Performance Management


Published on

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Performance Management

  1. 1. PRFORMANCE MANAGEMENT Presentation at Institute of Business Studies and Research (IBSAR) C.B.D. Belapur, Navi Mumbai On By D.J.Thakur, Principal Consultant E&Q CONSULTING C.B.D. Belapur, Navi Mumbai
  2. 2. PERFORMANCE DRIVEN ORGANIZATION <ul><li>WHY SHOULD YOU CARE ABOUT CREATING A PERFOMANCE DRIVEN ORGANIZATION? </li></ul><ul><li>The simple answer is that businesses need to get as much productivity as possible out of the work force. People are expensive and they need to work efficiently. </li></ul><ul><li>The key to maximizing efficiency of the entire Organization are : </li></ul><ul><li>1) Make sure each individual has goals aligned to the strategic objectives of the organization. </li></ul><ul><li>2) Provide each person with frequent feedback about their progress towards their goals. </li></ul><ul><li>3) Rewards them for achieving their goals. </li></ul>
  3. 3. PERFORMANCE DRIVEN ORGANIZATION <ul><li>DEFINITION – </li></ul><ul><li>It is a method of connecting your organization's objectives to the people who are there to achieve them, and most approaches to performance management have the following elements : </li></ul><ul><li>A sense of purpose or mission which is </li></ul><ul><li>understood by everyone </li></ul><ul><li>Goals which are understandable and </li></ul><ul><li>measurable </li></ul><ul><li>Developing targets which are within the </li></ul><ul><li>control of the people for whom they are set </li></ul><ul><li>Regular one-to-one with staff for reviewing </li></ul><ul><li>Regular team performance review </li></ul><ul><li>Management and staff development based on the competencies needed for the present and likely future jobs. </li></ul>
  4. 4. PERFORMANCE DRIVEN ORGANIZATION <ul><li>Based on the organizations mission and future goals, develop analysis of training and coaching needs for all staff </li></ul><ul><li>Rewarding people fairly for their achievements. </li></ul>
  5. 5. PERFORMANCE DRIVEN ORGANIZATION <ul><li>Performance Management is in two parts: </li></ul><ul><li>The First part is about the organization goals and targets) </li></ul><ul><li>The second part is about the job holder (competencies and development) and this is the input. </li></ul><ul><li>The process is a balance between, action needed to achieve the company goals, and holder's development relevant to the goals of the company. </li></ul>
  6. 6. PERFORMANCE DRIVEN ORGANIZATION <ul><li>Terminology – </li></ul><ul><li>Vision – our ultimate aim </li></ul><ul><li>Mission – The purpose for which we exist </li></ul><ul><li>Values - The beliefs we hold which guide our day to day action and decisions </li></ul><ul><li>Objectives – the key overall objectives of the business which accomplish our mission and business plans. These mainly refer to ‘Long term’ and higher level objectives or goals. </li></ul><ul><li>TARGETS – These are ‘shorter term’ and lower level aims </li></ul>
  7. 7. PERFORMANCE <ul><li>Employee performance depends on 3 factors: </li></ul><ul><li>Performance=f{ SxKxM} </li></ul><ul><li>S=Skill </li></ul><ul><li>K=Knowledge </li></ul><ul><li>M= Motivation </li></ul><ul><li>For an organization to succeed, it needs employees who </li></ul><ul><li>perform well. </li></ul><ul><li>This involves not only a good compensation strategy but </li></ul><ul><li>also good HR practices. </li></ul><ul><li>We need to hire people with skills and ability (S) </li></ul><ul><li>We need to make sure that good employees stay with us. </li></ul><ul><li>It we succeed in the above2, we can then concentrate on </li></ul><ul><li>building further knowledge and skills (K&S) </li></ul><ul><li>The importance of fit between pay and other HR system is </li></ul><ul><li>the ‘High Performance’ approach of leading companies, </li></ul><ul><li>which includes 3 features: </li></ul><ul><li>High Skill/Knowledge component (effective hiring) </li></ul><ul><li>Work designed so that employees have discretion and opportunities to collaborate with others (team) and continue to learn (training/development) </li></ul><ul><li>Performance based pay system </li></ul>
  8. 8. MOTIVATION THEORIES <ul><li>Maslow`s theory </li></ul><ul><li>People are motivated by inner needs which form a hierarchy, from most basic (food, shelter) to higher order (self esteem, love, self actualization) </li></ul><ul><li>Base pay must be set high enough to provide individuals means to meet basic needs </li></ul><ul><li>At-risk program may not motivate, since it restricts ability to meet basic needs. </li></ul><ul><li>Success sharing plans may motivate to the extent they help pursue higher needs. </li></ul>
  9. 9. MOTIVATION THEORIES <ul><li>Hertzberg`s two factor theory </li></ul><ul><li>Employees are motivated by two types of motivators-hygiene factors and satisfiers </li></ul><ul><li>Hygiene factors in their absence prevent behavior, but in their presence cannot motivate. </li></ul><ul><li>- base pay must be set high enough to provide economic means to meet hygiene needs, but it cannot motivate performance. </li></ul><ul><li>- Performance is achieved through rewards-payments in excess of that required to met basic needs. </li></ul>
  10. 10. MOTIVATION THEORIES <ul><li>Expectancy theory </li></ul><ul><li>Motivation is products of following factors- Perception, expectancy instrumentality and valance. </li></ul><ul><li>Expectancy is employees assessment of their ability to perform required tasks </li></ul><ul><li>Instrumentality is employees beliefs that requisite job performance will be rewarded by the organization. </li></ul><ul><li>Valance Is the value employees attach to the organization rewards offered for job performance. </li></ul><ul><li>- job, task and responsibilities should be clearly defined. </li></ul><ul><li>Performance based pay must be large enough to be seen as rewards </li></ul><ul><li>People choose the behavior that leads to greatest rewards. </li></ul>
  11. 11. MOTIVATION THEORIES <ul><li>Equity Theory </li></ul><ul><li>Employees are motivated when perceived outputs (e.g. pay) are equal to inputs (e.g. effort, work, behavior) </li></ul><ul><li>A disequilibrium in output to input balance causes discomfort. </li></ul><ul><li>If employees perceive that other are paid more for the same effort, they react negatively to correct the imbalance. </li></ul><ul><li>Pay- performance link is critical. </li></ul><ul><li>Performance inputs and expected output must be clearly defined and identified. </li></ul><ul><li>Employees evaluate the adequacy of their pay via comparison with other employees. </li></ul><ul><li>fairness and consistency of performance based pay across employees in the organization is important. </li></ul>
  12. 12. MOTIVATION THEORIES <ul><li>Reinforcement Theory </li></ul><ul><li>Rewards reinforces performance (motivate and sustain) </li></ul><ul><li>High performance followed by a monetary reward will make future high performance more likely. </li></ul><ul><li>Rewards must follow directly after behaviors to be reinforcing. </li></ul><ul><li>Behaviors that are not rewarded will be discontinued. </li></ul><ul><li>Timing of payouts is very important. Performance based payment must follow closely behind performance. </li></ul><ul><li>withholding payouts can be a way to discourage unwanted behavior. </li></ul>
  13. 13. MOTIVATION THEORIES <ul><li>GOAL SETTING </li></ul><ul><li>Challenging performance goals influence greater intensity and duration in employee performance </li></ul><ul><li>Goal setting results in feedback to employees on company's and their performance </li></ul><ul><li>Individuals are motivated to the extent that goal achievement is combined with receiving valued rewards. </li></ul><ul><li>Performance based pay must be contingent upon achievement of important goals. </li></ul><ul><li>Goals must be challenging and specific </li></ul><ul><li>Performance targets must be communicated in terms of specific, difficult goals. </li></ul><ul><li>Feedback on performance is important. </li></ul>
  14. 14. MOTIVATION THEORIES <ul><li>AGENCY THEORY </li></ul><ul><li>Pay directs and motivates employee performance </li></ul><ul><li>Employees prefer static wages ( a salary) to </li></ul><ul><li>performance based pay. </li></ul><ul><li>If performance can be accurately measured, payments should be made on basis of satisfactorily completion of work. </li></ul><ul><li>Performance based pay must be tightly liked to organizational objectives. </li></ul><ul><li>If performance cannot be monitored, pay should be aligned to achieving organizational goals. </li></ul><ul><li>Use of performance based pay will require higher total pay opportunity. </li></ul>
  15. 15. PERFORMANCE <ul><li>We need to find ways to motivate (M) employees to perform well on the job </li></ul><ul><li>The oil to lubricate this HR engine is performance measurement and management. </li></ul><ul><li>We can't tell if we selected good employees, If we don't know how to measure what constitutes good. </li></ul><ul><li>We need to accurately measure performance to tell whether our HR efforts are working . </li></ul>
  16. 16. COMPENSATION <ul><li>Definitions </li></ul><ul><li>Compensation: refers to all forms of financial returns and benefits employees receive as part of an employees relationship (contract) </li></ul><ul><li>Base pay: is cash compensation an employer pays for work performed. It reflects value of work or skill and generally ignores differences attributable to individual employees. </li></ul><ul><li>Incentive : pay increases, directly attributable to individual employee, team or a business unit's performance . </li></ul>
  17. 17. TOTAL RETURN FROM WORK Total Returns Challenging work Cash Compensation Benefits Total compensation Total Returns Base pay Cost of living Short term incentive Long term incentive Income protection Allowances Learning Opportunity Recognition & status
  18. 18. <ul><li>PERFORMANCE </li></ul><ul><li>Managing performance is most important for the success of any organization </li></ul><ul><li>Performance Management as practiced today, includes several approaches like Balanced Scorecard, Six sigma, Financial Reporting, Performance Appraisals, Competency Management, Training, Incentive Compensation etc. </li></ul><ul><li>The current approach to Performance Management lacks a single consistent vision that ties together every component of the organization. </li></ul><ul><li>Most of the Performance Management systems have inefficiencies built into it. </li></ul><ul><li>A consistent enterprise wide approach to performance management is the key to avoid inefficiencies. </li></ul>
  19. 19. PERFORMANCE <ul><li>Organization must first “ Put the right people </li></ul><ul><li>in the right jobs, reward top performers, retain talent for long term and increase efficiency and performance throughout the organization. </li></ul><ul><li>Individual Performance Management is the world of Human Resource and Sales Management. It is about cascading the strategic objectives of the organization to every individual, making sure that each person understands what he/she has to achieve as their goals, using pay for performance, providing frequent feedback to individuals about their performance. </li></ul>
  20. 20. VIEWS ON FERFORMANCE MANAGEMENT <ul><li>FINANCE: To the CFO and other finance managers, performance is related to financial performance of the organization, business unit or departments. </li></ul><ul><li>SALES: To the sales executive, performance management is about sales force effectiveness, the ability of each sales person to sell more so that the overall revenue goes up, he tries to make the sales incentives as lucrative as possible so that the morale of sales force is high. </li></ul><ul><li>HUMAN RESOURCE: To the HR executive, performance management is about measuring performance of individuals to improve productivity, its about hiring the right people, evaluating individual competencies and making sure that compensation is line with market rates, providing opportunity for advancement through training. </li></ul>
  21. 21. What should we do? <ul><li>To effectively implement performance Management, the organization must: </li></ul><ul><li>ALIGN: the strategic objectives, plans and budgets of various groups. </li></ul><ul><li>MEASURE past performance with an orientation towards financial measures of organization performance. </li></ul><ul><li>ANALYSE what must change to optimize strategy and maintain organizational alignment. </li></ul>
  22. 22. What should we do? <ul><li>To be PERFOMANCE DRIVEN, the organization must link: </li></ul><ul><li>The Objectives of the organization to those of the individuals, </li></ul><ul><li>Budgets and Resources of the organization with the objectives of the organization. </li></ul><ul><li>Measurement of past performance with alignment to the future direction. </li></ul><ul><li>The information in Finance with information on human resources. </li></ul><ul><li>The pay of each person in the organization with that of individual performance. </li></ul>
  23. 23. PERFORMANCE MANAGEMENT DIAGRAM ANALYSE Analyze individual performance to optimize Execution of strategy Analyze organizational performance to optimize strategy REPORT Report individual performance Report Organizational Performance REWARD Rewards individuals MEASURE Measure individual performance Measure Organization Performance ALIGN Set individuals goals Align individuals with opportunities Set and Align Resources & Budgets Cascade individual goals Define Organization objectives INDIVIDUAL ORGANIZATION
  24. 24. ALIGHMENT <ul><li>An organization consists of divisions, Business units, departments each with its own set of objectives. </li></ul><ul><li>Alignment must exist between the objectives of the organizational entities and the strategic objectives of the organization. </li></ul><ul><li>The alignment must be frequently adjusted, in response to new objectives, changes in business environment or problems with achieving existing objectives. </li></ul><ul><li>Alignment is also needed to be adjusted between the objectives and the budgets and resources e.g. infrastructure, human resource, I.T. etc. </li></ul>
  25. 25. MEASURE <ul><li>Most organization measure performance, this is largely the domain of finance dept, since many of the measures are financial in nature. </li></ul><ul><ul><li>Revenue growth </li></ul></ul><ul><ul><li>COST as percentage of revenue </li></ul></ul><ul><ul><li>Budget variance </li></ul></ul><ul><ul><li>Returns on assets </li></ul></ul><ul><ul><li>Inventory turnover </li></ul></ul><ul><ul><li>Resource utilization </li></ul></ul><ul><li>Other measure can be </li></ul><ul><ul><li>Customer satisfaction </li></ul></ul><ul><ul><li>Customer complaints </li></ul></ul><ul><ul><li>Compliance to statutory/regulatory requirement </li></ul></ul><ul><li>Measuring individual performance is largely the domain of HR although other departments may be involved. </li></ul>
  26. 26. REWARD <ul><li>The better an employee performs, the higher the reward, which could be in the form of promotion, merit pay, salary increases, bonus, incentives </li></ul><ul><li>There must be no cap on their opportunities to make money. </li></ul><ul><li>Employees and entire departments will do whatever they view to be in their best interest. </li></ul><ul><li>By rewarding individuals for their objectives, demonstration of competency, we are able to derive behavioral change that helps the organization achieve its strategic objectives. </li></ul><ul><li>It is often the case that diverse set of data must be gathered and integrated for calculation of individual rewards. </li></ul>
  27. 27. REPORT <ul><li>REPORTING is a about providing timely information to management and individuals about performance of the organization and its people. </li></ul><ul><li>As with Measure component, reporting tends to have a strong financial and organizational orientation. It is heavily data oriented and focuses on one data at a time such as </li></ul><ul><ul><li>Profit and loss report showing changes in revenue and cost compared to previous periods. </li></ul></ul><ul><ul><li>Client satisfaction report </li></ul></ul><ul><ul><li>Incentive compensation report showing incentives paid in each region /location. </li></ul></ul><ul><li>With good organizational reporting, management is able to see how the different entities that make up the organization are performing. </li></ul><ul><li>The key factor in organizational reporting is not so much as collecting data, but sharing information with individuals, who are working towards achieving organizational strategic objectives. </li></ul>
  28. 28. ANALYZE <ul><li>Reporting and Analysis are a continuum. </li></ul><ul><li>The purpose of analysis is to initiate changes in strategy, tactics, in personnel, in budgets and many aspects of managing an enterprise. </li></ul><ul><li>One aspect of organizational performance Analysis is determining the extent to which performance outcomes can be attributed to strategic objectives or to execution. </li></ul>
  29. 29. ANALYZE <ul><li>In the case in which the organization has failed to achieve a particular objective, we need to determine whether it was due to bad objectives, poor execution or both. </li></ul><ul><li>An objective may have been unrealistic due to adverse market conditions, inadequate skill set or poor planning. </li></ul><ul><li>If the objective is a problem, we need to go back to the ALIGN component and eliminate or modify it. </li></ul><ul><li>Probably the previous alignment did not work since the objectives were not cascaded into individual goals correctly or the budget was not sufficient. </li></ul><ul><li>Without Analysis we are left to guesswork and assumptions. </li></ul>
  30. 30. ANALYZE <ul><li>Without analysis, raw data are left to uniformed interpretations. </li></ul><ul><li>In assessing organizational performance without benefit of analysis even if you manage to obtain valid readings of which departments are outperforming others, there is no way to tell whether it was good or bad performance. </li></ul><ul><li>If sales were up 10% is that good? (10% in an emerging market is bad) 5% in a stagnant / declining market may be good. </li></ul><ul><li>Analysis must provide actionable, meaningful, timely information to people who are in position to use it. </li></ul>
  31. 31. ANALYZE <ul><li>Most Performance Management approaches look backward only. They measure what was done. If objectives are met, there is the usual patting the back. If objectives are not met, there is rounding up of suspects and consequences for them. </li></ul><ul><li>The above approach will have little direct impact on the organizations ability to meet future goals. </li></ul><ul><li>Analysis can serve as the bridge between past outcomes and future performance </li></ul>
  32. 32. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>The effectiveness of the plan depends on the following factors </li></ul><ul><li>Efficiency which involves 3 areas of concern </li></ul><ul><li>Strategy : The pay for performance plan must support the corporate objectives. Payouts must have relation to improved performance on the bottom line. Next question is how much does it take to motivate employees? Research indicates that employees do not notice incentives less than 10% with 15-20% more likely to evoke response. </li></ul>
  33. 33. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>Structure: Is the organization sufficiently decentralized to allow different operating units to create a flexible variation on the general pay for performance plan? Differentiate pay for stars from average/below average performers. </li></ul><ul><li>Standards: We need to be concerned about the following </li></ul><ul><li>OBJECTIVES - are they specific yet flexible? </li></ul><ul><li>MEASURES – do employees know what measures will be used to asses whether performance is really good to merit payout? </li></ul>
  34. 34. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>ELIIBILITY : How far down will the plan run? Will all employees be included? </li></ul><ul><li>FUNDING : How long will the plan continue? What happens in a bad year? </li></ul>
  35. 35. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>FAIRNESS / EQUITY : we have to ensure that system is fair to employees. Does the amount of money distributed to employees have a relation to the input (equity theory). Employees must know in advance what is expected of them and what is the return. (effective communication) </li></ul>
  36. 36. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>COMPLIANCE: pay for performance system should comply with existing laws. The reward system must enhance the reputation of the firm. </li></ul>
  37. 37. DESIGNING A PAY FOR PERFORMANCE PLAN <ul><li>PAY FOR PERORMANCE PLAN </li></ul><ul><li>WHAT IS IT? </li></ul><ul><li>INCENTIVE PLANS </li></ul><ul><li>VARIABLE PAY PLANS </li></ul><ul><li>COMPENSATION AT RISK </li></ul><ul><li>EARNINGS AT RISK </li></ul><ul><li>SUCCESS SHARING </li></ul><ul><li>ETC </li></ul><ul><li>The above plan are effective if they are designed well. </li></ul><ul><li>WE SHALL NOW DISCUSS THE DESIGN OF SOME OF THE WIDELY USED PLANS. </li></ul>
  38. 38. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>MERIT PAY </li></ul><ul><li>A merit pay system links increase in base pay to how highly employees are rated on a subjective evaluation as illustrated below. </li></ul><ul><li>Performance rating 1 2 3 4 5 </li></ul><ul><li>Merit PAY 6% 5% 4% 3% 0% </li></ul><ul><li>1-well above average </li></ul><ul><li>2-above average </li></ul><ul><li>3-average </li></ul><ul><li>4-below average </li></ul><ul><li>5-well below average </li></ul><ul><li>At the end of a performance year, employees are evaluated, generally by the direct supervisor, the performance rating as above determines size of increase in base pay. Here what you do in the year of performance, is rewarded every year you remain with the company, so on a compounding basis this amounts to a large sum for the employees (large cost to the company) </li></ul>
  39. 39. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>LUMPSUM BONUS </li></ul><ul><li>Based on the company's and employees performance, employees receive an end of the year bonus that does not build into the basic pay. Lump sum bonus can be considerably less expensive for the company over the long run. </li></ul><ul><li>INDIVIDUAL SPOT AWARD </li></ul><ul><li>Usually, these rewards/awards are given for exceptional performance, e.g. on a special project, outcome of a suggesting (suggestion scheme), leading to savings for the company. The mechanism is simple-Management is informed of the exceptional contribution by an individual or group and a spot reward in monitory terms or gift is awarded for the effort. </li></ul>
  40. 40. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>INDIVIDUAL INCENTIVE PLAN </li></ul><ul><li>Here performance is compared against a standard (may be set by Time study) and a rate is determined which could be </li></ul><ul><li>-units of production per time period </li></ul><ul><li>-time period per unit of production. </li></ul>
  41. 41. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>Individual Incentive Plan </li></ul><ul><li>Most frequently implemented system is a piecework system. Advantage is that it is easily understood by workers and readily accepted. Wages vary as a function of production level. </li></ul><ul><li>Piece rate is determined from time study 10U/hr </li></ul><ul><li>Guaranteed minimum wage: Rs.5/hr </li></ul><ul><li>Incentive rate for each additional unit over 10=Rs.2.5/hr </li></ul><ul><li>Worker output Wage </li></ul><ul><li>10 UNITS OR LESS Rs.5/hr </li></ul><ul><li>20 Units Rs.30/hr </li></ul><ul><li>30 Units Rs.55/hr </li></ul>
  42. 42. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>TEAM INCENTIVE PLANS </li></ul><ul><li>Here we move away from individuals and focus on people working together. The group might be a team, a department, or a division. Basic concept is as in Individual Incentive Plan. A standard is established against which the team performance is compared to determine the amount of incentive. </li></ul><ul><li>The standard may be an expected level of revenue, profit, or other measure such as customer satisfaction index, lower turnover rate, development of new customers etc. </li></ul>
  43. 43. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>-Examples of performance measure </li></ul><ul><li>On time delivery </li></ul><ul><li>Cycle time </li></ul><ul><li>New product introduction </li></ul><ul><li>Revenue growth </li></ul><ul><li>Market share </li></ul><ul><li>Profit margin </li></ul><ul><li>Customer growth and retention </li></ul><ul><li>Recruitment cost </li></ul><ul><li>Productivity </li></ul><ul><li>Employee turnover </li></ul><ul><li>ETC. </li></ul>
  44. 44. DISIGNING A PAY FOR PERFORMANCE PLAN <ul><li>INDIVIDUAL vs.GROUP INCENTIVE PLANS </li></ul><ul><li>It is observed that individual Incentive plans have better track record in delivering higher productivity. </li></ul><ul><li>Group incentive plans suffer from what is called “free-rider problem”. </li></ul>
  45. 45. RESEARCH FINDINGS <ul><li>Incentive systems are notorious for getting people to do exactly what is incentivized. Expecting employees to do a wide array of duties results in employees demanding additional payment for these. </li></ul><ul><li>Evidence suggests that companies are able to get employees to be flexible and committed when a broad array of rewards rather than just money is part of the compensation package. </li></ul><ul><li>In the long run success of a company depends on getting good people to accept employment and the compensation challenge is to figure out what components of compensation is likely to influence their decision to join, perform well and remain with the company. </li></ul>
  46. 46. RESEARCH FINDINGS <ul><li>Let employees construct both a more satisfying and less expensive reward package from the 13 elements below: </li></ul><ul><li>Compensation - Wages, Commissions, bonus, </li></ul><ul><li>Benefits - Vacation, health insurance </li></ul><ul><li>Social interaction- friendly workplace </li></ul><ul><li>Security – stable consistent position and rewards </li></ul><ul><li>Status /recognition- respect, Prominence due to work. </li></ul><ul><li>Work variety opportunity to experience different work. </li></ul><ul><li>Workload – Right amount of work-not too much /too little </li></ul><ul><li>Work importance – is work valued by society </li></ul><ul><li>Authority /control/autonomy – ability to influence others </li></ul><ul><li>Advancement – Chance to get ahead </li></ul><ul><li>Feedback – receive information helping to improve performance </li></ul><ul><li>Work conditions- Hazard free </li></ul><ul><li>Development opportunity –Formal and informal training opportunity . </li></ul>
  47. 47. PERFORMANCE MANAGEMENT STEP BY STEP <ul><li>1.SET SMART TARGETS </li></ul><ul><li>S pecific </li></ul><ul><li>M easurable </li></ul><ul><li>A chievable </li></ul><ul><li>R ealistic </li></ul><ul><li>T ime related </li></ul><ul><li>How many targets? </li></ul><ul><li>Not more than 6 else chances of achieving all are unlikely </li></ul><ul><li>How much detail? </li></ul><ul><li>Make them precise to avoid conflicts </li></ul>
  48. 48. PERFORMANCE MANAGEMENT STEP BY STEP <ul><li>How long should each target last? </li></ul><ul><li>Stagger the deadlines for the targets, since no one works on all targets at the same time. </li></ul><ul><li>How difficult should the targets be? </li></ul><ul><li>Targets must stretch and challenge a person and give him a sense of achievement </li></ul>
  49. 49. PERFORMANCE MANAGEMENT STEP BY STEP <ul><li>2.REVIEWING PROGRESS </li></ul><ul><li>Individual measures and targets must be discussed regularly to review performance of each team member and if there are deviations from expected figures, corrective measures can be taken. </li></ul><ul><li>3. PAPERWORK </li></ul><ul><li>Keep the paperwork simple and which can be used for appraisals at a later date. Targets and competencies are closely liked. </li></ul>
  50. 50. PERFORMANCE APPRAISAL <ul><li>Performance Appraisal is the most important part of Performance Management in which after Performance Review, deficiencies in competencies can be identified and necessary training and development plans can be made to enhance existing competencies or new competencies can be developed. </li></ul>
  51. 51. PERFORMANCE APPRAISAL <ul><li>Definition : A face-to-face discussion in which an employee's work (incl. behavior, attitude) is discussed, reviewed by another using an agreed an understood framework. </li></ul><ul><li>PM consists of 3 parts </li></ul><ul><ul><li>Defining performance measures specific to the organization </li></ul></ul><ul><ul><li>Measure performance through performance appraisal </li></ul></ul><ul><ul><li>Provide feedback so that employees can adjust their performance to meet the organizations goals </li></ul></ul><ul><li>Usually line managers conduct the appraisal of their staff although peers can appraise each other and line managers can be appraised by their staff though a 360 degree appraisal. </li></ul>
  52. 52. USE OF PERFORMANCE APPRAISAL Performance Appraisal Administering Wages and Salaries Give Performance feedback Identify Strengths and weakness
  53. 53. PM Methods <ul><li>Category Rating </li></ul><ul><li>Graphics rating </li></ul><ul><li>Scale </li></ul><ul><li>Checklist </li></ul><ul><li>Comparative Method </li></ul><ul><li>Ranking </li></ul><ul><li>Forced Distribution </li></ul><ul><li>Behavioral/Objective </li></ul><ul><li>Method </li></ul><ul><li>Behavior Approach </li></ul><ul><li>MBO </li></ul>Narrative Method PA METHODS
  54. 54. Types of performance information Trait based Information Job Performance Behavior-based Information Result-based Information
  55. 55. ROLES FOR PERFORMANCE APPRIASAL Performance Appraisal <ul><li>Administrative uses </li></ul><ul><li>Compensation </li></ul><ul><li>Promotion </li></ul><ul><li>Dismissal </li></ul><ul><li>Downsizing </li></ul><ul><li>Layoffs </li></ul><ul><li>Development uses </li></ul><ul><li>Identifying strengths </li></ul><ul><li>Identifying areas of growth </li></ul><ul><li>Development planning </li></ul><ul><li>Caching, Career planning </li></ul>
  56. 56. PERFORMANCE APPRAISAL <ul><li>The biggest attack, against performance appraisals and in general subjective appraisal, comes from the Quality Management guru Deming who said that </li></ul><ul><li>THE WORK SITUATION, not the individual is the major determinant of performance. Variation in performance arises many times because </li></ul><ul><li>- Employees do not have necessary information, technology </li></ul><ul><li>- Control to adequately perform. </li></ul>
  57. 57. APPRAISAL METHODS <ul><li>Straight Ranking </li></ul><ul><li>Employees are ranked relative to each other. </li></ul><ul><li>Alternation Ranking </li></ul><ul><li>Employees are ranked at extreme ends </li></ul><ul><li>Paired Comparison </li></ul><ul><li>Each individual is compared separately with every other individual </li></ul><ul><li>The person who wins the most paired comparison is ranked as top of the group. Disadvantages is that when size of group is large, comparisons become unmanageable </li></ul>
  58. 58. APPRAISAL METHODS <ul><ul><li>Straight ranking </li></ul></ul><ul><ul><li>Rank Employee's name </li></ul></ul><ul><li>Best 1. </li></ul><ul><li>Next best 2. </li></ul><ul><li>Next best 3. </li></ul><ul><li>Etc. 4. </li></ul><ul><li>5. </li></ul><ul><li>Alternation ranking </li></ul><ul><li>Best performer 1. </li></ul><ul><li>Next best 2. </li></ul><ul><li>Next best 3. </li></ul><ul><li>Next worst 4. </li></ul><ul><li>Next worst 5. </li></ul><ul><li>Etc 6. </li></ul><ul><li>Worst performer 7. </li></ul>
  59. 59. Paired comparison method Name Rahul Lalit Seema Reena total Rahul X X X 3 Lalit X X X X 4 Seema X X 2 Reena X 1 X= indicated person in row ranked higher than person in column. Person with most score is ranked as best.
  60. 60. APPRIASAL METHODS <ul><li>Behaviorally anchored Rating Scales (BARS) </li></ul><ul><li>Is a widely used format with uses behavior as descriptors. </li></ul><ul><li>Standard Rating Scale with adjective anchors is shown below </li></ul><ul><li>Circle the number which best describes the level of employee </li></ul><ul><li>Well above average 1 </li></ul><ul><li>Above average 2 </li></ul><ul><li>Average 3 </li></ul><ul><li>below average 4 </li></ul><ul><li>well below average 5 </li></ul><ul><li>Besides behavior, most often, achievement of objectives is also used for evaluation. </li></ul>
  61. 61. APPRIASAL METHODS <ul><li>Management by Objectives (MBO) As discussed in PM, Objectives are identified from the strategic plan of the company, and cascaded down to lower levels preferably up to the individual level. At the beginning of a review period, the employee and the supervisor agree to the objectives at the end of the review period, the achievement of the agreed objectives is evaluated </li></ul><ul><li>The overall evaluation of the employee is evaluated with reference to BARS and MBO. </li></ul>
  62. 62. ERRORS IN APPRAISING PRFORMANCE <ul><li>Supervisors can make errors in rating performance, Recognizing and understanding these errors can build an efficient and reliable appraisal system. </li></ul><ul><li>The common errors in appraisal process are shown on the next slide. </li></ul>
  63. 63. ERRORS IN APPRAISING PRFORMANCE <ul><li>HALO – an appraiser giving favorable rating to all duties, based on impressive performance in one job function </li></ul><ul><li>HORN – Downgrading an employee across all performance parameters because of poor performance in one dimension. </li></ul><ul><li>FIRST IMPRESSION ERROR </li></ul><ul><li>Developing a negative or positive opinion of employee early in the review allowing it to influence all later perception of performance </li></ul>
  64. 64. ERRORS IN APPRAISING PRFORMANCE <ul><li>LENIENCY/SEVERITY ERROR </li></ul><ul><li>Consistently rating higher or lower than deserved. </li></ul><ul><li>CENTRAL TENENCY ERROR </li></ul><ul><li>Avoiding extremes in rating across employees. </li></ul><ul><li>CLONE ERROR </li></ul><ul><li>Giving better rating to employees who are like raters in personality or behavior. </li></ul>