Performance Management Tutorial

PERFORMANCE MANAGEMENT

Effective performance management systems enable an organization to objectively and

systematically rate employee performance, while providing the tools necessary to take that

performance level and equate it to compensation actions.

PERFORMANCE MANAGEMENT Overview:

The core of any organization is its staff. How

effectively an organization maintains a quality

team of employees is linked to its ability to

manage its staff and recognize the contributions

of each player.

PERFORMANCE MANAGEMENT Overview:

Employees have always expressed the desire for

open feedback regarding their performance.

More and more companies are embracing the

pay for performance concept and its tie to

compensation. A well-executed performance

management plan enables an organization to

achieve critical goals:

PERFORMANCE MANAGEMENT Goals:

• Recognize the efforts and contributions of current staff

• Reward staff with compensation directly linked to

performance

• Motivate staff to improve performance

• Orient staff towards goal achievement

• Retain key employees through the use of competitive

compensation programs

• Attract quality employees with an effective performance

management system

PERFORMANCE MANAGEMENT Goals:

The key elements of a Performance Management System include the following:

1. A formal Compensation Philosophy Statement

2. Salary Administration Program

3. A Formal Audit/Success Rating overview on an annual or

periodic basis with disclosure of results to management.

The Key Elements of a Performance Management System

1. A Formal Compensation Philosophy Statement

• It is the policy of the Robert Heeley Construction to develop and implement a fair, consistent and industry competitive Compensation Program so as to attract, motivate and retain qualified employees. This program is specifically designed to compensate employees on the basis of their performance, consistent with the Company's business needs and financial capabilities.

• The Company will administer its compensation programs without regard to race, religion, national origin, color, sex, age or disability. The Company will adhere to all federal and state and city laws and regulations regarding job classification, amount of pay, and equitable compensatory treatment of employees.

• We will design an overall Salary Administration Program that will provide the Company with a competitive, easy to use, performance-driven pay delivery system. This will include the necessary guidelines for determining salary increases based on performance, as well as all related administrative procedures.



Elements:• Job Evaluations• Performance Appraisals• Pay-for-Performance Salary Programs• Group Incentive Plans• Individual Incentive Programs• Reward Programs• Compensation Communications


3. A Formal Audit/Success Rating on an annual or periodic basis with disclosure of results to key management.

This is most effectively performed by an outside HR consultant or consulting firm, whose objectivity allows them to observe and identify strengths and weaknesses that are not always observable from within.


• Job Evaluations

• Performance Appraisals

• Pay-for-Performance Salary Programs

• Group Incentive Plans

• Individual Incentive Programs

• Reward Programs

• Compensation Communications

Salary Administration Program

Job Evaluations

Job evaluation is the process that establishes every position's internal

relative worth to a company by measuring a position's potential

fulfillment of duties against the amount of value being given by the

present employee. Job evaluation measures job worth in an

internal sense, as well as in an economic one.

Determines:• Job Description• Job responsibilities of this job description (position)• Tasks, skills and knowledge that fall under job responsibilities

(from this formula comes all training that applies to every company position)


Performance Appraisals

Refers to the evaluation of an employee's job-related performance with

the primary objective being the improvement of the individual's

performance. It also provides justification for determining an

employee's compensation and promotability.

A Performance Evaluation Tool (PET) should be utilized for this purpose. A key element of the PET is the establishment of individual performance objectives at the beginning of each. An employee's performance may be evaluated into one of four (4) levels of performance as follows, for the purposes of determining personnel actions:



A Performance Evaluation Tool (PET)

• Outstanding: Performance substantially and consistently above required standards for the position.

• Competent: Consistently meets objectives and produces the desired results that are expected for a qualified employee in this position. Performance meets required standards for the position.

• Needs Improvement: Areas of improvement are noted. Performance is less than expected, and below required standards for the position. Consideration must be given to probationary status pending improvement of performance.

• Unsatisfactory: Does not meet objectives. Performance substantially and consistently below required standards for the position. If significant improvement is not made, termination will follow.




The performance evaluation is conducted between the employee and

his/her immediate supervisor, in which the supervisor evaluates

the performance of the employee. The supervisor provides

feedback to the employee regarding his/her performance and

areas of concern. The evaluated performance level during the

evaluation will be used for justifying personnel actions relative to

promotion, transfer, and salary adjustments.




1. It is the intent of the Company to make salary increases and

related personnel actions based on an employee's evaluated

performance in his/her assigned position, and the individual's

overall contribution. Performance evaluations are to be conducted

at the completion of the introductory period, on an as-needed

basis during the year, and no less than two times every twelve

(12) months. It is intended that this should provide adequate

feedback, allows for corrective action, and substantiate salary

increases and related personnel actions.




2. The prime consideration in the performance appraisal system is

enhancement in overall performance. The process is expected to

enhance the development of meaningful communication between

the employee and his/her supervisor, which in turn should lead to

such improvement in the employee's overall performance.


