Corporate Governance Management: Performance

Alayssa Silva February 07, 2012

Chapter Objectives
Performance Management and Reward System in Context What Do Want from the CEO Executive Compensation Resticted Stock

Performance Management
a continuous process of identifying, measuring and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization.

Main components: 1. Continuous process. Performance management is ongoing. It involves a never ending process of setting goals and objectives, observing performance, and giving and receiving ongoing coaching and feedback. 2. Alignment with strategic goals. Performance management requires that managers ensure that employees activities and outputs are congruent with the organizations goals and , consequently, help the organization gain a competitive advantage.

Performance Appraisal
The systematic description of an employees strengths and weaknesses. Thus, performance appraisal is an important component of performance management, but it is just a part of a bigger whole because performance management is much more than just performance measurement.

The Performance Management Contribution

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Motivation to perform is increased. Self-esteem is increased. Managers gain insight about subordinates. The definitions of job and criteria are clarified. Self-insight and development are enhanced. Administrative actions are more fair and appropriate. Organizational goals are made clear. Employees become more competent. There is better protection from lawsuit. There is better and more timely differentiation between good and poor performers. 11. Supervisors views of performance are communicated more clearly. 12. Organizational change is facilitated. 13. Motivation, commitment, and intentions to stay in the organization are enhanced.

What CEOs say about the contribution of Performance Management System

A study conducted by Development Dimensions International (DDI), a global human resources consulting firm specializing in leadership and selection, found that performance management systems are a key tool that organizations use to translate business strategy into business results. Specifically, performance management systems influence financial performance, productivity, product or service quality, customer satisfaction, and employee job satisfaction. in addition, 79% of the CEOs surveyed say that the performance management system implemented in their organizations drives the cultural strategies that maximize human assets.

Disadvantages/ Dangers of Poorly Implemented PM Systems

Increased turnover Use of false of misleading information Lowered self-esteem Wasted time and money Damaged relationships Decreased motivation to perform Employee job burnout and job dissatisfaction Increased risk of litigation Unjustified demands on managers and employees resources Varying and unfair standards and ratings Emerging biases Unclear rating system

Aims and Role of PM Systems

1.

Strategic: It links the organizations goals with individual goals, thereby reinforcing behaviors consistent with the attainment of organizational goals. Administrative: It is a source of valid and useful information for making decisions about employees, including salary adjustments, promotions, employee retention or termination, recognition of superior performance, identication of poor performers, layoffs, and merit increases. Communication: It allows employees to be informed about how well they are doing, to receive information on specific areas that may need improvement, and to learn about the organizations and the supervisors expectations and what aspects of work the supervisor believes are most important.

2.

3.

Aims and Role of PM Systems

4.

Developmental: It includes feedback, which allows managers to coach employees and help them improve performance on an ongoing basis. Organizational maintenance: It yields information about skills, abilities, promotional potential, and assignment histories of current employees to be used in workforce planning as well as assessing future training needs, evaluating performance achievements at the organizational level, and evaluating the effectiveness of human resource interventions (for example, whether employees perform at higher levels after participating in a training program). Documentation: It yields data that can be used to assess the predictive accuracy of newly proposed selection instruments as well as important administrative decisions. This information can be especially useful in the case of litigation.

5.

5.

Rewards Systems and Legal Issues

Traditional and Contingent Pay Plans

A traditional approach in implementing reward systems is to reward employees for the positions they fill as indicated by their job descriptions and not necessarily how they do their work. In other words, employees are rewarded for filling a specific slot in the organizational hierarchy. In such traditional pay systems, ones job directly determines benefits and incentives received. Typically, there is a pay range that determines minimum, midpoint, and maximum rates for each job.

Traditional and Contingent Pay Plans

For example, a university may have five ranks for professors who have just been hired:
1. 2. 3. 4. 5.

Instructor (pay range: $30,000-$45,000) Senior instructor (pay range: $40,000- $55000) Asst. Professor (pay range: $60,000-$90,000) Associate Professor (pay range: $85,000- $105,000 Professor (pay range: $100,000-$140,000)

Traditional and Contingent Pay Plans

In short, in traditional reward systems, the type of position and seniority are determinants of salary and salary increases, not performance. In such reward systems, there is no relationship between performance management and rewards. This type of system is quite pervasive in numerous organizations, particularly outside North America.