Human Resources Management T 5 Reward, Appraisal and Performance Management

1. Human Resources Management T 5 Reward, Appraisal and Performance Management

2. Definition of PA (ACAS, 2003) Regular recording of an employee’s performance, potential and development needs. The appraisal is an opportunity to take an overall view of work content, loads and volume, to look back on what has been achieved during the reporting period and to agree objectives for the next. “A way of giving feedback”

3. Definition of PM (Purcell et al. 2003) A process for sharing and understanding about what needs to be achieved and then managing and developing people in a way that enables such shared objectives to be achieved. “Sharing common values” “Process owned and driven by line managers”

4. Essence of Performance Management • Shared vision of organization’s objectives communicated via mission statements • Individual performance targets related to these objectives • Regular formal review of progress towards the targets • A review of process which defines training and development needs and reward outcomes • Evaluation of the effectiveness of the whole process and changes and/or improvements where needed

5. Main Objectives of Performance Management • Provide firm links between organizational and individual / group objectives • Offer ways of measuring individual / group contribution to organizational objectives • Increase employee involvement and commitment to the organization

6. Performance Management (Armstrong & Baron, 1998) A device/tool that ensures that managers manage effectively, i.e. the employees: - Know and understand what is expected of them - Have the skills necessary to deliver on these expectations - Are supported by the organization to develop in order to meet these expectations - Are given feedback on performance - Have the opportunity to discuss and contribute to individual and team aims and objectives

7. Performance To improve current performance To provide feedback To increase motivation To solve job problems To let employees know what is expected of them To clarify objectives Reward To award salary increases To provide for rewards Use of Performance Appraisal • Potential • To identify potential • To aid career planning and development • To assess competences • To provide information about the effectiveness of the selection process

8. What is Performance Appraisal? • Strategic organizational change lever or managerial control tool? • Increasingly common in the West • 1989, study found appraisal used by 94% of responding organizations in the USA • 1999, IRS survey found appraisal used by over 99% of respondents in the UK • Now used in China, Africa, India and Japan • Getting more widespread not only for managerial positions, but for all personnel levels

9. P.M. and appraisal • Performance management relies on appraisal systems • Appraisal is almost universal in UK today • Appraisal exists independently of performance management

10. PROCESS APPROACH Work study tradition Scientific management Prescribed methods Measured performance Rewards for achievement “Personnel/IR” style? “HUMAN” APPROACH Work psychology Human relations school Select, train, motivate and lead well “Willing” performance “HRM” style? How ?Depends on your view of management…..

11. JUDGEMENTAL Retrospective Qualitative and quantitative measures Corrective Reward & PRP COACHING Prospective Assessment of aspirations and training needs Developmental Career oriented Performance Appraisal (Goss, 1994)

12. JUDGEMENTAL • Rating scales • Likert scales • Behaviourally anchored rating scales (BARS) • Target oriented assessment • Narrative comments Likely HRM involvement in areas of pay and reward, discipline, capability and remedial training, redeployment and possibly dismissal

13. COACHING • Discussion-based interviews • Aspirational • Career planning • Areas requiring development • Training needs assessment • Promotability Likely HRM involvement in areas of promotion, developmental training, succession planning, job enrichment, motivation and retention strategies

14. ‘SMART’ objectives! • Specific • Measurable • Agreed/achievable • Realistic • Time-bound

15. Objective Attendance Timekeeping Productivity Quality, etc. Subjective Dependability Flexibility Initiative Loyalty, etc. Dimensions of appraisal

16. Recent developments in PA • Upward appraisal • 360 degree appraisal • Customer appraisal (TQM) • Team-based appraisal • Competency-based appraisal

17. 360 degree appraisal • Origins in US army during 1970’s • Adopted by influential US organizations • AMEX • FedEx • Standard Chartered Bank • Arrived in UK via IBM, Shell • Adopted first by WHS & Body Shop

18. 360 degree appraisal • Broader perspective • Higher face validity • Involvement enhances commitment • Suited to “flattened” organizations • Can include customer and client feedback (mystery shopping) • Provides with vital insights into some of the appraised person’s shortcomings, which would otherwise remain unaddressed • Increasingly used to determine managerial pay • Critics: • Replaces the subjectivity of a single appraiser with the subjectivity of multiple appraisers • Produces overly bureaucratic systems with too much paperwork

19. Some distorting effects of PA • Halo effect / Horns effect: one positive/negative effect distorts the assessment of others • Doppelganger effect: the rating reflects the similarity between appraised and appraiser • Crony effect: the appraisal is affected by the closeness between appraised and appraiser • Veblen effect: named after Veblen’s practice to give all students grade C • Impression effect: difference between “real” and “created” performance achievements, etc.

