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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