Performance Management and Reward Procedures - Report Example

Performance Management and Reward Procedures Contents Introduction 3 1 Organizational context and circumstance 3 2 Aims and objective of the study 4 2. Problems and findings 4 3. Conclusion 6 4. Recommendations 7 4.1 Recommendations for Performance Management 7 4.2 Recommendation for Performance Appraisal 8 4.3 Recommendations for Employee Motivation 8 4.4 Recommendation for Controlling Employee Turnover 9 4.5 Recommendations for Reward Management 9 Reference List 10 1. Introduction Performance Management and Reward Procedure is a key aspect for the study of organizational behaviour. Performance management is not confine into the rating of employees. It includes proper planning of the work to be done, monitoring the progress, developing performance through essential outputs, evaluating the employees over a certain time period and finally rewarding the good performances (Bassioni and Hassan, 2004). Reward Management aims at providing a more rational approach of recognizing individual contribution towards the assigned work and accordingly reward them. A standard reward management system should ensure equity, transparency and fairness in the process of rewarding employees (Armstrong and Murlis, 2007). In this paper, performance management and reward procedure of the UK based company DIY Stores, will be discussed in order to analyse their existing procedure and to understand if there is any gap between their prevailing structure of performance management and the standard system (Rao, 2004). 1.1 Organizational context and circumstance DIY Stores is a retail group of large warehouses. This wholly owned subsidiary is involved into selling of DIY equipments, plumbing appliances, garden tools and self assembled furniture. The company runs 250 stores across the country and serves a million of customers per week with contribution of about 12,000 employees working for them (Excerpt from case study). On the basis of market share in this segment, DIY Stores is considered to be among the top five companies in UK. Therefore, rules and regulations followed by the company appear to be very dynamic and in adherence to corporate cultures. However, a slight fall in the share prices has directed the company to change their core policies and practices, which leads to suffer most of employees. Hike in targets are clearly stated to all employees. However, emphasis has been given for the well being of employees who are in General Manager Category. Store Managers are promised to facilitate with a number of tangible and intangible benefits, if targets are met on time but other staffs and managers are nearly ignored from providing any performance based rewards as against their increasing responsibilities. Rather, Managers are directed to improve the performances of their subordinate through close supervision of their work. Clearly, if such discriminating performance management system continues, DIY Stores are bound to experience employee dissatisfaction in near future. 1.2 Aims and objective of the study Aim of this paper is to find out the management’s rationale behind adopting such strict performance appraisal policies and providing appropriate recommendations to bring changes in the required avenues. Appraisal of good performance is necessary for every organization in order to motivate the employees to perform better in the next quarter. Financial incentives are also very important to keep their motivation level constant. In contrast, management’s approach towards discriminating between employees, i.e. encouraging General Managers to enhance their performance level through declaration of performance based rewards and adopting discouraging measures for other staffs, leads to develop the gap between superior and subordinates. The management’s objective behind taking such corrective decision is to enhance employee’s productivity to increase company’s profitability as a whole. However, such action in turn affects the performance of both, resulting in further degradation of the company’s current situation. In order to analyse the current employee management and reward policy of DIY Stores and evaluate that with the standard policies and theories of performance management, relevant journals, books of organizational behaviour and online sources have been referred. 2. Problems and findings From the above discussion, it is evident that the company is going through a number of internal problems in terms of employee dissatisfactions and high turnover as a result of appointing strict employee reward system and performance measurement standards by the company. A number of problems regarding the existing policies have been identified in terms of inequality and financial facilities of the employees (Saks and Gruman, 2010). These should be discussed in a detailed manner. Managers working below store manager level can be categorised into two segments. First category of employees wants promotion and works effectively towards achieving it. The other category includes employees who don’t want promotion but expect rewards for their continuous contribution and efforts. The first category of employees understands that promotion is the only way to improve their financial positions. Hence, they strive to work more efficiently and