Page 140 - DMGT517_PERFORMANCE_MANAGEMENT_SYSTEM

Unit 12: Performance Management Linked Reward System

12.1 Performance Management and Reward Notes

According to Lockett (1992) “the essence of performance management is the development
of the individuals with competence and commitment working towards the achievement of
shared and meaningful objectives within the organisation, which supports and encourages the
achievement.” Performance Management is a process which is designed to improve organisation
team and individual performance – it is shared/participative process, an integrating process –
based on agreements on accountability, measurement and Review, feedbacks, development and
improvements on continuous basis.

Notes Some Safeguards before introducing Performance Pay

1. Criteria for measuring performance of work and contribution to company needs to be
developed, communicated, understood and accepted
2. Clarity in setting target/results for measuring performance
3. Regular/Periodic Feedback on Performance

4. Reward System/Performance Pay on line with desired target/result to be achieved
5. Appropriate ratio in pay which is subject to performance
6. Need for a periodic evaluation of the scheme

7. Need to recognise that performance when influenced by factors outside control how
will they be evaluated (Exchange rates, recession, sudden spurt/fall in demand)

The challenges before compensational reward system are to attract the right kind of human capital
and to motivate it to develop and perform in the way that increases shareholders value. Unless
their reward and compensation system accomplishes these two objectives, most organisations
cannot be affected in a highly competitive business environment. Simply spending large amount
of money is not enough; the money must be spent in ways that attract, retain and motivate the
right people.
Creating reward systems that focus on excellence and treat employees as human capital investors
requires a major change in the way most systems operate. Reward system generally treats
employees as jobholders and how well they perform their jobs. Viewing them as human capital
investors suggests a different approach to rewards in two respects. (1) It suggests basic reward
on the value of human capital that people bring to organisation. What their job is at a particular
moment is much less important than the value of their knowledge and skills. (2) It suggests
rewarding people according to how effectively they use their human capital – their knowledge,
skills and competencies – to help the organisation improve its business performance.

Creating reward system that recognises the value of human capital and reward performance
excellence is not easy. It requires a total departure from traditional compensation system and
a careful articulation of existing reward system, business strategy, organisational design,
information systems, etc.
Designing performance linked reward system is conditioned by a variety of factors; such as,
nature of business, type of technology, the attitude of unions, and human resource strategy of
organisation. Therefore, no standard model can be recommended. It has to be customized.

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