Appraisal and rewards

( BT Track 5)

Group No: 6Ajay Sharma

Darshana GalandeDharun Prasad R

Kanagovi RamakanthMahesh Kumar Patidar

Vadivel PL

1) Overview2) Gauging Productivity3) Appraising Potential4) Appraising/Rewarding Teams5) Paying incentives6) 360 degree appraisal7) Assessment Centre8) Non-monetary Rewards9) Stock Options10) References

Agenda

Overview

Performance Appraisal

Performance appraisal is a method by which the job performance of an employee is evaluated (generally in terms of quality, quantity, cost, and time) typically by the corresponding manager or supervisor

Performance evaluation process flow

Identify KRA’s Set targetsIdentify

performance measures

Develop an evaluation form

Measure performance

regularly

Set guidelines for feedback

Set an evaluation schedule

Evaluate performance

Indentify individual ratings

Rewards are the benefits (monetary and non monetary) given to someone for service rendered or for accomplishing a particular task

Rewards

Key business benefits of performance based reward system

Clearer goal alignment Focused development and career planning Increased employee engagement and motivation Improved retention Greater cost savings

Challenges in performance appraisal

Cascading Corporate Goals to individual goals

Elimination of duplications in KRAs

Ensuring participation of Top Management in the process of goal setting

Training the evaluators- appraisers, reviewers

Ways to recognise & treat top level, middle level, bottom level performers

Counselling the non -top performers

Communicating the results - at various business conditions

A successful performance-based reward culture depends on theintegration of three key areas of HR –

•Employee performance should be measured in a quantifiable way

•It requires planning, discipline, and flexibility.

Performance management

•Annual bonuses and salary hike

•Goal-driven incentive plans

Reward strategy

•Leadership teams have to establish organisational goals, linked to a clear vision

Goal alignment

Performance appraisal in Cognizant Technology Solutions

Rating Comment

Bucket 1 Exceed all expectations

Bucket 2 Exceed most expectations

Bucket 3 Met all expectations

Bucket 4 Met most expectations

Evaluation is done once in an year.Employees are evaluated by supervisors.Rewards are based on the ratings.Two consecutive 4th bucket--A warning is given with a possibility of firing.Two promotion cycles per year.Hikes are based on promotion.

Performance appraisal in Infosys

Rating Comment Percentage of total employee strength

1+ outstanding performance 5%

1 exceeded expectations 10%-15%

2 Met expectations 60%-65%

3 Below expectations 15%

4 Bad performance 5%

Performance appraisal is done twice an year

A score on the scale of 5 is given

CRR(annual rating) is given only once an year based on the 2 performance appraisals

Immediate line manager(PM) and reviewer (SPM) for an SE, TA, TL

If an employee doesn't agree with the rating he/she can appeal to the next level of the SPM

(Group project Manager)

Gauging Productivity

Input Processing Output

P r o d u c ti o n

P r o d u c ti v i t y Productivity may be conceived of as a metric of the technical or managerial efficiency of production. Productivity is about how well an organisation converts resource inputs into goods or services

Defining Productivity

• Workforce productivity is the amount of goods and services that a worker produces in a given amount of timeLabour Productivity

• determined by the way in which resources are organized.Managerial Productivity

Why productivity should be measured?

Access the current productivity standards

Establish accountability for individual as well as group efforts

Provides feedback for learning and improvement

Set objectives and quantify targets to strike out

Motivates and directs employees to perform more efficiently

Helps in improving the quantity and quality of their output

It allows the business to be more cost effective

Scales of measurement

Setting Organisation Objectives

KRAS broken down into activities with pre set performance levels

Broken into individual objectives

Broken into functional Objectives

Key result areas (KRAS)identified

Periodic assessment doneProductivity is measured through level of attainment of goalsFinal Yearly assessment taken

Performance review & development document generated

Performance review acts as a basis for annual salary increment

THE RECKITT MODEL

Benefits of rewarding productivity

Keeps the workforce motivated

Increases overall efficiency

Reduces attrition rate

Builds in a competitive environment

Maximizes resource utilization

Increases profits

How to achieve productivity improvement within the workforce

Educational rewards

Financial benefits

Caring/assistance

Flexible benefits

Appraising Potential

• Issue-In the mid-1980s Xerox corporation realized that-rather than motivating the employees, its performance appraisal system was leaving them discouraged and disgruntled.

• Old performance appraisal system-– The appraisal occurred once a year.– It required employees to document their accomplishments.– The manager would assess these accomplishments in writing and assign numerical

ratings.– The appraisal included a summary written appraisal and a rating from 1

(unsatisfactory) to 5 (exceptional).– The ratings were on a forced distribution– Promotions were also tied to the summary rating level.

