Reward Systems and Legal Issues

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In traditional reward systems, the type of position and seniority are the
determinants of salary and salary increases, not performance. In such reward
systems, there is no relationship between performance management and rewards.
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Contingent pay (CP), also called pay for performance - individuals are rewarded
based on how well they perform on the job. Thus, employees receive increases in
pay based wholly or partly on job performance.
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These increases can either be added to an employee’s base salary or be a one-time
bonus ( variable pay )
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Reasons for implementing CP
– Performance management is more effective when rewards are tied to results.
– CP Plans force organizations to:
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Clearly define effective performance
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Determine what factors are necessary
– Supervisors and employees are better able to understand what really matters.
– CP plans enhance employee motivation to accomplish goals that match
organizational needs.
– CP plans help to recruit and retain top performers.
– CP plans projects good corporate image.
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CP plans can help improve the motivation of employees when ;
– Employees see a clear link between their efforts and the resulting performance
(expectancy).
– Employees see a clear link between their performance level and the rewards
received (instrumentality).
– Employees value the rewards available (valence).
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Motivation = Expectancy * Instrumentality * Valence
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Should be aware that pay is not necessarily the perfect solution and that giving
people more money will not automatically solve performance problems
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Problems associated with CP
– A poor performance management system is in place.
– There is the folly of rewarding A while hoping for B.
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What happens when the system rewards results and behaviors that are not
those that will help the organization succeed ( focus on long-term growth and
environmental responsibility - rewarded based on quarterly earnings )
– Rewards are not considered significant.
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What happens when a CP plan includes pay increases and other rewards that
are so small that they don’t differentiate between outstanding and poor
performers
– Managers are not accountable.
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when managers are not held accountable, rewards may become the driver for the
performance evaluation instead of the performance evaluation being the driver for
the rewards
– There exists extrinsic motivation at the expense of intrinsic motivation.
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Sole emphasis on rewards can lead to ignoring the fact that employee motivation
can be achieved not only by providing rewards but also by creating a more
challenging, more interesting work environment in which employees have control
over what they do and how they do it
– Rewards for executives are disproportionately large compared to rewards for
everyone else
Selecting a CP Plan
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Different types of CP are there, they are;
– Piece rate
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Employees are paid based on the number of units produced or repaired
(manufacturing environments)
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In service organizations, this could involve the number of calls made or the
number of clients, or potential clients, contacted
– Sales commissions
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Employees are paid based on a percentage of sales. This system is usually
implemented in car dealerships
– Group incentives
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Employees are paid based on extra group production based on result-
oriented measures (e.g., sales volume for the group). This system is
implemented frequently in the retail industry.
– Profit sharing
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Employees are paid based on the performance of a group (e.g., team or
unit) and on whether the group has exceeded a specific financial goal. This
type of system is implemented in many large law firms.
 – Skill-based pay
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Employees are paid based on whether they acquire new knowledge and
skills that are beneficial to the organization. This type of system is usually
implemented in knowledge-based organizations such as software
development companies
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Following issues to be considered by organizations for selecting an appropriate CP
Plan
– Culture of organization
– Strategic direction of organization
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Culture of organization
– Traditional
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Top-down decision making, Vertical communication, Jobs that are clearly
defined
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Peace rate, Sales commissions, Group incentives
– Involvement
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Shared decision making, Lateral communications, Loosely defined roles
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Profit sharing, Skill-based pay
Putting pay in context
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Praise and recognition for a job well done, without a monetary value attached, can
be a powerful reward if such praise and recognition enhance the chances that
specific results and behaviors will be repeated.
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Similarly, praise and recognition should not be considered rewards if they do not
motivate employees to perform well in the future
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When an employee is given a reward, we expect to increase the chances that
specific results and behaviors will be repeated or that the employee will engage in
new behaviors and produce better results.
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By rewards it can includes Pay, Recognition (Public / Private), Trust and respect,
Challenges, Responsibility, Freedom, Relationships....
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How to make reward work;
– Define and measure performance first, then allocate rewards
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Before rewards are allocated, there must be a good performance management
system in place.
