PERFORMANCE MANAGEMENT

Final Project

Submitted By:
Fakhar Hayat 14102
Farooq Hanif 13208
Ali Raza Tahir 13248


Submitted To:

Sir Adnan Majeed

SUPERIOR UNIVERSITY OF LAHORE


9/8/2014

ACKNOWLEDGEMENT
All praise to ALLAH, the most merciful, kind and beneficent and the source of all knowledge,
wisdom within and beyond my comprehension.
I am very thankful to Sir Adnan Majeed who gave us appropriate knowledge about our topic
and also about the subject "Performance Management" and through his motivational behavior.
This project bears on imprint of many peoples, so that we are able to complete this assignment
work. We also wish to express our gratitude to the officials and other staff members of
(SUPERIOR UNIVERSITY) who rendered their help during the period of our assignment
work. Last but not least we wish to avail ourselves of this opportunity, express a sense of
gratitude and love to our friends and our beloved parents for their manual support, strength,
and help and for everything.


DEDICATION
I dedicate my final project of business Performance Management to
ALLAH
Who has created me as crown of creation and enable me to learn.
MY PARENTS
Who always appreciate me in every step, to my teachers at all stages of study specially
Sir Adnan Majeed
Who always guided me in right direction and developed my personality as a useful citizen for
the society and beyond them, to all of my friends from whom I learned much and complete of
my tasks.
And finally, I am really thankful to my class fellows who always give me their favors and
motivate me in right direction. It was great fortune for me to study with so competent
students. What I learn in this whole program they contribute as much as my teacher.
COMPENSATION

INTRODUCTION:
Job satisfaction includes challenging work, interesting job assignments, equitable rewards,
competent supervision, and rewarding careers. The quality of work life and psychological
rewards from employment are very important. It is doubtful, however, whether many of us
would continue working were it not for the money we earn.
Employees desire compensation systems that they perceive as being fair and
commensurate with their skills and expectations. Pay, therefore, is a major consideration in
HRM because it provides employees with a tangible reward for their services, as well as a
source of recognition and livelihood.
Employee compensation includes all forms of pay and rewards received by employees for
the performance of their jobs. Direct compensation encompasses employee wages and
salaries, incentives, bonuses, and commissions. Indirect compensation comprises the many
benefits supplied by employers, and nonfinancial compensation includes employee
recognition programs, rewarding jobs, and flexible work hours to accommodate personal
needs.

Definition:

Employers are able to attract and retain employees who will contribute to the
organizations success
Employee compensation refers to all forms of pay or rewards going to employees and
arising from their employment.






The Compensation Program

A significant interaction occurs between compensation management and the other functions of
the HR program. For example, in the recruitment of new employees, the rate of pay for jobs
can increase or limit the supply of applicants. Many fast-food restaurants, traditionally low-
wage employers, have needed to raise their starting wages to attract a sufficient number of job
applicants to meet staffing requirements. If rates of pay are high, creating a large applicant
pool, then organizations may choose to raise their selection standards and hire better-qualified
employees. This in turn can reduce employer training costs.
When employees perform at exceptional levels, their performance appraisals may justify
an increased pay rate. For these reasons and others, an organization should develop a formal
HR program to manage employee compensation. This program should establish its intended
objectives, the policies for determining compensation payments, and the methods by which
the payments will be disbursed. If included as part of the program should be the
communication of information concerning wages and benefits to employees.
Compensation Objectives and Policies

Compensation objectives should facilitate the effective utilization and management of an
organizations human resources, while also contributing to the overall objectives of the
organization. A compensation program, therefore, must be tailored to the needs of an
organization and its employees.
It is not uncommon for organizations to establish very specific goals for their
compensation program.

Formalized compensation goals serve as guidelines for managers to
ensure that wage and benefit policies achieve their intended purpose. The more common
goals of compensation policy include:

To reward employees past performance
To remain competitive in the labor market
To maintain salary equity among employees
To motivate employees future performance
To maintain the budget
To attract new employees
To reduce unnecessary turnover

To achieve these goals, policies must be established to guide management in making
decisions. Formal statements of compensation policies typically include the following:

The rate of pay within the organization and whether it is to be above, below, or at the
prevailing community rate
The ability of the pay program to gain employee acceptance while motivating
employees to perform to the best of their abilities
The pay level at which employees may be recruited and the pay differential between
new and more senior employees
The intervals at which pay raises are to be granted and the extent to which merit and/or
seniority will influence the raises
The pay levels needed to facilitate the achievement of a sound financial position in
relation to the products or services offered

Policies must be established very early in the process of compensation management.
The Importance of Compensation

Impacts an employers ability to attract and retain employees.
Ensure optimal levels of employee performance in meeting the organizations strategic
objectives.
Compensations components
Direct compensation in the form of wages or salary
Base pay (hourly, weekly, and monthly)
Incentives (sales bonuses and or commissions)
Indirect compensation in the form of benefits
Legally required benefits (e.g., Social Security)
Optional (e.g., group health benefits)
Theory behind Compensation
Equity Theory
Equity can be defined as anything of value earned through the investment of something of
value. Fairness is achieved when the return on equity is equivalent to the investment made.

