remuneration management system in public sector
DESCRIPTION
Improvement of public sector efficiency is one of the key challenges in modern economy. This presentation provide tool for integration of remuneration (compensation) system with management of people's performance, based on competences.TRANSCRIPT
Belgrade, April 2014
Methodology and implementation
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 2
Structure of presentation
Section I:
Introduction to RMS
Section II:
Analysis of remuneration structure
Section III:
Proposed principles for RMS in public sector
1. Introduction to RMS
2. Regulatory framework for RMS
1. Structure of money remunerations
2. Structuring basic salaries
3. Structuring allowances
4. Structuring other personal expenses
5. Structuring taxes and contributions
6. Structuring bonuses
1. Essentials of RMS development
2. Managing basic salaries
3. Managing bonuses
Belgrade, April 2014
Section I
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 4
Overview of RMS
Section I / part 1 – Introduction to RSM
RMS is a complex system that affect both
financial performance and quality of
human resource management
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 5
Short introduction to RMS
» What is Remuneration Management System (RMS)
› System of managing amount and structure of all money remunerations (global sense)
› System of managing amount and structure of money remuneration for employees, i.e. salary mass (specific sense)
» Basicly, RMS is methodologicaly approach made to resolve 2 critical business goals:
› To improve satisfaction of employees
› To improve efficiency of organization
» What are the benefits:
› Better motivation of employees
› Better HR management (incl. career management)
› Improved cost efficiency
Section I / part 1 – Introduction to RSM
If implemented well, organization can benefit from
RMS
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 6
Regulatory framework for RMS
Section I / part 2 – Regulatory framework
RMS is regulated system…
Constitution and laws
GENERAL
� Constitution of the Republic of Serbia
� Labor Law
� Law on Pension and Disability Insurance
� Law on Tax Contributions for Pension and Disability Insurance for Particular Categories of Insurant
� Employment and Unemployment Insurance Law
STATE INSTITUTIONS
� Law on Salaries in Government Agencies and Public Services
OTHER LAWS
Decrees Collective Agreements
Other
� Various decrees made by Serbian Government
� General Collective Agreement
� Specific Collective Agreement
� Individual Collective Agreement
� Employment contracts
� Managerial employment contracts
� Rules on HR management
� Other specific legislative
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 7
Framework for defining RMS
Section I / part 2 – Regulatory framework
… with significant space for adoption and
flexibility Precisely defined
Only limits defined
Not strictly defined
� Structure of money compensation (remuneration)
� Payroll deadlines
� Rates and basis for taxes and contributions
� Obligations for insurance and other allowances
� Limits for various allowances – within Labor Law
� Limits for other personal expenses – within Labor Law
� Limits for bonuses – within Collective Agreements
� Calculation of basic salaries (incl. structure of coefficients)
� Bonus schemes and evaluation principles
� Management of variable part of salaries
Belgrade, April 2014
Section II
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 9
Structure of money remunerations -basics
» Money remuneration packages consists of 5 elements: basic salary, allowances, other personal expenses, taxes and contributions, and bonuses
» There are 3 types of structuring:
Section II / part 1 – Structure of remuneration packages
Money remuneration
packages can be structured in 3
ways
Basic salary
Allowances
Other personal expenses
Taxes and contributions
Bonuses
Basic salary
Allowances
Other personal expenses
Taxes and contributions
Bonuses
Basic salary
Allowances
Other personal expenses
Taxes and contributions
Bonuses
Net / gross Fixed / variable Direct / indirect
Net
Oth
er
Variable
Indirect
Direct
Fix
ed
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 10
Structuring basic salaries
» Basic salaries are the main part of total remuneration package for employees. Consequently, structuring of basic salaries must rely on RSM principles
» There are 2 models for structuring of basic salaries:
› “Fixed” basic salaries, determined by system of coefficients
› “Negotiable” basic salaries, determines by negotiations
» In both cases, basis salary is calculated as a product of: a) number of coefficients, and b) value of one coefficient
› In “fixed” model, it is calculated directly
› In “negotiable” model, it is calculated indirectly, through flexible calculation of number of coefficients
» At the moment, government bodies use “fixed” model of structuring of basic salaries
Section II / part 2 – Structuring basic salaries
Basic salaries can be based on
coefficients (fixed model)
and discretion of employer
(negotiable model)
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 11
Structuring basic salaries – illustration
» Determined by: a) system of coefficients (payment groups), and b) negotiation results
» In ALIMS there are 16 payment groups at the moment, with no payment sub-groups
» In “negotiation” model basic salary and value of one coefficient are known…
» … so, we are calculating number of coefficients indirectly (basic salary / value of coefficient)
» Determined by: a) management attitudes, and b) collective negotiations
» Basically, it is used for indexation of the real salaries and annual salary increase for all employees
Section II / part 2 – Structuring basic salaries
Coefficients and its values are two building
blocks of basic salaries
Basic salaryNumber of coefficients
Value of one coefficient= x
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 12
Structuring allowances
» Allowances refers to different types of bounties related to gained right from the employment as well as to other indemnifications related to wages
» Basically, management of allowances is limited because of 2 main reasons:
› For the most parts of allowances limits are strictly defined by law
› Level and structure of all allowances is regulated by setting up the wage system in organization. It can not be changed in short term.