effectively in order to achieve timely promotion and financial incentives, in proportion to their contribution on the company’s profitability. Undoubtedly, these are the employees who are seriously concerned about their own growth and growth of the company as well. However, as a result of introducing new performance management regulations, these staffs experienced a significantly less flexible performance management system which leaves no room for them for promotion and performance based rewards in near future (Thurston and McNall, 2010). Rather, Store Managers started scrutinizing their work through close supervision. As a result, the work condition became suffocating for such employees with no scope for promotion and added pressure from the superior to achieve the increased target. However, the UK job market has been never dissatisfying for such potential workers. Hence, organizational level frustration leads these employees to search for jobs where their financial and professional goals will be fulfilled. The turnover ratio of the company increased. The second category employees, who are not highly concerned about promotions due to their age factor or any other reasons, at least expect some financial benefits or incentives from the company’s end due to their constant effort towards company’s objective. As the company policy does not include anything as such for these employees, their motivation level becomes very low and they become least interested in enhancing their performances in order to contribute towards the increased target levels of the company (Chiang, 2005). Though Store Managers are guaranteed to be rewarded sufficiently, newly formed targets are set in such a way that they are required to stretch their performance to a great extent. Otherwise, they will have to be satisfied with small compensations like small occasional gifts. Such management policy directed the Store Managers to create excessive pressure upon their subordinates for achieving their personal incentives. In contrast, the subordinates became rigid with low motivation towards enhancing their performance as no benefits are associated with their increasing level of performance. Different level of motivation, employing strict supervision and disciplinary approaches on staffs, low dependency on senior managers, broaden the gap between superior and subordinates which in turn started declining the company’s performance further (Sage Publication, 2012). The existing performance management and reward system influences the Store Managers to boost their performance level intensely. Managers are declared to provide a range of benefits including healthcare solutions, additional holidays, preference shares of the parent company, huge discounts on the home products and annual increment on the basis of performance appraisal (Excerpt from case study). Hence, managers tend to stimulate their performance in order to achieve all such benefits. With the pre- specified levels of targets and announced benefits to be obtained in achieving those targets, managers become self performance centric, giving less importance to the company’s core objective. As the reward system is solely based on individual performance, the managers give very less emphasis on the regional or corporate performance level. Moreover, in order to maximize performance of their own stores, a tendency has been noticed among the managers to involve in cut throat competition with other local store managers. Practises like restrictions in sharing of innovative ideas, transferring staffs when required; controlling movements of stocks has also become very prominent. Such practices are bound to slow down the growth and profit potential of the company (Kerr and Slocum, 2005). Currently, with the alternation of performance and reward management policies, DIY Stores are experiencing all such problems discussed above. These problems may prove to be severe from the company’s perspective if corrective measures have not been taken in the near future. 3. Conclusion The management’s objective behind changing the criteria for performance supervision and reward policy was to recover the company from its falling market share. Instead of adopting strategies such that more diversification of their products or understanding competitors’ marketing plan and modifying their approaches accordingly, DIY Stores concentrated on enhancing the employees’ performances. As a result of applying strict incentive regulations on Managers and no performance reward for staffs, the company started experiencing internal collations among employees. Dissatisfaction level sharply increases among the managers and staffs working below Store Manager Level as the company completely neglected all factors that may encourage their performances. They started feeling underpaid and unrecognised with a limited possibility of career growth and advancement for them. Motivation for improving performance disappears and with a very little trust on management, potential staffs started searching for new jobs. Therefore, the company’s inability to provide appropriate career path to all employees resulted in loss of potential human resource for DIY Stores. High turnover ratio combined with loss of experienced and skilled workers may indirectly push the company for further loss in market share. Apart from all these, holding stocks for a longer period leads to destruction of the material and it also causes for potential loss for the company, if there is high demand of the products in other outlets. Such unethical business practices within the company itself in terms of limitations in employee and resource movement when necessary may further drag the company’s market share behind. Therefore, relevant recommendations should be provided to DIY Stores so that the company can bring appropriate alternations in their policy regulations and ensure employee satisfaction, retention and sound work environment complying with the corporate culture in order to capture large market share in coming future. 