Performance

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Performance Compensation Management
Shah M Saad Husain
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Performance Compensation Management
Shah M Saad Husain B Engg, MS Engg, PE, MBA,
FICS, FIMM

• 33 years senior management experience with
  government, Pakistani private sector and
  multinational companies.
• in Project Management, Engineering Operations,
  General Management, Business Development,
  External Affairs, Marketing, HR, Corporate
  Planning, CSR and Customer Relations.
• with PIDC, Habib Group, British Petroleum, BHP
  Billiton, Indus Motor, Pak-Arab Refinery.
• 22 years teaching experience at IBA, CBM, PIQC,
  PIM, NIPA, LUMS. Subjects HRM, Performance
  Compensation Management, Marketing Management,
  Strategic Management, Project Management,
  Industrial Marketing, Japanese Management, CSR,
  Customer Ascendancy.

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Performance Compensation Management Course
Contents

• HR and Organizational Strategy
• 1 HR in the 21st Century
• 2, 3 The Strategic Role and Outcome of
  HRM
• 4, 5 HR Strategies and Organizational
  Performance
• Performance Management
• 6,7 Objectives of Performance
  Management
• 8, 9 Performance Management Systems
• 10 Employee Training Development
• 11 Manpower Planning Recruitment
• 12 Succession Planning
• Reward Management
• 13 Objectives of Reward Management
• 14, 15 Job Evaluation, Internal and External
  Equity
• 16, 17 Compensation
• 18, 19 Grade Pay Systems
• 20 Factors Influencing Pay
• 21 Impact of Environment on Reward
  Management
• 22, 23 Reward Model Strategy
  Implementation
• 24, 25 Motivation, Reward Organizational
  Commitment

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Course Objectives
Performance Compensation Management

• Knowledge of P R Management Theory, Concepts,
  Processes and Practices.
• Identifying Sources of Information and using
  them.
• Class Interaction, learning from the Marketplace.
• Practical Application of course, developing
  Strategies for Organizations.
• Performance Assessment Students nTeacher.

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Course Requirements
Performance Compensation Management

• Readings from selected texts, journals
• Theory, Concepts discussed in Class
• Student Projects and Reports
• Real Life Cases
• Examinations
• Presentations and Class Evaluations
• Class Participation, Quizzes, Home Assignments

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Instructions for Students
Performance Compensation Management

• Bring Course File to each class
• Read reading materials before class
• Write notes as slides are explained and discussed
• Keep track of Course Calendar, Class Timings,
  Grades, etc., on e-group and with CR
• Maintain contact with CR and SSH
• Meet Attendance and Punctuality requirements
• Discipline is key. Adhere to IBA Rules.

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Performance Compensation Management - Grading

• Midterms ( 2 x 20 ) 40
• Final 30
• Project Report, Presentation 25
• Home Assignments, Quizzes 5
• All Quizzes are open book
• For an overall A grade in the course
• A in Final
• A in Project Report
• Active Class Participation

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Performance Compensation Management - Readings

• I. Luis R. Gomez Mejia, David B. Balkin,
• Robert L. Cardy (2008) Prentice Hall
• Managing Human Resources
• ii. Michael Armstrong (2008) Kogan Page
• Employee Reward Management Practice
• iii. Wayne F. Cascio (2006) Tata McGraw-Hill
• Managing Human Resources

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Performance Compensation Management

• 1 HR in the 21st Century
• 2 The Strategic Role and Outcome of HRM
• 3 - HR Strategies Organizational Performance

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HRM and the 21st Century

• Due to Internet technologies, organizations are
  undergoing a complete transformation. The 21st
  century organization must adapt itself to
  management via the web.
• Intellectual capital will be critical to success.
  Advantage of bringing new technologies to the
  market will be shorter. Technologies will let
  competitors match them almost immediately.
• In such times, it will be critical to attract and
  retain the best thinkers.
• Retaining and attracting the top talent will
  require more than just paychecks. It will require
  a culture of empowering people, and a reward
  system that rewards the best as if they were the
  owners of the company.
• Intellectual capital will be called on from
  around the globe. A global corporation might be
  based in the US but does its software programming
  in Sri Lanka, engineering in Germany, its
  manufacturing in China, and is linked via the
  Internet to allow employees to interact and work
  in real time.

