Performance & Compensation Management

Performance & Compensation Management by Shah M Saad Husain 1

Performance & Compensation Management

Shah M Saad Husain


Performance & Compensation ManagementShah M Saad HusainB Engg, MS Engg, PE, MBA, FICS, FIMM

33 years senior management experience with government, Pakistani private sector and multinational companies.

in Project Management, Engineering Operations, General Management, Business Development, External Affairs, Marketing, HR, Corporate Planning, CSR and Customer Relations.

with PIDC, Habib Group, British Petroleum, BHP Billiton, Indus Motor, Pak-Arab Refinery.

22 years teaching experience at IBA, CBM, PIQC, PIM, NIPA, LUMS. Subjects: HRM, Performance & Compensation Management, Marketing Management, Strategic Management, Project Management, Industrial Marketing, Japanese Management, CSR, Customer Ascendancy.


Performance & Compensation Management – Course ContentsHR and Organizational Strategy

1 HR in the 21st Century2, 3 The Strategic Role and Outcome of HRM 4, 5 HR Strategies and Organizational PerformancePerformance Management6,7 Objectives of Performance Management8, 9 Performance Management Systems10 Employee Training & Development11 Manpower Planning & Recruitment12 Succession PlanningReward Management13 Objectives of Reward Management14, 15 Job Evaluation, Internal and External Equity16, 17 Compensation18, 19 Grade & Pay Systems20 Factors Influencing Pay21 Impact of Environment on Reward Management22, 23 Reward Model – Strategy & Implementation24, 25 Motivation, Reward & Organizational Commitment26, 27 Rewarding Contribution and Performance28 - 29 Student Presentations, Case Studies


Course ObjectivesCourse Objectives

Knowledge of P & R Management Theory, Concepts, Processes and Practices.

Identifying Sources of Information and using them.

Class Interaction, learning from the Marketplace.

Practical Application of course, developing Strategies for Organizations.

Performance Assessment: Students Teacher.



Course RequirementsCourse Requirements

Readings from selected texts, journals Theory, Concepts discussed in Class Student Projects and Reports Real Life Cases Examinations Presentations and Class Evaluations Class Participation, Quizzes, Home Assignments



Bring Course File to each class Read reading materials before class Write notes as slides are explained and discussed Keep track of Course Calendar, Class Timings,

Grades, etc., on e-group and with CR Maintain contact with CR and SSH Meet Attendance and Punctuality requirements Discipline is key. Adhere to IBA Rules.

Instructions for StudentsInstructions for Students



Performance & Compensation Management - Grading- Grading

Midterms ( 2 x 20 ) = 40 Final = 30 Project Report, Presentation = 25 Home Assignments, Quizzes = 5

All Quizzes are open book

For an overall A grade in the course: A in Final A in Project Report Active Class Participation


I. Luis R. Gomez – Mejia, David B. Balkin,

Robert L. Cardy (2008) : Prentice Hall

“Managing Human Resources”

ii. Michael Armstrong (2008): Kogan Page

“Employee Reward Management & Practice”

iii. Wayne F. Cascio (2006): Tata McGraw-Hill

“Managing Human Resources”

Performance & Compensation Management - - ReadingsReadings

1 – HR in the 21st Century

2 – The Strategic Role and Outcome of HRM

3 - HR Strategies & Organizational Performance




HRM and the 21st Century

Due to Internet technologies, organizations are undergoing a complete transformation. The 21st century organization must adapt itself to management via the web.

Intellectual capital will be critical to success. Advantage of bringing new technologies to the market will be shorter. Technologies will let competitors match them almost immediately.

In such times, it will be critical to attract and retain the best thinkers.

Retaining and attracting the top talent will require more than just paychecks. It will require a culture of empowering people, and a reward system that rewards the best as if they were the owners of the company.

Intellectual capital will be called on from around the globe. A global corporation might be based in the US but does its software programming in Sri Lanka, engineering in Germany, its manufacturing in China, and is linked via the Internet to allow employees to interact and work in real time.


HRM and the 21st Century Corporation

20th Century Corporation 21st Century Corporation

Predicated itself on stability Predicated itself on constant change

Organized around rigid hierarchies Organized around networks and teams

Built on self-sufficiency Built on shifting partnerships and alliances

Organizational chart defined as a shrinking pyramid leading to the CEO

Organizational chart more likely to be a flat web, intricately woven that links partners, employees, external contractors, suppliers, and customers in various collaborations

Constructed on bricks and mortar Constructed on knowledge and technological advantages.



Introduction to HRM

Human Resources Strategy in a firm is a firm’s deliberate and planned use of human resources to help it gain a competitive advantage.

The HRM strategy of a firm is its grand plan to ensure that it effectively uses its people to accomplish its mission.


