Performance & Compensation Management | Performance Appraisal | Incentive

Performance Management & Reward System

Human Resource Management System
Responsibilities Of HRM

Human Resource Planning

Recruitment & Selection

Orientation, Training & Development

Performance Appraisal And Management

Compensation & Benefits Management

Performance Management & Reward System

Performance Management 

A continuous process Identifying Measuring Developing Performance of individuals and teams Aligning Performance Strategic goals Organization

Performance Management & Reward System

Components of Performance Management Continuous Process 

Never ending Process Setting Goals & Objectives Observing Performance Giving & Receiving Ongoing coaching & feedback Employees Activities & output Competitive Advantage Link Employees Performance Organizational Goals

Alignment with Strategic Goals 

Performance Management & Reward System Advantages of PMS .

Performance Management & Reward System Disadvantages of Poor PMS            Increased turn over Use of misleading information Lowered self esteem Wasted time and money Damaged relationship Decreased motivation Employee burnout and job satisfaction Unjustified demands on resources Varying and unfair standards and ratings Emerging biases Unclear ratings system .

Performance Management & Reward System Reward System  Tangible Returns:      Base pay COLA Merit pay Short-term Incentives Long-term Incentives  Benefits: Income Protection  Work/life Focus  Education Reimbursement  Allowances  .

Performance Management & Reward System Reward System  Relational  Returns: Recognition & Status  Employment Security  Challenging Work  Learning Opportunities .

Performance Management & Reward System Degree of Dependency on PMS Return Long-term Incentives Short-term Incentives Contingent Pay Base Pay Relational Returns Allowances Work/Life Focus Income Protection COLA Degree of Dependency High High High Moderate Moderate Moderate Moderate Low Low .

Performance Management & Reward System Aims & Role of PM Systems  Strategic Purpose  Administrative Purpose  Informational Purpose  Developmental Purpose  Organizational Maintenance Purpose  Documentational Purpose .

Performance Management & Reward System Characteristics of An Ideal PM System               Strategic Congruence Thoroughness Practicality Meaningfulness Specificity Identification of Effective & Ineffective Performance Reliability Validity Acceptability & Fairness Inclusiveness Openness Correctability Standardization Ethicality .

Performance Management Process .

Performance Management Process Prerequisites Performance Planning Performance Execution Performance Assessment Performance Review Performance Renewal & Recontracting .

products. Knowledge of the job in question This is done through the job analysis which determines the activities. services and processes. tasks. It also provides the requirement of KSAs.  .Performance Management Process Prerequisites  Knowledge of the organization¶s mission and strategic goals Once the goals of the organization have been established then departments set their objectives to support organization¶s overall mission and objectives.

Performance Management Process Job Analysis Frequency       Criticality 0: Not critical  1: low level of criticality  0: Not performed 1: every few months to yearly 2: every few weeks to monthly 3: Every few days to weekly 4: every few hours to daily 5: hourly to many times each hour 2: Below average level of criticality  3: Average level of criticality  4: Above average level of criticality  5: Extremely critical  .

behaviors and outcomes.Job Analysis  Performance Management Process Job analysis is a fundamental prerequisite of any PMS Job analysis is a process of determining the key componenets of particular job including activities.html  .alexandriava. off-the-shelve questionnaires. and or interviews. skills. products. tasks.delawarepersonnel. http://online. Knowledge of the organization¶s mission and strategic goals.html Job Description JD provides the criteria that will be used in measuring performance It covers tasks. It can be conducted using abilities. knowledge. services and processes.

specific objectives. At a minimum.g. creative thinking. dependability. It includes competencies e. performance standards  Behaviors It means how the job is done. Developmental Plan It is the important step before the review cycle.  . written or oral communication.Performance Planning  Performance Management Process Results It refers to what needs to be done or the outcome an employee must produce. It should include accountabilities. this plan should include identifying areas that need improvement and setting goals to be achieved in each area. customer service.

2. 5. 4. 5. 2. 4. Prime Responsibilities of Supervisors Observation and Documentation Update Feedback Resources Reinforcement . 3. 3. Performance Management Process Commitment to goals Ongoing performance feedback and coaching Communication with supervisor Collecting and sharing performance data Preparing for performance reviews  1.Performance Execution 1.

it emphasizes what has been done and how it has been done.Performance Assessment  Performance Management Process Both the employee and the manager are responsible for evaluating the extent to which the desired behaviors have been displayed. and whether the desired results have been achieved. Performance Review  The meeting between the employee and the supervisor to review their assessment. It should also focus on present and the future. It is also known as appraisal meeting. .

