Performance Management


Dr. Subhash C. Kakkar


• Being honest.

• Maintaining confidence and trust. • Following the rules. • Conducting yourself in the proper manner. • Treating others fairly. • Demonstrating loyalty to company and associates. • Carrying your share of the work and responsibility with 100% effort.

An ethical dilemma arises in a situation when each alternative choice or behavior has some undesirable elements due to potentially negative ethical or personal consequences.

Rights desired by employees regarding the security of their jobs and the treatment administered by their employer while on the job, irrespective of whether such rights are currently protected by law or collective bargaining agreements of labor unions.

Legal and Ethical Issues in Performance Management • Legal – Performance management processes are often scrutinized in cases of discrimination or dismissal. – All applicable and non-applicable rules of ethics become applicable . • Ethical – Employee monitoring via electronic devices and computers may raise concerns over employee privacy.

it is important to have a legally defensible performance management system.Legal Requirements for Performance Management • Lawsuits related to performance management usually involve charges of: – Discrimination – Unjust dismissal • To protect against both kinds of lawsuits. .

Legal Requirements for Performance Management (continued) • A legally defensible performance management system includes: – Based on valid job analyses. – Multiple raters (including self-appraisals) should be used. with requirements for job success clearly communicated to employees. rather than traits. . – All performance ratings should be reviewed by upperlevel managers. – There should be an appeals mechanism for employees. – Performance measurement should evaluate behaviors or results.

Legal Issues in Appraisals Courts have found that inadequate appraisal systems often lie at the root of discriminatory layoffs. discharges or merit pays • They are held illegal if appraisals are: – Based on subjective observations – Not administered and scored consistently – Based on evaluators who did not have daily contact . promotions.

Specify deficiencies relative to the standard. 9 –9 . Make clear that employee was aware of the standard. • A Written Warning Should: – – – – Identify standards by which employee is judged.Formal Written Warnings • Purposes of a Written Warning – To shake your employee out of bad habits. – To help you defend your rating. Indicate employee’s prior opportunity for correction. both to your own boss and (if needed) to the courts.

Contamination and Deficiency of a Job Performance Measure .

Political Behavior in Performance Appraisals • Distorting a performance evaluation to advance one’s personal goals • A technique to minimize appraisal politics is a calibration meeting: – Meeting at which managers discuss employee performance ratings and provide evidence supporting their ratings with the goal of eliminating the influence of rating errors .

– Provides advice and assistance regarding the appraisal tool to use. – Monitors the appraisal system effectiveness and compliance. 9–12 . – Trains supervisors to improve their appraisal skills.Role of HR in Performance Management • The HR Department – Serves a policy-making and advisory role.

• For facing the challenges of a globalized world.Role of HR in Performance Management • The HR department today is a strategic partner and plays a vital role in pursuing a particular strategy. • Companies like Maruti Udyog Ltd. Indian organizations have reformed their HRM strategies for managing the employee performance by considering part time work. Kakkar . Subhash C. • HR no longer today plays the role of a rubber stamp department. and Mahindra and Mahindra. Dr. rather is a performance enabler by closely working with the to management and all the major functional departments of an organization. revamped their entire organizational set up and were able to create performance efficiency due to the efforts 2/15/2014 13 of the HR department. outsourcing and temporary workers.

Build the Culture 14 . Develop Output and Results Measures for each goal 3. Use an Effective Recognition System 6. Check with HR to see if the set of measures is complete 5. Develop Input Measures for each goal 4.‘Six Steps’ of a Measurement System 1. Separate Strategic Goals Into Input and Output Dimensions 2.

organizations create strategic goals that identify “Key Result” areas of the organization where change and improvement is possible and desirable. Mission and Values. 15 . Separate Strategic Goals Into Input and Output Dimensions • Following from Vision.Step 1. • Our first step in developing measures to reflect the goal is to dissect the goal into its input and output dimensions.

