Linking performance-related pay to a Business School's mission and objectives

This paper first analyses the Performance Related Pay (PRP) schemes developed from 1992/3 to 2002/3 in a large Business School in England and then the School’s mission and strategic objectives in that period. The PRP schemes changed to include more specific performance indicators and these were increasingly linked to the objectives. The School’s resources allocated to PRP increased from £44,000 in 1992/93 to £355,000 in 2002/3 and from 1.08% in 1995/96 to 2.37% of the School’s income in 2002/3. As well as examining the changing strategic objectives and PRP schemes, the paper charts the development of the School’s reputation and resources and the role which staff motivation via PRP played at different stages. The paper concludes that the PRP scheme was at its most effective when it was clearly linked with the School’s strategic objectives, but that the relationship between objectives and motivation may be more complex than apparent from this study. Although the PRP scheme under consideration also applies to academic related staff, this paper concentrates on the effect on academic staff.

Performance Related Pay, Efficiency Wages and the Shape of the Tenure-Earnings Profile

Peer reviewed

Extending BPM Environments of Your Choice with Performance Related Decision Support

What-if Simulations have been identified as one solution for business performance related decision support. Such support is especially useful in cases where it can be automatically generated out of Business Process Management (BPM) Environments from the existing business process models and performance parameters monitored from the executed business process instances. Currently, some of the available BPM Environments offer basic-level performance prediction capabilities. However, these functionalities are normally too limited to be generally useful for performance related decision support at business process level. In this paper, an approach is presented which allows the non-intrusive integration of sophisticated tooling for what-if simulations, analytic performance prediction tools process optimizations or a combination Of Such solutions into already existing BPM environments. The approach abstracts from process modelling techniques which enable automatic decision support spanning processes across numerous BPM Environments. For instance, this enables end-to-end decision support for composite processes modelled with the Business Process Modelling Notation (BPMN) on top of existing Enterprise Resource Planning (ERP) processes modelled with proprietary languages.

Developing “Best Practices” for bankers’ pay in line with Basel III

This paper proposes hybrid capital securities as a significant part of senior bank executive incentive compensation in light of Basel III, a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. The committee developed Basel III in a response to the deficiencies in financial regulation brought about by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The hybrid bank capital securities we propose for bank executives’ compensation are preferred shares and subordinated debt that the June 2004 Basel II regulatory framework recognised as other admissible forms of capital. The past two decades have witnessed dramatic increase in performance-related pay in the banking industry. Stakeholders such as shareholders, debtholders and regulators criticise traditional cash and equity-based compensation for encouraging bank executives’ excessive risk taking and short-termism, which has resulted in the failure of risk management in high profile banks during the global financial crisis. Paying compensation in the form of hybrid bank capital securities may align the interests of executives with those of stakeholders and help banks regain their reputation for prudence after years of aggressive risk-taking. Additionally, banks are desperately seeking to raise capital in order to bolster balance sheets damaged by the ongoing credit crisis. Tapping their own senior employees with large incentive compensation packages may be a viable additional source of capital that is politically acceptable in times of large-scale bailouts of the financial sector and economically wise as it aligns the interests of the executives with the need for a stable financial system.

The effects of training on performance and performance-related states in individual elite athletes : a dynamic approach

There are difficulties undertaking controlled training studies with elite athletes. Thus, data from non-elite performers are often presented in scientific journals and subsequently used to guide general training principles. This information may not be transferable or specific enough to inform training practices in an individual elite athlete. However, the nature of athletic participation at elite levels provides the opportunity to collect training data, performance-related variables, and performance data of elite athletes over long periods. In this paper, we describe how dynamic linear models provide an opportunity to use these data to inform training. Data from an elite female triathlete collected over a 111-day training period were used to model the relationship between training and self-reported fatigue. The dynamic linear model analysis showed the independent effects of the three modes of triathlon training on fatigue, how these can change across time, and the possible influence of other unmeasured variables. This paper shows the potential for the use of dynamic linear models as an aid to planning training in elite athletes.

