Page 143 - DMGT517_PERFORMANCE_MANAGEMENT_SYSTEM

Performance Management System

Notes Where a performance-oriented philosophy is followed, organizations do not guarantee additional
or increased compensation simply for completing another year of organizational service. Instead,
pay and incentives reflect performance differences among employees. Employees who perform

well receive larger compensation increase; those who do not perform satisfactorily see little or
no increase in compensation. Thus, employees who perform well receive larger compensation
increases; those who do not perform satisfactorily see little or no increase in compensation.
Thus, employees who perform satisfactorily, advance in relation to market compensation levels,
whereas poor or marginal performers may fall behind. Also, bonuses are determined on the basis
of individual, group, and/or organizational performance.
Few organizations follow totally performance-oriented compensation practices. However, in
the midst of organizational restructuring occurring throughout many industries, organizations
look for compensation systems that break the entitlement mode. Even in the public sector, some
organizations have recognized the need to shift toward more performance-oriented re-organized
compensation practices. How fast the shift occurs, given the traditions and the strength of public-
sector unions, remains to be seen.

A performance orientation requires a variable pay approach in which pay goes up or down based
on a measure of performance. Not everyone in the same job will be paid exactly the same, and not
everyone will like the approach.

Notes Traditional Compensation Approach vs. Total Rewards Approach
Traditional Compensation Approach Total Rewards Approach
Compensation is primarily base pay Variable pay is added to base
Bonuses/perks are for executives only Annual/long-term incentives are provided to
executives, managers, and employees
Fixed benefits are tied to long tenure Flexible and portable benefits are offered

Pay grade progression based on organizational Knowledge/skill-based broad bands determine
promotions. pay grades.
Organization – wide standard pay plan exists Multiple plans consider job family, location
and business units

12.4 Implications of Performance Linked Reward System

Four main questions in relation to reward system are:
1. Who should be rewarded?
2. What rewards should be given?

3. How should assessment be done for deciding the rewards?
4. How rewards should be given?
We shall discuss each issue with examples of practices in the Indian organizations.

12.4.1 Whom to Reward?

Rewards are symbols of appreciation and recognition. Rewards reinforce what the organization
values and wants to be strengthened. So, almost every one related to the organization can be
covered by the reward system.

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