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«Cambridge University: Philip Stiles and Jonathan Trevor Erasmus / Tilburg University: Jaap Paauwe and Elaine Farndale Cornell University: Patrick Wright ...»

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The performance management system comprises the practices of objective setting, appraisal and rewards and their integration. Performance is generally considered to be a function of ability, work motivation, and opportunity. Underlying performance management systems are assumptions about the psychological processes that drive employee effort. Specifically, these concern the desirability of aligning employee needs with organizational needs and ensuring that the setting of tasks will produce valued outcomes for employees if successfully accomplished as well as contribution to business objectives. In terms of social context, a fundamental principle of performance management is the key decisions and the processes by which they are made, are made equitably.

Performance management, which focuses on aligning the direction, intensity and persistence of work effort into productive outcomes, is therefore at the heart of human resource activity.

The major areas of performance management we examined within our companies cover a wide range of issues, including goal level and goal commitment as drivers of purposeful actions and work performance; the line of sight between evaluation of task achievement, and the provision of rewards, and the nature and attractiveness of the reward offer. The development of employees constitutes a further crucial issue in the management of performance. In our sample, there were striking similarities in terms of their overall architecture of the performance management system. But though the design of the systems showed strong convergence, local delivery of practices revealed differences reflecting national cultural and sectoral variations. In this section, we shall take first objective setting and appraisal and then move on to the issue of reward management.

Global performance management

The performance management process showed strong similarities in terms of overall design of the processes across companies and countries. We witnessed a concerted effort on the part of group HR to introduce and maintain global performance standards, supported by global competencies both at foundational, managerial, technical and leadership level, common evaluation processes, and common approaches to rewards. Though in some companies such standards and processes were at an early stage of development, nevertheless all companies were signed up to their usage.

It was therefore difficult to find much in terms of distinctive local practices in the countries where our sample companies operated. Certainly where national regulatory systems varied, in particular with regard to union representation, there were differences of approach, both in terms of wage determination and also with regard to the managerial prerogative, the ability to flex the workforce in terms of performance, and specifically, underperformance. Recognition schemes too, varied by national culture, with collectivist cultures eschewing individual award schemes.

We expected that companies with a high degree of production/service integration across countries would have a high degree of diffusion of host country HR practices, 19 / 52 while those with more polycentric activities would have fewer overarching processes.

However, we found convergence across the board. The country with most differences – Japan – does still, in some of its international companies, allow local practices to develop and continue away from the home base, but we saw that in our sample Japanese companies, there are greater moves for integration, with the introduction of global standards into performance and with it the reduction of such staples as tenurebased pay, egalitarian pay structures, guaranteed lifetime employment, and cradle-tograve benefits.

.

Global Appraisal Practices Use & Effectiveness 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50

–  –  –

Table 3. Global appraisal practices: Use and effectiveness Scorecard approaches The crucial issue within performance management is the linking of individual performance objectives to business objectives.

This linkage is facilitated in a number of companies through use of the balanced scorecard (in the survey, 39% of respondents indicated significant use of balanced scorecard techniques). Scorecard approaches are generally conducted in three stages – objectives, measures of success and key performance indicators (KPIs) – and for each stage, the objectives, measures and KPIs are further broken down into four categories – financial, commercial, process and people. The objectives in each category are few in number reflecting the need for difficult and specific goals. Generally in objective setting we saw a spilt between work goals and development goals, with between 3-7 goals in each. These were generally developed along SMART lines, but evidence of participation in goal setting on the part of the employee was surprisingly patchy. The cascade of performance objectives is standard. As seen in Table 3, the link between appraisal and development and appraisal and rewards is strong, providing good line of sight for employees in most cases. A surprise is the rather low score for the use of multiple inputs into the appraisal.

Behavioural and output based measures

20 / 52 The management of performance in the organizations includes attention to skills, knowledge, attitudes and behaviour, though interestingly, from the survey data, it appears that output or results measurements dominate over individual behavioural assessments, perhaps because of their greater accessibility and ease of assessment.





Global competency profiling is used in both organisational design (i.e. broad banding and succession) and also in performance management. A number of companies use competency profiles within performance reviews, each profile detailing both standards of performance and also the necessary methods and competencies required for desired performance. These competency profiles are now becoming global in nature to ensure consistency of approach in terms of both selection criteria for employees and also for performance assessment. The performance management process was generally conducted using on-line mechanisms.

Frequency of evaluation

The frequency of evaluation varied. On average, formal evaluation was bi-annual, a mid-term and an end-of-year appraisal, though in some firms, quarterly was the norm.

In project-based organisations, evaluation according to project timelines was implemented. Though the norm for goal setting in recent reviews is for a participative process, surprisingly we did not see much evidence that participation in goal-setting was being followed within the companies. All companies had split the development review from the pay review.

Where we viewed excellent practice was in the provision of informal feedback.

Companies with open-door and management by walking around principles, for example, had cultures of managerial enthusiasm for encouraging feedback, with skilled and frequent discussions concerning task and project progress. This was often tied to the provision of coaching to ensure the day-to-day, week-to-week nature of performance management.

