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This can be useful for direct supervisors as well as for supervisors once removed. The job definition and criteria are clarified. The job of the person being appraised may be clarified and defined more clearly. In other words, employees gain a better understanding of the behaviours and results re- quired of their specific position.
Employees also gain a better understanding of what it takes to be a successful performer i. Self-insight and development are enhanced.
The participants in the system are likely to develop a better understanding of themselves and of the kind of development activities of value to them as they progress through the organisation. Participants in the system also gain a better understanding of their strengths and weaknesses, which can help them better define future career paths.
Personnel actions are more fair and appropriate. Performance management systems provide valid information about performance, which can be used for personnel actions such as merit increases, promotions and transfers, as well as terminations.
In general, a performance management system helps ensure that rewards are distributed on a fair and credible basis. In turn, such decisions based on a sound performance management system lead to improved interpersonal relationships and enhanced supervisor—subordinate trust.
Organisational goals are made clear. The goals of the unit and the organisation are made clear, and the employee understands the link between what he or she does and organisational success. This is a contribution to the communication of what the unit and the organisation are all about and how organ- isational goals cascade down to the unit and the individual employee.
Performance management systems can help improve employee acceptance of these wider goals i. Employees become more competent. An obvious contribution is that the performance of employees is improved.
In addition, there is a solid foundation for developing and improving employees by establishing developmental plans. There is better protection from lawsuits. Data collected through performance management systems can help document compli- ance with regulations e. When performance management systems are not in place, arbitrary per- formance evaluations are more likely, resulting in an increased exposure to litigation.
There is better and more timely differentiation between good and poor performers. Performance management systems allow for a quicker identification of good and poor performers. Also, they force supervisors to face up to and address performance prob- lems on a timely basis i. Performance management systems allow managers to communicate to their subordinates their judgements regarding performance.
Thus there is greater accountability in how managers discuss performance expectations and provide feedback. Both assessing and monitoring the performance of others are listed as key competencies for managers by the Management Standards Centre www. When man- agers possess these competencies, subordinates receive useful information about how their performance is seen by their supervisor. Organisational change is facilitated. Performance management systems can be a useful tool to drive organisational change.
For example, assume an organisation decides to change its culture to give top priority to product quality and customer service. Once this new organisational direction is estab- lished, performance management is used to align the organisational culture with the goals and objectives of the organisation to make change possible.
Employees are provided with training in the necessary skills, and are also rewarded for improved performance so that they have both the knowledge and the motivation to improve product quality and customer service. This is precisely what IBM did in the s when it wanted to switch focus to customer satisfaction: the performance evaluation of every member in the or- ganisation was based, to some extent, on customer satisfaction ratings regardless of function i.
Which of the contributions included in Table 1. Is their self-esteem increased? Table 1. What are some of the negative consequences associated with low-quality and poorly implemented systems? Consider the following list: 1. Employees may quit due to results.
If the process is not seen as fair, employees may become upset and leave the organisa- tion. They can leave physically i. False or misleading information may be used. Self-esteem may be lowered. Self-esteem may be lowered if feedback is provided in an inappropriate and inaccurate way. This, in turn, can create employee resentment. Time and money are wasted. Performance management systems cost money and quite a bit of time. These resources are wasted when systems are poorly designed and implemented.
Relationships are damaged. As a consequence of a deficient system, the relationships among the individuals involved may be damaged, often permanently. Motivation to perform is decreased. Motivation may be lowered for many reasons, including the feeling that superior perfor- mance is not translated into meaningful tangible rewards e. Employees suffer from job burnout and job dissatisfaction.
When the performance assessment instrument is not seen as valid, and the system is not perceived as fair, employees are likely to feel increased levels of job burnout and job dissatisfaction.