Az egyéni teljesítményértékelési rendszer működésének tapasztalatai a magyar közigazgatásban (Operating experiences of the individual performance appraisal system in the Hungarian public sector)

A tanulmány – egy 2005 végén lefolytatott, országosan reprezentatív kérdőíves felmérés empirikus bázisán – a magyar közigazgatási dolgozók körében 2002-től bevezetett egyéni teljesítményértékelési rendszert vizsgálja. A rendszer egészét tekintve a vizsgálat végkövetkeztetései nem túl rózsásak: az eredmények arra utalnak, hogy a rendszer mint egész nem képes kitűzött fő célját, a munkateljesítmények javítását elérni. Az egyes részrendszerek, szervezettípusok szintjén differenciáltabb eredményeket kapunk, míg a minisztériumokban a rendszer egésze a szándékolttól alapvetően különböző célokat látszik szolgálni, addig a többi szervezettípusnál inkább „csak” a rendszer tökéletlen működéséről beszélhetünk. ____ On the basis of a questionnaire survey of a nationally representative sample of Hungarian civil servants, the study attempts to give a preliminary evaluation of the individual performance assessment system introduced in 2002 throughout the Hungarian civil service. The general conclusion of the analysis is that the performance assessment system is unlikely to reach its goals: its central element, the performance related pay incentives are overly dispersed and, on the average, insignificant in size, meanwhile the objectivity of performance assessments is also questionable. Moreover, comparative analysis of responses from different administrative branches reveals an interesting idiosyncrasy characteristic for central government ministries. Here, the main function of the incentive system seems to be ensuring the labor market competitiveness of the ministries as employers by enabling them to pay higher-than-usual salaries for employees having certain types of expertise.

Efeitos organizacionais da implantação de metas e remuneração variável por desempenho: o caso da segurança pública em Minas Gerais

Quais os efeitos práticos que a cobrança de metas provoca nas instituições e nos servidores públicos? E quando se vincula premiações financeiras a elas, qual o resultado? O Brasil vive uma onda recente de implantação de modelos de remuneração variável por desempenho no setor público. Minas Gerais universalizou o sistema em 2008, implantando o Acordo de Resultados e o Prêmio por Produtividade, já tendo gasto 1,3 bilhão de reais com o programa. Mas o otimismo dos gestores não encontra fundamento na teoria. A literatura mostra que sistemas de remuneração variável no setor público fracassam ou têm sucesso muito limitado (OCDE, 2005; Perry, Engbergs e Jun, 2009; Bowman, 2010; Weibel, Rost e Osterloh 2010). Conflitos, dificuldade de mensuração do desempenho, fraude e incapacidade de motivar servidores públicos têm direcionado experiências de incentivo ao fracasso. Alguns poucos estudos mostram que, sob certas condições, a remuneração variável por desempenho pode gerar resultados positivos (Marsden, 2010). Seria o sistema mineiro capaz de superar o pessimismo dos especialistas e alcançar resultados positivos? Quais mecanismos de fato operam quando se implementa metas e remuneração variável em instituições públicas? Este trabalho busca responder estas questões a partir do estudo de caso de três organizações da segurança pública em Minas Gerais: Polícia Militar, Polícia Civil e Corpo de Bombeiros Militar. Foram feitas 46 entrevistas com policiais, bombeiros e com a cúpula das instituições, analisados dados estatísticos – que avaliam a evolução do desempenho, observação participante e monitoramento da percepção da mídia sobre tais efeitos. O resultado mostra que metas e incentivos financeiros geraram profundas mudanças nas instituições pesquisadas. Na Polícia Civil houve crescimento da produtividade, aumento do controle e melhoria de processos internos. Entretanto, o foco na produção quantitativa de inquéritos gerou incentivos para a redução de sua qualidade. Na Polícia Militar observou-se impacto menor, uma vez que esta já havia auferido no passado recente ganhos que o uso de indicadores e metas poderia proporcionar. Ainda assim, observou-se aumento da cobrança interna de resultados. Esse fato foi um dos fatores que contribuiu para um efeito negativo importante: a reclassificação de crimes. Uma estrutura de incentivos e a ausência de obstáculos levaram alguns policiais a reclassificar crimes que tinham natureza próxima para melhorar as estatísticas de suas unidades. No Corpo de Bombeiros o impacto foi altamente positivo, levando a instituição a conceber novas estratégias, gerando ganhos importantes de produtividade e melhoria de resultados para o cidadão. O resultado mostra que metas e incentivos financeiros são muito poderosos e podem gerar resultados positivos ou negativos, dependendo da forma como são implementados. As evidências contradizem, em parte, o pessimismo dos acadêmicos e descortinam o funcionamento dos mecanismos que fazem metas e remuneração variável interferirem no resultado de organizações públicas.

