Thomas G. CummingsChristopher G. Worley

Chapter Seventeen :Performance Management

Organization Development and Change

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Learning Objectivesfor 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

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A Performance Management ModelW

ork p

lace

Te c

hno l

ogy

Business Strategy

Employee Involvem

ent

GoalSetting

RewardSystems

PerformanceAppraisal

Individualand Group

Performance

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Characteristics of Effective Goals

Goals are ChallengingChallenging but realisticGoals are set participatively

Goals are ClearGoals are specific and operationally definedResources for goal achievement are negotiated

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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.

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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

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Performance Appraisal Elements

Elements Traditional High Involvement

Purpose Organizational, legal Fragmented

Developmental Integrative

Appraiser Supervisor or manager Appraisee, co-

workers, and others

Role of Appraisee

Passive recipient Active participant

Measurement

Subjective Concerned with validity

Objective and subjective

Timing Period, fixed,

administratively driven Dynamic, timely,

employee- or work-driven

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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

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Characteristics of Effective Appraisal Systems

Timely Accurate

Accepted by the users Understood

Focused on critical control points Economically feasible

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Reward System Design FeaturesDesign Feature Definition

Person/Job Based vs.Performance Based

The extent to which rewards are based on the person, the job or the outcomes of the work

Market Position(External Equity)

The relationship between what an organization pays and 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

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Characteristics of Effective Reward Systems

Availability Timeliness

Performance Contingency Durability

Equity Visibility

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TYPES OF REWARDS

PaySkill-based pay plansPerformance-based pay systems link pay to

performanceGain sharing involves paying bonuses based on

improvements in the operating results Promotions Benefits

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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 4wide Cost effectiveness 2 1 2 4

Salary-Based Pay for Performance Ratings

Ties p

ay to

perf

orm

ance

Neg

ativ

esid

e ef

fect

sE

ncou

rage

coop

erat

ion

Em

ploy

eeA

ccep

tanc

e

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Em

ploy

eeA

ccep

tanc

e

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 4wide Cost effectiveness 3 1 3 4

Profit 2 1 3 3

Ties p

ay to

perf

orm

ance

Neg

ativ

esid

e ef

fect

sE

ncou

rage

coop

erat

ion

Stock/Bonus Pay for Performance Ratings

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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?

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