UNIT 4

Importance of Performance
● By measuring/managing performance of individuals
and teams one can measure/manage performance of
an organization
● Linking HR metrics to performance allows you to
calculate ROI of HR processes/policies
● Identifying talent management factors that improve
performance can increase the ROI
Brief History of Performance Management
● 19th century - “Scientific Method”: Employee
productivity
● 1940s - Quantitative analysis

● 1970s - Current common HR metrics

● 1990s - KPIs and Balanced Scorecard

Connecting strategic to operational goals

Source: http://blog.bizzdesign.com/business-performance-management-balanced-scorecards-and-the-decision-model
What to measure?
● Connecting operational goal to individual performance

● Measuring performance also directs it and affects

behavior
● You need to actually measure something aligned with
business goals
Performance management techniques
Traditional approach: cascading down
● Employee and management collaboration
● SMART KPIs
● Team metrics, not just individual performance
● Linking up
Linking up vs. Top-down Cascade

Source: https://www.shrm.org/Research/Documents/SHRM-SIOP%20Performance%20Management.pdf (page 8)

Choosing Correct Objectives
1. Identify the area of business performance you wish to measure
2. Establish the target against which performance will be measured
3. Compare current performance with the defined target
4. Review performance changes
5. Establish a relevant interval for performance review
What’s wrong with the traditional
approach?
● Traditional annual reviews are insufficient
(slow and disconnected from performance)

● Rater biases account for 50-60% of all the

variance in rating
Alternative Performance Evaluation
1. Given what I know of this person’s performance,
and if it were my money, I would award this
person the highest possible compensation
increase and bonus. [measures overall
performance and unique value to the organization
on a five-point scale from “strongly agree” to
“strongly disagree”].
2. Given what I know of this person’s performance, I
would always want him or her on my team
[measures ability to work well with others on the
same five-point scale].
3. This person is at risk for low performance
[identifies problems that might harm the customer
or the team on a yes-or-no basis].
4. This person is ready for promotion today
[measures potential on a yes-or-no basis].

Source: https://hbr.org/2015/04/reinventing-performance-management
Choosing Technology

Source: https://www.knackhq.com/employee-performance-reviews-
web-app/
 Presentation Biases
● Framing - refers to the observation that the manner in which data is presented can affect decision
making.
● Confirmation bias- refers to the people's tendency to process information by looking for, or
interpreting, information that is consistent with their existing beliefs. This biased approach to
decision making is largely unintentional, and it results in a person ignoring information that is
inconsistent with their beliefs.
● Anchoring - refers to people's tendency to give disproportionate weight to the first piece of
information they receive in a decision-making context. As a result, this becomes a reference point or
anchor that influences people's perception of subsequent information.
● Loss aversion - Loss aversion is a cognitive bias that describes why, for individuals, the pain of
losing is psychologically twice as powerful as the pleasure of gaining. The loss felt from money, or
any other valuable object, can feel worse than gaining that same thing.
● Status quo - Status quo bias is an emotional bias; a preference for the maintenance of
one's current or previous state of affairs, or a preference to not undertake any action to
change this current or previous state. The current baseline (or status quo) is taken as a
reference point, and any change from that baseline is perceived as a loss or gain.
 TOTAL
COMPENSATION
Total compensation

• The total compensation package is an employee’s base compensation, also

known as their base salary, plus the value of the benefits package they receive.
This benefits package can include things like health insurance, a retirement
plan, and paid time off (PTO), life insurance, overtime pay, perks, profit
sharing, stock options, and any bonuses or variable incentive pay.
• The best strategy for executive total compensation is unique to every business.
• Each organization must find the right balance between employee compensation
in base pay and employee benefits in their compensation strategy while
remaining competitive with other companies in your industry.
Types of Compensation

● Fixed (salary)

● Variable (performance-based pay)

Types of Compensation

Fixed salary or base pay

- Market value of employee
- Tied to time worked or piece-rate (“units made”)
- Critical to being able to hire talent
- Influenced by: mobility of talent, skills transferability,
labor unions, conscious and subconscious biases
Benefits
- Can be very important in some countries (e.g. healthcare in
the US)
Types of Compensation

●Short-term bonuses
- Paid periodically (quarter, year)
- Spot or project bonuses
- Designed to incentivize specific behaviors and
results
- Direct relationship between action and reward is
critical
- Key problem: incentive to sacrifice long-term gain for
short-term individual reward
Types of Compensation

