Issues relating to Performance Management and reward system

Introduction

In this paper we are going to discuss about the challenges and issues that are faced in performance management and successful reward system. Before we discuss the issues that revolve around Performance management it is important to understand the concept of performance management and reward. Performance management is the process by which an organisation achieves its goals or objectives through identifying, evaluating and managing employees’ activities. It is not a single process as it’s a set of processes for the progress of the organisation. Hence it’s a process of enabling a high performer to be familiar with his goals and objective in line to the organisation goals and objective to be achieved. We see many companies use performance management to gain competitive advantage through employee.

Issues in performance management      

Issues and challenges are bound to arise in every field of management; hence performance management and rewards have its sets of challenges that need to be given special consideration. The following are the issues faced by organisations.

Misuse of performance management system:

Scholars have agreed to the fact that Performance Appraisal has been quite a success among the employees, they dis-like performance appraisal because they feel that management have misused and abused the process. Findings by Lawler have shown that performance appraisal does not motivate or guide individual performance or development. Listed below are some misuses of performance appraisal.

Evaluation of personality traits:

When managers fail to have interpersonal skills it results in the failure of the performance management system, making it difficult to evaluate personality traits of the employee. Important skills such as active listening; collective feedback; communication and conflict management skills leads to an effective performance management system within the organisation. This results in the development off the staff. (Tovey, M, 2010 ,p 76)

Bullying the staff:

Staffs get bullied by managers as they have the upper hand in evaluating the performance hence staffs are forced to abide by the personal benefits of the managers to keep themselves safe from any negative ratings. (Tovey, M, 2010 ,p 76)

Biasness based appraisal:       

Managers have the tendency of being biased towards their favourite employee or a group of staff in a particular function. The process of being unfair has been a serious issue in the performance appraisal. (Tovey, M, 2010 ,p 76)

Lack of proper feedbacks:

Most of the time data are just stored and not made useful. Since this is a process hence forms are filled and submitted to the HR team without proper evaluation on performance. Hence there is lack of feedback and performance evaluation is just done to fulfil the HR process instead of making it a tool for development. (Tovey, M, 2010 ,p 76)

Conflicts

Conflict is an evitable factor when it comes to discussing the issues in Performance management planning. The difference between the various roles played by managers and staff give rise to serious problems while goal settings. Here are some of the conflicts you may encounter during performance management planning.

Different goals between organisation and employee:

Employees have a set of expectation like increment, promotion, reinforcement and assurance while the managers are more towards constructive criticism. Most of the time employees fail to be honest as they feel their promotion or increment could be in stake. Honesty can be practiced only if the manager is close or has an open minded personality. (Rudman, R, 2003,p 27)

Effective way to overcome this problem would be to involve the employees in the decision and implementation of various goals within the organisation. This can be achieved by very strong and friendly interpersonal relationship with the managers and employee. In such case the employee will be clear about his goals and the managers will be able to help the employees to increase their performance and fulfil their potential. Through this action a mutual trust can be created between the employees and the managers. (Rudman, R, 2003,p 27)

Dual roles of managers:

The conflict lies on the role that a manager has to play, and during the performance review he must play a dual role of a helper and a judge. Thus most managers find it difficult to play this role of a soft and a strict evaluator. (Rudman, R, 2003,p 27)

To overcome this issue the organisation should have separate departments for reviewing the performance of the employee and focus should be directed on personal development. This can be achieved by conducting separate interviews for performance and development at different times within the organisation. (Rudman, R, 2003,p 27)

Employees conflicting goals:

Generally employees look for feedback so as to understand where they would stand on the performance scale. So it’s always noted that positive feedback satisfies employee but critical or negative feedback are not accepted by most of the employees.

The way to overcome this issue would be that the employee should be trained to have an open mind and accept whatever feedback they get.

Lack of clarity in the purpose of the performance review system:

Another major issue is that, organisation are not clear about their performance review system hence the employees do not consider the process to be serious since their mangers have not been a part of a proper review with their supervisors.

A study of 1000 Australian companies has revealed that more than half of the appraisal system is not in place. In UK another research was conducted by Bevan and Thompson showed that only 20% of the organisation had a proper management system but 60% of the organisation had a few policy and procedures to manage the performance of the people. A research done by Fletcher and Williams show that 20% of the organisation that had performance management system did not have any proper bases. Hence it proves that there was no integrated and holistic approach within the organisation. ((Tovey, M, 2010 ,p 56,57)

According to a study on the perception of older Australian Academics the findings show negative perception about the process, purpose and development support of performance management. The data are drawn from 21 universities as documentary and 52 academics interview. The result of these interview show that majority of academics aged over 50 have felt that performance management was meaningless in terms of their future advancement and it held no purpose. (Larkin, J, 2013)

To deal with the issue the organisation should have a clear purpose for the performance planning and review system. To achieve this performance management system should be reviewed on regular bases and a proper training and development system should be incorporated.

