3CO04 - Essentials of People Practice {Task 5}

Task Five – Performance Management and Rewards

AC 4.1: Explain the purpose and components of performance management.

Effective performance management is central to a firm’s success. According to CIPD (2020), performance management allows employees to understand what the company expects of them. Performance management, therefore, entails activities that establish the firm’s objectives, enhance performance, and foster accountability among the people for their performance. Performance management is a holistic process whose purpose is to continuously improve the company’s performance through making objectives and ensuring that the company has the right skills and knowledge to achieve the goals (Tseng and Levy, 2019). Performance management promotes the company’s productivity by ensuring that the firm has the right human capital resources to achieve its objectives.

Two components of performance management include a formal and informal review and training and development plans. The review involves the company’s assessment of the workforce strengths and whether they achieved the set objectives (Brown et al., 2019). For example, the review may involve feedback about the workforce performance from various stakeholders, including the managers. Learning and development component involves addressing the workforce's weaknesses and the reasons for their underperformance.

AC 4.2: Explain factors that need to be considered when managing performance.

Managing individual and team performance considers several factors, including;

Clarity in the company’s goals and objectives: Performance management commences by setting objectives, which should be linked to the overall objectives of the company. Notably, these objectives should be clear to avoid confusion and inspire commitment from the employees. The objectives should be developed based on the SMART criteria (Islami et al., 2018).

Availability of sufficient resources: Performance management is a holistic process. Whether it focuses on the individual or team, various resources are used, including physical, informational, human capital, and financial, to support the activities. For example, competent individuals are required to assess the workforce performance and implement learning and development activities (Mone and London, 2018). Financial resources are important for incentives, rewards, and purchasing performance management equipment.

Support from the leadership and management: Performance management involves working with various stakeholders, including the line managers. Therefore, support from the managers is crucial in developing individual and team objectives for the departments and implementing the performance management criteria.

AC 4.3: Explain the role of appraisal in performance management.

Three types of appraisals and their use in performance management include;

360-Degree Feedback Process: This is an approach where the employee’s performance is assessed from various stakeholders, including those internal or external to the company (Pham et al., 2018). The feedback is collected in the form of reviews and based on the employee’s competence. Examples of individuals that give feedback include peers, managers, customers, and team members.

Annual Appraisals: This approach involves assessing the employee’s value, performance, or behaviour yearly. Across all the steps of performance management or appraisal, including setting objectives and performance evaluation, they are accomplished within a year cycle (Majidi et al., 2021).

Continuous Reviews: This involves ongoing feedback to the employees from the supervisors. The regular check-ins ensure a more flexible and less formal process.

Implementing the performance appraisal approaches requires knowledge and skills in various areas. Communication is applied in engaging the employees and giving feedback, teamwork allows for working with various stakeholders, objectivity involves abiding by the objectives, and ethics and morals ensure a fair and equal process (Islami et al., 2018).   

AC 5.1: Explain the key components of an effective total reward system.

Total rewards entail all the aspects that an employee values. According to CIPD (2022), total reward combines the financial and non-financial elements in the compensation package. The key components to achieving an effective total rewards system include;

Financial

These are the monetary aspects and include pensions, base pay, financial incentives, performance-related pay, and bonuses. Pay systems are the foundation of the financial reward system. In the traditional context, the fixed or base pay system is the primary example of financial rewards. The base pay is the salary or wages an individual receives for the work done. The reward policies in the financial context include the National Minimum Wage (NMW) and the National Living Wage (NLW) (CIPD, 2019).

Non-financial

These are non-monetary aspects of the rewards and include recognition, verbal appreciation, career development opportunities, and public appreciation. For example, in my company, employees receive continuous appreciation through a certificate of merit when they achieve their periodic objectives and organisational goals.

AC 5.2: Explain the relationship between reward and performance.

Rewards are fundamental to employee performance and are linked to intrinsic and extrinsic motivation. Intrinsic motivation is achieved from recognition and flexible working, while extrinsic rewards are achieved through monetary rewards and other benefits. Drawing from Herzberg two-factor theory, rewards fall under the motivators and hygiene categories and are the foundations of people working hard (Chiat and Panatik, 2019). As motivators, the rewards include recognition and growth opportunities. The hygiene elements comprise the salary and remuneration. Lack of hygiene factors results in the employees working less hard, which affects their performance and productivity.

Rewards, both financial and non-monetary, are part of Employee Value Proposition (EVP) and determines whether a company becomes an employer of choice (Shields et al., 2020). Notably, the firm should provide adequate pay in line with the employees’ value and contribution to the company. An employee is attracted to a firm that offers high rewards and recognises the workforce for contributing to the firm’s achievements. Rewards also ensure that the employees are satisfied, which is important in employee retention. 

AC 5.3: Explain the reasons for treating employees fairly in relation to pay.