performance n compensation

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Dr Sanyukta Jolly

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Performance management is an importantconcept to understand for academic study andbegan in late 1980s and it has been undertakenin several fields such as logistics management,

marketing, human resources management andoperations management to name a few.

The idea of managing both individual and

organizational performance is not new and theexact date when a formal method of reviewingperformance was first introduced is not known.

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Koontz (1971) mentioned the role of imperial rater whose

task was to evaluate the performance of official family of theWei dynasty (AD 221-265) in China.

The first formal system evolved before World War I (WWI) withthe pioneering work of Fredrick Taylor with the ratings ofofficers in the U.S. armed services which took place in early1950s.

It began with personality based appraisals, shifting towardsgoal-setting and assessment of performance related abilities in1960s.

Beginning 1980 to 1990 the organizations underwent a rapidand successive change and performance appraisal became acentral theme for managing people and business in general.

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By the end of 1990, performance management cameto be seen as a core management process and a wellintegrated strategic tool.

Broadly speaking, in the 1950-1960s the focus was

on merit rating in USA and UK and known asperformance appraisal.

1960s to 1970s was the period of management by

objectives (MBO), critical incidents technique and useof behaviourally anchored scales (BARS), which are

used extensively even now by various organizations.

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The word performance management was first used in1970s but did not become a recognized process until thelater half of 1980s.

The performance management literature can be traced inthree major phases-

1. from performance measurement to performancemanagement

2. from individual to collaborative performance measurement

3. from lagging to leading performance management.

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Performance measurement is universal.

In the work setting especially performance measurementgoes beyond annual review and can be used for manypurposes:

1. Criterion data

2. Employee development

3. Motivation/satisfaction

4. Promotion5. Transfer

6. Rewards

7. Layoffs

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Sources forEmployeeAppraisals

Supervisors

Self-AppraisalPeers

Subordinates

Customers

360-DegreeAppraisals

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TraitMethods

Graphic RatingScale

Mixed StandardScale

Forced-Choice

Essay

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Graphic Rating-Scale Method A trait approach to performance appraisal whereby

each employee is rated according to a scale ofindividual characteristics.

Mixed-Standard Scale Method An approach to performance appraisal similar to

other scale methods but based on comparison with

(better than, equal to, or worse than) a standard.

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Graphic RatingScale withProvision forComments

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Example of a Mixed-Standard Scale

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Forced-Choice Method Requires the rater to choose from statements

designed to distinguish between successful andunsuccessful performance.

1. ______ a) Works hard _____ b) Works quickly

2. ______ a) Shows initiative _____ b) Is responsive to customers

3. ______ a) Produces poor quality _____ b) Lacks good work habits

Essay Method Requires the rater to compose a statement

describing employee behavior.

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BehavioralMethods

Critical Incident

Behavioral Checklist

Behaviorally AnchoredRating Scale (BARS)

Behavior ObservationScale (BOS)

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Critical Incident Method Critical incident

An unusual event that denotes superior or inferioremployee performance in some part of the job

The manager keeps a log or diary for each employeethroughout the appraisal period and notes specificcritical incidents related to how well they perform.

Behavioral Checklist Method The rater checks statements on a list that the rater

believes are characteristic of the employeesperformance or behavior.

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Consists of a series of vertical scales, one for eachdimension of job performance; typically developedby a committee that includes both subordinates andmanagers.

Originally conceived by Smith & Kendall (1963) aregraphic-performance rating scales with specificbehavioral descriptions defining points against each

scale (i.e. Behavioral anchors), which represents adimension, factor or work function consideredimportant for performance

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BARS Example

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A performance appraisal that measures thefrequency of observed behavior (critical incidents).

Preferred over BARS for maintaining objectivity,distinguishing good performers from poor

performers, providing feedback, and identifyingtraining needs.

Developed by Latham & Wexley (1977) aresummated scales based on statements about

desirable & undesirable work behavior.

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BOS Example

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Productivity Measures Appraisals based on quantitative measures (e.g.,

sales volume) that directly link what employeesaccomplish to results beneficial to the organization.

Criterion contamination

Focus on short-term results

Management by Objectives (MBO)

A philosophy of management that ratesperformance on the basis of employee achievementof goals set by mutual agreement of employee andmanager.

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Tool Advantages Disadvantages

Graphic rating

scale

Simple to use; provides a

quantitative rating for each

employee.

Standards may be unclear; halo

effect, central tendency, leniency,

bias can also be problems.

