RPM Notes

Week 1 – Introduction to fundamentals of performance and rewards

Topic 1: Managing Employee Performance and Reward: Concepts, Practices, Strategies Human resource processes and planning:

1.   Staffing -   Planning -   Job analysis and design -   Recruitment -   Selection

2.   Development -   Job knowledge and technical skills -   Attitudes and abilities

3.   Rewards -   Intrinsic -   Developmental -   Base pay -   Performance pay

4.   Performance management -   Evaluation -   Feedback -   Enhancement

Context:

-   Competitive strategy, organisational structure and management culture -   Markets -   Regulation/industrial relations

Stakeholder Main performance criteria Shareholders/own Executives Line managers Employees Customer/clients Suppliers Government Community Environment

What is performance? (cybernetic model)

What should a performance management system do?

-   Communication: desired competencies, behaviours and results to achieve its strategic objectives

Individual  performance

Work group performance

Organisational performance

Personal  results e.g.  quantity,  

quality

Personal  behaviour e.g.  effort,  citizenship

Personal competencies

e.g. knowledge, skills, abilities,

attitudes

Group  results e.g.  

productivity,  quality

Work  group  behaviour e.g.  team-­‐working

Work group competencies e.g. collective

know-how

Organisational  results

e.g.  profitability,  customer  

satisfaction,  

Organisational  behaviour

e.g.  customer-­‐focus,  

cooperation,  

Organisational  competencies

e.g.  core  competencies  and  people  

Outcomes (Results)

Processes (Behaviours

)

Inputs (Competen

cies)

-   Build relationships: between internal stakeholders -   Monitor and measure: individual and group performance by valid, reliable and felt

fair means. -   Provide timely feedback: on recent performance, including strengths, weaknesses

and areas for improvement. -   Develop: individual and group performance capabilities -   Evaluate: individuals for purposes of selection and promotion, and evaluate

individuals and groups for reward allocation. Key requirements for an effective performance management system: 1. Validity (Are the right things being measured?)

•   The ‘goodness’ of the performance criteria and measures used •   ‘Is this one of the things we should measure?’ (= construct validity) •   ‘Are we measuring enough of the right things?’ (= content validity) •   ‘Are we really measuring what we say we are trying to measure?’ (= criterion-related

validity) 2. Reliability (Are valid measures being applied accurately?)

•   Accuracy •   Consistency •   No measurement error or bias

3. Cost-effectiveness 4. Felt-fairness/procedural justice (Are the decision-making processes seen as fair?)

• Explain performance standards in advance • Early and ongoing notice of areas of underperformance • Opportunity (time and resources) to improve

Adequate notice

• Have employees provide input to assessment process, e.g. self-assessment

• Opportunity to explain • Right to refute and appeal

Fair hearing (or ‘voice’)

• Correct standards • Standards applied consistently • Judgement based on evidence related to standards

Validity and reliability

What are rewards? -   A reward is an organisation that provides its employees either intentionally or

unintentionally in exchange for the employee’s potential or actual work contribution

-   It is to which employees as individuals attach a positive valence as a need satisfier.

Components of total rewards: Intrinsic rewards:

-   Job challenge -   Responsibility involvement -   Autonomy -   Task variety

Extrinsic rewards: Developmental rewards:

-   Learning, training & development -   Succession planning -   Career progression

Social rewards: -   Organisational climate/management culture -   Performance support -   Work group affinity -   Work-life balance; well-being

Financial rewards/remuneration: -   Base pay -   Direct benefits -   Performance-related pay

Performance-related reward plans Individual: How (=behaviour)

-   merit raises/increments -   merit bonuses

How much? (=results) -   piece rates -   sales commissions -   goal-based bonuses

Both: -   discretionary bonuses -   individual non-cash recognition awards

Small group short-term incentives (STIs)

How much? (=results) -   team incentives -   team non-cash recognition awards

Large group short-term incentives (LTIs) How much? (=results)

-   profit sharing -   gainsharing -   goal-sharing

Organisation-wide-long term incentives (LTIs) How much? (=results)

-   share bonus plans -   share purchase plans -   share options plan -   share appreciation and other rights plans

What should a good reward system do? Primary organisational aims:

-   Attract the right people at the right time for the right jobs, tasks or roles -   Retain the best people by recognizing their contribution -   Motivate employees to deliver to the best of their capabilities -   Develop employees’ performance capabilities by encouraging and rewarding

them for demonstrated improvement in capability Associated aims:

