HUMAN RESOURCES &

ORGANIZATION
Session 4 Performance & Reward Management

NEOMA Business School

Rouen Campus
PGE Program
Fall, 2023-2024

Instructor: Hubert Grimonprez

Department: People & Organisations
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© Copyright NEOMA Business School. All right reserved
 Learning objectives
At the end of the session, you will be able to:

1. Understand the challenges of performance

appraisal and management

2. Understand the dimensions of organizational

justice and their relative importance for managing
perceptions of fairness

3. Understand a manager’s goals in matters of

compensation

4. Apply and evaluate a remuneration policy

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 SESSION’S OUTLINE
1. Performance management
– Overview
– Goal setting
– Performance appraisal
– Role-play

2. Compensation
– Internal equity
– External equity
– Pay structure
– Variable pay programs - individual equity and collective equity
– Practical case

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OVERALL FRAMEWORK OF HRM SYSTEM

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PERFORMANCE MANAGEMENT SYSTEMS

Performance Management
The process of creating a work environment in which
people can perform to the best of their abilities

Performance Appraisals
The result of an annual or biannual process in which a
manager evaluates an employee’s performance relative
to the requirements of his or her job and uses the
information to show the person where improvements are
needed and why

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 WHAT IS PERFORMANCE

In the past, organizations only assess how well employees

perform the tasks listed on the job description.

In more contemporary organizations that are more

service-oriented and less hierarchical, performance
includes:
1. Task performance
2. Citizenship
3. Counter-productivity

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PERFORMANCE MANAGEMENT GOALS

Appraisal Programs

Administrative Developmental
Compensation Ind. Evaluation

Job Evaluation Training

EE Support Career Planning

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ONGOING PERFORMANCE FEEDBACK

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 PERFORMANCE MANAGEMENT GOALS

Support on-
Organizational Define going Evaluate Individual
performance expectation performance Performance - performance
needs (feedback and Update
resources)

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 PERFORMANCE MANAGEMENT GOALS
(CONT’D)
• For the organization
– Implementation of strategic priorities from top to bottom

– Communicate the organization’s culture

– Make informed, consistent decisions about pay, training and

development, promotions, etc.

– Ensure decisions are fair and in line with company policies

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PERFORMANCE MANAGEMENT GOALS
(CONT’D)
• For managers
– Assign work and projects to employees
– Know where employees stand
– Acknowledge employees contributions
– Analyze and anticipate employees’ needs
– Create a favorable environment

• For employees
– Know the manager’s expectations and performance evaluation
criteria
– Know where they stand in terms of performance – strengths,
areas that need improvement
– Express their opinion and request for resources to help
themselves perform better, including development needs
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• Goal setting
– Aligned with organizational strategy and beneficial to the company

– People work harder with goals than without goals…

• Especially if the goals are specific and difficult and if feedback exists

– Reaching a goal itself can be rewarding…

• Meaningful goals directly influence motivation through intention

• Reward indirectly influence motivation by changing the level of goals

– Participative or assigned goal setting?

• Makes goal more acceptable and leads to more involvement
• Employees’ participation in goal is not always possible or desirable
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 Defining performance expectations (cont’d)

Work/Action plan Development plan

• Type and levels of performance • Enhancing/consolidating sthrenghts
expectations • Improving insufficient skills
• Acquiring new skills/competencies

+ Career interests (ST, LT; and location

preferences)

Organization Individual goal Priority Time-scale (for Success

goals 1, 2, 3 review) measures
Develop the Sign 24 new 1 Annually 24 new clients
organization clients annually with signed
portfolio projects

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 Defining performance expectations (cont’d)

• 2 common mistakes

– Deficiency: Not specifying some of the expectations that

will be used to evaluate performance
• The quantity of work, not the quality
• Work process improvement
• Cooperative behavior

– Contamination: Setting performance objectives not

relevant/necessary for the job

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 Example – What kind of mistake?

