MANAGING HUMAN RESOURCES 2.

MODULE 4
COMPENSATION AND PERFORMANCE MANAGEMENT
10 Hours
Compensation and Benefits – Basics purposes of compensation, Wages versus Salaries,
Components of Remuneration, Determinants of Compensation Strategy, Job Evaluation
Methods, Pay for Knowledge and Skill Based Pay, Wage and Salary Administration, Incentives
and Performance Based Rewards – Individual, Team and Group Incentive Plans,
Performance Management –Performance Management- Different elements of Performance
Management, process and evaluation techniques, issues and dilemmas, context and design model
of system, Human Resources Accounting.

COMPENSATION AND BENEFITS

Compensation and benefits refer to the compensation/salary and other monetary and non-
monetary benefits passed on by a firm to its employees in return for their services. Compensation
and benefits is an important aspect of HRM as it helps to keep the workforce motivated are the
most important hygiene factors. It helps give benefits to employees based on their performance
and actions and brings the best out the employees at workplace.
Importance of compensation and benefits
Companies hire people individual to achieve their organizational goals and people join
companies to earn money & build their career. One of the biggest factors why people join
companies in the compensation and benefits, salaries, perks, incentives etc. which is given to
them. Apart from the company's reputation and job profile, the money offered as a salary is
pivotal in attracting people to work for the organization.
The more the compensation and benefits offered to employees, the more is their loyalty,
motivation to work and do well. However, companies which offer lesser salaries see a high
attrition rate and less productivity from employees. All these factors help in
making compensation and benefits an important factor in managing workforce. Salaries of
employees are defined by several parameters like experience, education background etc.
In senior management, skills like team management, communication management, leadership,
time management etc. are also considered while finalizing the pay package.

Compensation and benefits components

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There are several components in the overall compensation and benefits plan of an employee.
There can be several ways where benefits can be given to employees.
Mostly it is given in terms of a CTC or gross salary.

Some of the various components of compensation and benefits are mentioned below:
1. Fixed pay
This is the basic salary plus other fixed components paid to the employee irrespective of any
other factor. This is stated clearly in the employment contract. This is the compensation or salary
or wage which an employee or a worker will definitely get as long as he or she is an employee of
the company.
Fixed pay is mostly the largest component of the compensation and benefits package offered by
an organization to an employee.
2. Variable Pay
This is the additional compensation paid to employee based on employee’s performance,
company performance etc. Since variable pay is based on the performance of an individual, it
motivates the employees to perform even better.
3. Equity Pay

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Employees are awarded shares of the company, often at a discounted price. Employees are
expected to make money out of them by the appreciation of the stock price and the growth of the
company.
This is mostly given to the senior management who have served the company for a long
time.
4. Medical
Medical is part of the compensation package for most of the companies now. Medical includes
the health insurance, free checkups, medical facilities on campus etc. which keeps the employees
safe as well as motivated.
5. Insurance
As discussed in the previous point. Medical insurance is part of the package these days. Many
companies also offer insurance for parents and siblings as well or at subsidized rates. Even other
insurance can be included.
6. Accommodation
Many companies even offer accommodation to employees. This can be either be in the form of a
company provided place or the employee can claim the rent and the lease amount as per the
company rules and policies.
Many companies even provide car or taxi facilities to employees to reach office.

BASICS PURPOSES OF COMPENSATION

 Recruit and retain qualified employees.

 Increase or maintain morale/satisfaction.
 Reward and encourage peak performance.
 Achieve internal and external equity.
 Reduce turnover and encourage company loyalty.
 Modify (through negotiations) practices of unions.

WAGES VERSUS SALARIES

Wage Definition:
A payment usually of money for labor or services usually according to a contract and on an
hourly, daily, or piecework basis.
Salary Definition:

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Salary is a fixed amount of money or compensation paid to an employee by an employer in

return for work performed. Salary is commonly paid in fixed intervals, for example, monthly
payments of one-twelfth of the annual salary.
Difference Between Wages and Salary

Below is the comparative table for wages and salary:

Differences Salary Wages

Skills Required Strong professional skills, Labourers with low or
Licenced white-collar workers, intermediate skill levels are also
which include experts like referred to as blue-collar
teachers and doctors. workers.
Cost Structure They receive salaries at a fixed The wage rate is erratic
rate.
Occurrence of Payment They receive a fixed amount According to the job, they
every month, which is equally receive wages daily or hourly.
divided between all the twelve
months.
Basis of Payment: They receive a fixed amount The supervisor decides the
already agreed upon, while the hourly amount in accordance
variable component is with market trends.
dependent on the output.
Recipients Employees are salaried Labour is the term used to
personnel. describe waged workers.
Nature\ Type of job Positions in the office and Work involving a procedure or
administration. manufacturing.
Performance Review The majority of employees who There is no quality evaluation
are getting payment undergo system in place here. Labourers
frequent performance reviews, will be getting the hourly
determining whether they will payment as usual.
receive a pay raise.
Duration Once a company decides, salary The wage rates may vary at
remains constant year-round. whatever time and bring effect
in accordance with the going
rate.
Resignation An employee must give a Since a labourer is easy to
written notice of resignation replace, there's really no such
and serve their notice period. thing as a period of notice in
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This gives the employer to this situation.

recruit a replacement.
Purpose An employer expects that Wage-earners only have to
employees must directly or complete their tasks. They do
indirectly boost the company's not need to create any income
income in return for a salary. for the employer.
Leaves A full-time employee has a Such a timetable is not
fixed timetable for paid available to wage workers, and
vacation days. each day off results in a loss of
pay.
Examples of professions Engineers, doctors, teachers Construction personnel, taxi
and bankers. drivers, plumber, painter,
blacksmiths, and courier
servicemen.

COMPONENTS OF REMUNERATION
An employee in the organized sector is entitled to several benefits both financial as well as non-
financial. To be specific, typical remuneration of an employee comprises wages and
salary, incentives, fringe benefits, perquisites, and non-monetary benefits.

1. Wages and salary

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of
the number of hours put in by an employee. Wages and salaries are subject to annual increments.
They differ, from employee to employee, and depend upon the nature of job, seniority, and merit.

2. Incentives
Also called “payments by results”, incentives are paid in addition to wages and
salaries. Incentives depend upon productivity, sales, profit, or cost reduction efforts.
There are: (i) individual incentive schemes, and (ii) group incentive programmers.
Individual incentives are applicable to specific employee performance. Where, a given task
demands group effort for completion, incentives are paid to the group as a whole. The amount is
later divided among group members on an equitable basis.

3. Fringe Benefits
These include such employee benefits as provident fund, gratuity, medical care, hospitalization,
accident relief, health and group insurance, canteen, uniform, recreation and the like. These are
hidden costs of employers which are given to the employees.

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4. Perquisites
These are allow to execute and include company car, club membership, paid holidays, furnished
house, stock option schemes and, the like. Perquisites are offered to retain competent executives.
In the crisis and available labour market even, perquisites play an impertinent role.

5. Non-monetary Benefits
These include challenging job responsibilities, recognition of merit, growth prospects, competent
supervision, comfortable working conditions, job sharing, and flextime. These benefits are not
directly linked to fennel. But organizations spend a lot of money for the welfare of the
employees.