This system resulted in inequitable ratings. In 1983, the Reprographic Business Group ,Xerox’s main copier division, reported that 95 percent of its employees received either a 3 or 4 on their appraisal.

Improvements : Rather than attempting to fix the old appraisal system, Xerox formed a task force to create a new system from scratch. The task force involved- senior human resources executives; councils of employees and a council of middle managers.

Case Study of Xerox

• The new system : The new system has three stages-

Case study of Xerox

First stage: At the beginning of the year , the manager meets with each employee. Together, they work out a written agreement on the employee’s goals, objectives, plans, and tasks for the year. Standards of satisfactory performance are explicitly spelled out in measurable, attainable, and specific terms.

The second stage is a mid-year, mandatory feedback and discussion session between the manager and the employee. Progress toward objectives and performance strengths and weaknesses are discussed, as well as possible means for improving performance in the latter half of the year. Both the manager and the employee sign an “objectives sheet” indicating that the meeting took place.

Third Stage : At the year end, both the manager and the employee prepare a written document, stating how well the employee met the performance targets. They then meet and discuss the performance of the employee. This stage also includes a developmental planning session in which training, education, experiences that can help the employee are discussed. The merit increase discussion takes place in a separate meeting from the performance appraisal, usually a month or two later.

Result : A follow-up survey was conducted the year after the implementation of the new appraisal 81 percent better understood work group objectives84 percent considered the new appraisal fair72 percent said they understood how their merit raise was determined70 percent met their personal and work objectives

• Yellow Freight System, one of the largest transport companies in the US, found itself competing with smaller companies on the basis of price and losing money for the first time in many years.

• The top management concluded that only very large companies with the best talent would survive in this competitive environment

• Steps taken for improvements:• The HRD manager’s first step was to define the new department's mission as "helping

management manage and improve employee performance." • A need analysis conducted suggested that branch managers, sales representatives and front-

line supervisors needed to be trained. • The HRD department conducted a performance audit to identify the group, which had the

greatest potential to improve performance. • A sample of employees from each of the three groups (with high, average and low levels of

job performance ) was identified based on functional considerations. Individuals were drawn from each major geographic region, from different size terminals, from every job function and all levels of management.

• Performance measures and standards were identified for each of the three groups. Actual performance data was collected, where available, and the value of the average performer's results was compared to the value of the exemplar's performance.

• It also allowed the HRD department to observe exemplary and poor performers, and provided excellent information on why some employees performed better than others. It searched for other causes for these performance gaps by interviewing employees and managers. Solutions that seemed to close the gaps were suggested to the performers.

Case Study :Yellow Freight System

• Yellow Freight’s new performance appraisal system was also designed as a performance management system. This meant that it was designed first as a tool for supervisors to use when managing employee performance, and second as a tool for evaluation and compensation.

• Thus according to the above results every manager and supervisor was trained to manage more effectively and improve the performance of their employees.

Result: An overwhelming percentage of the trainees felt the programme was useful; they met the learning objectives and were using the skills taught. Performance changes grossed over $20 million in one year for Yellow Freight!

Case Study :Yellow Freight System

Case Study: Microsoft

• Root Cause- At the start of 21st century when Microsoft kept in developing and progressing into such a dominant force, it became more focused on sustaining profitability and less on the needs and demands of the workers that used to be the formula for its success.

• Effect : Many workers were disappointed and frustrated, so they simply quit their jobs and decided to work with the rivals of Microsoft.

• Other problems-

-

Racial Discrimination

Unfair treatment Low salaries, or incentives as compared to their white counterparts Poor ratings

Hiring difficulties

Hard to find the immediate replacements Rejection of offers by freshers as well as experienced

Extreme penalties for mistakesThreat of exit to the under- performers if their feedback is not improved within certain period

Tough and strict leadership

Surge in attrition rate

Many trusted employees and even its top leaders left Attrition rate has almost doubled and reached to double digit

• Change in performance and appraisal system-• The system of commitment rating replaced the forced ranking system. As due to earlier

system the number of workers that could possibly be given incentives was restricted to a particular number only. Thus, majority of those hardworking employees of the company were usually not getting incentives, and unfortunately this included the Black Americans

• Commitment rating system enabled all employees to have equal opportunities to get rewarded

• More stock options were given to employees who have demonstrated their commitment to excellence and perseverance to their responsibilities in a given period of time. This helped secure their long term stability through getting more investments within Microsoft through their increased stocks.

• Inclusion of health benefits, transportation, food availability, child care benefits and other essential discounts combined with competitive salaries

• Creation of new workplace setups and creative office designs to encourage more effective communication among employees.

