they reach the age of 60, at which point they receive a
pay out based on the number of years that they have worked for the bank.
The CEO of Handlesbanken claimed that employees are not motivated by
financial targets, but by the challenge of beating the competition. The
reward scheme is designed to be a dividend on their intellectual capital.
Knowledge Contingent Pay
Knowledge contingent pay is where an employee will receive a pay rise or a

bonus, or both, for work-related learning.
E.g. An ACCA candidate, for example, may receive a higher salary once he
has passed all the knowledge level papers, and an even higher salary after
passing all of his exams.
Commissions
Commissions are a form of remuneration normally used for sales staff. The
staff may receive a low basic pay, but will then receive commission, based
on a percentage of the amount of their sales. The advantages of
commission are that they should motivate sales staff to achieve higher
sales, as their rewards depend on it, and they mean that the large part of
the salesman’s salary becomes variable. If sales are low, the organisation
will have to pay less. The disadvantage of commission is that it may lead to
dysfunctional behaviour.
Sales staff may indulge in window dressing, for example to meet this years
sales target, by selling on a ‘sale and return basis’ in the final month of the
year, with the inherent understanding that the goods will be returned in the
following month of next year. They may also lead to short termism, where
sales staff ‘never put the customer above the sales target’ to quote Hope
and Fraser.
! !254
Profit-related Pay
Profit-related pay is a type of group performance-related pay scheme
where a part of the employee’s remuneration is linked to the profits of the
organisation. If the company’s profits hit a pre-determined threshold, a
bonus will be paid to all members of the scheme. Typically the bonus will
be a percentage of the basic pay. The bonus may be paid during the year in
question; for example, quarterly, or it may be deferred until some later
date, such as the retirement of the staff.
Advocates of profit-related pay argue that it motivates employees to

become more interested in the overall profitability and therefore become
more motivated to ‘do their bit’ to improve it. It may also encourage loyalty
in cases where staff may lose their bonus if leaving the organisation means
that they lose the right to it.
The obvious disadvantage with profit-related pay is that it does not match
the primary objective of commercial organisations, which is to maximise
the wealth of the shareholders. Managers may be motivated to increase
profits by taking short-term actions that will harm the business in the long
run, for example, or destroy wealth by investing in projects that increase
the profits of the organisation, but produce a return that is below the cost
of capital of the organisation.
Profit-related pay might not be a motivator for junior employees, who may
fail to see the link between their effort and the overall profits of the
organisation.
Stock Option Plans
Stock option plans have become very popular since the 1990s, when
greater emphasis started to be given to shareholder value. Under stock
option plans, staff receive the right to buy shares in their company at a
certain date in the future, at a price agreed today.
E.g. Alpha Co. is listed on the stock exchange of Homeland. Today, shares
in Alpha Co. are trading at $100 each. The company has just awarded the
CEO of Alpha Co. the option to buy 1 million shares for $100 each in
exactly ten years time. These options have no intrinsic value at the
granting date.
! !255
If the share price rises to say $200 in 10 years time, the CEO could
exercise his options, buying 1 million shares at a price of $100 each. Since
the shares would be worth $200 each by then the CEO would make a gain
of $100 per share, or $100m in total.
Stock option plans are most appropriate for the senior management of
organisations as they are the people who have the most influence over its
share price. The rational for using stock option plans is that they align the
objectives of the directors with the objectives of shareholders. If the share
price rises, the senior management benefit because their options increase
in value. Thus senior managers will start to think like investors.
The big weakness of stock option plans is that share prices may depend on
external factors as much as on the performance of the directors. During
the bull markets of the 1990s and 2000s, many companies share prices
rose simply because the market rose.
Another weakness is risk misalignment. Share options reward managers if

the share price goes up. If the share price falls, however, there is no
difference in reward between the share price remaining the same ($100)
and falling to ($1) – so managers may be motivated to take extreme risks
where the exercise price may not be met.
What shareholders really want is the performance of their company to be

better than the market. One solution to this is to use an indexed exercise
price, where the price at which the director can buy the shares is equal to
the current market price, plus the increase in the stock market index
between the date that the options are issued, and the exercise date. This
means that the share option reflects the controllability principle more
closely, as directors would not be rewarded for rises in the stock market in
general.
PENSION SCHEMES
Defined benefit pension schemes used to be a popular form of reward.

Under such schemes, the employee pays a pension to former employees
based on their final salary, and the number of years that the employee
worked for the organisation.
! !256
E.g. A typical example is that the former employee receives 1/60ths of

their final salary for every year of service. An employee who works for 40
years for the same organisation would therefore, receive a pension equal
to 40/60ths of their final salary from the date of retirement to the date of
death.
Defined benefit schemes leave organisations with an uncertain, often large

liability, and for this reason, many organisations have now discontinued
such schemes.
Defined contribution schemes are another form of pension scheme where

the employer pays a certain percentage of the employee’s salary into an
account for the employee in a pension ‘pot.’ The employee may also have
the option of making additional voluntary contributions into this pension
pot. The pension pot is then invested, and the employee receives whatever
is in their account on retirement. In some countries, employees may be
required to use what is in the pot to buy an annuity, which pays them a
fixed income for the rest of their lives.
Many countries offer tax incentives for such pension schemes, such as
allowing employees to reduce their taxable income by the value of
contributions made to the schemes.
Benefits in Kind
Benefits in kind (or indirect pay) are paid to employees in addition to their
base salary and performance-related pay. Benefits in kind include items
such as health insurance and meal vouchers. They are usually provided to
more junior staff in order to provide additional incentives at a lower cost.
They are often used as a form of recognition, so the employee of the
month for example will be given a benefit rather than a cash payment.
The advantage of benefits in kind is that greater flexibility can be given in

designing a reward scheme for an individual.
E.g. ‘Cafeteria’ schemes have also become popular, whereby employees

are told that they may select benefits from a menu up to a certain value.
The advantage of this is that employees will select the benefits that they
value most. Benefits from which the employees can choose typically
! !257
include such items as health insurance, holiday vouchers, company cars or

sports vouchers.
Cafeteria schemes may be difficult to administer. Staff may also find them
complex to understand, as they will have to select a number of benefits
that have a value that is within the agreed limit.
Establishing the Level of Benefits
How much should employees be paid? Two factors need to be taken into
account here. First, competitiveness, and second internal equity. As already
mentioned above, unless the level of pay is competitive, it will be difficult
to recruit and retain the right number of skilled employees. If it is too
much, the cost to the organisation will be too high. Here the organisation
will compare its pay levels with competitors. Such information may be
available from job adverts in newspapers or on the Internet, or from
recruitment consultants.
Internal equity relates to the pay differentials within the organisation itself.
Staff will become demotivated if they feel that the remuneration system is
‘unfair’ and that other people are being paid more generously. Job
evaluation techniques are used that try to determine the value of a specific
job to the organisation. Based on this, the level of rewards for that
particular position will be determined.
The Role of Appraisal in Reward Systems
Many of the performance-related reward schemes depend on the

performance of the employees. As such, the employees’ performance has
to be assessed. This usually takes place during the appraisal process. Staff
will be assessed on a regular basis, for example twice a year. During the
appraisal, targets will be set for the next period, and rewards agreed if the
targets are met.
Table of Rewards 
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Monetary Rewards Salary Increments
Promotions
Paid Up Insurance
Loans
Transport
Telephone
Profit Sharing
Incentive Cash
Company Accommodation
Bonus
Cash Awards
Furniture
Company Shares
Other Facilites
Non Monetary Free Lunch

Rewards
Picnics
Dinner with Boss
Birthday Treats
Festival Bashes
Dinner for Family
Knick –Knacks Desk Accessories
Co-Watches
Tie-Pins
Diaries
Calendars
Wallets
T-Shirts
! !259
Bigger Table
Better Chair
Cabin
Awards Trophies
Plaques
Citation
Scroll
Certificate
Letter of Appointment
Social Informal Recognition

Acknowledgement
Friendly Greetings
Smiles
Solicitation of Advice
Showing Trust
Membership of Clubs
Use of Company Facility For

Personal Project
Photograph on Notice Board/

Company’s Journal
Special Praise by Management
Pat on Back
Opportunity for Lecture
Tokens Movie Tickets
Vacation Trips
Early Off
Coupons Redeemable At Stores
Present
Special Leave
! !260
On the Job More Responsibility
Job Rotation
Special Assignment
Training
Security of Tenure
Representing Company at Public

For a Trips on Duty
More Authority
Fair Treatment
Favourite Work/Job
Facilities for Self-Development
Self-Goal Setting
9.17 Activity
1. Conduct a survey of reward practices with number of companies and

develop a report of observations. Draw a comparison of the reward
practices across industries
…………………………………………………………………………………………………………………………
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9.18 Summary
An increasing number of successful, large organisations are achieving

better results, and greater employee engagement, by linking reward
directly to performance. This approach is no longer just for sales people.
Instead, it can be highly effective at all levels, and in all functions of an
organisation. But to be successful, it has to be implemented correctly.
! !261
Creating a performance-based reward culture may seem like an abstract

vision for some. However, many senior executives see it an important tool
for achieving success. That’s because it can unlock employee potential,
retain and motivate your high performers, and ultimately deliver healthier
financial results.
The key business benefits of performance-based reward include:
★ Clearer goal alignment

★ Focused development and career planning
★ Increased employee engagement and motivation
★ Improved retention
★ Greater cost savings
By aligning individual objectives to business goals, you can focus your

learning and development activities on the things that matter to your
business. In turn, this will help you to increase the capability of your
employees, and lead to improved business results. Through unlocking and
nurturing employee potential, you can work with employees to plan and
develop their careers in your organisation. This will help you with both
talent management and succession planning activities.
If employees are engaged, motivated, and rewarded appropriately, they

will want to stay with an organisation. According to Giga Information
Group, retention can be improved by up to 27% in a performance-based
reward culture. In a well-structured system, managers have easy access to
all the information they need to reward individuals for actual performance.
This allows them to track that performance against defined expectations,
and reward accordingly. That way, employees can directly influence their
own financial reward – which many HR experts say is crucial to retaining
high-level performers.
It’s important to realise that there is no ‘one-size-fits-all’ approach to

developing a performance-based reward culture. To be successful, you
have to customise and tailor a system that’s unique to your business needs
and existing HR processes.
! !262
1. You are a HR Head of a Multi-National Banking and Financial Services

Company which is struggling to improve the organisational performance.
You have been asked by the Board of Directors to come out with an
innovative rewards policy. You are required to formulate innovative
rewards.
2. Explain various type of rewards system relevant to the 21st century

employees.
1. ___________ are given to employees to combat the effects of inflation

in an attempt to preserve the employee’s buying power.
a. Base pay
b. Cost of Living adjustments
c. Short term incentive
d. Variable pay
2. Which of the following type of reward is least expected to lay emphasis

on the work life focus for many organisations?
a. Time away from work

b. Cash rewards
c. On-site fitness room
d. Flexible work
3. Which of the following is an example of non-monetary reward provided

by the organisation to ensure reduced attrition levels?
a. Career growth opportunities

b. Good reporting manager
c. Flexibility in dress code
d. None of the above
Answers
1. (b), 2. (b), 3. (d)
! !263
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !264
REWARD STRATEGIES IN THE TECHNOLOGY / KNOWLEDGE ECONOMY
Chapter 10
Reward Strategies in the Technology /
knowledge economy
Objectives
★ Gain an understanding of the rewards in the knowledge based economy
★ Gainan understanding of the use of social media for driving rewards and
recognition programmes
★ Understand the importance of recognition over pay
Structure:
10.1 Reward Strategies in Knowledge Economy
10.2 Use of Social Media for Driving Rewards and Recognition Programmes
10.3 Reward Linked to the Organisational Performance
10.4 Importance of Recognition for Employees, More Than the Pay
10.5 Activity
10.6 Summary
! !265
10.1 Reward Strategies in Knowledge Economy
Intangible assets and human resources is the biggest growth driver and
creator of value of organisations in the knowledge based economy. It is
always an endeavour of the HR Function to keep the employees happy at
all times to drive better productivity. It is good to gain insight into the
factors that keep employees happy at all times and especially when routed
through right reward and recognition programmes. All businesses and
organisations want happier employees. The problem is that too many of
these companies think that higher profits are more important. However,
more and more evidence is showing that employee happiness is a huge
reason why companies are able to earn more and be more successful.
Some of the recently published facts and statistics by SnackNation

research are as under:
★ Companies with happy employees outperform the competition by 20% –

Happy employees are typically the ones who care about the organisation
and have a desire to help your company achieve success. Simply put,
when your employees are happy they care more. Your team’s goals are
more compelling. They feel invested in the company’s performance.
Otherwise, your employees wouldn’t be happy and they’d be putting in a
minimum effort to avoid being fired. Happy teams like what they do, so
their work feels less like work and more like fun
★ Happy employees are 12% more productive – Enjoying what you do

typically makes you want to do more of it. Plus you’ll notice that you find
fewer reasons to get distracted
★ 67% of full-time employees with access to Free Food at work are