You are a purchasing manager for a large hardware store. Lucy has
been working part-time in your department for two years. Lucy is mostly
performing routine, administrative tasks. You noticed that she does not
take great interest in her job, even though she is very good at it, efficient
and reliable.

During the last evaluation meeting, you rated her with a 3 (satisfactory)
on a scale ranging between 1 (unacceptable) and 5 (outstanding). Lucy
was surprised when you told her that you expected greater participation
and more involvement in the life of the company. She has been waiting
for an opportunity to take on new challenges.
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Evaluating/supporting employee performance

Graphic Rating Scales

Behaviourally Anchored
Rating Scale (BARS)
Appraisal tools
and techniques
Behaviour Observation Scale
(BOS)

Management by objective
(MBO)

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 Evaluating/supporting employee performance
(cont’d)

Rating scale

• Criteria : behavior,
personality, competencies

• Most frequently used tool

(simple, quick, uniformity
of criteria)

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 Evaluating/supporting employee performance
(cont’d)
• Behaviorally anchored rating scale
– Very precise
– Individualized

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 Evaluating/supporting employee performance
(cont’d)

• Behavioral observation scale

– Evaluating the frequency of behaviors

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 Evaluating/supporting employee performance
(cont’d)

• Management by objectives
– Summary of results in sync with the action plan
– More objective, frequently used for professionals and managers

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 WHO SHOULD DO THE EVALUATION?

Manager/Supervisor Appraisal

Self-Appraisal

Subordinate Appraisal

Peer Appraisal
Team Appraisal
Customer Appraisal

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 PUTTING IT ALL TOGETHER:
360-DEGREE APPRAISAL

Advantage:

Ensure anonymity

Make respondents accountable

Prevent “gaming” of the system

Use statistical procedures

Identify and quantify biases

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ARGUMENTS AGAINST PERFORMANCE
APPRAISAL
- Conflict of interests between judgment and development
(especially when used to deliver news about merit pay)
- Backward looking: focus more on judgment than on development

- Too infrequent: annual gap versus frequent check-ins

- Lack of accuracy of the ratings (subjective, assessment biases)

- Overemphasis on individual contribution

- Too ritualistic and formal

- Lack of leeway from managers

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 ASSESSMENT BIASES
– Halo effect: One criterion influence the evaluation of the overall
performance
– Contrast effect: Two employees with different profiles are
evaluated one after the other
– Similarity effect: Overrating an employee due to characteristics
similar to the rater
– Restriction-of-range effect: Evaluations reflect the team
average
– Tendency-to-extremes effect: Too generous and/or too strict
– Last-impression effect: Evaluating an employee on the basis of
recent behavior

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 WHY NOT STOPPING FORMAL
PERFORMANCE APPRAISAL ？

–In part because employees do need to be evaluated. Performance inevitably must

be measured and rated

–Without rankings or numerical measures, it can be difficult to tie financial rewards

to performance in a standardized way

–It protects the organization against lawsuits by employees who have been
terminated, demoted, or denied a merit increase

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 Role play

The missed promotion

– Half of the class will take the role of “manager”

– The other half takes the role of “employee”

– Read your confidential information sheet

– Answer the questions provided to prepare the role-play

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 Role play (cont’d)

The missed promotion

– Form pairs

– Conduct the role play

• You are free to make up information as needed, so long as it is

consistent with what is on you information sheet

• The meeting will last 10 minutes

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 Debrief

– Managers, what did you know going into the meeting?

– Employees, what did you know going into the meeting?

– Managers, what happened in the meeting ? Was the meeting

successful? Why?

– Now employees, how do you feel about the meeting overall? Was it
successful? Why?

– What effects do you think those feelings of dissatisfaction have on

employees’ motivation and work?

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 Debrief (cont’d)

– Why most managers are not being perceived as fair?

– Employees who perceived their managers as fair, can you explain

why?

– Where else could this lesson apply? What work situations can you
think of that might have similar dynamics?