» All allowances are comprised of 2 parts:
› Salary increments
› Salary indemnifications (basic and other indemnifications)
» For tax purposes, all allowances are “equalized with salaries”, which means that they have same tax treatment as salaries
Section II / part 3 – Structuring allowances
Allowances are strictly defined by law, so it can not be managed
directly
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 13
Structuring allowances – illustration
Section II / part 3 – Structuring allowances
There are 2 types of
allowances –salary
increments & salary
indemnifications
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 14
Structuring other personal expenses
» Other personal expenses refers to money paid to employees related to various indemnifications and aid by employer
» Other personal expenses are not linked with salaries and employers are not obliged to pay these amount to employees
» Even employer is free to calculate these expenses, management of other personal expenses is limited mainly due to limits defined by usual (standard) business practice
» All other personal expenses are comprised of 2 parts:
› Cost reimbursements
› Other receipts
» Oppositely to allowances, other personal expenses are not included in employment tax basis (“tax free” expenses)
Section II / part 4 – Structuring other personal expenses
Other expenses depend on
employer’s will and are „tax
free“
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 15
Structuring other personal expenses –illustration
Section II / part 4 – Structuring other personal expenses
There are 2 types of other
personal expenses – cost reimbursements
and other receips
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 16
Structuring taxes & contributions
Section II / part 5 – Structuring taxes and contributions
Taxes & contributions
are distributed between
employer and employee
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 17
Structuring bonuses
» Bonuses represents part of the money remuneration directly related to quality of work and motivation of employees, as well as teams that employees are involved in
» As such, managing bonuses is one of the most reliable instrument for stimulations (motivation) of employees…
» … and key precondition for successful motivation and effective evaluation
» Following key issues should be considered, in order to enforce efficient bonus policy:
› Which basis shall we use?
› In which time intervals shall we evaluate and reward employees?
› Which bonus spread shall we use?
› Should we use negative stimulations?
Section II / part 6 – Structuring bonuses
Bonus management is a most reliable instrument for motivation of
employees and their evaluation
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 18
Structuring bonuses - illustration
Section II / part 6 – Structuring bonuses
There are 2 questions:: (1)
how to determine basis and (2) how to determine % of
stimulation
» Determined by existing wage system defined within Specific Collective Agreement from 2005
» Key dilemmas:
› What to use as a basis (basic, net or gross salary)?
› Which amount to use (single month, yearly average, etc.)?
» Determined by actual Specific Collective Agreement from 2005
» According to this:
› Basic salary is used as a basis
› Amount (monthly or average) is not precisely defined
› Limits can be +-20% or more
Bonuses and stimulations
Basis %
of stimulation = x
Belgrade, April 2014
Section III
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 20
Basic requirements & criteria for RMS development
» Basic requirements for RMS development:
› Justness, in order to establish socially responsible management system
› Transparent & clear, in order to be accessible and controlled by employees
› Well structured & coherent, in order to be easy understandable
› Flexible, in order to facilitate employee’s and organizational development
› Integrated in management information system (MIS)
» RMS should materialize (basic criteria for RMS development):
› … level of responsibility and relevancy in business process streams (hierarchy)
› … acquired degree of formal and additional education (education)
› … cumulated experience, expertise and know-how (experience)
› … working conditions special working requirements (working environment)
› … contribution to organizational results (results)
› … and other personal contributions and characteristics (other criteria)
» Beside this, RMS should be suitable for remuneration of special structures of employees in public sector (managers, assessors, etc.)
Section III / part 1 – Essentials of RMS development in ALIMS
RMS management is
based on principles
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 21
RSM in practice
Section III / part 1 – Essentials of RMS development in ALIMS
What can be managed?
