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PERFORMANCE MANAGEMENT (PM) IN THE BUSINESS WORLD.
Term Paper ID:29988
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Essay Subject:
Examines new strategies, tools & techniques used by human resource managers (HRM) to improve quality and productivity in a corporation.... More...
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18 Pages / 4050 Words
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Paper Abstract:
Examines new strategies, tools & techniques used by human resource managers (HRM) to improve quality and productivity in a corporation. Conditions upon which PM is based. PM in the context of HRM. Growth & value of PM. PM and Total Quality Management (TQM). Employee incentives & pay-for-performance (PFP). 1 Table.
Paper Introduction:
Performance Management in the Business Arena
Statement of Purpose
Human Resource Managers (HRM) are constantly concerned with change, and two broad categories of change have been identified as impacting upon organizations and their members. These categories are: 1) planned or forced modifications of corporate objectives and policies, location, organizational/corporate structure, management philosophies, product lines, or methods of doing business; and 2) changes in or to human behavior to enhance enterprise efficiency (Koontz and O'Donnell, 1986). The need for constant change in the evolving contemporary corporate entity poses specific problems. Among these problems are inflexible material or physical environments which may not be suited to new processes or functions, subordinate and managerial
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Other concerns expressed by theseindividuals emphasized the growing frustration of workers with the tendencyof some PA strategies to focus on negative and petty aspects of performanceor to rely on forced as opposed to full-scale rankings. People Management, 3, 44-45. (1999). The concept of TQM/CQIemerges from the work Dr. W. Boston: Houghton Mifflin. Job attitudes In management. Performance management is clearly here to stay (Schay, 1993). It must encourage senior management to lead from the top toreinforce the importance of the people strategy as a corporate priority.It must monitor and measure results regularly to ensure that highperformance is achieved. Change, PM and HR A. Plachy, R.J. 7. ThePerformance Management Sourcebook. (1995). Selecting the correct strategy foreffecting change requires an analysis of the nature and source of theresistance, its strength and tenacity, and alternatives to change as wellas the resources of the organization and its members.Best Practices in PM for HR Lee (1998) contends that the HR professional has a unique knowledgebase and skill set that is essential in helping the mid-size or largecompany create a high performance culture by directly influencing thefundamental source of competitive advantge - the firm's human assets. However,contemporary salary grids typically do not provide for any meaningful rangeof PFR increases. Punished By Rewards. New York:American Management Association. Role of HRIV. By creating an opportunity for management to identify what worksand what doesn't work from their own experience, HR serves as a source ofvaluable information that helps the organization achieve its ownperformance goals and objectives. PM, HR, and TQM D. Surveys from literature B. Rose, M. Understand what work is to be accomplished. The model islargely based on the behavioral theories of B.F. These categories are: 1) planned orforced modifications of corporate objectives and policies, location,organizational/corporate structure, management philosophies, product lines,or methods of doing business; and 2) changes in or to human behavior toenhance enterprise efficiency (Koontz and O'Donnell, 1986). 5. In an organization with a TQM focus, PA should focus on helping employees improve their performance. A "people strategy" as understood by Gonzalez (1999) includes arecognition of what motivates people to perform, what people value anddevalue in their jobs, and how human nature itself impacts upon the workenvironment and task completion. Lloyd's TSB Group takes a holistic approach to communicatingreward policies, so that the total value of the package is emphasized andnot just the outcome of a pay review. Incentive systems serve as the basis for pay for performance (PFR)compensation schemes. Porter, L.W. Bycontrast, training and goal-setting programs were found to have a fargreater impact on productivity than did anything involving payment. Anonymous. Schay, B.W. HR, PM and Incentive Systems A. Compensation. Interestingly, HR Focus (2 ) has pointed out that if given anopportunity, fully 9 percent of all HR executives would modify, totallyrevise or even eliminate their company's current appraisal processes.Dissatisfaction with performance appraisals has impacted on companies froma number of directions. Raters should be trained in both system and person factors. By following the best practices that havebeen discussed above, HR professionals can