JOB (Scope & Depth)

EMPLOYER

Growth in• Goods & Services• Customer Satisfaction• Revenue Generation• Profits• Return on Equity (ROE)• Expansion of Business• Corporate Reputation

Employer Objectives

Growth in• Family & Self• Profession• Career• Security• Social Status

Employee ObjectivesServicesWork

Employee – Employer Relationship

• Employer/Organizational Objectives• Organizational Structure• Job Identification, Analysis & Design

• Job Specification (Before Joining)•

• Job Description (After Joining)• Tasks, Activities, Responsibilities, Accountabilities• Power (Financial/Administrative)•

• Reporting Structure• Manpower Planning, Recruitment, Induction• Training & Development

EMPLOYEE

Performance Management

Compensation & Rewards

• Salary• Benefits• Facilities and Perks• Allowances• Professional, Career, Societal

Recognition• Internal + External (Mkt) Equity

• Performance Evaluation• Increments• Bonus• Incentives• Career Development• Ultimate Potential

HUMAN RESOURCE MANAGEMENT






HRM practices make an important practical difference in three key organizational outcomes.

1. Productivity

2. Quality of Work Life

3. Profit : Total Revenue minus the Total

Cost

Outcomes of HRM Practices


A measure of the output of goods and services relative to the input of labor, capital, and equipment.

Higher productivity Leads to higher wages without boosting inflation. Is not working harder, it is working smarter. Is about doing more with fewer people, less money, less

time and space, and fewer resources.

Outcomes of HRM Practices:

1. Productivity


MORE PRODUCTIVE ORGANIZATIONS GET MORE GOODS AND SERVICES FROM A GIVEN AMOUNT OF LABOR, CAPITAL, EQUIPMENT.


Rebuild employee loyalty.

Establish a clear link between rewards and production.

Say no to ‘Quick Fix’ approach.

Emphasize on Continuous Improvement.


1. Productivity Improvement


Two ways of looking at Quality of Work Life (QWL)

• Organizational Conditions and Practices such as promotion from within, democratic supervision, participative management, employee involvement, safe working conditions, mutual trust, team work.

• Employees’ Perceptions that they are respected, relatively well satisfied, and able to grow and develop as human beings and professionals.


2. Quality of Work Life



Management Systems that produce profits through people share the following dimensions:

1. Employment Security.

2. Selective Hiring.

3. Self-managed teams and decentralization.

4. High Compensation contingent on organizational performance.

5. Extensive Training, Development and Professional grooming.

6. Reduced differences in status. Respect for competence and

performance.

7. Sharing of information, effective communication systems.

8. Employee Care and Satisfaction.

9. Trust.

Outcomes of HRM Practices: 3. Profit


1. Strategic Partners: work with multiple stakeholders to achieve business plans.

2. Innovators: create an environment that supports continuous learning and improvement.

3. Collaborators: create win-win situations with internal and external stakeholders.

4. Change facilitators: anticipate the need for change, think, conceptualize, articulate, execute and energize organization to bring change.


4. Roles of HR Professionals Today “ The greatness of an Organisation is due to the Greatness of its People”, Eiji Toyoda


HRM and Corporate Strategic Goals

Human Resource Management is essential to advance a firm’s strategic goals.

HRPRACTICES

HRSTRATEGY

HRTACTICS

HRPLANS

HR POLICIES,SYSTEMS,

SOPs

CORPORATESTRATEGY

CORPORATESTRATEGIC

GOALS

Linking Corporate Strategic Goals

with

HRM


HR’s Strategic Role

Successful firms align their HR strategies and tactics with:

1. Environmental Opportunities and Threats.

2. Business Strategies.

3. Organizational Unique Characteristics.

4. Organization’s Competence.


Planning and Implementing Strategic HR

Strategic HR Planning involves:

1. Formulation of HR strategies

2. Designing Programs and Tactics

3. Execution

4. Monitoring Results


The Benefits of HR Planning1. Encouragement of proactive rather than reactive behavior

2. Explicit communication of Company Goals

3. Stimulation of critical thinking and ongoing examination of assumptions

4. Identification of gaps between Current Situation and Future Vision

5. Encouragement of Line Manager’s Participation

6. Identification of HR constraints and opportunities

7. Teamwork and creation of common bonds


The Challenges of Strategic HR Planning

1. Maintaining a competitive advantage

2. Reinforcing overall business strategy

3. Avoiding excessive concentration on day-to-day problems

4. Developing HR strategies suited to unique organizational features

5. Coping with the environment

6. Securing management commitment

7. Translating the strategic plan into action

8. Combining intended and emergent strategies

9. Accommodating change


Selecting HR Strategies to Increase Firm’s Performances

HR Strategy’s effect on a firm’s performance depends on how well it ‘fits’ with other factors

Fit refers to the consistency and compatibility between HR strategies and other important aspects of the organization


Fit with Organization Strategies

Corporate Strategy is referred to as the mix of businesses a corporation decides to hold and the flow of resources among those businesses. e.g., PARCO

Business Unit Strategies are those that are formulated and implemented by a firm that is relatively autonomous, even if it is part of a larger corporation. eg. PAPCO


Effective HR Strategy Formulation and Implementation


HR Strategies to Fit Three Major Types of Business Strategies


HR Strategies That Fit Two Major Types of Business Strategies


Fit with the Environment

HR strategies should help the organization better exploit environmental opportunities or cope with the unique environmental forces that affect it

