Performance Management And

Rewards System
Sub Code - 708

Developed by
Prof.Mrs. Sujata Bhosale

On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)

Board Members
1. Prof. Dr. Uday Salunkhe 2. Dr. B.P. Sabale 3. Prof. Dr. Vijay Khole 4. Prof. Anuradha Deshmukh
Group Director Chancellor, D.Y. Patil University, Former Vice-Chancellor Former Director
Welingkar Institute of Navi Mumbai (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)

Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant

Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.

Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai

Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai

Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai

Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai

Mr. A.S. Pillai Mr. Kishor Tamhankar

Faculty – Services Excellence Manager (Diploma Division)
Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai

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1st Edition, July 2020

 CONTENTS

Contents

Chapter Chapter Name Page No.

No.

1 Introduction and Overview of Performance 4-47

Management and Reward Systems
2 Key Elements and Standards of Performance 48-78
Management Plan
3 Performance Management and Performance Appraisal 79-132
4 Various Approaches to Performance Management and 133-165
Review
5 Strategy Formulation and Implementation of 166-188
Performance Management
6 Strategic Imperatives in Performance Management 189-204
and Reward Systems
7 Overview of International Performance and Rewards 205-229
Management
8 Rewards Management and Linkage to the 230-280
Performance
9 Types of Rewards Systems 281-340
10 Reward Strategies in the Technology / Knowledge 341-359
Economy
11 Implementation of Reward Strategy and Latest 360-420
Trends in Reward Systems
12 Measuring Effectiveness of PMS and Reward Systems 421-434
Case Studies 435-449

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Chapter 1
Introduction and Overview of Performance
Management and Reward Systems

Objectives

After studying this chapter, you will be able to:

• Understand the key features and characteristics of performance
management
• Gain overall perspective of reward systems
• Understand the important linkages between performance management
and reward systems
• Understand the concepts, principles and role of performance
management in an organization
• Appreciate the key features of performance management and reward
systems
• Understand the benefits of performance management and reward
systems

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Structure:
1.1 Introduction to Performance Management and Reward Systems
1.2 Key Objectives of Performance Management System
1.3 Performance Management Concepts
1.4 Essentials of Performance Management System
1.5 Key Activities Involved in a Robust Performance Management System
(PMS)
1.6 Challenges in the Implementation of an Effective and Efficient
Performance Management System
1.7 Evolution of Performance Management System
1.8 Key Difference Between Performance Appraisal and Performance
Management
1.9 Need for Robust Performance Management and Reward System
1.10 Reward System
1.11 Key Objectives of Reward Systems
1.12 Types of Rewards and the Features
1.13 Activity
1.14 Summary
1.15 Self-Assessment Questions
1.16 Multiple Choice Questions

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

1.1 Introduction to Performance Management and Reward

Systems

The key business objective of any organization is to maximize the value

addition or returns for its stakeholders. The key stakeholders may consist
of the common stockholders/shareholders, Management, Employees,
Vendors, Customers, Government and Society in general. To ensure that
the business objectives are met, there is a need for motivation of
employees and all the participants in the business. The major contributor
to the motivation is the reward expectation by the business participants.
However, organizations across the globe face a unique challenge in
structuring appropriate reward systems. The reward system needs to
ensure that the performance of the participants in the business is effective
and enriching. In order to assess the performance of each contributor and
the overall organization, there is also a need for robust performance
management system.

A robust performance management system, thus, inspires and motivates

high performers in an organization and an integrated reward system
enables the organization to cultivate a performance driven culture. Every
day, organization and its participants encounter a new set of business
challenges and to effectively meet the challenge and deliver superior
performance, a good performance management system coupled with a
good reward mechanism is the key.

Performance management is the systematic process of planning work and

setting expectations, continually monitoring performance, developing the
capacity to perform, periodically rating performance in a summary fashion
and rewarding good performance.

The performance management and reward systems have evolved over a

period of time significantly with the changing business scenario and
economic environment.

E.g.: Management’s performance in a large multinational corporation

(MNC) is not only evaluated on the basis of revenue or growth achieved
but also focus is on the following key parameters:

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Profitable growth
• Incremental contribution from new sales
• Entry into new geography
• Mergers and acquisitions
• Cash flow accretion
• Innovation
• Social and environmental performance
• Regulatory compliance levels

Most of the above performance evaluation parameters are organizational

level factors. The performance management and evaluation system is,
thus, aligned with the overall organization strategy.

1.2 Key objectives of Performance Management System

Aim of the performance management system is to build a high ―

performance culture in an organization. It should enable the team to take
charge of their responsibility of improving business processes on a
continual basis, and also to enhance the competencies and performance
standards. It should clearly enable the employees with right skills and
attitudes to climb the ladder and foster leadership. Some of the key
objectives are as follows:
• Enabling goal clarity for employees.
• Exploration of full potential of employees in their as well as in favour of
organization.
• Adequately define the role, responsibility and the evaluation parameters
for all employees.
• Understand the accountabilities, competencies and expectations.
• Create an environment which enables achievement of superior standards
of work performance.
• Assist employees in clear identification of the knowledge and skills
required for performing the job efficiently and effectively.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Help employees to engage more with the organizations business

processes and drive their focus towards performing the right task in the
right way at the right time.
• Encouraging employee empowerment, motivation and implementation of
an effective reward mechanism.
• Establishment of two-way system of communication between the
managers and the employees for clarification of expectations about their
key roles and accountabilities, communicating the individual,
departmental and strategic organizational goals.
• Providing a regular, periodic feedback for improving employee
performance and continuous coaching. Ensure complete transparency in
the employee engagement, feedback and reward mechanism.
• Helps identification of barriers to effective performance and timely
resolution of the barriers through constant monitoring, coaching, and
training and development interventions.
• Ensure that right basis is provided for several management decisions
related to strategic planning, succession planning, promotions,
recognitions and performance based payments of rewards.
• Assistance in promoting personal growth of individual employees and
advancement in the career of the employees by helping them in
acquiring the desired knowledge and skills required for development.

1.3 Performance Management Concepts

Let us discuss some of the key concepts around the performance

management in an organization.

Performance management is a broad concept that involves understanding

and acting on the performance issues at each level of the organization,
from individuals, teams and departments to the organization itself. These
issues include leadership, decision ― making, motivation, encouraging
innovation and risk taking among others.

Performance management is the systematic process by which the

organization involves its employees, as individuals and members of a
group, in improving organizational effectiveness in the accomplishment of
organizational mission and goals.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Performance management is a broad system of defining and measuring

performance, besides developing incentives for individuals and
organizations. It touches the processes of planning, implementing,
reviewing, evaluating and reporting to gauge the impact of policies and
programmes. It promotes growth and learning, and recognizes that
capacity building and improvement in individual performance leads to
better achievement of organizational goals.

Performance management requires a performance information system that

can be audited and related to financial management and policy cycles. Its
elements include planning, monitoring, capacity building, performance
rating and a system of rewarding good performance.

It is also crucial to distinguish between performance management and

performance measurement. Let us also evaluate performance
measurement at the conceptual level.

Performance measurement tracks processes (such as compliance to formal

rules), results (such as use of inputs, outputs produced or policy goals
achieved) or more complex ratios (such as efficiency, productivity,
effectiveness or cost ― effectiveness). It is a very important component of
the larger performance management system as the performance that
cannot be measured cannot be managed and cannot, therefore, be
improved. The measurement of performance also involves the design of
balanced and well calibrated key performance indicators, usually supported
by an appropriately designed Management Information System.

E.g.: Illustrative performance management system in the government

organization

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Fig. 1.1

1.4 Essentials of Performance Management System

A good performance management system will have most of the following

key components:
• Process of defining and setting appropriate goals
• Process of monitoring or capturing performance
• Set up of Key Performance Indicators (commonly referred as KPIs)
• Process for identification and allocation of resources to meet the KPIs
• Process to periodically evaluate the performance and review mechanism
• An effective and efficient feedback system

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Reward system to motivate the team to achieve excellence in

performance

Role of human resource function has undergone a significant change over a

period of time to ensure that the Performance Management System (PMS)
is aligned to the strategic objectives and changing business priorities of the
organization. While setting up and implementation of a robust PMS, the HR
professional needs to ensure some of the following key aspects:
• Building a conducive work environment.
• Providing an appropriate platform to employees to perform and creation
of opportunities for development and growth.
• Environment that enables the maximum participation and involvement of
employees at all levels.
• Enhance motivation of employees and create high performance driven
culture.
• PMS should touch upon all aspect of employee lifecycle, i.e., from
induction to exit
• PMS must enable promotion of superior performance, communication of
expectations, defining roles as per the competency mapping and also
help organization set up realistic and achievable benchmarks.

E.g.: Employee policy manual― Section ‘Performance Management’ of a

leading international airport (Rochester International Airport) highlights the
following key features.
• Promotes complete involvement and participation of employees in the
performance management process.
• Performance expectations are clearly aligned and reflect the job specific
duties of all employees.
• Requires written feedback to employees at least once a year and
promotes continuous/periodic feedback to employees.
• Places responsibility on the reporting managers to perform competency
assessment and providing regular feedback.
• Freedom given to the employees to consult management at all times for
any issues related to the performance management process.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Considers collaborative goal setting and self-assessment as an integral

component of the performance management framework.

• Emerging Trends in Performance Management

❖ Technology in the form of computer and telecommunication device will
be omnipresent.
❖ Multiple company alliances will result in a more amorphous global
business environment.
❖ Worldwide business economy will become dramatically more
competitive
❖ The new world of boundary less companies and workers will result in
less control by companies.
❖ Global economies will require leaders to think beyond local markets and
understand the conditions that drive the international system.
❖ Global communication mechanism, such as the internet will have
profound impact on how we engage in commerce.
❖ The evolution of true world-wide telecommuting will be a reality.
❖ A high percentage of the workforce will consist of transportable
professionals, specialists and executives engaging in consulting
services.
❖ New investment markets will emerge, especially in those developing
counties that consume more goods and service. A shift in the
worldwide professional and skilled workforce may lead to issue of
balancing human resource functions.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Performance Management refers to the comprehensive system of

―
❖ Developing employee performance plans, including the key result areas
and indicators of performance,
❖ Communicating to the employees in clear terms the performance plan
at the commencement of the period of performance,
❖ Monitoring and supporting employees for moving effectively towards
attainment of performance goals,
❖ Evaluating the performance of each employee on the basis of the
performance plan during the period of performance,
❖ Recognizing and rewarding those employees whose performance had
met/exceeded the performance plan,
❖ Enabling the employees to improve the unacceptable performance, and
❖ Reassigning reducing in grade or removing those employees who could
not improve their performance even after providing adequate
opportunities to improve.

• Implementing Performance Management

Most experts agree that a successful system of performance management

involves four basic components,
❖ A clear organizational definition of performance,
❖ A training and development programme that focuses on improving
performance,
❖ An objective evaluation system to review employee performance, and
❖ A method of recognizing and rewarding performance.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Performance management is an ongoing communication process

that involves establishing clear expectations and understanding
about ―
❖ The essential job functions the employee is expected to do,
❖ How the employees job contributes to the goals of the organization
❖ What doing the work will mean in concrete terms,
❖ How employee and supervisor will work together to sustain improve or
build on existing employee performance,
❖ How performance management will be measured, and
❖ Identifying barriers to performance and removing them.
• Performance management includes
❖ Performance management ensures congruence of individual and
organizational goals.
❖ Performance management is a process involving planning, reviewing,
development and enhancing performance.
❖ Managers are catalyst of employee performance through effective
policies and practices.
❖ Employees get an opportunity to seek organizational support and
resources for overcoming barriers to performance.
• Philosophy of Performance Management
❖ Support management philosophy and contribute to the business plan
achievement
❖ Emphasize personal development
❖ Improve communication
❖ Develop leadership
❖ Foster teamwork
❖ Facilitate succession planning
❖ Improve organizations effectiveness and bottom-line performance

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS
❖ Achieve results while modelling and reinforcing core value behaviors
❖ Communicate clear objectives for reinforcing excellence
❖ Setting challenging, yet achievable performance expectations
❖ Continually developing personal management skill
❖ Concern for both internal and external customers
❖ Providing coaching, counselling and career development
❖ Providing ongoing feedback
• Principles of Performance Management
❖ Principle of outcome orientation
❖ Principle of evidence
❖ Principle of transparency
❖ Principle of focus
❖ Principle of ownership

• Features of Performance Management

❖ The organization develops a vision, mission and ethical values that are
being communicated to all employees for seeking employee
commitment.
❖ Employee performance is viewed as consequence of integration of
individual objectives with organizational goals and objectives.
❖ Performance expectations is established against which individual
achievement can be measured and developed further.
❖ Tracking of employees progress towards performance expectation is
regular with feedback provided to the employee on one-to-one basis.
❖ Review of progress of employees’ performance leads to identification of
areas of competency development.
❖ Measuring performance of employees against individual, team,
departmental and organizational performance expectations is linked to
reward outcomes.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS
❖ Propels employees to continually improve performance.
❖ The organization evaluates the effectiveness of performance
management as a system so that modifications and improvements can
be made.
• Significance of Performance Management
❖ Clarifies organizations’ strategic plan
❖ Business process improvement
❖ Talent management
❖ Personnel development
❖ Validation of talent acquisition
❖ Work-life balance
❖ Improved adaptability
❖ Individual relationship management
❖ Sustainable competitive advantage
❖ Culture building
• Performance Management Strategy Outcome
❖ Cost containment
❖ Reward and compensation linked to performance
❖ Optimum compensation ratio
❖ Quality efforts and outputs
❖ Ingraining quality work practices and mindset
❖ Quality is part of organizational culture
❖ Innovative products and services
❖ Managerial nurturing of ideas
❖ Employees are entrepreneur
❖ Talent is competitive advantage

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Approach to Performance Management

❖ Performance ― driven integration
❖ Development driven integration
❖ Team oriented

• Performance Management Process

❖ Performance planning
❖ Performance development
❖ Performance management process
❖ Performance appraisal

• Performance Planning
❖ Role clarity
❖ Understanding and setting performance expectation
❖ Setting performance standards

• Performance Development
❖ Developing job ― related skills, knowledge and expertise.
❖ Supporting employee for performance at or above performance
standards.
❖ Establishing training and development interventions.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

1.5 Key Activities involved in a robust Performance

Management System (PMS)

Key activities involved in a robust performance management system are as

follows:
• Job Description and Performance Plans: Development of clear job
descriptions and employee performance plans which include the
establishment of key result areas (KRA) and key performance indicators
(KPIs).
• Selection Process: Identification and selection of right set of people by
implementing an appropriate recruitment and selection process.
• Negotiation of Expectation and Reward: Negotiating requirements
and performance standards for measuring the results and achievements
of overall productivity against the preset benchmarks/performance
indicators.
• Feedback: It is very crucial that the performance management system
is capable of generating reports, providing continuous coaching and
feedback during the entire duration of performance delivery.
• Results Evaluation and Assessment of Skill Development
Requirements: Identifying the need for skills, training and development
by measuring the results achieved against the set performance standards
and implementing effective development programmes for improvement
over a period of time.
• Periodic Review Meetings and Discussions: The PMS should facilitate
holding monthly/quarterly performance development discussions and
evaluating employee performance on the basis of performance plans
developed by the management.
• Linkage of the Compensation or Rewards to the Performance
Indicators: Designing effective and robust compensation and rewards
system for recognizing those employees who perform well in their jobs
by achieving the set standards in accordance with the performance plans
or rather exceed the performance benchmarks as set by the performance
management system.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Continual Guidance to Employees: A robust and effective

performance management system, helps employees in identification of
promotional/career development support and guidance over the life cycle
of the employees.
• Discussion During the Exit Interviews: It is very important to
perform exit interviews for understanding the cause of employee
dissatisfaction, and thereafter, exit from an organization.

1.6 Challenges in the implementation of an effective and

efficient performance management system

Traditional performance management systems are broken. Companies,

leaders, managers and employees have long participated in time-
consuming, frustrating performance reviews that have not yielded clear
improvements in individual or organizational performance. Many industry
leaders, such as Accenture, Adobe, Cargill, General Electric, Google,
Microsoft and Netflix, have made headlines for pioneering large-scale
changes to their traditional performance evaluation systems, and many
more are considering reinventing their approach to performance
management.

However, before businesses attempt to redesign their performance

management systems, it is important for them to understand which
specific components of their systems are broken and why. Without that
understanding, they will be unable to create a new system that provides
valuable opportunities to more effectively define performance expectations,
review progress, adjust goals, recognize accomplishments and develop
employees on an individualized basis.

Whilst changing the process of performance management within an

organization sounds simple in theory, the reality is that it can be very
difficult in practice. Change in organizational culture will not take place
overnight and you should be aware that it will require patience and
persistence. Part of the reason it can be so difficult to make the necessary
changes is that there is no definitive blueprint to follow. Each business is
different and changes should only be made in those areas that it makes
sense for your business to change. No company should innovate for
innovation’s sake.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Companies who have implemented changes have reported that one of the
more difficult aspects to deal with is the changing role of the manager. As
previously mentioned, the manager is required to act as a mentor for his
employees. It is, therefore, key to the overall success of performance
management that this role is carried out effectively. This means it is of vital
importance that managers be given adequate training and support for
making this transition. Without this, they may not be able to deliver
feedback to the required standard and the objectives of the process will not
be realized.

There can also be initial friction in requiring an employee to evaluate a

manager. Other companies who have implemented this procedure have
noted that in its infancy stages it is likely that there will be an initial
discomfort on behalf of the employee. Therefore, the intended results of
this process may not come to fruition until it has been implemented for
some time and so become the norm.

HR Function across the world faces a unique challenge in implementation of

the performance management system. Some of the key challenges are as
follows:
• Balancing the performance expectations and the reward mechanism
• Measurement of results
• Defining business plans
• Setting up a learning culture in an organization
• Enduring fairness in the decision ― making process

The elements of a good performance management system are simple, but

integrating them into a business fundamental operating systems is more
difficult than it seems.

Effective performance management is essential to businesses. Through

both formal and informal processes, it helps them align their employees,
resources, and systems to meet their strategic objectives. It works as a
dashboard too, providing an early warning of potential problems and
allowing managers to know when they must make adjustments to keep a
business on track.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Organizations that get performance management right become formidable

competitive machines. Much of GE’s successful transformation under
former CEO Jack Welch, for instance, was attributed to his ability to get the
company’s 250,000 or so employees ‘pulling in the same direction’― and
pulling to the best of their individual abilities.

As Henry Ford said, “Coming together is beginning, keeping together is

progress, working together is success yet in too many companies, the
performance management system is slow, wobbly or downright broken. At
best these organizations aren’t operating as efficiently or effectively as
they could. At worst, changes in technologies, markets or competitive
environments can leave them unable to respond.

Strong performance management rests on the simple principle that ‘what

gets measured gets done’. In an ideal system, a business creates a
cascade of metrics and targets from its top-level strategic objectives down
to the daily activities of the frontline employees. Managers continually
monitor those metrics and regularly engage their teams to discuss
progress in meeting the targets. Good performance is rewarded and
underperformance triggers action to address the problem.

Let us dwell deeper in what is exactly going wrong with the performance
management framework or systems. Some of the triggers are highlighted
below:

• Incorrect or Poor Selection of Metrics: The metrics that a company

chooses must actually promote the performance it wants. Usually, it can
achieve this only by incorporating several of them into a balanced
scorecard. Problems arise when that doesn’t happen.

Example - Some manufacturing plants, for example, still set overall

production targets for each shift individually. Since each shift’s incentives
are based only on its own performance, not on the performance of all
shifts for the entire day, workers have every incentive to decide whether
they can complete a full ‘unit’ of work during their shift. If they think
they can, they start and complete a unit. But if they don’t, they may
slow down or stop altogether towards the end of the shift because
otherwise all of the credit for finishing their uncompleted work would go
to the following shift. Each shift, therefore, starts with little or no work in
process, which cuts both productivity and output. A better approach

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

would combine targets for individual teams with the plant’s overall
output, so workers benefit from doing what they can to support the next
shift as well as their own.

• Setting up Poor Targets: Selecting the right targets is both science

and art. If they are too easy, they won’t improve performance. If they
are out of reach, staff won’t even try to hit them. The best targets are
attainable, but with a healthy element of stretch required. To set such
targets, companies must often overcome cultural barriers.

Example - In some Asian organizations, for example, missing targets is

considered deeply embarrassing, so managers tend to set them too low.
In the United States, by contrast, setting a target lower than one
achieved in a previous period is often deemed unacceptable, even if
there are valid reasons for the change.

• Sheer Lack of Transparency: Employees have to believe their targets

encourage meaningful achievement. Frequently, however, the link
between individual effort and company objectives is obscure or gets
diluted as metrics and targets cascade through the organization.
Different levels of management, in an attempt to boost their own
standing or to ensure against underperformance elsewhere, may insert
buffers into targets. Metrics at one level may have no logical link to those
further up the cascade. In the best performance management systems,
the entire organization operates from a single, verified version of the
truth, and all employees understand both, the organization’s overall
performance and how they contribute to it.

Example - At the end of every shift at one company in the automotive

sector, all employees pass the daily production board, where they can
see their department’s results and the impact on the plant’s
performance. The company has linked the top-line financial metrics that
shareholders and the Board of Directors care about to the production
metrics that matter on the ground. Frontline employees can see the
‘thread’ that connects their daily performance with the performance of
their plant or business unit. Refer Exhibit below.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Fig. 1.2

Example - Senior leader at another manufacturer aligns the whole

organization around a shared vision through quarterly town hall
meetings for more than 5,000 staff. Managers not only share the
company’s financial performance and plant specific results but also
introduce new employees, celebrate work anniversaries, and recognize
successful teams. Most important, if targets are missed, the senior
leader acts as a role model by taking responsibility.

• Performance Metrics Lack Business Relevance: The right set of

metrics for any part of a business depends on a host of factors, including
the size and location of an organization, the scope of its activities, the
growth characteristics of its sector, and whether it is a start-up or
mature. To accommodate those differences, companies must think both
top-down and bottom-up.

Example - Policy Deployment Approach - All employees determine the

metrics and targets for their own parts of the organization. Employees
who set their own goals tend to have a greater sense of ownership for
and commitment to achieving them than do those whose goals are
simply imposed from above.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

• Inadequate Dialogue and Open Conversations: Performance

management doesn’t work without frequent, honest, open, and effective
communication. Metrics aren’t a passive measure of progress but an
active part of an organization’s everyday management.

Example - Daily shift huddles, toolbox talks, after-action reviews, and

the like all help to engage team members and to maintain a focus on
doing what matters most. Applying the ‘plan–do–check–act’ feedback
loop, based on pioneering research from Charles Shewhart and W.
Edwards Deming, helps teams learn from their mistakes and identify
good ideas that can be applied elsewhere. And in many high performing
companies, supervisors act as coaches and mentors. One-on-one
sessions for employees demonstrate concern and reinforce good habits
at every stage of career development.

• Lack of Demonstrated Consequences of Good or Bad

Performance: Performance must have consequences. While the
majority of employees will never face the relentless ‘win or leave’
pressure typical of professional sports, weak accountability tells people
that just showing up is acceptable. Rewarding good performance is
probably even more important than penalizing bad performance. Most
companies have various kinds of formal and informal recognition and
reward systems, but few do enough of this kind of morale building, either
in volume or frequency.

Impact of Silo Based Approach on Performance Management

Organizations do operate in silos which is also one of the major challenge

in establishment of collaborative work culture. I would like to share a
recent incidence that happened at one of the business conference.

Why your company is unable to achieve accelerated sales growth-

It’s time to look into how targets are defined - Promoting
Collaboration in Marketing and Sales

In one of a business conference, I met one participant who was Regional

Marketing Head, Northern Region for a large technology solutions company.
We exchanged views on how their company’s solutions or product offerings
are adding value to various businesses. From the discussion, just a thought
passed and I was able to relate the solution offerings with challenge faced

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

by one of our client in southern part of India. I quickly asked him whether
he would like meet to arrange for a call or a meeting with the prospect so
that the solutions can be discussed and there is a possibility of quick sales
conversion.

He took a minute to respond and with some hesitation said that “Ms.
Bhosale, thanks for the inputs. However, as you would have noticed I’m
responsible for Marketing and Sales in northern region.”

So I asked him, “Can you connect someone from your organization who
leads the southern region?”

After this question, his level of hesitation increased and he very candidly
responded that “Ms. Bhosale, the lead is not going to be helpful to me
personally and I will not be receiving any credit for the conversion. So, as
of now I am not interested to pass on the lead. May be you can visit our
website and try to connect with someone from South. Let me know, only in
case, where the prospect’s Corporate Office is in northern region”.

Similar type of responses, we receive frequently from many Sales and

Marketing leaders. I was bit surprised with the response. While the
Northern Regional Head could be right from his perspective, the company
seems to have lost a potential customer. Key questions here are―
• Whether the technology company’s performance management and
reward framework supports collaboration, cross ― sell among the team?
• Is there any incentive to make your colleague succeed which will help
overall company succeed?
• Is there something wrong with the current organizational structure,
which promotes regional bias in times of globalization and highly
interconnected world?

I am sure, somewhere the big picture is missed while operating in silos. It’s
time to evaluate the overall organizational structure and identify many
such areas where a team member is compelled to operate in silo and often
unable to visualize the outcome, which could be very well in the interest of
overall company. I think it is also important to evaluate the existing
performance management and reward framework of an organization and
ensure that it promotes collaboration and sharing, in the interest of
accelerated growth that the organization is looking to achieve.

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1.7 Evolution of Performance Management System

Over a period of time, the performance management systems have

undergone a significant change. The key phases in the evolution of PMS is
as follows:

• Stage 1: The initial performance management system primarily involved

annual performance appraisal. There was a system to maintain
confidential reports of employees, which were used for performance
evaluation. The key traits or parameters that were evaluated were
primarily the traits like job knowledge, expertise, sincerity, dynamism,
punctuality in reporting the organization, leadership, loyalty to the
organization inter alia. This kind of system has number of limitations and
was not considered transparent in term of maintenance of employee
relations.

• Stage 2: Formal written communication to employees periodically to

provide an update about their performance on various aspects in an
organization. In this process of appraisal of the performance, the
reviewing officer or manager used to enjoy a discretionary power of
overruling the ratings given by the reporting officer or manager.

• Stage 3: During this phase the employees were given an opportunity to

self-describe their accomplishments, provide highlight of the
achievements, including skill development or training needs. However, at
this stage also the organization used to maintain complete confidentiality
in the process of evaluation and providing feedback to the employees.

• Stage 4: This is a welcome phase in the overall performance

management system implementation. This system focused on
performance planning, review and development of an employee by
following a methodical approach. In the entire process, the reporting
employee or subordinate and the reporting officer / manager mutually
decided upon the key result areas in the beginning of a year itself to
avoid any future conflict and disagreements. The process also enabled
periodic review mostly every quarter / six months. During the review
period various issues were identified and addressed. Some of the key
issues involved include -

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS
❖ Factors affecting the performance
❖ Training and development needs of an employee
❖ Need for settling up of fresh targets
❖ Discussion on ratings

During this stage the discussions were conducted with the appraisee/
employee in a collaborative environment. This stage promoted a good
level of transparency and trust in the entire performance management
system.

• Stage 5: This is the most matured stage in the evolution of the

performance management system. Some of the key characteristics of an
evolved stage are as follows:
❖ Maturity in handling people’s issues
❖ Importance to team building, culture building
❖ Use of quality circles
❖ Transparency in the end to end process of performance management
❖ Communication and establishment of clear linkage of the strategic
business goals and the performance management systems
❖ Continuous feedback and review mechanism
❖ Opportunity to employee to present his/her perspective

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Emerging Trends in Performance Management in 2019

Over a period of time there have been significant changes in the way
performance management and appraisal is carried out in organizations.
Based on research of clear view, following are some of the key trends that
the human resource professionals should evaluate for further impact and
strategy formulation:

1. Employee well ― being is becoming an integral part of the

performance discussions: Stress and anxiety are debilitating in the
work place and, unfortunately, these issues are a bigger problem than
ever. One study found that one ― third of UK workers suffer from
anxiety, depression or stress. The same survey showed that 40 per cent
of employees have either taken time off work or asked for their work
load to be reduced due to their mental health. Detecting and addressing
mental health issues early on is increasingly key when it comes to
keeping employees performing at their best. Forward thinking
companies are waking up to the fact that mental health issues play a
serious role in terms of performance and productivity — the issues of
well-being and employee performance go hand in hand. As we approach
a new decade, care for employee mental health and well ― being will be
one of the biggest performance management trends to watch out for,
with employers putting programmes in place relating to financial
wellness, mental health wellness, mind fullness and stress
management.

Example - If companies want to achieve genuine performance gains,

frequent feedback needs to be accompanied by regular coaching
conversations, during which the manager and employee step back and
reflect on the feedback that has been given, using it to discover
strengths and highlight areas for development. This is a well-established
technique for sports professionals at the top of their game.

Head of one of the British Olympics squads talked about how scheduling
regular time to pause and reflect on feedback and recent performance
had helped them achieve continual marginal gains that led them to win
multiple Olympic gold medals.

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Example - At work, such coaching conversations allow an individual to

address and develop in terms of personal and professional development.
The performance management trend towards coaching conversations and
continuous learning has been driven in part by the increasing recognition
of the power of growth mindset and continuous learning, something that
Microsoft CEO Satya Nadella has heavily pushed at Microsoft with
resounding success.

2. Performance Management will become ‘meaningful’ and

‘human’: One of the major criticisms of performance appraisals or
performance reviews is that they are contrived and not authentic. They
are too focused on box ticking and measuring annual objectives and
competencies and don’t feel relevant to employees’ day-to-day work
lives. This is changing rapidly and the number one objective that HR
professionals are now telling us is what they want to achieve for their
performance management system is for managers and employees to
have more meaningful conversations about performance and
development.

3. Performance management will focus on how to make employees

and managers more effective: Over the past few years, HR has been
primarily concerned with employee engagement and for good reason.
Highly engaged employees are loyal employees who will go the extra
mile to get their work done. As a result, employee engagement
technology has grown significantly recently.

According to Gallup, the biggest factor in terms of employee

engagement is an employee’s manager. With this in mind, performance
management and performance management technology will need to
focus more on supporting and empowering people managers to be more
effective, and enabling employees to bring their best selves to work.
This, combined with well-being initiatives, will play a vital role in
boosting employee productivity.

4. Artificial Intelligence (AI) will arrive in performance

management: At the heart of AI in HR is improved people decisions,
and the growth of AI in HR will ultimately provide unbiased data that
will guide decisions, such as who to promote, and offer insight into who
requires additional training to enable better performance while
combating workplace bias.

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Changes that corporations are bringing to the performance management

framework are ―
❖ Simplification of ratings
❖ Simplification of formal performance review process
❖ Performance and compensation related discussions separated
❖ Changes in the goal setting process
❖ Increased frequency of coaching conversations
❖ Increased frequency of development conversations
❖ Removal of forced ranking of employee against one another

1.8 Key difference between Performance Appraisal and

Performance Management

While there is a clear shift seen in the industry from merely conducting
performance appraisals to moving to a matured and robust performance
management system. It is important to evaluate some of the key
differences between the traditional performance appraisal and the New Age
performance management system.

Performance Appraisal Performance Management

The primary focus and approach Objective setting and review is a
followed IS top ― down mutual process or a collaborative
process
Limited involvement and contribution High level of involvement and
of employees/reporting subordinates in engagement of reporting employee in
the process of defining objectives the overall process
Performance review conducted less Frequent discussions and dialogue
frequently, e.g., Annual Review between the team and reporting
manager on various aspects of
performance, training need analysis,
course corrections inter alia
Use of limited ratings framework more Less use of ratings and more use of
common subjective analysis

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Focus on personality and behavioural Focus on value system, quantifiable

traits objectives, potential of the employee
Directly linked with the compensation, Indirectly related to the compensation
incentives and annual increments of employee
Table 1.1

Fig. 1.3: PricewaterhouseCoopers (PWC) Performance Consultation –

Taiwan - 2015

• Key Benefits of Appraisal System

❖ Deeper understanding of the job
❖ Focus is on the real needs of the business
❖ Improved communication
❖ Management commitment

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• Different Appraisal Procedure Purpose

❖ Evaluation
❖ Auditing
❖ Construction succession plans
❖ Discovering training needs
❖ Motivating staff
❖ Developing individuals
❖ Checking

1.9 Need for Robust Performance Management and Reward

System

Any organization on a growth path needs to have a robust performance

management and reward system primarily to maintain and deliver superior
performance, and also people attract and retain talent. Some of the key
factors that define the need are as follows:

a. Attracting, retaining and motivating employees: A robust

performance management and reward system reinforces the
commitment of the organization and its top management. Efficient and
effective reward practices help the organization to attract result driven
professionals who thrive and foster in performance based work
environment. If implemented properly, the system can become a core
of overall performance framework of an organization. Innovation in
performance management and impromptu reward mechanism seems to
be the new trend for employee engagement.

Example - One of the leading Airline Company has implemented a policy

of rewarding the operations staff with few US Dollars every time the
flight completes the operation in time.

Example - A leading telecom company shares interim rewards of gift

vouchers with employees for providing and implementing process
improvement suggestions at work.

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Example - A leading company in Steel manufacturing offers instant

rewards to the employees under “Shabashi” scheme.

b. Promotion of healthy work environment and performance based

culture: A performance based pay system which not only offers a good
reward but also focuses on learning opportunities tends to promote
healthy work environment. The performance management and reward
system needs to instil a sense of ownership amongst the employees.
Some of key areas which it should address are as under:

(a) Focus on continuous improvement

(b) Reduction in the operational costs

(c) Promotion of team work

(d) Reduce or minimize dissatisfaction of employees

(e) Increase the interest level of employees

Example - Numbers of MNCs like General Mills, Vodafone promote

employees to take up additional learning programmes which will help
them to enhance skills. Some of the companies partially sponsor the
advanced education and expect the employee to apply the skills learnt on
the job. Some of the companies also reward the employee for attaining
new skill which may improve the individual as well as departmental
performance.

c. Mechanism to identify and reward exceptional performance:

Robust performance and reward system also helps the management to
identify and reward the exceptional performers. This also helps in
ensuring the commitment of the employees and assists the organization
in terms of achievement of long ― term beneficial results.

d. Adequately consider appropriate role and responsibility in the

organization in evaluating performance and determining reward:
The senior management in an organization is expected to be
accountable for the overall performance. The hierarchy of the key
performance measures and the basis for rewards can be determined on
the basis of ‘Pay for Performance Strategy’ model.

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Pay for Performance Strategy

Category Performance Measures Basis for Rewards
Senior Management / • Balanced Score Card • Higher Role
Leadership / Corporate • Profitability • Induction as a Board
Leaders • Growth Achieved Member
• Improvement in Market • Regional Role within
Capitalization the Global Management
• Dividends/Shareholders • Employee Stock
Returns Ownership
• Economic Value Added • Profit ― sharing
Strategic Business Unit • Revenue of the Unit • Results/Profit sharing
(SBU) Leaders • Cost Control • Higher Role in the
• Profitability of the Company Management
Business Unit
Functional Leaders • Level of Contribution • Milestone Based
Towards the Corporate Awards
Goals • Higher Role at SBU
• New Business Addition/ Level
Opportunity Creation
General Employees • Specific Key Result • Performance Incentives
Areas (KRAs) / Ley • Profit/gain Sharing,
Performance Indicators Bonuses
(KPIs)’s Achieved
Measured Periodically
Table 1.2

Examining the compensation and linkage to performance: Re-

examine the compensation system to make sure it answers the following
questions:
❖ Whose performance is to be rewarded?
❖ How does one group differ from others?
❖ What are the different conditions under which the same job is
performed?
❖ How employee performance is evaluated?
❖ How frequently is employee performance evaluated?

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❖ What types of accomplishments are rewarded by the organizational
goals?
❖ What is the relationship between of different types of performance and
organizational goals?
❖ If there is no direct link between individual performance and
organizational productivity, how can the two be related?
❖ Who will evaluate performance?
❖ Who is responsible for suggesting appropriate incentives?
❖ What recourse does the employee have if he or she disagrees with a
performance evaluation?

e. Motivation for employees: Rewards mechanism can be an important

enabler for enhancing motivation of employees. The administration of
the rewards needs to be done under appropriate business conditions.
Strategies that could improve the effectiveness of rewards in business
are as follows:
❖ Establishment of rewards to the performance management system.
❖ In case of jobs which are interdependent on each other, implement
rewards scheme at a team level.
❖ Need to ensure that the rewards are relevant to the employee
expectations and time.
❖ The organization needs to ensure that the rewards are valued by all
employees.
❖ The organization should also evaluate and adverse impact of any
reward programmes on sales or other practices.

Example - Walmart, the largest retailer, has implemented a reward

bonus scheme for the top management which is based on the company’s
overall performance (sales and profitability target), whereas the frontline
employees and the field staff earn bonus on the basis of the sales figure
or targets attained by their respective store.

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Example - In companies with excessive focus on sales targets and

rewards mechanism having limited focus on sales, tends to encounter
challenges of misspelling or malpractices in the selling process. This may
lead to an adverse impact on the customer confidence.

f. Adequate consideration to non-monetary aspects: Employees not

only have monetary expectations from the organizations, but also non-
monetary aspects. A robust performance management and reward
system is capable of taking care of some of the non-monetary rewards
like better career opportunities, higher roles, skill enhancements,
recognition programmes, etc.

Example - Number of companies in IT industry, Service Sector where

the employee base is knowledge workers, non-monetary benefits like
recognition assume high importance.

Example - New employee study shows recognition matters more than

money - New research on employee engagement examines the
relationships among motivation (basics/motivation), money, and
recognition, and finds, not entirely surprisingly, that how you feel is often
more important than what you earn.

Funded by Make Their Day, an employee motivation firm, and Badgeville, a

gamification company, surveyed 1,200 U.S. employees from a broad cross-
section of industries. Among the study’s highlights:
• 83 per cent of respondents said recognition for contributions was more
fulfilling than any rewards or gifts;
• 76 per cent found peer praise very or extremely motivating
• 88 per cent found praise from managers very or extremely motivating
• 90 per cent said a “fun work environment (/basics/environment)” was
very or extremely motivating.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Workers of all ages, especially the rising millennial population are

motivated by real-time feedback, fun, engaging work environments, and
status based recognition over tangible rewards. People leave managers,
not companies. In general, the study reinforced the centrality of the
aspect. As the saying goes, “People leave managers, not companies.”
Usually for emotional, not financial, reasons. Employee motivations
naturally can evolve over time. Speaking from a purely personal
perspective, in the first decade of my career (as a journalist) I was highly
motivated by the nature of the work itself and recognition resulting from it.
After that I went into business, got married, owned a home, raised a
family... had much greater financial needs and consequently, became much
more money motivated. So individual motivations can change, depending
on personal needs and circumstances.

1.10 Reward System

Over a period of time, rewards in organizations are not only limited to

monetary compensation, bonuses, incentives, stock options and others, but
also include timely recognitions, opportunity for growth, higher roles,
promotions, additional assignments and responsibilities, secondments inter
alia. An effective reward system should have most of the following key
components:
❖ Balanced review of financial aspects, customer requirements, business
processes and employee expectations.
❖ The monetary compensation should consider factors at various levels,
i.e., organizational level factors, departmental factors, personal factors,
and also other baseline expectations

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Example - In number of MNCs the compensation of an employee is linked

to various levels as illustrated below-
❖ Organizational Factors: Overall profitability, Cash Flow, Regional
Expansion
❖ Departmental Factors: Cost, Budget achievement
❖ Personal Factors: Individual contributor
❖ Baseline Expectations: Standard performance parameters across all
functions of process, quality, cost control, etc.

Business Strategic Organizational

Vision Factors

Variable
Strategic Objectives Development
Compensation
Factors

Personal Factors
Critical Outputs

Financial Customer Employee/ Fixed Compensation

Aspects Side Processes Organization
Aspects

Key Performance Indicators

(Should consider organizational,
departmental and personal performance Total
indicators) Compensation

Fig. 1.4

Rewards may include monetary as well as non-monetary aspects. As

broadly defined, “Reward systems are set to include all the monetary, non-
monetary and psychological payments that an organization provides for its
employees in exchange for the service delivery and performance”. Some of
the key components of tangible rewards can be financial payments,
working conditions and comfort whereas the intangible rewards can include
personal/job satisfaction, sense of contribution to the society.

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1.11 Key objectives of Reward Systems

It is important to understand, what do organizations would like to achieve

through the reward systems. Some of the key objectives to be attained are
as follows-
• Gain commitment and support of the employees for achievement of the
overall strategic goals of the organization.
• Attract the right talent and retain
• Motivation of employees
• Ensure that the employees/managers take calculated risks
• Ensure compliance with the legal regulations
• Ensure high level of ethics
• Ease of administration

1.12 Types of rewards and the features

Organizations design different components as a part of rewards to achieve

different objectives. Some of the key components, types and features are
as follows:

Type of Rewards
/ Components of Key Features
Compensation
Basic Pay Minimum amount that the employee should be receiving for
the work performed
Mainly, fixed component of the pay
This component is also supplemented by additional
components and other types of remuneration.
These rewards address the bare minimum or basic
expectations of the employees.
Variable Pay – Pie- Motivates the employees to work harder and deliver higher
cework Based Pay productivity
Helps organization to achieve greater savings and efficiency

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Price is paid for each unit of output.

Advantageous for the employer as no payment is required
for idle time or inefficiencies
Employee bears the commercial risks if the demand for
product manufactured reduces/falls in the market.
E.g.: Manufacturing companies, textile industries follow the
piecework system under the traditional format of payment
Individual Either bonus or increase/increment in the basic pay is given
Performance to the individual employees
Related Pay
Applicable generally to middle level managers in any
organization
Employees are motivated to achieve the goals of
organization, and also ensure that the individual goals are
aligned.
Employee has good level of control of the rewards.
Has a risk that the objectives that do not get rewarded may
not get achieved
Also, has a risk of lack of team work
Group Linked Similar to the individual performance schemes however, a
Performance pool of rewards is shared with the group
Scheme
Applicable to organizations where it is difficult to measure
and quantify individual performance and the achievement
depends on team work
Group scheme encourage team work
Also has a risk that the non-performing individual may get
rewarded and this issue may create conflict within the team
Knowledge - Paid on employee achieving a new skill level
based Reward E.g.: Number of accounting and auditing firms reward their
Commissions staff after achievement of a global certification like ACCA,
CMS, CPA or professional accreditation
E.g.: Educational institutes also reward the teaching staff in
case they complete a doctoral programme and earn a Ph.D.
Primarily a major component of commission to the sales
staff. commission is paid on the basis of sales achieved.

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

Risks that the sales staff may engage in misrepresenting

the sales achievement through fraudulent methods like
window dressing, selling on a sale and return basis. This
also carries the risks of more focus on short term than on
the long term customer engagement
E.g.: Misspelling of insurance policies by employees or
agents of number of insurance companies
E.g.: Excessive selling of credit cards
Profit Based Employee remuneration is linked to profits earned by the
Reward organization
Mechanism
In most of the organizations the senior management
remuneration is linked to profitability.
Risk with profit linked pay is that it may match the primary
objective of commercial organizations, which is to maximize
the wealth of the shareholders and value creation.
Stock Options Staff receive the right to buy shares in their company at a
certain date in the future, at a price agreed today.
Long waiting time for the employees to realize the benefit
of stock option plans
Rewarding for employees only if the share price in the
market goes up at the time of exercising the option
E.g.: ABC Limited is listed on the National Stock Exchange
in India. Today, shares of ABC Limited are trading at ` 100
each. The company has just awarded the CEO of the
company an option to buy 500,000 shares for ` 120 each in
exactly ten years time. These options have no intrinsic
value at the granting date.
If the share price rises to say ` 200 in ten years time, the
CEO could exercise his options, buying 500,000 shares at a
price of ` 120 each. Since the shares would be worth ` 200
each by then the CEO would make a gain of ` 80 per share,
or ` 4 crore in total.
Table 1.3

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Example - Separating annual reviews and pay discussions at Google.

At Google, annual reviews take place in November and pay discussions

happen about a month later. The hope is that employees want to improve
for the sake of contributing more to the company — not because they're
motivated by the prospect of a higher salary. Bock cites research that
suggests employees perform better in the absence of external incentives
like more money.

Example - Non-financial rewards to employees.

Number of MNCs has been providing gifts on various occasions at times on
festive season or at a moment of achievement of the goals by the
organization, department or function or individual.

A robust and effectively designed reward system aims to motivate

employees to work harder, smarter and align their goals with the
organization. The latest trend towards performance-related reward
systems is designed to lead the employees with a potential to greater
rewards and motivation for those who contribute to the bottom line and the
cash flow of the organization most. However, designing such reward
systems remains a complex activity as it aims to significantly create an
impact on the human behaviour.

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1.13 Activity

1. Obtain the copy of performance management and evaluation policy of

2-3 companies in a sector of your choice and study the key components,
features, tools and techniques adopted. Highlight the common points,
identify the key differences and identify key limitations.
.........................................................................................................
.........................................................................................................
.........................................................................................................
.........................................................................................................
.........................................................................................................

2. Perform primary and secondary research for 5-10 companies in a sector

of your choice and understand the latest trends in the financial and non-
financial reward mechanism. Highlight the success stories and
limitations.
.........................................................................................................
.........................................................................................................
.........................................................................................................
.........................................................................................................
.........................................................................................................

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1.14 Summary

Performance management is the systematic process of planning work and

setting expectations, continually monitoring performance, developing the
capacity to perform, periodically rating performance in a summary fashion
and rewarding good performance.

In the planning process, getting the employees involved in the planning

process will help them appreciate and understand the key objectives and
important goals of the organization, what needs to be done, why it needs
to be done, and how well it should be done and how does it fits in the
overall strategy of the organization.

Monitoring the performance of the employees includes consistently

measuring performance and providing ongoing/regular constructive
feedback to employees and work groups on their progress toward reaching
their goals.

Organization perform training and developmental needs analysis and the

outcome of the exercise is used in the developing stage to provide
employees with training and developmental opportunities, encourage good
performance, strengthen job-related skills and competencies, and help
employees keep up with changes in the workplace, business environment,
such as the introduction of new technology, merger and acquisition inter
alia.

Rating periodically helps the organizations to summarize employee

performance. This also helps in comparing performance over a longer
period of time or across a set of employees. This also assists the
organizations to identify and carve out who their best performers are.

Rewarding means identifying and recognizing employees, individually and

as members of groups, for their performance and acknowledging their
contributions to the organizational objective, vision and mission.

Organization’s performance management system should take into

consideration the level of the service, which directly or indirectly affects by
employee benefits policy and the sustainability of the service.

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1.15 Self-Assessment Questions

1. ABC Limited, a company engaged in the Information Technology

services, is keen to set up a robust performance management
framework. You are required to help the company in identification of the
key requirements of a good PMS.

2. Harish, head of HR at a large conglomerate, is keen to initiate various

non-financial rewards to motivate employees. You are required to assist
Harish in listing various non-financial rewards to help him in
achievement of his objective.

3. Identify and highlight the important differences between performance

appraisal and performance management.

1.16 Multiple Choice Questions

1. Which of the following statement is not likely to be correct about

performance appraisal?
(a) Approach is collaborative and engaging for the employees.
(b) It is conducted less frequently.
(c) It uses limited ratings framework.
(d) It has direct linkage with compensation.

2. ABC Limited is in the process of formulating performance management

framework for its growth. Which of the following is most likely to be the
first step in the overall performance management framework?
(a) Periodically rating performance in a summary fashion.
(b) Continually monitoring performance.
(c) Planning work and setting expectations.
(d) Developing the capacity to perform.

3. Which of the following is not likely to be an important objective of an

effective performance management framework?
(a) Enabling goal clarity for employees.
(b) Exploration of full potential of employees in their as well as in
favour of organization.
(c) Increase attrition of high performing employees.
(d) Adequately define the role, responsibility and the evaluation
parameters for all employees.

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Answers: 1. (a), 2. (c), 3. (c)

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 INTRODUCTION AND OVERVIEW OF PERFORMANCE MANAGEMENT AND REWARD SYSTEMS

REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture - Part 1

Video Lecture - Part 2

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 KEY ELEMENTS AND STANDARDS OF PERFORMANCE MANAGEMENT PLAN

Chapter 2
Key Elements And Standards Of
Performance Management Plan
Objectives

After studying this chapter, you will be able to:

• Understand the important trends and changes in the performance
management at corporate India
• Gain an understanding related to performance management contribution
in an organization
• Gaining a CEO’s perspective about the contribution of performance
management systems
• Understand the disadvantages of poorly implemented performance
management systems

Structure:
2.1 Trend and Changes in Performance Management at Corporate India
2.2 Elements of Performance Management Plan
2.3 The Performance Management Contribution
2.4 What CEOs say about the Contribution of Performance Management
Systems
2.5 Disadvantages of Poorly Implemented PM Systems
2.6 What can go Wrong with Performance Management Systems?
2.7 Activity
2.8 Summary
2.9 Self-Assessment Questions
2.10 Multiple Choice Questions

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2.1 Trend and Changes in Performance Management at

Corporate India

Performance management is one of the most debated practices that

organizations undergo on a regular basis. While there is not much debate
on the value of performance management, the effectiveness of the process
and how organizations can use it for building a high performance workforce
are of paramount concern. The parameters that make for an effective
performance management system in the workplace.

It should set clear and unambiguous expectations and goals across

distance and boundaries to cater to the geographically dispersed workforce
in today's organization. Second, the expectations and goals set should be
agile enough to respond to the frequent changes as a result of external
factors. Third, a mechanism should be available for effective and regular
feedback among all team members as there is a greater degree of
interdependence due to matrix organization structures used in the
organization.

India Inc., however, is making improvements in their appraisal systems,

according to People Business. Some of the trends spotted include — direct
feedback from employees on the rolled out initiatives. Firms have started a
multi pronged feedback, where many peers rate an employee's work.
Some are encouraging a culture of coaching. Managers should learn the art
and science of formal and informal feedback throughout the year. The
employee needs to be engaged in these discussions and be open.

Why Change is Required in Performance Management Framework

The topic of ‘performance management’ is one that all companies struggle

with, but the reality is that it’s an essential component for developing an
agile business that can survive and thrive in today’s harsh economic
climate. As both the world of work and the employee experience and
expectations modernize and develop, it is essential that companies begin to
critically evaluate their ability to induce the optimum circumstances for
productive, collaborative working- and it’s not an easy feat. HR heads
should ask a very relevant question that how many employees within your
business are passionate about your appraisal process.

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Performance management will forever remain a key component in ensuring

a business’ success. However, in many instances, over time it has become
little more than a bureaucratic burden offering little in the way of value or
opportunities for developing and improving your employees’ performance.
The key challenge is the way the process is administered by companies.
The extreme amount of standardization kills the creativity of the entire
performance management framework in the organization.

Many of the most cutting-edge, industry leading companies provide

evidence to prove that an overall of traditional techniques can promise
results of continued success in performance management. There has been
an abundance of evidence to suggest that the old and traditional methods
of performance management have become stale and outdated in helping
to motivate employees to strive towards improved performance. It is time
to look at change in the end to end performance appraisal and
management process and bring in fresh perspective, especially with
changing times and dynamic business environment.

Key Changes in Performance Management across Industries - An

Insight

1. Striving towards a more agile workplace

Whilst it may be difficult to ascertain what this truly means, adopting a

more agile workplace is of crucial importance in implementing a successful
change in the performance management paradigm. There are numerous
success stories that exemplify what a more agile workplace could entail.
The process of goal setting is a key area in which changes are being made.
Previously, goals and objectives were being set too infrequently and were
often too rigid. Now, growing trends are seeing a movement towards a
more dynamic goal setting process. They will be set and assessed more
frequently than before, when it was common for them to be set solely as
yearly targets. This means they can be adjusted more readily and easily in
response to changes in business objectives.

These goals will be more transparent and team focused than before.
Advocates of more agile approaches to performance management are in
collective agreement that a key downfall of poorly executed goal setting is
the missing essential interlink between individual goals and those of the

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 KEY ELEMENTS AND STANDARDS OF PERFORMANCE MANAGEMENT PLAN

team. Now the focus has shifted towards how individual goals impact upon
those of the team.

New approaches are more flexible and forward thinking than previous
systems. Business goals may be adjusted and by using a more dynamic,
fluid approach, individual goals can be retailored easily and effectively. In
turn, this generates a more streamlined relationship between individual,
team and company goals - maximizing business performance.

A further benefit lies with team inter-connectivity, which is promoted;

enhancing both workplace trust and understanding of the individual’s link
to team success and overall employee engagement.

2. Why companies should say goodbye to the year-end appraisal

system?

The key component to note in the area of appraisals is the shift away from
a year-end quantitative rating system to more informal, ‘real-time’
discussions. Scientific research indicates that the use of a rating system
can induce fear and apprehension for the employee responses which will
decrease motivation and productivity. With 43 per cent of highly engaged
employees receiving feedback at least once a week, it can be seen that this
movement towards promoting regular discussions and feedback between
manager and employee is working. This removes the generally unpopular
year-end appraisal process and allows for qualitative feedback to be given
in real - time, thereby enabling the employee to adopt a continuous
learning and development curve.

What are the benefits of real-time feedback? - Research in neuroscience

has told us that the pursuit of a goal is a greater motivator than that of
goal achievement. Instead of being told at the end of the year that they
have or haven’t achieved their goal, the employee will take part in
continuous interaction and feedback which will increase motivation and
engagement.

The regular feedback given to employees will help enable them to identify
through increased self-awareness how their own performance can be
improved. This approach is much more effective than delivering an end of
year appraisal that does little to motivate the employee or adjust
performance defects.

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3. Improving communication between manager and employees

Research has indicated that 65 per cent of employees said they wanted
more feedback and 98 per cent will fail to be engaged if they are given
little or no feedback. These are statistics that should not be ignored. It is
from this research that we have seen a movement away from the one-way
flow of evaluation and appraisal towards adopting a more reciprocal
approach,thus allowing for increased communication within the
relationship. Previously, the role of the manager in performance
management was simply to monitor and evaluate employee performance in
relation to their overall annual objectives. As performance management
changes, so must the role of the manager. They should now be expected to
act as an employee coach, ensuring that quality feedback is delivered
effectively. Another popular method that has increasingly been adopted by
companies is that of asking employees to evaluate their managers on how
well the feedback has been delivered.

What are the benefits of this increased communication? - Regular check-ins

will allow key information to be passed to the employee with greater ease.
There tends to be a negative connotation surrounding the type of feedback
issued under the old performance management systems. These regular
check-ins and discussions mean that the feedback given will be more
constructive than judging in nature. Many companies have noted that
giving the employee more of a voice in these discussions has made them
feel more involved and increased overall motivation.

4. Use technology to simplify the process

The use of technology under the old systems of performance management

was often laborious and resulted in a backlog of inaccessible and complex
data. In recent years there has been a move towards a more streamlined
and user-friendly approach to the use of technology which allows easier
access to the information deemed useful. Using simple and accessible
technology tools can be of great use in facilitating a smooth and effective
performance management system, especially for ‘real-time’ performance
management systems. Many companies have adopted the use of
performance applications which allow a number of key processes to be
carried out online. This allows employees easy access to elements, such as
team goals and objectives, individual progress reports and feedback.

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What are the benefits of using an effective PM solution? - The use of

technology ensures all feedback, updated goals and progress can be
accessed quickly and effortlessly. This is much more effective than time-
consuming face-to-face meetings. Taking the time to implement the
necessary technology has been proven to reap dividends in helping
facilitate all aspects of what performance management is now striving to
be; a dynamic and agile process that provides real-time feedback to
promote continuous development.

5. Use the data

If you ensure that there is more regular feedback, discussions and

evaluations taking place, there will be much more data for you to use to
your advantage. The aforementioned technology tools can provide a ready-
made source of data with which one can evaluate both employee and
manager performance. More readily available information means better
and more reliable data with which one can assess performance. One
method which has been widely adopted, in order to provide more, is that of
peer assessment. This has been shown to provide a better rounded and
true assessment of an employee’s performance; therefore, providing more
useful data than if it was just one manager making the assessment.

What are the benefits of data analysis? - The use and extrapolation of data
can make the identification of high or low performance trends much easier
and less time-consuming, in turn, increasing the effectiveness of
performance-related decisions, such as promotions and making
performance improvement issues easier to identify.

Adopting a PM system which is used in real time gives the manager a

powerful tool to carry out this type of analysis in real time, and also
reduces the administrative burden on the organization and on the
individuals.

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Case Study

Sunita is a sales manager at a large pharmaceutical company. The fiscal

year will end in one week. She is overwhelmed with end-of year tasks
including reviewing the budget. She is likely to get for next year,
responding to phone calls of customers, and supervising a group of ten
salespeople. It’s a very hectic time, probably the most hectic time of the
year. She receives a phone call from the HR department: “Sunita, we have
not received your performance reviews for your 10 employees; they are
due by the end of the fiscal year.” Sunita thinks “Oh, those performance
reviews… What a waste of my time!” From Sunita’s point of view, there is
no value in filling out those meaningless forms. She does not see her
subordinates in action because they are in the field visiting customers most
of the time. All she knows about their performance is based on sales
figures, which depend more on the products offered and geographic
territory covered than the effort and motivation of each salesperson. And
nothing happens in terms of rewards regardless of her ratings. These are
lean times in her organization, and salary adjustments are based on
seniority rather than merit. She has less than three days to turn in her
forms. What is she going to do? She decides to go down the path of least
resistance: to please her employees, she gives everyone the maximum
possible rating. In this way, she believes they will be happy with their
ratings, and Sunita will not have to deal with complaints or follow-up
meetings. Sunita fills out the forms in less than 20 minutes and gets back
to her ‘real job’.

There is something very wrong with this picture, which, unfortunately, is a

frequent situation in many organizations. Although Sunita’s HR department
calls this process ‘performance management’, it is not. Performance
management is a continuous process of identifying, measuring and
developing performance in organizations by linking each individual’s
performance and objectives to the organization’s overall mission and goals.
Let’s consider each of the definitions two main components:

1. Continuous Process – Performance management is ongoing. It

involves a never-ending process of setting goals and objectives,
observing performance, and giving and receiving ongoing coaching and
feedback.

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2. Link to Mission and Goals – Performance management requires that

managers ensure that employees’ activities and outputs are congruent
with the organization’s goals and consequently, help the organization
gain a competitive business advantage. Performance management,
therefore, creates a direct link between employee performance and
organizational goals, and makes the employees’ contribution to the
organization explicit.

Note that many organizations have what is labelled a ‘performance

management’ system. However, we must distinguish between performance
management and performance appraisal. A system that involves employee
evaluations once a year, without an ongoing effort to provide feedback and
coaching so that performance can be improved, is not a true performance
management system. Instead, this is only a performance appraisal system.
Although performance appraisal (i.e., the systematic description of an
employee’s strengths and weaknesses) is an important component of
performance management, it is just a part of the whole.

Example - As an illustration, consider how Merrill Lynch has changed from

having simply a performance appraisal system to now having a
performance management system. Merrill Lynch is one of the world’s
leading financial management and advisory companies, with offices in 36
countries and private client assets of approximately US$1.1 trillion. As an
investment bank, it is a leading global underwriter of debt and equity
securities and strategic advisor to corporations, governments, institutions
and individuals worldwide. Recently, Merrill Lynch started the transition
from one performance appraisal per year to focusing on one of the
important principles of performance management: the conversation
between managers and employees where feedback is exchanged and
coaching is given if needed. At the first review of the year, employees and
managers set employee objectives. Mid-year reviews assess what progress
has been made toward the goals, and consider personal development
plans. Finally, the end-of-the year review incorporates feedback from
several sources, evaluates progress toward objectives, and identifies areas
that need improvement. Managers also get extensive training on how to
set objectives and conduct reviews. In addition, there is a website that
managers can access for information on all aspects of the performance
management system. In sharp contrast to their old performance appraisal
system, Merrill Lynch states that the goal of the newly implemented
performance management programme is to say: This is what is expected of

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you, this is how we’re going to help you in your development, and this is
how you’ll be judged relative to compensation. Performance management
systems that do not make explicit the employee contribution to the
organizational goals are not true performance management systems.
Making an explicit link between an employee’s performance objectives and
the organizational goals also serves the purpose of establishing a shared
understanding about what is to be achieved and how it is to be achieved.
This is painfully clear in the case of Sunita described above: From her point
of view, the performance review forms did not provide any useful
information regarding the contribution of each of her subordinates to the
organization. In subsequent modules we shall describe best practices on
how to design and implement performance management systems. For now,
however, let’s say that well-designed and implemented performance
management systems make substantial contributions to the organization.

Transition from Performance Management to Performance

Development

Organizations have come to realize that traditional approaches to

performance management do not effectively motivate employees. In fact,
they often have the opposite effect. And that is unsettling to organizations
and employees alike, given the importance of performance improvement
and the time and resources that leaders, managers and human resources
staff invest in measuring performance. Many organizations have chosen to
stop wasting resources on annual reviews and discontinue their use. But
before leaders run away from the problems of the past, they should
understand what they are running toward.

Performance management has buckled because organizations have

prioritized measurement over development. Yet, development is key to
improving performance. Measurement still matters, but it has to be
reframed and designed to support development and performance
improvement.

Managers carry the utmost responsibility for guiding and inspiring

employee performance, and organizations and leaders have an immediate
opportunity to enhance managers’ abilities to fulfill these responsibilities.
To change how performance is achieved, organizations must begin to
philosophically and functionally shift from performance management to
performance development.

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Successful performance development is not just about changing the way

annual reviews are conducted. Rather, performance development is about
creating a cultural shift in how people work and how they work together.
Moving from performance management to performance development
requires managers to think of themselves in a new way: as a coach, not a
boss.

Bosses operating within traditional performance management systems

have struggled to inspire and develop employees because this approach
consistently leads to:

• Unclear and misaligned expectations.

• Ineffective and infrequent feedback.
• Unfair evaluation practices and misplaced accountability.

Instead, organizations can transform their managers into coaches by

teaching them to effectively and cohesively:

• Establish expectations.
• Continually coach.
• Create accountability.

When performance becomes focused on these core principles, manager-

employee interactions and discussions feel encouraging, purposeful and
rewarding in ways that annual reviews do not. Creating a culture of
performance development around this cadence of core principles also helps
employees better own their performance, development and career.

Establish Expectations - Decades of management studies and practices

have proven the importance of effectively establishing expectations. Locke
and Latham’s Goal Setting Theory, Drucker’s Management by Objectives
(MBO) strategy, SMART goals and the famous Balanced Scorecard (BSC)
have all proven the criticality of defining performance expectations and
tracking progress against them. Locke and Latham have provided,
arguably, the most prolific pipeline of research on performance
expectations, examining various types, circumstances and outcomes of
goal setting methods. Their work goes so far as to teach us that just the
act of setting personally meaningful goals creates a motivational force
called ‘intrinsic motivation.’ And even more importantly, they discovered
that intrinsic motivation tends to have an independent, and often stronger

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impact on work quality than the extrinsic motivation people experience

when pursuing tangible rewards for performance.

These difficulties associated with performance expectations are particularly

alarming because multiple meta-analysis demonstrate that the
effectiveness of goal setting and subsequent performance is largely
determined by: 1) goal clarity and specificity, 2) appropriate goal difficulty,
3) involving employees in the process, and 4) feedback and progress
monitoring as performance occurs.

It seems that despite an abundance of research on effective goal setting,

managers are either unaware of best practices, or the vast amount of
research has been difficult to translate into a simple but optimally effective
framework that can be easily applied to daily management responsibilities.

In summary, one of the most crucial requirements for developing

outstanding employee performance is ensuring that employees are clear
about the work they need to do and what qualifies it as successful. In a
fast-paced workplace where it is common for employees to experience
matrixed teams, stretch assignments, cross training, doing more with less
and having multiple stakeholders to answer to, it can feel daunting trying
to determine what to do each day — and in what order to do it.

If managers and employees do not have a shared understanding of what

needs to be done today, tomorrow, next week and into the future, it
becomes difficult for employees to meet or exceed performance
expectations. Nothing makes an employee’s work more difficult than
unclear performance targets, constantly changing targets or conflicting
goals.

Thus, one of the most effective ways for managers to avoid these issues is
to collaborate with employees to determine performance expectations
based on employees’ abilities, aspirations and developmental needs. Then,
together, they can clearly identify performance targets and determine the
most important objectives to prioritize.

A good manager not only establishes expectations and gives employees a

voice in the process, but also helps employees understand why their role
exists and how their role expectations align with team and organizational
objectives.

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Continually Coach - Much of the criticism aimed at performance

management focuses on the annual review and for good reason. While
these more formal conversations can be worthwhile, managers often rely
on them too much as their primary opportunity for providing employee
feedback. Unfortunately, the overall amount of feedback that employees
receive from their manager tends to be dismal and needs much
improvement.

Not everyone is devoid of coaching from their manager. About one-fourth

of employees receive feedback from their manager at least a few times per
week, suggesting that some do receive a good amount of manager contact.
Another one-fourth receive manager feedback a few times a month, which
reflects a substantial; deficiency but not a complete absence of
communication. Overall, based on the frequency of manager feedback
alone, it appears that one-half of the workforce receives very little
coaching, a quarter receives some coaching and another quarter receives a
good amount of coaching.

Performance is not an episodic event it happens every day. Continual

coaching helps managers and employees create an ongoing dialogue about
performance expectations and individualized developmental needs. By
creating an ongoing conversation about performance, barriers can be
removed, opportunities can be seized and expectations can be adjusted
when circumstances change.

In summary, one of the biggest deficits in traditional performance

management practices has been the lack of ongoing coaching needed to
create an open dialogue about performance. As companies transition from
performance management to performance development, managers must
learn to equip, inspire and enable employees by leading ongoing coaching
conversations that create an everyday dialogue about performance, rather
than merely documenting weaknesses. Employees should develop through
their everyday opportunities to learn and grow, and coaching should be an
iterative process rather than an occasional event.

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Create Accountability - Accountability is critical to achieving high

performance. Without accountability, establishing expectations and
continually coaching are just talk. As such, effective performance
development requires managers and employees to take the time to review
progress toward expectations, discuss lessons learned and plan for the
future.