“extremely” or “very happy” at their current job – It shouldn’t come as a
surprise that free food is one of the top perks that employees desire. It’s
one of the major reasons why companies like Google and facebook use it
as a way to attract and keep top talent
★ Happy sales people produce 37% greater sales
★ 36% of the employees are ready to give up $5000 p.a. year in salary to
be happier at work
! !266
★ Peoplewith best colleagues and partners at work are 7 time more

engaging in the work
★ Factors that contribute to the job satisfaction for the employees were
- Job Security
- Opportunities to use skills and abilities
- Financial Stability of the Organisation they work for
★ Employees who report being happy at work 10 times less sick days or
leave
★ Only42% of the employees are happy with the rewards and recognition
programme of their companies
10.2 Use of Social Media for driving rewards and

recognition programMEs
The average age of Facebook users is 38, 39 for Twitter, and 44 for
LinkedIn. So the notion that social media is a fad embraced by only youth
is completely untrue. The reality is that social media is here to stay, and
the sooner we accept this reality, the more equipped we will be to harness
its power.
There is a lot of debate regarding the use of social media in the workplace
and its impact on productivity—and often based on a negative perspective.
We need to start seeing the glass as half full rather than half empty.
Through social media, the opportunity to communicate and connect with
employees has never been greater. It’s time to recognise your employees
in new and exciting ways, using social media as the foundational tool in
your recognition strategy.
1. Recognise often. So often, our recognition strategy is giving

recognition only for big events such as service anniversaries or
momentous achievements such as a big project launch. Social media’s
realtime immediacy can empower us to recognise everyday successes
that often go unnoticed.
! !267
2. Spread the news. In today’s global economy, it is becoming ever more

critical for employees to connect with their counterparts from across the
globe. Social media allows for recognition to be disseminated and
shared across boundaries and without passports.
3. Jump on the bandwagon. It is always important to distribute

recognition of behaviours or achievements in a timely manner. Social
media also allows us to extend the recognition experience by allowing
others to see who you are recognising and why, and also allows others
to offer their own congratulations to the recipient, as part of the
conversational stream.
4. Capture the moments. With the power of smartphones, you can easily
capture photos and videos of your recognition events and share them on
social media with those who could not be present or to simply extend
the smiles of those who did attend, as they remember the great time.
5. Join the conversation. We sometimes forget that communication

should always be two way. Instead of just announcing new programmes
to your employees, invite them to give feedback on your recognition
initiatives. Social media easily enables this, and continuous feedback is
the only way to continually improve programmes.
6. Extend the sense of team. With more and more employers offering
flexible work hours and home office setups, it can be difficult to inspire
team spirit across remote employees who don't work during the same
hours. Social media is great way to deliver manager to employee
recognition and even peer to peer recognition no matter from where it
originates or where it ends—whether it’s at home or at the office—and
across all work shifts.
7. Make executives more accessible. It is always a challenge to find

ways for your top executives to connect with workers. Social media
offers a great opportunity for senior management to approach and
recognise everyday champions of the organisation.
8. Expand the reach. Deployment of a recognition initiative can be

daunting in a large organisation. Social media offers the opportunity to
get your message out to a large and even organisation wide audience in
a fast and consistent manner.
! !268
9. End the “flavour of the month.” New recognition programs often fall
victim to the “flavour of the month” syndrome. By easily allowing
constant messaging and interactivity, social media is a great way to
keep recognition programmes top of mind with participants throughout
the year.
10.Say what you mean, and mean what you say. Even though you are
recognising the sometimes small everyday successes with social media,
it is important not to lose the sense of sincerity, which makes any
recognition truly meaningful. Always be specific about who and what
you are recognising. This always ensures that the recognition will be
well received.
10.3 Reward linked to the Organisational Performance
E.g. Infosys promotes 2,100 employees after stellar Q3 numbers.
Infosys BSE 0.55% has promoted 2,100 employees soon after reporting
stellar December quarter numbers that comfortably overshadowed not only
market expectations but also larger rival Tata Consultancy Services BSE
0.46%, which missed estimates for the quarter.
A spokeswoman of the country's second largest software exporter

confirmed the development and said the promotions would be effective
January 1. The latest round of promotions have been handed out to
executives across the company based on their performance as well as the
maturity of their roles.
Earlier in the month Infosys had lowered variable payouts to employees

from 100 per cent to 75 per cent, despite a healthy third-quarter show.
The January promotions are marginally higher than the October round that
saw 2,000 top-performing employees and senior managers get promoted,
but is much lower than the number of promotions that were handed out
during the last financial year shortly after former SAP products chief Vishal
Sikka took over as CEO of Infosys.
In August 2014, shortly after taking over the reins of the company, Sikka
sanctioned 5,000 promotions across the company as part of employee
morale-boosting measures to curb attrition that was hovering around the
20 per cent mark at that time.
! !269
In the September quarter of 2014-15, Sikka approved another 4,000

promotions as part of a broader effort to retain key personnel in top
customer accounts such as Bank of America and Procter & Gamble. Infosys
currently is also experimenting with its incentive structure for employees
and is expected to announce a new structure over the coming months and
quarters. In an interview in November, COO Pravin Rao told ET that Infosys
had started handing out special bonuses and incentives to top-performing
employees and sales executives on top of their regular bonuses.
Sikka himself has stressed on the need to overhaul existing metrics to

measure performance for employees, given the radical changes that are
taking place across the technology landscape that is forcing traditional
technology services firms to completely rethink existing business models.
In an interview with ET in September, top Infosys HR executive Richard

Lobo had said that the company was doing away with its traditional bell
curve metric for measuring employee performance and would instead base
appraisals on open rankings.
ET had first reported on April 13 last year that Infosys was planning to put
in place a new incentive structure to reward its sales superstars in a bid to
retain key personnel amid a scramble to win large outsourcing deals and
regain industry-level growth rates.
10.4 Importance of Recognition for employees, more than

the pay
For employees, getting better recognition for their work is the best
motivating factor followed by job security and earnings. Recognition is the
highest motivator (for employees) regardless of age, industry or location –
even outstripping monetary reward. It has been found that 'tone at the top'
describes the attitude of an organisation's board of directors and senior
management towards setting and promoting guiding values and an ethical
culture.
Performance-related pay schemes could help foster best performance,

nearly two-thirds thought such systems may invite people to exaggerate or
otherwise falsify their measures.
! !270
10.5 Activity
1. Select a company in the knowledge economy and understand the

reward strategies implemented such company. Compare those
strategies with traditional ones and draw the assessment results.
…………………………………………………………………………………………………………………………
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10.6 Summary
The Millennials already account for 40 million in the workforce, and they
are set to become America’s first hundred-million-member generation. How
they grew up—with mobile devices, online access, and social media—
influences the way they work. And it’s influencing the way everyone will
work.
Today’s workforce is looking for a new way to engage with work, and
traditional employers must recognise that. Similarly, start-ups—which if
successful, will also become big companies—must also establish a modern
culture that appeals to today’s talent. Today’s companies need to appeal to
today’s modern workforce—not treat people the same way that we were
treated when we started working. The problem is that many employers still
don’t understand and don’t value the mind-set of this new generation and
how it is revolutionising the way we work. Many companies, such as
Facebook, salesforce.com, Google, and LinkedIn, as well as countless start-
ups, understand that there is a huge war for talent under way, and they
want their key people to feel challenged and proud of their employer. They
offer incredible perks, like massage services and pet-friendly policies, and
give them time to work on their own ideas. These companies have also
figured out how to connect to them, embracing such practices as more
flexible hours, valuing outcomes over attendance, and employing the latest
technology. All companies will have to undergo a similar shift, or they will
miss out on working with the talent that will dominate the workforce.
Traditional service awards like gold watches and tie tacks don’t motivate or
engage employees because there is no meaningful recognition behind the
one-time reward, the study concluded. We are seeing new ways to
recognise employees proliferate in the workplace. Take, for example,
! !271
Work.com, a service that uses social technologies to transform the way

companies recognise and reward their employees. Real-time and public
recognition makes sense—it happens when the feedback is still relevant
and when changes can be more easily implemented. That creates a much
more iterative and agile culture. Using a technology that is social, and open
for everyone to see, brings teams together and helps them stay focused on
what matters.
1. Highlight the importance of recognition for employees in comparison to

the monetary rewards.
2. Explain the ways and means to use social media for reward and
recognition of the employees in an organisation.
1. Which of the following statement is least likely to be true related to

happy employees ate work?
a. Underperform competition
b. More productive
c. Attracts and keeps the top talent
d. Produce greater sales
2. Factor that contribute to the job satisfaction for the employees are
_____________.
a. Job security
b. Opportunities to use skills and abilities
c. Financial Stability
d. All of the above
 
! !272
3. Which of the following strategies are least likely to work for

enhancement of engagement with the employees through use of social
media?
a. Recognise sparingly
b. Spread the news
c. Speedy dissemination of congratulations note
d. Capturing and sharing the moments
Answers
1. (a), 2. (d), 3. (a).
! !273
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !274
IMPLEMENTATION OF REWARD STRATEGY AND LATEST TRENDS IN REWARD SYSTEMS
Chapter 11
Implementation of Reward Strategy and
Latest Trends in Reward Systems
Objectives
★ Gainan understanding of the process adopted for implementation of the

rewards strategy
★ Gain an understanding of the latest trends in the rewards systems
Structure:
11.1 Building and Implementing Appropriate Rewards Strategy
11.2 Guidelines for Optimising Recognising and Rewarding Employees that

Managers can use in their Departments
11.3 Offering Right Incentives to Boost Productivity
11.4 Optimising Employee Benefits Programme
11.5 Low Cost Employee Appreciation Strategies that Work
11.6 Tailor Employee Rewards to Generational Differences
11.7 How to Make your Rewards and Recognition Programmes Fun
11.8 Strategic Praising – Steps to Effective Employee Recognition
11.9 From Cash Rewards to Gamifying Recognition: The Top Five HR Myths
11.10 Reward Schemes for Building Best Organisation
11.11 Latest Trends in Rewards Systems
11.12 Rewards – A Board Agenda Item
! !275
11.13 Driving Responsible Reward Strategy – Risky V/s Responsible

Rewards
11.14 Performance Measurement, Rewards and Recognition: Aligning

Incentives with Strategic and Operational Goals
11.15 Effect of Reward on Employee Performance
11.16 Performance Management and Reward Systems – An Effective Tool

for employee Engagement
11.17 Activity
11.18 Summary
! !276
11.1 Building and Implementing appropriate Rewards

Strategy
Employers can double their rewards and recognition efforts in innovative,

cost efficient ways. Good recognition and rewards provide employees with:
★ A fair return for their efforts

★ Motivation to maintain and improve their performance
★ Clarification of what behaviours and outcomes the organisation values
E.g. employee-of-the-month awards, incentive pay, employee appreciation

luncheons, more time off, shopping sprees, wellness incentive contests,
plus employee rewards customized to motivate
11.2 Guidelines for Optimising recognising and rewarding

employees that managers can use in their departments
Eight guidelines for recognising and rewarding employees that managers

can use in their departments.
1. Specify employee rewards criteria: Too often, awards for things like
“innovation,” “showing initiative” and “quality improvement” don’t define
what employees need to do to win. Without that information, some
employees will be stymied before they begin. When a winner is
announced, employees may attribute a co-worker’s success to
favouritism or luck. So make the criteria for rewards as clear as
possible.
2. Reward everyone who meets the criteria: You could announce a

contest, urge everyone to participate, provide plenty of reminders
during the contest period and announce the winner with a flourish. Then
what? You’ve got one winner and a lot of losers who discover that their
hard work didn’t pay off. For a longer-term impact, determine specific
criteria and individual goals, and then reward everyone who meets
them. Publicise each accomplishment and acknowledge every achiever.
As long as the criteria are meaningful, the more winners, the better.
! !277
3. Individualise employee rewards: Generic rewards create generic

results. Give people what they want. Example: Before you give a
workaholic a week off, make sure it won’t feel like exile to that person.
On the other hand, before you reward someone with an exciting new
project, find out if the recipient will be thrilled or feel burdened.
4. Say “thank you” frequently: “Thank you” is always timely. It is as

useful to acknowledge small successes as it is to recognise major
achievements. It validates the importance of the work people do. And it
starts a chain reaction: Pretty soon, more people start saying it to more
people, boosting morale and improving relationships as well as
furthering employee motivation.
5. Nurture self-esteem: When you give people positive, specific and

realistic feedback about their potential, their efforts and
accomplishments, that boosts their self-esteem. They develop into
employees with confidence to set and meet challenging goals, overcome
setbacks and self-manage their work.
6. Foster intrinsic rewards: Intrinsic rewards are the good feelings

people get from doing their work: enjoyment of the task, excitement
about the opportunities and pride in doing a good job. You can’t hand
someone an intrinsic reward, but you can create an environment that
encourages these feelings. Make sure people know their work is
worthwhile. Treat problems as opportunities for innovation. Encourage
people to try new ways of doing things. And let them know when they
have done a good job.
7. Reward the whole team: For team accomplishments, it’s important to

reward the whole team; otherwise, you foster competition, not
cooperation, among team members. Still, some team members may
give more effort—and get more results. In contrast, some team
members may coast along on the efforts of others. When the coasters
get the same reward as the doers, resentment occurs. One option: Meet
this challenge with a double-tiered system of team and individual
rewards. Key point: The individual rewards are based on judgments
from their fellow team members.
! !278
8. Remember: You get what you reward. Since one of the things rewards
do is clarify for employees what the organisation really wants,
employees quickly determine the company values. If you are looking for
teamwork, be sure you aren’t rewarding competition. If you want people
to resolve problems, don’t reward them for covering up complaints. If
you ask for initiative, you may even need to reward people for doing
things in unconventional ways.
The bottom line: Remember that employees can feel rewarded in many
ways, not merely with cash. For top performers, increased responsibility
and lessened supervision can be rewards in themselves, as can flexible
schedules, additional time off, first pick of desirable assignments, and so
on. The point is that employees must indeed feel that you are rewarding
them for both working hard and getting results.
11.3 Offering right incentives to boost productivity
A healthy economy is a productive one — a very simple and direct to the

point statement that everyone can easily understand. However, to achieve
this “productivity” many measures are taken. One of those measures is
boosting employees’ productivity or work force productivity. At a time when
the country is planning a lot of changes and moving in a new direction to
diversify its income and looking for new avenues, work force productivity is
something we need to look into seriously.
Workplace environment is changing globally. It is no longer dependent on a

hardworking individual standing on a production line for hours to make
sure a certain piece is plugged in its right place, it is much more
complicated than that. We are living in an era in which job assignments
and responsibilities are tied together. They need collaboration,
communication, shared platforms and innovative approaches to get them
done. It is a workplace that is filled with technological innovations and
connectivity tools that beg attention and quick actions most of the time.
This image of a vibrant and productive workplace can hardly match the
reality we are accustomed to see in the public or private sectors in our
country.
! !279
Ability to manage time, understanding consequences, owning the job,

focusing, working hard, modifying habits and planning, are all bits and
pieces of what makes work force productivity a whole. Increasing
productivity should be preceded by awareness and motivation or it won’t
work. Only a work force that is well trained, work in an environment where
the tools to attain the expected outcome are available, and clear policies of
rewards, career paths, and evaluations are present, can make a difference.
Set the environment for productivity first, then ask for it.
11.4 Optimising Employee Benefits Programme
One may think that employee recognition is about the rewards you give
workers for long years of service or for retiring after a notable career. It’s
really not. Recognition is about employee engagement. And employee
engagement starts with employer engagement. How engaged are you with
your employees? Do you know their names? Their goals? What makes
them tick? Recognition doesn’t have to be about gold watches or cash
bonuses. It’s even more effective when it’s about relationships. Continue
(or start) to appreciate your employees and recognise them for what they
do. Know their names, their stories. Let them know yours. Let them in on
the organisation’s mission, vision and values. Establish trust.
Treat your employees well. How you treat people today is going to
determine whether your valued employees stay with you when the financial
crisis is over. There are two rules:
The Golden Rule: Treat your employees as you want them to treat your
company. How can you expect them to be loyal to the company if you’re
not loyal to them? How can you expect them to be engaged at work if
you’re not engaged with them?
The Platinum Rule: Treat your employees as you want them to treat your
customers. It’s no coincidence that some of the most profitable companies
in America are also known as the best places to work. You can’t follow
these two rules by simply paying people more. Even though employees
often say they want cash, research shows that personal, noncash
incentives are much more powerful and a bigger lift than dollars and cents
or a tricked-out iPhone. You can cut back on the tangible rewards, but
never cut back on the recognition. Research shows that the absence of
recognition is the second-leading cause of burnout and stress in the
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workplace. So its presence should have the opposite effect. Recognition is

a powerful tool—but it takes a real leader to use it right. The physical stuff
like the gold watches are the things the company usually delivers. It’s the
emotional stuff that managers so often fail to deliver. And that’s why
people “quit their managers.” You can stop it without spending a dime.
11.5 Low Cost Employee Appreciation Strategies that work
Here are 12 low-cost ways that your organisation can show gratitude to
your employees all year.
★ Embarrassment committees. To celebrate a person’s annual

anniversary on the job, form an “embarrassment committee” to make a
ruckus as colleagues deliver a cookie bouquet and gift card
★ Employee Appreciation Week. During one special week, serve

breakfast one day, lunch on another and a make-your-own-sundae party
on a third
★ Children’s art contest. A couple of times a year, exhibit around the

building artwork that employees’ kids have created
★ Door prizes for staff meetings. To add some fun and encourage
attendance, hold a drawing for a small door prize before all-staff
meetings
★ “You’ve been caught” programme. Encourage managers and

employees to notify HR when they “catch” a colleague in the act of going
beyond the call of duty. At monthly staff meetings, introduce all
nominated employees, and mention what the person did. Choose one
winner at random for a gift certificate to a local restaurant
★ Babyblankets. Send blankets to every employee who welcomes home a

new child
★ Safety-record lunches. Host congratulatory lunches when employees

meet safety goals and department milestones
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★ Newsletter features. Include a monthly “Employee Spotlight” column

in the organisation’s newsletter. The newsletter also can include
comments from customers who have praised an employee’s work
★ Mini-massage. Bring in a massage therapist every now and then to give

complimentary 10-minute shoulder massages
★ Birthday shirts. Have your CEO sign a birthday card for each employee
and send it to the worker along with a company logo shirt on his or her
special day
★ Perks for extra work. Surprise employees who have worked long hours
to finish a project with a small cash bonus or a weekend at a bed-and-
breakfast
★ Feedback
from supervisors. This one might be the best. Encourage
management to orally recognise employees on an on-going basis
11.6 TAILOR EMPLOYEE REWARDS TO GENERATIONAL

