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Performance Management ETHICAL AND LEGAL ISSUES IN 05/09/2022 Dr. Subhash C. Kakkar 1

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Page 1: Ethical and Legal Issues

04/22/2023 Dr. Subhash C. Kakkar 1

Performance Management

ETHICAL AND LEGAL ISSUESIN

Page 2: Ethical and Legal Issues

• Being honest.• Maintaining confidence and trust.• Following the rules.• Conducting yourself in the proper manner.• Treating others fairly.• Demonstrating loyalty to company and

associates.• Carrying your share of the work and

responsibility with 100% effort.

WHAT IS ETHICAL BEHAVIOR?

Page 3: Ethical and Legal Issues

WHAT IS AN ETHICAL DILEMMA?An ethical dilemma arises in a situation when each alternative choice or behavior has some undesirable elements due to potentially negative ethical or personal consequences.

Page 4: Ethical and Legal Issues

EMPLOYEE RIGHTS

Rights desired by employees regarding the security of their jobs and the treatment administered by their employer while on the job, irrespective of whether such rights are currently protected by law or collective bargaining agreements of labor unions.

Page 5: Ethical and Legal Issues

Legal and Ethical Issues inPerformance Management • Legal

– Performance management processes are often scrutinized in cases of discrimination or dismissal.

• Ethical– Employee monitoring via electronic devices

and computers may raise concerns over employee privacy.

– All applicable and non-applicable rules of ethics become applicable

Page 6: Ethical and Legal Issues

Legal Requirements forPerformance Management

• Lawsuits related to performance management usually involve charges of:– Discrimination– Unjust dismissal

• To protect against both kinds of lawsuits, it is important to have a legally defensible performance management system.

Page 7: Ethical and Legal Issues

Legal Requirements forPerformance Management (continued)

• A legally defensible performance management system includes:– Based on valid job analyses, with requirements for job

success clearly communicated to employees.– Performance measurement should evaluate behaviors

or results, rather than traits.– Multiple raters (including self-appraisals) should be

used.– All performance ratings should be reviewed by upper-

level managers.– There should be an appeals mechanism for employees.

Page 8: Ethical and Legal Issues

Legal Issues in AppraisalsCourts have found that inadequate appraisal systems often lie at the root of discriminatory layoffs, promotions, discharges or merit pays• They are held illegal if appraisals are:

– Based on subjective observations– Not administered and scored consistently– Based on evaluators who did not have daily contact

Page 9: Ethical and Legal Issues

9–9

Formal Written Warnings• Purposes of a Written Warning

– To shake your employee out of bad habits.– To help you defend your rating, both to your own boss

and (if needed) to the courts.

• A Written Warning Should:– Identify standards by which employee is judged.– Make clear that employee was aware of the standard.– Specify deficiencies relative to the standard.– Indicate employee’s prior opportunity for correction.

Page 10: Ethical and Legal Issues

Contamination and Deficiency of a Job Performance Measure

Page 11: Ethical and Legal Issues

Political Behavior in Performance Appraisals

• Distorting a performance evaluation to advance one’s personal goals

• A technique to minimize appraisal politics is a calibration meeting:– Meeting at which managers discuss employee

performance ratings and provide evidence supporting their ratings with the goal of eliminating the influence of rating errors

Page 12: Ethical and Legal Issues

9–12

Role of HR in Performance Management

• The HR Department– Serves a policy-making and advisory role.

– Provides advice and assistance regarding the appraisal tool to use.

– Trains supervisors to improve their appraisal skills.

– Monitors the appraisal system effectiveness and compliance.

Page 13: Ethical and Legal Issues

04/22/2023 Dr. Subhash C. Kakkar 13

Role of HR in Performance Management• The HR department today is a strategic partner and plays a

vital role in pursuing a particular strategy. • For facing the challenges of a globalized world, Indian

organizations have reformed their HRM strategies for managing the employee performance by considering part time work, outsourcing and temporary workers.

• HR no longer today plays the role of a rubber stamp department, rather is a performance enabler by closely working with the to management and all the major functional departments of an organization.

• Companies like Maruti Udyog Ltd. and Mahindra and Mahindra, revamped their entire organizational set up and were able to create performance efficiency due to the efforts of the HR department.

Page 14: Ethical and Legal Issues

14

‘Six Steps’ of a Measurement System

1. Separate Strategic Goals Into Input and Output Dimensions

2. Develop Output and Results Measures for each goal

3. Develop Input Measures for each goal4. Check with HR to see if the set of measures

is complete5. Use an Effective Recognition System6. Build the Culture

Page 15: Ethical and Legal Issues

15

Step 1, Separate Strategic Goals Into Input and Output Dimensions

• Following from Vision, Mission and Values, organizations create strategic goals that identify “Key Result” areas of the organization where change and improvement is possible and desirable.

