HRMG Chapter 10

Learning Outcomes
1. Explain strategic value and importance of performance management
2. Discuss 5 steps in performance management process
3. Define contextual and task based performance and how they differ
4. Describe 5 performance appraisal methods and the pros and cons of each
5. Discuss major problems inhibiting effective performance appraisals
6. Discuss 360 degree appraisal from multiple sources
7. Describe 3 types of appraisal interviews
8. Discuss the future of performance management

Strategic Importance of Performance Management

 Banana banana banana banana banana banana banana
 Performance Management
o The process encompassing all activities related to improving employee performance, productivity, and
effectiveness
o Examples
 Goal setting, pay for performance, training and development, career management, and
discipline

Performance Management Process

Step 1: Defining Performance Expectations
 Task Performance: direct contribution to job-related processes
 Contextual Performance: indirect contribution to the organization’s social responsibility values
 Legal Considerations: correlate performance expectations to job activities
Step 2: Providing Ongoing Coaching and Feedback
 Important to have open two-way communication
 Employee responsible for monitoring own performance and asking for help
 Manager responsible for communicating changing strategies and objectives if applicable
Step 3: Conduct Performance Appraisal and Evaluation Discussion
1. Graphic rating scale
o List of traits and description of employee’s performance for each
2. Alternation ranking
3. Paired comparison
o For each trait, list all possible pairs of employees
o For each pair, indicate higher ranked employee with a (+) sign
o Rank employees by trait based on number of (+) scores
4. Forced distribution
o Predetermined percentages of ratees are placed in various performance categories
o Example
 15% high performers; 20% high-average performers; 30% average performers; 20% low-average
performers; 15% low performers
5. Critical incident
o Keep record of uncommonly good or bad examples of an employees work-related behaviour
o Review the list with the employee at predetermined times
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6. Narrative forms
o Free form report of performance; performance improvement plan
7. Behaviourally Anchored Rating Scales (BARS)
o Aims to combine benefits of narratives, critical incidents, and quantified ratings by anchoring a
quantified scale with specific narrative examples of good and poor performance
o Advantages
 More accurate
 Clear standards
 Good feedback
 Consistent
o Disadvantages
 Time consuming
8. Management by objectives (MBO)
a) Set organization’s goals
b) Set department’s goals
c) Discuss departmental goals
d) Define expected results (individual goals)
e) Performance reviews: measure results
f) Provide feedback
 Use of Technology in Performance Appraisals
o Enables managers to automate record-keeping and report-writing
o Provides overall performance management process
o Provides employees with clear development path
o Advanced reporting capabilities
o Electronic performance monitoring (EPM)
o Validity and reliability
 Rating Scale Problems
o Unclear performance standards
o Halo effect
o Central tendency
o Leniency or strictness
o Appraisal bias
o Recency effect
o Similar to me bias
 Who should do the appraising??
o Supervisors
o Self
o Peers
o Committees
o Subordinates
o 360 Degree Appraisal involves all of the above
 Have performance criteria developed by people familiar with the job
 Be clear about who will have access to reports
 Provide training for all participants
 Ensure confidentiality
 Evaluate 360-degree system for fine-tuning

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  Formal Appraisal Discussions
o Supervisor and employee
 Review appraisal and plan to remedy deficiencies and reinforce strengths
o Types of interviews
 Satisfactory – promotable: development plans
 Satisfactory – not promotable: maintain performance
 Unsatisfactory – correctable: action plan to correct performance
 How to conduct the interview
1. Be direct and specific: Use objective work data
2. Do not get personal: compare against standard
3. Encourage the person to talk: use open ended questions and listen
4. Develop an action plan: agree on future steps
 How to Handle Criticism and Defensive Employees
1. Recognize that defensive behaviour is normal
2. Never attack a person’s defenses
3. Postpone action
4. Recognize human limitations
 Ensuring Discussion Leads to Improved Performance
1. Notify unacceptable performance, explain minimum expectations
2. Ensure that expectations are reasonable
3. Explain the role of warnings in the process of establishing a just cause
4. Take prompt corrective measures
5. Avoid sending mixed messages
6. Provide a reasonable amount of time for improvement
7. Provide support to facilitate improvement