-   Satisfy needs i.e. be of value to employees in satisfying their needs -   Be fair i.e. be commensurate with contribution and comparable to rewards

received by other employees -   Be legal i.e. comply with relevant legal requirements and mandated minimum

standards -   Be affordable i.e. be within the financial means of the organisation and cost-

effective -   Be strategically aligned i.e. support the organization’s business strategy and

structure. Working with psychology

-   Work behaviours -   Work attitudes -   The psychological contract -   Organisational justice -   Motivation in theory and practice

-   Content theories -   Process theories

Work behaviours They are physical and/or verbal actions by individuals that are:

1.   Observable 2.   Measurable 3.   Casually linked to desired performance results, either positively or negatively

Three key types of behaviour

1.   Membership behaviour -   When people decide to join and remain with an organisation -   Characteristics are:

-   Reduced turnover/longer tenure -   Reduced absenteeism

2.   Task behaviour -   When employees perform specific work tasks that have been assigned to them

and which form part of the organisations technical core. -   Characteristics are:

-   Increased work effort 3.   Organizational citizenship behaviour

-   When employees voluntarily and altruistically undertake special actions that exceed membership and task compliance.

-   Characteristics are: -   Volunteering to carry out task activities not formally part of the job

(i.e. discretionary effort) -   Persisting with extra enthusiasm or effort to complete one’s own task

activities -   Helping and cooperating -   Showing initiative/being innovative -   Endorsing, supporting and defending organisational objectives

   Key work attitudes

-   An attitude is a conscious, cognitive predisposition or inclination to act or behave a certain way

 1.   Work motivation

-   The strength of the employee’s desire to perform his/her assigned work tasks Three dimensions:

1.   The direction of effort (why people take certain actions rather than others, e.g. emphasising product quantity over quality)

2.   The intensity of effort (why the actions taken involve either a lot of effort, or a little effort)

3.   The persistence of effort (why some actions are more sustained and enduring than others)

2.   Job satisfaction -   How happy am I in my job? -   The overall positive or negative attitude the employee holds towards the job

and the workplace -   Covers both intrinsic (job content) factors and extrinsic (job context) factors,

including rewards

3. Organisational commitment -   The strength of the employee’s attachment to the organisation; feeling of

belongingness -   Commitment + effort = ‘engagement’

-   Three dimensions:

1.   Affective commitment (wish to remain because of perceived emotional benefits) 2.   Normative commitment (felt obligation to remain because of perceived indebtedness

to the organisation) 3.   Continuance commitment (felt need to remain because of perceived costs of

leaving) The psychological contract

-   A contract: an agreement about the mutual responsibilities of parties in an exchange relationship. Involves a promise, a payment/consideration and an acceptance.

-   The psychological contract: perceptions or expectations by each party as to what they and the other party have undertaken to give and receive in the exchange.

-   Why does it exist? Because the employment exchange is typically very open-ended and imprecise, often leading to ‘contract drift’.

Psychological contract: employee perspective.

Management-espoused psychological contracts: relational vs transactional

And you’ll be a part of: � an exciting, dynamic

organisation (for as long as we

And you’ll be a part of: � a dull but safe organisation

(for the long haul)

We’ll provide: � A challenging work

environment � Opportunities for you to

develop your knowledge, skills, abilities and marketability

We’ll provide: � A secure job (here) � Internal training opportunities � Steady pay increases � Financial security

If you: � Develop the competencies we

need � Apply them in ways that help

If you: � Are loyal � Work hard � Do as you are told

Basis of the employment exchange: � Economic-instrumental

Basis of the employment exchange: � Social-emotional exchange

Key principle: � ‘A flexible, mutually

beneficial partnership’ for as

Key principle: � ‘A fair day’s work for a fair

day’s pay’ over the long term

‘Transactional’ (espoused new ‘Relational’ (espoused traditional

Inputs        Organisational:  

-­‐ Culture -­‐ Climate -­‐ Leadership -­‐ HR strategy -­‐ HR policy

 Individual:  

-­‐ Prior experience

-­‐ Expectations -­‐ Needs -­‐ Socialised

work values & beliefs

-­‐ personality

State  and  basis  of  psychological  contract      -­‐ Trustworthiness

Do/ can I trust my employer?

 -­‐ Deal-delivery: Am  I  getting  the  deal  that  I  was  promised?    -­‐ Felt fairness

Am I treated fairly?

