Organization Development and Change Chapter Seventeen Performance Management

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 n To explore three interventions concerned with managing the performance of human resources: goal setting, performance appraisal, and reward systems n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -2

A Performance Management Model Reward Systems Individual and Group Performance Appraisal Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning Goal Setting Employee Involvement Workplace Technology Business Strategy 17 -3

Characteristics of Effective Goals n Goals are Challenging ¨ Challenging but realistic ¨ Goals are set participatively n Goals are Clear ¨ Goals are specific and operationally defined ¨ Resources for goal achievement are negotiated Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -4

Management by Objectives (MBO) MBO attempts to align personal goals with business strategy through increased communications and shared perceptions between managers and subordinates n MBO programs may go beyond manager and subordinate roles to address individuals, work groups, and to reconcile conflicts. n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -5

MBO Application Stages Involve the whole work group n Goals set jointly by manager and subordinate n Action plans are established n Criteria and yardsticks are established n Work progress and contract reviewed and adjusted periodically n Records of meetings are maintained n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -6

Performance Appraisal Elements Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -7

Performance Appraisal Application Stages Select the appropriate stakeholders n Diagnose the current situation n Establish the system’s purposes and objectives n Design the performance appraisal system n Experiment with implementation n Evaluate and monitor the system n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -8

Characteristics of Effective Appraisal Systems Timely n Accurate n Accepted by the users n Understood n Focused on critical control points n Economically feasible n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -9

Reward System Design Features Design Feature Definition Person/Job Based vs. Performance Based The extent to which rewards are based on the person, the job or the outcomes of the work Market Position (External Equity) The relationship between what an organization pays and what other organizations pay Internal Equity The extent to which people doing similar work within and organization are rewarded the same Hierarchy The extent to which people in higher positions get more and varied rewards Centralization The extent to which reward system design, decisions and administration are standardized Rewards Mix The extent to which different types of rewards are available and offered to people Security The extent to which work is guaranteed Seniority The extent to which rewards are based on length of service Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -10

Characteristics of Effective Reward Systems Availability n Timeliness n Performance Contingency n Durability n Equity n Visibility n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -11

Types of Rewards n 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 n Benefits n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -12

Ti pe es pa rfo y rm to an ce Ne sid gati e e ve ffe cts En coo cour pe age rat ion Em Ac ploy cep ee tan ce Salary-Based Pay for Performance Ratings Individual Plan Productivity Cost effectiveness Superiors’ rating 4 3 3 1 1 1 4 4 3 Group Productivity Cost effectiveness Superiors’ rating 3 3 2 1 1 1 2 2 2 4 4 3 Organization- Productivity wide Cost effectiveness 2 2 1 1 3 2 4 4 Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -13

Ti pe es pa rfo y rm to an ce Ne sid gati e e ve ffe cts En coo cour pe age rat ion Em Ac ploy cep ee tan ce Stock/Bonus Pay for Performance Ratings Individual Plan Productivity Cost effectiveness Superiors’ rating 5 4 4 3 2 2 1 1 1 2 2 2 Group Productivity Cost effectiveness Superiors’ rating 4 3 3 1 1 1 3 3 3 Organization- Productivity wide Cost effectiveness Profit 3 3 2 1 1 1 3 3 3 4 4 3 Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -14

Gain Sharing Pay Plan Considerations Process of design - participative or topdown? n Organizational unit covered - plant or companywide? n Determining the bonus - what formula? n Sharing gains - how and when to distribute? n Managing change - how to implement system? n Cummings & Worley, 9 e (c) 2008 South-Western/Cengage Learning 17 -15