Performance Management - Linking Reward To Performance

Published by MBA Skool Team, Published on October 20, 2012

The word “Performance” mean a lot in the organizational sector. Organizations need to perform well continuously to sustain its place in the competitive market. For an organization to perform well, the contribution from each individual employee working for it, should reach its height. How to gain higher performance from individual employees? – is an important question, for which the HR people need to come out with the possible solution suited for their organization. The term coined to handle this process is referred as “Performance Management”.

Performance Management – How it is defined

Performance management can be defined as a continuous process of assessing and measuring the performance of an individual and aligning it with the organizational goals. It is the job of the HR people to design an effective performance management system.

Expansion for the word “Perform”, best explains it.

P – Potential

E – Enthusiasm

R – Reliability

F – Flexibility

O – Orientation

R – Reengineering

M – Motivation

Why Performance management?

Before proceeding further, let us have a look on why performance management is needed. If there is no measure to performance, there will be no sign of feedback and continuous improvement. When employees monitor and assess themselves on their performance, then no lines can be drawn to link employee’s contribution with organizational goals. At the end there will be a large gap which remains unfilled thereby affecting the organization’s growth. In any marketing firm, number of sales and customer service are the determining factors. Sales persons should be motivated to improve the number of sales in a day, by measuring their performance, giving them actual feedback for their improvement and acknowledge them for their outstanding performance.

Reward System

Many think that appraisal (measuring performance) is the only necessary branch out from the performance management system, but the system includes two other important subsystems,

  • Feedback system – for aligning performance with organizational goals.
  • Reward system – for motivation and continuous improvement.

The reward systems include returns given to the employees in the form of cash (benefits, pay raises) or recognition programs (intangible form).

The traditional approach of rewarding employees was only based on their job description and not on how they perform. Even the benefits and incentives are biased to the seniority position in a job. Though the employee performs well, he has to wait in a queue to attain the seniority for the pay raise. So this approach had no records for motivation and continuous improvement in the minds of employees.

Why Link Reward to Performance

To connect two ends of the rope, a knot is required; to make it lengthy and useful for long run. Likewise, the tie up between the reward and performance should be made for employee retention and their commitment to work, which ultimately improvise the contributing factor of the employee. Employees should perform well to be rewarded and the approach designed for this is “Pay for Performance”. Apart from the base pay, which is based on job description, a variable pay should be announced for their outstanding performance.    Although the pay raise motivates the employees to an extent, ultimately they want them to be appreciated and recognized in a society for their work, here comes the employee recognition program. Many employees become less committed to work not because of their low pay structure, but for the lack of recognition. Both types of rewarding system should be ensured for higher motivation, retention, engagement and job satisfaction.

A simple example for performance based reward system can be best explained by the game of cricket. When a bowler or batsman performs well in a match, his performance is rewarded by the cricket council through the title “Man of the Match” and cash award. It motivates the winner and also the team players to perform well for their team.

Benefits of Performance-based Rewarding approach

An effective Performance-based Rewarding approach can bring out multiple benefits to an organization and employees,

  • Decreased attrition rate, which empowers employee retention in long run and commitment. Due to decreased attrition rate and increased employee retention, recruitment cost is less which helps in the financial stability of the organization.
  • Motivate employees to perform better, aligning with the organizational goals. Employees get a clear insight of what should be done to meet the goals.
  • Employee involvement (Participation Management) is increased which results in autonomy, more productivity and satisfaction. Employees feel that they are part of a big success, enabling more confidence and innovation in work.
  • Rather than working on routine jobs, employees volunteer to work on challenging jobs to increase their recognition levels in the working society. It enforces healthy competition among individuals to perform better.
  • Employee gets a chance to learn and enhance their skills, which highlights their development in career.

For the real success of the system, it should be implemented without any bias or oversight. When employees perform well, he should be acknowledged rightly by the supervisors. HR department should not make this process to follow over a night; its importance has to be stressed to the supervisors and employees at all levels. When a perfect system is implemented, it results in higher retention of talented employees and greater profits to the organization.

This article has been authored by Shiyamala S from Anna University -CDE, Chennai.

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