(excessive waste) How well is labour used. (excessive idle time) How well is overhead used (idle capacity) 16 .Broad measurement concept of inputs unit cost efficiency Input dimension How well are materials used.

Broad measurement concepts of Outputs Internal Results Output Dimension maintaining and improving quality lower consumer prices External Results financial returns improve market share meet current and future demand 17 .

accomplishments can be categorized into three groups. In most organizations. – Investment returns – Customer Satisfaction – Social Impacts 18 .Step 2. Develop Output Measures or Each Goal • Outputs are accomplishments.

OUTPUT MEASURES CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE PERFORMANCE GOAL (changes of specific amounts over specific time frames) Financial returns % return on investment % return on assets employed Profit margin on sales % market share relative to the competition % market share relative to total market size All should increase by a specific % change. Investment Returns Market share The proportion of the market share against the competition should increase. 19 . The proportion of the market share relative to the total market should increase at a rate that is faster than the rate of change in total market size. to be accomplished by a specific date.Measures of outputs or Results.

Measures of outputs or Results Product or service quality Rejection rates in the production process Sales returns Both should decline by a specific amount in a specific timeframe. Customer Satisfaction Deliver on time and in sufficient quantity Backorder and delivery statistics Backorders should decline and delivery cycle times should improve. 20 Child development Improvement in reading skills Impact on landfills when the toy is finished Social Benefits Environmental impact . Consumer prices Retail price by product The retail price matched to value should decline. Children using these toys should show a measured improvement in reading skills The proportion of toys presented for re-cycling should go up.

Step 3. – Financial operating resources – Financial capital resources – Other organizational resources 21 . Develop Input Measures For Each Goal • We normally develop input measures after we have developed output measures because it is a good idea to know where you are going before you decide how to get there.

Measures of Inputs or Efficiencies INPUT MEASURES for “UNIT COST EFFICIENCY” MEASUREMENT CONCEPT CATEGORY PERFORMANCE MEASURE PERFORMANCE GOAL Materials and labour Direct materials and direct labour per unit. expressed in both dollar and quantity terms Material and labour cost and or consumption per unit should decline over a specified time period Overhead consumed per unit produced should decline Financial Operating Resources Overhead Overhead charged per unit % utilization of capacity %capacity utilized should increase to or remain at optimal levels Financial Capital Resources Capital investment in operating assets Dollars of capital investment per unit produced Dollars per unit of capital invested should decline over time as capital resources are used more efficiently Other Organizational Resources Non-financial resources consumed by the performance area Management estimates of the resources of talent and energy and other non-financial resources that have been dedicated to this performance area The amount consumed will increase as the project is developed and decrease after it is implemented 22 .

Volume and Investment. we need to apply the SAVI framework to categorize the measures as to Speed. Accuracy. Check with SAVI to see if the set of measures is complete • Before we can be sure that we have a complete set of measures.Step 4. 23 .

Linking Output Measures to Performance Measures OUTPUT MEASURES CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE % return on investment % return on assets employed Profit margin on sales % market share relative to the competition % market share relative to total market size SAVI financial returns Investment Returns market share Accuracy Volume Product or service quality Rejection rates in the production process Sales returns Accuracy & Volume Customer Satisfaction Deliver on time and in sufficient quantity Backorder and delivery statistics Speed & Volume Investment Accuracy Volume 24 Consumer prices Retail price per product Child development Social Benefits Environmental impact Improvement in reading skills Impact on landfills when the toy is finished .

Investment % utilization of capacity Volume Financial Capital Resources Capital investment in operating assets Dollars of capital investment per unit produced Investment Other organizational resources Non-financial resources consumed Management estimates of the resources of talent and energy that have been dedicated to this performance area. Investment 25 . in both dollar and quantity terms.Linking Input Measures to Performance Management INPUT MEASURES for “UNIT COST EFFICIENCY” CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE SAVI Materials and labour Direct materials and direct labour per unit. Investment Financial Operating resources Overhead Overhead charged per unit.