– Use only rewards that are available
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If the organization does not have financial rewards available, then employee
expectations should be adjusted accordingly, and the focus should be on
nonfinancial rewards
– Make sure that all employees are eligible
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By making more employees eligible for the potential reward, there is a greater
chance that more employees will strive to become top performers.
– Make rewards visible
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Rewards should also be visible to others, together with information about
what needs to happen for an employee to receive the reward in the future.
– Make rewards contingent
– Make rewards timely
– Make rewards reversible
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If high-quality performance occurs again, then the employee receives the
additional compensation again. If high-quality performance does not occur,
then the additional compensation is not give
– Use nonfinancial rewards
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Formal commendations and awards
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Favorable mention in company publications
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Private, informal recognition for jobs well done
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Public recognition, including praise, certificate of accomplishment, and letters of appreciation
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Status indicators, such as a new and enhanced job title, larger work area, improved office
decoration (e.g., prints, flowers), promotion, ability to supervise more people, and newer or
more equipment
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Time, such as taking a longer break, leaving work earlier, and getting time off with or without
pay
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A more challenging work environment, responsibility, and freedom
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Sabbaticals (i.e., paid time off work to devote to job-related growth and development activities
such as learning new skills or traveling abroad)
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Pay Structure
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Regardless of whether organizations implement a reward system based on
performance, they face the question of what salaries to assign to new employees.
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An organization’s pay structure classifies jobs into categories based on their relative
worth.
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They can do it by two ways;
– Job Evaluation
– Broad Branding
Job Evaluation
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Job evaluation is a process of data collection through which an organization can
understand the worth of various jobs and, as a result, create a pay structure.
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Job evaluation includes a consideration of the skills, knowledge, and abilities that
are required for each job, how valuable the job is for the organization, and how
much pay other organizations allocate to these jobs.
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Job evaluation methods are ;
– Ranking Method
– Classification Method
– Point Method
Ranking Method
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It is the fastest and simplest to implement. It consists of two steps.
– A job description is created for each job (job analysis, summarizes the job
duties; needed knowledge, skills, and abilities (KSAs); and working conditions
for each job)
– Job descriptions are compared to each other in terms of how valuable each job
is for the organization
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Jobs are ranked from most to least valuable. The most valuable job will be given
the highest pay, followed by the second most valuable job, and so forth.
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Criteria for ranking may not be understood clearly, the distance between each rank
is not necessarily equal
Classification Method
– A series of classes or job families (“grade”)are created. It has a unique label
and includes a sufficiently detailed description of the work performed (it will
be easy to classify all individual jobs within one class)
– Each individual job is placed within a job class.
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The end result is a set of classes, each including several jobs.
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Jobs can be quickly slotted into the structure and also classification levels are
readily accepted by employees because they seem to be valid.
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Requires extensive time and effort to administer, and differences between
classification levels may not be equal
Point Method
– Identifying compensable factors, or those characteristics of jobs (skills required,
experience required, responsibility, and working condition) that add value to the
organization and for which the organization is willing to pay
– Factors are scaled. [A five-point scale may be used for each factor ranging from 1 (i.e.,
very little is needed for this position) to 5 (i.e., a great deal is needed for this position)]
– Each factor is assigned a weight so that the sum of weights for all factors should be
100%
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It involves a comprehensive measurement of the relative worth of each job for the
organization. And also ranking jobs is easy to do once the total points for each job are
known.
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On the other hand, it requires extensive time and effort to administer
Broad Branding
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In recent years, many organizations have chosen to collapse job classes into fewer
categories. Each of these broader pay categories is called a band.