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HRM and the 21st Century Corporation
20th Century Corporation 21st Century Corporation
Predicated itself on stability Predicated itself on constant change
Organized around rigid hierarchies Organized around networks and teams
Built on self-sufficiency Built on shifting partnerships and alliances
Organizational chart defined as a shrinking pyramid leading to the CEO Organizational chart more likely to be a flat web, intricately woven that links partners, employees, external contractors, suppliers, and customers in various collaborations
Constructed on bricks and mortar Constructed on knowledge and technological advantages.
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Introduction to HRM

• Human Resources Strategy in a firm is a firms
  deliberate and planned use of human resources to
  help it gain a competitive advantage.
• The HRM strategy of a firm is its grand plan to
  ensure that it effectively uses its people to
  accomplish its mission.

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HUMAN RESOURCE MANAGEMENT

• Employer/Organizational Objectives
• Organizational Structure
• Job Identification, Analysis Design
• Job Specification (Before Joining)
• Job Description (After Joining)
• Tasks, Activities, Responsibilities,
  Accountabilities
• Power (Financial/Administrative)
• Reporting Structure
• Manpower Planning, Recruitment, Induction
• Training Development

Employer Objectives
JOB (Scope Depth)
Employee Objectives

• Growth in
• Goods Services
• Customer Satisfaction
• Revenue Generation
• Profits
• Return on Equity (ROE)
• Expansion of Business
• Corporate Reputation

Work

• Growth in
• Family Self
• Profession
• Career
• Security
• Social Status

Services
Employee Employer Relationship
EMPLOYER
EMPLOYEE
Performance Management
Compensation Rewards

• Salary
• Benefits
• Facilities and Perks
• Allowances
• Professional, Career, Societal Recognition
• Internal External (Mkt) Equity

• Performance Evaluation
• Increments
• Bonus
• Incentives
• Career Development
• Ultimate Potential

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Outcomes of HRM Practices

• HRM practices make an important practical
  difference in three key organizational outcomes.
• Productivity
• Quality of Work Life
• Profit Total Revenue minus the Total Cost

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Outcomes of HRM Practices 1. Productivity

• A measure of the output of goods and services
  relative to the input of labor, capital, and
  equipment.
• Higher productivity
• Leads to higher wages without boosting inflation.
• Is not working harder, it is working smarter.
• Is about doing more with fewer people, less
  money, less time and space, and fewer resources.

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MORE PRODUCTIVE ORGANIZATIONS GET MORE GOODS AND
SERVICES FROM A GIVEN AMOUNT OF LABOR, CAPITAL,
EQUIPMENT.
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Outcomes of HRM Practices 1. Productivity
Improvement

• Rebuild employee loyalty.
• Establish a clear link between rewards and
  production.
• Say no to Quick Fix approach.
• Emphasize on Continuous Improvement.

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Outcomes of HRM Practices 2. Quality of Work
Life

• Two ways of looking at Quality of Work Life (QWL)
• Organizational Conditions and Practices such as
  promotion from within, democratic supervision,
  participative management, employee involvement,
  safe working conditions, mutual trust, team work.
• Employees Perceptions that they are respected,
  relatively well satisfied, and able to grow and
  develop as human beings and professionals.

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Outcomes of HRM Practices 3. Profit

• Management Systems that produce profits through
  people share the following dimensions
• Employment Security.
• Selective Hiring.
• Self-managed teams and decentralization.
• High Compensation contingent on organizational
  performance.
• Extensive Training, Development and Professional
  grooming.
• Reduced differences in status. Respect for
  competence and performance.
• Sharing of information, effective communication
  systems.
• Employee Care and Satisfaction.
• Trust.

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Outcomes of HRM Practices 4. Roles of HR
Professionals Today The greatness of an
Organisation is due to the Greatness of its
People, Eiji Toyoda

• Strategic Partners work with multiple
  stakeholders to achieve business plans.
• Innovators create an environment that supports
  continuous learning and improvement.
• Collaborators create win-win situations with
  internal and external stakeholders.
• Change facilitators anticipate the need for
  change, think, conceptualize, articulate, execute
  and energize organization to bring change.