Family firms and the great crisis: evidence from the italian case

Few studies have analyzed how family firms have acted during the global great crisis in comparison to their nonfamily counterparts. This paper tries to fill this gap on the basis of the Italian experience using a sample of almost 4,500 for 2007 and 2010. We study whether family control affects labour productivity, labour costs and competitiveness and if the adoption of performance related pay (PRP) reveals an efficacious strategy to mitigate the effects of the crisis and reduce the gap in competitiveness with respect to nonfamily firms. We use quantile regression techniques to test the heterogeneous role of PRP and pay attention for its possible endogeneity. We have observed that after the outburst of the crisis, the distance in terms of competitiveness of family firms with respect to their nonfamily counterparts has been amplified. We also find that family firms may take advantage from the adoption of incentive schemes, such as PRP, to encourage commitment and motivation from their employees more than nonfamily firms. The positive role of PRP on labour productivity, coupled with a moderate influence of these schemes on wage premiums, enable them to regain competitiveness also under hostile pressures, as those featuring the strong global crisis.

How can HRM promote organizational innovation

Our work investigating managerial practices in UK manufacturing organisations has shown that people management practices play an important role in promoting innovation. Having developed an instrument to analyse innovation (defined by West and Farr in 1990 as “the intentional introduction and application in a job, work team or organisation of ideas, processes, products or procedures which are new, and designed to benefit the job, the work team or the organisation”), we were able to give each of the 30 organisations in our sample a score of between one and seven to capture innovation in a range of domains. This instrument took into account the magnitude of the innovation in terms of the number of people involved in its implementation, and how new and different it was. We found that much innovation involves relatively minor, ongoing improvements, rather than major change. To achieve sustained innovation, organisations must be able to draw upon the skills and knowledge of employees at all levels of the business. So which HRM practices are most likely to promote a positive learning environment? We developed a scale to take into account three facets of HRM that shape the learning environment and predict the extent to which individuals can gain the skills to promote innovation. First, organisations should have a vision statement capturing their approach to learning and development and communicating to staff the importance that they attach to these processes. Second, they must implement and endorse mentoring schemes. Last, they should consider offering staff the opportunity to have regular career development meetings. Where a positive learning climate exists, organisations tend to be more innovative. The results also show that organisations that make explicit the link between appraisal and remuneration perform relatively less well in innovation terms than those whose appraisal systems have no relationship with pay. Many have argued (for example, Lawler,1995) that pay-for-performance schemes provide a “line of sight” between performance and reward, thereby enabling individuals to make appropriate decisions about where best to direct the effort. Our findings do not imply that performance-related pay is ill advised in all circumstances, but we suggest that organisations should exercise caution before introducing such schemes. People are central to innovation, and this study suggests that high innovation can be achieved when people are empowered to make changes at local levels. HRM has an important, perhaps crucial, role to play in creating an environment that enables people to develop the skills and confidence necessary to affect change. Key points: Organisational innovation is an important determinant of competitive performance and advancement, enabling organisations to anticipate and respond to the challenges of globalisation. HRM has an important, perhaps crucial, role to play in promoting organisational innovation – to the extent that it creates a positive environment for learning and removes barriers that may inhibit creative performance (for example, linking appraisal to remuneration).