●Long-term incentives
- Deferred compensation, profit sharing, stock options-
Deferred compensation is a part of an employee's
salary, which is set aside for later payment. Taxes on
the profit are postponed in most situations before it is
paid out. Deferred compensation forms
include insurance schemes, contingency plans, and
stock option plans.
- Designed to inspire sense of ownership, promote
long-term thinking and retain key employees
The compensation model that an
organization uses should match the
company SMART goals.
 Performance-based pay and
Performance
There are risks inherent in using pay-for-performance, but
“Performance reviews that are tied to compensation
there are arguably greater risks in not using it. In its absence,
create a blame-oriented culture. It’s well known that
what will energize, direct, and sustain employee efforts and
they reinforce hierarchy, undermine collegiality, work
focus? In its absence, what kind of workforce will you attract
against cooperative problem solving, discourage straight
and retain in comparison to your competitors that use pay-for-
talk, and too easily become politicized. They’ re self-
performance? Winston Churchill once said, “Democracy is the
defeating and demoralizing for all concerned. Even high
worst form of government except all the others that have been
performers suffer, because when their pay bumps up
tried.” I would say something similar about pay-for-
against the top of the salary range, their supervisors have
performance. While pay is not the only motivator, it is difficult
to stop giving them raises, regardless of achievement.”
Tom DiDonato, CHRO, Lear Corporation to envision how individuals, companies, and economies would
https://hbr.org/2014/01/stop-basing-pay-on- fare better by diminishing or eliminating the role of pay-for-
performance-reviews performance.

Barry Gerhart,
University of Wisconsin - Madison, Bruce Ellig Distinguished
Chair in Pay & Organizational Effectiveness
https://bus.wisc.edu/mba/strategic-human-resource-
management/blog/2014/04/16/think-pay-for-performance-
doesnt-work-think-again
PAY MODEL
COMPENSATION
 INTRODUCTION OF MODEL

The Pay Model of Compensation was developed by G.T. Milkovich and

J.M. Nemwan in 2002. They define compensation as forms of financial
gain and tangible services and benefits that employees receive as part of
their employment. The model consists of three components: policy,
techniques, and objectives.
Pay Model of
Compensation Objectives

Compensation systems, according to the Pay Model of Compensation, are developed to

achieve organizational objectives. As shown in the image, these include efficiency, honesty,
and observance of the rules.
Efficiency- Effective remuneration systems contribute to efficiency in the form of
improved performance, better quality, satisfied customers, or lower costs.
Fairness- Fairness refers to designing and introducing a reward system that rewards
performance and meets the needs of the employees. Fairness is the foundation for
healthy work relationships, which means it’s important that employees are treated fairly
and get a salary that matches the work they do.
Conformity- Compensation models have to conform to the requirements of various
central and national salary legislation and regulations. Conforming with regulations is an
integral part of any organization that wants to act in accordance with the law. When laws
change, the compensation system has to be changed as well.
Compensation System Policies
According to the Pay Model of Compensation, the compensation system has to relate to internal consistency,
competitive performance, and the contribution of employees. These are the four pillars on which the policy of a
compensation structure is based.
1. Alignment- Internal alignment refers to aligning the salaries for similar types of jobs, as well as the rewarding of
different kinds of work. Positions are assessed on their relative contribution to the organization’s objectives.
If the compensation structure is seen as fair by the employees, it will help motivate employees to improve themselves
and accept training.
2. External Competitiveness- Competitiveness is about the remuneration plan being competitive enough
compared to what competitors are offering. The plan has to offer sufficient benefits for the potential employee to
get them interested and keep them. The salaries can’t be too high either, as that would negatively impact
competitiveness of the products and services.
3. Contributions- Employee contribution is about how important the performance of the employees is regarding
the remuneration model. Strong employee contribution means that incentives and rewards are based on what the
employees add.
4. Management- The final component of the four policy methods of the Pay Model Compensation is
administration; managing the compensation structure. Efficiency is the goal here as well.
The system has to work well enough to achieve the objectives, and it also needs to be adaptable to react to new
requirements. New requirements can be the result of new regulations or new salary objectives for the organization.
 Pay Model of Compensation techniques

