Page 141 - DMGT517_PERFORMANCE_MANAGEMENT_SYSTEM

Performance Management System

Notes
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Caution Performance linked reward systems reduce labour cost, result in increase in real
wages and motivate performance. They provide a method of observing cost escalation
on account of pay increase and thus, help in sustaining the competitiveness of the
organisation.
It has been increasingly realised that performance related pay if used in isolation, may have
little impact on motivation for performance. Appropriate conditions have to be created
in the organisation for performance linked reward system to be motivationally effective.
These conditions will involve, for instance, proper information, proper consultation, proper
communication, proper training and development of the employees, developing a proactive
attitude and performance-oriented culture, providing non-monetary incentives and evolving an

efficient management performance.
Employee’s performance depends on mainly three factors – skill, knowledge & motivation:
Employees performance= f (SKM) + External Environment
Where,
S = Skill & ability to perform task
K = Knowledge of facts, rules, principles & procedures
M = Motivation to perform

12.2 Components of Reward System

The key elements of an organisation’s reward system can be categorised as follows:
1. Financial Reward: Financial rewards include the direct monetary rewards in terms of cash
for their work and achievements.

Example: Salary, wages, incentives etc

2. Non-fi nancial Rewards: The non-financial reward contains many of the reward components
that behavioral scientists have been describing for the past 50 years as critical for improving

workplace performance. Non-financial rewards can be in form of:
(a) Enhanced Dignity and Satisfaction from Work Performed: Possibly the least costly and
one of the most powerful rewards an organization can offer to an employee is to
recognize the person as a useful and valuable contributor. This kind of recognition
leads to employee feelings of self-worth and pride in making a contribution. Few
people want simply to be given something. They would much prefer to know
that through their own efforts, they have earned and deserved rewards. Every
compensation and non-compensation reward component should carry with it the
message. “we need you and appreciate your efforts.”
(b) Enhance Physiological Health, Intellectual Growth and Emotional Maturity: Considering
the number of hours a person spends on the job, on travel to and form the work
site, and off the job in attempting to resolve job-related problems frequently receive
minimal attention until a serious problem occurs. Once this happens, however,
it overrides all other employee concerns and activities. Modern health practices
recognize the direct relationship between the physiological health and intellectual
and emotional well-being of each individual.
(c) Promote Constructive Social Relationships with Coworkers: An old adage states that
“One man is no man.” Although there are constant reminders of what one dedicated

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