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Performance Management


Dr. Subhash C. Kakkar


Being honest.

Maintaining confidence and trust. Following the rules. Conducting yourself in the proper manner. Treating others fairly. Demonstrating loyalty to company and associates. Carrying your share of the work and responsibility with 100% effort.


An ethical dilemma arises in a situation when each alternative choice or behavior has some undesirable elements due to potentially negative ethical or personal consequences.

Rights desired by employees regarding the security of their jobs and the treatment administered by their employer while on the job, irrespective of whether such rights are currently protected by law or collective bargaining agreements of labor unions.

Legal and Ethical Issues in Performance Management

Legal Performance management processes are often scrutinized in cases of discrimination or dismissal. Ethical Employee monitoring via electronic devices and computers may raise concerns over employee privacy. All applicable and non-applicable rules of ethics become applicable

Legal Requirements for Performance Management

Lawsuits related to performance management usually involve charges of: Discrimination Unjust dismissal To protect against both kinds of lawsuits, it is important to have a legally defensible performance management system.

Legal Requirements for Performance Management (continued)

A legally defensible performance management system includes: Based on valid job analyses, with requirements for job success clearly communicated to employees. Performance measurement should evaluate behaviors or results, rather than traits. Multiple raters (including self-appraisals) should be used. All performance ratings should be reviewed by upperlevel managers. There should be an appeals mechanism for employees.

Legal Issues in Appraisals

Courts have found that inadequate appraisal systems often lie at the root of discriminatory layoffs, promotions, discharges or merit pays They are held illegal if appraisals are:
Based on subjective observations Not administered and scored consistently Based on evaluators who did not have daily contact

Formal Written Warnings

Purposes of a Written Warning
To shake your employee out of bad habits. To help you defend your rating, both to your own boss and (if needed) to the courts.

A Written Warning Should:

Identify standards by which employee is judged. Make clear that employee was aware of the standard. Specify deficiencies relative to the standard. Indicate employees prior opportunity for correction.

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Contamination and Deficiency of a Job Performance Measure

Political Behavior in Performance Appraisals

Distorting a performance evaluation to advance ones personal goals A technique to minimize appraisal politics is a calibration meeting: Meeting at which managers discuss employee performance ratings and provide evidence supporting their ratings with the goal of eliminating the influence of rating errors

Role of HR in Performance Management

The HR Department
Serves a policy-making and advisory role.
Provides advice and assistance regarding the appraisal tool to use. Trains supervisors to improve their appraisal skills.

Monitors the appraisal system effectiveness and compliance.


Role of HR in Performance Management

The HR department today is a strategic partner and plays a vital role in pursuing a particular strategy. For facing the challenges of a globalized world, Indian organizations have reformed their HRM strategies for managing the employee performance by considering part time work, outsourcing and temporary workers. HR no longer today plays the role of a rubber stamp department, rather is a performance enabler by closely working with the to management and all the major functional departments of an organization. Companies like Maruti Udyog Ltd. and Mahindra and Mahindra, revamped their entire organizational set up and were able to create performance efficiency due to the efforts 2/15/2014 13 of the HR department. Dr. Subhash C. Kakkar

Six Steps of a Measurement System

1. Separate Strategic Goals Into Input and Output Dimensions 2. Develop Output and Results Measures for each goal 3. Develop Input Measures for each goal 4. Check with HR to see if the set of measures is complete 5. Use an Effective Recognition System 6. Build the Culture

Step 1, Separate Strategic Goals Into Input and Output Dimensions

Following from Vision, Mission and Values, organizations create strategic goals that identify Key Result areas of the organization where change and improvement is possible and desirable. Our first step in developing measures to reflect the goal is to dissect the goal into its input and output dimensions.


Broad measurement concept of inputs

unit cost efficiency

Input dimension
How well are materials used, (excessive waste) How well is labour used, (excessive idle time) How well is overhead used (idle capacity)


Broad measurement concepts of Outputs

Internal Results
Output Dimension

maintaining and improving quality lower consumer prices

External Results

financial returns improve market share meet current and future demand


Step 2, Develop Output Measures or Each Goal Outputs are accomplishments. In most organizations, accomplishments can be categorized into three groups.
Investment returns Customer Satisfaction Social Impacts

Measures of outputs or Results.





PERFORMANCE GOAL (changes of specific amounts over specific time frames)

Financial returns

% return on investment % return on assets employed Profit margin on sales % market share relative to the competition % market share relative to total market size

All should increase by a specific % change, to be accomplished by a specific date.

Investment Returns

Market share

The proportion of the market share against the competition should increase. The proportion of the market share relative to the total market should increase at a rate that is faster than the rate of change in total market size.

Measures of outputs or Results

Product or service quality Rejection rates in the production process Sales returns Both should decline by a specific amount in a specific timeframe.

Customer Satisfaction

Deliver on time and in sufficient quantity

Backorder and delivery statistics

Backorders should decline and delivery cycle times should improve.