Organizations have traditionally used the annual review as their key

mechanism for creating accountability. However, in many organizations,
employees also undergo an annual review for the primary purpose of
helping managers make pay and promotion decisions. Managers compare
employees by ranking or rating them and then use that information to
determine who gets more money or the next advancement opportunity.
Often, managers actually already know whom they want to pay more or
promote and work backward by ensuring performance evaluations justify
the pay or promotion decision.

When the focus of a performance review is on evaluation for purposes of

pay or promotion, employees’ attention is on their pay and their manager’s
ability to adequately rank or rate them rather than on understanding what
they did well, which areas have opportunities for improvement, or how
they can develop within their role or company. Employees often leave these
discussions feeling judged or condemned for their shortcomings instead of
supported and energized about their professional future.

A demotivating performance evaluation is particularly serious because

multiple meta-analysis indicate that an employee’s reaction to ratings and
feedback is even more important than the specific content of the feedback.
Negative reactions to evaluation and feedback tend to be associated with
lower resulting self-esteem, lower receptiveness to feedback and lower
performance. By contrast, when employees receive feedback in a manner
that is positive and achievement-oriented, they tend to be more receptive
and perform better in the future.

To help managers transform dreaded annual performance evaluations into

constructive progress reviews, there are three key attributes that make
progress reviews more effective. Progress reviews should be achievement
oriented, fair and accurate, and developmental.

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2.2 Key Elements of Performance Management Plan

The key elements of performance management plan are stated as under:

• Reliable Measures: We all know that performance measures are the

key to performance management; how could you direct and improve
performance without tracking how it changes? Measures must be tightly
tied to the organizational results that really count and the factors that
drive those results; in different words, performance measures must
reflect how your organization creates value. As a practical matter,
measures must also be well known and accepted as fair and complete.
Strong performance measures will generally be quantitative, but well-
conducted assessments and other qualitative processes can also meet
your measurement need.

• Clear Goals: Goals can be directed toward implementing your strategy

or directed toward improving operational effectiveness. In either case a
clear, challenging goal calls forth action and aligns effort. In the best
performance management programmes, goals are:
❖ Based on careful study and a strong vision of what’s possible,
❖ Linked and cross-tied to your performance measures,
❖ Clearly announced and well known, and
❖ Accepted by individuals and groups as part of their accountabilities.

• Performance Monitoring: You’d be surprised how many organizations

have strong and detailed performance measures and yet do not use them
effectively as management tools; that is, the measures are not
thoroughly and periodically reviewed by senior leaders. To manage
performance, senior people must:
❖ Regularly inspect performance measures,
❖ Interpret trends and study root causes,
❖ Let everyone know the measures are reviewed and used, and
❖ Set new actions and initiatives according to what is learned.

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• Rewards and Recognition: Rewards and recognition are crucial

components of performance management. You have many options and
ways for using them, but the three keys are: they must be present; they
must be meaningful to those on the receiving end; and they must be
truly contingent on performance.

• Initiatives and Corrective Actions: Finally, a performance

management programme must include new initiatives and corrective
actions. We must do something based on what we’ve learned
❖ Set new, higher goals when they seem achievable.
❖ Institute mid-course corrections when performance is off - track.
❖ Always strive to inspire new action rather than assign blame.

Some of the other aspects of the performance management process is

stated as under:

• Key Objectives of the PMS Process

❖ Evaluation objective
❖ Development objective

• Performance Management Steps

❖ Performance planning
❖ Performance monitoring and coaching
❖ Individual evaluation
❖ Linking the evaluation with pay and other areas

• Performance Management Cycle Consists of Five Elements

❖ Setting performance objectives
❖ Measuring outcomes
❖ Feedback of results
❖ Rewards linked to outcomes
❖ Amendments to objectives and activities

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• Performance Management Cycle

❖ Phase I: Performance planning
❖ Phase II: Performance execution
❖ Phase III: Performance assessment
❖ Phase IV: Performance review
❖ Phase V: Performance development
❖ Phase VI: Performance audit

• The Three Major Steps in Performance Management Process are

❖ Performance planning
❖ Performance development
❖ Performance appraisal

• The Goal orientated PMS Cycle

❖ Achieving clarity about the job to be done
❖ Setting goals
❖ Reviewing performance in the job
❖ Preparing for the performance discussion
❖ Concluding the performance discussion

The Three Most Important Aspects of Performance Management –

What to Focus On

Performance management is basically a system of different processes that

combine to create an effective workforce within your company that can
effectively reach your business goals. There are many different aspects of
performance management, but in most cases it can be broken down into a
few simple steps. If you're adopting a performance management process
for the first time or want to modify your current one to maximize its
effectiveness, there are three key aspects that are the most important in
your performance management system. Obviously these are up for debate,
but in most cases of performance management you can plan on these to
have the most impact on the success or failure of your performance
management efforts.

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Planning: The first step in any good performance management process is

likely also the most important. Haphazardly stumbling towards goals will
usually only end in disaster, so it's important that proper planning is used
during performance management. This applies not only to the performance
management system itself, but also to the inner workings of the business.
Speaking strictly about performance management good planning begins by
analyzing the exact goals you want your company to attain and to develop
realistic ways to achieve them. It's vital that your goals be realistic,
otherwise your performance management plan will fail. It's also important
to take the time to create a realistic plan that can achieve your goals.

Monitoring: If any performance management system is to succeed, then

it needs to involve a very rigorous monitoring process. Closely surveying
your overall company, each department, and individuals is vital for
performance management and for you to reach your goals. Monitoring
during performance management involves not just monitoring the progress
of each department and employee but also providing them with constant
feedback whether it is in the form of praise and reward or in constructive
criticism. If you want your performance management efforts to succeed
you'll have to monitor each step towards your goal very closely to ensure
everything is going according to plan. If areas seem to be lacking,then
you'll need to be able to take these steps to improve them, such as
providing training.

Rewards: While some experts place this lower in importance than other
aspects of performance management, the truth is that your employees
deserve rewards, and that few things will influence not only the success of
your performance management efforts but also the success of your entire
company quite like appropriate rewards. Whether it is simple public
recognition or actual monetary rewards, no performance management
process will be complete or effective without good use of rewards. They
can improve morale and employee satisfaction, boost productivity, and help
you move closer to your goals. If you want your performance management
to be successful, take the time to utilize rewards.

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2.3 The Performance Management Contribution

There are many advantages associated with the implementation of a

performance management system. A performance management system
can make the following important contributions:

• Motivation to perform is increased: Receiving feedback about one’s

performance increases the motivation for future performance. Knowledge
about how one is doing and recognition of one’s past successes provide
the fuel for future accomplishments

• Self-esteem is increased: Increased Receiving feedback about one’s

performance fulfils a basic need to be appreciated and valued at work.
This, in turn, is likely to increase employees’ self-esteem.

• Managers gain insight about subordinates: Direct supervisors and

other managers in charge of the appraisal gain new insights into the
person being appraised. The importance of knowing your employees is
highlighted by the fact that the Management Standards Centre has
recognized that developing productive relationships with colleagues is a
key competency for managers gaining new insights into a person’s
performance and personality, and also will help the manager build a
relationship with that person. Also, supervisors gain a better
understanding of each individual’s contribution to the organization. This
can be useful for direct supervisors as well as for supervisors once
removed

• The job definition and criteria are clarified: The job of the person
being appraised may be clarified and defined more clearly. In other
words, employees gain a better understanding of the behaviors and
results required of their specific position. Employees also gain a better
understanding of what it takes to be a successful performer (i.e., which
criteria defines job success).

• Self-insight and development are enhanced: The participants in the

system are likely to develop a better understanding of themselves and of
the kind of development activities of value to them as they progress
through the organization. Participants in the system also gain a better
understanding of their strengths and weaknesses, which can help them

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better define future career paths.

• Personnel actions are more fair and appropriate: Performance

management systems provide valid information about performance,
which can be used for personnel actions, such as merit increases,
promotions and transfers, as well as terminations. In general, a
performance management system helps ensure that rewards are
distributed on a fair and credible basis. In turn, such decisions based on
a sound performance management system lead to improved
interpersonal relationships and enhanced supervisor–subordinate trust.

• Organizational goals are made clear: The goals of the unit and the
organization are made clear, and the employee understands the link
between what he or she does and organizational success. This is a
contribution to the communication of what the unit and the organization
are all about and how organizational goals cascade down to the unit and
the individual employee. Performance management systems can help
improve employee acceptance of these wider goals (i.e., organizational
and unit level).

• Employees become more competent: An obvious contribution is that

the performance of employees is improved. In addition, there is a solid
foundation for developing and improving employees by establishing
developmental plans.

• There is better protection from lawsuits: Data collected through

performance management systems can help document compliance with
regulations (e.g., equal treatment of all employees regardless of sex or
ethnic background). When performance management systems are not in
place, arbitrary performance evaluations are more likely, resulting in an
increased exposure to litigation.

• There is better and more timely differentiation between good and

poor performers: Performance management systems allow for a
quicker identification of good and poor performers. Also, they force
supervisors to face up to and address performance problems on a timely
basis (i.e., before the problem is too costly and cannot be remedied).

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• Supervisors’ views of performance are communicated more

clearly: Performance management systems allow managers to
communicate to their subordinates their judgements regarding
performance. Thus, there is greater accountability in how managers
discuss performance expectations and provide feedback. Both assessing
and monitoring the performance of others are listed as key competencies
for managers by the Management Standards Centre. When managers
possess these competencies, subordinates receive useful information
about how their performance is seen by their supervisor.

• Organizational change is facilitated: Performance management

systems can be a useful tool to drive organizational change. For example,
assume an organization decides to change its culture to give top priority
to product quality and customer service. Once this new organizational
direction is established, performance management is used to align the
organizational culture with the goals and objectives of the organization to
make changes possible. Employees are provided with training in the
necessary skills, and are also rewarded for improved performance so that
they have both the knowledge and the motivation to improve product
quality and customer service.

Example - This is precisely what IBM did in the 1980s when it wanted to
switch focus to customer satisfaction: the performance evaluation of
every member in the organization was based, to some extent, on
customer satisfaction ratings regardless of function (i.e., accounting,
programming, manufacturing, etc.). For IBM, as well as for numerous
other organizations, performance management provides tools and
motivation for individuals to change, which in turn, helps drive
organizational change.

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2.4 What CEO’s Say About the Contribution of Performance

Management Systems

A study conducted by Development Dimensions International (DDI), a

global human resource consulting firm specializing in leadership and
selection, found that performance management systems are a key tool that
organizations use to translate business strategy into business results.
Specifically, performance management systems influence ‘financial
performance, productivity, product or service quality, customer satisfaction,
and employee job satisfaction’. In addition, 79 per cent of the CEOs
surveyed say that the performance management systems implemented in
their organizations drive the cultural strategies that maximize human
assets.

Contributions of performance management systems:

• Motivation to perform is increased.
• Self-esteem is increased.
• Managers gain insight about subordinates.
• The definitions of job and criteria are clarified.
• Self-insight and development are enhanced.
• Personnel actions are more fair and appropriate.
• Organizational goals are made clear.
• Employees become more competent.
• There is better protection from lawsuits.
• There is better and more timely differentiation between good and poor
performers.
• Supervisors’ views of performance are communicated more clearly.
• Organizational change is facilitated.

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2.5 Disadvantages of Poorly Implemented PM Systems

What happens when performance management systems do not work as

intended, as in the case of Sunita’s organization? What are some of the
negative consequences associated with low quality and poorly implemented
systems? Consider the following list:
• Employees may quit due to results: If the process is not seen as fair,
employees may become upset and leave the organization. They can
leave physically (i.e., quit) or withdraw psychologically (i.e., minimize
their effort until they are able to find a job elsewhere).
• False or misleading information may be used: If a standardized
system is not in place, there are multiple opportunities for fabricating
information about an employee’s performance.
• Self-esteem may be lowered: Self-esteem may be lowered if feedback
is provided in an inappropriate and inaccurate way. This, in turn, can
create employee resentment.
• Time and money are wasted: Performance management systems cost
money and quite a bit of time. These resources are wasted when systems
are poorly designed and implemented.
• Relationships are damaged: As a consequence of a deficient system,
the relationships among the individuals involved may be damaged, often
permanently.
• Motivation to perform is decreased: Motivation may be lowered for
many reasons, including the feeling that superior performance is not
translated into meaningful tangible rewards (e.g., pay increase) or
intangible rewards (e.g., personal recognition).
• Employees suffer from job burnout and job dissatisfaction: When
the performance assessment instrument is not seen as valid, and the
system is not perceived as fair, employees are likely to feel increased
levels of job burnout and job dissatisfaction. As a consequence,
employees are likely to become increasingly irritated.
• There is increased risk of litigation: Expensive lawsuits may be filed
by individuals who feel they have been appraised unfairly.

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• Unjustified demands are made upon managers’ resources: Poorly

implemented systems do not provide the benefits that well implemented
systems provide, yet they still take up managers’ time. Such systems will
be resisted because of competing obligations and allocation of resources
(e.g., time). Worse, managers may simply choose to avoid the system
altogether.
• Standards and ratings vary and are unfair: Both standards and
individual ratings may vary across and within units, and may also be
unfair.
• Biases can replace standards: Personal values, biases and
relationships are likely to replace organizational standards.
• Mystery surrounds how ratings were derived: Because of poor
communication, employees may not know how their ratings are
generated or how the ratings are translated into rewards.

Example and case study providing insight into consequences of

poorly implemented Performance Management System

One example of a poorly implemented performance management system

resulted in a $1.2 million lawsuit. A female employee was promoted several
times, and succeeded in the organization until she started working under
the supervision of a new manager. She stated in her lawsuit that, once she
was promoted, her boss ignored her and did not give her the same support
or opportunities for training that her male colleagues received. After eight
months of receiving no feedback from her manager, he called her into his
office to tell her that she was failing, was being demoted, and would
receive a $20000 reduction in her annual salary. When she won her sex
discrimination lawsuit, a jury awarded her $1.2 million in emotional
distress and economic damages.

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2.6 What can go wrong with Performance Management

Systems?

Performance management is a process for setting up a shared

understanding of what is to be achieved at an organization level. It
involves the alignment of organizational objectives with the individual’s
agreed measures, skills, competency requirements, development plans and
the delivery of results. The focus is on performance improvement through
learning and development in order to achieve the overall business strategy
of the organization. Holistically, performance management integrates a
multitude of elements that contribute to effective management of the
human resource.

Performance management is a systematic process which a manager can

use to get the team members to achieve the team’s objectives and targets,
improve overall team effectiveness, develop performance capabilities,
review and assess team and individual performance, and reward and
motivate. Effective performance management requires:
• Identifying tasks and accountabilities
• Defining competencies necessary to be successful in a position
• Ensuring that team members have the required competencies
• Having in place a system to develop competencies
• Providing timely feedback on how effectively the team members are
applying their respective competencies to accomplish their tasks and
achieve the goals
• Rewarding and motivating effective performance
• In the event that performance does not meet established requirements,
the manager must understand the corrective processes and methods that
can help improve employee performance.

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The basic objective of performance management is to develop and improve

the performance effectiveness of team members. The manager and the
team members work together to plan, monitor, review and appraise the
latter’s work objectives and overall contribution to achieving the
organization’s goals. Various types of tools are used in this process,
ranging from traits based or behaviour based to result based. Both formal
and informal communications are used to provide feedback. The feedback
could be regular or irregular. A lot of time and energy is spent in getting
the goals and measures right, reviewing performance, and appraising it.
However, things could go wrong and the required effectiveness of employee
performance would not be obtained.

Some of the major challenges in managing performance could be as

follows:

• Wrong Design: The performance management system and tools must

fit with the specific needs of the organization. It cannot be a duplication
of a system designed and implemented in another organization, even an
organization in the same industry or the same business group. Intense
consultation with various stakeholders and users of the system is
necessary. User trust is an absolute necessity for the success of the
system. The design should be tried out on a pilot basis before it is rolled
out to the organization as a whole. All documents and forms must be in
place. The system should be fair and equitable. Performance
management should be viewed as a continuous process and not an
activity conducted once or twice a year. The design should also include
mechanisms for rewarding performance and handling poor performers.

• Absence of Integration: The performance management system has to

be integrated with the strategic planning and human resource
management systems as well as with the organizational culture,
structure and all other major organizational systems and processes.

• Lack of Leadership Commitment: Leadership commitment and

support is a must for smooth implementation of the system. Leaders
must drive the process and make performance management an integral
part of the management of the company. Leaders contribute not only in
setting the strategic direction and performance measures but also in
monitoring and reviewing performance across the organization. They also
reinforce the performance cycle by recognizing and rewarding

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performance.

• Ignoring Change Management in System Implementation:

Strategic management of change is a vital part of implementing the
system. Driven by the top management, it involves careful management
of resistance. Communication would be a major intervention and a key
tool in managing the change. Implementation milestones and schedules
must be followed. Proper documents must be in place.

• Incompetence: Competence to use the performance management

system is necessary to ensure smooth implementation of the system.
Some of the major skills would include:
❖ Defining strategic objectives, performance indicators, core
competencies and performance contracts
❖ Defining performance measures that correspond to the KPIs
❖ Giving and taking feedback, conducting appraisal interviews, and active
listening
❖ Performance coaching

The focus would be on designing and implementing training and

development interventions that would help in developing the competence
of various job holders. Special emphasis would be on building the
behavioral dimensions of performance.

Performance Management Framework – A Millennial Perspective

Key traits the millennials exhibit, laying emphasis on the motivation at the
workplace is the important driving factor for their performance. Millennials
prefer a rating system of the appraisal process which should be replaced by
frequent feedback, awards and recognitions to keep them satisfied, as this
generation prefers instant gratification and immediate reactions. She also
spoke about changing work environment brought in by the technological
disruptions, where the only thing that is relevant is that the work is being
delivered effectively and efficiently. In this era of Gen Y, balance in life
through flexibility is very important. In this time of industrial revolution
4.0, it is vital that organizations should encourage continuous learning for
the employees and must focus on clear and transparent communication.
What has changed in the workplace scenario over the years that is

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impacting the behaviour of the millennials the most. Technology, speed and
purpose are having a huge impact on the working of an individual today.
The choices have increased for the millennials, and they have a tendency
to strive for achieving the best in a very short time period. So, the work
environment has to evolve accordingly. Small successes of short target and
regular rigorous feedback motivate them a lot. Millennials are well
informed and are extremely concerned about whether they are involved in
the decision-making part by the organization or not and the degree of
involvement in decision - making is very important to them. Millennials
have high risk-taking ability. For them, every purpose has a commercial
value and this attitude can be leveraged by organizations by providing
them with the right tools and opportunities to see them achieve higher
goals for the organization and for themselves.

Organizations today should establish their work environment keeping in

mind the tech-savvy millennials. The millennials prefer agile workspaces
with recreational facilities. As one size doesn’t fit all similarly, an
organization should become more receptive to the different set of talents
and millennials appreciate this behaviour.

2.7 Activity

1. Study performance management system of a large company through

interviews with the senior management or HR department heads and
identify the important features of their PMS.
.........................................................................................................
.........................................................................................................
............................................................................ ............................
.........................................................................................................

2. Compare key features of performance management system of any two

large companies and assess the key drivers that are working. Also
identify limitations, if any.
.........................................................................................................
.........................................................................................................
............................................................................ ............................
.........................................................................................................

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3. Conduct interviews/survey of atleast ten employees across multiple

organizations using the following table. Assess whether there are signs
of the organization moving from performance management to
performance development.
.........................................................................................................
.........................................................................................................
............................................................................ ............................
.........................................................................................................

Sr. Response
Question
No Yes / No
1 I know what is expected of me at work.
I have the materials and equipment I need to do my work
2
right.
At work, I have the opportunity to do what I do best every
3
day.
In the last seven days, I have received recognition or praise
4
for doing good work.
My supervisor, or someone at work, seems to care about
5
me as a person.
There is someone at work who encourages my
6
development.
7 At work, my opinions seem to count.
The mission or purpose of my company makes me feel my
8
job is important.
My associates or fellow employees are committed to doing
9
quality work.
10 I have a best friend at work.
In the last six months, someone at work has talked to me
11
about my progress.
This last year, I have had opportunities at work to learn and
12
grow.

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2.8 Summary

Performance management is strategic HRD function which develops

organizational capability to sustain in competition. The age-old use of
performance management was to validate the compensation design and
other HR related decisions like promotion, demotion, transfer, etc. With the
realization that people are the only sustainable drivers of achieving
organizational excellence, the performance management focuses have
shifted towards HRD activities like identification of training needs and
providing performance feedback directly to employees to enable them to
make an informed choice about their career development.

Over a period of time the trends in performance management at Corporate

India are changing drastically. CEOs of India Inc. looks for performance
management system as a key contributor to drive organizational
strategies.

An organization needs to carry out continual improvements in the

performance management systems. There are number of reasons for
failure of performance management systems and one of the key is lack of
commitment from the management. Absence of right design and
inadequate integration with the business processes as well leads to failure
of performance management systems.

2.9 Self-Assessment Questions

1. Highlight the key reasons, with examples that will lead to failure of a
performance management system in an organization.

2. Explain the key elements and broad process involved in setting up a

performance management system.

3. Your company is a renowned company in the business of knowledge

process outsourcing. You have been recruited as leader with five
subordinates reporting to you. The major responsibility is managing
payroll of the employees, process employee claim form and processing
medical reimbursements. The job is absolutely protocol bound and
requires your mandate instantly. Accuracy in decision and speed of work
both are essential parts of your and other team members’ job. Identify
what could be your performance domains and dimensions. Develop your

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answer with specific examples.

4. Explain how performance management can benefit the organization.

2.10 Multiple Choice Questions

1. Which of the following is least likely to be a reason for failure of

performance management systems?
(a) Robust management commitment.
(b) Lack of design.
(c) Inadequacies in integration.
(d) Lack of periodic review mechanism.

2. Which of the following are key requirements of effective performance

management?
(a) Identifying tasks and accountabilities.
(b) Defining competencies necessary to be successful in a position.
(c) Ensuring that team members have the required competencies.
(d) All of the above.

3. Which of the following is least likely to be a disadvantage of poorly

implemented performance management system?
(a) Employee attrition.
(b) High level of motivation for performance.
(c) Self-esteem may be lowered.
(d) Wastage of time and money.

Answers :1. (a), 2. (d), 3. (b)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 3
Performance Management and Performance
Appraisal
Objectives

After studying this chapter, you will be able to:

• Gain an understanding of the latest methods deployed by Corporate India
and MNC’s for performance management and performance appraisal
• Understand the key alternatives to traditional annual performance review
cycle
• Gain an understanding of areas where technology can be leveraged for
performance management and appraisal
• Gain an insight into continuous performance review and appraisal
process
• Gain an insight into new appraisal system implemented by India
Incorporate and MNCs

Structure:

3.1 Ways and Methods to Measure the Employee Performance

3.2 Managing Performance Failure and Initiating Improvement Measures
3.3 Performance Appraisal Process
3.4 Alternatives to Annual Performance Review
3.5 Shift at Leading Multinationals from Annual Performance Review to
More Frequent Feedback
3.6 Use of Technology in Performance Appraisal
3.7 Round - the - Clock Performance Review
3.8 Key Aspects of Continuous Performance Evaluation
3.9 Insight into New Appraisal System Implemented by India Incorporate
and MNCs
3.10 Activity
3.11 Summary
3.12 Self-Assessment Questions
3.13 Multiple Choice Questions

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3.1 Ways and Methods to Measure the Employee

Performance

Businesses globally are faced with number of questions and challenges for
measuring performance of the employees across functions. Some of the
key challenges and questions are ―

• How do you assess their performance levels?

• Do they understand organization’s goals and expectations?
• Are they meeting their personal objectives?

Every company should continually monitor and evaluate their employees;

Here are seven easy ways to quickly gauge performance and ensure that
the organization is on the right track. Those key seven parameters and
ways that can be considered for evaluation are as under:

• Evaluation of Punctuality and Absenteeism: The evaluation of

punctuality and absenteeism has been the most traditional measure for
the employee evaluation. Based on an established survey, employees
who regularly arrive late for work or are frequently absent from the office
are unlikely to be meeting their performance objectives. The late
reporting and frequent absenteeism could possibly be on account of poor
discipline. The underlying issue needs to be addressed here –

❖ Have they received adequate training?

❖ Do they get along with their co-workers and manager?

Issues with punctuality mean an employee is not doing their job to their
full potential and a negative attitude may also be affecting their colleagues.
First and foremost, it’s important to look at whether an employee shows up
to work or not. Attendance is definitely worth tracking. Employee
attendance can be a useful performance metric as well. Automating time
and attendance is a great way to keep an eye on things.

If an employee is consistently showing up late, leaving early or taking an

unusual number of sick days, they’re likely not showing their full potential.
Poor attendance can be caused by any number of things including a lack of
motivation, health issues or employee burnout.

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Absenteeism can put extra pressure on other employees who have to make
up for missing co-workers. Furthermore, if the organization is understaffed
and employees are overworked in general, it’s best to address the problem
as soon as possible to avoid putting employee health and well-being at
risk.

• Quality of Work: The timely completion of projects to the desired

standard is a key indicator in measuring employee performance. Some of
the key questions to be evaluated here are as follows:
❖ Is the work being carried out average or outstanding?
❖ Are they committing maximum effort to projects?
❖ Is their attitude affecting their ability to meet your expectations?
❖ Do they understand their personal performance objectives?

The answers to these questions will help you to understand the root causes
of any problems. The quality of work employees put out is perhaps the
most important metric, but also the most difficult to define. Employees who
care about what they do and are engaged at work will likely perform better,
and it’s a good idea to recognize resulting achievements.

Productivity is a little more complicated than simply looking at the number

of sales calls put out or the number of blog posts published. How many
meaningful connections did your salesperson actually make with leads?
How much of your content actually gets viewed and shared?

Measuring the amount of work that gets rejected or needs to be redone is

a proxy for quality of work, but it’s best to pick (or design) the method that
suits your business best.

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3.2 Managing performance failure and initiating

improvement measures

Example - Snapdeal, an e-commerce giant, snapdeal puts 200

employees on ‘performance improvement", failure may result in
termination.

Amid growing competition from rivals like Amazon and Flipkart, e-

commerce major Snapdeal has put its 200 employees on a 'performance
improvement' notice under which they need to improve within a month or
get terminated. The PIP process is expected to cover about 200 team
members.

As part of the ongoing performance management and development

programme, some team members at our contact centre have been offered
a performance improvement plan (PIP). Under PIP, employees have been
given 30 days to improve performance, and failure to improve will result in
termination of services. Many of the employees have opted for PIP, some
have decided not to go for it and instead move on voluntarily.

Strategies to improve performance

• Positive reinforcement system
• Positive discipline programmes
• Employee assistance programmes
• Employee counselling

While most of these companies continue to be driven by investor money,

concerns around profitability are being raised and many of these firms are
now looking at restructuring their business model to run leaner operations.
Snapdeal like organizations also, thus, need to initiate Performance
Improvement Initiatives at an early employment stage.

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• Observe Personal Habits: Perpetual bad habits can detract them from
employee performance. This may include indulging in office gossip,
taking unauthorized breaks, disruptive behaviour and the use of
computers for personal reasons (such as social media, online shopping).
In order to prevent these habits from being adopted by their co-workers,
you must be clear on what is acceptable in your business and issue an
appropriate behavioural code.

• Evaluate Whether Employee Carry Right Attitude: A bad attitude

will often manifest itself in insubordinate behaviour. Again, this is
indicative of an individual who is unlikely to be meeting their
performance objectives. Typically, these employees will not comply with
company policies and are likely to display disrespect for your company
and co-workers.

• Helpfulness Towards Co-workers: Helpfulness is important for

fostering a culture of teamwork, allowing your team to perform better
when tackling difficult tasks together. It might be difficult to measure
helpfulness; however, most of the organizations float an award for
honouring and rewarding ‘Collaborator of the Year’. Such awards are
meant to promote helpfulness towards the co-workers and reward
employee’s initiative to prove him/herself as a great team player.

• Efficiency and Productivity Levels: Employees need to be able to

complete their work on time. They should have a good handle on the
limitations provided by the time and resources available, and should be
able to prioritize to get things done as efficiently as possible. The
organization should also look for missed deadlines – or work that suffers
as a result of cramming for deadlines – for clues as to how efficiently an
employee is working. Attendance at work is also very important here. If
an employee is clocking large amounts of overtime every day, it is crucial
to engage with the employee and train them in better time management.

• Assess Whether has an Ability to Take Initiative: Ability and

demonstration to initiative is definitely a sign of employee satisfaction
and engagement. Looking at workers who take initiative is also important
for growing businesses and for rapidly changing workplaces that require
employees who can adapt and be proactive. Initiative is definitely a
difficult metric to measure, but a good parameter to start with.

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• Review Personal Presentation: Most companies operate a professional

dress code appropriate to their industry sector and company culture.
Employees who disregard your expectations and present a dishevelled or
careless appearance reflect badly on your brand image. It’s likely that
their performance will be failing to meet your expectations, too.

• Conducting a Client Survey: The consequences of poor employee

performance will ultimately manifest themselves in customer service. A
client survey can quickly identify issues with individuals and enable you
to get your business goals back on track. A positive response means that
your employee’s performance is meeting or exceeding your expectations.
What is the overall customer service experience of your company?

• Performing Random Checks: Depending on the nature of your

business, consider implementing random checks against quality
standards. This may include reviewing telephone calls and project
meetings and inspecting records. While your employees may be aware of
this policy, the random nature of the checks can motivate staff to put in a
consistent performance.

Evaluating employee performance should be carried out on an ongoing

basis and encompass all areas of their work ethic and individual
achievements. Remember too that poor performance or negative
behaviours can also be symptomatic of an underlying problem with your
organization’s culture. So have a plan in place to address any issues
arising.

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3.3 Performance Appraisal Process

Table of Performance Appraisal

Type of
Rewards /
Components Key Features
of
Compensation
Six Proficiency in handling administrative detail
Performance
Proficiency in supervising personnel
Dimensions
Proficiency in planning and directing action
Proficiency in technical job knowledge
Acceptance of organizational responsibilities
Acceptance of personal responsibility
Performance is There is immediate improvement in the work.
Considered
Relations between the subordinate and his superior have
Satisfactory
improved.
Conditions conductive to the growth of the employee are
established.
Social pressure on the group causes high standards to be set.
Self-appraisal is made easier.
There is opportunity to see how logical the thinking of the
group member is.
A Well - Performance planning
designed
Performance development
Development
Objective of Culture building
Performance
Appraisal are Performance monitoring and control
Classified as

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Specific To help the employee to overcome his weaknesses and

objective of improve his strengths so as to enable him to achieve the
performance desired performance
appraisal
To generate adequate feedback and guidance from the
immediate superior to an employee working
To contribute to the growth and development of an employee
through helping him in realistic goal setting
To provide inputs to system of rewards and salary
administration
To help in creating a desirable culture and tradition in the
organization
To help the organization to identify employees for the purpose
of motivating, training and developing them
To help supervisors to observe their subordinates more closely
and to do a better coaching job
To improve organization development by identifying people
with promotion potential and pinpointing developmental needs
To generate significant, relevant free and valid information
about employees
Sample To improve employee job performance
Objectives of
To create opportunities for frank discussion with employees
the
Performance Encourage employees to express their views and to seek
Appraisal clarification on any doubts or standards
Record improvement in employees performance between
successive appraisals
Identify training needs
Broaden employees outlook capacity and potential
Bring to life current outside activities or accomplishment of
significance
Promote more effective utilization of manpower
Facilitate selection, reward and promotion of the best qualified
employees

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Provide a channel for employee to express his own future

interest regarding job area and location
Use of Determining appropriate salary increases and bonuses for
Performance workers based on performance measure
Appraisal
Determining promotions or transfers depending on the
demonstration of employees strengths and weaknesses
Determining training needs and evaluation techniques by
identifying areas of weaknesses
Promoting effective communication within organization
through the interchange of dialogue between supervisors and
subordinates
Motivating employees by showing them where they stand and
establishing a data bank on appraisal for rendering assistance
in personnel decisions
Purpose of Administrative
Performance
Employee
Appraisals
Development
Programme assessment
To bring about better operational or business results
To meet an individual’s development needs
To provide information useful for manpower planning by
identifying men with a potential for advancement and men
with abilities not currently being used
To provide basis for compensation action
The appraisal systems do not operate in isolation they
generate data that can contribute to other HRM systems. For
example, to succession planning and manpower planning
Benefits It offers a rare chance for supervisor and subordinate to have
time out for one - on - one discussion of important work issues
that might not otherwise be addressed.
It offers a valuable opportunity to focus on work activities and
goals.

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It creates a profound effect on level of employee motivation

and satisfaction.
It provide employees with recognition for their work efforts.
It indicates to an employee that the organization is genuinely
interested in their individual performance and development.
This alone can have a positive influence on the individuals
sense of work, commitment and belonging.
It offer an excellent opportunity for a supervisor and
subordinate to recognize and agree upon individual training
and development needs.
It makes the need for training more pressing and relevant by
linking it clearly to performance outcome and future career
aspiration.
It creates appraisal data which can provide a regular and
effective training needs audit for the entire organization.
Appraisal data can be used to monitor the success of the
organization recruitment and induction practices.
Performance Establish performance standards
Appraisal
Communicate the standards
Process
Measure actual performance
Compare actual performance with standards and discuss the
appraisal
Taking corrective action
Requirements Reliability and validity
of an Effective
Job - relatedness
Appraisal
System Standardization
Practical validity
Legal sanction
Training appraiser
Open communication
Employee access to results

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Due process
Approaches to Personality based system
Performance
Generalized descriptive system
Appraisal
Behaviour descriptive system
Results centred systems
Key Key Performance Areas (KRA) /Key Result Areas (KRA)
Components of
Task/target/objectives; attributes/qualities /traits
Performance
Appraisal Self-appraisal
Performance analysis
Performance ratings
Performance review, discussion or counselling
Identification of training/development needs
Rating/assessment by appraiser
Assessment/review by reviewing authority
Potential appraisal
Rating Methods The Rank-order procedure
in the
Paired-comparison System
Performance
Appraisal The forced distribution procedure
Process
The forced choice technique
The critical incident method
Behaviourally anchored rating scales methods
The field review
Features of Performance appraisal provides reassurance to employees that
Performance they are contributing and doing the right things.
Appraisal
Performance appraisal creates awareness of the impact on
desired results such as customer satisfaction.
Performance appraisal reveals the adequacy of performance in
terms of quantity, quality, speed, timelines, etc.

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Performance appraisal provides means for recognition of the

importance and value of performance of employees.
Performance appraisal provides opportunities for self-
development of employees.
Performance appraisal provides for administrative decisions
and reward management of employees.
Performance appraisal is a critical tool for training and
development of employees.
Performance appraisal is a foundation of career and succession
planning.
Performance appraisal is a basis for legally defensible
management actions.
Performance appraisal is valuable source of talent
management.
Significance of Feedback
Performance
Self-evaluation
Appraisal
Performance expectations
HR decision-making
Fair play and justice
Identifying potentialities
HR policies and practices
Retaining top talents
Team spirit
Accountability and ownership
Appraisal Address relevant performance, achievements, needs and
Interview must interests
consist of the
Must be provided immediately as soon as information is
following
available
Characteristics
Factual based on actual performance
Provide suggestions for improvement of performance
Give directly to the individual involved

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Given in a way that the respect, needs and integrity of the

individuals is maintained
Tailored to meet individuals specific need and circumstances
Motivate the individual to continue and to increase efforts
Realistic and based upon established measurement standards
External evaluations should be congruent with the personal
standards.
Evaluation standards should be clear, descriptive, specific and
developed.
Table 3.1

Understanding Why Employees Don’t Do What They Are Supposed

To Do?
• They don’t know that they are supported to do.
• They don’t know how to do it.
• They don’t know why they should do it.
• They think they are doing.
• There are obstacles beyond their control.
• They think it will not work.
• They think their own way is better.
• They think something is more important.
• There is no positive consequence to them for doing it.
• There is a negative consequence to them for doing it.
• There is a positive consequence to them for not doing.
• Personal limits.
• Personal problems.
• Fear.
• No one could do it.

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Performance Appraisal Process — Key Steps

• Before the Appraisal Strategy

❖ Establish key task areas and performance goals
❖ Set performance goals for each key task areas
❖ Get the facts
❖ Schedule each appraisal interview in advance

• During the Appraisal

❖ Encourage two-way communication
❖ Discuss and agree on performance goals for the future
❖ Think about how you can help the employee to achieve more at work
❖ Record notes of the interview
❖ End the interview on an upbeat note

• After the Appraisal

❖ Prepare a formal record of the interview
❖ Monitor Performance

Concern of Issues in the Appraisal Process

• Identifying job responsibilities, duties, performance dimensions
standards, and goals.
• Prioritizing and weighing performance dimensions and performance goals
• Determining appropriate methods of appraising performance
• Developing suitable appraisal instruments and scoring devices
• Establishing procedures that enhance fair and just appraisals of all
employees
• Providing performance feedback to all employees
• Relating observed and identified performance to the rewards providing

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• Designing, monitoring and auditing processes to ensure proper operation

of the system and to identify areas of weakness
• Granting employees opportunities for appeal, whenever and whenever
such action is appropriate
• Training of employee in all phases of the appraisal system

Measuring Performance Through Use of Balanced Scorecard

An organization should consider responding through the following

questions:
• Is the company viewed as a great place to work?
• Is HR viewed as providing effective support system to employees?
• Are the HR plans and programmes competitive?
• Is HR viewed as an enabler to attracting and retaining top talent?
• Is the HR service delivery cost - effective?
• What is the return on investment from the people?
• Are the staffing support system fostering better recruiting and selection?
• Are other HR processes/transactions efficient and effective?
• Is technology used to improve HR efficiency?
• Is there considerable talent and leadership to meet future requirement?
• How is HR helping to meet the customer needs?
• Is HR creating an environment that encourages integration and shared
vision?
• Is the company investing in developing HR capabilities?

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A Result-based Appraisal System has Some Solid Benefits to Offer

An Organization
• It produces improved short and long term planning
• The focus on result communicates the important of achieving measurable
results to all members of the organization
• The system encourage more effective performance
• Both appraiser and appraisal accept the approach as fair
• It results in increased commitment to the organization
• Result-based approaches are highly defensible

A Result Based Appraisal System has some Limitations and

Potential Problems too
• It may be excessively result oriented.
• It may be inflexible.
• It is neither easy to create nor easy to use.
• The approach may not provide adequate personal incentives to improve
performance.
• It may not fit all aspects of a job.

Use of Self-assessment in the Appraisal Process

• Which aspects of your job have you done well?
• What do you think of your main achievement during the review period?
• Did you face any difficulty in achieving your objectives or meeting
performance standards? If so, please describe them and why you think
occurred?
• What do you think could be done to avoid these difficulties occurring
again in the future?
• Are there any aspects of a job in which you think they your performance
could be improved?

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• Do you feel that you need more guidance in what you expected to do and
achieve?
• Do you think you would benefit from any further training?
• Do you make full use of your experience and abilities in your jobs?

Insights into Key Challenges and Problems in the Performance

Appraisal Process

• Drawbacks and problems in performance appraisal

❖ Halo effect: This is a tendency to let the assessment of a single trait
influence the evaluation of the individual.
❖ Horn effect: This is a tendency to allow one negative trait of the
employee to colour the entire appraisal.
❖ Leniency or constant error: Depending upon the appraiser, their own
value system which act as a standard.
❖ Varying standards: When appraising employees, a rater should avoid
applying different standards and expectations for employees performing
similar jobs.
❖ Contrast error: Rating should be done using established standards. The
contrast error is the tendency to rate people relatively.
❖ Similar to different from me: Sometime raters are influenced by
whether people show the same or different characteristics from the rater.
Again the error comes in when measuring someone against another
person.
❖ Sampling error: If the raters has seen only a small sample of the
persons work, an appraisal may be subject to sampling error.
❖ Central tendency: This is the most common error that occurs when a
rater assigns most middle range scorers or value to all individuals.
❖ Spillover effect: This refer to allowing past performance to influence the
evaluation of present performance.
❖ Personal bias: Perhaps the most important error of all arises from the
fact that very few people are capable of objective judgement.

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• Various problems associated with performance appraisal are as follows:

❖ The measurement problem
❖ The organizational problem
❖ The judgement problem
❖ The communication problem
❖ The feedback problem
❖ The perception problem
❖ The rating problem
❖ The fear of failure problem
❖ The top management support problem
❖ The perceived meaning problem
❖ The bias problem
• Common pitfall in performance appraisal are:
❖ Performance appraisal programme demands too much from supervisor.
❖ Standards and rating tends to vary widely and often unfairly.
❖ Personal values and bias can replace organizational standards.
❖ Due to lack of communication employees may not know how they are
rated.
❖ Appraisal techniques tend to use as performance panaceas.
❖ Performance appraisal rating can boomerang when communicated to
employees.
❖ Negative feedback
❖ Performance appraisal interferes with the more constructive coaching
relationship that should exit between a superior and his subordinates.

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• How to improve performance appraisal?

❖ Encourage discussion
❖ Constructive intention
❖ Remunerative justice
❖ Employee participation
❖ Appraiser credibility
❖ Set performance goals
❖ More feedback
❖ Training

Key Steps in an Appraisal Interview

• Setting the Stage: A major part of the interview is the employee’s
presentation of his or her self evaluation with respect to each job
performance area and performance expectation.
• Employees Assessment: Once the preliminaries are out of the way, the
employee selects a particular job performance area and performance
expectation for review.
• Manager Assessment: It is now the managers turn to respond to the
employee’s performance. It should cover everything mentioned by the
employee as well as any other factor the manager feels is important.
• The Employee Reaction: It is unlikely that serious disagreements
between manager and employee will emerge during the appraisal
interview. However, employee sometimes become upset during the
appraisal interview.
• Resolving Differences: This step involves getting down to a careful
review of each job performance areas and its associated performance
expectation.
• Ending the Session: The manager wraps things up by summarizing the
discussion that has taken during this session.

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Following Questions can Provide an Assessment of Performance

Appraisal System:
• What purpose does the organization want its performance appraisal
system to serve?
• Do the appraisal forms really get the information to serve the purpose?
• Are the appraisal forms designed to minimize error and ensure
consistency?
• Are the processes of the appraisal effective?
• Are supervisors rewarded for correctly evaluating and developing their
employees?
• Are the evaluation and developmental component separated?
• Are superiors relatively free from task interference while doing
performance appraisal?
• Are the appraisals being implemented correctly?

The Following Questions Serves as Guideline for Assessing the End

Product of Performance Appraisal:
• Did the appraisal session motivate the subordinate?
• Did the appraisal build a better relationship between the supervisor and
the subordinate?
• Did the subordinate come out with a clear idea of where he or she
stands?
• Did the superior arrive at a fairer assessment of the subordinate?
• Did the superior learn something new about the superior and pressure he
or she faces?
• Does the subordinate have a clear idea of what corrective action to take
to improve his/her own performance?

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The Criteria on which Performance is Appraisal must Satisfy the

Following:
• It must be genuinely related to success or failure in the job.
• It must be amenable to objective not subjective judgement.
• It must be easy for the manager to administer.
• It must appear fair and relevant to the employee.
• It must strike a fair balance between sensitivity to the needs of the
present job, and applicability to the company as a whole.

Twelve Specific Factors to be Assessed for Employees with Direct

Supervisory Responsibility
• Coaching
• Effective communications
• Encouraging teamwork
• Establishing high standards and getting results
• Effective delegation
• Rewarding performance
• Developing employees
• Building consensus
• Supporting reasonable risk - taking
• Forward thinking
• Improving the organization
• Managing diversity

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The Objective of Performance Review

• To let subordinates know where they stand
• To recognize their good work
• To point out how and where they can improve
• To develop them on their present job
• To develop and train them for higher job
• To let them know how they may progress in the company
• To serve as a record for assessing the department or unit as a whole
showing where each person fits into the larger picture
• To warn some employee that they must do better
• Complement the appraisals for his accomplishment and good qualities
• Understand and appreciate his difficulties and make action plans to help
him in the future
• Understand the appraises perception of the situation and correct the
perception is necessary
• Help him to recognize his strong points and weak points
• Communicate the expectations of the appraiser from the appraise
• Identify development needs of the appraise and chalk out a course of
action

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Performance Review Meeting – Ten Golden Rules

• Be prepared
• Create the right atmosphere
• Work to a clear structure
• Use praise
• Let individuals do most of the talking
• Invite self–assessment
• Discuss performance, not personality
• Encourage analysis of performance
• Don’t deliver unexpected criticisms
• Agree measurable objectives and a plan of action – by Armstrong,
Michael

Main Problem which Arises in Conducting Performance Review as

Identified by Clive Fletcher
• Identifying criteria for evaluating performance
• Collating accurate and comprehensive information about employee
performance
• Resolving conflict between reviewers and the people they review
• Defensive behaviour exhibited by individuals in response to criticism
Success of Appraisal Depends on Effective Feedback
• Honest
• Specific — do not beat about the bush
• It should meet the needs of all parties
• Meaningful
• Accurate
• It could be acted upon

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• Instantly followed up in writing

Guidelines on Providing Feedback as Suggested by Michael

Armstrong
• Build feedback into the job
• Provide feedback on actual events
• Describe, don’t judge
• Refer to specific behaviours
• Ask questions
• Select key issues
• Focus on improvement in performance
• Provide positive feedback

Importance of Training Programme in Appraisal

• Point out the value of an appraisal programme to management.
• Point out the value of an appraisal programme to executives.
• Instruct in the techniques of writing appraisals.
• Point out the pitfalls to be avoided in writing appraisals, for example, the
halo effect, the error of recent events and personal prejudices.
• Give the participant an opportunity to write a sample appraisal.
• Offer each participant training in the fundamentals of conducting an
appraisal interview with an opportunity to role-play in the mock appraisal
interview.
• Point out the steps to take in creating an effective personal development
programme with an employee.

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Ethics of Appraisals (Managers Checklist to Keep the Appraisal

Ethical)
• Don’t appraise without knowing why the appraisal is required.
• Appraise on the basis of representative information.
• Appraise on the basis of sufficient information.
• Appraise on the basis of relevant information.
• Be honest in your assessment of all the facts you obtain.
• Don’t write one thing and say another.
• In offering an appraisal make it clear that this is only your personal
option of the facts as you have seen them.
• Pass appraisal information along only to those who have good reason to
know it.
• Don’t imply the existence of an appraisal that hasn’t been made.
• Don’t accept another’s appraisal without knowing the basis on which it
was made.

Appraisal Interview Hints

• Prepare in advance
• Focus on performance and development
• Be specific about reasons for rating
• Decide on specific steps to be taken for improvement
• Reinforce desired behaviour
• Focus on future performance

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Outcome of General Electrics’ Study to Test the Effectiveness of

Performance Appraisal. The GE Studies found that –
• Criticism has a negative effect on achievement of goals.
• Praise has little effect one way or other.
• Performance improve most when specific goals are established.
• Defensiveness resulting from critical appraisal produces inferior
performance.
• Coaching should be a day-to-day, not a once a year activity.
• Mutual goal setting, not criticism improves performance.
• Interview designed primarily to improve a man’s performance should not
at the same time weigh his salary or promotion in the balance.
• Participation by the employee in the goal-setting procedure helps
produce favourable results.

How Fortune 100 Companies use Performance Appraisal Data

• Improving work performance
• Administering merit pay
• Advising employees of work expectations
• Counselling employees
• Make promotion decisions
• Motivating employees
• Assessing employee potential
• Identifying training need
• Better work relationship
• Helping employees set career goals
• Assigning work more efficiently
• Making transfer decisions
• Making decisions about lay-offs and terminations

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• Assisting in long - range planning

• Validating hiring procedures
• Justifying other managerial actions

Ten Strategies for Revamping Appraisal System

• Secure top managements support and participation.
• Put together an implementation team for developing successful
performance appraisal forms, policies, procedures and practices.
• The appraisal system’s goal must be clear and map out the purpose the
system will be expected to serve.
• Design the appraisal form, involve people and obtain feedback.
• Address all critical administrative issues and executive biases.
• Ensure ongoing communication, keep the development process invisible,
and invite suggestions.
• Train appraisers to make the programme fully effective.
• Explain the programmes purpose and procedure in advance to all those
who are likely to be affected by it.
• Apply the result of appraisal in making promotions, giving rewards,
effecting transfers and developing training programmes.
• Regularly audit the quality of appraisal, the extent to which the system is
being used, and the extent to which the original objectives have been
made.

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3.4 Alternatives to Annual Performance Review

The days of the annual performance review appear to be numbered. In

recent years, employees and managers have grown increasingly
dissatisfied with the traditional system. This year, several influential
companies, including Deloitte and Accenture, even announced plans to
drop it.

Fig. 3.1

So what comes next? Last spring, Deloitte announced plans to replace its
traditional assessment system by asking managers to respond to four
simple statements:
• Given what I know of this person’s performance, and if it were my
money, I would award this person the highest possible compensation
increase and bonus.
• Given what I know of this person’s performance, I would always want
him or her on my team.
• This person is at risk for low performance.
• This person is ready for promotion today.

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But, Deloitte’s tilt toward simplification may not be the dominant trend. In
fact, the stronger current may be running in the other direction. A variety
of companies are working on technology that assesses employee
performance not once a year, but minute-to-minute, tracking workers more
closely than they track packages. Others are using social media to enable
workers to rate each other, as they do vendors on eBay, even as
enterprising analysts use big data to avoid ways to prevent hiring mistakes
altogether.

Issues with Annual Performance Review

To re-engineer the performance review process, managers and leaders

must understand why employees feel their performance reviews are
inaccurate and unfair. Our analysis reveals that employees’ aversions to
traditional performance reviews are strongly tied to five primary
psychological obstacles: infrequent feedback, lack of clarity, manager bias,
adverse reactions to evaluation and feedback, and too much focus on pay
incentives.

1. Infrequent Feedback: The ‘recency effect’ posits that people are most
likely to remember their most recent experiences best. As such,
performance feedback is most valuable when people receive it
immediately after an action. By receiving feedback close to when
performance occurs, the employee can more vividly remember the
details of the event and more effectively determine how to use that
feedback to perform better in the future.

The traditional annual review, which occurs far too infrequently to

provide timely feedback, prevents managers from accurately recalling
details of an entire year’s worth of performance. Managers struggle to
recall performance from months ago, which results in an over-reliance on
more recent actions. This problem worsens as performance demands or
goals change throughout the year. When performance evaluations do not
capture the changing demands placed on employees, annual reviews
cannot accurately reflect employees’ day-to-day performance. Not only
does this destroy the accuracy of a performance evaluation, but by the
time feedback is shared during an annual review, it’s much too late for
deep learning to occur, or for the employee to address the issue in a
timely manner.

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Timely feedback is more likely to be helpful and feel constructive, while

delayed feedback seems more like evaluation and criticism of past
mistakes. Telling employees that they did something wrong or need to
improve a behaviour after it is too late to make a useful correction feels
judgemental and punitive. In contrast, when managers review recent
performance situations ‘game film’ with an employee, the discussion is
more situationally relevant and development focused, reducing the risk
that an employee will form negative feelings about the communication.

2. Lack of Clarity: Traditional annual reviews not only provide feedback

too infrequently for it to be actionable, but their ratings and rankings
are often too vague to help employees know how to improve their
performance. For example, when a manager evaluates all employees
using the same items and rates their performance using a 1-to-5 scale,
employees only know that they ‘performed effectively,’ ‘performed
ineffectively’ or ‘performed at some level in between’, yet that number
typically affects their pay.

A fundamental flaw in most annual reviews is that managers do not tailor

them to reflect what they expect of each employee, and they do not help
workers prioritize what to do next. Rating scales and rankings do not
specify the actions, moments and results that define performance, nor
do they describe the impact or value that employees bring to the
company. This immediately puts employees on the defensive and can
make them feel unappreciated. However, workers do not just want a ‘feel
good’ process — they want to be pushed to be their best, and that can
only happen when expectations are clear and reflect employees’ day-to-
day work.

3. Manager Bias: Employees think that traditional reviews are inaccurate

and unfair because most are. Managers tend to be ineffective at
subjectively evaluating performance because implicit human biases
distort our capability to objectively evaluate other people. Additionally,
employees tend to doubt whether their manager fully understands what
they are required to do to fulfil their responsibilities, and whether their
manager can accurately evaluate performance with minimal awareness
of employees’ daily actions and accomplishments.

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Employees are rightfully concerned about the accuracy and fairness of

supervisory performance ratings. While ratings may be an indicator of
employee performance, they also may reflect a manager’s often unstated
expectations and implicit bias.

4. Adverse Reactions to Evaluation and Feedback: Employees often

react negatively to performance ratings because they minimize
employees’ contributions to a number on a rating scale or a ranking
relative to other employees’ ill-defined contributions. Managers not only
rate employees in ways that lack substance and show bias but
employees also have varying cognitive reactions to how they interpret
and receive feedback.

When employees have a negative reaction to evaluation and feedback,

they are unlikely to be motivated to perform better following their
performance review. If that review occurs annually, it may be a long time
before managers can counteract those negative feelings. Some examples
of negative cognitive reactions to performance evaluations include fight
or flight response, loss aversion and fixed mindset framing.

5. Too Much Focus on Pay Incentives: Many employees are averse to

performance evaluations because they are often tied closely to pay and
promotion decisions. When workers feel that the evaluation system is
inaccurate and unfair, they assume that they will be paid and promoted
unfairly as well. Even if employees believe their evaluations are fair, a
close tie between performance ratings and pay decisions shifts
employees’ focus during a performance review from absorbing
developmental feedback to worrying about their pay cheque.

In summary, because of the inherent bias in performance ratings and

rankings, infrequency of feedback, and employees’ adverse reactions to the
evaluation process, traditional performance reviews tend to demotivate
employees. Managers develop these reviews using insufficient information
and processes, which creates uncomfortable if not seemingly threatening
personal conversations and interactions that do not teach or inspire
employees to continually improve.

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Managers also face a challenge in using the same standardized evaluation

form to connect with and review very different employees. An important
aspect of constructively reviewing performance is individualizing feedback
and authentically appreciating each employee’s unique strengths and job
responsibilities. Further, it can be difficult to balance relationship building
with delivering constructive feedback. Managers may fear damaging the
relationship by being too frank, yet they need to provide candid feedback
that holds employees accountable to a high standard.

Despite all of the problems with traditional annual reviews, a well-

constructed performance management process can be a valuable
developmental tool for managers and employees. For evaluations to be
effective, managers should deliver feedback that is ongoing, fair and
constructive. This challenge causes leaders to wonder if they should fix or
abandon their current performance management system. Our answer is: It
depends on what is broken and what you are trying to achieve.

3.5 Shift at Leading Multinationals from Annual

Performance Review to more frequent feedback

Changes in the Performance Management Systems

Organizations in India are changing the performance management

framework in a great way to accommodate the changing time and meet
various business complexities. Shift from annual performance review is one
of the major area that organizations are working towards.

Change can be difficult, complicated and even frustrating at times. But

unless you overcome your fear and start to make changes to your
performance management system, nothing will ever improve. Employees
and managers will remain dissatisfied and disengaged and your employees
might leave your company for one that is more forward thinking and
progressive. Some of the key steps that companies can adopt are provided
as under.

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1. Remove all the unnecessary clutter and complications: If there is

a workplace process that holds things up or frustrates employees,
streamline it or eliminate it. If your organization is bogged down in
unnecessary data that is taking up a lot of management and HR
resources, take the time to seriously consider what data is actually
necessary, or conducive to great performance.

2. Introduce regular one-to-one performance discussions: Some

companies are still behind the times when it comes to adopting
continuous performance management methods. You might be reluctant
to introduce regular check-ins for a number of reasons. Perhaps you
have become accustomed to your existing annual appraisals. Maybe
you’re worried about what will happen if managers don’t adopt the
changes or if employees complain even more than they do already.
However, you shouldn’t let your fear get in the way of a change that
could seriously boost productivity and performance in the long run.

3. Switch from annual appraisal software to continuous

performance review software: Look for software that promotes
regular communication, allows for real-time feedback and doesn’t just
centre around a single yearly performance discussion. As mentioned
above, you should also find a package that is simple and easy to use.
Finally, make sure the experts behind your software have an extensive
performance management background and expertise so they can help
you to succeed with implementation and user adoption.

4. Become more flexible with regards to your performance

management system - Flexibility is the biggest sought-after
workplace perk. This is something we have known for a while, and
demand for flexible working is growing by the year. Flexibility is a huge
issue for both men and women, with men demonstrating that they crave
flexibility just as much. Despite this, not all companies are quick to offer
flexible working options, which comes to their detriment. A lack of
flexibility can impact retention levels, recruitment efforts and employee
morale. We’re not suggesting that implementing flexible working options
is easy, or even possible for every single business. However, if it is
possible to offer flexible working options, it’s well worth the effort.

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There are a number of ways you can adapt your performance management
processes to accommodate flexible working options. You might consider
flexitime (which allows employees to work with their productivity rhythms
and their personal commitments), telecommuting (which keeps employees
happy and efficient) or job - sharing (which means you can keep hold of
valued employees who might otherwise have to leave your business
entirely).

Fig. 3.2

General Electric Case Study

The annual performance review has been a ubiquitous and generally

loathed fixture of the corporate world for decades. But haters can rejoice:
It’s finally starting to topple. The best part? Even the company that
popularized the toughest form of formal annual review is moving away
from them.

For decades, General Electric practiced (and proselytized) a rigid system,

championed by then-CEO Jack Welch, of ranking employees. Formally
known as the ‘vitality curve’, but frequently called ‘rank and yank’, the
system hinged on the annual performance review, and boiled the
employees’ performance down to a number on which they were judged and
ranked against peers. A bottom percentage (10 per cent in GE’s case) of
under performers were then fired.

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Dealing with Under performers

• Terminations are always difficult even when they are clearly necessary.
These points are worth remembering.
• Termination may be especially traumatic for junior employees because it
could be their first experience of losing a job.
• Mid-level employees might be qualified for lateral transfers.
• Termination of senior executive affects the whole organization.
• When senior people are terminated other employees want to know how
they will be affected.
• Severance pay should always be commensurate with the individual’s year
of service.

The company got rid of formal, forced ranking around 10 years ago. But
now, GE’s in the middle of a far bigger shift. It’s abandoning formal annual
reviews and its legacy performance management system for its 300,000
strong workforce over the next couple of years, instead opting for a less
regimented system of more frequent feedback via an app. For some
employees, in smaller experimental groups, there won’t be any numerical
rankings whatsoever.

With the decision, GE joins other high-profile companies like Microsoft,

Accenture, and Adobe that have started dumping or have already gotten
rid of formal annual reviews. GE may not have invented stack ranking, but
it’s the company most identified with it. And given the longstanding and
pervasive influence GE has had over the business world, its move could
represent the beginning of the end for a practice that has been at the heart
of how corporations have managed people for many decades.

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A Century Old Icon, Shifting Rapidly

There are few companies in America that have General Electric’s legacy.
Founded by none other than the great inventor Thomas Edison, it’s well
into its second century of existence. Its move to dump the annual review
for large swathes of its workforce underscores a sweeping shift underway
at the blue-chip conglomerate. It’s selling off billion-dollar pieces of the
lucrative financing business that imperiled it during the 2008 crisis and led
to a ‘too big to fail’ designation. It’s fundamentally restructuring to refocus
on its increasingly hi-tech and industrial businesses, emphasizing things
like power and water infrastructure, advanced jet turbines and imaging
equipment. By the end of the transition, industrial businesses will provide
over 90 per cent of earnings (PDF), and the only lending the company will
do will be to customers buying industrial machinery.

It has made broad changes in its management style too, under current
CEO Jeff Immelt. They mark an emphatic break from the hard-charging
style Welch embodied as CEO from 1981 to 2001. Welch’s intense and
widely imitated approach made sense for the GE of yesteryear. It was a
bloated industrial conglomerate that was facing extraordinary competition
from Asian manufacturers. In 1994 near the midpoint of Welch’s tenure
nearly 60 per cent of GE sales came from a vast number of industrial
businesses that were becoming increasingly commoditized. That economic
reality led to obsessions with cost, efficiency, and operational excellence,
which were embodied in Welch’s management style.

Management via App

The new app is called ‘PD@GE’ for ‘performance development at GE’ by the
admittedly acronym-happy company, and was built by a team from its
large and growing group of software engineers in Silicon Valley’s San
Ramon. The HR group has been one of the first to adopt it, including the
experiment with no numerical ratings.

Each employee has a series of near-term goals, or ‘priorities’. Managers are

expected to have frequent discussions, called ‘touchpoints,’ on progress
towards those goals and note what was discussed, committed to, and
resolved. The app can provide summaries on command, through typed
notes, photographs of a notepad, or even voice recordings. The focus isn’t
on grading how well people are doing, but on constant improvement.

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Employees can give or request feedback at any point through a feature

called ‘insights,’ which isn’t limited to their immediate manager, or even
their division. Normally, you never get that feedback unless you manage to
track someone down the next day, which people rarely do, and only from a
direct manager. If you wait for an annual review, any specifics are probably
long forgotten.

“This allows me to ensure that I’m in a position to change tomorrow,”

Krishnamoorthy says, pointing at the app. “But this is just the tool. The
most important thing is the conversation. The app makes it incumbent on
me to be a coach.”

There’s an emphasis on coaching throughout, and the tone is unrelentingly

positive. The app forces users to categories feedback in one of two forms:
to continue doing something, or to consider changing something.

“We’ve found that that terminology has been extremely helpful,” Peters
says. “You know that humans don’t really like to give negative feedback,
it’s just not something that anybody does well, I think it’s just not in
human nature. So if you want the person that’s working for you to
improve, you have to think about it in true coaching terms.”

Managers will still have an annual summary conversation with employees

around December where they look back at the year and set goals, but it’s
far less consequential and fraught than the formal review the company is
replacing. It’s not meant to be all that different from the conversations
expected to occur throughout the year, and entirely unlike the sort of
formal review that sets decisions on things like pay or advancement.

The roll-out is going to be slow. There are about 25,000 to 30,000 people
using the new system now, and Peters estimates there will be 80,000 on
board by the end of this year. The rest will transition by the end of 2016.

The shift in how GE employees think about and track their performance
mirrors the broader transition underway at the company to substantially
simplify its business. ‘Fast-works’ is a successor in many ways to Six Sigma
and consciously mimics the way the companies in Silicon Valley work.
There’s a focus on rapid and frequent experimentation, learning from the
market, only funding projects that prove themselves, and acceptance and
willingness to move on from failures.

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“It is a really important element of what we’re trying to do, which is to

make a major shift of the company’s culture towards simplification,
towards better, faster outcomes for customers,” Peters says.

A long - time Coming

The move by more and larger companies away from annual reviews and
ratings is well past due, say management theorists. Years of research, from
both business school professors and neuroscientists, has found that the
practice is ineffective at boosting performance, actively alienates
employees, is based on a flawed understanding of human motivation, and
is often arbitrary and biased. People simply don’t fit neatly (pdf) on a bell
curve. It ends up being an exercise in paperwork and bureaucracy instead
of an agent of change.

“When you look at the evidence about stack ranking… The kind of stuff that
they were doing, which was essentially creating a bigger distribution
between the haves and the have - nots in their workforce, then firing 10
per cent of them, it just amazed me,” Bob Sutton, a professor at Stanford’s
Graduate School of Business, told Quartz. “We looked at every peer
reviewed study we could find, and in every one when there was a bigger
difference between the pay of the people at the bottom and the top, there
was worse performance.”

As much as researchers and many employees might applaud the decision,

it doesn’t mean it’s going to be easy. There’s a reason reviews have stuck
around for so long, and it’s hard to overemphasize how entrenched the
annual review has become. It’s the way most were raised as employees, a
huge part of their workload, and a comfortable framework to administer
and to defend pay, promotion, and firing decisions. Adobe’s Morris says
that one of her biggest obstacles was actually convincing her own people
that this could work.

Even if companies claim loudly that they’ve done away with annual reviews
and rankings, there are often ‘shadow rankings’, where companies still do
effectively the same thing, but more informally, in the background.
Meanwhile, HR executives get particularly nervous about the pay piece,
about how they can pay for performance in the absence of a formal
performance measurement system.

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“If you get rid of the performance ratings, how are you going to get rid of a
fair and equitable and measurable system to blame the distribution of pay
on?” Paul Rubinstein, a partner in Aon Hewitt’s talent strategy consultancy
asks, rhetorically. “Because why did performance ratings come into
existence? So there’s some mechanism to force pay decisions. People
wonder, which came first the rating or the pay decision.”

Support and training on how to make pay decisions without rankings has
taken a lot of investment at Adobe, Morris says. Even within GE, there’s
still a sense of conflict, which might help explain why the company seems
hesitant to fully commit to removing numerical rankings.

“One thing we do know is that we will maintain our culture of meritocracy

and differentiation,” Peters says. “So we have to make sure whatever other
aspects or factors come into play, to make sure you still have that. We’re
trying to figure this out and keep some of the fundamentals of the culture,
and also move to a place where it’s more contemporary. I don’t know what
the answer on that’s going to be yet.”

In early pilots, the company saw no difference in pay differentiation when

managers didn’t use ratings. But, it has a lot of people to convince of that,
so different pilot groups will continue doing different things until there’s
more longitudinal data.

The harshest critics of performance reviews and ratings argue that

numerical rankings and pay differentiation are perhaps the most damaging
parts of the system, and that any regime that preserves them can’t hope
to truly change. And many companies like the idea of getting rid of reviews
and rankings, but struggle to follow through.

If GE has one thing going for it, it’s a uniquely deep bench of management
talent, and a culture that emphasizes constant improvement and helping
other people succeed. That made stack ranking less harmful at GE than it
was at other companies, according to Bob Sutton, and it might help it
overcome the rockier parts of the transition.

“Although Jack believed in it like a religion, I think that they figured out
[stack ranking] was something that didn’t work, that was faith based,”
Sutton says. “One thing I will give them credit for, going back to Jack and

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continuing to today, is that they’ve clearly defined a star employee as

someone who does great work and who helps others succeed as well.”