(1)Basic salaries
(2) Bonuses and incentives
Unmanageable
Unmanageable
Limited possibilities
Not applicable
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 22
Section III / Part 2
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 23
Managing basic salaries – framework
Section III / part 2 – Managing basic salaries
Management of basic salaries is
based on management of
coefficient number
» As an essence of basic salary system, it is made to reflect differences among employee’s status and their performances
» Consequently, it is best instrument for managing basic salaries in short and long term
» Determined by Minimum Basic Salary Agreement
» Consequently, it can not be used as an instrument for managing basic salaries in short term
Basic salaryNumber of coefficients
Value of one coefficient= x
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 24
Models for managing basic salaries
4 models of managing basic
salaries:
(1) Arbirtrary model
(2) 1-line payment system
(3) 2-line payment system
(4) Mixed model
Section III / part 2 – Managing basic salaries
CriteriaArbitrary model
Structured model Mixed model1-line payment
system2-lines payment
system
Flexibility High Low Average High
Justness Questionable Average High High
Transparency & clearness Low Average High High
Structure & coherence Low High High Average
Determination of single salary Negotiable Systematically Systematically Mixed
Criteria for salary classifying Not defined Strictly defined Strictly defined Strictly defined
Integration in MIS Average High High High
Recommended for SME’s Medium and big enterprises and public sector
Notes: green color refers to good practice, red color refers to bad practice
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 25
Mixed model – an introduction
» There are 2 main organizational requirements from the new system:
› Development of the logical system applicable to all employees
› Capability of the system to recruit and keep at job leading managers and experts
» Mixed model represents combination of two systems:
› Core module: 2-lines payment system (payment groups / payment levels)
› Extended module: negotiation system
Mixed model integrates all adventages of other models
Section III / part 2 – Managing basic salaries
Parameter Standardized
systemNegotiation system
Value of coefficient Pre-determined & unified
Number of coefficients Determined Adapted
Salary level Adapted Determined
Recommended for… All other employees Key managers and experts
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 26
Mixed model – an overview (“2-lines mixed payment group system”)
Mixed model allows all types of employees’ development
Section III / part 2 – Managing basic salaries
Vertical development
Horizontal development
Hybrid development
Group I
Group II
Group III
Group IV
Group V
…..
Group “n”
Rate 1 Rate 2 Rate 3 Rate 4 Rate 5 ….. Rate “n”
Primary level of classifying (status oriented)
Secondary level of classifying (personal development oriented)
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 27
2-lines payment system – illustration
Overlapping is a significant
characteristic of 2-lines payment
system
Section III / part 2 – Managing basic salaries
From 3 to 5.25
From 3.8 to 6.65
From 5 to 8.75
From 7 to 12.24
From 10 to 17.49
OVERLAPPING
0,0
4,0
8,0
12,0
16,0
20,0
Group I Group II Group III ..... Group "n"
Num
ber
of co
effic
ients
Level 1 Level 2 Level 3
..... Level "n"
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 28
Primary classification – overview
» Used for:
› Determining employee’s position in the organizational structure (status determining)
› Determining vertical improvement of employees
Two basic criteria for primary classification:
› Hierarchical position
› Relevance in main business process streams
» Indirectly, key parameters for determining primary classification are:
› Education level
› Working experience (cumulated know-how)
› Profile and skills
» Basically, higher level of responsibility (LoR) and job complexity (JC) is directly related to upper payment group
Primary classification = classification into payment groups
Payment group = f (LoR, JC)
Primary classification
refers to definition of
payment groups (reflects vertical
development)
Section III / part 2 – Managing basic salaries
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 29
Primary classification – example
For example, it can be 7
payment groups
Section III / part 2 – Managing basic salaries
Payment group
Name of the group
Examples Coefficient spread
Group I Lower executives Driver, Housekeeper, Courier, Laundry 1.0 – 4.0
Group II Higher executives Technician, Accountant, Help Desk 3.0 – 6.0
Group III Associates HR Expert, System Administrator 5.0 – 7.5
Group IV Lower management Team leaders, Heads of lower units 6.0 – 9.0
Group V Project managers eCTD Project Manager 8.0 – 10.5
Group VI Middle management & leading experts
Heads of upper units, leading assessors 10.5 – 13.0
(+ negotiable salary)
Group VII Top management Director, Executive Directors, advisors 13.0 – 16.0
(+ negotiable salary)
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 30
