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Final Review BU354.docx

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John Coffey

Performance Management Authenticity -We are under constant pressure to “change” ourselves to “fit in” in order to gain approval -True belonging only happens when we present our authentic, imperfect selves to the world -Performance appraisals can, if we allow them to, erode our authenticity Performance Management -Performance management- the process encompassing all activities related to improving employee performance, productivity, and effectiveness -Performance management includes goal setting, pay for performance, training and development, career management, and disciplinary action -Aligns employee actions with strategic goals The Performance Management Process Step 1: Defining Performance Expectations -Task performance- an individual’s direct contribution to their job related processes -Contextual performance - indirect contribution to the organization’s social responsibility values: -positive attitude -extra effort -Measurable standards related to strategic objectives should be developed for each position: -‘Line of Sight’ – a goal you can directly influence -Blurring is common – need clarification of expectations -S.M.A.R.T Goals: -Specific -Measurable -Attainable -Realistic/relevant -Trackable/time targeted -The basic characteristics of motivation: -Effort -Persistence -Direction -Goals -Intrinsic motivation – stems from the direct relationship between the worker and the task and is usually self-applied – Ex. Achievement, accomplishment, personal satisfaction -Extrinsic motivation – stems from the work environment external to the task and is usually applied by others – Ex. Pay, fringe benefits Step 2: Providing Ongoing Coaching and Feedback -Important to have open two-way communication -Employee responsible for monitoring own performance, and asking for help -Manager responsible for communicating changing strategies and objectives if applicable -Both the employee and the manager need to check in frequently -Ensure there are no surprises for either person Step 3: Performance Appraisal and Evaluation Discussion -Provides opportunity for managers and employees to review employee’s work related behaviour -Reasons some appraisals fail: -Employees don’t know ahead of time what is good performance -Problems with forms or procedures used to appraise performance -Manager’s attempt to avoid doing appraisal -Graphic rating scale – a scale that lists a number of traits and a range of performance for each. -Alternation ranking method- ranking employees from best to worst on a particular trait -Paired comparison method – ranking employees by pairing employees for each trait and indicating the better of the pair -Forced distribution method- predetermined percentages of ratees are placed in various performance categories – Ex. 15% high performers, 20% high-average performers, etc. -Critical incident method- keeping a record of uncommonly good or undesirable examples of an employee’s work-related behaviour and reviewing the list with the employee at predetermined times -Narrative Forms – Encourages employees to add ideas and includes measurable improvement goals -Behaviourally anchored rating scales- an appraisal method that aims to combine benefits of previous methods with specific narrative examples of good and poor performance -Advantages: more accurate measure, clearer standards, consistent -Disadvantage: time-consuming -Management by objectives- involves setting specific measurable goals with each employee and then periodically reviewing the progress made 1. Set the organization’s goals 4. Define expected results (individual goals) 2. Set departmental goals 5. Performance reviews: measure the results 3. Discuss departmental goals 6. Provide feedback Use of Technology in Performance Appraisals -Enables managers to automate record keeping and report writing -Electronic performance monitoring (EPM) – “This call is being monitored for quality management” Performance Appraisal Problems -Validity and reliability -Unclear performance standards – appraisal scale is too open to interpretation of traits and standards -Halo effect – one trait biases another trait -Central tendency – rate all employees in the middle of the scale -Leniency or strictness – supervisor rates all employees too high or too low -Appraisal bias – Ex. race, age and sex affect the appraisal -Recency effect – ratings are based on only employee’s recent performance -Similar-to-me bias – higher performance ratings when the employee is similar to the supervisor Who Should do the Appraising? -Supervisors – in best position to do the appraising -Self – needs to be done in conjunction with supervisor’s ratings – the best way to do it -Peers – peers have more opportunities to observe one another -One potential problem is logrolling – all the peers get together to rate each other more highly -Committees - usually comprise the employee’s immediate supervisor and three or four other supervisors -Subordinates – employees are in good position to observe managerial performance -360-degree appraisal (all of the above do the appraising) Formal Appraisal Discussions -Formal appraisal discussion- an interview in which the supervisor and employee review the appraisal and make plans