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 Debrief (cont’d)

Summary of typical results from a class of 50 students

Fairness

4,00
3,68

3,00
2,68

2,00

1,00
Managers Employees
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 Debrief (cont’d)

Organizational justice (Greenberg 1987/90)

“A personal evaluation about the ethical and moral standing of

managerial conduct”

“The employee’s perception of whether or not an organization’s

agents have acted fairly”

1. Distributive justice

2. Procedural justice

3. Interactional justice

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 Debrief (cont’d)

• Distributive justice

– Employee judgments about the fairness of outcomes, about the

levels at which resources are distributed among parties

– Justice that focus on content: the fairness of the ends achieved

(outcome satisfaction)

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 Debrief (cont’d)

• Procedural justice

– Employees’ evaluations of the way in which decisions are made:

the fairness of the decision-making processes that determine
outcome distributions

– Justice that focus on process: the fairness of the means used to

achieved those ends (system satisfaction)

– Procedural justice is valued, in part, for its instrumentality in

achieving fair outcomes

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 Debrief (cont’d)

• Interactional justice

– Employees’ perceptions of the interpersonal treatment

they receive

➢ Informational justice
The perceived truthfulness and adequacy of explanations
offered

➢ Interpersonal justice
The perception of being treated with dignity and respect

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 Debrief (cont’d)
Being fair to employees

Survey of experienced managers

100% (Greenberg, 1988)
81%
75%
➢ What outcome they can offer

50% 43%
vs.

25% ➢ How the decision was made /

How the explanation was
communicated
0%
Announcing all Explaining pay
pay raises and and promotion
promotions decisions

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Debrief (cont’d)

Being fair is “just common sense”…

➢…it is not (i.e., role discrepancies, attribution

bias), and it has to be managed

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 General objectives of the remuneration policy

• Legal requirements (labor laws, collective agreements)

– Equal pay for equal work
– Minimum wage
– Overtime pay

• Market forces
– Labor market
– Cost control

• Managerial goals
– Attraction
– Retention
– Motivation → Fair compensation for employee contribution

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 Compensation and the goal of motivation

Respecting equity, i.e. equal compensation for equal work/job contribution

– Internal equity: Salary comparable for similar jobs within an organization

– External equity: Salary comparable to similar jobs in the industry

– Individual equity: Variable pay recognizing individual performance

– Collective equity: Variable pay recognizing collective performance

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 Why is equity important?

Understanding Equity Theory (Adams 1963/65),

and its three underlying tenets:

1. Exchange relationship (economic and social)

2. Social comparison

3. Cognitive dissonance

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 Why is equity important?

• In the workplace, employees

participate in exchange
relationships with their
employers…
… and weigh the perceived ratio Inputs outcomes
of one’s inputs to the outcomes
received

Equity is not merely a matter of getting

“a fair day's pay for a fair day's work”
(Adams, 1963)

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 Why is equity important?

• The outcome-to-input ratio an

employee perceives is also
viewed in reference to the
➢ The result of the comparison
outcome-to-input ratio for some
will determine the perception
other
of equity or inequity

This comparison “other” can be:

– a peer coworker
– an employee of another firm in a
similar job
– a supervisor
– a subordinate
– oneself in a previous job
…

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 Why is equity important?

• Cognitive dissonance between what is perceived and what is desired

results in a psychological tension that the employee will be motivated
to resolve

➢ Resolving this psychological tension?

– Increase own outcomes
– Decrease own inputs
– Increase other’s inputs
– Decrease the other’s outcomes

➢ Failure to resolving the tension…

– Deny and reappraisal of perceptions
– Change the comparison other, choose a different one
– Leave (the team, the department) or quit (the company)

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 Example

Compensation management at Excelsior

Excelsior is a large US company that manufactures office supplies. It has

production sites in several states. The company just acquired a medium-
sized family firm, DeLuxe Paper Inc., which operates in the same industry
and is facing serious financial problems.

