Introducing a New Performance Management System - Literature review Example

Introducing a New Performance Management System Name Professor Institution Course Date Introducing a New Performance Management System Executive Summary Payment is very important in jobs not only for motivation but also dignity of the employees (Wayne et al 2002, p.592). However, different systems of performance exist and have different flaws among them. Decisions which are arrived at during the development and execution of the payment systems for are critical. This report will focus on the new performance management system recently introduced in a large organization. It will critically evaluate challenges in the areas of rewards, performance management, development and talent management, involvement and participation and equality that require to be addressed when reforming the PM system. This is because the new performance related pay has faced numerous resentments from both employees and line managers. Table of Contents Introducing a New Performance Management System 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Background 4 3.0 Critical evaluation of the key issues 5 3.1 Reward system problems 5 3.2 Performance management 7 3.3 Talent management 8 3.4 Involvement and participation 9 4.0 Explanation and Justification how the system can be changed and re-launched 10 5.0 Conclusion 12 6.0 References 13 1.0 Introduction In the 21st century, change is rapidly taking place. As the change takes place, management theorists have proposed new theories to improve management (Ohemeng & Owusu 2011, p.17). While some theories have been implemented successfully some have received severe resentment from employees and even managers. One of the issues which have gained much resistance the type of remuneration offered by organizations, particularly performance related pay (Folz, Abdelrazek & Chung 2009, p.63). In one of the studies in a large, it was established that this form of payment method had caused resistance from employees and line managers due to less familiarity and understanding of the new system. Also, the objectives of the system were not clearly set while others thought the grade system was not fair. Therefore, this report will critically evaluate problems in the areas of performance management, rewards, involvement and participation, equality, and development and talent management which required to be tackled when reforming the performance management system. Also, this report will explain and justify how the system would better be changed and re-launched. 2.0 Background This case study involves a large company which has over the years has embraced unitaristic culture. In a nutshell, employees belong to a group and have been remunerated through standard payment method. However, the management has recently adopted performance-related pay which basically was top be done based on the competency of the employees. This system created grading system of (A–E), with each grade is linked to performance. For instance, (A) represent the highest performance hence heist payment. The system was devised and introduced very quickly by the use of an external consulting firm. After two years of adoption, high levels of discontent from staff and some line managers who complained about their role within the system and flaws in the system. Research held that the effectiveness of a performance –related pay system is dependent on understanding of the system and objectives, level of commitment, employees’ participation, reviewing, collaboration and motivation. Unfortunately, such factors did were not adhered to leading to discomfort. 3.0 Critical evaluation of the key issues 3.1 Reward system problems According to Ga (2007), reward is defined as all every form of financial returns, benefits and tangible services employees get as part of the employment relationship. Losey (2010) believes that reward is a critical motivator in a work place. They also think not only money should be used but also appreciation through encourage to make an individual feel valued. Also reward can come through promotion to maintain career development. When one is stagnant in one position for a long time they feel their career is not moving and also not making progress in life (Carroll 2014). Each organization requires a strategic reward system which tackles these four areas including compensation, benefits, appreciation and recognition. The problems with the reward systems within numerous organizations today miss one or many of the stated elements while the ones that are covered are not well structured and aligned with the corporate strategies (U.S. General Accounting Office 2004). This was the result of one of research of a company which had just implemented performance-related reward. The reward system only recognized 5% of the departmental employees. Lagace (2003) affirms that normally, organization has workers who operate in a group and the success of the project could depend on collaboration and participation of every team member. Thus, rewarding just five percent is selective and favors only a few people. For instance, most of employee and some line managers claimed that the grading system was unfair since it favored few people in the group. The end result is that it can lead to competition rather than collaboration (Solmon & Podgursky n.d). Jealousy is a human nature and people on low payment are likely to compete with employee on huge pay checks. Solmon & Podgursky (n.d) claims that this is bad for the company because collaboration and the spirit of togetherness will be lacking hence organizational goals may not be achieved. Relationship between employees and line managers fades because employees on low payment will feel the few who are rewarded are more valued than them (Burnes 2014, p.17). Based on such notion, employees in the company of study faulted the performance-related pay system questioning the objectivity of the line managers on the assessment and grading of the performance. In a team environment like the one the organization understudy adopted, it is very difficult to measure the highly performing employees, particularly when the project experiences less hurdles (Latham, Borgogni & Petitta 2008, p.392). Performance related reward can also work in the disguise of performance yet it is based on organizational politics. In an organization, employees are loyal to managers they get along with and that loyalty are normally rewarded through salary increment and even promotion. 