DIFFERENCES
Most organisations choose rewards based on budgets, tradition and

management choices. Or they may use surveys that solicit preferences but
don’t analyse the results according to generational differences. That’s a
mistake more organisations are trying to rectify. Nearly a third (32%) of
HR professionals plan to alter their total rewards programmes with
generational preferences in mind, according to a Top Five Total Rewards
Priorities survey by Deloitte LLP and the International Society of Certified
Employee Benefit Specialists.
That percentage is likely to increase significantly in the future because the

workforce is becoming more multigenerational—especially as older workers
remain longer to rebuild their nest eggs.
More organisations are customising employee rewards programmes to

accommodate the values, lifestyles, work habits and interests of different
generations. Even low-budget programmes can offer rewards that appeal
to different generations.
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Millennials were born between 1981 and 1999. They are computer-
literate, easily bored and require frequent challenges. They need work/life
balance and value education. Millennials value extra break time,
recognition from clients and contributing to pet causes. This generation
also values gift certificates for music and video; tickets to concerts and
sporting events; transportation subsidies and reimbursement; iPads,
smartphones and other tech tools.
Gen Xers were born between 1965 and 1980. For them, productivity
means working smarter, not longer and harder. They balance work and
personal life and are self-possessed, versatile employees. This generation
values flex-time, working from home, leading a new project team and
recognition from clients. Gen Xers also value bonuses based on
performance, weekend trips, tuition reimbursement and annual salary
increases.
Baby Boomers were born between 1946 and 1964. Their careers tend to
focus on one organisation or industry. Boomers value recognition, such as
employee of the month awards, oral acknowledgment from clients, parking
passes and promotions. This generation also values cash rewards, bonuses,
free day care for a specified period, training seminars, membership in a
club or organisation and dining with the boss.
Matures were born before 1946. They are self-starters who have often
sacrificed family time for work and tend to be loyal employees. They want
respect for their experience and sacrifices. Matures value oral recognition
from bosses and clients, award certificates, extra time off and serving as
mentors to age-group peers and new employees. Matures also value salary
increases, bonuses, profit sharing and cash rewards for suggestions that
lead to workplace improvement.
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11.7 How to make your rewards and recognition

programmes fun
The problem with standardised reward and recognition programmes is that

they are completely impersonal processes. Instead of thinking about the
specific people involved, the company provides the same generic awards to
everyone. But when an element of fun and play is added, the experience
becomes personalised and much more memorable for the award recipient,
without additional financial expense. If you can make the reward and
recognition process fun, your employees will talk about the event long after
it’s ended, and you will have multiplied its team-building impact many,
many times.
E.g. Shopping Spree: Dr. Jeff Alexander of the Youthful Tooth dental
office calculated that he could give a $200 bonus to each employee. But
Alexander knew that if he just added $200 to each paycheck, his staff
would have been excited for a little while, but probably would use the
money for something “practical.” So Alexander closed his office for two
hours one afternoon, took all 35 employees to a shopping mall and handed
each an envelope containing $200 in cash. “This is not your money,” he
told them. “It’s my money. But anything you buy for yourself with this
money in the next hour is yours to keep. Here are the rules: You have to
spend it on gifts for yourself. You have one hour to spend it, and you have
to buy at least five different items. Any money you haven’t spent in the
next hour comes back to me. Go get ’em!” His employees spent the next
hour dashing wildly from store to store, yelling back and forth to each
other about treasures they’d found. “That was a real treat for them—and it
gave me a great feeling, watching them having fun,” Alexander said.
E.g. Ford has a better idea: Ford Motor Co. spent more than $1 million
on one memorable evening, demonstrating that Alexander’s idea can be
easily adapted to fit a more extravagant budget as well. Ford rented out
Nordstrom’s department store in San Francisco one evening and gave
$5,000 in spending money to each of its 250 top-selling sales managers,
who were in town for a national sales meeting. Ford hired sports celebrities
such as Tommy Lasorda and Julius Erving to accompany the sales
managers on their shopping sprees. The bottom line: No matter what your
budget, you can make the bonus fun.
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Employee Appreciation Ideas
Employers host employee recognition events throughout the year, but the
first Friday in March is the official Employee Appreciation Day, according to
Recognition Professionals International. Buy bagels or lunch for the staff,
close shop early or just say thanks. Employers have the option of
extending the holiday for a variety of reasons. An Employee Appreciation
Week might include, according to the Society for Human Resource
Management, an ice cream social or picnic, a mini music concert during
lunch hour, prize drawings, family fun day, chili cook-off or a casual dress
code for the entire week. In addition to fun events, the week can provide
various beneficial activities for the employees, such as a health and
wellness fair or workshops.
7 Proven Ways to Retain, Reward, Recognise your Best Employees
1. Keys to the car. A CEO who used to give $200 cash spot bonuses
started giving high performers the keys to a new BMW for the week.
People would forget about the $200 within a month, but they never
forgot the BMW.
2. Appreciation phone calls from the CEO—to employees at home.
3. “Take a walk in my shoes” video for the staff showing what one
employee did during a typical day.
4. “Roast, Toast and Boast” lunches in which managers would roast a

long-time employee, toast new hires and boast about a company
accomplishment.
5. Do-it-yourself titles. Employees were allowed to create their own

titles (e.g., a deli manager called himself the “deli-lama”).
6. “Coins” peer recognition programme. Employees get three coins each

quarter to distribute to co-workers who perform beyond the call of duty.
Employees cash in their coins for prizes.
7. Secrets of success videos. Long-time workers reveal theirs on videos

that are shown to new hires.
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11.8 Strategic Praising – Steps to effective employee

recognition
You’re doing a good job.” “That’s a great idea.” “Thanks for your extra
effort.” For some employees, hearing those words is better than a cash
bonus. Yet, many managers can muster up such phrases only during
annual reviews—if at all.
That’s why HR professionals need to teach supervisors how to give

employee recognition and provide them the tools to make it easier. Studies
consistently show that “feeling appreciated” is a key reason employees
stick around. And by making employee recognition a companywide effort,
you remove a burden from you and make rewards more personal.
1. Make it soon. Any recognition is good, but the best kind is given as
soon as possible after the good performance
E.g.: When an HP software engineer told his supervisor that he fixed a

software bug, the supervisor grabbed a banana from his lunch and
gave it to the employee with a big “thank you.” Today, the most
prestigious award in that HP department is the “Golden Banana”
award.
2. Make it sincere. Stop guessing at what rewards people want. Ask

them. Medtronic Corp. stopped giving people “stuff” for their years-of-
service awards. Instead, they give days off because the company finally
asked employees, and that’s what they wanted.
3. Make it specific. If possible, relate the gift to the performance being

rewarded.
E.g. Apple Computers prints different company core values on T-shirts

(“Integrity,” etc.) and gives them to employees who demonstrate those
values. “Apple has employees who work hard trying to collect them
all.”
4. Make it personal. One bank asks new hires on their first day to write
on an index card the three things that motivate them (time off, lunch
with the boss, Starbucks coffee, etc.). The card is then given to their
supervisors, who can mold rewards around those “wants.”
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5. Make it positive and public. When praising employees, don’t undercut

it by concluding with a note of criticism. And, when possible, convey the
praise in person and in public. With public praising, “you’re sending the
message that this is the type of thing that gets rewarded around here.”
6. Make it proactive. Teach supervisors how to be on the lookout for

positive behaviours. One tactic: Managers can put the name of every
staff member on their weekly to-do list. Then, managers can cross off
each name as they dole out praise that week.
11.9 From cash rewards to gamifying recognition: the top

five HR myths
Many businesses pay lip service to HR without understanding it or using it

effectively: so how can even the most nascent or companies sort the wheat
from the chaff in terms of people issues? There is no doubt that an
important key to business success is ensuring that staff are engaged and
motivated at all times, and the best way of doing this is through social
recognition. However, there is a wealth of misinformation about how
businesses should treat and recognise their employees. Not only can these
myths destroy attempts to build a solid corporate culture, but it can have a
significant impact on a company’s growth prospects. To avoid this,
businesses need to dispel the following misconceptions.
Engaged Employees are Long Term Employees
It’s a management truism that engaged employees are the greatest

competitive advantage. While there’s no disputing it’s important to have an
engaged workforce, research has shown that employees are often ready
and willing to jump ship at some point in their career. A big problem is that
while businesses understand that recognising their employees has a big
impact on engagement levels, many overestimate how long the impact a
single recognition moment can last. Like any relationship, feeling engaged
requires continued effort.
In order to maintain a lasting relationship with their employees, businesses

need to implement a long term engagement strategy, and this includes
putting into practice a strong organisational culture. By promoting a
winning spirit of optimism and energy, organisations can bond a workforce
of individuals into a common cause, language and set of values. Ultimately,
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this helps employees feel consistently secure, supported and engaged,

which only has a positive impact on their productivity levels.
Cash Rewards are King
When rewarding employees, too many organisations rely on what is

considered to be the easiest and most effective form of recognition – cash.
However, while it’s highly unlikely an employee will refuse extra money in
their pay cheque; in reality, this often holds very little meaning to an
employee. It’s not uncommon for bonuses to be swept up within the
employee’s standard pay packet and spent on day-to-day outgoings – such
as bills, fuel, or a grocery shop. The motivational effect of the reward is
therefore lost as it has no memorable or meaningful connection.
In order to successfully inspire and motivate a workforce, a recognition

strategy must be designed to gratify an employee using rewards that offer
them true value. Indeed, as each employee makes a unique contribution,
it’s only fitting that rewards given reflect this and acknowledge the
individual in a way that only they would appreciate.
Gamification Complements Employee Recognition
The concept of ‘gamifying’ roles within businesses has gained traction

within recent years. As the line between corporate and consumer becomes
increasingly blurred, many organisations are looking at such practices to
increase engagement within their workforce – using leaderboards and
badges to encourage achievement. While the practice can provide some
benefits, businesses need to be very careful about how they implement
such schemes – particularly in relation to recognition. Incorrectly done,
gamification can actually do more harm than good and, rather than being
voluntary and cooperative, becomes mandated and competitive.
In order to apply elements of gamification to a recognition programme it

needs to be done in a thoughtful way – such as gamifying the completion
of a profile or uploading a photo, but not the actual act of recognising a
colleague. Gamification in recognition must also answer the specific tenets
of recognition, such as tying behaviour to company values, expressing
authentic appreciation, and conferring appropriate awards.
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Only Managers Should Provide Feedback
Managers matter. Indeed, managers noticing and appreciating the work of

their team members is necessary and important to employee engagement.
We all need to know that our manager sees our good work, our successes,
and our daily victories. However, even the very best managers cannot see
all the good that is happening around them every day.
Instead, organisations need to implement social recognition, which

empowers employees to recognise their own peers. When an employee can
see they are adding value to their organisation and they are regularly
communicating with both their peers and managers, their productivity
levels will grow.
Employee Recognition Data isn’t Valuable
Traditional recognition programmes that involve only the feedback of line

managers don’t generate a lot of useful data – mainly because it’s only
coming from one source. However, this isn’t the case for social recognition.
Indeed, with so much data generated from different sources, it can be of
great value to a company and have a significant impact on improving
business processes that maximise productivity in the workplace.
Today, sophisticated data analytics are bringing employee management

into a new age. The data supplied by social recognition creates a rich, real
time narrative of company life. By capturing and analysing individual acts
of recognition, a social recognition practice can determine who the hidden
influencers are, who has strong potential and who isn’t pulling their weight.
Because social recognition uncovers which values based behaviours are
lacking and which are abundant, you might think of it as a ‘brain scan’ of
company culture.
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11.10 Reward Schemes for Building Best Organisation
A major part of performance management involves managing employees

and managers, as their performance will have a major effect on the
performance of the organisation as a whole.
Reward system refers to all the monetary, non-monetary and psychological

payments that an organisation provides for its employees in exchange for
the work they perform. Rewards schemes may include extrinsic and
intrinsic rewards. Extrinsic rewards are items such as financial payments
and working conditions that the employee receives as part of the job.
Intrinsic rewards relate to satisfaction that is derived from actually

performing the job such as personal fulfilment, and a sense of contributing
something to society. Many people who work for charities, for example,
work for much lower salaries than they might achieve if they worked for
commercial organisations. In doing so, they are exchanging extrinsic
rewards for the intrinsic reward of doing something that they believe is
good for society.
Objective of a Reward Scheme
What do organisations hope to achieve from a reward scheme? The

following are among the most important objectives:
★ Tosupport the goals of the organisation by aligning the goals of

employees with these
★ To
ensure that the organisation is able to recruit and retain sufficient
number of employees with the right skills
★ To motivate employees
★ Toalign the risk preferences of managers and employees with those of

the organisation
★ To comply with legal regulations
★ To be ethical
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★ To be affordable and easy to administer
Aligning the Goals of the Organisation and Employees
The reward scheme should support the organisation’s goals. At the

strategic level, the reward scheme must be consistent with the strategy of
the organisation. If a strategy of differentiation is chosen, for example,
staff may receive more generous benefits, and these may be linked to
achieving certain skills or achieving pre-determined targets. In an
organisation that has a strategy of cost leadership, a simple reward
scheme offering fairly low wages may be appropriate as less skilled staff
are required, new staff are easy to recruit and need little training, so there
is less incentive to offer generous rewards.
Many organisations are working to align their reward and business

strategies, either because their business strategy has changed or because
alignment was not optimal. In practical terms this means ensuring that:
★ The right performance metrics are in place

★ Reward programmes are closely tied to metrics
★ Performance and rewards are appropriately differentiated
★ Supporting management processes are in place
★ Leaders have the capability and commitment to implement reward
programmes effectively
E.g. The US supermarket group Walmart competes on low cost. It recruits

employees with low skills, and pays low wages. It discourages staff from
working overtime, as it wishes to avoid paying overtime rates.
To Recruit and Retain Sufficient Employees with the Right Skills
If rewards offered are not competitive, it will be difficult to recruit staff

since potential employees can obtain better rewards from competitors.
Existing staff may also be tempted to leave the organisation if they are
aware that their reward system is uncompetitive.
High staff turnover can lead to higher costs of recruitment and training of
new staff. Losing existing employees may also mean that some of the
organisation’s accumulated knowledge is lost forever. For many knowledge-
! !291
based organisations, the human capital may be one of the most valuable
assets they have.
E.g. High technology companies such as Microsoft are companies that

trade on knowledge, so offer competitive remuneration to key staff.
To Motivate Employees
Motivation of employees is clearly an important factor in the overall

performance of an organisation. Organisations would like their employees
to work harder, and be flexible. The link between reward schemes and
motivation is a complex issue that is hotly debated in both accounting and
human resource-related literature.
A well-known theory relating to motivation is Maslow’s hierarchy of needs.