DETERMINANTS OF COMPENSATION STRATEGY

A compensation strategy is a plan that discusses how much, and when, to pay employees in an
organization. However, it may change over time as the needs of the business shift. Although a
major part of the plan focuses on staff financial compensation associated with their roles, skills
and education, it also includes benefits and perks. It also supports a company's plan and its
overall business goals by helping companies recruit and maintain efficient team members.
A compensation strategy typically includes four key components:
1. Base pay
Base pay refers to an employee's salary or hourly pay for their particular job. It's the amount the
company and individual agree upon during the hiring process, which can also be commensurate
with their level of education and skills. When determining the amount of base pay, it's also
necessary to decide the frequency. Some employers may pay weekly, whereas others may pay
biweekly or monthly.
2. Incentive pay
Providing incentive pay can also help encourage employees to complete certain goals or to meet
performance objectives at a set time. It's a type of indirect pay that typically offers additional
compensation outside of an employee's regular job tasks or benefits, such as:
 Referral compensation
 Commission payment
 Bonus payment
 Overtime payment
 Cost of living increase

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 Profit-sharing
 Stock options
3. Employee benefits
Employee benefits are the additional benefits that employees receive besides their base pay,
which may include:
 Health insurance
 Dental insurance
 Vision insurance
 Short- and long-term disability
 Life insurance
 Retirement contributions
 Company vehicle
 Phone allowance
 Gym memberships
 Travel benefits
4. Time off
Time off refers to a company program that compensates employees when they're not at work.
Most companies require employees to work for the organization for a specific time period before
being eligible for this type of compensation. They may also require that the employee work a
specific schedule, such as full-time employment. Time off may include:
 Paid time off
 Vacation time
 Personal leave
 Maternal or paternal leave

JOB EVALUATION METHODS

What is Job Evaluation?

Job evaluation refers to a systematic method of determining a given job’s relative value or worth
in relation to other jobs within a specific organization. Its primary goal is to produce a systematic
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comparison between jobs in order to assess their relative worth, usually for the purpose of
establishing a rational pay structure.

Job Evaluation Methods

NON-ANALYTICAL

Whole jobs are compared to one another. A hierarchy of jobs is then produced in a manner
which feels fairest in the minds of the organization’s managers. These schemes are more
vulnerable to equal pay claims because there is no scoring system to provide evidence for
the job ranking.

1. Ranking Method

This method ranks jobs in order based on each position’s perceived value in relation to others.
Although this method does not consider market compensation rates, it may work well for smaller
companies. Larger companies employing this method could be complex due to the larger number
of positions, but could still work if jobs are grouped, for example by professional level.

2. Classification/Grading Method

In this job evaluation method, generic job characteristics are grouped together to reflect their
level of skill and responsibility at several predetermined grade classifications. This method tends
to be straightforward and not as time-consuming as some others.

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For this, individual jobs are compared to groups of pre-determined job characteristics, and then
matched to a specific grade classification based on the comparison. This can pose some
challenges, as one set of characteristics will not always fit every job within an organization. This
system is also subject to grade inflation as jobs proceed to higher levels, which could lead to
ineffective evaluations.

Analytical evaluation schemes are schemes where jobs are broken down into components
(known as factors) and scores for each component of the job are awarded with a final total
giving an overall rank order.

3. Point-Factor Method

This method identifies specific job factors that add value and worth to a position. These factors
are separated into groups such as skill, responsibility, and effort, and are then assigned a
numerical or weighted point value. Points for individual factors that a specific job meets are
added up to get a point value for the job as a whole. The downsides to this method are that the
point values may not always reflect market values of jobs, and the system also poses the risk of
generating an internal hierarchy.

4. Factor Comparison Method

Like the Point-Factor Method, this strategy has job factors identified under primary groups, and
each factor is assigned a dollar value as opposed to a point value. As this tends to be more
complex, only a few organizations employ this method. It can also be hard to communicate to
employees, and there is an inherent degree of subjectivity involved in the determination of the
dollar values.

5. Competitive Market Analysis Method

This job evaluation method uses external data to inform decision about a job’s relative value in
an organization. As job evaluations form the basis for market pricing, this method aims to utilize
posted job descriptions to compare jobs to like positions in the external marketplace. Specific
pay data is collected from published sources, and the value of the position within the competitive
market is determined based on this data.

An integral component of this method is the consideration of the organization’s compensation

philosophy, posing the question of, “Where do we want to position ourselves within the job
market?”. As this job evaluation method involves examining internal value against public market
data, employers are required to use an overlay to see how rankings fit within the internal
hierarchy of their organization.

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PAY FOR KNOWLEDGE AND SKILL BASED PAY

KNOWLEDGE-BASED PAY

Knowledge-based pay is a system in which workers’ salaries relate closely to their academic
attainments and levels of skills. In other words, the more you know and can do, the more your
employer will pay you. Knowledge-based pay focuses on employees’ ability to improve their
education to increase their income. It is a system in which employers reward their workers for
reaching specific goals in training and education. The employer also rewards them for improving
their skills.

Knowledge-based pay aims to encourage workers to study more and improve their skill set.

As employees increase their scope for knowledge, their employer gives them more complicated
projects to undertake. Subsequently, they earn more money. However, some employers pay more
simply for having more qualifications.

Knowledge-based pay types

Some companies openly encourage their workers to train and study more. They tell them that if
they train more, they will earn more.

Other companies, on the other hand, tend to reward a greater skill set with more responsibilities.

Consequently, the workers with better training earn more than their counterparts with fewer
skills. However, these companies do not openly tell their employees to study and train more.

Knowledge-based pay has its benefits and disadvantages. The example in the image is of a
fictitious civil service. However, it reflects the working environment that many public servants
have.
In some cases, the training may not include formal accredited courses. Sometimes, an outside
consultant or trainer may come in to train a group of workers or an individual. They are

subsequently rewarded for attending and passing the course.

Workers may also receive financial rewards for attending and passing in-house courses.

SKILL BASED PAY

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Skill-based pay is a salary system that determines an employee’s pay based on his or her
knowledge, experience, education or specialized training. Depending on the company, the
employee might also receive a higher salary for earning formal certification in his or her
industry. What differentiates skill-based pay from standard job-based pay systems is that
employees under a job-based pay system are paid for performing their jobs even if they aren’t
proficient at those jobs. While this particular pay system is one of the most widely used, it can be
somewhat confusing, mainly because there are several different types of skill-based pay, such as
depth-oriented plans and breadth-oriented plans.

 The pay increases are usually tied to three types of skills: horizontal skills, which involve
a broadening of skills in terms of the range of tasks
 vertical skills, which involve acquiring skills of a higher level
 depth skills, which involve a high level of skills in specialised areas relating to the same
job.
 Skill-based pay differs in the following respects from traditional pay systems which
reflect skills differences in a structure consisting of rates of pay for unskilled, semi-skilled
and skilled workers: Skill-based pay is a person-based and not a job-based, system. It
rewards a person for what he/she, rather than the job, is worth. Job worth is reflected in a
basic rate of pay for minimum skills, but pay progression is directly linked to skills
acquisition (rather than to general pay increases applicable to all).
 It rewards (and therefore emphasizes) a broad range of skills which makes the employee
multi-skilled and therefore flexible.
 It positively encourages skills development.
 A skill-based pay system may not necessarily reflect how well the skill is used, as this
falls within the performance component of pay. But there is nothing to prevent injecting
performance criteria into the system. In such cases the system will be more performance
oriented than a structure which merely recognizes different rates of pay for skills.
 The system needs to be underpinned by opportunities for training which is critical to the
success of the system. The traditional structure is not dependent on such opportunities.