Step 4: Determine Performance Rewards / Consequences

 Provide performance awards: merit pay, extra pay
 Important aspects used to determine the appropriate reward / consequence
o Achievement of goals
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 o How the employee meets the defined standards

Step 5: Career Development Discussion

 Manager and employee discuss opportunities for development
 Based on current job requirements or future development
 Business needs must be balanced with the employee’s preferences

Legal and Ethical Issues in Performance Management

 Determine required characteristics through job analysis
 Use characteristics in rating system
 Ensure ratees and raters know performance standards
 Use clearly defined dimensions of performance
 Avoid Abstract trait names
 Use subjective ratings as only one component
 Train supervisors
 Allow rater regular contact with ratee
 Common law banana
 Civil law banana
 Have more than one rater
 Use formal appeal mechanism
 Document evaluations and reasons for termination
 Provide corrective guidance to lower performers

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 Chapter 11: Total Employment Rewards
Strategic Importance of Total Employment Rewards
 Employee Compensation includes all forms of pay going to employees and arising from their employment
 Two Main Concepts
1. Direct financial payments
2. Indirect financial payments
 The compensation plan should advance the firm’s strategic aims

Aligning Total Rewards With Strategy

 Aligned Reward Strategy
o Creating a compensation package that produces the employee behaviours the firm needs to achieve its
competitive strategy
 Wages, incentives, benefits that produce behaviours
 Five Components of Total Rewards
o Compensation
o Benefits
o Work-life programs
o Performance and recognition
 Impact of Rewards
o Attract, retain, motivate, engage employees
o Engagement: positive emotional connection to the employer and a clear understanding of the strategic
significance of the job

Basic Considerations in Determining Pay Rates

 Legal considerations in compensation
o Employment / Labour Standards Act
o Pay Equity Act
o Human Rights Act
o Canada / Quebec Pension Plan
o Other legislation
 Union Influences
 Compensation Policies
 Equity and its impact on pay rates

Establishing Pay Rates

1. Stage 1: Job Evaluation
2. Stage 2: Conduct wage / salary survey
3. Stage 3: Combine job evaluation and salary survey to determine pay

Stage 1 Establishing Pay Rates: Preparation for Job Evaluation

 A systematic comparison to determine relative worth of jobs within a firm
 Benchmark job
o Critical to operations or commonly found in other organizations
 Compensable factors
o Fundamental, compensable element of a job
 Classification / Grading Method
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 o Categorizes jobs into groups
o Grade / Group description: outlines level of compensable factors required by each job
 Ranking
o Rank jobs from lowest value to highest
 Factor Comparison
o Rank jobs based on compensable factors
 Point Method
o Identify compensable factors
o Determine the degree to which each factor is present in each job
1. Identify and define your compensable factors (what you’re going to pay for)
2. Determine Factor weights and degrees
3. Assign points for each degree of each sub-factor / Define the degree levels and associated points
4. Document the points manual & evaluate all the jobs

Stage 2 Establishing Pay Rates: Conduct a Wage / Salary Survey

 Aimed at determining prevailing wage rates
o Determine rates for benchmark jobs
o Determine market rates for jobs
o Collect data on benefits, recognition programs, etc.
 Avoid upward bias
 Informal surveys good for easily recognized jobs
 Formal surveys are most comprehensive

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Stage 3 Establishing Pay Rates: Combine Job Evaluation and Salary Survey Information

 Broadbanding
o Reducing the number of salary grades and ranges into just a few wide levels or bands, each of which
then contains a relatively wide range of jobs and salary levels
 Advantage
o Greater flexibility in employee compensation

