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.