Managers: Don't be afraid to pay more!!

Everywhere you look in today’s still fledgling economy, companies are finding ways of doing more with less;  jobs are curtailed and the survivors have to work harder, employee reward budgets are trimmed to the bone or pay levels frozen, and the concept of “performance = reward” doesn’t seem to function like it used to.  Across the economy you can hear the constant litany of cut, cut, cut.

As a result, employee morale has plunged off a cliff.

However there is one reward strategy you can employ that doesn’t involve following the popular drumbeat of negative messages and takeaways.   Other functional departments (i.e., Marketing, Engineering, Advertising) have already taken a different tract to deal with the new realities.   Creative minds set themselves apart, pushing brand identification to carve out market niches away from the beaten path.  Perhaps Human Resources could take a page from that playbook and view employee rewards in a more creative fashion.

A changed philosophy

Companies fear wasting money on employees who don’t perform, so they often limit the administrative increases so often granted by their reward programs.  They feel they can’t afford a strategy that increases payroll without a corresponding increase in ROI.  However, they could increase the amounts paid to key employees while restricting the level of those who perform . . . less well.  That would place the high achievers at a fair or even generous pay level, but these winners would be only those who deliver an ROI back to the company.  You can afford to reward high performers, can’t you?

Employees who produce results are worth the money.  If you’re fearful of overpaying those who aren’t performing, you hold the solution in your hands / policy manual.  All it takes is the discipline to hold employees accountable and to take action against those who aren’t performing, who aren’t worth the money you’re paying them.

But that’s easier said than done, isn’t it?

Do you know what percentage of your workforce is rated at an average or lower level of performance?  50%? 60%?   If you still grant every employee an annual increase, you won’t be able to differentiate and properly recognize your key performers.  You won’t have enough money.  In that case the reward bar is inevitably lowered to cover the most common performance level.   Instead, why not raise the performance bar and get rid of those who can’t keep up?

If a manager has 50 lakh for annual increases and tries to balance rewarding both high and average performers, the increases won’t be enough to recognize key players. While the merit spend is calculated on average performance high performers need larger increases to feel recognized and appreciated.  A request to grant more than 50 lakh will be denied, so what do most managers do?  They trim the increases of their best performers, in an effort to spread rewards as broadly as possible and keep everyone happy.

Does that work?

No, it doesn’t. High performers will be discouraged and may rethink their future efforts as well as their commitment to your company, but your “Joe Average” will be pleased.  As behavior rewarded is behavior repeated, by using this make-everyone-happy tactic you’ll have encouraged more average performance and less high performance.  Does that sound like your reward strategy?

Job Appraisal-An employee’s nightmare

In the world of work, there are not many constructs that are as widely acknowledged yet largely misunderstood as the notion of job performance.  It is such a large and ambiguous concept that most of us, managers, employees, and specialists alike, have our own unique definitions of what it is and what it looks like.  This has also been an issue in the field of industrial-organizational (I-O) psychology, where job performance has undergone more than a few conceptualizations over the years.  We have been providing performance management services for decades; we know that performance is an important topic that deserves more attention than it gets, so we are contributing an entire article to its definition.  In this article, we will provide a complete, empirically based definition of job performance (and attempt to avoid dry, jargon-rich language often used in applied research!)

What is Job Performance? 

Job performance has been defined as the overall expected value from employees’ behaviors carried out over the course of a set period of time.  This definition, although fairly technical, includes specific ideas that are worth breaking down.

• Performance is a property of behavior, or what people do at work
• An employee’s behavior has expected value to the organization – that is, an employee’s behaviors may be distinguished in the extent to which they help or hinder the organization, and the outcomes of unique behaviors are rarely measured so their value is  expected

Performance can further be broken down into two distinct types:

• Task Performance.  These are the actions that directly transform raw materials to goods and services – they are the things that are typically included in job descriptions 
• Examples include selling clothes, drilling holes, teaching class in a school
• Contextual Performance.  These are the behaviors that contribute to overall effectiveness through supporting the social and psychological climate where work is done 
• Examples include:  cooperating with teammates, diffusing conflict, cleaning up the conference room.

But what about results??

