14/02/2017 1 MBA401 People, Culture and Contemporary Leadership Workshop Week 4 Performance and Reward 14/02/2017 2 COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. 2 14/02/2017 3 • To understand the link between people performance and business performance. • To understand the role of performance management systems in organisations. • To understand the concept of reward management and the ways it can be applied to influence business outcomes. • To understand performance related pay. • To understand executive pay. • LO1 - Explain the key concepts in managing the human resources inherent in an organisational system. • LO2 - Apply human resource considerations to business decision making and in meeting organisational strategic goals. Workshop Objectives 14/02/2017 4 Jack Welch - 20/70/10 14/02/2017 5 Video – People Performance • www.golfchannel.com/media/feh erty-missed-cuts-welch-cutting10-percent-workforce/ 14/02/2017 6 • The aims of SHRM: – Improve company productivity. – Increase sales. – Reduce employee turnover. – Increase organisational effectiveness. – Ensure internally consistent policies, which are linked to the organisation’s objectives. • Good SHRM practices will often improve the performance of an organisation. Why Manage Performance? 14/02/2017 7 • Talent acquisition and selection. • Salary and incentives. • Job re-design and task analysis. • Talent development and careers. • Succession. • Employee autonomy over tasks. • Performance appraisal. • Teamwork. • Training. Performance is Key 14/02/2017 8 Purpose of Performance Management Source: Nankervis et al (2014) 14/02/2017 9 Video – The Performance Review • https://www.youtube.com/watch?v=IkYUDQCYGH A • What are your key take-outs from this video? 14/02/2017 10 Activity – The Performance Review • With the person next to you: • Share a time when you were given negative feedback by a manager in a really bad way. • Why did it go so poorly? 14/02/2017 11 Performance Conversations • People get surprises at reviews. • Too bureaucratic. • Purpose of the exercise is unclear. • Too detailed. • Done poorly by managers. • Feedback only flows one way. • Rating system is supposed to be objective but isn't. • Reviews damage relationships between managers and staff. • Managers avoid performance conversations. • It is ridiculed as a waste of time. 14/02/2017 12 Performance Management System • Design considerations. • Assess past performance. • Identify development needs. • Relates to business strategy. • Appropriate rating methodology. • Clarification of targets and performance standards. • Links to KPIs. • Clearly identifies the “What”. • Clearly identifies the “How”. 14/02/2017 13 Activity – Performance Reviews • In small groups, answer the following: • Are performance appraisals actually necessary? • What are the disadvantages of them? • What processes can be put in place to mitigate the risks? 14/02/2017 14 Example Rating Form Source: Nankervis et al (2014) 14/02/2017 15 Option 1 Option 2 Option 3 Option 4 Option 5 Option 6 Exceptional Performance Exceeding Expectations Overachieved Targets Over Performing Outstanding Performance Performance is Superior Successful Performance Meets all Expectations Achieved all Targets Performing Well Strong Performance Performance is Solid Developing Performance Meets Most Expectations Achieved Most Targets Performance Opportunity Good Performance Performance Opportunity Not Meeting Performance Below Expectations Missed Targets Under Performing Unsatisfactory Performance Performance is Poor Top Rating Upper qtr Rating Bottom qtr Rating Bottom Rating Activity - Rating Scales 14/02/2017 16 Performance Rating Description Performance is Superior - Performance achievement above and beyond what was expected. All KPIs/objectives hit or exceeded - Desired behaviours always and consistently demonstrated at an advanced level and acts as role model for others - Requires minimal supervision, guidance and development to perform current role Performance is Solid - High level of performance and achieving all expectations and KPIs/objectives - Desired behaviours always demonstrated - Requires a moderate level of supervision, guidance and training to perform current role Performance is Poor - Performance is less than acceptable. Achieved insufficient level of KPIs/objectives - Desired behaviours sometimes or rarely demonstrated - Requires a substantial level of supervision, guidance and development to perform in the role Example Rating Descriptors 14/02/2017 17 http://www.youtube.com/watch?v=IGQmdoK_ZfY Video – Monkey Business 14/02/2017 18 Halo error Leniency or strictness error Error of central tendency Recency error Stereotyping Performance Rating Errors 14/02/2017 19 Halo error Leniency or strictness error Error of central tendency Recency error Stereotyping Performance Rating Errors How might your lecturers be committing these same errors in relation to student’s assignments? 14/02/2017 20 Activity – Ineffective Performance • With the person next to you, compile a list of 10 reasons why people may underperform in the workplace. 14/02/2017 21 What is Reward? • A reward may be anything tangible or intangible that an organisation offers to its employees in exchange for their potential or actual work contribution, to which employees as individuals attach a positive value as a satisfier of certain self defined needs. Source: Nankervis et al (2014) 14/02/2017 22 Attract The right people at the right time for the right jobs, tasks or roles Retain The best people by satisfying their workrelated needs and aspirations and recognising and rewarding their contribution Develop Required workforce capabilities by recognising and rewarding employees for knowledge, skill and ability enhancement Motivate To contribute to the best of their capability by recognising and rewarding high individual and group contributions towards meeting the organisation's strategic objectives Source: Nankervis et al (2014) Objective of a Reward System? 14/02/2017 23 What is Total Reward? • https://www.youtube.com/watch?v=fGfemoNZUI c 14/02/2017 24 What is Total Reward? 