 Pay For Knowledge

o Competency-based pay (managers, professionals)
o Skill-based pay (manufacturing employees)
o Pay-for-knowledge program should include
 Competencies and skills directly important to job performance
 New competencies that replace competencies that are no longer important
 On the job training, not in the classroom
 Pay for Executive, Managerial, and Professional Jobs
o Developing these compensation plans are similar in many regards to other employees
o Goal is to attract and retain good employees
o Almost always paid based on their performance and basis of static job demands, like working conditions
 Compensation for Executives and Managers
1. Salary
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 2. Benefits
3. Short-term incentives
4. Long-term incentives
5. Perquisites (AKA “perks”)
 Compensating Professional Employees
 Engineers, scientists, accountants, lawyers, etc.
 Compensable factors not easily measured: creativity, problem solving
 Difficult to measure economic impact to organization
 Market-pricing approach commonly used’

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Chapter 12: Pay-for-Performance and Financial Incentives
Money and Motivation
 Fixed Pay
o Compensation independent of performance level
o Includes base pay, allowances
 Variable Pay
o Any plan that ties pay to productivity or profitability
o May be in addition to base pay
 Types of Incentive Plans
o Operations employees
o Senior managers and executives
o Salespeople
o Other managers and professional employees
o Organization-wide

Expectancy Theory and Victor Vroom

 Motivation = Expectancy x Instrumentality x Valence
o Will my effort lead to performance
o Will performance lead to outcomes
o Do I find outcomes desirable

Incentives for All Employees

 Merit Pay or Merit Raise
o Any salary increase awarded to an employee based on individual performance
o Usually an ongoing increase to base pay
o Link to performance acts as motivator
o Success depends on validity of performance appraisal system
 Employee Share Purchase / Stock Ownership Plan
o A trust holds shares of company stock purchased for or issued to employees
o The trust distributes the stock to employees as prescribed by the plan
 Profit Sharing Plans
o Most or all employees share in the company’s profits
 Gainsharing Plans
o Share the benefit of cost reduction or increased production when there’s no tangible increase in profit.
Increase in efficiency somehow but not necessarily tied to profit.
o Engages employees to achieve productivity objectives and share the gains
o Works in stable organizations with predictable goals and measures of performance

Incentives for Operations Employees

 Piecework Plans
o Piecework is based on production standard
o Oldest and most commonly used plan
o Advantages
 Simple
 Appears equitable
 Directly tied to performance
o Straight Piecework Plan
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 o Guaranteed Piecework Plan
o Differential Piecework Plan
 Team or Group Incentives
o Production standard is set for a specific work group and incentives paid if the group exceeds the
standard
o Implementing Team or Group Incentives
 Set Standards for each member of the group
 Paid based on highest / lowest performer
 Set standards for the group as a whole
 Use a group defined measure of performance

Incentives for Senior Managers and Executives

 Short term incentives - Annual bonus
o Who is eligible?
o Fund size - How much to pay?
o Individual rewards?
 Long Term Incentives – capital accumulation
o Stock options
o Performance share units plan
o Appropriate link to strategy

Incentives for Salespeople

 Salary Plan
o Fixed
 Commission Plan
o Pay in direct proportion to sales generated
 Combination Plan
o Base salary plus commission

Developing effective Incentive Plans

 2 Main Considerations – When and How?
 When to use incentives:
o Performance pay cannot replace good management
o Firms get what they pay for
o “Pay is not a motivator”
o Rewards rupture relationships
o Rewards may undermine responsiveness
 How to implement incentive plans
o Pay for performance
o Link incentives to activities that engage employees
o Link incentives to measurable, valuable competencies
o Match incentives to organizational culture
o Keep group incentives clear and simple
o Overcommunicate
o The greatest incentive is the work itself

Employee Recognition Programs

 Emerging as a critical component of incentive plans
 Traditional recognition has bee long service
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 Movement toward recognition throughout the career

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