3.6 Use of Technology in performance appraisal

A number of companies have begun to use technology to solve one of

business’s oldest and most vexing problems: how do we make sure
employees are getting the job done?

Use of Surveillance Systems: Surveillance systems that track truck fleet

movements and employee computer use have been a familiar feature of
corporate life for years now, but the boss’s watchful eye had plenty of blind
spots. Now, however, that’s beginning to change: a new generation of
technology is tracking what employees are up to not just online or on the
highway, but all over the office.

Use of Small Wearable Computer Device: The Theatro Communicator,

for instance, is a small wearable computer designed to track the
movements of hourly workers in the retail and hospitality industries. The
Richardson, Tex., start-up includes analytics that ‘measure social
interaction data to understand what’s impacting productivity and who the
top performers are,’ according to the company website.

Use of Business Microscope: The Hitachi Business Microscope is another

technology that not only measures who workers talk to but how they talk
to them: wearable sensors make it possible to record the energy level in an
employee’s voice and even how often he or she makes hand gestures.

Recently, Hitachi High-Tech, a unit of the Japanese electronics giant, used

the business microscope sensors to collect 5 billion points of data on the
physical movements of 468 employees working at seven companies. The
Japanese electronics firm used this data to identify ‘distinctive patterns in
physical movements that have strong correlations with a group’s
happiness,’ according to a February 2015 press release. As they analyzed
the data, Hitachi scientists found a correlation not only between high
happiness and long duration of physical movement but also between
happiness and sales productivity.

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Hitachi is careful to position its use of technology as a problem-solving tool

for the organization rather than a surveillance device. The stated goal of
Hitachi’s Human Big Data/Cloud Services is to ‘objectively and efficiently
evaluate the effectiveness of management policies and workplace
environments in a company, where it had been difficult to achieve such
objective evaluations in the past.’

However, others worry that an obsession with measurement could create

counter productive incentives. A challenge with data-driven systems is that
they fail to consider context, which is qualitative rather than quantitative.
Measurement mania has infected organizations and has compromised long-
term value, encouraged people to cut corners and reinforced command-
and-control.

Use of Social Media for Rating Employees: Other companies are trying
to use social media to rate employees, in much the same way e-commerce
sites, such as eBay or Airbnb now rate reputations. In a social evaluation
system, people who steal ideas, achieve results through aggression,
coercion, etc., are more likely to be identified and that behaviour
addressed. Social evaluation also provides the positive opportunity to
reward those who are helpful, collaborative, and supportive in a workplace.
There is one aspect to consider that cautions that social evaluations can
have their own set of shortcomings. Humans are not always good at
making people decisions. We oversimplify, we are strongly biased to people
who are like us which stifles diversity and can, therefore, be lethal to an
organization. We judge favourably people who make us feel good about
ourselves, which means our ratings are more about us than them.

In addition, social evaluations can be dangerous in a different way: instead

of feeling forced to compete with co-workers for the boss’s favour, an
employee can feel ganged-up on by the whole office. If used in conjunction
with other measures of performance, social evaluation tools have an
interesting role to play. But taken too far, they switch the paradigm from
Hunger Games to Survivor.

Use of Personality Tests: Another company, Cangrade, compares the

results of a personality test with those of 200,000 employees to assess the
candidate’s personality, motivation, and suitability for a particular job. The
Cambridge, Mass., firm claims its evaluation can predict employee
performance several times better than interviewing and up to ten times

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better than common prescreening measures, such as employment history

and college GPA.

In the end, however, traditionalists argue that despite all the bells and
whistles, assessments will still come down to honest and sometimes
difficult conversations.

3.7 Round - the - clock performance review

How do you separate the high performers in an organization from the

average performers? How do you ensure the high performers continue to
perform better and the non-performers do not end up becoming a drag on
the bottom line?

Traditionally, companies have used the annual performance review system

to keep employees accountable, rewarding those that excel, and tracking
performance over time. But, many companies are realizing that
performance reviews cause as many problems as they try to solve. Instead
of guiding managers to offer honest feedback to their teams and coach
employees, companies are actually training them to ‘make the most of
available resources’ or ‘cover their bases’. Some have discovered that
traditional incentive systems are failing to propel the best employees
forward.

A survey report by Deloitte says, “Today's widespread ranking and ratings

based performance management is damaging employee engagement,
alienating high performers, and costing managers valuable time... Leading
organizations are scrapping the annual evaluation cycle and replacing it
with ongoing feedback and coaching designed to promote continuous
employee development”.

Organizations such as Accenture, Delloite and Cisco are among a handful of

companies that have jettisoned the bell curve based annual appraisal
system and have opted for an always-on appraisal system which is ongoing
and in real time. These companies would be joining the likes of Microsoft
and Adobe, which have also realized that the traditional way of conducting
performance reviews is ineffective.

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Key questions to answer:

• But, is the new system any better?
• What are the new tools the human resources department has at its
disposal to review people's performances?
• More importantly, how are organizations linking performance to rewards?

Example ― Infosys: Infosys has created a new system for performance

evaluation and goal management that stresses on continuous feedback
culminating in the annual rating. The iCount process helps the company in
identifying the best performers against standards of performance as
opposed to relative comparison of individuals. Under the new process,
evaluation is done against well-defined goals and it is transparent to the
employee. This has eliminated some of the angst associated with the
forced ranking under the bell-curve system. The company has baked into it
a mechanism to keep goals and tasks relevant at all times with a focus on
continuous feedback and a review once the goals are achieved.

Example ― Insecticides India Limited: According to Sanjay Vats,

general manager, HR, Insecticides India Limited, the formal yearly
performance assessment system is time-consuming, involves a lot of
paperwork and creates friction between employees and managers. The
system is often rigid and doesn't involve timely feedback.

Example ― Atterro: The company moved away from the annual review
and now does weekly evaluation of employee performance. The HR team
has developed a feedback network comprising online offline and casual
formal meetings for managers which allow timely feedback on goals set for
their teams. Equal emphasis is laid on self - assessment by employees to
avoid any unpleasant surprises at the end of the year. To achieve and
sustain fast - paced growth, organizations need to measure good and bad
performance instantly, instead of waiting for the year to end. Quick
feedback is important for helping an individual improve her performance on
a regular basis.

Example ― Autoportal India: Now companies are trying to get more

accountability in place for employee rating. That means individual
contribution is relevant rather than just relative performance. The need to
attract and keep talent is also pushing organizations to remove the annual
ratings system. There is a need for organizations to get managers talk to

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each employee about their development more than once or twice a year.
This is truer in the case of a millennial workforce that craves for learning
and career growth.

With the disappearance of the bell curve system, identification of critical

positions for future leaders through workforce projection or demographic
analysis will be critical. With continuous evaluation of performance, HR
managers will have to develop skills and expertise to spot and nurture
future leaders by identifying relevant qualifications and behavioural and
technical competencies required to perform particular tasks.

The success of any new idea lies in its effective execution and
implementation. As organizations do away with the traditional systems of
assessment, HR heads will face the challenge of quantitatively and
qualitatively measuring the impact of the newly introduced processes. It
will also be critical for the HR teams to communicate effectively within the
organization – to explain why established or familiar processes are being
overhauled and how the new processes could help.

Example ― Tata Strategic Management Group: Organizations eager to

sound the death knell for the annual review should analysis if the new
alternatives are able to assess and differentiate performance objectively.
Most importantly, doing away with the bell curve may lead to reward
neutralization. For instance, if the rewards budget is prefixed, it may be
spread too thin among employees.

E.g. WorkAmmo: They stress on the importance of getting the rewards

and recognition right as part of any new HR process. "At the end of the day
you need a way to share. Either all get the same or you find a process to
reward different levels of contribution. Any comparison or calibration
demands that you do similar actions to similar people. This can, of course,
really demotivate high performers. Organizations is that replace the
traditional systems they need to be clear on the evaluation metrics that will
drive individual, team, and company success. "Don't miss the collective
calibration element. Leaders are human, and come with their own set of
biases. These biases will need to be challenged to ensure a consistent way
of looking at performance. Even as organizations gradually move away
from traditional assessment and customize it, the basic principles of fair
pay for performance and objectivity need to be respected.

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3.8 Key aspects of continuous performance evaluation

Five things to watch out for as organizations move away from the
traditional bell curve based annual appraisal systems to continuous
performance evaluation.

• Constant Communication: The regularity of the review is paramount;

ideally, there should be at least four face-to-face discussions for
accomplishing the requirement of continuous feedback and open
conversation and managing confrontation, if required.

• Accountability: The continuous performance review needs a much

higher degree of accountability and ownership, where managers hold full
responsibility.

• Training: The new system – of constant communication – will need a

systematic change – management for the managerial cadre. Managers
will need coaching and other interventions to help them have ‘difficult
conversations’. Without these interventions, the quality of feedback from
manager to employee risks is likely to become suboptimal.

• Acceptability: After decades of using the bell curve, there is a need for
countering the initial resistance to this change, as sceptics question the
process, such as how to make pay decisions without rankings. People
need to be convinced that the new system will actually work.

• Setting Up the Employee for Success: How does the corporation

ensure that the employee is in a role that plays to their strengths? Most
job roles get identified with the hard, that is, functional skills. However,
employers will need to know ‘tag’ individual roles with the specific
competencies required to succeed in that role. Therefore, it is incumbent
upon the employer to use various interventions to ensure employees are
in job roles where the competencies match their profile.

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3.9 Insight into New Appraisal System implemented by

India Incorporate and MNCs

HCL Technologies has implemented a new performance management

system that's focused on giving regular feedback and goal setting. Those
part of this process will not have to be part of the bell curve method of
evaluation.

The company is twisting it around and putting the responsibility for getting
feedback and appraisal on the employees. It won't be with the
organization. So, the employee is now the CEO of his own career. The new
system is part of HCL's iSuccess, a people practices platform. Some 94.06
per cent of their FTEs (full-time equivalents) have received two levels of
feedback; 43 per cent of women employees and 42 per cent of male
employees have discussed their career aspirations for the coming year.
They believe that employee shouldn't outsource their career to HR and
they need to take control of their career. If in a team they see feedback
being given at least 2 or 3 times in a year and the goals are set, it means
performance is being managed well, and therefore they don't need to
worry about the bell curve.

The bell curve methodology places the bulk of employees in the mid
segment of an evaluation scale (those that are seen to be meeting
expectations) and distributes the rest on both sides of this segment ― so
some will be graded as poor performers and others will be ranked as
exceptional performers. Those who seek feedback will not be force fitted
into a normal curve. But, where they see teams not getting enough
feedback and where goals have not been set, for them they will have a bell
curve.

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Performance Review and Appraisal at Google

Fig. 3.3

Google separates annual reviews and pay discussions so employees focus

less on the financial incentive. Performance reviews are a critical part of
managing any business, but they're often time-consuming and ineffective.

To help solve this problem, in the early 2000s, Google adopted an

innovative internal grading system known as Objectives and Key Results,
or OKRs. The OKR system came from Intel. Google took to OKRs pretty
much immediately and has been using it ever since. OKRs are simple way
to create structure for companies, teams, and individuals. Even if your
company doesn't use OKRs, they can be helpful in your personal life, or for
yourself at work. Here are a few keys to what make OKRs work at Google:
• Objectives are ambitious, and should feel somewhat uncomfortable.
• Key results are measurable; they should be easy to grade with a number
(at Google we use a 0–1.0 scale to grade each key result at the end of a
quarter).
• OKRs are public; everyone in the company should be able to see what
everyone else is working on (and how they did in the past).
• The ‘sweet spot’ for an OKR grade is .6 - .7; if someone consistently gets
1.0, their OKRs aren’t ambitious enough. Low grades shouldn’t be
punished; see them as data to help refine the next quarter’s OKRs.

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Employees set a goal for themselves and outline a series of quantifiable

results that will help them achieve that objective. Google's CEO does the
same for the entire company. OKRs are the first step in Google's
performance management process.
• Measuring performance: Googlers are rated by their managers on a
five point scale, from ‘needs improvement’ to ‘superb’.
• Soliciting Peer Feedback: Googlers and their managers select a group
of peer reviewers that also includes employees who are junior to them.
The peer reviewers are asked to list one thing the person they're
reviewing should do more of and one thing the employee could do
differently to have a greater impact on the company.
• Calibrating: Groups of managers meet and review all their employees'
tentative ratings together. This process is designed to reduce managers'
bias because they have to explain their decisions to each other.

At the start of the meeting, managers are given a handout that lists
potential biases, such as the recency effect, which refers to the tendency
to disproportionately value an employees' latest behaviours. Keeping those
cognitive stumbling blocks in mind, they decide on employees' final ratings.

Separating Annual Reviews and Pay Discussions

At Google, annual reviews take place in November and pay discussions

happen about a month later. The hope is that employees want to improve
for the sake of contributing more to the company – not because they're
motivated by the prospect of a higher salary. Bock cites research that
suggests employees perform better in the absence of external incentives
like more money. Ultimately, employees want to be evaluated because they
want to grow and eventually become the best at their job. It's up to the
employer to show them how to do that.

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Feedback by Employees

It is also crucial for employees to discuss certain areas that are important
for the boss. Following are nine important things that the employee should
consider, i.e., Nine Things you should tell your Boss at your Next
Performance Review – Insights from the HR Leaders.

1. What Makes You Happy: In any review, of course we’ll talk about
performance. We’ll review the year, talk about company progress, the
employee’s progress, and my own opportunities to improve. It’s a
standard fare. But, what I want employees to talk to me about is what
makes them happy (or unhappy) in their job and life and how the
company or I can help maximize that happiness. If they ask that, then
they know I care. — John Tabis, The Bouqs Company.

2. How you Want to Grow with the Company: Entrepreneurs value

employees who are constantly striving to make themselves better —
having a more skilled team leads to a better company. I love when my
employees say, ‘I want to learn more about this,’ or ‘I really think I
could help the company by moving into this area.’ It’s up to each
employee to figure out how he or she can be best utilized in a growing
company. — Brittany Hodak, ZinePak.

3. What You’d Really Like to Work On: I am always looking for my

employees to tell me things they would like to pursue within the
company. By suggesting a project they would like to manage, it shows
me their continued interest in the company. I feel confident that if it’s a
project they are suggesting, then they will excel at it. — Phil Laboon,
Clear Sky SEO.

4. How You Envision the Future: A review is a perfect one-on-one

opportunity to really talk about your goals, your future, and also the
future and state of the company itself. During review season, when I’m
taking a big picture perspective and examining the components of a
company as parts and as a whole, every employee adds value and can
contribute a different perspective to the conversation. — Fabian
Kaempfer, Chocomize.

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5. How you Want to Contribute to the Company’s Success: All CEOs

want to hear that their employees have a new level of dedication to the
company and feel a personal growth in day-to-day morale. But more
than anything, I’m looking for employees who ask me how they can
contribute to our vision because they see company success as ours.
Show your boss that you see business growth as a joint endeavour. —
Joe Apfelbaum, Ajax Union.

6. What You Need to Do Your Best Work: Supporting employees and

providing an atmosphere and structure in which they can strive is one of
the most important and challenging parts of building a business. So,
regardless of how good or experienced managers are, getting your
honest suggestions about how to help is invaluable. —Carlo Cisco,
SELECT.

7. Which New Technologies and Practices Would Work Better:

Worker productivity has been growing by about 2 per cent annually
since WWII. But, if staffers aren’t equipped with competitive tech, your
team will fall behind in the competition. I love it when team members
keep me informed of new performance-enhancing options. And
performance reviews are the perfect way to contextualize a conversation
about the benefits of adopting new tools and methods. — Manpreet
Singh, Seva Call.

8. What you Want your Boss to Stop Doing: Most companies, including
ours, innovate and improve through addition. Employees are regularly
bringing up ideas of what we could add to our products or operations
that would make the company better. I wish employees would also tell
me what we should stop doing (innovation through subtraction). What
can we remove that would make us a better company? — Bhavin Parikh,
Magoosh, Inc.

9. What isn't Working — and How to Make it Better: My employees are

in the trenches and live the business operations day in and day out. I
want to hear from them what isn’t working. I want to give them
permission to own the company’s success and their happiness at work.
At the same time, I want them to tell me how it can be fixed. Always
come with a problem and a solution. — Kristi Zuhlke Kimball, New
Consumer Solutions LLC.

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3.10 Activity

1. Meeting the Head of HR of few companies and understand the new tools
and techniques developed by the company for conducting performance
review and appraisals.
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2. Evaluate the performance review and appraisal process adopted by your

organization and compare with the other practices adopted by the
industry, competition and the emerging sectors.
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3.11 Summary

Performance is the true litmus test for survival in the marketplace. High
performing employees contribute superior performance, giving the
companies they work for a competitive advantage and their extra effort
differentiates great organizations from merely good ones.

It's crucial for businesses to have systems in place to identify, recognize,

reward, and retain their top performers to achieve sustainable growth.
Most companies understand this and spend enormous sums acquiring a
performance management system to help ensure their success. Yet wide
variation in employee performance persists despite this investment.

Most of the companies in India and abroad are moving away from annual
performance evaluation cycle and switching to continuous evaluation and
feedback mechanism. It is also important for employees to provide the
feedback as well on a continual basis.

3.12 Self-Assessment Questions

1. Identify the key trends and shifts in the annual performance review
mechanism adopted by the industry. Assess the impact of such
measures on organizational performance.

2. Highlight the various types of biases that can impact the performance
management and evaluation appraisal process, and also evaluate how
the biases can be eliminated from the evaluation cycle.

3. Highlight the key advantages and limitations of round - the - clock

performance review in a fast growing company.

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3.13 Multiple Choice Questions

1. Which of the following is most likely to be a very traditional parameter

in the process of performance evaluation?
(a) Punctuality and absenteeism.
(b) Adequacy of training needs.
(c) Quality of work.
(d) Work rejections and rework.

2. Which of the following is most likely to be useful parameter for

performance evaluation of employees in the emerging markets and
knowledge economy?
(a) Observation of personal habits.
(b) Social media skills.
(c) Right attitude.
(d) All of the above.

3. Which of the following is likely to be least effective use of technology in

performing the performance appraisals?
(a) Track the operational performance.
(b) Keep watch on all activities of employees.
(c) Physical movements, time and motion study.
(d) Use of personality tests.

Answers: 1.(a), 2. (d), 3. (b)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture - Part 1

Video Lecture - Part 2

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Chapter 4
Various Approaches To Performance
Management and Review
Objectives

After studying this chapter, you will be able to:

• Understand the key factors involved in design of robust performance
management system
• Understand the reasons as to why the companies discontinue the
traditional bell curve method of evaluation
• Gain an insight into the way and means in defining the performance and
reward for top management role
• Understand the various aspects that help the companies to use
performance management mechanism to nurture right potential

Structure:

4.1 Essential Factors in Designing a Robust Performance Management

Programme

4.2 Discontinuance of the Bell Curve Evaluation by Companies in India

4.3 Performance and Top Management Compensation and Rewards

Management

4.4 Performance Management – Nurturing the Right Potential in an

Appropriate Manner

4.5 Activity

4.6 Summary

4.7 Self-Assessment Questions

4.8 Multiple Choice Questions

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4.1 Essential Factors in designing a robust Performance

Management Programme

Performance measurement programmes must be modernised in order to

impact behaviour and motivate staff. Older measurement practices
attempted to measure every step in a process and often added overhead to
the execution effort. Many existing programmes, in fact, are characterised
as being convoluted, time-consuming and prone to providing misleading
information. Of course, if an organization undercooks its measurement
practices, it should skip using them at all because weaker programmes will
make no material change to business results.

Preferred approach is to design a performance measurement programme

that places emphasis on the ‘big picture’ and bases all staff measurements
on desired outcomes as translated from the organization's long-term vision
and strategic plan, and, not be one intended to institute measures for
every incremental step that encompasses every business process.

If a leadership team takes this advice, it will ‘right size’ its performance
measurement programme ― producing a system that is simple to use for
management and staff, alike. Further, instituting a programme that
measures results, and, not effort, will likely drive more extensive business
transformation because staff will be better motivated to change the way
that they work in order to deliver the business results that garner reward.
As a result, greater overall organizational alignment is achieved because
succeeding transformation will be aligned with the desired results that
came from the vision and strategic plan of the enterprise.

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The key four parameters to be considered when designing your

performance management programme are:

• Make it Real Time: The performance measurement programme must be

able to capture and measure performance information as the work is
performed.

• Place Emphasis on Strategy and Vision: Put into place a

measurement system that monitors the skills and performance levers
that correspond with where the organization is going, instead of where it
has been.

• Commit to Requisite Training: If you want to raise the performance

bar, you must be willing to invest in your people by training them to think
and work better.

• Reward Results: Nothing reinforces desired behaviour in someone than

being rewarded for it. Be sure to recognize, celebrate and reward
outstanding performance.

Indeed, driving the performance programme design from a "desired

results" viewpoint helps to define what is important to the business and
focuses staff's attention on the work and behaviors that matter most, and
de-emphasises focus on the pro forma activities that seldom make a
difference to the bottom line.

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4.2 Discontinuance of the Bell Curve Evaluation by

Companies in India

Number of companies are moving from traditional performance review

practices and moving on to new measures.

Example ― Wipro Limited: During the middle of last year, India's third
largest software exporter Wipro rolled out an ambitious pilot exercise
across the company where it ditched its traditional ‘bell-curve’ appraisal
system for a large majority of its 1,70,000 odd employees.

The trigger for this exercise was clear. Employees, mid-level executives and
top managers needed to be more accountable for the company's
performance, which in recent years has lagged larger peers, such as
Infosys, TCS and US based Cognizant Technology Solutions. Wipro is now
implementing a new evaluation system where feedback will be more
frequent and quarterly, as opposed to a one-time annual process.

Wipro looked at elements including bell curves, building differentiation,

categorisation, etc. They wanted to make the process of giving feedback
more frequent and our performance management system to be an on
going coaching based process rather than just a one-time annual exercise.
India's $160 billion IT industry is undergoing the biggest transitional period
in its history, at a time when technology and business models are changing
at the very core and the outsourcing industry's classic "pyramid model" is
being disrupted by automation, rendering traditional metrics obsolete

Last year, they rolled out a pilot of our revised performance appraisal
system. In the first phase of the pilot they did away with the bell curve for
80 per cent of the workforce. Following the pilot, Wipro has now allocated
performance linked compensation budgets to its managers, as part of the
new appraisal system. The new system significantly empowers managers
to take individual decisions related to employee appraisals, as opposed to
the previous system where managers had to go through just one annual
review.

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Conducting Performance Appraisals Effectively

Appraisals are nothing but a formal assessment of an employee done by an

organization in the form of interviews or evaluating performances.
Appraisals are impartial in nature, and there is a criterion set to analyze
and evaluate an employee to determine their acceptability, worth, and
merit. They are usually given in a written form or otherwise in a verbal
form. The need for appraisals is currently a hot topic in the current
business world. With short-staffing and cost-cutting activities being
undertaken, it is important a company does not lose out on their best
employees in the process, for just the reason that they were undervalued
in the organization in terms of both payments and in kind.

Moving forward in 2019, now it’s time to consider the right and wrong ways
to conduct successful appraisals with the staff. Formal performance
appraisals can be of huge benefit to both the employer and the employee.
Unfortunately, however, they are increasingly undervalued and
underutilized by both parties. Companies must understand that appraisals
have a direct impact on employee’s morale, organization's culture and
retention of talented staff. One might think that appraisals are a process
driven, a form filling activity that takes away creativity and adds more
administrative pressure to managers and HR managers, or can think that a
standardized appraisal system is key to company performance – the
importance to get it right, whatever approach is taken is fundamental to
success.

Any organization’s success depends on their staff and their tenure. This
makes it very important to retain appreciate and nurture in-house talent,
and a leadership responsibility to make sure that current staff is motivated
for upskilling and continuous improvement. Appraisals are important
conversations which help align employee’s outputs, performance and
personal development with the business strategy. These, whether formal or
informal, provide a framework for both employer and employee. It is a
systematic approach to monitoring performance and employee
engagement. Whatever process you choose, use good tools around it to
support the overall requirements.

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Employee engagement and empowerment are core activities that build

employees decision-making ability, which further enhances their skills.
Rewards, recognition and timely appraisals are the most important factors
to boost motivation. Appraisals should be in both ways. Employee should
have monetary gains as well as he/she should be appreciated with higher
responsibilities. This enables the respective employee to have a higher
view on his daily tasks and automatically improves the quality of work. The
less you think of appraisals as a ‘doing’ activity, the more they become part
of your management style, the easier they become.

In most organizations, especially those with 50 employees or more, HR

departments will (or should) deliver an overview of the appraisal process,
and offer support to managers to deliver appraisals. However, there can be
tricky appraisals. Not all employees deliver time and time again to the
expectations set by the organization, and delivering negative feedback can
be difficult. Some tips on how to get ready for, and conduct an effective
appraisal are mentioned below:

Prepare - Preparation will show employees that their boss cares about
them and is invested in them, both as a worker and a person. Begin by
gathering data on the employee and their performance – this may include
records from previous appraisals, any HR issues raised by their colleagues
and feedback from their immediate manager and/or co-workers. This data
can help set the right topics for discussion, ready for the appraisal, as well
as forming future goals. Referring to records from previous meetings also
allows an employer to gauge where specific improvements (or lack,
thereof) have been made since then.

Topics - Preparing exactly what to discuss with each employee is the key
to ensuring that all bases are covered. The person conducting the
appraisal, often their immediate line manager, should discuss: the
employee’s performance, both since the start of their current role and since
their last appraisal – not just in terms of the delivery of their work but
attitude and things like whether they arrive consistently on time or not,
whether they meet deadlines and how regularly they take sick days. At the
same time, allow the employee to self-appraise. Exploration of where
improvements can be made – and how to implement them.

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A discussion of any grievances the employee may have, and how these can
be tackled. It’s also a great idea to talk about any ideas they might have
for developing or diversifying their own role or the company at large. Agree
on some goals for the future – both short and long-term.

Atmosphere and Delivery - Arguably the most important element of an

employee appraisal is ensuring it’s undertaken in the correct atmosphere.
There should be no surprises. Honesty is the best policy, both ways. The
employee should get the benefit of doubt to prepare well for it. There are
some organizations who conclude the appraisal, the point of determining
employees’ grades without holding one-on-one discussion meetings on the
results. The employee is then left in the dark on the specific areas of
improvement needed to enhance their future work performance. Heads of
departments and supervisors should hold a meeting with the employees
they assessed to provide them feedback. Progressive organizations are
known to have employees attach their signature to staff appraisal form to
confirm the acceptance of the ratings earned.

The outcomes of staff appraisals do not hold much water if they are not
directly linked to reward. Some organizations operate a fixed salary
incremental rate regardless of the employees’ level of work performance.
Expecting improvement in work performance and productivity of employees
in the subsequent year would be like wanting milk from a stone.
Organizations should create strong linkages between employee
performance and reward systems to enhance staff productivity.

Post Appraisal Counselling to the Employee

It is extremely crucial that the organization completes the post appraisal

counselling to the employees. To become effective counsellors, leaders
must develop a host of qualities such as empathy, self-awareness, and
respect for people. Only then can a leader be an effective counsellor, and
help his or her people to be their best selves.

The appraisals are out, and there is a mixed vibe in the air ― those who
have fared well may be over the moon, while those who did not, may be
biting the dust. Such contrasting moods may affect the entire organization
by impacting the morale of every employee. From a managerial and HR
standpoint, it is important to take stock of the wins and problems at hand
and address them head-on for a better future. This requires a highly

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sensitive people centric approach, using powerful tools such as

performance coaching and performance counselling.

The counselling model for the post appraisal season: Any counselling
initiative goes beyond merely “telling” a person to do something or not to
do something. It involves understanding the human psyche, i.e., a person’s
thinking, motivators, values, and other intrinsic traits, and guiding the
person to perform up to standards at work, by addressing performance
issues. Counseling is different from coaching, in a way that deals more with
behaviors, thoughts, and mindsets, rather than coaching which directly
impacts knowledge, skills, and abilities. Counselling can be of different
types:
• Performance Counseling: Focuses totally on performance lapses and
ways to overcome.
• Problem Counseling: Focuses on other concerns such as personal or
professional conduct, behaviour, etc., and may or may not have a direct
impact on the person’s performance.
• Individual Growth Counseling: Focuses on employee development
and career advancement.

However, these three counselling categories may not be distinct, and

elements of one may bleed into the other. Hence, to become effective
counselors, leaders must develop a host of qualities, such as empathy, self-
awareness, and respect for people. Only then can a leader be an effective
counsellor, and help his or her people be their best selves. But, mere
qualities are not enough, it is important to follow a methodical process for
counseling.

Building Blocks of a Performance Counseling Process: While leaders

and managers are anyways expected to counsel their employees at an
informal level, it is important to have a formal post appraisal counselling
session in place. Not only does it help address employee grievances head-
on, but also sets the tone for future high performance, at both an
individual and organizational level.

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Create a Conducive Environment: The first step is to build a climate of

trust and confidence, so that an open discussion can ensue. Both the
process owner (HR and business) and the counselor should communicate
with the employee at the outset, clarifying that the counseling session is a
two-way dialogue. The employee must be made comfortable to share his or
her fears, concerns, feelings, etc. Bringing in a credible leader who is not
judgemental is a good idea to make this happen.

Prepare for the Session: The counsellor must not only know about the
professional performance of the employee, but also his or her background,
education, training, experience, etc. This knowledge shall help facilitate a
holistic discussion that touches upon all aspects of performance
counselling, i.e., performance, development, growth, etc. The session must
be timed close to the performance appraisal discussion, only then will it
stay recent and relevant.

Problem Identification through Exploration: The intent of counselling

is to elicit intrinsic realization rather than simply ‘tell’ the person to
improve. The counsellor should study the feedback from the performance
discussion, and should facilitate self-exploration in the employee through
the right probing questions. This will help the employee understand his or
her own self better ― strengths, weaknesses, behaviors, etc. It is
important to focus talks on the person’s behaviour, rather than the person
at hand. The leader must not make the employee defensive by ‘blaming’
him or her, rather should direct questions in a compassionate, empathetic
manner to help the employee diagnose the problem at hand.

Action Planning: Create concrete take aways by outlining specific plans of

actions for the employee’s development. The conversation should be
structured to encourage the employee to take ownership for self-
development. Encourage him or her to come up with and share concrete
plans. It is important to hear out the person’s ideas and plans, and then
provide suggestions to help give them real shape.

Follow up: It is important to follow - up the action plan at a pace which is

comfortable to both counsellor and counsellee. Following through on the
action plans helps raise the performance bar, and create an ongoing
commitment to excellence and high performance.

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What distinguishes an average counselling session from a great one is the

sense of accountability, ownership, and self-belief that a counsellor can
generate in the employee. Effective counselling requires a sprinkling of
care and compassion, with proper communication of the high-performance
expectations. It is up to the counsellor and counsellee to mutually decide
when to stop, and how far to continue the association such that it helps the
optimum realization of the outlined goals.

4.3 Performance and Top Management Compensation and

Rewards Management

One of the key input to design the CEO compensation is increasing focus
on the performance. CEOs of top companies are no exception. Let us
evaluate the CEO compensation and linkage to performance at Infosys.

Example ― Top management performance based reward at Infosys

– Vishal Sikka: Infosys CEO Vishal Sikka has raked in big moolah
following the company's stellar performance in the last few quarters. Sikka
will be getting a total compensation of $11 million annually that includes a
base salary of $1 million, $3 million in variable pay, $2 million in restricted
stock units and another $5 million in stock options that would be awarded
to him based on Infosys's performance. The revision in his overall
compensation coincides with the $9.2 billion company extending Sikka's
tenure by another two years up to 2021.

Sikka's total package has gone up substantially from $7.08 million

previously that included up to $5.08 million in annual salary, besides a
stock option of $2 million. Sikka has emerged as one of the top paid CEO in
the Indian IT sector. His compensation comes close to Cognizant CEO
Francisco D'Souza's $11.3 million package for 2014-15. The latest available
data showed that TCS CEO N Chandrasekaran took home $3.15 million
during 2013-14, while former Wipro chief executive TK Kurien's total
package was nearly $1.5 million in 2013-14 excluding earnings from his
Wipro shares.

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The company's nomination and remuneration committee and board

recognized the outstanding initiatives taken by Dr. Vishal Sikka towards
restoring the company to industry leadership, which have already begun to
show results. The management under the leadership of Dr. Sikka has
drawn up goals for revenue, margins and people productivity for the
financial year 2020-21, which are expected to be progressively achieved in
the next five years. The board believes that Dr. Sikka's leadership will be
essential to achieve these goals. The board has, thus, recommended that
Dr. Sikka's present contract of employment be replaced with a new
contract that is fully aligned to the period and goals, as well as to
shareholder value creation.

If Dr. Sikka fails to achieve minimum performance targets, his

remuneration as proposed will fall to $3,000,000 annually, consisting of
$1,000,000 of base salary and $2,000,000 of time-based RSUs. During the
term of his employment, Sikka will be entitled to participate in the
employee benefit plans currently, and hereafter maintained by the
company of general applicability to other whole-time directors of the
company.

Sikka has energized the company's performance by setting an ambitious

target to become a $20 billion business by 2020. Infosys has set an
internal target of 16 per cent revenue growth, with an operating margin of
27 per cent, for the 2016-17 financial year, an ambitious goal, but
reflective of the big strides made under Sikka's leadership. The targeted
growth is significantly higher than the 13 per cent that it might achieve this
year in constant currency terms, and importantly, higher than the 10-14
per cent guidance for 2016 provided by Cognizant, the company that in
recent years has been the bellwether for the industry and which grew by
21 per cent in 2015.

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4.4 Performance management – Nurturing the right

potential in an appropriate manner

Within the corporate space there has been a huge transformation of HR

roles and responsibilities. Now the focus of HR is on evolving functional
strategies that assist in successful implementation of major corporate
plans. Better collaboration and alignment between HR policies and
organizational strategies are emerging within the corporate ecosystem. The
role of HR has magnified to encompass more responsibilities facilitating
employees to improve their performance. This is achieved by creating an
optimum work environment and by providing maximum opportunities to
employees for participating in organizational planning.

Employees are given the opportunities to participate in the decision -

making process within the organization. Therefore, the emphasis is on
creating a collaborative environment in the corporate space through HR
policies directed towards better employee engagement. HR activities, in
present times, are all driven towards the making of leaders in the
organization, who could lead with high performance. Fostering motivation
in employees is amongst the major emphasis of HR responsibilities. The
concept of performance management emerged against this backdrop as a
tool to facilitate HR in creating leadership roles among the work - force. In
the organizational battle for leadership, the method emerged as an
effective concept.

Diverse activities such as joint goal setting, continuous progress review,

frequent communication and feedback comprises performance
management. Furthermore, it encompasses activities such as coaching for
improved performance, implementation of employee development
programmes and rewarding achievements. It is a comprehensive and a
continuous process that follows throughout the career of an employee in
the organization. It is a systematic process that improves performance of
individuals within the framework of the team, which in return improves the
whole operational process holistically. High performance is achieved by
communicating expectations and underlining achievable goals for the
teams. The roles and responsibilities are defined within the competence
framework through the process of performance management.

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Recent developments show that performance management is a strategic

and integrated approach to deliver successful results in the organization by
improving the performance and developing the capabilities of teams and
individuals. The objective of performance management is achieving
superior standards of work and quality performance. The process is
employee intensive and HR functionalities such as job design, leadership
development, and training and reward systems receive equal impetus
comprehensively and within a wider framework. Constant communication
with employees is the primary trait of the process. Performance
management is cyclical and ongoing.

Performance management begins as soon as an employee begins working

in an organization, it helps the management to understand the capabilities
and improve the employee as a resource. The performance indicators are
determined in the first stage of the process that includes key result areas.
The selection process is devised with a comprehensive view towards these
factors as implementing the right selection process ensures recruitment of
right candidates. Performance management involves negotiating
requirements and performance standards for measuring the outcome.
Identification of training and development needs by measuring these
outcomes is also under the ambit of performance management.
Furthermore, programmes and new strategies are to be devised reviewing
the previous strategies for effective implementation.

Nurturing employees through performance management involves designing

reward systems for effective compensation and reward system. The system
follows a pervasive evaluation method of employee performance based on
predefined performance plans. Providing career development support and
guidance to employees is an objective of the process. The process includes
performing exit interviews for understanding the cause of employee
discontentment and finding out the underlying reasons of their resignation.

Employees are motivated through the culture of the organization and

engagement programmes. Therefore, work culture of the company must be
transparent enough. Employees should feel collaborated with healthy
mindset of being competent to each other in an uncomplicated
environment. The HR industry is focusing on methods and processes to
bring out the best in employees and performance management
materialized as the right tool to attain the objective. The process is
connected to actions and behaviour of employees moulding them in the

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right direction. It is the harmonious engagement of HR and employees for

accomplishment of excellent performance.

Digital Approach to Performance Measurement and Management

The future of performance management is more data-driven, more flexible,

more continuous, and more development oriented.

The business value of traditional performance management models is

collapsing. While these legacy systems still inform decision-making around
compensation, promotions, terminations, and other compliance mandated
functions, they’ve become irrelevant to actually improving performance or
its management. They do not measurably add value.

Instead of better clarifying expectations and building morale, the traditional

annual appraisal aspect of performance management (PM) alienates
talented and typical employees alike. Managers dislike it, too. Even as
personal and enterprise tools and technologies have radically improved,
performance management systems have not. And while the nature of work
and the workplace have grown more data-driven and analytical,
performance management has not kept pace. Perennial complaints —
rigidity, opacity, unfairness, arbitrariness, and an inherent backward-
looking bias — persist.

HR veterans from across industries share their thoughts on one of the most
tedious tasks for a company – performance appraisal. With technologies
permeating every facet of Human Resources function, we see a clear shift
in how talented professionals exploit these next-generation technologies to
automate their tasks. Mapping out employees' performance — for instance,
has changed over the last few years given that many traditional
performance processes fail to meet expectations of employees and
employers.

Here are the insights and thought process of various contemporary HR

leaders about Digital and technology in performance appraisal.

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Fig. 4.1

Fig. 4.2

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Fig. 4.3

Fig. 4.4

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Fig. 4.5

Fig. 4.6

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Fig. 4.7

Fig. 4.8

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Fig. 4.9

Fig. 4.10

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Fig. 4.11

Fig. 4.12

Fig. 4.13

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Fig. 4.14

Fig. 4.15

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Fig. 4.16

Fig. 4.17

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Fig. 4.18

Fig. 4.19

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Fig. 4.20

Fig. 4.21

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Fig. 4.22

Fig. 4.23

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Performance Measurement through Digital Innovation at DBS Bank

- A Case Study

Prioritizing process improvement, redefining performance, and committing

to digitization, DBS Bank revitalized its performance management strategy
and turned itself into one of the world’s most successful global digital
banks. In 2008, the year David Gledhill went to work for DBS Bank, few
would have predicted that within a decade the Singapore based bank would
be racking up an impressive slate of honours. Nonetheless, DBS was the
first recipient of Euromoney’s Best Digital Bank Award in 2016; it received
that distinction again in 2018 and, that same year, was also named Global
Finance’s Best Bank in the World.

Just a decade ago, however, DBS, beset by long lines at branches and
ATMs, high turnover among relationship managers, and a plodding credit
card application process, had the worst customer satisfaction scores of all
the banks in Singapore. Chief data and transformation officer Paul Cobban,
who came aboard in 2009, recalls that “it was almost embarrassing to tell
people at dinner parties” that he worked for the bank “because DBS had
such a bad reputation.”

Executives did not simply change their performance management systems

to achieve these goals. They redefined the meaning and measurement of
performance. Soon after Cobban joined, a newly arranged management
team, with the support of tech-savvy CEO Piyush Gupta, who turned things
around by thinking of DBS as more of a tech start up than a bank. Gledhill,
DBS’s CIO, says, “Our future competition wasn’t going to come from just
banks, but from a lot of cool technology companies that were going into
finance.” DBS, in Gledhill’s words, committed to becoming “digital to the
core,” and he and his team initiated a thoroughgoing cultural change to
support digital innovation. Executives did not simply change their
performance management systems to achieve these goals.

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Post Appraisal Checklist

Annual or otherwise, once the appraisals are completed, it is important for

the human resource function to adopt a post appraisal checklist. Managers
must take on people-responsibility head-on, and give priority to molding
the team, the right way. Hence, preparing for the post appraisal
conversation becomes critical.

Performance review time is here, and with it, much of uncertainty in the
air. Naturally so, because performance review discussion is an important
career milestone for employees and managers, the intent being to achieve
the common goals laid out at the outset and also in the future. To make
the post appraisal discussion a productive one, preparation at both the
employee as well as manager end is of paramount importance. Here’s how
managers can do their bit in facilitating a successful post appraisal phase.

Fig. 4.24

The Contemporary Nature of Performance Reviews

Whether the performance review discussion is part of an annual/semi-

annual performance management process or a frequent check-in,
managers must understand that the supervisor-employee relationship has
shifted from an authoritative to a participative nature. To achieve the goals
of individual and organizational success, it is important to have a two-way
dialogue based on honesty, openness, transparency, and growth. Managers
must let go of the ‘tutoring’ mindset, and be open to participative
conversations with employees. At the same time, employees must own up
accountability for their behaviors and actions. Managers may not be skilled

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to deal with difficult performance conversations, or they often shy away

due to non-confrontational attitude.

Manager’s checklist for post-appraisal:

Before the review discussion:

• Schedule the meeting: Dedicate a slot for the meeting, in a quiet place
without any distractions. Prepare your frame of mind such that you are
receptive to open dialogue with your employee. Schedule the meeting
within a reasonable time frame post appraisal, to ensure the maximum
impact due to recency.
• Review the employee information: Understand the employee’s
professional and personal details. Review the job description,
professional goals, past performance, past feedback (but don’t be
biased), career aspirations, tenure, ongoing and past projects, education,
experience, etc. Go through the self-evaluation or 360-degrees
evaluation forms, if any, and plan conversations around it. Such thorough
insights can help you probe the right questions and coach and counsel
the employee in a personalized manner.
• Revise about the organizational direction: Get yourself up to date on
the organizational and department strategy, vision, mission, values, etc.,
so that you can clearly communicate to employees about the way ahead.
• Communicate the meeting details: Send a calendar invite, sharing
the venue, timing and duration of the review discussion. Avoid
rescheduling, or arriving late, since it may send the message that you
are not interested in your team’s career or development.

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During the review discussion:

• Create a favorable atmosphere: Make sure the meeting starts on
time, and turn off any distractions. Employees are often anxious just
before a review discussion, and an uncomfortable atmosphere may only
hamper any open discussion.
• Invite opinions: Ask the employee to share his or her experience in the
past year, and be open and attentive to the conversation. You can take a
cue from the self-evaluation form and stakeholder feedback to steer the
conversation, but let the employee do the initial talking. Ask the
employee about contributions which are undocumented, and make a note
of them to make the employee feel you care.
• Discuss details, step by step: Open your discussion by touching upon
the role expectations, and discuss achievements first. This sets a positive
tone to the conversation and can make the employee more receptive to
feedback. Then move on to what could have been done better. Check
whether the employee had the resources to achieve the goals, and ask
what obstacles he or she faced. Provide feedback in a direct manner with
supplementary examples, asking the employee of how things could be
done differently.
• Discuss development and growth: Learning and career growth are
intrinsic benefits that help retain the right people. Discuss the person’s
career and personal aspirations, and provide practically possible career
path options, to help achieve those, wherever feasible. Employees value
managers who are invested in their growth. Don’t forget to discuss both
the short-term and long-term aspects. Do not make false promises, only
outline the options which are genuinely possible.
• Negotiate, but draw the line too: As you deep dive into the goals and
agree upon the way ahead, aim to raise the bar, and lay out expectations
clearly, by defining or fine-tuning the way ahead. Some goals can be
negotiated upon, but remember that it is important to keep raising the
bar so as to elicit and sustain high performance. In case the discussion is
not going as envisioned, do not hesitate to draw the line and exert
authority, firmly, yet gently. It is important for employees to be clear on
what is expected of them, so as a manager you should provide a reality
check.

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• Prepare to receive feedback: Ask the employee for any feedback that
he or she may have. This helps generate trust and paves the way for a
smoother working relationship.
• Thank the employee: Thank the employee for his or her valuable
contribution to the organization, and wish success for a brighter future in
the right direction, which has just now been laid out. Decide on a follow-
up meeting to continuously review progress. Ending the discussion on a
positive note will leave the employee motivated to work.

Afresh on the new direction

• Chart out the discussed plan of action to improve performance in the
coming appraisal cycle. Outline SMART goals and mutually agree on how
those will be achieved.
• Document the discussion details and outcomes in the performance review
system, so that continuity remains.
• Relook at, and modify the job description for the role, in conjunction with
HR.
• Reassess and assign resources required, if feasible.
• Sign off the final review form with the employee, and route to the higher
authorities for comments and sign-off.

Apart from role discussions, employees like to stay informed about the
organizational strategy and direction. While the one-time appraisal process
shall happen, it is important to provide continuous insights into the
organization’s or department’s direction, strategy, goals, etc. When
employees are aware about how their roles roll up into a bigger picture,
they are more likely to be engaged and go the extra mile. The ‘Why’, along
with the ‘What’ and ‘How’ is a very important motivator to elicit high
performance from modern-day employees. Managers must, therefore, hone
their people skills significantly to motivate their employees to be their best
selves.

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4.5 Activity

1. Conduct an interview with at least five HR department heads and

understand the limitations and challenges involved in the traditional bell
curve method of evaluation.
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4.6 Summary

The key attributes of a successful performance management system are

that the system should be real time, it should place good emphasis on the
strategy and vision of the organisation, the alignment with training needs
to be ensured, and lastly the performance management system should be
able to identify, assess and reward the results.

While there are many approaches to deal with performance management

system, many of the companies in India and across the globe are dumping
the traditional bell curve fitting exercise and moving to more interactive,
specific and employee focused performance management and review
systems.

Defining, right standard for the top as well as bottom of the pyramid is
very crucial. In case of the top management, the performance
management and reward system is more focused on wide range of
parameters. Significant components in the reward are linked to the
profitability, growth and realization of the business strategy.

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4.7 Self-Assessment Questions

1. Highlight the benefits and limitations of bell curve method of evaluation.

2. Review the top management of performance management,

compensation and rewards policy for top companies in any sector and
identify the common aspects as well as the key differences.

4.8 Multiple Choice Questions

1. Which of the following is least likely to be an important factor to be

considered in the process of designing a robust performance
management programme?
(a) Must be traditional.
(b) Must be modernized.
(c) Alignment to strategy and vision.
(d) Reward the performing employees.

2. Which of the following parameters is least likely to make any

performance management programme successful?
(a) Making it real time.
(b) Placing emphasis on competitor’s strategy and business plan.
(c) Committing requisite resources for training and development.
(d) Policy for rewarding the results.

3. Which of the following is most likely to be an important reason for

companies to discontinue the use of bell curve methods of annual
performance evaluation and grading of employees?
(a) Traditional and very rigid.
(b) Creates more accountability.
(c) Facilitates year round review.
(d) Flexibility.

Answers: 1.(a), 2. (b), 3. (a)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 5
Strategy Formulation And Implementation
of Performance Management
Objectives

After studying this chapter, you will be able to:

• Understand the broad objective and role of performance management
systems
• Understand the key implementation aspects of performance
• Understand the key steps involved in implementation of a robust
performance management system

Structure:

5.1 Key Aims, Objective and Role of Performance Management System

5.2 Characteristics of an Ideal Performance Management System

5.3 Implementation of Performance Management – A Perspective

5.4 Key Steps in Development and Implementation of Robust

Performance Management Strategy

5.5 Legal and Ethical Considerations in Formulation of Performance

Management and Rewards under Regulatory Scanner

5.6 Activity

5.7 Summary

5.8 Self-Assessment Questions

5.9 Multiple Choice Questions

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5.1 Key Aims, Objective and Role of Performance

Management System

The information collected by a performance management system is most

frequently used for salary administration, performance feedback and the
identification of employee strengths and weaknesses. In general, however,
performance management systems can serve the following purposes:

• Strategic
• Administrative
• Information
• Developmental
• Organizational maintenance
• Documentation

Let’s consider each of these purposes in turn.

Strategic Purpose
The first purpose of performance management system is to help top
management achieve the strategic business objectives. By linking the
organisation’s goals with individual goals, the performance management
system reinforces behaviour consistent with the attainment of
organizational goals. Moreover, even if for some reason individual goals are
not achieved, linking individual with organizational goals serves as a way to
communicate what are the most crucial business strategic initiatives.

Administrative Purpose
A second function of performance management systems is to furnish valid
and useful information for making administrative decisions about
employees. Such administrative decisions include salary adjustments,
promotions, retention or termination, recognition of individual
performance, identification of poor performers, lay-offs and merit
increases. So the implementation of reward systems based on information
provided by the performance management system falls within the
administrative purpose.

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Information Purpose
Performance management systems serve as an important communication
device. First, they inform employees about how they are doing, and
provide them with information on specific areas that may need
improvement. Second, related to the strategic purpose, they provide
information regarding the organization’s and the supervisor’s expectations,
and what aspects of work the supervisor believes are most important.

Developmental Purpose
As noted above, feedback is an important component of a well
implemented performance management system. This feedback can be used
in a developmental way. Managers can use feedback to coach employees
and improve performance on an ongoing basis. This feedback allows for the
identification of both strengths and weaknesses and of the causes of
performance deficiencies (which could be due to individual, group or
contextual factors). Of course, feedback is useful only to the extent that
remedial action is taken and concrete steps are implemented to remedy
any deficiencies. And feedback is useful only when employees are willing to
receive it. Organization should strive to create a ‘feedback culture’ that
reflects support for feedback, including feedback that is non-threatening
and is focused on behaviours, and coaching to help interpret the feedback
provided.

Another aspect of the developmental purpose is that employees receive

information about themselves that can help them tailor their career paths.
Thus, the developmental purpose refers to both short-term and long-term
development aspects.

Organizational Maintenance Purpose

A fifth purpose of performance management system is to provide
information to be used in workforce planning. Workplace planning is a set
of systems that allows organizations to anticipate and respond to needs
emerging within and outside the organization, to determine priorities, and
to allocate human resources where they can do the most good. An
important component of any workforce planning effort is the talent
inventory, which is information on current resources (e.g., skills, abilities,
promotional potential and assignment histories of current employees).
Performance management systems are the primary means through which
accurate talent inventories can be assembled. Other organizational
maintenance purposes served by performance management systems

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include assessing future training needs, evaluating performance

achievements at the organizational level, and evaluating the effectiveness
of HR interventions (e.g., whether employees perform at higher levels after
participating in a training programme). These activities cannot be
conducted effectively in the absence of a good performance management
system.

Documentation Purpose
Finally, performance management systems allow organizations to collect
useful information that can be used for several documentation purposes.
First, performance data can be used to validate newly proposed selection
instruments.

Example ― A newly developed test of typing skills can be administered to

all administrative personnel. Then scores on the test can be paired with
scores collected through the performance management system. If scores
on the test and on the performance measure are correlated, then the test
can be used with future applicants for the administrative positions. Second,
performance management systems allow for the documentation of
important personnel decisions. This information can be especially useful in
the case of litigation.

Top Global Trends that Impacts the Performance Management and

Reward Strategy

We are now in 2nd decade of 21st century, which gives us time to reflect
on the talent trends that are emerging this year. Among the top trends,
we’re seeing a shift that puts the employee experience at the centre of the
talent management journey. Increasingly, employees are expecting
ongoing feedback, personalized benefits and self-directed learning
opportunities, while jobseekers expect to be treated and marketed to like
consumers. To attract and retain talent, we’re seeing organizations creating
a consumer grade experience at work which reflects their attractive,
authentic employer brand.

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1. Employee Led Learning

Organizations are moving away from top-down development frameworks

and instead empowering employees to lead their own learning. And
employees are taking matters into their own hands when it comes to
securing development opportunities. In the last six months, Page Up has
seen an 80 per cent increase in employees requesting managerial approval
to undertake a learning activity. Rather than adopting a one-size-fits-all
approach, organization are creating personalized learning paths to help
develop employees in their current and future roles. This holistic approach
creates a constant journey of personal self-improvement, where content is
tailored to each employee and based on both personal development needs
and interests.

Almost 60 per cent of employees want to learn at their own pace and 94
per cent of employees say they would have stayed with their organization
longer if it invested in their career development. If you consider people to
be your most valuable asset, then their development should be a top
priority. With this in mind, consider how your people like to learn and offer
flexible options that let them learn at work, or on the go, when and where
it suits them best.

2. The Rise of Everyday Performance

The reinvention of performance management is well under way. Instead of

the much-dreaded annual performance review, an everyday performance
approach looks to provide regular feedback that continually drives
performance, supports development and engages individuals. This new
performance framework shifts the emphasis from assessing past
performance to setting future goals and aligning expectations. The
approach is already being widely adopted: 76 per cent of organizations
have moved to a continuous performance management approach, and this
trend is expected to accelerate, underpinned by collaborative goal setting,
ongoing feedback and opportunities for personal development.

If your organization is still relying on the traditional sit-down annual

review, consider building a feedback loop into daily operations. Avoid a top-
down approach to performance management and leverage technology to
implement a system of continuous feedback and regular check-ins that
builds employee engagement. Equally important is encouraging employees

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to adopt an everyday approach to performance. Empowering employees to

give or request feedback at any time – not just during formal reviews –
gives a 360-degree perspective of their performance. These regular
reviews and check-ins provide a great chance to introduce customizable
benefits and rewards based on micro goals and milestones, which brings us
to our next point.

3. Personalized Benefits

Aligning rewards with employee performance is the most important factor

in increasing employee engagement. Instead of static once-off benefits and
bonuses that come after the yearly performance review, high performing
organizations are embracing flexible, personalized benefits that respond to
real-time performance milestones.

Even though the shift to continuous performance management is well

underway, the overwhelming majority of companies (91 per cent) only
conduct salary reviews once a year. Compensation still plays a major role
in how satisfied and engaged your employees are, but it’s not the only
benefit that matters to the workforce. This year, we’re seeing a move
towards personalized benefits that go beyond purely monetary
compensation.

Personalized, holistic and adaptive benefits are powerful. These can be as

simple as giving an employee flexible time to pick up their children from
school, or a day off to pursue something they’re passionate about. Don’t
underestimate the power of recognition. Employees who receive regular
small rewards (including acknowledgment and thanks) are eight times
more engaged than those on an annual bonus cycle. Organization now also
realize that wellness – mental, emotional and physical – is important. In
addition to traditional gym memberships and dental cover, companies are
also providing on-site meditation, counselling services and quiet spaces.

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4. A Consumer Grade Experience for Jobseekers

Have you ever abandoned a survey, application form or process on your

mobile device because it was too long and complicated? Like consumers,
jobseekers appreciate an application process that is easy, quick and simple.
In response we’re seeing a trend towards streamlined, mobile optimized
application processes that treat the jobseeker like a consumer. Shorter
application forms, autofill and the ability to pull information from social
media profiles and the cloud all contribute to an efficient application
experience.

In the past year 19 per cent of applications were submitted via a mobile
device, Page Up research shows. That’s up from 15 per cent at the end of
2017, and notably higher than the external benchmark of 16 per cent. Just
as consumers expect a mobile optimized shopping experience, candidates
now expect to search and apply for jobs from their mobile devices via a
simple, easy and streamlined process. This is especially important in
industries that have low desktop usage, such as retail, healthcare, mining,
and manufacturing. The easiest way to test if your application process is
mobile optimized and applicant friendly is to apply for a job via your career
website on a mobile device. If you find the experience clunky or time-
consuming, take steps to improve it. Organizations should also consider
how mobile technology and a consumer grade experience can be used
throughout the entire employment journey – not just at the point of
application – to build and maintain employee engagement.

5. Authentic Employer Branding

To attract top talent in a competitive labor market, it’s necessary for

organizations to cultivate a strong employer brand. Creating an employer
brand means articulating what makes your institution a great place to
work: whether it’s benefits, culture, social responsibility or flexibility. An
appealing employer brand is important, but an authentic employer brand is
imperative. Seventy-five per cent of jobseekers consider an organization's
employer brand before even applying for a role, and over half (52 per cent)
visit the company website and social media sites to find out more
information.

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Review sites like GlassDoor and Indeed make it almost impossible for
organisations to fabricate their employer brand, which means the employee
experience is now a strategic priority for human resources. When
articulating your employer brand, consider: What sets your organization
apart from the rest? What are your organizational strengths, defining
characteristics, culture and values? Highlight what differentiates your
organization from your competitors. In addition, there are a few factors
that make an organization attractive to applicants across the board.

The top five factors that appeal to jobseekers include:

• Salary and employee benefits

• Job security
• Work-life balance
• Work atmosphere
• Development opportunities

Interestingly, organizations rate financial performance and reputation

within the top five factors that attract applicants. This misalignment
between what candidates want and what employers think they want
creates an opportunity – if your organization performs well in any of the
above areas, showcase this as part of your employer brand. As we move
towards 2020, it’s clear that the focus is on making the employee
experience personalized and authentic. Candidates want an application
process that fits into their busy lifestyles, and they want an authentic
employer brand that reflects what they value in a workplace. Employees
want to learn and develop in ways that suit them, and they want to receive
benefits that are personalized and relevant to their lives. People are an
organization’s greatest asset and making sure you work for them, while
they work for you, will be the number one priority for this year.

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5.2 Characteristics of an Ideal Performance Management

System

Following is a set of characteristics that is likely to allow a performance

management system to be successful. Practical constraints may not allow
for the implementation of all these features. However, we should strive to
place a check mark next to each of these characteristics, as the more
features that are checked, the more likely it is that the system will live up
to its promise.

• Strategic Congruence: The system should be congruent with the unit’s

and organization’s strategy. In other words, individual goals must be
aligned with unit and organizational goals.

• Thoroughness: The system should be thorough regarding four

dimensions. First, all employees should be evaluated (including
managers). Second, all major job responsibilities should be evaluated
(including behaviours and results). Third, the evaluation should include
performance spanning the entire review period, and not just the few
weeks/months before the review. Finally, feedback should be given on
positive performance aspects as well as those in need of improvement.

• Practicality: Systems that are too expensive, time-consuming, and

convoluted will obviously not be effective. On the other hand, good
systems are available and easy - to - use (e.g., performance data are
entered using user-friendly software), and are acceptable to those who
want to use them for decisions. Finally, the benefits of using the system
(e.g., increased performance and job satisfaction) must be seen as
outweighing the costs (e.g., time, effort, money).

• Meaningfulness: The system must be meaningful in several ways. First,

the standards and evaluations conducted for each job function must be
considered important and relevant. Second, performance assessment
must emphasize only those functions under the control of the employee.
For example, there is no point in letting an employee know she needs to
increase the speed of service delivery when the supplier does not get the
product to her on time. Third, evaluations must take place at regular
intervals and at appropriate moments. Usually, just one formal evaluation
per year is not sufficient, so informal quarterly reviews are
recommended. Fourth, the system should provide for continuing skill

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development of evaluators. Finally, the results should be used for

important personnel decisions. People will not pay attention to a system
that has no consequences in terms of outcomes they value.

• Specificity: A good system should be specific, meaning that it should

provide detailed and concrete guidance to employees about what is
expected of them and how they can meet these expectations.

• Identification of Effective and Ineffective Performance: The

performance management system should provide information allowing
for the identification of effective and ineffective performance. That is, the
system should allow for distinguishing between effective and ineffective
behaviours and results, thereby also allowing for the identification of
employees displaying various levels of performance effectiveness. In
terms of decision-making, there is no use having a system that classifies
or ranks all levels of performance, and all employees, similarly.

• Reliability: A good system should include measures of performance that

are consistent and free of error. For example, if two supervisors provided
ratings of the same employee and performance dimensions, ratings
would be similar.

• Validity: The measures of performance should also be valid. In this

context, validity refers to the fact that the measures include all relevant
performance facets and do not include irrelevant performance facets. In
other words, measures are relevant (i.e., include all critical performance
facets), are not deficient (i.e., do not leave any important aspects out),
and are not contaminated (i.e., do not include factors outside the control
of the employee).

• Acceptability and fairness: A good system is acceptable to and

perceived as fair by all participants. Perceptions of fairness are
subjective, and the only way to know whether a system is seen as fair is
to ask the participants. We can ask about distributive justice, which
includes perceptions of the performance evaluation received relative to
the work performed and perceptions of the rewards received relative to
the evaluation received. If a discrepancy is perceived between work and
evaluation, or between evaluation and rewards, then the system is likely
to be seen as unfair. In addition, we can ask about procedural justice,
which includes perceptions both of the procedures used to determine the

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ratings and of the procedures used to link ratings with rewards. Because
a good system is inherently discriminatory, some employees will receive
ratings lower than those received by other employees. However, we
should strive to develop systems seen as fair from both a distributive
and procedural perspective. This is because each type of justice
perception leads to different outcomes. For example, a perception that
the system is not fair from a distributive point of view is likely to lead to
a poor relationship and lowered satisfaction with the supervisor. On the
other hand, a perception that the system is unfair from a procedural
point of view is likely to lead to decreased commitment towards the
organization and intentions to leave would arise.

• Inclusiveness: Good systems include input from multiple sources on an

ongoing basis. First, the evaluation process must represent the concerns
of all the people who will be affected by the outcome. Consequently,
employees must participate in the process of creating the system by
providing input regarding what behaviours and/or results will be
measured and how. Second, employee input about their performance
should be gathered from the employees themselves before the appraisal
meeting.

• Openness: Good systems have no secrets. First, performance is

evaluated frequently, and performance feedback is provided on an
ongoing basis. So, employees are continually informed of their
performance. Second, the appraisal meeting consists of a two-way
communication process where information is exchanged and not just
delivered from the supervisor to the employee. Third, standards should
be clear and communicated on an ongoing basis. Finally, communications
are factual, open and honest.

• Correctability: The process of assigning ratings should minimize

subjective aspects. However, it is virtually impossible to create a
completely objective system because human judgement is an important
component of the evaluation process. So, when employees perceive an
error has been made, there should be a mechanism through which this
can be corrected. Establishing an appeals process through which
employees can challenge what may be unjust decision which is an
important aspect of a good performance management system.

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• Standardization: As noted above, good systems are standardized. This

means that performance is evaluated consistently across people and
time. To achieve this goal, the ongoing training of the individuals in
charge of appraisals, usually managers, is a must.

• Ethicality: Good systems comply with ethical standards. This means that
the supervisor suppresses her personal self-interest in providing
evaluations. In addition, the supervisor evaluates only performance
dimensions for which she has sufficient information while respecting the
privacy of the employee.

5.3 Implementation of Performance Management –

A Perspective

Performance management is a vital component of human resource

management that ensures the effective use of scarce resources.
Performance management is a continuous process of identifying,
measuring and developing the performance of individuals or teams and
aligning that performance to the strategic goals of the organization is
Performance management has three main functions which are classified as
strategic, administrative and developmental. The strategic function links
the workers’ performance to the overall organizational strategy.
Administratively, performance management provides valuable information
to help the managers make important decisions, such as salary
increments, promotions, recognition and rewards. The developmental
function of performance management is realized through the provision of
information on the strengths and weaknesses of healthcare workers.
Performance management involves six main steps, which include having
knowledge of the job and organization mission, performance planning,
performance execution, performance assessment and performance review,
as well as performance renewal and re-contracting. Some of the key
strategies to enhance and improve the implementation aspects of
performance management systems are as under:

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• Understand the business environment impacting the performance

• Proper performance management planning
• Periodic performance review
• Objective feedback on performance
• Coaching and mentoring approach
• Adequate rewards and recognition aligned to the business strategy

5.4 Key Steps in Development and Implementation of

Robust Performance Management Strategy

• Steps in Organizational Goal Linked Performance Appraisal Model

❖ Define the mission of the organization
❖ Develop vision for the organization
❖ Set goals for the organization
❖ Set departmental and section goals
❖ Set goals for individual jobs
❖ Decide other competency parameters
❖ Measure performance against set individual goals and performance
parameters
❖ Conduct performance review discussion and feedback
❖ Performance appraisal document acts as a basis for reward

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• Understanding and communicating the key reasons for measuring

employees performance
❖ It is a means of communicating corporate objective.
❖ It is a way of synchronising departmental or team objectives with
strategic objectives
❖ Establish congruence between employees’ expectations and corporate
goals.
❖ People feel they are valued.
❖ It is doing SWOT analysis for employee.
❖ It is used as a motivation vehicle.
❖ It provides assessment of employees’ development needs.
❖ It provides information to update skills.
❖ In some organization, it is used for salary review or promotion of
employees or even transfer of employees.
❖ It forms a basis for counselling, coaching and mentoring.

• Action Planning After Goal Setting

❖ Set goals
❖ Outline major action for each goal
❖ Break each action into task

• Constraints in Linking Reward with Performance

❖ Statutory compulsions
❖ Industry wise wage boards
❖ Operative long term settlements
❖ Labour unrest in the event of such a venture
❖ Lack of mutual trust
❖ Lack of vision and innovative approaches on the part of the
management

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❖ Lack of concerted efforts and commitments
❖ Lack of system based on fairness
❖ Fear of personal authority and whims
• Insight Required to Effective Practice of Performance
Management
❖ Clarity of organizational goals
❖ Translate organizational goals into individual, team, department and
divisional goals.
❖ Rely on consensus and co-operation rather than control or coercion.
❖ Improve performance, over a period of time on a continuous basis.
❖ Encourage self-management of individual performance.
❖ Promote open and honest leadership styles that encourage a two-way
communication.
❖ Ensure continuous feedback.
❖ Monitor and measure performance against jointly agreed goals.
❖ Don’t limit linking performance only to financial rewards.
• Examples of High Performance Work Practices
❖ Self-directed work teams
❖ Job rotation
❖ High - level skill training
❖ Problem - solving groups
❖ Total quality management procedure and processes
❖ Encouragement of innovation and creative behaviour
❖ Coaching and mentoring
❖ Contingent pay based on performance
❖ Significant amount of information sharing

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❖ Use of employee attitude surveys
❖ Cross - functional integration
❖ Comprehensive employee recruitment and selection procedure
• Performance Audit
❖ Identify accomplishments
❖ Identify requirements
❖ Identify exemplary performance
❖ Measure exemplary performance
❖ Measure typical performance
❖ Assess the potential for improving performance
❖ Translate this potential into stakes - a measure of economic potential
• A Seven-factor Model for Diagnosing Performance Problems
❖ Aptitude
❖ Skill level
❖ Understanding of task
❖ Motivation
❖ Degree of effort
❖ Choice to persist
❖ Outside factors
• General Conditions of Task Performance
❖ Task clarity
❖ Task competence
❖ Task competition
❖ Task co-operation
❖ Task control

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❖ Task commitment
❖ Task charter and context

5.5 Legal and Ethical Considerations in formulation of

Performance Management and Rewards under Regulatory
Scanner

CEOs and compensation committees are increasingly concerned about

reward effectiveness and understanding the returns received for the
company’s investment in rewards. To do that they are looking not only at
benchmarked levels of remuneration for top talent, but increasingly they
are also examining the total cost of their pay bills against their
competitors, and asking the question: Are we paying too much in
aggregate?