• Our first step in developing measures to reflect the goal is to dissect the goal into its input and output dimensions.

Page 16: Ethical and Legal Issues

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Broad measurement concept of inputs

Input dimension

unit cost efficiencyHow well are materials used, (excessive waste)How well is labour used, (excessive idle time)How well is overhead used (idle capacity)

Page 17: Ethical and Legal Issues

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Broad measurement concepts of Outputs

Output Dimension

Internal Results

maintaining and improving qualitylower consumer prices

External Results

financial returnsimprove market sharemeet current and future demand

Page 18: Ethical and Legal Issues

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Step 2, Develop Output Measures or Each Goal• Outputs are accomplishments. In

most organizations, accomplishments can be categorized into three groups.

– Investment returns–Customer Satisfaction–Social Impacts

Page 19: Ethical and Legal Issues

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Measures of outputs or Results.OUTPUT MEASURES

CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE

PERFORMANCE GOAL (changes of specific amounts over specific time

frames)

Investment Returns

Financial returns

% return on investment% return on assets employedProfit margin on sales

All should increase by a specific % change, to be accomplished by a specific date.

Market share

% market share relative to the competition% market share relative to total market size

The proportion of the market share against the competition should increase.The proportion of the market share relative to the total market should increase at a rate that is faster than the rate of change in total market size.

Page 20: Ethical and Legal Issues

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Measures of outputs or Results

Customer Satisfaction

Product or service quality

Rejection rates in the production processSales returns

Both should decline by a specific amount in a specific timeframe.

Deliver on time and in

sufficient quantity

Backorder and delivery statistics

Backorders should decline and delivery cycle times should improve.

Consumer prices Retail price by product The retail price matched to value

should decline.

Social Benefits

Child development

Improvement in reading skills

Children using these toys should show a measured improvement in reading skills

Environmental impact

Impact on landfills when the toy is finished

The proportion of toys presented for re-cycling should go up.

Page 21: Ethical and Legal Issues

21

Step 3, Develop Input Measures For Each Goal• We normally develop input measures

after we have developed output measures because it is a good idea to know where you are going before you decide how to get there.– Financial operating resources– Financial capital resources– Other organizational resources

Page 22: Ethical and Legal Issues

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Measures of Inputs or Efficiencies

INPUT MEASURES for “UNIT COST EFFICIENCY”

CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE PERFORMANCE GOAL

Financial Operating Resources

Materials and labourDirect materials and direct labour per unit, expressed in both dollar and quantity terms

Material and labour cost and or consumption per unit should decline over a specified time period

Overhead

Overhead charged per unit Overhead consumed per unit produced should decline

% utilization of capacity %capacity utilized should increase to or remain at optimal levels

Financial Capital Resources Capital investment in

operating assetsDollars of capital investment per unit produced

Dollars per unit of capital invested should decline over time as capital resources are used more efficiently

Other Organizational Resources

Non-financial resources consumed by the performance area

Management estimates of the resources of talent and energy and other non-financial resources that have been dedicated to this performance area

The amount consumed will increase as the project is developed and decrease after it is implemented

Page 23: Ethical and Legal Issues

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Step 4, Check with SAVI to see if the set of measures is complete

• Before we can be sure that we have a complete set of measures, we need to apply the SAVI framework to categorize the measures as to Speed, Accuracy, Volume and Investment.

Page 24: Ethical and Legal Issues

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Linking Output Measures to Performance Measures

OUTPUT MEASURES

CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE SAVI

Investment Returns

financial returns% return on investment% return on assets employedProfit margin on sales

Accuracy

market share % market share relative to the competition% market share relative to total market size Volume

Customer Satisfaction

Product or service quality Rejection rates in the production processSales returns Accuracy & Volume

Deliver on time and in sufficient quantity Backorder and delivery statistics Speed & Volume

Consumer prices Retail price per product Investment

Social Benefits

Child development Improvement in reading skills Accuracy

Environmental impact Impact on landfills when the toy is finished Volume

Page 25: Ethical and Legal Issues

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Linking Input Measures to Performance Management

INPUT MEASURES for “UNIT COST EFFICIENCY”

CATEGORY MEASUREMENT CONCEPT PERFORMANCE MEASURE SAVI

Financial Operating resources

Materials and labour Direct materials and direct labour per unit, in both dollar and quantity terms. Investment

Overhead

Overhead charged per unit. Investment

% utilization of capacity Volume

Financial Capital Resources

Capital investment in operating assets Dollars of capital investment per unit produced Investment

Other organizational resources

Non-financial resources consumed

Management estimates of the resources of talent and energy that have been dedicated to this performance area. Investment

Page 26: Ethical and Legal Issues

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Testing the measures• Once we are satisfied that the

set is complete we need to subject each and every measure to a test.