It is also known as appraisal meeting.Performance Assessment  Performance Management Process Both the employee and the manager are responsible for evaluating the extent to which the desired behaviors have been displayed. It should also focus on present and the future. Performance Review  The meeting between the employee and the supervisor to review their assessment. it emphasizes what has been done and how it has been done. and whether the desired results have been achieved. .

Performance Management Process Performance Renewal & Recognition  It is identical to the performance planning component but it uses the insights and information gained from other phases. . The adjustments are made and may be some new key accountabilities and competencies added.

Incentive Pay .

3. Difference of individual and team work contribution to the company in perspective of ³what they do and how well they do´. . the company has to reward performance. retain and motivate high performers. 2.Incentive Pay Incentive Pay Incentive or variable pay rewards employee for partially or completely attaining predetermined work objectives. Overall company¶s performance is dependent on performance of individuals and teams/groups. that fluctuates according to employee¶s attainment of some standards. To attract.  Assumptions of IP 1.  It is defined as the compensation other than base wages or salaries.

Incentive Pay

Incentive Pay Plans



Individual incentive plans reward employees whose work is performed independently. Group Incentive plans apply to interdependent teams. It promotes supportive, collaborative behavior. Company-wide plans tie employee compensation to a company¶s performance

Incentive Pay

Individual Incentives
1. 2. 3. 4. 5.

Quality Productivity Customer Satisfaction Safety Attendance

1. 2. 3. 4.

Quantity of work output Quality of work output Sales Achievement Work safety record

Incentive Pay

Individual Incentives




Piece work plans reward employees based on their individual hourly production against an objective output standard which is determined by the machine output capacity. Management Incentive Plans award bonuses to managers when they meet or exceed multiple complex objectives such as sales, profit, production etc for their division, unit, department. Behavioral Encouragement Plans reward behavioral accomplishments such as good conduct, good attendance, safety records. Referral Plans reward based on new customers referrals and help in recruiting successful job applicants.

Incentive Pay

Advantages of Individual Incentives
1. 2.


Individual incentive plans can promote the relationship between pay and performance. Individual incentive plans promote equitable distribution of compensation within companies. It help to retain the talent. Individual incentive plans provide compatibility with individualistic national culture.

It can promote inflexibility because any performance above defined standards may not be rewarded. It can lead to undesirable work behavior by concentrating only on those dimensions of job performance which can lead to incentives. 2. It has to be matched with changing circumstances such as improved work process or equipments. . Otherwise employees will resist the new methods.Incentive Pay Disadvantages of Individual Incentives 1. So it may not motivate to improve the performance further. 3.

Gain Sharing Plans: A group of employees.Incentive Pay Individual Incentives 1. 2. generally a department or work unit is rewarded for productivity gain. . Team-based or small group incentive plans: A small group of employees shares a financial reward when a specific objective is met.

5. 2. 3.Incentive Pay Group Incentives Plans 1. 4. Customer Satisfaction Labor Cost Saving Material Cost Saving Reduction in Accidents Services (utilities) Cost Saving .

3. 2. Equal incentive payments to all team members Deferential incentive payments based on their contribution in the team¶s performance. Differential incentive based on base pay contribution to the total base pay of the group. Basis: 1. . reward employees based on their individual hourly production against an objective output standard which is determined by the machine output capacity.Incentive Pay Team-based or small group Incentive Plans Each group member receives a financial reward for the attainment of a group goal.

Incentive Pay Gain Sharing Plans It provides participating employees with an incentive payment based on improved company performance for productivity. Components: 1. . better safety records. Leadership Philosophy (trust. open communication and participation) Employee involvement system based on open suggestion system Gain sharing bonuses based on exceptional productivity level against defined targets. increased customer satisfaction. lower cost. 2. 3.

. 3. According to it employees will exercise self-direction and self-control if they are committed to company¶s objectives and they will accept and seek responsibility if given opportunity. 2. Components: 1.Incentive Pay The Scanlon Plan It emphasizes on employee involvement. An emphasis on team work to reduce costs Suggestion system that route cost saving ideas from the work force through a committee Monetary reward based on productivity improvement to encourage employee involvement.

Incentive Pay The Rucker Plan It emphasizes employee involvement and provide monetary incentives to encourage employee participation. Labor Hour Ratio. It uses a value-added formula to measure productivity. The Improshare Plan It emphasizes on improved productivity through sharingmeasure productivity physically rather than in value. productivity based on standard and actual labor hours. a maximum productivity improvement payout level is placed on productivity gains. Buy Back Provision. .