4. Recommendations Performance management is a continuous process of monitoring and measuring employees’ performance aligning with the organizational objectives in a dynamic business environment. Therefore, small incidents such that slight decrease in market share should not lead a company to change their internal policies related to performance and reward management (Corby, Palmer and Lindrop, 2009). As far as the problems of DIY Stores are concerned, the company needs to seriously review their existing promotion and incentive guidelines in order to control employee dissatisfaction and attrition rate and to accomplish that the company should follow standard theories and practices developed by Organizational Behaviour and Human Resource Management experts (Perkins and White, 2011). 4.1 Recommendations for Performance Management In order to eliminate employee discrimination and establish a standard performance appraisal policy for all employees in the company, DIY Stores should follow the Goal Setting theory suggested by Edwin Locke. This theory necessitates the need for standardizing individual goals in organizational level (Kessler, 2003). Hence, similar to Store managers, if DIY Stores can establish realistic targets for Staffs and Managers below supervisor level, the employees will work accordingly in order to achieve the standards set by the company. In this way, the company can force the employees to improve their performances, if the goals are not achieved within specified time period and they should introduce financial incentives for all employees in case they achieve their set of targets (Krausert, 2009). Adopting such performance management measures will definitely lead to reduce dissatisfaction among employees. According to Vroom’s Expectancy theory, the employees adjust their behaviour on the basis of their anticipated satisfaction level within the organization (Varma, Budhwar and DeNisi, 2004). Hence, if DIY Stores can define the aim of all the employees within the organization and associate that with relevant reward measurements then the managers and staffs will perceive their satisfaction level in the company and work systematically in order to enhance company’s market share (Cardy and Leonard, 2011). 4.2 Recommendation for Performance Appraisal When the standards for performance management are defined for all employees of DIY Stores, the company should introduce systematic techniques for performance appraisal. Presently, the company is concerned to appraise the performances of employees only in General Manager Categories. Instead, the company should appraise the performance of all employees so that staffs and other managers also get an opportunity to promote to the next level. For this purpose, they should adopt 360 degree appraise technique where they can collect performance related information from all the stakeholders such that supervisors, customers and peers and accordingly rate the employees (Sandler and Keefe, 2003). This will help all the employees to go ahead in their career path. Moreover, applying this performance appraisal system makes the rating accurate and unbiased as information about employee performance is taken from various sources (Brown and Benson, 2010). 4.3 Recommendations for Employee Motivation It has been experienced during the course of study that the employees of DIY Stores are highly demotivated due to various internal and external imbalances. According to Elton Mayo’s theory of motivation, employees tend to be motivated and more productive when they know that their performance is being examined and constructive inputs are given on the areas for further improvements. To be more specific, recognition in workplace and job security is the key sources of continuous motivation for employees (Craig, 2008). Hence, as discussed above, if performance measurement techniques are incorporated to evaluate contributions of every employee of DIY Stores including staffs and low grade managers, the employees will be constantly motivated towards improving their performance with a hope for future recognition and career growth. Apart from that, discrimination of employees in terms of incentives and benefits also hinders the performance level of all employees of DIY Stores and makes them highly demotivated. However, according to Adam’s Equity Theory, employees are motivated towards their work when they understand that the management’s is having a fair and unbiased notion for all employees in the organization. This un-biasedness should be established in terms of recognition in workplace and rewards or monetary incentives. According to this theory, the management of DIY Stores should introduce a reward management system where all employees will get an equal opportunity to earn incentive or performance based rewards in order to keep the motivation level of all employees constant. 