Secondary classification - overview
» Used to:
› Reflect differences among employees within single payment group
› Reflect horizontal employees development
» Within single payment group, some significant differences among employees can arise, due to:
› Various working experience (years of service – criteria 1) – YoS
› Various levels of qualifications (education level – criteria 2) - EdL
› Various professional improvement (additional education – criteria 3) – AdEd
› Various levels of cumulated know-how (core expertise level – criteria 4) - CEx
› Various personal characteristics (profiles and skills – criteria 5) – P&S
» Personal development is reflected through improvement in each above defined criteria
Secondary classification = classification into payment levels (weighted system)
Payment level = weighted f (YoS, EdL, AdEd, CEx, R&S)
Secondary classification
refers to payment level
(reflects horizontal
development)
Section III / part 2 – Managing basic salaries
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 31
Secondary classification is methodology-
oriented
Section III / part 2 – Managing basic salaries
Secondary classification – example
Criteria Parameter WeightMeasured result
Weighted result
Criteria 1 Working experience Years of service 25% 25 6.25
Criteria 2 Qualification level Educational level 25% 75 18.75
Criteria 3 Professional improvement Additional education 10% 75 7.5
Criteria 4 Cumulated know-how Core expertise level 25% 100 25
Criteria 5 Personal characteristics Skills 10% 100 10
Criteria 6 Personal characteristics Profile 5% 50 2.5
Total 70
Parameter Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8
Weighted results spread 0 – 15 15 – 25 25 – 40 40 – 55 55 – 65 65 – 80 80 – 90 90 – 100
Number of coefficients (payment group IV)
5.5 5.8 6.0 6.2 6.4 6.6 6.8 7.0
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 32
Process of implementation
Implementation in 5 steps
Section III / part 2 – Managing basic salaries
Step 1: defining payment groups
Defining criteria 1st level of classifyingDefining spreads
Step 2: defining payment levels
Defining criteria 2nd level of classifyingDefining spreads
Step 3: defining coefficient value
Step 4: defining negotiable salaries
Step 5: adaptation to all employees
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 33
Section III / Part 3
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 34
Stimulations – an overwiew
» Rewarding is indirect and objective. Rewarding depends on evaluation results (performance evaluation). It means that stracture and amount of bonus depends on: (a) evaluation results and (b) intention of management to motivate employees
» Implementation of bonus system has two goals:
› To reward employees, depending on results
› To motivate employees to improve performances
» Subject of evaluation: personal characteristics of employees, employee’s behaviour, employee’s results etc.
» Types of stimulations
› According to nature
» Ordinary stimulations (short-term bonuses, annual bonus, group stimulations etc)
» Extraordinary stimulations (for significant improvement, special types of rewarding etc)
› Quartal stimulations
› Annual stimulations
› Extraordinary stimulations of managers
› Group stimulations
› Stimulations for significant improvements
› Special stimulations (for top managers, for experts etc)
Section III / part 3 – Managing bonuses
Managing bonuses is one of the critical management
activities
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 35
Rewarding system framework
Section III / part 3 – Managing bonuses
Managing bonuses is a link
between evaluation and improvement of
employees
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 36
Introduction to evaluation
» What is the evaluation:
Evaluation is a process of assessment of employee’s contribution to achieving of organizational goals in defined period of time. Three main parts:
It is assessment process
This process is oriented toward employee’s performances
This process is time determined
» What are the benefits:
› Increase of motivation & employee’s development
› Better planning
› Better communication & convergence of goals
› Efficiency improvement
Section III / part 3 – Managing bonuses
Evaluation is highly
significant and has multiple management
use
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 37
Proposed types of evaluation
Section III / part 3 – Managing bonuses
Evaluation can be classificated
by 4 criteria
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 38
Evaluation process
Section III / part 3 – Managing bonuses
Implementation in 7 steps
Step 1: defining the model of evaluation
Step 2: defining the evaluation parameters
Step 3: selection of evaluators
Step 4: defining timeframe for evaluation
Step 5: defining the evaluation methods
Step 6: realization of evaluation
Step 7: analyzing results
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 39
Step 1: defining model
Parameter Component 1 Component 2 Component 3
Name Quarterly evaluation Yearly assessment Extraordinary evaluation
Form Measurement Assessment Measurement & assessment
Frequency Quarterly Yearly Extraordinary
