PMRS Merged

Monitoring Performance
• Monitor for development

• Monitor to help
• Monitor to solve problems
• Monitor to identify higher potential
• Monitor in detail
• Monitor with trust
• Monitor through internal and external sources
Mistakes in monitoring
performance
Deviating from the Organization’s Strategy
Inadequate Focus on Customer Needs
Failure to Anticipate Impact of Competition
Lack of Openness to Learning and New Ideas
Failure to Invest Enough to Hire the Right People
Not Communicating Organizational Vision with Clarity
Inadequate Development of Managees’ Trust
Failure to Foster Risk-taking
Failure to Leverage New Technology
Lack of Understanding of Other Cultures
D. Situational Leadership
• Directing High Supportive and Low Directive Behaviour S3
Supporting
• Coaching High Directive and High Supportive Behaviour
S2 Coaching
• Supporting Low Supportive and Low Directive Behaviour
S4 Delegating
• Delegating High Directive and Low Supportive Behaviour
S1 Directing
❖Development Levels
➢ Competence
➢ Commitment
High Competence + High Commitment = D4
High Competence + Variable Commitment = D3
Some Competence + Low Commitment = D2
Low Competence + High Commitment = D1
❑ Process of Development
E. Performance Manager’s Change Agent Role
F. Organizational Human Relations
G. Power of Perception
H. Equity Theory
I. Experiential Learning
J. Movers of Human Behaviour
K. Achievement, Affiliation and Power Motives
L. Enriching Performance through Diversity
b
• Steps in Monitoring
OBSERVATION
DISCUSSION
LISTENING
ASKING
TAKING RESPONSIBILITY
COACHING
Spe
Avenues for monitoring and Development

❑Supervision
❑ Coaching
❑ Training
❑Delegating
❑ Counseling
❑ Monitoring
❑Discussions
❑ Communication
❑ Mentoring
❑Development
❑Directing
❑Delegating
❑ Review
Managee Career Development Window(Mcmohan and Merman)
Managee Managee Doesn’t

Knows Know
Manager
Knows
I
OPEN
Manager III
Blind
Doesn’t
Know
Hidden Unknown
II IV
Processes of Monitoring Performance
Evaluative vs. Developmental Process
Assessment Centers
Raise critical organizational issues:-

• Interrelationship of the assessment data to existing training and
• development programs
• Decide which managers will have access to the assessment results and
• how the results will be used
• Should participants be able to nominate themselves
• What other data will override assessment rating
Forced-choice Rating Scale

360 feedback
Developing and implement 360 degrees feedback,

Suggestions and steps by Michael Armstrong :
1. Define objectives:
2. Decide on recipients:
3. Decide on who will give the feedback
4. Decide on the dimensions
5. Decide on the method of gathering feedback
6. Decide on data analysis and presentation:
7. Plan initial implementation
8. Analyse outcomes of pilot scheme
9. Plan and gradually implement the full program
10. Minitor and evaluate
360 degrees feedback

• The questionnaire
• Ratings
• Data processing
• Feedback
• Action
Given useful feedback
Establishes good
Working relations
Is open to new ideas
Values others’ opinions

Delivers on Commitments
Yes Not Fully
Moves onward and upwards Gets a second chance in a different

environment
Yes
Share GE Values Most difficult Separates

To deal with
Not fully
Varieties of Participation
Autocratic
Consultation Joint Decision Delegation
Decision
No influence High influence

by others by others
Leadership Grid Styles
❖Compliance – willing to do what is asked, no enthusiasm, apathy,
minimal effort.
❖Instrumental compliance – to obtain a reward or avoid punishment
❖Country Club Management – no concern for production. Maximum
concern for people / even at the expense of results
❖Impoverished Management – no concern for people, no concern
for production.
❖Middle of the Road – Maintain status quo
❖Team Management -
Learning Organisation
• An organisation which facilitates the learning of all its members and

continually tranforms itself( Pedler et al(1986)
• Garvin
1. Systematic problem solving
2. Experimentation
3. Learning from past experience
4. Learning from others
5. Transferring knowledge quickly and efficiently
The Learning Organisation
Kolb’s Learning Cycle
Concrete
Experience
Active
Reflective
Experiment
Observation
ation
Abstract
Conceptuali
sation
Single and Double Loop Learning- Chris
Argyris
Define
expectations
Take action
Decide on
Single Loop Monitor and
corrective action
Learning Review
as necessary
Re- Define expectations as

necessary
Double Loop Learning
Self Assessed Learning(one’s own style
Self-
assessment
Monitoring
Diagnosis
and Review
Action
Planning
PERFORMANCE DEVELOPMENT
• LEARNING
• SPECIAL AND DEVELOPMENTAL ASSIGNMENTS
BY
PROF. RITA RANGNEKAR
1. Are the fundamental principles on which the
system and its development is based linked to:
2. Have these principles been developed:
3. Is there a clear and articulated link between
reward strategies and HR strategy:
4. Is there a strategy for ongoing reward
management :
5. Does the strategy provide a sound basis for the
development of reward policies, systems and
procedures, :
6. Is the strategy congruent with the culture of the
organization?
Work culture
The Functional Culture The Process Culture

Technology, quality,
reliability, customer needs Customer needs,
flexibility reliability, technology,
flexibility
The Time-based Culture The Network Culture

Flexibility, technology, customer
Flexibility, customer
needs, relibility
nds, technology,
reliability
Analyze Context
Involve Define Issues Communicate
Involve Plan Development
Involve Design Process Communicate
Involve and train Pilot Test Communicate
Train Communicate
Implement
Monitor Communicate
Evaluate Communicate
The meaning of job evaluation
1. A Comparative Process
2. A Judgmental Process
3. An analytical Process
4. A Structured Process
5. A Job-centred Process
WHY IS JOB EVALUATION
NECESSARY?
Classification of job evaluation methods
1. Non- analytical methods in which whole jobs are

examined and compared, without being analyzed
into their constituent parts or elements.
2. Analytical methods in which jobs are analyzed by
reference to one or more criteria, factors or
elements.
Categorization of job evaluation methods
Means of comparison
Whole Job By factors
(non-analytical) (analytical)
Simple ranking
Internal Factor
Job-job Comparison
benchmarking
Basis of Paired comparisons
Comparison Market pricing
Job-scale Classification Point-factor
rating
 Job ranking
 Paired Comparison
 Job Classification
 Internal benchmarking
 Market pricing
 Point factor rating
 Graduated factor Comparison
 Factor comparison
 Single factor analysis
 Analysis of existing methods , strategy,
culture, technology, structure and jobs
 Decision-making
 Decide objectives
 Involve people
 Communicate
 Choose the approach and method
 Make the necessary changesand pay
structure a project schedule
Solving Performance Problems
Performance problems can be avoided by
• Creating a culture that applauds success
• Setting standards against which performance can be
reviewed and joint addressing for rectification
• Training managers to handle disciplinary issues
• Helping managers overcome the discomfort of tackling
such issues
• Continuous monitoring of reasons for failure
• Behavioural modication through ‘operant conditioning’
Managing Underperformance
Managing ……….
• Identify and agree the problem
• Establish the reasons for the shortfall
• Decide and agree on the action required
• Resource the action
• Monitor and provide feedback
The Review Meeting
A good performance review would have as its
basis
• Recognition for contribution- a feeling that everything has been
accounted for
• A ‘review’ climate set by an appropriate leadership style
• Preparation on both sides
• A ‘Review Dialogue’ – uninterupted, confidential , with adequate
time, comfortable
• Documentation of ‘employee data, performance plans, measures,
outcomes and achievements, development plans, agreement’
Team Reviews
• General feedback review- progress of the team and
problems encountered
• Work Review- positive feedback, acknowledgement of
individual contribution
• Group Problem Solving- analysis and future action
• Update Objectives- Reviewing new requirement,
amendment of objectives
Giving and Receiving Feedback
• Positive feedback- praise
• Constructive feedback- advice
The Feedback Framework
Expectations- Observations
Desired Behaviors, Standards Neutral Facts or Occurrences
Results/Outcomes Depersonalized Feedback, say
Built on personal and professional exactly what was seen and heard,
histories building blocks for assessment
Assessments
Personal Interpretations or
Consequences Evaluations
Known or Possible Effects of Are unavoidable
Current or Continued
Are not objective truth
Performance
Often create resistance
Can produce a sense of urgency
How to give feedback
• Focus on what you can change
• Comment on observed behaviour- be specific
• Use a mix of positive and constructive feedback
• Elicit information- ask questions, help the other person to speak up
• Set ground rules
• Do not overload with messages
• Own the feedback and speak from personal experience
• Say what you mean- don’t obfuscate
• Suggest solutions
Performance Management the “Team”
Way
• Should tap into people’s self-motivation
• People should feel they own the goals
• They should have a feeling of having a ‘say’ in
‘improvements’
• Align individual activities with orgnl goals and
objectives(Synergy creation)
Way
Team performance Management
• Has more structure and is more formal
• Can focus more on ‘quality’ unlike individual
monitoring
• Will have more focus on measurement
• Helps in getting people to understand each
other’s problems
Way
• Team based performance cannot be a substitute
for individual discussions
• It should not override the importance and focus
on recognition of individual achievements ,
learning needs, career aspirations and personal
development
Team members performance a
Team members performance may be judged in
three ways
• The job that they do, competencies and behaviours they
apply
• The job they performance as team members
• The total performance of the team
Team Performance can be managed better by
• Proper allocation of work
• Appropriate handling of team processes
• Helping to establish relationships within the team
• Adopting an effective leadership style
• Using appropriate systems and resources
Competencies required to be in a team
• Interpersonal understanding
• Influence
• Customer-service orientation
• Adaptability
• Team work and Cooperation
• Oral Communication
• Achievement Orientation
• Organisational Commitment
Types of Teams
• Organisational teams
• Work Teams
• Project Teams
• Ad hoc teams
Measuring team performance
• Harrington-Mackin(1994)- Inputs
• Support of team processes
• Participation
• Communication- oral & written
• Collaboration and collective work
• Conflict handling
• Trust and credibility
• Interdependence and interpersonal relations
• Change acceptance- adaptability and flexibility
Measuring team performance
Harrington-Mackin(1994)- Results
• Achievement of team goals
• Customer satisfaction
• Quantity of work
• Quality of work
• Process knowledge
• Maintenance of technical systems
Managing Underperformance
Causes of Underperformance-
Armstrong and Murlis
• (Non)-Capability – personal ability to develop or change
• Inappropriate Attitude- eg; coasting, resistance to change
• Interference of personal issues
• Illness – medical problems , low-energy and concentration,
mental illness, burnout and fatigue
• Clarity of Direction
• Lack of support
• Substance Abuse
• Insufficient self-confidence/self esteem
Pay Structures General
Considerations
What is Pay Structure?

A pay structure provides a framework within
which an organization defines the different
levels of pay for jobs or group of job, on the
basis of assessments of their relative internal
value and of external relativities
Considerations
Types of Pay Structures:
Graded Pay Structure
Broadbanded Structures
Job Family Structures
Other types of Structure:

Individual Job Range
Benefit Grade Structures
Pay Curves
Spot Rate Structures
Pay Spines
Pay Structures for manual workers
Integrated pay structures
Rate for age scales
Considerations
Number of Pay Structures
Idea that a word processor is somehow more
important than a technician managing more
important than a technician managing a computer
operated machine tool no longer holds water
Pay is strongly affected by market rate pressures
and some people may therefore have to be paid
more for attraction and retention purposes than
people whose jobs have been assessed as being at
the same level by a process of internal evaluation
Considerations
Purpose and aim of pay structures
Pay structure is to provide a fair and consistent
basis for motivating and rewarding employees
Pay structure should also help the organization to
control the implementation of pay policies and
budgets
Considerations
Criteria of Pay Structures
Pay Structures should:
Be appropriate to the characteristics and needs of the
organization; its culture, size and the complexity and
level of people employed
Be flexible in response to internal and external
pressures
Facilitate operational and role flexibility
Give scope for rewarding high-level performance
Facilitate rewards for performance and achievement
Clarify pay opportunities, developmental pathways and
career leaders
Considerations
The basis of Pay Structure:
Internal Relativities
Process of job evaluation
Basis of what has to be done to achieve a standard and
acceptable level of job performance
External Comparisons
External comparisons are made through market rate
survey
Considerations
Individual Job Ranges
Structures simply define a separate pay range for
each job
Individual ranges can also be used in rapidly
growing companies where a normal grade
structure would restrict recruitment policy too
much, or in small organizations where a grade
structure would be cumbersome
Considerations
Benefit Grade Structure
Main differences between a broadband structure and a
benefit grade structure with individual ranges is that in
the former all employees are graded within the banded
structure.
GRADE A
Senior Management
GRADE B
Middle
Management
GRADE C
Junior Management
Considerations
Advantage of operating one pay structure for all
jobs in terms of achieving consistency and
facilitating control system to be obvious
Families may also be distinguished from one
another in terms of the market rates for the
occupations within the family
Considerations
Pay Curves
Pay curve system recognizes that different
methods of handling pay determination and
progression may have to be used in some job
families
Graded structures may not be suitable for
knowledge workers
Considerations
Pay Curves Assumptions
Competence develops progressively through
various levels or bands
Individuals will develop at different rates and will
therefore different levels of performance
Market rate consideration should be taken into
account when determining levels of pay
Considerations
Band A Band B Band C

