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

17-2
A Performance Management Model
Business Strategy
Individual
and Group
Performance
Performance
Appraisal
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
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.

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

17-6
Performance Appraisal Elements
Elements
Purpose
Appraiser
Role of
Appraisee
Measurement
Traditional
 Organizational, legal
 Fragmented
 Developmental
 Integrative
 Supervisor or manager
 Appraisee, co-
 Passive recipient
workers, and others
 Active participant
 Subjective
 Objective and
 Concerned with validity
subjective
 Period, fixed,
Timing
High Involvement
administratively driven
 Dynamic, timely,
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

17-8
Characteristics of Effective
Appraisal Systems
Timely
 Accurate
 Accepted by the users
 Understood
 Focused on critical control points
 Economically feasible

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
17-10
Characteristics of Effective Reward
Systems
Availability
 Timeliness
 Performance Contingency
 Durability
 Equity
 Visibility

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

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
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
17-14
Gain Sharing Pay Plan Considerations
Process of design - participative or top-down?
 Organizational unit covered - plant or
companywide?
 Determining the bonus - what formula?
 Sharing gains - how and when to distribute?
 Managing change - how to implement system?

17-15
2-16