Performance Management and Rewards

 

Performance Management, if done properly, can benefit individuals through feedback, providing opportunities for achievement, the scope for skill development, and guidance on career paths (Armstrong and Taylor, 2014). And also deals with salaries by generating information needed to determine salary or bonuses related to performance, skills, or contributions (Armstrong, 2009). A reward system is a process of awarding tangible and intangible returns to the employee based on their performance but all type of returns is not directly based on employee performance (Aguinis, 2013).

When rewards are involved, it means that a performance management system is likely to be taken very seriously by both the appraiser and the appraisee. It ensures that it affects the person assessing the institution and their compensation (Lawler, 2003). Some organizations separate performance pay ratings from performance management reviews. There will be reading from performance management review to payroll review for performance. The problem is that if you want to pay for performance or skill, you have to measure performance or competence (Armstrong and Murlis, 2007).

According to Armstrong (2010) performance is the key and reward can make a significant contribution to achieving high performance by enhancing engagement. Rewarding performance with extrinsic rewards is the only way to motivate individuals, but it can be an effective way. Research on motivation shows that extrinsic rewards, such as pay, can be effective motivators when clearly and strongly related to performance behavior (Lawler, Benson and McDermott, 2012).

According to Armstrong and Taylor (2014) the strategic reward leads to the design of a reward system. As illustrated in figure 1.0, this consists of integrated interoperable processes and practices to ensure effective reward management for the benefit of the organization and its employees. As described below, its main components are financial and non-financial rewards, which combine to form a total reward system.

Figure 1.0:  A Reward System

                 Source: (Armstrong and Taylor, 2014).

Financial rewards – Financial rewards consist of a job-based salary that pays a salary commensurate with the value of the job and a person-based pay that rewards an individual’s contribution (Armstrong and Taylor, 2014). The job and person-based pay can be categorized as follows,

• Base pay management – The payment structure is based on employee’s job position and their job roles at the organization so employees with the same job role will be paid similar salaries (Agunis, 2013).
• Pay determination – It’s a decision made on how much the employee should be paid depending on the market rates and job evaluation (Armstrong and Taylor, 2014).
• Contingent pay – This payment structure is based on employee performance, skill, length of service, contribution, and competence (Agunis, 2013).

Non-Financial rewards – non-financial rewards focus on the different levels of need for individuals for recognition, achievement, personal growth, and acceptable working conditions (Armstrong and Taylor, 2014). As it provides opportunities for employees to develop their skills, and develop a career path. That will create a high-quality working environment for the employee to be engaged (Armstrong and Murlis, 2007).

Total rewards – Total rewards are a combination of the financial and non-financial rewards given to employees. The various aspects of the reward, such as basic salary, indefinite salary, employee benefits, and non-financial rewards, include inherent rewards (Armstrong and Taylor, 2014). The concept of total rewards describes an approach to reward management that emphasizes the need to consider all aspects of the work experience of value to employees, not just a few such as pay and employee benefits (Armstrong and Taylor, 2014). As per Armstrong and Taylor, figure 2.0 describes the need to get financial rewards and it reflects the importance of rewarding, the opportunities provided, how an employee contributes to the organization, and why talented employees should be retained.

Figure 2.0: The elements of total rewards

Source: (Armstrong and Taylor, 2014).

An example from the company I work for:

I am working in a leading packaging solution providing company in Sri Lanka. Our company focuses on performance-based pay and integrates an effective reward system with a performance development system that provides adequate learning opportunities in a good work environment. Instead of fixed pay packages, variable wages play a crucial role in improving the performance of employees, especially. For example, some rewarding practices can be found in the form of profit-sharing, bonuses, group-based incentives, profit sharing, and stock-based incentives.

Our company follows all three methods, base pay management, contingent pay system, and pay determination under the financial reward. At the time of hiring an employee, the emphasis is on pay determination, while base pay management determines the salary to be paid based on the job position and job roles in the organization. At the same time, the annual increment will depend on the contingent pay. At the same time, the company focuses on productivity programs, quality control programs, innovation, best attendance, and maximum productive contribution to non-financial rewards. All of these incentives also depend on the management levels of the organization. It pays close attention to lower management levels and appreciation and cash prizes for their product contributions, once a week and once a month. At the middle management level, they offer overseas trips and holiday offers based on their annual achievement. The company provides luxury vehicles for the top management if they are achieved company goals. In a summary, the following pay for performance strategy is used in our company,

Pay and reward for Performance Strategy
Category	Performance measures.	Basic for rewards
General Employees (Below Supervisors)	As per the KPIs measured over time.	Bonuses and Production Incentives.
Sectional in-Charges	As per KPIs measured over time.	Bonuses and Production incentives.

Factory Managers/ Accountants	As per KPIs measured over time.	Bonuses and Profit incentives.
General Managers/CEO	Level of contribution to achieving the company goals.	Milestone Awards.

Conclusion:

A good reward system aims to motivate employees to work harder and align their goals with those of the organization they work for. The current trend toward performance-related reward systems is designed to lead to greater rewards and motivation for those who contribute the most.

References:

Aguinis, H. (2013) Performance Management. 3^rd edn. New Jersey: Pearson Education.

Armstrong, M. (2009) Armstrong's handbook of performance management: An evidence-based guide to delivering high performance, 4^th edn. London: Kogan Page Publishers.

Armstrong, M. (2010) Armstrong's handbook of reward management practice: Improving performance through reward. Kogan Page Publishers.

Armstrong, M. and Murlis, H. (2007) Reward management: A handbook of remuneration strategy and practice. Kogan Page Publishers.

Armstrong, M. and Taylor, S. (2014) Armstrong's Handbook of Human Resource Management Practice, 13^th edn. London: Kogan Page Publishers.

Lawler, E.E. (2003) Reward practices and performance management system effectiveness. Organizational Dynamics, 32(4), pp.396-404.

Lawler, E.E., Benson, G.S. and McDermott, M. (2012) Performance management and reward systems. WorldatWork Journal, 21(4), pp.19-28.