Introducing a New Performance Management System

A large organisation, which traditionally had a paternalistic approach and low levels of unionisation, decided to introduce a performance management
system incorporating performance-related pay.
This changed the nature of the previous incremental salary scales and led to the abolition of the annual cost of living-related increase.
The new system incorporated an annual objective setting process, ongoing review and annual assessment with a reward link.
The annual assessment determined two things.
a) Firstly, whether the individual could move up on the salary scale:
• one increment
• two increments
• would remain put or
• would move down one increment.
There were careful descriptions related to performance which indicated which action should be taken in respect of each individual.
This replaced the previous system where increments were automatic and there was no possibility of moving down an increment.
b) Secondly, the assessment was translated into a grade (A–E) and each grade was linked to an amount of performance-related pay, expressed as
a percentage of current salary.
There were however limits on the number of people in any department who could be put into each category.
So, for example, A grade, which represented outstanding performance, was only available to 5% of the staff in any department.
The system was introduced very quickly using a consulting firm. However, 2 years after implementation there are high levels of dissatisfaction from
employees, and some line managers have also expressed serious concerns about their role in the system and the system itself.
To tackle the problem a different consulting firm was used as the previous one had disbanded.
They carried out some research and established the following:
• Objectives were not always agreed at the beginning of the period, sometimes they were agreed at the end or not at all
• Reviews were not generally carried out during the year
• Those departments that did set objectives found high levels of competitiveness between staff and an unwillingness to support others
• Changes to the incremental system were widely resented, except for a few highfliers
• Many felt the system was not used fairly or consistently
• Many employees, including line managers, did not understand why the system was introduced, others thought it was to do with cost cutting
• All felt the grade limits were unfair
• Employees did not feel line managers were objective in their assessments
• Some line managers expressed discomfort with the process
• Most employees felt their development needs were ignored
• The reward levels were too small to motivate employees.
Case Questions (each question is worth 25% of the exam grade)

  1. What do you see as being the primary weaknesses of the new performance management system at this company? Why? How do they affect
    the employees? Organize and explain how they affect other HR functions.
  2. As an external HR consultant to the company, list and rank by priority the recommendations you would make to the Director of HR as to how
    the system should be modified and relaunched? Establish a timeline for the recommendations.
    Open Questions (each question is worth 25% of the exam grade)
    Answer two of the following questions:
  3. From afar, the best prize that life offers is the opportunity to work on something worthwhile. (Theodore Roosevelt). Explain how this phrase
    impacts the HR corporate strategy and suggest what actions that should be implemented in a company in order to be consistent with its
  4. Steven Covey’s Top 7 Habits of Highly Effective People are: (1) Be proactive (2) Begin with the end in mind (3) Put first things first (4) Think winwin (5) Seek first to understand, and then to be understood (6) Synergize (7) Sharpen the saw. How do these principles relate to the HR
    function? Explain precisely and justify.

Sample Solution