participate in the strategicbusiness plan of the organization and can work with executives, managers,and employees to ensure that a high quality performance management andappraisal system takes hold throughout the organization. Skinner and, accordingly,employs PFR as a form of positive reinforcement for behavior and, in somecases, behavioral change related to PM. Hampton, D.R., Summer, C. For example,United Parcel Services, Inc., is one of the largest employee-ownedcompanies in the U.S.today. Kellough and Selden (1997) have commented that PFR in the publicsector has proven to be less effective than anticipated because most publicsector jobs are characterized as civil service or career service positionsand as such are generally "protected" and not subject to either dismissalor salary/pay reductions arbitrarily. Thissuggests that PM and HR incentives should focus on training and non-monetary incentives to facilitate performance improvements. Overtime, HR and other managers have shifted the emphasis in PM from onevariable to another as they have attempted to create effective bestpractices that meet the unique needs of an organizational entity. Concerns included afailure to implement periodic as opposed to annual reviews, a perceivedlack of opportunity for employee involvement, insufficient rewards, andbiased or inconsistent raters. 2. Laabs (2 ) notes that in mid-size and larger companies, managersare beginning to link benefits to performance. By using the best practices describedabove, HR can become a critical and vitally important PM contributor.HR, PM, and Incentives When employee talent and effort can affect work performance, rewardfor performance is a critical element of compensation management. New York, American ManagementAssociation. (1997). In search of the holy grail: Lessons inperformance management. Eliminate work standards that prescribe numeric quotas. Stahl (1995)notes that in quality-driven organizations, change is positioned as bothinevitable and desirable; workers and managers alike are encouraged tobecome agents of change and to constantly and continually examine systemsand processes to determine how they can be improved via change. Improve continuously and always.Clearly, as Stahl (1995) indicates, a number of these "points" arecongruous with critical HR functions. Finally, manipulation andcoercion in cases where all else fails may be - but is not generally highlyrecommended - the only solution. (2 ). Kohn's (1997) comments bear further discussion. Henotes that one of the largest reviews of research looking at how variousintervention programs look at worker productivity, a meta-analysis of some33 comparisons from 98 studies conducted in the mid-198 s, suggested thatthere was no significant effect overall. 4. Stahl, M.J. Ongoing and periodic as opposed to annual performanceassessments are strongly recommended by most of the researchers whose ideashave been discussed in this report. Assist managers to develop PM skills.Clearly, these conditions fall within the general purview of the HRMdepartment and its core of professionals, who convey "ownership" of PM tomanagers. A good future for HR in PMV. HR Focus, 77(1), 2-3. (1993). Journal ofApplied Psychology, 46, 375-387. Identify performance required of each person; . (1994). Thesynergies that can be created between employee effort and a strategicbusiness plan are considerable. Kohn, A. Break down barriers between departments by creating work teams. Nevertheless, linking pay to performance is here to stay. 8. Effective change can also be facilitated by education andcommunication within the context of HR functions and PM itself. Pay for performance often takes the form at the executive and seniormanagement levels of bonuses, long-term or deferred income, and specialfinancial benefits. Assessing performance of performance management. (1988). End the practice of awarding business on the basis of the price tag. OrganizationalBehavior and the Practice of Management.Glenview, IL: Scott, Foresman. The two organizational outcomes mostpositively affected by the performance management systems were employeeproductivity (72 percent) and customer satisfaction (56 percent) (HR Focus,1997). This four-dimensional view ofperformance makes it possible for HR to clarify expectations and to createlearning opportunities that hopefully lead to improvements in performance.It also opens up the door to the development of appropriate incentiveswhich will be discussed in greater depth below. Amherst, MA: Human ResourceDevelopment Press. Negotiating tasks and concepts is recommended aswell, as are offering incentives to resistors. (1993). HR professionals bring key capabilities to the table when PM is atissue. 