The third component of the Pay Model of Compensation are the

techniques. These techniques connect policy to objectives.
In order to comply with internal alignment, as the model shows, the
techniques are skills and work analysis. In order to meet the
competition policy, surveys can be held and market definitions can be
created.
The employee contribution is assessed based on performance
guidelines. When managing these remuneration plans,
communication and change are important factors.
TALENT ANALYTICS

Talent analytics, sometimes referred to as “people analytics,” is a data-driven

methodology for making human resources decisions about the current and potential
future workforce of an organization. It involves collecting and transforming HR and
organizational data into actionable insights to improve business results. Talent
analytics relies heavily on statistical concepts and tools to make sense of what are
often large volumes of data—or “big data.”
Information-based economies thrive on talent metrics
In recent decades, organizations have increasingly embraced the concept of people as their
greatest asset. In an information-based economy, having sufficient numbers of capable
employees is essential to succeeding in highly competitive markets.
At the same time, an information-based economy also requires a decidedly non-human input:
data. Companies spend huge sums of money acquiring, storing, and analyzing massive amounts
of data to help them make sense of the world of today and plan for the world of tomorrow.

Technology and talent analytics

Talent analytics is the result of these two critical components of the information economy
supporting one another. There are all kinds of data that can help organizations better understand
their current talent resources and needs. However, it can be prohibitively time-consuming for
humans to manually process all the desired data inputs.
Talent analytics relies on increasingly sophisticated statistical models and computers to handle the
number crunching, while leaving the higher-level analysis and data-driven decision-making to the
humans.
 Types of talent analytics
Talent analytics can take on several forms depending on the underlying objective. Common types of talent
analytics include the following.
1. Descriptive- Descriptive analytics is typically the easiest form of analytics. Organizations would use talent
analytics to better understand the current state of affairs. For example:
•How many part-time versus full-time versus contract employees does the organization employ?
•What percentage of managers have a graduate-level degree or higher?
•What percentage of staff voluntarily left the organization last year?
Descriptive analytics tend to be relatively straightforward. It doesn’t require making assumptions about, or
predictions of, future events. The information desired actually exists today. All that’s required is collecting and
analyzing the data.
2. Diagnostic- Diagnostic analytics looks at the current state of affairs as described by descriptive analytics and
attempts to explain why that current state exists.
•Why don’t we have more managers with masters degrees?
•Why did so many staff quit last year?
•Why are so many new employees leaving within a year of being hired?
In other words, diagnostic analytics helps to diagnose—and respond to—the root cause of a specific issue using
real data and analytics.
3. Predictive-Predictive analytics is a bit trickier than descriptive analytics, and has a more forward-looking
focus. Its goal is to foresee, or predict, the future state of a department or organization. Predictive analytics can
also be used to predict what will happen with respect to individual employees or the broader industry or market
within which an organization operates.
For example, an organization might use predictive talent analytics to estimate the number of key staff who will
leave the company over the next five years.
4. Prescriptive- Being able to predict the future is great, as long as you can do something with that foresight.
Prescriptive analytics involves taking one’s best prediction about the future, along with observations about the
past and current state of affairs, and suggesting a course of action for the future.
For example, the organization conducting the hypothetical analysis of key staff attrition in the prescriptive talent
analytics example above might decide, based on a prescriptive analysis, that it needs to immediately start
developing internal talent to fill key roles likely at risk according to the predicted attrition.
Talent analytics data can come from a variety of sources including:
•Social media
•Job boards
•Applicant tracking systems
•Candidate relationship management
•Employee engagement and satisfaction data
Combining and comparing data can help organizations draw conclusions and identify causes and correlations.
Pros of talent analytics
Talent analytics is a powerful methodology that unlocks objective decision-making around real workforce data.
The pros of talent analytics, therefore, are as follows-

