HUMAN RESOURCE MANAGEMENT

Strategic and International Perspectives

CHAPTER 11
PERFORMANCE MANAGEMENT AND
MOTIVATION
 Learning Outcomes
• Identify key components of effective Performance
Management Systems

• Understand the role of motivation in performance

• Explore the different types of motivating tools and

understand why people are motivated differently

• Understand why a PMS developed for domestic

purposes doesn’t automatically work for international
operations
What is performance
management?
 What is Performance
Management?

Measured through Performance management

Competitive
Human resources
advantage

HRM Including the management

of job satisfaction and the
understanding of the PM
 What is Performance
Management?
• Performance management is the “process through which
organisations can ensure that individual employees are
working towards organisational goals, by monitoring and
guiding their performance”
• This includes several critical components:
1. job assignment
2. goal setting This is what people
think PM is, but it
3. establishing performance standards is just a part of it!
4. providing feedback
5. performance appraisal (including documentation)
6. distributing/allocating outcomes (rewards/punishment)
Why job assignment is relevant
from both the employers’ and
employees'’ perspectives?
 1. Work (job) Assignment
• Hiring should focus on individuals
that have a good fit the
organization and the job
Staffing and
• After recruitment and selection, work
assignment

P-O fit should be improved

through training and personal
development (incl. goal setting,
feedback, coaching, etc.) Training and
development
P-O and P-job
fit

• Performance management should

thus ensure (via WA) limited gaps
between the individual’s skills and
abilities and the job requirements Continuous improvement perspective
Which are the key rules to be
considered for goal setting?
 2. Goal Setting
• Clear and unambiguous goals (≠ strict rules!) are essential for
employee buy in.
• An effective goal setting is based on goals that are:
– Specific
Strategic goals at
– Measureable corporate level
– Attainable
– Relevant and realistic
Definition of roles
– Timely and
responsibilities

SMART!
Definition of
individual’s goals
Goals should be set
ex-ante!
Are performance standards to be
shared among employers and
employees?
 3. Establishing Performance
Standards
• The employee should know “How will individual performance
be judged?” à standards should be explicit
• Measurements against established standards ensure fairness
of the review process
• Both the employee and the employer can regularly track
personal and organizational achievements
• Implications for motivation and proactive behaviour

Definition of goals Metrics Assessment Behaviour

Which are the key rules to be
considered for providing
feedbacks?
 4. Providing Feedback
• Beside self-assessment, regular information sharing between
supervisors and subordinates is necessary but also sometime
unpleasant, i.e. a challenge when providing negative
feedback
• Feedbacks promote procedural fairness and allow the
prevention of future errors
• Importance of culture: feedbacks as an opportunity and not
as a punishment
• Procedures for feedback documentation increase acceptance

Task No
Ex post and
related (not Timely and personal or Fair
evidence-
person specific ambiguous feedback
based
related) comments
Which are the key rules to be
considered for performance
appraisal?
 5. Performance Appraisal
• Performance appraisal refers to the formal evaluation of
employees conducted to determine the degree to which they
are meeting specified objectives. This has a:
– Administrative purpose: determine pay and promotions (i.e.
focus on past performance)
– Developmental purpose: determine individual needs (i.e. focus
on future performance; e.g. perceived supervisor’s support)
• It’s important that PA is perceived as fair, transparent and
objective. The appraisal procedures should be:
– Shared among appraisers and appraisees
– Documented
– Followed by an accurate communication of purposes
 Performance Appraisal – Key
Considerations
• The evaluation process
– Clear roles and responsibilities (everybody should know in
advance what to do to succeed and document the success, i.e.
prepare in advance) à “no one likes to be left out of the room
when money is being counted!”
– Based on both the recording of performance-related information
and supporting documentation from the appraisee
• The scheduling of evaluation (including participated reviews)
– Yearly, monthly, project based, etc. (accuracy/effort trade-off)
– Being clearly informed of the timing helps being well prepared
and detecting deviations from the expected results in early phases
 Performance Appraisal – Key
Considerations
• The appraiser: single-source or multi-source feedback
– Appraiser = often the direct supervisor (Pros = familiar with the
task; enables feedback and coaching; Cons = independence?) à
best for administrative approach
– Multi-source feedbacks (e.g. 360 degree) often come from both
the supervisors and subordinates, peers, clients, customers, etc.
(Pros = accuracy; Cons = costs; incommensurability of different
perspectives) à best for developmental approach
• Evaluating performance
– Importance of training for both appraisers and appraisees on:
organization’s policy on PMSs; purpose of the appraisal
(developmental/administrative); PA process; established
standards; forms and tools; feedback process; implications (e.g.
impact on compensation and career)
– Evaluation is subject to the same biases of the selection process
(…see next slide…)
Which are the typical errors to be
prevented in performance
appraisal?
Performance Appraisal – Key
Considerations
It is better to set performance or
distribution thresholds?
 Performance appraisal in practice:
the example of the “bell curve”
• Bell curve = forced distribution method
• Fixed percentage (e.g. 10%) of individuals are a-priori rated at
the high end on low end of the scale, e.g.:
%
Maybe too generous?

