Performance Management & Reward System
Performance Management “How I get my people to do what I want them to do, in the way I want them to do it! ” Performance management (PM): Organisations that take performance management seriously, manage a range of different but inter-related topics: •Mission •Vision •Strategy •Business plans •Values (how people should and should not behave) •Culture in which improving performance is valued and developed •Monitoring of performance – at individual, unit and Team levels •Feedback of that monitoring to staff •Clear goals •A set of competencies Appraisal discussions •Personal development (training, coaching, reading, sittings etc) •Management development •Good job design •Team working (interaction and mutual responsibility) •Extrinsic reward and recognition (basic pay, performance pay, awards, saying ‘well done’)•Intrinsic rewards (the satisfaction from doing a worthwhile job reasonably well) •Effective remedies for under performers. Performance management levels: •Organisation •Department •Unit •Team •Individual Data collection for PM: Data is collected at four levels: Inputs: Staff time, budget, data, consumables, energy, and equipment •Processes: Support, sales, teaching, research, paperwork, IT, purchasing etc. •Outputs: Customers served, bills paid, items sold, students helped, degrees awarded, research written up •Outcomes: Profit in a commercial enterprise or service delivery in a service organisation (usually assessed through customer satisfaction).
Rules for monitoring performance: (a) Objective: •Introduce monitoring as one part of a bigger drive to improve customer experience. (b) Positive: •Seek information to improve the customer experience and not to blame people. c) Involvement: •Involve responsible people to work on the monitoring, as a part of their drive to improve the customer experience. •If you choose items to monitor and impose those, staff will probably be de-motivated and performance will drop. •Treat your staff as professional, responsible and motivated (d) Outcomes: •Measure outcomes in preference to outputs. (Governments are obsessed with outputs – numbers of patients treated, lengths of waiting lists, numbers of students receiving degrees, numbers of children who can read and write etc). (e)Tough: Challenge those who like the fuzziness of not knowing how they are doing. (f) Choosy: •Pick only the most important factors to monitor as too many measures will be Counterproductive. (g) Numbers: •Measure performance numerically, by getting the customer to grade them on a scale 0 to 5. (h) Benchmark: •Use the results as your baseline or benchmark, from where you can improve. (i) Communicate: •Make sure the targets are known, understood and accepted. (j) Reliable Use reliable sources of data. HIGH PERFORMANCE WORKING High performance working (HPW): The four elements of HPW are: )Employee autonomy and involvement in decision making •Develop flexibility of skills •Team working to give variety and responsibility. 2)Support for employee performance •Appropriate selection and recruitment processes (finding staff at all levels who will support a high performance culture) •Comprehensive induction programmes •Sophisticated and wide training•Integrated and wide ranging performance management •Emphasis upon work-life balance. 3)Rewards for performance •Offer a career not just a job •Harmonised terms and conditions •Pay that is competitive with other employers Rewards linked to individual and team performance 4)Learning •Plenty of effective communication •Quality improvement teams •Lean systems (this can be expanded upon at the workshop) •Spending on training. Details will vary from organisation to organisation. Why HPW: Because if you are not driving up performance: •Staff motivation will be lost •Quality, quantity and innovation will decline •Pressure to reduce your prices will grow or •Customers may simply stop buying your goods or services altogether or •Competitors may take your work. What does this mean in practice?Employee autonomy and involvement •Develop flexibility of skills •Team working to give variety and responsibility Support for employee performance •Appropriate selection and recruitment processes (finding staff at all levels who will support a high performance culture) •Comprehensive induction programmes •Sophisticated and wide training •Integrated and wide ranging performance management •Emphasis upon work-life balance Rewards for performance •Offer a career not just a job •Harmonised terms and conditions •Pay that is competitive with other employers Rewards linked to individual and team performance. Learning •Plenty of effective communication •Quality improvement teams •Lean systems (this can be expanded upon at the workshop) •Spending on training. According to 2004 research, by the Engineering Employers’ Federation and Chartered Institute of Personnel and Development, effects of HPW are: •About 20% of increases in productivity and profit in manufacturing •Increased job satisfaction and commitment: quality, quantity and innovation •Employees more likely to say ‘a great place to