Reward under the spotlight

The banking crisis and subsequent focus on executive pay has led to a
marked increase in the oversight and governance of reward. In particular,
the role of the compensation committee has expanded beyond the
management of executive pay to include oversight of all reward related
risks.

Increased scrutiny from shareholders, the media and other stakeholders is

leading many organizations to be more circumspect in their reward
strategies. The end result is that at a time when management is looking for
ways to be more nimble and innovative, they find themselves increasingly
constrained. Strategic planning is in danger of being crowded out of the
agenda as organizations struggle to tackle the rise in regulation and
minimize the risks they face.

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Case Study – Financial Services – Regulations a Key Driver for

Design and implementation of Performance Management and
Reward Systems

While the financial services sector has been the focus of much of the
increased regulation and scrutiny over reward practices in the wake of the
financial crisis, this survey suggests that many organizations in the sector
are taking governance changes in their stride. They may be most heavily
impacted by regulation, but they some of them were least concerned about
it. The most likely explanation is that compliance is a fact of life for these
organizations and they already have the resources and skills in place to
deal with it.

That said, most financial services organizations are changing their reward
strategy to align with their business strategy and the changed regulatory
and governance environment. Many are concerned about their ability to
attract and retain talent with increasing restrictions on reward. In an
attempt to address these concerns many are intensifying their talent
development programmes or turning to other sectors in search for skills.
As a result, organizations continue to watch their competitors’ reward
strategies carefully and place great value on external benchmarks.

Performance management is also a focus for many. Current performance

management is seen as too complex, not aligned with overall corporate
performance and weak in differentiating between high and poor
performers. Many organizations are also struggling to find ways to address
risk within the performance management process, and to incorporate non-
financial measures in the assessment of performance.

The aim for many, ultimately, is a reward approach that achieves a better
balance between short and long-term performance, between tangible and
intangible benefits and between base and variable pay. There is a strong
desire to involve line management in the process of reward and to improve
transparency of communication for employees. For the time being,
however, the issues of the day stand in the way of immediate progress.

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Reward Risk Audit

The increasing globalization of business has created an enormously

complex environment for managing rewards, with organizations juggling
with the demands of local regulation, market conditions, culture and tax
structures. This complexity will be a concern for compensation committees
struggling to come to grips with their expanded responsibilities.

Many will need to begin at the beginning, by identifying and assessing the
risks inherent in their reward programmes. A risk audit should be
conducted across the organization, to provide senior management and the
compensation committee with the information they need to make informed
decisions.

Those decisions, however, should not be solely focused on reducing risk at

the cost of innovation and competitiveness. An overly risk-averse approach
to reward can be just as damaging to performance as an unmanaged,
unrecognized risk. The answer lies in transparency and clarity from
leadership about why the organization is doing what it is doing, and how
reward strategy will drive performance.

Employee incentives can lead to unethical behavior in the

workplace

Goal fixation can have a profound impact on employee behavior, and the
damaging effects appear to be growing stronger in today's competitive
business landscape. The effects of goals and pay structure on managerial
reporting dishonesty provides valuable insight into the relationship
between pay structures and motivation. Setting compensation goals can
increase dishonesty when managers are also paid a bonus for hitting
certain targets. These unintended negative consequences can lead to
dishonesty, unethical behavior, increased risk-taking, escalation of
commitment, and depletion of self-control.

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The study points to observations of unethical behaviors in the workplace

that include employees falsifying or manipulating financial reporting
information as well as time and expense reports. E.g., Service
professionals such as auditors, contractors, lawyers, and consultants who
report hours billed against a target budget is often based on a fixed
contract price. This causes potential for both under-reporting and over-
reporting costs, which can undermine organizational objectives and
negatively impact the interest of the firm. Using purely monetary
incentives is almost always a double - edged sword.

5.6 Activity

1. Conduct an interview with the HR department heads of few companies,

ideally in the same sector and understand the key challenges that are
involved in implementation of a robust performance management
system for their company.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………

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5.7 Summary

In any organization, the performance management system is meant to

serve the key purpose which includes, strategic, administrative,
information, developmental, maintenance and documentation purpose.

An ideal performance management system should have key characteristics

that should demonstrate congruence with the strategic vision,
thoroughness, practicality, meaningfulness, specific to the organizations
business, ability to identify and differentiate performance effectiveness,
reliability, acceptability by the key stakeholders, fairness towards
employees, inclusiveness, openness, ability to include corrective measures
and coarse corrections, ability to scale - up and standardize, compliance
with ethics inter alia.

In the process of implementation of the performance management

framework the key aspects to be considered include, understanding of the
business environment impacting the performance, proper performance
management planning, periodic performance review, objective feedback on
performance, coaching and mentoring approach, adequate rewards and
recognition aligned to the business strategy.

5.8 Self-Assessment Questions

1. Highlight and explain with examples the key steps involved in

development of a robust performance management system.

2. Explain the key challenges involved in design and implementation of a

robust performance management system in an e-commerce based
organization.

3. Highlight the key steps involved in execution of the performance

management system audit.

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5.9 Multiple Choice Questions

1. Which of the following is not likely to be an important step in the

performance management audit planning purpose?
(a) Identify accomplishments.
(b) Identify the requirements.
(c) Exclude the exemplary performance.
(d) Assess the potential for improvement in performance.

2. Which of the following is least likely to be a key constraint in the process

of linking reward with performance in an organization?
(a) Robust Management commitment.
(b) Statutory compulsions.
(c) Industry wage boards and regulations.
(d) Lack of mutual trust.

3. Which of the following is most likely to be the first step in the process of
organizational goals being linked to performance appraisal model?
(a) Set the goals for the organization.
(b) Develop a vision for the organization.
(c) Define the mission for the organization.
(d) Decide other competency parameters.

Answers: 1.(c), 2. (a), 3. (c)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 6
Strategic Imperatives In Performance
Management And Reward Systems

Objectives

After studying this chapter, you will be able to:

• Gain an insight into the key strategic imperatives involved in the
performance management and reward systems
• Understand the linkage of overall HRM and performance management
• Understand how to align the performance management decisions with
business strategy

Structure:

6.1 Background and Overview

6.2 Linking HRM and Performance Management

6.3 Insight into Key Strategic Imperatives

6.4 Aligning Performance Management Decisions with Business Strategy

6.5 Activity

6.6 Summary
6.7 Self-Assessment Questions

6.8 Multiple Choice Questions

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6.1 Background and overview

Before we start understanding the strategies’ issues in performance

management in an organization, it is important to address some of the
following key questions:

• What makes some businesses more successful than others?

• What is today’s key competitive advantage?

The answer is very obvious, i.e., people. Organizations with motivated and
talented employees offering outstanding service to customers are likely to
get ahead of the competition, even if the products offered are similar to
those offered by the competitors. Customers want to get the right answer
at the right time, and they want to receive their products or services
promptly and accurately. Only people can make these things happen. Only
people can produce a sustainable competitive advantage. Performance
management systems are the key tools to transform people’s talent and
motivation into a strategic business advantage.

Performance management is a continuous process of identifying,

measuring and developing performance in organizations by linking each
individual’s performance and objectives to the organization’s overall
mission and goals. Performance management is critical to small and large
organizations – for-profit and not-for-profit, domestic and global – and to
all industries. After all, the performance of an organization depends on the
performance of its people, regardless of the organization’s size, purpose or
other characteristics.

Unfortunately, however, if they have one, few organizations use their

existing performance management systems in productive ways.
Performance management is usually vilified as an ‘HR department
requirement’. In many organizations, performance management means
that managers must comply with their HR department’s request and fill out
tedious, and often useless, evaluation forms. These evaluation forms are
often completed because it is a requirement from the ‘HR cops’.
Unfortunately, the only tangible consequence of the evaluation process is
that the manager has to spend time away from his or her ‘real’ job duties.

A manager is responsible for the application and performance of knowledge

– Peter F. Drucker

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Strategic Imperatives in Performance Management and Reward

Systems

Across all sectors and regions, organizations are struggling to rebuild

profitability following the recession. With revenue growth hard to come by,
they are focusing on cost containment and performance improvement as
the paths to profit growth. This requires them to balance four, often
conflicting, challenges: cost containment, performance improvement,
talent engagement and risk management.

Cost Containment Talent Engagement

Profit
Growth

Performance Improvement Risk Engagement

Fig. 6.1

In particular, the tension between cost containment and talent engagement

was a very strong theme to come out of the research. Organizations are
very concerned about retention and motivation, particularly for top
performers, high potentials and those with scarce skills. However, the
option of paying more for retention or performance is often no longer
available and companies are focusing more on intangible rewards (such as
motivational leadership, challenging work and career development) to
boost engagement.

Example ― Key insights into issues with performance management

system in government organizations in India.

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Key Issues in Performance Management in Government

Issues at Absence of quantification of targets and evaluation against

Individual achievement of targets
Level
Unclear performance standards
Neglect of job fit in appointments, and frequent transfers
Lack of mechanism to motivate for good performance
Absence of appropriate punishment/reward mechanisms
Absence of clear linkages between individual, organizational
and programme performance
Issues at Funds granted to ministries are never linked with progress of
Ministry/ work or the targets set out in the performance budget
department
Lack of clarity regarding purpose and objectives of action plans
Level
Inability to measure performance in the absence of appropriate
indicators
Issues at Most PSEs rated excellent or good despite declining
Public performance
Enterprise
Tendency of PSEs to show profits in the short-run by sacrificing
Level
long - term interests
Lack of scope for true negotiation
No mechanisms to enable the movement of accountability to
lower levels
Issues at Focus on inputs and process compliance neglects the outcomes
Programme/ and impacts
Project Level
Lack of measurable indicators
Dichotomy between plans and budgets

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6.2 Linking HRM and Performance Management

The performance management perspective stresses the need to align HRM

practices with the aim of affecting employee and organizational
performance. Thus, an integrated set of HRM practices is central to
performance management. The relationship between HRM and (firm)
performance has been the topic of a heated debate over the last decade.

Although significant progress has been made in unravelling the links

between HRM and performance, several theoretical and empirical problems
remain. Most studies suffer from methodological limitations. For example,
many are conducted at a single point in time (cross-sectional). Most use
single respondents (mostly HR managers) as their source of information.

They tend to focus on the managerial view and seldom assess the
employees’ perspective. Often sample sizes are limited. Also, the
theoretical foundation for how and why measured HRM practices might
affect performance is not always clear.

In modelling the relationship between HRM and performance, HRM

practices are typically expected to increase employees’ organizational
commitment and motivation, which in turn affects employee performance
and ultimately organizational performance.

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Fig. 6.2

6.3 Insight into key Strategic Imperatives

Many organization view performance management through a narrow lens.

The tactical and transnational aspects of performance management often
overshadow its strategic role. All too frequently, performance management
is viewed primarily as a tool that aids in compliance with certain critical HR
processes including goal setting, mid and year-end reviews, etc., that help
to ensure the balanced distribution of compensation and other rewards.

As a result of this narrow perspective, companies overlook the greater

opportunity to leverage the power of performance management as a
business management tool that aligns decision making deferentially across
various roles, reflects the unique aspects of the business model and
culture, and considers the risk profile of the industry. By ignoring these
facets of performance management, companies are missing out on
opportunities to generate economic value. Because they have limited
visibility into the value of different employee groups and roles,
organizations will often opt to spread HR investments equally across
organizational units.

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Example ― Investing a comparable amount in critical skill employees as in

employees whose skills contribute less economic value.

Companies also face similarly negative consequences when key

performance management activities such as goal setting are not aligned
with a company’s vision and business model. For instance, a company
focused on delivering a superior customer experience may fall short of
achieving this objective — and realizing the corresponding economic value
— if it uses a rigid top-down approach to goal setting that fails to take into
account the unique demands of different customer segments. Lastly, value
is also lost when organizations fail to fully consider the implications of their
industry’s risk and performance tolerance.

Example ― A computer chip manufacturer that uses too broad a range of

performance goals faces a significant risk that its product will not meet the
tightly defined set of quality standards demanded by customers and it will
lose significant market share as a result of the variance in its product
quality.

But not all companies are ignoring the power of performance management
as a business management tool. Our work reveals that a number of
organizations are making strides in aligning performance management with
their companies’ business drivers. These players routinely analyse how
variances in business models and risk tolerance can influence the
performance requirements placed on different employee segments. This
knowledge enables these organizations to better calibrate performance
management to get the best return on their HR investments and achieve
their strategic priorities.

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6.4 Aligning Performance Management Decisions with

Business Strategy

Unlike many HR processes, performance management has a direct and

often missed connection to a company’s business strategy and key value
drivers. While much has been written about cascading goals and the
importance of aligning individual key performance indicators (KPIs) with
business objectives, research would suggest there is plenty of room for
improvement.

37 per cent of the global employee sample gave either a negative or

neutral response when asked if they understood their company’s business
goals. A similar percentage (38 per cent) gave either a negative or neutral
response when asked if they understood how their job contributes to their
organization achieving its business goals. Moreover, in companies that do
attempt to align individual KPIs with broader company objectives, the
process of cascading goals is often purely a strategy agnostic, financial
exercise. While financial goals may be relevant to executive leaders, they
often have minimal relevance to employees at lower levels.

High performing companies emphasize specific cultural attributes based on

their chosen strategy. Some of the key attributes are as under:

• Efficiency: An organization focused on efficiency seeks to attract and

retain talent that is productive in a way that optimizes processes,
technology and resources. Key characteristics of this type of organization
include an emphasis on comprehensive training in basic processes and
very precise role descriptions accompanied by disciplined workload
allocation. In terms of performance focus, the ‘what’ weighs more heavily
than the ‘how’ in an 80/20 ratio. An efficient organization values top -
down goal setting and quantitative performance metrics.

• Quality: A quality organization looks to focus its workforce on

excellence, precision and continuous improvement. Employees in this
type of organization are empowered to improve processes and share best
practices. A quality driven company typically relies on multi-rater
feedback systems, including peer reviews and top-down metric-driven
goal setting. While the what weighs more heavily than the how in
performance assessment, it does so to a lesser degree (60 per cent what

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versus 40 percent how) than in an efficient organization. The tolerance

for performance variance is typically minimal.

• Innovation: An organization that prioritizes innovation requires its

employees to be entrepreneurial, creative and proactive. Its culture
encourages diverse thinking and supports risk taking. The emphasis is
typically on competency-based goals (the how) that are aligned with the
company’s long term vision. In this type of organization, there is a
tolerance for wide performance differentiation and less formal top-down
goal setting.

• Customer Service: A service oriented organization seeks talent it can

empower to build strong customer relationships. It promotes teamwork
and focuses on long-term development. There is strong support for
information sharing, which results in an improved understanding of
customer needs and preferences. Because there is significant
performance differentiation in this type of organization (as a result of its
continuous pursuit of individual excellence), it is important to identify top
performers. Goals aligned with customer requirements are typically set
on a unit specific basis to recognize differences in customer
requirements.

• Brand: An organization pursuing a brand strategy seeks employees

capable of serving as its brand ambassadors. These employees focus on
building a community in which there is deep pride in the brand and a
strong belief in the product. A brand-focused organization emphasizes
team-based goals aligned with its vision and typically relies on a multi-
rater feedback system, which includes peer reviews.

These cultural attributes have significant implication for all aspects of

performance management, including determining the types of goals to use,
how targets are set, the degree of variance between targets across a given
employee population, etc. Yet it is rare for an organization to start with the
cultural attributes required to execute its strategy when it thinks about
designing its performance management process.

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Illustration of How Performance Management and Reward Strategy

is implemented through Series of Initiatives

Wondering how to reward an employee for a job well done? While you
might think employees only want monetary rewards or promotions to
celebrate success, workers also appreciate public recognition for their wins.
A simple ‘great job!’ or ‘thanks for the hard work!’ can be enough to
encourage employees and make them feel appreciated.

1. Give Out Prizes at Company-wide Celebrations

People love variety and surprise. For all celebrations, some play Spin the
Wheel. Prizes can be anything from small gift cards to big gifts like a new
iPhone or dinner for two at a fancy restaurant. We believe in the power of
gifting an experience. Money will be spent, but the experience will stay
with them forever. Companies give managers a budget for discretionary
experience gifts.

2.Use Your Company Communication Platform

We believe recognition should come from all levels of the organization, not
just from the top down. That’s why we created a channel on Slack where
anyone in the company can easily share wins and recognize others’
achievements with the entire office, making everyone a part of our culture
of recognition.

3. Give Continual, Spontaneous Positive Feedback

Formal employee recognition programmes are common at large companies
and definitely have their place, but they can become just another thing to
add to the ‘to-do’ list. Creating a culture of consistent, in-the-moment,
positive feedback and recognition during meetings, presentations and
everyday communication can have an even greater impact on employee
retention and foster a positive work culture.

4. Make Shout-outs a Part of your Regular Team Meetings

Build your team and culture around core values. Every week at our all-
team meeting, we start with core value shout-outs and open the floor for
recognition of outstanding team members. It’s great to be seen and
celebrated by your peers and leaders, and this format keeps it timely and
authentic.

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5. Have a Monthly Peer Nominated Award

Our Employee of the Month isn't chosen by me but by team members.
Every month each employee nominates someone that stood out to them
and shares why. When we select the winner, we anonymously share the
feedback and they get a monetary reward. As CEO, I don't personally see a
lot of the day in, day out of each employee. Peers see a lot more of that,
so a reward from them is very meaningful.

6. Thank The Employee's Family Members

We spend the majority of our waking hours at work, sacrificing time from
our families and giving to our companies in countless ways. Inviting family
members to recognition events and company parties are table stakes, so
next time you want to recognize an employee, pick up the phone and call
their significant other and thank them for allowing you to have their loved
one contribute to your company.

7. Set Specific Goals and Celebrate When they're Achieved

Set specific and measurable goals and when they are accomplished,
celebrate with fun outings like happy hours, sports games or concerts. You
can also try creating an email alias that goes to a particular team for peers
to recognize one other. Create an award to celebrate and recognize teams
going above and beyond and living the company values.

8. Recognize Employee Wins On Social Media

In any business, it is important to recognize the achievements of your
employees and create an environment appreciating their efforts. When a
team member has a ‘win,’ post their accomplishment on the company's
social media account. Sharing their wins on your social platforms will have
your employee feel recognized not only by their immediate team but users
who follow your accounts as well.

9. Amplify Your Employees' Celebration of Each Other

Empowering employees to celebrate each other has a big impact. Tools like
Slack make it easy for frequent and spontaneous high-fives. My employees
congratulate each other's successes through GIFs, emojis and creative
encouragement that I can then amplify. This creates a culture in which
staff members are accountable to each other and are doing great work for
reasons other than just to impress me.

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10. Take Advantage of Points-based Employee Engagement

Platforms
We recently integrated a platform that allows employees to recognize one
another for their ‘wins,’ big and small. So, whether they hit a record month
in sales or took out the trash in the office kitchen, our team members are
able to allocate points to one another, which can be redeemed for small
gifts. It's a great way to foster team engagement and encouragement. -
Michael Mogill, Crisp Video Group.

11. Focus on Organizational Achievements

If you're constantly recognizing employees for every achievement, you'll
see a drop-off in productivity and employee development. You don't need
to throw a party for people who are successful in their jobs ― that's the
expectation and that's why you give them money. Recognize every
organizational win publicly instead. Build a sense of pride in your company,
and people will keep pushing.

Case Study in Alignment of Performance Management Framework

with Business Strategy

FTSE 250 – member IG Group is a provider of financial spread betting and

derivatives trading. It employs fewer than 1,000 people. Over the past 18
months, it has customized its HR software, linking it to its financial
systems, to provide a more performance-related approach to staff ratings
and pay reviews.

They were funnelling the information down to individual sales and they
could see if a new account has made a difference to profitability. There is a
lot of healthy competition, but people share ideas which impact on their
draw. They have tried to engender in IG a sense that it is a group effort, as
95 per cent of our employees are covered by the same bonus pot.

While the traders and other front office staff are in the 'firing line' in terms
of revenue generation, the HR team ensures the vital contribution to
corporate success of back office staff is appreciated. Around one third of
IG's staff – 350 people – work in IT and the company invests heavily in the
area, as it believes it is a competitive differentiator and long-term driver of
profitable growth. Approximately 40 IT staff work on mobile platforms,
such as the creation of an iPhone spread betting app.

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IG's figures speak for themselves. In a given financial year they saw a 7.3
per cent rise in trading revenue to £320 million and 13.5 per cent leap in
active financial clients to 117,252. Staff shared a performance-related
bonus and commission pot of £18 million.

6.5 Activity

1. Select five companies in a particular sector, document their key business

strategy and seek insights into their performance management
framework. Assess whether the company’s performance management
framework is in alignment with their business strategy.
.........................................................................................................
.........................................................................................................
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6.6 Summary

In challenging economic times, amid market volatility, certainties are thin

on the ground. But when the going is tough, one thing we can be sure of is
that employers will need to maximize the return they get from their staff.

If employers are to succeed in aligning performance management strategy

with the business, they need the right tools. Today's performance
management solutions provide a complete suite of competency
measurement tools – i.e., more than just performance reviews and
appraisals. They should help employees understand how they can develop
skills and talents – even better, if they are linked to learning resources.
Technology is a valuable enabler, but commitment and buy-in from the top
- down are essential for a high-performance culture.

All too often, employees in the challenging economic climate, see

performance management as little more than a box-ticking activity. The
problem is many employers can't see a personal incentive to achieve
stretch goals with pay freezes and training budgets being squeezed to their
limit. Line managers need to re-engage with their staff to regain their trust
and commitment.

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There is a split among organizations – and indeed different groups within

organizations. There are those managers who invest time and effort in
regular, high-quality performance discussions, and those who just see it
going through the motions. Frequently, the quality of the performance
process is related to the culture of the organization or the particular
division within the organization.

If performance management is taken seriously within the senior team and

they lead by example, then this tends to cascade through the organization.
In organizations where the process is HR driven and senior management is
not committed to performance management, it tends to be more of a box-
ticking exercise.

The five key ‘Performance Management Framework’ elements are: setting

SMART targets; monitoring and evaluating 'what' colleagues achieve and
'how' they achieve it; ensuring colleagues are supported to achieve;
determining an overall rating annually on performance; and agreeing and
supporting training and development needs.

6.7 Self-Assessment Questions

1. Highlight the key attributes of a performance management framework

that is aligned to the evolving business strategy.

2. You are the head of HR for one of the large e-commerce company,
where the long - term business strategy and short - term business
strategies are under constant evolution. What are the key steps that
you are likely to initiate to ensure that the performance management
framework of the organization is fully aligned to the dynamic business
strategy?

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6.8 Multiple Choice Questions

1. Which of the following is least likely to be an important attribute of a

performance management framework that is aligned to the business
strategy?
(a) Focus on efficiency.
(b) Focus on quality.
(c) Tick in the box exercise driven.
(d) Includes customer focus and innovation.

2. Which of the following HRM practices have a complete linkage with the
performance management framework?
(a) Selection.
(b) Training.
(c) Job design.
(d) All of the above.

3. Which of the following is not a financial outcome expected from the

performance management and strategy alignment?
(a) Improve morale and reduced attrition.
(b) Return on investment.
(c) Value creation for shareholders.
(d) Profitability.

Answers: 1.(c), 2. (d), 3. (a)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 7
Overview Of International Performance And
Rewards Management
Objectives

After studying this chapter, you will be able to:

• Gain a broader perspective of international performance management
• Understand the methods and approach adopted for evaluation of
performance of employees spanning multiple generations
• Gain an insight into the checklist of best practices for multi generational
recognition and reward programmes
• Gain a perspective on best practices adopted internationally for
recognition and rewards programmes

Structure:
7.1 Overview of International Performance Management
7.2 Characteristics, Needs and Preferences of Multiple Generations:
Defining and Applying Psychographics
7.3 Categorization of Employees for Defining the Reward Systems
7.4 Best Practices in Recognition and Reward Programmes for Multiple
Generations
7.5 Checklist of Best Practices in Multi generational Recognition and
Reward Programmes
7.6 Performance Management Framework – Recommendations of
Organization for Economic Co-operation and Development (OECD)
7.7 Activity
7.8 Summary
7.9 Self-Assessment Questions
7.10 Multiple Choice Questions

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7.1 Overview of International Performance Management

With four generations working side by side in many organizations, the need
to recognize multi generational characteristics in the workplace has never
been greater. Propelled by an increasing retirement age and high labour
market competition due to talent shortage, understanding intergenerational
dynamics has become an imperative to many leading organizations.
Growing evidence shows, and forward-thinking managers know, that there
is a direct link between addressing age diversity in the workplace and
achieving success in several dimensions of business performance.

According to the Sloan Center on Aging and Work, aligning an age diversity
strategy (that is, programmes and policies that are inclusive of different
generations within the workplace) with the organization’s mission and
values can help employers enhance employee recruitment, retention, and
engagement, and improve organizational culture and customer service.

Individual Outcomes – of a Multi Organizational Outcomes – of a

-generational Recognition and Multi - generational - Recognition
Rewards and Rewards
Strategy (Person - Centric) Strategy (Business - Centric)
Improved workplace experience Increase in sales and profitability
Needs are better fulfilled through Cost savings
targeted approach
Increased loyalty to company because Increase in productivity
of feeling ‘understood’ and ‘cared for’
Improved workplace motivation Improved customer service
Stronger sense of team cohesion Increase in quality
Improved relationship with supervisor Decreased turnover
Improved business image
Table 7.1

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To human resource managers, the demographic and social shifts of the

workforce represent both a challenge and an opportunity. On one hand, the
increasing generation gap often creates tension among employees’ wide-
ranging experiences, perspectives, expectations, priorities and work styles.
Conflicts, frustration, and poor morale arising from age differences are
common in the workplace and can generate a lack of engagement at the
individual level as well as, damage the workplace culture at the
organizational level. Alternatively, multigenerational representation in the
workforce offers unique opportunities to leverage the diversity in
knowledge and skills of all employees. In this capacity, reward and
recognition programmes play a fundamental role. By capitalizing on the
strengths and values of different generations, recognition programmes can
realize the full potential of an organization’s talent pool and create an
enduring competitive edge.

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Fig. 7.1

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Most importantly, we must emphasise that simply comprehending

generational demographic preferences is not enough. In addition to the
typical age, race, and gender breakdown in the workforce and work style
proclivities across generations, companies need to understand the unique
psychographic characteristics of their population. Psychographic data
typically provides insight into the attitudes, lifestyle, personality, and
values of an individual or group. Without some understanding of these
characteristics among your workforce, companies can unintentionally
devalue their rewards and recognition programmes. Employees may feel as
if leadership lacks authenticity behind their actions – or worse, that the
organization does not even have a basic comprehension of the people who
essentially ‘make the company run.’

People of all ages have much in common, on a fundamental level, and also
with respect to expectations about the workplace and work experience.
Regardless of age and type of work, people consistently rank family,
integrity, love, spirituality and happiness as top priorities. In the workplace,
employees across all age groups share a fundamental desire for flexibility
and a supportive work environment, as well as a need for career
development and commitment to their organizations. The intergenerational
differences come into play in subtle ways, which can cause substantial
harm if not understood and managed. For instance, employees from
different generations usually have different perspectives on issues like
leadership, authority and work ethics. They also tend to differ with respect
to learning and communication styles, recognition preferences, and work-
life balance needs, all of which are psychographic characteristics.

Let us evaluate the similarities and differences as under:

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Similarities Differences
Core values Recognition preferences
Desire for flexibility Communication style
Desire for supportive work Work-life balance needs
environment
Commitment to organization Learning style
Need for career development Perspectives on leadership, authority
and work ethics
Fundamental need for recognition Desired rewards
Need to maintain loyalty to a specific
employer
Perspectives on how and when to
socialize during (and outside of) work

7.2 Characteristics, Needs and Preferences of Multiple

Generations: Defining and Applying Psychographics

While it is important to avoid stereotyping people from different age

groups, the concept of ‘generations’ provides some general insight into the
values and expectations of different individuals in the workplace.
Individuals from different generations have lived through shared
experiences – including significant events, advancements, and
circumstances – which collectively shape their approach to work and life.
For example, the baby boom generation (1946–1964) grew up in a post-
world war era of rebuilding economies. As a result, this cohort developed
strong work ethics and team orientation. On the other hand, the millennial
generation (1980–2000) grew up in the fast-paced internet era, defined by
unprecedented global interconnection. This shared context led this group to
develop unique technology savviness and the ability to multi-task, as well
as a strong sense of collective action. Following table is a summary of key
shared traits of each generation, along with the unique motivators, needs
and preferences that they present on recognition, rewards and
communication in the workplace:

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World War
Baby
II Generation X Generation Y
Components Boomers
(Before (1965–1980) (1980–2000)
(1946–1964)
1946)
Optimism,
Experience, Independence, ability
stability, Team adaptability, to multi task,
loyalty, perspective, tech tech
Defining emotional service literacy, orientation,
Characteristics maturity, orientation, creativity, social
focus, experience, willingness to responsibility,
dedication, knowledge challenge drive to
perseverance status quo learn and
grow
Flexible,
Motivational,
Democratic, informal,
collaborative,
Directive, fair, mission direct,
Leadership positive,
consistent, oriented, competent,
Style structured,
respectful, warm and results
Preferences achievement
clear, logical caring, equal oriented,
oriented,
treatment supportive,
coaching
genuine
Tangible
Free time,
symbols of
opportunities Awards,
loyalty,
Personal for certificates,
commitment
appreciation, development, tangible
and service,
promotion, upgraded evidence of
including
recognition. resources, credibility.
Rewards and plaques and
Help with certifications Immediate
Recognition certificates.
retirement to add concrete and
Preferences Flexible work
planning, to resume. tangible
hours,
sabbaticals, Skill awards,
temporary
training on development, similar to
work,
technology flexi work those desired
hourly shifts
schedules, fun by Gen X
if close to
activities
retirement

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Phone calls, Instant

Memos,
personal E-mail, messages,
Communication letters,
interactions, voicemail, text
Preferences for personal
face-to- casual, direct messages, e-
Recognition notes,
face, and mail,
Delivery individual
structured immediate collaborative
interactions
networking interaction
Table 7.1

7.3 Categorization of Employees for defining the reward

systems

For recognition and reward purposes, this map could be used to determine
which types of rewards and which forms of recognition would be most
valuable based on individual personality characteristics. In general, the six
families are characterized as the following:

• Protectors: They view workplace services as part of their employee

entitlement and are averse to change and very defensive when their
routines are altered or their organization frame of reference is disturbed.
In terms of rewards and recognition:
❖ They need structure and predictability of rewards programmes.
❖ Rewards must be functional and of value.
❖ Rewards and recognition should be equitable across the company.

• Achievers: They are often in multi-tasking mode and are concerned

about how they can progress within the company and reach their
professional goals efficiently and in due time. In terms of recognition and
reward:
❖ The way recognition and rewards are presented are as important as the
rewarded behaviour itself.
❖ Rewards must be able to be redeemed quickly and efficiently.
❖ They expect very high value of the rewards pool the company is
offering.

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❖ Recognition and reward strategies must be uniquely tailored to this
group.

• Freestyles: They tend to go by their own tune and rhythm, are good at
working in teams that are formed and dissolved according to their needs,
and work according to projects rather than fixed schedules. In terms of
recognition and reward:
❖ Rewards programmes should have a wide variety of choices.
❖ Some participants may elect to “save up” for an experiential award –
like a mini vacation.
❖ Recognition should be varied, with an emphasis on authenticity.

• Networkers: They socialize and interact with colleagues and look for
ways to facilitate the quality of relations and exchanges among people
who work on-site. In terms of recognition and reward:
❖ The programme must meet the needs of the entire group.
❖ On-site recognition strategies should facilitate the quality of relations
and exchanges.
❖ Participants might prefer group rewards that create shared experiences
and allow time for social interactions.
❖ Some special rewards should offer an element of “entertainment” in
order to recognise the high value placed on rewards; for instance,
providing a wellness day event with demos, booths, giveaways, etc.

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Fig. 7.2

• Traditionalists: They are very loyal to their employer and need to feel
valued and protected by their employer as compensation for their strong
corporate engagement. In terms of recognition and reward:
❖ The recognition and reward strategy must support the company’s
image and reputation.
❖ There must be a large choice of delivery systems and offers for
rewards.
❖ ny services provided as rewards should demonstrate that the company
is rewarding staff for the effort they put in, e.g., subsidized meals,
concierge service.
• Realists: They are experienced buyers, have a sixth sense to detect
value and price-to-quality ratios, need to “renew and refresh” themselves
during breaks, and strive to effectively balance their work/life priorities.
In terms of recognition and reward:
❖ They appreciate rewards options that hint at a bit of decadence, like
gift cards for a coffee shop, a dessert store, or high-end shopping.
❖ They prefer when recognition is impactful, but not drawn out and
overly flashy.

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❖ They appreciate rewards that make sense for the environment and/or
individual well-being.

Performance Management of Expatriates

360-degree feedback – also referred to as multi-rater or multi-source

feedback – is the process whereby individuals receive feedback from a
variety of stakeholders about the way they carry out their jobs.
Performance feedback is typically collected from colleagues, direct reports,
line managers, internal and external customers, as well as the individual.
The rationale behind such multiple evaluations is that an individual obtains
a breadth of information which would not normally be available, and that
other people, beyond the immediate line manager, who observe or
experience an individual’s behaviour are in a strong position, and in some
aspects uniquely qualified, to evaluate it. 360-degree feedback was
introduced initially for development purposes, and in this context the aim
was to provide constructive feedback, greater awareness and,
consequently, individual growth and performance enhancement, leading
ultimately to organizational development and change. Although this is still
one of its main functions, more recently it has been used to improve
decision-making in performance appraisal, pay determination, succession
planning, job placement and downsizing.

Cultural differences affect not only how the process is viewed and whether
it is accepted but also the rating and feedback processes as well. Any
system which delivers assessments across hierarchical boundaries may be
problematic or even offensive in countries with high power distance and
low levels of openness, such as China, Japan, Korea, Mexico and India. For
example, the respect for authority generally in high - power distance
cultures, together with more specific cultural values, such as the
importance of saving face in certain Far Eastern countries, might create
concern for both the relevance and appropriateness of subordinate
feedback, and result in overrating from subordinates.

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Use of 360-degree Performance Appraisals

• Employee development
• Performance appraisal
• Performance management
• Training need assessment
• Evaluation of training
• Attitude survey
• Organizational climate survey
• Customer satisfaction survey

How 360-degree Performance Appraisal Conducted Key Steps

• Develop questionnaire
• Ensure confidentiality of participants
• Provide training /orientation
• Administer the feedback questionnaire
• Analyse the data
• Develop and distribution result

The Steps in the 360-Degree Assessment Includes

• Identify and define the key competencies for organizational success
based on the organization.
• Express the key competencies as attitudes against which participants
can be assessed.
• Select the person to be evaluated –peers, customers, subordinates,
manager, and so on.
• Compile the result. Feedback is to be kept confidential.
• Provide feedback to the individuals.
• Create an action plan to improve the individuals performance.

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• The Procedure for Conducting 360 Degree Appraisal are as Under

❖ A questionnaire is developed which includes from 50 to 100 items to
measure different dimensions of job performance such as
communication, teamwork, leadership, initiative, judgement, etc.
❖ Steps must be taken to maintain strict confidentiality of feedback
results, For example, feedback rating from several subordinates may
be combined averaged to mask the identify of an individual
subordinate.
❖ Training a 360–degree appraisal is to be given to all employees and
why it is being implemented in an organization.
❖ Feedback to employees could be provided through printed forms or
post the form in company website for easy access to employees.
❖ Analysis of data may include performance dimension summary
performance vs expected individuals item ratings, item ratings
performance vs expected highest or lowest rated items (shows
individual strengths and weakness) and recommendations for
development.
❖ Feedback should be shared with the employee it should not be
mandatory that the employee share the results with their managers.
• Use 360-degree Performance Appraisal to ―
❖ Set clear, specific goals
❖ Establish measurement to determine outcomes and results
❖ Evaluate the degree to which outcome and results were achieved
❖ Determine based on performance what reward is to be given
• Use 360-degree Feedback to ―
❖ Identify the skills, competencies behaviours and practices needed to
successfully achieve performance criteria.
❖ Measure proficiencies in skills, competencies, behaviours and practices.
❖ Assess where improvement is needed to achieve performance criteria.

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❖ Create targeted development plans that increase capabilities and
performance.
❖ Assess what environment will bring out the best result from the
employees.
• Merits of 360-degree Feedback
❖ Provide a well-rounded view
❖ Avoids individual bias
❖ Can have more impact than a single source
❖ Can establish consensus
• Demerits of 360-degree Feedback
• Responses from colleagues and external customers may be biased or
simply the result of trade-offs.
• It ignores performance in terms of achieving goals.
• The rate may deny the truth of negative feedback.

Rethinking Performance Management can Help Drive Business

Success

Employee performance management is undergoing a crisis of confidence at

the moment. Some multinational companies, frustrated by a lack of
results, have scaled back the whole process. But rather than scrap it, I
think we need to deal with its fundamental problem: the wrong belief that
performance management is a single process able to achieve multiple,
highly distinct outcomes. By deconstructing performance management into
the three separate micro processes detailed here, we can ensure resources
are used efficiently, our strategies have impact, and, ultimately, our
business is a success.

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1. Define, Reward, and Align Contributions

A never-ending issue with performance management is that tasks, such as

appraisals, are done being blind to business needs. It’s rare for
organizations to cascade their goals. By which I mean business targets are
aligned to the targets of the department, which are aligned to the targets
of the individual.

This process enables employees to understand their performance rewards,

because they have a clear knowledge of what the organization is aiming to
achieve, and how their work affects it. It ensures performance targets are
effective in terms of both employee and business growth. When goals don’t
cascade, we see a breakdown in employee engagement. This was
highlighted in a Willis Towers Watson report on modernizing the employee
value proposition.

Based on two surveys that collected opinions from over 2,000 employers
and 31,000 employees, nearly half (45 per cent) of employees complained
there was no clear link between their work performance and pay. It’s,
therefore, unsurprising that a similar number (50 per cent) reported that
their organization did a poor job of explaining the performance
management process. So how can we set these cascading goals
effectively? It goes beyond simply emailing the company goals to all staff
on a regular basis. Talent management programmes should enable
employees to view the connections between their own goals, team goals,
and the corporate strategy.

Line managers should receive effective training on how to execute their

performance management responsibilities, including a clear understanding
of these cascading goals, and the need to deliver prompt and constructive
feedback.

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2. Support Continuous Feedback

Another issue with many performance management programmes is that

they restrict feedback to specified times, such as an end-of-year review.
Yet, the world is fast-paced. Projects frequently end in months, rather than
years, making ongoing feedback paramount. It shouldn’t be restricted by a
performance cycle. A continuous feedback system is far more likely to
create engaged employees, which feeds right into business success. At this
point, I imagine alarm bells are ringing in terms of time management. It’s
the obvious reason why this type of feedback system isn’t more common.

One multinational professional services company estimates that just their

traditional performance management process eats up two million hours of
manager time per year. So, what would that figure be like if there was even
more feedback? Yes, it sounds a lot. But, is this really the case? In the
Willis Towers Watson 2016 Global Talent Management and Rewards and
Global Workforce Studies, 53 per cent of managers reported spending far
less time on employee performance management than the ‘two million’
figure may imply – just four hours or less per employee per year.

The fear that more feedback means more paperwork is real though, even if
it does deliver more engaged and driven employees. So, how can we offer
more feedback without creating more work? This is where new
technologies come in. Blockchain technologies, in particular, allow
companies to build a system that allows real-time feedback, assessment of
performance, as well as compensation decisions. Imagine a mobile
platform, for example, that facilitates continuous feedback. Coupled with
cascading goals, this type of system could rapidly build a high ―
performance, non-judgemental culture that drives the desired behaviors.

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3. Engage in Future Focused Development

Technology isn’t just solving problems, though. Its rapid rise is also
creating new challenges, particularly when it comes to how we work. The
traditional idea of a full-time job for life is under threat. Technological
advancement is changing how we get work done and allowing
organizations to deconstruct and disperse work across the world. Offices
are becoming increasingly virtual.

This means employers need to adapt their approach to career management

to foster employee attraction, retention, and engagement. In the Willis
Towers Watson studies I mentioned, employers who provided good career
planning tools and resources had 60% of their employees highly engaged.
Business success is, therefore, pinned on offering a performance
management system with a robust career development programme that
supports talent growth. The Middle East is one region having particular
problems here. In 2016, one-fifth (21 per cent) of workers surveyed in the
region said they received no career development discussion with their line
manager in the past year. This compares with 11 per cent globally.

So, how can we build a future focused development programme? It’s vital
that career planning discussions take place, so let’s start here. Ensure all
managers understand this role, even in parts of the company where
opportunities don’t necessarily come frequently. After all, employees don’t
have to move laterally. There are non-traditional advancement
opportunities, such as special assignments or secondments. It’s also vital
to take the time to deconstruct jobs and build them back into tasks, which
allows more control over the changing nature of work. By knowing what is
likely to become automated, for example, managers can help employees
look at roles that will offer stability and growth in the future. Finally, invest
in technologies to support such an approach including employee portals.
These can provide employees with easy access to career management
tools and resources.

Three Microprocesses, One Big Difference. The debate about how

performance management can drive business success has been going for
as long as I can remember. But, I can’t recall a time when change was
more possible than it is right now. By deconstructing that traditional view
of how to manage employee performance, I hope I’ve shown that it’s both
possible - and necessary.

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7.4 Best Practices in Recognition and Reward Programmes

for Multiple Generations

With more and more human resource leaders incorporating multi

generational strategies into recognition and reward programmes, a set of
best practices has emerged. While each organization has a particular
approach that best fits its culture and mission, successful programmes
possess specific characteristics that are aligned throughout the entire
management cycle, from planning to implementation and evaluation.

• Integrate into Overall Business Strategy: It is crucial to fully

integrate a multi-generational rewards and recognition programme into
the broader talent retention and business strategy. Formalizing the
programme and managing its performance systematically will ensure that
the necessary levels of resource and leadership commitment are in place
to enable it to deliver on its full potential.

• Set Goals and Measure Outcomes: Managers should set clear goals
and utilise specific outcome metrics with respect to the multi-
generational aspect of the rewards and recognition programme. For
example, an organization might aim to increase collaboration and
knowledge sharing among certain generational groups, or improve
engagement among other groups.

• Get Employee Input: Another powerful, yet simple practice is to

periodically survey employees on what they value and their reward
preferences. Building the recognition strategy around employees’
preferences avoids wasting resources and increases the impact of
recognition on worker behaviour. Indeed, sometimes a ‘thank you’ note
provided to the right person at the right time is of more value than an
annual formal award dinner; for other workers, having the opportunity to
save up points toward a large prize is motivating and rewarding in itself.

• Be Inclusive: Offering opportunities for recognition to all workers is also

a defining trait of successful programmes. While the type of rewards may
vary, being inclusive drives the organizational culture more effectively,
not to mention the increased perception of fairness from the workers’
perspective.

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• Be Flexible: Reconciling the diverse needs and desires of people from

different generations requires flexibility in programme implementation,
particularly as it refers to communication and recognition tactics. The key
to striking a balance between rigorous standardization and uncontrolled
variability is to prioritize a product or service mix that matches the
workforce profile, while presenting high leverage for behaviour change.

• Leverage Technology: As workforce dynamics are becoming

increasingly complex, technology has taken on a central role. Best in
class rewards and recognition programmes make extensive use of
technology, not only as a means to deliver timely and targeted
recognition, but also to enable management oversight and real-time
monitoring even in large-scale, multi-site projects.

• Evaluate and Improve: Lastly, managers should consistently evaluate

the impact of their rewards and recognition programmes, in order to
determine their value on investment to the organization, as well as
opportunities for continual improvement.

7.5 Checklist of Best Practices in Multi-Generational

Recognition and Reward Programmes

The statements below can help HR managers assess the degree to which
their recognition and reward programmes are designed to meet the needs
and preferences of multiple generations. The more statements that match
practices in your workplace, the more your organization is likely to be
effective in engaging employees of all ages.
• Approach our recognition and reward programme as a key talent
retention and development strategy.
• Have clearly defined objectives and metrics related to managing multiple
generations in the workplace.
• Ask our employees what they value and build our recognition and reward
programme around their needs and preferences.
• Offer opportunities for rewards and recognition to all.
• We are flexible in the ways we communicate with employees from
different generations.

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• We are flexible in the ways we recognize and reward employees from

different differences within the generations.
• Use technology to deliver timely and consistent recognition and rewards.
• Evaluate our recognition and reward programmes frequently and
systematically.
• Act upon the results of our evaluations to continuously improve our
programmes.
• Understand employee psychographic characteristics and realise that
there are differences within the generations.

Recognition programmes are a powerful tool to engage the workforce and

achieve business goals. Building bridges across generations and tailoring
recognition programmes according to the characteristics of each age group
impact key business indicators, such as productivity, organizational growth,
customer service, and profitability. As the make-up of the workforce
continues to trend toward increasing age diversity and as individual needs
and preferences evolve, empowering and supporting workers from multiple
generations must become a priority in human capital management.
Flexibility, effective use of technology, and systematic management are
defining features of recognition programmes that truly align all employees
around an organization’s core mission and values. When designed and
managed with age diversity in mind, recognition programmes can create a
competitive edge that endures generation after generation.

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7.6 Performance Management Framework –

Recommendations of Organization for Economic Co-
operation and Development (OECD)

Key aspects Particulars

Properties of Clearly identified and described
Output/
Contribute to achievement of planned outcomes
Outcome
Should generate information that is a basis for performance
comparisons over time or with others
Achievable in the specified time frame
Possible to monitor and assess the achievement of the
outcome
Clarity in definition and description to be easily reported
externally
Reporting Be open: Provide feedback of the results and explain the
Performance reasons for collection of information and the use to which it will
Information be put.
Be selective: Do not report all measures to everyone, so as not
to overload users with information that is not relevant to them.
Be focused: When a specific issue is under review, it is
necessary to report only the measures relevant to that issue.
Be proactive: Take action to indicate where a response or an
action is required as a result of the information being provided.
Be pragmatic: Concentrate on what can be influenced.
Be reasonable: Take or suggest action that is reasonable in the
circumstances.
Alignment with Should cover general or strategic goals and objectives for the
Business organization’s main functions and operations.
Strategy
Identification of external factors crucial to the organization
which are beyond its control and which could have a significant
impact on the attainment of general goals and objectives.
Description of programme evaluation.

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The plan is used to define or revise general goals and

objectives.
Operating Plan Operating objectives defining the targeted level of programme
implementation, i.e., outputs
Output goals expressed in an objective, quantifiable, and
measurable manner
Description of how annual goals or operating objectives will
relate to the general goals of the strategic plan
Indicators for use in assessing the value of relevant products,
level of service, and the results of each programme activity
Bases for comparing programme results with established
implementation targets
Description of the methods to be used in checking and
validating the measurements obtained.
Table 7.3
7.7 Activity

1. Study performance management practices at a large multinational

company and identify the broad practices as defined in their
performance management framework
…………………………………………………………………………………………………………………………
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7.8 Summary

Critical evaluation of performance management which begins with a

consideration of the argued importance of performance management,
moves through discussion of its inherent processes and associated key
issues, and ends with a critique of such processes and their organizational
contribution. This evaluation permits insight into why organizations adopt
performance management systems (PMS) and the challenges they face in
achieving their goal: the improvement of individual and organizational
performance. Technology and change are again broadly argued to have
driven an enhanced need for organizational performance, and consideration
is given within the final section on future issues to the emerging role of
technology within PMS.

Performance management may have a number of aims, the most common,

however, being developmental and judgemental. With reference to
performance management, financial (extrinsic) rewards relate usually to
merit or contingent pay – that is, where an element of pay is at risk and
dependent on performance, adopting performance management as the
process by which decisions on the allocation of such rewards are made.
Non-financial (intrinsic) rewards include recognition, development, and
access to other assignments, career guidance and the quality of working
life, many of which can be delivered by developmental forms of
performance management.

While performance management has typically focused on individual

performance, there is increasing recognition of the need to consider team
performance. Team working has increased in prevalence in the past 20
years because it is argued to provide a source of competitive advantage,
enabling cost reduction and improved quality, facilitating the completion of
increasingly complex organizational tasks beyond the means of any one
individual, and enabling the empowerment of employees as decision-
making is decentralized.

The best practices adopted in international performance management

include consideration of integration of Performance management
framework into overall business strategy, setting goals and measuring
outcomes, seeking the inputs from employee where applicable, promoting
an inclusiveness in the framework, leveraging the technology aspects inter
alia.

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7.9 Self-Assessment Questions

1. Highlight the key best practices that are adopted by multi national
companies in evaluating performance of multi generation employees.
Support the practices by examples.

2. Explain the importance of international performance management and

its key features.

7.10 Multiple Choice Questions

1. Which of the following is least likely to be an individual outcome of multi

generational recognition and rewards strategy?
(a) Improved work experience.
(b) Increased loyalty to the company.
(c) Improved workplace motivation.
(d) Enhanced business image.

2. Which of the following is least likely to be an organizational outcome of

multi generational recognition and rewards strategy?
(a) Increase in sales and profitability.
(b) Improved relationship with supervisor.
(c) Cost savings.
(d) Increase in productivity.

3. Which of the following is not likely to be an expectation from the

performance management and reward systems for employee falling
within the category of protector?
(a) They need structure and predictability of rewards programmes.
(b) Rewards must be functional and of value.
(c) Rewards and recognition should be equitable across the
company.
(d) They expect very high value of the rewards pool the company is
offering.

Answers: 1. (d), 2. (b), 3. (d)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 8
Rewards Management and Linkage to the
Performance
Objectives

After studying this chapter, you will be able to:

• Gain an understanding of linkage of pay to performance measurement
• Understand and gain insights into the various approaches adopted by
Indian companies to establish linkage of performance to pay
• Understand the relationship of rewards and performance
• Understand the mechanism for management of the rewards in various
organizations
• Learn the tools and techniques to differentiate performers and non-
performers
• Understand the mechanics of total rewards optimization
• Understand the approaches adopted by companies across the globe to
build an irresistible organization for employees through robust
performance and rewards framework

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Structure:

8.1 Linkage of Pay to Performance

8.2 Insight into ‘Perform and Prosper Policy’ Adopted by Corporate India

8.3 Relationship Between Financial Rewards and Performance

8.4 Relationship Between Promotion and Performance

8.5 Relationship Between Non-Financial Rewards and Performance

8.6 Other Key Factors Impacting Employee Performance

8.7 Establishment of Linkage of Rewards to Team Performance

8.8 Managing Rewards

8.9 Differentiate and Recognize High Performance and Potential

8.10 Total Rewards Optimization

8.11 Building an Irresistible Organization

8.12 Concern of Indian Companies over Annual Performance Pay Increase

8.13 Activity

8.14 Summary

8.15 Self-Assessment Questions

8.16 Multiple Choice Questions

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8.1 Linkage of pay to performance

Pay for performance is an important element of good management. The

key question here to look at is what kind of pay for what kind of
performance. Historically, the employee favour schemes designed to
reward long-term as well as short-term performance, encourage retention,
recognize special needs of an organization, be based on the achievement of
both financial and non-financial objectives, and in general create value for
shareholders.

It is possible that the pay may not at times reflect the performance
parameters. Some of the key reasons are highlighted as under:

• Many of the larger pay packages are negotiated by those being hired
from outside the organization. An outside hire is prompted by poor
performance by insiders. Bargaining power of the outsider is increased,
regardless of the performance that may be delivered later.

• Pay packages are determined on the basis of what others in comparable

jobs, regardless of performance, are being paid. This creates a natural
disconnect between pay and performance.

• Current pay often reflects past performance, not current or expected

performance.

The key guiding principles for establishment of right performance measures

are as under:
• Understand clearly what results you desire.
• Understand what benchmark (average) results would be.
• Understand the individual's ability to influence results.
• Establish clear targets for performance which warrants merit pay.
• Ensure that the measurement of results is rock solid.

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Alignment of Performance Reviews to Individual Goals of

Employees

Often called pay-for-performance (P4P), the concept is to build a culture of

top performers by aligning goals, performance, and rewards across an
entire organization. With the advent of technology, HRs in an organization
are trying to break the cycle by opting for periodical performance
assessment.

Relevance of Performance Feedback for Employees

1. Receive Feedback: It’s an opportunity to receive constructive feedback

with reference to his/her job performance on previously established
goals and the areas where improvement is required. In short, they get
to know where they currently stand.

2. Self-development: Based on the current situation, areas of

improvement can be identified, new goals can be set for the employee
along with a development (training) plan to reskill and upskill to reach
the goals.

3. Provide Feedback: Employees get a chance to openly speak about the

job performance, challenges they face and give feedback to their
supervisors. It helps them feel heard, valued, builds trust and improves
two-way communication.

4. Employee Recognition and Rewards: Best performers get better

pay, bonus and other benefits.

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Relevance of Performance Feedback for Employers

1. Assess Talent Status: It is easy to identify the under performers and

decide whether you want to retain and train them to improve the
performance or let them go

2. Increase Engagement: Employees who receive a development plan

and support from management have a high sense of engagement and,
in turn, lead to increased productivity and higher retention rates.

3. Assess Recruitment Needs: The overall statistics from the appraisals

can be used to evaluate and monitor the success of the organization’s
recruitment and induction practices.

4. Assess the Overall Training Needs: Organizations can assess

individuals and departments’ weaknesses, then identify areas which
may require additional training and support.

Pay for Performance as a Culture

Best in class organizations focus on a performance-driven rewards system

that compensates individual contributors directly proportionate to what
they achieve and what they contribute to the bottom line. It has been seen
that programmes that align employees’ compensation – merit increases,
bonuses, long-term incentives – to their performance have proven to be
very effective in driving actual performance.

Often called pay-for-performance (P4P), the concept is to build a culture of

top performers by aligning goals, performance, and rewards across an
entire organization. Motivating, rewarding, and retaining top performers is
a key business objective for any company that seeks to successfully
maintain or exceed growth expectations.

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Periodical assessment replacing annual review helps the

organization play a role in building individual careers.

The annual performance review process is evolving. Many are moving away
from the high-stakes ratings and annual conversations and making the
overall process more user-friendly for managers and employees. A regular
feedback cycle between managers and employees results in timely
corrections to behaviors, improved and ongoing development, and a better
manager and employee relationship. It also enables organizations to
reinforce what’s expected from employees if they’re to support the
company’s goals.

Employees don’t plan to stay forever in their current positions and instead
want to progress and take on more responsibility through promotions and
career advancement. A well-structured periodic assessment gives
organizations a valuable opportunity to support those employees eager for
greater challenges.

Then managers identify their team members’ career goals and plan for
future career development opportunities, such as additional training,
extension courses or new projects, which leads to more engaged teams.
Thus, periodical assessment, in turn, benefits the business, as it enhances
employee loyalty, engagement, and productivity.

Performance review coupled with technology help organizations to

lower the attrition rate.

As organizations have begun to incorporate periodical performance

reviews, they have started to rely on technology to seamlessly undertake
these processes. Learning management systems are put in place to record
and track each employees’ goals as the data is stored in an accessible
place. This helps the employee to refer to his/her goals online whenever
required. This helps to keep the goals up to date and clearly reflect on the
progress and development of each employee. In turn, the employees get to
see a clear-cut path, feel motivated, engaged and excited about their
career path, thereby continuing their association with the organization. The
same technology is accessible 24/7 via mobile phones, capturing real-time
data that is linked to specific goals and competencies/projects from
multiple sources.

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HR technology empowers managers and employees to stay aligned with

rapid changes in corporate strategic objectives due to the pace of digital
transformation and competition. Best in class organizations use HR
technology for performance conversations when the time comes to award
pay and promotions.

Management expectation of optimal outcome of the performance

management framework

1. Creates a high-performance culture with more engaged employees who

stay with the company longer.

2. The result of more frequent communication is the ability to address, in

real time, performance areas that can be improved, measured and
developed if skill gaps exist.

3. Real-time, continuous feedback encourages collaboration, gives

development discussions more meaning and provides a process for
giving and requesting targeted feedback.

Employees are looking for growth and providing continuous feedback to

them helps retain high performers by giving them dedicated career
development plans.

8.2 Insight into ‘Perform and Prosper Policy’ adopted by

Corporate India

That's the message India Inc. is sending out to employees this appraisal
season with many corporates readying to pay their top performers up to
200 per cent higher increments and bonuses than average performers.

Many leading companies across sectors, including Tata Motors, Future

Group, Flipkart, Paytm, Panasonic, Mahindra & Mahindra, Vodafone, Godrej
and RPG Group, say sharper differentiation between their best and average
lot is the only way to prevent shifting of loyalties at a time when there is a
scramble for the right talent. So, most firms particularly e-commerce
players and start-ups are rolling out bigger incentives, roles and bonuses
for their top rated employees.

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Example ― Paytm: In this high - growth phase, you have to reward your
lead people much more significantly since they are the ones driving the
growth. It motivates people to go all out. The digital wallet and e-
commerce company plans to offer its top performers up to three times
higher hikes than average performers besides bonus of up to 200 per cent
of their CTC (cost to company). Bonus for average performers would be
pegged at about 20 per cent of CTC. Paytm has set aside a $3-4 million
budget for its top performers who are also rewarded with employee stock
options and better promotions and opportunities. Top e-commerce player
Flipkart, too, will toe the pay-for-performance line.

Example ― Flipkart: By design, their philosophy works in a manner to

reward and accentuate high performance as it motivates employees to give
in their best at work. The variable bonus that an employee receives can be
as high as two times for a top performer compared to an average
performer.

Example ― Tata Motors: Brick-and-mortar firms, too, plan to reward

their top performers handsomely. The top performers are just 15-20 per
cent but contribute to 80 per cent of the business. There is a need to tell
them that they are valued. Until a few years ago, Tata Motors would fit all
its employees in an increment range of 8-12 per cent, but now the
automaker has changed its rewards plotting drastically. Non-performers do
not get an increment at all, while the average get about 10 per cent raise
and the best get 15-20 per cent, officials said. Bonus for the latter, too, is
50-100 per cent more than average performers.

Example ― Godrej Consumer Products: Consumer major Godrej

Consumer Products, too, plans to roll out hefty increments and bonuses for
its best lot to maintain retention. The differentiation between top and
average performers could be as high as 70 per cent, both in increments
and bonuses.

Example ― Aon Hewitt India-HR Consulting: On an average

increments of top performers will be almost double that of average
performers. This year the base salary increase is 10.3 per cent average
and with an average multiplier of 1.8X. So you can assume the pay
increase for the top performers to be in the region of 19 per cent this year.
The highest multipliers are 2.1X-2.2X in new age start-up companies and
in financial Institutions.

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Example ― Siemens India: At Siemens India, where the appraisal cycle

is already over, 60 per cent of employees who got a rating of 3, which
reflects average performance, got an increment of around 10 per cent. The
5 per cent talent at the top end with a rating of 5, in comparison, got
increments of up to 20 per cent.

Example ― Panasonic India: The consumer electronics would hand out

7-8 per cent hikes to its average performers, while for top performers it
would be 15-18 per cent. Top retailer Future Group follows a markedly
different strategy in that all its employees get a flat hike.

Example ― Future Group: The real differentiation, however, in terms of

performance, is in terms of the total rewards package. An average
performer stands to earn 50-60 per cent of variable, while a top performer
would get 120-150 per cent along with ESOPs and long-term incentives.

Example ― Vodafone India: There is intense competition for top talent

across industries. "While the overall labour market has expanded, the
competition for top talent is only getting more and more intense. The
company would offer 25-50 per cent higher variable pay to its top
performers compared to average employee.

Example ― RPG Group: Annual increments and bonuses reward

employees purely based on performance. The performance bonus scheme
has an accelerated benefit as you move up the performance rating table. In
addition, they also have recognition schemes.

Example ― Mahindra and Mahindra: The auto major's high performers

would get much better rewards than those in the middle.

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8.3 Relationship between Financial rewards and

Performance

Extrinsic rewards are external to the job and include elements like fringe
benefits, pay, promotions, private office space, the social climate, and job
security. Other examples are competitive salaries, merit bonuses, pay
raises, and indirect payment forms as compensatory time off.

Extrinsic rewards are often applied to demonstrate that the firm is serious
about valuing group contributions to quality. In this regard and as a
subgroup, the financial rewards include cash as bonus paid to team
members. In fact, the bonus is paid separately from the wage and salary.
On the other hand, team rewards should be used in a way that managers
can avoid destroying staffs intrinsic motivation in doing their jobs. Indeed,
the application of extrinsic rewards which are tightly related to team’s
performance can teach the members to become hungry to money and to
destroy their intrinsic interest in the job. Extrinsic rewards also drive
worker’s morale and the distribution of these rewards always has loomed
large in companies, especially in accordance with performance evaluations
in present globalization eras. Furthermore, giving rewards has become a
part of firm’s policies as it has been shown to improve workers’
performance and the organization’s productivity.

Based on all current literature and by focusing on the links between all of
the findings, one can understand that an appropriate compensation
package, including financial rewards, will cause a higher performance and
efficiency for the firm. This compensation package consists of both
extrinsic and intrinsic rewards. Extrinsic rewards include tangible and
external rewards to the attempts and performed tasks in terms of salary/
pay, promotions, bonuses, job security, incentives, etc. Overall, the highly
involved workers who are oriented more to their occupations are
dependent more on intrinsic than extrinsic rewards.

In addition, a significant and direct association exists between extrinsic

rewards and the motivation of employees; however, it is verified that the
companies do not spend sufficient budget on financial rewards.

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Two extrinsic reward types, which include suitable earnings (bonus and
pay), and job security are the most important factors between intrinsic and
extrinsic rewards. Paying is a vital factor which affects employees
motivation. Both motivation and satisfaction, as the antecedents of job and
pay security, are the most important job simulations to determine the
future events, and also satisfaction with promotion opportunity is another
striking motivator type. The motivation by pay is based on seniority and is
a reward when the staff does their job well and tend to receive monetary
reward; and in such a system, the pay level is because of the staff’s skills,
attempt, and doing their responsibilities as well as the job status.

Rewarding your Best Performing Employees – The six Creative

Ways

Rewarding your top performing employees isn’t just a good idea: it’s a no-
brainer. Incentivising performance encourages people to be at their best,
and also helps to create a culture of friendly competition in which each
employee pushes each other employee to try to maximize their
performance. Perhaps that’s why almost 90 per cent of organizations have
some sort of rewards programme in place, while 88 per cent of employees
say that it’s important to be rewarded for great work. At the same time,
though, people are increasingly turning away from cash incentives,
preferring other types of rewards like travel experiences, days off in lieu or
simply company-wide recognition for the work that they’ve done. And so
with that in mind, the question changes from “Should we launch an
employee rewards programme?” to “What should our employee rewards
scheme look like?”. That’s what this article aims to address. Let’s dive on in
and take a look.

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1. Acknowledge their Work: This might not sound particularly creative

or innovative, but you’d be surprised by how often companies fail to
give credit to individual employees for their contributions. We’re not
saying you need to give them a trophy, but it is a good idea to give
them a shout-out if you send a weekly update email or have an all
hands meeting. When people do something exceptional, they deserve to
be publically acknowledged. Note, though, that different employees
have different needs, and not everyone enjoys having the spotlight
thrown upon them.

2. Ask their Colleagues for Recommendations: If you decide to give

employees physical gifts, don’t just give them a bundle of cash inside a
thank you card. Instead, take the time to get to know the employee and
to figure out what makes them tick so that you can give them a gift
that’s more personal to them. It can help to ask the people that they
work most closely with, as it’s these people who will know the employee
the most and who can provide the most tailored suggestions. The ideal
gift is something that the employee has always wanted, but which they
would have never bought for themselves.

3. Give them a Day off: There’s actually a little bit of reverse psychology
behind this one. Some studies show that by giving employees more
time off, we can actually make them more productive. Giving your top
performing employees a day off every now and then as a reward for
their hard work could actually make them even better employees in the
long - term. Plus you’ll be giving them the only gift that money can’t
buy: time.

4. Put it to the Vote: Employees tend to appreciate having more control

over their destinies, and so when it comes to rewarding a group of
employees at the same time, it can be a good idea to ask them for
reward suggestions and then to put those submissions to the vote.
Better still, give employees a choice of different rewards and give each
employee the reward that they specifically voted for.

5. Send them to a Different Office: If you’re lucky enough to work for a

company with offices around the world in different locations, you can
use this to your advantage. Consider sending top performers on a trip to
one of your other offices on a working holiday. This will help to facilitate
communication between different teams in different places, and who

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doesn’t love to travel.

6. Go on a Cruise/trip: Taking your team on a private cruise can be a

great way to reward key employees while fostering a sense of belonging
and encouraging people to develop friendships as opposed to
acquaintanceships. It doesn’t have to be a month-long cruise around
the world and even a single day cruise or a short weekend away can get
the job done. It’s all about providing them with an experience that
they’ll remember.