WAGE AND SALARY ADMINISTRATION

Meaning:
In simple words wages means reward for the laborer for his services rendered to the industry.
These can be paid on per unit, per hour, daily, fortnightly, weekly, or monthly basis. Labourers
render services of both types i.e. mental and physical.
Wage and salary administration is defined as the process by which wage and salary levels and
structures are determined in organizational settings
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Nature:
1. The basic purpose of wage and salary administration is to establish and maintain an equitable
wage and salary structure.
2. It is concerned with the establishment and maintenance of equitable labour cost structure i.e.
an optimal balancing of conflicting personnel interest so that the satisfaction of the employees
and employers is maximised and conflicts are minimised.
3. The wage and salary administration are concerned with the financial aspects of needs,
motivation and rewards.
4. Employees should be paid according to the requirements of their jobs i.e.; highly skilled jobs
are paid more compensation than low skilled jobs.
5. To minimise the chances of favouritism.
6. To establish the job sequences and lines of production wherever they are applicable.
7. To increase the employees’ morale and motivation because a wage programme can be
explained and is based upon facts.

Characteristics:
1. Payment of wages is in accordance with the terms of contract between the employer and the
worker.
2. The wages are determined on the basis of time-rate system or piece-rate system.
3. Wages change with the change in the time spent by the labourer.
4. Wages create utility.
5. Wages may be paid weekly, fortnightly, hourly, or on monthly basis.
6. Wage is the reward paid to the workers for the services rendered by them.
7. Wages can be paid in cash or in kind.
8. All kinds of allowances are included in wages.

Its objectives are:

i. To compare or draft company HR policy
ii. Find out the income level and return ratio of similar industries
iii. To understand wage differentiations
iv. To examine the competitiveness of entry level employees
v. To establish hiring rates favorable to the community
vi. To keep abreast wage and salary rates with production cost
vii. To minimize labor turnover due to pay disparity
viii. To increase employee’s satisfaction and morale
ix. To learn about the trend of perks and benefits in the market
x. To resolve existing labor problems concerning compensation.

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INCENTIVES AND PERFORMANCE BASED REWARDS

INCENTIVE
Incentive pay, or profit-sharing, is a method of compensating employees based on the
company’s performance. Would typically give any rewards earned at the end of a fiscal year.
It can be in the formation of cash, stock options, or bonuses. When used appropriately,
incentive pay creates an environment where employees are driven to perform their best and
help the company obtain positive results.

WHAT ARE THE 3 KINDS OF INCENTIVES?

What are the three kinds of incentives? There are three types of incentives that managers can
offer employees:

Positive incentives or rewards: encourage desirable behaviours and actions, such as

customer service and sales initiatives. Reward or positive incentive programs come in various
forms: stock options, prizes, bonuses, increased pay, or special privileges like flexible work
schedules.

Negative incentives or penalties: discourage undesirable behaviours and actions, such as

customer complaints and workplace accidents. Penalty programs include demotions, pay cuts,
reprimands, suspensions, and firings.

Process incentives: to encourage teamwork and cooperation among employees for the
organization’s benefit in general. Examples include quality circles (team meetings),
suggestion box programs, Quality of Work-Life programs (teamwork in general), employee
empowerment programs (like self-directed work teams), and product development, teams.

WHAT IS PERFORMANCE RELATED PAY?

Performance related pay (PRP) is a process that links an employee’s salary increase to their
individual performance. The concept of PRP is that performance is measured against pre-agreed
objectives agreed between a manager and employee, over a set period of time, usually a year.
Salary increases usually get added to an employee’s basic pay, on an annual basis, although in
some circumstances they can be a one-off cash lump sum payment.
Businesses can use PRP when they are not able to measure an employee’s performance on output
or sales figures.
The concept of PRP is to encourage good performance and to prevent employees obtaining an
increase in wages due to hitting certain milestones in their length of service and can take away
low performers getting salary increases that are the same as high performers.

Types of Performance Related Pay

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There are two main types of PRP these are:

1.Short-term schemes – which utilize commission or bonuses which can be based on sales
achieved by individuals or work completed. These schemes are a way for employers to have an
incentive for employees to increase and improve their performance.

2.Long-term schemes – are used to increase loyalty amongst employees and as well as pay
increases, can offer share options for employees also.

Benefits and drawbacks

Benefits of PRP are:
 It can act as an incentive to increase employee performance and efficiency, through goal-
setting, as employees want to achieve the best pay increase.
 It can improve motivation, focus and morale in the workplace.
 It can assist to achieve a strong bond between employee and company.
 Usually most effective when rewarding employees on an individual basis for effort and
not for group performance.
 Rewards the best employees and high performers.
 Helps to create a healthy performance-based culture.
 Can lower costs and help businesses to remain profitable.

Drawbacks of PRP include:

 Setting goals that are unachievable can demotivate employees.
 If the culture becomes too competitive then morale can be lowered.
 Employees may expect more payments for work and performance above and beyond their
goals.
 Focus of achieving a goal can become all about getting a reward and not for the good of
the business.
 Sometimes the measuring of performance can be subjective, for example a clash with a
supervisor could result in lower performance ratings.

INDIVIDUAL, TEAM AND GROUP INCENTIVE PLANS

(I) INDIVIDUAL INCENTIVE PLAN:
Reward systems tied to the performance of individual employees are known as individual
incentive plans. These plans depend on category of workers for which they are designed. Under

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this plan mostly a certain pay rate is guaranteed and the rewards represent additional
compensation.

Under individual wage incentive plans three categories of personnel’s can be included. They are
Production workers or blue-collar workers, white collar workers such as salesman, and
managerial personnel. All these categories of employees have different needs, they differ in
qualification and type of work, and therefore separate plans are designed for them.

Incentive Plans for Production Workers or Blue-Collar Workers:

There are three categories of these plans:
(1) Incentive is proportional to extra output.

(2) Incentive is proportionately at lower rate than increase in output.

(3) Incentive is higher proportionately to rate of increase in output.

Under these plans, workers are rewarded individually when their performance exceeds pre-
determined standard. Individual workers earn a bonus if they work more and produce more.
These plans are therefore known as premium plans. These plans are either time based or
production based.

A standard time is determined for doing a job. A standard time serves as the basis of giving
bonus to the workers if they meet or exceed the standard. The worker is said to be efficient if he
completes his job in less than the standard time. In order to reward him for his efficiency, he may
be given bonus under an appropriate incentive plan.

Advantages:
Incentive wage plan have following advantages:
(1) The standard output is determined on the basis of time and motion studies by the specialists
and the rates of wages are fixed for different jobs on the basis of job evaluation. This stimulates
workers to work more.

(2) Increase in output leads to lowering of per unit cost, hence a direct gain to the employer.

(3) Less supervision is required as the workers are motivated to work more. This saves
supervisor’s time for supervision. He can utilize this time for other more important work.

(4) No conflict between employees and employers as the needs of both are satisfied because
employees are rewarded for their efficient work and employers are happy with the increased
output.

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Disadvantages:
The wage incentive plan suffers from some of the demerits:
(1) Even though output is increasing the quality is at the receiving end. Employees give more
stress on increase in output neglecting the quality. Employees become quantity conscious and not
quality conscious.

(2) Employees oppose the introduction of advanced and modern techniques of production
because of the fear that they may lose extra payment for extra output produced by them.

(3) There is an increase in cost of record keeper.

(4) Safety precautions are overlooked. May therefore lead to accidents.

(5) Slow workers become jealous of fast workers because comparatively their earnings will be
less than their counterparts.

(6) This system increases their earnings. They may therefore put a demand for increased
minimum wages.

(7) Management faces difficulties in determining the rate of bonus to be paid. Fewer rates may
aggrieve the workers and high rates may reduce their efficiency.

FOLLOWING IS THE TIME-BASED INCENTIVE PLANS:

HALSEY PREMIUM PLAN:
This method is invented by Mr. Halsey. Under this payment of time wages to the worker is
assured. He is given an option to work on premium. A standard time for standard output is fixed
on the basis of past experience. If a worker finishes the work earlier than the prescribed time, he
is rewarded by paying him premium or bonus. The premium or bonus is calculated on the basis
of time saved in performing a job. The payment of premium is in addition to the time wages for
which he is entitled even though time is not saved. This plan is a combination of time and piece
wages. A care should be taken that premium rate be moderately fixed.

