“Tying Employee Performance to Compensation in a High Involvement Organization” I wrote a Google Knol and have lectured at California Power Exchange, at the “Training, Productivity and Development Regional Forum", at the International Maize and Wheat Improvement Center and to Cal Poly H.R. students.

1. Tying Employee Performance to
Compensation in a High
Involvement Organization
Bill Markis
billmarkis@hotmail.com
http://billmarkis.com

2. The Changing H. R. Paradigm
 ’70s — the decade of compliance (the cop)
 ’80s — strategic HRM (siloed perspective)
 ’90s — strategic partner (align function,
processes & policies to execute strategy)
 ’00s — the decade of talent (create
processes to attract, develop and retain the
talent critical to organizational sucess) (¹)

3. High Involvement Organization
Practices
1. Employment Security
2. Selective Hiring
3. Decentralization of Decision making
4. High Compensation based on
Organizational Performance
5. Extensive Training
6. Less Status Distinctions across Levels
7. Extensive Sharing of Information (2
)

4. Introduction
The purpose of this presentation is to
show how performance can be
managed and tied to compensation
decisions

5. Performance Management
clipped from: www.dilbert.com

6. Objective of Performance
Management
To communicate with employees and
provide them specific feedback on
performance
To avoid “Social Loafing: the tendency
of individuals to slack when work is
shared and individual performance is
not assessed.”(3
)

7. Traditional Approach
Employees were forced to endure a
once-a-year paperwork exercise of
performance appraisals
Not very effective
Dreaded by employees and managers
alike

8. Traditional Appraisal
Factors
Employees and managers were
evaluated on traits such as:
• Dependability
• Punctuality
• Loyalty
not on their accomplishments

9. Traditional Appraisal was
Dysfunctional
There was, at the most, only a vague
connection between the appraisal
content and the work results that were
needed by the organization to be
successful

10. The New Approach
Personality trait rating forms have been
replaced with more objective measures
of performance focusing on job-related
outcomes and behaviors
Employees and supervisors jointly list
specific objectives to be accomplished
during the appraisal period
Performance measurement levels
(Meet and Exceed) are defined

11. TRADITIONAL NEW
Basis of
measurement
Activity or behavior Results or
accomplishment
Number of
accomplishments
One or two Five
Focus of
measurement
Efficiency Effectiveness and
Efficiency
Development of
measures
By management, internal
staff specialist, or outside
consultant
By employees within
work group
Level of
measurement
Individual Both individual and by
work group or team
Purpose of
measurement
Control Monitor and provide
feedback, reinforcement,
support problem solving
Traditional versus New
Measurement Systems

12. 360 Degrees
Employees can receive appraisal
feedback from their peers and
subordinates as an adjunct to an
appraisal from a manager or supervisor

13. Timing of review
Change the process from a paperwork
exercise into an ongoing dialog where
there will be no once-a-year surprises
From being a once-a-year event to an
ongoing process, with short formal
reviews every six months

14. Dynamic Process
Formal reviews are focused on a
discussion of progress in:

Meeting objectives

Plans for the following appraisal period

15. Objectives
clipped from: www.dilbert.com

16. Objective Setting
Objectives should encompass:

Plans for personal contribution to corporate
or team objectives:
╬ Quality and production increase
╬ Cost reduction
╬ Improvement in safety customer service

Teamwork objectives

Learning and development objectives

17. What Drives Objective
Setting
 Objectives relate to personal
accomplishments consistent with the
objectives of the employee’s team or work
group and are dictated by:
╬ Company Culture
╬ Competitive requirements
╬ Corporate strategy
╬ Market conditions
╬ Customer demands

18. Company Culture
 Shared beliefs and values established by
leaders and then communicated and
reinforced through various methods,
ultimately shaping employee perceptions,
behaviors and understanding
 A company’s structure and design – its body
 A company’s culture – its soul (4
)

19. Example of Company Culture
— Values
The Five Company Values
People Our success depends on the talent of our
people working individually or in teams to
deliver results for our shareholders
Performance Promise execute deliver with
discipline and passion
Sense of Urgency Time is a resource we seize to our advantage
Customer
Relationships
We’re fanatics about driving customer
success
Innovation We unleash our imaginations to search for
what’s possible and deliver what’s needed

20. Typical Types of Objectives
Managers and employees in the work
group should develop objectives
consistent with company strategy and
customer needs:
Quality measures
Financial measures
Timeliness measures
Productivity/efficiency

21. Employee Development
Performance management focuses on:

Increasing an employee’s value to the
team

Personal development
Employee development is an important
part of the appraisal process:

Improve an existing skill

Develop a new skill that brings value to the
work group

22. Types of objectives
Strategic means setting direction, e.g.:
Long Term Objective
Tactical is the work flow, e.g.: Short
Term Objective
Transactional are the day to day
activities and are not objectives

23. Long-term Objective
A long-term objective shall be an
expectation of:

Best in class or world class:
╬ Performance
╬ Quality
╬ Customer service
╬ Flexibility
as called for by our company’s strategy