• Better-informed decision making- One of the most obvious objectives with any talent analytics project is
the ability to make better-informed decisions about talent management.
• Understanding the world in which the business operates today as well as expectations for the future is
essential for planning. Sound decision-making is not guaranteed by talent analytics, however.
• New insights- Companies are often surprised by the results of their descriptive talent analytics. Analyzing
this data can help identify long-standing false assumptions the organization was operating under. This
analysis can also identify hidden opportunities.
• Ability to tie outcomes to policy choices- There is a great deal that is beyond the direct control of any
business. However, negative outcomes aren’t always simply due to bad luck. Diagnostic analytics can help
companies connect the dots between results (whether good or bad) and the underlying policy choices that
contributed to those results.
• Better overall results- Not all talent analytics efforts are created equal. Companies that engage in well-
conceived and well-executed talent analytics efforts do better than their non-analytical competitors on
factors like employee satisfaction, turnover, talent development, and more. The effective use of talent
analytics can help companies reap rewards across the entire employee life cycle.
Cons of talent analytics
• Legal risks- It’s important for businesses to be aware of potential legal and regulatory rules that prohibit
collecting and acting on certain types of talent data, particularly personal data. When collecting data on
employees, it’s important to do so in consultation with data privacy, legal, and HR teams to ensure
compliance with national, state, and local laws and regulations.
• Impersonal- One of the great strengths of talent analytics is the ability to compare apples to apples
across a large number of individuals. The other side of this coin, however, is that talent analytics is
inherently impersonal. Employees, as individuals, generally can not be compared apples to apples to their
colleagues. Care must be taken to not ignore the individual aspects of employees when focusing on
objective metrics that are being applied broadly.
• Data overload- The term “big data” tends to be used as a positive concept. But while massive amounts
of data can provide the potential to arrive at great insights, all that data can also be overwhelming and
confusing if a talent analytics project is not properly thought out. It’s important to focus on collecting and
analyzing data that is “need to know,” not just “nice to know.”
• Faulty conclusions- Even sound data can lead to faulty conclusions, unfortunately. There can be a
tendency among those conducting talent analytics projects to assume that conclusions based on sound
data must be sound. This is not always the case. That’s a key reason to conduct post-action diagnostic
analyses when basing policy decisions on prescriptive analytics.
1. Define the objective - Talent analytics doesn’t have to be conducted with an end goal of making
significant organizational changes, but it does need to have some goal in mind.
Again, this could be as simple as a descriptive talent analysis to get an idea of the current state of
the company’s workforce. Not having an objective in mind is a recipe for getting overwhelmed
with data that may or may not be relevant.
2. Build a talent analytics team- Talent analytics shouldn’t be owned by a single individual. It
takes a dedicated team to develop and use talent analytics strategically and effectively. That team
can include people from areas like IT, HR, legal, etc., from senior leaders on down to line staff
members.
3. Determine which forms of talent analytics are appropriate- Based on established objectives,
the next step is to determine which forms of talent analytics may be appropriate for each outcome
desired: descriptive, diagnostic, predictive, or prescriptive.
4. Define the relevant metrics- Data analysis requires creating some metrics that can support an
apples-to-apples comparison of data. These metrics might include things like number of
employees, self-reported employee satisfaction (on a 1 – 10 scale), employee productivity, and
others.
5. Gather data-Talent analytics metrics should be designed based on data inputs that are readily
accessible. In some cases, data might already exist. In other cases, new methods of capturing data
must be developed. Decisions about the cost/benefit of gathering new data should be tied back to
objectives, again based on a “need to know.”
6. Analyze data-Once the requisite data has been gathered, the data will need to be analyzed and
interpreted. The process and additional tools you use for data analysis will depend on the amount
of data collected, and the complexity of the analysis required.
7. Develop and implement policy adjustments-Talent analytics data gathered will yield insights
that may drive changes in policies or practices. For instance, if data is indicating that new
employees are leaving within a year of hire, that might require additional investigation to
determine the “why” behind the numbers. Then, actions would need to be taken to make
adjustments to policies or practices that might be driving turnover.
8. Measure and repeat-The talent analytics process is iterative. Both the internal and external
environment change, new business strategies are implemented, and new people strategies need to
follow suit. In addition, results will ebb and flow so it’s important to continually track the numbers
so course corrections can be made as necessary.
 CASELET OF GEICO

Business Needs- Geico recruits for over 5,000 roles per year across its service, insurance
adjuster and other teams. Geico has a rigorous recruiting process but was missing analytics
across key areas such as interviewer feedback, offer feedback, etc.
Selection Process-Geico evaluated many software solutions but selected Oracle’s cloud-based BI
solution including Oracle BI Cloud Service, Oracle Database as a Service and Oracle Data
Integrator running on Oracle Platform as a Service. Oracle’s key differentiator was its
integration with Oracle Taleo that reduced cost, timeline and risk. Geico selected KPI
Partners because of KPI’s deep expertise in Oracle Cloud products, knowledge of Taleo and
Oracle BI Cloud Service.
What KPI Delivered- KPI Partners delivered the entire solution including requirements, design
development, user acceptance support, production deployment and post production support.
KPI did this on time and on budget using a cost-effective onsite/offshore delivery model.
Business Benefits- Recruiting effectiveness improved by 15% due to reduced time from requisition
to hiring and improved yield on number of candidates interviewed per hire. This also resulted
in a reduction of recruiting costs by 15%.This was achieved by having 360 degree visibility
into the entire recruiting process for the first time including:
•Hiring yield analytics to reduce cost to hire
•Candidate source analytics to determine the best source for new hires
•Time in process reporting to provide a detailed breakdown of the time taken in each step of
 Talent Management

