Organization Development and Change

Chapter Seventeen: Performance Management

Thomas G. Cummings Christopher G. Worley

Learning Objectives for Chapter Seventeen

To present a model for understanding the components and relationships associated with performance management To explore three interventions concerned with managing the performance of human resources: goal setting, performance appraisal, and reward systems
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A Performance Management Model

Business Strategy

Workplace Technology

Reward Systems

Goal Setting Individual and Group Performance

Employee Involvement

Performance Appraisal

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Characteristics of Effective Goals

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

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Management by Objectives (MBO)

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.
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MBO Application Stages

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
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Performance Appraisal Elements

Elements
Purpose Appraiser
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Super

Performance Appraisal Application Stages

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
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Characteristics of Effective Appraisal Systems

Timely Accurate Accepted by the users Understood Focused on critical control points Economically feasible
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Reward System Design Features

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
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Characteristics of Effective Reward Systems

Availability Timeliness Performance Contingency Durability Equity Visibility
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Types of Rewards
Pay
Skill-based pay plans Performance-based pay systems link pay to performance Gain sharing involves paying bonuses based on improvements in the operating results

Promotions Benefits
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Salary-Based Pay for Performance Ratings

Ti pe e s p rfo ay rm to an ce Ne sid gati e e ve ffe cts En co o co u r pe age ra t ion Em Ac ploy cep ee ta n ce

Individual Plan Productivity Cost effectiveness Superiors rating Group Productivity Cost effectiveness Superiors rating

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

Organization- Productivity wide Cost effectiveness

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Stock/Bonus Pay for Performance Ratings

Ti pe e s p rfo ay rm to an ce Ne sid gati e e ve ffe cts En co o c o u r pe age ra t ion Em Ac ploy cep ee ta n ce

Individual Plan Productivity Cost effectiveness Superiors rating Group Productivity Cost effectiveness Superiors rating

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

Organization- Productivity wide Cost effectiveness Profit

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Gain Sharing Pay Plan Considerations

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?

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