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Specific Performance Issue
0 Downloads | 13 Pages 3,079 Words | Published Date: 02/09/2017
In the present market of immense competitive business and aim on the popularity, the performance management and the compensation management have become really necessary. Every profitable or non-profit organization uses these management concepts as standardized tools in order to evaluate the performance of the employees, define their job roles, and offer them adequate financial or non-financial compensations. A business organization can only become successful if its employees efficiently contribute to the objective of the organization. But the performance of the employees should be evaluated at regular intervals so that the work process meets up with the organizational strategy. It also helps an organization to determine the structure of the remuneration for its employees. But these management concepts face a heavy challenge under some specific circumstances and due to the inability to meet the requirement what it was originally implemented for and this has become a global phenomenon (Armstrong and Brown, 1998). Recent studies show that the employers themselves think that both the performance management and the compensation systems are not efficient and complete enough to meet the organizational objectives and satisfy the employees (Bourne et al., 2013). The employees also have expressed their dissatisfaction and disgust about these systems. In light of such complicated situation, this paper attempts to critically discuss the issues found in the performance management and compensation management systems of the Little Heart Agency (LHA), a non-profit organization based in Porirua, New Zealand. Through critical and evaluative discussion, this paper also tries to present some potential and probable solutions so that the situation becomes simple and the organizational objective is perfectly met.
Overview of the Organization
The Little Heart Agency is an active non-profit organization which operates from the Porirua city of New Zealand. It has its offices and branches spread all over the New Zealand. This company is efficiently headed and controlled by Jack Fraser. LHA is mainly associated with children welfare. But, they provide ample support to the needy families too. These children either suffer from acute illness or from economic deprivation. The Board of the Directors of this organization includes several community leaders. It makes the organization accessible to all. Moreover, it also helps the organization itself to convey its message to the whole community. LHA arranges special programs, health check up and treatment camps, food supply camps etc in the distant areas. The employees have to work hard and sincerely to raise funds for the children through ing several government agencies and charitable trusts. Therefore, the employees should be compensated adequately for their hard work. But the compensation is generally made effective through a particular compensation management system. But before that, the performance of every employee should be evaluated by a standardized performance management technique so that the employers can determine the compensation structure for each post or individual employees. The LHA has implemented the Job Ranking method as the standardized tool of the performance management. The compensation is determined in accordance with the evaluation. The employees of the LHA are compensated through a compensation system of salary depending on the pay band structure. But these management systems have presented a number of difficulties to the employers and the employees also. Therefore, it is relevant to critically analyze the related performance management and compensation management concepts so that the issues can be properly addressed and solutions can be found out.
The Concept of Performance Management
The performance management helps an organization to establish a proper understanding of the workforce and the desired achievement with the help of that workforce. This process has various parts.
Performance planning is the primary and fundamental step of performance management. This formal process helps an organization to identify, discuss, and then develop proper plans to set both organizational and individual goals within the company structure (Bhattacharya, 2011). It clearly demonstrates the desired level of achievement by the employees in the upcoming period of performance appraisal. This step is necessary because, at the end, the fixed goals and objectives serve as the standards for assessing and evaluating the performance of the employees as well as the improvement of the organization.
This monitoring process is usually supervised by the managers. The focus is invested on the achieved results, and how the individual and group behavior of the employees contribute to the work environment (Bacal, 2012). The monitoring process should also concentrate on continuous tracking of the objectives through regular meetings with the employees, identifying barriers to the achievement of the objectives, sharing feedback on the achievements of the employees, keeping the employees aware of any required changes in the objectives in accordance with the shifting environment, and determining any extra support that may be required for enhancing the performance of the workforce.
This stage focuses on the development of the skills of the employees and the managers so that their professional excellence are enhanced. It includes a discussion with the managers, exchanging opinions and ideas among the individuals, promote individual growth, and allow the employees to adopt new skills and thoughts in accordance with the organizational objectives (Delpo and Guerin, 2014).
The evaluation process helps to summarize the accomplishments of the employees both on the individual level and on a wholesome organizational level so that the organization becomes able to find out the key results and the shortcomings in accordance with the organizational objectives set at the first level (Sandler and Keefe, 2004). This process also helps to find out the challenges for the workforce and identifies the areas that need development.
Succession planning is an important step in the performance management system. Through this particular step, the organizations recruit suitable and fit employees, managers, and other superior employees according to the defined job roles.
The Concept of Compensation Management
Compensation management is an important aspect of the organizational structure. The organizations use different kinds of compensation policies, incentive opportunities, extra credits and facilities, insurance facilities, and many other benefits within the compensation management program so that the employees remain motivated to work harder and better (Milkovich, Newman, & Venkataratnam, 2009). An effective compensation management system helps to retain the valuable employees and attract the other professionals in the market. It provides the organization with a kind of competitive advantage.
