Organization Development and Change

Chapter Seventeen:
Performance Management

Thomas G. Cummings
Christopher G. Worley
 Learning Objectives
for Chapter Seventeen
• To present a model for understanding the
components and relationships associated
with performance management
• To explore three interventions concerned
with managing the performance of human
resources: goal setting, performance
appraisal, and reward systems

Cummings & Worley, 8e 17-2

(c)2005 Thomson/South-Western
A Performance Management Model
Business Strategy

Reward Goal

Employee Involvement
Systems Setting
Individual
and Group
Performance

Performance
Appraisal

Cummings & Worley, 8e 17-3

(c)2005 Thomson/South-Western
 Characteristics of
Effective Goals
• Goals are Challenging
– Challenging but realistic
– Goals are set participatively
• Goals are Clear
– Goals are specific and operationally defined
– Resources for goal achievement are negotiated

Cummings & Worley, 8e 17-4

(c)2005 Thomson/South-Western
 Management by Objectives
(MBO)
• MBO attempts to align personal goals with
business strategy through increased
communications and shared perceptions
between managers and subordinates
• MBO programs may go beyond manager
and subordinate roles to address individuals,
work groups, and to reconcile conflicts.

Cummings & Worley, 8e 17-5

(c)2005 Thomson/South-Western
 MBO Application Stages
• Involve the whole work group
• Goals set jointly by manager and
subordinate
• Action plans are established
• Criteria and yardsticks are established
• Work progress and contract reviewed and
adjusted periodically
• Records of meetings are maintained
Cummings & Worley, 8e 17-6
(c)2005 Thomson/South-Western
Performance Appraisal Elements
Elements Traditional High Involvement
 Organizational, legal  Developmental
Purpose  Fragmented  Integrative

 Supervisor or manager  Appraisee, co-

Appraiser workers, and others
Role of  Passive recipient  Active participant
Appraisee
 Subjective  Objective and
Measurement  Concerned with validity subjective
 Period, fixed,  Dynamic, timely,
Timing administratively driven employee- or work-
driven

Cummings & Worley, 8e 17-7

(c)2005 Thomson/South-Western
 Performance Appraisal
Application Stages
• Select the appropriate stakeholders
• Diagnose the current situation
• Establish the system’s purposes and
objectives
• Design the performance appraisal system
• Experiment with implementation
• Evaluate and monitor the system
Cummings & Worley, 8e 17-8
(c)2005 Thomson/South-Western
 Characteristics of Effective
Appraisal Systems
• Timely
• Accurate
• Accepted by the users
• Understood
• Focused on critical control points
• Economically feasible

Cummings & Worley, 8e 17-9

(c)2005 Thomson/South-Western
 Reward System Design Features
Design Feature Definition

Person/Job Based vs. The extent to which rewards are based on the person,
Performance Based the job or the outcomes of the work
Market Position The relationship between what an organization pays and
(External Equity) what other organizations pay
Internal Equity The extent to which people doing similar work within and
organization are rewarded the same
Hierarchy The extent to which people in higher positions get more
and varied rewards
Centralization The extent to which reward system design, decisions
and administration are standardized
Rewards Mix The extent to which different types of rewards are
available and offered to people
Security The extent to which work is guaranteed

Seniority The extent to which rewards are based on length of

service
Cummings & Worley, 8e 17-10
(c)2005 Thomson/South-Western
 Characteristics of Effective
Reward Systems
• Availability
• Timeliness: rewards should be given in a timely manner
• Performance Contingency: Rewards should be closely linked with
particular performances. If the goal is met, the reward is given; if the target is missed, the
reward is reduced or not given.

• Durability: Some rewards last longer than others. Intrinsic rewards, tend to last longer than
extrinsic rewards.

• Equity
• Visibility: Organization members must be able to see who is getting the rewards.
Visible rewards, such as placement on a high-status project, promotion to a new job, and
increased authority, send signals to employees that rewards are available,
Cummings & Worley, 8e 17-11
(c)2005 Thomson/South-Western
 Types of Rewards
• Pay
– Skill-based pay plans
– Performance-based pay systems link pay to
performance
– Gain sharing involves paying bonuses based
on improvements in the operating results
• Promotions
• Benefits

Cummings & Worley, 8e 17-12

(c)2005 Thomson/South-Western
Salary-Based Pay for Performance Ratings
(Performance based pay system)

Individual Plan Productivity 4 1 1 4

Cost effectiveness 3 1 1 4
Superiors’ rating 3 1 1 3

Group Productivity 3 1 2 4
Cost effectiveness 3 1 2 4
Superiors’ rating 2 1 2 3

Organization- Productivity 2 1 3 4
wide Cost effectiveness 2 1 2 4
Cummings & Worley, 8e 17-13
(c)2005 Thomson/South-Western
 Stock/Bonus Pay for Performance Ratings

Individual Plan Productivity 5 3 1 2

Cost effectiveness 4 2 1 2
Superiors’ rating 4 2 1 2

Group Productivity 4 1 3 3
Cost effectiveness 3 1 3 3
Superiors’ rating 3 1 3 3

Organization- Productivity 3 1 3 4
wide Cost effectiveness 3 1 3 4
Profit 2 1 3 3
Cummings & Worley, 8e 17-14
(c)2005 Thomson/South-Western
 Gain Sharing Pay Plan
Considerations
• Process of design - participative or top-
down?
• Organizational unit covered - plant or
companywide?
• Determining the bonus - what formula?
• Sharing gains - how and when to distribute?
• Managing change - how to implement
system?
Cummings & Worley, 8e 17-15
(c)2005 Thomson/South-Western