• Job Evaluations



• Group Incentive Plans

• Annual Incentive Programs

• Reward Programs



Pay-for-Performance Salary Programs

A program which provides small increases to most employees based

on changes in the labor market, but with large, meaningful

increases granted to a limited number of exceptional employees.

Increases are based on realistic performance evaluations with some

employees not receiving any increase.



Design Features:

• Performance standards are established for activities that

employees can impact or control.

• Traditional Cost of Living and Seniority increases are eliminated.

• Increases are withheld from poor performers until their evaluated

performance improves.

• Increases may take the form of additional salary and/or cash

bonuses.



Advantages:

• Increases are tied to productivity and results, rather than length of service, etc.

• Improves employee communication and teamwork. • Provides greater job satisfaction.

• Additional compensation dollars result in attainment of desired

results.



Disadvantages:

• Requires considerable effort to install and monitor.

• Is based on a foundation of trust and credibility between

management and employees.

• Requires an accurate and well-accepted Performance Evaluation

System.

• Eliminates length of service as a significant pay determinant. This

initially negatively impacts the concept of "loyalty“ because it

diminishes the impact of the ever-present “Good Ol’Boy” system.


• Job Evaluations



1) Group Incentive Plans

2) Individual Incentive Programs

3) Reward Programs



Group Incentive Plans

A Group Incentive Plan is a type of team-based Alternative Reward

Program, but differs from the others in its features, advantages,

and disadvantages. In Group Incentive Plans, all employees in

the company share in rewards based on performance gains tied

to corporate profitability.



Design Features:

• Performance targets are established; requiring that standards be established and the planning process is well documented.

• Funding requires a systematic mechanism for setting aside sufficient monies to fund rewards.

• Includes a consistent and acceptable method for allocating rewards among eligible participants.



These work best for management and supervisors

Advantages:

• Focuses the group on specific performance targets. • Since rewards are controllable by individuals, the programs can

be very motivational. • The program can be integrated with other corporate initiatives

(i.e., quality, product/service introduction, cost savings, etc.). • Leads to improved communication and employee relations.



Disadvantages:

• Group Incentive Plans can be costly to install and administer.

• De-emphasizes individual performance which can result in

excessive peer pressure.

• Requires open communication with employees on costs,

profitability, etc. (although this can be a sensitive issue, there are

alternatives available).

• If the performance targets are not carefully selected, adverse

results may occur


• Job Evaluations





3) Reward Programs



Individual Incentive Programs

These work best for first-level and non-supervising employees.

Individual Incentive Programs are plans that provide incentive pay based on short-range performance (typically performance over 12 months or less).

Annual Incentive Programs may consist of short-term incentives, and may include a component tied to long-term incentives, such as completion of a training program or programs. The form of payment of these incentives may be promotion-based, cash-based, or a combination of both.


• Job Evaluations





3) Reward Programs



Reward Programs

The following information provides an overview of alternative reward

approaches, including a definition of each approach, and the

inherent advantages and disadvantages.

Traditional alternative reward programs fall into one of two categories:

Individual Employee Oriented Programs: Pay-For-Performance Broad Banding Skill-Based Pay Special Awards

Team Based Programs: Group Incentives Group Sharing Gain sharing Long-Term Capital Accumulation

http://compensationresources.com/Services/pay-for-performance.html

http://compensationresources.com/Services/broadbanding.html

http://compensationresources.com/Services/skill-based-program.html

http://compensationresources.com/Services/group-incentive-plans.html

http://compensationresources.com/Services/group-sharing.html

http://compensationresources.com/Services/gainsharing.html

http://compensationresources.com/Services/long-term-capital-accumulation.html


Reward Programs - Individual Employee Oriented Programs:

Pay-for-Performance Salary/Hourly Programs provide small

increases to most employees based on changes in the

labor market, with large, meaningful increases granted to a

limited number of exceptional employees. Increases are

based on realistic performance evaluations with some

employees not receiving any increase.

Salary Administration ProgramReward Programs - Individual Employee Oriented Programs:

Design Features:

Performance standards are established for activities that employees can impact or control.

Traditional Cost of Living and Seniority increases are eliminated.

Increases are withheld from poor performers until their evaluated performance improves.

Increases may take the form of additional salary and/or cash bonuses.


Advantages:

Increases are tied to productivity and results, rather than length of service, etc.

Improves employee communication and teamwork.

Provides greater job satisfaction.

Additional compensation dollars result in attainment of desired results.


Disadvantages:

Requires considerable effort to install and monitor.

Is based on a foundation of trust and credibility between management and employees.

Requires an accurate and well-accepted Performance Evaluation System.

Eliminates length of service as a significant pay determinant. This negatively impacts the concept of "loyalty".

Salary Administration ProgramReward Programs – Broad-banding:

Broad Banding is a type of salary program that replaces multiple grades and ranges with a limited number of wide ranges. Employees move through salary ranges without traditional promotions or job delineation,

based on individual skill attainment, and expansion of duties, rather than on any prescribed time pattern.