As a consequence, employees are likely to become increasingly irritated. There is increased risk of litigation. Expensive lawsuits may be filed by individuals who feel they have been appraised unfair- ly. Such systems will be resisted because of competing obligations and allocation of resources e. Worse, managers may simply choose to avoid the system altogether. Standards and ratings vary and are unfair. Both standards and individual ratings may vary across and within units, and may also be unfair.
Biases can replace standards. Personal values, biases and relationships are likely to replace organisational standards. Mystery surrounds how ratings were derived. Because of poor communication, employees may not know how their ratings are gener- ated or how the ratings are translated into rewards. A female employee was promoted several times, and succeeded in the organisation until she started working under the supervision of a new manager.
She stated in her lawsuit that, once she was promoted, her boss ignored her and did not give her the same support or opportunities for training that her male colleagues received. What are some of the consequences of the system implement- ed in her company? For example, is it likely that the performance information used is false and misleading? How about the risk of litigation?
How about the time and money invested in collecting, compiling, and reporting the data? Now, think about the system implemented at your current organisation, or at the organisation you have worked for most recently.
Take a look at Table 1. Where does the system fit best? Is the system more closely aligned with some of the positive consequences listed in Table 1.
For many employees, this is perhaps one of the most meaningful consequences of a performance management system. Module 10 will provide a detailed discussion of how a performance management system is used to allocate rewards. Before we do so, however, it is important to discuss some basic features of reward systems and the extent to which the allocation of various types of reward is dependent upon the performance management system.
However, employees also receive intangible returns, also referred to as relational returns, which include recognition and status, employment security, challeng- ing work and learning opportunities.
A reward system is the set of mechanisms for distributing both tangible and intangible returns as part of an employment relationship. It should be noted that not all types of returns are directly related to performance man- agement systems. This is the case because not all types of returns are allocated based on performance. For example, some allocations are based on seniority as opposed to perfor- mance. Thus the base pay is usually the same for all employees performing similar duties, and ignores differences across employees.
However, differences may exist based on such variables as experience and differential performance. In some countries e. Employees in most professional and managerial jobs are exempt employees, also called salaried employees.
On the other hand, non-exempt employ- ees receive their pay based on an hourly wage. This same percentage was only 1. Contingent pay is given as an addition to the base pay based on past performance. Mod- ule 11 will describe the topic of contingent pay in detail. So, for example, the top 20 per cent of employees in the performance score distribution may receive a 10 per cent annual increase, whereas employees in the middle 70 per cent of the distribution may receive a 4 per cent increase, and employees in the bottom 10 per cent may receive no increase at all.
But incentives are not added to the base pay, and are only temporary pay adjustments based on the review period e. So incentives are one-time payments, and this is why they are also referred to as variable pay. A second difference between incentives and contingent pay is that incentives are known in advance.
In contrast, in the case of contingent pay, in most cases the specific value of the reward is not known in advance. Typically, they involve stock ownership or options to buy stocks at a pre-established and profitable price. Both short-term and long-term incentives are quite popular. Take, for example, the public sector in the United States. A survey administered in late to 25 state and local governments employing more than 6 people showed that all but one of the state govern- ments and i.
Some countries mandate income protection programmes by law. For example, Canadian organisations pay into a fund that provides income protection in the case of a disability. Other types of benefits under the income protection rubric include medical insurance, pension plans and savings plans. These include time away from work e. For example, Sun Microsystems actively promotes an equal balance between work and home life, and closes its Broomfield, Colorado, campus from late December through till early January every year.
This benefit i. This is typical for expatriate personnel, and is also quite popular for high- level managers in many countries. They include recognition and status, employment security, challenging work, opportunities to learn, and opportunities to form personal relationships at work including friendships and romances. SunU encapsulates a mix of traditional classroom courses with on-line classes that can be accessed anywhere in the world at any time.
Furthermore, the new knowledge and skills acquired by employees can help them not only to advance their careers within Sun, but also to take this knowledge with them if they seek employment elsewhere. Thus some types of relational return can be long lasting. As an example of the low end of the dependence continuum, cost of living adjustment has a low degree of dependence on the performance management system, meaning that the system has no impact on this type of return.