work’ •Increased earnings potential for employeesImplementing high performance working Things that may need to be addressed are: •Getting top management’s commitment, particularly to resource, to communicate and to demonstrate the required behaviours. •Getting the resources HPW needs (both financial and risk taking e. g. new reward structures). •Carrying out team and individual appraisals that make a real difference. •Seeking and rewarding discretionary behaviour (Ability x Motivation x Opportunity = AMO). •Allowing employees to re-design jobs to maximise interest and challenge. •Changing existing strong cultures Increasing levels of trust between management and employees. •Getting staff to be understand about organisational performance •Involving employees in design and implementation of HPW. •Integrating initiatives, so they reinforce each other, therefore: ? Implementation is in bundles ?Staff understand it and show commitment ?Other organisations are used as benchmarks ?Continuous improvement is developed. THE CONTRASTING OBJECTIVES OF THE EMPLOYER AND THE EMPLOYEE •‘The employer wants as much productivity for as little cost as possible, whilst the employee wants as much money for as little effort as possible. •Life is more complex than this, but this is a useful start! This is the left wing pluralist approach. •The right wing unitarist approach is ‘Prosperous employers make prosperous employees. ’ What is the employer trying to get out of the employee?Principally, an employer wants three things from employees: •Quantity (productivity) •Quality (producing good work with low wastage) •Innovation (finding new and better ways to get the work done). But there are also management issues: •Cost •Control (of cost and of the employees) What do the elements of good performance look like? We now talk about ‘discretionary behaviour’ i. e. the voluntary effort people put in, over and above the bare minimum, below which they will get into trouble. •Employers seek discretionary behaviour and good organisations will establish performance management processes to generate it. It is normally expressed as: Discretionary behaviour = ability x motivation x opportunity •If the value of any component on the right is zero there will be zero discretionary behaviour.•Ability is the assumption that people want to apply for jobs, have their attributes recognised and are willing to learn new skills. Motivation assumes that people can be motivated to use their ability in a productive manner. •Opportunity assumes people will perform well, engage in high-quality work and participate in wider activities, such as team initiatives or problem solving, if they are given the opportunity to do so. What are the employees’ objectives? This will vary from person to person. Work published by Guest and Conway (2001) on the psychological contract suggested the most common were: •A reasonably secure job •Fair pay for the work done•A career •Interesting work •Fair treatment by managers •Equality of treatment To be kept informed about changes affecting them •Involved and consulted about changes affecting them REWARD AND MOTIVATION •Motivation is concerned with WHY people do or refrain from doing things. •A motive” is a need or a driving force within a person. The process of motivation involves choosing between alternative forms of action in order to achieve some desired end or goal. •As the following formula shows, goals can be tangible – such as higher earnings – or intangible – such as personal reputation or prestige. Motivation at work: We can divide motivation at work into internal and external motivation. a) Internal motivation•This is related to the work, where there is a close identity between the task itself and the human needs, e. g. where a cabinet-maker or motor-fitter derives satisfaction from a job well done. (b) External motivation •This is independent of the task i. e. the task is merely a means to an end; for instance, when a person works on an assembly line to get high wages. •Clashes of interest are resolved in the traditional manner by offering financial incentives and/or threatening the loss of employment – providing external motivation. This traditional “carrot and stick” idea still lingers – the carrot often being money and the stick, fear. Money: The “great motivator”. It is a fact that most people go to work because they get paid to do so. However, this basic need for money will only make a worker turn up and do the acceptable minimum. There are a range of other “carrots” – or positive incentives – offered as an incentive to work, or to particular types of performance, including welfare amenities, holidays, etc. Fear: The “big stick” theory is rather outdated now, but it is still occasionally appropriate to motivate people through fearIntrinsic and extrinsic motivators: •Intrinsic reinforcements of behaviour, which are “inside the individual” reward feelings, like finding work interesting, feeling appreciated, etc •Extrinsic reinforcements of behaviour, which are the outside influences and rewards such as money, extra holidays, company car, etc; Problems in