2. (1997). In sum,in can be concluded that PM is still in its infancy and constitutes anevolving set of practices and activities. Kohn (1997) offers fourteen reasons to account for the failure ofPFR programs. (1962). and Capowski, G. 4. (199 ). Deming's 14 Points C. Whether an organization describesitself as a TQM business or not, inherent in PM is a strong focus onquality of product, service, work environment, employee morale, and jobsatisfaction. Strides in performance management. Find problems that create product variation. The taskis challenging, but the rewards appear to be well worth the effort. Just asgeneral increases in wages are said to keep salaries in line with inflationrates, performance pay increases in addition to general increases rewardindividuals for how well a job is done and the productivity of theirefforts (Sibson, 199 ). Fundamental to thenotion that PFR works is the corresponding notion that monetary rewardsremain the greatest motivator in the workplace. Incentive pay is the second most importantelement of reward, both in terms of the number of people meaningfullyaffected and the dollars involved; merit salary increases, while important,are third in importance in business financial reward systems. Defining TQM B. Institute modern methods of supervision. Thus, acritical area for HR is the development of appraisals that are trulycongruous with each and every one of these variables. Hold managers accountable for PM by linking PM to appraisals and rewards; . Within the more complex and comprehensive PMframework or "umbrella," these same appraisals can be extremely valuable inidentifying "missing links" in terms of employee training or taskcompetency that further identify business strategy deficits or failures. Pay is increasingly tied to company and businessunit performance. Performance AppraisalsIII. Generally, however, Robert E. 13. It is his recommendation, that long before PA is undertaken,job descriptions must be recreated to reflect performance criteria alongfour dimensions: these dimensions are written in terms of job results andconsist of problem identification, improvement needs, performancestandards, and performance options. Institute modern methods of training. The conditions of Performance Management (PM) C. In thepast, PFP (also known as performance-related-pay, PRP) used large paydifferentials to reflect employees' relative value to a company. For example, this study foundthat financial incentives were virtually unrelated to such variables as thenumber of workers who were absent or who quit over a period of time. London: Blackwell. 1) offersthe following definition: PM is an "umbrella term that includesperformance planning, performance review, and performance appraisal."Unlike the old term or strategy known as performance appraisal - PM in thecontext of HRM moves beyond simply evaluating or assessing workerperformance, attitudes, behaviors and/or productivity to establishing andmaintaining a dialogue between managers and workers in order to obtaindesired results that reflect or represent the worker's contribution to theachievement of organizational missions, goals and objectives (Plachy,1988). Resistance to change B. 3. Kellough, J. Hampton,Summer and Webber (199 ) have stated that one of the most common ways toovercome resistance to change is to educate people about it beforehand andto directly involve them in the entire process. It is thisrole that will be discussed herein.The Roots of PM: Total Quality Management (TQM) Total or Continuous Quality Improvement (TQM/CQI) is defined ascontinuous improvement in satisfying customers and reducing variation inthe products or services produced (Grote, 1996). (1998). Shifting the performance curve. Part of the process involves giving employees anopportunity to participate directly in developing their own education,training, and professional advancement programs. References----------------------- 18 The study foundthat 8.9 percent of participating companies used PM, with only 78 percentperforming annual reviews. Management. The survey tended toconfirm the assertion that employers are beginning to use nonmonetarycompensation - particularly work/life programs - as part of their totalrewards management strategy. HR execs dissatisfied with their performanceappraisal systems. Public Personnel Management, 22(4), 649-669. Also useful aredeveloping participative change strategies and supporting employees duringthe change process itself. Performance Management in the Business ArenaStatement of Purpose Human Resource Managers (HRM) are constantly concerned with change,and two broad categories of change have been identified as impacting uponorganizations and their members. Senior management and HR executives have begun to equatesenior management involvement with highly effective PM practices.Employees who participate in self-review of their own performance, initiatetheir own progress reviews, and who are involved in developing the measuresof their own performance, appear to be more satisfied in general with PMthan workers who are less participatory in the PM process. HRaccomplishes this task by helping management identify practices that areconsistent with human nature and which therefore bring out the best inworkers. Plachy (1988) has commented that one of the major deficits in many PMsystems is initially observed in the lack of results oriented jobdescriptions. Ivey BusinessJournal, 63(5), 18-24. Flattening