Maslow stated that people’s wants and needs follow a hierarchy. Once the
needs of one level of the hierarchy are met, the individual will then focus
on achieving the needs of the next level in the hierarchy. The lower levels
of the hierarchy are physiological, relating to the need to survive (e.g.
eating and being housed); once these have been met, humans then desire
safety, followed by love, followed by esteem, and finally at the top of the
hierarchy, self-actualisation, or self-fulfilment.
Applying Maslow’s hierarchy of needs to reward schemes suggests that

very junior staff, earning very low wages will be motivated by receiving
higher monetary rewards, as this will enable them to meet their
physiological needs. As employees become progressively more highly paid,
however, monetary rewards become relatively less important as other
needs in the hierarchy, such as job security, ability to achieve one’s
potential, and feeling of being needed become more important.
Perhaps the conclusion to be gained from this is that monetary rewards

alone are insufficient to motivate employees. Other factors such as giving
greater recognition and greater responsibility may be equally important, for
example giving praise at company meetings, promoting staff, and involving
staff more in decision making.
! !292
Aligning the Risk Preferences of Managers and Employees with

those of the Organisation
Managers and senior employees make decisions on behalf of the company,

acting as agents of the company. It is desirable that the risk preferences of
these employees should match the risk preferences of the organisation and
its stakeholders. One problem with many reward schemes is that managers
are too risk averse, and will not make investments that may risk their
targets not being met.
The events leading up to the financial crisis of 2008 are a good example of
the opposite situation, where the risk appetites of employees at investment
banks did not match the risk appetites of the owners. During this period,
individuals working in the banks were paid large commissions for selling
mortgage loans to customers. The problem was that the employees were
selling loans to customers that posed a large risk to the banks, due to their
low credit worthiness.
The problem was confounded by the fact that in many cases, the
employees of the banks were paid commissions on the date that the loan
agreements were signed, while the loans lasted for 25 years. In situations
where the borrower defaulted, however, there was no claw back, so the
employee would not be required to repay the commission.
Many countries have put in place new laws and codes to change this
situation. In the UK for example, the financial services authority introduced
a code whereby remuneration structures should be based on sound risk
management practices, incentive payments should be deferred over a
number of years, and there should be claw back provisions whereby
employees are required to repay bonuses in the event that the longer term
results of their actions leads to similar problems experiences in the
financial crisis.
Share options may also create a miss-match between the risks faced by
the organisation and the risks faced by the holders of the options, since the
holders benefit if share prices increase, but do not bear any losses if the
share price falls. Share options are discussed in more detail later in this
article.
! !293
Complying with Legal Regulations

Rewards should comply with legal regulations. Typically, employment laws
include areas such as minimum pay, and equal pay legislation to ensure
that no groups are prejudiced against. There have been high profile cases
of female investment bankers winning legal cases against their employers
because their bonuses were far less than those paid to male -colleagues.
Ethics and Reward Schemes

In recent decades there has been a move away from fixed remuneration
systems towards reward systems where at least part of an employee’s
rewards are based on performance of the individual and the business as a
whole. Some writers claim that this is unethical for two reasons. Firstly,
such systems tend to place increased business risk onto employees.
Secondly, such systems undermine collective bargaining systems, and
reduce the power of unions. This leads to a situation where employees as a
collective have less bargaining power.
The size of total remunerations paid to directors of large public companies

has also become a hot political issue, with a perception that the gap
between top earners, and average earners is becoming larger.
E.g. In the US, the average directors of S&P 500 companies earn 200
times more than the average household income in the US. Defenders of
such large differences in pay point out that this difference has actually
declined in recent years; in the year 2000, directors of S&P 500 companies
earned 350 times the average household income. According to some
research, such high packages are justified as they do reflect the
performance of those directors.
Affordable and Easy to Administer

It is an obvious fact that there is an inherent conflict of interest in the
relationship between employer and employee. The employee’s rewards
represent a cost to the employer, which the employer wants to minimise.
Clearly whatever reward scheme is in place, it must be affordable to the
employer.
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Target Setting
Many reward schemes are based on employees achieving pre-determined
targets, so some consideration of target setting is required. In Fitzgerald
and Moon’s building block’s model, three principles are given when setting
standards or targets: equity, ownership and achievability. Equity in this
context means fairness; when setting targets for the various managers,
those targets should be equally challenging. Ownership means that the
targets should be accepted and agreed by those managers for whom they
are set. This can usually be achieved by participation. Finally targets must
be achievable; otherwise the employees for whom they were set will
become demotivated. The building block’s model then goes on to
specifically cover reward schemes. It states that there are three principles
of a good reward scheme. First, there should be clarity – it should be clear
how the reward scheme works. If your boss tells you that you will receive a
bonus at the end of the year ‘if you do a good job,’ that is not very clear,
since the boss has not specified what doing a good job means. Rewards
should be motivational. Finally there is the important controllability
principal. Employees should only be judged and rewarded based on things
within their control. This is why profit-related pay might not be relevant to
a junior administrative assistant, for example.
Hope and Fraser warn against the use of linking rewards to fixed
performance targets, as this leads to gaming. In particular, managers
whose rewards depend on fixed targets may be tempted to ‘always
negotiate lowest targets and highest rewards,’ which suggests that
management plans will understate the potential that the organisation can
make. ‘Always make the bonus, whatever it takes,’ is another example of
gaming suggested by Hope and Fraser, which suggests that managers may
indulge in unethical behaviour such as fraudulent accounting in order to
ensure that targets are met.
Hope and Fraser suggest divorcing the planning process and the target
setting process, and basing rewards on relative targets and benchmarks. A
relative target might be market share, for example, where rather than
setting an absolute target for a sales manager, a market share (%) target
is provided. If the market rises, then more is expected in absolute terms.
This adds to controllability, since the sales manager could not be held
responsible for a rise (or fall) in the overall market, which is outside of his
control, but would be able to control whether or not he achieves the
expected share of the market.
! !295
11.11 Latest Trends in Rewards Systems
Some of key trends clearly visible from review and analysis of the
industries and companies across a globe are provided as under-
★ Making pay for performance a reality: the study shows a much

greater focus on creating a culture of performance through aligning
rewards to the performance metrics that drive profit and revenue growth
★ Differentiating and rewarding ‘mission critical’ roles: companies

are channelling the limited rewards available in a far more focused way
to those employees most vital to the future of the company: the top
performers, high potentials, and those with scarce skills. They are also
taking a total reward approach to engaging that key talent by offering
clear career paths, global mobility and targeted development
programmes as well as higher monetary rewards
★ Increasing variable pay: companies are increasingly awarding a

greater share of total rewards to variable pay to increase focus on critical
goals, and to reduce the vulnerability of companies to high fixed reward
costs. However, they are also re-examining the measures they use to
assess performance, to reduce the risk of disproportionate or undeserved
bonuses and to reflect a broader understanding of performance that
includes social responsibility and brand. The assessment of risks inherent
in bonus schemes is also becoming more frequent
★ Centralisation: reward policies and programmes are increasingly being

centralised. This is being driven by a desire for consistency of focus on
key objectives, and to reduce costs and risk. Companies are striving to
find an ideal balance between global consistency and local flexibility, to
best manage the impact of local markets, culture, taxes and regulations.
★ Market benchmarking: the study showed a surprisingly strong focus on

benchmarking, given the relatively quiet talent markets. This is driven by
a desire to ensure that top talent is paid competitively against the
market, and that organisations are not paying too much in other areas
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11.12 Rewards – A Board Agenda item
Reward is no longer the province of compensation and benefits experts.

Representing anywhere up to 70 per cent of a company’s total costs,
reward is now a top management issue, with the CEO and the board
getting closely involved. The study shows that reward is now more than
ever under the microscope, with CEOs asking:
★ What performance are we getting in return for what we pay?

★ What is the effectiveness of all the costs allocated to reward?
★ What is the return on investment?
Alongside this, the role of the compensation committee is undergoing

radical changes, with a much greater remit to oversee all reward
programmes and understand their impact on costs and risk
This is in part being driven by the growing impact of regulation and

taxation. The concern is that this is deviating scarce management time to
ensuring compliance, rather than formulating the best reward strategies for
their companies. It can lead to outright distortions in reward structures.
For example to ensure tax effectiveness, without consideration of whether
those structures work to drive sustainable performance. Similarly, a heavy
focus on compliance also risks stifling innovation as the board becomes
wary of attracting adverse attention with non-conformist reward structures.
Developing and delivering reward programmes that are cost effective, drive
performance improvement, build talent and avoid undue risks: these are
the challenges ahead. Getting reward right is mission critical for all
organisations.
Some of the key challenges are provided as under-
★ Business challenges
- Cost management
- Risk and regulation
- Competition
★ Pay/performance relationship
- Review metrics
- Better link between pay and performance
- Differentiating reward
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★ Response to challenges
- Cost management
- Leadership development
- Organisational redesign
★ Engagement changes
- Intangible/total reward focus
- Line manager skills
- Improve communications/transparency
★ Talent strategy focus

- Internal development
- Recruit/retain key talent
- High potential programmes
★ Reward and engagement

- Employee surveys
- Reward communications
- Line manager focus
★ Drivers of reward
- External benchmarks
- Performance management
- Cost management
★ Reward management changes

- Senior and line manager involvement
- Increase reward communication
- Centralisation of management
New Business Imperative: Do More with less
On a fundamental level, the recession has accelerated the pace of existing

macroeconomic changes. The shift in emphasis towards emerging markets
has become more pronounced as markets such as Brazil, India and China
have continued to grow and have proved resilient against the long-term
effects of the financial crisis. The speed of change has increased across all
sectors as organisations innovate to protect their position in the market
and use technology to find new and better opportunities. Regulation and
scrutiny of corporate activity, decision-making and crucially, reward, has
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increased. Organisations will have to adapt quickly if they are to thrive in

this uncompromising environment. No one has the luxury of time or money
to throw at the issues they face.
The recession has intensified the pace of globalisation as organisations

seek out markets where they see the opportunity to achieve real growth.
Many organisations in both developed and developing countries are looking
to expand internationally, to gain access to new buyers and spread the
risks of operating in just one market.
Cost Focus for Companies
Companies in every region have been affected by the fall in demand. Many
niche players have disappeared in a flurry of consolidation, and competition
has increased as organisations fight to defend or extend their market
share. Companies are focusing heavily on customer retention and
maintaining client relationships while they wait for market conditions to
improve.
As a result, cost containment is a major issue for many organisations, in all

regions and sectors. Most have already cut employment costs as much as
they can through redundancies, restructuring, pay freezes and restrictions
to internal investments. The focus for most has now turned to the
centralisation and rationalisation of business and management processes.
In stagnant or slow-growth markets, cost management continues to be
critical to survival; but even those organisations who continue to grow are
taking the opportunity to reassess their cost base, optimise their
management processes and put their operations on a more sustainable
course for the future.
Companies in high-growth developing markets are working even harder to

bring themselves up to international standards – many see the slowdown
as a welcome opportunity to gain some breathing space from the intense
pace of change.
Organisations are emerging from the recession leaner and intent on

concentrating on those activities that bring the greatest returns to the
organisation. Difficult choices are being made; the money that is available
has to be earned through performance and allocated to those areas (and
people) most critical to business success. While the focus remains on the
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bottom line, from now on increased efficiency will be a core driver of profit
growth.
Performance Focussed Reward Systems
Performance is the fundamental focus of most organisations. In a boom

market, many organisations were prepared to achieve growth at the
expense of the bottom line in anticipation of seeing future returns from
increased market share. In contrast, organisations now want to
demonstrate a verifiable return on investment from any activity – and with
employment costs representing anything up to 70 per cent of an
organisation’s cost base, this includes reward.
The dominant theme from most respondents is ‘doing more with less’. As
well as addressing organisational structures and increasing the efficiency of
systems and processes, there is a very strong focus on the alignment of
team and individual performance to corporate goals. Leadership has also
come under the spotlight as organisations ensure that their management
has the strength and skills to lead the organisation out of the recession.
Leading organisations, however, are already turning their attention to the

future. For them, the focus on execution has already begun to shift to
building a strategy that will position them for growth. While short-term
considerations may have come to the fore during the recession, the best
leaders continue to balance short and long-term considerations.
Recognising that an excessive focus on short-term shareholder return was

one of the root causes of the financial crisis, the best leaders are keeping
one eye on long-term strategy and further, on the role their organisation
plays in society. Performance is being redefined, and with it reward.
Performance is no longer confined to the balance sheet. Many organisations

are taking a broader view of performance that includes the impact on
social, environmental and brand issues. As a result there is increased
sensitivity to the need to balance short and long-term performance, and
financial and non-financial measures of performance.
Some organisations – such as those in the public sector or some family-

based companies which tend to value loyalty and ‘fit’ above performance –
have not previously operated within a performance-focused culture. But
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the pressures of a tightened market mean that even these organisations

are looking to introduce more of a performance focus.
11.13 Driving Responsible Reward Strategy – Risky V/s

