PERFORMANCE MANAGEMENT

MODULE 7.
PERFORMANCE
MANAGEMENT,
EMPLOYEE
DEVELOPMENT &
REWARDS SYSTEM
Reference:

Aguinis, Herman (2013). Performance Management, 3e. Pearson

Education, Inc.
Armstrong, M. (2009). Armstrong's Handbook of Performance
Management: An Evidence-Based Guide to Delivering High
Performance (4th ed., pp. 89-94). London: Kogan Page Limited.

Jaika Almira R. Agena

INSTRUCTOR
MODULE CONTENT
This module is intended for the discussion of the
topics of teams, linkage of performance
management to reward and compensation, as
well as rewarding team performance.

LEARNING OBJECTIVES
7-1 Recognize the importance of managing team
performance as well as the implications of teams
in performance management
7-2 Describe the relationship of performance
management to other human resource
management functions such as employee
engagement, talent management, and rewards
system
7-3 Understand the impact of performance
management system in developing and rewarding
employee performance, both individuals and
teams.
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS
DEVELOPING PERFORMANCE MANAGEMENT

It is important to note that as Performance Management is conceptualized, it

should also work in practice. It is necessary to start by understanding the
development framework, the development stages, and the contextual factors
affecting performance management. Following this should be to decide which
approach to development should be used, and preparation and carry out of the
development and implementation programme.

The Development Framework

Figure 7.1 shows the performance
management (PM) development
framework. The essence of
performance management is
provided by the arrangements for
agreeing on performance
requirements or expectations,
preparing performance plans,
managing performance throughout
the year, and analyzing, assessing,
and reviewing performance.

Stages of Development
Figure 7.2 shows the stages of
development leading into
operation and evaluation.
Figure 7.1. Performance Management Development Framework

Contextual Factors
The contextual or environmental factors of culture, management style, work
systems, and structure will strongly influence the content of performance
management procedures, guidelines, and documentation and the all-important
processes that make it work, such as role analysis, goal setting, providing feedback,
analyzing and assessing performance and coaching.

Cultural considerations will affect performance management because it works best

when it fits the existing values of the organization.
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS

Figure 7.2. Development, implementation, operation

and evaluation of performance

It is important to develop PM that focuses not only on the nature of the system
but also on the impact it has on people and vice versa. For example, there can be
different PM when it comes to operations and support functions, for as long as
they conform to the central guidelines or basic principles of PM.
Approach to Development
The approach adopted to developing performance management has to recognize
the reality of these contextual factors and the problems involved in meeting
possibly demanding objectives and overcoming practical and political difficulties
that will get in the way of achieving sustained success.

Here are some practical advice on the do's and dont's of introducing performance
management or making substantial changes to existing ones.

Dos
Get buy-in from senior management from the start.
You can never do enough training / coaching of both staff and line managers.
You can never do too much communication on the new changes.
Engage all managers in why it is important and ensure that they have the
necessary understanding and skills to carry out the process.
Aim to maintain clarity throughout the process and construct transparent
support documentation for the users. Use a group of people to run your ideas
through and give feedback to make sure you are achieving what you set out to
achieve.
Understand clearly why you are doing it and the desired objectives. Engage
others in design of scheme. Communicate purpose etc. clearly. Get line
managers and supervisors on board. Train all. Consider how you will evaluate
success.
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DEVELOPMENT AND REWARDS SYSTEMS
Donts
Don't assume that what seems obvious and logical to you, as an HR manager,
will also seem logical to other managers and staff.
Don't put in a lengthy complicated process - it will become a chore to do
rather that a meaningful exercise.
Don't assume that supervisors have the requisite skills to manage performance
fairly and equitably.
Don't underestimate the amount of work involved.
Don't expect it to work quickly.

Performance management development program

The development of performance management can be carried out in 10 stages.
Figure 7-3 shows these development stages.

Stage 1. Decide on the business case for

introducing performance management. This could
be to develop a high-performance culture in
order to achieve business goals.

Stage 2. Determine objectives for performance

management. It should include objectives such as
improving organizational, team and individual
performance; clarifying expectations on what
individuals and teams have to achieve; or
empowering individuals to manage their own
performance and learning, among many others.

Stage 3. Get the commitment and active

participation of top management and line
managers. Convince the top management that
there is a powerful business case for performance
management, and engage them to be the
champions of performance management. At the
same time, get the engagement of line managers
as they will be your implementors.

Figure 7.3. Development of performance

management
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DEVELOPMENT AND REWARDS SYSTEMS
Stage 4. Draw up guiding principles on how
performance management should work. These
principles should emphasize that performance
management is regarded as a normal and
continuous process of management that is owned
by the managers and staff who are involved. It is a
partnership between the managers and staff who
are equally involved in planning, reviewing
performance, and implementing development plans.

Stage 5. Define the performance management process.

It is necessary to define how role profiles should be
agreed upon and used as the basis for performance
management, how goals should be set, how
performance measures should be agreed upon, and
how performance improvement and personal
development plans should be drawn up.