to remedy deficiencies and reinforce strengths -Types of interviews: -Satisfactory – promotable, development plans -Satisfactory – not promotable, maintain performance -Unsatisfactory – correctable, action plan to correct performance How to Conduct the Interview 1. Be direct and specific – talk in terms of objective work data 2. Do not get personal – compare against standards 3. Encourage the person to talk – ask open ended questions and stop and listen 4. Develop an action plan – agree on future steps How to Handle Criticism and Defensive Employees 1. Recognize that defensive behaviour is normal 2. Never attack a person’s defences 3. Postpone action – sometimes it is best to do nothing at all 4. Recognize human limitations – you cannot solve every problem that come up Ensuring that the Formal Appraisal Discussion Leads to Improved Performance -Notify of unacceptable performance, explain minimum expectations -Ensure that expectations are reasonable -Avoid sending mixed messages -Provide a reasonable amount of time for improvement -Provide support to facilitate improvement Step 4: Determine Performance Rewards/Consequences -Provide performance awards: merit pay, extra pay -Also recognition, promotion, bonus, etc. -Important aspects used to determine the appropriate reward/consequence: -Achievement of goals -How the employee meets the defined standards Step 5: Career Development Discussion -Manager and employee discuss opportunities for development -When managers speak it should be in the form of questions designed to promote reflection and keep the focus squarely on the employee -The questions should focus on: 1. Hindsight (looking back) 2. Foresight (looking at the big picture) 3. Insight (the sweet spot) -Employees crave feedback; not providing it can be harmful; to the individual and the business Legal and Ethical Issues in Performance Management -Ensure ratees and raters know performance standards -Train supervisors -Have more than one rater, if possible -Provide corrective guidance to lower performers On the Rebound: Finding Success Through Failure -Wallowers – many people give up when they hit quit points -Attributes of wallowers: -Complain -Blame others -Overestimate their abilities -Fail to move on -Often repeat their mistakes -Rebounders – know how to solve problems and overcome setbacks -Attributes of rebounders: -Accept failure -Willing to wait -Comfortable with discomfort -Have more passion -Prepare for things to go wrong Pay for Performance and Financial Incentives Three Key Happiness Componenets 1. Regularly receiving praise 2. Food and drinks (not alcohol) 3. Opportunity to see the impact of your work Money and Motivation -Fixed pay - Compensation independent of performance level - Includes base pay, allowances -Variable pay - Any plan that ties pay to productivity or profitability - May be in addition to base pay Types of Incentive Plans -Individual incentive plans give income over and above base salary to individual employees who meet a specific individual performance standard -Group incentive programs are like individual incentive plans, but they provide payments over and above base salary to all team members wen the group or team collectively meets a specified standard for performance, productivity, or the work-related behaviour -Organization-wide incentive plans provide monetary incentives to all employees of the organization Incentives for Operations Employees Piecework Plans -Piecework - a system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day -Straight piecework plan – a set payment for each piece produced or processed in a factory or shop -Guaranteed piecework plan- the minimum hourly wage plus an incentive for each piece produced about a set number of pieces per hour -Differential piece-rate plan – a plan by which a worker is paid a basic hourly rate plus an extra percentage of his or her base rate for production exceeding the standard per hour or per day. -Advantages: -Simple -Appears equitable -Directly tied to performance -Disadvantages: -Production standards tied to earning in worker’s minds -Revisions lead to worker resistance -Difficult to adjust for changes in hourly rates -Workers focus on units produced vs. quality Team or Group Incentives -Production standard is set for a specific work group -Incentives paid if the group exceeds the standard -Implementing team or group incentives: 1. Set standards for each member of the group -Members paid based on highest performer -Members paid based on lowest performer -Members paid based on average performance 2. Set standards for the group as a whole -All members paid equally 3. Use a group defined measure of performance -Can rupture relationships -Average is the simplest way Incentives for Senior Managers and Executives -Short term incentives – annual bonus -All employees earning over the threshold amount are automatically consideration for short- term incentives -Non-deductible formula – a straight percentage is used to create a short-term incentive fund -Deductible formula – the short term incentive fund should begin to accumulate only after the firm has met a specified level of earnings -A maximum amount may be set -Long-term incentives – capital accumulation -Intended to motivate and reward top management for long-term growth and prosperity -Stock options - the right to