Incentive Pay Advantages of Group Incentives 1. Cohesive groups usually work more effectively towards achieving common goals than individuals who focus more on individual tasks. . There are fewer groups in the company therefore group incentive plans can be developed much easily than individuals. 2.

Incentive Pay Disadvantages of Group Incentives 1. skills and experience. Some employees may make fewer contributions to the group goals because they posses lower ability. . The biggest limitation is the free-rider effect. In some cases few members may put less efforts because of equal incentive compensation.

2.Incentive Pay Company-wide Incentives It rewards employees when the company exceeds minimum acceptable performance standards. . Current profit sharing & deferred profit sharing Employee Stock Options: companies grant employees right to purchase shares of company. Types: 1. Profit Sharing Plans: in which employees earn a financial reward when their company¶s profit objectives are met. such as profits or the overall value of the company based on its share price.

2.Incentive Pay Advantages of Profit Sharing Plans 1. It enables employees to share in companies growth and development Companies get more financial flexibility .

More the fluctuation the more will uncertainty. 2. .Incentive Pay Disadvantages of Profit Sharing Plans 1. It undermines the economic security of employees because of lack of predictability. The turnover of excellent performers can affect the overall performance.

3. Group Versus Individual Incentives Level Of Risk Complimenting or Replacing Base Pay Performance Criteria Short-term Versus Long-term . 5. 4. 2.Incentive Pay Designing Incentive Pay Programs 1.

Defining Performance & Choosing a Measurement .

Performance Measurement Defining Performance 1. 2.   Behavior: What an employee does? Results: The outcome of an employee¶s behavior Evaluative: such as negative. neutral or positive Multidimensional: many different kind of behaviors .

Interpersonal Skills Motivation: Choice to Perform. Principles and Goals Procedural Knowledge: Cognitive. Declarative Knowledge: Facts. Physical. 2. Persistence of Effort Performance = Declarative Knowledge x Procedural Knowledge x Motivation .Performance Measurement Determinants of Performance 1. Level of Effort. Psychomotor. 3.

The performance is affected by the combined effect of three different factors So PMS does not only need to measure performance but also to provide information about the source of any performance deficiencies. 2. Factors Influencing Determinants of Performance 1. . HR practices and the work environment.Performance Measurement Implications For Addressing Performance Problems 1. Employees (previous experience).

supervising  Staff functions that enable the organization to perform effectively and efficiently 1. .  The transformation process by replenishing the supply of raw material  Distributing the finished products  Important planning.Performance Measurement Performance Dimensions Contextual Performance Those behaviors which contribute to the organization¶s effectiveness by providing a good environment in which task performance can occur. coordination.

 Contextual Performance Behaviors Persisting with enthusiasm and exerting extra effort as necessary to complete one¶s own task activities successfully Volunteering to carry out task activities successfully that are not formally the part of the job Helping and cooperating with others Following organizational rules and procedures Endorsing.Performance Measurement Performance Dimensions 1. supporting and defending organizational objectives     .

   Task Performance Behavior Task performance is usually role described It is the part of job description Influenced by abilities and skills .Performance Measurement Performance Dimensions 1.

Performance Measurement Performance Dimensions 1. Comparison Contextual Performance Fairly similar across jobs Task Performance Varies across jobs Likely to be role prescribed Not likely to be role prescribed Antecedents: abilities & Antecedent: personality skills .

Implementing A Performance Management System .

Implementing A PMS Planning Communication Appeals Process Training Programs Pilot Testing .

      Better knowledge of of the performance management system leads to greater employee acceptance and satisfaction. promotion. What is performance management ? How does performance management fits into our strategy? What is in it for me? (benefits) How does it work? (process & time) What are my responsibilities? (role) How performance management related to other initiatives? (training. succession) .Implementing A PMS Communication Plan 1.

        Selective exposure.Implementing A PMS Communication Plan 1. perception and retention biases can make communication plan ineffective Involve employees Understand employee needs Strike first Provide facts and consequences Put it in writing (document) Use multiple channels of communication Use credible communication Say it and say it again .

     The inclusion of an appeal process will enhance the employees¶ acceptance Employees can question judgmental and administrative issues In case of judgmental issues the ratings can be challenged In administrative issues the policies and procedures application can be questioned In Level 1 or A HR department can mediate In Level 2 or B peers and managers will form an arbitration panel .Implementing A PMS Appeals Process 1.

