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SALARY & COMPENSATION
FALL 2012PRESENTATIONS 13-14-15
ASAD HASAN
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Todays Agenda
Performance related compensationCompensation Management & PerformanceManagement System
Chapter 5
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Performance related compensation Appreciate difference between performance appraisal and performancemanagement system.Select appropriate performance objectives and performance indicators,keeping pace with organizational requirements for compensationmanagement.Develop performance standards.Develop performance metrics and matrix.Design performance models.Build performance management systems. Align performance management systems with organizational strategy.Conceptualise Balanced Score Card and its relation with compensationdesign. Appreciate competency and skill based compensation design.
Design compensation using performance criteria.
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Diff. between PA and PMS
Performance Management is tied to achieving increasedorganizational performance.
Appraisal systems are not tied to organizational
performancePerformance Management Reviews are conducted morefrequently than annual appraisals.
Performance Management Objectives are aligned tostrategic or operational plans.
Performance Management systems typically have bettercompliance due to reporting (who has set objectives and
development plans, conducted reviews etc)
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Diff. between PA and PMS
Performance Management focuses employees on thePerformance of objectives, not how well they are liked by their manager.
Performance Management systems are accessible by allparties, all through the year and this means that bothparties attend review meetings better prepared and lessstressed.
Performance Management increases staff engagement asthey are recognized for their efforts and receivemeaningful development.
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Select appropriate performance objectives &performance indicators
The Performance objectives must be:Focused on a result, not an activity
Consistent
Measurable
Related to time
Attainable
SMART: objectives: specific, measurable, attainable,realistic, and time-bound.
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Guidelines for Developing Performance Standards
Organizations must keep in mind the following guidelines whilewriting performance standards:
Performance standards should be related to the employee's
assigned work and job requirements (check the job descriptions). Reporting systems should be adequate to measure and thereforeshould have more quantitative data. . Quantifiable measures may not apply to all functions. Describe inclear and specific terms the characteristics of performance qualitythat are verifiable and that would meet or exceed expectations. Accomplishment of organizational objectives should be includedwhere appropriate, such as cost-control, improved efficiency,productivity, project completion, process redesign, or customer service.
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Select appropriate performance objectives &performance indicators
The Performance indicators must be selected based onspecific requirements.
CostPlanned/Budgeted Amount spent to mfg.Or provide service
Avg. amount actually spent/unit
Input Resources planned tobe employedResources actually employed per unit
OutputGoods or servicesprovided to thecustomers
Value of goods andservices
Outcome Actual impact and value of goods andservices delivery
% age of satisfiedcustomers with goodsand services
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Develop performance metric
The Performance metric is a standard measure to assesperformance in a particular area.
Metrics are based on customer-focussed processes,
management systems, and any program directed atcontinuous improvement.
Traditional measures are ROI, eps, sales increases.
These do show if the company has reached a goal, but nothow?
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Develop performance metric
Complete operating and process measures and ratios totrack how well business manages each process and use of resources such as a balanced Scorecard.
Performance matrix is a construct of a performancesystem, sequentially shows decisions to be taken toimprove PMS.
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Stages/Level A
Accomplishmentmodels
BMeasures of opportunity
CMethods of
improvement
I: Policy,InstitutionalSystems
Org. models: Cultural Major Mission Reqt.s & units Exemplary stds.
Stakes analysis: Performanceanalysis
Potential forimprovingPerformance
Critical roles
Programs/Policies Environmental:
data tools,incentives
People programs:knowledge,selection,recruiting
II: Strategy, Jobsystems
Job models: Mission of job
Majorresponsibilities Reqts & units Exemplary stds.
Job assessment: Performancemeasures
Potential forImprovingPerformance(PIP)
Criticalresponsibilities
Job strategies: Data systems Training designs Incentive
schedules Human factors Selection systems Recruitment
systems
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Stages/Level A
Accomplishmentmodels
BMeasures of opportunity
CMethods of
improvement
III: Tactics, Task systems
Task models: Responsibilities of
tasks Major duties Reqts. & units
Exemplary stds.
Task analysis:
Performancemeasures/observations
Potential forimprovingPerformance
Specificdeficiencies Cost of program
Tacticalinstruments
Feedback Guidance Training Reinforcement Others
Performance matrix
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Performance Management System (PMS) is set of techniques andprocedures for improving organizational performance.
In line with Bevan and Thompson (1992), main features of PMScan be outlined as follows:
Focus on objective setting - Objectives are the targets,which an organization set for its employees. It is in the form of an
action statement and it starts with a verb. At the strategic or corporate level, overall organizational objectives are decided. PMShelps to percolate the organizational objectives to employees,translating organizational objectives to individual targets.
Building A Performance Management System
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Develops systems for ongoing review of objectives - Through the process of periodicperformance review, PMS helps to keep a track on achievement of objectives. Such reviewsystem largely depends on type of PMS techniques used by an organization. It may be anage-old MBO systems or a 360 Degree PMS (multi dimensional) or a more recent
performance tracking technique like a balanced score card.Develop personal improvement plans - PMS helps in individual performance monitoring,ensuring development of personal improvement plans for the employees. A particular employee may lack in performance or he/she may exceed the targets given. In both thecases, it is important to design the personal improvement plan. PMS aligns with training and development - PMS helps in identifying training anddevelopment needs. This helps in developing need-based training and also in measuring
the Return on Investment (ROI).Ensures formal appraisal with feedback - PMS helps in giving performance feedback toemployees who sensitise employees and help them to objectively analyse their shortfallsand positive aspects.Helps in pay review - PMS helps in objective designing of compensation package for employees, thus rewarding the performance and reducing the variable pay (performancelinked) of non-performers. This way organization can remain competitive optimising the costof compensation.Develops competence based organizational capability - PMS through qualitative andquantitative appraisal can assess the prevailing competency level of employees and thushelps in organizational capability review.
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Design performance models
An effective PM enables the management to be effectiveand specific so that the end results are not arbitrary, but asummation of all the different activities and processes,given an attainable standard of performance.
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Design performance models
Relevantrelationships
Automation
Measurability
Actionable
Comprehensible
Motivating
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Customer focused metrics
End objectives:Profits
Brand equity Market valuation
These are dependent on how well customer expectationsare met and exceeded.
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Customer focused metrics
Process to develop customer-focused metrics:Identify customers and outputs they require
Determine reqd. quality and service standardsDetermine the metrics/measures reqd.
Put the metrics in a grid fashion thru other processes
Establish performance levels, short and long term obs. And
competitive benchmarks.
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Effective PMS
PMS is a set of techniques and procedures for improvingorganizational performance.
Main features:
Objective setting: action statement.Review of objectives: should be periodic
Personal improvement plans
Alignment with training and development
Formal appraisal with feedback
Pay review
Competence-based organizational capability
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PMS & Organizational Strategy
Strategy is the direction and scope of an organization over the longterm, matching its resources to the changing environment and itsmarkets, customers, or clients to meet the expectations of allstakeholders.
Goals: BU, Workgroup/key process Individual goals/tasks Measures and targets
Contribute to thecompanys mfg. Manage employees Completion on time
Quality standards met
Interim and final reportsMeeting attendance reqts.Team reportTimeliness, accuracy, andservice, meet agreedstandards
Achieve effective andefficient technicaleffectiveness
Complete own assignedtasks and present reportsContribution to theproduction team on quality systems improvement
Operational effectiveness Carry out administrative
roles and tasks
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PM Systems
MBO: A comprehensive management approach adoptedfor performance appraisal and organizationaldevelopment.
KRA/KPI periodic meetings between employee andsupervisor
Assessment centers:Test employees in a social situation by no. of assessors, using
variety of criteria Written tests, interviews, simulation exercises, etc.
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PM Systems
Human asset accounting method: estimate manpower interms of monetary value.
Key variables: policies, decisions, leadership, skills, behaviors,
etc.Intervening variables: loyalties, attitudes, motivations,communication, etc.
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Strategic HR Relationships
HR
Activities
EmergentEmployeeBehaviors
StrategicallyRelevant
OrganizationalOutcomes
Organizational
Performance
Achieve
Strategic Goals
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Basic Model of How to AlignHR Strategy and Actions with BusinessStrategy
TranslatingStrategy into
HR Policyand Practice
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The HR Scorecard Approach
HR scorecardMeasures the HR functions effectiveness andefficiency in producing employee behaviors neededto achieve the companys strategic goals.
Creating an HR scorecardMust know what the companys strategy is.
Must understand the causal links between HR activities, employee behaviors, organizationaloutcomes, and the organizations performance. Must have metrics to measure all the activities
and results involved.
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Using the HR Scorecard Approach
Step 1: Define the Business Strategy Step 2: Outline the Companys Value Chain Step 3: Identify the Strategically Required
Organizational OutcomesStep 4: Identify the Required Workforce
Competencies and BehaviorsStep 5: Identify the Strategically Relevant HR
System Policies and ActivitiesStep 6: Design the HR Scorecard Measurement
SystemStep 7: Periodically Evaluate the Measurement
System
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Performance guide charts
Name PerformanceRating 1st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter
A Outstanding 15% 13% 11% 9%
B Exceedsexpectations 13% 11% 9% No increase
C Meetsexpectations 11% 9% No increase No increase
DMeetsminimumexpectations
Token raiseto boostmorale
No increase No increase No increase
E Does not meetexpectationsNo increase No increase No increase No increase