4.4 Recommendation for Controlling Employee Turnover In order to control employee attrition rate, DIS Stores should put similar emphasis on the staffs and managers below Store Manager Level for protecting and promoting their professional as well as financial goals. Before employing the pre-determined level of targets on employees, their career path should be clearly stated. Scientific techniques for performance appraisal should also be adopted in order to measure employees’ performance and promote from within the organization. Such practises will lead to retain the level of motivation among all employees. Apart from that, monetary and non-monetary benefits should also be provided to them. In summation, improved working environment, rebalancing of work load and providing competitive benefits to all employees of DIY Stores will help the company to control their avoidable employee turnover and the employees will regain their lost belief on the management. 4.5 Recommendations for Reward Management In order to establish a neutral reward management system for all the employees in DIY Stores, the company should understand the foundation of Incentive Theory. According to this theory of Human Resource Management, reward is the most common incentive for employees to enhance their performance level (Otley, 2001). Studies have shown that an employee, who is rewarded instantly after his expected level of performance, tends to increase his performance level in the next quarter. Hence, adequate levels of incentives encourage the employees to performance beyond the standard level, in order to maximize their financial enticement (Podmoroff, 2005). Therefore, to stimulate motivation level and reduce attrition of the staffs and junior managers, DIY Stores should introduce performance based incentives on achievement of realistic targets for all employees and not only for General Managers as it is impossible to maintain their market position and expand market share with the contribution of General Managers solely. For successful running of the company and to expand business in future, equal contribution from each and every employee is required. So, for the purpose of recovering the lost market share, DIY Stores is recommended to introduce a more generous reward procedure for motivating performance level of employees rather than tightening it. DIY Stores is operating in the UK market from a very long time in aligned with corporate culture and norms. However, sudden fluctuation in market share pushed the management to incorporate strict policies regarding performance evaluation and reward systems of the employees but the management should understand that it is impossible for a company to sustain in long run if their strict employee management system shows incidents of employee dissatisfaction and attrition (Burchell, Ladipo and Wilkinson, 2002). Hence, the company should start exercising recommended theories and practices of employee management. These practices have helped many companies to control internal turmoil on many occasions. If exercised properly, these will help DIY Stores as well to standardize employees’ performance management and reward policies in upcoming future. Reference List Armstrong, M. and Murlis, H., 2007. Reward Management: A Handbook of Remuneration Strategy and Practice. London: Kogan Page Publishers. Bassioni, H. A. and Hassan, T. A., 2004. Performance Measurement in Construction. 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Performance Management for Different Employee Groups: A Contribution to Employment Systems Theory. Berlin: Springer Science & Business Media. Kessler, I., 2009. Pay and performance’ in: Brian Towers, The Handbook of Employment Relations Law and Practice. London: Kogan Page. Otley, D., 2001. Extending the Boundaries of Management Accounting Research: Developing Systems for Performance Management. The British Accounting Review, 33 (3), pp. 243-261. Perkins, S. J. and White, G., 2011. Reward Management, 2nd Edition. London: CIPD Podmoroff, D., 2005. 365 Ways to Motivate and Reward Your Employees Every Day--with Little Or No Money. Washington DC: Atlantic Publishing Company. Rao, T. V., 2004. Performance Management and Appraisal Systems: HR Tools for Global Competitiveness. New Delhi: SAGE Publications India. Sage Publication, 2012. Performance Management and Appraisal. [Online] Available at: [Accessed 11 December 2014]. Saks, A. M. and Gruman, J. A., 2010. Organizational socialization and positive organizational behaviour: implications for theory, research, and practice. Canadian Journal of Administrative Sciences, 28 (1), pp. 14-26. Sandler, C. and Keefe, K., 2003. Performance Appraisal Phrase Book: The Best Words, Phrases, and Techniques for Performance Reviews. New York: Adams Media. Thurston, P. W. and McNall, L., 2010. Justice perceptions of performance appraisal practices. Journal of Managerial Psychology, 25 (3), pp. 201-228. Varma, A., Budhwar, P. and DeNisi, A.S., 2004. Performance Management Systems: A Global Perspective. London: Taylor & Francis. Read More