Performance Management and Reward Systems in Context

Chapter 1
Performance
Management
and Reward Systems
in Context
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall
1-1
Overview
Definition of Performance
Management (PM)
The PM Contribution
Disadvantages/Dangers of Poorly
Implemented PM Systems
Definition of Reward Systems

1-2
Overview (continued)
Purposes of PM Systems
Characteristics of an Ideal PM
System
Integration with Other Human
Resources and Development
Activities
PM Around the World
1-3
Definition of PM
1. Continuous process of
Identifying
Measuring
Developing
the performance of individuals and

teams
2. Aligning performance with the

strategic goals of the organization
1-4
Definition of PM (continued)
Performance management (PM)

is NOT
performance appraisal (PA)
1-5
Definition of PM (continued)
PM
Strategic business
considerations
PA
Driven by HR
Assesses employee
Driven by line
manager
Ongoing feedback
So employee can
improve performance
Strengths
Weaknesses
Once a year
Lacks ongoing
feedback
1-6
Contributions of
Performance Management
For Employees
For Managers
For Organization/HR Function
1-7
Contributions of Performance
Management for Employees
Clarify definitions of
Job
Success criteria
Increase motivation to perform
Increase self-esteem
Enhance self-insight and

development
1-8
Management for Managers
Communicate supervisors views of

performance more clearly
Managers gain insight about
subordinates
Better and more timely differentiation

between good and poor performers
Employees become more competent
1-9
Management for Organization/HR
Function
Clarify organizational goals
Facilitate organizational change
Fairer, more appropriate

administrative actions
Better protection from lawsuits
1-10
Disadvantages/Dangers of
Poorly Implemented
PM Systems
For Employees
For Managers
1-11
Implemented PM Systems for
Employees
Lowered self-esteem
Employee burnout and job
dissatisfaction
Damaged relationships
Use of false or misleading

information
1-12
Managers
Increased turnover
Decreased motivation to perform
Unjustified demands on managers

resources
Varying and unfair standards and
ratings
1-13
Organization/HR Function
Wasted time and money
Unclear ratings system
Emerging biases
Increased risk of litigation
1-14
Reward Systems
Definition
Tangible Returns
Intangible Returns
Returns and their Degrees of

Dependency on PM
1-15
Reward Systems
Definition
Set of mechanisms for distributing

Tangible returns
Intangible or relational returns
as part of an employment
relationship
1-16
Reward Systems
Tangible Returns
Cash compensation
Base pay
Cost-of-Living and Contingent
Pay
Incentives (short- and longterm)
1-17
Reward Systems
Tangible Returns (continued)
Benefits such as
Income Protection
Allowances
Work/life focus
1-18
Reward Systems
Intangible Returns
Relational returns such as

Recognition and status
Employment security
Challenging work
Learning opportunities
1-19
Returns and Their Degrees of

Dependency on the Performance
Management System
Low Dependency
Cost of Living Adjustment
Income Protection
Moderate Dependency
High Dependency
1-20

Management System (Continued)
Low Dependency
Moderate Dependency
Work/Life Focus
Allowances
Relational Returns
Base Pay
High Dependency
1-21

Management System (Continued)
Low Dependency
Moderate Dependency
High Dependency
Contingent Pay
Short-Term Incentives
Long-Term Incentives
1-22
Strategic
Administrative
Informational
Developmental
Organizational maintenance
Documentation
1-23
Strategic Purpose
Link individual goals with

organizations goals
Communicate most crucial business

strategic initiatives
1-24
Administrative Purpose
Provide information for making

decisions regarding:
Salary adjustments
Promotions
Retention or termination
Recognition of individual performance
Layoffs
1-25
Informational Purpose
Communicate to employees:
Expectations
What is important
How they are doing
How to improve
1-26
Developmental Purpose
Performance feedback/coaching
Identification of individual strengths
and weaknesses
Identification of causes of
performance deficiencies
Tailor development of individual

career path
1-27
Organizational Maintenance Purpose
Plan effective workforce
Assess future training needs
Evaluate performance at
organizational level
Evaluate effectiveness of HR
interventions
1-28
Documentation Purpose
Validate selection instruments
Document administrative decisions
Help meet legal requirements
1-29
An Ideal PM System:
15 Characteristics
1.
2.
3.
4.
5.
6.
7.
Strategically congruent
Contextually congruent
Thorough
Practical
Meaningful
Specific
Identifies effective and ineffective
performance
1-30
An Ideal PM System:
15 Characteristics (continued)
8.
9.
10.
11.
12.
13.
14.
15.
Reliable
Valid
Acceptable and fair
Inclusive
Open (No Secrets)
Correctable
Standardized
Ethical
1-31
An Ideal PM System:
15 Characteristics
Strategically Congruent
Consistent with organizations

strategy
Aligned with unit and
organizational goals
1-32
An Ideal PM System:
15 Characteristics
Contextually Congruent
Congruent with the organizations

culture as well as the broader
cultural context of the region or
country
Example: A 360-degree feedback is
not effective where communication is
not fluid and hierarchies are rigid
1-33
An Ideal PM System:
15 Characteristics
Thorough
All employees are evaluated
All major job responsibilities are

evaluated
Evaluations cover performance for
entire review period
Feedback is given on both positive
and negative performance
1-34
An Ideal PM System:
15 Characteristics
Practical
Available
Easy to use
Acceptable to decision makers
Benefits outweigh costs
1-35
An Ideal PM System:
15 Characteristics
Meaningful
Standards are important and relevant