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Organizations are embracing broad banding to design their pay structures is
reflective of changes in the nature of work [workers can gather data about what
other organizations are paying employees with similar skills and experience . Those
workers who believe that they are underpaid can try to find work elsewhere]
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Organizations cannot afford to lose their most competent workers, and having a pay
structure based on broad banding allows salary increases for individuals based on
merit that do not require a change in job classification or even job title. In addition,
organizations are becoming flatter and less hierarchical,
Performance Management and the Law
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Usually performance management systems that are fair and acceptable to
employees are also legally sound
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When the rules and procedures are known by everyone, and they are applied in the
same way to everyone, the system is likely to be regarded as a fair one. This is also
the basic principle that underlies the implementation of performance management
systems that are legally sound
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Performance management systems are usually legally sound if…
– Procedures are standardized
– Same procedures are used with all employees
Legal Principles affecting PM
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Employment at will
– The employer or employee can end the employment relationship at any time
– Thus, an employer could potentially end the employment relationship without
documenting any performance problems. Two exceptions :
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There may be an implied contract derived from conversations with others
in the organization or from information found in the company’s
documentation (e.g., employee handbook) indicating that employees would
be terminated for just cause only.
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Decisions about terminating an employee should consider a potential
violation of public policy
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Negligence
– Many organizations outline a performance management system in their employee manual,
employment contract, or other materials. When the system is described in such documents
and not implemented as described, legal problems can arise.
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Defamation
– Defamation is the disclosure of untrue, unfavorable performance information that damages
an employee’s reputation
– An employee can argue that the organization defamed her if the employer states false and
libelous information during the course of the performance evaluation
– Defamation does not exist when information regarding poor performance is clearly
documented.
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Misrepresentation
– Is about disclosing untrue favorable performance, and this information causes risk or
harm to others.
– When a past employer provides a glowing recommendation for a former employee who
was actually terminated because of poor performance, that employer is guilty of
misrepresentation
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Adverse impact
– Also called unintentional discrimination
– when the performance management system has an unintentional impact on a protected
class. This can happen when women receive consistently lower performance ratings than
men
 – A periodic review can help detect the presence of adverse impact, and the
organization can take corrective action if necessary
– Organization must demonstrate:
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A specific KSA is a business requirement for the job
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All affected employees are evaluated in the same way
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Illegal discrimination
– Also called disparate treatment
– Means that raters assign scores differentially to various employees based on
factors that are not performance related, such as race, nationality, color, or ethnic
and national origin.
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Employee Claim of Illegal Discrimination
– Direct evidence of discrimination, or
– Evidence regarding the following:
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Membership in protected class
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Adverse employment decision
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Performance level deserved reward/different treatment
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How others were treated (not in protected class)
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LEGAL discrimination discriminates among employees based on their level of
performance.
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ILLEGAL discrimination is based on variables that should not usually be related to
performance.(sex, national origin, and ethnicity)
Characteristics of Legally Sound PM Systems
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Organization:
– The system is formally explained and communicated to all employees.
– The system includes a formal appeals process.
– Procedures are standardized and uniform for all employees within a job group.
– The system includes procedures to detect potentially discriminatory effects or
biases and abuses in the system.
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Management
– Supervisors are provided with formal training and information on how to
manage the performance of their employees.
– Performance information is gathered from multiple, diverse, and unbiased
raters.
– The system includes thorough and consistent documentation including specific
examples of performance based on first-hand knowledge.
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Employees
– Performance dimensions and standards are:
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Clearly defined and explained to the employee,
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Job-related, and
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Within the control of the employee.
– Employees are given
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Timely information on performance deficiencies and
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Opportunities to correct them.
– Employees are given a voice in the review process and treated with courtesy and
civility throughout the process.
Managing Team Performance
DEFINITION AND IMPORTANCE OF TEAMS
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Performance Management is a Continuous process that aims at Identifying,
Evaluating and Developing the performance of Individuals as well as teams
working in an organization along with Aligning the performance ( of individuals
and teams ) in line with the Strategic goals of an organization.
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A team is in place when two or more people interact dynamically and
interdependently and share a common and valued goal, objective, or mission.
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Teams do not have to be permanent, and team members do not have to be in the
same geographical location
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PMS focus individual performance, an individual’s contribution to the performance
of his or her team(s) and the performance of teams as a whole
Importance
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Meeting the needs of global customers often requires teams with members from
different parts of the world.