14/02/2017 25 Activity - Reward Preference • Go and stand by the reward that is most important to you. • Go and stand by the reward that is second most important to you. • Go and stand by the reward that is third most important to you. 14/02/2017 26 Pay Plan Types Source: Nankervis et al (2014) 14/02/2017 27 Performance Related Pay Source: Nankervis et al (2014) 14/02/2017 28 Performance is Poor Performance is Poor Salary Increase 0% Salary Increase 0% Performance is Solid Performance is Solid Performance is Superior Performance is Superior Salary Increase A to B% Salary Increase A to B% Salary Increase C to D% Salary Increase C to D% Bonus 0% to 50% Bonus 0% to 50% Bonus 50% to 100% Bonus 50% to 100% Bonus 100%+ Bonus 100%+ Performance Objectives and Review Performance Objectives and Review Complex Actual salary increase % will vary depending on all the macro and individual influences as well as what any individual is currently paid. Performance Related Pay 14/02/2017 29 Assistant Project Manger Assistant Project Manger Senior Project Manager Senior Project Manager Project Manager Project Manager Project Director Project Director $50,000 20% 5% FIXED REMUNERATION CAREER GROWTH $250,000 10% 15% Performance Related Performance Related Performance Related Performance Related Purpose of Base Salary To reward an individual for their job, skills and performance Purpose of Bonus To motivate an individual to exceed performance KPIs and expectations Pay and Career Growth 14/02/2017 30 Video – Executive Pay • http://play.viostream.com/?play=48e490c9-d8aa41e1-925e0a3d1a05aa11&player=fv&speed=high 14/02/2017 31 Executive Incentives 14/02/2017 32 • Increasing linkage of executive pay to performance. • Short-term incentives: – generally one year and linked to goals in organisational financial performance – instrumentality and reinforcement – susceptible to manipulation • Long-term incentives: – generally for three or five years and in the form of company equity rather than cash – main types are restricted share plans, option plans, performance shares and share appreciation rights Executive Incentives 14/02/2017 33 Activity – Reward Anomalies Salary inequities at Acme Manufacturing Joe Black was trying to figure out what to do about a problem salary situation he had in his plant. Black recently took over as president of Acme Manufacturing. The founder and former president, Bill George, had been president for 35 years. The company was family owned and located in a small eastern Arkansas town. It had approximately 250 employees and was the largest employer in the community. Black was the memberofthe family that owned Acme, but he had never worked for the company prior to becoming the president. He had an MBA and a law degree, plus five years of management experience with a large manufacturing organisation, where he was senior vice president for human resources before making his move to Acme. A short time after joining Acme, Black started to notice that there was considerable inequity in the pay structure for salaried employees. A discussion with the human resources director led him to believe that salaried employees pay was very much a matter of individual bargainingwith the past president. Hourly paid factory employees were not part of this problem because they were unionized and their wages were set by collective bargaining. An examination of the salaried payroll showed that there were 25 employees, ranging in pay from that of the president to thatofthe receptionist. A closer examination showed that 14 of the salaried employees were female. Three of these were front-line factory supervisors and one was the human resources director. The other 10 were non management. This examination also showed that the human resources director appeared to be underpaid, and that the three female supervisors were paid somewhat less than any of the male supervisors. However, there were no similar supervisory jobs in which there were both male and female job incumbents. When asked, the HR director said she thought the female supervisors may have been paid at a lower rate mainly because they were women, and perhaps George, the former president, did not think that women needed as much money because they had working husbands. However, she added she personally thought that they were paid less because they supervised less-skilled employees than did the male supervisors. Black was not sure that this was true. The company from which Black had moved had a good job evaluation system. Although he was thoroughly familiar with and capableinthis compensation tool, Black did not have time to make a job evaluation study at Acme. Therefore, he decided to hire a compensation consultant from a nearby university to help him. Together, they decided that all 25 salaried jobs should be in the same job evaluation cluster,that a modified ranking method of job evaluation should be used, and that the job descriptions recently completed by the HR director were current, accurate, and usable in the study. Source: www.chrmglobal.com 14/02/2017 34 Activity – Reward Anomalies The job evaluation showed that the HR director and the three female supervisors were being underpaid relative to comparable male salaried employees. Black was not sure what to do. He knew that if the underpaid female supervisors took the case to the local EEOC office, the company could be found guilty of sex discrimination and then have to pay considerable back wages. He was afraid that if he gave these women an immediate salary increase large enough to bring them up to where they should be, the male supervisors would be upset and the female supervisors might comprehend the total situation and want back pay. The HR director told Black that the female supervisors had never complained about pay differences. The HR director agreed to take a sizable salary increase with no back pay, so this part of the problem was solved. Black believed he had four choices relative to the female supervisors: 1. To do nothing. 2. To gradually increase the female supervisor’s salaries. 3. To increase their salaries immediately. 4. To call the three supervisors into his office, discuss the situation with them, and jointly decide what to do. Additionally, the company is planning on an acquisition. The target business has a far younger workforce and a sophisticated system of non-cash benefits as well as an incentive system for its senior managers. Questions 1. How do you think the company got into a situation like this in the first place? 2. What would you do if you were Black? 3. Why would you suggest Black pursue the alternative you suggested? 4. How may the proposed acquisition affect the remuneration strategy? Source: www.chrmglobal.com 14/02/2017 35 Summary • Organisations that manage performance outperform those that don’t. • A good performance system and powerful conversations can support business strategy and change behaviour. • Reward systems can support cultural and organisational strategy. • Executive incentives are more long term and share based than other employee’s incentives. 14/02/2017 36 Any Questions? 14/02/2017 37 Assessment 1 • Refer to subject outline. 14/02/2017 38 Any Questions?