work role: (a) Alienation: •Psychologists use this term to refer to the feelings of an individual when they are estranged from their situation at work. E. g. the salesperson forced to sell goods in which they have little belief or confidence. b) Anomie: (lack of the usual social or ethical standards) •The causes of anomie are to be found in the confusion that arises in large organisations. The individual may be faced with pressures and problems at work that they do not fully understand. (c) Status: •Social status refers to the amount of respect paid to an individual. A work role can confer prestige upon a person.Status may be perceived through the possession of symbols, e. g. salary, title of job, work surroundings, dress, company car, etc. •Many modern theorists are becoming convinced of the value of the Japanese approach of reducing status differences, e. g. veryone to wear the firm’s uniform; single canteen; parking and toilet facilities for all staff, etc. (d) Stress: •Psychologists define stress as strain experienced by an individual over a period of time, which impairs the ability of the individual to perform their role. •Stress can produce physical or mental symptoms and can be generated by pressures and problems in the work situation. Managers view of motivation: F W Taylor was an early proponent of the dictum that workers should share the same goals as those of the organisation, and the way to achieve this was through the application of scientific management principles.The basis of this approach lay in the following principles. •Planning •Time and motion study •Incentives •Working conditions •Training The essence of the practical application of the scientific approach is to try to reconcile the needs of the organisation and the needs of the individual. Individual and Organisational Needs: Factors that improve an employee’s level of job satisfaction are: •Responsibility •Challenge •Self-improvement and personal growth •Recognition •Sense of achievement NEED THEORIES OF MOTIVATION Maslow’s Hierarchy of Needs:Hierarchy of Needs D C McClelland’s theory: D C McClelland is another theorist who, from the early 1960s, was concerned with the analysis of human needs. He concentrated on three key needs: i)Need for affiliation: The need of human beings for friendship and meaningful relationships. ii)Need for power: Some people seek power in their work situations; they wish to make a strong impression on people and events. iii) Need to achieve: To many people, the sense of “getting on”, progressing or being promoted, is very important. Frederick Herzberg’s Two-factor Theory: Frederick Herzberg, writing in the late 1950s and early 1960s, identified two distinct sets of needs in individuals working in organisations: the need to avoid pain and discomfort and the need to develop psychologically as a person.Herzberg proposes several ways in which a higher level of motivation might be promoted: •Good quality training: the more a person can do, the more that person can be motivated. •Focus on quality of communications, rather than quantity: communication should be direct whenever possible. •Job rotation: improving the variety of tasks and responsibilities. •Job enlargement: making a person capable of more. Job enrichment: creating meaningful, interesting work. Herzberg believes that it is difficult or impossible to achieve if the job is basically dull, repetitive or uninteresting Douglas McGregor developed a typology of two opposed views about employee behaviour, related to Maslow’s categories of need and considered their implications for management and motivation.The two views are known as Theory X and Theory Y. (a)Theory X •This traditional approach of management, which accepts the worker as a lazy, grasping individual, who must be bribed or coerced into working, McGregor called Theory X. It rests on the following assumptions: The average human being dislikes work. •The average human being will avoid work whenever possible. •Not only is the average employee lazy but they also lack ambition and do not wish to take on responsibilities. •Because of the above characteristics, employees must be strictly controlled and directed. •Control of employees must be backed by coercion and threats, if the objectives of the organisation are to be achieved. •The average person prefers to be directed and not to have to think deeply for themselves in the work situation. (b)Theory Y McGregor then put forward the set of assumptions that modern managers should act upon.He calls this Theory Y. •The physical and mental effort people put into work is a natural human response; it is similar to the effort individuals make in games and sport. Hence, work can be enjoyable. •Employees do not have to be controlled or threatened; they have reserves of self control and self-motivation •Given the opportunities and training, employees will not only take, but also desire and seek, responsibilities. •Employees have reservoirs of imagination, creativity and ingenuity and given the right environment and encouragement, they will use these to help solve problems in the work situation. In