Diseño y aplicación de un modelo de remuneración variable para una empresa del sector de las telecomunicaciones

Actualmente encontramos una fuerte presión en las organizaciones por adaptarse a un mundo competitivo con un descenso en las utilidades y una incertidumbre constante en su flujo de caja. Estas circunstancias obligan a las organizaciones al mejoramiento continuo buscando nuevas formas de gestionar sus procesos y sus recursos. Para las organizaciones de prestación de servicios en el sector de telecomunicaciones una de las ventajas competitivas más importantes de obtener es la productividad debido a que sus ganancias dependen directamente del número de actividades que puedan ejecutar cada empleado. El reto es hacer más con menos y con mejor calidad. Para lograrlo, la necesidad de gestionar efectivamente los recursos humanos aparece, y aquí es donde los sistemas de compensación toman un rol importante. El objetivo en este trabajo es diseñar y aplicar un modelo de remuneración variable para una empresa de prestación de servicios profesionales en el sector de las telecomunicaciones y con esto aportar al estudio de la gestión del desempeño y del talento humano en Colombia. Su realización permitió la documentación del diseño y aplicación del modelo de remuneración variable en un proyecto del sector de telecomunicaciones en Colombia. Su diseño utilizó las tendencias de programas remunerativos y teorías de gestión de desempeño para lograr un modelo integral que permita el crecimiento sostenido en el largo plazo y la motivación al recurso más importante de la organización que es el talento humano. Su aplicación permitió también la documentación de problemas y aciertos en la implementación de estos modelos.

Corporate commitment to sustainability : is it all hot air? An Australian review of the linkage between executive pay and sustainable performance

Across time, companies have increasingly made public commitments to sustainable development and to reducing their impacts on climate change. Management remuneration plans (MRPs) are a key mechanism to motivate managers to achieve corporate goals. We review the MRPs negotiated with key management personnel in a sample of large Australian carbon-intensive companies. Our results show that, as in past decades, the companies in our sample have MRPs in place that continue to fixate on financial performance. We argue that this provides evidence of a disconnection, or ‘decoupling’, between the sustainability-related rhetoric of the sample companies, and their ‘real’ organisational practices and priorities.

Towards a multilevel model of the high performance work systems–workplace safety relationship