purchase a stated number of shares of a company’s stock at today’s price at some time in the future -Performance share units plan - provides units subject to the achievement of predetermined financial targets, such as profit or growth in earnings per share -In a restricted share unit plan, units are promised to the executive but will be forfeited if an executive leaves the company before a vesting period -In a deferred share unit plan, units are promised to the executive but are only payable when the executive leaves the company Relating Strategy to Executive Compensation -Define internal and external issues facing the company -Group executive compensation components into a whole plan -Check plan for legal compliance and tax effective -Review/evaluate plan whenever a major business change occurs Incentives for Salespeople Salary Plan -Fixed income -Advantages: -Sales people know their income in advance -Enhances long term perspective -Disadvantages: -High performance not recognized/rewarded Commission Plan -Pays salespeople in direct proportion to their sales – they pay for results and only for results -Salespeople have an incentive -Advantages: -Greatest incentive, attracts high performing sales people -Disadvantages: -Focus on sales, not customer relationship -Sales people may neglect other duties Combination Plan -Base salary plus commission - Ex. 60% salary, 40% commission and a bonus -Advantages: -Earnings floor -Allows compensation for administrative work -Disadvantages: -Often confusing to calculate Sales Compensation in the E-commerce Era -All sales team members work to deepen customer relationships -Focus on integration with online customer ordering and supporting rapid change -Can get information from salesperson and then buy it online…to solve this “use this code online to get the deal we talked about” and then they’ll get compensated Incentives for Other Managers & Professionals -Merit pay (merit raise) – any salary increase awarded to an employee based on his or her performance -Merit increases are usually granted to employees at a designated time of the year in the form of a higher base salary (or raise) -Link to performance acts as motivator -Incentives for professionals such as doctors, economists, and engineers: -Relatively high salaries; increases are not as motivating -Often driven by high quality work and peer recognition -In addition to money, better equipment and support for publishing work is used Organization-Wide Incentive Plans -Profit-sharing plan- a plan whereby most or all employees share in the company’s profits -Employee share purchase/stock ownership plan (ESOP)- a plan whereby a trust is established to hold shares of company stock purchase for or issued to employees. The trust distributes the stock to employees on retirement, separation from service, or as otherwise prescribed by the plan -Gainsharing plan – an incentive that engages employees in a common effort to achieve productivity objectives and share the gains - Ex. If you make the company money, they will pay you a percentage of the profit Developing Effective Incentive Plans -Considerations: -Performance pay cannot replace good management -Firms get what they pay for -Pay is not a motivator -Rewards rupture relationships -Rewards may undermine responsiveness Effective Implementation of Incentive Plans -Pay for performance -Link incentives to activities that engage employees -Link incentives to measurable, valuable competencies -Match incentives to organizational culture -Keep group incentives clear and simple -Over communicate -The greatest incentive is the work itself Employee Recognition Programs -Recognition is emerging as a critical component of the total rewards mix -Recognition is cost-effective -Common recognition awards: certificates, cash, company logo merchandise, gift certificates, jewelry, office accessories, household items, etc. -Effective recognition is specific, immediate, personal, and spontaneous -Recognition programs are more effective than cash in achieving improved employee attitudes, increased workloads and hours or work, and improved productivity -They can build confidence -Satisfies wants rather than needs(cash rewards satisfy needs) – money is only a short term motivation -Lack of praise is the #1 cause of employee turnover -Should be tied to recognition (praise) Strategic Pay Plans The Strategic Importance of Total Employment Rewards -Total employee rewards- an integrated package of all rewards (monetary and non-monetary, extrinsic and intrinsic) gained by employees arising from their employment -Compensation is extrinsic, benefits are extrinsic, and non-monetary rewards are intrinsic -Monetary (Extrinsic) -Compensation: cash payments and benefits -Non-monetary (intrinsic) -Personal growth and interpersonal rewards -Total awards approach -Rewards are part of integrated whole -Aligns rewards with business strategies The Five Components of Total Rewards 1. Compensation – includes direct financial payments – wages, salaries, incentives, commissions, bonuses 2. Benefits – includes indirect payments in the form of financial benefits - insurance, vacations 3. Work-life programs – relates to programs that help employees do their jobs effectively - flexible scheduling 4. Performance and recognition – includes pay-for-performance and recognition programs 