BARS Provides behavioral anchors.

BARS is very accurate.

Difficult to develop.

Alternation ranking Simple to use (but not as simple as

graphic rating scales). Avoids central

tendency and other problems of

rating scales.

Can cause disagreements among

employees and may be unfair if all

employees are, in fact, excellent.

Forced distribution

method

End up with a predetermined number

or % of people in each group.

Employees appraisal results depend

on your choice of cutoff points.

Critical incident

method

Helps specify what is right and

wrong about the employeesperformance; forces supervisor to

evaluate subordinates on an ongoing

basis.

Difficult to rate or rank employees

relative to one another.

MBO Tied to jointly agreed-upon

performance objectives.

Time-consuming.

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Summary of Various Appraisal Methods

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RatingError

What does it mean?Contrast Effect The tendency of the rater to evaluate people in comparison with other

individuals rather than against the standards for the job

FirstImpressionError

The tendency of a manager to make an initial positive or negativejudgment of an employee and allow that first impression to color or distortlater information

Halo or HornEffect

Inappropriate generalizations from one aspect of an individualsperformance to all areas of that persons performance.

Similar-to- meEffect

The tendency of individuals to rate people who resemble themselves morehighly than they rate others.

CentralTendency

The inclination to rate people in the middle of the scale even when theirperformance clearly warrants a substantially higher or lower ratings

Negative &Positive Skew

The opposite of central tendency: the rating of all individuals as higher orlower than their performance actually warrants.

Attribution Bias The tendency to attribute performance failings to factors under the controlof the individual & performance successes to external causes

Recency Effect The tendency to minor events that have happened recently to have moreinfluence on the rating than major events months ago

Stereotyping The tendency to generalize across groups and ignore individualdifferences. 10/23/2013 23


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360 degree feedbck is also known as amultisource assessment

Ward (1997) defined 360 degree feedback asthe systematic collection and feedback ofperformance data on individul or groupderived from a number of stakeholders

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Developmental purpose

For appraisal

For pay

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Define objectives

Define recipients

Decide on who will give the feedback

Decide how feedback will be given

Decide on areas of work and behavior on which feedback will

be given Decide on the method of collecting the data

Decide on data analysis and presentation

Decide how the data will be used

Plan the initial implementation program

Analyze the outcome of the pilot scheme

Plan and implement full program

Monitor and evaluate

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Fit

Design

Skill

Communication Administration

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Broader perspective

Individuals know their strengths & weakneses

More reliable feedback is provided

New insights get highlighted

Critical performance & competency requirementsare clarified

People given more rounded view of theirperformance

Key development areas are identified

Managers are more aware on how they impact

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People may not give frank or honest feedback

People put under stress in receiving or givingfeedback

Lack of action following feedback Over-reliance on technology

Too much bureaucracy

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When there is active support of top management

When there is commitment

Real determination by all to use feedback data

Questionnaire items fit or reflect typical and significant

aspects of behaviour Items relate to actual events

Comprehensive & well delivered communication,followed by training

No one is threatened by the process Questionnaire easy to complete

Bureaucracy is minimized

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The problem is that not everything thatcounts can be counted, and not everythingthat can be counted counts

The origin of the Balance Scorecard can betraced back to 1990, when the research armof KPMG sponsored a study on measuringperformance in organizations.

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Is a strategic approach and a performancemanagement system that enables theorganization to translate its vision andstrategy into implementation.

It is a conceptual framework for translatingorganizations vision into a set ofperformance indicators distributed amongfour perspectives

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Financial: measures reflecting financialperformance, for example number of debtors,cash flow, or ROI

Customer Perspective: captures the ability of theorganization to provide quality goods andservices, effective delivery and overall customersatisfaction for both internal & external

customers. For example, time to process a phonecall, results of customer survey, number ofcomplaints or competitive rankings.

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Business Process Perspective: provides dataregarding the internal business results againstmeasures that lead to financial success andsatisfied customers.

To meet organizational objectives and customerexpectations, organizations must identify the keybusiness processes at which they must excel.

For example, the time spent in prospecting newcustomers, number of units that required reworkor process cost.

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Learning & Growth Perspective: captures theability of employees, information systems andorganizational alignment to manage business

and adapt to change.

In order to meet changing requirements andcustomer expectations, employees are beingasked to take on dramatically newresponsibilities that may require skills,capabilities, technologies, and organizationaldesigns that were not available before.