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Using teams provides greater flexibility for organizations (many organizations have
gone through downsizing and restructuring, which has led them to become flatter
and has reduced the number of hierarchical levels)
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Products and services are becoming very complex, requiring many people
contributing their diverse talents to the same project (no one individual can surpass
the combined talent of an entire group)
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Rapidly changing business environments - teams are able to respond more quickly
and more effectively to changes than can individuals working alone.
Types of Team
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Routine tasks are well defined; there are few deviations in how the work is done;
and outcomes are easily assessed after the task has been completed.
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Nonroutine tasks are not defined well; there are no clear specifications about how
to do the work; and outcomes are usually very long term and difficult to assess.
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Membership configuration includes how long the team is expected to work together
and the stability of its membership.
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Work or service teams
– These intact teams are engaged in routine tasks, including manufacturing or service
tasks. The work or service team includes people who have worked together for some
time and know each other well. Most members share a similar set of skills.
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Project teams
– These teams are assembled for a specific purpose and are expected to disband as soon
as their specific tasks have been completed. The tasks are outside the core production
or service of the organization and are therefore not as routine as those of work or
service teams. Project teams include members from different functional areas who
may not know each others’ specialties and, therefore, are highly dependent on one
another’s high level of specific knowledge and usually sophisticated skill sets.
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Network teams
– Work is extremely nonroutine. Usually include a combination of temporary and
full-time workers, customers, vendors, and even consultants. These teams
include members who are not constrained by time or space and members who
are not limited by organizational boundaries.
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Team performance management must consider the type of team in question before
performance measures are put in place
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Work and service teams can clearly benefit from peer ratings because members
observe one another’s performance on a daily basis, because team members have
similar responsibilities, everyone is familiar with the competencies needed to do the
job.
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Project teams do not stay together for long periods of time, and, therefore, the measure
of results at the end of a project may not benefit the team’s development since the
team is likely to disband as soon as the project is finished. Instead, measurements
should be taken periodically as the team works on the project so that corrective action
can be taken as necessary before the project has been completed.
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Network teams are transitory and engage in unique tasks on an as-needed basis. It
is difficult to measure specific outcomes. Instead, performance management of
network teams emphasizes the future instead of the past and focuses on developing
individual competencies, such as the team members’ capacity to innovate, adapt, be
flexible, and solve problems.
Purpose and Challenges
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Organization is based on teams but performance is still measured and rewarded at the
individual level, team performance will suffer (individual rewards may motivate people not to
contribute to team performance and, instead, to focus on individual performance)
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Organizations that choose to include a team component in their performance management
system must ask the following questions;
– How do we assess relative individual contribution
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How do we know the extent to which particular individuals have contributed to team
results? How much has one member contributed in relation to the other members?
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Are there any slackers or free riders on the team? Is everyone contributing to the same
extent, or are some members covering up for the lack of contribution of others?
– How do we balance individual and team performance
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How can we motivate team members so that they support a collective mission and
collective goals?
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How do we motivate team members to be accountable and responsible individually?
– How do we identify individual and team measures of performance
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How can we identify measures of performance that indicate individual performance
versus measures of performance that indicate team performance? Where does
individual performance end and team performance begin?
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Based on these measures, how do we allocate rewards to individuals versus teams?
Basic Principles
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Make sure your team is really a team
– There are different types of teams. Before a team component is introduced in the
performance management system, we need to make sure the organization has actual
teams
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Make the investment to measure
– The organization must be ready to make this investment for the measures to yield
useful data
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Define measurement goals clearly
– Defining how the data will be used (e.g., administrative vs. developmental purposes,
or both) and also what will be the sources of data, how data will be collected....
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Use a multi-method approach to measurement
– The measurement of team performance is complex. Thus, multiple methods
and sources of data are often necessary
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Focus on process as well as outcomes
– Behavioral/process-oriented measures as well as results are as useful for team
performance management systems as for individuals.