4. counsel and coach . 5. 7. 6. 3.  1. 2. Training of the raters is another step necessary in preparation of performance management system The following areas can be included in Rater Training Program Reasons for implementing PMS Info on the appraisal form and system mechanics How to identify and rank the job activities How to observe.Implementing A PMS Training Programs 1. record and measure performance How to minimize rating errors How to conduct an appraisal interview How to train.

Implementing A PMS Training Programs Rater Error Training Program             Similar to me error Contract error Leniency error Severity error Central tendency error Halo error Primary error Negativity error First Impression error Spillover error Stereotyping error Attribution error .

3. 2. Frame of Reference Training Training for performance dimensions to be assessed Discussion on Job description and duties involved Familiarization with performance dimensions and review of various levels Rating of case study or exercise based employees .  1.Implementing A PMS Training Programs 1.

store.Implementing A PMS Training Programs 1. . 3. 2.  Behavioral Observation Training Training to minimize unintentional errors in BO training including how rater observe. recall and use information Use of the observational aids such as notes and diaries Recording and information collection for these dimensions Avoid the distortion due to social contact and time by keeping the record for a particular period 1.

assumptions.  1. 4. mental imagery patters Analyze their functionality and constructiveness Substitute the more functional thinking Continue monitoring and maintaining beliefs etc .Implementing A PMS Training Programs 1. 2. conversation. Self-leadership Training To enhance the confidence in rater to manage performance Observe. 3. record existing beliefs.

Implementing A PMS Pilot Testing  1. 3. 2. It is good to test a version of the entire system so that adjustments and revisions can be made Whole system has to be implemented but informally Pilot testing will provide us the opportunity to gather information Group of employees have to be carefully selected It provide us crucial information to be used in improving the system . 4.

Clear measurement have to be implemented for monitoring and evaluation Evaluation data should include reactions to the system and assessments of the system¶s operational and technical requirements Number of individuals evaluated Distribution of performance rating Quality of information Quality of performance discussion meeting System Satisfaction Overall cost / benefit ratio Unit / organizational level performance        .Implementing A PMS Ongoing Monitoring and Evaluation  1.

Building Internally Consistent Compensation Systems .

BIC Compensation System Internally Consistent Compensation System It defines the relative value of each job among all jobs within a company. It creates a pay difference among employees within a company.  ICCS Processes 1. 2. . Job Contents: Describes job duties and tasks as well as pertinent factors such as skills and efforts Job evaluation is the key for establishing internally compensation systems as strategic tools. Job Analysis: A pure descriptive procedure which identifies and defines job contents.

3. 5.BIC Compensation System Job Analysis 1. 4. 2. Determine a job analysis program Select and train analyst Direct Job analyst orientation Conduct the study (methods & sources) Summarize the result (job description) .

The methods of collecting JA information are:  Questionnaire  Interviews  Observation  Participation .BIC Compensation System Determine a job analysis program A decision among established system or a customized system.

Training should include:  Objectives  Info collection and usage  Methodology  Discussion and demonstration  Reducing the errors .BIC Compensation System Select and Train an analyst Task force of representative from throughout the company conducts the analysis and HR coordinates with them.

BIC Compensation System Units of Job Analysis Process       Element: a smallest step of a work activity Task: One or more elements which results to perform a work Position: Collection of tasks constituting to total work assignment of an employee. . Job: a group of positions within a company that are identical with slight variations. Job Family: a group of two or more jobs with similar work characteristics or tasks Occupation: a group of jobs in which common set of tasks are performed.

job titles and classification of each position.  Organizational charts. pay rates should be analyzed  External sources should also be explored  .BIC Compensation System Direct Job Analyst Orientation Understanding of context to better understand the influencing factors.

BIC Compensation System Conduct The Study After gathering and evaluating the earlier data the info should be gathered and recorded  Data collection methods and sources of data  The most common are questionnaire and observation  .

BIC Compensation System Valid Questions       Most frequently performed tasks Frequency of each task Qualification/legalities required to perform duties List of equipements. machines and tools etc Coordination frequency and level with internal departments and external sources Intensity of Supervisory responsibilities .

Reliable Job Analysis: Consistency of results under the similar conditions Validate Job Analysis: Acccurately assesses each job¶s duties .BIC Compensation System Conduct The Study 1. 2.

