1. Managing Employee Performance and Reward
Concepts, Practices, Strategies
2nd edition

2. Performance and reward system review and development
Framework for performance and review system development
System requirements
Review of current practice
Strategic alignment recommendations
Rehearsal
Roll-out

3. Framework for performance and reward system development

4. (to test recommendations)
Preview:
Cost-benefit modelling
Piloting
Planning:
Preparation
Roll-out sequence and time frame (What? When? Where? Who has accountability?)
Implementation:
Communication
Training
Ongoing monitoring and evaluation
Rehearsal
(to test recommendations)
Competitive strategy and key success factors
Structure and culture
Performance factors (desired results, behaviours, competencies, attitudes, psychological)
Performance and reward strategy
Strengths
Weaknesses
Extent and urgency of required change
Roll-out
Performance management practices:
Performance units
Criteria
Monitoring, measurement, assessment
Feedback and development
Reward management practices:
Reward mix (intrinsic, extrinsic, financial)
Remuneration mix (base, benefits, short-terms incentives, long-term incentives)
Remuneration level
Recommendations
(for better practice)
Review
(of current practice)
Requirements
(for strategic success)

5. System imperatives Performance management: Communicate
Monitor and measure
Provide feedback
Develop
Reward management:
Attract
Retain
Motivate

6. Review current practices
Purpose:
Identify strengths and weaknesses (misalignment) in addressing business strategy, success factors and human resource strategy
Establish extent of misalignment (or ‘gap’) and urgency of needed change
Identify areas where change or improvement is required
Review methods:
Attitude surveys
Questionnaires
Focus groups
Quantitative (HRIS) data:
Staff turnover, exit interviews
Recruitment levels and quality
Productivity, cost and quality levels
Returns per payroll dollars spent

7. The human capital management scorecard
‘Hard’ measures
Source: Fitz-enz (2000), 111.

8. Diagnostic employee attitude survey (Likert scale)
Circle the response that best describes your response to each of the following statements:
There is a strong link between my earnings and my own performance 1 2 3 4 5
Disagree
strongly
Disagree somewhat
Neither
agree nor
disagree
Agree somewhat
Agree
I am motivated to help this firm be successful
The criteria by which my performance is assessed are appropriate
The overall package of pay and conditions here is a good one
There is a strong link between my earnings and the firm’s performance
I am clear about the performance goals of the business
We are paid competitively compared to similar jobs in other firms
My pay is fair compared to other jobs inside this firm

9. Prescriptive questionnaire
For each pair of statements, tick the response that best describes your preference.
Tick only one box per pair.
I would like the performance and reward management system to have the following characteristics:
Variable pay linked to the performance of my work group
Variable pay linked mainly to individual performance
Pay based on rates in outside organisations
Pay based on equal pay for jobs of the same size within this organisation
Pay progression based on personal competencies
Pay progression based on seniority
Pay for what each person contributes in the job
Pay according to job importance
Performance management for development purposes
Performance appraisal by the supervisor
Performance appraisal by fellow employees
Performance measurement based on
behaviours
Performance measurement based on results
Option B
Prefer B over A
No strong preference either way
Prefer A over B
Option A
Performance management linked mainly to pay

10. Illustrative review findings and diagnoses

12. Alignment
What is it?
Alignment is the fit between human resource practices and (1) business strategy;
(2) organisational context; and (3) people to which these practices are applied
Alignment with what?
Individual expectations and
needs:
Demographic factors
Psychological contract
Reward expectations
Reward valence
Roles/occupations:
Production and service employees (full-time, part-time, permanent, casual)
Technical employees
Professional/knowledge workers
Line managers
Executives
Work teams:
Process
Project
Parallel
Business units:
Business strategy
Product/service markets
Technology
Work organisation
KSA requirements
The organisation:
Corporate strategy
Structure
Culture
Life-cycle stage

13. A basic model of strategic alignment
COMPETITIVE
STRATEGY
MANAGEMENT or WORK
CULTURE
HRM
SYSTEMS,
including performance and reward management
ORGANISATIONAL STRUCTURE

14. Aligning strategy, structure, culture and practice: (1) traditional mechanistic cost defender
Below market median (with high attention to internal equity)
Pay level
Executive share bonuses
Collective LTIs
Cost-based gainsharing; selective profit-sharing
Collective STIs
Piece-rates; commissions; merit raises; non-cash recognition
Individual incentives
Annual seniority or merit increments; scale or grade promotion
Pay progression
Pay scales; narrow job grades
Base pay structure
Few
Non-financial rewards
Tell and sell; counselling
Feedback and development
Supervisor
Performance monitoring
Individual behaviours; results
Performance criteria and measurement
Individuals; business units; whole organisation
Performance unit
Individual quantity or productivity; cost; long-term market share
Results
Membership; task
Desired behaviours
Motivation; commitment
Desired attitudes
Relational
Espoused psychological contract