Management of potential

In addition to performance, the measurement of potential is also crucial, and a number of firms have a matrix of performance and potential in order to evaluate employees and to map development and resource allocations as well as assigning share of pay pot. In the survey, 40% of respondents claimed that they used employee potential evaluations. Potential was generally assessed using multiple inputs, frequently 360 degree approaches, and smoothing of distributions made in collaboration between senior management and the HR department.

In terms of the management of high potentials, this was a high priority for all HR functions within our sample, and there was a high degree of sophistication about this activity. In all companies there were systems in place which identified high potential individuals using clear sets of leadership competencies and assessed using multiple inputs. These individuals were given a variety of developmental activities, from training, coaching, mentoring, projects, and secondments, and they were placed on a talent inventory that matched prospective jobs to high potential individuals.

Case example: leading performance management inputs and measures

21 / 52 Startegic Planning Process: The first stage in the performance management process is detailed business planning. The business planning process is designed to elicit standardised performance and budgetary outputs from each of the business units, which are subsequently collated at a group level and provide accurate and timely data on individual business unit activity and overall (aggregated) corporate activity. The business planning process is divided into three main stages, the respective foci of each being (a) an assessment of current business unit performance against corporate objectives, (b) an evaluation of strategic options available to the business unit / group to further enhance value creation and (c) the development and refinement of detailed business plans with clear guidance for implementation and continuous improvement. Conducted throughout a six month midyear period, the business planning process is critical to the assessment of current business capability and performance, and the establishment of corporate direction and strategy.

Behavioural Performance Feedback: The behavioural performance feedback provides the individual with behavioural performance feedback, as defined by the five core leadership competencies, from superiors, colleagues and subordinates. The behaviour performance feedback provides the basis for part of the individuals’ performance assessment, and feeds directly into objective setting and personal development planning. It is incumbent upon the individual being assessed that they (a) nominate individuals to provide behavioural feedback, (b) complete a self assessment form, (c) support colleagues also undergoing behaviour performance assessment and (d) respond constructively to any and all feedback received. Behaviour performance is assessed against the five core competency, with each competency having four questions associated with it. Each question is scored on a five point likert scale e.g. 1 = very poor, 5 = very good.

Employee Attitude Survey: [case study company] utilises an employee attitude survey to appraise the impact of leadership on individual and team performance. The survey takes the form of a ‘Census’ survey of all employees conducted once yearly, and a ‘snap shot’ of employee attitudes to specific issues, surveyed from a randomly selected employee population every other year. The main output from each survey, in addition to employee perceptions of practice, business conditions and the employment experience, is a quantitative score against each of the five competencies for each business unit management team, and the [case study company] senior leadership overall.

Customer Feedback: In accordance with the emphasis placed upon customer relations as a core element of [case study company] competitive advantage, customer feedback is included within the performance management assessment process. Business units are given discretion to develop and use tools that best appraise customer opinion on the performance of [case study company] as a supplier of products and services. This information forms part of the qualitative input for the performance development review.

Performance and Potential Review: The Performance and Potential Review is a one to one meeting between the individual and their line manager in which personal objectives are set, past objectives reviewed, development options reviewed and selected within the context of the individual’s career aspirations. The programme is a the main element of the performance assessment and objective setting, and is intended to provide the individual with clear and measurable objectives that are linked to business targets, clear feedback on performance and recommendation for personal development and growth against the five core competencies. Conducted over a period of three months, the performance and potential process is support by extensive guidance documentation and company intranet based resources.

22 / 52

4. REWARD MANAGEMENT

Excluding the blue collar employee population, pay within all of the case study organisations fulfils two primary purposes. The first purpose is the attraction and motivation of high calibre talent at all levels within the organisation. The second purpose is the use of pay mechanisms to promote desirable employee behaviours.

The latter supports existing evidence for high performing organisations using pay interventions as management tools with which to align employee interests to those of the employer and financially interested stakeholders. In a departure from its traditional role, this new emphasis of pay as a means of promoting organisational performance for complementary behaviours renders the pay function as strategic.

Drawing upon the case study data, the following leading and innovative pay practices were used to achieve fulfil the objectives of (a) the attraction and retention of key talent and (b) the promotion of complementary and desirable employee behaviours and effort.

–  –  –

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50

–  –  –

Table 4. Global rewards practices: Use and effectiveness Multiple pay interventions All firms within the sample employ an array of pay interventions at all levels and occupations within the white collar and managerial employee base.

Each element of pay, typically base pay, performance based pay such as a bonus, long term performance based equity ownership and benefits, is geared to align the employee’s interests, financial and professional, to those of the organisation. Base pay is typically used as the cornerstone of the pay. Additional pay interventions, including short and long terms incentives, are bundled with base pay and benefits as part of an overall market competitive package. Oracle, BT and Siemens are good examples of the overall trend in managerial pay towards the use of multiple interlinked pay interventions.

Performance contingent pay



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