A-priori reasonable

Rate
1 2 3 4 5

Forced adjustments that usually generate:

The first time:
• Motivations to work harder so as to achieve the higher rate next year
After some failed attempts:
• For individuals rated 4: reductions of efforts (i.e. regression to the mean)
• For individuals rated 1: continuous effort to not get fired
 Which are the dimensions to be
included in performance appraisal?
 Performance Appraisal – Key
Considerations
• What will be evaluated? One or combination of:
– Traits: best when e.g. consciousness drives expected performance
(e.g. attitude in intellectual jobs)
– Behaviours: best when e.g. quantity of work drives expected
performance (e.g. presence at work)
– Outcomes: best when easily measurable and without trade-offs
with traits and/or behaviours (e.g. unethical conduct)
• Performance-related information
– The information collection protocol ensures that the PA is
objective and unbiased, relevant, systematic, replicable,
communicable
– Keep the outcome of the appraisal confidential or public?
Which are the key rules to be
considered for allocating
outcomes?
 6. Distributing/Allocating
Outcomes
• Employment is an exchange relationship, where efforts are
made for a compensation/reward
• Expectations usually raise with the performance (i.e. what
will be the rewards/compensation for high performance?)
• Culture and fairness are the key to avoid misconducts and
opt for individual or team rewards

Outcomes Allocation Trust/satisfaction Behaviour

What does the expectancy theory
highlight about performance
management?
 Performance Management and
Employee Motivation
Motivation = “process used to allocate energy to maximise the
satisfaction of needs”.
Needs and wants change from person to person.
According to the Expectancy Theory, motivation is “a future-
oriented concept where individual behaviour is driven by the
expected receipt of desirable reward”.
à managers should try to understand employees needs and
adapt PM systems (PMSs) accordingly!
The design of PMSs should consider the following links:

Needs
Performance Results Appraisal Outcomes
satisfaction
 Performance Management and
Employee Motivation
1. Performance → Results
– Since individuals like to be appreciated, motivations depend
on the match between abilities and expected(/actual) results
– The harder the results to be achieved, the less the chances to
meet the expected performance, the less the motivations
2. Results → Appraisal
– When whatever results are achieved, a prompt assessment
and feedbacks are necessary to acknowledge what has
exceeded or not met expectations
– The more fair the appraisal, the clearer the development plan,
the higher the motivations
 Performance Management and
Employee Motivation
3. Appraisal → Outcomes
– Real reward should follow a good performance and, in general,
the perceived link between appraisal and outcomes should be
preserved.
– The higher the trust in appraisal, the higher the outcomes for
good performance, the higher the motivations
4. Outcomes → Needs
– Is the more critical link, because not the same things satisfy all
individuals, but the reward system should be at least partially
standardized. Learning about subordinates’ needs is a main
task of supervisors.
– The higher the understanding of individual needs, the more
appropriate the outcomes, the higher the motivations
Which are the typical errors that
supervisors should avoid?
 Supervisor–Subordinate
Relationship
Given the centrality of the supervisor-subordinate relationship
for performance management it is essential that managers
receive training:
1. On how to avoid creating in-groups (i.e. friends or people
the supervisor likes) and out-groups (i.e. people the
supervisor dislikes) among subordinates, because this
categorization introduces distortions in the assessment
2. On ensuring that evaluations are based on objective data to
demonstrate that are not biased by their relationships with
their subordinates which, in addition to being unfair, is often
illegal (especially when out-groups are a particular group
being discriminated, e.g. women).
 Which are the main
recommendations for performance
management in MNCs?
 Performance Management in
MNCs
• Even though PMSs theoretically have two purposes
(administrative decisions, i.e. merit raises, and development
decisions, i.e. feedback and training), research shows that the
purpose of PMSs may differ (generally) in different parts of
the world. For example:
– In the US performance appraisals are primarily designed to
evaluate individuals’ performance, and award appropriate
rewards (Cardy, Dobbins & Ferris, 1994)
– In collectivist cultures, e.g. Japan, performance appraisals are
more concerned with evaluating employees’ long-term potential
(Pucik, 1984)
• Thus organisations may have to develop PMSs that ‘fit’ with
the expectations and values of their local operations, not just
transfer systems developed for the home office to other
locations
 Summary 1
• Performance management systems (PMSs) are critical to
successful performance management