Attitudinal  outcomes      -­‐ Organisational

commitment

-­‐ Job and reward satisfaction

   -­‐ Task

motivation

Behavioural  outcomes    -­‐ Organisational

citizenship behaviour

-­‐ Membership

behaviour   -­‐ Task behaviour      

Breach of psychological contract: some causes Reneging on promise (= failure to deliver on the deal):

-   Pay cut or lower increases -   Withdrawal of overtime -   Longer hours

Incongruence of expectations (= misalignment of expectations):

-   Poor initial communication -   Misunderstanding

Contract drift: -   Organisational change (restructure, merger, acquisition) -   Downsizing and loss of job security -   Increasing workloads -   Substitution of temporaries for permanents -   Growing pay inequality

Perceived unfairness (= Organisational injustice) Organisational justice (or felt-fairness) perceptions

Distributive justice: Perceived fairness of employment outcomes (including rewards/pay received)

� Am I adequately rewarded for what I contribute? � How do I compare with those I like to compare myself with?

Interactional justice: Perceived fairness of interpersonal/emotional relationships:

� Am I treated with dignity and respect in my daily work relationships?

Procedural justice: Perceived fairness of employment decision-making processes (e.g. job evaluation; performance appraisal)

� How am I treated by the decision-makers? Basic requirements for procedural justice:

• Same standards consistently applied • Judgement based on evidence • Fair hearing/voice (including right to refute and appeal) • Adequate notice (of underperformance; opportunity to improve)

Distributive justice: equity theory (J.S. Adams)

Perceived outcomes: Pay, benefits, recognition, status, achievement, satisfaction, security, etc. Perceived inputs: Knowledge, skills, ability, qualifications, experience, age, seniority, loyalty, effort, time, performance, responsibility, etc. Possible behavioural responses:

-   Leave for a more rewarding position elsewhere -   Change outcomes within organisation -   Change inputs

Possible cognitive responses: -   Rationalise away the felt inequity by altering perception of the ‘self’s’ own inputs and

outcomes -   Psychologically distort inputs and outcomes of the ‘comparison other’ to eliminate

felt inequity -   Change ‘comparison other’/referent

But: -   Which response? -   Which referents?

Feeling of over-reward inequity

Outcomes B Inputs B

> Outcomes A Inputs A

Feeling of reward equity

Outcomes B Inputs B

= Outcomes A Inputs A

Feeling of under-reward inequity

Outcomes B Inputs B

< Outcomes A Inputs A

A’s assessment/

attitude

Reference person

(B)

Focal person/self

(A)

Content or needs theories of motivation Hierarchy of Needs (Maslow) !

Two-Factor Theory (Herzberg) !

Job Characteristics Model (Hackman & Oldham) !

Higher Order Needs:

!! Self-actualisation

!! Ego/esteem !

Motivators:

!! Achievement !! Growth !! Recognition !! Responsibility

!

Intrinsic Factors:

!! Skill variety !! Task variety !! Task

significance !! Autonomy !! Feedback

!Lower Order Needs:

!! Social !! Safety !! Physiological

!

Hygienes: !! Work

relationships !! Supervision !! Work conditions !! Pay

!

Extrinsic Factors: !! Relationships !! Job context !! Work conditions !! Pay

!

! Process of cognitive theories of motivation ‘Perceived pathways and outcomes motivate.’

-   Seek to explain (and exploit) the cognitive processes by which individuals decide to pursue particular pathways to reward attainment and need satisfaction rather than others.

Main process theories: -   Expectancy theory -   Goal-setting theory -   Reinforcement theory

Motivation: from theory to HR practice Some key implications for effective performance management:

-   Identify the essential performance capabilities (knowledge, skills and abilities) for the position and ensure that employee capacities match these requirements (expectancy theory – expectancy)

-   Encourage task self-efficacy (expectancy theory, goal-setting theory) -   Set tasks that are specific and challenging, but attainable (goal-setting theory) -   Encourage employee ownership of performance criteria (goal-setting theory)

-   Ensure that performance achievement is accurately measured (expectancy theory – instrumentality)

-   Provide timely and positive feedback (goal-setting theory) -   Do not overlook the importance of intrinsic motivation (two-factor theory)

Some key implications for effective reward management:

-   Understand individual employee needs and how these differ between employee groups (content theories)

-   Offer individuals valued rewards, i.e. rewards that address high salience needs (Maslow’s hierarchy of needs; expectancy theory – valence)

-   Link rewards clearly and directly to performance in a timely way (expectancy theory – instrumentality)

-   Deliver on the rewards promised (expectancy theory – instrumentality) -   Strike an appropriate balance between financial and other rewards (two-factor theory) -   Do not overlook the potential of intrinsic rewards (two-factor theory) -   Manage perceptions of work inputs, reward outcomes and comparisons

(equity theory)