Stage 6. Pilot test. The procedures set out on paper

or as computerized must be exposed to real-life
conditions so that problems and issues in applying
them can be identified.

Stage 7. Communicate. The communication strategy

should have been a constant preoccupation of the
developers of the scheme.

Stage 8. Plan arrangements for training in

performance management. It is particularly important
that line managers have the skills required.

Stage 9. Implement. The implementation program

should cover communications, training and the
provision of guidance and help.

Stage 10. Evaluate. It is important to carry out a

thorough evaluation of how performance
management works after its first year of operation.
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DEVELOPMENT AND REWARDS SYSTEMS
REWARDS SYSTEMS

In this section, we will discuss the rewards systems and how these are related to
PM.

Traditional and Contingent Pay Plans

A traditional approach in implementing rewards systems is to reward employees for
the positions they fill as indicated by their job descriptions and not necessarily.
Basically, it is the type of position and seniority that are the determinants of salary,
and salary increases, and not performance.

A contingent pay plan, also known as pay for performance, means that individuals are
rewarded based in how well they perform on the job. Increases in pay is based
wholly or partly on how well or how badly employees did on the job. These
increases can be added to employee's base salary, or given as a one-time bonus,
which are called variable pay.

Reasons for Introducing Contingent Pay Plans

The result of a 2003 Fortune 500 companies indicated that performance
management systems are more effective when results are directly tied to the
rewards system. First, high-achieving performers are attracted to organizations that
reward high-level performance, and high-level performers are typically in favor of
CP Plans. This tendency is called the sorting effect, or when top performers are
likely to be attracted and remain within organizations that have implemented CP
Plans.
Second, CP plans can serve as a good tool to
recruit and retain top performers as a reult
of the sorting effect, which in turn can lead
to greater productivity.

Finally, CP plans can project a good

corporate image because the organization
has implemented a system of rewards that is
fair and based on clearly communicated
expectations and standards.
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS
How about organizations that are struggling financially? Can
they still implement CP Plans? Can they afford to give
performance-based rewards to their employees? The answer is
yes to all these questions.

Making sure that top performers are rewarded appropriately

can help keep them motivated and prevent them from leaving
the organization in difficult times. Giving rewards to poor
performers means that these rewards are taken away from
high-level performers.

CP plans enhance employee motivation to accomplish goals

that match organizational needs. They have the potential to
help people change behavior and improve performance.

We have previously discussed that an employee's performance is determined by the

joint effects of declarative knowledge, procedural knowledge, and motivation. CP
Plans address the motivational component. Employees are likely to choose to expend
effort, choose to expend high level of effort, and choose to persist in this high level
of expenditure of effort in the presence of financial incentives.

CP Plans can help improve the motivation of

employees when each of the following
conditions is present:
1. Expectancy. Employees can see clearly the
link between their efforts and the resulting
performance.
2. Instrumentality. Employees can see clearly
the link between their performance level and
the rewards received.
3. Valence. Employees value the rewards
available.

Motivation = Expectancy x Instrumentality x Valence

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DEVELOPMENT AND REWARDS SYSTEMS
If the expectancy, instrumentality, or valence conditions are not met, the CP
plan is not likely to improve performance.

CP plans are generally not the Holy Grail of employee performance. Again, the pay
can affect only the motivation aspect of performance, and not the other two. Pay
may not solve the problem of poor performance if it is either declarative or
procedural knowledge that the employee lacks. Pay is not necessarily the perfect
solution and giving people more money will not automatically solve performance
problems.

Possible problems associated with contingent pay plans

Here are the possible reasons why CP Plans may not succeed.
Poor performance management system is in place. Rewarding behaviors and
results that are not job related is likely to cause good performers to leave the
organization.
There is the folly of rewarding A while hoping for B. Employees are likely to
engage in these often counterproductive behaviors when this behavior is
what will earn them the desired rewards.
Rewards are not considered significant. The message being sent to the
employees is that performance is not something worth being rewarded. For
rewards to be meaningful, they need to be significant in the eyes of the
employees.
Managers are not accountable. When managers are not accountable, they are
likely to inflate ratings so that employees receive what their manager thinks
are appropriate rewards. And vice versa.
There exists extrinsic motivation at the expense of intrinsic motivation. Sole
emphasis on rewards can lead to ignoring the fact that employee motivation
can be achieved not only by providing rewards but also by creating a more
challenging, more interesting work environment in which employees have
control over what they do and how they do it.
Rewards for executives are disproportionately large compared to rewards for
everyone else. A large difference, particularly when the performance of the
organization is not stellar, can lead to serious morale problems.
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS
Selecting a contingent pay plan
In choosing a contingent pay plan, one that should be considered is organizational
culture. Consider the types of systems that can be implemented in cultures that
we can label traditional or involvement cultures.

