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To present a model for understanding the components and relationships associated with performance management To explore three interventions

s concerned with managing the performance of human resources: goal setting, performance appraisal, and reward systems;

Business Strategy

Employee Involvement

Reward Systems Individual and Group Performance

Goal Setting

Performance Appraisal

Goals are Challenging Challenging but realistic Goals are set participatively Goals are Clear Goals are specific and operationally defined Resources for goal achievement are negotiated

MBO attempts to align personal goals with business strategy through increased communications and shared perceptions between managers and subordinates; MBO programs may go beyond manager and subordinate roles to address individuals, work groups, and to reconcile conflicts;

Involve the whole work group Goals set jointly by manager and subordinate Action plans are established Criteria and yardsticks are established Work progress and contract reviewed and adjusted periodically Records of meetings are maintained

Purpose Appraiser Role of Appraisee Measurement Timing

Organizational, legal Fragmented Supervisor or manager Passive recipient

High Involvement
Developmental Integrative Appraisee, co-

workers, and others Active participant

Subjective Objective and Concerned with validity subjective Period, fixed, Dynamic, timely,

administratively driven

employee- or workdriven

Select the appropriate stakeholders Diagnose the current situation Establish the systems purposes and objectives Design the performance appraisal system Experiment with implementation Evaluate and monitor the system

Timely Accurate Accepted by the users Understood Focused on critical control points Economically feasible

Design Feature Person/Job Based vs. Performance Based Market Position (External Equity) Internal Equity Hierarchy Centralization Rewards Mix Security Seniority

Definition The extent to which rewards are based on the person, the job or the outcomes of the work The relationship between what an organization pays and what other organizations pay The extent to which people doing similar work within and organization are rewarded the same The extent to which people in higher positions get more and varied rewards The extent to which reward system design, decisions and administration are standardized The extent to which different types of rewards are available and offered to people The extent to which work is guaranteed The extent to which rewards are based on length of service

Availability Timeliness Performance Contingency Durability Equity Visibility

Pay Skill-based pay plans Performance-based pay systems Gain sharing involves paying bonuses based on improvements in the operating results Promotions Benefits

One company that has set itself on course to further democratising and opening up its employee evaluation process is car market leader Maruti Udyog;

The company has introduced a unique 360-degree feedback system, starting with its senior leadership;
The new system has been co-developed with Ernst & Young and has been put in place recently.

Maruti started with 360-degree feedback process with employees in the top management such as chief general managers and general managers; Their performance will now be assessed based on feedback from their peers and junior management employees within the same department; Before that, their performance was being appraised only by the Directors and the Managing Director;

Ernst & Young, in consultation with Maruti, has listed a set of leadership competencies that are expected in a general manager; Based on that, E&Y prepared a questionnaire to which peers and subordinates can respond online; Although acknowledged as an effective tool for leadership development in the West, Indian companies have been shy of introducing such a feedback system for fear of disturbing traditional hierarchical structures;

HR consultants feel that the critical issues in implementing such a system include assuring respondents that their feedback will remain confidential and convincing the person receiving the feedback that this is a development tool and not an appraisal tool;

Maruti has handled this by getting E&Y and other consultants to make detailed presentations to the senior mgt personnel before process got under way;
The company has a committee of general managers, called Human Resource Inter Divisional Committee (HRIDC), which is consulted on all major HR issues.

The initiative has been unveiled with an e-mail by Maruti's Managing Director, asking people to support the online questionnaire process; The 360-degree feedback system also include a selfappraisal by the general manager; At the end of the process, he can compare his selfappraisal with the assessment of his subordinates and peers; One of the benefits that Maruti is hoping to get out of the 360-degree feedback process is the sense of empowerment and importance felt by subordinates, when they are asked to offer their feedback about their superiors;

Salary-Based Pay for Performance Ratings

Individual Plan

Productivity Cost effectiveness Superiors rating Productivity Cost effectiveness Superiors rating Productivity Cost effectiveness

4 3 3 3 3 2 2 2

1 1 1 1 1 1 1 1

1 1 1 2 2 2 3 2

4 4 3 4 4 3 4 4



Stock/Bonus Pay for Performance Ratings

Individual Plan

Productivity Cost effectiveness Superiors rating Productivity Cost effectiveness Superiors rating Productivity Cost effectiveness Profit

5 4 4 4 3 3 3 3 2

3 2 2 1 1 1 1 1 1

1 1 1 3 3 3 3 3 3

2 2 2 3 3 3 4 4 3



Process of design - participative or top-down? Organizational unit covered - plant or companywide? Determining the bonus - what formula? Sharing gains - how and when to distribute? Managing change - how to implement system?