A rewards programme can be a great way to improve employee

engagement, but only if you’re measuring the right metrics. For
example, if you’re measuring your sales team on the number of calls
made instead of on the number of leads that they convert or the revenue
they’re bringing in, you could be rewarding people based on a false
metric. They could game the system by deliberately keeping calls to a
terse minimum, while other employees spend time on their leads and
bring in more customers as a consequence.

The good news is that in the overwhelming majority of cases, employee

rewards programmes are worth their weight in gold. They typically pay
for themselves by increasing employee loyalty and encouraging people to
stay at the company for longer, cutting down on training and recruitment
costs. Better still, engaged employees perform at higher levels,
ultimately making you more profitable and improving customer
happiness.

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8.4 Relationship between Promotion and Performance

An optimistic link exists between job uncertainty and intentions to

turnover; and also there is a small negative association between job
insecurity and employees’ commitment. Furthermore, there is a direct link
between job satisfaction elements like pay, promotion, co-workers, and the
work condition itself and the performance of the employees. Promotion is
an important feature of employees’ lifestyle and occupation, affecting other
job experience levels and can have an obvious impact on other job aspects
like job attachment and responsibilities. In this case, the firms can apply
promotions as a compensation factor for high-performance employees,
developing an encouragement for them to do their superior effort.
Additionally, promotion can influence the instrument of exerting better
attempts, if employees put an important value on it. If not, the companies
would focus on pay increase to reward high effort and productivity. Indeed,
the employees may be worth the promotions since they make an increase
in job services like spending account or a bigger office (the visible
elements which managers do not have enough information about) or since
they enjoy good performance; and this is the result of the promotion.

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8.5 Relationship between Non-Financial rewards and

Performance

Non-financial rewards may include higher status, recognition, more

responsibility, positive feedback, and more assertiveness. In hindsight,
recognition is one of the main significant non-financial rewards that are
specifically valued by some staff. In this regard, being noticed and valued
can be a majestic motivator which encourages workers to stay with a
manager.

Although the extrinsic rewards enhance a subsistence level, the intrinsic

ones are strong motivators just as much. In fact, the staffs needs to be
motivated by intrinsic rewards, such as being satisfied by doing an
effective job and a feeling to do something valuable and worthwhile.
However, both extrinsic and intrinsic rewards stimulate the employees to
have higher levels of performance and productivity.

On the other hand, other rewards should not be noted as a substitution for
a valid pay plan. However, they can also motivate and inspire employees to
stay with the firm. Some of these rewards are additional birthday and
holidays presents, work-life balance benefits (e.g., flexible working hours,
free tea and coffee, cinema tickets, and subsidized different sport facilities,
subsidized services or goods related to business networks or suppliers).

These benefit types are valued by the staff since they enhance the working
life. Furthermore, rewarding the employees’ attempts and causing them to
feel appreciated will add value to the hiring contract. In fact, researchers
should consider the outcomes that the rewards may cause for both
employee and employer. To redefine intrinsic rewards, remember that they
exist in the job itself like satisfaction of being prosperous in performing a
task, getting admiration from management, and autonomy; however,
extrinsic ones are tangible rewards such as pay, fringe benefits, bonuses,
and promotions.

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8.6 Other Key Factors impacting Employee Performance

In addition to the rewards, there are other aspects which impact the
employee performance. Some of the key factors are depicted in the table
below.

Fig. 8.1

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8.7 Establishment of linkage of rewards to team

performance

Example ― Team performance to decide appraisals at HCL.

The weakest link in the team will decide the bonus for about one
lakh HCL Technologies employees. In a step that turns the performance
appraisal system on its head, the company is introducing an ‘engagement
bonus’. The bonus for individuals will be decided on team performance,
including the performance of underperformers in the team. This will replace
the current ‘performance bonus’ that is based on individual performance,
Chief HR Officer Prithvi Shergill told ET. This is being done to increase
collaboration and achieve customer satisfaction. "We will be encouraging
teams to see what outcomes they can meet as a collective rather than
individually. Performance will be linked directly to client engagement that
you are working on as a team," he said.

A few teams have already made this transition and others are to follow this
in the next few quarters. "We want the mindset of employees to shift to
how they can help others to become more productive," he added. With this
change, poor performers are set to gain the most.

On how would the employee performance bonus be measured, Shergill

said, "Engagement Performance Bonus is measured by engagement
scorecard. Since this is an employee led approach, the scorecard is decided
in collaboration with line leaders.”

"In services sector like IT, it is extremely important to engage teams as

any organization's success hinges on how well teams are able to work
together," said Anandorup Ghose, rewards consulting practice leader at Aon
Hewitt India. "This is something rare." Further, HCL Tech is also looking at
doling out more equity stock option plans as rewards to employees.

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8.8 Managing Rewards

Leading organization follow as growth driven model for establishment of

appropriate rewards systems. The key factors can be depicted as per the
chart provided.

As organizations face intensifying competition in attracting and retaining

talent, they are increasingly being called upon to define and articulate a
rewards management strategy, which is unique, differentiated, market
competitive and aligned to the organization’s talent objectives and business
goals. However, most organization often fall into the trap of blindly
following the ‘hottest trends’ in the market. While there are several
advantages of adopting market practices, a disproportionate emphasis on
the same often leads organizations to skip the basics, and therefore set
themselves up for disappointment. Let us understand in detail.

Fig. 8.2

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Make it Relevant for Business

Best organizations align their rewards strategy with their overall business
objectives and employee aspirations, and also constantly calibrate and
ensure that rewards programmes continue to stay relevant amidst rapidly
changing business context and priorities.

• Aligning Rewards Philosophy with the Business Objectives:

Employers place a much higher emphasis on strategic alignment with
businesses in framing their rewards policy than the rest of the
organizations. It is the second most important factor in their rewards
strategy after pay-for-performance and ahead of other factors such as
maintaining internal equity and market focus

• Focusing Employee Efforts in the Right Direction through Variable

Pay: Most organizations today have a variable pay plan in place. While
the penetration in the leading organizations is deeper and the proportion
of variable pay is higher at every level, the real differentiating factor is
how the best use variable pay as a critical lever to align employees’
interests with that of the organization. At these organizations, the
objectives of the variable pay plans are clearly articulated and aligned
with business needs, strategies and stage of maturity. The best
employers choose measurable metrics and goals that are easy to
understand and provide employees’ with a direct line of sight. They are
also more likely to choose a balanced mix of financial and non-financial
measures (customer satisfaction, engagement, etc.) as compared to the
rest.

• Staying Relevant in the Long-Term: The Aon Hewitt study found a

growing prevalence of long-term incentives (LTI) in India, even though
the pay mix continues to be conservative as compared to developed
economies such as the US and the UK. LTI, in fact, has become a critical
component of employee compensation today, with a higher prevalence at
the best (76 per cent) as compared to the rest (54 per cent). Though
very nascent, there has been a shift from Employee Stock Option Plans
(ESOPs) to restricted stock plans linked to performance metrics.
Additionally, there is a growing recognition that different LTI vehicles
serve different objectives and hence, a shift towards a basket of LTI
vehicles instead of a single plan structure has been observed.

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As they set out to look at what makes an LTI plan successful in an

organization, they found three clear themes:

• Communication of LTI Plans as a Part of the Annual

Compensation Plan: One - way organizations have implemented this is
by making the grant cycle annual, thereby ensuring that employees don’t
see LTI as a transient or ‘add-on’ rewards initiative, but recognize it as a
critical part of their annual compensation package.

• Independent and Transparent Decision-making: Organizations

ensure that the grants are awarded by independent bodies, such as
compensation committees and more importantly, are based on clearly
articulated performance metrics.

• Clear Line of Sight: Organizations ensure that participants have a clear

line of sight of how and the degree to which they can impact the metrics
that determine the payouts. Metrics for a particular group are chosen in
such a manner that the degree of influence is reasonably high for that
particular group.

Make it Relevant for People

Even the best designed and well-executed programmes can be ineffective if

they do not cater to employee aspirations. While defining their total
rewards strategy, organizations usually consider external competitiveness,
budget constraints and talent priorities driven by business objectives.
However, they often ignore a critical differentiator – employee interests and
preferences. The task of managing employee preferences is made even
more challenging by the fact that organizations today have to
accommodate greater diversity in their talent pool along with varying
aspirations of employees. The best employers use multiple levers to tailor
rewards solutions to meet employee preferences. The reported success of
these programmes in helping organizations attract and retain the best
talent is increasingly making this one of the most critical levers.

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• Making Flexible Benefit Programmes Work: A flexible benefits

programme is a benefits delivery system that allows employees to make
choices about how they prefer to receive some of the benefit items
offered by the organization. It positions the organizations favorably from
an attraction and retention perspective and enhances the value of the
money spent. At the same time, it enables employees to cater to their
hanging lifestyle needs, gives them access to a new or a wider range of
benefits and provides them more value. While organizations in the west
have experimented with and in many cases, adopted flexible benefits as
a part of their rewards strategy, organizations in India remain concerned
about the cost, compliance and tax issues involved, besides the credible
vendor support required to administer benefits such as insurance.
However, leading organizations are now beginning to cautiously evaluate
and experiment, bringing in some flexibility to their benefits
programmes.

• Transitioning from Rationalized to Flexible Structures: The best

employers are more likely to leverage flexible compensation structures
(either in isolation or in combination with fixed structures) to provide
flexibility to their employees. The initiatives being adopted by these
organizations include fixed structures for front line employees and
flexible for middle management and above, fixed basic salary along with
a cafeteria approach for other components and flexibility on certain
components such as car, housing and superannuation. Flexibility provided
in rewards structures is mainly tax related, followed by employee life
stage or lifestyle induced.

• Extending Flexibility to Work Arrangements: Flexible work

arrangements have transitioned from being a perk or benefit provided as
and when needed to a few employees, to a deliberate talent strategy
being deployed by leading organizations and offered to a significant
portion of their workforce. Flexible work arrangements range from
working virtually (particularly from home), working part-time to working
with flexible schedule or compressed work weeks. One leading
organization, in fact, described it as the shift from ‘work-life balance’ to
‘work-life integration’. Benefits range from the more tangible and
immediate ones such as real estate cost savings, increase in employee
satisfaction and productivity to more long-term benefits like enabling
organizations to de-risk their talent strategy. With flexible work
arrangements, organizations are able to hire diverse, geographically

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dispersed talent and bring back to the workforce a large fringe population
of home based mothers and retirees. Add to that, the benefits of
business continuity, reduced carbon emissions, and therefore a greener,
more environmentally sustainable organization and what you have is a
clear competitive advantage. Organizations that have deployed this
strategy have identified manager/team leader sensitization along with
ensuring enabling processes as key success factors.

Communicate Effectively

Effective communication of rewards strategy is a clear differentiator for the

best employers and is perhaps the single largest factor behind the success
of rewards programme. Organizations that invest in developing a
comprehensive and competitive compensation and benefits package, but
not so much in explaining it to employees, do not fare better than their
peers that provide fewer, but clearly understood benefits. The best
employers are more likely than the rest to enlist line managers to hold pay
discussions with their people. This gives both employees and managers an
opportunity to arrive at a consensus about how performance will be
monitored and measured locally in relation to the organization's stated pay
practices. These messages are then reinforced by both the HR and the
senior management. In addition, face-to-face meetings with the manager
ensure that employees understand that they have control over their own
rewards and benefits.

The best employers also employ a diverse mix of communication channels,

depending on the intent of communication, ranging from face-to-face
meetings and group meetings to town halls and communication through
the intranet.

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8.9 Differentiate and Recognize High Performance and

Potential

Though not a new theme, differentiated rewards for high performing and
high potential employees continues to be one of the most prominent
strategies adopted by organizations till date. This is further reinforced with
the Best differentiating more aggressively than the rest.

Differentiating Pay by Performance and Potential, a Business

Imperative for Organizations: Over 70 per cent of the best employers
rank ‘performance’ as the first or most important overarching principle for
their rewards programme. Leading organizations further reinforce this
performance culture by using differentiated and more aggressive rewards
strategies for top and critical performers. Leading organizations are willing
to pay their top performing employees nearly twice as much fixed salary
increase as compared to their average performing employees, clearly
recognizing their contribution.

They are also increasingly recognizing and rewarding high potential

employees, in addition to the high performers, through a host of
approaches which include mid-year corrections, retention-linked bonuses,
discretionary stock options and additional discretionary budgets during
salary increment processes.

The best employers are visibly more successful at retaining and ring-
fencing their critical talent and building leaders from within, by additionally
leveraging non-monetary levers, such as capability building, exposure to
senior management, global assignments and cross-functional mobility.

• Encouraging and Reinforcing Desired Employee Behaviours

Through Differentiated Recognition Practices: Recognition helps
shape employee behaviours, engage employees and develop a culture of
appreciation, which in turn drives gains in performance, productivity,
profits and pride. While the prevalence of recognition programmes is high
among all employers (100 per cent of the best and 91 per cent of the
Rest), the Best clearly do a better job of designing and communicating
the programmes, leading to greater satisfaction amongst their
employees. Recognition programmes are most effective when they are
immediate, simple, transparent, objective, involve senior leadership and

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promote a widespread culture of recognition – peer to peer, manager to

employee, employee to manager and leaders to employees.

• Imbibe Good Governance: Best Employers pay more than just lip
service to good governance and go beyond the statutory norms to ensure
a credible and open decision making process for rewards. The study
revealed that the compensation governance committees in leading
organizations typically work at three levels, with the constitution and
accountability varying at each level. The head of compensation and
human resources are typically at Level 1 and are entrusted with the
responsibility of programmme design, implementation and delivery,
depending on the nature and expense of rewards programme. Level 2
has cross-functional representation (CFO, COO and audit) and provides
inputs on programme design and mandate. The last level is typically the
group or global compensation committee (depending on whether the
organization is a part of an Indian conglomerate or an Indian subsidiary
of a multinational), which mostly provides inputs on strategy, objective
and productivity of the rewards programme. The increased scrutiny of
compensation issues by shareholders and regulators is leading to a more
thorough approach to decision ― making by compensation committees.
Organizations want to provide their stakeholders with transparent
disclosures, and build a sustainable compensation programme for
employees on the pillars of ‘trust’ and ‘transparency’. Developing and
delivering a rewards programme that is ‘cost-efficient’, ‘responsible’,
‘drives performance’, ‘promotes transparency’ and ‘delicately balances
risk and rewards’ is defined as mission-critical for compensation
governance committees. There is thus, a visible shift in the approach of
governance – from an outside view of 'are we competitive' to an inside
view of 'are we productive’.

• A typical charter for compensation governance committees in leading

organizations suggests that the committee is not only responsible for
both short-term and long-term incentive plans but also plays a significant
role in high-cost and high-impact decisions such as executive and
directors’ pay. In addition, the committee acts as a watchdog against
excessive risk or exposure and ensures compliance with major financial
and taxation regulations related to compensation.

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• While HR and compensation committees continue to be in charge of

compensation governance, organizations are increasingly roping in their
internal audit and finance teams to monitor compensation, mitigate risks
and measure returns. This collaboration for discussing and conducting
due diligence around compensation practices and programmes is another
encouraging trend that shows how governance standards in leading
organizations have come of age, with rewards management no longer
being the domain of just the C&B experts.

• Continuously Monitor and Measure Results: The cost of total

rewards is usually one of the largest expenses for an employer and yet,
is perhaps one of the most poorly managed. At the best organizations,
however, compensation is not viewed as an expense but as an
investment like any other with an expected rate of return. Therefore, on-
going evaluation and improvement of compensation programmes
emerged as a recurring theme among the best employers.

• The leading organizations also displayed a keen focus on benchmarking

and monitoring manpower and productivity norms across organizations
including headcount and cost metrics, with the intent of translating the
impact of human capital on business into something tangible and
measurable. With no one ‘magic’ set of metrics, organizations need to be
selective about their measures and pick those that are relevant to their
context and drive the desired rewards objectives. The Best Employers
typically use a strategic mix of financial and non-financial metrics
compared to an over-reliance on mostly non-financial measures among
the other organizations.

• Step in Calculating the Top Performer Differential

❖ Average output per Employee
❖ Top performer output
❖ Top performer increase factor
❖ Revenue per employee
❖ Revenue increase for top performers
❖ Value difference between top and average performer
❖ Add other jobs

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High - Performance Teams Demonstrate the Following

Characteristics and Behaviours
❖ Shared Vision: All team members share and support a common vision
that the team is working towards. Team members are highly focused on
attaining the objectives.
❖ Time Oriented: The team operates under specific deadline for achieving
results.
❖ Communication: The team makes extraordinary efforts to make certain
that everyone on the team understands the plan and progresses towards
its completion.
❖ Zone of Concerns: The work of the team is beyond the teams zone of
comfort; it either doesn’t know how to achieve the desired result.
❖ Review Quality: The team stops at appropriate time to check the
quality of its recent work. This is done to determine where the process
could be improved.
❖ Involves Everyone: Team members work to make certain that every
member of the team is involved. Every team member has a unique
insight or contribution it can make towards team goal achievement.
❖ Self-directed: High-performance team members are self-directed. The
management must focus on the achievement of the team in terms of
how the work is to be accomplished.
❖ Celebrate Success: High-performance team takes the time to celebrate
small victories towards goal achievement. This activity builds a sense of
team success as the work of the team progresses.

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Evaluating Team Performance

Common Approaches to Building Team Performances

• Establish urgency and direction. All team members need to believe that
the team has urgent and worthwhile purpose and they want to know
what the expectations are.
• Select members based on skill and skill potential not personalities. Three
categories of skills are relevant ― (a) technical and functional, (b)
problem-solving, (c) interpersonal.
• Pay particular attention to first meeting and actions. Initial impressions
always mean a great deal.
• Set some clear rules of behaviour. All real teams develop rules of conduct
to help them achieve their purpose and performance goals.
• Set and seize upon a few immediate performance oriented tasks and
goals. Most teams trace their advancement to key performance oriented
events that forge them together.
• Challenge the group regularly with fresh facts and information, new
information cause a potential team to redefine and enrich its
understanding of the performance challenge, thereby helping the team
shape a common purpose to set clearer goals.s
• Spend a lot of time together: Common sense tells us that teams must
spend a lot of time together especially at the beginning.
• Exploit the power of positive feedback, recognition and reward. Positive
reinforcement works as well in a team context.
Seven Steps for Measuring Team Performance
• Review the existing organization’s measures.
• Define team measurement points in terms of teams accomplishments.
• Identify individual accomplishments which supports the team.
• Weigh the accomplishments in terms of their priorities, and agree on
what is really important.
• Create measures for each accomplishment to know the quantity, quality
and cost.

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• Develop performance standards by setting the level of performance for

each of the measures identified.
• Initiate a feedback system, i.e., documents and procedures to collect and
summarize the data for feedback purpose.

8.10 Total Rewards Optimization

Deploying TRO as a Tool to Maximize Return on Investment (RoI)

on Compensation Spends

Total Rewards Optimization (TRO) ensures a fine balance between business

objectives and employee aspirations effectively. It provides quantitative
insights to align rewards with employee aspirations ensuring targeted
spending by the organization. It uses conjoint analysis to understand what
trade-offs employees are willing to make, and identify what is most
important to them by asking them to make choices. By modelling
employee preferences, organizations can identify the critical value drivers
for them. This helps them learn what is nice to have, versus what is a must
have, and how sensitive or receptive employees are to change. Putting
employee preferences together with cost data can help organizations
design, deliver and communicate new or existing rewards programmes that
maximize the value to the employee while ensuring that financial
considerations are met.

The Bottom Line: Building a Differentiated Rewards Strategy

The Best Employers in India 2011 study by Aon Hewitt highlights some
common themes that reverberate across best in class organizations. In
addition to these themes around alignment, communication,
differentiation, governance and measurement, one underlying approach
that weaved the strategy together for them was a clear understanding of
what they wanted to focus on. Most of them were able to articulate their
differentiators, just as their marketing counterparts are able to articulate
their product USPs.

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One of the reasons that many organizations are not able to do that is due
to the complexity of their rewards programme. Over the years, they have
added programme upon programme under their ‘Total Rewards’ umbrella
and have often given them equal weightage or focus. Richard Kantor,
leader of Aon Hewitt’s Total Rewards Global Center of Excellence, in his
article ‘Transforming Total Rewards’ presents an interesting concept.
Amongst other things, he talks about how we can take the concept of
catalytic mechanisms and apply it to the transformation needed in total
rewards.

According to him, the key problem lies in the fact that most discussions
about changes to the total rewards programme involve incremental
thinking and relatively minor change. Transformation requires bolder
thinking and more sweeping changes. He urges organizations to consider
the following as they set out to build a differentiated rewards strategy.
• Don’t just add programmes, remove.
• Create, don’t copy. Make the programmes relevant to your context.
• Make use of money, but not only money.
• Allow your mechanisms to evolve. This is a system/process; corrections
will be required.
• Build an integrated set. One mechanism is good, but many reinforcing
ones are better.

Organizations that aim to truly leverage their biggest assets – their

employees – to drive business growth need a winning rewards strategy
customized to their goals and needs. They need not and should not have
an equal focus on all elements of their rewards programme. They need to
identify the two or three programmes that are their ‘differentiators’ and
rechannelise their resources to invest in building a truly differentiated
rewards strategy.

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Compensation and Reward Practices in Essar Group. An interview

with Mr. Adil Malia, Group President, Human Resources, Essar
Group

Question: Essar has successfully managed to transform its employer

brand, which is perhaps a more daunting task than building a new one.
What, in your opinion, are the key success factors that drive such an
intervention?

Adil Malia: The first and perhaps the most critical aspect in my opinion is
finding a proper alignment for your organization’s work culture. An
organization must understand where it currently stands in relation to
where it wants to go, and then identify the missing values, skills and
behaviours that help close the gap. Only then can the organization bring its
structure, training and development efforts and compensation approaches
in proper alignment with the new work culture that it seeks to create.

How people and critical stakeholders perceive your employer brand is

becoming increasingly critical. Leading organizations, irrespective of
market conditions, have consistently focused and invested their resources
in building a positive brand.

As you rightly said, the employer brand perception in the market is very
difficult to transform because it is based on real-time experiences of its
people and critical stakeholders – when they interacted or transacted with
that brand. To change the emotional recall of those experiences is a
challenge. Essar undertook the journey of repositioning its employer brand
along the time it started redefining its vision ‘to be a respected global

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entrepreneur through the power of positive action’. We see positive

receptivity to the brand programmes and initiatives from our existing
people, potential employees and other critical stakeholders in the market.

Question: What role did rewards play in helping you reshape your
employer brand?

Adil Malia: Many organizations don’t really understand what they are
trying to accomplish with pay. Or how best to motivate employees. The
danger is that they often jump to the latest trend in compensation without
knowing where precisely they want to land. Firstly, let me eliminate this
wrong belief that some employers have about 'people'. People are not
mercenaries, and therefore compensation singularly cannot be your
employer brand proposition. Reality is that people also have higher order
needs along with their basic physiological and safety needs. The employer,
therefore, has to continuously be mindful of these composite value
propositions that the employees are seeking and endeavour to fulfil these
expectations. To that extent, Essar’s employer brand value proposition
encompasses a wide range of segment-specific offerings which include,
amongst other things, compensation, rewards, recognition, work-life
balance, learning opportunities and multiple career growth alternatives.

Question: How have your people practices evolved to support the new
‘global’ entity?

Adil Malia: Our HR practices have evolved significantly as a result of the

organic and inorganic growth that Essar has recently witnessed. Some of
the key practices operationalised, by taking into account the expectations
of our employees in domestic and global operations, have been in the
areas of performance, total rewards and learning and knowledge
management. eCompass, our performance and talent management
initiative, is one such programme being launched to manage not only
performance but also learning, career and succession planning. Our
internal mobility which earlier focused on domestic movements, supported
by a local rewards structure, is augmented by our global mobility
programme that includes an exchange programme called ‘Confluence’. The
focus is on reducing cultural polarization and realizing the prospects of
cross-cultural learning. In addition, the short-term and long-term overseas
assignment programmes help foster individual development by providing
an opportunity to work in different geographic locations and markets.

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A new world needs new programmes and practices. I firmly believe that
the future is not merely an extension of the present, it is a whole new
paradigm! The human resources function, therefore, has to constantly
evolve and in many cases, take the lead in ushering the organization into
its new phase.

Question: What are the key elements of your rewards strategy and how
do you ensure that they are understood by current and prospective
employees?

Adil Malia: Compensation as a subject in most organizations continues to

be a 'black box'. At Essar, we have tried to demystify our total rewards
strategy. The three highlights of our rewards strategy are:

• We are competitive in our compensation offerings; our 'median' is mark-

to-market.

• We recognize positive display of behaviours, reward performance and

promote potential.

• At the time of taking compensation anchored decisions, we are always

mindful of the three ‘P' of our compensation programme, i.e., position or
the job, Profile of the person and performance on the job.

Our compensation programmes are not designed in isolation by

compensation specialists. While they anchor it, the CEOs continue to be a
part of the process at the design stage, its application and its actual
implementation. In fact, we have a special committee called the 'People's
Committee' which is the ultimate counsel responsible for the approval of all
compensation and rewards offering and it comprises of various business
CEOs and function heads selected on rotation basis.

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Question: If you were to define two rewards programme as being your

'signature' programmes, which would they be? Do share with us what in
your opinion differentiates them.

Adil Malia: One of the distinct rewards programme at Essar is the 'long-
term incentive (LTI)' programme that we have introduced this year. The
purpose of this programme is to ensure retention of senior management
associates as well as engaging and rewarding them for building long-term
value for the group. The LTI programme covers two schemes, i.e.,
Employee Stock Options (ESOPs) and Stock Appreciation Rights Scheme
(SARS). The prominent feature of this programme is the alignment of
people performance to business results as any eligible associate, who has
been granted ESOPs/SARS, will be able to encash value only if his/her
business has actually created value, i.e., the positive difference between
valuation in the year of grant and valuation at the end of pre-decided
period. The other unique offering to our employees is the value proposition
and differentiated rewards that we offer to our high performers and high
potential employees under a programme called 'GenEssar'. A customized
total rewards plan is developed to plan their career moves and aligns
individual aspirations to organizational opportunities. From a compensation
perspective, a differentiated reward structure is developed to keep them
motivated and this includes benchmarking the compensation at a higher
percentile to the market and offering a retention bonus.

Question: The spiralling cost of total rewards and an increased focus on

productivity have forced organizations to scrutinize and evaluate the
effectiveness of their rewards programme. What in your opinion would be
the most effective measures that organizations could use to determine the
RoI on their compensation spend?

Adil Malia: Unless leaders in organizations really understand the spiraling

cost implication of their Total Rewards programme, they will tend to make
their organizations cost ineffective and their rewards programme unviable.
There are many cost elements in the total rewards programme which are
hidden and may not be obvious on the face of it like paying for 'deferred
benefits' in a pension programme compared to 'defined contributions'. It,
therefore, becomes a mandate for compensation specialists to continuously
scrutinize and communicate to the leadership, the real cost implications of
their offerings. In volatile markets, it is better to structure as many
elements of total rewards into the variable bucket. The total rewards

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architecture becomes a critical output of your people: business alignment

process. Such variable costs become due for payment either on 'use and
pay basis' or on enhanced performance and contribution basis. There are
several measurements to determine the RoI on compensation spend, but
the most effective is the one that determines RoI on total spend on human
capital. This measurement is to be approached holistically rather than
using linear metrics (like revenue or profit per FTE) to determine returns
on compensation spend for an enterprise. This can be mathematically
expressed as: Revenue-Non-People Cost/Total Investment in People (total
rewards). RoI on human capital in its true nature monitors the core of
sustainable profit, i.e., bottom line performance improvement in
combination with a managed investment in people.

Question: Rising raw material costs, delayed infrastructure projects, slow

decision making by the government, increasing interest rates and the
looming fear of a double-dip in the economy are beginning to cloud the
growth outlook in India. How do you see this impacting compensation at
Essar both in the short and long-term?

Adil Malia: The purpose of business is value creation. And value creation
does not happen in the short run. It has a reasonably long-term
perspective to it. However, economic sustenance of business is directly
linked to the prosperity of the economy in which it thrives. Economies are
generally in one of the four stages – zooming, booming, glooming or
dooming. The growth outlook of the economy in which the business
operates, and also the sector in which your business exists, have a huge
implication on the quantum and architecture of compensation programmes.

We, as an organization, are always mindful of the growing labour costs as a

push factor on the one hand, and the prevailing talent market pull factors,
on the other. Drawing a mature balance between the two positive and
negative vectors that influence one's compensation strategy, is the only
way we are able to insulate ourselves.

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8.11 Building Irresistible Organization

The employee-work contract has changed: People are operating more like
free agents than in the past. In short, the balance of power has shifted
from employer to employee, forcing business leaders to learn how to build
an organization that engages employees as sensitive, passionate and
creative contributors. We call this a shift from improving employee
engagement to a focus on building an irresistible organization. There are
three key issues to be addressed to make the work environment irresistible
for the employees.

• Companies need to expand their thinking about what ‘engagement’

means today, giving managers and leaders specific practices they can
adopt, and holding line leaders accountable. Five elements and twenty
specific practices can be adopted by the company (See picture below.)

• Companies need tools and methods that measure and capture employee
feedback and sentiment on a real-time, local basis so they can
continuously adjust management practices and the work environment at
a local level. These tools include employee feedback systems as well as
data analytics systems that help identify and predict factors that create
low engagement and retention problems.

• Leaders in business and HR need to raise employee engagement from an

HR programme to a core business strategy.

Meaningful Hands-on Positive Growth Trust in

Work Management work Opportunity Leadership
Environment
Autonomy Clear, Flexible work Training and Mission and
transparent environment support on the purpose
goals job
Select to fit Coaching Humanistic Facilitated Continuous
workplace talent mobility investment in
people
Small, Invest in Culture of Self-directed, Transparency
empowered management recognition dynamic and honesty
teams development learning

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Time for slack Modern Inclusive, High-impact Inspiration

performance diverse work learning
management environment culture
A focus on simplicity
Table 8.1

Five Elements and Twenty Practices model

• Make Work Meaningful: The first and perhaps most important part of
employee engagement is job-person fit. We need to make sure jobs are
meaningful, people have the tools and autonomy to succeed, and that we
select the right people for the right job. This is anything but a simple
undertaking.

Nearly every job has been changed and often transformed by technology,
and we constantly look for ways to do more with less. Well-run
companies constantly look at the work they do, trying to find ways to
outsource more to technology and produce more output with less
expensive human input. Despite these pressures to improve productivity,
research shows that when we enrich jobs, giving people more autonomy,
decision-making power, time, and support, the company makes more
money.

• Foster Great Management: The second element of an irresistible

organization is the one business and HR leaders think about the most:
management. And we use the word ‘management’ here, not leadership,
to refer to the daily, weekly, and monthly activity managers use to guide,
support, and align their people. In many ways, management is the most
important capability we have. CEOs can create strategies, investors can
optimize capital, and marketers can create demand, but when it comes
to building products and offerings, serving clients, and developing
internal processes, middle managers make things happen. We each
thrive on our ability to contribute to a greater good, and management’s
job is to set goals, support people, coach for high performance, and
provide feedback to continuously improve. Investment in fundamental
management practices has a tremendous impact on engagement,
performance, and retention.

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• Establish a Flexible, Humane, Inclusive Workplace: The third major

element of an irresistible organization is the need to build a flexible,
humane, and inclusive workplace. Most employees today have
complicated lives. Studies show that 68 per cent of women would rather
have more free time than make more money, and while 40 per cent of
professional men work more than 50 hours per week, 80 per cent would
like to work fewer hours. Given the nature of work today, if leaders want
people to engage with their organizations, they have to give them a
flexible and supportive work environment. SAS, the No. 2 place to work
for the last 15 years, has an in-house daycare centre, gym, and pool,
and the company’s turnover rate is below 2 per cent. Similarly, Google
has a bowling alley and yoga rooms. Free food, yoga classes, happy
hours, commute buses with Internet access, and even free laundry
service have now become commonplace in high-pressure companies
across a wide range of industries. These are no longer just “perks”; they
are essential elements of making work fit into our lives.

• Create Ample Opportunities for Growth: When top performers leave

a company, the most popular comment they make is, “I just didn’t see
the right opportunities here.” Let’s face it: We often go to work with
selfish interests. If we don’t feel we are going to progress in our chosen
role or career, we are likely to look elsewhere. Most engagement
research shows that learning opportunities, professional development,
and career progression are among the top drivers of employee
satisfaction. Employees under the age of 25, rate professional
development as their number one driver of engagement, and this is the
number two priority for workers up to age 35. As employees get older,
their focus on development shifts away from workers up to age 35. As
employees get older, their focus on development shifts away from
mobility and upward progression in favour of aligning a job with long-
term career goals. Building opportunities for growth is a complex and
systemic challenge. First, there must be developmental opportunities,
both formal and informal, that let people learn on the job, take
developmental assignments, and find support when they need help. This
means designing on-boarding and transition management programmes,
developing a culture of support and learning, and giving people time to
learn.

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• Establish Vision, Purpose, and Transparency in Leadership: The

final and perhaps most important element in the irresistible organization
is leadership. Our research suggests that four leadership practices most
directly impact employee engagement. The first is to develop and
communicate a strong sense of purpose. When organizations define their
success through the eyes of their customers, stakeholders, or society,
people come alive. Our research shows that ‘mission driven’ companies
have 30 per cent higher levels of innovation and 40 per cent higher levels
of retention, and they tend to be first or second in their market segment.

Focus on Simplicity at Work

Highly engaged companies work very hard to make work simple. They
remove administrative overhead (compliance processes, formal check-off
processes, multistep processes) in favour of trust, autonomy, and a focus
on cooperation. Simplicity, or the removal of formal bureaucratic overhead,
can have a dramatic impact on work satisfaction. A series of work-
productivity studies by the University of Rotterdam shows that workers
who operate in highly complex environments tend to have increased levels
of cardiovascular and other illnesses, unless they are given extraordinary
amounts of autonomy and local support. Without increased amounts of
empowerment and local control, complexity can lead to high levels of error
and stress.

Example ― Southwest Airlines, one of the top 20 rated employers in

2014, has honed simplicity and empowerment in its business model. The
company focuses heavily on employee empowerment in its management
training, letting the local team (the airplane crew) make all the decisions
they need to run safely, on time, and on budget. The company also works
hard to keep its entire business simple: Southwest uses a single airplane
model (Boeing 737) and common boarding and reservation processes for
every flight. The company has celebrated more than 40 years of
profitability and continues to score among the highest in customer
satisfaction year after year.

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Capturing Real-time Feedback

How do organizations implement these 20 practices in an integrated and

holistic way?

First, HR and leadership must develop a complete understanding and

mindset of these factors and how they all are interrelated. Almost every
management practice impacts employee engagement, so while we focus on
performance, growth, and innovation, we must simultaneously focus on the
impact each strategy has on individual people.

Second, it’s important to instrument your company so you obtain regular,

unbiased, and anonymous feedback. People always want to talk about
what’s working and what’s not in their company. An annual employee
survey is far too slow and limiting. Today pulse survey tools, sentiment
monitoring tools, and employee sensing tools give employees a variety of
ways to express their feelings and provide direct feedback to managers and
peers. Four new tools — Culture Amp, Black book HR, TINYhr, and Better
Company — each have different ways of actively measuring employee
feedback and sentiment. Consider these tools as the anonymous ‘heartbeat
monitors’ of your business.

Putting Employee Engagement at the Centre of Everything We Do

If we don’t have teams committed to our mission, passionate about their

work, and willing and ready to work together, we cannot possibly succeed
over time. While 90 per cent of executives understand the importance of
employee engagement, fewer than 50 per cent understand how to address
this issue. Today’s technology flooded world of work has become complex,
demanding, and integrated into our lives. Even though 79 per cent of
companies today find it daunting and difficult, they can plot their path to
the future and design organizations that will thrive with passion,
performance, and engagement by focusing on the five elements of
irresistible organizations

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Rewarding High-performance Team

In order to create a high - performance team in the 21st century,

managers and entrepreneurs need to shift from the traditional hierarchy to
a team-based management system. The basic or core elements of team
structure should consist of the following:
• Work should be structured based on customer needs.
• Training programmes should be provided to move to new levels.
• Rewards should be based on productivity and performance.
• Employees should get more responsibility as they become ready for
them.
• No waiting for attrition or wearing out of the team.
• Cross training and different levels of skill should be required.
• Job responsibilities should emphasize results and not tasks or
techniques.

It is also important to point out that after understanding the culture of the
organization, managers and entrepreneurs will need to ‘unlearn’ the
traditional management practices. The new practice should develop
systems of accountability and it should measure the right ‘KPIs’ (key
performance indicators). The new system should also encourage risk taking
on the part of management as well as employees, and failure should be
tolerated to an extent where it does not go out of control. It is believed
that most people have capabilities beyond those which they are called for
to complete their jobs. They can go deeper into their jobs and make better
and stronger methods of getting work done more effectively and efficiently.
This is a major shift from the traditional hierarchy into a team-driven
management system and it will take time and planning on the part of
executives. This reward programme should be result oriented and should
not just concentrate on techniques because people can be creative and
invent far more superior methods of accomplishing the results. Managers
should keep in mind that their employees deserve to know what needs to
be done and how it should be completed and they will often handle the
responsibilities better than what is expected. Communication should flow
horizontally, from side to side, and vertically, up and down, to all

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employees. The new pay system to reward high - performance teams could
(be):

• Focused on the mission of the company

• Team-based but employee focused
• Market - driven
• Allow for strategic decisions at the employee levels
• Control growth of base pay
• Compatible with the market or industry pay structure
• Provide fair incentives for the high - level executives to meet customer
needs
• Differentiate between levels of performance
• Eliminate the ‘one-size-fits-all’ mentality or strategy

The completion of job analysis should provide relevant information about

key performance indicators that need to be reinforced in the reward
programmes. After clarifying those KPIs that need to be reinforced, human
resource professionals can design the new compensation plan which should
reward ethical decision-making and the output. The reward programmes
should be individually focused because the value of certain rewards varies
between different individuals.

Pay for Performance - Key Considerations and Actions

• Introducing differentiated reward structures where available rewards
increasingly go to the top performers and high potentials; those critical
to the survival of the business, now and in the future
• Building line management skills in setting goals, coaching performance
and recognizing and rewarding performance
• Clarifying definitions of performance
• Balancing individual and enterprise targets for bonuses
• Aligning individual targets to overall strategy
• Making greater use of multiple rewards, mixing short and long-term
incentives with the motivational stimulus of better career development
and varied and interesting work

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Right Performance Matters Most

Organizations are seeking to realign their performance metrics to their

strategies and goals. There is increasing recognition of the need to manage
risk by driving the ‘right’ performance – behaviour as well as output,
results not activities.

While there are no easy answers and different approaches will be adopted
for different reasons, the overall instinct is to find a better balance between
short and long-term metrics, between corporate and individual
performance, and between financial, operational, customer and human
capital metrics.

False Security of Hard Measures

It is clear from the survey that some organizations are placing more
emphasis on financial measures in rewarding performance. Times are tight,
and organizations want to know that they are going to get a return on the
money they invest into their reward programmes. While peer companies
apply performance metrics to executives that are focused on operational
excellence, profits or revenue, the most admired companies go further by
adding measures around long-term thinking, teamwork, building human
capital and customer loyalty.

There is a risk that concern for bottom line performance may drive some
companies to ignore the risky side effects that come with an over focus on
narrow performance goals. These include a rise in unethical behaviour, an
over emphasis on one area of the business at the expense of others, and
distorted risk preferences – look no further than Enron and the sub-prime
mortgage lending that triggered the credit crunch for evidence.

Whatever goals are set, it will never take away the need to arrive at a
‘holistic’ view of an individual’s performance over a given period that takes
into account financial impact, behaviours and values. Responsible reward,
in other words, is the key to a truly successful reward strategy.

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Trends in Variable Pay

An increasing trend as organizations emerge from the recession is a shift in

balance between fixed and variable pay. This is partly cost-driven, as those
organizations with higher proportions of variable pay (and therefore the
flexibility to cope with economic volatility) have often been better placed to
survive without shedding jobs. Variable pay is also a critical lever for
motivating performance and engaging employees in the organization’s
goals. The best organizations are using variable pay not purely as a cash
flow tool but as a support mechanism for their performance management
strategy.

In these organizations the challenge is to develop an appropriate balance

between short and long-term incentives based on the nature of the role,
with many organizations increasing the opportunities for long-term
incentive awards. Short-term incentives are pushed further down the
organization to convey that individual performance affects the success (or
otherwise) of the business.
• Linking bonuses to medium and longer-term targets that support
sustainability and organization performance over the longer-term
• Ensuring bonuses are properly funded, with a focus on growing the
bottom line as the main driver
• Balancing individual and enterprise performance in designing bonuses
• Simplifying programmes, in particular by reducing the number and
variety of bonus schemes
• Clarifying and communicating the intent and design of variable pay.

Variable pay does not look the same in every organization. How it works
and how it is structured depends heavily on organizational culture and the
interdependencies with other elements of the reward programme.

One of the most significant challenges in implementing a variable pay

structure lies in balancing competing stimuli and risks. If a bonus scheme
fails to pay out in a bad year, one of the consequences can be employees
who are disengaged at a time when the organization needs them the most.
Conversely, a bonus scheme that pays out regardless of corporate

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performance will quickly be seen as an entitlement and will fail to drive

discretionary effort.

Here are two very different approaches – both of them valid – that
illustrate how variable pay works in different contexts.

Example ― The automotive company Pirelli and the global cement

manufacturer Italcementi are two of Italy’s best known large companies.
Both were impacted sharply by the global downturn, although Pirelli felt
the effects earlier than Italcementi. Pirelli went through a restructuring
early in 2009, with the aim of achieving a more performance focused
culture. It introduced a new system where 75 per cent of variable pay is
long-term and targets are based on company performance.

System at Pirelli: Our reward system is strongly impacted by our

performance culture – we have a very practical and serious approach to
variable pay. Just to give you an example, there are two threshold
objectives before you can get the bonus. In 2009 – a critical year for the
business – the majority of our management didn’t receive any bonus
payout.

In contrast, Italcementi was dealing with a workforce that had already

been hit by staff reductions and wage freezes. Continuing to set highly
challenging targets for variable pay risked further reducing the motivation
of employees.

System at Italcementi: We have a good variable pay system in place

that allows us to be competitive in the market. In 2009, we set a budget
and MBO targets in line with the economic environment. This year those
targets will be reached and reasonable bonuses will be paid. We think that
in hard times it is important to have targets that are reasonably
challenging and can sustain performance exactly when you need the
highest motivation.

The challenge for organizations is not only identifying the right measure,
but the right target. Should the target be absolute or relative? Should it be
in line with this year’s budget or with last year’s performance? A further
consideration is the level at which performance targets are set. Should you
award average performance? Or only excellent performance? There is no

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one correct answer. Organizations need to consider their culture, business

needs and overall reward programme to decide the best road to follow.

Watching the Market

While there is clear evidence that organizations are paying enormous

attention to the link between pay and performance, they are still keeping a
close eye on the reward strategies of their competitors and on market
trends. Participants in this study were very clear that market benchmarking
remains a primary design factor in reward. A high proportion of
organizations were looking to refine how they benchmarked, driven by a
desire to make sure they were not paying over the odds, and by a general
need for greater transparency. With senior management taking an active
interest in reward, they want to know why the organization is paying what
it is.

Benchmarking, as a result, remains critical, but market data is being used

in a different way. Organizations are looking for a better context for their
data so they can clearly justify decisions made on the basis of it. They are
also using that data in different ways – the focus on benchmarking is
particularly strong in developing markets and in high-growth companies,
and when considering key roles and talent. In developed markets and slow
or no-growth companies, they are more likely to be looking for ways to
balance evidence from market benchmarks with affordability. The focus is
now less on competitiveness and more on maximizing the return on
investment from reward spend. Changes to the way organizations
benchmark, and the data they use, are also on the horizon.

Many organizations are looking to measure and, increasingly, communicate

to their employees the total value of their reward package. The increasing
centralization of reward management and the desire to have greater
visibility over total reward spend also means organizations are looking
more at total remuneration rather than just total cash.

The new trends in reward strategy cannot succeed without a solid

foundation of good communication, based on strong leadership. At every
stage – the drive towards variable pay, a closer link between performance
and reward, differentiation of high and low performers, retention of talent
and a trend towards total reward – there is a risk that the return on

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investment will be lost because leaders and managers have not clearly
communicated the organization’s intention and strategy.

8.12 Concern of Indian Companies over Annual

Performance Pay Increase

Companies across industries are continuing to take a cautious stance and

are not going for aggressive pay increases, according to Aon Hewitt's
annual Salary Increase Survey in India. Indian companies are taking very
clear steps to arrest the steady increase in compensation budgets. The
lower inflation rates in the economy has also helped companies in deciding
on the reduced salary increases without creating too much of a disruption
in the lives of employees.

In many cases, the industries have taken a marginal dip in their overall
budgets as compared to 2015 actual spends.

Sectors such as life sciences, media, and consumer products are projecting
a higher increase than the market average. These industries have also
consistently led the salary increase numbers since 2012.

The ‘early stage companies/start-ups’ stand out despite being in the pre-
profit stage for over three years and continue to have an aggressive stand
on pay. At 15.6 per cent salary increase projected for 2016, they feature as
number one, with the closest second being life sciences at 11.6 per cent.

New strategies adopted by companies in over annual performance pay

increase are as under:

• Increasing Focus on Talent and Merit: Over the last few years, while
employee expectations have gone up, Aon Hewitt’s data shows that
companies are managing these higher expectations carefully and are not
getting swayed by it. The focus on performance differentiation is far
higher with a larger proportion of budgets being allocated to higher
performers. Investing in key talent emerged as a major trend. Key talent
would mean high potential and hot skills apart from high performers. The
payout gap between an average performer and key skills is growing year
- on - year. At 63 per cent, this is the highest differentiation India Inc.
has observed.

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Additionally, in the last five years, the percentage of employees with top
performance rating has dropped by close to 30 per cent, implying that
organizations are not hesitating to differentiate sharply on the basis of
performance and are allocating the share of the total increase budget
accordingly. India places 8.2 per cent of its overall population at top
rated. This number has significantly dropped in the last five years.

An average pay increased budget of 10.3 per cent across India, HR

managers will be pushed to ensure they are being more innovative and
thoughtful in how they reward their top performers while ensuring they
are able to retain and motivate the rest of the organization as well.

• Maintaining Low Attrition Rate: Attrition rate at its lowest for five
years – The attrition rate in India is dropping. At 16.3 per cent, it is the
lowest that corporate India has observed since the 2009 financial crisis.
While attrition was controlled at a broader level, key talent attrition
increased from 5.9 per cent in 2014 to 7.3 per cent in 2015.

Increasingly, organizations are developing separate retention plans and

policies for their top talent. While rewards continues as a retention tool
to ring fence top talent, programmes around leadership opportunities
and coaching, overseas assignments, fast track programmes for high
potentials are fast gaining prominence.

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8.13 Activity

1. Select few companies in a particular sector and capture the strategies

adopted by the companies to establish the linkage between rewards and
performance. Understand the challenges involved and compare with
your organizational practices.

…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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…………………………………………………………………………………………………………………………

8.14 Summary

While a company can calculate its return on investment for expenditures

such as IT and marketing, measuring the value of its workforce is much
more challenging. CEOs are increasingly asking themselves, "Am I getting
what I'm paying for?" That is, is the pay people are getting accurately
reflecting their performance?

Over the past two decades, many companies have re-engineered their
performance management systems to ensure that company - wide goals
cascade down through the organization driving everyone toward a common
result. During the same period, but rarely at the same time, companies
have retooled their reward strategies, devising incentive schemes, in order
to retain talent and encourage appropriate business behaviours. There is a
strong conceptual argument that suggests that keeping the two separate
ensures that dialogues with employees about pay will not get confused with
those about development. Unfortunately, the gap between the two has left
the phrase ‘pay for performance’ somewhat hollow.

As these reward and performance processes have often preceded

independent of one another, they have resulted in some systems that are
misaligned at best and disconnected at worst. Little wonder when you
consider that performance and reward are fractured in many large
Australian corporates with finance holding the purse strings over the
reward strategy, while line managers and HR take turns at managing
performance measurement. The result? A low return on human capital
investment.

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42 per cent of organizations ‘improving the linkage between performance

and reward’ is among their top two reward priorities for the coming year,
with 38 per cent stating they intend to take action within the next 12
months. But, if you want to take the breath away from any HR director, you
might ask, "So, what do you propose to do about it?”

In an organization where there is a high degree of sophistication in reward,

but a low degree in performance, the chance of differentiating an
individual's contribution is low. But, it is possible to improve the situation
by setting up programmes that highlight the individual and his/her
performance. These include eligibility to participate in reward vehicles,
such as a trip away; short-term variable pay plans (profit share or
discretionary bonus plans); and public recognition including monthly award
events, team dinners and peer appreciation.

In conclusion, in order to determine whether you're getting value from

your reward spend, you need to be able to do the following:

• Understand what you want your current performance and reward

systems to measure.

• Design a simple and flexible performance and reward strategy that fits
with the overarching business strategy.

• Execute well, by measuring and actually differentiating individual

performance and rewards.

Once you have established a linked performance and reward strategy, you
will be able to get what you're really paying for from your workforce –
without it you may never know.

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8.15 Self-Assessment Questions

1. You are a CEO of a multinational technology services company which is

struggling to improve the organizational performance. You have been
asked by the board of directors to change the way performance
management framework operates and establish a clear linkage between
performance pay. Document your strategy and action.

2. Explain the various methods that can be deployed by a manufacturing

company to establish a linkage between productivity and rewards.

8.16 Multiple Choice Questions

1. “Pay may not always reflect the performance parameters”. Which of the
following is least likely to be the reason for such an issue?
(a) Pay packages negotiated on the basis of salary outside the
organization.
(b) Performance linked to the key result areas.
(c) Pay packages determined on the basis of comparable jobs.
(d) Inflation adjusted pay.

2. Which of the following is least likely to be a guiding principle for

establishment of right performance measures?
(a) Understand clearly what results you desire.
(b) Understand what benchmark (average) results would be.
(c) Understand the individual's ability to influence results.
(d) All of the above.

1. Which of the following is least likely to work as a strategy to establish a

clear linkage between rewards and performance?
(a) Making it irrelevant for people.
(b) Making flexible benefits programme work.
(c) Extending flexibility to work arrangements.
(d) Effectively communicate the rewards and pay linkage.

Answers : 1. (b), 2. (d), 3. (a)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 9
Types Of Rewards Systems
Objectives

After studying this chapter, you will be able to:

• Understand the innovation brought by the companies in the process of
defining the reward systems
• Understand the finer details of monetary and non-monetary rewards
• Gain an understanding of the concept of total rewards
• Understand the use of rewards to enhance the engagement of employees
• Gain an understanding of best practices in the total rewards management

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Structure:
9.1 Background and Overview of Reward Systems
9.2 Need for Rethinking and Innovation in the Design of Reward Systems
9.3 Changing Perception of the People as to How they Find Gratification in
Organizations
9.4 HR Managers Need to Recognize the New Age Networked
Organizations
9.5 What Organizations Need to Consider while Defining the Rewards
Structure?
9.6 Types of Rewards that are as Important as the Main Compensation
9.7 Innovation in Rewards and Recognition System
9.8 Comparison of Employee Expectations with the Maslow’s Theory of
Hierarchy of Needs
9.9 Non-Monetary Rewards
9.10 Concept of Total Rewards
9.11 Best Practices in Employee Reward and Recognition Programme
9.12 Key Components of Employee Engagement
9.13 Tips for Effective Multigenerational Employee Recognition – Best
Practices
9.14 Type of Rewards Implemented by Large Multinational Companies
Across the Globe
9.15 How Indian Companies are using Rewards to Motivate Employees to
Perform – in Times of Slowdown
9.16 Categories of Various Reward Schemes
9.17 Activity
9.18 Summary
9.19 Self-Assessment Questions
9.20 Multiple Choice Questions

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9.1 Background and Overview of Reward Systems

An employee’s compensation, usually referred to as tangible returns,

includes cash compensation (i.e., base pay, cost of living and merit pay,
short-term incentives, and long-term incentives) and benefits (i.e., income
protection, work/life focus, tuition reimbursement and allowances).
However, employees also receive intangible returns, also referred to as
relational returns, which include recognition and status, employment
security, challenging work and learning opportunities. A reward system is
the set of mechanisms for distributing both tangible and intangible returns
as part of an employment relationship. It should be noted that not all types
of returns are directly related to performance management systems. This
is the case because not all types of returns are allocated based on
performance. For example, some allocations are based on seniority as
opposed to performance.

• Base Pay: Base pay is given to employees in exchange for the work
performed. The base pay focuses on the position and duties performed,
rather than on an individual’s contribution. Thus the base pay is usually
the same for all employees performing similar duties, and ignores
differences across employees. However, differences may exist based on
such variables as experience and differential performance. In some
countries (e.g., the United States), there is a difference between wage
and salary.

• Cost-of-living Adjustments and Contingent Pay: Cost-of-living

adjustments (COLA) imply the same percentage increase for all
employees regardless of their individual performance. Cost-of-living
adjustments are given to combat the effects of inflation in an attempt to
preserve the employees’ buying power.

• Short-term Incentives: Similar to contingent pay, incentives are

allocated on past performance. But, incentives are not added to the base
pay, and are only temporary pay adjustments based on the review period
(e.g., quarterly or annual). So incentives are one-time payments, and
this is why they are also referred to as variable pay. A second difference
between incentives and contingent pay is that incentives are known in
advance.

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Example ― Salesperson in a pharmaceutical company knows that, if she

meets her sales quota, she will receive a $3000 bonus at the end of the
quarter. She also knows that if she exceeds her sales quota by 10 per
cent, her bonus will be $6000. In contrast, in the case of contingent pay,
in most cases the specific value of the reward is not known in advance.

• Long - term Incentives: Whereas short-term incentives usually involve

an attempt to motivate performance in the short - term (i.e., quarter,
year) and involve cash bonuses or specific prizes (e.g., two extra days
off), long-term incentives attempt to influence future performance over a
longer period of time. Typically, they involve stock ownership or options
to buy stocks at a pre-established and profitable price. The rationale for
long-term incentives is that employees will be personally invested in the
organization’s success, and this investment is expected to translate into a
sustained high level of performance

• Income Protection: Income protection programmes serve as a backup

to employees’ salaries in the event that an employee is sick, disabled or
no longer able to work. Some countries mandate income protection
programmes by law. Other types of benefits under the income protection
rubric include medical insurance, pension plans and savings plans. These
are optional benefits that organizations provide, but they are becoming
increasingly important, and often guide an applicant’s decision to accept
a job offer. In fact, a recent survey including both employees in general
and HR professionals in particular showed that healthcare/medical
insurance is the most important benefit, followed by paid time off and
retirement benefits.

• Work/Life Focus: Benefits related to work/life focus include

programmes to help employees achieve a better balance between work
and non-work activities. These include time away from work (e.g.,
vacation time), services to meet specific needs (e.g., counselling,
financial planning, on-site fitness room) and flexible work schedules
(e.g., telecommuting, non-paid time off).

Example ― Sun Microsystems actively promotes an equal balance

between work and home life, and closes its Broomfield, Colorado,
campus from late December through till early January every year. This
benefit (i.e., vacation time for all employees in addition to their yearly
vacation time) is part of Sun’s culture.

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• Allowances: Benefits in some countries and organizations include

allowances covering housing and transportation. This is typical for
expatriate personnel, and is also quite popular for high-level managers in
many countries

Example ― In South Africa, for example, it is common for a

transportation allowance to include one of the following choices:

❖ The employer provides a car and the employee has the right to use it
both privately and for business.

❖ The employer provides a car allowance, more correctly referred to as a

travel allowance, which consists of reimbursing the employee for the
business use of the employee’s own car.

• Relational Returns: Relational returns are intangible in nature. They

include recognition and status, employment security, challenging work,
opportunities to learn, and opportunities to form personal relationships at
work (including friendships and romances).

Example ― Sun Microsystems allows employees to enrol in SunU, which

is Sun’s own on-line education tool. SunU encapsulates a mix of
traditional classroom courses with on-line classes that can be accessed
anywhere in the world at any time. Sun offers its employees enormous
scope for development and career progression, and there is a
commitment to ensuring that all employees are given the opportunity to
develop professionally. Furthermore, the new knowledge and skills
acquired by employees can help them not only to advance their careers
within Sun but also to take this knowledge with them if they seek
employment elsewhere. Thus, some types of relational returns can be
long lasting.

Contains a list of the various returns we have discussed, together with

their degree of dependence on the performance management system. As
an example of the low end of the dependence continuum, cost-of-living
adjustment has a low degree of dependence on the performance
management system, meaning that the system has no impact on this
type of return. In other words, all employees receive this type of return
regardless of past performance. At the other end of the continuum,
short-term incentives have a high degree of dependence, meaning that

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the performance management system dictates who receives these

incentives and who does not. Between the high and low end, we find
some returns with a moderate degree of dependence on the performance
management system, such as base pay, a type of return that may or
may not be influenced by the system.

Return Degree of Dependence

Base pay Moderate
Cost of living adjustment Low
Contingent pay High
Short-term incentives High
Long-term incentives High
Income protection Low
Work/life focus Moderate
Allowances Moderate
Relational returns Moderate
Table 9.1

9.2 Need for Rethinking and Innovation in the Design of

Reward Systems

It is very crucial for the HR Manager to rethink and continuously innovate

the rewards and recognition programmes that are aligned to changing
business environment. One of the reasons why rewards programmes often
misfire is that they are too mechanical. Compensation or benefits
managers talk about benchmarking, comparative compensation ratios and
market levels when discussing rewards strategies. For many companies,
rewards management has become a purely technical tool. It has drifted
away from its original purpose – to align an organization's rewards strategy
with its mission, vision and values, and to use rewards management tools
to support the achievement of business goals. The current approach to
rewards often seems similar to selling a refrigerator or a washing machine
– simply on technical product specifications. Rewards has lost its marketing
appeal and the important branding messages that can accompany it. A
rethinking of rewards strategy and management is required. Creative and
innovative thinking about rewards needs to replace the technical and
statistical approach that has come to characterize rewards management in
many organizations. The accelerated pace of change combined with long-
term economic, cultural and demographic trends, refers this as a necessity.

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Factoring Need of Changing Times

The speed of change in Asia has accelerated exponentially in the past

decade. East Asian economies grew at consistently high rates for long
periods up until the mid 90s. Since then, economic growth has faltered and
then gathered speed in an up and down spiral. In contrast to this trend,
India's economic growth stagnated at 4 per cent per annum until the early
90s, but since liberalization, it has been fairly steady at 68 per cent annual
growth. The past two decades also saw the emergence of knowledge ―
based industries, such as software and biotechnology. The reduced capital,
intensity among these profitable new industries is allowing them to morph
more easily and consolidate much faster than the more capital intensive
industries that drove growth in the past. The continued acceleration of
information, technology and innovation, as well as shorter product life
cycles have further contributed to the rapid pace of change. These changes
have implications for reward managers in three broad areas:
• The information that is available to people
• The additional ways in which people seek gratification and recognition
• The methods that companies use to manage
• Increasingly networked organizations.

Today, information flows at warp speed. The speed of change can be

largely attributed to the fact that information today moves more rapidly
and flows through more informal channels and networks. Just look at these
recent statistics:
• About two billion people around the world use the internet, with nearly
half of them in Asia.
• Despite India's low internet penetration rate, it ranks the third highest
country in Internet usage.
• With 43 million users, India currently has the second largest Facebook
user base in the world, and is expected to host the social networking
site's largest user base in the near future.
• Over 11 million Indian professionals are on LinkedIn as of October 2011,
second only to the US

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• Social recruiting (hiring through social networks) accounts for 2 per cent
of all hiring in India and is expected to rise to 20 per cent in the future.

What this means is that more people have access to more information
much faster than ever before. Compensation managers used to be the only
ones with credible rewards information at hand. Now, it can generally be
said that employees know well what their counterparts in other companies
are being paid. Water-cooler conversations are much more evidence based
as compared to before.

The implications for rewards management are that it is no longer enough

to say, "We are benchmarking against the market." The facts flow faster
and no longer necessarily reside only with certain individuals in the
organization.

9.3 Changing perception of the people as to how they find

Gratification in Organizations

People's lifestyles, interests and concerns are also changing fast, and along
with it, the way they seek gratification has changed. For instance, in
parallel life online, people are paying real money to buy virtual land or do
virtual farming. Over USD 7 billion was spent on virtual goods and online
gaming in 2010, and Asia accounted for 70 per cent of this spend.
Companies are responding to such changing social trends and encouraging
employees to pursue their interests outside of work. For instance, the
number of companies sponsoring teams in the corporate challenge at the
annual Mumbai Marathon (a special category for companies who sponsor
employees) rose from 44 in 2006 to 134 in 2011. Tata Consultancy
Services alone sponsored 1,500 employees in the 2011 run.

Clearly, these companies recognize that their employees are seeking

gratification in ways that differ from the generations before them.
Recognition now encompasses different things, and how people seek
satisfaction or gratification is different as well. People no longer feel
obligated or loyal to an organization simply because the organization is
paying them well or giving them a bonus.

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9.4 HR Managers need to recognize the new age

Networked Organizations

Over the past several decades, companies have moved away from
hierarchical ‘command and control’ structures towards networked
formations. The dynamics of a networked organization are quite unlike
those in a traditional hierarchical organization.

Example ― Singapore Telecom (Singtel) is a case in point. Singtel owns its

business in Singapore, but outside of Singapore, they operate as part of a
network. Their largest business outside Singapore is in India where they
own 32 per cent of Bharti Airtel. They have similar minority shares in
cellular companies throughout Southeast and South Asia. Even where
Singtel owns and controls the company (e.g., Optus of Australia), they still
operate as network influencers. They work by influence and not so much
by control.

Similarly, rewards managers must be more consultative and less technical.

They must look closely at what suits the business and what rewards will
suit different levels and groups within the business. Furthermore, if the
organization depends on outsourcing, contractors, vendors or direct
salespeople (which is increasingly common as organizations have become
more networked), then the rewards managers also have to be aware of
how their indirect workforce is being rewarded.

Example ― The lack of involvement or interest in rewards management

beyond direct employees can have dire consequences. This is what led to
Lehman Bros mini bonds failing in Singapore. The sales network was not
under the control of DBS or Lehman and the salespeople's compensation
was not a primary concern of their rewards managers. The rewards that
were given to the point – of – sale people were completely out of sync with
the risk of the investments that they were promoting. The focus of the
rewards programme was very short – term even though the risk and
payback were medium to long – term.

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9.5 What organizations need to consider while defining the

rewards structure?

A technical approach to compensation does not equip rewards managers

with the tools needed to confront the problems created by the trends
outlined above. Aligning rewards strategy to business goals in the new
environment calls for quite a different perspective on rewards.

Firstly, let's be clear about ‘the war for talent.’ It is over and talent has
won. Organizations need to look at rewards from the perspective of the
employee. The classic approach to rewards management is based on the
assumption that money is the primary motivator for employees.
Performance incentives usually are primarily, if not entirely, cash based.

In fact, paying an employee fair and equitable compensation for a job well
done is just a given. Repeated research over the past 60 years clearly
shows that people are looking for interesting work and a work environment
in which they are appreciated.

Recent surveys have confirmed this and found that Gen Yers (those born
between 1980 and 1994) and Boomers (those born between 1945 and
1960) in the US, are seeking a new set of rewards that go far beyond the
size of their pay package. What they found was that Gen Yers have more in
common with the Boomers, than with the Gen Xers in between them.

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9.6 Types of rewards that is as important as the main

Compensation

Generation Y Generation X or earlier

High – quality colleagues High – quality colleagues
Flexible work arrangements An intellectually stimulating workplace
Prospects for advancement Autonomy regarding work tasks
Recognition from one's company or Flexible work arrangements
boss
A steady rate of advancement and Access to new experiences and
promotion challenges
Access to new experiences and Giving back to the world through work
challenges

How to Leverage the Understanding of Generational Differences in

Structuring the Rewards and Recognition Programme?

How can we leverage this knowledge of generational differences into the

structure of a rewards programme? We can, by structuring programmes
around fulfilling employees' intrinsic desires and what they are looking for
from life. Generational differences, as well as individual differences within a
generation, create diverse needs and motivation levers. We need to
reshape our rewards proposition, accordingly.

To do so, we need to look ‘outside the box.’ Keeping track of what

competitors within our own industry are doing is unlikely to surface many
creative and innovative ideas that we have not tried before. Start looking
at other industries and other geographies – not just within your own
industry or your country. Then try to analyse how their experience might
apply to your circumstances.

Example – Why do restaurants create such an aura around the chef? It is

because the chef can attract a huge following of fans, which helps build the
business. But when the chef moves, so do the fans. Aspiring chefs will do
anything to train with a star chef even though he/she may be demanding
and tough. This is because they are not thinking only about short – term

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rewards; rather they regard the experience, exhausting as it may be, as a

professional development opportunity and a key to achieving long – term
recognition.

Example – How many instances can you think of where, if a leader leaves,
the best talent goes with that person? Isn't it better to creatively leverage
the draw of charismatic, high performing individuals, rather than ignoring
or resisting the attraction and influence that such a person has for others
in the workforce? Let's focus on keeping the high performer motivated and
engaged. In so doing, the company not only retains that ‘star’ but also all
of the ‘fans’ (both customers and employees) that the ‘star’ inspires.

9.7 Innovation in Rewards and Recognition System

Thinking ‘outside the box’ means also looking at what motivates employees
beyond the basic desire for fair compensation. The oldest way of looking at
human needs and desires is Maslow. Using a model based on Maslow's
Hierarchy of Needs, we can analyse whether we are using all of the levers
of rewards and recognition that are available to us. An employer must
satisfy an employee's compensation needs – that is a given. In addition,
the organization should explore what it takes to satisfy an employee's
desire to belong, to be recognized, and to achieve his/her sense of purpose
and life goals. To do so, rewards managers need to consider an employee's
performance and the employee's employability. Increased skills,
knowledge, experience and public recognition help make a person a more
attractive candidate, and thus, contribute to higher employability.
Increased employability leads to greater self-actualisation since increased
employability enables a person to achieve his/her aspirations.