some modern organisations the potential of employees is not fully utilised; not only is a waste of resources, but it also causes frustration among the workforce. Hence, when workers do not co-operate to achieve organisational goals, the fault may lie in the structure of the organisation rather than in the workers. Ouchi’s Theory Z •William Ouchi agreed with the basic ideas put forward by McGregor’s Theory Y and related these to certain of the ideas he detected in Japanese organisations. •Ouchi’s theory argues that participation is a crucial motivator.Employees will be motivated to higher levels of performance if they are involved in meaningful participation in decision making in their organisation. PROCESS THEORIES OF MOTIVATION Difference between a content theory and a process theory: •Content or need theories suggest that there are universal needs that all humans have for example security, socialisation, self respect etc. •Process theories do not look at the content of the motivational package but at the mental processes that we go through when faced with a situation. Process theories Expectancy Theory:Expectancy Theory is a cognitively based motivational theory, put forward by Victor Vroom. According to this theory the strength of a tendency to act in a certain way depends on the strength of our expectation that the act will be followed by a given outcome and on the attractiveness of that outcome to us. Attractiveness •This is the importance we place on the potential outcome or reward that can be achieved on the job. This will consider the unsatisfied needs of the individual. Performance-reward linkage •This is the degree to which we believe that performing at a particular level will lead to a desired outcome.Effort-performance linkage •The probability that we perceive that exerting a given amount of effort will lead to performance. The theory can be expressed by the formula: •Motivational force (F) = Valency (V) ? Expectancy (E) •Valency is the value of the outcome to the person; expectancy is the perceived likelihood of the outcome. Porter and Lawler •Porter and Lawler developed expectancy theory in the 1970s. They suggest that the amount of effort (motivation and energy exerted) put into work depends on: •The eventual reward •The amount of effort necessary to achieve that reward •How probable it is that the reward will be forthcoming.Attribution theory Kelley’s attribution theory examines the way in which people explain success or failure and the impact on subsequent motivations. Four variables are frequently used: •Ability •Effort •Task difficulty •Luck Handy’s motivational calculus Handy looks at motivation as though when a person takes a decision, they give attention to three sets of factors: (a) The individual’s personal needs (b) The desired outcome or results (c)The E factors: Effort, Energy, Excitement in attaining the desired outcome, Enthusiasm, Emotion, Expenditure. The motivation decision will depend on: i) The strength of the person’s needs. (ii) The expectation that by contributing one of the Es, the individual will achieve one of the desired results. (iii) The extent to which the result will contribute to satisfying the person’s needs. Connection with the psychological contract A psychological contract is the perceived relationship between the individual and the organisation and involves the various factors that bind the individual to the enterprise. Three examples of psychological contracts are: •A coercive psychological contract exists when a person works because they are forced to do so.They may be tied into the job because the salary and fringe benefits prevent them from moving elsewhere. •A remunerative psychological contract exists when a person works for the money. The person may tolerate the job to attain the lifestyle it provides. This differs from the coercive contract as the remunerative contract may bind the person in the short term, only to be severed if a better deal is available elsewhere. •A collaborative psychological contract is one in which the worker is bound to the organisation by a belief that personal objectives can best be attained by enabling the organisation to fulfil its objectives.From an employer’s point of view, this is more likely to result in having a highly motivated workforce. The person’s desire to achieve can facilitate the company’s performance objectives. EXCELLENCE THEORY AND MOTIVATION •Excellence theories originate in the works of writers in the early 1980s, principally based on the work of Tom Peters and Robert Waterman. •The nature of these ideas is essentially one of observing successes and failures in actual business scenarios and attempting to draw universal lessons that can then be applied elsewhere. •Peters and Waterman did not set out to rite specifically on motivation, but their work comments much on the ability of successful companies to get a high level of commitment from their workers.Among their conclusions were: •Original ideas and ingenuity are grossly under-utilised. Drucker’s idea of the “entrepreneur” (the original thinker and innovator) was extended to suggest