the organizational structure and movingtoward a cross-function work environment means that a top-down performanceappraisal is no longer appropriate. At theoperations level, only one of five employees is currently believed to becovered by a PFR incentive plan, but the rewards are substantial for some(Sibson, 199 ). Determine together whether performance achieved the agreed-upon plan (Plachy, 1988, p. (1996). (199 ). Grote (1996)agrees that many companies have instituted complex performance appraisalsthat do not mesh with overall business strategies, job descriptions,functional managers' expectations, or worker characteristics. Best Practices A. Edward Kellough and S.C. Employees should provide examples of task achievement, quality improvement, and team performance (Grote, 1996).Typically, only task achievement was stressed in performance appraisalsthat were not linked to overall PM strategies. Gonzalez, M. When corporate cultures become morehorizontal and less vertical, HR must move to empower functional managersas well as workers, to become more involved in the PA process.Change, PM and HR Stahl (1995) has stated that there are several reasons why resistanceto change takes place. Other best practices in HR participation in PM that have beendiscussed by McDonald and Smith (1995) include heavy doses of employeeinvolvement. Plachy (1988, p. Cease dependence on mass inspection. It asserts that the more closelypay is tied to performance, the more powerful its motivational effect. Firms that have created either employeeownership or profit-sharing programs have tended to argue that thesefinancial incentives have improved productivity, expanded profitability,reduced absenteeism and staff turnover, and exerted a significant impactupon job satisfaction and employee morale (Gibson, Ivancevich, & Donnelly,1991). Adopt the new philosophy. Gibson, J., Ivancevich, J., and Donnelly, H. PM has been variously defined over time. 2. Kohn (1993) argues that since the 196 s, asubstantial body of empirical data has been generated which fails to find acorrelation between pay and organizational performance or identifies only avery weak or even a negative relationship between these two variables. Anonymous. 7). Laabs, J. Performance Management, abbreviated as "PM," is based on anidentification of and response to four basic conditions described bySchneier, et al (1987): . Incentives must be linked to performance and must move toincorporate nonmonetary as well as monetary benefits that are valued byemployees. A proven connection:Performance management and business results. Given the high investment that HR and organizationsthemselves (particularly mid-size organizations) make in each and everyemployee, PM has become strongly associated with reducing the cost ofemployee recruitment and training by fostering growth on the part ofworkers who are already in place. Plan together how the work is to be accomplished. How HR pros make high-performance organizations.Boston Business Journal, 18(5), 9-11. Additionally, as Schneier, Beatty, and Baird (1987)reported, the current positioning of organizational transformations (andmanagement of change) within the general concept of "performancemanagement" has created new strategies, tools, and techniques that arebeing used by human resource managers (HRMs) and other to facilitateorganization-wide improvements in quality and productivity. Human resource management can and shouldserve as the link between the activities of workers and the concerns of topmanagement. Table of Best PracticesV. HRtends to view top management as its primary "customer" and this focus isconsidered appropriate by many. 3. This brief report has drawn upon the literature to indicatethe current state of knowledge regarding performance management. OUTLINEI. and Smith, A. Eliminate numerical goals, posters, and slogans that seek new levels of productivity without improving methods. The Royal Bank of Scotland hasemphasized the need to manage the pay delivery system actively when loweredmarket rates would otherwise create a centralizing tendency to pay reviews(Rose, 1997). Redefine the role of managers to include PM; . Appraisal discussions should be concentrated on identifying and eliminating barriers to higher quality. While this is achallenging and potentially threatening task, it is well within the purviewof HR management. TQM and CQI emerge from Deming's "14 Points," presented by Stahl(1995): 1. Among these problems are inflexible material orphysical environments which may not be suited to new processes orfunctions, subordinate and managerial attitudes (which also offerresistance to change), deficient means for implementing needed change,fears associated with change and its demands (another source of resistanceto change), lack of confidence regarding capacity to adapt to change, anduncertainty as to what changes are needed or most likely to be effective ina given situation. McDonald, D. Value-added HR: People,peformance, and the bottom line. HR managers have becomecommitted to this process over time and have begun to believe