Many firms are wary of giving public recognition to their high performers
(and thus, increasing their employability) for fear that competitors will
selectively poach their best people. Ironically, it seems a paradox that the
more an organisation helps to improve an employee's employability; the
more likely it is that the employee will stay with that organization.

Assuming that the organization has satisfied an individual's basic

compensation needs, if a manager can help actualize a subordinate's
potential and the organization supports that person's development, then it
is more likely that that person will stay with the organization. If a high
performer does not feel he/she is realizing his/her potential or fulfilling

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their personal life goals, the chances increase that he/she will look
elsewhere for better avenues to self-actualisation.

Innovation in Alternate Rewards Systems

With unemployment at near historic lows in the United States, employers

report that their single greatest challenge is recruiting and retaining talent.
The answer for many companies is to throw money at the problem:
bonuses, incentive pay, and out of cycle salary increases are often seen as
motivators that will entice greater effort and loyalty out of workers.

Turns out, using cash as a carrot isn’t always the best answer, according to
new research by Harvard Business School Assistant Professor Ashley V.
Whillans. More than 80 per cent of American employees say they do not
feel recognized or rewarded, despite the fact that US companies are
spending more than a fifth of their budgets on wages. What employees
crave even more is to feel that their managers appreciate them and aren’t
afraid to show it, not only in pay cheque terms, but in other ways such as
flexible work at home schedules, gift cards for pulling off impressive
projects, or even just by saying “thank you” for a job well done.

“Cash matters in people’s lives, but it’s not all that matters,” says Whillans,
who researches what makes people happy. “What really matters in the
workplace is helping employees feel appreciated.” Whillans co-wrote a
recent article in Compensation & Benefits Review, ‘Winning the War for
Talent: Modern Motivational Methods for Attracting and Retaining
Employees,’ with Anais Thibault-Landry of the Université du Québec à
Montréal and Allan Schweyer of the Incentive Research Foundation.

Rewards that signal to employees that they did a good job and that their
manager cares about them will encourage employees to want to work even
harder, the research shows. ‘In a lot of organizations, there are no
recognition programmes for employees whatsoever, so employers need to
catch up,’ Whillans says. Companies with strong recognition programmes
enjoy increased productivity, lower job turnover, and greater returns on
investment than other companies in the same industries.

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Important Tips in Innovation in Alternate Rewards Systems

Whillans provides nine tips for business leaders on how best to reward their
workers in ways that will bring them greater job satisfaction and motivate
them to work harder.

1. When recruiting, emphasize benefits.

Talking up a job’s perks, such as flexible work schedules and skill training,
can give companies a recruiting edge. A 2018 study that Whillans and her
team conducted of more than 92,000 job ads found that the more benefits
an employer described, the higher the application rates. Plus, when
employers described benefits in detail, such as generous family leave
policies, they pulled in more applications than firms that paid significantly
more.

2. Cash can motivate workers — in some types of work.

“Cash rewards are best suited as a motivator for work that is measured
quantitatively,” Whillans says. Many studies of the service and sales
industries show that cash rewards lead to increased sales and improved
customer service. In the manufacturing sector, cash awards increase daily
productivity levels.

But, money is less meaningful as a motivator in the complex creative jobs

that make up most work in our modern knowledge-based society. “With
most of today’s employees, you’re trying to help instil intrinsic motivation,
so they feel motivated to put in more effort out of enjoyment for what they
do and appreciation for their jobs, rather than feeling extrinsically
motivated by cash alone.”

3. If you give cash, include a meaningful note.

“For many employees, particularly younger generations, a job is not just a
pay cheque; people seek meaning in their work. Giving cash alone can feel
like an empty gesture or a mere financial transaction and may not act as a
strong motivator to work hard,” Whillans says. It’s best to avoid merely
adding a cash bonus to a worker’s pay cheque; a separate bonus cheque
stands out more as a recognition of their work. And managers should also
include a sincere handwritten note explaining why the employee deserved
the bonus.

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“If you can find a way to imbue meaning beyond the zeros in the cash
reward,” says Whillans, “that same reward will go further.”

4. Reconsider performance incentives

Many companies attempt to motivate employees with money and prizes as
incentives for future work. Decades of research does confirm that financial
incentives can boost effort and performance. But there’s a downside; when
an employee’s pay is contingent on performance, they can become
obsessed with money — specifically, with earning more of it.

What often works better as an incentive is to turn around the timing of the
reward, handing it out immediately after an employee excels at a particular
task, rather than dangling it beforehand. “In this way, you can use timing
to your advantage,” Whillans says. “And be very clear about what the
worker did and why they’re receiving the reward to reinforce good behavior
— because you’re hoping the worker will repeat that behavior.”

5. Consider thoughtful gifts instead of cash.

Sometimes cash isn’t king. A 2017 study of 600 salespeople found that
when a mixed cash and prize reward programme was replaced with an
equivalent value all cash package, employee effort dropped dramatically,
leading to a 4.36 per cent decrease in sales that cost the company millions
in lost revenue, Whillans’s article says. The firm may have inadvertently
demotivated salespeople who preferred prizes or discouraged workers who
liked having a choice.

People may prefer non-cash gifts because they often spend cash bonuses
on basic necessities like paying rent or buying groceries, which are less
memorable and enjoyable transactions than luxurious prizes like electronics
or trips. It’s even better if a gift feels personalized. A manager could give
an employee who enjoys fitness activities a gift card to a store that sells
workout clothes; while giving another worker who is a big Red Sox fan
tickets to an upcoming game.

Another side benefit to prizes: workplace buzz. “People feel awkward

talking about money, so they won’t talk about the $2,000 bonus they
received. But, if you reward someone with a nice dinner or trip, they will
talk about it with their co-workers, and that can motivate everyone,”
Whillans says. “Plus, that trip or dinner is more memorable and emotionally

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satisfying to them than just receiving cash, so it can act as a stronger

motivator.”

6.Give the gift of time — and other intangible perks.

A Glassdoor survey Whillans and her team conducted with 115,000
employees found that providing intangible non-cash benefits, like flexible
work options or the ability to choose assignments, led to much stronger job
satisfaction than straightforward cash rewards. “If you allow an employee
to work at home, you help employees feel like you trust them to get their
work done where they want to get it done,” Whillans says. “That is
enormously satisfying to them — and it motivates them to work even
harder.”

Also, research shows that employees who take time off are less stressed
and more engaged, more creative, and more productive. Give the gift of
time, not just through generous vacation policies, but in other ways. For
example, figure out flexible work schedules so employees spend less time
jammed in traffic. Allow work travellers to book direct flights — even if they
cost a little more than indirect trips.

7. Encourage employees to reward one another.

Companies can build recognition into their business practices by creating
peer-to-peer recognition programmes in which employees are provided
monthly reward points that they can give away to colleagues for work
related wins. Employees who earn a certain number of points can redeem
them for various perks, such as a restaurant gift card or an extra personal
day.

“This is not expensive for a company to do and makes the act of

appreciation in the workplace habitual and easy,” Whillans says. “It also
builds social connections in a workplace, which helps people feel more
fulfilled at work.”

8. Make the recognition public.

If employees are receiving a $500 bonus, hold a workplace event to hand
out cheque, and invite the employees’ peers. Perhaps add a certificate of
appreciation along with the cheque. “People are more likely to contribute
posts on Wikipedia when they receive a public certificate of recognition,”
Whillans says. “If you can create a social experience around the reward, it
becomes more eventful and something an employee will remember.”

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9. Sometimes a simple thank you is enough.

“Among the happiest employees, 95 percent say that their managers are
good at providing positive feedback,” Whillans says. In fact, a simple,
heartfelt ‘thank you’ from a manager is often enough for employees to feel
like their contributions are valued and will motivate them to try harder. To
be most effective, the praise should be specific, highlighting the worker’s
unique contributions. It’s a tactic that’s wildly effective, yet significantly
underused in the workplace. “You don’t have to express gratitude only for
things that help the company turn a profit. It could be as simple as saying
‘thank you’ for an email that allowed a project to go more smoothly,” she
says.

10. Why rewarding employees works?

Whillans says, “these types of rewards work because they tap into three
strong psychological needs: Employees long for autonomy, with the
freedom to choose how to do their work; they want to appear competent,
armed with the skills needed to perform; and they want to feel a sense of
belonging by socially connecting with colleagues in a meaningful way.”
“When these needs are satisfied, employees feel more motivated, engaged,
and committed to their workplace — and they report fewer intentions of
leaving their jobs,” Whillans says.

Companies shouldn’t read the research results to mean that money is

meaningless to employees. The team’s findings are contingent on the
understanding that employees are paid competitive, fair salaries. Because,
let’s be honest: If an employee has worked overtime for weeks on an
important project, a mere ‘thank you’ may feel hollow. Managers should try
a variety of rewards and measure which ones appeal to employees and
motivate them the most.

“Praising employees can be a stumbling block for leaders who mistakenly

believe being harsh produces stronger results or who worry they will
appear soft and won’t be taken seriously. So managers should be trained in
how to regularly show appreciation,” Whillans says. “Many managers feel
awkward showing gratitude and shy away from it,” she says. “That’s why
organizations need to make a push to help managers with this. It can
make all the difference in whether a talented worker stays or goes.”

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9.8 Comparison of employee expectations with the

Maslow’s theory of Hierarchy of Needs

Self-
How well am I accomplishing my
actualisation larger life goals, or the company’s
Accomplishment vision and transformation?
of life’s goals

Esteem Important work, How much does the company

value me in relation to my
recognition achievements?

How do I stand vs. My How much does the

peers?
Social Sense of company value me
belonging relative to my peers?

How much money

will I I earn?
Security Safety, job, control

Physlological Food, water, exercise, rest

9.9 Non-Monetary Rewards

Over a period of time, in addition to the monetary rewards, organizations

have been also carefully evaluating non-monetary rewards. A lot of
organizations will engage and retain their employees if they can clearly
make the link between people, their performance and business results.
When it comes to employee engagement and retention, an organization
that is not interested in rewarding their employees gets what they put in –
a little effort means a little engagement and staff attrition. As far as staff
reward goes, in today’s economy, all organizations try to do more with less.
They look for other ways to give rewards, keep employees engaged and
maintain their staff strength via other means rather than throw money at
their employees.

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When used properly, non-cash awards, like merchandise and travel, have
indeed proven to be more effective and therefore more efficient than
traditional forms of compensation when used in a total rewards mix. Some
of the reasons that help employees stay in the organization for a longer
term are as follows:
• Career growth, learning, and development
• Exciting and challenging work
• Meaningful work, making a difference and a contribution
• Great people
• Being part of a team
• Good boss
• Recognition for work well done
• Fun on the job
• Autonomy, sense of control over my work
• Flexibility, for example, in work hours and dress code
• Fair pay and benefits
• Inspiring leadership
• Pride in the organization, its mission, and quality of product
• Great work environment
• Location
• Job security
• Family – friendly employer
• Cutting ― edge technology

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The above list provides a hint of what matters to employees, which is a key
point in employee motivation. As a leader, recognizing that people who do
meaningful work create the most value in the marketplace is important.
Employees want to be recognized about every seven days. That doesn’t
mean that employees expect something big or lavish every seven days,
often just a simple clear acknowledgement and the two words, ‘thank you’
is enough to show that their work is valued and that they are on the right
track.

There are several simple approaches that can provide some of the most
effective strategies for rewarding and motivating staff. Other fundamentals
include:
• Knowing your employee. Take the time to ask what they value and
what motivates them.
• Give feedback. Specific, straightforward, on the spot praise is vital!
“Praise in public” demonstrates respect and it achieves results.
• Partner with employees in achieving their goals. Ask employees
about their career goals and offer related assignments whenever
possible.
• Educate employees about the ‘business’ of the department. Such
learning can be fulfilling for employees, and can make them more
valuable assets.
• Keep employees informed and involved. Having an overview of the
big picture is important. Seeing how their role serves the greater mission
increases their feeling of being connected to their work.
• Use rewards that have mutual benefit. Rewards such as skill training
and professional development are timeless.

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Examples of Non-Cash Rewards

This is the list of 30 best non-cash rewards to give at work as incentives to

employees:
1. Collate positive handwritten statements about the employee from their
colleagues, frame and present it to the employee.
2. Provide the employee with some one-to-one coaching and mentoring
sessions with a senior member of the organization for six months.
3. Register the employee and engage for a conference or training session
of their choice.
4. Share an inspirational success story with all and make it all about the
employee.
5. Allocate a day in a week for them to do anything creative and of their
choice for a month.
6. Give them a new job title or update their current job title.
7. Start an organizational ‘Wall of Fame’ board in a prime spot and add
their name to it.
8. Let the employee suggest a way they would like to be rewarded other
than cash reward.
9. Pick up the tab to fuel their car for a week or a month.

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10.Prepare, present and disseminate a short video mosaic that celebrates

the employee’s accomplishments.
11.Get the employee some career counselling sessions.
12.Find out what the employee is passionate about and give them a gift
related to it.
13.Pick up their family’s tab for a dinner at their favourite restaurant.
14.Present the employee with a pair of tickets to a concert or a show so
that they can invite their partner along.
15.Get them an iTune voucher if they own an iPod, iPad, iPhone, etc.
16.Give them a day pass to a spa.
17.Present the employee with a handwritten thank you note.
18.Name a meeting room after the employee for a year.
19.Give the employee a reserved parking spot for six months.
20.Present the employee with a bouquet of flowers.
21.Make a public ‘thank you’ announcement and give money to their
favourite charity.
22.Organize for the employee to take a fun class, such as jewellery
making, scuba diving or skydiving.
23.Present the employee with a tasteful framed certificate to show how
valuable the employee’s contribution to the company has been.
24.Give the employee a gift card to their favourite shop.
25.Get them a voucher to download e-books from their favourite author.
26.Cover the cost to have a professional family portrait of the employee
taken.
27.Allow the employee to be flexible with their working hours for one
month.
28.Give the employee a day or two off work.
29.Get a mobile car valet service to do a full valet of their car.
30.Help to pay for a trade association membership of their choice.

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Further, employer’s also consider special life conditions in the process of

defining the non-monetary rewards.

Example – Bharti Airtel increases maternity leave by 10 weeks: To

promote gender diversity across all management levels, top telecom
operator Bharti Airtel has increased maternity leave for its women
employees to 22 weeks from 12 weeks. This is in addition to flexible work
options for working mothers to ensure a smooth transition to full working
hours. Company's office in Gurgaon also provides modern day care
facilities for children. Objective of the policy is to provide adequate support
to employees to balance their role as parents with professional
commitments at work.

The revised policy reiterates its commitment to providing the same role or
an equivalent role to the employee on return after 22 weeks. The rating of
the employee for the assessment year will be based on the employee's
performance and contribution during the period she was working.

In case of adoption, if the child's age is less than 2 years, women

employees can avail of 12 weeks of leave and if the age is above 2 years, a
6-week leave can be availed. Male employees can take 1 week of leave in
both the cases.

Example – For retention of the talent and attracting new talent, in

promoting the employment for working mothers, corporate India has
extended the benefits beyond the paid maternity leave. Some of the
important benefits that are being extended to working mother are as
follows:

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• Fully paid maternity leave. This leave could be for 12 weeks or more,
depending on the prevailing local regulations or company's best practice
policies.
• Performance rating for new and entrant mothers will not be affected by
their absence from work during maternity.
• If maternity has been availed, post mid-year, then the mid-year rating
will hold good, unless a strong case is presented for a downgrade during
ATRs.
• Low performance rating can be awarded only if there’s ample
documented evidence of non-performance.
• Women returning from maternity leave post mid-year can be treated like
a new joiner since he/she hasn’t had the scope to demonstrate
performance (this implies an average rating performance).
• Active support from the team manager or business leader, to organize
the workload of expectant mothers going on maternity leave, while
ensuring continued performance of the team in their absence.
• Performance appraisal guidelines from CEO and HR must clearly
communicate that maternity, long leave and special leaves are given
appropriate ratings, and should be transparently communicated and
implemented across the organization.
• ‘On-ramping’ of women employees who return from maternity—re-
skilling and re-integrating as a key priority to engage them back to work.
• Flexitime work policies for new and entrant mothers during for the first
year of their return from maternity. This can be equally applied by
manufacturing, finance, banking, IT-related, pharma, hospitality,
telecommunications — and all sectors of the economy
• Options to work from home during maternity — especially if it is part of
the medical advise to expectant mothers.
• Engage or assign a mentor/’buddy’ to the new mothers when they come
back —preferably, a lady who has returned from maternity leave in the
last one year and has got back to normal office work.
• Mass career customization for women who return from maternity — dial-
up and dial-down of work timings and performance measures.

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• Gender sensitization and awareness training programmes for other

employees and managers
• Specific ‘work initiatives’ for mothers resuming work, which can be done
through women’s and diversity networks
• Grievance Redressal Council — especially for women employees who
have resumed post maternity.
• Reorientation programmes for bringing the employees on LWP/maternity
leave up to speed regarding the changes/updates in various policies and
processes.
• Creating a conducive work environment to help the associate ease back
into her work related responsibilities more efficiently.
• Aiding through a structured programme, the reorientation of such
associates.
• Special performance management policy for women returning from
maternity leave. This policy ensures that women who are returning from
maternity leave or childcare leave would have their final performance
band calculated based on all available performance ratings during the
year.
• A leave-without-pay policy and a progressive childcare policy, which
enables employees to avail of leaves when they are required the most
• Congratulatory triggers should be sent to those who have applied for
maternity and paternity leave. This practice is usually very well received
and has tremendous emotive appeal
• Full time day care centres — as on-campus or as link-ups with external
day care centres.
• Creating a maternity resting room for pregnant women and new mothers
on the company premises.
• Healthy food counters for expectant mothers.
• A ‘Stay Connected Programme’ for women on maternity leave via email
and intra-company online programmes — to ensure that associates on
long leave continue to be updated with the latest happenings, receive
news, and information bytes — in the comfort of their personal email
boxes on a monthly basis that help them keep updated.

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• ‘Workplace Parents Group’ should be formed across various centres to

engage working parents through child psychology and parenting
workshops. These groups bring working parents together to discuss
common problems and look for solutions.
• Extendable maternity leave — maternity leave (paid) is for 12 weeks. A
woman suffering from illness arising out of pregnancy, delivery, or
premature birth of child, miscarriage, medical termination of pregnancy
or tubectomy is entitled to an additional paid leave for a maximum period
of one month upon providing the required supporting medical
documents.
• Special transport allowance for expecting mothers — vehicle drop to their
residence escorted by armed security guard.
• In-house 24/7 gymnasium and doctors on campus.
• Crèche on – campus.
• TOS (time off scheme) to encourage work – life balance is in place.
• During prenatal, postnatal and finally resuming back, no docking of
compensation is done.
• Maternity or paternity leave does not affect associate’s eligibility for
ESOP.
• Exception handling in terms of transport, dress code.
• Health advisory committee which gives health tips.
• Maternity treatment at cashless hospitals.
• Domiciliary and consulting services available on – campus.
• Complaint mechanism for redressal of grievances.
• Congratulations maternity leave benefit.
• Return to work policy for new mothers: Women can decide their date of
return to work as per the doctors advise and discussion with their
HR managers. Their employment status with the company is not affected
in any way by their maternity leave.
• Special car parking reservation for new and experienced mothers.

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• Mother’s resting and feeding room.

• Personal felicitations for new mothers returning to work.
• On – site rejuvenation lounge — for new and entrant mothers
• Maternity coaching is an opportunity.
• All female employees who are returning from maternity leave get an
option to work at a reduced schedule of 50 per cent of the normal weekly
hours per week, for a two-month transition period immediately following
the maternity leave.
• Job – sharing between two women — as an option for reducing the
workload for new mothers.
• Voluntary reduced work hours after motherhood.
• Part – time employment: Employees reduce their workload and
consequently their hours decrease to fewer than standard workweek
requirements. Part-time employees work between 20–30 hours per week
with a corresponding reduction in pay and adjustment of benefits.
• Sabbatical leave as an extension of maternity leave.
• Transfers/relocation made easy for spouses and married women.
• Promote internal networking platforms for women — where they can
chat, and share their experiences, and challenges
• Concierge services — in India and globally during travel for work and
business meetings
• Ombudsperson policy: Employees can raise an integrity concern to the
ombudsperson through various channels and immediate investigation is
done and appropriate action taken. An employee can also raise a concern
anonymously by dropping a note at the ombuds boxes placed across
locations.
• 24-hour convenience store — tied up with grocery stores where the
employees can place all their grocery orders online and the orders will be
delivered to them in office each Friday. This helps them focus on work
and personal life and leave the other odds to tie up in office.
• Provide lightweight laptops and cell phone to new mothers, so that they
are easy to carry to work.

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Performance Premiums

Rewarding top performers is one of the most effective tools to attract and
retain the right talent. And, rewards don’t always mean heavier pay
packets. In a rapidly growing market marked by a shortage of skills and a
high turnover of employees, companies in India are now moving away from
traditional rewards systems — skewed towards cash compensation — to
‘total rewards’.

9.10 Concept of Total Rewards

Total Rewards can be easily be divided into three broad categories, viz.,
pay, benefits and careers.

• Pay
(a) Base pay
(b) Short-term incentives
(c) Long-term incentives
(d) Recognition

• Benefits
(a) Health and group benefits
(b) Retirement
(c) Work–life programmes
(d) Perquisites

• Careers
(a) Training and development
(b) Lateral career movement
(c) Stretch assignments
(d) Career incentives

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The picture provided here depicts the ‘Hay Group Model for Total Rewards’

Example – Implementation of total reward concept by many large

companies in India.

Total rewards include compensation in both cash and kind. Lifestyle

perquisites such as a house, a car or a club membership, profit linked
incentives, deferred gratuity, and wealth building programmes in the form
of stock options and soft loans have been popular for some years. But now,
companies are adopting a slew of new rewards practices. These include
work-life balance programmes; competency pay where niche skills are
compensated; and career opportunities, such as overseas assignments,
new projects, etc. “All good companies (in India) have been practising
(the) total rewards method to keep their best people,” says Prabir Jha,
global head, human resources, Dr Reddy’s Laboratories Ltd. This shift

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away from cash rewards promises high returns in terms of employee

satisfaction while reining in galloping salary scales. Says Rajan Srikanth,
human capital business leader, Asia Pacific, Mercer Consulting: “There are
still many companies which use cash compensation as the primary driver
for reward. They are, however, running the risk of irresponsible
compensation.” In contrast to cash based rewards, total rewards score
higher in terms of customization, fungibility or exchangeability and strong
differential, say experts. These rewards can be tailored to suit the top
performers’ aspirations to achieve maximum effect. However, as in the
case of cash rewards, the effectiveness of a total rewards initiative is
dependent on the selection of the top performers.

Drawing the Line

Evaluation of performance plays a key role, not just in rewarding an

individual employee but also in setting standards for others, say experts.
‘HR managers need to put in place a fair and transparent performance
management system’ so that deserving employees are rewarded, says Jha.

One such example, according to Ganesh Shermon, partner and head,

human capital advisory service, KPMG India, is the performance
management system of oil and gas company Bharat Petroleum Ltd.,
which has instituted a balanced scorecard based on key result areas to
measure performance.

“Only when you have identified the performers can you create a rewards
plan which can get the desired results,” says Shermon. “Also, companies
need to communicate the value of total rewards programmes and bring
about supporting supranational change for efficient rewards delivery,”
Srikanth adds.

For a reward system to yield maximum dividends; however, it is necessary

to go beyond the top performers, and engage the middle rung. “Rewards
for the top rung are mostly well addressed by companies in India, but the
same can’t be said about the second rung, which is not (only) just as
critical but is also a very dynamic part of (the) workforce,” says Srikanth. It
is easier to address this challenge through total rewards than cash rewards
as it affords more variation and customization.

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Experts say a strong differentiator is the hallmark of a good rewards

practice.

The differentiator can be based on individual aspirations, career level,

demographics, market forces and even gender. For instance, family-
oriented benefits work for IT consulting company MindTree Consulting
Ltd., where women comprise 23 per cent of the workforce. “Most women
prefer benefits that can be enjoyed with (the) family as opposed to
individual gratification, and thus, family-oriented rewards find favour with
them,” says Srikanth.

Healthcare business process outsourcing (BPO) firm Ajuba Solutions

(India) Pvt. Ltd., which was recently voted one of the top emerging IT-
BPO employers by the industry body, National Association of Software and
Services Companies (Nasscom), uses training and career development as
the key differentiator to attract and retain talent. “Ours is a very
specialized business, and the guidelines we work on are very different and
unique to the US healthcare industry,” says Devendra Saharia, co-founder
and president, Ajuba Solutions. “Our training is recognized as a benchmark
within the industry and is one of the strongest reasons for employees to
join us,” he says.

Top performers are usually on a fast track in terms of career progression at

Ajuba, with non-cash rewards including sponsorship for higher education,
and the chance to lead new projects early on. The result: a number of
managers at the BPO are in their mid-20s.

Trust Pay

While Ajuba took the training route, HCL Technologies Ltd. appealed to
its employees by going against the market trend. Two years ago, the
software and services firm instituted trust pay — in which a company pays
a fixed salary irrespective of performance—for 85 per cent of its employees
when rivals were moving to a performance based pay system.

The rationale behind the move was that targets are often so high that
employees are able to get only a small portion of the variable pay.

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Commenting on the success of the trust pay experiment, Vineet Nayar,

chief executive officer, HCL, says in a Harvard Business School case study:
“It increased our cost base, but it was intended to reduce transaction
volume and increase trust...It re-energized the company as suddenly
people from the competition began joining us.”

Reward systems also need constant appraisal. What works for one
company at a particular time may lose effectiveness over time.

Samsung India Electronics Pvt. Ltd., which moved to a performance

based pay system two years ago, revisits its compensation and rewards
programme every year. Says Sanjay Bali, vice-president, human resources:
“At each level, there’s a different need, and rewards should ideally be
worked around the need for them to be effective.” Giving an employee
what she doesn’t want takes the ‘teeth’ out of the reward, he adds.

In a market short of talent, companies are seeking to spruce up their

rewards practices since they not only work as a good attraction and
retention tool but also boost productivity and foster a strong employment
brand.

“Although you are paying for the past performance through rewards, you
are creating hope for the future. An unhappy guy is less likely to be
productive, or stick around,” says KPMG India’s Shermon.

System of Total Rewards

It is a system of rewards more comprehensive than traditional cash based

compensation packages. Companies are now using a variety of rewards to
encourage top performers.

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These include:
• Base pay and fringe benefits in the form of perquisites in line with the
lifestyle and aspirations of employees, such as housing, car or club
membership.
• Wealth building programmes in the form of stock options, soft loans,
annuity, key man insurance.
• Variable pay, including short- and long-term incentives that are profit-
linked or benefit-linked programmes.
• Benefits package including medical, pension, provident fund, work-life
balance programmes.
• Recognition in the form of non-cash rewards, such as company
sponsored dinners, holidays, etc.
• Deferred gratuity programmes in recognition of the work performers are
expected to do.
• Learning and competency pay where niche skills are compensated.
• Performance based career opportunities such as overseas assignments,
new projects, etc.

A Total Rewards System Helps:

• Maintain a steady salary structure, while retaining or attracting talent.
• Include middle rung performers in the rewards net.
• Vary rewards to suit the individual needs of employees.
• Have more effective incentives for other employees.

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Employee Recognition Programmes

Happy employees mean higher productivity. Some of the innovative

programmes that the companies run are as follows:
• Social recognition
• Gamification
• Badges
• Progress bars
• Unique prizes
• Monthly statement
• Peer recognition
• Manager recognition
• Training programmes
• Customer recognition
• Suggestion programmes
• Years of Service

Employee Recognition Objectives of Companies

It is important to understand some of the key objectives of employee

recognition measures adopted by various companies. WorldatWork
conducted survey of companies which draw various types of employee
recognition programmes and identified some of the following as top five
objectives:
• Recognise years of service
• Creation of positive work environment
• Motivate high performance
• Create a culture of recognition
• Reinforce desired and expected employee behaviour

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9.11 BEST PRACTICES IN EMPLOYEE REWARD AND

RECOGNITION PROGRAMME

Organizations establish robust reward and recognition team that meets

regularly to plan and implement ongoing events and initiatives, with a goal
of keeping the programme’s momentum alive and well. The following are a
few of their highly successful celebratory efforts in honour of employees:
• Birthday with the Boss: Each month, employees are invited to attend
their choice of breakfast or lunch with the CEO in one of the hospital’s
conference rooms to celebrate their birthday; nice meal is served and
each employee is given a special gift.
• Employee service awards
• Chair massages
• Free Thanksgiving and Christmas holiday buffets
• Perfect attendance recognition (special reception, certificate presented
and drawings for special prizes including a trip to a resort area)
• Valentine’s Day Ice Cream Social/Late Night Sweetheart Breakfast for
third Shift employees (administrative team cooks and serves employees)

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• Holiday trips for employees/families that feature discounted tickets and

rides on chartered buses at no charge
• Free tickets to sporting events including baseball, arena football, and
hockey games
• Employee bowling league and basketball team (jerseys/fees paid by
hospital)
• Wall of fame recognition
• Hospital Connection: Daily briefings with staff for improvement of
communication and recognition of employees’ special achievements.

Engaging the New Age Employee – Role of HR Department

The human resource (HR) department is an important asset of an

organization. It helps companies in building a team of highly talented
professionals and procedures that are pivotal for success. Over a period of
time, the role of HR has also evolved to include a lot of responsibilities.
Initially, the key role of HR heads was to recruit the right candidate for a
job/position and retain them. Today, the key functions of the human
resource management (HRM) team include recruiting people, training
them, performance appraisals, motivating employees, improving workplace
communication, ensuring workplace safety, and much more. In the current
scenario, more emphasis is also given to training and engagement
programmes to inspire the employees to enhance their knowledge to
ensure career growth. This, in turn, helps motivate and encourage

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employees in constantly delivering productive results. Over time,

companies have also adopted better technologies to help implement the
expanded role of the HR department.

HRM is based on three pillars — diversity, talent management, and

personnel systems. In today’s business world, we can split functions of HR
department into two parts i.e., HR Administration and HR Leadership and
organization. HR administration deals with managing compensation and
benefits. There is a crucial link between compensation and the right talent.
Compensation and benefits design is core to the employee value
proposition and the employer brand.”

HR leadership involves helping the topmost management improve people

capabilities. HR leaders need to work towards identifying the employee
skills needed for business success, leading talent development, designing
organizations to deliver results, fostering a culture of agility and
responsiveness, and leading change efforts.

HR department is extremely relevant to ensure empowerment of

employees and their careers through training, development and growth
opportunities that will sustain growth. As part of its key deliverable, an
active HR department must recognize the impact of the outside
environment on the organization, measure the impact of the competition
on the dynamics of the employment market and integrate the overall
organizational strategy and functional strategies, apart from initiating
engagement programmes.

Attrition is a major challenge faced by HR personnel in today’s competitive

market and one way of tackling this challenge is to have effective
employee engagement activities which would open up the line of
communication. Today’s HR activities focus lies on engagement value
proposition that creates engagement drivers, systems and strategies
including leadership, communication, work environment, team work, career
development, rewards and recognition and work-life balance.

The role of an HR department is to ensure that the employees stay

connected with the organization and feel free in sharing their goals, fears
and conflicts. However, often employees face difficulties in approaching
their HR personnel due to a lot of reasons such as lack of daily
engagement, lack of open communication lines and preconceived notions.

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In the process of organization development, one needs to have a clear

understanding of business perspective and human behaviour. Human
behaviour is a science for which one needs to have the understanding and
knowledge of the subject and hands – on experience which differentiates
HR from any other support functions.

If HRM is so crucial to a company’s performance, then it follows that

companies need the right HR professionals who are up to the task. We
need to understand that this is a knowledge world. We also need to realize
the fact that HR is essentially a facilitating function rather than a front line
one. Several of the conventional HR matters are known to the heads of
other line functions. The difference essentially happens when HR as a
function is not able to appreciate the needs of those who produce, sell and
make the company laugh to the bank. Hence, a need has arisen for HR
function to have full knowledge of the business, in its entirety.

9.12 Key components of employee engagement

Aon Hewitt conducted a study to analyse key reasons for employee

engagement. Some of the key drivers highlighted by the study are
indicated as under:

• Company’s Brand: Out of the employee surveyed, around 82 per cent

of employees value this aspect of a company’s brand, and a solid
reputation as an employer of choice can go a long way in engaging
employees.

• Strong Leadership: Companies with the most engaging leadership are

those that invest in cultivating and developing talent, focus on talent
beyond the typical performance management cycle, have leadership
programmes and practices aligned with the business strategy and
recognize that ‘leadership is a way of life’. Having an engaging leader in
place, and ensuring the ethos are spread throughout the organization, is
crucial to successful engagement.

• Performance Focused Reward Programmes: With the range of staff

incentive and loyalty programmes available today, there is no excuse not
to take steps to implement a comprehensive reward and recognition
plan. Doing so could be the final piece in the employee engagement

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puzzle.

Happiness at work is counted in terms of words of appreciation,

recognition, respect, encouragement, time taken to complete a task and
issues like leave. It plays a very important role in retaining the employees
for a longer span and ensuring their loyalty to the company. Today’s
generation looks for a job which can define them, help them contribute in
the growth of the company and give them a great sense of purpose.
Pharma companies should strategies their HR plans around these aspects
to retain world-class professionals who can help them achieve new heights.
HR departments of today are key strategic partners in their organizational
short and long-term strategies. Engagement programmes hold significant
value in light of retaining the talent.

HR engagement activities should be directed towards organizational

development as well. Such initiatives aid in higher productivity levels
among employees, and also add to their attachment and passion towards
the organization. It is an established fact that employees turn out to be
more productive if they feel fulfilled in their jobs. Moreover, they tend to
align with the organization’s long-term goals and thereby help in achieving
a good retention level and productivity.

The HR department should clearly define the organizational goals, create

opportunities for employees to enhance their skills from time to time for
their professional growth and recognize and reward their performance so
as to bring out the best in them. The HR team also helps in maintaining a
safe, clean, healthy and employee friendly working environment. Thus, it is
imperative for companies to set up a strong and effective HR department.
Employees are the real assets of an organization and rewarding them
appropriately provides both encouragement and motivation.

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9.13 Tips for Effective Multigenerational Employee

Recognition – Best Practices

Deepen engagement by holding younger employees accountable

and building trust for older workers.

Regardless of age, the top driver of employee engagement is a sense of

opportunity for development in the organization and that the company
cares about me. However, the number two driver of engagement for
younger workers (aged 25-44) is a sense that employees are held
accountable for their work. Younger workers want to know that their work
will get noticed and see how it makes a difference for the company and
their careers. For older workers (aged 45-64), a feeling of trust for leaders
and respect by leaders is the number two engagement driver. They need to
feel that their company trusts them to perform, and trust that their
managers support their actions.

Motivate younger employees with promotions and formal

recognition for their work. Motivate older employees with variety
and autonomy.

Across the board, employees are motivated by exciting, challenging work.

But once that need is met, generational nuances matter. Younger
employees (aged 25-44) want their work to be noticed by their peers,
leaders and the organization. Recognition and promotions help younger
employees feel a sense of opportunity and well-being. Older employees
(aged 45-64) want to feel secure in the organization they work for; variety
and autonomy not only give them this feeling, but also allow them to feel
empowered to make a difference.

Make sure recognition is meaningful for less experienced

employees and based on performance for more experienced
employees.

Less experienced employees (those under age 25) want recognition to

come across as genuine and personal. More experienced employees (ages
26 and up) need their recognition to be specific, based on performance,
and given for very clear reasons.

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Highlight unique ways of less experienced employees contribution,

and make sure recognition is given fairly for more experienced
employees.

All employees want to be recognized and appreciated in a variety of ways.

Less experienced employees want to be uniquely valued, preferring more
spontaneous recognition. Recognition that appears to be given to younger
workers to ‘check a box’ or ‘because it’s their turn’ is not meaningful. More
experienced workers are less concerned with uniqueness and more
concerned with recognition that is fair, based on performance, and earned.
Because they typically have more senior positions/greater tenure, their
award expectations are also higher.

When planning career celebrations, keep in mind what would be

most meaningful for each individual employee.

Younger employees (aged 25-44) report wanting a more casual, party-like

environment with more opportunities to socialize, to get away from the
work location, and have greater management participation (but they’re
sensitive to presentations that are generic and not personalised). Older
employees (aged 45-64) are more comfortable with more corporate/formal
presentations, family involvement, and greater management participation.
By recognising and appreciating your multigenerational employees
appropriately, you can engage, motivate and inspire great work from all of
them.

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9.14 Type of Rewards implemented by large MultiNational

Companies across the Globe

On-site scuba lessons, desks on wheels, employee shopping sprees and

unlimited time off are just a few of the ways innovative employers recruit,
reward, retain and refresh workers. See if any of these best practices—
some simple, some extravagant—inspire you to take a fresh look at your
company’s perks:

Example – Verizon
Verizon, the phone, wireless and cable TV giant, encourages employees to
post videos of themselves showing and telling their colleagues how to
perform job–related tasks or solve common problems. Through 2013,
workers had posted more than 2,800 videos on the company’s intranet
video site, VZTube. With more than 2 million views, the videos have gone
viral — at least internally.

Videos depict employees demonstrating the use of computer software and

other business tools. One popular video — about Samsung’s Droid Charge
smartphone — logged 1,240 views within minutes of being posted.

Example – Upstream Systems

After its research showed that consumers respond well to pitches that
involve playing games, marketing firm Upstream Systems ‘gamified’ its
own search for job candidates.

Applicants for five marketing campaign manager positions competed for

the job by competing in an online challenge, which senior VP Guy Krief said
was designed to attract “the right kind of candidates for this role.”

The multinational Upstream, with US operations in California’s Silicon

Valley, develops smartphone based marketing campaigns for consumer
products clients. The campaign manager selection game required would-be
employees to navigate seven online ‘missions’ set up to reveal their
language fluency, creative thinking, understanding of basis statistics and
tolerance for challenge, Krief explains. The challenge took about an hour
and led candidates through a series of problems related to specific aspects
of the position they were seeking. They had to ‘decrypt’ anagrams, answer
word usage questions, solve elementary math problems, match customer
emotions to hypothetical scenarios, and more. Krief said the game like

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format of the job “application” attracted candidates who might not have
applied for the job through more traditional means.

Example – Patton Boggs Law Firm

It’s not too early for the Newark, N.J., office of the Patton Boggs law firm to
start planning its annual holiday celebrations — because it throws two
separate parties every December. The first is for the children and guests of
staff members, and includes visits from Santa, Mrs. Claus and their many
elves. The second party is for employees and their partners, and is held at
a local country club. The abundance of holiday cheer, say execs, is part of
an effort to create a family atmosphere and reinforce social ties among
staff members. Throughout the year, the firm’s employees mingle during
monthly cocktail parties. In addition, Patton Boggs offers employees extra
half-days off during the summer and on-the-spot bonuses of up to $2,000
for jobs well done. The firm’s attorneys are required to complete at least
100 hours of pro bono work each year, and the staff routinely pitches in to
help the homeless and hungry in their communities.

9.15 How Indian Companies are using rewards to motivate

employees to perform – In times of slowdown

The general sentiment at an organization during a downturn can be

draining with discussions surrounding cost control and return on
investments. Companies are, therefore, now walking the extra mile by
strengthening existing rewards and recognition programmes and setting up
new ones to drive performance.

Companies have realized that recognition can reinforce desired behaviour

in employees, helping them achieve targets. In a Gallup poll, 82 per cent of
employees said that the recognition or praise they receive at work
motivates them to improve their performance. So, companies are tweaking
such programmes to make them more attractive.

Example – Hexaware Technologies, for instance, is launching a point

based rewards system to increase overall employee performance. Under
the programme, employees can earn points for defined behaviours that the
organization wants to incent and recognize. The earned points can be
redeemed for appealing rewards, including merchandise, gift certificates,
movie tickets and more which would be linked to an online brand store.

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Example – Siemens, on the other hand, has created a special employee

reward and recognition mechanism called 'Puraskar', which includes non –
monetary and monetary rewards. The concept is unique because any
employee can recognize any other employee through an e–card, which is
available on a special portal created for recognition.

While India has suffered less than many other economies during the global
downturn, there has been a marked change in the outlook of employees
and employers. The opportunistic, jobhopping Indian employees of recent
times are realizing they cannot sustain that trajectory, with its lack of
opportunities for learning and development.

Employers are also finding themselves under examination from candidates

who are looking for long–term career prospects. Recruitment discussions
are moving away from the boomtime focus on ‘how much money?’ and
‘when will I get an increase?’ to ‘what is the business plan?’ and ‘how will
this enrich my career?’

Performance is the key driver in the post recession world. Reward — and a
new focus on total reward that is closely tied to performance — will play a
crucial role in allowing organizations to compete in this new environment.
Siemens, which introduced the system of e–cards, evaluated that there
was scope to track the programme on the intranet through the back end to
understand which employee gets the largest number of e–cards. This can
help the organization understand the link between recognition and
performance.

Example – At Blue Dart, recognition does not wait for a special ceremony.
It is segmented under Bravo Blue Darter, Super Darter and True Blue
Darters, among others. Increased recognition of employees gives a good
feel about the organizational health and motivation of the employees,
leading to voluntary contribution and ownership.

Example – Ambuja Cements - Engaging the entire team in the potential

success of the organization in tough times helps in extending the success
during the recovery, and beyond that. Employee engagement at Ambuja
Cements is aimed at working towards improved outcomes on safer
workplaces, improved productivity, better customer satisfaction and
enhanced profitability. The company wants to build this into the culture of
the organization through a programme which has been aptly termed

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'Umang'. It was launched after Ambuja conducted a survey to see how it

can work around employee engagement. The focus is to have a more
engaged workplace. As part of a recognition initiative, Ambuja Cements
has also introduced a 'frame' of recognition for employees, which is
basically a photo frame with two slots where one slot has an inserted
recognition card.

Example – H&R Johnson - H&R Johnson (India) has an employee

engagement programme called 'Life Beyond Work', where a homelike
atmosphere is created at the office to enable informal interaction between
employees. The philosophy behind ‘Life Beyond Work’ employee
engagement programme is based on the fact that motivated and engaged
employees drive high performing organizations through increased
productivity, lower turnover, and better customer service.

9.16 Categories of Various Reward Schemes

Base Pay

Base pay, or basic pay, is the minimum amount that an employee receives
for working for an organization.

For example, the employee may be paid $10 per hour for a minimum of 40
hours per week. The employee will, therefore, earn at least $400 per week.
This will be paid regardless of how many of those 40 hours the employee is
actually working. A fixed annual salary is another example of basic pay.

Basic pay may be supplemented by other types of remuneration. A blue

collar worker may be paid overtime, for example, if he works more than 40
hours per week, and a manager may receive some form of performance
pay in addition to the base pay. Basic pay is likely to address the lower
levels of Maslow’s Hierarchy of Needs mentioned above.

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Performance-related Pay

Performance-related pay is a generic term for reward systems where

payments are made based on the performance, either of the individual
(individual performance-related pay) or a team of employees (group
performance-related schemes).

In recent decades, there has been a move towards performance-related

pay schemes in many organizations. This has lead to a situation where a
higher portion of the employees pay is dependent on performance. This
rationale for performance-related pay is that it motivates employees to
work harder, and rewards those who make a greater contribution to the
organization’s goals.

This should lead to efficiency savings. There are many types of

performance – related pay, and the most popular ones are described
below.

Piecework Schemes

Under Piecework schemes, a price is paid for each unit of output.

Piecework schemes are the oldest form of performance pay, and were
used, for example, in the textile industries in Great Britain during the
industrial revolution. Piecework schemes are appropriate where output can
be measured easily in units. They are typically used for paying freelance,
creative people.

Example – Freelance writers, for example, are often paid based on the
number of words. The benefit of piecework schemes is their inherent
fairness. The higher the output, the more the employee (or subcontractor)
receives. From the employer’s perspective, the employer does not have to
pay for idle time or inefficiencies.

From the employee’s perspective, such schemes mean that the employee
bears commercial risk if demand for their product falls. A further
disadvantage of piecework schemes is that the payment is not based on
the quality of output. However, some sort of quality control is likely, and if
the quality is not of a required standard, the employee or subcontractor
will not be paid.

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Individual Performance-related Pay Schemes

Individual performance-related pay schemes are where the employee

receives either a bonus, or an increase in base pay on meeting previously
agreed objectives or based on assessment by their manager, or both. They
are typically used for middle managers in private sector organizations and
for professional staff.

The advocates of individual performance-related pay schemes claim that

they are an obvious way to align to objectives of middle managers with the
goals of the organization. If performance targets set are based on the
goals of the organization, then it appears obvious that making part of the
rewards of employees’ contingent on achieving those targets will mean that
employees are motivated to achieve the goals of the organization.

Individual performance-related schemes also, have the advantage over

group schemes because the employee has control over her rewards, as
they do not depend on the effort (or lack of) of other members of the
team.

Critics of such schemes point out that the link between rewards and
motivation is far from clear, as discussed above. It is also argued that
performance – related schemes lead to a situation of tunnel vision,
whereby if something is not measured, and then rewarded, it won’t get
done.

Individual reward schemes may lead to a lack of teamwork and may lead
to variances in pay among individuals, which can lead to ill feeling.

Example – An example of an individual performance-related pay scheme

is one that is operated by a UK bank. Under the scheme, a bonus pool is
allocated to each region based on the performance of that region. From
this pool, individual awards are made based on assessment of
performance, taking into account the rating on a five-point scale. Those
with scores of 1 to 3 qualify for a discretionary bonus. The assessment
depends on how much new business the individuals have brought in, or
how much efficiency savings they have generated. The rewards are usually
paid in cash, although for senior employees receive a portion as deferred
stock.

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Group-related Performance-related Pay Schemes

Group related performance-related schemes are similar to individual, in

that rewards are paid based on the achievement of targets. However, the
targets are set for a group of employees, such as a particular department,
or branch of a company, rather than for an individual. Since the rewards
apply to a group, they are likely to be based on a predetermined
quantitative formula, rather than on assessment of staff.

A bonus pool is calculated based on the performance of the team, and this
is shared among the members of the team. Bonuses may be paid up at the
end of the year, or may be deferred, and paid at a later date, as this may
encourage staff and managers to take a longer term view, rather than
simply focusing on the current year’s bonus.

The advantage claimed for group schemes is that they encourage

teamwork. The disadvantage is that the lazier members of the team benefit
from the hard work of the more dedicated.

Example – Hope and Fraser give the example of a scheme operated by

Svenska Handelsbanken, where each year, a portion of the banks profits
are paid to a profit – sharing pool for employees, provided that certain
conditions are made. The main conditions are that the Handelsbanken
Group must have a higher return on shareholder’s equity than the average
of its peer group. The upper limit of the amount paid into the scheme is 25
per cent of the total dividends paid to shareholders. Employees do not
actually receive anything from the pool until they reach the age of 60, at
which point they receive a payout based on the number of years that they
have worked for the bank. The CEO of Handelsbanken claimed that
employees are not motivated by financial targets, but by the challenge of
beating the competition. The reward scheme is designed to be a dividend
on their intellectual capital.

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Knowledge Contingent Pay

Knowledge contingent pay is where an employee will receive a pay rise or a

bonus, or both, for work related learning.

Example – An ACCA candidate, for example, may receive a higher salary

once he has passed all the knowledge level papers, and an even higher
salary after passing all of his exams.

Commissions

Commissions are a form of remuneration normally used for sales staff. The
staff may receive a low basic pay, but will then receive commission, based
on a percentage of the amount of their sales. The advantages of
commission are that they should motivate sales staff to achieve higher
sales, as their rewards depend on it, and they mean that the large part of
the salesman’s salary becomes variable. If sales are low, the organization
will have to pay less. The disadvantage of commission is that it may lead to
dysfunctional behaviour.

Sales staff may indulge in window dressing, for example to meet this years
sales target, by selling on a ‘sale and return basis’ in the final month of the
year, with the inherent understanding that the goods will be returned in the
following month of next year. They may also lead to short termism, where
sales staff ‘never put the customer above the sales target’ to quote Hope
and Fraser.

Profit-related Pay

Profit-related pay is a type of group performance-related pay scheme

where a part of the employee’s remuneration is linked to the profits of the
organization. If the company’s profits hit a predetermined threshold, a
bonus will be paid to all members of the scheme. Typically the bonus will
be a percentage of the basic pay. The bonus may be paid during the year in
question; for example, quarterly, or it may be deferred until some later
date, such as the retirement of the staff.

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Advocates of profit-related pay argue that it motivates employees to

become more interested in the overall profitability, and therefore become
more motivated to ‘do their bit’ to improve it. It may also encourage loyalty
in cases where staff may lose their bonus if leaving the organization means
that they lose the right to it.

The obvious disadvantage with profit-related pay is that it does not match
the primary objective of commercial organizations, which is to maximise
the wealth of the shareholders. Managers may be motivated to increase
profits by taking short-term actions that will harm the business in the long
run, for example, or destroy wealth by investing in projects that increase
the profits of the organization, but produce a return that is below the cost
of capital of the organization.

Profit-related pay might not be a motivator for junior employees, who may
fail to see the link between their effort and the overall profits of the
organization.

Stock Option Plans

Stock option plans have become very popular since the 1990s, when
greater emphasis started to be given to shareholder value. Under stock
option plans, staff receive the right to buy shares in their company at a
certain date in the future, at a price agreed today.

Example – Alpha Co. is listed on the stock exchange of Homeland. Today,

shares in Alpha Co. are trading at $100 each. The company has just
awarded the CEO of Alpha Co. the option to buy 1 million shares for $100
each in exactly ten years time. These options have no intrinsic value at the
granting date.

If the share price rises to say $200 in ten years time, the CEO could
exercise his options, buying 1 million shares at a price of $100 each. Since
the shares would be worth $200 each by then, the CEO would make a gain
of $100 per share, or $100m in total.

Stock option plans are most appropriate for the senior management of
organizations as they are the people who have the most influence over its
share price. The rational for using stock option plans is that they align the
objectives of the directors with the objectives of shareholders. If the share

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price rises, the senior management benefits because their options increase
in value. Thus, senior managers will start to think like investors.

The big weakness of stock option plans is that share prices may depend on
external factors as much as on the performance of the directors. During
the bull markets of the 1990s and 2000s, many companies share prices
rose simply because the market rose.

Another weakness is risk misalignment. Share options reward managers if

the share price goes up. If the share price falls, however, there is no
difference in reward between the share price remaining the same ($100)
and falling to ($1) – so managers may be motivated to take extreme risks
where the exercise price may not be met.

What shareholders really want is the performance of their company to be

better than the market. One solution to this is to use an indexed exercise
price, where the price at which the director can buy the shares is equal to
the current market price, plus the increase in the stock market index
between the date that the options are issued, and the exercise date. This
means that the share option reflects the controllability principle more
closely, as directors would not be rewarded for rises in the stock market in
general.

Pension Schemes

Defined benefit pension schemes used to be a popular form of reward.

Under such schemes, the employee pays a pension to former employees
based on their final salary, and the number of years that the employee
worked for the organization.

Example – A typical example is that the former employee receives 1/60ths

of their final salary for every year of service. An employee who works for
40 years for the same organization would, therefore, receive a pension
equal to 40/60ths of their final salary from the date of retirement to the
date of death.

Defined benefit schemes leave organizations with an uncertain, often large

liability, and for this reason, many organizations have now discontinued
such schemes.

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Defined contribution schemes are another form of pension scheme where

the employer pays a certain percentage of the employee’s salary into an
account for the employee in a pension ‘pot’. The employee may also have
the option of making additional voluntary contributions into this pension
pot. The pension pot is then invested, and the employee receives whatever
is in their account on retirement. In some countries, employees may be
required to use what is in the pot to buy an annuity, which pays them a
fixed income for the rest of their lives.

Many countries offer tax incentives for such pension schemes, such as
allowing employees to reduce their taxable income by the value of
contributions made to the schemes.

Benefits in Kind

Benefits in kind (or indirect pay) are paid to employees in addition to their
base salary and performance-related pay. Benefits in kind include items,
such as health insurance and meal vouchers. They are usually provided to
more junior staff in order to provide additional incentives at a lower cost.
They are often used as a form of recognition, so the employee of the
month, for example, will be given a benefit rather than a cash payment.
The advantage of benefits in kind is that greater flexibility can be given in
designing a reward scheme for an individual.

Example – ‘Cafeteria’ schemes have also become popular, whereby

employees are told that they may select benefits from a menu up to a
certain value. The advantage of this is that employees will select the
benefits that they value most. Benefits from which the employees can
choose typically include such items as health insurance, holiday vouchers,
company cars or sports vouchers.

Cafeteria schemes may be difficult to administer. Staff may also find them
complex to understand, as they will have to select a number of benefits
that have a value that is within the agreed limit.

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Establishing the Level of Benefits

How much should employees be paid? Two factors need to be taken into
account here. First, competitiveness, and second internal equity. As already
mentioned above, unless the level of pay is competitive, it will be difficult
to recruit and retain the right number of skilled employees. If it is too
much, the cost to the organization will be too high. Here the organization
will compare its pay levels with competitors. Such information may be
available from job adverts in newspapers or on the internet, or from
recruitment consultants.

Internal equity relates to the pay differentials within the organization itself.
Staff will become demotivated if they feel that the remuneration system is
‘unfair’ and that other people are being paid more generously. Job
evaluation techniques are used that try to determine the value of a specific
job to the organization. Based on this, the level of rewards for that
particular position will be determined.

The Role of Appraisal in Reward Systems

Many of the performance-related reward schemes depend on the

performance of the employees. As such, the employees’ performance has
to be assessed. This usually takes place during the appraisal process. Staff
will be assessed on a regular basis, for example, twice a year. During the
appraisal, targets will be set for the next period, and rewards agreed if the
targets are met.

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Monetary Rewards Salary increments

Promotions
Paid – up insurance
Loans
Transport
Telephone
Profit sharing
Incentive cash
Company accommodation
Bonus
Cash awards
Furniture
Company shares
Other facilites
Non–monetary Rewards Free lunch
Picnics
Dinner with boss
Birthday treats
Festival bashes
Dinner for family
Knick–Knacks Desk accessories
Company watches
Tie pins
Diaries
Calendars
Wallets
T-shirts

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Bigger table
Better chair
Cabin
Awards Trophies
Plaques
Citation
Scroll
Certificate
Letter of appointment
Social Acknowledgement Informal recognition
Friendly greetings
Smiles
Solicitation of advice
Showing trust
Membership of clubs
Use of company facility for personal
project
Photograph on notice board/company’s
journal
Special praise by management
Pat on back
Opportunity for lecture
Tokens Movie tickets
Vacation trips
Early off
Coupons redeemable at stores
Present
Special leave

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On the Job More responsibility

Job rotation
Special assignment
Training
Security of tenure
Representing company at public for a
trips on duty
More authority
Fair treatment
Favourite work/job
Facilities for self-development
Self-goal setting
Table of Rewards

9.17 Activity

1. Conduct a survey of reward practices with number of companies and

develop a report of observations. Draw a comparison of the reward
practices across industries.
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9.18 Summary

An increasing number of successful, large organizations are achieving

better results, and greater employee engagement, by linking reward
directly to performance. This approach is no longer just for salespeople.
Instead, it can be highly effective at all levels, and in all functions of an
organization. But to be successful, it has to be implemented correctly.

Creating a performance based reward culture may seem like an abstract

vision for some. However, many senior executives see it as an important
tool for achieving success. That’s because it can unlock employee potential,
retain and motivate your high performers, and ultimately deliver healthier
financial results.

The key business benefits of performance based reward include:

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

By aligning individual objectives to business goals, you can focus your

learning and development activities on the things that matter to your
business. In turn, this will help you to increase the capability of your
employees, and lead to improved business results. Through unlocking and
nurturing employee potential, you can work with employees to plan and
develop their careers in your organization. This will help you with both
talent management and succession planning activities.

If employees are engaged, motivated, and rewarded appropriately, they

will want to stay with an organization. According to Giga Information
Group, retention can be improved by up to 27 per cent in a performance
based reward culture. In a well-structured system, managers have easy
access to all the information they need to reward individuals for actual
performance. This allows them to track that performance against defined
expectations, and reward accordingly. That way, employees can directly
influence their own financial reward – which many HR experts say is crucial
to retaining high-level performers.

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It’s important to realize that there is no ‘one-size-fits-all’ approach to

developing a performance based reward culture. To be successful, you have
to customize and tailor a system that’s unique to your business needs and
existing HR processes.

9.19 Self-Assessment Questions

1. You are a HR Head of a Multinational banking and financial services

company which is struggling to improve the organizational performance.
You have been asked by the board of directors to come out with an
innovative rewards policy. You are required to formulate innovative
rewards.

2. Explain various type of rewards system relevant to the 21st century

employees.

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9.20 Multiple Choice Questions

1. ___________ are given to employees to combat the effects of inflation

in an attempt to preserve the employee’s buying power.
(a) Base pay.
(b) Cost of living adjustments.
(c) Short term incentive.
(d) Variable pay.

2. Which of the following type of reward is least expected to lay emphasis

on the work life focus for many organizations?
(a) Time away from work.
(b) Cash rewards.
(c) On-site fitness room.
(d) Flexible work.

3. Which of the following is an example of non-monetary reward provided

by the organization to ensure reduced attrition levels?
(a) Career growth opportunities.
(b) Good reporting manager.
(c) Flexibility in dress code.
(d) None of the above.

Answers : 1. (b), 2. (b), 3. (d)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 10
Reward Strategies In The Technology /
Knowledge Economy
Objectives

After studying this chapter, you will be able to:

• Gain an understanding of the rewards in the knowledge – based economy
• Gain an understanding of the use of social media for driving rewards and
recognition programmes
• Understand the importance of recognition over pay

Structure:

10.1 Reward Strategies in Knowledge Economy

10.2 Use of Social Media for Driving Rewards and Recognition Programmes

10.3 Reward Linked to the Organizational Performance

10.4 Importance of Recognition for Employees, More Than the Pay

10.5 Activity

10.6 Summary

10.7 Self-Assessment Questions

10.8 Multiple Choice Questions

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10.1 Reward Strategies in Knowledge Economy

Intangible assets and human resources is the biggest growth driver and
creator of value of organizations in the knowledge – based economy. It is
always an endeavour of the HR function to keep the employees happy at all
times to drive better productivity. It is good to gain insight into the factors
that keep employees happy at all times and especially when routed
through right reward and recognition programmes. All businesses and
organizations want happier employees. The problem is that too many of
these companies think that higher profits are more important. However,
more and more evidence is showing that employee happiness is a huge
reason why companies are able to earn more and be more successful.

Some of the recently published facts and statistics by SnackNation

research are as under:
• Companies with happy employees outperform the competition by 20 per
cent – Happy employees are typically the ones who care about the
organization and have a desire to help your company achieve success.
Simply put, when your employees are happy they care more. Your team’s
goals are more compelling. They feel invested in the company’s
performance. Otherwise, your employees wouldn’t be happy and they’d
be putting in a minimum effort to avoid being fired. Happy teams like
what they do, so their work feels less like work and more like fun.
• Happy employees are 12 per cent more productive – Enjoying what you
do typically makes you want to do more of it. Plus you’ll notice that you
find fewer reasons to get distracted.
• 67 per cent of full-time employees with access to free food at work are
‘extremely’ or “very happy” at their current job – It shouldn’t come as a
surprise that free food is one of the top perks that employees desire. It’s
one of the major reasons why companies like Google and facebook use it
as a way to attract and keep top talent.
• Happy salespeople produce 37 per cent greater sales.
• 36 per cent of the employees are ready to give up $5000 p.a. year in
salary to be happier at work.
• People with best colleagues and partners at work are seven times more
engaging in the work.

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• Factors that contribute to the job satisfaction for the employees were:
❖ Job security
❖ Opportunities to use skills and abilities
❖ Financial stability of the organization they work for
• Employees who report being happy at work take ten times less sick days
or leave.
• Only 42 per cent of the employees are happy with the rewards and
recognition programme of their companies.

10.2 Use of Social Media for driving rewards and

recognition programmes

The average age of Facebook users is 38, 39 for Twitter, and 44 for
LinkedIn. So the notion that social media is a fad embraced by only youth
is completely untrue. The reality is that social media is here to stay, and
the sooner we accept this reality, the more equipped we will be to harness
its power.

There is a lot of debate regarding the use of social media in the workplace
and its impact on productivity — and often based on a negative
perspective. We need to start seeing the glass as half full rather than half
empty. Through social media, the opportunity to communicate and connect
with employees has never been greater. It’s time to recognize your
employees in new and exciting ways, using social media as the
foundational tool in your recognition strategy.

1. Recognize Often: So often, our recognition strategy is giving

recognition only for big events such as service anniversaries or
momentous achievements such as a big project launch. Social media’s
real–time immediacy can empower us to recognize everyday successes
that often go unnoticed.

2. Spread the News: In today’s global economy, it is becoming ever more

critical for employees to connect with their counterparts from across the
globe. Social media allows for recognition to be disseminated and
shared across boundaries and without passports.

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3. Jump on the Bandwagon: It is always important to distribute

recognition of behaviors or achievements in a timely manner. Social
media also allows us to extend the recognition experience by allowing
others to see who you are recognizing and why, and also allows others
to offer their own congratulations to the recipient, as part of the
conversational stream.

4. Capture the moments: With the power of smartphones, you can easily
capture photos and videos of your recognition events and share them on
social media with those who could not be present or to simply extend
the smiles of those who did attend, as they remember the great time.

5. Join the conversation: We sometimes forget that communication

should always be two way. Instead of just announcing new programmes
to your employees, invite them to give feedback on your recognition
initiatives. Social media easily enables this, and continuous feedback is
the only way to continually improve programmes.

6. Extend the Sense of Team: With more and more employers offering
flexible work hours and home office set–ups, it can be difficult to inspire
team spirit across remote employees who don't work during the same
hours. Social media is great way to deliver manager to employee
recognition and even peer–to–peer recognition no matter from where it
originates or where it ends—whether it’s at home or at the office — and
across all work shifts.

7. Make executives more accessible. It is always a challenge to find

ways for your top executives to connect with workers. Social media
offers a great opportunity for senior management to approach and
recognize everyday champions of the organization.

8. Expand the Reach: Deployment of a recognition initiative can be

daunting in a large organization. Social media offers the opportunity to
get your message out to a large and even organization – wide audience
in a fast and consistent manner.

9. End the ‘Flavour of the Month’: New recognition programmes often

fall victim to the ‘flavour of the month’ syndrome. By easily allowing
constant messaging and interactivity, social media is a great way to
keep recognition programmes top of mind with participants throughout

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the year.

10.Say What you Mean, and Mean What you Say: Even though you are
recognizing the sometimes small everyday successes with social media,
it is important not to lose the sense of sincerity, which makes any
recognition truly meaningful. Always be specific about who and what
you are recognizing. This always ensures that the recognition will be
well – received.

10.3 Reward linked to the Organizational Performance

Example – Infosys promotes 2,100 employees after stellar Q3

numbers.

Infosys BSE 0.55 per cent has promoted 2,100 employees soon after
reporting stellar December quarter numbers that comfortably
overshadowed not only market expectations but also larger rival Tata
Consultancy Services BSE 0.46 per cent, which missed estimates for the
quarter.

A spokeswoman of the country's second largest software exporter

confirmed the development and said the promotions would be effective
January 1. The latest round of promotions have been handed out to
executives across the company based on their performance as well as the
maturity of their roles.

Earlier in the month Infosys had lowered variable payouts to employees

from 100 per cent to 75 per cent, despite a healthy third-quarter show.
The January promotions are marginally higher than the October round that
saw 2,000 top performing employees and senior managers get promoted,
but is much lower than the number of promotions that were handed out
during the last financial year shortly after former SAP products chief Vishal
Sikka took over as CEO of Infosys.

In August 2014, shortly after taking over the reins of the company, Sikka
sanctioned 5,000 promotions across the company as part of employee
morale boosting measures to curb attrition that was hovering around the
20 per cent mark at that time.

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In the September quarter of 2014-15, Sikka approved another 4,000

promotions as part of a broader effort to retain key personnel in top
customer accounts such as Bank of America and Procter & Gamble. Infosys
currently is also experimenting with its incentive structure for employees
and is expected to announce a new structure over the coming months and
quarters. In an interview in November, COO Pravin Rao told ET that Infosys
had started handing out special bonuses and incentives to top performing
employees and sales executives on top of their regular bonuses.

Sikka himself has stressed on the need to overhaul existing metrics to

measure performance for employees, given the radical changes that are
taking place across the technology landscape that is forcing traditional
technology services firms to completely rethink existing business models.

In an interview with ET in September, top Infosys HR executive Richard

Lobo had said that the company was doing away with its traditional bell
curve metric for measuring employee performance and would instead base
appraisals on open rankings.

ET had first reported on April 13 last year that Infosys was planning to put
in place a new incentive structure to reward its sales superstars in a bid to
retain key personnel amid a scramble to win large outsourcing deals and
regain industry level growth rates.

Unilever reaps rewards from home-grown employee benefits

system.

As the workplace becomes more heavily populated by millennials and Gen

Z’ers, so organizations need to shift their culture and working practices to
keep this new band of employees satisfied and productive. For Unilever, a
multinational company about to turn 90 next week, action was needed to
keep the business relevant in the digital age, and able to attract and retain
the best talent.

The answer? A digital rewards platform that could provide a real-time

overview of benefits pulled from different data silos, from compensation
and pension to share options and health.

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Unilever first began work on a new rewards system 10 years ago, catalyzed
by the firm wanting to understand how the $5.8 billion it was spending on
employee compensation every year (this is now nearer to $6.5 billion)
actually broke down.

At the time, Unilever was unable to easily get that information, which was
a combination of finance, payroll and HR data pulled in from around 110
countries. This huge maze of data made it tricky to understand if what was
being offered was actually what employees wanted, while staff were left
trying to assess their best options based on a spreadsheet they’d receive
once a year – which would often be out of date soon after sending, due to
promotions, moves and benefit changes.