You might have noticed that results are not included in the definition of performance.  Results can be seen as the method through which employee behaviors actually contribute to organizational effectiveness.  Because results are so closely tied in with organizational goals, it is appealing for many to place emphasis on results when considering or evaluating employee performance.  However, results are purposely not included in this definition for strong reasons:

• Situational factors outside of the employee’s control may influence the likelihood of displaying a certain behavior (for example, lack of training and high-level support for an improved process may reduce the likelihood that an employee will follow it) and the results of that behavior (for example, economic conditions may have a stronger influence on sales than an employee’s behavior)
• Evaluating performance based on employee behaviors rather than results allows us to gain a deeper understanding of employee traits and processes that contribute to organization effectiveness
• This approach also allows us to apply psychological principles to properly manage employee performance; something that could not be done if results were the primary focus (e.g., using critical incidents to identify behaviors that are particularly effective or ineffective, then establishing performance evaluation criteria based on those behaviors)

Practical application

Understanding what job performance is can help you in a variety of ways.  By avoiding the use of results and focusing on the behaviors of your employees, you can have a positive impact on performance management in your organization in a number of ways:

• You can identify critical incidents, or detailed examples of behaviors that were associated with particularly strong or weak performance.  When enough critical incidents have been collected, they can be analyzed and used in:
• Training (for example, to identify training needs or create realistic, job-relevant scenarios)
• Selection (incidents can be used to identify behavioral-based interview questions and score them)
• By not focusing as much on the results, you are treating your employees more fairly and judging their performance through their actual work behaviors.  

Using identifiable behaviors when evaluating performance (and using your observations of their effective and ineffective behaviors during performance conversations) can increase future performance by providing employees with a clear mental model of their performance.

Scientific Management for Organizational Development

Scientific Management and Frederick Winslow Taylor

By far the most influential person of the time and someone who has had an impact on management service practice as well as on management thought up to the present day, was F. W. Taylor. Taylor formalized the principles of scientific management, and the fact-finding approach put forward and largely adopted was a replacement for what had been the old rule of thumb.

He also developed a theory of organizations which altered the personalized autocracy which had only been tempered by varying degrees of benevolence, such as in the Quaker family businesses of Cadbury's and Clark's.

Taylor was not the originator of many of his ideas, but was a pragmatist with the ability to synthesize the work of others and promote them effectively to a ready and eager audience of industrial managers who were striving to find new or improved ways to increase performance.

At the time of Taylor's work, a typical manager would have very little contact with the activities of the factory. Generally, a foreman would be given the total responsibility for producing goods demanded by the salesman. Under these conditions, workmen used what tools they had or could get and adopted methods that suited their own style of work.

F.W. Taylor's contributions to scientific management

By 1881 Taylor had published a paper that turned the cutting of metal into a science. Later he turned his attention to shoveling coal. By experimenting with different designs of shovel for use with different material, (from 'rice' coal to ore,) he was able to design shovels that would permit the worker to shovel for the whole day.

In so doing, he reduced the number of people shoveling at the Bethlehem Steel Works from 500 to 140. This work, and his studies on the handling of pig iron, greatly contributed to the analysis of work design and gave rise to method study.

To follow, in 1895, were papers on incentive schemes. A piece rate system on production management in shop management, and later, in 1909, he published the book for which he is best known, Principles of Scientific Management.

A feature of Taylor's work was stop-watch timing as the basis of observations. However, unlike the early activities of Perronet and others, he started to break the timings down into elements and it was he who coined the term 'time study'.

Taylor's uncompromising attitude in developing and installing his ideas caused him much criticism. Scientific method, he advocated, could be applied to all problems and applied just as much to managers as workers. In his own words he explained:

"The old fashioned dictator does not exist under Scientific Management. The man at the head of the business under Scientific Management is governed by rules and laws which have been developed through hundreds of experiments just as much as the workman is, and the standards developed are equitable."

Objectives of Scientific Management

The four objectives of management under scientific management were as follows:

• The development of a science for each element of a man's work to replace the old rule-of-thumb methods.
• The scientific selection, training and development of workers instead of allowing them to choose their own tasks and train themselves as best they could.
• The development of a spirit of hearty cooperation between workers and management to ensure that work would be carried out in accordance with scientifically devised procedures
• The division of work between workers and the management in almost equal shares, each group taking over the work for which it is best fitted instead of the former condition in which responsibility largely rested with the workers. Self-evident in this philosophy are organizations arranged in a hierarchy, systems of abstract rules and impersonal relationships between staff.                                                                                                                                                                               F.W. Taylor's contribution to organizational theory

This required an organization theory similar for all practical purposes to that advocated by those organizational theorists who followed. These theorists developed principles of management, which included much of Taylor's philosophy

His framework for organization was:

• clear delineation of authority
• responsibility
• separation of planning from operations
• incentive schemes for workers
• management by exception
• task specialization

However, there were problems-Taylor's papers were not always well received, as many of his ideas were associated with bad practice, such as rate-cutting by unscrupulous managers.

In 1911 and 1912 Taylor was questioned at length by a special committee of the US House of Representatives. As a result laws were passed banning the use of stop-watches by civil servants and it was only in 1949 that this restriction was lifted.