thatincluding employee input into both the appraisal and compensation/incentiveprocesses results in a higher level of worker commitment along withimproved worker performance.Summary: Projections for HR in PM The literature that has been discussed in this report points out thathuman resource management is a critical actor in performance management. HR Focus(1994) reported on a survey of 1,149 managers and employees at 79 companiesusing PM practices and incorporating PAs into those practices. One author and analyst who is highlycritical of PFR is Alfie Kohn. 11. Concerns that must be addressed in order to create an effective PMsystem include the development of PA strategies that are perceived byemployees as fair and unbiased (Schay, 1993). Roots of PM and TQM A. As Grote (1996) suggests, TQM concentrates on system factorsand PM (or, more directly, PA) concentrates on individual performance;these strategies for managing organizational transformations and enhancingquality function in parallel, not in conflict. The following chart identifies current and past PM practices andtheir frequency of use. Spot the differentials. (1995). Grote, D. At the middle level management strata, such incentivesare moderate and tend to apply in practice only to a relative few. The PM "system" positions HR as a keyactor in an overall strategy of meeting organizational needs. These include a lack of necessity, secrecy surrounding suchsystems, a genuine failure to truly match pay to performance, excessiveexpense, inappropriate size, short-term versus long-term assessments, ahigh degree of subjectivity, inadequately designed performance evaluations,an overemphasis on the motivating capacity of pay itself, the perceptionthat these rewards punish some highly motivated individuals, the capacityof rewards of this nature to rupture relationships and inspire excessiveand debilitating competition, the failure of rewards to ignore explanationsfor productivity, their capacity for discouraging risk-taking, and theirtendency to undermine interest among employees. Thus, a critical step to betaken in bringing about effective, productive, and less debilitating changeprocesses is identified by Stahl (1995) as including workers and managersat all levels of the change process - assisting each and every personaffected by the change in becoming an "agent of change" by encouraging theindividual to "buy into" the change and its planned effects. Sibson, R.E. PurposeII. While there are many who believe that failure toreward performance properly is the single most important problem in thefield of compensation in many companies today, there are others whoconsider this reward system to be a form of workplace behaviorism (orbehavioral modification) that does not work as well as it is suggested itshould work. In March 1999, the AmericanCompensation Association (ACA) and the Segal Company (a New York City-basedemployee benefits, compensation, and HR consulting firm) jointly conducteda survey of ACA members to examine the extent to which their PM programsare being used to reward employee performance. Schneier, C.E., Beatty, R.W., and Baird, L.S. Performance data should be collected from multiple sources. Performance appraisals are not without their difficulties. Organizations.Homewood, IL: BPI/Irwin. Compensation & BenefitsReview, 27(1), 59-65. Ettore, B. Grote (1996) comments thatas early as the work of Deming (whose critical factors in shaping thequality-driven organization are presented above), it was recognized thatPAs had an enormous potential for enhancing the overall success of qualityenhancement strategies. Institute a vigorous program of education and training. 3. Drive out fear so everyone will work more effectively. These are: 1. 9. This same criticism of PFR is alsolevied against private sector work environments in which workers belong tounions whose contracts inhibit the application of any penalties for lowerlevels of productivity and which also directly impact upon the degree towhich a unionized organization can actually link pay of any sort toproductivity or performance. According to J. 5. In well-managedorganizations committed to both system quality and individual experience,they can serve as dual and mutually supportive pillars of organizationaleffectiveness. Defining PM D. Pay-For-Performancesystems In state government, Review of Public Personnel Administration,17, 5-21. Grote (1996) has commented that HRM can and should take a lead rolein integrating PA and TQM processes in order to maximize both and reduceany apparent conflict. Workforce,79(1), 42-47. Management Review, 86(6), 58-62. (1997). The need forconstant change in the evolving contemporary corporate entity posesspecific problems. (1997). Deficits of pay-for-performanceVI. HR and its activities B. E., and Webber, R.A. 6. These are: 1) fears of disruption of establisheddepartment boundaries; 2) disruption of the informal system; 3) individualshave a stake or vested interest in maintaining the old system or status; 4)the organization has a staid internal culture; and 5) there isnonparticipatory implementation of change. 