Page 30 - DMGT517_PERFORMANCE_MANAGEMENT_SYSTEM

Unit 2: Performance Management System

Step 3: Setting Targets Notes
This is an important step and involves extensive discussions an deliberation. Care must be
taken to ensure that targets are aligned to the company’s budgets and strategies.

Step 4: Defining Performance Levels
Performance in these selected criteria is measured across 5 levels, level 1 being the minimum
and level-5 being the maximum. The targets are normally slotted at level-3. Typically,
levels-4 and 5 are set at 110 per cent and 120 percent the target respectively. Similarly,

level-1 is fixed at 80 per cent and level-2 at 90 percent. However, there could be exceptions
depending upon the nature and scope of the criteria. It is also possible that in some cases
levels 1 and level 2 do not exist.
Performance-Payout Relationship

The payout may vary from 10 percent to 30 percent and may go upto 40 percent as well.
Normally, the performance and payout are linked as follows:
Performance levels 1 2 3 4 5
Payout percent 10 13 17 23 30

As is evident, the rate of payout progressively increases at higher levels of performance.
The percentages in the table are of the annual salary and normally include basic pay, house
rent allowance, special allowance, conveyance allowance, LTC, medical, provident fund
and superannuation.
The entire process of PLI can be illustrated with and example as below:
1. Take any job.

Example: Regional Sales Manager
2. Company-wide business parameters
Weightage
(a) Revenue 20%

(b) Profi ts 20%
Individual parameters: Weightage
(a) Increase in market share in region (MS) 20%
(b) Increase in sales turnover (ST) 20%
(c) Increase in reliability and service level of Products (REL) 20%
(d) Decrease in level of outstandings (OS) 10%

3. For each responsibility, define a goal or target, for instance

(a) Increase market share in the region to 26 percent
(b) Increase sales turnover to ` 1,500,000 lakhs
(c) Increase reliability and service level of products (CI index of 80 percent)

(d) Decrease level of outstanding to 30 days
In the case of subjective elements, data is captured as indices.
Contd....

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