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Measure long-term changes
– Team performance must be sampled over a variety of contexts and over time
PMS Process
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Prerequisites
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Performance Planning
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Performance Execution
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Performance Assessment
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Performance Review
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Performance Renewal and Recontracting
Prerequisites
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Need to have good knowledge of the organization’s mission and also knowledge
regarding the mission of the team’s unit
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Need to have good knowledge of the job in question and also to have a good
information about what a team is supposed to do and how
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KSAs needed for teams;
– Task
– Contextual
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Communication, Decision-making, Collaboration, Team leadership, Self-
control
Performance Planning
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Includes results expected of the team, behaviors expected of team members, and
developmental objectives to be achieved by the team and its members
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The plan includes not only goals for the team as a whole but also developmental
objectives for individual performance that will benefit team performance
– Facilitate adaptive learning
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As part of the team development plan, team members can be encouraged to
try new behaviors.
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Also, as the team completes work or a specific project, changes that were
made in processes can be reviewed in detail to understand what worked
and what did not.
– Facilitate generative learning
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Teams can be given information regarding best practices implemented by
other teams in the same organization or even in other organizations
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Teams can be given time to practice new skills until they become habitual
– Facilitate transformative learning
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Teams can be encouraged to experiment with new ways of working together,
including a discussion of feelings of uncertainty when facing change.
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Members from other teams can be invited to participate in discussions about
performance or even to work as team members temporarily as a way of
importing innovation and change into the team.
Performance Execution
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Autonomous teams are solely responsible for performance execution; however,
when a team has a supervisor, then both the team and the supervisor share
responsibilities for performance execution.
– Team Responsibilities
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Commit to goal achievement
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Seek feedback from one another, supervisor
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Communicate openly and regularly
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Conduct regular and realistic peer appraisals
– Supervisor responsibilities
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Observe and document team performance and also relative contribution of
team members
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Update team on any changes in goals of the organization
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Provide resources and reinforcement
Performance Assessment
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Each team member must evaluate one another’s performance as well as the performance
of the overall team. Peer evaluations are a key component of the assessment stage
because they lead to higher levels of workload sharing, cooperation, and performance
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Peer evaluations can also include team members nominating someone else as the review
period’s most valuable performer (MVP).
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In addition, the supervisor evaluates the performance of each team member as well as
the team as a whole.
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Finally, members from other teams may also evaluate the performance of the team.
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Self-appraisals also provide important information to be discussed during the
performance review
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Three types of performance need to be assessed:
– Individual performance or task performance (refers to the specific activities
required by one’s individual job, such as a programmer’s ability to write
quality code)
– Individual performance or contextual performance (refers to specific activities
that contribute to team performance, such as team members cooperating with
each other)
– Team performance as a whole
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Team performance as a whole can be measured using the following four performance
dimensions
– Effectiveness
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This is the degree to which results satisfy team stakeholders, including both internal
and external customers
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These can include measures of quality, quantity, cost, and time
– Efficiency
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This is the degree to which internal team processes support the achievement of
results, team growth, and team member satisfaction.
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This can include measures of communication, coordination, collaboration, and
decision making
– Learning and growth
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This is the degree to which the team is able to learn new skills and improve
performance over time.
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Specific measures can include innovation, documented learning, best
practices, and process improvements
– Team member satisfaction.
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This is the degree to which team members are satisfied with their team
membership.
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Specific measures can include team members’ perceptions regarding the extent
to which teamwork contributes to their growth and personal well-being.
Performance Review
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At least two meetings are needed (emphasize the past, the present, and the future)
– First, the supervisor meets with all members of the team together. The focus of
this meeting is to discuss the overall team performance including results achieved
by the team as a whole. Information for this meeting comes from team members
evaluating their collective performance, other teams evaluating the team in
question, and the supervisor’s evaluation.
– Second, the supervisor meets each team member individually. The focus of this
meeting is to discuss how the individual’s behaviors contributed to team
performance .Information for this meeting comes from individuals evaluating
their own performance, peer ratings of the individual’s performance, and the
supervisor’s evaluation
Performance Renewal and Recontracting
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This component is identical to the performance planning stage; however,
performance renewal and recontracting uses information gathered during the
review period to make adjustments as needed
Reward System
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All employees should be eligible
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Reward should be Visible, Contingent, Reversible
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Avoid factors which cause reward systems to fail
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Consider variable pay systems ( in addition to individual bonuses)