24. Short-term Objective
Is an intermediate target that is better than
current performance, but not necessarily
as challenging as the long-term objective
It is challenging but attainable
It can be gradually made more difficult
over time, thus establishing a pattern of
continuous measurable improvement
toward the long-term objective, which itself
becomes more challenging over time

25. Define Performance Levels
Exceeds Expectations
Overall performance clearly and
consistently meets most position
requirements and exceeds many
Compared with others performing the
position, this performance level clearly
exceeds that of others – among the
better performances for this
performance period

26. Define Performance Levels
Meets Expectations
Performance accomplished by a
competent employee who is
experienced and fully trained to perform
the position
Effective performance indicates that
position requirements are consistently
met and some occasionally exceeded

27. Define Performance Levels
Below Expectations
Performance has continually failed to
meet the minimum acceptance
standards of the position for which the
person was hired
Performance is not fully proficient and is
below expectations that are normally
achieved by a proficient employee

28. Sample Objectives for
Administrative Assistant
1. OBJECTIVE WEIGHTING: MEASURE:
JOB KNOWLEDGE
 Extent of job information and
understanding possessed by
employee.
 Being competent in required job
skills and knowledge.
 Exhibit ability to learn and apply
new skills.
 Keep abreast of current
developments.
 Require minimal supervision.
 Display understanding of how
job relates to others.
 Use resources effectively.
MEET: Assistant demonstrates competency in
the skills and knowledge required. She learns
and applies new skills within the expected time
period. She is knowledgeable about current
developments in her field and she works within
the normal scope of supervision. Assistant
displays a good understanding of how her job
relates to other jobs. She effectively uses the
resources and tools available to her.
EXCEED: Assistant demonstrates significant
expertise at her job because of her in-depth
knowledge and skills. She is an exceptionally
fast learner and able to quickly put new skills to
use. She reads and researches extensively,
staying on top of current developments that
might impact her field. Assistant performs
extremely well with very little, if any, supervision
or assistance needed. She displays an
extraordinary understanding of the
interrelationship between her job and the jobs
of others. She ingeniously puts the resources
and tools available to her to maximum use.

29. Sample Objectives for
Human Resources
OBJECTIVE: WEIGHTING: MEASURE:
1. FACILITATE TRANSITIONING IT
FUNCTION TO PEROT
Coordinate employee transfer with
Perot
15% MEET: Provide Perot the
data needed, on a timely
fashion
EXCEED: Provide Perot
the data needed, on a
timely fashion, and
communicate to
transferred employees its
implications
2. ORGANIZATIONAL
DEVELOPMENT
Initiate OD intervention for Billing &
Settlements
5% MEET: Completed 3rd
quarter
EXCEED: Completed 2nd
quarter
3. TRAINING FOR ORGANIZATION
EFFECTIVENESS
Provide in-house training on Setting
Objectives; Preventing Sexual
Harassment; Ergonomics; and
Customer Service. Increase # of MS
Office and soft-skills CBT courses
15% MEET: Completed 3rd
quarter
EXCEED: Completed 2nd
quarter

30. Motivation
 Objective setting in the organization
has an important influence in employee
motivation
Specific and difficult objectives lead to
higher employee performance –
provided those who had to attain them
accepted the objectives

31. Employee Participation
The degree of employees’ acceptance
of objectives is a function of:

Their level of participation in setting
objectives

The extent to which they perceive that the
final objectives are attainable

32. Reinforcement
Employee behavior is strongly
influenced by the consequences of that
behavior
Positive behavior that is inspired and
reinforced is more likely to reoccur
Reinforce approximations of the final
desired behavior or result of that
behavior

33. Relationship of Reinforcement
to Objective Setting
The motivational impact of objectives
comes from employees’ anticipation
that they will be reinforced for attaining
an objective

34. Self-fulfilling Prophecy
Objective attainment itself is reinforcing
since it enhances an employee’s sense
of accomplishment and self-worth
If the objective is too difficult,
employees will not try to attain it or they
will become frustrated with trying to
attain it and stop trying

35. Compensation

36. Performance Pay
The assumption is that individual or
group-based pay plans improve
organizational performance

Correlation does not imply causation

Infer proper determinants of performance

Experiment. Learn by doing (5
)

37. Link Performance to Pay
Position in Salary Band
Performance
Level
Below
Midpoint
At or
Above
Midpoint
Above
Maximum
lump sum
payment
Exceeds
Expectations
9.9% 8.1% 6.3%
Meets
Expectations
6.3% 4.5% 3.2%
Below
Expectations
0% 0% 0%

38. References
 “Workplace 2000, The Revolution Reshaping
American Business” from Joseph H. Boyett and
Henry P. Conn, Dutton, 1991
 Performance Now! software, by Knowledge Point
 (¹) Patrick M. Wright, Human Resource Executive
magazine, Forecast 2009
 (2
) Jeffrey Pfeffer, The Human Equation, 1998
 (3
) Julia Whitty, writer for Mother Jones
 (4
) Naomi Cossack, SPHR, content manager SHRM’s
HR Knowledge Center
 (5
) Fay Hansen, Merit-Pay Payoff?, Workforce
magazine, 11/03/08