The following example illustrates this:

Time rate – Re 1.00 per hour

Time allowed – 8 hours

Time taken to complete job – 6 hours

Premium for time saved – 50 percent

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The formula for calculation is

Earnings = Time Taken x Time rate + 50 percent of time saved x Time rate

= 6 x 1 + 50/ 100 x 2x 1

=7

So, worker’s earning will be Rs. 7/-

Merits:
(1) It assures time wages to the average workers and offers extra payments to the efficient and
hard workers.

(2) It is simple in calculations.

(3) It reduces labour cost due to increased production. Premium is shared by employer.

Demerits:
(1) The standard time for standard work is fixed on the basis of past performance and no new
standard are fixed.

(2) It creates dissatisfaction because employer also shares a part of incentive earned by the
worker.

(3) The management cannot force the worker to produce more after finishing the standard output.

(4) The standard time may not have been properly fixed.

Rowan Plan:
This system of wage incentive plan was invented by James Rowan of Scotland. It is a modified
form of Halsey plan. It is similar to Halsey plan except in the calculation of premium.

The premium is calculated as the ratio of the time saved to the standard time multiplied by the
time taken on the job.

It can be illustrated with the help of example given below:

Time rate – Re 1/- per hour

Time allowed – 8 hours

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Time taken to complete the job – 6 hours

Formula for calculation is,

Earnings = Time taken x Time rate + Time Saved / Time Allowed x Time Taken x Time Rate

= 6 x 1 + 2/8 x 6 x1

=8.5

So, worker’s earnings is Rs. 8.5.

Merits:
(1) The minimum wages are assured in Rowan plan also.

(2) Employers are also benefitted when the efficient workers get bonus.

(3) The efficient workers get bonus at a diminishing rate if they save more than 50 percent of
standard time. This checks them to overstrain themselves and maintain quality.

Demerits:
(1) The worker is discouraged to achieve saving in time more than 50 percent of the standard
time.

(2) The calculation of premium is complex and hence cannot be easily understood by the
workers.

(3) It is not beneficial for the employees having high efficiency.

EMERSON EFFICIENCY BONUS PLAN:

Under this plan minimum time wage is guaranteed to the workers. Conditions of work are
standardized and a standard output is fixed which is to be completed within a specified period of
time. A worker attaining 66.66 percent efficiency gets a minimum bonus. The percentage of
bonus goes up with the increased efficiency up to 20 percent of the guaranteed wages.

Merits:
(1) The workers minimum wages are assured. If worker is unable to produce 66.66 of the
standard output, he is not deprived of his daily wage.

(2) There is enough scope for earning more and more for the efficient workers. The plan is
therefore very beneficial to extra ordinary workers.
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Demerits:
(1) The drawback of this plan is that it offers bonus to the workers who have efficiency less than
100 percent.

BEDEAUX POINT PLAN:

Like other wage incentive plans the time wage is guaranteed in this plan also. Under this plan the
amount of work done by a worker per minute is taken as standard work unit. This is known as
Bedeaux point ‘B’. The standard time for a job in the number of Bs allowed completing it. Let a
work gets completed in 60 Bs taken as a standard per hour. Now if a worker completes it earlier
or earns more than 60 Bs, gets a premium of 75 percent for the number of Bs i.e., time saved.
The standard work unit B includes the time of work as well as rest.

The example given below illustrates it:

Hourly wage rate ‘R’ = Re 1/-

Standard time allowed to complete the job ‘St’ = 8 hours. Standard number of points for that job
‘Ns’= 8 x 60 = 480

Actual time taken to complete the job T = 6 hours

Employee Benefits and Incentives

Number of B’s earned Nt = 60 x 6 = 360

The formula is,

So worker’s earning is Rs. 7.5

Merits:
(1) Minimum wages are guaranteed to the workers even though they fail to complete the job
within the standard time.

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(2) Since one fourth of wages for time saved goes to the foreman, he is induced to get higher
productivity from his workers.

(3) The plan is most suited to the industrial units where worker is expected to perform more than
one jobs because under this plan jobs can be reduced to standard unit B.

Demerits:
(1) Calculations under this plan is complex and therefore is difficult for workers to understand.

(2) Foreman is also entitled for one fourth share of bonus which workers do not like. They feel
cheated.

PRODUCTION BASED INCENTIVE PLANS:

Under these plans, a standard of output is determined on scientific basis. The payment of wages
is made on the basis of number of units are produced. Efficient workers are benefitted because
they get wages at higher rates.

The following are the production-based incentive plans.

TAYLOR’S DIFFERENTIAL PIECE RATE PLAN:

This plan is devised by F.W. Taylor. Under this system day wages are not guaranteed. Taylor
believed that the standard of performance can be accurately fixed by means of time and motion
studies. After fixing a standard task two different piece rates are prescribed for payment of
wages. Low piece rate to less efficient and high piece rate to more efficient workers. A high
piece rate is payable to the workers whose performance is equal to or more than the standard
prescribed.

A low rate is meant for those who do not achieve the set standard. This system of wage payment
rewards efficient workers and penalize the slow workers by paying at low rate. This plan suits to
those units where direct expenses are more than the cost of labour. The wage plans proposed by
H. L. Gantt and Merrick are improvement over the Taylor’s differential piece rate of wages.

Merits:
(1) This incentive plan provides more earnings to efficient and penalize less efficient workers.
This differential in wage may enthuse less efficient workers to work more.

(2) Total output goes up because every worker wants to improve his efficiency thereby
increasing their own earnings and output.

(3) It is simple and easily understood by the workers.

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Demerits:
(1) Minimum wages are not assured by this plan.

(2) The penalty for low efficiency is very high for those whose productivity in less than the set
standard.

(3) This may promote disunity among workers because of dual standards set for efficient and less
efficient workers. This will also lead to jealousy among workers.

MERRICK’S MULTIPLE PIECE RATE PLAN:

Under this plan the workers are paid according to their efficiency in performance of jobs. Three
different piece rates are offered to the workers with different efficiencies thus dividing them into
three different categories.

The workers having efficiency less than 80 percent of the standard are paid as per basic piece
rate prescribed. The workers having efficiency more than 80 percent but less than 100 percent of
the standard gets wages at higher rate by 10 percent. The workers having 100 percent efficiency
get wages at the highest rate of 20 percent in addition. These systems enable the less efficient lot
to improve their efficiency to increase their earning.

Merits:
It is a liberal plan giving further chance for workers to increase their efficiency and to enhance
their earnings. It is a morale booster for hard working and efficient workers.

Demerits:
(1) This plan does not guarantee any minimum wages to the workers.

(2) There is a wide gap between two slabs.

(3) Each worker working below 80 percent of performance gets wages at the same rate. This
creates dissatisfaction among comparatively efficient workers.

GANTT TASK AND BONUS PLAN:

This plan is devised by H.L. Gantt, an associate of EW. Taylor. This plan guarantees the wages
as per fixed time rates to the workers. Standards for output and time for performance of each job
are fixed. If the workers complete the job within standard time or take less time receive wages
for the standard time. In addition to this he gets bonus at the rate ranging from 20 to 50 percent
of the time allowed.

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The specialty of this system of wage payment is that the foreman also receives bonus for every
worker under him who receives bonus. So foreman of each department takes special interest to
see that every worker under him reach bonus standard.

Merits:
(1) The minimum wages of workers are guaranteed.

(2) The workers with less ability get minimum wages and with more ability benefit more.