Considerations
Pay Curves
They would not move into a new band until they
have demonstrated that they have attained the
level of competence required
Pay increases for individuals are usually
determined by line managers by reference to
policy guidelines and data provided by the HR
department on market rate movements and their
pay budgets
Considerations
Spot Rate Structures
Can be fixed entirely by reference to market rates
in a market driven structure
Typical for manual workers but they are adopted
for other types of staff by some organizations that
want the maximum degree of scope to pay what
they like
Pay Spines
Series of incremental points
Considerations
Pay Structures for Manual Workers
Spot rates i.e. fixed base rates for each job which
do not vary according to skills or merit
Basis of Pay Structure
Aims to strike a bargain about the relationship
All employees are in a bargaining situation with
regard to pay
Fixed by negotiation with trade unions
Considerations
Typical Structures
Structure for manual workers will have the
minimum number of grades
Accommodate the clearly differentiated levels of
skill and responsibility that exist in the
organization
Considerations
Time Rate
Constant pressure from trade unions to consolidate
average bonus earnings into the base rate
High day rate may include a consolidated bonus
element and is probably greater than local labour
market rate to attract and retain good quality workers
Integrated Pay Structures
Employees who have traditionally been paid under
separate arrangements
PERFORMANCE MEASUREMENT
Performance Monitoring
 Directing Leaders define the roles and tasks of the 'follower',
and supervise them closely. Decisions are made by the leader
and announced, so communication is largely one-way.
 Coaching Leaders still define roles and tasks, but seeks ideas
and suggestions from the follower. Decisions remain the leader's
prerogative, but communication is much more two-way.
 Supporting Leaders pass day-to-day decisions, such as task
allocation and processes, to the follower. The leader facilitates
and takes part in decisions, but control is with the follower.
 Delegating Leaders are still involved in decisions and problem-
solving, but control is with the follower. The follower decides
when and how the leader will be involved.
Performance Measurement
 What get measured gets done
 If you can’t measure it, you can’t manage

it.
 Why measure?
- Measure for improvement
 What to measure
- Measure progress toward goals
- FINANCIAL ASPECTS AND HUMAN ASPECTS OF

PERFORMANCE
Principles of Measurement
 The customer’s consideration decides

what to measure
 Customer’s need get converted into
strategic plan
 Information on measured results leads
teams to develop improvement plans
Performance Measurement by defining
objectives
Well defined objectives help in effective strategy

execution.
Improve organisational productivity
Keep all on the shortest path to success

Setting targets and quotas
 Increase productivity and encourage people to
speed up
 Maximise performance
 Hold people accountable
Setting and allocating budgets
Maximise return on investment
Minimise costs
Quickly adapt to change
Aligning individuals for performance
 Cascading objectives down to

the individual
 Setting individual quotas and
targets
 Aligning individuals to
opportunities
Manage performance by aligning the
organisation
Defining strategic objectives
Specifying resources
 A STRATEGY IS REQUIRED TO
DECIDE ‘WHAT’TO ‘MEASURE’
 A STRATEGY IS REQUIRED TO
DEVELOP ASSOCIATED
PERFORMANCE METRICS
Productivity
Quality
Timeliness
Utilisation
Cost
Balanced Scorecard( Kaplan
and Norton)
Traditional Financial Ratios
Overall
Return on equity Asset turnover
heads/sales ratio
Profit or sales
Return on capital
Return on sales or added value
employed
per employee
Output per
Earnings per Price-earnings
employee(
share ratio
productivity)
Balanced Scorecard
How do What much we

customers see excel at? (
us?(Customer Internal
perspective) Perspective)
Can we
How do we
continue to
look at
improve and
shareholders?(
create value?(
Financial
Innovation
Perspective)
Perspective)
Issues related to measurement
Too many measures
Not related to strategy
Too results biased

Reward Systems
not aligned
No support for team
based structure
‘justifies’
Indicates ‘cost’ resources and
provides
Highlights feedback
quality
problems
Provides
visibility
for
performance
Ensures ( like a
custom scoreboard)
er
require
ments
Inputs
(to ask what people
bring to the role)
Outputs
To ask whether the work been

worth doing
Measurement Criteria
Relati
on of
activit Verifia and
Derived should
y ble clearly
from provid
with precis defined Measu
account ea remen
strate e, behavi
ability platfor t
gic compr m for our
stateme
goals ehensi feedba ranges
nts ve,
and ck
meas
ures
Classification of metrics
Finance
added value in
terms of money
Time
speed , efficiency, Output
turnaround time, units, quantity etc
time testability
Impact
Reaction opinions
, what people say quality, culture,
behaviour etc
Jack Welch’s idea of Performance
Measurement
Cash flow
Employee
Satisfaction
Customer
Satisfaction
360-degree feedback
“the systematic collection and feedback of performance data on an
individual or group derived from a number of stakeholders-Ward
360-degree feedback
Manager
Peers Individual Customers
Direct
Reports
360-degree feedback
 Methodology
Questionnaire
Rating
Data processing
Feedback
Action
360-degree feedback
 Advantages
Offers a broader perspective
Reliable feedback
Reinforces competencies
Identifies key development areas
Gives a rounded view
360-degree feedback
 Disadvantages
May not get honest feedback
May impose stress
May not lead to action
Performance Appraisal
 Benefits
Focus on goals, not personality
Provides a formal forum to discuss performance
Support career planning process
Recognises employee contributions
Determines compensation
 Designing the appraisal
Involve the right people
Analyse the current system
Define purpose
Design and pilot the process
‘Monitor’ the process
Rating Errors
 Halo Effect
 Horn Effect
 Leniency and severity error
 Projection error
 Range restriction error
 Recency error
 Self-fulfilling prophecy
 Stereotyping
 Performance Measurement and Numeric Ratings System Guidelines
 The following ten guidelines, examples, and ideas will assist you to develop a performance measurement and rating system which is
motivational rather than confrontational.
 Take great care in establishing what it is that you want to measure. Jack Zigon, an expert in performance management and measurement, in
Performance Appraisal Lessons from Thirteen Years in the Trenches, states that, "the hardest part of creating performance standards is deciding which
accomplishments to measure." Once you decide, my experience is that people will focus the majority of their energies on those aspects of
their work for which they believe they are "receiving credit."
 Develop effective measurements that tell people how they are doing. To the degree these numbers measure what is actually important in the
person’s work, they are effective in molding performance. Don’t pick the outcomes to measure just because they are easy to assign a
numerical target. Some of the most important outcomes from any job, and especially as more jobs become information based, are not easily
measurable. As an example, during my consulting engagements, organizations often suggest we measure our success in working together by
the number of training classes they offered and the number of people who attended the training sessions. I always countered by stating that I
wanted to have an impact on their productivity, customer delivery performance, and staff morale; these measurements were worth their
time, even if the impact of training was harder to isolate.
 Establish straightforward, honest criteria that tell people exactly what they must do to achieve a particular numeric rating. Too often
organizations fail to establish criteria beyond the judgment of a manager. If they have criteria, they fail to share them with employees. Both of
these make up a recipe for disaster in employee performance. While organizations are unlikely to eliminate the judgment of the manager as
part of the criteria mix anytime soon, the impact of her opinion should be minimized, where possible .
Appraisal Criteria
 should be objective rather than subjective;
 should be job-related or based on job analysis;
 should be based on behaviors rather than traits;
 should be within the control of the ratee;
 should relate to specific functions, not global assessments,
 should be communicated to the employee."
DEVELOPMENT LEVEL
 D4 High Competence High Commitment
 Experienced at the job, and comfortable with their own ability to do it well. May even be more skilled
than the leader.
 D3 High Competence Variable Commitment
 Experienced and capable, but may lack the confidence to go it alone, or the motivation to do it well /
quickly
 D2 Some Competence Low Commitment
 May have some relevant skills, but won't be able to do the job without help. The task or the situation may
be new to them.
 D1 Low Competence Low Commitment
 Generally lacking the specific skills required for the job in hand, and lacks any confidence and / or
motivation to tackle it.
THE (European Foundation for Quality Management) EFQM
EXCELLENCE MODEL
 Directing Leaders define the roles and tasks of the 'follower',
and supervise them closely. Decisions are made by the leader
and announced, so communication is largely one-way.
 Coaching Leaders still define roles and tasks, but seeks ideas
and suggestions from the follower. Decisions remain the leader's
prerogative, but communication is much more two-way.
 Supporting Leaders pass day-to-day decisions, such as task
allocation and processes, to the follower. The leader facilitates
and takes part in decisions, but control is with the follower.
 Delegating Leaders are still involved in decisions and problem-
solving, but control is with the follower. The follower decides
when and how the leader will be involved.
 If you can’t measure it, you cant manage it.
 Why measure?
 What to measure
- FINANCIAL ASPECTS AND HUMAN ASPECTS OF
PERFORMANCE
 The customer’s consideration decides what to measure
 Customer’s need get converted into strategic plan
 Information on measured results leads teams to develop
improvement plans
Performance Measurement by defining
objectives
Well defined objectives help in effective strategy execution.
 Increase productivity and encourage people to speed up
 Maximise return on investment
 Minimise costs
 Quickly adapt to change
 Cascading objectives down to the individual
 Setting individual quotas and targets
 Aligning individuals to opportunities
organisation
A STRATEGY IS REQUIRED TO DECIDE ‘WHAT’TO

‘MEASURE’
A STRATEGY IS REQUIRED TO DEVELOP ASSOCIATED
PERFORMANCE METRICS
MEASURE ONLY THOSE ACTIVITIES THAT ARE LIKELY TO DRIVE
PERFORMANCE
Productivity
Quality
Timeliness
Utilisation
Cost
Balanced Scorecard( Kaplan and
Norton)
Overall
Return on
Asset turnover heads/sales
equity
ratio
Return on Profit or sales

capital Return on sales or added value
employed per employee
Output per
employee(
share ratio
productivity)
Balanced Scorecard
How do What much we

Can we continue
How do we look
to improve and
at shareholders?(
create value?(
Financial
Innovation
Perspective)
Perspective)
Too many measures
Too results biased
Reward Systems not

aligned
No support for team

based structure
‘justifies’
resources and
Indicates ‘cost’ provides feedback
Highlights quality
problems
Provides
visibility for
performance (
like a
scoreboard)
Ensures
customer
requirements
Inputs
(to ask what
people bring
to the role)
Outputs
To ask whether the work been worth
doing
Relati
on of
activit Verifia and
Derived should
y ble clearly
from provid
with precis defined Measu
account ea remen
strate e, behavi
ability platfor t
gic compr m for our
stateme
goals ehensi feedba ranges
nts ve,
and ck
meas
ures
Finance
added value in
terms of money
Time
speed , efficiency, Output
turnaround time, units, quantity etc
time testability
Impact
Reaction opinions
, what people say quality, culture,
behaviour etc
Measurement
Cash flow
Employee
Satisfaction
Customer
Satisfaction
360-degree feedback
“the systematic collection and feedback of performance data on an
individual or group derived from a number of stakeholders-Ward
360-degree feedback
Manager
Direct
Reports
360-degree feedback
 Methodology
Questionnaire
Rating
Data processing
Feedback
Action
360-degree feedback
 Advantages
Reliable feedback
360-degree feedback
 Disadvantages
May impose stress
 Benefits
Provides a formal forum to discuss performance
Define purpose
Rating Errors
 Halo Effect
 Horn Effect
 Recency error
 Stereotyping
 The following ten guidelines, examples, and ideas will assist you to develop a performance measurement and rating system which is
motivational rather than confrontational.
 Take great care in establishing what it is that you want to measure. Jack Zigon, an expert in performance management and measurement, in
Performance Appraisal Lessons from Thirteen Years in the Trenches, states that, "the hardest part of creating performance standards is deciding which
accomplishments to measure." Once you decide, my experience is that people will focus the majority of their energies on those aspects of
their work for which they believe they are "receiving credit."
 Develop effective measurements that tell people how they are doing. To the degree these numbers measure what is actually important in the
person’s work, they are effective in molding performance. Don’t pick the outcomes to measure just because they are easy to assign a
numerical target. Some of the most important outcomes from any job, and especially as more jobs become information based, are not easily
measurable. As an example, during my consulting engagements, organizations often suggest we measure our success in working together by
the number of training classes they offered and the number of people who attended the training sessions. I always countered by stating that I
wanted to have an impact on their productivity, customer delivery performance, and staff morale; these measurements were worth their
time, even if the impact of training was harder to isolate.
 Establish straightforward, honest criteria that tell people exactly what they must do to achieve a particular numeric rating. Too often
organizations fail to establish criteria beyond the judgment of a manager. If they have criteria, they fail to share them with employees. Both of
these make up a recipe for disaster in employee performance. While organizations are unlikely to eliminate the judgment of the manager as
part of the criteria mix anytime soon, the impact of her opinion should be minimized, where possible .
Appraisal Criteria
DEVELOPMENT LEVEL
 Experienced at the job, and comfortable with their own ability to do it well. May even be more skilled
than the leader.
 Experienced and capable, but may lack the confidence to go it alone, or the motivation to do it well /
quickly
 May have some relevant skills, but won't be able to do the job without help. The task or the situation may
be new to them.
 Generally lacking the specific skills required for the job in hand, and lacks any confidence and / or
motivation to tackle it.
THE (European Foundation for Quality Management)
EFQM EXCELLENCE MODEL
Nine Elements of the EFQM Model 9
box "Cause and Effect" diagram
1. Leadership
Enabler Criteria
2. Policy and Strategy
3. People Management
4. Resources
5. Processes
6. Customer Satisfaction
7. People Satisfaction Results Criteria
8. Impact on Society
9. Business Results
 The EFQM model can be used in four ways:
 To help determine where an organisation is on their journey
towards excellence.
 To provide a common language to enable the exchange of ideas
and information, both within and outside the organisation.
 To integrate existing & planned activities, improving
organisational efficiency and effectiveness.
 To provide a basic structure for the organisation's management
system.
 Relation of activity with strategic goals and measures
 Derived from accountability statements
 Verifiable
 Precise , comprehensive, and should provide a platform for
feedback
 Clearly defined behaviour ranges
 Measurement
Nine Elements of the EFQM Model 9
box "Cause and Effect" diagram
1. Leadership
Enabler
3. People Management Criteria
4. Resources
5. Processes
7. People Satisfaction Results Criteria
9. Business Results
 The EFQM model can be used in four ways:
 To help determine where an organisation is on their journey
towards excellence.
 To provide a common language to enable the exchange of ideas
and information, both within and outside the organisation.
 To integrate existing & planned activities, improving
organisational efficiency and effectiveness.
 To provide a basic structure for the organisation's management
system.
 Relation of activity with strategic goals and measures
 Derived from accountability statements
 Verifiable
 Precise , comprehensive, and should provide a
platform for feedback
 Clearly defined behaviour ranges
 Measurement
Directing Leaders define the roles and tasks of the 'follower', and supervise them
closely. Decisions are made by the leader and announced, so communication is largely one-way.
Coaching Leaders still define roles and tasks, but seeks ideas and suggestions from the
follower. Decisions remain the leader's prerogative, but communication is much more two-way.
Supporting Leaders pass day-to-day decisions, such as task allocation and processes, to the
follower. The leader facilitates and takes part in decisions, but control is with the follower.
Delegating Leaders are still involved in decisions and problem-solving, but control is with the
follower. The follower decides when and how the leader will be involved.
Nien Elements of the EFQM Model
1. Leadership Enabler Criteria
3. People Management
4. Resources
5. Processes
Results Criteria
7. People Satisfaction
9. Business Results
 The customer’s consideration decides
what to measure
 Customer’s need get converted into
strategic plan
 Information on measured results leads
teams to develop improvement plans
 If you can’t measure it, you cant manage
it.
Performance Measurement by
defining objectives
Well defined objectives help in effective
strategy execution.
 Increase productivity and encourage
people to speed up
 Maximise return on investment
 Minimise costs
 Quickly adapt to change
 Cascading objectives down to the
individual
 Setting individual quotas and targets
 Aligning individuals to opportunities
organisation
A STRATEGY IS REQUIRED TO DECIDE