Performance review over a short-time period:

In many organisations the managers are expected to conduct the performance interview over a short period, mostly towards the end of the year when they are generally busy in generating the year ending reports hence performance review is considered as another unwanted task.

The best way to overcome this problem is by spreading out the performance review over the year i.e. conducting different sessions of performance appraisal throughout the year. This would help the managers to avoid the pressure at the end of the year.

Evaluation errors in Performance Measurement:

Human have very poor information processing skills; study shows that we tend to simplify information to make or pass a judgement also known as ‘heuristics’. Sometimes errors also occur purposefully. Below are some errors mentioned during performance evaluation. (Karamar, R, 2011, p 368)

a) Judging by self-standards error:

As human beings we consider ourselves to be efficient and hence judge by our self-standards. Employees who have some commonality with us are given higher preference than the others. This leads to discriminatory decisions on the bases of cast, creed, nationality and sex. If our attitude is matched with the other person we tend to favour him/her more than the rest hence judging by self-standards can cause serious issues while measuring performance. (Karamar, R, 2011, p 368)

b) Contrast error:

This error occurs when we tend to compare individuals to each other rather than comparing them to the objectives placed by the organisation. For example, if a very good employee is working with other excellent employee the tendency of giving him a bad review is called contract error. (Karamar, R, 2011, p 368)

c) Distributional error:

This error occurs when the evaluator tends to rate on a single scale where he is too strict and rates every employee low or keeps them in the middle on the scale. This poses two problems the first problem is that it becomes difficult to distinguish the performance rated by the same evaluator; secondly, it creates a problem of comparing individual performance rated by different evaluators. If one evaluator is strict and the other is lenient then the problem of final evaluation is on stake. (Karamar, R, 2011, p 368)

d) Halo and horns error

This error occurs when the evaluator tends to evaluate with one aspect rather than considering the various areas of evaluation. When the employee is judged by once single performance aspect where he is outstanding the evaluator rate his high in all other aspects too this is called the ‘Halo’ error. Opposite to this is the ‘horn’ error when the same is evaluated badly in one aspect or area the employee gets a negative rating on other aspects. (Karamar, R, 2011, p 368)

 Appraisal politics

Appraisal politics is the distortion of the actual ratings to achieve a personal or company goal. This is very common failure of the performance evaluation studies. Several factors are responsible for politics, infact it is inherent in the appraisal system and the culture of a company. One factor is when the desirable rewards are high and the evaluator is directly responsible to the employee he is rating. Politics also exists when the top management tolerate distortion. (Karamar, R, 2011, p 368)

 Addressing the issues

There should be adequate training for evaluators or raters where issues such as discussed above should be discussed and strategies should be developed to minimise such errors. Top management support system should be built to reduce distortion in the process. Employees’ accomplishment should be recognised that are not self-motivated. Creating a climate where that encourages openness and honesty in regards to weaknesses should be encouraged. Lastly, make sure that the performance appraisal should be consistent across the company. 

Motivation is on important tool to boost the perception about the performance. The process should be a non-judgemental process and more focus should be given on the corporation between employees. (Karamar, R, 2011, p 368)

 

Rewards

Rewards are any type of compensation/incentive plans that are used to support the fulfilment of specific goal or objective of the organisation.

There are two types of rewards, namely Extrinsic and Intrinsic. The Extrinsic rewards include fixed pay, performance related pay, learning , training, development, succession planning, career progression, non-cash benefits and also some social rewards like organisation culture and climate, performance support and work-life balance. The intrinsic rewards include job challenge, responsibility, autonomy and task variety. The issue lies in determining the respective roles of these rewards. It is necessary to know whether these rewards would be sufficient to promote the behaviour of the employees. This further depends on the type of organisation. For example in the non-profit organisation the non-financial rewards may prove to be more effective than the monetary rewards. Hence such employees are more satisfied with the intrinsic rewards. But at the same time such organisation may require employees to perform some specific tasks. This issue can be addressed by having a proper mix of these two types of rewards. It is also important to consider the different expectations of the paid and unpaid workers. (Shields, J, 2007,p 32)

In certain organisations there should be a proper balance between the financial and non-financial rewards. Organisation that offer high job security and training and development, do not focus much on the financial rewards. But in organisation that have high employee turnover and less productivity will have to increase their financial rewards in order to increase the performance of the employees. Hence in order to have employees with high performance and satisfaction, it’s very important to have a proper mix of intrinsic and extrinsic rewards. (Shields, J, 2007,p 32, 33)

Issues in reward system

As a Human Resource manager it is very important to take note of facts that can destroy a performance reward system.