• The workers of the company were clustered together according to their roles and responsibilities to make sure that they would be able to build solid team

• Consistent training to improve the versatility among the employees

Case Study : Microsoft Corporation

• The standard performance and appraisal practices which are used in various organizations are-

• The objective setting process • The discussion of employee training and career development • The feedback on job performance.• However, it is doubtful that theses “good practices” would bring “good results” in every

setting because those good appraisal practices have their origins in Western contexts. • In order to analyze this issue, a research was conducted to explore how a standardized

performance appraisal system was actually perceived by Chinese employees in an MNC’s subsidiary in China.

• Typical Chinese cultural features embedded in the performance appraisal practices are-– Every individual is responsible for keeping the harmonious relationships within the group. In

order to maintain such harmonious relationships, respect for age and hierarchy is of great significance

– It is considered inappropriate for people in inferior positions to express opinions counter to those of people in superior positions

– Maintaining a good interpersonal relationship with others; loyalty, honesty and morality ;work skills and abilities; working attitudes and task performance are important potential criteria to judge an individual’s performance in China.

Case study : China

– Performance reviews are encouraged to be held only between superior and subordinate, in the absence of others, because if a manager criticizes a poor performer in public, he or she might feel losing face

• About the organization: The organization used in this study is one of the largest leading electronics manufacturers in the world with the headquarters in Toronto, Canada. One of its subsidiaries is located in Southern China.

• This subsidiary (Elec) is a large and high-status wholly foreign financed firm which produces electronic products for export. It is one of the model enterprises in the local

• Human resource policies in Elec come from its headquarters in Toronto, driven strongly by the corporate cultural values such as fairness, diversity and open communication

• The current performance appraisal system in Elec has been in existence for nearly ten years and it has far-reaching influences

• Method: Hundred volunteers participated in this study, made up of managers, senior supervisors and supervisors. They were from a range of departments such as manufacturing, financial, quality assurance, supplier chain management and the customer focus team.

• In-depth interviews of duration ranging from 30 minutes to two hours were conducted in Chinese and recorded.

Case Study: China

• Performance and appraisal in the organization:– Managers and their subordinates work together in setting job targets and individual

developmental plans– Mid-year performance review to check how well an individual’s plan has progressed– The annual review at year end concludes on agreeing the extent to which

employees have accomplished their targets– After finishing each stage of the appraisal process line managers submit the

respective forms to the HR department and offer opinions about rewards at the year end

Findings: Most of the participants were not satisfied with the appraisal system– They don’t like the involvement of the employee in setting in the objectives as in

China, employees (subordinates) prefer to be informed what to do, and tend to obey with what they are required to do

– Managers do not see performance appraisal as an integral part of their job responsibilities

– The western system which is “a fair system” that everyone has equal opportunity, and thus this “democratic” policy is perceived to be tolerated and served as a safe umbrella to maintain the harmony within the group but Chinese employees apparently suffered from a serious loss of “face” when a younger person or a person with shorter tenure in the company made faster career progress than they did

– They don’t consider the feedback specially the negative is necessary.

Case Study :China

Appraising/Rewarding Teams

• A concept by which teams appraisal are done• Other Names given to implementation of vitality curve – Forced Ranking, Forced Distribution,

Rank and Yank

Jack Welch – GE’s Vitality Model

Vitality Curve

Jack Welch's vitality model has been described as a "20-70-10" system The "top 20" percent of the workforce is most productive, 70% (the "vital 70") work adequately. The other 10% ("bottom 10") are non producers and should be fired

This model of Welch's caused a 28-fold increase in earnings (and a 5-fold increase in revenue) at GE between 1981 and 2001

According to Workforce Magazine’s July 2003 edition it is a “performance tool used by up to 1 in 5 [20%] of Fortune 500 companies.”

Straight from the Gut

• In Straight from the Gut, Welch says that he asked "each of the GE's businesses to rank all of their top executives“

• Specifically (in accordance with the 20-70-10 model) the top executives were divided into "A", "B", and "C" players.

• Welch also had admitted that the judgments were "not always precise".

Filled with passion

Committed to make things happen

Open to ideas from anywhere

Have charisma, the ability to energize themselves and others

Can make business productive and enjoyable at the same time

May not be visionary or most drive but vital because they are the majority of the group

Non producer. Likely to enervate rather than energize. Failed to deliver

A B

CActions:

Encourage ‘A’ players with Rewards, Promotions, Bonuses, Stock Options, etc

Fire ‘C’ Players

Accenture and PwC:They use this up or out model with the staff. Poor performing employees are counseled out of the firm(Shorthand for being fired). Due to extraordinarily high levels of attrition, Accenture is built on the need for enormous recruitment

GE:GE is by far the most famous company to utilize this form of corporate management. However, since Jack Welch's departure from the company, less emphasis has been placed on eliminating the bottom 10% and more emphasis placed on team-building

Enron:Enron traders also commonly were under the threat of being fired if they did not produce the desired results. Their downfall was attributed to employees inflating results in part to help protect their jobs. More about this can be seen in the movie Enron: Smartest Guys in the Room.