‘WHAT’TO ‘MEASURE’
A STRATEGY IS REQUIRED TO
DEVELOP ASSOCIATED PERFORMANCE
METRICS
 Why measure?
 What to measure
- FINANCIAL ASPECTS AND
HUMAN ASPECTS OF
PERFORMANCE
MEASURE ONLY THOSE ACTIVITIES THAT ARE LIKELY TO DRIVE
PERFORMANCE
Productivity
Quality
Timeliness
Utilisation
Cost
Balanced Scorecard( Kaplan and
Norton)
Overall
Return on
Asset turnover heads/sales
equity
ratio
Return on Profit or sales

Return on
capital or added value
sales
employed per employee
Output per
employee(
share ratio
productivity)
Balanced Scorecard
How do What much we

Can we
How do we
continue to
look at
improve and
shareholders?(
create value?(
Financial
Innovation
Perspective)
Perspective)
Too many measures
Too results biased
Reward Systems not aligned
No support for team

based structure
‘justifies’
resources and
Indicates ‘cost’ provides feedback
Highlights quality
problems
Provides
visibility for
performance (
like a
scoreboard)
Ensures
customer
requirements
Performance Measurement Factors
Inputs
(to ask what
people bring
to the role)
Outputs
To ask whether the work been worth doing
Relat
ion and
of shoul
activi Derive Verifi clearly
able d
ty d from provi define Meas
with accoun precis de a d
e, urem
strat tability platfo behavi ent
comp rm
egic statem rehen
our
goals ents for ranges
sive, feedb
and
ack
meas
ures
Finance
added value in
terms of money
Time
Output
speed , efficiency,
units, quantity
turnaround time,
etc
time testability
Reaction Impact
opinions , what quality, culture,
people say behaviour etc
Measurement
Cash flow
Employee
Satisfaction
Customer
Satisfaction
360-degree feedback
“the systematic collection and feedback of
performance data on an individual or group
derived from a number of stakeholders- Ward
360-degree feedback
Manager
Direct
Reports
360-degree feedback
 Methodology
Questionnaire
Rating
Data processing
Feedback
Action
360-degree feedback
 Advantages
Reliable feedback
360-degree feedback
Disadvantages
May impose stress
 Benefits
Provides a formal forum to discuss
performance
Define purpose
Rating Errors
 Halo Effect
 Horn Effect
 Recency error
 Stereotyping
 The following ten guidelines, examples, and ideas will assist you to develop a performance measurement and
rating system which is motivational rather than confrontational.
 Take great care in establishing what it is that you want to measure. Jack Zigon, an expert in performance
management and measurement, in Performance Appraisal Lessons from Thirteen Years in the Trenches, states that, "the
hardest part of creating performance standards is deciding which accomplishments to measure." Once you
decide, my experience is that people will focus the majority of their energies on those aspects of their work for
which they believe they are "receiving credit."
 Develop effective measurements that tell people how they are doing. To the degree these numbers measure
what is actually important in the person’s work, they are effective in molding performance. Don’t pick the
outcomes to measure just because they are easy to assign a numerical target. Some of the most important
outcomes from any job, and especially as more jobs become information based, are not easily measurable. As an
example, during my consulting engagements, organizations often suggest we measure our success in working
together by the number of training classes they offered and the number of people who attended the training
sessions. I always countered by stating that I wanted to have an impact on their productivity, customer delivery
performance, and staff morale; these measurements were worth their time, even if the impact of training was
harder to isolate.
 Establish straightforward, honest criteria that tell people exactly what they must do to achieve a particular
numeric rating. Too often organizations fail to establish criteria beyond the judgment of a manager. If they have
criteria, they fail to share them with employees. Both of these make up a recipe for disaster in employee
performance. While organizations are unlikely to eliminate the judgment of the manager as part of the criteria
mix anytime soon, the impact of her opinion should be minimized, where possible .
Appraisal Criteria
DEVELOPMENT LEVEL

 Experienced at the job, and comfortable with their own ability to do it well. May
even be more skilled than the leader.
 Experienced and capable, but may lack the confidence to go it alone, or the
motivation to do it well / quickly
 May have some relevant skills, but won't be able to do the job without help. The
task or the situation may be new to them.
 Generally lacking the specific skills required for the job in hand, and lacks any
confidence and / or motivation to tackle it.
THE EFQM EXCELLENCE MODEL
Planning Performance
Performance Agreement
 A performance agreement contains the following components:
 Performance results: the major outcomes the staff member is expected
to produce over the next 12-month period
 Manager's support: this requires the supervisor to specify how they will
assist the staff member to achieve the performance results
 Learning and development plan: this specifies how the staff member
will develop the skills required to achieve the performance results and to
advance their personal career
 Performance evaluation: the rating that represents the extent to
which the staff member has achieved their performance results
 Career plan: explaining how this year's performance and
development relates to the overall career objectives of the
individual
 There are two fundamental tools for managing the
performance of individual staff:
 The individual's position description
 The business plan
 Position description
 position title
 job role/s
 required capabilities
 qualifications required
 experience required
 general / other
 remuneration / package
Individual work plan
 The individual work plan contains details of the work the

person will be doing over the next year. It ties the staff
member's position description with the targets of the
business or team within the business.
 The individual work plan should contain the following
information.
 staff member's name
 time period that the individual work plan covers
 details of each task that the staff member is to complete within
the time period
 the timeline for each task
 the priority of each task (e.g. high / medium / low)
 the number of the business or team target that the task relates to
Business Plan Aims
 strategic context in which the managee will be
operating: the things we are aiming to achieve over the
next three to five years
 drivers of business performance: the issues that will
heavily influence what we do over the next 12 months
(on our way to the targets for the next three to five
years)
 outcomes we are planning to achieve over the next 12
months
 strategies we will use to achieve them
 details: how we will report progress (time, person
accountable, budget, etc)
Learning and Development Plan
 Performing a gap analysis
A skills gap analysis decides what activities should be
included in the learning and development plan.
Performing a Gap Analysis
• Establish the skills the staff member
currently possesses
• Consider the list of performance
results on the performance
agreement and ask: 'What skills
would best support the achievement
of these performance results?'
• Compare these two pieces of
information to identify the skills gap
 For the managee, preparation:
 allows them to demonstrate that they are serious about
their personal development
 applies rigour appropriate for an important document
such as an individual performance agreement
 For the supervisor, preparation:
 enables them to tailor the performance requirements of
each staff member to meet the requirements of the
overall business plan
 enables them to demonstrate that they care about the
personal development of each individual staff member
Performance evaluation reviews
To evaluate
progress on
learning and
development
plan
To review the
performance of
the manager in
supporting the
managee
To review the performance of the

managee
Definitions
 Ed Schein
An unwritten set of expectations operating at times between every
member of an organisation and the various managers and others in
that organisation.
 D. Rousseau and Wade-Benonzi.K
Psychological contracts refer to beliefs that individual hold

regarding promises made, accepted and relied upon between
themselves and another ….. Because psychological contracts
represent how people interpret promises and commitments, both
parties in the same employment relationship (employer and
employee) can have different views regarding specific terms.
 Definition by R. Sims
The set of expectations held by the individual employee

that specify what the individual and organization expect to
give and receive from one another in the course of their
working relationship.
Aspects of relationship
What the Employee Expects
 How she/he is treated in terms of fairness, equity and
consistency:
 Security of employment:
 Scope to demonstrate competence:
 Career expectations and the opportunity to develop skills;
 Involvement and influence;
 Trust in the organization to keep its promises;
 The expectation that she/he will be managed competently.

Aspects of relationship
What the Employer Expects
 Competence
 Effort
 Compliance
 Commitment
 Loyalty
 Changing dimensions with
shorter careers, constant change in roles, leaner organisations,
lateral growth, greater demands on employees , involves
emotions, behavioural dimensions
 Types of Motivation
Intrinsic Motivation
- job content and empowerment oriented
Extrinsic Motivation
action done to motivate people through
rewards…..
 Basic Concepts
• Needs theory
• Goals theory( specific, reachable, reasonable, involves participation)
Reinforcement
• Expectancy Theory(change in behaviour will laed to reward, reward is

worth behaviour change)
• Attribution Theory( people having the feeling that they can

change things and have control)
• Self-efficacy (belief in one’s ability to perform a task)

Money and motivation
1. The ‘economic man’ approach- money as the main motivator

2. Herzberg’s two factor model- money as a hygiene factor
(demotivates if not present but does not motivate on its own)
3. Instrumental Theory- money as an instrument
4. Equity Theory- money compared with what others get
5. Expectancy Model - motivation will be strong if employees expect that
their contributions will pay worthwile rewards
 Achievement
 Recognition
 Responsibility
 Influence
 Personal Growth
• Intrinsic value
• Internal & External relativities
• Inflation & Market Movement
• Business performance
• IR issues
 Market worth
 Skill level
 Performance level
 Expresses what the organisation values and is
prepared to reward people for
- importance attached to pay
- use of non-financial or intrinsic rewards
- extent of differential according to performance or skill
- equity, flexibility,
- authority of line managers
 The deliberate utilisation of the pay system as an essential
integrating mechanism through which the efforts of various sub-
units and individuals are directed toward the achievement of an
organisation’s strategic objectives- Gomex-Mejia and Balkin
Why make market rate surveys?
1. To decide on starting rates

2. Modify and Design Pay structures
3. Check what is acceptable
4. Understanding benefit systems.
Job title – can be •Can be misleading
misleading
Job description with •Can be subject to change

responsibility
Capsule job
description
Full job description
Job evaluation
There is no definitive market rate for any job.
There are bound to be variations in sample and
job matching.
No salary can be “Correct” for any given job.
Market range will help you decide two things:-

1) Rate for ‘a’ job
2)‘Pay range’ for all individuals in the job
Market rate surveys are conducted by matching
jobs in:
1. Function
2. Sector
3. Industry Classification
4. Location
5. Size of organisation
6. Range of responsibilities
7. Level of responsibility
What are the sources of data
1. Published surveys
2. Specialized surveys
3. Company surveys
4. Survey clubs
5. Journal, newspaper, press
6. Job ad analysis
7. Market intelligence
8. Grapevine
Variables will be according to
Region
Location
Industry
Size of organisation
Base pay
Cash bonuses
Total earnings (What cash earnings)
Employee benefits
Other allowances
Total remuneration
Information on Salary structure

Material factor defense
Where difference in pay is due to discrimination

that cannot be justified by the employer, than it
cannot be a material factor defence.
BY
PROF. RITA RANGNEKAR
Provides a framework within which an
organisation defines the different levels of
pay.
Type of Pay Structures

1. Graded Pay structure
2. Broadbanded Pay Structure
3. Job family structures
1. Individual job ranges
2. Benefit grade structures
3. Pay curves
4. Spot rate structure
5. Pay spines
6. Pay structures for manual workers
7. Intergrated pay structures
8. Rate for wage scales
Pay structures
1. Internal Relativities
2. External Comparisons
3. Individual Job Ranges
4. Benefit grade structure
WHY HAVE PAY STRUCTURES?
Good Pay Structures allow for
Flexibility, Mobility, Consistency

accommodating performance and
rewards skill, contribution, competence
 Separate Pay range for each job
- For varied job sizes, job content

 Superimposed over and above individual
structures
 Consists of jobs in a function or discipline
 Eg – scientists, specialists , teachers

 a development of job family structures
 May have different methods of handling pay
determination and pay progression
 Each family has different tracks to allow people
to move according to their competence level
 Ad-hoc determination
 A series of incremental points extending from
the lowest to the highest in a particular band in
the whole structure
 E.g. Government jobs
 Minimum no of grades
 Very straightforward and broad
 Very delicate
 Lays down work units to be done
 Sequence of Job Grades with a pay range
attached to each grade
Size of ranges as based

Minimum to maximum
Room for flexibility, progression and
adjustment , performance
Features
 Job Grades
 Pay ranges and grades
 Defining a pay range
 Number of pay ranges- highest-lowest, width,
differentials
 Range reference Points
 Overlap between ranges
 Pay progression through ranges
 Progression through the structure
 Make-up
Semi-Structured
Fully Structured
Performance zoned
Progression zoned
High performance/High reward zoned
 Progession zones
◦ Learning zone
◦ Competent Zone
◦ Premium Zone
 Advantages
 Disadvantages
Compression of a hierarchy of pay grades into a
small number of wide bands
 Broad grade Structure- a number of salary bands are

collapsed into 7 to 8 grades
 Career Band structures- only four or five bands
are used , focus in flexibility and individual career growth
 Not many bands
 Wide pay spans
 Lateral career development
 Less hierarchy
 Less concern for structure
 Pay decisions with line manager
 No pay limits in some bands
 No analysis or job evaluation
 Levels could be market driven
Why broadbanding?
Advantages
Disadvantages
 Number of bands depend on value added tiers
in the organisation
 Width of bands depends on types of roles
 Unstructured broad bands
 Target rates
 Pay zones (bands within bands????) ????
 Competence related progression
 Performance related progression
 Unstructured pay progression
 Equity
 Cost Control
 Movement between bands
 Job family – a group of jobs classified on
function, nature or discipline
 Accountabilities
 Competencies
 Technical knowledge
 Analyse and review current arrangements
 Set objectives and time –table
 Consider costs and budget
 Brief employees
 Choose structure
 Check market rate
 Prepare a detailed design
 Communicate and train
 Basis for grading
 Number of grades
 Grade width
 Pay range size
 Range reference pints
 Market rates
 Overlap
 Pay progression
 Point Factor evaluation scheme
 Ranking/market rate method
 Individual job range structure design
 Job family structure design
 Pay curve structure design
 Pay spine structure design
 Pay related to individual performance, contribution,
competence or skill
Rationale
 Motivation
 Message
 Equity
 Contingent Pay critieria
 Individual criteria
 Line of sight criteria
 Why PRP? -
 Why not PRP????

