Chapter 7 - Human resource aspects of performance management Flashcards
What does a ‘reward system’ refer to?
All the…
- monetary,
- non-monetary and
- psychological payments
that an organisation provides for its employees in exchange for the work they perform
What are seven purposes of reward?
- To assist in the achievement of strategic objectives
- To ensure the recruitment and retention of appropriately skilled and experienced staff
- To provide a fair and consistent basis for rewarding employees.
- To motivate staff and maximise performance.
- To reward performance through promotion or progression.
- To control salary costs.
- To comply with legal requirements and ethical obligations.
From the perspective of reward, what do we mean by what gets measured gets done?
If an employee knows that they are being assessed on the achievement of pre-agreed targets, they are more likely to work hard to achieve these.
From the perspective of reward, what do we mean by what gets measured and fed back, gets done well?
If an employee knows that their performance is being measured and fed back to, for example their manager, they are more likely to work hard to achieve the objectives set.
From a reward perspective what do we mean by What gets rewarded, gets repeated’
The employee should feel that they are being rewarded for the achievement of the objectives set, otherwise they will not be motivated to work hard to achieve current and future objectives.
What is Vrooms expectancy theory?
Force = valence × expectancy
Force = the strength of a person’s motivation.
Valence = the strength of an individual’s desire for an outcome.
Expectancy = the probability that they will achieve that outcome.
What is Maslows hierachy of needs?
Self fulfilment
Ego
Social
Safety/Security
Basic/Physiological
What are four methods of reward?
- Basic pay
- Benefits
- Executive share options schemes
- Performance-related pay
What are three advantages of Basic pay?
- Easy to administer.
- Basic employee needs taken care of.
- A competitive rate of basic pay can assist in attracting and retaining the best employees.
What are two disadvantages of Basic pay?
- Does not motivate employees to achieve strategy (no alignment to strategic goals).
- Does not motivate employees to improve performance.
What are four advantages of Benefits?
- Can be tailored to the individual employee.
- Can be less expensive than basic or performance-related pay.
- Can be used as a tool to attract and retain the best employees.
- Can compensate for lower rates of basic or performance-related pay.
What are four disadvantages of Benefits?
- Employees may not want the benefits offered.
- Does not motivate employees to achieve strategy (no alignment to strategic goals).
- Additional cost of providing the benefits.
- Can be complicated to administer.
What are five advantages of Executive share options schemes?
- Should align management and shareholder interests
- Can assist in attracting and retaining the best directors.
- Can encourage risk-averse directors to take positive action to increase the value of the company.
- Can compensate for payment of a lower salary or benefits.
- Can be a tax-efficient way of remunerating directors.
What are three disadvantages of Executive share options schemes?
- Can encourage risk-seeking behaviour in the hope of increasing the value of the options.
- Costly and time consuming to administer.
- It may give directors an incentive to manipulate share price , particularly if a large number of options are due to be exercised.
What are 6 examples of performance relating pay?
- Individual performance-related pay
- Group performance-related pay
- Profit-related pay
- Commission
- Piecework schemes
- Knowledge contingent pay
What example of performance relating pay is below?
A pay rise or bonus is given to an employee on achievement of pre-agreed objectives or based on the assessment by a manager.
Individual performance-related pay
What example of performance relating pay is below?
Rewards are based on the achievement of group targets. Encourages teamwork but may not be seen as fair by employees.
Group performance-related pay
What example of performance relating pay is below?
Part of the employee’s remuneration is linked to organisational profit. Can motivate employees to increase company profit and increase loyalty but may lead to short-termism and lack of motivation if employees feel they have no control over organisational profit.
Profit-related pay
What example of performance relating pay is below?
Used for sales staff and is based on a percentage of their sales. Can motivate staff but may lead to shorttermism and manipulation of results.
Commission
What example of performance relating pay is below?
A price is paid for each unit of output. Often viewed as a fair system but quality control will be required.
Piecework schemes
What example of performance relating pay is below?
For example, an accountant may receive a bonus or pay rise on passing their ACCA exams.
Knowledge contingent pay
What are four advantages of Performance-related pay?
- Motivates employees to achieve strategy, if aligned to this.
- Motivates employees to improve performance.
- Can be used as a tool to attract and retain the best employees.
- Can compensate for lower rates of basic pay or less attractive benefits.
What are four disadvantages of Performance-related pay?
- Can be subjective and inconsistent.
- Can be viewed as unfair if based on team/company performance.
- Stressful for employee if they rely on this pay for basic needs (e.g. in the case of commission).
- Can be complicated to administer.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour such as…
Misrepresentation
Creative reporting to suggest that a result is favourable
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour such as…
Gaming
Deliberate distortion of performance in order to achieve the rewarded goals.
For example, a manager may decide to cut divisional investment to boost divisional return on investment (and their reward) but this may result in a long-term fall in profits.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Misinterpretation
Failure to recognise the complexity of the environment in which the organisation operates.
Example: Financial indicators good but customer satisfaction poor
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Short-termism (myopia)
Measures chosen are short-term in nature, leading to the neglect of longer-term objectives.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Measure fixation
Excessive focus on certain behaviours in order to achieve specific performance indicators which may not be effective.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Tunnel vision
An undue focus on stated performance measures and a consequent lack of resources being applied to unmeasured areas.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Sub-optimisation
If the areas measured are not optimally chosen, performance is only driven by the measured factors and the outcome will not be the best possible for the organisation.
Poorly designed performance measurement can result in wrong signals and dysfunctional behaviour.
Ossification
An unwillingness to change the performance measurement scheme once it has been set up, especially when it shows that good or adequate results are being achieved.
What are Hopwoods three management styles?
- Budget constrained
- Profit-conscious
- Non-accounting
What is the Budget constrained style?
- The manager’s performance is primarily evaluated upon their ability to continually meet the budget on a short-term basis.
- The manager will receive unfavourable feedback from their superior if their actual costs exceed the budgeted costs, regardless of other considerations.
What is the profit conscious style?
- The manager’s performance is evaluated on their ability to increase the performance of the unit’s operations in relation to the long-term purposes of the organisation.
- Measures of long- term profitability will be used. For example, the net present value (NPV) of a project over its entire life may be used when making decisions.
What is the non-accounting style?
- Little emphasis on financial performance, looking instead at non-financial aspects and how these drive long-term performance.
- Non-financial measures such as customer satisfaction, employee morale, energy/water usage or innovation may be used.
What are two advantages of the Budget constrained style?
- Should ensure short term targets are met
- May be more motivating for employees who find it easier to focus on the short term
What are three advantages of the profit conscious style?
- Gives flexibility to go off plan
- Less job related pressure or manipulation of data
- May help retain employees for longer
What are three advantages of the non accounting style?
- Focus is on causes rather than effects
- More meaningful and motivating targets
- Less job related pressure and manipulation of data
What are five disadvantages of the budget constrained style?
- Short-termism (for example, cost cutting).
- Stress for employees and difficult working relationships.
- Lack of flexibility.
- Stifles ingenuity.
- Can result in manipulation of data.
What are two disadvantages of the profit conscious style?
- Loss of short-term control (resulting in, for example, cash flow issues).
- May ignore non-financial aspects such as ESG issues, customer satisfaction or innovation
What is one disadvantage of the non-accounting style?
- Financial implications of behaviour may be neglected