Motorola:From mid 90’s vitality curve plan was implemented. Some 50,000 employees globally were cut from the Motorola global workforce between 1995 and 2005, and many of these can be attributed to the Vitality Curve. Economics also played a major role, as the stock suffered major losses in the same period.

Microsoft: 5 buckets of pre defined size – 20%, 20%, 40%, 13%, 7%

Various Companies Standpoint

• Performance Appraisal authority called Dick Grote stated ‘The hardest thing to do is to look a person in the eye and tell them that they’re not good enough’.

• A company effectively “forces managers to make tough decisions that they would not otherwise wouldn’t or couldn’t make about their employees.”

• It allows a predetermined compensation distribution curve that controls costs while at the same time allows the company to handsomely reward top performers

• Rewards High performing staff

Advantages

Criticisms

Edward Deming noted that a) Forced Distribution system can have the unintended effect of causing an otherwise satisfactory

performer to be graded lower in order to fit into the established distribution scheme. b) Achieving the top or bottom percent label depends, always, on the caliber of the other people

on the team.c) If organizational selection systems are well implemented, the lowest 10 percent of the

organization could still be acceptable. Forcing such people out may be perceived as unnecessary and Draconian , with debilitating moral consequences

In the United States in the past few years, there have been a number of high profile lawsuits against Ford, Conoco, Microsoft and Goodyear alleging discrimination as a result of the application of the

Forced Distribution system

In Ford’s case it settled out of court for $10.5 million and abandoned its system

Among randomly selected people assigned to a task, such a model may be accurate. It is contended, however, that at each iteration, the average quality of employees will increase, making for more "A" players and fewer "C" players. Eventually, the "C" players comprise less than 10 % of the workforce.

Difficult for employees to cross rate from one division to another. Other Challenges include: Office politics, Inter office relations

Criticisms – Cont…

As Enron internally realized it was entering troubled times, rank-and-yank turned into a more political and partiality-based system

Business Consultant Tom Peters Commented “There is simply nothing dumber than labeling your people as losers. Forced ranking does not help you go after those who need serious help”

In a study conducted in the U.S. Air force, it found that the use of Forced Distribution created “decreased motivation as well as increased turnover, competition among subordinates, and conflict between subordinates and supervisors.”

The Forced Distribution methodology assumes that there is a “normal distribution” of skills within an organization based on a random group of people. It “applies only to large, randomly selected populations, not the carefully selected populations” that have been subject to pre-employment screening, training and development, and experiential growth, all of which can skew a normal distribution curve.

Finding noted by Professor Judy Olian, a leading expert in strategic human resources:

1) Forced Distribution systems may “foster a ‘me against them’ mentality since all performance judgments are relative, and each employee clamours to make it into the higher performance categories, reducing the spirit of team work.

2) There are also instances of significant deal making among managers of work units, each bargaining over employees who will be ‘sacrificed’ into the next lowest category.”

3) Negotiations between managers are commonplace and this practice leads to employee anxiety over the integrity of the system and whether his/her manager has enough influence to secure a high ranking for him or her.

4) Consequently, the performance of the employee can become secondary to the manager’s ability to negotiate and advocate on behalf of the employee with other managers, thus undermining the intent of the performance management system as a whole

Criticisms

Source: http://www.jamiesonhr.com/article/2012/1/10/forced-distribution-bell-curving-employee-performance-appraisals.aspx

The former head of Human Resources for GM said of the Forced Distribution system, “My recollection is that it created 10 problems for every one it solved. It was just a mess so we dropped

it.”

Jim, supervisor at XYZ, had just finished writing the annual performance appraisals on his 12-person research team. Nearing the end of his first year as supervisor, this was Jim's first experience in appraising employees. Nevertheless, he felt he had done his appraisals well.

He had held a thorough performance review discussion with each individual, going over progress toward specific annual objectives established early in the year. These discussions were open, frank, and, Jim believe, of value to him and to each employee.