 Culture
 Process
 Attitudes
 Skills and Resources
 Impact
 Assess reasons
 Assess reaadiness
 Decide
 Defines objectives
 Design scheme
 Brief and train
 Implemnt
 Monitor and Evlauae
 Method of rewarding people wholly or partly by
reference to the level of competence
 Important points
Pay is related to competence
Reward people by reference to level of
competence
Competence should be demonstrated
 Why competence related pay??
 Organisational core competence
 Generic competences – branch managers ,
ccountants etc
 Specific comepetences
 Achievement cluster
 Helping cluster
 Influence cluster
 Managerial cluster
 Cognitive thinking cluster
 Personal effectiveness cluster
 Links pay to the level of skills used in a job
Skill based job slotting

- Method of locating an individual in a pay and grade
structure
Eg: unskilled, skilled, semi-skilled
 Why skill based pay??
- Encourage acquisition of skills

- Raise quality standards
- Reward learning
- Encourage efficiency
- Reward expertise
- Flexibility
Defined skill blocks Design structured training
programme
Define order in which kills must be acquired
Decide incremental rewards for acquisitio
Decide rate of pay for each level Number of Skill Blacks

 Individual piece-work
 Work measured schemes
 Measured Day Work
 Group Incentive schemes
By
Prof. Rita Rangnekar
ANNUAL STOCKTAKING
STOCKTAKING PERFORMANCE
STOCKTAKING POTENTIAL
APPRAISING FOR RECOGNITION AND REWARD
Stocktaking performance means taking stock of the entire process covering the
planning and monitoring of performance thro the year , consolidating and
quantifying performance and comparing it with previous performances
Stocktaking potential means taking stock of the entire process covering planning,
mentoring and monitoring managee development and arriving at changes in
managee potential recorded.
Concepts
Quantifying contribution Appraising contribution Rewarding contribution

A. Stocktaking Performance
B. Process of Judgement vs. Process of Analysis
a) Tell and Sell Type discussion
Effectively persuade and secure workable acceptance, not just superficial
consent wihtout commitment.
Identify, develop and use incentives that will work with the managee.
Deal with and soften resistance that may be largely passive.
Show patience, retain control, and refrain from using compensatory
mechanisms merely to keep the discussion going.
Manage unexpressed conflicts.
Effectively use influence and power – formal positional, sanction-reward
and punishment, or referent – charismatic, etc.
Motivate managees through authoritarian leadership.
b) Tell and Listen Type
Active listening
Patience
Empathy
Summarizing feelings and content
The ability to do (a) to (d) without necessarily committing agreement
The ability to stay open
The ability not to dwell on face-savers
The ability to keep an open mind
c) Problem –solving Type
C. Stocktaking Discussions
a) Indirect Feedback
b) Settling Differences
c) Foci of Stocktaking Discussions
Extent to which the appraisee ahs achieved or failed to achieve
Ways to deal with unanticipated obstacles
Action plans for better performance by the managee
d) Content of Stocktaking Discussions
Achievement or non-achievement of performance goals
Causes for such achievement or non achievement.
Determining what, in the content or context of performance
Determining what. In the content or context of performance tasks
Drawing lessons to be used for planning the next performance
cycle.
e) Advantages of Stocktaking Discussion
f) Common Characteristics of Stocktaking Discussions
g) Conditions for Effective Discussions
effective communication skills, positive supportive climate,
genuineness, clarity of role, indicators and performance
standards Manager Image as:
Authentic, bona fide and honest-to-purpose
Supportive
Positive and empathetic
Open
D. Delivering Efficient Feedback

Using Critical Incidents
PERFORMANCE
MANAGEMENT
THEATRE
• A process model of a manager’s role – performed by a
whole person in a whole environment in relation to other
whole persons, with all actions viewed as concrete
processes, and the entire process thoroughly suffused with
turbulence and change
PILLARS OF PFM THEATRE
Goal Congruence
Data Exchange Win-Win Approach
Dyadic
Communic Mutual Trust
ation
PFM THEATRE
Planning Managee Performance & Development
Establishing Mutual Expectations for Performance &

Development
1. Role Description
2. Special and Developmental Assignment
3. Performance Standards/Best Assignment
4. Outcome of recent stocktaking
PLANNING
• Planning performance of managee’s

means that managers, in fact, plan
their own performance.
STEPS TO PLAN A PERFORMANCE
MANAGEMENT CYCLE
• Study Outcome of the Most Recent Stocktaking

• Review the Managee’s Role Description
• Establish Performance Standards or The Best
Achievement Levels
• Design Special or Development Assignments
MONITORING MANAGEE PERFORMANCE &
MENTORING MANAGEE DEVELOPMENT
• Communication • Supervision • Review Discussions
• Delegating
• Development • Mentoring
• Counseling • Monitoring • Coaching

PRIMARY RESPONSIBILITIES OF
PERFORMANCE MANAGER
• Sensitive and Supportive supervision

• Counselling
• Coaching and mentoring
• Delegating
• Managee Development
• Planned Review Discussions
• Communication
• Annual Stocktaking
• Stocktaking • Stocktaking potential • Appraising for Recognition &

Performance Reward
PLANNING MANAGEE PERFORMANCE AND
DEVELOPMENT
According to Weirich
• An Improved understanding of individual roles, what is expected of each individual and the
respective role accountabilities
• More effective vertical and horizontal integration of goals and tasks in the organization.
• Concrete and valid context to interpret inter – role communication – vertical as well as horizontal
• Basis to build and expect commitment to integrated role objectives and outcomes
• More optimal use of individual forte and potential by matching goals with capacities
• Higher – level work motivation through self – direction and control within the territory of specified
accountability
• Well – founded bases for planning and control
• Reduced inter – role conflict, resulting in improved relations across the organization, including
those between a manager and her managees.
• Increased superordination, providing the role occupant with a sense of relevance to the
organizational mission and some socially – accepted purpose.
WHY SET OBJECTIVES
• Benchmarking
* They praise a managee’s excellent work publicly –
and credibly –
* They work the hardest – and smartest
* They share organizational success experiences –
and what went into them
WORK – STANDARDS AND GOAL – SETTING
APPROACH
• Making performance interviews more databased, less

threatening and more productive
• Making it easier to use for development purposes:
coaching, counselling, motivating etc.
ORGANIZATIONAL AND INDIVIDUAL
PERFORMANCE PLANS
• Job descriptions
• Individual objectives
• Individual performance plans
RESEARCH BASE FOR PERFORMANCE
PLANNING AND GOAL - SETTING
• Goal – setting Theory
• Recognizing the Role of Causality
• Non – Directive Facilitation and Organizational Data
• Self – Awareness
• Pro – active Competence Motivation
• Aware Goal Focus
• Pygmalion Effect
• Psychological Safety
• Measurability of the Change – goal
• Self – controlled Evaluation
• Control of Reinforcement
• Process of Goal Choice

CYBERNETIC MODEL OF THE BEHAVIOUR – CHANGE
PROCESS
Psychological
Safety
Behaviour Goal
Supportivenes Awareness
Change s
Collaborative Goal -
Manipulation Setting
Helping
interventions Emphasis on Self
Selective
- direction
Reinforcement
Self - Contorl
Feedback from the
Environment
Behaviour Manipulations of
Monitoring Expectations
Attempts & Control Expectations of
Success
to Achieve
the Goal
WHY SET OBJECTIVES?
• Targets
• Tasks/Projects
OBJECTIVES
Work related
1. Organisational
2. Functional
3. Team
4. Personal
Personal
1. Developmental
2. To build competencies
▪ Good Objectives
Consistent
Measurable
Precise
Challenging
Achievable
Agreed
Time-Bound
Team Work Oriented
MANAGEMENT BY OBJECTIVES
• John Humble(1972)
Restating the company’s strategic and tactical plans
Clarifying performance stds and objectives
‘Job Improvement Plan’
Systematic performance Review
Strengthen Motivation
MANAGEMENT BY OBJECTIVES
• Mcgregor’s Theory Y
We can achieve our goals by directing our efforts in making the

organisation successful
GOAL SETTING THEORY –
LOCKE AND LATHAM A THEORY OF GOAL
SETTING AND TASK PERFORMANCE."
• Clarity.
• Challenge.
• Commitment.
• Feedback.
• Task complexity.
1. Goal Congruence
2. Win – Win Approach
3. Mutual Trust
4. Dyadic Communication
5. Data Exchange
Specific and difficult goals

THE LEARNING ORGANISATION
KOLB’S LEARNING CYCLE
Concrete
Experienc
e
Active Reflective
Experim Observatio
entation n
Abstract
Concept
ualisatio
n
Define
expectations
Take action
Decide on
corrective Single Loop Monitor and
action as Learning Review
necessary

necessary
SELF ASSESSED LEARNING(ONE’S
OWN STYLE
Self-
assessment
Monitoring
and Diagnosis
Review
Action
Planning
Monitoring Performance
 Monitor for development

 Monitor to help
 Monitor to solve problems
 Monitor to identify higher potential
 Monitor in detail
 Monitor with trust
 Monitor through internal and external sources
Performance Indicators
 Hall and Rimmer (1994)
“Quantitative and qualitative statistical information which
is used to assist in determining how successful an
organisation is in achieving its objectives”.
Performance indicators can measure three
main aspects of performance
:
 Workload - Output orientated ; measures the

amount of work done
 Efficiency economic and productivity measures,
measuring output/input ratios, equipment and
personnel utilisation rates
 Effectiveness Measures - Outcome or impact
of a service, ; the extent to which the objectives of
the organisation have been achieved,; include the
quality of services, the levels of customer
satisfaction, and overall outcomes such as
profitability or accountability for equity
Mistakes in monitoring performance
Deviating from the Organization’s Strategy

Inadequate Focus on Customer Needs
Failure to Anticipate Impact of Competition
Lack of Openness to Learning and New Ideas
Failure to Invest Enough to Hire the Right People
Not Communicating Organizational Vision with Clarity
Inadequate Development of Managees’ Trust
Failure to Foster Risk-taking
Failure to Leverage New Technology
Lack of Understanding of Other Cultures
Situational Leadership
High Supportive and Low Directive Behaviour S3 Supporting
• Directing
High Directive and High Supportive Behaviour
• Coaching S2 Coaching
Low Supportive and Low Directive Behaviour

• Supporting S4 Delegating
High Directive and Low Supportive Behaviour
S1 Directing
• Delegating
 Development Levels
 Competence
 Commitment
High Competence + High Commitment = D4
High Competence + Variable Commitment = D3
Some Competence + Low Commitment = D2
Low Competence + High Commitment = D1

 Process of Development
Performance Manager as a Change Agent
Equity Theory
Experiential Learning
Achievement, Affiliation and Power Motives
Enriching Performance through Diversity
Steps to be followed in monitoring
performance
OBSERVATION
DISCUSSION
LISTENING
ASKING
TAKING RESPONSIBILITY
COACHING
Avenues for Performance Monitoring and
Performance Development
 Supervision  Discussions
 Coaching  Communication
 Training  Mentoring
 Delegating  Development
 Counseling  Directing
 Monitoring  Delegating
 Review
Known by unknown
self ask by self
---------
1 2
Feedback solicitation
Known by
others open / free blind
area area
----------
telll
self – disclosure / exposure Shared

discovery
Others’ observation
unknown
hidden -------------- unknown---------
Self- Discovery
by others ------------------ ---------
area area
--------
3 4
Johari Window Model

Rita Rangnekar
Managee Career Development
Window(Mcmohan and Merman)
Managee Managee Doesn’t

Knows Know
Manager
Knows
Manager
Doesn’t
Know I
OPEN
III
Blind
Hidden Unknown
II IV
Processes of Monitoring Performance
Evaluative vs. Developmental Process
Forced-choice Rating Scale

360 feedback
Developing and implement 360 degrees feedback,
Suggestions and steps by Michael Armstrong :
1. Define objectives:
2. Decide on recipients:
3. Decide on who will give the feedback
4. Decide on the dimensions
5. Decide on the method of gathering feedback
6. Decide on data analysis and presentation:
7. Plan initial implementation
8. Analyse outcomes of pilot scheme
9. Plan and gradually implement the full program
10. Minitor and evaluate

• The questionnaire
• Ratings
• Data processing
• Feedback
• Action
Given useful feedback
Establishes good
Working relations
Is open to new ideas
Values others’ opinions

Varieties of Participation in Participative
Leadership
Autocratic
Consultation Joint Decision Delegation
Decision
No influence High influence

by others by others
Leadership Grid Styles
 Compliance – willing to do what is asked, no enthusiasm, apathy,
minimal effort.
 Instrumental compliance – to obtain a reward or avoid punishment
 Country Club Management – no concern for production.
Maximum concern for people / even at the expense of results
 Impoverished Management – no concern for people, no concern
for production.
 Middleof the Road – Maintain status quo
 Team Management -
Learning Organisation
 An organisation which facilitates the learning of all its

members and continually transforms itself( Pedler et
al(1986)
 Garvin
1. Systematic problem solving
2. Experimentation
3. Learning from past experience
4. Learning from others
5. Transferring knowledge quickly and efficiently
David Kolb’s Learning Cycle
Concrete
Experience
Active Reflective
Experimentation Observation
Abstract
Conceptualisation
Single and Double Loop Learning- Chris
Argyris
Define
expectations
Take action
Decide on
corrective Single Loop Monitor and
action as Learning Review
necessary

necessary
Self Assessed Learning(one’s own style)
Self-
assessment
Monitoring
and Diagnosis
Review
Action
Planning
PERFORMANCE DEVELOPMENT
 LEARNING
 SPECIAL AND DEVELOPMENTAL ASSIGNMENTS
Planning
Performance
Performance Agreement
▪ A performance agreement contains the following components:

▪ Performance results: the major outcomes the staff member is
expected to produce over the next 12-month period
▪ Manager's support: this requires the supervisor to specify how
they will assist the staff member to achieve the performance
results
▪ Learning and development plan: this specifies how the staff
member will develop the skills required to achieve the
performance results and to advance their personal career
▪ Performance evaluation: the rating that represents the extent to
which the staff member has achieved their performance results
▪ Career plan: explaining how this year's performance and
development relates to the overall career objectives of the
individual
Performance of individual
staff:
 There are two fundamental tools for managing the
performance of individual staff:
 The individual's position description
 The business plan
▪ Position description
▪ position title
▪ job role/s
▪ required capabilities
▪ qualifications required
▪ experience required
▪ general / other
▪ remuneration / package
▪ The individual work plan contains details of the work the

person will be doing over the next year. It ties the staff
member's position description with the targets of the
business or team within the business.
▪ The individual work plan should contain the following
information.
▪ staff member's name
▪ time period that the individual work plan covers
▪ details of each task that the staff member is to complete
within the time period
▪ the timeline for each task
▪ the priority of each task (e.g. high / medium / low)
▪ the number of the business or team target that the task
relates to
Business Plan Aims
▪ strategic context in which the managee will be

operating: the things we are aiming to achieve over
the next three to five years
▪ drivers of business performance: the issues that will
heavily influence what we do over the next 12
months (on our way to the targets for the next three
to five years)
▪ outcomes we are planning to achieve over the next
12 months
▪ strategies we will use to achieve them
▪ details: how we will report progress (time, person
Learning and Development
Plan
 Performing a gap analysis
A skills gap analysis decides what activities should be
included in the learning and development plan.
•Establish the skills the staff member

currently possesses
•Consider the list of performance results
on the performance agreement and
ask: 'What skills would best support the
achievement of these performance
results?'
•Compare these two pieces of
▪ For the managee, preparation:
▪ allows them to demonstrate that they are serious
about their personal development
▪ applies rigour appropriate for an important document
such as an individual performance agreement
▪ For the supervisor, preparation:
▪ enables them to tailor the performance requirements
of each staff member to meet the requirements of
the overall business plan
▪ enables them to demonstrate that they care about
the personal development of each individual staff
member
Performance evaluation
reviews
To evaluate
progress on
learning and
development
plan
To review the
performance
of the
manager in
supporting
the managee
To review the performance
of the managee
The accomplishment of a given task measured
against preset known standards of accuracy,
completeness, cost, and speed. In a contract,
performance is deemed to be the fulfillment
of an obligation, in a manner that releases the
performer from all liabilities under the
contract
Setting Performance Objectives
• Targets- specific individual and organisational
targets
• Tasks/Projects- Developmental and special tasks
• Ensuring the highest form of Staff Achievement
by
 Fixing set goals for all work
 Creating High volume work
 Setting a specific deadline
 Creating a smooth working routine
How to set Objectives?
Work related
1. Organisational
2. Functional
3. Team
4. Personal
Personal
1. Developmental
2. To build competencies
Good Objectives
 Consistent
 Measurable
 Precise
 Challenging
 Achievable
 Agreed
 Time-Bound
 Team Work Oriented
• Mcgregor’s
Theory Y
We can achieve
our goals by
directing our
efforts in making
the organisation
successful
Management By Objectives - MBO'
• Management By Objectives - MBO‘

- A management model that aims to improve
performance of an organization by clearly
defining objectives that are agreed to by both
management and employees.
- Peter Drucker 1954 "The Practice of
Management."
Management By Objectives - MBO'
• Management by Objectives
 a system that seeks to align
employees' goals with the goals of
the organization.
 MBO ensures that everyone is
clear about what they
should be doing, and how
that is beneficial to the whole
organization
Goal Setting Theory
Dr. Edwin Locke and Dr. Gary Latham
A Theory of Goal Setting and Task Performance."
There is a relationship between how difficult and
specific a goal was and people's performance of a
task. He found that specific and difficult goals led
to better task performance than vague or easy
goals.
– Clarity.
– Challenge.
– Commitment.
– Feedback.
– Task complexity.
Kolb’s Learning Cycle
Concrete
Experience
Active
Reflective
Experiment
Observation
ation
Abstract
Conceptualis
ation
Setting learning expectations
Define
expectations
Take action
Decide on
Single Loop Monitor and
corrective action
Learning Review
as necessary

necessary
Self Assessed Learning(one’s own style
Self-
assessment
Monitoring
Diagnosis
and Review
Action
Planning
Performance Planning
• Planning performance means that managers
and managees plan their own performance.
STEPS TO PLAN A PERFORMANCE
MANAGEMENT CYCLE
• Study Outcome of the Most Recent Stocktaking

• Review the Managee’s Role Description
• Establish Performance Standards or The Best Achievement Levels
• Design Special or Development Assignments
Understand individual roles, what is

expected of each individual and the
respective role accountabilities
vertical and horizontal integration

of goals and tasks in the
organization.
Concrete and valid context to

interpret inter – role
communication – vertical as well as
horizontal
Basis to build and expect

commitment to integrated role
objectives and outcomes
optimal use of individual forte and

potential by matching goals with
capacities
Higher – level work motivation through self –
direction and control
Well – founded bases for planning and

control
Reduced inter – role conflict, improved

relations across the organization,
Increased super ordination, providing

the role occupant with a sense of
relevance to the organizational
mission and some socially – accepted
purpose.
Components- Performance Agreement
Learning and
Performance results: Manager's support: development plan:
this requires the supervisor to this specifies how the staff
the major outcomes the staff
specify how they will assist the member will develop the skills
member is expected to produce
staff member to achieve the required to achieve the
over the next 12-month period
performance results performance results and to
advance their personal career
Performance evaluation: Career plan: explaining how

the rating that represents the this year's performance and
extent to which the staff development relates to the
member has achieved their overall career objectives of
performance results the individual
Two fundamental tools for planning
the performance of individual staff:
• The individual's position description
• The business plan
• Position description
• position title
• job role/s
• required capabilities
• qualifications required
• experience required
• general / other
• remuneration / package
 The individual work plan contains details of the work the person
will be doing over the next year. It ties the staff member's
position description with the targets of the business or team
within the business.
The individual work plan should contain the following information.
 staff member's name
 time period that the individual work plan covers
 details of each task that the staff member is to complete within the
time period
 the timeline for each task
 the priority of each task (e.g. high / medium / low)
 The business or team target that the task relates to
Business Plan Aims
 Strategic context in which the managee will be
operating: the things we are aiming to achieve over
the next three to five years
 Drivers of business performance: the issues that will
heavily influence what we do over the next 12 months
(on our way to the targets for the next three to five
years)
 Outcomes we are planning to achieve over the next 12
months
 Strategies we will use to achieve them
 Details: how we will report progress (time, person
Learning and Development Plan
• Performing a gap analysis
A skills gap analysis decides what activities
should be included in the learning and
development plan.
• Establish the skills the staff member

currently possesses
• Consider the list of performance results
on the performance agreement and
ask: 'What skills would best support
the achievement of these performance
results?'
• Compare these two pieces of
1
Class of 2021- Semester III
Performance Management & Reward Systems –
Notes
PAY STRUCTURES
What is a Pay Structure?
A pay structure provides a framework within which an organization defines the different
levels of pay for jobs or group of job, on the basis of assessments of their relative internal
value and of external relativities. Pay structures, also known as salary structures, set out the
different levels of pay for jobs, or groups of jobs, by reference to:
Before we look at different pay structures, it is important to look at what do organisations pay
for and with what
1. Base Salary Progression( increments) – for overall performance
2. Annual Performance Incentives- for achievement of personal objectives
3. Annual Bonus- for achievement – discretionary
4. Long Term Incentives- (cash or shares) for performance targets
5. Team awards- cash or kind for team contribution
6. Profit shares/Gainsharing- collective award
7. Recognition awards- cash or kind for exceptional contribution
8. Competency an skill based approaches- Skill based pay, contribution based pay
Number of Pay Structures
 Based on the idea that a data entry operator is somehow more important than a
technician managing more important than a technician managing a computer
operated machine tool no longer holds water Pay is strongly affected by market
rate pressures and some people may therefore have to be paid more for attraction
and retention purposes than people whose jobs have been assessed as being at the
same level by a process of internal evaluation
Performance Management and Reward Systems- Pay Structures

2
Purpose and aim of pay structures
The purpose and aim of pay structures are as follows
 To provide a fair and consistent basis for motivating and rewarding employees
 Pay structure should also help the organization to control the implementation of
pay policies and budgets
Criteria of Good Pay Structures
The criteria for good pay structures are
- Pay Structures should be appropriate to the characteristics and needs of the

organization; its culture, size and the complexity and level of people employed
- Pay Structures should be flexible in response to internal and external pressures
- Pay Structures should facilitate operational and role flexibility
- Pay Structures should give scope for rewarding high-level performance
- Pay Structures should facilitate rewards for performance and achievement
- Pay Structures should clarify pay opportunities, developmental pathways and

career leaders
Basis of Pay Structures

Pay Structures have the following bases
Internal Relativities
- Depends on the process of job evaluation
- On the basis of what has to be done to achieve a standard and acceptable

level of job performance
External Comparisons: External comparisons are made through market rate survey
What are Market Rate Surveys?

3
Market rate surveys are surveys that compare compensation structures for similar positiosn
across organisations in order to
- To decide on starting rates

- Modify and Design Pay structures
- Check what is acceptable
- Understanding benefit systems
The following data could be collected through Market Rate Surveys
- Base pay;Cash bonuses; Total earnings (What cash earnings);Employee benefits;

Other allowances; Total remuneration; Information on Salary structure.
(Data could vary depending on region, location, industry and size of organisation)
Market rate surveys are conducted by matching jobs in:
- Function
- Sector
- Industry Classification
- Location
- Size of organisation
- Range of responsibilities
- Level of responsibility
Sources of data for Market Rate Surveys
Data is collected through the following sources
1. Published surveys
2. Specialized surveys
3. Company surveys
4. Survey clubs
5. Journal, newspaper, press
6. Job ad analysis
7. Market intelligence
8. Grapevine

4
TYPES OF PAY STRUCTURES:
Pay Structures can be classified as
Graded Pay Structure; a sequence of overlapping job grades into which jobs of broadly
equivalent size are allocated. Each grade has a range, the maximum of which is usually 20 to
50% above the minimum. Graded pay cconsists of Job Grades; pay ranges and grades;
highest-lowest, width, differentials; contain range reference Points; can have overlap between
ranges; Pay progression through ranges; Progression through the structure
Broad-banded Structures- Broad-banding is a method for evaluation and construction of

job grading structure that exchanges a large number of narrow salary ranges for a smaller
number of broader salary ranges. Broad-banding aids in establishing what is required to pay
for a specific position.
This type of pay structure encourages the development of broad employee skills and growth
while reducing the opportunity for promotion.
It involves compression of a hierarchy of pay grades into a small number of wide bands
(Broad grade Structure- a number of salary bands are collapsed into 7 to 8 grades)
Career Band structures-These are structures only four or five bands are used , focus in
flexibility and individual career growth Not many bands; Wide pay spans ; Lateral career
development; Less hierarchy; Less concern for structure; Pay decisions lie with line manager
Job family structures resemble career structures in that separate families are identified and
levels of knowledge, skills and competency requirement defined for each level, thus
indicating career paths and providing the basis for grading jobs by matching role profiles to
level definitions. Like career families, job families may have different numbers of levels
depending on the range of responsibility
Job families have the advantage of operating one pay structure for all jobs in terms of
achieving consistency and facilitating control system to be obvious. Families may also be
distinguished from one another in terms of the market rates for the occupations within the
family. The difference between a career family structure and a job family structure is
that in
the former there is a common grade and pay structure. Jobs in the same level in each career
family are deemed to be the same size as assessed by job evaluation and the pay
ranges in corresponding levels across the career families are the same. In contrast, the
families in a job family structure have in effect their own pay structures, which take
account of different levels of market rates between families (this is sometimes called
‘market grouping’)

5
Some other types of Structure are
 Individual Job Range
 Benefit Grade Structures
 Pay Curves
 Spot Rate Structures
 Pay Spines
 Pay Structures for manual workers
 Integrated pay structures
 Rate for age scales
Individual Job Ranges
Structures simply define a separate pay range for each job
Individual ranges can also be used in rapidly growing companies where a normal grade
structure would restrict recruitment policy too much or in small organizations where a
grade structure would be cumbersome
Benefit Grade Structure
Main differences between a broadband structure and a benefit grade structure with
individual ranges are that in the former all employees are graded within the banded
structure.
GRADE A
Senior Management
GRADE B
Middle Management
GRADE C
Junior Management
Pay Curves
Pay Curves are also known as Maturity or Progression Curves

6
Pay Curves are a development of job family structures. Each organisation may have different
methods of handling pay determination and pay progression
Each job family has different tracks to allow people to move according to their competence
level. The pay curve system recognizes that different methods of handling pay determination
and progression may have to be used in some job families because graded structures may not
be suitable for knowledge workers
Assumptions Related Pay Curves
Competence develops progressively through various levels or bands
Individuals will develop at different rates and will therefore different levels of
performance
Market rate consideration should be taken into account when determining levels of
pay
Employees would not move into a new band until they have demonstrated that they have
attained the level of competence required
Pay increases for individuals are usually determined by line managers by reference to
policy guidelines and data provided by the HR department on market rate movements and
their pay budgets
Spot Rate Structures (Ad-hoc determination of pay )
The alternative to fixed increments is either spot rates or some form of contingent
pay. Spot rate systems in their purest form are generally only used for senior managers
or shop floor or retail workers and in smaller organizations and new businesses where
the need for formal practices has not yet been recognized. Spot Rates can be fixed entirely
by reference to market rates in a market driven structure
Spot Rates are typical for manual workers but they are adopted for other types of staff by
some organizations that want the maximum degree of scope to pay what they like
Pay Spines
Pay Spines are a series of incremental points extending from the lowest to the highest in a
particular band in the whole structure (E.g. Government jobs)
Pay spines are found in the public sector or in agencies and charities that have
adopted a public sector approach to reward management. They consist of a series of
incremental ‘pay points’ extending from the lowest- to the highest-paid jobs covered
by the structure. Typically, pay spine increments are between 2.5 per cent and 3
per cent. They may be standardized from the top to the bottom of the spine, or the
increments may vary at different levels, sometimes widening towards the top. Job
grades are aligned to the pay spine, and the pay ranges for the grades are defined by

7
the relevant scale of pay points. Series of incremental points
Pay Structures for Manual Workers