Taylor's view of the motivations of workers has had a profound influence throughout the century until the present day. His belief that man was rational and would make economic choices based on the degree of monetary reward led him to devise payment systems that closely related the kind of effort he sought with the level of reward offered.

Not surprisingly, there was strong criticism of this theory that treats human beings like machines and assumes that workers are satisfied by money alone.

Underlying assumptions

His views on motivation, management and organization all presupposed certain conditions to be constant, which we now know, they are not.

The assumptions underlying his work were:

• the presence of a capitalist system and a money economy, where companies in a free market have as their main objective the improvement of efficiency and the maximization of profit;
• the Protestant work ethic, that assumes people will work hard and behave rationally to maximize their own income, putting the perceived requirements of their organization before their own personal objectives and goals;
• that an increased size is desirable in order to obtain the advantages of the division of labor and specialization of tasks.

Taylor's impact has been so great because he developed a concept of work design, work-measurement, production control and other functions, that completely changed the nature of industry. Before scientific management, such departments as work study, personnel, maintenance and quality control did not exist. What was more his methods proved to be very successful.

The Rural Hero: Muhammad Yunus and the Gramin Bank

Who is Muhammad Yunus?

Muhammad Yunus was born in 28th June, 1940 in the village of Bathua, in Hathazari, Chittagong, the business centre of what was then Eastern Bengal. He was the third of 14 children of whom five died in infancy. His father was a successful goldsmith who always encouraged his sons to seek higher education. But his biggest influence was his mother, Sufia Khatun, who always helped any poor that knocked on their door. This inspired him to commit himself to eradication of poverty.

What inspired him to form the Grameen bank?

In 1974, Professor Muhammad Yunus, a Bangladeshi economist from Chittagong University, led his students on a field trip to a poor village. They interviewed a woman who made bamboo stools, and learnt that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level.

Realizing that there must be something terribly wrong with the economics he was teaching, Yunus took matters into his own hands, and from his own pocket lent the equivalent of 17 to 42 basket-weavers. He found that it was possible with this tiny amount not only to help them survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty.

Against the advice of banks and government, Yunus carried on giving out 'micro-loans', and in 1983 formed the Grameen Bank, meaning 'village bank' founded on principles of trust and solidarity.

What Grameen bank does?

Grameen’s objective has been to promote financial independence among the poor. Yunus encourages all borrowers to become savers, so that their local capital can be converted into new loans to others. Since 1995, Grameen has funded 90 percent of its loans with interest income and deposits collected, aligning the interests of its new borrowers and depositor-shareholders. Grameen converts deposits made in villages into loans for the more needy in the villages (Yunus and Jolis 1998).

It targets the poorest of the poor, with a particular emphasis on women, who receive 95 percent of the bank’s loans. Women traditionally had less access to financial alternatives of ordinary credit lines and incomes. They were seen to have an inequitable share of power in household decision making. Yunus and others have found that lending to women generates considerable secondary effects, including empowerment of a marginalized segment of society (Yunus and Jolis 1998), who share betterment of income with their children, unlike many men. Yunus claims that in 2004, women still have difficulty getting loans; they comprise less than 1 percent of borrowers from commercial banks (Yunus 2004).The interest rates charged by microfinance institutes including Grameen Bank is high compared to that of traditional banks; Grameen's interest (reducing balance basis) on its main credit product is about 20%.

What do we learn from Grameen Bank about organizational development?

The bank is founded on the belief that people have endless potential, and unleashing their creativity and initiative helps them end poverty. Grameen has offered credit to classes of people formerly underserved: the poor, women, illiterate, and unemployed people. Access to credit is based on reasonable terms, such as the group lending system and weekly-installment payments, with reasonably long terms of loans, enabling the poor to build on their existing skills to earn better income in each cycle of loans.

 Grameen Bank study can help us learn few tips to unlock employee potential.

#1. Get good at envisioning employees beyond their role. What are their gifts? Where do their passions lie? It’s easy to forget, given the wealth of powerful employee recognition solutions available, that nothing replaces a pair of human eyes when it comes to spotting potential.

#2. Support employees with tools and training. Send promising talent to school.  Provide leadership coaching for good managers to get better. Host a class that teaches team building and helps teams to work together more effectively.

#3. Create opportunities for practicing new skills, backed up by good modeling and mentorship.  It doesn’t cost much to let junior people try their hand at senior-level projects, and seeing how others approach these assignments is invaluable.

#4. Reward great work. No matter where it comes from, especially if it comes from someone unexpected. It’s a good way to assure you’ll get more of it.

#5. Believe all the way. One last thing:  If you tell them that they can win, they will!!