Unclear job process is one issue in the performance reward system where the manager cannot communicate to the employee what the goal to be achieved is in that particular. Hence performance cannot be evaluated because job objective is unclear. (Rubino, A, 1997)

By keep the selection and promotion criteria vague it is difficult to understand how the process works hence it is a barrier to successful performance system. (Rubino, A, 1997)

Where tangible goals are missing to bind the managers and the employee to work and focus. (Rubino, A, 1997)

Criteria for a Successful reward system

According to studies there are important criteria that should be followed to have a successful reward system. Some of them are discussed below

The system should fit its environment:

The company culture should have a ‘sales mentality’ for its workers. Employee should be rewards on the specific task assigned to them. This is a traditional approach which used to be applied on sale workforce. (Rubino, A, 1997)

‘Pay by example’ at the top level should exist, this would create an environment where even the top managers are evaluated in the same process for rewards. (Rubino, A, 1997)

Fairness to it employee:

The process should be based on equality internally and competitive externally. Performance measurement should be valid and understandable to the employees. Time, equality and promises should be the key element of any program. (Rubino, A, 1997)

Fairness to the company:

It should be able to fund itself as the most important factor for a successful running show. The initial investment is always required on rewards but the process should turn that reward into productivity and increased revenue for the company. The company should be a profit making position to have the process implemented. (Rubino, A, 1997)

 Linking the components of Performance management and Reward

By following the performance implementation process performance management and rewards can be integrated successfully.

There should be a mutual manager and employee expectation right from corporate level goals, values and operation processes.

A clear quantitative and qualitative measure should be established to relate to individuals and team job responsibilities. The same three mega performance criteria should be imposed on all employees, I.e. the corporate, department/division and the individual/team. The entire criterion is defined and targeted so that every employee is rewarded on the best measures of which he or she has the most control over. It creates an ‘esprit de corps’ within the organisation and at the same time develops a direct line-of-sight between performance and rewards. (Rubino, A, 1997)

Process training to manager and employee should be given to ensure effective use of performance management process such as System mechanics, effective management techniques and performance planning and coaching.

Moreover, the performance-related information should be readily available to be utilized through communication between managers and employee all the time, sharing of quantitative and qualitative data and publication of the achievement of the individual performance and their impact on business operations. (Rubino, A, 1997)

A periodic formal and informal feedback is very important at least quarterly, or after an event or dead-line.

Finally, a direct link should be created to rewards based on individual, unit or team performance.

Findings and implications

I have worked in the past as a human resource person with the employee relations team and had faced some of the issues which were discussed in my paper.

The most important was during the performance appraisal where the organisation failed to be clear with the kind of appraisal it was holding and the purpose of the performance appraisal. As employees we all know the basic of a performance appraisal i,e. for increment or promotion. The kind of appraisal used here was the Bell-curve and it was so hated by the employees. In this kind of appraisal system one person had to be marked at the top and someone else had to be at the bottom of the curve. This system was so vague and brought a lot of dissatisfaction among the team. Below are some issue with the system.

Unclear performance management system

It was so unclear with the staff the type of appraisal system that was in place, moreover the managers failed to explain the characteristic of a bell-curve performance system.

Distance between managers and employee

Secondly there was a big difference between the managers and employee as they were not sharing a good relation apart from that of a supervisor and subordinate relation.

Lack of communication

Moreover there was lack of communication between managers and employee and the process could not be made clear because the managers were not listening and speaking to their employees.

The appraisal system

There was a great resentment because the system of bell-curve called for two extreme and there had to be one on the top and one in the bottom. This was too disgracing and someone was forced to take the bottom position which created jealousy among the team and divided the work force.

Biasness of the managers

Managers took advantage of this situation and supported their favourites and gave the others less preference. Hence this system was a complete failure as one person got the best out of it and the other got the worst with least reason to be motivated or continue in that firm.

Developments

As an HR person it is very important to explain the objectives and goals of the organisation to the employee. The job role should be defined and the appraisal pattern should be properly explained and implemented. To achieve high reward system performance the organisation should have a proper interview done making both the managers and the employee responsible for the performance appraisal.

Conclusion

In conclusion we have seen various ways by which performance management and rewards system can be used to make a better high productive work force. To manage performance successfully it is important to require a holistic approach that covers all areas of performance management, rewards system and training, and all should be linked together as components to each other with one overall organisational strategic direction.

 

 Reference

Tovey, M, 2010. “Managing performance improvement”. 3rd ed. Australia: Pearson

Rudman, R, 2003. “Performance planning and review”. 2nd ed. Australia: Allen Uniwin.

Karamar, R, 2011.”Human Resource Management”. 4th ed. Australia: McGraw-Hill         

Shields, J, 2007. Managing performance and rewards. 4th ed. Port Melbourne: Cambridge University Press               

Rubino, A, 1997. “A GUIDE TO SUCCESSFULLY MANAGING EMPLOYEE PERFORMANCE: LINKING PERFORMANCE MANAGEMENT, REWARD SYSTEMS, AND MANAGEMENT TRAINING”, Performance Management, Summer97, Vol. 24 Issue 2, p45-53. 9p.

Larkin, J, 2013. “Playing the Performance Management Game? Perceptions of Australian Older Academics”, Performance Management, Irish Journal of Management., Vol. 32 Issue 2, p47-69. 23p