(3) It leads to increase production and lowers costs.

Demerits:
(1) Every worker is assured of wages at the rate of time rate. So less efficient workers also get
wages at time rate. It discourages efficient workers.

(2) The workers unions are displeased with the scheme and they make demand for wages at high
rate of time wage. These are all short term plans meant for production workers. There is few
more incentive plans discussed below.

HALSEY – WEIR PREMIUM PLAN:

It is a modified version of Hasley premium plan introduced by G.J. Weir in England. The
modification is in the percentage of incentive or premium on time saved. This percentage is
33.33 while the rest is shared by the employer.

THE 100 PERCENT PREMIUM PLAN:

Under this plan the task standard are set on the basis of time study and work sampling. The rates
are expressed in terms of time rather than money e.g.:- 0.30 hour per piece. Workers are paid
according to hourly rate. The plan is similar to straight piece rate plan except for its higher
guaranteed hourly rate and the use of task time as a unit of payment instead price per piece. The
worker gets the full value of time saved. Incentive Plan for White Collar Workers.

INCENTIVES FOR SALES PERSONNEL:

Sales – pay plans featuring commissions or bonuses based on the number of items or rupee
volume sold can also be considered individual incentive plans. Most of the firms make payment
to their sales staff on the basis of salary cum commission.

Many stockbrokers and real estate agents are paid solely on a commission basis. Advantage of
commission payment is that they are tied to the revenues of the firm. Employees are motivated
towards increasing sales volume. During recession the firm reduces the commission.

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The sales staffs are paid in three ways:

(1) Straight Salary method:
According to which they receive monthly salary only. Here there is no linkage of incentive for
hard work.

(2) Straight Commission Basis:

Sales personnel receive only commission on sales volume. Here the salesman will sell those
items which are of high value.

(3) Combination of Salary and Commission:

Under this scheme sales personnel are paid a fixed salary and commission as an incentive based
on sales volume.

INCENTIVES FOR MANAGERIAL AND PROFESSIONAL EMPLOYEES:

Performance bonuses of some kind are the most frequently used incentive plans for management
and exempt employees. The rates and other details vary greatly from company to company.
Bonuses are allocated on the basis of manager’s contribution at the year end, on the basis of the
extent to which the person attains the objectives agreed on at the beginning of the year under
M.B.O. scheme, spot bonuses and cash awards are given to the managers and professionals for
extra ordinary performance, stock option is yet another incentive given to them.

(II) GROUP INCENTIVE SCHEMES:

It is observed that under individual incentive plans bonus is paid to the worker on the basis of
individual’s performance. This is in the case where the payment of bonus is not affected by the
performance of others. But there are certain situations where it is difficult to measure individual
contribution. Here the performance each worker is affected by others. Under such situations
group incentive bonus schemes are introduced.

Under group incentive plan, bonus is calculated on the collective production of a group of
interdependent workers and distributed among members of group on some agreed terms and
conditions. As far as possible the bonus so earned is distributed equally among the members of
the group.

The basis for distribution is on the following:

(1) Group bonus is distributed equally if all the members of the group possess similar skills.

(2) If the base wage of members is different than bonus may be distributed in proportion to the
basic rates.

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(3) Bonus may be paid to the members on a specified percentage depending on the basis of skill,
experience, basic rate of pay of each individual employee.

FOLLOWING ARE THE GROUP INCENTIVE PLANS:

(1) PRIESTMAN’S PLAN:
Under this, the starting point is productivity of the group. Standard output is laid for the group.
Minimum wage is assured to a group. The group members are entitled for a bonus if their output
exceeds the set standard. The payment of bonus is made in proportion to the excess of actual
output over the standard output. This plan encourages the feelings of team spirit among the
members of the group. The employees behave as a group and work together to increase output.
This scheme does not consider the individual efficiency of worker. Thus, the inefficient member
of the group also get bonus.

(2) SCANLON PLAN:

This plan was devised by Joseph Scanlon in 1937, a trade union leader. Under this plan workers
are involved in decision making. They are encouraged to make suggestions regarding cost
reduction and increasing productivity.

They are involved in the various screening committees in the plant to find out ways and means to
judge the cost reduction suggestions. In this way employees work with their supervisors,
managers and other fellow employees on various screening committees.

If the suggestions are successfully implemented, employees get share in the savings. To facilitate
workers’ participation, there are departmental committees consisting of representative of workers
and management.

Periodical meetings of these committees are held to discuss the problems faced by the workers.
They recommend measures to increase production. It promotes healthy labour relations,
minimizes supervision, increases efficiency and sense of partnership among workers.

This plan suffers from certain drawbacks such as the inefficient worker gets rewarded because of
better performance of the group. It is also true that the suggestions of the employees are not
given due consideration by the management.

(3) PROFIT SHARING:

Under the scheme of profit sharing a certain percentage of profit is distributed at fixed ratio
among some categories of employees annually. According to Henry R. Seager, “profit sharing is
an agreement freely entered into by which the employees receive a share, fixed in advance, of the
profits.”

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The decision of sharing of profit to the employees is informed in advance. The basis of profit
sharing is decided on the length of service or the number of working days in a year or the wages
earned by a worker during a year.

It is direct incentive to a worker. The payment of profit can be made in cash or it can be
deposited in the account of provident fund of an employee. The advantage of this scheme is that
workers develop common concern for the development and progress of the undertaking.

Profit sharing is of two types:

(1) Current Profit Sharing:
It is the one directly paid to the employee annually or six monthly.

(2) Deferred Profit Sharing:

It is the one which is not paid directly to the employee but credited in his provident fund account
or to pension account or sometimes paid in the form of bonus shares.

Merits:
(1) Creation of industrial peace because workers are satisfied as they are getting an additional
amount besides their wages.

(3) The bonus is paid only when the amount of profit exceeds the set target. It means bonus is not
part of cost of production.

(4) Profit sharing scheme is based on the basic pay of the employees.

(5) Workers have share in profit and not losses incurred by the employer.

(6) It represents a reward for group effort and group efficiency.

(7) It brings about team spirit among the employees. They developed a sense of belonging to the
organization, reduces training time.

(8) Profit sharing results into equitable distribution of the profit.

Demerits:
(1) Employees are entitled to bonus when company earns profit. They do not get bonus when
company recur losses.

(2) It is not possible for newly established company to pay bonus.

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(3) There is no distinction between efficient and inefficient employees of the company while
distribution of bonus.

(4) Bonus is paid to the employee once in a year. This does not motivate them for better
performance.

TEAM BASED INCENTIVE PLAN

Team-based incentive plans are initiatives designed to encourage and reward exceptional levels
of professional achievement. You can use incentives in your small business as motivators for
staffers to work collectively to earn monetary and non-monetary rewards. It is also a way for
small business owners to boost overall productivity and earnings while simultaneously
rewarding employees for a job well done. The objective of team incentives is to encourage
group goal-setting, collaboration and teamwork.

Profit Sharing

Profit sharing is a team-based incentive plan in which you pay your employees a percentage of
your company’s overall profits. Profit sharing builds a sense of ownership among employees
and encourages greater team performance levels. Staffers know that the better their
performance, the better the business’s financial picture, and the higher their own potential cash
rewards.

Gain Sharing

Similar to a profit-sharing plan, gain sharing is a team incentive in which you reward employee
groups for measurable, non-financial achievements in pre-established areas. For example,
teams may enjoy a bonus if customer satisfaction levels rise a certain percentage above figures
from the previous year. The focus of this type of incentive is for employees to recognize the
role they play in continually moving your small business forward in key areas.