Coverage Individual & group Individual Individual and/or group
IndicatorsMostly performance based
Mostly personality based
Performance and/or personality based
Criteria Mostly quantitative Mostly qualitative Quantitative and/or qualitative
Example form Quarterly evaluations Annual interview
› Evaluation of extraordinary results of employees
› Evaluation of special groups of employees (managers, experts)
› Evaluation of problematic employees
Key inputs› Quarterly evaluation
appraisals
› Results of quarterly evaluation
› Personal development plans
› Details on extraordinary results
› Details on other key essentials
Models to be developed
› Model for individual quarterly evaluation
› Model for group quarterly evaluation
› Model for individual yearly evaluation
› Model for evaluation of extraordinary results
› Model for evaluation of special groups of employees
› Model of evaluation of problematic employees
Step 1 –defining
appropriate model of
evaluation
Section III / part 3 – Managing bonuses
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 40
Step 2: defining parameters
» Defining the parameters refers to selecting the indicators (1st step) and selecting the criteria (2nd step)
Section III / part 3 – Managing bonuses
Step 2 –defining right
parameters for evaluation
Indicators Used for Related to Main characteristics
Performance oriented
› Measuring work results
› Measuring key dimensions of business efficiency
› Particular workplaces
› Particular business processes
› Mostly quantitative
› Easy measurable
Personality oriented
› Assessing personal characteristics
› Assessing personal behavior
› Individuals
› Teams
› Mostly qualitative
› Easy assessable
Criteria Main characteristics Examples Mostly used for
Quantitative › Easy measurable
› KPI oriented
› Respect the terms
› Contributions
› Learning speed
› Measuring performances
Qualitative
› Hardly measurable / easy assessable
› Important for personal development
› Team work orientation
› Creativity
› Reliability
› Assessing personality
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 41
Step 2: proposed weighted system
Section III / part 3 – Managing bonuses
Step 3 –defining
appropriate weights
Criteria for evaluation WeightMeasured result
Weighted result
Quantitative Work correctness & precision 20% 5 1.00
Respect the terms 10% 4 0.40
Contribution to results 10% 4 0.40
Independency in work 5% 3 0.15
Learning speed 5% 3 0.15
Qualitative Team work orientation 20% 3 0.60
Level of motivation 10% 3 0.30
Systematic work 10% 5 0.50
Reliability in work 5% 4 0.20
Creativity in work 5% 3 0.15
Total 100% 37 3.85
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 42
Step 3: selection of evaluators
Section III / part 3 – Managing bonuses
Step 3 –selection of evaluators
Evaluator PRO’s CON’s
Managers
› Evaluation experience
› Good insight in goals and results
› Wider organizational picture
› Discontinuity in monitoring
› Focus on administrative aspects
› Subjectivity
Employees (self-evaluation)
› Best insight in work details
› Participation
› Self-monitoring
› Discrepancy between managers’ and employees’ evaluation
› Subjectivity
Colleagues
› Various dimensions of evaluation
› Appraisals are stabile in time
› Focus on competences
› Maximum information for evaluation
› Appraisals are usable for employee’s professional improvement
› Appraisals distortion (protection of colleagues)
› Erosion of managers’ influence
› Stereotypes
› Mistrust after lower appraisals
Top management › Development aspects
› Double control
› Predetermined appraisal
› Lack of information
External partners › Focus on customer satisfaction › Hard to quantify and measure
External evaluators › High level of professionalism
› Objectivity
› Lack of information
› Unnatural behavior of employees
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 43
Step 3: proposed model (360°)
» Model of multiplied sources of evaluation (“Model 360°”) - based on weighted evaluation from 3 lines:
› Hierarchy line (formal authority and formal subordinated)
› Professional line (professional authority and professional subordinated)
› Process line (input and output process cooperators)
Section III / part 3 – Managing bonuses
Step 3 –selection of
evaluators (360 degrees
principle)
Note: distribution of weights can vary by each single employee and more then 6 colleagues can be involved in evaluation
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 44
Step 4: defining timeframe
» Defining timeframe of evaluation refers to defining: a) cycles of evaluation and b) duration of each single evaluation
» It is recommended to make a difference between:
› Evaluation in rewarding purposes (suitable for periodic assessment)
› Evaluation in purpose of career development of employees (suitable for occasional assessment)
Section III / part 3 – Managing bonuses
Step 4 –defining the
time (cycles and duration) of evaluation
Time cycles Monitoring Measurement Assessment Type of evaluation
Monthly High Low Average › Monthly interviews
Quarterly Average High Low › Quarterly individual evaluation
› Quarterly group evaluation
Yearly Average Low High › Yearly interviews (feedback int.)