Responsible Rewards
The management of risk is an inherent element of reward. But this has not
always been clearly articulated or understood. The credit crunch and
recession have prompted many governments and regulators to seek to
control and monitor reward more closely.
One of the many consequences of this has been an ongoing evolution in

the role of the compensation committee, which is increasingly expected to
oversee not only the compensation of executive directors, but to have
oversight of variable pay arrangements across the organisation,
particularly from the perspective of risk.
Another consequence has been the introduction of a series of specific

regulations governing the amount and type of reward that can be paid, and
de facto regulation by taxation of specific types of reward, such as
incentives. But these restrictions create artificial constructs that come with
risks of their own. Some organisations, for instance, have sought to
circumvent pay caps by increasing pension payments to key employees –
despite the fact that pension packages have very limited motivational value
and no links to corporate performance. Others have increased fixed pay to
compensate for the deferral of bonus payments. Regulation, in other
words, is a blunt tool and its effectiveness in terms of risk management is
limited. The sheer volume of regulatory activity has arguably prevented
organisations in the financial services sector, in particular, from focusing on
developing a truly strategic approach to reward.
Most effective solution is for governments and organisations to take a

holistic view of reward to ensure that, overall, the organisation’s reward
programmes can reasonably be expected to drive long-term, sustainable
performance. What’s more, that performance should not be defined solely
by shareholder returns. It is also about trust and social responsibility.
In practical terms this means that organisations should be able to

demonstrate that the behaviours that are stimulated by an organisation’s
reward and incentive programmes are aligned with the long-term interests
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of all its stakeholders. We term this ‘responsible reward’ and, at its best, it
is a strategy that builds a spirit of partnership to sustain the business,
moderates excess and so reduces risk. Suggested rewards strategy is as
under-
★ Enables the long-term sustainable success of the organisation
★ Pays out over the same timescale that business value is created in
★ Islinked to a bundle of performance measures that reflect the impact of

the activity not only on shareholder value but on the bigger picture
★ Does not enrich management and employees to the detriment of

shareholders
★ Takes account of the extent to which performance is driven by external

factors beyond management or the employee’s control
★ Takesaccount of the risks inherent and capital employed in the business,

and the impact this has on the returns required by shareholders
★ Achieves
an appropriate balance between individual, team and corporate
performance
★ Is competitive enough to attract the talent the business needs
★ Encourages rational thinking about the unique combination of economical

and societal responsibilities of the individual company
★ Is
justified in differentiating between the highest and least well paid by
impact, workload, intensity and personal risk
★ Isactively, effectively and repeatedly communicated to employees and

stakeholders
★ Recognises that reward is more than pay
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Key to Building Effective Rewards
In many ways, the recession has been a wake-up call for reward. Sloppy
practice crept into reward processes during the boom years and the
economic downturn has forced many organisations to think more sharply
about who – and what – they are paying for. Keeping the following
principles in mind will help those managers responsible for rewards to
ensure their reward programmes effectively support business strategy.
★ Create a performance culture. Use your reward programmes to help

you move from an ‘entitlement’ to a ‘performance’ culture. Consider
whether the measures that underpin variable pay are optimal for driving
performance. Look at how to differentiate reward for high performers so
that it acts to engage not just your ‘stars’, but all your people
★ Think in terms of total rewards. Our research has consistently shown

that intangible benefits such as career development opportunities play a
vital role in employee engagement. This is one of the many reasons that
organisations should not lose sight of total reward – the total benefits
employees receive from working for a company
★ Consider all costs. While many organisations closely focused on reward

costs during the recession, this was sometimes at the expense of a wider
contextual consideration of cost. It is too easy in the current climate to
overlook the total cost of reward – benefits and allowances can account
for as much as 40 per cent of reward costs
★ Build in flexibility. Bonuses not only focus attention on key goals, they
also provide a cost buffer in downturns. Increasing the proportion of total
pay delivered through bonuses provides employers with greater flexibility
in their cost structures, and helps to protect jobs
★ Make a thorough assessment of risk. Risk is inherent in reward

programmes – not least the danger of encouraging risky behaviour
through variable pay which has been sharply highlighted by the financial
crisis – and should be frequently and thoroughly assessed. Strong risk
assessment procedures will also serve to support the work and meet the
requirements of the compensation committee, which is playing an
increased role in reward
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★ Balance global and local requirements. With centralisation of reward

strategy on the increase, the challenge for multinational companies is to
ensure they hit the right balance between global consistency and local
autonomy. A close assessment of the effectiveness of reward
programmes at both global and local level is essential to a successful
strategy
★ Reward effectiveness. Reward programmes need to deliver a clear

return on investment. Clarify what you expect your reward programmes
to deliver – whether it be engagement, retention, performance on critical
success factors, or some other measure. Make sure you have the means
of measuring progress, such as employee satisfaction surveys
★ Nurture innovation. The survey highlights the tension between the

need to reduce risk and meet compliance requirements and the desire to
develop new reward policies and programmes that better support the
needs of the business. The risk that innovation will be stifled by
increased regulation remains a serious concern. Reward managers in
particular need to be vigilant and identify when innovation is at risk
Reward To Do List
★ Review reward strategy to ensure that it supports business strategy
★ Reassess performance criteria so reward is linked more closely to goals

that clearly reflect the vision and strategy of the organisation
★ Review
the balance of variable and fixed pay to ensure it is right for the
company culture and for business needs
★ Usereward differentiation (where appropriate) to focus limited resources

on those most successful to the business: high performers, high
potentials and those with skills that are in short supply
★ Closely
assess and measure the return on investment from reward
programmes and strategy
★ Communicate the true value of your reward package, and how it

supports the goals of your business
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Case Study of American Foods Company – Rothschild Gourmet
Rothschild Gourmet Foods is a small, privately owned company based in

the American Midwest. It manufactures gourmet food products such as
jams, olive oil and sauces, and has been in operation for 13 years. As a
result of a company-wide change initiative, Rothschild managed to boost
sales, slash controllable costs, increase product quality, and raise
employees’ performance-appraisal ratings. How did they do it? The
company changed the ingredients in its total rewards system.
In addition to offering flexible work schedules and other non monetary

rewards, Rothschild skilfully implemented an organisation-wide incentive
plan based on corporate performance.
Rothschild isn’t the only company that has discovered first-hand the power
of a well-designed and well-executed rewards programme.
Indeed, as far back as 1996, an article in USA Today (Neuborne, 1996)

proclaimed a evolution in the rewards that organisations were offering
employees. Instead of awarding employees pay increases and other
incentives simply for seniority, the so-called “New Pay” linked rewards to
achievement of the organisation’s strategic objectives. HR professionals
and other managers began experimenting with innovative types of rewards
in the workplace, including skill based pay and goal sharing. And they
discovered that the right total rewards system—a blend of monetary and
non monetary rewards offered to employees—can generate valuable
business results. These results range from enhanced individual and
organisational performance to improved job satisfaction, employee loyalty,
and workforce morale.
Challenging Questions in the Process of Implementation of Reward

System
To implement a total rewards plan, business leaders must tackle a broad

range of challenging questions— everything from who will design the plan
and what types of rewards it will include to how the plan will be funded and
under what business conditions the plan is intended to operate. When
executives overlook one or more of these questions, they risk developing a
plan that delivers mediocre results once it’s implemented—as the following
three stories reveal-
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★ The Profitless Profit-Sharing Plan. A large chemical manufacturer and

distributor developed a new profit-sharing system for its employees. The
project team took great care to use compensation principles agreed upon
by compensation professionals and devoted a year to designing the
programme. But the team members neglected to ask a crucial question:
How will the plan work during an economic downturn? With much
fanfare, the company announced the plan—and employees eagerly
anticipated their first profit-sharing checks. As it turned out, the
organisation’s performance (as measured by profit) proved dismal during
the plan’s first measurement period. Employees received no bonus
checks, and their enthusiasm gave way to resentment and skepticism.
The company abandoned the plan. If it had acknowledged the possibility
of an economic downturn and better communicated the ramifications of
such a downturn for payout to employees, it might have avoided the
backlash
★ The Missing Appraisal System. A federal government agency enacted

a pay-for-performance plan that pegged individual pay increases to
employees’ performance as assessed by a formal appraisal system.
However, the agency launched the plan before putting an organisation-
wide appraisal system in place. Managers had to hastily define
performance measures by which to assess their employees’ contributions
and thereby determine salary increases. This haphazard development of
measures led to a highly subjective appraisal system that employees saw
as unfair. Just one year after the plan was implemented, the agency
eliminated it
★ The No-Go Goal-Sharing - Plan. In a heavily unionised organisation,

top management decided to initiate a new goal sharing plan that
awarded cash bonuses to employees based on their facility’s business
performance. The plan was piloted at one facility, and a research team
set out to track the business performance of the plant against that of a
similar facility not using the plan. The team found that the performance
of the facility using the goal sharing plan exceeded that of the other
facility—suggesting that the organisation should roll out the new plan at
its remaining facilities. But the implementation team had not consulted
union leaders at these other plants on the practical implications of the
goal-sharing programme. And even though goal sharing had proven its
mettle during the pilot, the union opposed a company-wide rollout
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Hay Group Total Rewards Strategy Framework
Total Reward Strategies
Total Rewards Definition

Strategy
Compensation
Base pay Wages and salaries
Merit pay Base-pay increases based on employee performance
Incentives Cash bonuses based on employee performance
Promotions Base-pay increases based on potential to perform new

job
Pay increases Base-pay increases based on length of service with the

organisation
Benefits
Health and welfare Payment for injuries and illness both on and off the job
Paid time off Payment for vacation time or excused days from work
Retirement Payment for work no longer performed based on length

of employment
Personal Growth
Training Skill development through on- or off-the-job instruction
Career development On-the-job coaching to develop skills
Performance Ongoing goal setting and feedback to develop skills

management
To implement total rewards strategies successfully, organisations must

follow a disciplined process, which is depicted in “Implementing a Total
Rewards Programme: Four Phases” (see below). The process starts with
assessment. In this phase, the project team gathers data to evaluate the
effectiveness of the organisation’s current total rewards system. The data
guides the design phase, during which the team identifies and analyses
potential reward strategies. In the execution phase, total reward strategies
are put into operation. Last, the team evaluates the effectiveness of the
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strategies that have been executed. Clearly, implementing a new total

rewards programme is akin to carrying out any large-scale transformation
initiative. Research on organisational change can provide some guidance.
One study examined a 12-plant manufacturing division of a multibillion-
dollar food-products firm. The firm used a learning model to guide the
change effort. First, it laid the foundation for change by educating
stakeholders about the intervention, clarifying the firm’s values, and
diagnosing organisational systems relative to the values of the
organisation. Second, the firm designed, implemented, and evaluated
changes to those systems. The cycle was continually repeated, as
illustrated in the diagram below. This process led to deeper learning within
the organisation. To evaluate the results of this learning model, the
researchers collected attitudinal data at two points in time. Findings
suggested that the change initiative had led to increases in job variety,
supervisory participation, influence over planning and scheduling, and
other positive outcomes. The following sections take a closer look at how
you and other HR professionals in your organisation can take a total
rewards initiative through each of the four phases in the implementation
process.
Implementing Total rewards Programm : Four Phases
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Formulating an Appropriate Team Structure

It is very critical to set up an appropriate team for implementation of total
reward system. The best leaders are senior HR professionals with project
management and total rewards experience—they encourage on-going
communication between the project team and top management, and lend
credibility to the project. An illustrative team structure is provided as
under-
Structuring Incentives
Organisational incentives provide cash or stock to employees based on the
overall performance of the organisation or business unit (sector, division,
department, or plant). Classic examples of these incentive plans are profit
sharing and stock sharing, which may include broad based stock options,
stock-purchase programmes, and employee stock ownership plans.
A review of the available research reveals that profit sharing plans

generate a relatively small increase in productivity. An overview of the
incentive structure is provided as under:
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An Overview of Incentives
Criteria Incentives Advantages Disadvantages
Individual Sales commissions Expert most Do not promote

performance Piece-rate pay powerful impact teamwork or
on productivity ensure a
(30% increase) commensurate
increase in
product
may be difficult to
measure
Group Gain-sharing goal- Encourage team- Yield a moderate

performance sharing, and teamwork impact (13%) on
based incentive plans productivity
Organisational Profit sharing and stock Increase Generate a small

performance sharing, including shareholder increase (6%) in
broad-based stock returns and productivity
options, stock purchase company profits
programmes, and
employee stock
ownership plans
Individual Rewards Boost the Team Performance at Work
Praising individual workers can boost performance both for other workers
and for the team, scientists have found, contrary to the belief that
rewarding individuals increases competition rather than helping team
performance. Conventional wisdom has held that boosting team
performance in the workplace should focus on rewarding entire teams that
perform well.
Rather than stimulate resentment in a team - as might be the case with

financial rewards – public recognition of high performers actually motivates
a strong desire to succeed in the rest of the team members.
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11.14 Performance Measurement, Rewards and

Recognition: Aligning Incentives with Strategic and
Operational Goals
Businesses must constantly adapt their strategies and goals to address the
dynamic forces of the shifting challenges and opportunities of global
markets, the organisational upheaval of mergers and acquisitions, and the
rapid evolution of productivity tools and technologies. One critical—but
frequently overlooked—dimension of this process of renewal is the impact
of organisational change on employee motivation and behaviour:
Executives, operational chiefs and personnel managers must ensure that
their systems of rewards and recognition are carefully aligned with overall
strategic and operational goals. Rewards and recognition systems
misaligned with corporate objectives can result in behaviour that is not
anticipated or desired by management. These unanticipated actions may
be personally beneficial to front-line sales reps, manufacturing floor
managers or even senior executives, yet they move the company away
from its overall goals or cause systemic harm.
The challenge, then, is to assess and implement an incentive system that

motivates employees to act in support of strategic and operational
objectives. But how does an operational manager or executive know when
they have the right rewards and recognition programme, or if the one they
have implemented is still having the desired effect? In addition to
measuring progress of employee performance toward corporate goals,
well-defined performance measurement systems help gauge employee
reception, understanding and buy-in for reward systems. This critical
feedback can help managers make adjustments necessary to drive
improvements and avoid the unanticipated behaviours and actions that
negatively impact corporate goals.
Some of the following strategies can be deployed to ensure that the

performance management framework, rewards systems is aligned to the
business goals and strategy.
★ Linkincentives to sales and service performance metrics to preserve

high-quality customer relationships.
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E.g. Most call centres work hard to ensure that service goals are not
compromised when cross selling is introduced. Savvy managers disavow
inappropriate, incentive-driven product pushing by ensuring their
incentive programmes reward quality service as well as sales. The
strategies they adopted to reward performance.
- Pay a set dollar amount for every sale