that if such persons are employed, their gifts should be harnessed for the benefit of the organisation. •To motivate workers, it is necessary to get close to the workers and understand the issues affecting them as well as their drives and motivations. They believe that workers respond more positively when they feel more in control of their destiny. •In one control group experiment, two teams were given the task of proofreading some text material against a noisy background of a tape containing foreign speech, loud music and other distractions. One group had a button to cut off the noise whilst the other did not. •The group with the button made far less errors than the other group. It was found, however, that no one had pressed the button!The fact that the workers felt in control made them work more effectively. Peters and Waterman record a direct application of this in a Ford Motor Company plant whereby any worker could (temporarily) stop the assembly line. This had stunning results in terms of increased productivity and reduced defect rates. PERFORMANCE BASED REWARDING IN NOKIA Nokia provides employees with market competitive rewards through a flexible global structure, which can address diverse and changing business and employment environments, as well as specific individual preferences.Our Total Compensation Package is tailored for each country and typically consists of elements such as annual base salary, incentives, bonuses, possible stock options or performance shares, flexible Work-Life balance solutions, and other local benefits. Nokia rewards employees for good performance, competence development, and for overall company success. This creates a positive and encouraging environment with opportunities for employees to optimize their potential and be rewarded fairly. Higher erformance and contribution will lead to higher rewards. The Nokia global market competitive rewards structure addresses the need for flexibility, personalization, empowerment and commitment. The basic salary is set to meet market conditions, the demands of the job and individual competence and performance. The variable part may consist of incentives or bonuses and other compensation, such as overtime pay and call-out pay. Bonus System Employees should have the opportunity to share in the success of Nokia.Short-term incentive programs such as individual, team, project/program incentives and the Nokia Connecting People Bonus allow Nokia to offer immediate rewards for employee and team achievements. The Stock Option Plan is a long-term reward that may allow employees to share in sustained company success. Eligibility for an incentive, bonus or stock option plans is defined by the content and nature of each individual’s job. Local Benefits Additional local rewards and benefits are also developed to complement the global programs and to ensure that the local market conditions are met.Annual Reviews Nokia has implemented a global process, where the change in the pay level for each employee is based on the results of the annual performance review. Health Nokia cares for its employees right throughout the cycle of their working life: from induction and training, through development and advancement, and on to retirement. Nokia’s Work-Life balance solutions mean that health benefits and possible local retirement benefits are tailored to individual needs according to factors such as tenure, contribution, performance, roles and responsibilities.The environment in which we do business is evolving continuously. To succeed, we must have the passion and courage to look for new ideas beyond existing products, services and ways of working. Only with truly innovative ideas will we be able to define the future development of our industry and profoundly shape the way in which people understand and use our products and services in their everyday lives. Rewarding performance Nokia rewards employees competitively through a global reward framework designed to recognize individual contribution and achievement.Levels of compensation are determined by local labour markets and take into account both individual and company performance. Their reward programs – including bonuses – recognize performance based on individual, team and company results. We introduced changes to their incentive plans in 2007 to make the plans simpler, more consistent and able to deliver equal or higher payouts if target performance or above is achieved. A wide number of employees are eligible to join their equity programs, based on rewarding performance and retaining top employees.Their broad-based equity compensation programs include stock options and performance shares. Both are linked to the company’s performance over a number of years. We communicate with employees about the effect of business results on their incentives after each quarterly announcement, through articles and video messages on our intranet news channel, the News Hub. We also communicate through quarterly letters, blogs, webcasts and face-to-face meetings. In addition, information is available on the Know Your Business section of our intranet.