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Performance Measurement and Reward System


As the global war for talent grows increasingly fierce, management of people is a key concern among organisations.  Once thought primarily in terms of cost, people in successful companies are being valued as rich sources of talent, skill and diversity, which are critical to the success of the organisation.

Managers have identified the shortage of skills as one of the main threat to prospect of growth; they are devoting a greater share of resources to protecting themselves.  For this reason, the role of human resource in an organisation has been and continues to be scrutinized in terms of how it can add most value with the rest of the organisation, helping to overcome the challenges adherent in the people agenda.

In defining performance measurement, Dessler states that it “means evaluating an employee’s current or past performance relative to the person’s performance standards”.  This entails evaluation or assessment of the actual performance of employees on their jobs.  It is used to determine if employees are performing well on their jobs or not and what needs to be done to improve productivity, perhaps retaining or posting of employees.

Reward, however, is an incentive given to an employee of an organisation as regards his positive contributions to the achievement of the organisation’s goals and objectives.  It serves as impetus, morale booster for the employee(s) to put in their best and contribute more to the development of the organisation.

Performance measurement and reward system are difficult to coordinate to bring about the actual result it is meant to be. The employee performance could be observable but not verifiable, that is, the employee performance can be observable by managers but not verifiable by stakeholders. This performance measurement determines whether an organisation should increase bonuses to employee if performance is high.

In most organisations, current pay depends largely on current performance.  The observation further reveals that subjective measurement of current performance may play a vital role even if current compensation does not involve reward of any kind.  Subjective measurements can matter where employee have career concern.  An employee total contribution to an organisation value depends not only on the employee effort but also the employee’s ability.  Organisations are initially uncertain about an employee’s skills and so use measured performance to update their beliefs.  Competition among prospective employers makes the employee’s future earnings dependent on the organisation’s updated beliefs about the employee’s skill, so the employee has a reward to perform well to influence these beliefs.

Informal performance measurement can take the form of a casual comment on employee performance by a superior, a pat on the back, verbal warning/praise etc, which convey information about how well or not the employees are performing their jobs on a daily basis.  Traditionally, performance measurement has always concentrated on personal characteristics of employees such as intelligence, creativity, decisiveness and ability to get along with others.  However, in modern management, appraisals are continually emphasizing the individual’s contributions to the attainment of the goals of the organisation.

Experience has shown that there are three steps organisation should take to improve performance and reward. First, they should Creating the right incentive model is an important starting point.  Organisations need to be sure that in order to keep the right talent in place, they have an incentive model which rewards the right behaviours.  Incentives should support what is important to the growth of the organisation and to shareholder value.

Organisation should note that throwing money at a problem will not make it disappear, when dealing with employees’ talents; a complex set of motivations should be in place.  Motivation is not only the reward package, but the working environment as well as other factors. Reward programmes should consider all this elements: long and short term, equity arrangements, pension, benefits etc.

Understanding the financial value of an employee is important, particularly in order to understand the impact on the organisation of loosing such an employee.  How good are an organisation retention rates? How does it compare to the competition? And what are the real costs of replacing employees who leave the organisation? Few organisations are really measuring their employees this way.

Attracting, motivating, retaining, developing and promoting outstanding workforce is one of the critical capabilities that will distinguish successful organisations now and in the future. 

Today, people at up to 70% of overall cost are often the biggest expense for the organisations. Yet, by and large organisations do a better job of measuring their physical assets than they do measuring the impact of their employee and reward system on the organisation result.  Motivation to employees is a matter of individuality; therefore, in this complex world of ours, a reward system should not only be concern with monetary aspect but look at what motivate an individual as it could be non-monetary.

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