Testing the measures • Once we are satisfied that the set is complete we need to subject each and every measure to a test. Refer to figure 26 .

– Every result should have an automatic intervention strategy. Use an Effective Recognition System • Use Measurement to Initiate Change – An effective measurement system will use the measured results as a management tool. – when results are less than expected we should quickly isolate the cause and correct the process 27 . – When results are as expected we should offer congratulations and reinforcement to keep it going.Step 5.

• Improvement does not take place on paper. commitment. leadership and morale in their daily routine. Build the culture • Good systems need good people. • Improvement happens when people employ enthusiasm.Step 6. There is no sense in examining a process unless at the same time you examine the people who govern the process. 28 . • A good system on paper is a healthy beginning but if you want results you need to follow up a paper system with a people system. dedication.

which does he deliver first? And what happens if Pizza delivery people are offered a cash bonus for every delivery made within 30 minutes. and what does this do to pizza quality? 29 . – So how about the 30 minute pizza delivery guarantee.Closing Remarks • In the beginning we were challenged to find measures and see the resulting behavior. That promotes speeding and if a delivery person has an order at 28 minutes and another at 10.

30 . we react differently to control systems. we are motivated by different things. We bring our own personal values to the job. A performance measurement system is a uniform set of measures that is trying to motivate a most un-uniform set of people.• People are curious beings.

PERFORMANCE MANAGEMENT CHALLENGES AND SOLUTIONS Challenges • • • • • • • • Poor leadership Poor correlation between IDP. outcomes and targets Develop and align performance plans with IDPs Develop strategic risk management Develop of performance measurements and control systems Develop change management plan and appraise performance Establish strong evaluation (audit and portfolio and oversight ) committee Communicate results • • • . how and when Develop IDP’s with clear objectives.who. PMS and Budget Alignment of strategic planning with risk management processes Align individual performance expectations with organisational goals Lack of accountability Lack of performance measurement systems to improve performance Poor data quality Poor performance reporting (project or operational process) Resistance to change Poor evaluation and oversight processes Limited communication of results Solutions • • • • • • • • • Leadership and decision makers Develop performance management systems that clarifies the what .

Doctrinal logic for change .

Strategic HRM and Emerging Trends .

and 4. 2. customer service. Jointly conceived and implemented by line and HR managers. Closely linked to business strategic plans. productivity. Focused on quality. . 3. teamwork.HRM in the • st 21 Century HRM activities must be: 1. and workforce flexibility. employee involvement. Responsive to a highly competitive marketplace and global business structures.

The use of multisource (360) performance appraisal and feedback. • • Above market compensation for key positions. Low percentage of employees covered by union contract. projectbased teams. High percentage of workforce working in self-managed. High differential in pay between high and low performers. Extensive training and development of new employees.Characteristics of High Performance Work Systems • • • • • Large number of applicants for each strategic position. • • • • • Goal: Developing a Human Resources Scorecard! . The use of validated selection and promotion models/procedures. Linkage of merit increases to formal appraisal processes. The use of formal performance appraisal and management. High percentage of jobs filled from within. High percentage of the entire workforce included in incentive systems.

focusing on the strategy and core competencies of the organization.Highly effective HR function: • Are conceptualized in a business capacity. • Use research to make recommendations for cost improvement and more efficient operations. • Able to show how it can make a difference to the company’s bottom line. .

.Key to Competitive Advantage: Building and sustaining core competencies within the organization and maintaining flexibility in order to react quickly to the changing global marketplace and the advances in technology.