Goal-Based Incentives

Goal-based team incentives reward employees for reaching specific goals. For example,
topping a certain dollar amount in sales, landing a specific number of contracts or hitting a
membership recruitment figure. The approach encourages teamwork and gives employees a
firm target to aim for. This incentive plan is good for small businesses because it promotes
team work and collective effort, and you only issue the reward if the goal is met.

Merit-Based Incentive

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A more subjective approach to incentive programs is the merit-based incentive approach.

Following this model, you reward employee teams for effort, regardless of outcome. For
example, if your marketing employees stay late every night to finish a major advertising
campaign that doesn’t perform as anticipated, their dedication and effort are still recognized.
Because of the discretionary element of this type of incentive, it can be a challenge for
employees to know what they aiming for or how they will know when their efforts or actions
are viewed as “good enough” to merit reward.

Financial vs. Non-Financial Incentive

It’s up to you, as the business owner, to decide what type of incentive you want to offer
employee teams. If cash rewards are too much for your small business budget, other incentives
to extend include paid time off, free company services or merchandise, or preferred parking or
office space. Ask employees what they consider to be a viable and worthwhile reward and
consider if it fits your budget.

PERFORMANCE MANAGEMENT
Definition and Its Meaning in HRM
Managing the Performance of the employee is the most important function of Human Resource..
Performance management is defined as an ongoing process of identifying, measuring, and
developing the performance of the employees in the organization. Its main objective is to focus
on employee performance and direct their efforts towards achieving the business goal of the
organization.
Performance management is a tool that is widely used by managers to monitor and evaluate the
work performance of employees.

The tools start working from Job design followed by coaching, training and development and
connect performance with reward and recognition and ultimately result to achieve the
organization's goals and objectives

By Armstrong and Baron

“A strategic and integrated approach to increasing the effectiveness of organizations by
improving the performance of the people who work in them and by developing the capabilities of
teams and individual contributors”

Types of Performance Management in HRM

The types of performance are determined based on the vertices included in the performance
appraisal or review system. It can range from the self-assessment of the employee to the review

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from different members of the organization such as managers, peers as well sometimes extend to
check the review of customers and investors.
A. General Appraisal- In this type of performance management there is continuous
communication between the manager and employee regarding the performance
throughout the year. They communicate about the pre-set goals, the objectives, the
performance feedback, and set the new goals.
B. 360-Degree Appraisal- In 360-degree appraisal the feedback about the performance
and behavior of the employee is provided by peers and the manager of the employees.
C. Technological Performance Appraisal- This appraisal is totally based on the
technical knowledge of the employee. The technical expertise and capabilities of the
employee are throughput and identified by the manager.
D. Employee Self-Assessment- The employee compares their own performance with the
standard performance expected from them. The manager has discussions with
employees about their performance achievements or failure.
E. Manager Performance Appraisal- This system is designed for the appraisal of the
manager. Here the feedback from the team members and client is collected to evaluate
the performance of the manager.
F. Project Evaluation Review- This is considered the best way to identify the
performance of an employee at work. After completion of each project, the
performance of the employee is evaluated, and based on the review another project is
assigned to the employee.
G. Sales Performance Appraisal- A specific monthly or yearly sale target is assigned to
the employee at the beginning of the year. At the end of the financial year, the
salesperson is judged on the set target and the sales result of the employee. In this
system, it is important to set a realistic sales target for the employee.

Performance Management Purpose & its Objectives in HRM

The objectives of the performance management system are as follows:
o It enables the employee to achieve the work performance of set standards
o It helps to identify the skills and knowledge required to perform a job efficiently.
o It is a very important factor to motivate employees and boost employee empowerment
o It provides a communication channel between the team and supervisor. It makes the goal-
setting process more transparent.
o It identifies the issues which leads the low performance and also resolve the issues by
providing suggestion about development interventions.
o It provides data for several important decisions such as promotions, strategic planning,
succession planning, and performance-based compensation.

The purposes of the performance management system are as follows:

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1. Feedback Mechanism: The purpose of the performance management system is to

develop a systematic feedback mechanism. It creates a pathway through which the
employees become aware of their contribution to the organization in terms of
performance. It also conveys to the employee the improvement required in the
performance to meet the set standards.
2. Development Concern: It addresses the development issues in the organization. It
recognizes the skill and knowledge development required in the organization and
facilitates the training programs which are appropriate.
3. Documentation Concern: It creates a database for the organization in which all the
information about the employees is collected. The information about the performance
level, skills, knowledge, expertise, and regular rewards received by the employee is
maintained in this database.
4. Diagnoses of Organizational Problems: The up and down in the performance of the
employee is recorded using a performance management system. This record helps to
diagnose the organizational problems. It provides an idea about where the work is
going wrong and what improvements are required to improve the performance status
of the organization.
5. Employment Decisions: Based on the performance management records various
important decisions are taken by the management. The decision includes an
arrangement of training and development programs, promotion, increase or decrease
in compensation, hiring decisions, and many more.

DIFFERENT ELEMENTS OF PERFORMANCE MANAGEMENT

As a human resources leader, it is important for you to prove your value to the organization by
ensuring you choose the best team members for each department. It is no small feat especially
when you must fulfill many requirements in any given day. To help you ensure that your
organization is in good shape, consider using the following elements for establishing and
maintaining a working performance management system.

1. Reward and Compensation

Every employee deserves to be appreciated and compensated for the time they have invested in
serving your company. Rewards and benefits motivate employees to perform because it is not in
vain. Note that monthly salary does not pass as reward and compensation, especially if it is the
same for every employee on that level. A bonus should come special and is one of the most
effective known performance management strategies after promotions.

2. Manager Reviews

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Because the managers oversee various departments, it is crucial to understand their relationship
with their employees. By allowing employees to review their managers, you can more quickly
assess the performance level, leadership style, and influence of your managers. and assign
someone with the right qualities to lead a team.

3. Development and Improvement

Some employees need to be motivated more for them to bring out their best. If an employee is
going to complete a task ahead of schedule, for example, they have plenty of time to find if there
are any improvements. An effective performance management system can be implemented to
help ensure consistent development and improvement for employees and for the tasks they work
on. However, this is the kind of performance management system should be implemented with
much caution so that you don’t become a bully boss.

4. Succession Planning

In most situations, employees do not work in the same place or position forever. This is a real
situation that employers need to be prepared for. That is because some of the employees that
leave the workplace, some of them hold an unbeaten record of perfect performance. Therefore, it
is wise to have a succession plan to transfer skills from one employee to the other to ensure gaps
are covered in the interim.

5. Performance Monitoring

It is critical to track the performance of your employees because it is likely the only way of
finding out where improvements are necessary. Also, you can have your employee’s track their
performance, and this will help them improve because they will know if they are too reluctant.

6. Goal Setting

Any organization has a purpose and targets to meet. Most times, employees understand what is
expected of them, as most of them are professionals who have learnt their skills specifically for
that job position. Without an understanding of what the CEO or senior management of a
company is aiming for, all the skills and knowledge of your employees could potentially be
useless. The employees usually set the goals, and the managers implement to ensure that
everyone keeps their word.

7. Ongoing Feedback

Always ask for feedback from your employees if you want to ensure a well-rounded and
supportive HR department. That way, you will be avoiding dealing with unexpected issues.

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Continuous feedback also makes it easy to track your employees and know if there are any
development needs necessary to enhance their performance.

8. Outcome Management

It is not always guaranteed that the best team of employees will get the job done. The outcome
can go both ways, and as the manager, you must be prepared to handle both. Paying employees
according to their performance is one of the right ways of managing outcomes. That is because
they will enhance employee performance knowing that they can earn much more when they
work harder.