Typical Pay Structures For Manual Workers and their basis
- Pay structures for manual workers are based on striking a bargain about the
relationship; All employees are in a bargaining situation with regard to pay;
Fixed by negotiation with trade unions; Structure for manual workers will
have the minimum number of grades; Accommodate the clearly differentiated
levels of skill and responsibility that exist in the organization
Type of pay structures for manual workers
Spot Rates
Spot rates are fixed base rates for each job which do not vary according to skills or merit
Time Rates
Time rates, also known as day rates, daywork, flat rates or hourly rates, provide
workers with a predetermined rate for the actual hours they work. The rate is fixed by
formal or informal negotiations, on the basis of local rates or, less often, by reference
to a hierarchy produced by job evaluation. The rate only varies with time, never with
performance or output. However, additional payments are made on top of base rates
for overtime, shift working, night work, call-outs, adverse working conditions and,
sometimes, location. There is constant pressure from trade unions to consolidate average
bonus earnings into the base rate
A high day rate may include a consolidated bonus element and is probably greater
than local labour market rate to attract and retain good quality workers
Integrated Pay Structures
Employees who have traditionally been paid under separate arrangements may be
paid in the form of a combination of pay structures
INDIVIDUAL CONTINGENT PAY
Individual contingent pay is the term used to describe schemes for providing financial
rewards that are related to individual performance, competency, contribution or skill.
Contingent pay may be made available in the form of consolidated increases to base
rates or by cash bonuses (variable pay or ‘pay at risk’) or a combination of the two.
Contingent Pay can be paid under the following categories

8
o Performance-Related Pay
o Contribution-Related Pay
o Service-Related Pay
o Competence-Related Pay
Performance-Related Pay (Also Known As Merit Pay/Variable Pay)

Performance Related Pay – rewards colleagues for how they perform against their objectives.
Performance pay is seen as a one dimensional system.
Contribution Pay – rewards colleagues for how they perform against their objectives and
how developed/capable they are. Contribution pay is based on the theory that a fully
competent colleague would be expected to fulfil all responsibilities/objectives of the role
whereas a new or developing colleague would be expected to achieve fewer or less complex
objectives or lower targets/measures. A “master” or expert in the role would be expected to
achieve additional or more complex objectives than that required of the basic role.
Contribution pay is a two dimensional system. If the company has a development focus, it is
keen to help employees realise their maximum potential and has development plans in place
for employees then contribution pay is chosen over performance pay. Pay increases are
related to the achievement of agreed results defined as targets or
outcomes.
Service-Related Pay
Service-related pay provides fixed increments that are usually paid annually to people
on the basis of continued service either in a job or a grade in a pay spine structure.
Increments may be withheld for unacceptable performance (although this is rare) and
some structures have a ‘merit bar’ that limits increments unless a defined level of
‘merit’ has been achieved. The age discrimination regulations only permit service related
pay for a maximum of five years. Further points in a pay spine can only be
used if there is an objectively justifiable reason, such as additional competencies.
Service-related pay is a simple concept based on the assumption that increased
service in a job automatically enhances performance. It is supported by many unions
because they perceive it as being fair – everyone is treated equally. It is felt that linking
pay to time in the job rather than performance
Competence Based/ Related Pay
Pay Increases are related to the level of competence. Focuses attention on need to achieve
higher levels of competence. Encourages competence development. Can be integrated with
other applications of competency based HR management. Assessment of competence levels

9
may be difficult. Ignores outputs: danger of paying for competences that will not be used.
Relies on well-trained and committed line managers.
Skill-based pay
Increments related to the acquisition of skills. Encourages and rewards the acquisition of skills. Can be
expensive when people are paid for skills they don’t use. On the shopfloor or in retail organizations.
Consolidated pay increases
Scope is provided for consolidated pay progression within pay brackets attached to
grades or levels in a graded or career family structure or zones in a broad-banded
structure. Such increases are permanent – they are seldom if ever withdrawn.
Cash Bonuses (Variable Pay)
Alternatively or additionally, high levels of performance or special achievements may

be rewarded by cash bonuses, which are not consolidated and have to be re-earned.
PERFORMANCE MANAGEMENT AND COMPENSATION
Performance Rewards & Compensation
Compensation refers to the returns employees receive for their contributions to the company.
These returns are of different types that include both financial and non-financial.
Compensation Management is also known as Wage and Salary administration, Reward
management and Remuneration management.
The basic aim of compensation management is to establish and implement sound policies
with regard to employee compensation. In this unit we learn about the objectives and
components of compensation; work analysis; market comparisons and pension plans and
executive compensation. The objectives of performance management are closely related to
reward systems. The important objectives of performance management are to provide valid
information regarding employees, to take managerial decisions with respect to employees’
salary adjustments, promotions, retention or termination, recognition of excellent
performance, identification of poor performers, layoffs and giving merit incentives. As such,
compensation management is an important component of performance management.
Components and Objectives of Compensation Management:

10
Different people view pay in different ways. For some pay is a measure of justice, for
employers it is an expense and for employees it is a return for the services rendered. Some
consider it as a reward for the job done. In large state owned companies, it is considered as an
entitlement and just due for employees regardless of their performance. Compensation is
what employees receive for their contribution to the organization. The generally accepted
meaning of compensation is all forms of financial returns, tangible services and benefits
employees receive as a part of an employment relationship. These returns are two types-
Total compensation, which includes cash compensation and benefits; the second one is
Relational returns that include recognition, security, challenging work and learning
opportunity (Refer Figure 12.1).
Objectives of Compensation Management:
 Compensation should be equitable- Each person should be paid fairly and fair
treatment is to be given for all employees, taking in to consideration their efforts,
abilities and training.
 Compensation should be such that it attracts and retains talented employees.
 Balanced-Pay benefits and other rewards should provide a justifiable reward package.
It should strike a balance between the needs of the employees and the capabilities of
the organization.
 Cost effective- Pay should be such that it is within the affordability range of the
company. It should be optimum with a linkage to performance and affordability.
 Secure- Compensation should be able to meet the basic needs of the employee and
secure enough to lead a dignified life.
 Efficiency- Compensation should be such that it enhances performance of the
employee and increase quality of the products and services.
 Compliance- Compensation should be in compliance with government laws and
regulations, and if global, compliance with all countries
 Motivating- Compensation should motivate employees for superior performance and
productive work.
 Consistent and acceptable to the employees- It should take into consideration the
internal and external factors- internally, has to look in to the criticality of the job and
performance of the employee and externally, it should be par with similar job in
similar organizations. The employee should feel that the compensation is reasonable
and worthy.

11
Total Returns for Work- Pay Model(Source: www.mcgrawhill.ca/college/milkovich,

chapter 1 the Pay Model)
Total Returns
Relational
Returns
Total Recognition and
Compensation Status Learning
Employment Opportunities
Benefits Security Challenging

Cash Work
Compensation Allowances
Income
Long-term Work/Life
Protection
Base Incentives Focus
Merit/Cost of Short-term
Living Incentives
In essence, the components of compensation are
 Wage and salary- Fixed pay

 Incentives- additional payments to employee besides wages and salary often linked
with productivity and performance
 Fringe benefits- Fringe Benefits include Provident Fund, Gratuity and Pension,
Medical benefits, Accident Relief, Health, Life Insurance, Job uniforms, Canteen
facility and the like.
 Perquisites- Perks include company car, residential accommodation, paid holiday
trips, stock options, club membership and the like.
Work Analysis- Work Evaluation In Deciding Compensation
Work analysis also known as job analysis plays a vital role in compensation management.
According to Milkovich, Newman and Gerhat, ‘Work analysis is the systematic process of
collecting information that identifies similarities and differences in the work’.
Work Analysis

12
- It tries to identify the content of a job in terms of activities involved and attributes or
job requirements needed to perform the activities
- Job analyses provide information to organizations which helps to determine which
employees are best fit for specific jobs.
- Helps to understand what the important tasks of the job are, how they are carried out
- the necessary human qualities needed to complete the job successfully
- Job analysis involves the analyst describing the duties of the incumbent,
- Job analysis deals with the nature and conditions of work,
- Job analysis is crucial for first, helping individuals develop their careers, and also for
helping organizations develop their employees in order to maximize talent.
- The outcomes of job analysis are key influences in designing learning, developing
performance interventions, and improving processes.
- It helps to develop programs to recruit, select, train, and appraise people for the job as
it will exist in the future.
Job analysis explains job specification and job description.

- The purpose of the job
- The physical and mental activities the worker undertakes
- The nature of the job- The tasks and activities to be performed by the job holder
- The qualifications required by the job holder to perform the job
- All this helps in fixing compensation for each job. The three Ps of Compensation
Management are:
o Compensation for Position- Takes into account the qualifications, education and
training one possesses to offer a particular position
o Compensation for Person- to determine the pay structure that is both equitable and
competitive. The competencies of the person are important here.
o Compensation for Performance- The basis for fixing a pay is the performance of the
person-how well he performed or reached the targets.
Job Analysis- Process of studying and collecting information relating to the operations and
responsibilities of a specific job. For Job analysis, Job specification and Job description are
necessary.
Job Specification- It specifies the minimum qualities required for acceptable performance.

13
Job description- It tells what is to be done, how it is to be done and why. It is an organized
statement of the duties and responsibilities of a specific job.
Job Evaluation- According to Edwin Flippo, ‘it is a systematic and orderly process of
determining the worth of a job in relation to other jobs’. It evaluates and rates the jobs of the
organization.
Job Evaluation Methods
Job Evaluation Methods can be classified as
1. Non- analytical methods in which whole jobs are examined and compared, without
being analyzed into their constituent parts or elements.
2. Analytical methods in which jobs are analyzed by reference to one or more criteria,
factors or elements.
Job Evaluation can be done on the basis of
o Job ranking (Job-job, Job-scale)

o Paired Comparison
o Job Classification
o Internal benchmarking
o Market pricing
o Point factor rating
o Graduated factor Comparison
o Factor comparison
o Single factor analysis
Work evaluation in deciding compensation

Different wages/salaries are paid to different worth of jobs. The relative worth of a job means
relative value produced. Depending upon different responsibilities, skills, efforts, and
working conditions, compensation is decided.
Job is evaluated on the basis of the following factors

 Know-how- Includes technical, human and Managerial Know-how
 Problem-solving and Accountability- How much accountability rests with the job
 Education- How much knowledge is required
 Experience- How much experience is required to handle the job
 Complexity of the job- How much time is taken for learning and adapting to the work
and how complex the job is to handle

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 Scope of job- The length and breadth of the job

 Supervision received- How much guidance is required
 Authority exercised- How much authority is vested with the job
All these factors determine and evaluate a job.
Job Evaluation Techniques- There are three ways in which jobs are generally evaluated.
1. The Point Method- In point method each factor is defined and assigned certain points
based on the value the factor carries to the company. The relative importance of each factor is
weighted to know the worth of the job.
2. Simple Ranking Plans- In this method each component is ranked from lowest to highest
to know the worth of the job.
3. Paired Comparisons- Two jobs are paired and compared and if there are many jobs, a
comparison will be made for every two jobs and valued. Jobs with higher scores/points are
considered more valuable than jobs with lesser scores/points.
Cost-To-Company
Components of Cost to Company (CTC)
Cost to Company- CTC is the amount that costs the company or the amount the company
spends – directly or indirectly – because of employing the person.
Thus, CTC is the money given to employee plus the money spent by the company because of
employing the person, which is inclusive of salary paid to the employee plus deductions. To
understand clearly, let us explain the terms associated with CTC:
 Gross Salary- Amount of salary paid after adding all benefits and allowances before
deducting tax.
 Net salary- It is generally the take home salary after deductions made by the
employer.
 CTC- The cost incurred by the employer, in other words, all the costs associated with
an employment contract. CTC includes compulsory deductions like Provident Fund,
Medical Insurance and expenses incurred for hiring, maintaining and retaining the
employee.
Components of CTC:
 Basic Pay- Fixed compensation paid as basic salary
 Dearness Allowance (DA)- refers to allowances paid to employees in order to face the
increasing dearness of essential commodities
 Allowances-include Incentives or bonuses, Conveyance allowance, House Rent
Allowance (HRA). Medical allowance, Leave Travel Allowance or Concession (LTA
/ LTC), Vehicle Allowance, Telephone / Mobile Phone Allowance and Special

15
Allowances All the above are a part in-hand salary, and therefore, are a part of CTC
pay as well.
 Deductions- include deductions like Provident Fund, Medical Insurance. It is
mandatory for an employee to contribute 12% of basic salary towards provident fund
(PF). Employer makes an equal contribution (12% of the basic). PF is an expense that
a company incurs on the employee every month.
 Performance –Linked Pay- many companies pay their employees, generally annually,
on the basis of productivity and performance of the employee.
 Taxes—Deductions aid to the Income Tax department
Preparing Compensation Revision Plans
After making market comparisons, compensation revision plans are to be prepared.

Comparisons tell the gaps in compensation components. One has to identify not only the
financial aspects but also the existing gaps in skills, knowledge and competencies. After
assessing the existing gaps, revision plans are to be prepared. Efforts should be made to
attract talented people by offering competitive compensation. And retain the existing talented
pool by revising their compensation. Compensation Revision plans should contain best in
class compensation which is fair and equitable. The word of caution is revision plans should
not only match with the goals and objectives of the company but also company’s financial
capabilities.
Communicating Compensation revision Plans
After revising the plans, all revision plans should be communicated to all stakeholders.
Communication should go through varied channels so that it reaches the potential candidates.
Tax Considerations
Tax considerations are those allowances which are exempted from paying taxes. They are
known as tax exemptions or applicable deductions or tax benefits. Pay packets are
restructured in such a way that they are exempted from paying taxes. For instance, expenses
like house rent, medical, transport, education, house loans, insurances are various examples
which warrant tax concessions. The purpose of providing tax considerations is to enable
employees to have maximum value for the given compensation package. Government
stipulates rules and regulations from time to time either to add or delete provisions for tax
payment.
Taxes are major revenue for any government. Individuals, corporate, estates, trusts are
required to pay income taxes. Taxable income is the difference between the gross income and

16
deductions. From time to time, the calculations of income tax are changing. The Finance
Minister while presenting annual budget underlines the tax exemptions, which are applicable
for that financial year, which starts from 1st of April.
Tax exemption calculations vary depending on gender, marital status and number of
dependents. Likewise, nature of capital gains and also nature of business/work undertaken
also impact tax deductions.
Pension Plans
Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act of 1974, or ERISA, is a federal law that sets
minimum standards for pension plans in private industry. It protects the assets of millions of
Americans so that funds placed in retirement plans during their working lives will be there
when they retire. ERISA provides information about the Plan. It sets minimum standards for
participation and the law specifies minimum number of years of service to become eligible
for participation. It gives participants the right to sue for benefits and breaches if violated. It
guarantees payment of certain benefits if a defined plan is terminated.
There are three kinds of retirement plans

1. Pension Plans
Pension plans are deferred arrangements. They are in existence for a long time in Civil
Service and government organizations. They provide payments over a prescribed schedule.
The actual amount of the pension depends on the employee’s base pay and length of service.
Pension plans are two types- Defined benefits plan and defined contribution plan.
 Defined benefits plan – Under this plan an employee’s pension is calculated on
average earnings in the highest 3 years of employment multiplied with 2% times the
total years of service. It is not unusual for an employee with around 30 years of
service to receive 50 to 60% of his salary as pension under this plan.
 Defined contribution plan- Under this plan, an employee’s pension depends on the
actual amount contributed and the increased earnings of the invested funds. For
example, if an employee contributed 5% his salary with around 30 years of service, he
will receive 15% of his salary as pension.
Profit-sharing - It is a plan that gives employees a share in the profits of the company and
under the plan each employee receives a percentage of the profits earned by the company. It
provides a sense of ownership in the company to the employees. For exceeding financial
goals, profits are distributed equally among all employees in proportion to their incomes.
Profit sharing plans can be a powerful tool in promoting financial security to employee
retirement.