XYZ's appraisal forms required giving each employee a ranking of: High Achiever, Excellent, Satisfactory, Marginal, or Deficient. Jim ranked 8 of his 12 people at either High Achiever or Excellent. He ranked only 1 as Marginal, and he ranked the other 3 as Satisfactory. Jim delivered his appraisals to his immediate supervisor Mac and assumed Mac would easily approve it

Case – Part 1 – The Supervisor’s Worry

Mac stormed into Jim’s Office a few days later, threw the appraisal forms on his desk and exclaimed: “Jim, these appraisals won’t do. You have overrated your people. You know I have to Force Rank everyone. You should not have more achievers and you should have few marginals and deficients. Rewrite your ratings adjusted to something that closely approximates a normal distribution and submit it by end of working day tomorrow. Understand?”

Jim was disappointed. It seemed to him the appraisal system was being manipulated to produce an expected result and was not truly reflecting the performance of people. What should Jim do now?

Jim works till late night to meet Mac’s deadline. He changed two Excellents to satisfactory without changing the comments. Jim submitted his revised appraisals to Mac. Mac looked satisfied and he approved immediately.

Jim then scheduled individual meetings with people to inform them of their change in appraisal ratings and discuss plan for improvement

Jim’s meeting with Pete Evans was a disaster. Pete’s appraisal was changed without even changing the comments. Pete bursted out "Jim, your comments seem to sound like I'm an excellent performer but you only rated me 'satisfactory'!“

Case – Part 2 – Disgruntled Employee

Jim just blurted out "I had to reduce most of the ratings as I have to conform to the distribution management expects!“

Pete stormed out of Jim's office muttering: "I thought my appraisal was supposed to motivate me to improve! It sure as hell didn't!"

Discuss Jim’s handling of his appraisal task. What would you suggest that he do now? What changes do you think XYZ should make in its appraisal system.

Source: http://wadsworth.com/philosophy_d/templates/student_resources/0534605796_harris/cases/Cases/case60.htm

Paying incentives

• Also called as ‘Pay for performance’ – Given for specific performance results rather than simply the time worked – to increase worker performance

Incentive Pay

Incentives

Structured Incentive

Casual Incentive

Structured incentives: workers understand ahead of time the precise relationship between performance and the incentive reward. Based on a specific accomplishment reward connection understood by both management and workers. Moving from hourly to piece rate wages

The most common reason for preferring piece-rate pay was increased earning potential. Workers could acquire greater earnings in fewer hours of work, even though it took more effort to do so.

Example: piece-rate pay, end of season bonus for employees who stay to the end, allowing workers to go home early with full pay when they finish the job, profit sharing, etc

Casual Incentives: workers never know when a reward will be given. Given at unexpected intervals. It includes Pat on a back, sincere thank you, tips at local restaurant, etc.

Drawbacks of casual Incentive: a)envy among employees, b)feelings among workers that supervisor is acting out of favoritism

Source: http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/08.htm

Problems:• Poor performance of government teachers• High Absenteeism, Lack of teaching when in school, abysmal quality of teaching

Andra Pradesh Experiment – Quality of Teaching:Muralidharan & Sundararaman (2011) analyze a large teacher performance pay program in Andhra Pradesh (AP). The study has a representative sample of 300 government schools in rural AP- 100 in control group, 100 in individual incentive treatment group and 100 in group incentive treatment group

The incentives were based on the average improvement in test scores (math and language) of students subject to a minimum improvement of 5%. In the schools with group incentives, all the teachers received the same bonus based on average school-level improvement in test scores, while in the schools with individual incentives, bonus for teachers was based on average test score improvement of students taught by specific teacher

At the end of two years, students in individual incentive and group incentive performed significantly better than the students in control schools. Interestingly, in the first year – individual incentive and group incentive schools performed equally, but after two years individual incentive group significantly outperformed group incentive schools.

They also find that students in the incentive schools performed better not only in math and languages, but also in science and social studies, for which there were no incentives

Case – Incentive pay in Schools (1/2)

Source: http://www.accountabilityindia.in/accountabilityblog/2235-case-incentive-payments-teachers-government-schools

Rajasthan Experiment - Attendance:Duflo, Hanna & Ryan (2007) conducted a randomized experiment in the Indian state of Rajasthan where, in 57 out of 113 randomly chosen schools. Teacher’s daily attendance was verified through photographs with time and date stamps.

Two kind of schools – Comparison schools and treatment schools. In the comparison schools, teachers were paid a fixed rate for the month- Rs. 1,000. The teachers in the treatment schools received Rs. 50 bonus for each additional day they attended in excess of 20 days, and Rs. 50 fine for each day of the 20 days they skipped work, in a given month.

Result: The authors find that over 30 months in which the attendance was tracked, teachers in the treatment schools had an absence rate of 21% as against 42% in the comparison schools. Thus, the program halved absenteeism.