Human Resource (HR) systems and practices generally referred to as High Performance Work Practices (HPWPs), (Huselid, 1995) (sometimes termed High Commitment Work Practices or High Involvement Work Practices) have attracted much research attention in past decades. Although many conceptualizations of the construct have been proposed, there is general agreement that HPWPs encompass a bundle or set of HR practices including sophisticated staffing, intensive training and development, incentive-based compensation, performance management, initiatives aimed at increasing employee participation and involvement, job safety and security, and work design (e.g. Pfeffer, 1998). It is argued that these practices either directly and indirectly influence the extent to which employees’ knowledge, skills, abilities, and other characteristics are utilized in the organization. Research spanning nearly 20 years has provided considerable empirical evidence for relationships between HPWPs and various measures of performance including increased productivity, improved customer service, and reduced turnover (e.g. Guthrie, 2001; Belt & Giles, 2009). With the exception of a few papers (e.g., Laursen &Foss, 2003), this literature appears to lack focus on how HPWPs influence or foster more innovative-related attitudes and behaviours, extra role behaviors, and performance. This situation exists despite the vast evidence demonstrating the importance of innovation, proactivity, and creativity in its various forms to individual, group, and organizational performance outcomes. Several pertinent issues arise when considering HPWPs and their relationship to innovation and performance outcomes. At a broad level is the issue of which HPWPs are related to which innovation-related variables. Another issue not well identified in research relates to employees’ perceptions of HPWPs: does an employee actually perceive the HPWP –outcomes relationship? No matter how well HPWPs are designed, if they are not perceived and experienced by employees to be effective or worthwhile then their likely success in achieving positive outcomes is limited. At another level, research needs to consider the mechanisms through which HPWPs influence –innovation and performance. The research question here relates to what possible mediating variables are important to the success or failure of HPWPs in impacting innovative behaviours and attitudes and what are the potential process considerations? These questions call for theory refinement and the development of more comprehensive models of the HPWP-innovation/performance relationship that include intermediate linkages and boundary conditions (Ferris, Hochwarter, Buckley, Harrell-Cook, & Frink, 1999). While there are many calls for this type of research to be made a high priority, to date, researchers have made few inroads into answering these questions. This symposium brings together researchers from Australia, Europe, Asia and Africa to examine these various questions relating to the HPWP-innovation-performance relationship. Each paper discusses a HPWP and potential variables that can facilitate or hinder the effects of these practices on innovation- and performance- related outcomes. The first paper by Johnston and Becker explores the HPWPs in relation to work design in a disaster response organization that shifts quickly from business as usual to rapid response. The researchers examine how the enactment of the organizational response is devolved to groups and individuals. Moreover, they assess motivational characteristics that exist in dual work designs (normal operations and periods of disaster activation) and the implications for innovation. The second paper by Jørgensen reports the results of an investigation into training and development practices and innovative work behaviors (IWBs) in Danish organizations. Research on how to design and implement training and development initiatives to support IWBs and innovation in general is surprisingly scant and often vague. This research investigates the mechanisms by which training and development initiatives influence employee behaviors associated with innovation, and provides insights into how training and development can be used effectively by firms to attract and retain valuable human capital in knowledge-intensive firms. The next two papers in this symposium consider the role of employee perceptions of HPWPs and their relationships to innovation-related variables and performance. First, Bish and Newton examine perceptions of the characteristics and awareness of occupational health and safety (OHS) practices and their relationship to individual level adaptability and proactivity in an Australian public service organization. The authors explore the role of perceived supportive and visionary leadership and its impact on the OHS policy-adaptability/proactivity relationship. The study highlights the positive main effects of awareness and characteristics of OHS polices, and supportive and visionary leadership on individual adaptability and proactivity. It also highlights the important moderating effects of leadership in the OHS policy-adaptability/proactivity relationship. Okhawere and Davis present a conceptual model developed for a Nigerian study in the safety-critical oil and gas industry that takes a multi-level approach to the HPWP-safety relationship. Adopting a social exchange perspective, they propose that at the organizational level, organizational climate for safety mediates the relationship between enacted HPWS’s and organizational safety performance (prescribed and extra role performance). At the individual level, the experience of HPWP impacts on individual behaviors and attitudes in organizations, here operationalized as safety knowledge, skills and motivation, and these influence individual safety performance. However these latter relationships are moderated by organizational climate for safety. A positive organizational climate for safety strengthens the relationship between individual safety behaviors and attitudes and individual-level safety performance, therefore suggesting a cross-level boundary condition. The model includes both safety performance (behaviors) and organizational level safety outcomes, operationalized as accidents, injuries, and fatalities. The final paper of this symposium by Zhang and Liu explores leader development and relationship between transformational leadership and employee creativity and innovation in China. The authors further develop a model that incorporates the effects of extrinsic motivation (pay for performance: PFP) and employee collectivism in the leader-employee creativity relationship. The papers’ contributions include the incorporation of a PFP effect on creativity as moderator, rather than predictor in most studies; the exploration of the PFP effect from both fairness and strength perspectives; the advancement of knowledge on the impact of collectivism on the leader- employee creativity link. Last, this is the first study to examine three-way interactional effects among leader-member exchange (LMX), PFP and collectivism, thus, enriches our understanding of promoting employee creativity. In conclusion, this symposium draws upon the findings of four empirical studies and one conceptual study to provide an insight into understanding how different variables facilitate or potentially hinder the influence various HPWPs on innovation and performance. We will propose a number of questions for further consideration and discussion. The symposium will address the Conference Theme of ‘Capitalism in Question' by highlighting how HPWPs can promote financial health and performance of organizations while maintaining a high level of regard and respect for employees and organizational stakeholders. Furthermore, the focus on different countries and cultures explores the overall research question in relation to different modes or stages of development of capitalism.