Performance Management & Compensation
Prof. Dr. Barbara Beham| Seminar OBI
Purpose of Performance Mgmt. Systems (PMS)
Define, facilitate and encourage performance
Input to general human resource decisions (e.g. transfers, promotions,
terminations)
Identify skill training and development needs
Identify organizational talent
Leadership development & succession planning
A mechanism for feedback and reward allocation!
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Group Exercise
Evaluating Performance
How would you like to be evaluated in your job?
What would be a good performance evaluation system for you?
Discuss within your group and collect your ideas (15min).
Prepare to share your ideas in the shared notes
section of the tool.
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Performance Feedback at
Managers are supposed to evaluate their
employees and categorize them into:
„Performer“ – You are top, you get a bonus.
„Achiever“ – You are doing ok, continue as
you did.
„Improver“ – You are doing poorly.
5% of each team must be in the „Improver“
category.
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Components of PMS
Developmental Evaluative
• Develop professional skills • Provide feedback
• Diagnose individual and • Develop bases for decision
organizational problems involving pay, promotions, job
• Enhance commitment through assignments, retention and
discussions about career termination
opportunities, action plans and • Communicating about
needs for training and unsatisfactory performance
development
• Motivate employees through
recognition
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What Do We Evaluate?
Individual Task Outcomes
– These are the metrics that directly result from employee effort such as
sales, turnover, or quality
Behaviors
– More and more companies are focusing on behavior in place of
production. The three main areas they concentrate on are:
• Task Performance
• Citizenship
• Counterproductivity
Traits
– Weak because they don’t reflect productivity; often used, these include
attitudes, confidence, and looking busy.
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Who Should Do the Evaluation ?
Immediate
Supervisor
Peers Self Customers
360o Feedback
Subordinates
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Methods of Performance Evaluation
Written Essay
– A narrative describing an employee’s strengths, weaknesses,
past performances, potential, and suggestions for improvement
Critical Incidents
– Evaluating the behaviors that are key in making the difference
between executing a job effectively and executing it
ineffectively
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More Methods of Performance Evaluation
Graphic Rating Scales
– An evaluation method in which the evaluator rates
performance factors on an incremental scale
Keeps up with current
policies and regulations
1 2 3 4 5
X
Completely Fully
Unaware Informed
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Another Performance Evaluation Method
Punctuality Behaviorally Anchored
Rating Scales (BARS)
• Never late for – Scales that combine major
work
1 elements from the critical
incident and graphic rating
scale approaches: The
• Late 1-2
times per appraiser rates the
2 month employees based on items
along a continuum, but the
points are examples of
• Late 3 or
actual behavior on a given
more times
job rather than general
3 per month
descriptions or traits.
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Even More Evaluation Methods
Forced Comparisons
– Evaluating one individual’s performance relative to the performance
of another individual or others
– Who is “better,” A or B?
– Group Order Ranking
• An evaluation method that places employees into a particular
classification, such as quartiles
• 10% are A’s, 20% B’s, 40% C’s, 20% D’s, and 10% F’s
– Individual Ranking
• An evaluation method that rank-orders employees from best to
worst
• Mary is #1, Juan is #2, Liu is #3…
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Recent Trends in Performance Management
Traditional New
PMS PMS
• Evaluating past performance • Focus on current performance
& future development
• Individual accountability • Team focus
• Forced rankings => • Collaboration & self-
competitiveness organization
• Annual goals • Shifting goals
• Formal, annual review • Informal, frequent feedback
• 360° feedback • Fewer sources
• Complex HR Information • Easy to use web-based Apps
Systems for real-time feedback
Redesigning a PMS at
THE PROBLEM
58% of Deloitte managers believed that their PMS neither drives
employee engagement nor high performance.
The PMS is based on:
cascading objectives
backward-looking assessments
once-a-year rankings & reviews
360-degree feedback
Completing forms, holdings meetings, and creating ratings
consumed close to 2 million working hours a year!
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Redesigning a PMS at ( (cont.)
THE GOAL
Clear view on performance at anytime
Fairly recognize varying performance
Separate compensation decisions from day-to-day performance
management
Many performance snapshots over the year
Quick & easy to use
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Redesigning a PMS at ( (cont.)
THE SOLUTION
Performance assessments by the immediate team leader only.
People tend to rate other people‘s skills inconsistently, but are highly
consistent when rating their own feelings and intentions!
4 questions at the end of every project or once every quarter in long-term projects:
1) Given what I know of this person‘s performance, if it were my money, I would award this person
the highes possible compensation increase and bonus.*
2) Given what I …., I would always want him or her on my team.*
3) The person is at risk of low performance. (yes/no)
4) The person is ready for promotion today. (yes/no)
Weekly check-ins with their teams by team-leaders; initiated by team-
members; app-based.
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* (5-point scale from strongly agree to strongly disagree).
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What Is Good Performance?
Individualistic Cultures Collectivistic Cultures
Individual productivity Group harmony
Timeliness Trustworthiness
Quality of output Respectful attitude
Job-specific knowledge and Awareness of duties and
proficiency obligations
Objective, quantifiable Gratitude
performance criteria Conformity
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Cultural Influences on PMS
360 degree feedback is only appropriate in countries with low
power distance.
Self-appraisals are more likely in individualistic cultures.
High power distance cultures use a top down unilateral process.
Feedback in collectivist cultures is likely to be indirect, non-
confrontational and subtle.
Even positive feedback to individuals in collectivist cultures
could be seen as disturbing group harmony.
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Institutional & organizational Factors Influencing
PMS in MNCs
Legal
System
Technology
Data Collective
Consistency PMS Bargaining
Geographic External
Distance scrutinity
HQ vs.
Org.
Subsidiary
Factors
Goals
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Compensation
Prof. Dr. Barbara Beham| Seminar OBI
Compensation
Direct financial payments
Wages, salaries, incentives, commissions, bonuses
Time- and/or performance based
Indirect financial payments
Benefits such as employer-paid insurance, company car, paid vacation,
etc.
Strategic flexibility approach
3 components: core, crafted, choice
Allows for global integration & local responsiveness
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Compensation in MNCs
National variation in compensation systems
Culture
Social contract
Labor relations
Ownership structures
Management autonomy
Common practices
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Compensation of Expats & International Assignees
Three Approaches in MNCs:
1) Host country approach
Fit compensation into local salary structure.
2) Home country approach (= balance sheet approach)
Provide equivalent purchasing power in the host-country to maintain equal
standard of living to that of the home country.
3) Global approach
Compensation on an international scale regardless of country of origin
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Advantages & Disadvantages
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Components of Expat Compensation
Base salary & ev. Performance-based bonus
Foreign service inducements
Mobility premium – lump-sum bonus to relocate
Hardship premium – lump-sum bonus for relocating into dangerous locations
Allowances
Cost of living allowance (COLAs – compensate for differences in living expenses)
Exchange rate protection & tax equalization or tax protection
Housing allowance
Home leave allowance or rest, relaxation and rehabilitation allowance
Family-related allowances such as spouse assistance, tuition fees for schools, etc.
Benefits
Healthcare, retirement, company car, etc.
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