Occasionally Low Average High
› Evaluation of extraordinary results
› Evaluation of managers
› Career development evaluation
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 45
» Defining methods are significant step in evaluation process and refers to:
› Defining evaluation methods:
» Objective evaluation method, mostly based on performance and focused on quantitative indicators
» Subjective evaluation method, mostly based on personality and focused on qualitative indicators
› Defining evaluation techniques:
» Employees ranking technique
» Comparing with descriptively defined standards
» Comparing with numerically defined standards
› Defining evaluation instruments:
» “Hard” instruments (direct evaluation, fulfilling questionnaires etc.)
» “Soft” instruments (interviews, interpersonal interaction, observation etc.)
Section III / part 3 – Managing bonuses
Step 5 –defining
methods of evaluation
Step 5: defining methods
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 46
Step 5: proposed methods
Section III / part 3 – Managing bonuses
2 main methods are quarterly
and yearly individual evaluation
Evaluation type
Evaluation method
Evaluation technique
Evaluation instrument
Quarterly individual evaluation
Objective method
Comparing with numerically defined standards
Exemplars for direct evaluation
Yearly individual evaluation
Subjective method
Comparing with descriptively defined standards (goals realization)
Yearly interview (feedback interview)
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 47
Steps 6 & 7: realization of evaluation and analyzing results
» Realization of evaluation
› In accordance with General Evaluation Plan (part of HR Annual Work Plan)
› Two main conditions for successful realization of evaluation:
» Pre-condition – all previous issues (model, parameters, evaluators, timeframe, methods) must be clarified
» Post-condition – methodology of analyzing results and system of rewarding must be defined
» Analyzing results
› Analyzing results includes: a) assembling and classification of materials, b) processing and extracting results, and c) analysis of results and preparation for the next step (rewarding)
» Some useful notes
› In order to avoid errors in evaluations, evaluation system must be as much as possible precisely and objectively defined
› ALIMS should acquire modern IT tools, in order to successfully implement RMS in the real life
› Performing periodical (repetitive) evaluations, organization is cumulating experience and significantly improving its know-how, which enables it to improve evaluation system
Section III / part 3 – Managing bonuses
Steps 6 & 7 are very important
(implementation and control)
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 48
Linkages between evaluation and rewarding system
Evaluation and rewarding
(bonuses) are closely linked and depend each other
Section III / part 3 – Managing bonuses
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 49
Evaluation and stimulation in practice
Example shows how it works
Section III / part 3 – Managing bonuses
EVALUATOR MARK WEIGHT WEIGHTED MARK
Formal authority 3 30% 0,90
Formal subordinate 5 20% 1,00
Professional authority 5 15% 0,75
Professional subordinate 4 15% 0,60
Collaborator in process (input) 3 10% 0,30
Collaborator in process (output) 2 10% 0,20
TOTAL /AVERAGE 3,67 100% 3,75
STIMULATION 10%
STIMULATION CRITERIA % OF STIMULATION BASIS
For mark between 0 and 1 -20%
E.g. basic salary
For mark between 1 and 2 -10%
For mark between 2 and 3 0%
For mark between 3 and 4 10%
For mark between 4 and 5 20%
NOTE:
All data are arbitrary and used exclusively for
illustration
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 50
Double overlapping after stimulation
System of bonuses allows
firm to have double
overlapping system
Section III / part 3 – Managing bonuses
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
18,00
20,00
GROUP I GROUP II GROUP III GROUP ... GROUP "N"
Subgroup 1
Subgroup 2
Subgroup 3
Subgroup …
Subgroup …
Subgroup "n"
Coefficient overlapping – 1:6
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 51
Structure of remuneration packages
Remuneration packages can
vary in few ways
Section III / part 3 – Managing bonuses
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 52
Further steps
Further steps
Section III / part 3 – Managing bonuses
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected]
Contact
» Address: Đevđelijska 55, 11000 Belgrade
» Phone (fix): +381 11 240 50 22
» Phone (cell): +381 62 227 045
» E-mail (business): [email protected]
» E-mail (personal): [email protected]
» Web: www.aventinpartners.com
Page 53
Igor Lazarević, Aventin Partners
Djevdjelijska 55, 11000 Belgrade; +381 62 227 045
www.aventinpartners.com; [email protected] 54