3.2 Performance management Fryer, Antony & Ogden (2009, p.482) defines performance management as ‘the strategic and incorporated approach to improving the efficiency and effectiveness of organizations by enhancing the performance of employees by designing and developing the competency of individual and team contributors. In many cases, team performance is never rewarded, but individual performance. This aspect first emerged in the UK in 1980s in a period described as Thatcherism. There existed a crisis in National Health Service in the late 1970s (Boyne & Chen 2006. p.456). For instance, the operations at the hospitals could not take place owing to inadequate funding, there was extensive displeasure with the public services in totality, health practitioners needed more money and the government of the day was attempting to reduce more spending. In the case study of this large organization, employees also thought that performance management based on reducing the number of people who were added more salary was as a result of a process of reducing spending. It may be viable for companies in short term plans, but can be costly in long term basis. For instance, in the case study, in implementing performance related pay, the company considered only 5% for the pay rise in every department. This can lower morale of the remaining 95% employees, hence high levels of employees’ turnover. Antoinette, Rost & Osterloh (2009) argue that thin line is drawn between negative and aspects of performance-related. The problem of performance-based pay can mostly be experienced with existing employees who were used to standard payment for employees (Fryer, Antony & Ogden 2009). On the other hand, some new employees come to an organization believing that they are more competent to perform a certain task which not anyone else can do therefore they deserve more payment. Under performance management system, staff sometimes competes with one another for a job position, pay and even status (U.S. General Accounting Office 2004). This could result to backstabbing, blackmailing, failure amongst members of the team to communicate effectively and strong staff rivalry. It may result to department or team dysfunction, leading to failure to realize the set performance standards. U.S. General Accounting Office (2004) argues that in some cases, managers have the tendency of trusting one staff over the other. This creates distrust and dissension amongst the team members. In another spectrum, the management who implemented performance related pay believes that performance evaluation is a key component which builds the basis of the performance management system. Solmon & Podgursky (n.d) asserts performance management on pay perspective essentially involves attempting to reward staff for their previous performance, whilst believing that the reward incentive will ensure other staff also endeavors to work hard in future. 3.3 Talent management According to Scott & Revis (2008), Talent management is defined as the identification the abilities, knowledge, intelligence experience, attitude and drive, and enhancing them positively to improve his or her performance. Talent development and management is very crucial to improving performance of the organization (Lewis & Heckman 2006, p.141). This can be done through training to enhance organization learning within the organization. In many modern organizations, managers believe that performance-based pay forms part of the talent management. This is because when one’s salary is increased based on the performance; he is likely to work harder for more increment (Cappelli 2008). However, concerns remain with those who are not rewarded with hefty packages. Ga (2007) posited that those who are regarded not to be working hard for the company may feel less valued especially when they have worked for a company for many years. Another issue with performance-related pay in the case study was that it only considered five percent within a department. In such cases, many people could be left out of salary increment yet they are very talented. In that case employees felt that this kind of system of system ignores their development need. When performance-related pay based on the talent, then it depicts inconsistency in the management of such talents (Scott & Revis 2008, p.785). 3.4 Involvement and participation Employees, as the one of the strongest pillars of any organization remain the key valuable asset which contributes considerably to its prosperity and effectiveness. Robertson, Birch & Cooper (2012, p.225) stated that involvement in the organizational operations do not simply motivates employees, but also encourages them to work more effectively and efficiently. In addition, he describes involvement of employees as a practice which involves communication, participation, decision making that result to business democracy and staff motivation (Robertson, Birch & Cooper 2012, p.226). Such process was not allowed because the implementation of the new system was done in a hurry. As a result there was no clear understanding of the concept whether it was cost cutting or improvement of general employees’ performance. Lack of employees involve also led to less familiarity with the principles of a new performance management system (Nastase 2012, p.7). Normally, it is very difficult for employees to accept a system they do not understand. This is because it takes away their comfort zone and influence within the organization. Organizational behavior experts hold that managers need to use democratic leadership in their daily operations which allow for employees involvement and prevents resistant to change (Stoltzfus, Stohl & Seibold 2011, p.9). Nastase (2012, p.8) Stated that the other significant factor of employee involvement and participation that the company neglected is informing and explaining in details about the new system of payment. Communication is vital to effecting change. McKinsey & Company (2008, p.2) resistance is normally caused by lack of proper communication and understanding of the new concept at work place. As a great asset of the organization, when employees are involved in decision making they become motivated and feel owners of the company (Irlenbusch & Ruchala 2008). 