Traditional cultures are characterized by top-down decision-making, vertical

communications, and clearly defined jobs. CP plans that would best work here are
those that reward specific and observable measures of performance, where that
performance is clearly defined and linked directly to pay:
1. Piece rate
2. Sales commissions
3. Group incentives

Involvement cultures are characterized by shared decision making, lateral

communications, and loosely defined roles.
1. Profit-sharing
2. Skill-based pay

In addition to organization's culture, another thing that should be considered in

the strategic direction. Table 7.1 shows some strategic objectives and their
recommended CP Plan.
Table 7.1 CP Plans recommended for various strategic objectives

Strategic Business Objective CP Plan

Employee Development Skill-based pay

Compentency-based pay
Customer service Gain sharing
Piece rate
Productivity: Individual Sales commission
Gain sharing
Productivity: Group Group incentives
Team sales commissions
Teamwork Gain sharing
Competency-based pay
Executive pay
Overall profit Profit or stock sharing
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS
Putting pay in context
Pay is an important motivator because it supplies the basic need of people,
however, people seek more when they go to work. Pay is important, but people go
to work for other reasons as well. Therefore, managers must realize that pay is
just one element in a set of management practices that can either improve of
reduce employee commitment and satisfaction, teamwork and performance.

When we think of rewards, as HR people, we should think that rewards are more
than just pay. When an employee is given a reward, we expect to increase the
chances that specific results or behaviors will be repeated.

Praise and recognition for a job well-done, without a monetary value attached,
can be a powerful reward if they enhance the chances of specific results and
behaviors will be repeated. These should not be considered as rewards, therefore,
if they do not motivate employees to perform well in the future.

Here are some suggestions on how HR can make rewards work:

1. Define and measure performance first, then allocate rewards
2. Use only rewards that are available
3. Make sure that all employees are eligible
4. Make rewards visible
5. Make rewards contingent
6. Make rewards timely
7. Make rewards reversible
8. Use nonfinancial rewards

Take note that if an organization is trying to

solve performance problems by focusing on
money only, one result is expected for sure:

The organization will spend a

lot of money.
PERFORMANCE MANAGEMENT, EMPLOYEE
DEVELOPMENT AND REWARDS SYSTEMS
TEAM PERFORMANCE
Designing a performance management system that includes team performance is
not difficult if we follow the following 6 basic principles:
1. Make sure your team is really a team
2. Make the investment to measure
3. Define measurement goals clearly
4. Use multi-method approach to measurement
5. Focus on process as well as outcomes
6. Measure long-term changes

Figure 7.4. The Performance Management Process

You may recall from our previous lessons the performance management process
(shown in Figure 7.4). As we discuss Teams, let's put it in the context of this
process.

Prerequisites
First, there is a need to have a grood knowledge of the organization's mission.
Second, there needs to have good knowledge of the job in question. Similarly, if
we have a good information of what a team is supposed to do, and how, then it is
easier to establish criteria for team success. In addition, identify KSAs that will
allow individuals to make positive contribution to the team.

Performance Planning
This includes the consideration of results and behavior. It also involved the
creation of a development plan. Each of these issues needs to be considered at
the team level: results expected of the team, behaviors expected of team
members, and developmental objectives to be achieved by the team and its
members.

Performance Execution
Autonomous teams are solely responsible for the performance execution, however,
when a team has a supervisor, then both the team and the supervisor share
responsibilities for performance execution. Peer reviewing as a team before
meeting the supervisor is suggested.
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DEVELOPMENT AND REWARDS SYSTEMS
Performance Assessment
Each team member must evaluate one another's performance as well as the
performance of the overall team. Peer evaluations are a key component of the
assessment stage because they lead to higher levels of workload sharing,
cooperation, and performance. The involvement of each team member in the
evaluation process increases the member's ownership and commitment to the
system.
These things need to be addressed:
a. individual or task performance
b. the individual performance or contextual performance
c. team performance as a whole (which can be measured by effectiveness,
efficiency, learning and growth, and team member satisfaction)

Performance Review
In this component, the team members will meet with the supervisor or manager to
discuss how they have been working. At least two meetings are needed:
First, the supervisor meets with all the team members of the team together.
Second, the supervisor meets each team member individually.

Performance Renewal and Recontracting

This is identical to the performance planning stage, but it uses information
gathered during the review period.

Overall, including team performance as a part of the performance management

system includes some basic components as when a system included individual
performance only. Except that in addition to the individual performance, the
system includes individual performance as it affects the functioning of the team
as well as the performance of the team as a whole.

REWARDING TEAM PERFORMANCE

Teams are a pervasive fact of organizational life. Because of this, organizations
that implement performance management systems that include team performance
must redesign their rewards system to reward team performance.
Organizations can reward team performance in ways similar to those in which they
reward individual performance.
Team-based rewards are effective if they are implemented following the same
principles used for individual rewards.
Finally, an organization can have a variable pay system in which an individual is
eligible for a bonus if his or her team achieves specific results. This reward would
be eligible in addition to any performance-based rewards allocated according to
individual performance.
END OF MODULE TEST
Answer the following questions and discuss them amongst your team:
1. What are the differences in traditional and contingent pay plans?
2. Why are contingent pay plans being used in recent years?
3. What are the pros and cons of including teams in an organization's rewards
systems?
4. Why is it necessary to reward team performance?