Refer to figure

Page 27: Ethical and Legal Issues

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Step 5, Use an Effective Recognition System

• Use Measurement to Initiate Change– An effective measurement system will use the

measured results as a management tool. – Every result should have an automatic intervention

strategy. – When results are as expected we should offer

congratulations and reinforcement to keep it going, – when results are less than expected we should

quickly isolate the cause and correct the process

Page 28: Ethical and Legal Issues

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Step 6, Build the culture

• Good systems need good people. There is no sense in examining a process unless at the same time you examine the people who govern the process.

• Improvement does not take place on paper. • Improvement happens when people employ

enthusiasm, dedication, commitment, leadership and morale in their daily routine.

• A good system on paper is a healthy beginning but if you want results you need to follow up a paper system with a people system.

Page 29: Ethical and Legal Issues

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Closing Remarks• In the beginning we were challenged to find

measures and see the resulting behavior. – So how about the 30 minute pizza delivery

guarantee. That promotes speeding and if a delivery person has an order at 28 minutes and another at 10, which does he deliver first? And what happens if Pizza delivery people are offered a cash bonus for every delivery made within 30 minutes, and what does this do to pizza quality?

Page 30: Ethical and Legal Issues

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• People are curious beings. We bring our own personal values to the job, we react differently to control systems, we are motivated by different things. A performance measurement system is a uniform set of measures that is trying to motivate a most un-uniform set of people.

Page 31: Ethical and Legal Issues

PERFORMANCE MANAGEMENT CHALLENGES AND SOLUTIONS

Challenges• Poor leadership • Poor correlation between IDP, PMS and

Budget• Alignment of strategic planning with risk

management processes• Align individual performance expectations

with organisational goals• Lack of accountability • Lack of performance measurement systems

to improve performance • Poor data quality• Poor performance reporting (project or

operational process)• Resistance to change • Poor evaluation and oversight processes• Limited communication of results

Solutions • Leadership and decision makers• Develop performance management systems

that clarifies the what ,who, how and when• Develop IDP’s with clear objectives, outcomes

and targets• Develop and align performance plans with

IDPs• Develop strategic risk management • Develop of performance measurements and

control systems• Develop change management plan and

appraise performance • Establish strong evaluation (audit and portfolio

and oversight ) committee• Communicate results

Page 32: Ethical and Legal Issues

Doctrinal logic for change

Page 33: Ethical and Legal Issues

Strategic HRM andEmerging Trends

Page 34: Ethical and Legal Issues

HRM in the 21st Century• HRM activities must be:1. Responsive to a highly competitive marketplace

and global business structures;2. Closely linked to business strategic plans;3. Jointly conceived and implemented by line and HR

managers; and4. Focused on quality, customer service,

productivity, employee involvement, teamwork, and workforce flexibility.

Page 35: Ethical and Legal Issues

Characteristics of High Performance Work Systems• Large number of applicants for each strategic position.• The use of validated selection and promotion models/procedures.• Extensive training and development of new employees.• The use of formal performance appraisal and management.• The use of multisource (360) performance appraisal and feedback.• Linkage of merit increases to formal appraisal processes.

• Above market compensation for key positions.• High percentage of the entire workforce included in incentive systems.• High differential in pay between high and low performers.• High percentage of workforce working in self-managed, project-based teams.• Low percentage of employees covered by union contract.• High percentage of jobs filled from within.

Goal: Developing a Human Resources Scorecard!

Page 36: Ethical and Legal Issues

Highly effective HR function:• Are conceptualized in a business capacity,

focusing on the strategy and core competencies of the organization.

• Able to show how it can make a difference to the company’s bottom line.

• Use research to make recommendations for cost improvement and more efficient operations.

Page 37: Ethical and Legal Issues

Key to Competitive Advantage: Building and sustaining core

competencies within the organization and maintaining flexibility in order to react quickly to the changing global marketplace and the advances in technology.

Page 38: Ethical and Legal Issues

Research Finding HRM Practice

RecruitmentQuantitative analysis of recruitment sources using yield ratios can facilitate efficiencies in recruitment.

Less than 10% calculate yield ratios.Less than 25% know how.