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HRM and Corporate Strategic Goals

• Human Resource Management is essential to advance
  a firms strategic goals.

CORPORATE STRATEGIC GOALS
Linking Corporate Strategic Goals with HRM
CORPORATE STRATEGY
HR STRATEGY
HR TACTICS
HR PLANS
HR POLICIES, SYSTEMS, SOPs
HR PRACTICES
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HRs Strategic Role

• Successful firms align their HR strategies and
  tactics with
• Environmental Opportunities and Threats.
• Business Strategies.
• Organizational Unique Characteristics.
• Organizations Competence.

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Planning and Implementing Strategic HR

• Strategic HR Planning involves
• Formulation of HR strategies
• Designing Programs and Tactics
• Execution
• Monitoring Results

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The Benefits of HR Planning

1. Encouragement of proactive rather than reactive
   behavior
2. Explicit communication of Company Goals
3. Stimulation of critical thinking and ongoing
   examination of assumptions
4. Identification of gaps between Current Situation
   and Future Vision
5. Encouragement of Line Managers Participation
6. Identification of HR constraints and
   opportunities
7. Teamwork and creation of common bonds

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The Challenges of Strategic HR Planning

1. Maintaining a competitive advantage
2. Reinforcing overall business strategy
3. Avoiding excessive concentration on day-to-day
   problems
4. Developing HR strategies suited to unique
   organizational features
5. Coping with the environment
6. Securing management commitment
7. Translating the strategic plan into action
8. Combining intended and emergent strategies
9. Accommodating change

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Selecting HR Strategies to Increase Firms
Performances

• HR Strategys effect on a firms performance
  depends on how well it fits with other factors
• Fit refers to the consistency and compatibility
  between HR strategies and other important aspects
  of the organization

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Fit with Organization Strategies

• Corporate Strategy is referred to as the mix of
  businesses a corporation decides to hold and the
  flow of resources among those businesses. e.g.,
  PARCO
• Business Unit Strategies are those that are
  formulated and implemented by a firm that is
  relatively autonomous, even if it is part of a
  larger corporation. eg. PAPCO

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Effective HR Strategy Formulation and
Implementation
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HR Strategies to Fit Three Major Types of
Business Strategies
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HR Strategies That Fit Two Major Types of
Business Strategies
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Fit with the Environment

• HR strategies should help the organization better
  exploit environmental opportunities or cope with
  the unique environmental forces that affect it
• The relevant environment can be measured in terms
  of four dimensions
• Degree of uncertainty how much accurate
  information is available to make appropriate
  business decisions
• Volatility how often does the environment change
• Magnitude of change how drastic the changes are
• Complexity how many different elements in the
  environment affect the firm either individually
  or together

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HR Strategies for Firms with Different
Environmental Characteristics
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Fit with Organizational Characteristics

• The production process for converting inputs into
  outputs
• Routine production process benefits from HR
  strategies that emphasize control
• example Specific job description and job
  specific trainings
• Firms with non-routine production processes such
  as advertising firms, custom printers, and
  biotechnology companies, benefit from flexible HR
  strategies that support organizational
  adaptability, quick response to change and
  creative decision making
• example Broad job classes, loose work planning,
  and generic training

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Fit with Organizational Characteristics

• The Firms Market Posture
• Firms that experience high sales growth and
  engage in product innovation for a wide market
  segment benefit from HR Strategies that support
  growth and entrepreneurial activities
• example External recruitment or buying skills,
  decentralized pay decisions, customized appraisal
• Firms with low rates of sales growth and limited
  product innovation for a narrow market segment
  benefit from HR strategies that emphasize
  efficiency, control, and firm specific knowledge
• example Internal recruitment or making
  skills. On-the-job training, and high dependence
  on superiors

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Fit with Organizational Characteristics