- Pay an established amount for every sale above a set minimum
- Pay higher incentives for sales of higher margin products
- If some staff refer and others sell, split the incentives so both are
rewarded for success
- Use accelerators to award higher sales volumes with larger incentives
- Award incentives to beginners for cross-sell attempts as well as for
sales
★ Design incentive compensation to guide sales reps’ behaviour in

balancing the dual objectives of customer service excellence and sales
performance
E.g. At one financial services company, executives learned that they

needed to focus incentive compensation so that their representatives
would sell the products that made the most sense for their customers,
while also delivering revenue and profit growth for the company
★ Linkcompensation with team performance to drive collaborative

behaviour.
E.g. Teams at one telecommunications company that are required to

meet the "six-sigma" quality standards are paid bonuses tied to
improved defect rates and cycle times (as are their bosses), and
compete against one another for gold medals in company-wide
performance contests. The link between team compensation and
performance further aligns employees with high level corporate
objectives because cycle time and quality (as measured through six-
sigma standards or 3.4 errors per million) are performance measures
and performance goals of all of the company’s work units
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★ Link incentive compensation to cross-unit effectiveness
E.g. One transportation company’s system links incentive compensation

equally to people satisfaction, customer satisfaction and profits; it also
links individual and team performance. Compensation plans are balanced
with components to reflect the corporate credo and its corresponding
stakeholders such as people (employees), service (customers) and profit
(shareholders). If the team does not meet its goals, all individuals will
forfeit portions of their incentive compensation
★ Allow Cross-Functional Teams to Participate in Merit Pay Allocation
E.g. One technology company links compensation to team performance

and the company also allows some teams to determine the degree of the
linkage. Teams help set the criteria used for allocating merit pay.
Company officials indicate that most teams start out with merit pay
criteria that are based 80 per cent on individual factors and 20 per cent
on team performance factors. As an on-going team matures, it may
progress to a 50-50 allocation, which insures that merit pay distributions
hinge equally on team and individual performance. Merit pay is zero-
based, meaning that the allocation of merit pay in one period is not
predicated on previous allocations. Placing merit pay on team activities
helps ensure project teams, process teams and task forces work toward
common goals. Linking compensation to teamwork and sharing
establishes the proper incentive structure to drive district-wide
improvement
★ Deployrisk and reward compensation systems to drive employee

development, team sharing, and teamwork excellence
Incentive pay provides a constant challenge to all organisations. One

automobile manufacturer’s version links employee compensation with
performance and creates a sense of ownership among all team
members. This sense of common ownership — driven through the risk
and reward system — encourages higher levels of communication, team
work, idea sharing, proactive problem resolution and knowledge
exchange. The system rests on some basic fundamentals:
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a. Determine bottom-line goals of the company and tie people’s pay to

the goals.
b. Clearly set a benchmark for the average level of compensation
In paying out the reward component of compensation, the following

measures are employed:
- Production schedules achieved
- Profitability of the company
★ Develop
standardised quality tools to measure cross-functional team and
manager performance
E.g. One technology company’s key quality tools and initiatives are
embedded in the performance review process, which focuses in part on
creating managers and employees who can work together, problem solve
together, engage in teams and innovate together. For example, the
reporting process at this company shows an employee or manager’s
performance relative to:
- Customer satisfaction
- Employee motivation and satisfaction
- Market share
- Return on assets
★ Link cross-functional team compensation to non-financial goals
One telecommunications company has linked management compensation

to its financial and non-financial goals. The incentive compensation links
are forged to Economic Value-Added (EVA), People Value-Added (PVA) and
Customer Value-Added (CVA) goals. For executives to optimise their
incentive compensation, they must achieve together on these
organisational goals.
★ Employ broad-based team recognition programmes to strengthen

business excellence.
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Another interviewed telecommunications company believes that employee

contributions are fundamental to the company's success, and so the
organisation employs multiple broad-based recognition programmes to
encourage achievement and to sustain a culture of customer focus and
high employee involvement. The company recognises the efforts of both
individuals and groups. Its recognition programmes are frequently non-
financial or have a low monetary value but serve to reinforce business
excellence as defined by the organisation’s mission, values and Four
Business Priorities. They include recognition gestures such as getting your
picture put up on a wall of fame, profiles in internal publications, peer-to-
peer accolades, free dinners, etc. Its recognition programmes are
benchmarked against other world-class companies.
★ Implement performance measurement scorecards that drive collaborative

behaviour.
A prominent transportation company employs various sorts of performance

measurement scorecards to help focus all the organisation on critical
issues. Perhaps the most noteworthy example here is the company’s SQI
(Service Quality Indicators) scorecard. The SQI consists of 12 key
performance measures. Each day the company captures and reviews
performance on these measures. High-level executives review the SQI
measures at a daily performance review meeting. There are teams in place
supporting each SQI measure. When a measure moves in the wrong the
direction, the executive team and the SQI team spring into action to
resolve the operating issue. This structure supports cross-unit cooperation
and alignment and participation on the teams spans geography and
departments.
11.15 Effect of Reward on Employee Performance
Today’s organisations are operating in a very dynamic and highly

competitive environment. To remain relevant in the market, they have to
be able to respond quickly to ever changing customer demands. Reward
management is one of the ways used by organisations for attracting and
retaining suitable employees as well as facilitating them to improve their
performance.
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Reward management is one of the strategies used by Human Resource

Managers for attracting and retaining suitable employees as well as
facilitating them to improve their performance through motivation and to
comply with employment legislation and regulation. As a result of these
pressures, HR managers seek to design reward structures that facilitate the
organisations strategic goals and the goals of individual employees. Reward
systems are very crucial for an organisation. Rewards include systems,
programmes and practices that influence the actions of people. The
purpose of reward systems is to provide a systematic way to deliver
positive consequences. Fundamental purpose is to provide positive
consequences for contributions to desired performance. The only way
employees will fulfil the employers dream is to share in their dream.
Reward systems are the mechanisms that make this happen. They can
include awards and other forms of recognition, promotions, reassignments,
non-monetary bonuses like vacations or a simple thank–you.
When employees are rewarded, they get work done. Employers get more
of the behaviour they reward, not what they assume they will
automatically get from employees. Thus when employees surpass their
target or exceed their standard they should be rewarded immediately as a
way of motivating them. By doing this, employees directly connect the
reward with behaviour and higher performance they have attained.
Effective reward systems should always focus on the positive
reinforcement. Positive reinforcement encourages the desired behaviour in
organisations. This encourages employees to take positive actions leading
to rewards. Reward programs should be properly designed in the
organisation so as to reinforce positive behaviour which leads to
performance.
An organisation for global manufacturer of brand-name products for

consumers needed to improve levels of employee motivation fast in order
to improve performance. Managers focused on ‘recognition’ as the key to
raising employee morale. Every employee could nominate anyone they
considered worthy of recognition. Successful employees got certificates and
they really felt appreciated. In the experience of a ‘recognised’ employee
“to be recognised formally gave me extra motivation and made me wonder
what i could do to keep the momentum going”. Some of the following
considerations are-
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Designing Effective Reward Policies
The task of developing a strategic rewards framework for organisations is

usually challenging but necessary to survive in the competitive and
changing market place. The process, however, cannot be copied from the
organisations but needs to be designed, developed and grown within the
unique environment of the organisation. A well designed incentive
programme rewards measurable changes in behaviour that contribute to
clearly defined goals. The challenge in developing such a program lies in
determining what rewards are effective agents of change, what behaviours
can be changed and the cost and benefits of eliciting change.
Employees should be aware of the relationship between how they perform

and the rewards they get. Organisations should apply performance
management programmes which assist in planning employee performance,
monitor performance by effecting proper measuring tools Rewards should
be used as a way of strengthening good behaviour among employees as
well as productivity. Hence reward systems should focus on reinforcing
positive behaviour. Employees could be rewarded for working overtime,
taking initiative, team work, reliability, exceptional attendance, outstanding
customer feedback, meeting deadlines or timeliness, productivity etc.
Employers and managers should then design or come up with a system to
measure or quantify all these aspects so that rewards are then given
accordingly.
A good reward system that focuses on rewarding employees and their

teams will serve as a driving force for employees to have higher
performance hence end up accomplishing the organisational goals and
objectives. An effective reward programme may have three components:
immediate, short-term and long term. This means immediate recognition of
a good performance, short-term rewards for performance could be offered
monthly or quarterly and long-term rewards are given for showing loyalty
over the years. Immediate rewards are given to employees repetitively so
that they can be aware of their outstanding performance. Immediate
rewards include being praised by an immediate supervisor or it could be a
tangible reward. Short term rewards are made either monthly or quarterly
basis depending on performance. Examples of such rewards include cash
benefits or special gifts for exceptional performance.
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Rewarding should not only be applied to individual employees within the

organisation but also to teams that perform excellently. Incentives given
for good behaviour usually improve the relationship between the
employees and management because employees feel that they are being
appreciated for their efforts and good work. This leads to increased
employee morale, better customer care as well as increased productivity.
Long-term rewards are awarded to employees who have been performing

well. Such an employee will become loyal to his or her organisation and it
reduces employee turnover. Long term rewards include being made
partner, or cash benefits that mature after many years of service or at
retirement. These rewards are very strategic for retaining the best human
resources. For rewards to be effective, they have to be seen as fair. This
means there has to be openness with respect to information about how the
reward system operates and how employees will be rewarded. Employees
should also be involved in designing the reward system and its
administration.
Building Reward Systems
Every organisation’s reward system should focus on these major areas;

compensation, benefits, recognition and appreciation. Benefits such as car
loans, medical covers, club membership, ample office space, parking slots
and company cars are ways of rewarding and employees do note the types
of benefit that their organisation offers.
Recognition and appreciation are another integral component of a winning

strategic reward system. Recognition is to acknowledge someone before
their peers for desired behaviour or even for accomplishments achieved,
actions taken or having a positive attitude. Appreciation on the other hand
centres on showing gratitude to an employee for his or her action. Such
rewards help employees to gauge their performance and know whether
they are doing good or bad.
Measuring Performance
Measuring performance is of great importance to an incentive plan because

it communicates the importance of established organisational goals. “What
gets measured and rewarded gets attention”. In discipline of human
resource management, different writers suggest the following indicators for
! !318
measuring employee performance and they include: quality that can be

measured by percentage of work output that must be redone or is
rejected; Customer satisfaction that can be measured by the number of
royal customers and customer feedback. Also, timeliness, measured in
terms of how fast work is performed by the employee when given a certain
task; absenteeism/tardiness observed when employees absent themselves
from work; and achievement of objectives measured when an employee
has surpassed his/her set targets, he/she is then considered to have
performed well to achieve objectives.
The management of individual performance within organisations has

traditionally centred on assessing performance and allocating reward, with
effective performance seen as the result of the interaction between
individual ability and motivation. It is increasingly being recognised that
planning and an enabling environment have a critical effect on individual
performance, with performance goals and standards, appropriate
resources, guidance and support from the managers all being central.
Human resource policies and practices indeed do affect organisational as

well as individual performance. Job satisfaction for example, has for a long
time been seen as key to affecting business performance as well as
commitment. In addition researchers have also identified motivation as the
mediating mechanism and some identify trust and morale. In spite of more
recent attention to commitment, motivation is still considered to be an
important influence to performance.
Relationship Between Rewards and Performance
Rewards can be used to improve performance by setting targets in relation

to the work given e.g. surpassing some sales targets. When the employee
surpasses their target, he or she can be given an additional amount to
their salary; this will make them strive to achieve more
Research has proven that when human being are appreciated and praised
they tend to improve their performance. This is another way an
organisation can apply as a reward so as to improve performance. Praise
could be shown in the organisation newsletter or in meetings. When
managers take time to meet and recognise employees who have performed
well, it plays a big role in enhancing employees’ performance.
! !319
Organisations should reward employees more often. This greatly improves

performance compared to having the rewards maybe only once a year. This
is because frequent rewards are easily linked to the performance.
Another way through which organisations can use reward systems to

increase output is by personalising the reward. When rewards tend to be so
general, employees do not value them. Organisations can use rewards to
improve employee performance by incorporating appraisal or promotion for
employees who have a good record of performance. Managers should be
on the look-out for employees who perform well.
11.16 Performance Management and Reward Systems —

An Effective Tool for employee engagement
In order to enhance the performance of the organisation, it is very crucial

that the employer deploys the performance management and rewards
systems to improve employee engagements. More engagement will lead to
successful delivery of results, higher motivation and better growth and
profitability of the organisation.
Aon Hewitt Employee Engagement Model
! !320
The Model demonstrates that there is a closer linkage between the

organisational performance, employee engagement and the performance
management and reward systems. Some of the key learning from the
employee engagement model are discussed as under-
Economic, technological, demographic and social forces have put pressure

on businesses in unprecedented ways. The change is accelerating—not
slowing down. Standing still is not an option for most companies with
regard to the talent agenda. Beyond attracting and retaining necessary
talent, engaging talent in the right behaviours for future business
challenges will be a point of focus. Adaptability, agility, speed, relevance
and incremental value are at the centre of an evolving employee value
proposition. These are the required traits of high performing companies in
the market as well as what employees and leaders will be required to
deliver. The trends in this report, our analysis of best employer
organisations and our work with companies that have achieved strong
engagement results offer some insights for making engagement happen.
The key driving trends noted are as under-
! !321
1. Understand the trends affecting your talent strategy. Most

companies are being affected by one or more trends outlined in this
report. It is absolutely critical for leaders to connect economic
challenges and emerging business imperatives to the workforce profile
required for future success. Businesses are being affected or disrupted
by global economic and technological trends. As we have seen,
employee demographics will have a big impact both in terms of where
available talent will be around the globe, and also in terms of how large
segments like Millennials and Baby Boomers are changing the
expectations workers have of their companies.
2. Focus on the engagement behaviours required for performance

and business success: Getting real about employee engagement
requires moving beyond a generic concept and clarifying the behaviours
in which you would like employees to go above and beyond. For many
employers there is increasing need for agility, speed and flexibility—
these traits and behaviours will vary by industry and job profile.
Clarifying what engagement looks like for employees is a prerequisite to
their engagement. Aligning performance management, people
management, learning and development, and rewards and recognition
with these engaged behaviour expectations will focus, enable and
reinforce employees’ efforts and energy.
3. Deliver on a compelling employee value proposition (EVP):

Employees want to be valued and provide value in return. Many trends
have created a disconnect between what companies require, what they
are offering and what employees expect in return in order to unlock
their full engagement. Top engagement drivers such as career
opportunities, pay for performance and communication provide some
insight into how employees define value from their company. Employees
are also engaged by a company with a strong reputation. An EVP that
clarifies the one or two things your organisation wants to be famous for,
and delivers against this promise, is at the core of a strong reputation.
Companies that have a compelling and aligned EVP will have employees
who say positive things about their organisation, will want to stay and
will strive to go above and beyond in their jobs.
! !322
4. Create a culture of engagement: Engagement is not a survey score

or a programme. Engagement is about people. Building a culture of
engagement is about what you do and how you do it. As we saw in our
best employer research, companies need to take a holistic view beyond
the employee engagement outcome alone. Healthy organisations with
strong cultures demonstrate concerted effort, and top quartile
performance in not just employee engagement but also brand,
performance orientation and leadership.
5. Protect the foundational elements: Many organisations with lower

levels of engagement struggle to jump right to a “culture of
engagement.” Leaders should not overlook the positive impact of strong
company practices and enabling infrastructure; basics like benefits,
safety and work-life balance; or fulfilling work itself. Many companies
that have had significant increases in employee engagement in a short
period of time focus on fixing issues in some of these basic elements.
Getting the foundation right is often the first step in building a culture of
engagement, and cracks in this foundation can quickly erode employee
engagement for any organisation.
6. Build engaging leaders: Our work consistently points back to the

impact of leaders on employees’ engagement, and to the fact that
companies that excel at engagement almost invariably have strong
leaders who implicitly understand and value employee engagement.
Engaging leaders—or leaders who are very engaging of others—have
been shaped by early experiences, have beliefs about purpose and
people, and behave in ways that inspire, focus, stabilise, build trust, and
connect with and grow others. Leaders can be assessed, selected and
developed based on this profile. Those companies that focus on building
engaging leaders will see an exponential impact on employee
engagement.
Benefits and Reward Systems at Deloitte, a Leading Management