5. Development and career opportunities – focuses on planning for the advancement or change in responsibilities to best suit individual skills, talents, and desired – Ex. Tuition assistance Impact of Rewards -The purpose of rewards is to attract, retain, motivate and engage employees -Want to get involved in a company that you love -Employee engagement: -Emotional connection -Clear understanding of job’s strategic importance -Resulting in discretionary effort Basic Considerations in Determining Pay Rates -Employment/Labour Standards Act -Set minimum standards (wage) and maximum hours of work, overtime, paid vacation, etc. -Pay Equity Acts -Provides equal pay for equal work -Human Rights Acts -Protects Canadians from discrimination -Canada/Quebec Pension Plan -Based on the employee’s average earnings are paid during retirement -Employment Insurance (maternity leave, parental leave, compassionate care leave benefits) -Worker’s Compensation (Workman’s comp) -Union influence - The best way in which to gain the cooperation of union members in evaluating the worth of jobs is to get their active involvement in this process and in assigning fair rates of pay to jobs -Compensation policies -Important policies on overtime, salary increases, etc. -External equity- employees perceives his or her pay as fair given the pay rates in other organizations -Internal equity – employees perceives his or her pay as fair given the pay rates of others in the organization Establishing Pay Rates Stage 1: Job Evaluation -A systematic comparison to determine relative worth of jobs within a firm -Benchmark job – a job that is critical to the firm’s operations or that is commonly found in organizations -Compensable factor- a fundamental, compensational element of a job, such as skill, effort, responsibility and working conditions -Job evaluation committee- a diverse group established to ensure the fair and comprehensive representation of the nature and requirements of the jobs in question Job Evaluation Methods -Classification/grading method - categorizes jobs into groups -Classes contain similar jobs – Ex. Finance -Rule set such as judgment, skill, physical effort, etc. -Grades contain dissimilar jobs of equal difficulty -Jobs such as secretaries, mechanics, firefighters -Ex. A job in finance field is equal to a job in the marketing field so they get equal pay -Point method - Identify compensable factors and determine the degree to which each factor is present -Step 1: Preliminary steps Factor Sub Factors Skill -Interpersonal skillience Effort -Physical effort -Mental effort Responsibility-Supervision of others -Planning Working -Physical environment Conditions -Travel -Step 2: Determine factor weights and degrees -Step 3: Assign points for each degree of each sub-factor -Step 4: Evaluate the Jobs – use a consulting firm -Pay grade- comprises jobs of approximately equal value Stage 2: Conduct a Wage/Salary Survey -Aimed at determining prevailing wage rates -determine rates for benchmark jobs -determine market rates for job -collect data on benefits, recognition programs, etc. -Avoid upward bias -Informal surveys good for easily recognized jobs – talk between HR specialists -Formal surveys are more comprehensive – asking about starting salaries, number of employees, etc. -Many employers also rely on surveys published by various commercial firms - Ex. Stats Canada -For some jobs, salaries are determined directly based on formal or informal salary surveys like those found on Stage 3: Combine Job Evaluation and Salary Survey Information -First, find the average pay for each pay grade, then plot the pay rates for each pay grade and then fit a line, and then determine pay for the jobs -Wage curve- a graphic description of the relationship between the value of the job and the average wage paid for the job -Pay ranges- a series of steps or levels within a pay grade, usually based on years of service -Broadbanding – reducing the number of salary grades and ranged into just a few wide levels or “bands”, each of which then contains a relatively wide range of jobs and salary levels. Provides greater flexibility in employee compensation -Correct out-of-line rates -Ex. Some people get a promotion in organizations and don’t get paid the base level of the job. Underpaid employees -Red circle pay rate – a rate of pay that is above the pay range maximum Pay for Knowledge -Competency-based pay (managers, professionals) – knowledge, skills, and behaviours -Skill-based pay (manufacturing employees) -Pay-for-knowledge program should include: -competencies/skills directly important to job performance -new competencies that replace competencies that are no longer important -on-the-job training, not “in the classroom” Competency-Based Pay -Competencies: -Individual knowledge, skills and behaviours that are critical to successful performance -Core competencies: ones that all employees must have -Ex. Good math skills for finance -Functional competencies: relate to a specific organizational function -Ex. Marketing 4Ps -Behavioural competencies: expected behaviours - Ex. Manager needs leadership skills -Pay for range, depth, and types of knowledge that employees are capable of using -Competency levels: -Level 1 (novice) – Limited ability, basic knowledge, perform simple tasks -Level 2 (Learner) – Attained partial