It measures the organizations learning curve, forexample, number of employee suggestions ortotal hours spent on staff training.

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Clarify and update strategy Communicate strategy throughout the

company

Align unit and individual goals with strategy

Link strategic objectives to long term targetsand annual budgets

Identify and align strategic initiatives

Conduct periodic performance reviews tolearn about and improve strategy

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Translation of strategy into measurableparameters

Communication of strategy to allstakeholders

Alignment of individual goals withorganizations strategic objectives.

Feedback of implementation results to

strategic planning process Preparing the organization for a change

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Lack of well defined strategy Using only lagging measures

Use of generic metrics

Failure at all levels

Failure to follow through completion

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Informal reviews are the process by whichperformance is managed throughout the year.

Performance is reviewed as it occurs by theindividual as well as the manager, comparing

what has happened and what should havehappened.

Formal reviews are meetings in whichperformance is analyzed more systematically.

They include and overview and analysis ofperformance since the last review, comparingresults with agreed expectations and plans

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Have clear aims and measurable success criteria Be designed and implemented with appropriate employee

involvement Have its effective use core to all managers performance

goals Allow employees a clear line of sight between

performance goals and those of the organization Focus on clarity and performance improvement Be closely allied to clear and adequately resourced training

and development infrastructure Make crystal clear the purpose of any direct link to reward

and build in proper equity and transparency standards Be regularly and openly reviewed against its success

criteria

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Why have them at all? Objectives of reviewing performance What are the organizational issues? On whom should performance review focus? On what should they focus? What criteria should be used to review process?

What impact does management style make on performancereviews?

What skills are required to conduct reviews and how can they bedeveloped?

How can both negative and positive elements be handled? To what extent is past performance a guide to future potential?

When should reviews take place? What are the main problems in conducting reviews and how can

they be overcome? How can their effectiveness be evaluated?

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1. How to people attend to, encode and recall behavior?2. How do they translate the behavior they recall into

ratings of someones performance?3. Why do supervisors and employees complain so much

about performance appraisals?4. Why do people say that appraisals are unfair or political?5. Is it possible to design a performance appraisal process

that actually motivates (rather than demotivates)employees to behave in ways that benefit theorganization?

6. How can appraisals work in team-based or quality-oriented work cultures?

7. How should appraisals be connected to training andcompensation decisions?

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1. Appraisals and feedback should focus onperformance (not merely traits).

2. Performance dimensions and standardsshould be specific and communicate to

employees what is expected of them.3. Where feasible, assessments of performance

should be combined with customer data.4. Contextual performance should be explicitly

assessed.5. An organization-specific competency model

needs to be developed.

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Balance scorecard Strategic scorecardFocus on balanced perspectiveof performance

Delivering results that make asubstantial difference toperformance

Focus on medium and longer

term performance

Focus on must-win battles

Set performance objectives onoperational objectives

Getting synergies and cross-organizational efficiencies

Focus on the metrics that haveto be achieved

Getting breakthroughinnovations

InterdependenciesDifferent for every organization

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The Fortune study outlines Performance &Talent management as one of thedifferentiating themes between the mostadmired organizations and the rest.

Successful performance management meansinvesting heavily in developing people for thelong term and focusing equally on the

success requirements of specific roles, notjust considering the development needs ofthe individuals within them.

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Strategy clarification and implementation Holding people accountable

Achieving congruence between desired andactual working culture

Developing and managing talent

Balancing measurement and developmentwith a rounded set of measures, rather than

purely financial performance Integrating strategy, performance and

compensation

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There is a continuing change and flux withinorganizations in terms of performancemanagement practice.

Organizations are working extremely hard tomake a link between organizational strategy andindividual accountabilities.

There is an increasing trend towardsmeasurement as well as measuring orhardening the intangibles (e.g. competencies)

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Organizations are striving where possible tostandardize their approaches across differentcountries or business units.

Real efforts are being made to hold people

accountable and address poor performance.

Linked to attempts to deal with poorperformance, energy is being invested in revisedratings, improved, more flexible approaches to

forced distribution of ratings and differentiallyrewarding employees based on theircontribution.

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Findings from the FORTUNE magazineResearch 2004 confirms that the mostadmired companies are already balancing thedifferent elements of performance

management by measuring more thantraditional hard measures and bymaintaining a link to talent managementprocesses in such a way as to make

development strongly aligned toorganizational imperatives.

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performance n compensation