Talent management means investing in an organization’s most important resource – its

people. To this end, employers may recruit candidates with highly desirable skillsets,
provide ongoing learning and development opportunities, and reward valued team
members and encourage them to advance within the organization.

An example of talent management

Real-life examples of talent management happen every day. Consider, for instance, an
apparel retailer that wants to transition its business model from simply supplying
clothes to delivering customers a truly service-based experience. To achieve this goal,
the organization’s leaders know they will need a new breed of associates and managers.
They therefore implement assessment and applicant tracking tools to help them hire the
right candidates and use real-time performance data to give supervisors the insights they
need to make smarter decisions.
Why is talent management important?
Businesses that take the time to develop their employees and keep them engaged tend to be
innovative and profitable. Conversely, those that are unable to source or retain talent
generally have poor customer satisfaction and limited growth potential.

What are some key components of talent management?

Building the kind of talent strategy that drives an organization forward generally requires
employers to:
•Align talent goals with larger business objectives
•Fulfill employee expectations and deliver on hiring promises
•Rely on data to make better workforce decisions
What does talent management include?
Equipping and engaging talent to optimize productivity and fuel growth is not a singular task. There are numerous
employer responsibilities, such as the following, which must be fulfilled to excel at talent management:
•Workforce planning- Most talent strategies begin with defining the skillsets that will be required to achieve the
business’s objectives.
•Recruitment- Acquiring talent consists of representing the employer brand effectively, determining where the
right candidates can be reached, prescreening applicants and interviewing promising prospects.
•Onboarding- A structured onboarding program that introduces employees to the workplace culture and helps
them feel connected to and comfortable with their team and organization is essential to retention.
•Training and development- While it was once considered the employee’s responsibility to seek learning
opportunities, many workers today expect their employers to provide the tools, guidance, and support they need to
further their careers.
•Performance management- Reviews and check-ins with team leaders help employees build upon their
strengths, thereby increasing engagement and reducing turnover and making it possible for employers to meet key
business objectives.
•Compensation and benefits-Fair compensation is important, but employers who want to attract and retain talent
should take a holistic view of the perks and benefits they offer beyond a paycheck.
•Succession planning=Preparing for the next step in the employee journey – whether it’s career advancement,
retirement or resignation – can help people transition to new roles quickly and limit disruptions.
Benefits of talent management
•Recruit in-demand talent
Businesses become employers of choice and attract talent organically by making their
brand a central component of their talent strategy.
•Minimize disruptions
Unexpected departures cause gaps in coverage, but with a talent pipeline, it’s possible to
fill open positions quickly and keep operations running smoothy.
•Improve productivity
Continuous strengths-based coaching helps employees develop skills and reach their full
potential, thereby increasing efficiency.
•Reduce costs
Retaining valued team members and keeping them engaged is usually more cost effective
than sourcing and training new hires.
•Innovate
Talented teams are more likely to develop new methods of problem solving and make the
most of advancements in technology.
 What is the talent management process?

The talent management process consists of finding the right people and helping them discover and apply their
strengths so they can work and lead more effectively. Employers who do it well generally follow these steps:
1.Recruit- Source candidates from outside or within the organization using the most appropriate method, i.e.,
employee referrals, social networks, job boards, etc.
2.Hire- Use analysis tools, prescreening questionnaires, skills tests and interviews to narrow the list of
candidates and make an offer.
3.Develop- Make learning and development resources accessible and relevant to employee expectations and
needs so they can do their jobs more effectively.
4.Engage- Keep teams connected and focused with engagement tools that help identify potential retention risks
and retain top performers.
5.Perform- Monitor employee performance and collect data to make more informed workforce decisions.
6.Recognize-Manage compensation equitably and reward top performers.
7.Plan-Create succession plans that allow employees to advance their careers when openings become available.