Salary Administration ProgramReward Programs - Broad banding:

Design Features:

Substantially fewer grade levels and titles.

Multiple job levels are combined into a single range.

Large range spreads, e.g., 75%, 100% or more vs. 40% to 50%.

Provides a method to recognize dual career tracks (management and professional).


Advantages:

Better accommodates a flat organizational hierarchy.

Emphasizes skill development rather than vertical promotions.

Eliminates need to establish artificial job titles and hierarchy.

Provides greater organizational flexibility since the organization is not encumbered by narrowly focused job titles.

Simplifies salary administration by eliminating promotions that are not bona fide changes in duties and responsibilities.


Disadvantages:

May not be compatible with the organization's culture and is less successful in highly structured organizations.

Loss of control points for salary planning and may result in overpaid employees, requiring greater emphasis on monitoring.

Difficult to use as management tool for determining relationship between jobs.

Limits promotional opportunities

Salary Administration ProgramReward Programs - Skill Based Programs:

A program that rewards employees for attainment of additional skills and knowledge on a formalized basis.

Design Features:

Establishes an environment in which attainment of skill and knowledge is considered to be highly desirable.

Provides increased compensation and/or rewards for skill attainment

Clarifies career path for each position and the associated educational support.


Advantages:

Encourages skill acquisition and commitment by individual employees.

Permits flexibility in worker assignments which may result in reduced staffing requirements.

Typically results in increased job satisfaction and lower turnover of skilled employees


Disadvantages:

Very complicated program to install and maintain, requiring considerable time, resources, and money.

Training is very expensive and can easily be underestimated.

Emphasis is on attainment of skills and knowledge, and is not necessarily results oriented.

Unless carefully monitored, may end up with too many high skilled, high priced employees.

Does not enhance teamwork .

Salary Administration ProgramReward Programs

The success of any Individual Reward Program (IRP) requires that a number of different areas be addressed:

Elements that must be present:

• Open communication

• Capacity to administer

• Commitment to success

• Patience and perseverance

• Management commitment

• Clear-cut objectives and strategy

• Good management and employee relations

• Recognition of resources: time, expense, manpower



Key Design Steps of Alternative Reward Programs • Initial analysis and problem definition

• Review of alternatives

• Selection of plan elements

• Test and finalize

• Review and approval

• Implementation

• Monitoring and refinement



Limitations of Alternative Reward Programs

• Imagination

• Fear of new and untested

• Ability to accurately forecast or budget

• Administrative ability of organization

• State of employee/management relations


• Job Evaluations





3) Reward Programs



Compensation Communications

It is a company's responsibility to commit to effective communication of

salary administration plans and their modifications. At the

minimum, a company is responsible for:

• providing each employee with applicable salary information

regarding his/her own total compensation level, salary range,

position in range (PIR), the method for determining salary

increases, and other pertinent aspects of the total compensation

package.

• communicating changes to policies and procedures to the

appropriate personnel in a timely manner, and for ensuring that

the staff understands and can effectively implement the changes

The plan objec tives for this program would be to :

Recognize extraordinary employee contributi ons in the areas of effec tiveness , quality of work , cos t sav ings, and produc tiv ity .

Strengthen communicati ons between employees and management.

Prov ide a systematic method of identifyi ng outs tanding individual contri butions.

Prov ide fi nancial rewards to employees who have demonstrated performance or contributi on in excess of their assigned duties and respons ibi lities.

Enhance the Company’s abil ity to meet or exceed i ts target goals.

The goal is to design a customized alternative

reward and recognition program.

To understand the employee’s likely perception of this program, let’s take a look at a motivational theory that is about 60 years old:

The goal is to design a customized

alternative reward and recognition program.

Before an employee is likely to perceive training as a goal (the need to know and understand), they must have all of their other perceived needs met satisfactorily. Or the training itself can be perceived (presented) as meeting some of the other lower order needs.

First Level: Food and water, protection from exposure to elements

Second Level: Freedom from physical danger or freedom from a situation that endangers food, water, shelter

Third Level: Friendships and family relationships that provide the security of mutual emotional and physical support

Fourth Level: To be well-regarded by others or given status within the family and social group (employees will seek this in the workplace)

Fifth Level: The ability to satisfy the natural and learned inclination to explore to increase knowledge and understanding of your surroundings

Sixth Level: The desire to be surrounded by or to have access to things that you perceive to be of quality. symmetry, order, and beauty

Seventh Level: The ability to be unafraid of the unknown, willing to set aside fear in search of new experiences and rewards, with the knowledge

that all that has been achieved in the past can be regained if it is lost.

Eighth Level: Certain that basic physiological and safety needs will be met, and not considering of great value the benefits of the interim levels, this person devotes their energies solely to providing for those whose needs are not being met and who appear to be unable to fend for themselves, typically supported

by others who also value the “higher cause”

Business

Performance Management Tutorial