Consulting Firm in the world
Deloitte’s Total Rewards programme reflects our continued commitment to

lead from the front in everything they do—that’s why they take pride in
offering a comprehensive variety of programmes and resources to support
employee’s health and well-being needs.
! !323
Paid Time off and Holidays
PTO gives professionals the flexibility to manage time off in a way that
works best for them. Deloitte’s PTO programme gives professionals an
allotment of days that encompass vacation, personal, and sick time. Actual
PTO accrual will depend on the professional’s position and possibly on their
years of eligible service. When combined with holidays, there are 35 days
off on average with a minimum level of 30 days off per year. To provide
additional flexibility, our program includes a carryover provision for unused
PTO.
Life and Family Related Benefits
Parental Leave Deloitte offers paid time off to bond with a new child,
whether that child joins your family through birth or adoption. Primary
caregivers—women or men—are offered up to eight weeks of fully-paid
parental leave in addition to any short-term disability benefits payable
(typically six to eight weeks depending upon type of delivery) and non-
primary caregivers are offered up to three weeks of fully-paid parental
leave.
Adoption Assistance: Deloitte offers counselling and referral services for

professionals who are considering adoption, and reimbursement of up to
$5,000 per child for eligible expenses related to an adoption.
Emergency Back-up Dependent Care (adults and children) This service

can be used when you need to be at work and your regular child or adult/
elder care is unavailable. Care is available for infants through teenage
children and adult relatives of Deloitte employees, up to a maximum of 30
days per employee per fiscal year.
Sabbaticals Deloitte offers two sabbatical programmes: an unpaid

one-month sabbatical that can be taken for any reason; and a three- to
six-month sabbatical that can be taken to pursue personal or professional
growth opportunities in the areas of career development or volunteerism.
Pet Insurance: Deloitte understands that for some, pets are another
member of the family. To help cover the cost of health care for your pet,
Deloitte offers a pet insurance programme—at a special discount for US-
based professionals. From routine office visits to significant medical
! !324
incidents, the Veterinary Pet Insurance (VPI) provides protection for pets
when they need it most.
Medical, Dental and Vision: Deloitte's healthcare offerings include

competitive medical, dental, and vision plans. Five different national
medical plan options with three carriers are available. All of the plans
provide: 100% coverage for in-network preventive services including well-
child (e.g., immunisations), well-woman (e.g., mammogram, Pap smear),
and well-man (e.g., prostate testing). Access to quality care through
national provider networks Prescription drug coverage Protection against
the cost of catastrophic illness or injury, the ability to see a specialist
without a referral.
The dental plan provides access to in-network and out-of-network

providers and coverage for major dental work including adult and child
orthodontia. The dental benefit also includes three dental cleanings per
year, with no deductible, paid at 100% of reasonable and customary
charges. Deloitte also offers a discount vision benefit at no cost to the
participant, as well as a voluntary vision plan that allows participants to
elect additional coverage.
Life Insurance and Disability
Deloitte offers a range of insurance and disability coverage to help protect

professionals and their families from the financial impact of unforeseen
circumstances. Life Insurance includes core coverage for our professionals.
Optional life and accident coverage can be purchased for professionals and/
or their eligible dependents Business Travel Accident (BTA) Insurance is
provided at no cost to the participant. Deloitte provides Short Term
Disability and core Long-Term Disability (STD and LTD) coverage at no cost
to the participant. Additional LTD coverage is available for purchase as well.
Retirement
Deloitte provides a defined benefit pension plan to help provide income in

retirement at no cost to our eligible professionals. The pension plan
provides:
★ Vestingafter three years of continuous service or attainment of age 62

while actively employed, regardless of years of service
! !325
★A monthly income for life or a one-time lump sum distribution after

retirement
★ Competitive cash balance formula
★ Normal retirement at age 62
★ Retirement as early as age 50 with completion of at least 10 years of

service, or age 55 with completion of at least 5 years of service
Additional Benefits
★ Student Loan Consolidation and Refinancing: Deloitte offers a

student loan consolidation and refinancing programme, available through
SoFi. Eligible participants can combine their existing private and federal
loans into a single loan with one monthly payment at competitive rates.
In addition, participants who refinance their loans also receive a $300
bonus from SoFi. Independence requirements may impact eligibility
★ Long-Term Care: voluntary coverage that helps protect you and certain
family members from the high costs associated with an extended nursing
home stay and home health care services
★ Deloitte Marketplace Employee Discount: provides professionals with

access to discounts at more than 28,000 online retailers and hundreds of
local restaurants and merchants, including offers that are exclusive to
Deloitte professionals
★ Group Legal Plan: voluntary coverage that enables you to receive a

comprehensive set of personal legal services from a panel of participating
law firms or from your own attorney
★ Employee Assistance Programme and Lifeworks: Whether you or

family members face marital difficulties, gambling problems, learning
disabilities, drug or alcohol dependency, or other problems, the Employee
Assistance Programme (EAP) offers support and guidance. Deloitte also
has a relationship with Lifeworks to provide education
! !326
11.17 Activity
1. Conduct a survey of the companies primarily in the Technology, E-

Commerce sector and capture the key trends in the rewards strategy
…………………………………………………………………………………………………………………………
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11.18 Summary
Organisations need to consider latest trends in the reward systems and

revamp the recognition systems. Some of the key considerations are as
under:
★ Ensure that your rewards tie directly to your business

objectives. It's critical to align employee interests and company
interests so it's a win-win for everyone. Identify what behaviours
positively impact the business, and design your recognition programme
to recognise and reward them. It will drive repeat positive behaviour. It
also helps employees understand how their actions affect the big picture,
which also helps make their jobs more meaningful
★ Include peer-to-peer recognitions. A recent study from World at

Work, a Scottsdale, Arizona-based human resources association, found
43 per cent of organisations today have some kind of peer-to-peer
recognition programme.
★ Implement user-friendly software, allowing managers and

employees to actively engage in a recognition program without a
lot of extra time. One glaring finding from a recent study from HR
research and advisory firm Bersin & Associates was the importance of a
solid technology programme for implementing the rewards system. One
of the top reasons employees don't recognise each other is it's not
always easy to do
! !327
★ First
focus on senior leaders buying into the new goals of your
recognition programme. If senior management doesn't believe in the
importance of rewards and recognition to drive business objectives, the
message won't trickle down through the organisation in a very effective
way
★ Give employees a nice range of rewards to cash in on. Rather than

just a gift card to Starbucks, let them pick what they want from a
catalogue
1. Highlight the key trends in the reward and recognition system. Provide
examples to support your ideas.
2. Explain the relevance of strategic praising as a step for effective

employee recognition.
1. Employers can double their rewards and recognition efforts in

innovative, cost efficient ways. Good recognition and rewards provide
employees with:
a. A fair return for their efforts

b. Motivation to maintain and improve their performance
c. Clarification of what behaviours and outcomes the organisation
values
d. All of the above
2. Which of the following are least likely to be a suitable measure for

optimising, recognising and rewarding employees?
a. Keep the recognition criteria vague

b. Clear specification of the criteria
c. Saying thank you frequently
d. Nurturing self-esteem
! !328
3. Which of the following is least likely to be amongst a low cost strategy

at work for rewarding the employees and expressing recognition of
performance?
a. Employee appreciation a week

b. Thank you notes
c. Compensation in cash
d. Newsletter features
Answers
1. (d), 2. (a), 3. (c)
! !329
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !330
MEASURING EFFECTIVENESS OF PMS AND REWARD SYSTEMS
Chapter 12
Measuring Effectiveness of PMS and
Reward Systems
Objectives
★ Gain an understanding of the process of evaluating effectiveness of

performance management and reward systems
★ Understand the key parameters to measure the performance

management effectiveness
Structure:
12.1 Evaluating Effectiveness of Performance Management and Reward

Systems
12.2 Evaluation of Effectives – Considering Cost Perspective
12.3 Performance Measurement – Three Dimensional Perspectives
12.4 Activity
12.5 Summary
! !331
12.1 Evaluating Effectiveness of Performance Management

and Reward Systems
Virtually every organisation has a performance management system that is

expected to accomplish a number of important objectives with respect to
human capital management. The objectives often include motivating
performance, helping individuals develop their skills, building a
performance culture, determining who should be promoted, eliminating
individuals who are poor performers, and helping implement business
strategies. There is little doubt that a performance management system
which can accomplish these objectives can make a very positive
contribution to organisational effectiveness, but there is less clarity about
what practices make a performance management system effective.
There are a large number of design features that potentially can influence
the effectiveness of a performance management system, and many of
these have been empirically studied to determine their impact. For
example, there is considerable research which shows that performance
management effectiveness increases when there is ongoing feedback,
behaviour-based measures are used and preset goals and trained raters
are employed. There is one potential determinant of performance
management system effectiveness, however, which has received relatively
little attention: how tightly the results of the performance management
system are tied to significant rewards. The lack of attention to this impact
is particularly pronounced when it comes to the issue of using a
performance management system to systematically remove lower-
performing employees from the organisation.
There are a number of reasons for believing that systematically tying

rewards to the outcome of a performance management system will make
the performance management system more effective with respect to
motivation, but there are also some that suggest it will make it less
effective with respect to development.
On the other hand, it is reasonable to argue that when rewards are tied to
the outcome of performance appraisals it will lead to more effective
performance management systems. Managers will be particularly
concerned about doing a good job since the outcome of the appraisal will
have a significant impact on their ability to allocate rewards based on
performance and motivate those individuals who work for them. Similarly,
! !332
in the case of individuals, they know that how well the performance review
goes will affect rewards that are important to them, so they may be
particularly motivated to prepare for the session and see that it goes well.
Further, there is a good possibility that when appraisals are used to
determine rewards, organisations will put more pressure on managers to
differentiate among the employees they are apprising since this is key to
rewarding individuals for their performance.
Indicative Performance Measures
★ Turnover rate
★ Staff satisfaction
★ Appraisal & performance management
★ Profit
★ Length-of-service distribution
★ Vacancy rate
★ Workforce composition
★ Time taken to fill vacancies
★ Customer satisfaction
★ Reward budget costs
★ Competency / skill level of staff
★ Job offer refusal rate
★ Measures of staff commitment
★ Sales growth
★ Productivity per employee
★ Economic value added
12.2 Evaluation of Effectives – Considering cost

perspective
A desire to cut costs and reduce risk has led an increasing number of
organisations to centralise their reward decision-making and policy, and
sometimes even administration. Advancements in technology have enabled
a greater centralisation of reward strategy over recent years and this trend
is becoming more pronounced.
Centralisation has the potential to allow organisations a clearer line of sight

over their reward programmes, meaning they can ensure local schemes
align to global priorities and policies – increasing return on investment and
reducing the risk of potentially damaging inconsistencies. The danger is
! !333
that centralised policies can contradict sharply with local demands and
practices, and may disengage local management if they are too restrictive.
That said, organisations are continuing to allow for variations in business
units or locations if it makes sense to do so.
For many, the concern is striking the right balance between global
consistency and local adaptability, and allowing for proper recognition of
varying local practices such as tax legislation, social benefits and
regulation. For global reward policies to work effectively, organisations
need to have visibility over all of their remuneration components – not just
base pay or total cash. Benefits and allowances frequently form a
significant part of reward spend and are critical for competitiveness in
many markets. The need to ensure the effectiveness of reward
programmes is motivating an increasing number of companies to
determine the total cost of their reward programmes and benchmark that
against all the various markets they are active in. This is a trend we would
expect to increase as more companies get to grips with the practicalities of
operating effectively as a global organisation.
12.3 Performance Measurement – Three Dimensional

Perspectives
Senior executive performance using balanced measures, which should take

into account the following factors
★ Business perspective
★ Customer perspective
★ Employee perspective
Measures are the yardsticks used to determine how well work units and
employees produced or provided products or services. The performance
pyramid below shows the types of general measures that are used at
different levels in the organisation.
! !334
Note that the balanced measures incorporating the business, customer, and
employee perspectives are appropriate for measuring managerial
performance and are sometimes appropriate for supervisory or even work
unit performance. At the bottom of the pyramid, the four general measures
normally used for measuring work unit and employee performance are
quality, quantity, timeliness, and cost-effectiveness.
! !335
12.4 Activity
1. Document at least 5 performance measurement parameters that are

deployed by each company across selected sectors. Identify the
common points and evaluate the key differences.
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12.5 Summary
Many factors contribute to establishing and maintaining a meaningful and

effective pay-for-performance programme. But programme management
needn't be overly complicated. A successfully designed plan should be
meaningful and simple.
The goal-setting process should also take into account the importance of
risks and rewards. On the one hand, risk management can help keep the
process consistent with the company's risk profile and contain and reduce
behaviours that might be deemed excessively risky. On the other hand,
performance goals that languish without achievement-based rewards can
quickly lose impact and relevance.
A performance-funded plan is an effective way to make sure that monies

will be available to recognise employee achievement. This kind of funding
mechanism can serve as an operational self-fulfilling prophecy by setting
performance goals and payout levels based on formulas that depend on
corporate success.
It won't always be feasible or cost effective to set specific goals for every
employee, or even every employee group. But if your organisation
understands and communicates the linkage between individual
performance and organisational performance, you can create a sense of
concrete continuity for employees, management and investors alike.
! !336
1. Explain with examples the key performance measurement parameters

used commonly across various industries.
2. Write a short note on evaluation of effectiveness of the performance

measurement parameters.
1. Which of the following is least suitable performance measurement

parameter for evaluation of the effectiveness of the performance
management and reward systems framework?
a. Turnover rate
b. Compensation of the CEO of competitor company
c. Customer satisfaction
d. Sales growth
2. Which of the following is not an important perspective of performance

measurement and evaluation?
a. Business perspective
b. Competitor perspective
c. Employee perspective
d. Customer perspective
3. Which of the following is least likely to be an important objective of

evaluation of effective of the performance management and reward
systems?
a. Motivating performance
b. Helping individuals develop their skills
c. Building a performance culture
d. Determining who should not be promoted and expelled from the
company
Answers
1. (b), 2. (b), 3. (d)
! !337
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !338
CASE STUDIES
Case Studies
Following Global Indicators in Assessment of Performance
Some 2,500 years ago, Plato and Aristotle hypothesised that in a just
society, no one possesses more than five times the wealth of another. In
the past 2,500 years the ratio has steadily increased. Financier John
Pierpont Morgan had famously suggested that ratio to be around twenty is
to one. Later, others such as Drucker and J K Galbraith validated that
number as an appropriate ratio for the lowest to the highest-paid employee
in an organisation. A comparison has been drawn for Indian Companies
with respect to the lowest paid employee and CEO Compensation. The ratio
analysis is depicted as under-
The results of the survey look skewed and also indicate a huge
compensation gap in wage to CEO compensation across number of Indian
Companies. The chart above depicts the ratio between the average annual
compensation of the CEO of a mid-size to large company in India and the
minimum wages in the country across different categories of labour.
Effectively the message is that, as a society, we seem to broadly accept
the idea that in the organised sector the lowest wage is about a basis
point of the highest.
! !339
CASE STUDIES
It is worthwhile to compare how India fares in comparison to other

countries with respect to the gap in Lowest compensation and highest
compensation.
If we compare the ratio of minimum wages of a graduate and a CEO in

India, vis-à-vis a set of countries, India stands head and shoulders above
all European, North American and Asian peers.
Understanding why TCS is rated Top Employer – Driving factor is

robust Performance Management and Reward Strategy
Tata Consultancy Services has been named as a top employer in the

United States for a second consecutive year by the Top Employers
Institute, an employer certification agency. TCS was recognised as an
exceptional performer across nine categories: talent strategy, workforce
planning, on-boarding, learning and development, performance
management, leadership development, career and succession
management, compensation and benefits, and culture.
The Top Employers certification is awarded to a select group of employers

who demonstrate forward-thinking HR practices, exceptional employee
offerings and an employee environment that promotes personal,
professional development.
! !340
CASE STUDIES
Comprehensive research concluded that Tata Consultancy Services

provides an outstanding employee environment and offers a wide range of
creative initiatives – from benefits and learning and development
opportunities to well-thought-out career management programmes – that
are truly aligned with the company's culture.
Case Study of Global Consulting Firms – Abandon Annual Employee