• Performance appraisals are an integral part of PMSs, but as

necessary as they are, they are not sufficient

• Organisations need to address all the other components of

performance management, including job assignment, goal
setting, establishing performance standards and providing
feedback

• Intervening factors such as employee motivation and

supervisor–subordinate relationships have significant
impact on the performance management process
 Summary 2
• Supervisors need to be trained in all aspects of the PMS process, including
how to conduct goal setting, give feedback and evaluate employee
performance

• Employee motivation plays a big role in determining what kind of effort

the employee will exert, and the resultant performance levels

• The type of relationship a supervisor develops with his/her subordinate

has been shown to impact the subordinate’s rating, controlling for
performance. Thus, supervisors need to be trained to treat all
subordinates fairly, irrespective of their personal characteristics, and
whether or not the supervisor likes a particular subordinate

• PMSs developed for a particular country cannot automatically be

transferred to the global units of any organisation. These need to be
adapted, keeping in mind the cultures of the other nations
 Example of questions #1

• Performance management: definition and main components

 Example of questions #2

• The "bell curve" approach: contextualize and explain the main pros
and cons
 Example of questions #3

• The six components of performance management: description and

logical connections
• Guiding rules in goal setting: list and description
 Case study (1/2)
Bias in Performance Appraisals
Gypsy Tigers is a medium-sized manufacturing company, located near Goshoura, India. The
company manufactures consumer products for numerous well-known global brands. The
company grew out of a small family business, and has been slow to modernise and/or adopt
formal HR systems. The owners believe that good human relations are critical, and thus their
emphasis has been on treating all their employees like family members, with little emphasis
paid to establishing formal systems. However, the global brands that Gypsy Tigers serves have
been doing very well, thus putting pressure on the company to modernise its systems. At the
clients’ insistence, the owners recently brought in a consultant, Miss Rita Kohli, to help with
establishing selection and performance management systems. Miss Kohli is a graduate of the
top business school in India, and has worked with several MNCs – her specialty being
performance management systems. Among the first tasks she was assigned by the CEO, Mr
Ajay Srivastava, was to establish a performance management system, whereby formal
appraisals are conducted once a year. However, Mr Srivastava also let Miss Kohli know that the
company would like to keep the results of the evaluations confidential. In other words, the plant
managers and other supervisors would evaluate each of their direct reports once a year, and the
completed appraisal forms would be placed in the employee’s personnel file, but not discussed
or shared with the individual employee.
 Case study (2/2)

When Miss Kohli enquired why the appraisals were to be kept confidential, Mr Srivastava told her
that they had always treated all their employees as family members, and sharing ‘report cards’ with
them would create tension among the workforce and lead to unhealthy competition between
employees, instead of the cooperation that the employees have been demonstrating all these years.
Miss Kohli was somewhat taken aback, though not surprised, at the owners’ thought process. She
was well aware that many companies in India (and elsewhere in Asia and Latin America) follow
the paternalistic model, whereby employees are treated like family members and are protected by
the company. At the same time, the professors in her business school had continuously reinforced
the importance of transparency and providing feedback to individuals. Indeed, in her work with
other companies, she had found that global companies often had open systems, whereby each
manager/supervisor discussed their subordinate’s evaluation with them and explained each rating.
Indeed, as part of her climate survey, Miss Kohli spoke to several employees and asked how they
felt about not being evaluated formally, and almost all of them said that they would like to know
how they were doing, so they could improve where necessary. Many employees also noted that
almost all their colleagues got the same (or very similar) raises, even though they knew that many
of their colleagues did not work as hard. When Miss Kohli approached Mr Srivastava with the
feedback she had gathered from the employees, he seemed unhappy and asked her to simply
concentrate on the task she was given, instead of starting trouble.
 Case study assignment

1. What do you think of Mr Srivastava’s argument that ‘sharing “report

cards” with them would create tension among the workforce and lead
to unhealthy competition between employees’?
2. If you were Miss Kohli, how would you convince Mr Srivastava that
individual performance improves when people know how they are
doing?
3. In your opinion, what are the benefits of keeping performance
appraisals confidential? It may be difficult at first, but try to force
yourself to think of some! Next, discuss the advantages of sharing the
information with the individual subordinate.
4. Many corporations around the world practise the ‘family’ type culture
of Gypsy Tigers, whereby employees are not pressured to perform at
very high levels – instead, moderate performance is accepted as the
norm. From a performance management perspective, what are the
advantages/disadvantages of such practices?