14. Development Dimensions International, a Pennsylvania-based firm,polled 88 organizations to benchmark best practices in PM. HR Focus, 71(4), 11. Table I Strides in Performance ManagementPractice 1993 1997Manager training 24% 51%Overall rating 63 79Nonmanager training 11 22Summary statement 66 76Peer input 17 24Appraiser accountability 19 24Upward input 2 21Customer input 24 23Team appraisal 6 5TQM 32 29Numerical ratings 63 56Forced ranking 41 13(HR Focus, 1997) What is interesting about this survey is that it suggests lessemphasis than previously on such sources of input as customer knowledge andsuch variables as team appraisal, TQM, numerical ratings, and forcedrankings. The future of organizations of any size rests with human resourcesand while HR is viewed by many as adding little value in terms of strategicinput, this situation is rapidly changing (Ettorre & Capowski, 1997). There is agreater focus than in the past on the company's results and less emphasison such factors such as competitive practices, inflation, and overall wagetrends. Demand performance for benefits. Recapitulation of issues B. Create consistence of purpose. Eds.(1987). Grote (1996), in an extensive analysis of one HR PM function (i.e.,performance appraisal), has noted that the "new" HR department plays a moredynamic and influential role in assisting the business organization in suchtasks as responding to change, pursuing continuous quality improvements(CQI), satisfying customers or clients, and facilitating the development,growth and satisfaction of staff. In order to make performance management work, HR must designa people strategy to shift the performance curve and promote and maintain ahealthy organizational climate to sustain high performance (Gonzalez,1999). (2 ). (1988). Sibson (199 ) hasstated that for employees throughout business, promotion and its attendantsalary increase is by far the most important financial element of reward,affecting the most people and involving the most dollars of increasedcompensation for individuals. Remove barriers that rob employees of pride of workmanship. An education andcommunication program can be ideal when resistance is based in inadequateor inaccurate information and analysis, especially if the initiators needto assistance of the resistors in implementing the change. (1995). Pay-for-performance B. Edwards Deming, whose insights on theimportance of quality and the ways of achieving quality management are asuseful in a wide range and variety of organizational systems andstructures. Selden (1997), in the UnitedStates, PFR has been a widely used method of compensation in the publicsector since the early 198 s, but a growing body of research suggests thatnumerous problems are associated with its application. NewYork: American Management Association. HR Focus, 72(5), 14-17. HR Focus (1995) has stated that there are very few firms today thatoperate a monolithic compensation program for all employees. In this context, McDonald and Smith (1995) argued thatelimination of forced rankings and numerical ratings for employees hasbecome more and more widely accepted as PM itself shifts from an overtlycritical analysis of worker performance to a more collaborative emphasis ongiving workers the tools and skills they need to achieve both personal andcompany goals. Some subjectsreported a lack of follow-up on PAs, insufficient managerial commitment tothe process itself, and excessive time spent on this task. The specific goals of a performance management program institutedby HR and then carried out, in large measure, by functional managers, are: 1. Other systems C. References Anonymous. The Complete Guide to Performance Appraisal. According to the survey findings, there is a great potential foremployers to move beyond standardized monetary benefits to link rewardsdirectly to performance. Lee, D. Statement of Purpose A. 1 . Edward and Selden, S.C. Performance Management. During periods of low inflation, there is increased pressure on anemployer to ensure that it is getting value from its total expenditure onreward. HR Focus,74(12), 7-9 Anonymous. Today more than 1 , firms of various sizes in the United States alone and countless others inthe United Kingdom and throughout Europe share some degree of ownership orprofit participation with more than 13, million employees. In this situation, only a relative handful of employeescan be awarded significant pay raises without causing a substantialreduction in the size of the "pot" for the remaining staff (Rose, 1997). Tenfrustrations with PAs were revealed in this survey. Summary and Projections A. 12. At present,more than half of all mid-size publicly held companies in America havevariable pay schemes that tie a portion of pay to the competitiveperformance of either the organization or the business unit. Acompany's human resources are the leading indicators of its financialperformance. Ratings and rankings mayneed to give way to more task oriented measures of productivity andperformance.
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