15. Aligning strategy, structure, culture and practice: (2) high involvement organic quality defender
Around market median (with moderate attention to internal equity)
Pay level
Share bonus or purchase plans
Collective LTIs
Multi-factor goal-sharing
Collective STIs
Commissions; merit bonuses; recognition awards
Individual incentives
Skill-based pay
Pay progression
Broad grades
Base pay structure
Intrinsic; developmental; social
Non-financial rewards
Tell and listen; mentoring
Feedback and development
Self, peers and customers (180o)
Performance monitoring
Hard competencies; behaviours; results
Performance criteria and measurement
Work teams; parallel teams; business units
Performance unit
Collective quality; long-term market share
Results
Membership; task; citizenship
Desired behaviours
Motivation; commitment
Desired attitudes
Balanced; semi-relational or semi-transactional
Espoused psychological contract

16. Aligning strategy, structure, culture and practice: (3) high involvement organic prospector
Above market median (with low attention to internal equity)
Pay level
Share options, profit-sharing
Collective LTIs
Team and/or business unit goal-sharing
Collective STIs
Commissions; discretionary bonuses
Individual incentives
Competency-based pay
Pay progression
Broad bands
Base pay structure
Intrinsic
Non-financial rewards
Problem-solving, coaching
Feedback and development
360o
Performance monitoring
Soft competencies, results
Performance criteria and measurement
Individuals, project teams, business units, whole organisation
Performance unit
Individual and collective short-term contribution, timeliness, creativity, successful risk-taking.
Results
Task, citizenship
Desired behaviours
Motivation, short-term commitment
Desired attitudes
Transactional
Espoused psychological contract

17. Detailed recommendations (1): performance management approaches
Use results where:
Ends (results) can be more accurately specified and measured than means (e.g. management work; project teams; targeted research work; foreign exchange and equity trading)
Work group performance is more important than individual performance
Use behaviours where:
Means (behaviours) can be more easily specified than ends (results)
Work is individualised but routine and thus possible to specify a single best sequence of task behaviours plus desired organisational citizenship behaviour (e.g. routine service work; administrative work)
There is ongoing opportunity to observe individual’s work behaviour (e.g. constant supervision)

18. Detailed recommendations (1): performance management approaches
Use competencies where:
High performance is based on underlying abilities, values and attitudes rather than technical knowledge and skill (high-discretion service work; emotional labour)
Work is non-routine and discretionary (e.g. managers, knowledge workers)
Individual and group results difficult to quantify/attribute (e.g. knowledge workers, exploratory research, customer service work, teachers, health care workers)
Traditional job assignments have been replaced by broad, fluid and largely self-managing roles
The organisation wishes to change its culture and employees’ values and attitudes (and beliefs)
Balance all three where:
Work inputs, activities and outcomes can all be specified/measured to some degree and are all important (e.g. routine work requiring high quality/precision, CSOs/call centres, teaching, general management roles)

19. Detailed recommendations (2): reward practice and level
Basic mix:
Financial
Developmental
Social
Intrinsic

20. Detailed recommendations (2): reward practice and level
Detailed mix:
How much importance should be placed on base pay?
How should base pay be structured?
Does the nature of the work lend itself to skill- or competency-based base pay?
What role should benefits play?
How much emphasis should be placed on performance pay?
Can the organisation afford cash incentives?
Should incentives be individual or collective?
Should incentives be cash or equity-based?
How should incentives be tailored to meet employee needs and expectations?
What proportion of employees’ total pay should be performance-linked and ‘at risk’?
What use should be made of non-cash incentives?

21. Detailed recommendations (2): reward practice and level
Above market median (> 50th percentile)
Below market median (< 50th percentile)
At market median

22. Detailed recommendations (3): setting targets for total pre-tax remuneration mix
Two basic rules:
The higher up the organisational hierarchy, the greater the proportion of total pay that can be performance-variable
The higher up the hierarchy, the greater the proportion of total pay that can be linked to organisational performance

23. Detailed recommendations (3): setting targets for total pre-tax remuneration mix
30%
40%
Executive
20%
60%
Senior manager
10%
80%
Supervisor 6% 9%
85%
Professional/technical 3% 7%
90%
Administrative
Process worker
Organisational LTIs
Individual and collective STIs
Base pay and benefits
Group

24. Rehearsing proposals Basic rehearsal questions:
Will they address current weaknesses?
Will they support the organisation’s success factors?
Will they elicit the desired behaviours and results?
Will they address employees’ needs and expectations?
Are they timely?
Are they realistic and manageable?
Are they going to be affordable?
Are the proposals well integrated?
Are the proposals legally compliant?

25. Rehearsing proposals Rehearsal/modelling methods:
Financial modelling/forecasting (best case; worst case):
Pilot study/studies
Productivity improvement
Quality enhancement
Production cost savings
Net profit
Additional payroll costs
Training costs
Administrative overheads
Staff turnover costs
Recruitment costs
Anticipated benefits
Expected costs

26. Roll-out Implementation agenda/action plan: What changes? Why? Where?
Who and how?
What order?
Pace of change?
Estimated ‘shelf life’?

27. Roll-out Implementation issues:
Identify and empower change advocates/champions
Involve managers and line employees at all stages
Resource the changes
Prepare the way for change
Communicate and explain the changes
Train managers in new processes
Anticipate problems
Expect resistance
Be prepared to modify policies in light of experience
Review and revise