Issues of the Performance Management and Compensation Management Systems
It is theoretically and practically considered that the performance management system has a close relationship with the compensation management system. It is also observed that it is the performance management strategy that leads to unequal compensation management technique. LHA uses a particular performance evaluation technique named job ranking. In this method, each job role and the employee performance related to each job role are compared with the other job roles of the organization. It allows the organization to rank all the jobs according to their importance in the organization in the form of highest to lowest, and hardest to easiest (Armstrong, 2005). This ranking should be done according to the responsibility, expectation, and duty of each specific job role. But such evaluation technique is the subject of controversial discussion. The people think that the technique does not separate the efficient employee from the inefficient ones. For example, one can observe that inside an organization, there are a number of people who work as the clerks but very few of them take their responsibilities seriously and sincerely. The same is the case in LHA. There are a number of employees who work in the same job role but the evaluation technique ultimately does not distinguish between the effective employees and the useless ones. Performance management is meant for encouraging and motivating the employees to keep doing the better work. But such incomplete evaluation discourages the employees instead of motivating them. The employees have to be attributed with specific job roles but at the same time, it should also distinguish between the worthy and the less-active employees and the inability to do this separation is often reflected through the compensation management system (Chong and Eggleton, 2007). The employees of the LHA are compensated according to the pay bands specified for their job roles. In this compensation structure, the more active and worthy employees receive the same amount of compensation as those who hardly work actively to fulfill the organizational goals. It creates a negative impact on the attitude and the thought process of the employees. The more active employees start to think that there is no meaning of working hard because the organization does not provide any additional benefits to the hard-working individuals. Moreover, the compensation system is incomplete in another way. The employees of LHA often have to travel to distant parts of New Zealand. They might face accidents or other types of physical hazards during their travel for the purpose of work. But the organization does not offer any travel bonus or insurance to the employees. There are not any kind of incentives for better performance. The experts suggest that an extra credit for the better performance would encourage the employees to repeat the same actions to receive the bonus again (Ryckman, 1986). It has also been recommended that the employees should be compensated with some bonus after the evaluation of the employee performance over a specific period of time (Keenan, 1994). This bonus should be provided on the discretionary basis. It would make the employees feel that the organization thinks about its employees and thus, the employees would feel more responsible for achieving the organizational objective (Widener, 2006). In order to have a better understanding, one should critically discuss the issues specifically related to the performance management and the compensation management systems.
Static Business Objectives
In the modern scenario of business, the organizations should continuously remodel their thought processes, values, and objectives in accordance with the change of the time (Panda, 2011). It has been observed that the LHA sets its goals and objectives during the performance planning stage at the start of a business session. But the organization does not develop or change the goals even if the business market witnesses a radical change. Thus, the whole performance management system loses its validity and credibility. The employees are evaluated on the standards of the outdated and irrelevant organizational objectives.
Extreme Time-Consumption during Performance Feedback
The LHA reviews the performance of the employees on the annual basis. But the performance evaluation step happens to be so lengthy that the employees receive the feedback months later. For example, if an employee does any mistake, he can get the feedback 6 or 7 months later. It does not help the organization or the employee. Extra and extreme time consumption mean that the employees would not receive the feedback in time and it increases the possibility that they would repeat the same mistakes during that period of time (Banker et al., 2000).
Insufficient Focus on the Personal Development
Each employee has his/her own credentials and abilities. Therefore, the managers should focus on the individual abilities so that the personal development of the individuals can collectively contribute to the organizational progress (Hale, 2012). But LHA only provides general feedbacks and suggestions to its employees. Thus, the employees also seem to be disinterested in the collective development because of their personal development gets neglected by the organization (Melnyk et al., 2014). Moreover, such performance management system neglects the unique contributions made by the employees. The final rankings are based on some generalized views. It discourages the employees to a great extent.
Absence of Internal Equity
This issue is related to both the performance and the compensation management systems. As the performance evaluation is based on some generalized notions, the Job Ranking method seems to be inadequate. This is because equity does not only mean that every person should get equal opportunities, but it also means that an employee with a better performance should receive better compensation than any other employee of the same job role (Pearce, Stevenson, and Perry, 1985). But this system is absent in the LHA. The better performers feel betrayed because every employee receives their salaries based on the pay band structure irrespective of their performance quality.
Experts opine that the success of an organization largely depends on the tactics and strategies an organization adopts in order to attract the efficient newcomers, experienced professionals, and to retain the existing employees who are regarded as the valuable assets of the organization (Berger & Berger, 2015). But this cannot be done until an organization provides some extra benefits to the employees. The LHA hugely fails to attract new professionals and retain the existing ones because the organization does not provide adequate performance incentive, business travel bonus, attractive joining allowance or retaining allowance.