System measures ONLY what employee
can control
Results have consequences
Evaluations occur regularly and at
appropriate times
System provides for continuing skill
development of evaluators
1-36
An Ideal PM System:
15 Characteristics
Specific
Concrete and detailed guidance
to employees
Whats expected
How to meet the expectations
1-37
An Ideal PM System:
15 Characteristics
Identifies effective and ineffective
performance
Distinguish between effective and

ineffective:
Behaviors
Results
Provide ability to identify

employees with various levels of
performance.
1-38
An Ideal PM System:
15 Characteristics
Reliable
Consistent
Free of error
Inter-rater reliability
1-39
An Ideal PM System:
15 Characteristics
Valid
Relevant (i.e., measures what is

important)
Not deficient (i.e., doesnt measure
unimportant facets of job)
Not contaminated (i.e., only

measures what the employee can
control)
1-40
An Ideal PM System:
15 Characteristics
Acceptable and Fair
Perception of Distributive Justice

Work performed Evaluation received
Reward
Perception of Procedural Justice

Fairness of procedures used to:
Determine ratings
Link ratings to rewards
1-41
An Ideal PM System:
15 Characteristics
Inclusive
Represents concerns of all involved

When system is created, employees
should help with deciding:
What should be measured
How it should be measured
Employee should provide input on

performance prior to evaluation
meeting.
1-42
An Ideal PM System:
15 Characteristics
Open (No Secrets)
Frequent, ongoing evaluations and

feedback
Two-way communications in
appraisal meeting
Clear standards and ongoing
communication
Communications are factual, open,
and honest
1-43
An Ideal PM System:
15 Characteristics
Correctable
Recognizes that human judgment

is fallible
Appeals process provided
1-44
An Ideal PM System:
15 Characteristics
Standardized
Ongoing training of managers to

provide
Consistent evaluations across:
People
Time
1-45
An Ideal PM System:
15 Characteristics
Ethical
Supervisor suppresses self-interest

Supervisor rates only where (s)he
has sufficient information about the
performance dimension
Supervisor respects employee

privacy
1-46
Integration with other Human

Resources and Development
Activities
PM provides information for:

Development of training to meet
organizational needs
Workforce planning
Recruitment and hiring decisions
Development of compensation systems
1-47
PM Around the World
PM used in United States, Mexico,

Turkey, India, Australia, China, and
so on
Common across countries: Need to
align individual and organizational
goals to enhance the performance of
individuals and groups
1-48
PM Around the World

(continued)
Yet, different countries emphasize

different components of PM
EX 1: PMs in Japan tend to emphasize
behaviors to the detriment of results
EX 2: The current challenge among many
organizations in South Korea is how to
reconcile a merit-based approach with
more traditional cultural values
1-49
Quick Review
Definition of Performance Management (PM)

The Performance Management Contribution
Disadvantages/Dangers of Poorly Implemented PM
Systems
Definition of Reward Systems
Aims and Role of PM Systems
Characteristics of an Ideal PM System
Integration with Other Human Resources and
Development Activities
PM Around the World
1-50
All rights reserved. No part of this publication may be

reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.
Copyright 2013 Pearson Education, Inc.

publishing as Prentice Hall
1-51

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Chapter 1

Definition of Reward Systems

the performance of individuals and

2. Aligning performance with the

Performance management (PM)

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

For Organization/HR Function

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Increase motivation to perform

Enhance self-insight and

Communicate supervisors views of

Better and more timely differentiation

Clarify organizational goals

Facilitate organizational change

Fairer, more appropriate

For Organization/HR Function

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Use of false or misleading

Decreased motivation to perform

Unjustified demands on managers

Wasted time and money

Unclear ratings system

Increased risk of litigation

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Returns and their Degrees of

Set of mechanisms for distributing

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Relational returns such as

Returns and Their Degrees of

Returns and Their Degrees of

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Returns and Their Degrees of

Link individual goals with

Communicate most crucial business

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Provide information for making

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Tailor development of individual

Plan effective workforce

Assess future training needs

Validate selection instruments

Document administrative decisions

Help meet legal requirements

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Consistent with organizations

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Congruent with the organizations

All employees are evaluated

All major job responsibilities are

Acceptable to decision makers

Benefits outweigh costs

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Standards are important and relevant

How to meet the expectations

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Distinguish between effective and

Provide ability to identify

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall