SALARY & COMPENSATION FALL 2012

PRESENTATIONS 13-14-15

ASAD HASAN

Todays Agenda

Performance related compensation Compensation Management & Performance Management System Chapter 5

Performance related compensation

Appreciate difference between performance appraisal and performance management system. Select appropriate performance objectives and performance indicators, keeping pace with organizational requirements for compensation management. 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 compensation design. Appreciate competency and skill based compensation design. Design compensation using performance criteria.

Diff. between PA and PMS

Performance Management is tied to achieving increased organizational performance. Appraisal systems performance are not tied to organizational

Performance Management Reviews are conducted more frequently than annual appraisals.
Performance Management Objectives are aligned to strategic or operational plans. Performance Management systems typically have better compliance due to reporting (who has set objectives and development plans, conducted reviews etc)

Diff. between PA and PMS

Performance Management focuses employees on the Performance of objectives, not how well they are liked by their manager. Performance Management systems are accessible by all parties, all through the year and this means that both parties attend review meetings better prepared and less stressed.

Performance Management increases staff engagement as they are recognized for their efforts and receive meaningful development.

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.

Guidelines for Developing Performance Standards

Organizations must keep in mind the following guidelines while writing 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 therefore should have more quantitative data. . Quantifiable measures may not apply to all functions. Describe in clear and specific terms the characteristics of performance quality that are verifiable and that would meet or exceed expectations. Accomplishment of organizational objectives should be included where appropriate, such as cost-control, improved efficiency, productivity, project completion, process redesign, or customer service.

Select appropriate performance objectives & performance indicators

The Performance indicators must be selected based on specific requirements.

Cost Planned/Budgeted Amount spent to mfg. Or provide service Resources planned to be employed Goods or services provided to the customers Actual impact and value of goods and services delivery Avg. amount actually spent/unit

Input

Resources actually employed per unit Value of goods and services % age of satisfied customers with goods and services

Output

Outcome

Develop performance metric

The Performance metric is a standard measure to asses performance in a particular area. Metrics are based on customer-focussed processes, management systems, and any program directed at continuous improvement. Traditional measures are ROI, eps, sales increases. These do show if the company has reached a goal, but not how?

Develop performance metric

Complete operating and process measures and ratios to track how well business manages each process and use of resources such as a balanced Scorecard. Performance matrix is a construct of a performance system, sequentially shows decisions to be taken to improve PMS.

Stages/Level

A Accomplishment models

B Measures of opportunity

C Methods of improvement Programs/Policies Environmental: data tools, incentives People programs: knowledge, selection, recruiting Job strategies: Data systems Training designs Incentive schedules Human factors Selection systems Recruitment systems

I: Policy, Institutional Systems

Org. models: Cultural Major Mission Reqt.s & units Exemplary stds.

Stakes analysis: Performance analysis Potential for improving Performance Critical roles
Job assessment: Performance measures Potential for Improving Performance(PIP) Critical responsibilities

II: Strategy, Job systems

Job models: Mission of job Major responsibilities Reqts & units Exemplary stds.

Performance matrix
Stages/Level A Accomplishment models B Measures of opportunity C Methods of improvement

III: Tactics, Task systems

Task analysis: Performance Tactical Task models: measures/observat instruments Responsibilities of ions Feedback tasks Potential for Guidance Major duties improving Training Reqts. & units Performance Reinforcement Exemplary stds. Specific Others deficiencies Cost of program

Building A Performance Management System

Performance Management System (PMS) is set of techniques and procedures for improving organizational performance. In line with Bevan and Thompson (1992), main features of PMS can 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. PMS helps to percolate the organizational objectives to employees, translating organizational objectives to individual targets.

Develops systems for ongoing review of objectives - Through the process of periodic performance review, PMS helps to keep a track on achievement of objectives. Such review system largely depends on type of PMS techniques used by an organization. It may be an age-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 the cases, it is important to design the personal improvement plan. PMS aligns with training and development - PMS helps in identifying training and development 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 to employees who sensitise employees and help them to objectively analyse their shortfalls and 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 (performance linked) of non-performers. This way organization can remain competitive optimising the cost of compensation. Develops competence based organizational capability - PMS through qualitative and quantitative appraisal can assess the prevailing competency level of employees and thus helps in organizational capability review.

Design performance models

An effective PM enables the management to be effective and specific so that the end results are not arbitrary, but a summation of all the different activities and processes, given an attainable standard of performance.

Design performance models

Relevant relationships Automation

Motivating

Comprehensible Measurability

Actionable

Customer focused metrics

End objectives:

Profits Brand equity

Market valuation

These are dependent on how well customer expectations are met and exceeded.

Customer focused metrics

Process to develop customer-focused metrics:

Identify customers and outputs they require Determine reqd. quality and service standards Determine 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.

Effective PMS

PMS is a set of techniques and procedures for improving organizational 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

PMS & Organizational Strategy

Strategy is the direction and scope of an organization over the long term, matching its resources to the changing environment and its markets, customers, or clients to meet the expectations of all stakeholders.
Individual goals/tasks Manage employees Measures and targets Completion on time Quality standards met Interim and final reports Meeting attendance reqts. Team report Timeliness, accuracy, and service, meet agreed standards

Goals: BU, Work group/key process Contribute to the companys mfg.

Complete own assigned Achieve effective and tasks and present reports efficient technical Contribution to the effectiveness production team on quality systems improvement Operational effectiveness Carry out administrative roles and tasks

PM Systems

MBO: A comprehensive management approach adopted for performance appraisal and organizational development.

KRA/KPI periodic meetings between employee and supervisor

Assessment centers:

Test employees in a social situation by no. of assessors, using variety of criteria Written tests, interviews, simulation exercises, etc.

PM Systems

Human asset accounting method: estimate manpower in terms of monetary value.

Key variables: policies, decisions, leadership, skills, behaviors, etc. Intervening variables: loyalties, attitudes, motivations, communication, etc.

Strategic HR Relationships

HR Activities

Emergent Employee Behaviors

Strategically Relevant Organizational Outcomes

Organizational Performance

Achieve Strategic Goals

Translating Strategy into HR Policy and Practice

Basic Model of How to Align HR Strategy and Actions with Business Strategy

The HR Scorecard Approach

HR scorecard
Measures

the HR functions effectiveness and efficiency in producing employee behaviors needed to achieve the companys strategic goals.

Creating an HR scorecard
Must

know what the companys strategy is. Must understand the causal links between HR activities, employee behaviors, organizational outcomes, and the organizations performance. Must have metrics to measure all the activities and results involved.

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 Outcomes Step 4: Identify the Required Workforce Competencies and Behaviors Step 5: Identify the Strategically Relevant HR System Policies and Activities Step 6: Design the HR Scorecard Measurement System Step 7: Periodically Evaluate the Measurement System

Performance guide charts

Name
A Performance Rating Outstanding Exceeds expectations Meets expectations

1st Quarter
15%

2nd Quarter 3rd Quarter

13% 11%

4th Quarter
9%

13%

11%

9%

No increase

11%

9%

No increase

No increase

Meets minimum expectations

Does not meet expectations

Token raise to boost morale

No increase

No increase

No increase

No increase

No increase

No increase

No increase