Developed Countries: The above experiments were carried out in developing countries. 200 New York city public schools were evaluated (NBER – working paper no: 16850). Whether a school receives incentive amount was based on whether it met the annual performance targets based on school report card scores.

The author finds no evidence that the teacher incentives increase student performance, attendance or graduation rates. He also doesn’t find any change in student or teacher behavior.

Findings of the case: Incentive pay works really well in developing countries. Individual incentives seem to be more powerful than group incentives

Case – Incentive pay in Schools (2/2)

Source: http://www.accountabilityindia.in/accountabilityblog/2235-case-incentive-payments-teachers-government-schools

360 degree appraisal

360 Degree Appraisal

Five things to consider before you start 360 degree appraisalPurpose

clarify why and what communicate to everyone

Culture – are you ready? Do you have a mature enough team dynamic? Are you open enough? Those involved need to feel comfortable & supported

Timing of introduction – also link with the planning cycle

Roll out – champion? How to generate buy-in? Involve everyone early

Confidentiality for appraisees and raters – non-attributable

Employee

Peers

Team members

Subordinate

Superior

Customers

Suppliers/vendors

Challenges Some raters may maliciously give poor ratings to others due to “office politics,” thereby spoiling the validity of the data and limiting usefulness of the feedback for leadership development More time and efforts is involved Individuals may not like to be evaluated by peers

Contradictory to traditional appraisal process where only one person i.e. supervisor appraises the subordinates, in 360 degree the feedback is collected from all the stakeholders in touch of the person.

PepsiCo Global 360-degree feedback tool

Company profile• Largest US-based food and beverage company • Over 2,85,000 employees

•Implemented a 360-degree feedback programme to support the progress of effective leaders, to engender talent and to communicate a commitment to the learning and development process. •They chose ETS to help in the design of an integrated feedback system that streamlined the development procedure.

Outcome• generated positive responses from the PepsiCo leaders• Up to 88% of PepsiCo executives reported that using 360s as a developmental tool was better than most previous developmental experiences

Advantages• Implementing a global 360 programme gives one view of effective leadership• Employees benefit from an integrated system

Our senior leaders clearly see the value of this process, up to and including our CEO. They participate themselves and encourage participation through their own sectors and business units. Having such senior level support for our programme is terrific. As a result, we get response rates consistently above 90%, which really demonstrates our employees' and leaders' commitment, involvement and engagement in the process.

Erica Desrosiers, Director, Organisation and Management Development at PepsiCo

The Assessment Centre

Assessment Center• An Assessment Centre consists a

standardized evaluation of behaviour based on multiple inputs. Judgments about behaviours are made and pooled in a meeting among the assessors or by a statistical integration process

Essential Features:• Assessors trained to a standard• Multiple observation for each dimension• Multiple Assessors for each candidate• Systematic methods of recording behavior• Statistical Integration Process

History and Growth • Developments during Second World War• War Office Selection Board versus ‘the Interview’• Advanced Technology -> Aptitude Tests• Social class -> Leadership assumed ->Insufficient training -> Failed leaders -

> Psychologist’s Contribution -> Study of behavior and multiple inputs for success

• Validation study by Vernon and Parry in 1949 validated the success• Office of Strategic Studies in US in 1944 used the technique for CIA

selection• AT&T did a longitudinal study of management progress, predicted and

actual grade , other companies started following

A Typical Assessment Centre• Candidates participate in a series of exercises that simulate

on- the job situations.

• Trained assessors carefully observe and document the behaviours displayed by the participants. Each assessor observes each participant at least once.

• Assessors individually write evaluation reports, documenting their observations of each participant's performance.

• Assessors integrate the data through a consensus discussion process, led by the centre administrator, who documents the ratings and decisions.

• Each participant receives objective performance information from the administrator or one of the assessors

Meta-analysis results: AC validityWork Sample Tests 0.54

Cognitive Ability Tests 0.51

Structured Interviews 0.51

Personality Tests 0.4

Assessment Centre 0.37

Biodata 0.35

References 0.26

Unstructured Interviews 0.2

Graphology 0.02

Validity of Assessment Centers

Efficacy of ‘Assessment Centre’

More than nine out of 10 employers using assessment centres believe they are a very (47%) or fairly (48%) effective means of recruiting staff to fill vacancies, according to research Employment Review.

Just under half (47%) of public sector organisations agreed, but fewer than one in three (29%) of manufacturing companies was keen on them.