StaffingRealistic job previews can reduce turnover.Weighted application blanks reduce turnover.Structured, behavioral, or situational interviews are more valid.Use actuarial model of prediction with multiple measures.Graphology is invalid and should not be used

Less than 20% use RJPs in high turnover jobs.Less than 30% know what an WAB is; < 1% use WABs.45% use structured interviews.Less than 5% use actuarial model.Use is on the increase in the U.S.

Performance AppraisalDo not use traits on rating forms.Train raters for accuracy, observation bias, etc.Make appraisal process important element of manager’s job.

More than 70% still use traits.Less than 30% train raters.Less than 35% evaluate managers on performance appraisal.

CompensationMerit-based systems should not be tied into bas salary.Gainsharing is an effective PFP system

More than 75% tie merit pay into base pay.Less than 5% use it where they could

Discrepancies Between Research and Practice

Page 39: Ethical and Legal Issues

Major Trends Impacting HRM• Trend 1: The Increased Globalization of the

Economy• Trend 2: Technological Changes, Challenges and

Opportunities• Trend 3: The Need to be Flexible in Response to

Changing Business Environments• Trend 4: Increase in Litigation Related to HRM• Trend 5: Changing Characteristics of the Workforce.

Page 40: Ethical and Legal Issues

Increased Globalization• Development of a worldwide

labor market – Easy to move work around when

it can be digitized.– Decrease the cost of labor.– HRM becomes more

complicated.– More union activities.– Corporate downsizing linked to

new technology.– Barriers to entry have been

reduced, increasing international competition from firms and individuals alike.

– Export jobs up 20% in last 10 years.

– MNCs are expanding in new countries and new markets.

• Reduced work forces by more than 10% in last decade:– HRM specialists in

organizational restructuring.– Conduct vocational counseling

for displaced employees.– Assist in developing new staffing

plans.– Help in legal defense against

allegations of discrimination related to downsizing.

Page 41: Ethical and Legal Issues

Technological Changes• Optimal combination of

people, software, and equipment.

• User testing programs assess computer interface.

• Use of intranet sites to convey personnel information.

• Maximize profit margins and sustained customer value.

• Electronic tracking of HR activities such as T/O and performance reviews.

• Impact of Internet on HRM activities:– Computer search of potential

applicant pool.– Standardized resumes in

data base.– Announcements and

responses through e-mail.– Increased focus on security

of personnel information and intellectual property.

– Increased speed of communication across the organization.

– Video computer conducts testing and interviewing.

Page 42: Ethical and Legal Issues

Need to be Flexible• Focus on core competencies leads to

outsourcing of other activities:– Use of temporary or leased workers;– Use of independent contractors; and– Place personnel with new technology.

• Consulting is now a thriving business for HRM:– Outsource HR activities.

Page 43: Ethical and Legal Issues

Importance of Measuring HRM Performance• Enhance productivity, product and service quality, and

customer satisfaction.• Link HR programs to cost savings, financial performance, and

productivity.• Link employee behavior and attitudes to revenues and

profits.• Link leading and lagging indicators to organizational goals.• Measures should be derived from organizational strategy.• Feedback is essential for development and refinement.• Relative weights should be linked to strategic goals• Develop a workforce scorecard.

Page 44: Ethical and Legal Issues

Steps in Developing a Workforce Scorecard1. Identify critical and carefully defined

outcome measures related to strategic objectives.

2. Translate measures into specific actions and accountabilities.

3. Develop and communicate detailed descriptions of what is expected. Determine how (or if) improvements can be achieved.

Page 45: Ethical and Legal Issues

Steps (Continued)4. Identify high and low performing

employees. Establish a differentiated incentive systems.

5. Develop supporting HR management and measurement systems of selection, formal appraisal, promotion, development, and termination practices.

6. Specify the roles of leadership, the workforce, and HR in strategy execution.

Page 46: Ethical and Legal Issues

Challenges in Developing a Workforce Scorecard• Perspective challenge – Does management fully

understand how workforce behaviors affect strategy execution?

• Metrics challenge – Has the organization identified and collected the right measures of success?

• Education Challenge – Does management have access to the data and motivation to use the data in decision making?

Page 47: Ethical and Legal Issues

Challenges in HRM Measurement

• View the workforce in terms of contribution rather than cost;

• Use measurement as a tool for differentiating contribution to strategic impact; and

• Hold line and HR management responsible for getting the workforce to execute strategy.

Page 48: Ethical and Legal Issues

HR’s Role in Sustaining Competitive Advantage

• HR systems must be in place that not only maximize organizational capability, but also exploit any other potential sources of uniqueness.

• Organizational capability is matching customer and strategic needs through work structure and design.

• Organizational capability derives from HRM practices.