Inadequate Response to the External Competition
In the present scenario of the business market, an organization should cope up with the tactics and strategies that best suit the time. But LHA does not respond to the competitive market in an efficient way. The companies have to reanalyze and re-evaluate their compensation structures by following the most suitable trend and implementing the appropriate compensation structure so that they can have an advantage (Brown, 2001). But LHA does not have such strategy and they stick to the fundamental tactics in the rapidly changing scenario.
There are multiple issues that need to be assessed and properly addressed in order to survive in this extremely competitive market and establish LHA as a recognized institution.
The research and the discussion have brought out a number of shortcomings in the implemented performance management and compensation management system within the organizational structure of LHA. Therefore, the organization should immediately take the necessary steps in order to solve any potential problem or threat. Extensive studies and research recommend the following steps to the LHA:
- I) The LHA should set flexible objectives that can change its shape with the change of the dynamics in the business market. This would help the organization to continuously update the tactics and keep itself updated.
- II) The managers should more frequently communicate with the employees so that the performance feedback can be provided in time and the employees get an opportunity to develop their personal abilities.
III) The compensation structure should use the Points Rating technique instead of the Job Ranking method. The Point Ranking method allows the evaluator to allocate points to each job role according to specific factors like responsibility, required skill, employee's knowledge, produced effort, and difficulty level of the job (Armstrong and Murlis, 2007). Thus, this method will ensure that the employees of LHA are compensated according to their credentials and abilities. It will maintain the internal equity within the organization.
- IV) The LHA should also reassess their business strategies and compensation techniques so that they can meet the requirements of the competitive market. The organization should also provide some extra benefits and facilities to attract new professionals or retain the existing ones.
The research has made it clear that LHA has to implement various new and updated policies to improve its organizational structure on a wholesome level. The performance management system has a lot of issues that makes it ineffective. The same is the fact in the case of the compensation management. They fail to properly set the objectives, focus on the development of the employees, correctly and timely evaluate their performance and providing them the adequate compensations. All of these aspects have to be addressed and analyzed to find the best solutions. The organization should not only focus on the proper performance evaluation and internal equity of compensation but it also should concentrate on the organizational structure so that the development takes place in all of the related areas. This will potentially help the LHA to perform better as a properly organized organizational workforce and touch the heights of success.
Armstrong, M & Brown, D 1998, ‘Relating Competencies to pay: The UK experience’, Compensation & Benefits Review, vol.30, no.3, pp. 28–39.
Armstrong, M 2005, Job evaluation: A guide to achieving equal pay, Kogan Page, London.
Armstrong, M & Murlis, H 2007, Reward Management: A Handbook of Remuneration Strategy and Practice, Kogan Page, London.
Bacal, R 2012, Manager's guide to Performance management, McGraw-Hill, New York.
Banker, RD, Lee, SY, Potter, G & Srinivasan, D 2000, ‘An empirical analysis of continuing improvements following the implementation of a performance-based compensation plan’, Journal of Accounting and Economics, vol.30, no.3, pp. 315–350.
Berger, LA & Berger, DR 2015, The compensation handbook, sixth edition: A state-of-the-art guide to compensation strategy and design, McGraw-Hill Professional, New York.
Bhattacharyya, D K 2011, Performance Management Systems and Strategies, Pearson, Delhi.
Brown, D 2001, Reward strategies: From intent to impact, Chartered Institute of Personnel and Development, London.
Bourne, M, Melnyk, SA, Bititci, U, Platts, K & Andersen, B 2013, ‘Emerging issues in performance measurement’, Management Accounting Research, vol. 25, no.2, pp. 117–118.
Chong, VK & Eggleton, IRC 2007, ‘The impact of reliance on incentive-based compensation schemes, information asymmetry and organisational commitment on managerial performance’, Management Accounting Research, vol. 18, no. 3, pp. 312–342.
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Melnyk, SA, Bititci, U, Platts, K, Tobias, J & Andersen, B 2014, ‘Is performance measurement and management fit for the future?’, Management Accounting Research, vol. 25, no. 2, pp. 173–186.
Milkovich, GT, Newman, JM & Venkataratnam, CS 2009, Compensation, McGraw Hill, Delhi.
Panda, S 2011, ‘Performance management system: Issues and challenges’, Management and Labour Studies, vol. 36, no.3, pp. 271–280.
Pearce, JL, Stevenson, WB & Perry, JL 1985, ‘Managerial Compensation Based on Organizational Performance: A Time Series Analysis of the Effects of Merit Pay’, Academy of Management Journal, vol.28, no.2, pp. 261–278.
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