In other words, all employees receive this type of return regardless of past performance. At the other end of the continuum, short-term incentives have a high degree of dependence, meaning that the performance management system dictates who receives these incentives and who does not.
Between the high and low end, we find some returns with a moderate degree of dependence on the performance management system, such as base pay, a type of return that may or may not be influenced by the system. Based on Table 1. In general, however, performance management systems can serve the following purposes a strategic, b administrative, c information, d developmental, e organisational maintenance, and f documentation.
Moreover, even if for some reason individual goals are not achieved, linking individual with organisational goals serves as a way to communicate what are the most crucial business strategic initiatives. Such administrative decisions include salary adjustments, promotions, retention or termination, recognition of individual performance, identification of poor performers, layoffs and merit increases.
So the implementation of reward systems based on information provided by the performance management system falls within the administrative purpose. First, they inform employees about how they are doing, and provide them with information on specific areas that may need improvement.
This feedback can be used in a developmental way. Managers can use feedback to coach employees and improve performance on an ongoing basis. This feedback allows for the identification both of strengths and weaknesses and of the causes of perfor- mance deficiencies which could be due to individual, group or contextual factors. Of course, feedback is useful only to the extent that remedial action is taken and concrete steps are implemented to remedy any deficiencies.
And feedback is useful only when employees are willing to receive it. Thus, the developmental purpose refers to both short-term and long-term development aspects.
Workplace planning is a set of systems that allows organisations to anticipate and respond to needs emerging within and outside the organisation, to determine priorities, and to allocate human resources where they can do the most good. Performance management systems are the primary means through which accurate talent inventories can be assembled.
Other organisational maintenance purposes served by performance management systems include assessing future training needs, evaluating performance achievements at the organisational level, and evaluating the effectiveness of HR interventions e. These activities cannot be conducted effectively in the absence of a good performance manage- ment system.
First, performance data can be used to validate newly proposed selection instruments. For example, a newly developed test of typing skills can be administered to all administrative personnel. Then scores on the test can be paired with scores collected through the performance management system.
If scores on the test and on the performance measure are correlated, then the test can be used with future applicants for the administrative positions. Second, performance management systems allow for the documentation of important personnel decisions.
This information can be especially useful in the case of litigation. Several companies implement performance management systems that allow them to accomplish the multiple objectives described above. SELCO offers many of the same services as offered by other banks, including personal cheques and savings accounts, loans and credit cards. However, being a member of the credit union allows individual members a say in how the credit union is run, unlike having an account at a traditional bank.
Recently, SELCO scrapped an old performance appraisal system for a new multi-purpose and more effective performance management system. This alignment serves the strategic and information purposes. Second, managers are given a pool of money they can work with to award bonuses and increases as needed, which is more effective than the complex set of matrices that was in place to calculate bonuses. This has improved the way the system is used for allocating rewards and therefore serves the administrative purpose.
Third, managers are required to sit down and have regular conversations with their employ- ees about their performance, and to make a note of any problems that arise. This gives the employees a sense of where they need to improve, and also provides documentation if disciplinary action is needed. Finally, the time previously spent filling out complicated matrices and forms is now spent talking with the employees about how they can improve their performance.
So, the new system allows managers and employees to discuss performance-related issues on an ongoing basis, which serves the development purpose.
Now, think about the performance management system implemented in your organisa- tion or the last organisation you worked for.
Which of these purposes are being served by the system you are considering? But what does a good system look like? The following is a set of characteristics that is likely to allow a performance management system to be successful.
Practical constraints may not allow for the implementation of all these features. However, we should strive to place a check mark next to each of these characteristics, as the more features that are checked, the more likely it is that the system will live up to its promise.
In other words, individual goals must be aligned with unit and organisational goals. The system should be thorough regarding four dimensions.
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