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Non-monetary Rewards

Monetary vs. Non-Monetary Rewards• For people with satisfactory salaries, some non-financial motivators are more effective than extra cash

in building long-term employee engagement in most sectors, job functions, and business contexts• Many financial rewards mainly generate short-term boosts of energy, which can have damaging

unintended consequences

Importance• A great opportunity to reassess the combination of financial and nonfinancial incentives that will serve

their companies best through and beyond the economic downturn• Balance between monetary and non-monetary rewards may help in building long-term employee

engagement

Examples of Non-monetary Rewards• Flexible work hours• Work from home• Appreciation letters from top brass• No-shoes policy• Reward effort as well as success• Providing free days off• Applaud employees efforts• Offer a swap in terms of role, projects etc.

Non-monetary Rewards

Why haven’t many organizations made more use of cost-effective nonfinancial motivators at a time when cash is hard to find?

1. Many executives hesitate to challenge the traditional managerial wisdom: money is what really counts2. Requires more time and commitment from senior managers

Non-monetary Rewards (continued)

Stock Options

Stock Option – An overview

Stock option is the option of offering ownership of an enterprise to employees. It can be in the form of preferential share or a certain percentage of public issues This directly links the managers performance to company’s performance, as improvement in Company’s performance will benefit him as a stake holder

Transnational Formula The Indian Equation

RBI doesn’t allow Indian Employee to own Foreign Stock So the calculation is done for how much the share value has appreciated by the time he wish to sell Equivalent money is paid to the employees

Offer shares from promoters holding Preferential issue of fresh share Phantom Stock options – It is just the transfer of money based on the increase in share price value instead of actual transfer of shares. For example: Hughes Software service

Merits Demerits

Links compensation package to performance Offers a way to retain employees Motivates employees Inculcates a sense of ownership Establishes team effort

Only profitable companies can use this tool Stock prices do not reflect fundamentals Falling share price could mean loss of employees Inability to cash in quickly can dampen interest

Some of the companies that are mentioned in this presentation that uses Stock options are: HCL, Infosys, Mastek, Cadence Design Systems, GE, KPMG, Intel Corporation etc.

Comparison of Stock option in Various Companies

Another important factor in providing stock is the time interval – time of providing the stock and option date of selling it By using lock in period we also ensure that Executive stays for long time in an organization

Time Interval in Various Companies

Company Waiting Period

Mastek One and a half year

SSKI Securities Six Years

Infosys Five years

HCL Provides shares in Installments, offers options at three tranches over four and a half year

Cadence Design Releases one fourth in first year and rest over next three year

Eligibility for Stock option

Generally companies have some eligibility criteria for its employee in order to avail this option in the form of long service and performance For Example Infosys insists on atleast three years of service as an eligibility, Mastek has a criteria that links both performance and length of service to the company

Quotes from Top Management People of Various Organization

“We have created 50 millionaires in Infosys purely through stock option”

- N.S. Ragavhan, Joint Managing Director, Infosys

“Offering shares at market price is no big ceal. It hardly offers any benefits to recipient”

- Bakshin, HCL

“Instead of saying, I work for SSKI we want employees to say this is my company”

- Ashwini Agarwal, Research head, SSKI

“The team incentive that stock options provide indirectly is generally overlooked”

- Aadesh Goyal, Asst VP, Hughes Software System

“I feel part of the Mastekian Family”- Veena Sajjan, Programmer, Mastek

KPMG Reward System

Effective reward system is very important to recruit and retain right people. It is illustrated with the example of Reward system of KPMG KPMG Reward system includes Base salary, Short term incentives (e.g. bonus), Long term incentives (e.g. Stock option plan), and Benefits

Methodology of KPMG’s stock option plans:

Bench marking exercise with other companies

Definition / Design / Implementation

Connecting stock option with compensation

Effective communication programme

Training of Employees and Constant Advice

Objectives of Stock Option:

Competitive Salary Package Employee Motivation & Performance improvement Goal Alignment Enhance participation of employees Retention of employees and recruitment of competitive executives

Benefit for the company

• Retention of competent executives

• Reduction of turn over• Balancing goals• Improvement in company’s

performance

Benefit for the Individual

• Long term increase in net salaries

• Sense of ownership

Research on Effect of Employee stock option – Indian Context

• To delineate the effect of employee stock option plan (ESOP)

• To find whether it is an effective tool to retain and attract qualified executive

Purpose of Research

• Studies the ESOP impact on corporate productivity of 202 listed Indian companies

• Classified in to Control group (non ESOP (99)) and Experimental group (ESOP (103))

Approach

• ESOP doesn’t improve the Productivity performance of Indian Companies

• Study also suggests that it can neither help in retaining best employees

Findings

Limitations:1. The results are analysed on only one Parameter “Asset Turnover Ratio (ATO)”2. The results are predicted only for 3 years of Post – adoption of ESOP, this cannot be considered as

the right measure as actual benefit can be seen in later stage of process

Reference: Research paper on “The Elusive employee stock option plan – productivity link: Evidence from India” by Ramesh Kumar Dhiman

Google Employee Stock Options

1. 15% of white collar workers in the US have Employee Stock option2. Google (GOOG) has launched a new program that allows employees with vested stock options to

sell these options via an unusual internal market – Transferable Stock Options Program (TSO)

Situation for Google Employees

A new college graduate who got hired by Google, who joined in Jan 06, got5,000 options at 470. he doesn’t have any other assets.

