Organization Development and Change
Chapter Seventeen:
Performance Management
Thomas G. Cummings
Christopher G. Worley
Learning Objectives
for Chapter Seventeen
• To present a model for understanding the
components and relationships associated
with performance management
• To explore three interventions concerned
with managing the performance of human
resources: goal setting, performance
appraisal, and reward systems
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-2
A Performance Management Model
Business Strategy
Individual
and Group
Performance
Performance
Appraisal
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
Employee Involvement
Goal
Setting
Reward
Systems
17-3
Characteristics of
Effective Goals
• Goals are Challenging
– Challenging but realistic
– Goals are set participatively
• Goals are Clear
– Goals are specific and operationally defined
– Resources for goal achievement are negotiated
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-4
Management by Objectives
(MBO)
• MBO attempts to align personal goals with
business strategy through increased
communications and shared perceptions
between managers and subordinates
• MBO programs may go beyond manager
and subordinate roles to address individuals,
work groups, and to reconcile conflicts.
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-5
MBO Application Stages
• Involve the whole work group
• Goals set jointly by manager and
subordinate
• Action plans are established
• Criteria and yardsticks are established
• Work progress and contract reviewed and
adjusted periodically
• Records of meetings are maintained
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-6
Performance Appraisal Elements
Elements
Purpose
Appraiser
Role of
Appraisee
Traditional
High Involvement
 Organizational, legal
 Fragmented
 Developmental
 Integrative
 Supervisor or manager
 Appraisee, co-
 Passive recipient
workers, and others
 Active participant
 Subjective
 Objective and
Measurement  Concerned with validity subjective
 Period, fixed,
Timing
 Dynamic, timely,
administratively driven
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
employee- or workdriven
17-7
Performance Appraisal
Application Stages
• Select the appropriate stakeholders
• Diagnose the current situation
• Establish the system’s purposes and
objectives
• Design the performance appraisal system
• Experiment with implementation
• Evaluate and monitor the system
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-8
Characteristics of Effective
Appraisal Systems
•
•
•
•
•
•
Timely
Accurate
Accepted by the users
Understood
Focused on critical control points
Economically feasible
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-9
Reward System Design Features
Design Feature
Definition
Person/Job Based vs.
Performance Based
The extent to which rewards are based on the person,
the job or the outcomes of the work
Market Position
(External Equity)
The relationship between what an organization pays and
what other organizations pay
Internal Equity
The extent to which people doing similar work within and
organization are rewarded the same
Hierarchy
The extent to which people in higher positions get more
and varied rewards
Centralization
The extent to which reward system design, decisions
and administration are standardized
Rewards Mix
The extent to which different types of rewards are
available and offered to people
Security
The extent to which work is guaranteed
Seniority
The extent to which rewards are based on length of
service
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-10
Characteristics of Effective
Reward Systems
•
•
•
•
•
•
Availability
Timeliness
Performance Contingency
Durability
Equity
Visibility
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-11
Types of Rewards
• Pay
– Skill-based pay plans
– Performance-based pay systems link pay to
performance
– Gain sharing involves paying bonuses based
on improvements in the operating results
• Promotions
• Benefits
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-12
Salary-Based Pay for Performance Ratings
Individual Plan Productivity
Cost effectiveness
Superiors’ rating
4
3
3
1
1
1
1
1
1
4
4
3
Group
Productivity
Cost effectiveness
Superiors’ rating
3
3
2
1
1
1
2
2
2
4
4
3
Organization- Productivity
wide
Cost effectiveness
2
2
1
1
3
2
4
4
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-13
Stock/Bonus Pay for Performance Ratings
Individual Plan Productivity
Cost effectiveness
Superiors’ rating
5
4
4
3
2
2
1
1
1
2
2
2
Group
Productivity
Cost effectiveness
Superiors’ rating
4
3
3
1
1
1
3
3
3
3
3
3
Organization- Productivity
wide
Cost effectiveness
Profit
3
3
2
1
1
1
3
3
3
4
4
3
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-14
Gain Sharing Pay Plan
Considerations
• Process of design - participative or topdown?
• Organizational unit covered - plant or
companywide?
• Determining the bonus - what formula?
• Sharing gains - how and when to distribute?
• Managing change - how to implement
system?
Cummings & Worley, 8e
(c)2005 Thomson/South-Western
17-15