Download Foundations of Organizational Behavior

Performance Management
and Pay for Performance
MANA 5322
Dr. Jeanne Michalski
[email protected]
Performance Management
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Management tool to help ensure that employees are
focused on organizational priorities and operational
factors that are critical to organization’s success.
Key Questions to Consider When
Receiving Feedback
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Do I understand it?
Is it accurate/valid?
Is it important?
Do I want to change?
At its heart feedback is only information. How you
choose to think and feel about the feedback will
determine the value you gain from it.
Pay for Performance Requires
1.
Definition of performance
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2.
Distribution of performance
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3.
How are we going to measure and compare people?
Can we distinguish high and low performers?
Decide the increase for each level of performance.
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How large a difference between high and low
performers?
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An accurate, reliable, and credible performanceappraisal program is the foundation of a successful
merit pay program
Training for supervisors on how to:
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Plan performance that links individual efforts with
business plans and strategies
Measure and evaluate performance fairly and
consistently
Provide feedback
Use merit matrix
Communicate assessment of performance and the
allocation of rewards to employees
Questions
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Should low performers be paid an increase?
Should average performers be paid an
increase?
What about cost of living?
What about existing difference in pay
distribution?
Managing a Merit Pay Plan
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Simple equation – significant performance yields
significant rewards
Relies on trust – needs openness and candidness
Recent move is to communicate more information
about company’s compensation program
Needs balance between too little – and too much
Employee needs enough information about merit
pay plan for it to serve as a performance motivator
without breaching their right to privacy or restricting
the organization’s ability to exercise management
discretion
Communication of Compensation for
Merit Pay
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General information about the performance
management process
General information about the compensation
program (how pay is determined, how jobs are
evaluated, salary ranges, etc.)
Specific information about merit pay program
(budgets, performance rating distributions)
Size of the individual’s increase, minimum and
maximum raises, and average size of merit
increases
Costing Exercise
Focal Point Increase (Multiple Increases)
Your organization has 150 employees in the
Engineering department, with an average employee
pay of $50,000 annually. The department has a 5%
merit budget with an April 1 focal-point review date.
Then, due to competitive market pay movement, the
company must grant a 4% market equity adjustment
on July 1.
What is the cost in year 1 of these two increases?
Costing Exercise
Formula and Solution:
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Eligible payroll x % increase x effective period
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Eligible payroll = 150 x $50,000 = $7,500,000
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Effective period of the merit increase = 9 months (April –
December)
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$7,500,000 x 5% x 9/12 = $281,250 (cost of the merit increase
given in April)
Costing Exercise
Formula and Solution continued:
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After the merit increase, the eligible payroll rises to $7,875,000
since everyone has received a 5% increase ($7.5M x 5%)
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Effective period of the market increase = 6 months (July –
December)
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$7,875,000 x 4% x 6/12 = $157,500 (cost of the market
increase given in July)
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Adding the two increases together gives a total cost of
$438,750 ($281,250 + $157,500)
Incentive Pay
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Ability to deliver targeted results while rewarding
employees who are responsible for those results
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Incentive plans can be designed to focus on three
levels of performance:
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Individual
Team
Organization/Corporate
Incentive Payouts
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Individual – payouts based on the results of an
individual relative to their assignment, examples
sales representatives, account managers, etc.