Should he sell his Google share and diversify vs. keep Google for the high volatility ride?

Solution

1. The first step is to value the stock options in terms of their fair value and in terms of how much can be obtained from a sale of the options.

2. The second step is to examine how the total risk/return performance of your portfolio changes under various strategies.

3. For many people, selling a fraction of the options is going to be more attractive than an all-or-nothing approach.

4. It is worth noting that an employee weighing this kind of decision will need to have a good sense of the risk and return characteristics of both Google stock and the potential investment alternative available for deploying the funds obtained from selling his/her options

Reference: Google Employee Stock options: A case study by Geoff Considine

Performance appraisal ethics

Issues,concerns,challenges ?Need for Performance Appraisal • Organizations must have a process by which rewards - which are not an unlimited resource - may be openly and fairly distributed to those most deserving on the basis of merit, effort and results.• Performance appraisal - whatever its practical flaws - is the only process available to help achieve fair, decent and consistent reward outcomes.

Concerns• In the absence of a carefully structured system of appraisal, there is little chance of ensuring that the judgments made will be lawful, fair, defensible and accurate.

• Traditionally, the appraisal process was firmly linked to material outcomes. Sometimes this basic system succeeded in getting the results that were intended; but more often than not, it failed.

• Whether this is an appropriate use of performance appraisal - the assignment and justification of rewards and penalties - is a very uncertain and contentious matter.

• Practice of having separate wage and salary reviews, in which merit rises and bonuses are decided arbitrarily, and often secretly, by supervisors and managers.

• Rather than an opportunity for constructive review and encouragement, the reward-linked process is perceived as judgmental, punitive and harrowing.

• Many appraisers feel uncomfortable with the combined role of judge and executioner.

• The appraisal result can be resentment and serious morale damage, leading to workplace disruption, soured relationships and productivity declines.

Case on Performance Appraisal EthicsFrank became chief financial officer of medium-sized contracting business six months ago. Soon

after Frank started, the company decided for the first time to "right-size" (a euphemism for downsize) to respond to rapid changes in its business.

On Frank's recommendation, the company decided to make its lay-off decisions based on the annual performance appraisal scores of the employees. Each department manager would submit a list of employees ranked by the average score of their last three appraisals.

As Frank was reviewing the evaluations, he was puzzled to find three departments in which the employee at the bottom of the list had "N/A" where the evaluation score should have been written. When he asked the managers to explain, they told him these employees had been with the company almost since the beginning. When performance appraisals had been instituted six years earlier, the CEO agreed to the longtime employees' request that they keep receiving informal evaluations "as they always had.“

The managers told Frank they'd questioned this decision, and the CEO had told them it wasn't their problem.

When Frank raised this issue with the CEO, he responded, "Oh, I know. I haven't really evaluated them in a long time, but it's time for them to retire anyway. They just aren't performing the way they used to. The company‘s been very good to them. They've got plenty of retirement stored away, not to mention the severance you've convinced me to offer. They're making pretty good money, so cutting them should let us lower the line a little and save jobs for some of the younger people--you know, young kids with families just starting out. And don't worryabout a lawsuit. No way they'd do that.” "Do they know they're not performing well?" Frank asked. "I don't know," the CEO responded. "They should. Everybody else in the company does.“

As they walked to the door, the CEO said, I'm glad you talked with me today about these three employees. You got it right: This is a company that cares for its employees--as long as it can and as long as they're producing. Always has, always will.“

Frank left the CEO's office with the vague feeling that he had some moral choices to make. Does he have an ethical dilemma? What's the right thing to do? If he disagrees with the CEO, how does he protect his own career and the interests of his own family? What do you think?

References

• How a new performance appraisal system saved Yellow Freight System $20.8 Million”, by Jack Zigon, Zigon Performance Group •Employee motivation and retention strategies at Microsoft•Are “standardized performance appraisal practices” really preferred? A case study in China -Jie Chen and Derek Eldridge• http://www.mckinseyquarterly.com/Motivating_people_Getting_beyond_money_2460•http://www.hrworld.com/features/25-employee-rewards/