Performance Reviews, Rankings
Global software giant Accenture is set to abandon annual performance

evaluation of its employees, as part of the company's efforts to streamline
its internal functions. "Imagine, for a company of 3,30,000 people,
changing the performance management process—it's huge," Accenture
CEO Pierre Nanterme told The Washington Post.
The company plans to implement the new measures starting from

September this year. It will also dump the ranking system for its
employees. Instead, Accenture will put in place a "more fluid system,"
which will enable its employees to get "timely feedback" from their
superiors on a continuous basis after an assignment is completed.
Accenture’s fiscal year begins in September and with the aim of

implementing the new system from FY 16, the company has put the new
system in place. Major companies have begun revolting the once-a-year
evaluation process that is widely seen as being biased for employees and
time-consuming for employers.
Other companies are either simplifying their evaluation process or doing

away with them entirely. Consultancy and management firm Deloitte
moved to a completely new evaluation process this year. It is also
experimenting with asking just four questions in its reviews, two of which
require a simple yes or no answer. Microsoft stopped doing performance
reviews almost two years ago.
"We're going to get rid of probably 90 per cent of what we did in the past,"
Nanterme said. By doing so, Accenture will be one of the few companies
that discarded ranking and time-consuming paperwork to review its
employees.
! !341
CASE STUDIES
According to management research firm CEB, nearly 6% of the Fortune

500 companies have avoided using the ranking system. Consulting and
auditing firm Deloitte had announced in March that it is running a new
evaluation programme, in which performance review would be done
"incrementally" in a year setting aside the ranking process.
Deloitte's pilot programme includes four simple questions to review

performance. Global tech major Microsoft had already abandoned its
ranking process about two years back. Adobe, Gap and Medtronic are the
other companies that implemented similar measures. "All this terminology
of rankings—forcing rankings along some distribution curve or whatever—
we're done with that," Nanterme said.
"We're going to evaluate you in your role, not vis à vis someone else who
might work in Washington, who might work in Bengaluru. It's irrelevant. It
should be about you," he added. In a study conducted by CEB, it has been
found that 95% of managers are disappointed with the performance
evaluation processes of the companies and about 90% of HR heads are of
the view that the reviews do not produce correct information. "The art of
leadership is not to spend your time measuring, evaluating," Nanterme
said.
"It's all about selecting the person. And if you believe you selected the
right person, then you give that person the freedom, the authority, the
delegation to innovate and to lead with some very simple measure," he
said.
While change is coming to foreign companies, Indian companies have yet

to fully understand the merits of doing away with the cumbersome
performance reviews and implement better alternatives. In India, KPMG
began the trend of introducing a real-time feedback approach instead of
yearly reviews from this year onwards. Accenture’s competitors like Infosys
and TCS, however, will definitely look to see the merits of the new system,
before deciding whether to implement it or not.
This is a wrong way of looking at awarding employees. Most of them only

require that their concerns reach the designated person on time and that
timely action is taken on any issues between him and the manager.
Potentially sticky issues like salaries and designations do not need to be
! !342
CASE STUDIES
invoked at every meeting but a few encouraging words and rewards for an
assignment well done never hurts.
The performance appraisal system also gives managers leeway to

manipulate their employees’ work and give ratings according to his whim
since the entire process is mostly based on secrecy. Hard-working
employees slowly turn on the system and either quit in frustration or see
other employees who have secured the manager’s favour rise up the
corporate ladder. The inherent failure of performance reviews means that
the process is sure to end soon.
Another problem with Indian companies and those that follow the
performance review system worldwide is that they pit employees against
one another. Instead of focussing on their own job, employees look at their
colleagues’ work and try to outmanoeuvre them in a bid to secure higher
rank and salary. This hurts the business in the long run – a fact that
companies are now beginning to take in to account.
As Nanterme concludes, “The art of leadership is not to spend your time

measuring, evaluating. It’s all about selecting the person. And if you
believe you selected the right person, then you give that person the
freedom, the authority, the delegation to innovate and to lead with some
very simple measure.
Meeting Challenge of Grading Employees
Can a year’s worth of work be boiled down to a stock phrase like “meets
expectations”? As companies reinvent management by slashing layers of
hierarchy or freeing workers to set their own schedules, performance
ratings—which grade workers on a 1-5 scale or with labels like “on
target”—stubbornly hang on. Companies like Gap Inc., Adobe Systems Inc.
and Microsoft Corp. abolished such ratings after leaders decided they
deterred collaboration and stoked staffers’ anxieties. Yet other companies
are having a harder time letting go.
Intel Corp. has long rated and ranked its approximately 105,000 workers
on a four-level scale, from “outstanding” to “improvement required.” Devra
Johnson, a human-resources director at the chip maker, observed that
ratings tended to deflate morale in a good chunk of the 70% of the
! !343
CASE STUDIES
company’s workforce that receives a “successful” rating each year—the

second-lowest label. “We’d call them the walking wounded,” she said.
Human-resources managers conducted an experiment to test a new way of

managing performance, allowing 1,700 workers in the HR department to
go unrated, although not without feedback, for about two years, according
to Ms. Johnson.
Managers found they could still differentiate performance and distribute

compensation. However, when Ms. Johnson’s team presented its findings,
company executives weren’t ready to give the labels up, concerned that
forgoing ratings would suck healthy tension out of the workplace, she said.
So the HR department started rating the employees in the experiment
again. “We don’t want to be in a place where everyone’s an outstanding,”
she said. “We worry a lot, as we should, about unintended consequences.
You make a little tweak in an innocuous place—you don’t know, sometimes,
the impact it might have.”
Marc Farrugia, the vice president for human resources at Sun Communities
Inc., is going through the “exhausting” process of revamping performance
management at the owner and operator of manufactured housing
communities. He’s concerned about the accuracy of the company’s current
approach to ratings; some managers just dole out higher scores in order to
maximise bonuses for employees they’re scared might leave; others give
everyone average ratings because it is easy. Workers complain the ratings
aren’t fair and don’t paint a true picture of their annual performance. “I’m
being more and more convinced that ratings are doing more harm than
good,” Mr. Farrugia said.
Some managers felt differently, however. At a recent meeting, senior

managers resisted the idea of eliminating ratings, claiming workers
wouldn't get the feedback they need, Mr. Farrugia said.
Plenty of managers like ratings for the same reason employees loathe them
—the grades are informed less by data than by the boss’s judgment. The
irony is that ratings remain subjective as companies have more ways than
ever before to track staff performance. At Deloitte LLP, the company
recently overhauled its performance-management system after realising
that ratings revealed more about the manager assigning the ratings than
the employees themselves. Some executives worry that figuring
! !344
CASE STUDIES
performance measures, such as the time it takes for restaurant workers to

take an order, into reviews might lack context.
“I have a real love-hate relationship with data,” said Kevin Reddy, the CEO
of fast-casual restaurant chain Noodles & Co. “You can get a false sense
of security if you zero in too closely on a rating system.” The company
moved away from numeric ratings about seven years ago but still places
workers into broad categories like “meets expectations.” Mr. Reddy said he
and his leadership team continue to question whether they’re doing
feedback right and motivating employees.
IBM- Discountinuing the its Contentious Employee Review System

for one that Employees Asked For
IBM employees are being judged in an entirely new way, by a new

employee review system internally called "Checkpoint," IBM confirmed to
Business Insider.
It is ditching its 10-year-old system and using a new one crafted in

conjunction with the employees themselves, IBM's chief human resource
officer Diane Gherson told Fortune, and IBM also told Business Insider.
IBM's old performance review system was somewhat notorious.
It was your classic annual review, where employees had yearly goals and
performance was analysed at the end of the year. As such, IBM is trimming
jobs in the traditional hardware areas while hiring in the new areas. IBM
has shed thousands of employees, mostly by selling business units.
But it has also been doing ongoing rolling layoffs for years. IBM calls them
"resource actions" and "workforce rebalancing." IBM doesn't disclose any
information about its layoffs, beyond how much such "workforce
rebalancing" costs the company every quarter.
For years, IBM employees have said worried that the annual employee
review could give them a red flag, even if they had previously received
high ratings, making them vulnerable to being cut. And so, internally, there
was a lot of politics and angst all focused on that performance number.
! !345
CASE STUDIES
Thousands of employees helped create the new system – When IBM

decided to revamp its employee review process, it asked employees what
they wanted to see. The HR department asked for feedback on IBM's
internal employee social media site, Connections. The post was read by
75,000 people and got 2,000 comments, Gherson told Fortune.
HR also conducted online mini-polls where employees could vote on topics

like work priorities (how do you value teamwork, skills development,
innovation), and so on, an IBM spokesperson told us. Not surprisingly,
employees asked to ditch the stack ranking process.
Employees also wanted feedback more often, and the ability to change
their goals as the year went on. So the new system will no longer label IBM
employees with use a single number, a spokesperson says. Instead, it will
include shorter-term goals, feedback at least every quarter and employees
will be reviewed based on five general topics: business results, impact on
client success, innovation, personal responsibility to others, and skills.
"At the end of the year, managers evaluate employees on the five
dimensions – whether they have exceeded, or achieved expectations, for
their role, or whether more is expected," a spokesperson confirmed.
And it included a "stack ranking" element in which employees were

compared to each other, not just to how well they did on their own goals.
At IBM, managers would meet and compare their employees, Fortune
reports. This was a popular concept from the 1990s best known because of
GE's Jack Welch. It was widely adopted by a lot of companies including
Microsoft and Yahoo. Employees disliked it as it pits them against each
other.
It has now become popular to ditch it. For instance, Microsoft famously
got rid of stack ranking in 2013, after CEO Steve Ballmer announced his
plans to step down.
IBM is currently going through a big transition, moving away from its
hardware roots and toward new areas like cloud computing and big data.
And CEO Ginni Rometty has the painful task of changing the workforce to
match the new goals.
! !346
CASE STUDIES
Retention Policies – How Adobe keeps key Employees from Quitting
If there’s one thing almost everyone in corporate America can agree on, it’s
that traditional once-a-year evaluations are a waste of time. Managers and
employees dread the discussions, and plenty of evidence shows they don’t
produce anything but a pile of extra paperwork.
“I looked at this whole process, back in 2011, and thought, ‘Is this really
doing anything useful for us? Why are we doing it?’” recalls Donna Morris,
Adobe’s global senior vice president of people and places.
Especially troublesome was that the company’s “rank and yank” system,
which forced managers to identify and fire their least productive team
members, caused so much infighting and resentment that, each year, it
was making some of the software maker’s best people flee to competitors.
So, based in part on ideas crowdsourced from employees, Morris and her
team scrapped annual evaluations and replaced them with a system called
Check In. At the start of each fiscal year, employees and managers set
specific goals. Then, at least every eight weeks but usually much more
often, people “check in” with their bosses for a real-time discussion of how
things are going. At an annual “rewards check-in,” managers give out
raises and bonuses according to how well each employee has met or
exceeded his or her targets. “Managers are empowered to make those
decisions,” says Morris. “There is no ‘matrix.’ HR isn’t involved.”
The new approach has required extra training for managers, who have had
to adjust their schedules to “allow for setting expectations and giving
feedback in real time,” Morris notes. Getting used to the new system has
taken longer in some countries than in others, she adds. Adobe’s
employees in India, for instance, “were anxious at first about not having
the old written ‘report card’ every year, until they realised that, by having
these conversations much more often, they would always know exactly
where they stand.”
Morris says that transparency has paid unexpected dividends. For one
thing, fewer valued staffers are leaving, despite the ferociously competitive
Silicon Valley market for tech talent. “People who have turned down other
offers tell us it’s partly because Check In makes them feel like we’re
helping them succeed,” says Morris.
! !347
CASE STUDIES
Not only that, but more frequent talks between managers and
underperforming staffers have led to a marked increase in what Morris calls
“involuntary, non-regrettable attrition, because team leaders are no longer
putting off having tough conversations with people who aren’t cutting it,”
she says. “It’s not just about retaining talent. It’s about retaining the right
talent.”
It’s also about boosting Adobe’s ADBE -0.21% stock price. Getting
feedback in real time, so everyone stays on track and is pulling in the same
direction, has helped make Adobe’s 13,000 employees far more productive,
Morris says. Adobe’s stock price has increased from about $30 to over $80
since Check In began.
! !348

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Performance Management And

Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Prof. Kanu Doshi Prof. B.N. Chatterjee

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Prof. Sandeep Kelkar Mr. Anuj Pandey

Prof. Dr. Swapna Pradhan Course Editor

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Mr. P.M. Bendre Course Coordinators

Mr. Ajay Prabhu Ms. Kirti Sampat

Mr. A.S. Pillai Mr. Kishor Tamhankar

COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development & Research.

NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY.

1st Edition, May 2016

Chapter Chapter Name Page No.

1 Introduction and Overview of Performance Management 4-39

2 Key Elements and Standards of Performance Management 40-59

3 Performance Management and Performance Appraisal 60-106

5 Strategy Formulation and Implementation of Performance 117-132

6 Strategic Imperatives in Performance Management and 133-146

7 Overview of International Performance and Rewards 147-168

8 Rewards Management and Linkage to the Performance 169-211

11 Implementation of Reward Strategy and Latest Trends in 275-330

12 Measuring Effectiveness of PMS and Reward Systems 331-338

After studying this chapter, you will be able to:

• Understand the key features and characteristics of Performance

• Gain overall perspective of Reward Systems

• Understand the important linkages between Performance Management

• Understand the Concepts, Principles and Role of Performance

• Appreciate the key features of Performance Management and Reward

• Understand the Benefits of Performance Management and Reward

1.1 Introduction to Performance Management and Reward Systems

1.2 Key Objectives of Performance Management System

1.3 Performance Management Concepts

1.4 Essentials of Performance Management System

1.5 Key Activities Involved in a Robust Performance Management System

1.6 Challenges in the Implementation of an Effective and Efficient

1.7 Evolution of Performance Management System

1.8 Key Difference Between Performance Appraisal and Performance

1.9 Need for Robust Performance Management and Reward System

1.10 Reward System

1.11 Key Objectives of Reward Systems

1.12 Types of Rewards and the Features

1.15 Self-Assessment Questions

1.16 Multiple Choice Questions

1.1 Introduction to Performance Management and Reward

The key business objective of any organisation is to maximise the value

A robust performance management system thus inspires, motivates high

Performance management is the systematic process of planning work and

The performance management and reward systems have evolved over a

E.g. Management’s performance in a large Multi-National Corporation

Most of the above performance evaluation parameters are organisational

1.2 Key objectives of Performance Management System

Aim of the performance management system is to build a high

★ Enabling goal clarity for employees

★ Explorationof full potential of employees in their as well as in favour of

★ Adequately define the role, responsibility and the evaluation parameters

★ Understand the accountabilities, competencies and expectations

★ Createenvironment which enables achievement of superior standards of

★ Assistemployees in clear identification of the knowledge and skills