Team – based on how a group similarly tasked
people perform collectively – based on team results
usually little to no differentiation of individual
members
Corporate – broader plans based on total company
or division performance
Incentive Plan Elements
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Eligibility
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How long need to be employed
If promoted how to prorate
Leave before year-end
Target payout
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Often expressed as % of pay or midpoint
Fund the plan based on actual performance
Incentive Plan Elements - continued
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Performance Criteria
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Measure and reward behaviors that are specific,
measurable, and within the participant’s control
Duration
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Most effective when rewards are paid out as soon as
possible after results are measured
Performance Standards
CRITICAL TASK – establishing expected performance
standard, usually set at lest 3 achievement levels
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Threshold: Minimum level of performance that must
be achieved before an incentive can be paid
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Target: Expected level of sales results or individual
performance (earn target incentive opportunity)
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Excellence: Point at which the defined leverage or
upside is earned
Example of Incentive Payout
250
Cap
200
200
150
Target
100
50
0
100
Threshold
15
Revenue A
Revenue B
Revenue C
Example of Target Incentive Award
Payout
Job Level
Salary
Midpoint
Target %
Incentive
Award
Target
Revenue
Achievement
Payout
10
$50,000
20
$10,000
120%
$12,000
11
$60,000
22.5
$13,500
120%
$16,200
12
$72,000
25
$18,000
120%
$21,600
Other Cash Bonus Plans and Pay for
Performance Mechanisms
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Sign-on bonus – not performance based – used to
enhance compensation package without distorting
the salary structure
Spot bonus – recognition award - intended for
immediate appreciation and recognition for excellent
contribution
Retention bonus – retaining key employees through
a specific period such as a merger or more recently
to transition new employee as numbers of
employees retire
HR Communications
Now you’re talking!
Preparing to Communicate
Ask yourselves:
1.
2.
3.
4.
5.
What is the communication priority?
Who is the audience?
What are their issues or concerns with this topic?
Who delivers the message?
How will the message be delivered? What is the
method? What are the steps?
6. What communication or leadership behaviors will
drive the “right behaviors” in your target audience?
7. What specific concepts (key messages) do you
want to convey?
8. How does this support organization’s values and/or
strategies?
Components of a Good
Communications Plan
HR Event or Communications Challenge
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Objectives
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Audience(s)
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Desired Behavior(s) or Change
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Challenges, Obstacles or Sensitivities
Communicating HR
Strategies
(Includes who does the communicating and the sequence)
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Key Messages (Includes Organizational Strategy and reflects
functional group and “HR Umbrella” messages)
Tactics
(Includes media and venues that will be used as well as timing and
steps)
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Timeline
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Measurement and/or Organizational Payoff
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Feedback Mechanism (Includes revision and refinement of key
messages)
Know - Feel - Do
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What do we want people to…
Know ... ?
Feel ...?
Do ...?
Words - Actions - Words
Words
Actions
Use WORDS - ACTION - WORDS
- to close the loop
Shape Beliefs Through Experiences
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What do employees and leaders alike need to see
around them to accept changes or change their
beliefs?
people watch before they listen.
“actions speak louder than words.”
Strategies for Communications
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Make executives, front-line supervisors or front-line
employees the “actors.”
Use personal and emotional means to tell the story,
build on existing emotional associations or
patterns—from urban legends, anecdotes, songs,
images, logos, or styles/macho or particular work
ethic.
Drive the message through Words-Actions-Words.
Make the messages credible and link to current
experience.
tailoring messages to each audience
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What do they care about?
Who do they want to hear the information from?
Who is the best messenger?
What could go wrong? What potential backlash can
you prepare for/avoid?
Creating Messages
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Keep it conversational; try to take it out of
corporate-speak as much as possible.
Communicate the heart or core message
that can be paraphrased “elevator speech”;
nestle details under core messages.
Be judgmental of messages.
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Are they credible and memorable?
Do the messages drive people to take action?
Do they elicit an emotional response?
Evolution of
Communications
words is our b’ness
audiences
constituencies
Move from Telling...
... to Influencing...
words is our b’ness….
audiences
constituencies
Move from Telling...
... to Influencing...
A few examples:
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communications
are relationshipbased, mutuallysupporting and
collaborative.
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Union corporate
partnerships
Making employees
business partners
Community policing/
Neighborhood watch
Customer loyalty
Shareholder partnerships
stakeholders
business partners
...to Creating Shared
Goals…
The Hats Communicators Wear
You are part...
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Marketer
Sales agent
Communications
center
Change agent
Researcher and data
collector
Detective
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Voice of Company
Problem-solver
Advisor
Business partner
Politician
In service to others
Influencing Begins with Rapport
Rapport:
Having a general sense of goodwill toward others.
Rapport gives you the opportunity to listen and learn...