Make appraisal process important element of manager’s job. Less than 30% train raters. Compensation Merit-based systems should not be tied into bas salary. Less than 30% know what an WAB is. Graphology is invalid and should not be used Less than 20% use RJPs in high turnover jobs. observation bias. Performance Appraisal Do not use traits on rating forms. Use actuarial model of prediction with multiple measures. Use is on the increase in the U. Structured. HRM Practice Staffing Realistic job previews can reduce turnover. behavioral. or situational interviews are more valid. etc.S. Train raters for accuracy. < 1% use WABs. Less than 5% use it where they could . Less than 35% evaluate managers on performance appraisal. Less than 10% calculate yield ratios. Less than 25% know how.Discrepancies Between Research and Practice Research Finding Recruitment Quantitative analysis of recruitment sources using yield ratios can facilitate efficiencies in recruitment. More than 70% still use traits. 45% use structured interviews. Weighted application blanks reduce turnover. Less than 5% use actuarial model. Gainsharing is an effective PFP system More than 75% tie merit pay into base pay.

Major Trends Impacting HRM • Trend 1: The Increased Globalization of the Economy • Trend 2: Technological Changes. . Challenges and Opportunities • Trend 3: The Need to be Flexible in Response to Changing Business Environments • Trend 4: Increase in Litigation Related to HRM • Trend 5: Changing Characteristics of the Workforce.

. – Barriers to entry have been reduced. – Assist in developing new staffing plans. – Export jobs up 20% in last 10 years. – More union activities. – Decrease the cost of labor. – HRM becomes more complicated. – Corporate downsizing linked to new technology. • Reduced work forces by more than 10% in last decade: – HRM specialists in organizational restructuring.Increased Globalization • Development of a worldwide labor market – Easy to move work around when it can be digitized. increasing international competition from firms and individuals alike. – Conduct vocational counseling for displaced employees. – Help in legal defense against allegations of discrimination related to downsizing. – MNCs are expanding in new countries and new markets.

– Announcements and responses through e-mail. • Impact of Internet on HRM activities: – Computer search of potential applicant pool. – Video computer conducts testing and interviewing.Technological Changes • Optimal combination of people. • Use of intranet sites to convey personnel information. • Maximize profit margins and sustained customer value. • User testing programs assess computer interface. and equipment. – Standardized resumes in data base. – Increased speed of communication across the organization. . – Increased focus on security of personnel information and intellectual property. software. • Electronic tracking of HR activities such as T/O and performance reviews.

• Consulting is now a thriving business for HRM: – Outsource HR activities. and – Place personnel with new technology.Need to be Flexible • Focus on core competencies leads to outsourcing of other activities: – Use of temporary or leased workers. – Use of independent contractors. .

• Link HR programs to cost savings. financial performance. and customer satisfaction. • Measures should be derived from organizational strategy. • Link employee behavior and attitudes to revenues and profits.Importance of Measuring HRM Performance • Enhance productivity. • Link leading and lagging indicators to organizational goals. • Feedback is essential for development and refinement. product and service quality. . and productivity. • Relative weights should be linked to strategic goals • Develop a workforce scorecard.

Develop and communicate detailed descriptions of what is expected. Identify critical and carefully defined outcome measures related to strategic objectives.Steps in Developing a Workforce Scorecard 1. 2. 3. . Determine how (or if) improvements can be achieved. Translate measures into specific actions and accountabilities.

development. promotion.Steps (Continued) 4. Identify high and low performing employees. Establish a differentiated incentive systems. and HR in strategy execution. 5. formal appraisal. . Develop supporting HR management and measurement systems of selection. 6. Specify the roles of leadership. the workforce. and termination practices.

Challenges in Developing a Workforce Scorecard • Perspective challenge – Does management fully understand how workforce behaviors affect strategy execution? • Metrics challenge – Has the organization identified and collected the right measures of success? • Education Challenge – Does management have access to the data and motivation to use the data in decision making? .

.Challenges in HRM Measurement • View the workforce in terms of contribution rather than cost. • Use measurement as a tool for differentiating contribution to strategic impact. and • Hold line and HR management responsible for getting the workforce to execute strategy.

• Organizational capability is matching customer and strategic needs through work structure and design. • Organizational capability derives from HRM practices. but also exploit any other potential sources of uniqueness. .HR’s Role in Sustaining Competitive Advantage • HR systems must be in place that not only maximize organizational capability.