Consumer prices

Retail price by product

The retail price matched to value should decline. Children using these toys should show a measured improvement in reading skills The proportion of toys presented for re-cycling should go up.

Child development

Improvement in reading skills Impact on landfills when the toy is finished

Social Benefits
Environmental impact

Step 3, Develop Input Measures For Each Goal

We normally develop input measures after we have developed output measures because it is a good idea to know where you are going before you decide how to get there.
Financial operating resources Financial capital resources Other organizational resources

Measures of Inputs or Efficiencies





Materials and labour

Direct materials and direct labour per unit, expressed in both dollar and quantity terms

Material and labour cost and or consumption per unit should decline over a specified time period Overhead consumed per unit produced should decline

Financial Operating Resources


Overhead charged per unit

% utilization of capacity

%capacity utilized should increase to or remain at optimal levels

Financial Capital Resources

Capital investment in operating assets

Dollars of capital investment per unit produced

Dollars per unit of capital invested should decline over time as capital resources are used more efficiently

Other Organizational Resources

Non-financial resources consumed by the performance area

Management estimates of the resources of talent and energy and other non-financial resources that have been dedicated to this performance area

The amount consumed will increase as the project is developed and decrease after it is implemented


Step 4, Check with SAVI to see if the set of measures is complete

Before we can be sure that we have a complete set of measures, we need to apply the SAVI framework to categorize the measures as to Speed, Accuracy, Volume and Investment.


Linking Output Measures to Performance Measures

OUTPUT MEASURES CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE % return on investment % return on assets employed Profit margin on sales % market share relative to the competition % market share relative to total market size


financial returns Investment Returns market share



Product or service quality

Rejection rates in the production process Sales returns

Accuracy & Volume

Customer Satisfaction

Deliver on time and in sufficient quantity

Backorder and delivery statistics

Speed & Volume Investment Accuracy Volume 24

Consumer prices

Retail price per product

Child development Social Benefits Environmental impact

Improvement in reading skills

Impact on landfills when the toy is finished

Linking Input Measures to Performance Management



Materials and labour

Direct materials and direct labour per unit, in both dollar and quantity terms.


Financial Operating resources Overhead

Overhead charged per unit.


% utilization of capacity


Financial Capital Resources

Capital investment in operating assets

Dollars of capital investment per unit produced


Other organizational resources

Non-financial resources consumed

Management estimates of the resources of talent and energy that have been dedicated to this performance area.



Testing the measures

Once we are satisfied that the set is complete we need to subject each and every measure to a test.
Refer to figure

Step 5, Use an Effective Recognition System

Use Measurement to Initiate Change

An effective measurement system will use the measured results as a management tool. Every result should have an automatic intervention strategy. When results are as expected we should offer congratulations and reinforcement to keep it going, when results are less than expected we should quickly isolate the cause and correct the process

Step 6, Build the culture

Good systems need good people. There is no sense in examining a process unless at the same time you examine the people who govern the process. Improvement does not take place on paper. Improvement happens when people employ enthusiasm, dedication, commitment, leadership and morale in their daily routine. A good system on paper is a healthy beginning but if you want results you need to follow up a paper system with a people system.

Closing Remarks
In the beginning we were challenged to find measures and see the resulting behavior.
So how about the 30 minute pizza delivery guarantee. That promotes speeding and if a delivery person has an order at 28 minutes and another at 10, which does he deliver first? And what happens if Pizza delivery people are offered a cash bonus for every delivery made within 30 minutes, and what does this do to pizza quality?


People are curious beings. We bring our own personal values to the job, we react differently to control systems, we are motivated by different things. A performance measurement system is a uniform set of measures that is trying to motivate a most un-uniform set of people.



Poor leadership Poor correlation between IDP, PMS and Budget Alignment of strategic planning with risk management processes Align individual performance expectations with organisational goals Lack of accountability Lack of performance measurement systems to improve performance Poor data quality Poor performance reporting (project or operational process) Resistance to change Poor evaluation and oversight processes Limited communication of results

Leadership and decision makers Develop performance management systems that clarifies the what ,who, how and when Develop IDPs with clear objectives, outcomes and targets Develop and align performance plans with IDPs Develop strategic risk management Develop of performance measurements and control systems Develop change management plan and appraise performance Establish strong evaluation (audit and portfolio and oversight ) committee Communicate results

Doctrinal logic for change

Strategic HRM and Emerging Trends

HRM in the

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HRM activities must be:

1. Responsive to a highly competitive marketplace and global business structures; 2. Closely linked to business strategic plans; 3. Jointly conceived and implemented by line and HR managers; and 4. Focused on quality, customer service, productivity, employee involvement, teamwork, and workforce flexibility.