1. Why employee have to perform 4. Physical and social conditions .BIC Compensation System Summarize The Results Job Description summarizes a job¶s purpose and list of tasks. duties and responsibilities as well as KSA. Supervisory responsibilities 5. Internal and external contacts 6. What to perform 2. KSA 7. How to perform 3.

skills and abilities. . Worker Specifications: It covers education. experience. qualification.BIC Compensation System Job Description     Job Title: indicates the name of the each job within an organization Job Summary: Summarize concisely the job within two to four descriptive statement Job Duties: Describes major work activates and related responsibilities.

Building Market Competitive Compensation Systems .

It supports competitive strategies Four Activities of MC System 1. It plays vital role in attracting and retaining the best employees 2.MC Compensation System Internally Consistent Compensation System It represents companies¶ compensation policies that represents the competitive advantage. 2. Strategic Analysis Compensation Survey Integrating the internal job structure withy external market pay rates Determining Compensation Policies . 4. 3. 1.

MC Compensation System Compensation Survey Preliminary Considerations     What Companies Going to Gain From Compensation surveys Custom Development versus Use of an existing Compensation System Survey Focus: Core or Fringe Compensation Sources of Published Compensation Surveys .

MC Compensation System Compensation Survey Base Pay Level  Incentive Award Structure  Mix Benefits  Discretionary Benefits The alternative forms of compensation and changes in the economic climate should also be considered.  .

MC Compensation System Customized vs Existing Compensation Survey    Lack of employees to perform the task of survey Unwillingness to share the information by the competitors Custom survey can be costly .

MC Compensation System Core or Fringe Compensation Sources of Surveys Published Compensation .

geography. and product or service market competitors  Professional. technical and related occupation  Executive. craft and repair  Transportation and material moving occupation  Service Occupation .MC Compensation System Compensation Surveys  Defining the relevant labor market Based on occupational qualification. managerial level  Sales occupation  Support Occupations  Production. administrative.

stable. and agreed upon by employees  Jobs are common across a number of different employers  Jobs represent the entire range of jobs that are being evaluated within an employee  Jobs are generally accepted in the labor market for the purposes of setting pay level .MC Compensation System Compensation Surveys  Choosing Benchmark Jobs Determine the pay levels for job based on typical market pay rates for similar jobs.  Contents are well-known.

Building Pay Structure That Recognize Individual Contribution .

3. Deciding On How Many Pay Structures To Construct Determine A Market Pay Line Defining Pay Grades Calculating Pay Ranges For Each Pay Grade Evaluating The Results . 5. 4.Building Individual Pay Structure Constructing A Pay Structure 1. 2.

Exempt jobs are generally supervisory. Non-exempt jobs are non-supervisory with narrowly defined duties. managerial and executive. Whereas nonexempt job compensation is expressed in hourly pay rate.Building Individual Pay Structure Deciding Number of Pay Structures Exempt & Non-exempt Pay Structure    Exempt job compensation is reflected in annual salary and does subject to the overtime pay provision. . professional.

managerial. technical and craft represents distinct job families.Building Individual Pay Structure Deciding Number of Pay Structures Job Family Pay Structure   Executive. each of which shows a distinct salary pattern in the market. . Pay structures are also defined on the basis of job family. professional.

service centers and corporate offices may establish pay structure based on going rates in different geographic locations. . Manufacturing plants.Building Individual Pay Structure Deciding Number of Pay Structures Geography based Pay Structure  Geographically dispersed locations such as sales offices.

Pay levels that correspond with the market pay line are market competitive pay rates .Building Individual Pay Structure Determining A Market Pay Line   A market pay line is representative of typical pay rates relative to a company¶s job structure.

It is based on similar compensable factors and values.Building Individual Pay Structure Defining Pay Grades     Pay grades group jobs for pay policy application. . No formula can determine the ideal grouping but can be indicative Management philosophy will determine the grouping Job evaluation point spreads or percentage-based job evaluation can be applied.

Building Individual Pay Structure Calculating Pay Ranges For Each Pay Grade     Pay grades represents the horizontal dimensions of pay structures (job evaluation) whereas the pay ranges represent the vertical dimension (pay rates) Pay ranges include mid-point. No formula can determine the ideal grouping but can be indicative A range spread is the difference between maximum and pay rates of a given pay grade. minimum and maximum pay rates. . Mid point are determined earlier as per the market pay line.

Below minimum pay ranges rates are known as green circle rates. Above the maximum rates pay is known as red circle rates. Green Circle Pay Rates  Red Circle Pay Rates  .Building Individual Pay Structure Calculating Pay Ranges For Each Pay Grade Pay Compression  It occurs whenever a company's pay spread between newly hired or less qualified employees and more qualified employees is small.

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