A sound employee management system should be comfortable for both employers and
employees. For the best results, most organizations implement several employee performance
management elements. It is, however, encouraged that before implementing any strategy, get to
understand your CEO more and get the clear picture. That way, you will know the right skills
and talents to hunt for. Additionally, it will help you understand better the kind of employees’
management system that will work correctly.

PROCESS OF PERFORMANCE MANAGEMENT

Performance Management Process?

Performance management is a cycle that consists of 4 necessary steps. They all work together, so
when taking part in performance management, don’t skip a step!

1. Planning:

‍ mployees must understand what’s expected from them to gauge how they are doing and be able
E
to receive actionable feedback.

 ‍ efining: It begins by defining their goals and communicating these goals with them.
D
Not only should this be done in the job description, but once a new hire joins the team,
it’s important to reiterate what will be expected from them.

 ‍ rite SMART targets: To do this efficiently, you can define goals using SMART -
W
which means that they are: specific, measurable, attainable, relevant and time-based.

 ‍ et Performance Standards: Given these SMART targets, you can set the standards by
S
which their performance will be assessed.

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 ‍ eedback: As mentioned, performance management is a two-way street. Once you’ve

F
communicated with employees what they will be held accountable to do and measured
upon, get their feedback. It’s essential because they may have questions, modifications or
be able to confirm that they feel ready to take on the tasks.

 ‍ pproval: Upon completion of the feedback stage, both managers and employees can
A
approve this step so that the process has been kicked off collaboratively. This also gives
employees a sense of ownership over their work.

2. Coaching:

‍ nce the goals have been set, the coaching stage, which consists of continuous meetings
O
commences.

 ‍ rganisation: Organise regular check-ins and meetings so that managers and employees
O
can communicate how things are going.
‍
 Training: When an employee is struggling, they want to know that they can ask for help.
Setting up the relationship as one in which you train employees and allow them to air
their challenges will make this step more transformative.
‍
 Feedback: Both parties should feel comfortable to give and receive feedback.
‍
 Objectives: By staying connected with the original purposes defined in step 1, then
management can make sure that the work is being done and up to the standards set. Not
only will this include checking that the job is being properly carried out, but it also
involves the reward stage to acknowledge when an employee has been crushing goals!

3. Review:

‍ ormal reviews typically take place annually within an organisation. Automation tools can be
F
highly useful in storing historical data so that you can see how an employee has grown year-
over-year.

 ‍ eview performance: Over a set period, management looks over an employee’s

R
performance in what’s also known as a performance appraisal. Since performance
management consists of regular check-ins throughout the year (be it weekly, monthly or
quarterly), this annual check-in will also serve to plan future goals.
‍

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 Review process: Managers and employees should not only focus on employee’s
performance. It’s also an excellent time to review the overall process and ask questions
like, “Did the employee achieve goals?” / “Were there challenges that persisted?” / “How
did management’s feedback help/hurt their performance?” and “Can this process be
better?”
‍
 Goal completion: Take a look at both small and large goals. If you pinpoint challenges
in these areas, you can brainstorm solutions together. For example, many employees who
have a lot of work to complete in a short amount of time may make avoidable human
errors. If you notice employees entering data wrongly, for example, then the business can
suffer losses. Instead, a solution could be to implement a data automation tool that
automatically sources data and inputs it into a centralised location with no errors.
‍
 Constructive feedback: Again, both parties should have the freedom to share their
actionable input.

4. Action:

‍Within business, it takes action to make changes!

 ‍ ewards: An essential way to motivate employees is to reward them and give

R
recognition for a job well done. While it doesn’t have to be just monetary, it probably
will include some form of compensation. It can also be in the form of time-off, granting
leadership opportunities or giving said employee new and exciting projects.
‍
 Looking ahead: The final step is to look forward and work together on how this process
will take shape next year.

AND EVALUATION TECHNIQUES OF PERFORMANCE

MANAGEMENT

7 Top Employee Evaluation Methods to Move Your Organization Forward

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1. Management by Objective (MBO)

This method is a simple one that allows you to close the loop between employee performance
and key strategic objectives. Management sets a metric that represents the expected level of
attainment, then tracks each employee’s outcomes.

Sales quotas are a form of MBO. They’re great because it’s easy to monitor them over time and
connect causes to effects.

2. Critical Incident Method

This method is especially popular in the customer service world and allows managers to generate
more global feedback about how an employee handles issues.

It encourages managers to zoom in on particular events where the person’s behavior was positive
or negative and provide insight on how to get aligned with best practices – for example, handling
customer complaints better.

3. Checklist Method

The checklist method relies on a list of behavioural criteria each worker is expected to meet: For
example, on-time delivery or teamwork. The evaluator indicates items the employee is successful
with and provides targeted feedback for items that are lacking.

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In a weighted checklist method, each attribute has its own score value. That helps focus
improvement efforts.

4. 360-Degree Performance Appraisal

360-degree feedback is popular in large, world-class organizations like Google and Microsoft.

It incorporates feedback not only from managers, but from peers, direct reports, and higher-level
supervisors the employee frequently works with. This type of feedback is valuable when
preparing team members to take on responsibilities at a higher level.

5. Self-Evaluation

Written reflection enables employees to uncover ways to improve performance that make sense
to them. Although it’s highly subjective, it provides fuel for a more detailed discussion.

Making note of where employees have high or low opinions of their own work may make it

easier for mentors to meet them where they are and personalize a path of growth.

6. Ratings Scale

Most organizations have used this approach. It specifies goals – behaviours, traits, skills, or
project attainment – on a scale usually running to 5 or 10 points.

While this is a flexible choice, it’s essential everyone have the same understanding of how the
scale works: You might consider 3 out of 5 “good” while an employee understands it to mean
“average.”

7. Performance Test

The right form of testing enhances recall and lets people operationalize new knowledge.

While a written or multiple-choice test benefits from greater objectivity, practical presentation of
skills is often a better sign of mastery. It’s vital the evaluator of this test be an expert in the
subject matter and skilled enough to communicate the meaning of the results up the hierarchy.

Collecting the right data and watching the right metrics lets you continuously improve processes:
Effective performance evaluation ensures your employees can do the same. These seven methods
will provide you with a solid toolkit for putting performance in context.

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ISSUES AND DILEMMAS IN PERFORMANCE MANAGEMENT

Business owners and leaders face certain problems when it comes to performance management.
Let’s look at these challenges and how you can overcome them:

1. Setting Goals and Milestones

Without clear goals, workers won’t know what they’re supposed to be working to achieve.
Solution – Understand what you want for your business. Break that down into specific goals that
your team can reach in a certain timeframe. Then, communicate these to your employees. This
reminds them of what they’re trying to accomplish and how to make it happen.

2. Strategic Planning and Focus

Goal setting isn’t going to work without a plan in place to help employees focus on goals.
Solution – To be truly effective, your performance management process should be aligned with
company objectives. Help your team to understand how their efforts contribute to critical goals.
Then, make a plan that focuses on prioritizing tasks that impact organizational progress the most.

3. Proper Evaluation and Feedback

Without balanced and timely feedback, performance management cannot be done effectively.
Solution – Annual reviews only address recent issues and accomplishments. Instead, you should
evaluate employee performance and provide feedback regularly. This boosts motivation,
ownership of problems, and productivity.

4. Regular Coaching and Training

Similarly, employee assessment isn’t ineffective if it’s not paired with ongoing training.
Solution – Implement learning and development strategies that help employees grow both
individually and as a team. With the right mentorship, coaching, and skill development
programs, you can improve employee performance, engagement, and productivity at the
workplace.

5. Leadership and Management Support

Additionally, if you aren’t helping employees solve their problems, they have no reason to help
you solve yours. Solution – You can boost performance management processes tremendously by
encouraging leaders and managers to provide guidance, help, and support to employees. This
boosts morale and loyalty at the workplace, increases employee retention, and encourages your
whole team to work harder.