Characteristics of High Performance Work Systems

Large number of applicants for each strategic position. The use of validated selection and promotion models/procedures. Extensive training and development of new employees. The use of formal performance appraisal and management. The use of multisource (360) performance appraisal and feedback. Linkage of merit increases to formal appraisal processes. Above market compensation for key positions. High percentage of the entire workforce included in incentive systems. High differential in pay between high and low performers. High percentage of workforce working in self-managed, projectbased teams. Low percentage of employees covered by union contract. High percentage of jobs filled from within.

Goal: Developing a Human Resources Scorecard!

Highly effective HR function:

Are conceptualized in a business capacity, focusing on the strategy and core competencies of the organization. Able to show how it can make a difference to the companys bottom line. Use research to make recommendations for cost improvement and more efficient operations.

Key to Competitive Advantage:

Building and sustaining core competencies within the organization and maintaining flexibility in order to react quickly to the changing global marketplace and the advances in technology.

Discrepancies Between Research and Practice

Research Finding
Quantitative analysis of recruitment sources using yield ratios can facilitate efficiencies in recruitment. Less than 10% calculate yield ratios. Less than 25% know how.

HRM Practice

Realistic job previews can reduce turnover. Weighted application blanks reduce turnover. Structured, behavioral, or situational interviews are more valid. Use actuarial model of prediction with multiple measures. Graphology is invalid and should not be used Less than 20% use RJPs in high turnover jobs. Less than 30% know what an WAB is; < 1% use WABs. 45% use structured interviews. Less than 5% use actuarial model. Use is on the increase in the U.S.

Performance Appraisal
Do not use traits on rating forms. Train raters for accuracy, observation bias, etc. Make appraisal process important element of managers job. More than 70% still use traits. Less than 30% train raters. Less than 35% evaluate managers on performance appraisal.

Merit-based systems should not be tied into bas salary. Gainsharing is an effective PFP system More than 75% tie merit pay into base pay. Less than 5% use it where they could

Major Trends Impacting HRM

Trend 1: The Increased Globalization of the Economy Trend 2: Technological Changes, Challenges and Opportunities Trend 3: The Need to be Flexible in Response to Changing Business Environments Trend 4: Increase in Litigation Related to HRM Trend 5: Changing Characteristics of the Workforce.

Increased Globalization
Development of a worldwide labor market
Easy to move work around when it can be digitized. Decrease the cost of labor. HRM becomes more complicated. More union activities. Corporate downsizing linked to new technology. Barriers to entry have been reduced, increasing international competition from firms and individuals alike. Export jobs up 20% in last 10 years. MNCs are expanding in new countries and new markets.

Reduced work forces by more than 10% in last decade:

HRM specialists in organizational restructuring. Conduct vocational counseling for displaced employees. Assist in developing new staffing plans. Help in legal defense against allegations of discrimination related to downsizing.

Technological Changes
Optimal combination of people, software, and equipment. User testing programs assess computer interface. Use of intranet sites to convey personnel information. Maximize profit margins and sustained customer value. Electronic tracking of HR activities such as T/O and performance reviews. Impact of Internet on HRM activities:
Computer search of potential applicant pool. Standardized resumes in data base. Announcements and responses through e-mail. Increased focus on security of personnel information and intellectual property. Increased speed of communication across the organization. Video computer conducts testing and interviewing.

Need to be Flexible
Focus on core competencies leads to outsourcing of other activities:
Use of temporary or leased workers; Use of independent contractors; and Place personnel with new technology.

Consulting is now a thriving business for HRM:

Outsource HR activities.

Importance of Measuring HRM Performance

Enhance productivity, product and service quality, and customer satisfaction. Link HR programs to cost savings, financial performance, and productivity. Link employee behavior and attitudes to revenues and profits. Link leading and lagging indicators to organizational goals. Measures should be derived from organizational strategy. Feedback is essential for development and refinement. Relative weights should be linked to strategic goals Develop a workforce scorecard.

Steps in Developing a Workforce Scorecard

1. Identify critical and carefully defined outcome measures related to strategic objectives. 2. Translate measures into specific actions and accountabilities. 3. Develop and communicate detailed descriptions of what is expected. Determine how (or if) improvements can be achieved.

Steps (Continued)
4. Identify high and low performing employees. Establish a differentiated incentive systems. 5. Develop supporting HR management and measurement systems of selection, formal appraisal, promotion, development, and termination practices. 6. Specify the roles of leadership, the workforce, and HR in strategy execution.

Challenges in Developing a Workforce Scorecard

Perspective challenge Does management fully understand how workforce behaviors affect strategy execution? Metrics challenge Has the organization identified and collected the right measures of success? Education Challenge Does management have access to the data and motivation to use the data in decision making?

Challenges in HRM Measurement

View the workforce in terms of contribution rather than cost; Use measurement as a tool for differentiating contribution to strategic impact; and Hold line and HR management responsible for getting the workforce to execute strategy.

HRs Role in Sustaining Competitive Advantage

HR systems must be in place that not only maximize organizational capability, but also exploit any other potential sources of uniqueness. Organizational capability is matching customer and strategic needs through work structure and design. Organizational capability derives from HRM practices.