For employees, pay equity is achieved when the compensation received is equal to the value
of the work performed.
Internal equity is especially important in an organization where teamwork is critical to
success. In environments that requires a cross-section of skills and talents and
interdisciplinary teamwork, coworkers need confidence in themselves and their colleagues.
An important part of creating an environment in which teamwork is effective, is a pay policy
that reflects the true value of work to the overall organization, and helps all members of the
team respect one anothers contribution and role.
Not only must pay be equitable, it must also be perceived as such by employees.
Research clearly demonstrates that employee perceptions of pay equity, or inequity, can have
dramatic effects on their motivation for both work behavior and productivity. Managers must
therefore develop pay practices that are both internally and externally equitable.
Employees must believe that wage rates for jobs within the organization approximate the
jobs worth to the organization. Also, the employers wage rates must correspond closely to
prevailing market rates for the employees occupation. These two goals can sometimes be in
conflict.

Comparing inputs and outputs of a similar co-worker
Perceived inequity affects employee effort
Expectancy Theory
The expectancy theory of motivation predicts that ones level of motivation depends on the
attractiveness of the reward sought. The theory holds that employees should exert greater
work effort if they have reason to expect that it will result in a reward that is valued.

To
motivate this effort, the value of any monetary reward should be attractive. Employees also
must believe that good performance is valued by their employer and will result in their
receiving the expected reward.
The chart below illustrates the relationship between pay-for-performance and the
expectancy theory of motivation. The model predicts that high effort will lead to high
performance (expectancy), and high performance in turn will lead to monetary rewards that
are appreciated (valued). Since pay-for-performance leads to a feeling of pay satisfaction, this
feeling should reinforce ones high level of effort.

People are motivated by intrinsic and extrinsic outcomes they desire.
People will only be motivated if outcome is possible.
People will only be motivated if outcome is contingent.
Types of Base Pay Systems
Job-based
Individual Skills / knowledge-based
Job Based Pay
Attraction Depends on market pricing
Motivation No performance impact
Skill Development Learn job-related and upward mobility skills
Culture Bureaucratic, hierarchical
Structure Hierarchical, individual jobs and differentiation
Cost Good control of individual pay

Individual Skill/Knowledge Based Pay
Attraction Attracts learning-oriented individuals, high skills
individuals
Motivation Little performance impact
Skill Development Motivates needed skill development
Culture Learning, self-managing
Structure Flat or team-based
Cost Higher individual pay

Key Strategic Issues in Compensation
Determining compensation relative to the market.
Striking a balance between fixed and variable compensation.
Deciding whether or not to utilize team-based versus individual pay.
Creating the appropriate mix of financial and non-financial compensation.
Developing a cost-effective compensation program that results in high performance.
MOTIVATION
Definition:
The processes that account for an individuals willingness to exert high levels
of effort to reach organizational goals, conditioned by the efforts ability to
satisfy some individual need.
Effort: a measure of intensity or drive.
Direction: toward organizational goals
Need: personalized reason to exert effort
Motivation works best when individual needs are compatible with organizational goals.
Motivation in Organizations
Motivation is defined simply as what causes people to behave as they do
There is a lack of a single commonly accepted meaning of motivation and
organizational development-- --however there are some areas of consensus
motivated behavior is goal-directed behavior
motivation is limited and directed by situations and environments in which
people find themselves
Nature of Motivation






Ability Motivation
Environment
al conditions
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Does Compensation Motivate Behavior: Specific Comments
Do people join a firm because of pay?
Do people stay in a firm (or leave) because of pay?
Do people join a firm because of pay?
Key factors affecting a persons decision to join a firm
Level of pay
Pay system characteristics
Job candidates look for organizations that fit their personalities
Reward systems should be designed to attract people with desired
Personalities
Values
The Fit between People and Rewards
Person Characteristics Preferred Reward
Characteristics
Materialistic Relatively more concerned about pay
level
Low self-esteem Low self-esteem individuals want
large, decentralized organization with
little pay for performance
Risk takers Want more pay based on performance
Risk adverse Want less performance-based pay
Individualists
(I control my destiny)
Want pay plans based on individual
performance, not group performance


Do people stay in a firm (or leave) because of pay?
Factors impacting turnover
Pay based on individual performance
Group incentive plans
Level of employee satisfaction with pay
Type of pay system
Other rewards affect the decision to stay
Work variety and challenge
Development opportunity
Social
Status recognition
Work importance
Benefits