4.0 Explanation and Justification how the system can be changed and re-launched Just like any other change process in the organization, performance-related pay has both positive effects and negative effects on the organization. Năstase, Giuclea, Graetz & Smith (2010, p.142) argue that in most cases change process has more positive influence in the company than flaws. It is the way it was launched which has made the new system to be faulted. Therefore, it would be recommended for the company in the case to change and re-launch the new system in a way that would be more acceptable to employees and line managers. The management should inform the employees and line managers their intention to scrap the new payment system, improve it and re-launch it. This can be done through downward communication technique where information flows from managers to employees (Dyer 2010, p.29). The next step would be to form a team composing of a portion of experts, senior, managers, middle level managers, line managers and employees who will redraft the new system of payment. Involving these stakeholders who are directly affected with the new payment system is an effective way of involvement and participation in decision making (Sharma 2007). Rogers, Meehan & Tanner (2006) pined that when stakeholders of the organization are brought together to discuss what affects common interest is left to prevail over personal interest. Graetz & Smith (2010, p.137) hold that this is good for the company because it reduces internal conflicts among employees and managers. For instance the new system that was in place had created conflicts between employees and managers who thought that selecting high performing employees was not objective and favored few employees who were close to top managers (James, Engbergs & Jun 2009). Team environment during change process enhances trust aspects amongst the staff (Van Vugt & Schaller 2008, p.6). It would be difficult an employees working with a line manager whom he or she does not trust, because they will feel uncomfortable and not enjoy his service at the organization. Lagace (2003) claims that it means an employee who does not trust a fellow employee or the manager cannot learn from him. Employees resented the new system because it had no properly set objectives. Employees and line managers require understanding the objective behind the change process to work towards reaching its goals (Brief & Weiss 2002. P.286). For this new system of payment, the management need to set the lowest performance where salary increment starts and what warrant highest salary increment. This objective should be set in line with performance indicators particular balanced scorecard (Marsden 2004). This will measure satisfaction of the customers an employee has served, financial improvement the employee has brought through customers served, and also personal growth, i.e. length of time an employee takes in handling an issue (Losey 2010). Performance management goes hand-in–hand with clear goals and objectives (Carroll 2014). The new system should also do eliminate a policy where only 5% of the employees can be rewarded with salary increment. The number can be increased to 50% to give opportunity several employees and line managers. Kristensen et al (2014) argues that when half the number of employees is satisfied with remuneration, it encourages those in low salary to work hard and get salary increment (p.543). Also when majority of employees are motivated, an organization will reduce high employees’ turnover hence consistency in performance. The new system should also have high level, but varying rewards between grades, which are actually defined but not calculating it on the percentage of the current salary. Equality is highly recommended in the workplace to ensure that no one is discriminated based on gender (McPhie & Sapin 2006). In a nutshell, professional practice dictates that women and men are equal based on competence, skills and knowledge, hence performance evaluation should not be conducted based on presenteeism. After improving process of the new system, further explanation and training ought to be conducted to hear the views of employees and managers who were part of the team which was reviewing the new system of payment. Eventually the new concept can be re-launched when the majority is satisfied. 5.0 Conclusion In conclusion, the report has established the in the globalized business world, change is inevitable and modern managers must have strategies of managing to be able to survive. Creating a learning organization is important to employees and organization in general in keeping with changes which taking place within the industry. Change is not easy people always state and people undertaking are likely to be overwhelmed with challenges such as resources, poor planning and employees’ resistance. However, managers must aim to succeed through best practices such as communication, employees’ involvement and participation, talent management and performance management. 6.0 References Antoinette, W, Rost, K & Osterloh, M 2009, Pay for Performance in the Public Sector— Benefits and (Hidden) Costs, Journal of Public Administration Research and Theory, Vol. 20, No. 2, p. 387-412. 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