20. Problems of performance appraisal • “HR activity that everyone loves to hate” • Expensive, bureaucratic, ineffective • Managers are not trained properly and are ill-prepared, talk too much, base the discussion on third-party complaints, make judgments based on “feelings”, etc. • Causes conflicts (appraisal by peers is nicknamed: “screw your buddy”) • Could demotivate employees and to worsen their performance • No SMART objectives; Lack of flexibility to redefine objectives when circumstances change during the appraisal cycle; The actions of the employee may account for little of the variability of the outcome measured • Performance is highly dependant on team effort, while the appraisal is individually based • Lack of follow-up

21. Two Different Perspectives Employer perspective Recruitment Retention Commitment Image Value of money Employee perspective What am I worth? Am I paid fairly? What else rewards me?

22. Recruitment Retention Commitment Image Value for money Employer perspective Performance Management systems seek to link the needs of the employer for specific levels and standards of performance to the motivation and reward of staff. Relies heavily on appraisal as a key tool in the management of performance.

23. What am I worth? • Hygiene factor(s) • Recognition of (extra) efforts • Sense of achievement • Short term material enjoyment (bonus) • Long term security (pay/security trade-off) • Skills and Abilities • How current? • “human capital”

24. Am I paid fairly? • In relation to the law (NMW) • Comparatively… • In relation to others in the organisation • In relation to the labour market • In relation to the task • Transparency of the system • Effort/reward bargains and psychological contracts (PC)

25. What else rewards me? Extrinsic Share scheme Cost of living increase TU negotiated rise Merit increase Bonuses Tips & commission PRP Collective Individual Pride in organizational membership Professional recognition Sense of doing a good job Job satisfaction Self fulfillment Promotion Power Intrinsic Steers and Porter. Also, see Kessler, (in Storey 2001) etc.

26. Factors Influencing the Relative Worth of Jobs • What organization can afford to pay • How much are paying the competitors • Legislation and NMW • National and international rates of pay within the organization • Trade unions and employee demands • The scarcity of particular skills • The state of economy and government initiatives • The introduction of new technology • The actual performance of the person on the job

27. Old Pay (Personnel) Centralized Bureaucratic Job evaluation Grading systems Incremental progress Reward time served Fair and consistent COLLECTIVIST New Pay (HRM) Devolved Business driven Broad banding Flatter structures Merit based Market based Performance related INDIVIDUALISED Old and New Pay

28. Concerns about the New Pay • May put proportion of the pay packet “at risk” • May be unjust • Affords little scope for the exercise of democratic rights by citizens at the workplace

29. Four Values in Reward Management Design • Paying per performance • Equity (internal and external) • Employees sharing organization’s success • Combining financial and non-financial rewards (motivation through achievement, recognition, responsibility, influence and personal growth)

30. Paying per performance • A base pay that reflects the market rate for the job (NMW or threshold levels) and a supplement with a variable pay related to: • Individual performance (PRP, based on performance over the past pay period) • Team performance • Organization’s performance • Employee competences (forward-looking)

31. Equity • External – extent, to which the employee feels fairness in relation to those doing the similar jobs in other organizations • Internal – extent, to which the employee feels fairness in relation to those doing the similar jobs in his/her own organization • Fairness not of the amount, but of the way, in which the pay is determined • “Director’s pay” • Inequality between men and women • Inequality between wite- and blue-collar workers • “Solid citizens’ pay” – well-performing employees who do not pursue promotion

32. Sharing organization’s success • Profit-related pay • Profit-sharing schemes • Savings-related share option schemes • Company share option plans • Gain sharing

33. Pay systems • Time rates • Piecework / Measured day work / Individual time saving • PRP (performance related pay) • Competence based pay / Skills based pay • Team based pay • Profit sharing • “Cafeteria” benefits systems • Total reward

34. Comment: ‘Not connecting appraisal with reward would result in not taking the appraisal process seriously, because without their clear bond, appraisal would be as “firing blanc bullets’” Lawler, 1994