proficiency, still learning the mechanics -Level 3 (Competent performed) – Fully competent in the area -Level 4 (Master) – High level of demonstrated skill and knowledge; low potential for counter- capability Compensating Executives and Managers -Five elements: salary, benefits, short-term incentives, long-term incentive, and perquisites Pay Equity -Pay equity – providing equal pay to male-dominated job classes and female-dominated job classes of equal value to the employer -Wage gap has narrowed but remains at 30% -Long-term solution is to eliminate male and female-dominated jobs -Aim is to provide equal pay to male and female-dominated job classes of equal value -Must ensure no gender bias in job evaluation Employee Benefits and Services Employee Benefits -Indirect financial payments given to employees -May include supplementary health and life insurance, vacation, pension education plans, and discounts on company products -Typically represent 37% of total payroll costs to employers (mandatory benefits are 12% minimum) -Have value in attracting talent -Two types: legally required (government-mandated) and voluntary benefits -Moving towards employee paying half of premium and employer paying half to reduce costs Government Mandated Benefits -Employment Insurance (EI) – provide temporary financial assistance to eligible persons who experience interruption to their work through no fault of their own -55% of average earnings during last 14-45 weeks of work -Individuals must demonstrate that they are actively seeking work -Pay on termination of employment -Employees whose employment is being terminated by the employer must be provided with termination pay when they leave -Pay in lieu of reasonable notice – a lump-sum equal to an employee’s pay for the notice period provided to employees who cease working immediately -Severance pay -Leaves of absence – Ex. Parental leave, maternity leave – some employers pay full or partial pay -Unpaid time off -Employer must guarantee same or similar job when employee returns -Some companies have educational leaves -Canada/Quebec Pension Plan (CPP/QPP) – provides retirement income, survivor/death benefits, and disability benefits -Based on individual contributions made -You pay for the retired generation and then the next generation pays for you -Retirement pension is calculated at 25% of the average earnings and can be paid anytime starting between 60 and 70 -Disability is paid at 75% of average earnings -Workers’ compensation – “no fault” compensation for work-related incidents -Try to reduce accidents with effective health and safety programs -Vacations and holidays – minimum amount of paid vacation that must be provided to employees -Paid breaks -“If the employee is free to leave the workplace, then the employer does not have to pay for the time” -Uninterrupted break within a work day Voluntary Employer-Sponsored Benefits -Life insurance - life insurance provided at lower rates for all employees, including new employees, regardless of health or physical condition -Additional benefits: -Accidental death coverage -Dismemberment coverage -Critical illness insurance -Supplementary Healthcare/Medical insurance - -Aimed at providing protection against medial costs arising from off-the-job accidents or illnesses -Deductible- the annual amount of health/dental expenses that an employee must pay before insurance benefits will be paid -Supplements provincial healthcare plans -Usually includes prescription drugs, private/semi-private hospital rooms, dental, vision -Short-term disability and sick leave plans - Provides income to employees when absent due to non- work related injury or illness -Usually a specified number of sick days per year (often up to 12 per year) -Long-term disability plans - Income to employees for absence due to non-work related long-term injury or illness -Usually 50% or 70% of pay -Accelerating trend in claims -Mental health issues are leading cause of disability claims -Maintain contact with a worker who is ill or injured so that the workers can be involved in the return-to-work process from the beginning -Sabbaticals - time off work for employees who want time off to rejuvenate or to pursue a personal goal -Pension plans – plans that provide income when employees reach a predetermined retirement age -Defined benefit pension plan – a plan that contains a formula for determining retirement benefits -Defined contribution pension plan – a plan in which the employer’s contribution to the employees’ retirement fund is specified -Phased retirement – an arrangement whereby employees gradually ease into retirement by using reduced workdays or shortened workweeks -When designing a pension plan, consider: -Membership requirements -Benefit formula -Retirement age -Funding -Vesting -Portability -Vesting- a provision that employer money placed in a pension fund cannot be forfeited for any reason -Portability- a provision that employees who change jobs can transfer the lump-sum value of the pension they have earned to a locked-in RRSP or their new employer’s pension plan Reducing Health Benefit Costs -Increasing amounts paid by employees -Restrict drugs paid for by plan -Health promotion programs: identifying common health risk factors (Ex. Health disease, mental health) -
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