Nicola Wells, COO of uFlexReward and Global Reward Director at Unilever,

explains:

Like many companies, we had a myriad of reward programs, and people

did not understand them. So there were constant questions. People didn't
know what to get, what they could get. They didn't know what they were
eligible for. They just didn't understand it. It was like a black box. The only
thing that they could feel guaranteed about was what was paid in their
payslip every month. We looked at how could we start to create total
rewards statements to help communicate to employees and that was our
real driver, andt also use that information to understand ourselves more as
a business.

Unilever spent a year building its bespoke total rewards system (TRS),
which went live in 2011, and over the intervening years, the firm added
modelling, feedback and benchmarking modules. Employees were able to
more easily view their benefits’ options and the firm could see how that
$5.8 billion was being allocated.

However, although it had became a bit of a crown jewel in the company, as

Wells notes, Unilever came to the realization that TRS needed a refresh as
it was running on ‘dying’ technology: It went live in 2011. In technology
terms, seven years of running a system - we hadn't focused on it to keep
the technology up to date, you couldn't keep patching it. It's a bit like
people when they talk about PeopleSoft - it’s an incredible system, but
then it has got to a point where it's hard for people to keep it going. So
everyone's moving to Workday or Success Factors. It's just one of those

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natural needs to move to the next level of technology. The original one
wasn't in the cloud, we didn't have micro-services, all things that are just
expected now.

Unilever had to take a decision to keep going on the old technology, move
TRS into another system such as Workday and try to replicate the
functionality, or rebuild from scratch. It teamed up with Pilot44, a Silicon
Valley based boutique consultancy, to explore any systems out there that
could do what the firm already had, or better. This resulted in a list of 20
firms identified as having a decent opportunity, from Workday and PwC to
Infosys and some lesser-known players; a mix of big HR providers, smaller
boutique systems that couldn’t replicate everything and system developers
that could build something from scratch.

Unilever had initial conversations with eight possibles from the list, which
were all invited to pitch for the project and given the same opportunity: a
25 minute presentation followed by 15 minute Q&A. The organization had a
scoring system ready to grade the pitches, and all the relevant functions
from across the business were present: finance, pensions, IT, procurement,
reward.

From this process, Unilever selected three to go into the final phase, which
was building the prototype to run a live lab. The firm had already begun
working on the project using the Agile methodology with scrum teams,
two-week sprints and daily meetings, and was looking for a partner well
versed in that approach. The three bidders were given three two-week
sprints to develop the prototype, and a relatively unknown company in the
form of systems developer Endava came out on top. Wells says: “We’re
really pleased with how we ran this procurement session, because we
really didn't do it the way we normally do, which is long and drawn out
with lots of presentations. The number of times that you get sold these
things that are amazing, and then when you get it, it doesn't really quite
do what you thought it was going to do. Because you’ve had death by
PowerPoint, death by demo.”

So my biggest tip is doing those very short live labs. We took the three
that we liked and we made them work with us. If they're not prepared to
do that, that tells you something. And if they are prepared to do that, you
learn a hell of a lot. I was watching all three of them and you could see the
differences. You test – drive a car before you buy it; why shouldn’t you be

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able to test – drive a product. While Endava had no previous knowledge of

HR or reward, Wells didn’t see that as a problem as she has plenty of
expertise in those areas after a career spanning two decades; Unilever just
needed the system expert. Endava certainly had credibility here, having
built and run Worldpay and Vocalink, huge, proven products.

Rebuild - Endava began the rebuild in April 2018, and after a year on the
platform it went live to 68,000 Unilever employees. On the upgraded
platform, staff get a real-time view of their total reward and benefits, what
they’re eligible for, can print it out or show it online to their partner or bank
manager, or even new companies if they’re looking at another job. Wells
notes that often people are excited by a bigger salary, but don’t realize
what they’re losing outside of just their pay:

We were losing people just because they get amazed by 15 per cent more
pay. And then you say– but are you getting any shares, are you getting a
bonus? That isn't different to many companies, but ours is real time. Many
will be on a quarterly or an annual basis, so it's out of date quite quickly.

The updated system is also giving Unilever valuable insights into what staff
really love, and what are the less meaningful rewards, she adds: It’s been
fascinatingly insightful that we’ve been paying for things no one cares
about and some are deeply ingrained, but we don’t see as important. So,
when you get a chairman who says we need to cut costs, we can use the
information to make better choices. We have evidence to back our
decisions, it’s not just a gut feeling.

Globally, there were certain things we didn’t even know that we had. One
of them, was a rice allowance where we would give physical bags of rice to
families. We didn’t realize we were doing, that it isn’t necessarily a high
cost to Unilever because we buy en masse, but to the family that’s a
massive difference.

We had other random things like a briefcase allowance. It was nonsense,

you just remove them, it can help you harmonize. Because we're a
heritage company, things just happen and then they never get taken away.
Spurred on by the many benefits of the platform, Unilever is expanding its
portfolio from consumer goods purveyor to technology vendor. The firm has
spun out a new company, uFlexReward, and is making a concerted effort to
sell its rewards platform to other businesses. Wells explains:

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Big organizations are having to change how they work and a lot of what we
see up and coming in business is that some of the smaller entrepreneurial
is what's winning at the moment. So how do we in Unilever emulate that a
little bit, even though we're big? I guess our product kind of landed almost
in the perfect storm because Unilever are keen to be entrepreneurial and
drive the world in different directions in all areas. “But this is only year
one, and we’re not looking for hundreds of clients straightaway. We’ve got
a fairly sensible view to grow this business. We looked at what others do,
and what was really intriguing is there’s nothing hardly around reward, it’s
all about talent, recruitment and analytics.

Rather than targeting the big conferences to drum up interest in the

platform, Wells and her team are currently running small round – table
sessions, inviting heads of reward and HR along to discuss the future
workplace and the role of uFlexReward: The world of work is changing
already. My niece is 19 and she can't even envisage working somewhere
more than three years. So, if that's the case, the traditional world of a
pensioner - how does that fit? Suddenly what we've known, it's like
quicksand, it’s shifting all the time.

Long – term, if we get more people on this platform, you can imagine
having big companies, but you can also imagine having just individuals
who manage their reward here. It's not today but you can see that kind of
shift.

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10.4 Importance of Recognition for employees, more than

the pay

For employees, getting better recognition for their work is the best
motivating factor followed by job security and earnings. Recognition is the
highest motivator (for employees) regardless of age, industry or location –
even outstripping monetary reward. It has been found that 'tone at the top'
describes the attitude of an organization's board of directors and senior
management towards setting and promoting guiding values and an ethical
culture.

Performance-related pay schemes could help foster best performance,

nearly two-thirds thought such systems may invite people to exaggerate or
otherwise falsify their measures.

Time to Look Beyond Compensation and Benefits - A Millennial

Perspective

• Be flexible...and give control to employees - Giving employees the

flexibility to adjust their schedules for family commitments, working from
home, or spending time on special projects encourages a positive and
engaged workforce. When employees have more control over decisions
that affect them, they feel empowered and happier. For example, a
defined benefit plan where employees can assemble their own benefits
package from a pre-approved menu is more attractive than only offering
a one-size-fits-all package.

• Develop HR in your organization - As the CEO or senior executive,

you can't do everything alone. Whether you have a true human resources
(HR) division or not, you still need someone dedicated to monitoring
workplace policies, recruiting, managing payroll and benefits, etc. The
team can be a part-time resource, a small department, or a third-party
provider. Think of HR as the pacesetter for your company's culture. It's
usually the first contact for a jobseeker, which is also the first impression
they'll have of the company. HR touches every employee on matters
critically important to them, and they expect someone to be professional,
knowledgeable, and a solid resource for their well-being throughout their
employment.

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• Create a strong rewards system - Reward systems don't have to cost

a lot of money. If an employee offers new ideas or innovative process
improvements, a simple ‘thank you’ goes a long way. Even better, thank
them publicly. Voluntary benefits packages can also reward employees
without adding cost. Employees can opt – in and have valuable benefits
without increasing the employer cost (or adding minimal cost). Strong
reward systems encourage healthy competition, which spurs people to
deliver their best efforts. They reinforce the kind of positive and
productive behavior you want from employees.

• Boost innovation at all levels - One of the most powerful things a

company can do to build a culture of innovation is to encourage
employees to make suggestions or step away from the status quo of their
positions, without fear of retaliation or consequences for failure. Some
companies, in fact, actively encourage employees to work on their own
personal projects. We are in the age of artificial intelligence (AI).
Implementing AI based tools can lead to innovation breakthroughs you
may not have dreamed possible.

• Cultivate diversity and inclusion - Great companies take full

advantage of the talents, backgrounds, experiences, and attitudes of
their workers, regardless of their sex, age, race or sexual orientation.
When diversity is embraced, it helps companies to connect better with
their customer base and the general public. Study after study shows that
diversity is good for the bottom line, bringing with it new ideas and ways
of thinking.

• Keep pace with trends - Millennials now make up one-third of the US

workforce1. Defining characteristics of millennials, people born between
1981 and 1996, include ‘doing good while doing well.’ Social
responsibility is woven into how they view employment. Millennial
employees and jobseekers not only want meaningful jobs but they also
want to feel they're contributing to the greater good of society. They're
not just evaluating a job, they're also evaluating how the company
conducts business and deals with the public. Good pay and a hearty
benefits package are essential to this generation's ability to do good.
With fewer practical worries, employees are freed up to focus on the
positive impact they can have at work.

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• Focus on culture - Company culture can make or break a company. A

positive, committed employee base with a can-do winning environment
can achieve many successes in a start–up or small business. Culture is
culmination of the attitudes, activities and values reinforced in the
business on a daily basis.

How do you build culture? Here are a few simple ways. Highlight and praise
actions of individual employees who demonstrate those values. Ask
employees what they think the company should stand for, so that they feel
invested in building the culture. Remember, if something is inherently
wrong with your culture, replacing people and adding technology and
equipment won't change a thing. It will hold the company back from
achieving greatness. But, a great culture sets the stage for great company
performance.

• Set the tone as leader - Employees take their cues from the most
visible person in the company – usually the owner, CEO or founder.
Leadership starts at the top. Not all founders are natural leaders, though.
They may have had a great idea to start the business, but managing
others requires a completely different skill-set. Savvy CEOs know
developing all skills is key and they set aside time and resources to
invest in their own development.

• Empower your team with technology - Technology is high on the

checklist for your existing teams and top-level jobseekers. People want to
work at a company that leverages the best technologies to drive success.

A customer relationship management (CRM) system can automate the

process of tracking sales leads, freeing up employees from repetitive data
entry tasks. Benefits administration software makes benefits choices and
changes easier and faster for both employees and employers. Mobile
devices and apps untether employees from their offices enabling them to
work from home or visit customers in the field more often. In turn, such
technologies give employees more time for higher-level innovation,
increasing self-esteem and job satisfaction.

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• Hire and keep the best - Without question, people are the number one
thing that makes a company great. This doesn't mean you have to hire
all new ‘rock star’ performers from the outside. Even the smallest
companies have hidden gems that just need a little mentoring and
employee development to shine.

Invest in developing employees' professional growth. Reward them with

the best compensation and benefits package you can afford to retain and
motivate them. The secret to a great company is not really a secret at
all. It's just paying attention to your best assets: the people.

Staff reward schemes play an important role in building loyalty.

Losing staff is costly for businesses. Staff turnover interrupts operations,

involves additional recruitment costs and results in the loss of valuable
employee know how. Small businesses are therefore, wise to invest in their
workforce in a way that builds loyalty, offers professional development
opportunities and makes staff feel valued and appreciated.

Incentive programmes play a key role in motivating employees,

engendering loyalty and creating a strong corporate culture with high
morale. The Incentive Research Foundation, a US organization dedicated to
research in this field, found that 84 per cent of organizations were using
non-cash rewards, and that there was strong support from senior
executives for non-cash staff recognition programmes to enhance both
business culture and productivity. This high-level support makes sense –
studies have shown that feeling appreciated is a key driver of employee
engagement in the workplace.

But, things are changing in the incentives industry, as businesses explore

new ways to gain a competitive edge. Traditionally, incentives purely
involved gifts or leisure activities aimed at personal enjoyment and reward,
and tended to look backwards from a company perspective – that is, they
were a recognition of outstanding past performance or an opportunity to
acknowledge particular employee contributions.

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More recently, however, companies have adopted a forward-looking focus,

seeking to blend reward for past performance with building capability to
meet future business needs. One way they are doing this is by
incorporating professional development opportunities within reward
programmes.

Strategic reward programmes of such nature are particularly attractive to

companies operating in industries facing some form of disruption. These
include:
• The hospitality and tourism industry (disrupted by the likes of AirBnB).
• The automobile industry (affected by a variety of changes including
automated cars, electric cars, and a growing sharing economy driven by
operators like Uber).
• Media and communications businesses (with the increasing shift towards
online platforms and consumer generated content).
• Health related businesses (with dramatic changes to funding models and
legislation); financial services (through deregulation, aggregators and
online services)
• The retail world (challenged by cheap imports and online competitors).

All of these industries are adapting to changing operating environments,

and staff’s need to adapt (and often build new capabilities), also.
Businesses are having to look much more to the future and imagine how
their operations might adapt and evolve, and what skills and capabilities
their workforce will need to achieve this.

A challenge, of course, is to ensure that the staff development element of

an incentive programme does not detract from the reward, but instead is
seamlessly part of an experience that will be valued and enjoyed by the
employee. The significant disruption we have seen or can expect across
industries from tourism and retail to automotive and media means many
small businesses will be looking to upskill staff just as much as they are
looking to retain them. A more strategic approach to rewards programmes
is a valuable way to achieve this.

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10.5 Activity

1. Select a company in the knowledge economy and understand the

reward strategies implemented by such a company. Compare those
strategies with traditional ones and draw the assessment results.
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10.6 Summary

The Millennials already account for 40 million in the workforce, and they
are set to become America’s first hundred-million-member generation. How
they grew up — with mobile devices, online access, and social media —
influences the way they work. And it’s influencing the way everyone will
work.

Today’s workforce is looking for a new way to engage with work, and
traditional employers must recognize that. Similarly, start-ups — which if
successful, will also become big companies — must also establish a modern
culture that appeals to today’s talent. Today’s companies need to appeal to
today’s modern workforce — not treat people the same way that we were
treated when we started working. The problem is that many employers still
don’t understand and don’t value the mind-set of this new generation and
how it is revolutionizing the way we work. Many companies, such as
Facebook, Salesforce.com, Google, and LinkedIn, as well as countless
start-ups, understand that there is a huge war for talent under way, and
they want their key people to feel challenged and proud of their employer.
They offer incredible perks, like massage services and pet-friendly policies,
and give them time to work on their own ideas. These companies have also
figured out how to connect to them, embracing such practices as more
flexible hours, valuing outcomes over attendance, and employing the latest
technology. All companies will have to undergo a similar shift, or they will
miss out on working with the talent that will dominate the workforce.

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Traditional service awards like gold watches and tie tacks don’t motivate or
engage employees because there is no meaningful recognition behind the
one-time reward, the study concluded. We are seeing new ways to
recognize employees proliferate in the workplace. Take, for example,
Work.com, a service that uses social technologies to transform the way
companies recognize and reward their employees. Real-time and public
recognition makes sense — it happens when the feedback is still relevant
and when changes can be more easily implemented. That creates a much
more iterative and agile culture. Using a technology that is social, and open
for everyone to see, brings teams together and helps them stay focused on
what matters.

10.7 Self-Assessment Questions

1. Highlight the importance of recognition for employees in comparison to

the monetary rewards.

2. Explain the ways and means to use social media for reward and
recognition of the employees in an organization.

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10.8 Multiple Choice Questions

1. Which of the following statement is least likely to be true related to

happy employees at work?
(a) Underperform competition.
(b) More productive.
(c) Attracts and keeps the top talent.
(d) Produce greater sales.

2. Factors that contribute to the job satisfaction of the employees are

_____________.
(a) Job security.
(b) Opportunities to use skills and abilities.
(c) Financial stability.
(d) All of the above.

3. Which of the following strategies are least likely to work for

enhancement of engagement with the employees through use of social
media?
(a) Recognize sparingly.
(b) Spread the news.
(c) Speedy dissemination of congratulations note.
(d) Capturing and sharing the moments.

Answers: 1. (a), 2. (d), 3. (a).

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 11
Implementation Of Reward Strategy And
Latest Trends In Reward Systems

Objectives
After studying this chapter, you will be able to:
• Gain an understanding of the process adopted for implementation of the
rewards strategy
• Gain an understanding of the latest trends in the reward systems

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Structure:
11.1 Building and Implementing Appropriate Rewards Strategy
11.2 Guidelines for Optimizing Recognizing and Rewarding Employees that
Managers can use in their Departments
11.3 Offering Right Incentives to Boost Productivity
11.4 Optimizing Employee Benefits Programme
11.5 Low – Cost Employee Appreciation Strategies that Work
11.6 Tailor Employee Rewards to Generational Differences
11.7 How to Make your Rewards and Recognition Programmes Fun
11.8 Strategic Praising – Steps to Effective Employee Recognition
11.9 From Cash Rewards to Gamifying Recognition: The Top Five HR Myths
11.10 Reward Schemes for Building the Best Organization
11.11 Latest Trends in Reward Systems
11.12 Rewards – A Board Agenda Item
11.13 Driving Responsible Reward Strategy – Risky vs. Responsible
Rewards
11.14 Performance Measurement, Rewards and Recognition: Aligning
Incentives with Strategic and Operational Goals
11.15 Effect of Reward on Employee Performance
11.16 Performance Management and Reward Systems – An Effective
Tool for Employee Engagement
11.17 Activity
11.18 Summary
11.19 Self-Assessment Questions
11.20 Multiple Choice Questions

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11.1 Building and Implementing appropriate Rewards

Strategy

Employers can double their rewards and recognition efforts in innovative,

cost – efficient ways. Good recognition and rewards provide employees
with:
• A fair return for their efforts.
• Motivation to maintain and improve their performance.
• Clarification of what behaviours and outcomes the organization values.

For example, employee of the month awards, incentive pay, employee

appreciation luncheons, more time off, shopping sprees, wellness incentive
contests, plus employee rewards customized to motivate.

11.2 Guidelines for Optimizing recognizing and rewarding

employees that managers can use in their departments

Eight guidelines for recognizing and rewarding employees that managers

can use in their departments are:

1. Specify employee rewards criteria: Too often, awards for things like
‘innovation,’ ‘showing initiative’ and ‘quality improvement’ don’t define
what employees need to do to win. Without that information, some
employees will be stymied before they begin. When a winner is
announced, employees may attribute a co-worker’s success to
favouritism or luck. So, make the criteria for rewards as clear as
possible.

2. Reward everyone who meets the criteria: You could announce a

contest, urge everyone to participate, provide plenty of reminders
during the contest period and announce the winner with a flourish. Then
what? You’ve got one winner and a lot of losers who discover that their
hard work didn’t pay off. For a longer-term impact, determine specific
criteria and individual goals, and then reward everyone who meets
them. Publicize each accomplishment and acknowledge every achiever.
As long as the criteria are meaningful, the more winners, the better.

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3. Individualize employee rewards: Generic rewards create generic

results. Give people what they want. Example: Before you give a
workaholic a week off, make sure it won’t feel like exile to that person.
On the other hand, before you reward someone with an exciting new
project, find out if the recipient will be thrilled or feel burdened.

4. Say ‘thank you’ frequently: “Thank you” is always timely. It is as

useful to acknowledge small successes as it is to recognize major
achievements. It validates the importance of the work people do. And it
starts a chain reaction: Pretty soon, more people start saying it to more
people, boosting morale and improving relationships as well as
furthering employee motivation.

5. Nurture self-esteem: When you give people positive, specific and

realistic feedback about their potential, their efforts and
accomplishments, that boosts their self-esteem. They develop into
employees with confidence to set and meet challenging goals, overcome
setbacks and self-manage their work.

6. Foster intrinsic rewards: Intrinsic rewards are the good feelings

people get from doing their work: enjoyment of the task, excitement
about the opportunities and pride in doing a good job. You can’t hand
someone an intrinsic reward, but you can create an environment that
encourages these feelings. Make sure people know their work is
worthwhile. Treat problems as opportunities for innovation. Encourage
people to try new ways of doing things. And let them know when they
have done a good job.

7. Reward the whole team: For team accomplishments, it’s important to

reward the whole team; otherwise, you foster competition, not co-
operation, among team members. Still, some team members may give
more effort — and get more results. In contrast, some team members
may coast along on the efforts of others. When the coasters get the
same reward as the doers, resentment occurs. One option: Meet this
challenge with a double tiered system of team and individual rewards.
Key point: The individual rewards are based on judgements from their
fellow team members.

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8. Remember: You get what you reward. Since one of the things rewards
do is clarify for employees what the organization really wants,
employees quickly determine the company values. If you are looking for
teamwork, be sure you aren’t rewarding competition. If you want people
to resolve problems, don’t reward them for covering up complaints. If
you ask for initiative, you may even need to reward people for doing
things in unconventional ways.

The Bottom Line: Remember that employees can feel rewarded in many
ways, not merely with cash. For top performers, increased responsibility
and lessened supervision can be rewards in themselves, as can flexible
schedules, additional time off, first pick of desirable assignments, and so
on. The point is that employees must indeed feel that you are rewarding
them for both working hard and getting results.

11.3 Offering right incentives to boost productivity

A healthy economy is a productive one — a very simple and direct to the

point statement that everyone can easily understand. However, to achieve
this ‘productivity’ many measures are taken. One of those measures is
boosting employees’ productivity or work force productivity. At a time when
the country is planning a lot of changes and moving in a new direction to
diversify its income and looking for new avenues, workforce productivity is
something we need to look into seriously.

Workplace environment is changing globally. It is no longer dependent on a

hardworking individual standing on a production line for hours to make
sure a certain piece is plugged in its right place, it is much more
complicated than that. We are living in an era in which job assignments
and responsibilities are tied together. They need collaboration,
communication, shared platforms and innovative approaches to get them
done. It is a workplace that is filled with technological innovations and
connectivity tools that beg attention and quick actions most of the time.

This image of a vibrant and productive workplace can hardly match the
reality we are accustomed to seeing in the public or private sectors in our
country.

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Ability to manage time, understanding consequences, owning the job,

focusing, working hard, modifying habits and planning, are all bits and
pieces of what makes workforce productivity a whole. Increasing
productivity should be preceded by awareness and motivation or it won’t
work. Only a work force that is well trained, works in an environment
where the tools to attain the expected outcome are available, and clear
policies of rewards, career paths, and evaluations are present, can make a
difference. Set the environment for productivity first, then ask for it.

11.4 Optimizing Employee Benefits Programme

One may think that employee recognition is about the rewards you give
workers for long years of service or for retiring after a notable career. It’s
really not. Recognition is about employee engagement. And employee
engagement starts with employer engagement. How engaged are you with
your employees? Do you know their names? Their goals? What makes
them tick? Recognition doesn’t have to be about gold watches or cash
bonuses. It’s even more effective when it’s about relationships. Continue
(or start) to appreciate your employees and recognize them for what they
do. Know their names, their stories. Let them know yours. Let them in on
the organization’s mission, vision and values. Establish trust.

Treat your employees well. How you treat people today is going to
determine whether your valued employees stay with you when the financial
crisis is over. There are two rules:

The Golden Rule: Treat your employees as you want them to treat your
company. How can you expect them to be loyal to the company if you’re
not loyal to them? How can you expect them to be engaged at work if
you’re not engaged with them?

The Platinum Rule: Treat your employees as you want them to treat your
customers. It’s no coincidence that some of the most profitable companies
in America are also known as the best places to work. You can’t follow
these two rules by simply paying people more. Even though employees
often say they want cash, research shows that personal, non – cash
incentives are much more powerful and a bigger lift than dollars and cents
or a tricked out iPhone. You can cut back on the tangible rewards, but
never cut back on the recognition. Research shows that the absence of
recognition is the second leading cause of burnout and stress in the

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workplace. So, its presence should have the opposite effect. Recognition is
a powerful tool — but it takes a real leader to use it right. The physical
stuff like the gold watches are the things the company usually delivers. It’s
the emotional stuff that managers so often fail to deliver. And that’s why
people “quit their managers.” You can stop it without spending a dime.

Introduction of Gamified Rewards Systems - A Case Study

Almost half (48 per cent) of UK employers offer some form of gamified
rewards to staff, according to research by workplace incentives provider
One4All Rewards. Its Workers on top of their game report, which surveyed
1,096 UK employees, also found that 20 per cent of employers provide
gamification in the form of a set bonus for completing a specific goal, while
a further 17 per cent use surprise, unplanned rewards to recognize jobs
well done.

These unexpected rewards are cited by 35 per cent of respondents as the

type that would motivate them most, but having a system of set targets is
popular with 28 per cent of those asked. Rewards given by peers are
deemed most motivational by 17 per cent, and offered by 14 per cent of
employers. Almost two-fifths (38 per cent) of respondents felt that working
towards rewards and bonuses would make work more fun, while 32 per
cent stated that it would encourage them to work harder, and 37 per cent
said it would increase their happiness while at work.

When broken down by size of organization, the research found that only 13
per cent of employees at micro-businesses, namely those with between
one and four employees, would be more motivated by a gamified system.
This increases to 25 per cent among those between 51 and 500 employees,
and 28 per cent among those with more than 500. Within a wider
gamification strategy, using a points-based system was deemed by
respondents to motivate people to work harder (24 per cent), find work
more enjoyable (23 per cent), increase their performance (20 per cent),
and feel increased loyalty to their employer (18 per cent).

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A quarter (25 per cent) of employees stated that clear communication from
the start would be necessary to properly introduce a gamified system,
while 23 per cent stated that they would like to receive regular updates on
rewards they have earned. An online portal was cited as important by 21
per cent of those asked. When considering the most popular types of
gamified rewards, monetary bonuses placed highest (49 per cent), followed
by gift vouchers (33 per cent) and extra days off for birthdays (25 per
cent). At the lower end of the scale is exclusive retail or experience
discounts (13 per cent) and duvet days (13 per cent).

Alan Smith, UK managing director at One4all Rewards, said: “In [small to

medium enterprises], finding the budget for a rewards scheme can be
tough, but gamified rewards can be more flexible in some ways and they
don’t have to involve large budgets. While some might think that these
kinds of rewards are more complex to implement, this isn’t necessarily the
case. “As we can see from the survey data, and the sheer number of
workers who said that the implementation of a gamified reward system
would make them work harder, the cost of implementing these kind of
rewards could soon be recouped by the increased productivity employers
would benefit from.”

Linkage of Rewards with Culture – A Case Study at Microsoft

The culture of an organization defines who you are and what you stand for.
It refers to a set of deeply ingrained beliefs and rituals that act as a glue
between every employee with shared values and attitudes that motivate
and inspire them each day. In short, culture is about how we do business,
how we solve problems, and how we work together.

The widespread belief that each employee can grow by bringing out the
best in people through constant improvement shapes the story of this
legendary organization.

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The Four Levers

Microsoft’s mission is to empower every person and every organization on

the planet to achieve more. However, it seemed that building a mission to
establish a sense of purpose was easier than creating a culture around it.
Very much a people journey, the culture transformation at Microsoft was
based on the four pillars, i.e., behavior, symbol, systems and storytelling.
With these right tools they could bring the right change needed for long.
The changes can be summarized as:
• From a culture of ‘know it all’ to ‘learn it all’.
• From forced rating to no ratings.
• The changed focus drifted from actions and results to ‘impact’.
• A shift from target distribution curve to budget accountability for each
employee.

Reward, Performance and Development Approach

Microsoft India’s new ‘performance and development’ approach was

designed to help people learn, grow and deliver results together. They
believe in prioritizing continual improvement over traditional evaluation,
and hence optimized these three things that are aligned with their current
culture.
• Reward contributions linked to business impact.
• Delivering results through teamwork.
• Feedback that helps employees learn, grow and deliver results.

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Measuring and understanding the state of culture through reward

and technology infusion.

At Microsoft, rewarding employees was based on performances that have a

business impact. The impact was not only based on individual
accomplishments but also measured on how one contributes to the success
of others. This was inclusive of how one builds on the results of others in
their own area of work. The organizations became more empathetic. And
technology provided an aid to this practice by dispelling myths and helped
in changing behaviors of employees. Apart from this, technology also
served the following purpose:
• Monitor employee sentiment through popular social media outlets to
gauge public perception of your benefit offering.
• Track reward distribution against available budget to monitor which
departments are utilizing allotted funds.
• Ensure the right employees are being rewarded.
• Track benefits utilization beside employee sentiment to understand how
benefits are matching up to employee expectations.

Technology used as the catalyst for the transformation.

Culture transformation is a journey that’s never finished. No matter where

you are in that journey, leaders at Microsoft help accelerate every single
employee’s success through various innovative approaches. And alongside,
with the help of technologies, real – time dashboards are being constantly
used to navigate employee behavior that’s helping in managing rewards,
attrition and people development issues efficiently at Microsoft. Hence, it’s
quite evident that technology is the enabler when integrated into the way
of actions, beliefs and values; can have a dramatic positive effect on
culture transformation. Creating a culture in which technology blends with
human potential is where the real magic happens.

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11.5 Low – Cost Employee Appreciation Strategies that

work

Here are 12 low-cost ways that your organization can show gratitude to
your employees all year.
• Embarrassment Committees: To celebrate a person’s annual
anniversary on the job, form an ‘embarrassment committee’ to make a
ruckus as colleagues deliver a cookie, bouquet and gift card
• Employee Appreciation Week: During one special week, serve
breakfast one day, lunch on another and a make-your-own-sundae party
on a third.
• Children’s Art Contest: A couple of times a year, exhibit around the
building artwork that employees’ kids have created.
• Door Prizes for Staff Meetings: To add some fun and encourage
attendance, hold a drawing for a small door prize before all-staff
meetings.
• ‘You’ve been caught’ Programme: Encourage managers and
employees to notify HR when they ‘catch’ a colleague in the act of going
beyond the call of duty. At monthly staff meetings, introduce all
nominated employees, and mention what the person did. Choose one
winner at random for a gift certificate to a local restaurant.
• Baby Blankets: Send blankets to every employee who welcomes home
a new child
• Safety Record Lunches: Host congratulatory lunches when employees
meet safety goals and department milestones.
• Newsletter Features: Include a monthly ‘Employee Spotlight’ column in
the organization’s newsletter. The newsletter also can include comments
from customers who have praised an employee’s work.
• Mini Massage: Bring in a massage therapist every now and then to give
complimentary 10-minute shoulder massages.
• Birthday Shirts: Have your CEO sign a birthday card for each employee
and send it to the worker along with a company logo shirt on his or her
special day.

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• Perks for Extra Work: Surprise employees who have worked long
hours to finish a project with a small cash bonus or a weekend at a bed-
and-breakfast.
• Feedback from Supervisors: This one might be the best. Encourage
management to orally recognize employees on an ongoing basis.

11.6 TAILOR EMPLOYEE REWARDS TO GENERATIONAL

DIFFERENCES

Most organizations choose rewards based on budgets, tradition and

management choices. Or they may use surveys that solicit preferences, but
don’t analyse the results according to generational differences. That’s a
mistake more organizations are trying to rectify. Nearly one third (32 per
cent) of HR professionals plan to alter their total rewards programmes with
generational preferences in mind, according to a Top Five Total Rewards
Priorities survey by Deloitte LLP and the International Society of Certified
Employee Benefit Specialists.

That percentage is likely to increase significantly in the future because the

workforce is becoming more multigenerational — especially as older
workers remain longer to rebuild their nest eggs.

More organizations are customizing employee rewards programmes to

accommodate the values, lifestyles, work habits and interests of different
generations. Even low-budget programmes can offer rewards that appeal
to different generations.
Millennials were born between 1981 and 1999. They are computer-
literate, easily bored and require frequent challenges. They need work-life
balance and value education. Millennials value extra break time,
recognition from clients and contributing to pet causes. This generation
also values gift certificates for music and video; tickets to concerts and
sporting events; transportation subsidies and reimbursement; iPads,
smartphones and other tech tools.

Gen Xers were born between 1965 and 1980. For them, productivity
means working smarter, not longer and harder. They balance work and
personal life and are self-possessed, versatile employees. This generation
values flexitime, working from home, leading a new project team and
recognition from clients. Gen Xers also value bonuses based on

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performance, weekend trips, tuition reimbursement and annual salary

increases.

Baby Boomers were born between 1946 and 1964. Their careers tend to
focus on one organization or industry. Boomers value recognition, such as
employee of the month awards, oral acknowledgment from clients, parking
passes and promotions. This generation also values cash rewards, bonuses,
free day care for a specified period, training seminars, membership in a
club or organization and dining with the boss.

Matures were born before 1946. They are self-starters who have often
sacrificed family time for work and tend to be loyal employees. They want
respect for their experience and sacrifices. Matures value oral recognition
from bosses and clients, award certificates, extra time off and serving as
mentors to age group peers and new employees. Matures also value salary
increases, bonuses, profit – sharing and cash rewards for suggestions that
lead to workplace improvement.

11.7 How to make your rewards and recognition

programmes fun

The problem with standardized reward and recognition programmes is that

they are completely impersonal processes. Instead of thinking about the
specific people involved, the company provides the same generic awards to
everyone. But, when an element of fun and play is added, the experience
becomes personalized and much more memorable for the award recipient,
without additional financial expense. If you can make the reward and
recognition process fun, your employees will talk about the event long after
it’s ended, and you will have multiplied its team-building impact many,
many times.

Example – Shopping Spree: Dr. Jeff Alexander of the Youthful Tooth

dental office calculated that he could give a $200 bonus to each employee.
But Alexander knew that if he just added $200 to each pay cheque, his
staff would have been excited for a little while, but probably would use the
money for something ‘practical.’ So Alexander closed his office for two
hours one afternoon, took all 35 employees to a shopping mall and handed
each an envelope containing $200 in cash. “This is not your money,” he
told them. “It’s my money. But, anything you buy for yourself with this
money in the next hour is yours to keep. Here are the rules: You have to

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spend it on gifts for yourself. You have one hour to spend it, and you have
to buy at least five different items. Any money you haven’t spent in the
next hour comes back to me. Go get ’em!” His employees spent the next
hour dashing wildly from store to store, yelling back and forth to each
other about treasures they’d found. “That was a real treat for them — and
it gave me a great feeling, watching them having fun,” Alexander said.

Example – Ford has a better idea: Ford Motor Co. spent more than $1
million on one memorable evening, demonstrating that Alexander’s idea
can be easily adapted to fit a more extravagant budget as well. Ford rented
out Nordstrom’s department store in San Francisco one evening and gave
$5,000 in spending money to each of its 250 top-selling sales managers,
who were in town for a national sales meeting. Ford hired sports celebrities
such as Tommy Lasorda and Julius Erving to accompany the sales
managers on their shopping sprees. The bottom line: No matter what your
budget, you can make the bonus fun.

Employee Appreciation Ideas

Employers host employee recognition events throughout the year, but the
first Friday in March is the official Employee Appreciation Day, according to
Recognition Professionals International. Buy bagels or lunch for the staff,
close shop early or just say thanks. Employers have the option of
extending the holiday for a variety of reasons. An Employee Appreciation
Week might include, according to the Society for Human Resource
Management, an ice cream social or picnic, a mini music concert during
lunch hour, prize drawings, family fun day, chili cook-off or a casual dress
code for the entire week. In addition to fun events, the week can provide
various beneficial activities for the employees, such as a health and
wellness fair or workshops.

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Seven Proven Ways to Retain, Reward, Recognize your Best

Employees
1. Keys to the car: A CEO who used to give $200 cash spot bonuses
started giving high performers the keys to a new BMW for the week.
People would forget about the $200 within a month, but they never
forgot the BMW.
2. Appreciation phone calls from the CEO — to employees at home.
3. ‘Take a walk in my shoes’ video for the staff showing what one
employee did during a typical day.
4. ‘Roast, Toast and Boast’ lunches in which managers would roast a
long-time employee, toast new hires and boast about a company
accomplishment.
5. Do-it-yourself titles: Employees were allowed to create their own
titles (e.g., a deli manager called himself the ‘deli-lama’).
6. “Coins” peer recognition programme: Employees get three coins
each quarter to distribute to co-workers who perform beyond the call of
duty. Employees cash in their coins for prizes.
7. Secrets of success videos: Long-time workers reveal theirs on videos
that are shown to new hires.

11.8 Strategic Praising – Steps to effective employee

recognition

“You’re doing a good job.” “That’s a great idea.” “Thanks for your extra
effort.” For some employees, hearing those words is better than a cash
bonus. Yet, many managers can muster up such phrases only during
annual reviews — if at all.

That’s why HR professionals need to teach supervisors how to give

employee recognition and provide them the tools to make it easier. Studies
consistently show that ‘feeling appreciated’ is a key reason employees stick
around. And by making employee recognition a company wide effort, you
remove a burden from you and make rewards more personal.

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1. Make it soon. Any recognition is good, but the best kind is given as
soon as possible after the good performance

Example: When an HP software engineer told his supervisor that he

fixed a software bug, the supervisor grabbed a banana from his lunch
and gave it to the employee with a big ‘thank you.’ Today, the most
prestigious award in that HP department is the ‘Golden Banana’ award.

2. Make it sincere: Stop guessing at what rewards people want. Ask

them. Medtronic Corp. stopped giving people ‘stuff’ for their years-of-
service awards. Instead, they give days off because the company finally
asked employees, and that’s what they wanted.

3. Make it specific: If possible, relate the gift to the performance being

rewarded.

Example: Apple Computers prints different company core values on T-

shirts (‘Integrity,’ etc.) and gives them to employees who demonstrate
those values. ‘Apple has employees who work hard trying to collect them
all’.

4. Make it personal. One bank asks new hires on their first day to write
on an index card the three things that motivate them (time off, lunch
with the boss, Starbucks coffee, etc.). The card is then given to their
supervisors, who can mold rewards around those “wants.”
5. Make it positive and public: When praising employees, don’t undercut
it by concluding with a note of criticism. And, when possible, convey the
praise in person and in public. With public praising, ‘you’re sending the
message that this is the type of thing that gets rewarded around here.’

6. Make it proactive. Teach supervisors how to be on the lookout for

positive behaviours. One tactic: Managers can put the name of every
staff member on their weekly to-do list. Then, managers can cross off
each name as they dole out praise that week.

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11.9 From cash rewards to gamifying recognition: the top

five HR myths

Many businesses pay lip service to HR without understanding it or using it

effectively: so how can even the most nascent or companies sort the wheat
from the chaff in terms of people issues? There is no doubt that an
important key to business success is ensuring that staff are engaged and
motivated at all times, and the best way of doing this is through social
recognition. However, there is a wealth of misinformation about how
businesses should treat and recognize their employees. Not only can these
myths destroy attempts to build a solid corporate culture, but it can have a
significant impact on a company’s growth prospects. To avoid this,
businesses need to dispel the following misconceptions.

Engaged Employees are Long Term Employees

It’s a management truism that engaged employees are the greatest

competitive advantage. While there’s no disputing it’s important to have an
engaged workforce, research has shown that employees are often ready
and willing to jump ship at some point in their career. A big problem is that
while businesses understand that recognizing their employees has a big
impact on engagement levels, many overestimate how long the impact a
single recognition moment can last. Like any relationship, feeling engaged
requires continued effort.

In order to maintain a lasting relationship with their employees, businesses

need to implement a long – term engagement strategy, and this includes
putting into practice a strong organizational culture. By promoting a
winning spirit of optimism and energy, organizations can bond a workforce
of individuals into a common cause, language and set of values. Ultimately,
this helps employees feel consistently secure, supported and engaged,
which only has a positive impact on their productivity levels.

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Cash Rewards are King

When rewarding employees, too many organizations rely on what is

considered to be the easiest and most effective form of recognition – cash.
However, while it’s highly unlikely an employee will refuse extra money in
their pay cheque; in reality, this often holds very little meaning to an
employee. It’s not uncommon for bonuses to be swept up within the
employee’s standard pay packet and spent on day-to-day outgoings – such
as bills, fuel, or a grocery shop. The motivational effect of the reward is,
therefore, lost as it has no memorable or meaningful connection.

In order to successfully inspire and motivate a workforce, a recognition

strategy must be designed to gratify an employee using rewards that offer
them true value. Indeed, as each employee makes a unique contribution,
it’s only fitting that rewards given reflect this and acknowledge the
individual in a way that only they would appreciate.

Gamification Complements Employee Recognition

The concept of ‘gamifying’ roles within businesses has gained traction

within recent years. As the line between corporate and consumer becomes
increasingly blurred, many organizations are looking at such practices to
increase engagement within their workforce – using leader boards and
badges to encourage achievement. While the practice can provide some
benefits, businesses need to be very careful about how they implement
such schemes – particularly in relation to recognition. Incorrectly done,
gamification can actually do more harm than good and, rather than being
voluntary and co-operative, becomes mandated and competitive.

In order to apply elements of gamification to a recognition programme, it

needs to be done in a thoughtful way – such as gamifying the completion
of a profile or uploading a photo, but not the actual act of recognizing a
colleague. Gamification in recognition must also answer the specific tenets
of recognition, such as tying behaviour to company values, expressing
authentic appreciation, and conferring appropriate awards.

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Only Managers Should Provide Feedback

Managers matter. Indeed, managers noticing and appreciating the work of

their team members is necessary and important to employee engagement.
We all need to know that our manager sees our good work, our successes,
and our daily victories. However, even the very best managers cannot see
all the good that is happening around them every day.

Instead, organizations need to implement social recognition, which

empowers employees to recognize their own peers. When an employee can
see they are adding value to their organization and they are regularly
communicating with both their peers and managers, their productivity
levels will grow.

Employee Recognition Data isn’t Valuable

Traditional recognition programmes that involve only the feedback of line

managers don’t generate a lot of useful data – mainly because it’s only
coming from one source. However, this isn’t the case for social recognition.
Indeed, with so much data generated from different sources, it can be of
great value to a company and have a significant impact on improving
business processes that maximize productivity in the workplace.

Today, sophisticated data analytics are bringing employee management

into a new age. The data supplied by social recognition creates a rich, real
– time narrative of company life. By capturing and analyzing individual acts
of recognition, a social recognition practice can determine who the hidden
influences are, who has strong potential and who isn’t pulling their weight.
Because social recognition uncovers which values’ based behaviours are
lacking and which are abundant, you might think of it as a ‘brain scan’ of
company culture.

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11.10 Reward Schemes for Building the Best Organization

A major part of performance management involves managing employees

and managers, as their performance will have a major effect on the
performance of the organization as a whole.

Reward system refers to all the monetary, non-monetary and psychological

payments that an organization provides for its employees in exchange for
the work they perform. Rewards schemes may include extrinsic and
intrinsic rewards. Extrinsic rewards are items such as financial payments
and working conditions that the employee receives as part of the job.

Intrinsic rewards relate to satisfaction that is derived from actually

performing the job, such as personal fulfilment, and a sense of contributing
something to society. Many people who work for charities, for example,
work for much lower salaries than they might achieve if they worked for
commercial organizations. In doing so, they are exchanging extrinsic
rewards for the intrinsic reward of doing something that they believe is
good for society.

Objective of a Reward Scheme

What do organizations hope to achieve from a reward scheme? The

following are among the most important objectives:
• To support the goals of the organization by aligning the goals of
employees with theirs
• To ensure that the organization is able to recruit and retain sufficient
number of employees with the right skills
• To motivate employees
• To align the risk preferences of managers and employees with those of
the organization
• To comply with legal regulations
• To be ethical
• To be affordable and easy to administer

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Aligning the Goals of the Organization and Employees

The reward schemes should support the organization’s goals. At the

strategic level, the reward scheme must be consistent with the strategy of
the organization. If a strategy of differentiation is chosen, for example,
staff may receive more generous benefits, and these may be linked to
achieving certain skills or achieving predetermined targets. In an
organization that has a strategy of cost leadership, a simple reward
scheme offering fairly low wages may be appropriate as less skilled staff
are required, new staff are easy to recruit and need little training, so there
is less incentive to offer generous rewards.

Many organizations are working to align their reward and business

strategies, either because their business strategy has changed or because
alignment was not optimal. In practical terms this means ensuring that:
• The right performance metrics are in place.
• Reward programmes are closely tied to metrics.
• Performance and rewards are appropriately differentiated.
• Supporting management processes are in place.
• Leaders have the capability and commitment to implement reward
programmes effectively.

Example – The US supermarket group Walmart competes on low cost. It

recruits employees with low skills, and pays low wages. It discourages staff
from working overtime, as it wishes to avoid paying overtime rates.

To Recruit and Retain Sufficient Employees with the Right Skills

If rewards offered are not competitive, it will be difficult to recruit staff

since potential employees can obtain better rewards from competitors.
Existing staff may also be tempted to leave the organization if they are
aware that their reward system is uncompetitive.

High staff turnover can lead to higher costs of recruitment and training of
new staff. Losing existing employees may also mean that some of the
organization’s accumulated knowledge is lost forever. For many knowledge-
based organizations, the human capital may be one of the most valuable
assets they have.

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Example – High technology companies such as Microsoft are companies

that trade on knowledge, so they offer competitive remuneration to the key
staff.

To Motivate Employees

Motivation of employees is clearly an important factor in the overall

performance of an organization. Organizations would like their employees
to work harder, and be flexible. The link between reward schemes and
motivation is a complex issue that is hotly debated in both accounting and
human resource related literature.

A well-known theory relating to motivation is Maslow’s Hierarchy of Needs.

Maslow stated that people’s wants and needs follow a hierarchy. Once the
needs of one level of the hierarchy are met, the individual will then focus
on achieving the needs of the next level in the hierarchy. The lower levels
of the hierarchy are physiological, relating to the need to survive (e.g.,
eating and being housed); once these have been met, humans then desire
safety, followed by love, followed by esteem, and finally at the top of the
hierarchy, self-actualization, or self-fulfilment.

Applying Maslow’s Hierarchy of Needs to reward schemes suggests that

very junior staff, earning very low wages will be motivated by receiving
higher monetary rewards, as this will enable them to meet their
physiological needs. As employees become progressively more highly paid;
however, monetary rewards become relatively less important as other
needs in the hierarchy, such as job security, ability to achieve one’s
potential, and feeling of being needed become more important.

Perhaps the conclusion to be gained from this is that monetary rewards

alone are insufficient to motivate employees. Other factors such as giving
greater recognition and greater responsibility may be equally important.
For example, giving praise at company meetings, promoting staff, and
involving staff more in the decision making.

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Aligning the Risk Preferences of Managers and Employees with

those of the Organization

Managers and senior employees make decisions on behalf of the company,

acting as agents of the company. It is desirable that the risk preferences of
these employees should match the risk preferences of the organization and
its stakeholders. One problem with many reward schemes is that managers
are too risk averse, and will not make investments that may risk their
targets not being met.

The events leading up to the financial crisis of 2008 are a good example of
the opposite situation, where the risk appetites of employees at investment
banks did not match the risk appetites of the owners. During this period,
individuals working in the banks were paid large commissions for selling
mortgage loans to customers. The problem was that the employees were
selling loans to customers that posed a large risk to the banks, due to their
low creditworthiness.

The problem was confounded by the fact that in many cases, the
employees of the banks were paid commissions on the date that the loan
agreements were signed, while the loans lasted for 25 years. In situations
where the borrower defaulted; however, there was no claw back, so the
employee would not be required to repay the commission.

Many countries have put in place new laws and codes to change this
situation. In the UK, for example, the financial services authority
introduced a code, whereby remuneration structures should be based on
sound risk management practices, incentive payments should be deferred
over a number of years, and there should be claw back provisions,
whereby employees are required to repay bonuses in the event that the
longer - term results of their actions leads to similar problems experienced
in the financial crisis.

Share options may also create a mismatch between the risks faced by the
organization and the risks faced by the holders of the options, since the
holders benefit if share prices increase, but do not bear any losses if the
share price falls.

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Complying with Legal Regulations

Rewards should comply with legal regulations. Typically, employment laws

include areas such as minimum pay, and equal pay legislation to ensure
that no groups are prejudiced against. There have been high – profile
cases of female investment bankers winning legal cases against their
employers because their bonuses were far less than those paid to male
colleagues.

Ethics and Reward Schemes

In recent decades, there has been a move away from fixed remuneration
systems towards reward systems where at least part of an employee’s
rewards are based on performance of the individual and the business as a
whole. Some writers claim that this is unethical for two reasons. Firstly,
such systems tend to place increased business risk onto employees.
Secondly, such systems undermine collective bargaining systems, and
reduce the power of unions. This leads to a situation where employees as a
collective have less bargaining power.

The size of total remunerations paid to directors of large public companies

has also become a hot political issue, with a perception that the gap
between top earners, and average earners is becoming larger.

Example – In the US, the average directors of S&P 500 companies earn
200 times more than the average household income in the US. Defenders
of such large differences in pay point out that this difference has actually
declined in recent years; in the year 2000, directors of S&P 500 companies
earned 350 times the average household income. According to some
research, such high packages are justified as they do reflect the
performance of those directors.

Affordable and Easy to Administer

It is an obvious fact that there is an inherent conflict of interest in the

relationship between employer and employee. The employee’s rewards
represent a cost to the employer, which the employer wants to minimize.
Clearly whatever reward scheme is in place, it must be affordable to the
employer.

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Target Setting

Many reward schemes are based on employees achieving predetermined

targets, so some consideration of target setting is required. In Fitzgerald
and Moon’s Building Bock’s model, three principles are given when setting
standards or targets: equity, ownership and achievability. Equity in this
context means fairness; when setting targets for the various managers,
those targets should be equally challenging. Ownership means that the
targets should be accepted and agreed by those managers for whom they
are set. This can usually be achieved by participation. Finally targets must
be achievable; otherwise, the employees for whom they were set will
become demotivated. The building block’s model then goes on to
specifically cover reward schemes. It states that there are three principles
of a good reward scheme. First, there should be clarity – it should be clear
how the reward scheme works. If your boss tells you that you will receive a
bonus at the end of the year ‘if you do a good job’, that is not very clear,
since the boss has not specified what doing a good job means. Rewards
should be motivational. Finally, there is the important controllability
principal. Employees should only be judged and rewarded based on things
within their control. This is why profit-related pay might not be relevant to
a junior administrative assistant, for example.

Hope and Fraser warn against the use of linking rewards to fixed
performance targets, as this leads to gaming. In particular, managers
whose rewards depend on fixed targets may be tempted to ‘always
negotiate lowest targets and highest rewards’, which suggests that
management plans will understate the potential that the organization can
make. ‘Always make the bonus, whatever it takes,’ is another example of
gaming suggested by Hope and Fraser, which suggests that managers may
indulge in unethical behaviour, such as fraudulent accounting in order to
ensure that targets are met.

Hope and Fraser suggest divorcing the planning process and the target
setting process, and basing rewards on relative targets and benchmarks. A
relative target might be market share, for example, where rather than
setting an absolute target for a sales manager, a market share (per cent)
target is provided. If the market rises, then more is expected in absolute
terms. This adds to controllability, since the sales manager could not be
held responsible for a rise (or fall) in the overall market, which is outside of

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his control, but would be able to control whether or not he achieves the
expected share of the market.

11.11 Latest Trends in Rewards Systems

Some of key trends clearly visible from review and analysis of the
industries and companies across a globe are provided as under:

• Making Pay for Performance a Reality: The study shows a much

greater focus on creating a culture of performance through aligning
rewards to the performance metrics that drive profit and revenue growth.

• Differentiating and Rewarding ‘Mission Critical’ Roles: Companies

are channelling the limited rewards available in a far more focused way
to those employees most vital to the future of the company: the top
performers, high potentials, and those with scarce skills. They are also
taking a total reward approach to engaging that key talent by offering
clear career paths, global mobility and targeted development
programmes as well as higher monetary rewards.

• Increasing Variable Pay: Companies are increasingly awarding a

greater share of total rewards to variable pay to increase focus on critical
goals, and to reduce the vulnerability of companies to high fixed reward
costs. However, they are also re-examining the measures they use to
assess performance, to reduce the risk of disproportionate or undeserved
bonuses and to reflect a broader understanding of performance that
includes social responsibility and brand. The assessment of risks inherent
in bonus schemes is also becoming more frequent.

• Centralization: Reward policies and programmes are increasingly being

centralized. This is being driven by a desire for consistency of focus on
key objectives, and to reduce costs and risks. Companies are striving to
find an ideal balance between global consistency and local flexibility, to
best manage the impact of local markets, culture, taxes and regulations.

• Market Benchmarking: The study showed a surprisingly strong focus

on benchmarking, given the relatively quiet talent markets. This is driven
by a desire to ensure that top talent is paid competitively against the
market, and that organizations are not paying too much in other areas.

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11.12 Rewards – A Board Agenda item

Reward is no longer the province of compensation and benefits experts.

Representing anywhere up to 70 per cent of a company’s total costs,
reward is now a top management issue, with the CEO and the board
getting closely involved. The study shows that reward is now more than
ever under the microscope, with CEOs asking:

• What performance are we getting in return for what we pay?

• What is the effectiveness of all the costs allocated to reward?
• What is the return on investment?

Alongside this, the role of the compensation committee is undergoing

radical changes, with a much greater remit to oversee all reward
programmes and understand their impact on costs and risk.

This is in part being driven by the growing impact of regulation and

taxation. The concern is that this is deviating scarce management time to
ensuring compliance, rather than formulating the best reward strategies for
their companies. It can lead to outright distortions in reward structures.
For example, to ensure tax effectiveness, without consideration of whether
those structures work to drive sustainable performance. Similarly, a heavy
focus on compliance also risks stifling innovation as the board becomes
wary of attracting adverse attention with non-conformist reward structures.
Developing and delivering reward programmes that are cost – effective,
drive performance improvement, build talent and avoid undue risks: these
are the challenges ahead. Getting A reward right is mission critical for all
organizations.

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Some of the key challenges are provided as under ―

• Business Challenges
–– Cost management
–– Risk and regulation
–– Competition

• Pay/performance Relationship
–– Review metrics
–– Better link between pay and performance
–– Differentiating reward

• Response to Challenges
–– Cost management
–– Leadership development
–– Organizational redesign

• Engagement Changes
–– Intangible/total reward focus
–– Line manager skills
–– Improve communications/transparency

• Talent Strategy Focus

–– Internal development
–– Recruit/retain key talent
–– High potential programmes

• Reward and Engagement

–– Employee surveys
–– Reward communications
–– Line manager focus

• Drivers of Reward
–– External benchmarks
–– Performance management
–– Cost management

• Reward Management Changes

–– Senior and line manager involvement
–– Increase reward communication

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–– Centralization of management

New Business Imperative: Do More with less

On a fundamental level, the recession has accelerated the pace of existing

macroeconomic changes. The shift in emphasis towards emerging markets
has become more pronounced as markets, such as Brazil, India and China
have continued to grow and have proved resilient against the long-term
effects of the financial crisis. The speed of change has increased across all
sectors as organisations innovate to protect their position in the market
and use technology to find new and better opportunities. Regulation and
scrutiny of corporate activity, decision-making and crucially, reward, has
increased. Organizations will have to adapt quickly if they are to thrive in
this uncompromising environment. No one has the luxury of time or money
to throw at the issues they face.

The recession has intensified the pace of globalization as organizations

seek out markets where they see the opportunity to achieve real growth.
Many organizations in both developed and developing countries are looking
to expand internationally, to gain access to new buyers and spread/
distribute/diversity the risks of operating in just one market.

Cost Focus for Companies

Companies in every region have been affected by the fall in demand. Many
niche players have disappeared in a flurry of consolidation, and competition
has increased as organizations fight to defend or extend their market
share. Companies are focusing heavily on customer retention and
maintaining client relationships while they wait for market conditions to
improve.

As a result, cost containment is a major issue for many organizations, in all

regions and sectors. Most have already cut employment costs as much as
they can through redundancies, restructuring, pay freezes and restrictions
to internal investments. The focus for most has now turned to the
centralization and rationalization of business and management processes.
In stagnant or slow growth markets, cost management continues to be
critical to survival; but even those organizations who continue to grow are
taking the opportunity to reassess their cost base, optimize their

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management processes and put their operations on a more sustainable

course for the future.

Companies in high-growth developing markets are working even harder to

bring themselves up to international standards – many see the slowdown
as a welcome opportunity to gain some breathing space from the intense
pace of change.

Organizations are emerging from the recession leaner and intent on

concentrating on those activities that bring the greatest returns to the
organization. Difficult choices are being made; the money that is available
has to be earned through performance and allocated to those areas (and
people) most critical to business success. While the focus remains on the
bottom line, from now on increased efficiency will be a core driver of profit
growth.

Performance Focused Reward Systems

Performance is the fundamental focus of most organizations. In a boom

market, many organizations were prepared to achieve growth at the
expense of the bottom line in anticipation of seeing future returns from
increased market share. In contrast, organizations now want to
demonstrate a verifiable return on investment from any activity – and with
employment costs representing anything up to 70 per cent of an
organization’s cost base, this includes reward.

The dominant theme from most respondents is ‘doing more with less’. As
well as addressing organizational structures and increasing the efficiency of
systems and processes, there is a very strong focus on the alignment of
team and individual performance to corporate goals. Leadership has also
come under the spotlight as organizations ensure that their management
has the strength and skills to lead the organization out of the recession.

Leading organizations, however, are already turning their attention to the

future. For them, the focus on execution has already begun to shift to
building a strategy that will position them for growth. While short-term
considerations may have come to the fore during the recession, the best
leaders continue to balance short and long-term considerations.

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Recognizing that an excessive focus on short-term shareholder return was

one of the root causes of the financial crisis, the best leaders are keeping
one eye on long-term strategy and further, on the role their organization
plays in society. Performance is being redefined, and with it reward.

Performance is no longer confined to the balance sheet. Many organizations

are taking a broader view of performance that includes the impact on
social, environmental and brand issues. As a result, there is increased
sensitivity to the need to balance short and long-term performance, and
financial and non-financial measures of performance.

Some organizations – such as those in the public sector or some family

based companies which tend to value loyalty and ‘fit’ above performance –
have not previously operated within a performance focused culture. But,
the pressures of a tightened market mean that even these organizations
are looking to introduce more of a performance focus.

11.13 Driving Responsible Reward Strategy – Risky Vs.

Responsible Rewards

The management of risk is an inherent element of reward. But this has not
always been clearly articulated or understood. The credit crunch and
recession have prompted many governments and regulators to seek to
control and monitor reward more closely.

One of the many consequences of this has been an ongoing evolution in

the role of the compensation committee, which is increasingly expected to
oversee not only the compensation of executive directors but to also have
an oversight of variable pay arrangements across the organization,
particularly from the perspective of risk.

Another consequence has been the introduction of a series of specific

regulations governing the amount and type of reward that can be paid, and
de facto regulation by taxation of specific types of rewards, such as
incentives. But, these restrictions create artificial constructs that come with
risks of their own. Some organizations, for instance, have sought to
circumvent pay caps by increasing pension payments to key employees –
despite the fact that pension packages have very limited motivational value
and no links to corporate performance. Others have increased fixed pay to

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compensate for the deferral of bonus payments. Regulation, in other

words, is a blunt tool and its effectiveness in terms of risk management is
limited. The sheer volume of regulatory activity has arguably prevented
organizations in the financial services sector, in particular, from focusing on
developing a truly strategic approach to reward.

Most effective solution is for governments and organizations to take a

holistic view of reward to ensure that, overall, the organization’s reward
programmes can reasonably be expected to drive long-term, sustainable
performance. What’s more, that performance should not be defined solely
by shareholder returns. It is also about trust and social responsibility.

In practical terms this means that organizations should be able to

demonstrate that the behaviours that are stimulated by an organization’s
reward and incentive programmes are aligned with the long-term interests
of all its stakeholders. We term this ‘responsible reward’ and, at its best, it
is a strategy that builds a spirit of partnership to sustain the business,
moderates excess and so reduces risk. Suggested rewards strategy is as
under ―
• Enables the long-term sustainable success of the organization
• Pays out over the same timescale that business value is created in
• Is linked to a bundle of performance measures that reflect the impact of
the activity not only on shareholder value, but on the bigger picture
• Does not enrich management and employees to the detriment of
shareholders
• Takes account of the extent to which performance is driven by external
factors beyond management or the employee’s control
• Takes account of the risks inherent and capital employed in the business,
and the impact this has on the returns required by shareholders
• Achieves an appropriate balance between individual, team and corporate
performance
• Is competitive enough to attract the talent the business needs
• Encourages rational thinking about the unique combination of economical
and societal responsibilities of the individual company

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• Is justified in differentiating between the highest and least well paid by

impact, workload, intensity and personal risk
• Is actively, effectively and repeatedly communicated to employees and
stakeholders
• Recognizes that reward is more than pay

Key to Building Effective Rewards

In many ways, the recession has been a wake-up call for reward. Sloppy
practice crept into reward processes during the boom years and the
economic downturn has forced many organizations to think more sharply
about who – and what – they are paying for. Keeping the following
principles in mind will help those managers responsible for rewards to
ensure their reward programmes effectively support business strategy.

• Create a Performance Culture: Use your reward programmes to help

you move from an ‘entitlement’ to a ‘performance’ culture. Consider
whether the measures that underpin variable pay are optimal for driving
performance. Look at how to differentiate reward for high performers so
that it acts to engage not just your ‘stars’, but all your people.

• Think in Terms of Total Rewards: Our research has consistently

shown that intangible benefits such as career development opportunities
play a vital role in employee engagement. This is one of the many
reasons that organizations should not lose sight of total reward – the
total benefits employees receive from working for a company.

• Consider All Costs: While many organizations closely focused on reward

costs during the recession, this was sometimes at the expense of a wider
contextual consideration of cost. It is too easy in the current climate to
overlook the total cost of reward – benefits and allowances can account
for as much as 40 per cent of reward costs.

• Build in Flexibility: Bonuses not only focus attention on key goals, they
also provide a cost buffer in downturns. Increasing the proportion of total
pay delivered through bonuses provides employers with greater flexibility
in their cost structures, and helps them to protect jobs.

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• Make a Thorough Assessment of Risk: Risk is inherent in reward

programmes – not to forget the danger of encouraging risky behaviour
through variable pay which has been sharply highlighted by the financial
crisis – and should be frequently and thoroughly assessed. Strong risk
assessment procedures will also serve to support the work and meet the
requirements of the compensation committee, which is playing an
increased role in reward.

• Balance Global and Local Requirements: With centralization of

reward strategy on the increase, the challenge for multinational
companies is to ensure they hit the right balance between global
consistency and local autonomy. A close assessment of the effectiveness
of reward programmes at both global and local level is essential to a
successful strategy

• Reward effectiveness. Reward programmes need to deliver a clear

return on investment. Clarify what you expect your reward programmes
to deliver – whether it be engagement, retention, performance on critical
success factors, or some other measure. Make sure you have the means
of measuring progress, such as employee satisfaction surveys

• Nurture Innovation: The survey highlights the tension between the

need to reduce risk and meet compliance requirements and the desire to
develop new reward policies and programmes that better support the
needs of the business. The risk that innovation will be stifled by
increased regulation remains a serious concern. Reward managers in
particular need to be vigilant and identify when innovation is at risk.

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Reward To Do List

• Review reward strategy to ensure that it supports business strategy.

• Reassess performance criteria, so reward is linked more closely to goals

that clearly reflect the vision and strategy of the organization.

• Review the balance of variable and fixed pay to ensure that it is right for
the company culture and for business needs.

• Use reward differentiation (where appropriate) to focus limited resources

on those most successful to the business: high performers, high
potentials and those with skills that are in short supply.

• Closely assess and measure the return on investment from reward

programmes and strategy.

• Communicate the true value of your reward package, and how it

supports the goals of your business.

Case Study of American Foods Company – Rothschild Gourmet

Rothschild Gourmet Foods is a small, privately owned company based in

the American Midwest. It manufactures gourmet food products such as
jams, olive oil and sauces, and has been in operation for 13 years. As a
result of a company-wide change initiative, Rothschild managed to boost
sales, slash controllable costs, increase product quality, and raise
employees’ performance appraisal ratings. How did they do it? The
company changed the ingredients in its total rewards system.

In addition to offering flexible work schedules and other non-monetary

rewards, Rothschild skilfully implemented an organization-wide incentive
plan based on corporate performance.

Rothschild isn’t the only company that has discovered first-hand the power
of a well-designed and well executed rewards programme.

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Indeed, as far back as 1996, an article in USA Today (Neuborne, 1996)

proclaimed a evolution in the rewards that organizations were offering
employees. Instead of awarding employees pay increases and other
incentives simply for seniority, the so-called ‘New Pay’ linked rewards to
achievement of the organization’s strategic objectives. HR professionals
and other managers began experimenting with innovative types of rewards
in the workplace, including skill based pay and goal sharing. And they
discovered that the right total rewards system — a blend of monetary and
non-monetary rewards offered to employees — can generate valuable
business results. These results range from enhanced individual and
organizational performance to improved job satisfaction, employee loyalty,
and higher workforce morale.

Challenging Questions in the Process of Implementation of

Rewards System

To implement a total rewards plan, business leaders must tackle a broad

range of challenging questions — everything from who will design the plan,
and what types of rewards it will include, to how the plan will be funded
and under what business conditions the plan is intended to operate. When
executives overlook one or more of these questions, they risk developing a
plan that delivers mediocre results once it’s implemented — as the
following three stories reveal:

• The Profitless Profit-Sharing Plan. A large chemical manufacturer and

distributor developed a new profit-sharing system for its employees. The
project team took great care to use compensation principles agreed upon
by compensation professionals and devoted a year to designing the
programme. But the team members neglected to ask a crucial question:
How will the plan work during an economic downturn? With much
fanfare, the company announced the plan — and employees eagerly
anticipated their first profit-sharing cheques. As it turned out, the
organization’s performance (as measured by profit) proved dismal during
the plan’s first measurement period. Employees received no bonus
checks, and their enthusiasm gave way to resentment and skepticism.
The company abandoned the plan. If it had acknowledged the possibility
of an economic downturn and better communicated the ramifications of
such a downturn for payout to employees, it might have avoided the
backlash.