To determine how the employee compensation system of DeLuxe Paper

Inc. will be integrated into Excelsior’s pay structure, the human resources
department examined the compensation methods used in the family firm.
The analysis of written documents and staff interviews revealed surprising
facts:
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 Example

Based on the different types of equity…

– Internal equity: Salary comparable for similar jobs within an organization
– External equity: Salary comparable to similar jobs in the industry
– Individual equity: Variable pay recognizing individual performance
– Collective equity: Variable pay recognizing collective performance

State which problems are highlighted by each of the following fact

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 Example

1. The salaries of production workers varied between 10.35$

and 25.85$ an hour. Internal equity
2. The salaries of office workers were 15% below the market
average for similar jobs. External equity
3. Two secretaries protested that their salary did not take into
account their seniority: “It is unfair to receive the same
salary as new secretaries who have just started working in
the company!” Internal equity
4. Production workers from the “evening team”, which was
known to be more productive than the “morning team”,
were wondering: “Why should we work harder since we
are not formally recognized for it” Collective equity
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 Example

5. Some technicians complained that DeLuxe Paper did not

take into account their level of performance. One of them
explained that there were no incentives to work hard:
“What did I get for exceeding my targets. I was not paid
more than underperformers!” Individual equity
6. It was not uncommon for supervisors to refuse a
promotion. According to them, “The effort required to
assume additional responsibilities were not worth it!”
Internal equity

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 Respecting internal equity

• Internal equity aims for consistency among jobs within an

organization

• Based on job evaluations and classification

– Attributing a relative value to each position and rank jobs

– Salary differentials must be fair and based on objective and

common factors (different evaluation and classification methods
exist):
➢ Qualifications and experience required
➢ Responsibilities
➢ Intellectual and/or physical effort
➢ Working conditions

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 Respecting internal equity
Junior accountant Senior accountant

Qualifications and C.A., no experience C.A., minimum 5 years of

experience required required experience

Responsibilities Consulting, Team management,

service delivery developing client portfolio
Intellectual and Intellectually demanding Intellectually demanding
physical effort
Working conditions Desk job, ‘travel’ (working Desk job, ‘travel’ (working at
at the client’s location) the client’s location,
prospection)

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 Respecting internal equity

• The purpose of job evaluation and classification is to rank and

compare jobs
– Determines job categories
– Correcting unfair or undue salary differences
– Not to set salaries per se
➢ Salaries typically based on the market value

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 Respecting external equity

• Salary surveys

– Information about wages offered by

companies in the benchmark market

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 Respecting external equity

• Salary surveys
– Various aspects/components of overall/total compensation

Direct Indirect

Non-monetary
Base salary benefits &
Employee services

Variable pay
- Salary increases
Social benefits
- Incentives
- Profit-sharing

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 Pay structure

• Salary positioning (external equity)

– Lead, Lag, Match

• Pay structure and range (internal equity)

– Set of a minimum and a maximum (base) salary for each job category

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 Respecting individual and collective equity

Managing variable pay programs

1. Individual equity

➢ Influences individual performance (unless pay increases and

incentives are too trivial with different levels of performance)

– Salary increase
• Merit/Performance, Skills/Qualification, Seniority
– Individual bonuses
• Merit/Performance
– Commission plans
• Development and management of a client portfolio
– Piece rate pay
• Number of units produced within a given period of time
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 Respecting individual and collective equity

Managing variable pay programs

2. Collective equity

➢ Foster cooperation and team work rather than individual performance

(but risk of conflict due to free riding/social loafing)

– Short-term variable pay plans

• Team bonus
• Gain sharing (department, work unit)
• Profit sharing (organization)
– Long-term variable pay plans
• Stock purchase
• Stock options

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 Practical case

• Two firms with two different cultures

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 Debrief

Firm A Firm B

Base salary: Base salary:

• Junior: 75% • 65-70%
• Senior: 60%
• Associate: 50%

Individual variable pay Individual variable pay

• Junior: 0% • Bonuses for project management and
• Senior: 20% (commissions) bringing in new clients
• Associate: 40% (commissions)

Collective variable pay Collective variable pay

• Gain-sharing (based on the department • Profit-sharing (based on the company’s
profitability) profitability)
• Team bonus (based on service quality)

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