The relevant environment can be measured in terms of four dimensions:

1. Degree of uncertainty: how much accurate information is available to make appropriate business decisions

2. Volatility: how often does the environment change

3. Magnitude of change: how drastic the changes are

4. Complexity: how many different elements in the environment affect the firm either individually or together


HR Strategies for Firms with Different Environmental Characteristics


Fit with Organizational Characteristics1. The production process for converting inputs into

outputs

Routine production process benefits from HR strategies that emphasize controlexample: Specific job description and job specific trainings

Firms with non-routine production processes such as advertising firms, custom printers, and biotechnology companies, benefit from flexible HR strategies that support organizational adaptability, quick response to change and creative decision makingexample: Broad job classes, loose work planning, and generic training


Fit with Organizational Characteristics2. The Firm’s Market Posture

Firms that experience high sales growth and engage in product innovation for a wide market segment benefit from HR Strategies that support growth and entrepreneurial activities

example: External recruitment or buying skills, decentralized pay decisions, customized appraisal

Firms with low rates of sales growth and limited product innovation for a narrow market segment benefit from HR strategies that emphasize efficiency, control, and firm specific knowledge

example: Internal recruitment or ‘making skills’. On-the-job training, and high dependence on superiors


Fit with Organizational Characteristics3. The firm’s overall managerial philosophy

Companies whose top executives are risk-averse and operate with an autocratic leadership style, and are inwardly focused use HR strategies that match this outlook

example: Seniority based pay, formal hiring and socializing of new employees, selection decisions made by the HR department and use of top-down

communication channels.

Management characterized by high risk taking, participation,

egalitarianism, and external, proactive environmental orientation use HR strategies that fits this outlook

example: include variable pay, giving supervisors a major role in hiring decisions, up-and-down communication channels, and multiple inputs for performance appraisals


Fit with Organizational Characteristics

4. The firm’s organizational structure

Highly formal organizations that are divided into functional areas like marketing, finance, production, etc, and concentrate decision making on top: HR strategies for such organizations include a control emphasis, centralized pay decisions, explicit job descriptions, and job-based pay.

Firms whose structures are less regimented benefit from HR strategies that include informal hiring and socializing of new employees, decentralized pay decisions, broad job classes and individual-based pay.


Fit with Organizational Characteristics5. The firm’s organizational culture

Companies that foster an entrepreneurial climate have loose work planning, informal hiring and socializing of new employees and variable pay.

Firms that discourage entrepreneurship generally prefer a control emphasis, detailed work planning, formal hiring and socializing of new employees, and fixed pay.

Firms with emphasis on moral commitment- the extent to which a firm tries to foster a long-term emotional attachment between the firm and the employees have emphasis on preventive vs. remedial disciplinary action to handle employee mistakes, and explicit ethical codes to monitor and guide behavior.

Firms that are low on moral commitment rely on authoritarian relationship between employee and company.


Fit with Organizational Capabilities

Distinctive competencies of a firm are its capabilities such as technology, management systems, reputation, etc, that give it a Competitive Edge

HR strategies should enhance a firm’s performance by:

1. helping the company exploit its specific advantages or strengths while avoiding weaknesses

2. assisting the firm in better utilizing its unique blend of human resource skills and assets


Choosing consistent and appropriate HR tactics to implement HR strategies

The best-laid HR strategies may fail when specific HR programs are poorly chosen or implemented

In addition to fitting with each of the four organizational characteristics; organizational strategy, environment, organizational capabilities and characteristics, a firm’s HR strategies should be mutually consistent

HR strategies are likely to be successful if they reinforce one another rather than work at cross-purposes.example: Working in teams, but traditional individual based performance appraisals


Choosing Consistent and Appropriate HR Tactics to Implement HR Strategies


Reckitt Benckiser diagram


Check theorganizationcapabilities to fill GAPsSuggestions

KAIZENAction Plan

IndividualPre-StudyOn the Industry

InterviewsQuestionnaire(Learn the existing condition)

Observation of employee behavior(Deepen understanding with personal presence)

Brain Storming with the HR manager(promote better understandingthrough discussion)

Formulate a Gap Analysis(learn by experience)

Collection of Existinginformation (Secondary data)

METHODOLOGY

Listen

LookConfirm

Do

(1)

(2)

(3)

(4)

Think

PLAN

DO

CHECK

ACTION


STEP 1: (PLAN)

Individual Pre Study on the Industry what are the practices of the HR Department.

STEP 2: (METHODOLOGY)

CONFIRM:

1st collection of the existing information in the form of secondary Data of Company.

LISTEN: Interview from the Managers & Heads of the company.Development of questionnaire & asking the questionnaire from different levels of people from the industry.

LOOK:

Visual observation of the behavior of people at the industry.

THINK: Brain Storming with the existing HR people to come up with Kaizen.

DO:

Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions)

STEP 3: (CHECK)After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly.

STEP 4: (ACTION)Formulation & proposing of the KAIZEN Action Plan to enhance HR practices.


Competencies Required of HR Department to Become a Full Strategic Partner

Documents

Performance & Compensation Management