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• The Missing Appraisal System: A federal government agency enacted

a pay-for-performance plan that pegged individual pay increases to
employees’ performance as assessed by a formal appraisal system.
However, the agency launched the plan before putting an organization-
wide appraisal system in place. Managers had to hastily define
performance measures by which to assess their employees’ contributions
and thereby determine salary increases. This haphazard development of
measures led to a highly subjective appraisal system that employees saw
as unfair. Just one year after the plan was implemented, the agency
eliminated it.

• The No-go Goal Sharing Plan: In a heavily unionized organization, top

management decided to initiate a new goal sharing plan that awarded
cash bonuses to employees based on their facility’s business
performance. The plan was piloted at one facility, and a research team
set out to track the business performance of the plants against that of a
similar facility not using the plan. The team found that the performance
of the facility using the goal sharing plan exceeded that of the other
facility — suggesting that the organization should roll out the new plan at
its remaining facilities. But, the implementation team had not consulted
union leaders at these other plants on the practical implications of the
goal sharing programme. And even though goal sharing had proven its
mettle during the pilot, the union opposed a company-wide rollout.

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Hay Group Total Rewards Strategy Framework

Total Reward Strategies

Total Rewards
Definition
Strategy
Compensation
Base pay Wages and salaries
Merit pay Base pay increases based on employee performance
Incentives Cash bonuses based on employee performance
Promotions Base pay increases based on potential to perform new job
Base pay increases based on length of service with the
Pay increases
organization
Benefits
Health and welfare Payment for injuries and illness both on and off – the – job
Paid time off Payment for vacation time or excused days from work
Payment for work no longer performed based on length of
Retirement
employment
Personal Growth
Training Skill development through on or off-the-job instruction
Career
On-the-job coaching to develop skills
development
Performance
Ongoing goal setting and feedback to develop skills
management

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To implement total rewards strategies successfully, organizations must

follow a disciplined process, which is depicted in ‘Implementing a Total
Rewards Programme: Four Phases’ (see below). The process starts with
assessment. In this phase, the project team gathers data to evaluate the
effectiveness of the organization’s current total rewards system. The data
guides the design phase, during which the team identifies and analyses
potential reward strategies. In the execution phase, total reward strategies
are put into operation. Last, the team evaluates the effectiveness of the
strategies that have been executed. Clearly, implementing a new total
rewards programme is akin to carrying out any large-scale transformation
initiative. Research on organizational change can provide some guidance.
One study examined a 12-plant manufacturing division of a multibillion-
dollar food products firm. The firm used a learning model to guide the
change effort. First, it laid the foundation for change by educating
stakeholders about the intervention, clarifying the firm’s values, and
diagnosing organizational systems relative to the values of the
organization. Second, the firm designed, implemented, and evaluated
changes to those systems. The cycle was continually repeated, as
illustrated in the diagram below. This process led to deeper learning within
the organization. To evaluate the results of this learning model, the
researchers collected attitudinal data at two points in time. Findings
suggested that the change initiative had led to increases in job variety,
supervisory participation, influence over planning and scheduling, and
other positive outcomes. The following sections take a closer look at how
you and other HR professionals in your organization can take a total
rewards initiative through each of the four phases in the implementation
process.

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Assessment

Evaluation Design

Execution

Formulating an Appropriate Team Structure

It is very critical to set up an appropriate team for implementation of total

reward system. The best leaders are senior HR professionals with project
management and total rewards experience—they encourage on-going
communication between the project team and top management, and lend
credibility to the project. An illustrative team structure is provided as
under-

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Structuring Incentives

Organizational incentives provide cash or stock to employees based on the

overall performance of the organization or business unit (sector, division,
department, or plant). Classic examples of these incentive plans are profit
– sharing and stock sharing, which may include broad – based stock
options, stock purchase programmes, and employee stock ownership
plans.

A review of the available research reveals that profit – sharing plans

generate a relatively small increase in productivity. An overview of the
incentive structure is provided as under:

An Overview of Incentives
Criteria Incentives Advantages Disadvantages
Individual Sales commissions Expect most Do not promote
Performance Piece-rate pay powerful impact teamwork or
on productivity (30 ensure a
per cent increase) commensurate
increase in
product.
It may be difficult
to measure
Group Gain sharing goal Encourage team- Yield a moderate
Performance sharing, and team work impact (13 per
based incentive cent) on
plans productivity
Organizational Profit sharing and Increase Generate a small
Performance stock sharing, shareholder increase (6 per
including broad- returns and cent) in
based stock company profits productivity
options, stock
purchase
programmes, and
employee stock
ownership plans

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Individual Rewards Boost the Team Performance at Work

Praising individual workers can boost performance for both, other workers
and for the team, scientists have found, contrary to the belief that
rewarding individuals increases competition rather than helping team
performance. Conventional wisdom has held that boosting team
performance in the workplace should focus on rewarding entire teams that
perform well.

Rather than stimulate resentment in a team ― as might be the case with

financial rewards – public recognition of high performers actually motivates
a strong desire to succeed in the rest of the team members.

11.14 Performance Measurement, Rewards and

Recognition: Aligning Incentives with Strategic and
Operational Goals

Businesses must constantly adapt their strategies and goals to address the
dynamic forces of the shifting challenges and opportunities of global
markets, the organizational upheaval of mergers and acquisitions, and the
rapid evolution of productivity tools and technologies. One critical — but
frequently overlooked — dimension of this process of renewal is the impact
of organizational change on employee motivation and behaviour.
Executives, operational chiefs and personnel managers must ensure that
their systems of rewards and recognition are carefully aligned with overall
strategic and operational goals. Rewards and recognition systems
misaligned with corporate objectives can result in behaviour that is not
anticipated or desired by management. These unanticipated actions may
be personally beneficial to front-line sales reps, manufacturing floor
managers or even senior executives, yet they move the company away
from its overall goals or cause systemic harm.

The challenge, then, is to assess and implement an incentive system that

motivates employees to act in support of strategic and operational
objectives. But, how does an operational manager or executive know when
they have the right rewards and recognition programme, or if the one they
have implemented is still having the desired effect? In addition to
measuring progress of employee performance towards corporate goals,
well-defined performance measurement systems help gauge employee

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reception, understanding and buy-in for reward systems. This critical

feedback can help managers make adjustments necessary to drive
improvements and avoid the unanticipated behaviours and actions that
negatively impact corporate goals.

Some of the following strategies can be deployed to ensure that the

performance management framework, rewards system is aligned to the
business goals and strategy.

• Link incentives to sales and service performance metrics to preserve

high-quality customer relationships.

Example – Most call centers work hard to ensure that service goals are
not compromised when cross selling is introduced. Savvy managers
disavow inappropriate, incentive-driven product pushing by ensuring
their incentive programmes reward quality service as well as sales. The
strategies they adopted to reward performance are:
❖ Pay a set dollar amount for every sale.
❖ Pay an established amount for every sale above a set minimum.
❖ Pay higher incentives for sales of higher margin products.
❖ If some staff refer and others sell, split the incentives so both are
rewarded for success.
❖ Use accelerators to award higher sales volumes with larger incentives.
❖ Award incentives to beginners for cross-sell attempts as well as for
sales.

• Design incentive compensation to guide sales reps’ behaviour in

balancing the dual objectives of customer service excellence and sales
performance.

Example – At one financial services company, executives learned that

they needed to focus incentive compensation, so that their
representatives would sell the products that made the most sense for
their customers, while also delivering revenue and profit growth for the
company.

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• Link compensation with team performance to drive collaborative

behaviour.

Example – Teams at one telecommunications company that are required

to meet the ‘Six Sigma" quality standards are paid bonuses tied to
improved defect rates and cycle times (as are their bosses), and
compete against one another for gold medals in company-wide
performance contests. The link between team compensation and
performance further aligns employees with high – level corporate
objectives because cycle time and quality (as measured through Six
Sigma standards or 3.4 errors per million) are performance measures
and performance goals of all of the company’s work units.

• Link incentive compensation to cross-unit effectiveness.

Example – One transportation company’s system links incentive

compensation equally to people satisfaction, customer satisfaction and
profits; it also links individual and team performance. Compensation
plans are balanced with components to reflect the corporate credo and
its corresponding stakeholders, such as people (employees), service
(customers) and profit (shareholders). If the team does not meet its
goals, all individuals will forfeit portions of their incentive compensation.

• Allow cross-functional teams to participate in merit pay allocation.

Example – One technology company links compensation to team

performance and the company also allows some teams to determine the
degree of the linkage. Teams help set the criteria used for allocating
merit pay. Company officials indicate that most teams start out with
merit pay criteria that are based 80 per cent on individual factors and 20
per cent on team performance factors. As an on going team matures, it
may progress to a 50-50 allocation, which insures that merit pay
distributions hinge equally on team and individual performance. Merit
pay is zero-based, meaning that the allocation of merit pay in one period
is not predicated on previous allocations. Placing merit pay on team
activities helps ensure project teams, process teams and task forces
work towards common goals. Linking compensation to teamwork and
sharing establishes the proper incentive structure to drive district wide
improvement.

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• Deploy risk and reward compensation systems to drive employee

development, team sharing, and teamwork excellence

Incentive pay provides a constant challenge to all organizations. One

automobile manufacturer’s version links employee compensation with
performance and creates a sense of ownership among all team
members. This sense of common ownership — driven through the risk
and reward system — encourages higher levels of communication,
teamwork, idea sharing, proactive problem resolution and knowledge
exchange. The system rests on some basic fundamentals:

a. Determine bottom line goals of the company and tie people’s pay to
the goals.

b. Clearly set a benchmark for the average level of compensation.

In paying out the reward component of compensation, the following

measures are employed:

❖ Production schedules achieved

❖ Profitability of the company

• Develop standardized quality tools to measure cross-functional team and

manager performance.

Example – One technology company’s key quality tools and initiatives are
embedded in the performance review process, which focuses in part on
creating managers and employees who can work together, problem solve
together, engage in teams and innovate together. For example, the
reporting process at this company shows an employee or manager’s
performance relative to:

–– Customer satisfaction
–– Employee motivation and satisfaction
–– Market share
–– Return on assets

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• Link cross-functional team compensation to non-financial goals.

Example – One telecommunications company has linked management

compensation to its financial and non-financial goals. The incentive
compensation links are forged to Economic Value-Added (EVA), People
Value-Added (PVA) and Customer Value-Added (CVA) goals. For
executives to optimize their incentive compensation, they must achieve
together on these organizational goals.

• Employ broad-based team recognition programmes to strengthen

business excellence.

Example – Another interviewed telecommunications company believes

that employee contributions are fundamental to the company's success,
and so the organization employs multiple broad-based recognition
programmes to encourage achievement and to sustain a culture of
customer focus and high employee involvement. The company
recognizes the efforts of both individuals and groups. Its recognition
programmes are frequently non-financial or have a low monetary value
but serve to reinforce business excellence as defined by the
organization’s mission, values and four business priorities. They include
recognition gestures such as getting your picture put up on a wall of
fame, profiles in internal publications, peer-to-peer accolades, free
dinners, etc. Its recognition programmes are benchmarked against other
world-class companies.

• Implement performance measurement scorecards that drive collaborative

behaviour.

Example – A prominent transportation company employs various sorts

of performance measurement scorecards to help focus all the
organization on critical issues. Perhaps the most noteworthy example
here is the company’s SQI (Service Quality Indicators) scorecard. The
SQI consists of 12 key performance measures. Each day the company
captures and reviews performance on these measures. High-level
executives review the SQI measures at a daily performance review
meeting. There are teams in place supporting each SQI measure. When
a measure moves in the wrong direction, the executive team and the SQI
team spring into action to resolve the operating issue. This structure

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supports cross-unit co-operation and alignment and participation on the

teams spans geography and departments.

11.15 Effect of Reward on Employee Performance

Today’s organizations are operating in a very dynamic and highly

competitive environment. To remain relevant in the market, they have to
be able to respond quickly to ever – changing customer demands. Reward
management is one of the ways used by organizations for attracting and
retaining suitable employees as well as facilitating them to improve their
performance.

Reward management is one of the strategies used by human resource

managers for attracting and retaining suitable employees as well as
facilitating them to improve their performance through motivation and to
comply with employment legislation and regulation. As a result of these
pressures, HR managers seek to design reward structures that facilitate the
organization’s strategic goals and the goals of individual employees.
Reward systems are very crucial for an organization. Rewards include
systems, programmes and practices that influence the actions of people.
The purpose of reward systems is to provide a systematic way to deliver
positive consequences. Fundamental purpose is to provide positive
consequences for contributions to desired performance. The only way
employees will fulfil the employers dream is to share their dream. Reward
systems are the mechanisms that make this happen. They can include
awards and other forms of recognition, promotions, reassignments, non-
monetary bonuses like vacations or a simple thank you.

When employees are rewarded, they get work done. Employers get more
of the behaviour they reward, not what they assume they will
automatically get from employees. Thus, when employees surpass their
target or exceed their standard they should be rewarded immediately as a
way of motivating them. By doing this, employees directly connect the
reward with behaviour and higher performance they have attained.
Effective reward systems should always focus on the positive
reinforcement. Positive reinforcement encourages the desired behaviour in
organizations. This encourages employees to take positive actions leading
to rewards. Reward programmes should be properly designed in the
organization so as to reinforce positive behaviour which leads to
performance.

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An organization for global manufacturer of brand-name products for

consumers needed to improve levels of employee motivation fast in order
to improve performance. Managers focused on ‘recognition’ as the key to
raising employee morale. Every employee could nominate anyone they
considered worthy of recognition. Successful employees got certificates and
they really felt appreciated. In the experience of a recognized employee,
“to be recognized formally gave me extra motivation and made me wonder
what I could do to keep the momentum going.” Some of the following
considerations are:

Designing Effective Reward Policies

The task of developing a strategic rewards framework for organizations is

usually challenging but necessary to survive in the competitive and
changing marketplace. The process, however, cannot be copied from the
organizations, but needs to be designed, developed and grown within the
unique environment of the organization. A well designed incentive
programme rewards measurable changes in behaviour that contributes to
clearly defined goals. The challenge in developing such a programme lies in
determining what rewards are effective agents of change, what behaviours
can be changed, and the cost and benefits of eliciting change.

Employees should be aware of the relationship between how they perform

and the rewards they get. Organizations should apply performance
management programmes which assist in planning employee performance
and monitor performance by effecting proper measuring tools. Rewards
should be used as a way of strengthening good behaviour among
employees as well as productivity. Hence reward systems should focus on
reinforcing positive behaviour. Employees could be rewarded for working
overtime, taking initiative, teamwork, reliability, exceptional attendance,
outstanding customer feedback, meeting deadlines or timeliness,
productivity, etc. Employers and managers should then design or come up
with a system to measure or quantify all these aspects so that rewards are
then given accordingly.

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A good reward system that focuses on rewarding employees and their

teams will serve as a driving force for employees to have higher
performance, hence end up accomplishing the organizational goals and
objectives. An effective reward programme may have three components:
immediate, short-term and long term. This means immediate recognition of
a good performance, short-term rewards for performance could be offered
monthly or quarterly and long-term rewards are given for showing loyalty
over the years. Immediate rewards are given to employees repetitively so
that they can be aware of their outstanding performance. Immediate
rewards include being praised by an immediate supervisor or it could be a
tangible reward. Short – term rewards are made either on monthly or
quarterly basis depending on performance. Examples of such rewards
include cash benefits or special gifts for exceptional performance.

Rewarding should not only be applied to individual employees within the

organization but also to teams that perform excellently. Incentives given
for good behaviour usually improve the relationship between the
employees and management because employees feel that they are being
appreciated for their efforts and good work. This leads to increased
employee morale, better customer care as well as increased productivity.

Long-term rewards are awarded to employees who have been performing

well. Such an employee will become loyal to his or her organization and it
reduces employee turnover. Long term rewards include being made
partner, or cash benefits that mature after many years of service or at
retirement. These rewards are very strategic for retaining the best human
resources. For rewards to be effective, they have to be seen as fair. This
means there has to be openness with respect to information about how the
reward system operates and how employees will be rewarded. Employees
should also be involved in designing the reward system and its
administration.

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Building Reward Systems

Every organization’s reward system should focus on these major areas;

compensation, benefits, recognition and appreciation. Benefits such as car
loans, medical covers, club membership, ample office space, parking slots
and company cars are ways of rewarding and employees do note the types
of benefit that their organization offers.

Recognition and appreciation are another integral component of a winning

strategic reward system. Recognition is to acknowledge someone before
their peers for desired behaviour or even for accomplishments achieved,
actions taken or having a positive attitude. Appreciation, on the other
hand, centres on showing gratitude to an employee for his or her action.
Such rewards help employees to gauge their performance and know
whether they are doing good or bad.

Measuring Performance

Measuring performance is of great importance to an incentive plan because

it communicates the importance of established organizational goals. “What
gets measured and rewarded gets attention”. In discipline of human
resource management, different writers suggest the following indicators for
measuring employee performance and they include: quality that can be
measured by percentage of work output that must be redone or is
rejected; customer satisfaction that can be measured by the number of
royal customers and customer feedback. Also, timeliness measured in
terms of how fast work is performed by the employee when given a certain
task; absenteeism/tardiness observed when employees absent themselves
from work; and achievement of objectives measured when an employee
has surpassed his/her set targets, he/she is then considered to have
performed well to achieve objectives.

The management of individual performance within organizations has

traditionally centred on assessing performance and allocating reward, with
effective performance seen as the result of the interaction between
individual ability and motivation. It is increasingly being recognized that
planning and an enabling environment have a critical effect on individual
performance, with performance goals and standards, appropriate
resources, guidance and support from the managers all being central.

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Human resource policies and practices indeed do affect organizational as

well as individual performance. Job satisfaction, for example, has for a long
time been seen as key to affecting business performance as well as
commitment. In addition, researchers have also identified motivation as
the mediating mechanism and some identify trust and morale. In spite of
more recent attention to commitment, motivation is still considered to be
an important influence to performance.

Relationship Between Rewards and Performance

Rewards can be used to improve performance by setting targets in relation

to the work given e.g., surpassing some sales targets. When the employee
surpasses their target, he or she can be given an additional amount over
their salary; this will make them strive to achieve more.

Research has proven that when human beings are appreciated and praised
they tend to improve their performance. This is another way an
organization can apply as a reward so as to improve performance. Praise
could be shown in the organization’s newsletter or in meetings. When
managers take time to meet and recognize employees who have performed
well, it plays a big role in enhancing employees’ performance.

Organizations should reward employees more often. This greatly improves

performance compared to having the rewards maybe only once a year. This
is because frequent rewards are easily linked to the performance.

Another way through which organizations can use reward systems to

increase output is by personalizing the reward. When rewards tend to be so
general, employees do not value them. Organizations can use rewards to
improve employee performance by incorporating appraisal or promotion for
employees who have a good record of performance. Managers should be
on the lookout for employees who perform well.

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11.16 Performance Management and Reward Systems —

An Effective Tool for employee engagement

In order to enhance the performance of the organization, it is very crucial

that the employer deploys the performance management and rewards
system to improve employee engagements. More engagement will lead to
successful delivery of results, higher motivation and better growth and
profitability of the organization.

Aon Hewitt Employee Engagement Model

The model demonstrates that there is a closer linkage between the

organizational performance, employee engagement and the performance
management and rewards system. Some of the key learnings from the
employee engagement model are discussed as under:

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Economic, technological, demographic and social forces have put pressure

on businesses in unprecedented ways. The change is accelerating — not
slowing down. Standing still is not an option for most companies with
regard to the talent agenda. Beyond attracting and retaining necessary
talent, engaging talent in the right behaviours for future business
challenges will be a point of focus. Adaptability, agility, speed, relevance
and incremental value are at the centre of an evolving employee value
proposition. These are the required traits of high performing companies in
the market as well as what employees and leaders will be required to
deliver. The trends in this report, our analysis of best employer
organizations and our work with companies that have achieved strong
engagement results offer some insights for making engagement happen.
The key driving trends noted are as under:

1. Understand the trends affecting your talent strategy: Most

companies are being affected by one or more trends outlined in this
report. It is absolutely critical for leaders to connect economic
challenges and emerging business imperatives to the workforce profile
required for future success. Businesses are being affected or disrupted
by global economic and technological trends. As we have seen,
employee demographics will have a big impact both in terms of where
available talent will be around the globe, and also in terms of how large
segments like millennials and baby boomers are changing the
expectations workers have of their companies.

2. Focus on the engagement behavior required for performance

and business success: Getting real about employee engagement
requires moving beyond a generic concept and clarifying the behavior in
which you would like employees to go above and beyond. For many
employers there is increasing need for agility, speed and flexibility —
these traits and behavior will vary by industry and job profile. Clarifying
what engagement looks like for employees is a prerequisite to their
engagement. Aligning performance management, people management,
learning and development, and rewards and recognition with these
engaged behaviour expectations will focus, enable and reinforce
employees’ efforts and energy.

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3. Deliver on a compelling employee value proposition (EVP):

Employees want to be valued and provide value in return. Many trends
have created a disconnect between what companies require, what they
are offering and what employees expect in return in order to unlock
their full engagement. Top engagement drivers such as career
opportunities, pay for performance and communication provide some
insights into how employees define value from their company.
Employees are also engaged by a company with a strong reputation. An
EVP that clarifies the one or two things that your organization wants to
be famous for, and delivers against this promise, is at the core of a
strong reputation. Companies that have a compelling and aligned EVP
will have employees who say positive things about their organization,
will want to stay and will strive to go above and beyond in their jobs.

4. Create a culture of engagement: Engagement is not a survey score

or a programme. Engagement is about people. Building a culture of
engagement is about what you do and how you do it. As we saw in our
best employer research, companies need to take a holistic view beyond
the employee engagement outcome alone. Healthy organizations with
strong cultures demonstrate concerted effort, and top quartile
performance in not just employee engagement but also brand,
performance orientation and leadership.

5. Protect the foundational elements: Many organizations with lower

levels of engagement struggle to jump right into a ‘culture of
engagement’. Leaders should not overlook the positive impact of strong
company practices and enabling infrastructure; basics like benefits,
safety and work-life balance; or fulfilling work itself. Many companies
that have had significant increases in employee engagement in a short
period of time focus on fixing issues in some of these basic elements.
Getting the foundation right is often the first step in building a culture of
engagement, and cracks in this foundation can quickly erode employee
engagement for any organization.

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6. Build engaging leaders: Our work consistently points back to the

impact of leaders on employees’ engagement, and to the fact that
companies that excel at engagement almost invariably have strong
leaders who implicitly understand and value employee engagement.
Engaging leaders — or leaders who are very engaging of others — have
been shaped by early experiences, have beliefs about purpose and
people, and behave in ways that inspire, focus, stabilize, build trust, and
connect with and grow others. Leaders can be assessed, selected and
developed based on this profile. Those companies that focus on building
engaging leaders will see an exponential impact on employee
engagement.

Benefits and Reward Systems at Deloitte, a Leading Management

Consulting Firm in the World

Deloitte’s total rewards programme reflects their continued commitment to

lead from the front in everything they do — that’s why they take pride in
offering a comprehensive variety of programmes and resources to support
employee’s health and well-being needs.

Paid Time off and Holidays

PTO gives professionals the flexibility to manage time off in a way that
works best for them. Deloitte’s PTO programme gives professionals an
allotment of days that encompass vacation, personal, and sick time. Actual
PTO accrual will depend on the professional’s position and possibly on their
years of eligible service. When combined with holidays, there are 35 days
off on average with a minimum level of 30 days off per year. To provide
additional flexibility, our programme includes a carryover provision for
unused PTO.

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Life and Family Related Benefits

Parental Leave: Deloitte offers paid time off to bond with a new child,
whether that child joins your family through birth or adoption. Primary
caregivers — women or men — are offered up to eight weeks of fully paid
parental leave in addition to any short-term disability benefits payable
(typically six to eight weeks depending upon type of delivery) and non-
primary caregivers are offered up to three weeks of fully paid parental
leave.

Adoption Assistance: Deloitte offers counselling and referral services for

professionals who are considering adoption, and reimbursement of up to
$5,000 per child for eligible expenses related to an adoption.

Emergency Backup Dependent Care (adults and children): This

service can be used when you need to be at work and your regular child or
adult/elder care is unavailable. Care is available for infants through
teenage children and adult relatives of Deloitte employees, up to a
maximum of 30 days per employee per fiscal year.

Sabbaticals: Deloitte offers two sabbatical programmes: an unpaid one-

month sabbatical that can be taken for any reason; and a three to six
month sabbatical that can be taken to pursue personal or professional
growth opportunities in the areas of career development or volunteerism.

Pet Insurance: Deloitte understands that for some, pets are another
member of the family. To help cover the cost of healthcare for your pet,
Deloitte offers a pet insurance programme — at a special discount for US
based professionals. From routine office visits to significant medical
incidents, the Veterinary Pet Insurance (VPI) provides protection for pets
when they need it most.

Medical, Dental and Vision: Deloitte's healthcare offerings include

competitive medical, dental, and vision plans. Five different national
medical plan options with three carriers are available. All of the plans
provide: 100 per cent coverage for in-network preventive services
including well-child (e.g., immunization), well woman (e.g., mammogram,
Pap smear), and well man (e.g., prostate testing), access to quality care
through national provider networks, prescription drug coverage protection

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against the cost of catastrophic illness or injury, the ability to see a

specialist without a referral.

The dental plan provides access to in-network and out-of-network

providers and coverage for major dental work including adult and child
orthodontia. The dental benefit also includes three dental cleanings per
year, with no deductible, paid at 100 per cent of reasonable and customary
charges. Deloitte also offers a discount vision benefit at no cost to the
participant, as well as a voluntary vision plan that allows participants to
elect additional coverage.

Life Insurance and Disability

Deloitte offers a range of insurance and disability coverage to help protect

professionals and their families from the financial impact of unforeseen
circumstances. Life Insurance includes core coverage for our professionals.
Optional life and accident coverage can be purchased for professionals and/
or their eligible dependents. Business Travel Accident (BTA) insurance is
provided at no cost to the participant. Deloitte provides short term
disability and core long-term disability (STD and LTD) coverage at no cost
to the participant. Additional LTD coverage is available for purchase as well.

Retirement

Deloitte provides a defined benefit pension plan to help provide income in

retirement at no cost to our eligible professionals. The pension plan
provides:
• Vesting after three years of continuous service or attainment of age 62
while actively employed, regardless of years of service
• A monthly income for life or a one-time lump sum distribution after
retirement
• Competitive cash balance formula
• Normal retirement at age 62
• Retirement as early as age 50 with completion of at least ten years of
service, or age 55 with completion of at least five years of service

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Additional Benefits

• Student Loan Consolidation and Refinancing: Deloitte offers a

student loan consolidation and refinancing programme, available through
SoFi. Eligible participants can combine their existing private and federal
loans into a single loan with one monthly payment at competitive rates.
In addition, participants who refinance their loans also receive a $300
bonus from SoFi. Independence requirements may impact eligibility.

• Long-term Care: voluntary coverage that helps protect you and certain
family members from the high costs associated with an extended nursing
homestay and home healthcare services.

• Deloitte Marketplace Employee Discount: It provides professionals

with access to discounts at more than 28,000 online retailers and
hundreds of local restaurants and merchants, including offers that are
exclusive to Deloitte professionals.

• Group Legal Plan: voluntary coverage that enables you to receive a

comprehensive set of personal legal services from a panel of participating
law firms or from your own attorney.
• Employee Assistance Programme and Lifeworks: Whether you or
family members face marital difficulties, gambling problems, learning
disabilities, drug or alcohol dependency, or other problems, the Employee
Assistance Programme (EAP) offers support and guidance. Deloitte also
has a relationship with lifeworks to provide education.

11.17 Activity

1. Conduct a survey of the companies primarily in the technology, e-

commerce sector and capture the key trends in the rewards strategy.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………

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11.18 Summary

Organizations need to consider latest trends in the reward systems and

revamp the recognition systems. Some of the key considerations are as
under:

• Ensure that your rewards tie directly to your business objectives:

It's critical to align employee interests and company interests so it's a
win-win for everyone. Identify what behaviours positively impact the
business, and design your recognition programme to recognize and
reward them. It will drive repeat positive behaviour. It also helps
employees understand how their actions affect the big picture, which also
helps make their jobs more meaningful.

• Include peer-to-peer recognition: A recent study from WorldatWork,

a Scottsdale, Arizona-based human resources association, found 43 per
cent of organizations today have some kind of peer-to-peer recognition
programme.

• Implement user-friendly software, allowing managers and

employees to actively engage in a recognition programme
without a lot of extra time: One glaring finding from a recent study
from HR research and advisory firm Bersin & Associates was the
importance of a solid technology programme for implementing the
rewards system. One of the top reasons employees don't recognize each
other is it's not always easy to do.

• First focus on senior leaders buying into the new goals of your
recognition programme: If senior management doesn't believe in the
importance of rewards and recognition to drive business objectives, the
message won't trickle down through the organization in a very effective
way.

• Give employees a nice range of rewards to cash in on: Rather than

just a gift card to Starbucks, let them pick what they want from a
catalogue.

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11.19 Self-Assessment Questions

1. Highlight the key trends in the reward and recognition systems. Provide
examples to support your ideas.

2. Explain the relevance of strategic praising as a step for effective

employee recognition.

11.20 Multiple Choice Questions

1. Employers can double their rewards and recognition efforts in

innovative, cost – efficient ways. Good recognition and rewards provide
employees with:
(a) A fair return for their efforts.
(b) Motivation to maintain and improve their performance.
(c) Clarification of what behaviours and outcomes the organization
values.
(d) All of the above.

2. Which of the following are least likely to be a suitable measure for

optimizing, recognizing and rewarding employees?
(a) Keep the recognition criteria vague.
(b) Clear specification of the criteria.
(c) Saying thank you frequently.
(d) Nurturing self-esteem.

3. Which of the following is least likely to be amongst a low – cost strategy

at work for rewarding the employees and expressing recognition of
performance?
(a) Employee appreciation a week.
(b) Thank you notes.
(c) Compensation in cash.
(d) Newsletter features.

Answers: 1.(d), 2. (a), 3. (c)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter

Summary

PPT

MCQ

Video Lecture

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Chapter 12
Measuring Effectiveness Of Pms And
Reward Systems

Objectives

After studying this chapter, you will be able to:

• Gain an understanding of the process of evaluating effectiveness of
performance management and reward systems
• Understand the key parameters to measure the performance
management effectiveness

Structure:

12.1 Evaluating Effectiveness of Performance Management and Reward

Systems

12.2 Evaluation of Effectives – Considering Cost Perspective

12.3 Performance Measurement – Three – Dimensional Perspectives

12.4 Activity

12.5 Summary

12.6 Self-Assessment Questions

12.7 Multiple Choice Questions

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12.1 Evaluating Effectiveness of Performance Management

and Reward Systems

Virtually every organization has a performance management system that is

expected to accomplish a number of important objectives with respect to
human capital management. The objectives often include motivating
performance, helping individuals develop their skills, building a
performance culture, determining who should be promoted, eliminating
individuals who are poor performers, and helping to implement business
strategies. There is little doubt that a performance management system
which can accomplish these objectives can make a very positive
contribution to organizational effectiveness, but there is less clarity about
what practices make a performance management system effective.

There are a large number of design features that potentially can influence
the effectiveness of a performance management system, and many of
these have been empirically studied to determine their impact. For
example, there is considerable research which shows that performance
management effectiveness increases when there is ongoing feedback,
behaviour based measures are used and preset goals and trained raters
are employed. There is one potential determinant of performance
management systems effectiveness, however, which has received relatively
little attention: how tightly the results of the performance management
system are tied to significant rewards. The lack of attention to this impact
is particularly pronounced when it comes to the issue of using a
performance management system to systematically remove lower
performing employees from the organization.

There are a number of reasons for believing that systematically tying

rewards to the outcome of a performance management system will make
the performance management system more effective with respect to
motivation, but there are also some that suggest it will make it less
effective with respect to development.

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On the other hand, it is reasonable to argue that when rewards are tied to
the outcome of performance appraisals, it will lead to more effective
performance management systems. Managers will be particularly
concerned about doing a good job since the outcome of the appraisal will
have a significant impact on their ability to allocate rewards based on
performance and motivate those individuals who work for them. Similarly,
in the case of individuals, they know that how well the performance review
goes will affect rewards that are important to them, so they may be
particularly motivated to prepare for the session and see that it goes well.
Further, there is a good possibility that when appraisals are used to
determine rewards, organizations will put more pressure on managers to
differentiate among the employees they are appraising, since this is key to
rewarding individuals for their performance.

Indicative Performance Measures

• Turnover rate
• Staff satisfaction
• Appraisal and performance management
• Profit
• Length of service distribution
• Vacancy rate
• Workforce composition
• Time taken to fill vacancies
• Customer satisfaction
• Reward budget costs
• Competency/skill level of staff
• Job offer refusal rate
• Measures of staff commitment
• Sales growth
• Productivity per employee
• Economic value added

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Measuring Effectiveness of Performance Review in Today’s

Uncertain Times

It's important for leaders to ask: Do our performance reviews really help us
get the most out of our people? Managers are required, in most
organizations, to sit down once a year with each of their team members
and have this weird conversation: the annual performance review. It tends
to feel forced and awkward, and it usually doesn't do a lot to help
employees get better at their jobs.

According to Gallup, only 14 per cent of employees strongly agree their

performance reviews inspire them to improve.

In other words, if performance reviews were a drug, they would not meet
FDA approval for efficacy. For most organizations, the performance review
is simply assumed to be ‘the right thing to do.’ That's how we're supposed
to determine pay and establish accountability, right. But, in recent years,
many business leaders have started asking themselves, "Why do we do
this in the first place?" Are our performance reviews really helping us get
the most out of our people and engage them? When organizations put their
performance management system under a microscope, the answer is a
resounding ‘NO’. It does not equip, inspire and improve performance. It is
not the best system for determining pay and promotion.

And it costs organizations a lot of money – as much as $2.4 million to $35

million a year in lost working hours for an organization of 10,000
employees to take part in performance evaluations – with very little to
show for it.

Does that mean organizations should throw out their performance reviews
altogether and replace them with something new? And if so, what? Some
of the key learnings from Stanford University and Gallup Survey are as
under:

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1. Performance reviews in most organizations are so bad that they

do more harm than good.

Traditional performance reviews and approaches to feedback are often so

bad that they actually make performance worse about one-third of the
time. The reasons for this are many. First, odds are the manager hasn't
been giving employees regular feedback. So, by the time the employee is
hearing praise or correction, the issues are history – they have either been
resolved or are in the distant past. The result is that it feels like an
unnecessary rehashing of a painful time or praise that comes far too late –
an afterthought.

In fact, nearly half of employees say they receive feedback from their
manager a few times a year or less. Notably, many industries are filled with
"accidental managers" – for example, a department chair in higher
education – where someone only puts on their supervisor hat once a year
during a performance review. They haven't been actively managing their
subordinates in any meaningful way up until that moment.

In addition, most managers haven't been trained to evaluate performance,

give feedback or charter a developmental plan. This can lead to an
unnatural conversation in which employees feel like they are talking to a
completely different person than they are used to working with. Another
major cause of awkwardness is that most performance reviews are trying
to do too many things in a single conversation.

For example, performance reviews are often used for:

• offering advice on how to improve.
• setting an employee's bonus or raise.
• deciding on a promotion.
• justifying a future firing.

Unfortunately, legal protections can loom large here. They can add a layer
of confusing subtext to the conversation, and it's also one reason
traditional performance reviews have persisted so long, though they are so
ineffective. Creative reinvention of performance reviews often involves a
discussion with the legal department.

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Mixing all the above elements effectively into one annual, standardized
conversation is complicated – maybe impossible. A good starting place for
improvement is to separate some of these topics into different
conversations. For example, separating the pay conversation and
performance review conversation into two separate meetings ensures each
topic is given the right focus. Similarly, organizations might consider using
different formal processes and tools when employees are up for a
promotion or needing to be put on a performance improvement plan. In
this way, a promotion track conversation looks and feels differently than a
disciplinary track conversation.

2. Strong evidence about alternatives to performance reviews is

lacking, but there are a few important insights that you should
consider.

Over the past several years, many well-known companies have

experimented with different ways of doing performance evaluations,
including eliminating them all together. Some changes have worked, some
have not, and for some, it's too early to tell.

These alternatives may be better (or worse) than traditional annual

reviews. The jury's still out. Nevertheless, organizational readiness for
change has proven an important factor. When new approaches are
confusing, burdensome or counter cultural, they're met with frustration and
resistance. There also doesn't seem to be a silver bullet for improving
performance reviews organization-wide. What works for front-line workers
in a manufacturing environment or a call centre doesn't necessarily work
for computer programmers and senior leaders. That said, some key
changes work better for everyone. Simplifying performance reviews and
making them more flexible and relevant to the work being done has been
popular with both managers and employees.

Early evidence indicates that teaching managers and employees to have

more frequent, meaningful conversations about work expectations,
progress and development improves engagement and performance.
However, early evidence also suggests that when organizations replace
annual reviews with more frequent or more subjective systems, but don't
provide sufficient training, they quickly discover their managers don't know
how to talk to employees.

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Donna Morris, an HR leader at Adobe, discovered that, in order to

effectively lead regular check-ins, managers needed to be trained on how
to talk to employees – literally role playing what a positive manager-
employee check-in looks like. When it comes to the developmental aspect
of a performance review, the real questions employees want answered are,
"What do I need to do to be more successful?" and, "What does my future
look like?" There's not always a cut and dry answer to those questions.

Effective coaching requires understanding an employee beyond their

performance numbers and the limited observations made by managers –
and that means having real conversations.

A good manager, like a good coach, can see their employees from both an
objective and subjective point of view. What is this person exceptionally
good at? What do they care about most? What are their dreams and goals?
Effective coaching requires understanding an employee beyond their
performance numbers and the limited observations made by managers –
and that means having real conversations.

3. When employees are rewarded for putting themselves ahead of

colleagues and customers, it fuels greed and dysfunctional
competition.

Good performance management systems reward people who help others

(and do good solo work) and punish free – riders and back–stabbers. And
yet only 22 per cent of employees strongly agree that their pay and
incentives motivate them to do what is best for their organization.

One simple, important question to pose to your organization is this: Who

gets ahead around here? Is it the people who help others succeed? Or is it
the people who put themselves before the team – or even ahead of the
customer?

In the 1990s, Men's Wearhouse fired one of its top performing salespeople
after discovering that the employee had been hogging a significant amount
of sales in the store. The firing demonstrated, as an example, that
individual achievements weren't everything. Teamwork and collaboration
mattered, too. As a result of the firing, the overall store sales rose by
almost 30 per cent. Although no single salesperson outperformed the fired
employee, the store as a whole began to flourish. Unless you want to

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encourage a cut-throat, back-stabbing culture, collaboration and helping

others need to be included in performance evaluations.

One simple, important question to pose to your organization is this: Who

gets ahead around here? Of course, you don't want to take things too far in
the opposite direction – like elevating ‘team players’ to such a degree that
it encourages superficiality, diffusion of responsibility and mediocrity. But,
most organizations would do well to include team and customer goals as
part of a performance review.

4. The exact system you use becomes less important when

managers know how to have regular and constructive
conversations with employees about how to improve
performance.

If performance feedback only occurs a few times a year, it's unlikely to be

meaningful. In contrast, when formal progress reviews are accompanied by
frequent, honest feedback – and the review is consistent with what you've
heard all year – they can be affirming, motivating and, at the very least,
much less awkward.

Gallup has found that when managers provide weekly (vs. annual)
feedback, team members are:

• 5.2x more likely to strongly agree that they receive meaningful feedback
• 3.2x more likely to strongly agree they are motivated to do outstanding
work
• 2.7x more likely to be engaged at work

Needless to say, the best performance management systems encourage

frequent, meaningful manager-employee conversations. And there's also a
cultural aspect as well – performance management systems work best
within a culture of honest feedback, where teams have a shared definition
of excellence, and with leaders who model what makes a great manager.

Frequent, honest conversations also open the possibility for what Kim Scott
calls ‘radical candor,’ the ability to address uncomfortable truths. When
managers are unable to have frank conversations with their team
members, the result is unhappy employees (who aren't a good fit for their
role) don't move on. They continue to receive false praise and

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encouragement, when the best thing – for them and for the team – would
be to make a change or find a better role.

What role should your managers and the performance management

system really play?

The best managers in the world are architects of effective coaching

conversations. They create moments where genuine dialogue can occur,
where employees feel their opinions matter and like they are cared about
in a unique way. In addition, great managers create a continual learning
environment that encourages employees to openly collaborate.

12.2 Evaluation of Effectives – Considering cost

perspective

A desire to cut costs and reduce risk has led an increasing number of
organizations to centralize their reward decision-making and policy, and
sometimes even administration. Advancements in technology have enabled
a greater centralization of reward strategy over recent years and this trend
is becoming more pronounced.

Centralization has the potential to allow organizations a clearer line of sight

over their reward programmes, meaning they can ensure local schemes
align to global priorities and policies – increasing return on investment and
reducing the risk of potentially damaging inconsistencies. The danger is
that centralized policies can contradict sharply with local demands and
practices, and may disengage local management if they are too restrictive.
That said, organizations are continuing to allow for variations in business
units or locations if it makes sense to do so.

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For many, the concern is striking the right balance between global
consistency and local adaptability, and allowing for proper recognition of
varying local practices, such as tax legislation, social benefits and
regulation. For global reward policies to work effectively, organization need
to have visibility over all of their remuneration components – not just base
pay or total cash. Benefits and allowances frequently form a significant part
of reward spend and are critical for competitiveness in many markets. The
need to ensure the effectiveness of reward programmes is motivating an
increasing number of companies to determine the total cost of their reward
programmes and benchmark that against all the various markets they are
active in. This is a trend we would expect to increase as more companies
get to grips with the practicalities of operating effectively as a global
organization.

12.3 Performance Measurement – Three – Dimensional

Perspectives

Senior executives determining performances using balanced measures

should take into account the following factors

• Business perspective
• Customer perspective
• Employee perspective

These measures are the yardsticks used to determine how well work units
and employees produce or provide products or services. The performance
pyramid below shows the types of general measures that are used at
different levels in the organization.

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Note that the balanced measures incorporating the business, customer, and
employee perspectives are appropriate for measuring managerial
performance and are sometimes appropriate for supervisory or even work
unit performance. At the bottom of the pyramid, the four general measures
normally used for measuring work unit and employee performance are
quality, quantity, timeliness, and cost-effectiveness.

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12.4 Activity

1. Document at least five performance measurement parameters that are

deployed by each company across selected sectors. Identify the
common points and evaluate the key differences.
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12.5 Summary

Many factors contribute to establishing and maintaining a meaningful and

effective pay-for-performance programme. But, programme management
needn't be overly complicated. A successfully designed plan should be
meaningful and simple.

The goal setting process should also take into account the importance of
risks and rewards. On one hand, risk management can help keep the
process consistent with the company's risk profile and contain and reduce
behaviors that might be deemed excessively risky. On the other hand,
performance goals that languish without achievement-based rewards can
quickly lose impact and relevance.

A performance funded plan is an effective way to make sure that monies

will be available to recognize employee achievement. This kind of funding
mechanism can serve as an operational self-fulfilling prophecy by setting
performance goals and payout levels based on formulas that depend on
corporate success.

It won't always be feasible or cost – effective to set specific goals for every
employee, or even every employee group. But, if your organization
understands and communicates the linkage between individual
performance and organizational performance, you can create a sense of
concrete continuity for employees, management and investors alike.

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12.6 Self-Assessment Questions

1. Explain with examples the key performance measurement parameters

commonly used across various industries.

2. Write a short note on evaluation of effectiveness of the performance

measurement parameters.

12.7 Multiple Choice Questions

Which of the following is least suitable performance measurement

parameter for evaluation of the effectiveness of the performance
management and reward systems framework?
(a) Turnover rate.
(b) Compensation of the CEO of competitor company.
(c) Customer satisfaction.
(d) Sales growth.

3. Which of the following is not an important perspective of performance

measurement and evaluation?
(a) Business perspective.
(b) Competitor perspective.
(c) Employee perspective.
(d) Customer perspective.

4. Which of the following is least likely to be an important objective of

evaluation of effective performance management and reward systems?
(a) Motivating performance.
(b) Helping individuals develop their skills.
(c) Building a performance culture.
(d) Determining who should not be promoted and expelled from the
company.

Answers: 1. (b), 2. (b), 3. (d)

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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
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Case Studies

Following Global Indicators in Assessment of Performance

Management and Reward Systems

Some 2,500 years ago, Plato and Aristotle hypothesized that in a just
society, no one possesses more than five times the wealth of another. In
the past 2,500 years, the ratio has steadily increased. Financier John
Pierpont Morgan had famously suggested that ratio to be around twenty is
to one. Later, others such as Drucker and JK Galbraith validated that
number as an appropriate ratio for the lowest to the highest-paid employee
in an organization. A comparison has been drawn for Indian companies
with respect to the lowest-paid employee and CEO compensation. The ratio
analysis is depicted as under:

The results of the survey look skewed, and also indicate a huge
compensation gap in wage to CEO compensation across number of Indian
companies. The chart above depicts the ratio between the average annual
compensation of the CEO of a mid size to large company in India and the
minimum wages in the country across different categories of labour.
Effectively the message is that, as a society, we seem to broadly accept the
idea that in the organized sector the lowest wage is about a basis point of
the highest.

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It is worthwhile to compare how India fares in comparison to other

countries with respect to the gap in lowest compensation and highest
compensation.

If we compare the ratio of minimum wages of a graduate and a CEO in

India, vis-à-vis a set of countries, India stands head and shoulders above
all European, North American and Asian peers.

Understanding Why TCS is Rated Top Employer – Driving Factor is

Robust Performance Management and Reward Strategy

Tata Consultancy Services has been named as a top employer in the

United States for a second consecutive year by the Top Employers
Institute, an employer certification agency. TCS was recognized as an
exceptional performer across nine categories: talent strategy, workforce
planning, on boarding, learning and development, performance
management, leadership development, career and succession
management, compensation and benefits, and culture.

The Top Employers certification is awarded to a select group of employers

who demonstrate forward-thinking HR practices, exceptional employee
offerings and an employee environment that promotes personal and
professional development.

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Comprehensive research concluded that Tata Consultancy Services

provides an outstanding employee environment and offers a wide range of
creative initiatives – from benefits and learning and development
opportunities to well-thought-out career management programmes – that
are truly aligned with the company's culture.

Case Study of Global Consulting Firms – Abandon Annual Employee

Performance Reviews, Rankings

Global software giant Accenture is set to abandon annual performance

evaluation of its employees, as part of the company's efforts to streamline
its internal functions. "Imagine, for a company of 3,30,000 people,
changing the performance management process — it's huge," Accenture
CEO Pierre Nanterme told The Washington Post.

The company plans to implement the new measures starting from

September this year. It will also dump the ranking system for its
employees. Instead, Accenture will put in place a ‘more fluid system,’ which
will enable its employees to get ‘timely feedback’ from their superiors on a
continuous basis after an assignment is completed.

Accenture’s fiscal year begins in September and with the aim of

implementing the new system from FY 16, the company has put the new
system in place. Major companies have begun revolting the once-a-year
evaluation process that is widely seen as being biased for employees and
time-consuming for employers.

Other companies are either simplifying their evaluation process or doing

away with them entirely. Consultancy and management firm Deloitte
moved to a completely new evaluation process this year. It is also
experimenting with asking just four questions in its reviews, two of which
require a simple yes or no answer. Microsoft stopped doing performance
reviews almost two years ago.

"We're going to get rid of probably 90 per cent of what we did in the past,"
Nanterme said. By doing so, Accenture will be one of the few companies
that discarded ranking and time-consuming paperwork to review its
employees.

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According to management research firm CEB, nearly 6 per cent of the

Fortune 500 companies have avoided using the ranking system. Consulting
and auditing firm Deloitte had announced in March that it is running a new
evaluation programme, in which performance review would be done
‘incrementally’ in a year setting aside the ranking process.

Deloitte's pilot programme includes four simple questions to review

performance. Global tech major Microsoft had already abandoned its
ranking process about two years back. Adobe, Gap and Medtronic are the
other companies that implemented similar measures. "All this terminology
of rankings — forcing rankings along some distribution curve or whatever
— we're done with that," Nanterme said.

"We're going to evaluate you in your role, not vis-à-vis someone else who
might work in Washington, who might work in Bengaluru. It's irrelevant. It
should be about you," he added. In a study conducted by CEB, it has been
found that 95 per cent of managers are disappointed with the performance
evaluation processes of the companies and about 90 per cent of HR heads
are of the view that the reviews do not produce correct information. "The
art of leadership is not to spend your time measuring, evaluating,"
Nanterme said.

"It's all about selecting the person. And if you believe you selected the
right person, then you give that person the freedom, the authority, the
delegation to innovate and to lead with some very simple measure," he
said.

While change is coming to foreign companies, Indian companies have yet

to fully understand the merits of doing away with the cumbersome
performance reviews and implement better alternatives. In India, KPMG
began the trend of introducing a real-time feedback approach instead of
yearly reviews from this year onwards. Accenture’s competitors like Infosys
and TCS, however, will definitely look to see the merits of the new system,
before deciding whether to implement it or not.

This is a wrong way of looking at awarding employees. Most of them only

require that their concerns reach the designated person on time and that
timely action is taken on any issues between him and the manager.
Potentially sticky issues like salaries and designations do not need to be

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invoked at every meeting, but a few encouraging words and rewards for an
assignment well done never hurts.

The performance appraisal system also gives managers leeway to

manipulate their employees’ work and give ratings according to his whim
since the entire process is mostly based on secrecy. Hard-working
employees slowly turn on the system and either quit in frustration or see
other employees who have secured the manager’s favour rise up the
corporate ladder. The inherent failure of performance reviews means that
the process is sure to end soon.

Another problem with Indian companies and those that follow the
performance review system worldwide is that they pit employees against
one another. Instead of focusing on their own job, employees look at their
colleagues’ work and try to outmanoeuvre them in a bid to secure higher
rank and salary. This hurts the business in the long run – a fact that
companies are now beginning to take into account.

Meeting Challenge of Grading Employees

Can a year’s worth of work be boiled down to a stock phrase like ‘meets
expectations’? As companies reinvent management by slashing layers of
hierarchy or freeing workers to set their own schedules, performance
ratings — which grade workers on a 1-5 scale or with labels like ‘on target’
— stubbornly hang on. Companies like Gap Inc., Adobe Systems Inc. and
Microsoft Corp. abolished such ratings after leaders decided they deterred
collaboration and stoked staffers’ anxieties. Yet other companies are having
a harder time letting go.

Intel Corp. has long rated and ranked its approximately 105,000 workers
on a four-level scale, from ‘outstanding’ to ‘improvement required’. Devra
Johnson, a human resources director at the chipmaker, observed that
ratings tended to deflate morale in a good chunk of the 70 per cent of the
company’s workforce that receives a ‘successful’ rating each year — the
second lowest label. “We’d call them the walking wounded,” she said.

Human resources managers conducted an experiment to test a new way of

managing performance, allowing 1,700 workers in the HR department to
go unrated, although not without feedback, for about two years, according
to Ms. Johnson.

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Managers found they could still differentiate performance and distribute

compensation. However, when Ms. Johnson’s team presented its findings;
company executives weren’t ready to give the labels up, concerned that
forgoing ratings would suck healthy tension out of the workplace, she said.
So, the HR department started rating the employees in the experiment
again. “We don’t want to be in a place where everyone’s an outstanding,”
she said. “We worry a lot, as we should, about unintended consequences.
You make a little tweak in an innocuous place — you don’t know,
sometimes, the impact it might have.”

Marc Farrugia, the vice-president for human resources at Sun Communities

Inc., is going through the ‘exhausting’ process of revamping performance
management at the owner and operator of manufactured housing
communities. He’s concerned about the accuracy of the company’s current
approach to ratings; some managers just dole out higher scores in order to
maximize bonuses for employees they’re scared might leave; others give
everyone average ratings because it is easy. Workers complain the ratings
aren’t fair and don’t paint a true picture of their annual performance. “I’m
being more and more convinced that ratings are doing more harm than
good,” Mr. Farrugia said.

Some managers felt differently, however. At a recent meeting, senior

managers resisted the idea of eliminating ratings, claiming workers
wouldn't get the feedback they need, Mr. Farrugia said.

Plenty of managers like ratings for the same reason employees loathe them
— the grades are informed less by data than by the boss’s judgement. The
irony is that ratings remain subjective as companies have more ways than
ever before to track staff performance. At Deloitte LLP, the company
recently overhauled its performance management system after realizing
that ratings revealed more about the manager assigning the ratings than
the employees themselves. Some executives worry that figuring
performance measures, such as the time it takes for restaurant workers to
take an order, into reviews might lack context.

“I have a real love-hate relationship with data,” said Kevin Reddy, the CEO
of fast-casual restaurant chain Noodles & Co. “You can get a false sense of
security if you zero in too closely on a rating system.” The company moved
away from numeric ratings about seven years ago but still places workers
into broad categories like ‘meets expectations’. Mr. Reddy said he and his

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leadership team continue to question whether they’re doing feedback right

and motivating employees.

IBM - Discontinuing its Contentious Employee Review System for

one that Employees Asked for:

IBM employees are being judged in an entirely new way, by a new

employee review system internally called ‘Checkpoint’, IBM confirmed to
Business Insider.

It is ditching its 10-year-old system and using a new one crafted in

conjunction with the employees themselves, IBM's chief human resource
officer Diane Gherson told Fortune, and IBM also told Business Insider.
IBM's old performance review system was somewhat notorious.

It was your classic annual review, where employees had yearly goals and
performance was analyzed at the end of the year. As such, IBM is trimming
jobs in the traditional hardware areas, while hiring in the new areas. IBM
has shed thousands of employees, mostly by selling business units.

But, it has also been doing ongoing rolling layoffs for years. IBM calls them
‘resource actions’ and ‘workforce rebalancing’." IBM doesn't disclose any
information about its lay offs, beyond how much such ‘workforce
rebalancing’ costs the company every quarter.

For years, IBM employees have worried that the annual employee review
could give them a red flag, even if they had previously received high
ratings, making them vulnerable to being cut. And so, internally, there was
a lot of politics and angst all focused on that performance number.

Thousands of employees helped create the new system – when IBM

decided to revamp its employee review process, it asked employees what
they wanted to see. The HR department asked for feedback on IBM's
internal employee social media site, Connections. The post was read by
75,000 people and got 2,000 comments, Gherson told Fortune.

HR also conducted online mini polls where employees could vote on topics
like work priorities (how do you value teamwork, skills development,
innovation), and so on, an IBM spokesperson told us. Not surprisingly,
employees asked to ditch the stack ranking process.

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Employees also wanted feedback more often, and the ability to change
their goals as the year went on. So the new system will no longer label IBM
employees with use of a single number, a spokesperson says. Instead, it
will include shorter-term goals, feedback at least every quarter and
employees will be reviewed based on five general topics: business results,
impact on client success, innovation, personal responsibility to others, and
skills.

"At the end of the year, managers evaluate employees on the five
dimensions – whether they have exceeded, or achieved expectations, for
their role, or whether more is expected," a spokesperson confirmed.

And it included a ‘stack ranking’ element in which employees were

compared to each other, not just to how well they did on their own goals.
At IBM, managers would meet and compare their employees, Fortune
reports. This was a popular concept from the 1990s best known because of
GE's Jack Welch. It was widely adopted by a lot of companies including
Microsoft and Yahoo. Employees disliked it as it pits them against each
other.

It has now become popular to ditch it. For instance, Microsoft famously
got rid of stack ranking in 2013, after CEO Steve Ballmer announced his
plans to step down.

IBM is currently going through a big transition, moving away from its
hardware roots and towards new areas like cloud computing and big data.
And CEO Ginni Rometty has the painful task of changing the workforce to
match the new goals.

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Retention Policies – How Adobe Keeps Key Employees from

Quitting

If there’s one thing almost everyone in corporate America can agree on, it’s
that the traditional once-a-year evaluations are a waste of time. Managers
and employees dread the discussions, and plenty of evidence shows they
don’t produce anything but a pile of extra paperwork.

I looked at this whole process, back in 2011, and thought, “Is this really
doing anything useful for us? Why are we doing it?’” recalls Donna Morris,
Adobe’s global senior vice-president of people and places.

Especially troublesome was that the company’s ‘rank and yank’ system,
which forced managers to identify and fire their least productive team
members, caused so much infighting and resentment that, each year, it
was making some of the software maker’s best people flee to competitors.

So, based in part on ideas crowd sourced from employees, Morris and her
team scrapped annual evaluations and replaced them with a system called
Check In. At the start of each fiscal year, employees and managers set
specific goals. Then, at least every eight weeks but usually much more
often, people ‘check-in’ with their bosses for a real-time discussion of how
things are going. At annual rewards ‘check-in’, managers give out raises
and bonuses according to how well each employee has met or exceeded his
or her targets. “Managers are empowered to make those decisions,” says
Morris. “There is no ‘matrix’, HR isn’t involved.”

The new approach has required extra training for managers, who have had
to adjust their schedules to allow for setting expectations and giving
feedback in real time, Morris notes. Getting used to the new system has
taken longer in some countries than in others, she adds. Adobe’s
employees in India, for instance, were anxious at first about not having
the old written ‘report card’ every year, until they realized that, by having
these conversations much more often, they would always know exactly
where they stand.

Morris says that transparency has paid unexpected dividends. For one
thing, fewer valued staffers are leaving, despite the ferociously competitive
Silicon Valley market for tech talent. “People who have turned down other

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offers tell us it’s partly because Check In makes them feel like we’re
helping them succeed,” says Morris.

Not only that, but more frequent talks between managers and under
performing staffers have led to a marked increase in what Morris calls
“involuntary, non-regrettable attrition, because team leaders are no longer
putting off having tough conversations with people who aren’t cutting it,”
she says. “It’s not just about retaining talent. It’s about retaining the right
talent.”

It’s also about boosting Adobe’s ADBE -0.21 per cent stock price. Getting
feedback in real time, so everyone stays on track and is pulling in the same
direction, has helped make Adobe’s 13,000 employees far more productive,
Morris says. Adobe’s stock price has increased from about $30 to over $80
since Check In began.

Case Study of Prepaid Rewards - Prepaid Rewards have a Positive

Effect on both Employee Recognition and Retention

Although the job market hasn’t been better in 50 years, a national online
study from daVinci Payments of over 600 employees from 18 to 38 found
that Gen Z and millennials are feeling dissatisfied and under appreciated at
work. Forty-three per cent of millennials surveyed said they planned to
leave their job within the next two years. Even more disenchanted with
their current position are Gen Z workers, with 78 per cent saying they plan
to leave their current job within two years.

These two generations crave recognition on the job, the study finds.
Appreciating these employees for their work, even in small ways, provides
them with personal fulfilment and provides employers with employee
retention. Millennial and Generation Z employees don’t feel their hard work
is being recognized; 50 per cent of employees surveyed feel that
management does not recognize strong job performance.

But, one thing they crave is recognition, according to a new study. And just
about anything will do – 70 per cent said they would stay at their job for
another year if they were able to receive three $50 prepaid gift card
rewards over a one year period. And an even higher percentage (79 per
cent) said that an increase in recognition rewards would make them more
loyal to their employer.

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Providing employee’s an incentive or reward for a specific action(s) is a

great use of prepaid debit cards. Most cards of this type would be
commonly known as a gift card which are readily available in most retail
stores. For those needing a large amount of cards, there are firms that
specialize in this business.

These cards have been used to motivate employees to take the extra step/
action they may not have chosen to do if it weren’t for the incentive. Not
all incentives need to be sizeable in dollar amount or even occur on a
recurring basis. Employee’s notice when their employer does something out
of the norm or continues to reward a specific desired behavior.

What type of recognition and rewards are millennials and Gen Z

interested in?

In a few words: prepaid gift cards. Millennials and Gen Z expect to be

recognized financially and will do just about anything for them.
• 75 per cent prefer prepaid cards that can be spent anywhere.
• 75 per cent would use a substantial reward for everyday or emergency
needs.
• 22 per cent would use a reward for a unique experience.

And here are some of the things they’d be willing to do for the gift cards:
• 70 per cent would use three or less sick days for a 75 per cent prepaid
reward.
• 87 per cent would refer a job candidate for a $100 prepaid reward.
• 90 per cent would participate in a wellness programme for a $25 prepaid
reward.

We’ve come a long, long way from a ‘clap on the back’ and ‘a good job’
from your boss. Depending on the size of the company and number of
employees, managing a reward and recognition incentive programme can
be a large task depending on the criteria that is collected to make the
decision whether to reward or not. Often firms with a large employee base
will utilize an outside firm to manage some or all of the process. In the
United States, the employee and partner incentive prepaid card market in

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2018 was $13.8 billion, showing that many employers are already
rewarding employees using this method.

“The vast majority of young workers in the US are feeling a strong level of
dissatisfaction with their employers, resulting in an urge to seek more
rewarding and validating work outside of their current organization,” said
Rodney Mason, daVinci’s Chief Revenue Officer in a press release. “While
some employers may see these young workers as disloyal or unmotivated,
the truth is that they can be turned into an organization’s most
enthusiastic and valuable resource when shown appreciation for their work
and rewarded in the right way.”

Case Study of Total Rewards Model - How it Impacts the Culture

and how Total Rewards Programmes can Help Fight Against Toxic
Cultures

It’s been 20 years since the total rewards model was introduced as a way
to systematically capture the depth and breadth of tangible and intangible
benefits that can make a good work environment great.

During that time – and especially in recent years of full employment, when
96 out of every 100 people who want to work have jobs – it’s been a highly
effective way for employers to articulate how they stand out in a
competitive market.

But, there’s another need that total rewards programmes can help address
that may not be recognized or acknowledged. Over time, it can also prove
to be a great tool to help fix workplace cultures that have, for one reason
or another, become toxic.

By various accounts, this is a growing problem. As many as 50 per cent of

workers consider their work environments toxic, and business pays a steep
price when their cultures become poisoned. According to one study, an
estimated USD $23.8 billion are lost annually to costs that can be rooted in
dysfunction, like absenteeism, healthcare expenses, lost productivity, and
more.

The disrespect, bullying, and lack of civility that are fraying our social
structures have been damaging our workplaces, too. Sexual misconduct,
discrimination, micromanagement, poor pay, and all the other behaviors

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and issues that can destroy a business culture make it hard to keep
employees, much less recruit new ones, especially when the toxicity can’t
be contained.

Remember last fall, when 20,000 Google employees walked off the job to
protest ‘systemic racism and discrimination, including pay equity and rates
of promotion, and not just sexual harassment alone?’ Well, Google is not
alone, or the worst offender. In one survey, over 50 per cent of 9,000 tech
industry workers ranked the tech industry as having an unhealthy work
environment, with Intel (49.5 per cent), Amazon (46.5 per cent), and eBay
(44.5 per cent) getting far more thumbs down than Google (23.7 per
cent).

Okay, you say, so we agree that toxic cultures are a problem in corporate
America, and it goes far beyond just the tech sector. How does a total
rewards strategy serve as an antidote?

The first challenge is understanding what Total Rewards strategy is and

what it isn’t. It isn’t (or won’t fix anything if it is) a way to get around
decent pay and regular pay increases, or a front for benefit, cost-cutting
and risk shifting. It is the evolution of a system of monetary, beneficial,
and developmental rewards that combine compensation and benefits with
personal growth opportunities in order to motivate employees in a positive
work environment.

How the components are assembled, expanded, and enhanced over time in
response to your organization's unique circumstances is the crux of the
toxicity cure.

If you’re skeptical that just calling out a laundry list of benefits like
telemedicine services and flexitime will fix a damaged culture, you’re right
to be. Taking stock of your total rewards is one thing; what’s more
important is identifying what’s missing and what your people need and
want most. You can use the total rewards strategy as a means to fill the
gaps and, at the same time, establish and uphold the positive values you
want to be known for over time. That’s how the process of diluting the
toxic culture gets underway.

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Some of the highest performing organizations utilize the total rewards

system to take measure of all the tangible and intangible benefits that
make your company great to work for – or, they will, as you respond and
enrich your future benefits offerings to the things that matter to your
people.

The better integrated total rewards program, the more effectively it will
dilute toxic influences in the workplace. Only 20 per cent of employers
today have a holistic, fully integrated total rewards strategy. This involves
identifying and managing the ‘rewards’ themselves, typically under the
categories of compensation, health/wellness benefits, work life benefits,
recognition, performance management, and talent management. This also
encompasses strategies for their delivery, their communication, and the
audiences to which they are tailored.

The strategy begins with taking a comprehensive inventory of your

rewards. Some are going to be the more ‘standard’ benefits that most
businesses offer – health and dental, employee assistance programmes,
telemedicine services. Others speak more to your employee culture and
may be determined by employee demographics. Work-life balance is one
area to look at, comprised of rewards like flexitime, for example, which is a
prized benefit for millennials. Others in this category, like paid time off and
employee concierge services, may appeal to a range of employee groups.

Other rewards categories may not be as obvious, but need to be called out
as they are among the intangibles that, to the extent they are supported or
not, can make or break a culture. These include service awards and peer
recognition awards, and also individual performance awards. Talent
development benefits are also critical to put in place and have
management truly get behind for their impact against toxic forces. Think
leadership training, coaching and mentoring, for example.

If you’re wondering how your total rewards might stack up; World at Work,
a professional association, conducts an annual survey of US employers’
programmes. A 2018 survey found the three most popular benefits added
to their total rewards rosters were telemedicine services (81 per cent);
employee discount programmes (75 per cent); and elder care resources
(67 per cent). Those offered at significantly lower rates were charitable
fundraising programmes (69 per cent); floating holidays (54 per cent); and
on-site fitness centres (52 per cent).

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Ultimately, the pivotal questions should become: Are these the kinds of
benefits that matter to our people (versus to management)? Can we
ensure everyone understands the spirit that’s behind them?

If you haven’t asked, it may take a while longer to remove the toxicity
from your workplace than you’d hoped. Because total rewards they don’t
need, want or care about, or, more to the point, that just paying lip service
to underlying issues, won’t build an environment where everyone comes
out ahead.

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