Performance Management Systems Quiz

Performance Management Systems

• Performance management is a process aligning employee efforts with company goals, facilitating optimal performance.
• Performance reviews (appraisals/evaluations) assess employee performance against job requirements and set goals. Reviews are typically annual, biannual, or quarterly, though more frequent, shorter reviews are increasingly favored.

Purpose of Performance Management

• Effective systems influence employee behavior and improve organizational performance.
• Developmental Purposes: Provides a structured framework for evaluating performance, offering feedback, aligning individual goals with organizational objectives, fostering career development, and ultimately improving both individual and organizational performance.
• Administrative Purposes: Supports HR activities (promotions, transfers, layoffs, pay decisions), HR planning, job evaluations, recruitment, selection test validation, and legal protection against discrimination claims.

Why Performance Management Systems Fail

• Formal Review Process Issues: Criticized for discouraging teamwork, being useful mainly for high-performing or low-performing employees, focusing on short-term achievements, and providing feedback only during formal evaluations, which can be lacking. This is particularly relevant in smaller businesses.

Developing an Effective Performance Management System

• Performance Standards: Derived from job analysis, reflected in job descriptions.
  • Strategic Relevance: Extent to which standards relate to organizational objectives.
  • Criterion Deficiency: Aspects of actual performance not measured.
  • Criterion Contamination: Elements affecting appraisal not part of actual performance.
  • Reliability: Stability/consistency of a standard, often measured by correlating ratings. Calibration is a process used to ensure consistency by managers discussing employee performance among themselves, starting with good or poor performers, and aiming for consensus for others.
• Fairness and Acceptability: Employees often concern about fairness in reviews (managers potentially inflating reviews for desired outcomes). Acceptability relates to the difficulty of managing the system.

Sources of Performance Review Information

• Supervisors: Traditional method, typically best positioned to evaluate.
• Employees: Self-evaluations increase involvement and self-reflection.
• Subordinates: Developmental purposes, potentially resisted by managers (power imbalance).
• Peers: Peer evaluations, increasingly used for input.
• Team Members: Team-based evaluations.
• Customers: External and internal customer input.
• 360-Degree Evaluation: Evaluation based on input from multiple sources to gain a holistic overview.

Training Appraisers

• Training is crucial for effective reviews; inaccurate or unhelpful feedback can result from poorly trained appraisers.
• Review Plan Establishment: Explain objectives, philosophies, mechanics (rating system, record-keeping, frequency, who conducts them, relevant performance standards, and review preparation).
• Eliminating Rating Errors:
  • Halo Effect: Overrating based on one positive aspect.
  • Horn Effect: Overrating based on one negative aspect.
  • Distributional Errors: Central tendency (avoiding extreme ratings), leniency/strictness (inflating/deflating ratings).
  • Temporal/Recency Error: Evaluating based on recent observations.
  • Contrast Error: Evaluations influenced by a comparison with another employee.
  • Similar-to-me Error: Inflating ratings for those with common traits.

Performance Review Methods

• Trait Methods: Focus on employee characteristics (Graphic Rating Scale, Mixed-Standard Scale, Forced-Choice Method, Essay Method).
• Behavioral Methods: Focus on specific actions (Critical Incident Method, Behavioral Checklist Method, Behaviorally Anchored Rating Scale (BARS), Behavior Observation Scale (BOS)).
• Results Methods: Focus on accomplishments (Productivity Measures, Management by Objectives (MBO), Balanced Scorecard).

Performance Review Meetings and Feedback Sessions

• Tell and Sell: Persuade employee to change behavior.
• Tell and Listen: Communicate performance, explore employee feelings.
• Problem Solving: Collaborative approach, obtain buy-in.

Conducting the Performance Review Meeting

• Encourage Self-evaluation: Employee and manager perspective alignment.
• Invite Participation: Active dialogue/listening, reveals obstacles, fosters improvement.
• Express Appreciation: Acknowledging strong points.
• Support and Care: Employee feelings, "what can I do to help?".
• Minimize Criticism: Focus on solutions.
• Establish Mutual Goals: Setting/revising goals.
• Follow-up: Continuous improvement.

Managing Compensation

• Compensation Components: Direct (wages, salaries, incentives, bonuses), Indirect (benefits), Non-financial (recognition, work environment).
• Total Rewards: All aspects of compensation, including career development, recognition, work-life balance, job security.
• Linking Compensation to Organizational Objectives: Rewarding employee contribution to organizational success vs. solely job titles or positions.
• Equity Theory: Fairness in rewards based on perceived inputs and outputs compared to referent others.
• Expectancy Theory: Motivation based on reward attractiveness and the likelihood of obtaining them; high valence (valued reward), high instrumentality (reaching goals/objectives leads to rewards), high expectancy (ability to do required tasks).

Bases for Compensation

• Job Evaluations: Systems (ranking, classification, point) that determine the relative worth of jobs within the company to assist in establishing the rate at which an employee will be paid.
• Internal Factors: Compensation strategy, job worth, employee relative worth, ability to pay.
• External Factors: Labour market conditions, area wage rates, cost of living and collective bargaining.

Job Evaluation Systems

• Job Ranking: Arranging jobs by relative worth.
• Job Classification: Classifying jobs into grades based on predetermined criteria.
• Point System: Quantitative method assigning points to compensable job factors.

Job Evaluation for Management Positions

• Hay Profile Method: Evaluating executive and managerial positions based on knowledge, mental activity, and accountability.

Wage and Salary Surveys

• Wage and salary surveys determine wages paid by competitive employers. Important characteristics of key jobs to include:
  • Importance to employees and the organization.
  • Large number of positions.
  • Relatively stable job content.
  • Same job content across many organizations.
  • Acceptable to employees, management, and unions.
• Types of wage surveys: Company initiated/pre-conducted

The Wage Curve

• Shows relationship between job worth and wage rates.

Pay Grades and Rate Ranges

• Grouping jobs into pay grades with a range of rates to account for merit, seniority, etc.
• Rate ranges are steps: allowing raises based on merit, or seniority; red-circle rates are above the range max.
• Broadbanding: collapsing salary grades into bands.
• Competency-based pay: skills or knowledge basis

Legal Considerations

• Minimum wage (Ontario, Quebec).
• Overtime pay (Ontario, Quebec).

Pay for Performance

• Individual Incentive Plans:

  • Piecework: Compensation per unit produced.
  • Standard Hour Plan: Incentive based on completing a job in less than the predetermined standard time.
  • Bonuses: Incentive payments. Spot bonuses are for special contributions.
  • Merit Pay: Pay raises based on performance.
  • Lump-Sum Merit Pay: Yearly merit payment.

• Non-Monetary Awards and Recognition

• Sales Incentives (various plan types like straight salary, straight commission, combined salary/commission, salary plus bonus plans)

• Group Incentive Plans (Team Compensation): rewards team as a whole.

• Gainsharing: Organizational productivity improvements.

• Profit Sharing: Employee shares in organizational profits.

• Employee Stock Ownership Plans (ESOPs): Employees own shares.

Test your knowledge on key concepts related to performance management systems. This quiz covers topics such as performance reviews, pay for performance, and 360-degree evaluations. Explore the purpose, challenges, and critical elements of effective performance management.