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3. Stock-bonus plans
In a qualified stock bonus plan, employer contributes stock to the plan, similar to that of a
defined contribution plan. Many pension plans permit an employee to receive pension to the
spouse after his death as reduced pension.
Following are some of the Retirement plans offered to US Taxpayers
Employee Stock ownership Plan (ESOP)
An employee stock ownership plan (ESOP) is an employee-owner method that provides
ownership to employees with an interest in the company in an ESOP. It is a contributory
retirement plan, where employees participate in corporate ownership. Companies provide
their employees with stock ownership, often at no up-front cost to the employees. ESOP
shares, however, are part of employees' remuneration for work performed. Shares are
allocated to employees and may be held in an ESOP trust until the employee retires or leaves
the company. Under ESOP, employer contributes stock to an employee stock bonus trust
(ESOT). ESOPs are two types-stock bonus ESOP and leveraged or leverageable ESOP. In a
stock bonus ESOP, employee contributes company stock to the ESOT. In a leveraged ESOP,
the employer uses the special privileges granted to an ESOT to obtain funding for various
purposes. The stock becomes part of an employee profit-sharing or retirement program.
Employees receive the stock upon retirement along with special tax credits for the value of
the stock the company bought for the employees.
Savings or Thrift Plan
Many organizations have developed savings or Thrift Plans to its employees. Under these
plans, employees set aside certain amounts of earnings in order to have a secure and happy
retirement. The organization contributes 50-100% amount saved by the employee. These
amounts are eligible for tax exemptions. There will be a ceiling on savings, which should not
exceed 25% of the salary of the employees.
Cash or Deferred Arrangement (CODA)- 401 (k) Plans-
Many saving and Thrift plans have been modified into CODA plans. Under this plan
employees have the right to agree to a reduction in salary in exchange for a comparable
employer contribution to a qualified trust. Employees receive a lump-sum amount and
generally the contributions are up to 5-6% of salary of the employees.
KSOPS-
Many large companies merged 401(k) plans with ESOPS and called them as KSOPs. Under
this plan companies became eligible for dividend deductions. Dividend from company stock
paid into the retirement plans are tax deductible. These tax deductions in many cases
amounted to one third of company’s contribution to employee’s retirement plans.
Individual Retirement Account
(IRA) Individuals who do not participate in any retirement plans are eligible for IRA. The
employee can contribute up to $3000 under this plan and the amount increases year by year..

18
The contributions under IRA are tax deductible. The IRA owner has the freedom to select his
own investment plan.
Simplified Employee Pension Plans (SEP)
SEP permits employers to establish a qualified IRA program for employees of 25 years age.
These plans are similar to qualified plans
Savings Incentive Match Plan for Employees (SIMPLE)
SIMPLE is meant for employees with less than $5000 income per month and in accompany
with less than 100 employees. Employee using SIMPLE plan should not contribute to any
other qualified plan. Both employee and employer contribute to the saving with lot of
flexibility.
Keogh (HR-10) Plan
This is meant for self-employed persons such as partners or sole proprietors for themselves or
their employees. There are three types in this plan
 Profit-sharing plan
 Money-purchase plan
 Paired-plan
Roth and Education IRAs
All incomes under this plan are tax free and there is no age limit to contribution. The money
is to be used only for education purposes.
College Savings Plan
This plan also provides enhanced options for education savings and earnings on these plans
are tax free. There are no income restrictions to participation.
Executive Compensation
Executives play a vital role in organization development, hence their compensation too.
Executives belong to the highest decision-making group such as CEOs, Full-time Directors,
Senior Managers etc. In India and all other countries executive compensation is a point of
discussion-how much it should be, what their components are and how it is to be fixed. There
is no unanimous agreement on this. Each company has its own methodology. But one point
of agreement is since executives are the top most personnel; they should be compensated
heavily because their able, efficient and loyal contributions are responsible for the success of
the organizations.
Factors Affecting Executive Compensation:

Complexity of the job they hold- This complexity entails them for higher compensation

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Competencies required- Executives have to handle crucial situations and are responsible for
the overall development of the organization, requiring superior competencies.
Capacity to pay- Higher executive pay is directly related to the affordability of the company.
Organizational philosophy- Executive compensation depicts the image and philosophy of

the company.
International impact- Many of the international companies look at executive compensation

to tie up with the organizations.
Legal implications- Several legal implications are involved with executive compensation.
These top 1% executives receive the major part of the profits of the organization, resulting in
a big gap between their salaries and that of the remaining staff. From the beginning of 21st
Century, there is resentment over the greedy salaries of the executives globally. Social groups
opposed the pay disparities between the top personnel and middle and lower level managers.
Major components of Executive Compensation

 Base salary- The minimum base salary in US companies was $1 million
 Short-term performance bonuses- Short-term bonuses ranged from 50% of base pay
to even 10 times of the base pay.
 Equity and equity-related components- Stock options such as Incentive stock options
and Stock purchase plans were offered to executives.
 Long-term performance bonuses-Long-term performance bonuses were also offered
to executives.
 Severance packages-To attract and retain top executives, several packages including
front-end bonus, salary, pension, life and medical insurance, cash and deferral
bonuses, stock acquisition opportunities, and a variety of other benefits and services.
 Retirement Programs- pension plans, Golden parachute offer
 Wide variety of benefits and perquisites- Company provided car, Counselling service,
Opportunities for attending professional meetings and conferences, Home
entertainment allowance, special living accommodation, club membership, special
dining rooms, season tickets to entertainment events, Special relocation allowance,
use of company credit card, medical expense reimbursement, tuition fee
reimbursement for children, no and low interest loans.
Source: Richard I. Henderson, Compensation Management in Knowledge-Based World,
tenth edition, Pearson Education, 2006.

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Some more components in Compensation

 Seniority pay- It is a traditional practice to fix employee’s pay on the basis of
seniority or length of service. The principle behind in such pay is that employees
become more valuable to companies tenure and valued employees will leave the
company if they are not given salaries that progress over time. This is the essence of
Human capital Theory which states that employee’s knowledge and skills generate
productive capital known as human capital.
 Merit Pay- Wage increase granted to employees on the basis of performance. It is
based on subjective appraisal of employee performance. Only when performance
appraisals are conducted efficiently, merit pay has certain value. This helps in retaining
company’s valued employees.
 Lump-sum Bonus- Granted for performance as one-time payment
 Incentive Pay- Incentive pay or variable pay rewards employees for partially or
completely attaining pre-determined work objectives.. There are three types of
incentive pays:
Individual Incentive- variable pay for individual performance
Group incentive plans- Paid to groups for a particular achievement, Variable pay for
group performance
Company-wide plans- paid to employees for company’s performance over a period of
time
 Pay for performance- These are generally rewarded to employees for acquiring job
related competencies, knowledge or skills rather than for demonstrating successful job
performance. There are two types in it-Pay for knowledge and skill based pay. Both
skill and knowledge based pay programs reward employees when they apply their
knowledge and skills productively in their jobs.
 Gain sharing- Gains made by companies as depicted by increased productivity,
increased customer satisfaction or better safety records; are distributed to departments
that contributed to the gains. Gain sharing is given to the employees, usually as a
lump-sum bonus. It is a productivity measure, whereas profit-sharing is a profitability
measure. There are three major types of gain sharing:
 Scanlon Plan: paid on the basis of labour costs.
 Rucker plan: paid on the basis of labour costs, raw materials and monthly service
costs
 Improshare: paid for completing the work at or sooner than production standard.
Compensation management is an important component of performance management.
Compensation should be fair and equitable so that employees lead a dignified life. It should
be cost effective and attract and retain talented people. Compensation returns are of two
types- monetary and relational. Compensation includes wage/salary, incentives, fringe
benefits and perquisites. In addition to salaries companies offer several benefits to employees
while at work and also at retirement. As executives are responsible for the major growth of

21
the organizations, special emphasis is given to their compensation. The whole unit is
concentrated on the various implications of compensation system.
Terms to Consider
1. Cost to Company- CTC is the money given to employee plus the money spent by the
company because of employing the person.
2. Job Analysis- Process of studying and collecting information relating to the operations
and responsibilities of a specific job.
3. Job Specification- It specifies the minimum qualities required for acceptable
performance.
4. Job description- It tells what is to be done, how it is to be done and why. It is an
organized statement of the duties and responsibilities of a specific job.
5. Job Evaluation- ‘it is a systematic and orderly process of determining the worth of a
job in relation to other jobs’.
6. Employee Stock ownership Plan (ESOP)- An employee stock ownership plan
(ESOP) is a contributory retirement plan, where employees participate in corporate
ownership
7. The Employee Retirement Income Security Act or ERISA- It is a federal law that
sets minimum standards for pension plans in private industry
8. Profit-sharing - It is a plan that gives employees a share in the profits of the company
and under the plan each employee receives a percentage of the profits earned by the
company
9. Gain sharing- Gains made by companies as depicted by increased productivity,
increased customer satisfaction or better safety records; are distributed to departments that
contributed to the gains.
Rewarding Team Performance
It is important to know how teams are to be rewarded. Are all the members to be paid
equally or they should have individual differences? Will exceptional performers be de-
motivated? These are tough questions but every manager faces the problem in rewarding
teams. Managers have to look at the situational factors and decide accordingly and take care
of the social-loafing problem, where in some members do not contribute to the success of
teams with an expectation that other team members’ contribution will compensate for their
performance. However, management see to it that team members are always motivated with
all types of rewards.
Team Rewards can be classified in two ways:
 Financial Team rewards

 Non-financial Team Rewards
Team Rewards

22
Financial Non-Financial
Team pay in relation to the achievement Motivational techniques such as

of Team targets or for a performance positive reactions, feelings, and
review attitudes expressed for joint
achievement
Target-related team bonus which may Nominating the team of the month
be distributed equally among team
members or in accordance with the job
grades
Team-ratings on the total performance Team outings, and social events in

of the team on the basis of which teams recognition of good team performance
are ranked and bonuses are distributed
accordingly.
Recognition schemes
A recognition scheme as defined by Michael Rose (1) typically provides for ‘noncash
Awards given in recognition of a high level of accomplishment or performance,
which is not dependent on achievement against a given target’. A recognition scheme
can be formal and organization-wide, providing scope to recognize achievements by
gifts or treats or by public applause. Importantly, recognition is also given less formally
when managers simply say ‘Well done’, ‘Thank you’ or ‘Congratulations’
Recognition should be given
- for valued behaviours and exceptional effort as well as for special
achievements
- is about valuing people; it should be personalized so that people appreciate that it
applies to them;
should be personal and face to face but can be supported by a handwritten thankyou
- note;
needs to be applied equitably, fairly and consistently throughout the organization;
- should be frequent
- should be provided in a way that makes everyone feel they have the opportunity
to be recognized
- Recognition must be genuine, not used as a mechanistic motivating device and
should not be given formally as part of a scheme if the achievement has been
rewarded under another arrangement, for example a bonus scheme;
needs to be given as soon as possible after the achievement;
should be available to all – there should be no limits on the numbers who can be

23
recognized;
should not be predicated on the belief that they are just about rewarding winners
Types of Recognition
Day-to-day recognition
The most effective form of recognition is that provided by managers to their staff on
a day-to-day basis. This is an aspect of good management practice such as getting
to know people, monitoring performance (without being oppressive) and providing
positive feedback. It is provided orally on the spot or in a short note (preferably handwritten)
of appreciation and should take place soon after the event (not delayed until
an annual performance review)
Public recognition
Recognition for particular achievements or continuing effective contributions can be

provided by public ‘applause’ through an ‘employee of the month scheme’ or some
other announcement using an intranet, the house journal or noticeboards
Formal recognition schemes provide individuals (and importantly, through them,
their partners) with tangible means of recognition in the form of gifts, vouchers, holidays
or trips in the UK or abroad, days or weekends away at hotels or health spas, or
meals out.
International Pay Structures

Types of International Assignments and Pay Structures
 Frequent Flyers- mobility payments and additional benefits
 Short Term Assignments- (3 to 12 mths) – fully paid accommodation and very

generous per-diem allowances, additional bonus on assignment completion, frequent
visits home
 Commuter Assignments- (Monday to Friday basis) - Hotel accommodation and per-

diem allowances
 Expatriate Assignments- (more than a year)- MORE COMPLEX THAN OTHER

ASSIGNMENTS
Factors that affect expatriate pay
 Cost of living in the host country; Hardship such as remote country, dangerous and
politically unstable, crime, health risk. Climate; Currency fluctuations; Healthcare;

24
Housing ( 25% of expatriate costs) – finding accommodation, relocation costs , power

, telephone,; Taxation; Education of children
Components of Expat Pay
 Base Pay- home pay, local pay or international pay: Allowances- e.g.: Cost of Living
Allowance(COLA), educations , car: Variable or Contingent Pay- performance based:
Benefits – home benefits or host country schemes
Type of Pay Details
The Host-Country Expatriate is paid on the same basis as local

Approach employees
Negotiational /Ad-hoc Based on an individual or ad-hoc basic
The higher of home of A balance sheet calculation is undertaken and

host pay compared with the host net salary
Lump sum Allowances are bundled and paid as a lump sum
Choice from a range of benefits up to an agreed

Cafeteria Selection limit
Standardise the treatment of pay and allowances

Regional Systems within a geographical location
A common total reward package across a job-

Global grading system
Innovations in Reward Management
Errors in awarding rewards cost too much for the companies. High performing organizations
generally do not make such errors and manage their reward policies innovatively. Armstrong
et al (2009) consider reward management is not just a soft art but requires scientific and
evidenced-based methodologies. Many companies though use balanced score card and
benchmarking, yet do not have concrete evidence to justify their reward practices.