6. Reward and Recognition Programs

Motivation and confidence cannot improve without an appreciation for positive actions and
behaviours.
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Solution – Lack of appreciation and recognition can demoralize your team, leading to poor
employee performance. Make sure you have well-planned processes in place for rewarding and
promoting accomplishments, actions, and behaviours that have an impact on your business’s
success. Because of the significant connection between worker performance and organizational
development, you cannot neglect performance management. This isn’t just a formality put in
place by HR, but an essential part of your company’s daily functioning and eventual success!

CONTEXT AND DESIGN MODEL OF SYSTEM

CONTEXT /CONCEPT
A good performance management system improves a company’s overall profitability.
Performance management systems help establish employee expectations around specific roles,
outline resources available to them, and provide the structure for employee appraisals. The best
steps in designing a performance management system are endorsed from top management and
align with the needs of the business. Advanced planning can help you implement a performance
management system effectively.

1. SPEAK TO EMPLOYEES
Get employees involved in the early planning of a new system. The earlier they are included, the
more they will buy in to the process. Plus, you will ensure that the metrics, expectations and
incentives facilitated by the system make sense to the employees. Do not be afraid to staff the
task force with your best opinion leaders, even one who has a negative opinion. These people can
be the most effective advocates for the change once they become engaged. Provide a workshop
for the task force, if needed, so that they understand the challenge.

2. REVIEW JOB DESCRIPTIONS

Ensure that the descriptions of job responsibilities are accurate and reflect the current business
needs. Each description should include specific tasks, responsibilities, skills and expectations of
the role. Include both internal, i.e., within the company, and external customer, expectations for
the role. Job descriptions should clearly define the value that the role brings to department and to
the company.

3. DEFINE PERFORMANCE EXPECTATIONS

Define standards that determine whether performance is above, at or below expectations. One
way to do this is to have the task force create scenarios for each job. Each scenario will be
comprised of various job processes. How does exemplary performance look for each scenario?
What would be unacceptable?

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Metrics help ensure that the standard is measurable. There are objective metrics, such as numbers
and time to completion. There will also be subjective metrics, like attitude or customer
satisfaction. Enlist professional help, is necessary, to remove any bias from subjective metrics.

4. DESIGN THE ASSESSMENT TOOL

This task may be best handled by an external consultant who is experienced in the design of
survey and psychometric instruments. Alternatively, a human resource professional may be able
to provide assistance. It is critical that the wording encourages objective and honest appraisal
based on the goals of the position.
Ideally, assessment items should reflect the voice of the customer or internal end user. What
outcome would the customer want? Also include a review process. Test run a sample of the tool
through actual end users and make improvements as needed.

5. DESIGN FEEDBACK AND TRAINING TOOLS

Train evaluators on how to deliver feedback and coach performance. Feedback is only effective
if it is received. Managers can greatly increase chances of acceptance through thoughtful
preparation and delivery of the message. Spend time prior to assessments to ensure that
managers understand how to help employees through the feedback process.

6. MOTIVATE STAFF TO COMPLY

Encourage the behaviours you want by putting incentives in place. Employees do what they are
rewarded to do. This need not mean a complete overhaul to the compensation system. Rewards
can be as small as a public acknowledgment. However, rewards are an important way to
reinforce good performance and keep standards high.

PERFORMANCE MANAGEMENT MODEL/SYSTEM

The performance management process is intended to create an ongoing dialogue between the
supervisor and employee. The Division of Human Resources and Organizational Effectiveness
recognizes the PCER (Plan, Coach, Evaluate, and Reward) model for facilitating the
performance management process. Through this process, best practices are utilized to create a
performance plan, coach for successful completion of the plan, and complete the annual
performance evaluation.

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 Plan: Performance Management begins when the supervisor reviews the employee's
position restriction, communicates competencies, creates goals, and discusses them with
the employee. This helps establish mutual understanding of the performance and
behavioural expectations.
 Coach: The supervisor provides coaching and feedback throughout the year to help their
employees successfully reach their goals. The goals and any other documentation created
during the Plan phase become a working document to be referenced, and revised, if
necessary, throughout the performance review period. The supervisor and employee can
each create notes about employee performance at any time which are tracked outside the
Workday system.
 Evaluate: During the evaluation process, the supervisor may rely on multiple resources,
such as the employee self-evaluation, performance notes created during the year,
accolades, and customer feedback to assess the employee's performance. The supervisor
meets with the employee to discuss the performance evaluation, explain the ratings, and
provide feedback about strengths and areas for improvement. The supervisor then
completes the evaluation in Workday and sends it to the employee to review and
acknowledge before formally closing the review in Workday.
 Reward: The supervisor recognizes and rewards performance at year-end and during the
year as merited.

HUMAN RESOURCES ACCOUNTING.

Meaning
It is easy to define human resource accounting. Human Resource Accounting tracks and
manages employees’ costs and values, including performance, compensation, benefits, and
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training. HR professionals use various tools to track and analyse data, such as employee surveys,
performance reviews, and compensation and benefits reports. In addition to tracking employee
performance, HR professionals also need to track the performance of the organisation as a whole.
For example, HR professionals need to track the success of recruitment and retention efforts as
well as the success of initiatives that improve employee morale and satisfaction.
Human Resource Accounting is necessary for any organisation that wants to know how
well its employees are performing and how to improve more. In addition to tracking employee
performance, HR professionals also need to track the success of recruitment and retention efforts
as well as the success of initiatives that improve employee morale and satisfaction.
In order to track employee performance effectively, HR professionals need to use a
variety of tools. One important tool is an employee survey. An employee survey is a method for
collecting data from employees about their experiences with their employers. Another essential
tool is a performance review. A performance review is a method for evaluating an employee’s
performance against desired standards. Finally, HR professionals also need to track
compensation and benefits reports. A compensation and benefits report is a report that provides
information about an employee’s salary, benefits, and other compensation details.
Human Resource Accounting definition refers to a system of accounting that tracks the financial,
human, and non-financial aspects of an organisation’s employees. It is used to measure the
effectiveness of an organisation’s human resources strategy and to evaluate the performance of
employees. A Human Resource Accounting system should include metrics that measure
employee engagement, training effectiveness, and productivity. It should also track employee
turnover and absenteeism. The primary purpose of a Human Resource Accounting system is to
provide an accurate and reliable record of employee performance. It should also be used to
measure the effectiveness of employee training programs and evaluate employees' performance.

The HR accounting process involves the following:

 Identifying and understanding the needs of the organisation and its employees
 Identifying and developing the appropriate human resources
 Implementing effective recruitment, selection, training, development, and compensation
programs
 Maintaining an accurate and up-to-date HR system
 Ensuring that all employees are treated equally and fairly
 Maintaining an accurate and up-to-date payroll system

Main Features of Human Resource Accounting:

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 Human Resource Management: It involves everything from hiring and firing to

training and development.
 Employee Benefits: This includes things like health insurance and retirement benefits.
 Payroll: Includes things like payroll taxes, employee overtime costs, and other expenses
related to compensation and payroll processes
 Compensation: Things like salary, bonuses, stock options, and other forms of payment
that employees receive are included.
 Human Capital: Includes things like work hours, absenteeism, turnover rates, etc.
 Records Management: This involves everything from keeping track records to tracking
equipment usage.
 Benefits Administration: This involves keeping track of benefits provided by
employers, such as vacation days or paid time off.
 Recruitment & Selection - This involves recruiting new employees as well as screening
job applicants to fit into the organisation’s culture.

PERFROMANCE APPRAISAL PRACTICES IN INDIA

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