Performance Management and Compensation

Chapter Overview This chapter discusses the concept of performance appraisal and performance management. The limitations of the traditional appraisal process are identified. It focuses on the need to move from performance appraisal to performance management. Further, the concepts of compensation and rewards are discussed. The difference between traditional compensation and strategic compensation is highlighted. Various types of strategic compensation systems are examined. Issues related to compensation of top-level executives are also discussed. Learning Objectives To understand the concept and process of performance appraisal To appreciate the need to move from performance appraisal to performance management To understand the differences between traditional compensation and strategic compensation To get familiarized with various types of strategic compensation systems OPENING STORY Evolving Performance Management Paradigm Although performance management is a new concept, its origin can be traced back to many ancient civilizations and religious scriptures. The Pre-historic Times There is evidence that suggest that the first cave dwellers were handling issues of HR performance. The ancient Paleolithic men focused on selection of leaders, skill development, and so on. The Ancient Egyptian Philosophy Egyptians developed well-defined hierarchies with job descriptions. They deployed several time-saving performance management techniques, showing an understanding of what later evolved as time and motion study. The Babylonian Philosophy The famous leader Hammurabi prepared the first code of law and emphasized on learning and performance management. The Chinese Philosophy In ancient China, principles of people management were well developed. Confucius, the ancient Chinese thinker, focused on fair dealings vis-à-vis people and the role of a good leader in guiding people's performance. Ancient Indian Philosophy Indian scriptures are replete with ideas related to managing people. Valmiki, in his epic Ramayana , observed that high performers must get recognition. The Bhagavad-Gita recommends self-management, transformational leadership, and motivation for enhancing performance. Chanakya talked about incentive for performance in his treatise Artha-Shastra . The Hebrew Philosophy Hebrew history gives examples of leadership and performance management. Moses, the great leader, served as one of best examples of a participative human resource approach. The Roman Philosophy The Romans made use of many modern-day concepts like job descriptions, hierarchy with scalar chains of command, restructuring to enhance performance. Biblical Philosophy The Bible asks employers to be benevolent and value justice and equality. A manager must be honest so that workers reciprocate with hard work and higher performance.