25
Evidence-Based Reward Management (EBRM), researched by Armstrong et al is based on

fact rather than opinion, on understanding rather than assumption. On grounded theory rather
than dogma. EBRM model illustrates what can be done to increase the effectiveness of
reward systems, which follows the following steps:
 Setting objectives and success criteria

 Conducting reward reviews
 Measuring the impact of reward
 Evaluating the impact
 Developing, implementing and applying reward policies and practices on the basis of
evidence
The evidence showed that there is no one best method for reward management and only the needs and
circumstances of organizations determine the best reward policy. The innovative EBRM framework
comprised 7 Cs:
 Competitive externally to recruit and retain

 Convergent with business strategies
 Contribution and performance rewarded
 Customized to needs of different employees
 Communicated well and understood and valued by employees
 Cost effective and affordable
 Changes in response to different needs
 Controlled-efficient to manage and administer
 Complaint legally, internally, equitable, fair
The EBRM approach emphasizes evidence based methodology for reward management. It also says
that each organization is unique and reward policy should be based on their needs and circumstances
References
__________________________________________________________________________
- Aguinis, Herman – ‘Performance Management’, Prentice Hall, 2009
- Armstrong, Michael – ‘Performance Management-Key Strategies and Practical
Guidelines’, Kogan Page Limited, 2e, 2000
- Bagchi S N – ‘Performance Management’, Cengage, 2010
- Chadha , Prem – ‘Performance Management’, Macmillan, 2009
- TV Rao – ‘Performance Management & Appraisal System’ Sage, 2008
https://www.ashworthblack.co.uk/pay-salary-structures/

Aims of Reward Management
Reward Management aims to:
 Support the Achievement of the organisation’s
strategic and shorter term objectives
 Help to communicate
 Support culture management and change
 Drive and support desired behavior
 Encourage Value Added Performance
 Promote continuous development
Aims of Reward Management
 Compete in the employment market
 Motivate all the members of the organisation
from the shop floor to the board room
 Promote teamwork
 Promote flexibility
 Provide value for money
 Achieve fairness
Achieving the Aims
 Align reward strategy with the business strategy

 Align reward policy with the culture
 Value employee competence, skills and contribution
 Management is about the management of the
diversity
 Processes are transparent
 Integrative Approach
Achieving the Aims
 Line managers with the authority and skills

needed
 Pay delivery processes
 Express what the organisation values and is
prepared to pay for
 Concentrate overall on developing reward
management
The Transactional and Transformational
aspects of Reward Management
The Traditional Approach

 Was concerned with pay bargaining and
negotiation of individual contracts
 Strong transactional element evident in most
aspects of reward management
 Treated rewards as a ‘system’ – a mechanism for
converting inputs to outputs
The Transactional and Transformational
aspects of Reward Management
The Transformational approach

 Emphasizes the role of reward as a change agent
 Reward policies and practices must respond to change and
they can help to consolidate change and facilitate further
change
 Rewards alone cannot initiate change or act as a sole lever
 Rewards must be integrated with the other key areas of
business strategy to reinforce the achievement of corporate
goals.
The Cultural Environment- based on Values and
Management Style
Different types of beliefs
 People will be well motivated when their work
environment provides opportunities
 Some orgns may believe that money is the only thing
which motivates
 Significant proportion of financial rewards are dependent
on pay for performance schemes
 Where the value is ‘quality’, the pay arrangements will be
designed to provide rewards for achieving high quality
standards
Relation between culture and reward
styles
 In a ‘Culture of Consent’ , individuals and Groups participate
 In a culture of teamwork and interdependence there is ‘Mutual
Commitment’
 When the culture favours innovation, the emphasis will be on initiative,
innovation, risk-taking, learning & success in managing change
 In an informal & open management style, there could be informal reward
processes.
 An Autocratic management style will tend to concentrate on the managing
rewards at the top management level.
The Reward Management Context
The Employee Relations Climate

 Climate will provide the right
environment for developing reward
policies which meet and balance the
needs of both management and
employees
Technology
Technological Change takes the form of:
 A continuous move away from primary
manufacturing
 Increasing Complexity
 A higher Knowledge base
Operational Processes
 Obviously determine the type of people
employed
Management Practices
 Ways in which the business is managed through
its structure, procedure, systems and processes
 These practices are a manifestation of the
organizations business strategy
Development in Reward Management
Pay Practices in 1980s
 Homogeneous pay market
 Structured for white collar and managerial staff based on
‘fine’
 Management level, resulting from years of income policy in
which management came off worse
 Few incentive schemes, performance related salary
 Equity sharing restricted to the all employee provisions
 Unhealthy emphasis on the provision of tax effective benefits
 Inertia and unwillingness, Remuneration Policy Development
New Pay - A concept started by Ed Lawler
Based on the Philosophy- that reward policies need strategic
thought , cultural understanding and individual development
Further developed by Schuster and Zingheim
Based on the Principle- that compensation should be designed

to
 reward results and related behaviour,
 to bring about organisational change
 focus on team and individual rewards
 to match organisational and individual values
Dynamic Pay
 Align compensation with culture
 Link pay with changes
 Time the compensation to support other
changes
What do organisations pay for
and with what ?
 Base Salary Progression( increments) – for overall

performance
 Annual Performance Incentives- for achievement of personal
objectives
 Annual Bonus- for achievement – discretionary
 Long Term Incentives- (cash or shares) for performance
targets
 Team awards- cash or kind for team contribution
 Profit shares/Gainsharing- collective award
 Recognition awards- cash or kind for exceptional contribution
 Competency an skill based approaches- Skill based pay,
contribution based pay
Process of Developing Reward Processes
The Functional Culture

Technology, quality, reliability, customer needs flexibility
 The Process Culture

Customer needs, reliability, technology, flexibility
 The Time-based Culture

Flexibility, technology, customer needs, reliability
The Network Culture

Flexibility, customer nds, technology, reliability
Non-financial
Rewards
Employee
Benefits
Market
Surveys
Business Reward Pay
Strategy Strategy Structures Pay level and Total Improved
Relativities Remuneration Performance
Job
Evaluation
Performance
Pay Employee
Performance Development
Management
THE TOTAL REWARD PROCESS

Performance Management
On Work – Kahlil Gibran
Work is love made visible.
And if you cannot work with love but only with
distaste, it is better that you should leave your work and
sit at the gate of the temple and take alms of those who
work with joy.
For if you bake bread with indifference, you bake a
bitter bread that feeds but half man's hunger.
And if you grudge the crushing of the grapes, your
grudge distils a poison in the wine.
And if you sing though as angels, and love not the
singing, you muffle man's ears to the voices of the day
and the voices of the night.
 Brumbach’s definition(1988)
Performance means both behaviour and results. Behaviours emanate
from the performer. Behaviour emanate from the performer and
transform performance from abstraction to action. Not just the
instruments for results, behaviours are also outcomes in their
right.- the product of mental and physical effort applied to tasks-
and can be judged apart from results.
Performance Management
 Performance Management is a means of getting better results
from the organisations, teams and individuals within an
agreed framework of planned goals, objectives and
standards.- Armstrong and Murlis (1194)
So what’s new about it?
 It is holistic
 It has relevant subsystems in place
 Environment conducive to high morale
 A performing attitude
Features of work
 Structural Features
 Human Features
 Cultural Features
 Political Features
 The essence of performance management is the development
of individuals with competence and commitment, working
towards the achievement of shared meaningful objectives
within an organisation which supports and encourages their
achievement.- Lockett(1992)
Aims of Performance Management System
When we know what is expected of us, and have played a role
in forming these expectations, we will do our best to meet
the expectations.
 We can meet expectations only through our capability and if
we get support from the ‘management’ through processes,
systems and resources.
Key Words
 Shared Vision of → purpose and aims of the organisation
 Shared Expectations-> from the performer and the
organisation
 Strategic-→ gives a direction-→ an action plan>
 Integrated--→ vertical, functional, human resources
individuals needs
 Development-> – how and how much?
Deals with
 What is achieved?
 How is it achieved?
Concerns
Output and Inputs
Ethics Planning
Concern for
Measurement
Stakeholders
Continuous
Communication(con
tinuous dialogue) Development and
Improvement
Factors affecting performance
 Personal- Skills, Competencies………
 Leadership
 Team Dynamics
 System Factors
 Contextual Factors
Related factors- culture, functionality, job design,

organisational context, organisational development
Scope of Performance Management
 It is a ‘management process’
 Covers the whole range of business
 Collective Responsibility for each other’s performance and
deliverables
 It will be based on an analysis of past behaviour and project
and evaluate future behaviour
 Collective responsibility for developing competence
What’s wrong with appraisals?
 They have complex variables
 They include subjective elements
 They are concerned more with people than with
performance
 Appraising requires psychological skills which not all
managers possess.
 Measurement terms are complex
Why do organisations go for Performance Management?
Culture change
Link pay to performance
Improve performance
Customer Service
Improve competence
Identify training needs
Devolve control to line managers
The Performance Management
Cycle
Plan
Review Act
Monitor
Determine
performance
expectations
Manage
Support
performance
performance
standards
Review and
appraise
performance
Corporate mission and strategic goals
Business goals and departmental plans
Performance and Development agreement
Performance and Development Plan
Action work, development and support
Continuous monitoring and feedback
Formal review and feedback

Three Phases in Performance
Management
Planning Managee
Performance and
Development- (beginning of
the period)
Monitoring Managee
Performance and Mentoring
Managee Development-
(throughout the period)
Annual Stocktaking-
(end of the period)
 Measurable performance targets
 Link between managee learning, career development
and organisation goals
 Pre-eminence of intrinsic needs over extrinsic needs
 Ownership by line management
Cybernetic Model of the Behaviour – Change
Process
Psychological
Safety
Goal Awareness
Behaviour Change
Supportiveness
Collaborative Goal - Setting

Manipulation
Helping interventions
Emphasis on Self -
Selective direction
Reinforcement
Self - Contorl
Feedback from the

Environment
Behaviour Manipulations of
Monitoring & Expectations
Control
Attempts to
Achieve the
Expectations
Goal of Success
Planning a Managee’s
Performance and Development
 Setting Objectives
“ Objectives are needed in every area where performance and results

directly and vitally affect the survival and prosperity of the business”
Peter Drucker
Management by Objectives
Key Points - articulation of organisational goals, goal setting,
shared framework for measuring performance
Planning a Managee’s
 Benchmarking
Setting organisational standards, exceeding competitors
practices, looking within to benchmark internally
Praising openly , working smart, sharing , sharing
organisational success
 Work Standards and Goal Setting Approach
The Management by Objectives Cycle
Strategic Plan Tactical Plans
Management
Development
•Selection
•Succession
•Training
•Pay
Unit objectives
Review and and
Control improvement
plan
Individual
manager’s
- Key results
-improvement
plan
Corporate mission and strategic
goals
Business departmental plans

and goals
Performance and
developmental agreement
Performance stds
Competence requirement
Plan
Competence Performance
evidence measurement
Action- work and development
Continuous monitoring and

Financial Rating feedback
Reward
How does a good Performance Management
System contribute to organisational effectiveness?
 Motivates people to perform
 Builds self-esteem in employees
 Helps organisations to understand their employees
 Clarifies Job criteria ; define job parameters
 Helps managers and subordinates gain self-insights
 Leads to fair administration standards
 Prevents lawsuits and unpleasant situations
 Helps to identify the good and the poor performers well in time
 Supervisors get clarity on what constitutes performance ( Set
performance standards) ; enhances competence
 Build commitment and longevity
What happens when Performance Management
Systems are poorly implemented ?
 Leads to increased attrition
 Leads to Use of misleading information
 Lower employee and managers self-esteem
 Leads to waste of resources – time; money’ employee energy
 Damages relationships
 Decreases performance motivation
 Leads to burnout and reduces job satisfaction
 More risk of litigation
 May lead to irrelevant demands by employees
 Unfair and unclear rating ; unfair work practices

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Monitoring Performance

• Monitor for development

High Competence + Variable Commitment = D3

Some Competence + Low Commitment = D2

Low Competence + High Commitment = D1

Avenues for monitoring and Development

Managee Managee Doesn’t

Evaluative vs. Developmental Process

Raise critical organizational issues:-

Forced-choice Rating Scale

Developing and implement 360 degrees feedback,

360 degrees feedback

Given useful feedback

Is open to new ideas

Values others’ opinions

Moves onward and upwards Gets a second chance in a different

Share GE Values Most difficult Separates

No influence High influence

• An organisation which facilitates the learning of all its members and

Re- Define expectations as

The Functional Culture The Process Culture

The Time-based Culture The Network Culture

Involve Define Issues Communicate

Involve Plan Development

Involve Design Process Communicate

Involve and train Pilot Test Communicate

1. Non- analytical methods in which whole jobs are

What is Pay Structure?

Other types of Structure:

Band A Band B Band C

 What get measured gets done

 If you can’t measure it, you can’t manage

- FINANCIAL ASPECTS AND HUMAN ASPECTS OF

 The customer’s consideration decides

Well defined objectives help in effective strategy

Keep all on the shortest path to success

 Cascading objectives down to

How do What much we

Too many measures

Not related to strategy

Too results biased

To ask whether the work been

Peers Individual Customers

A STRATEGY IS REQUIRED TO DECIDE ‘WHAT’TO

Return on Profit or sales

How do What much we

Not related to strategy

Too results biased

Reward Systems not

No support for team

Peers Individual Customers

A STRATEGY IS REQUIRED TO DECIDE

Return on Profit or sales

How do What much we

Too many measures

Not related to strategy

Too results biased

Reward Systems not aligned

No support for team

Peers Individual Customers

 D4 High Competence High Commitment

 The individual work plan contains details of the work the

To review the performance of the

 D. Rousseau and Wade-Benonzi.K