• The firms overall managerial philosophy
• Companies whose top executives are risk-averse
  and operate with an autocratic leadership style,
  and are inwardly focused use HR strategies that
  match this outlook
• example Seniority based pay, formal hiring and
  socializing of new employees, selection decisions
  made by the HR department and use of top-down
  communication channels.
• Management characterized by high risk taking,
  participation, egalitarianism, and external,
  proactive environmental orientation use HR
  strategies that fits this outlook
• example include variable pay, giving
  supervisors a major role in hiring decisions,
  up-and-down communication channels, and multiple
  inputs for performance appraisals

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Fit with Organizational Characteristics

• The firms organizational structure
• Highly formal organizations that are divided into
  functional areas like marketing, finance,
  production, etc, and concentrate decision making
  on top HR strategies for such organizations
  include a control emphasis, centralized pay
  decisions, explicit job descriptions, and
  job-based pay.
• Firms whose structures are less regimented
  benefit from HR strategies that include informal
  hiring and socializing of new employees,
  decentralized pay decisions, broad job classes
  and individual-based pay.

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Fit with Organizational Characteristics

• The firms organizational culture
• Companies that foster an entrepreneurial climate
  have loose work planning, informal hiring and
  socializing of new employees and variable pay.
• Firms that discourage entrepreneurship generally
  prefer a control emphasis, detailed work
  planning, formal hiring and socializing of new
  employees, and fixed pay.
• Firms with emphasis on moral commitment- the
  extent to which a firm tries to foster a
  long-term emotional attachment between the firm
  and the employees have emphasis on preventive vs.
  remedial disciplinary action to handle employee
  mistakes, and explicit ethical codes to monitor
  and guide behavior.
• Firms that are low on moral commitment rely on
  authoritarian relationship between employee and
  company.

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Fit with Organizational Capabilities

• Distinctive competencies of a firm are its
  capabilities such as technology, management
  systems, reputation, etc, that give it a
  Competitive Edge
• HR strategies should enhance a firms performance
  by
• 1. helping the company exploit its specific
  advantages or strengths while avoiding weaknesses
• 2. assisting the firm in better utilizing its
  unique blend of human resource skills and assets

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Choosing consistent and appropriate HR tactics to
implement HR strategies

• The best-laid HR strategies may fail when
  specific HR programs are poorly chosen or
  implemented
• In addition to fitting with each of the four
  organizational characteristics organizational
  strategy, environment, organizational
  capabilities and characteristics, a firms HR
  strategies should be mutually consistent
• HR strategies are likely to be successful if they
  reinforce one another rather than work at
  cross-purposes.
• example Working in teams, but traditional
  individual based performance appraisals

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Choosing Consistent and Appropriate HR Tactics to
Implement HR Strategies
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Reckitt Benckiser diagram
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STEP 1 (PLAN) STEP 1 (PLAN) STEP 1 (PLAN) STEP 1 (PLAN)
Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department. Individual Pre Study on the Industry what are the practices of the HR Department.

STEP 2 (METHODOLOGY) STEP 2 (METHODOLOGY) STEP 2 (METHODOLOGY) STEP 2 (METHODOLOGY) STEP 2 (METHODOLOGY) STEP 2 (METHODOLOGY)
CONFIRM CONFIRM 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company. 1st collection of the existing information in the form of secondary Data of Company.
LISTEN LISTEN Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company. Interview from the Managers Heads of the company.
Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry. Development of questionnaire asking the questionnaire from different levels of people from the industry.
LOOK LOOK Visual observation of the behavior of people at the industry. Visual observation of the behavior of people at the industry. Visual observation of the behavior of people at the industry. Visual observation of the behavior of people at the industry. Visual observation of the behavior of people at the industry. Visual observation of the behavior of people at the industry.
THINK THINK Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen. Brain Storming with the existing HR people to come up with Kaizen.
DO DO Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions) Formulate a GAP analysis of the HR lackings. (Which have been learnt from previous brain storming sessions)

STEP 3 (CHECK) STEP 3 (CHECK) STEP 3 (CHECK) STEP 3 (CHECK)
After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly.

STEP 4 (ACTION) STEP 4 (ACTION) STEP 4 (ACTION) STEP 4 (ACTION)
Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices. Formulation proposing of the KAIZEN Action Plan to enhance HR practices.

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Competencies Required of HR Department to Become
a Full Strategic Partner