Bus 360 Exam 3 LOs

6.2 Weighting should align with what?

Each scorecard's priorities with the organization's strategic objectives priorities

15.2 Read through implications of managers who use fear. How does one avoid managing through fear?

Manage with positive reinforcement instead - this means defining performance goals, providing frequent feedback, applying positive consequences for improvement or goal attainment

18.2 Do team or individual scorecards work differently or one perform more?

Team performs more. But depending on the specific measure individual scorecards can work better. Team works better for types where the team leader or manager has more discretionary control than the workers do.

Sic of the organizations experienced statistically significant overall performance improvements, four yielded no sig change, and two experienced a decline in performance.

The key variable clusters affecting performance change were scorecard design and admin variables, incentive pay variables, and organizational structure variables. Most important though was the implementation of scorecard measures that employees could directly influences.

18.3 Does number of measures per scorecard matter? What would be ideal?

Yes it has different effects and does between salaried and hourly employees. Ideal scorecard measures is 5

6.5 What happens if you have a weight of zero?

0 will display a measure in a scorecard but the measure will not affect the overall performance index

5.3 Walk through the six steps to creating a blueprint.

1. A strategic planning group is designated (heads of companies) 2. The group brainstorms which categories to include in scorecard and their weights 3. The category balance is reviewed. Short-term vs long-term weights, sales vs expense control, etc 4. The group defines specific quantifiable performance measures for each target category 5. A performance scorecard is designed for the above measures and includes min (current or average) and max performance levels 6. The organizational blueprint is a chart that is used to guide the cascading of organizational scorecard measures down through the rests of the organization. The strategic planning group assigns weights to each job position in the blueprint. Similar but different weights for each job.

12.1 What are the objectives to incentive pay?

1. Alignment - communicate new strategies and reward employees who assist in executing these strategies 2. Focus - focusing employees on the key results that help execute the strategy 3. Performance - optimizing employees productivity and performance quality 4. Commitment - increase employee commitment to the organization 5. Affordability - index employee compensation to profitability in order to effectively convert a portion of compensation from a fixed to a variable expense

7.2 How do you develop a matrix?

1. Define the areas of accountability and then pinpoint them as best you can 2. Select the appropriate measures for each pinpoint 3. Determine current level of performance for each pinpoint 4. Give each pinpoint a weighting

2.1 Identify each of the seven "sins of wages" and discuss each.

1. Fixed-Cost Pay - employees now feel entitled to pay increases each year have now. This has made the payroll a fixed cost to the organization which grows at a compound rate due to annual pay increases. Makes companies not want to fire as many people and makes layoffs the only resource when profits decline. Companies also do not want to raise pay in good times for fear of low ones later. 2. Pay for Time - hourly pay hurts productivity. Not in employees financial interest to work more efficiently, since it will result in more tasks or cutback in hours. 3. Corporate Socialism - pays everyone in a given pay grade the same regardless of their personal contribution. If we look at table we see those getting payed more being good are still making less per unit then low performers. 4. Performance-Based Promotions - many supervisors must promote top performers to reward them because they cannot by immediately paying them for a good job. This creates competition among employees and forces the best performers into management. Where they often do not do great because the high performers like to work independently. 5. Management by Perception - Managers do not do ongoing measurements of performance in a time-oriented pay. Thus managers at the end of the year must rely on subjective perceptions that are often invalid and delayed. 6. Management by Exception - with no performance measurement system. Managers work to manage errors. Employees work not to earn their pay but not to lose it. The result is minimum effort and low morale. 7. Entitlement Thinking - employees are owed their pay, regardless of personal or company performance. Created a risk-adverse employees who refuse to take accountability and do not accept that without a successful business there can be no pay.

3.1 What are the 3 components to the Total Performance System (TPS)? Briefly discuss each.

1. Performance Management - teaching management to reward and put reinforcers in place. If alone no formal measurement system and managers must select targets that may not align with the organization's strategy. Hard to sustain without pay system. 2. Performance Pay - bonus pay. Alone it fails to focus or reward employees for strategic outcomes. Without proper performance management fails to support employees improvement efforts. 3. Performance Scorecards - measurement system that drives strategic objectives down to the small team and individual employee job level. Can improve performance even in the absence of good management practices and incentive pay. With them it helps though.

6.3 What are the components of a scorecard? See PM 7 LO.

1. Performance Measures a. Two to seven 2. Conversion Scale a. Want scale end points - usually -20 to 100 (negative is below min level of performance) b. Scale intervals - round down to whatever interval is below c. Accelerating intervals - incremental improvements become more difficult as you go for top intervals d. Alternative conversion scales - different 3. Priority Weights a. Can be adjusted at anytime for changing values 4. Min and Max 5. Performance Scales a. Remaining scales inbetween max and min broken up by the number of intervals inbetween 6. Weighted Score 7. Performance index

Short-term

1. Sales - gross profit, total revenue, sales per customer, etc 2. Expense control - all expenses except labor 3. Productivity - labor 4. Cash flows - collection of inventory, and payables

19.2 What are the pragmatic reasons to transition to a self-managed performance system?

1. Technology - when first transitioned to piece-rate and annual pay increases it was bc it was hard to track employee performance when things became more complex in workplace. Now data gathering and processing allow for efficient direct measurement of complex performance systems. Also the field of ABA provides the concepts and practices necessary for the management of complex performance systems. 2. Decentralization - direct contact is impractical in today's organization with work from home, remote locations, and travel. Performance measurement and incentive pay offer practical alternative. 3. Consolidation - organizations now may lack any shared supervisory culture or practices. A TPS would efficiently align supervisors and teams w the new organization's strategy. 4. Employee Diversity - direct measures help reduce the impact of cultural differences 5. Employee turnover - creating a partnership with these employees through stakeholder pay makes employees more likely to commit long-term 6. Supervision expense -enable managers to increase their span of control and sig reduce overall supervision expense 7. Customer focus - TPS reestablishes the link between customers and employee earnings, makes greater focus on customer

Organizational Benefits

1. portion of fixed payroll to variable 2. good profit margins in bus decline 3. avoids costly layoff 4. enhances employee loyalty and reduces turnover

Long-term

5. Regulatory Compliance - compliance w regulatory agencies. Measure include checklists, audit scores, citation, fines 6. Customer Service - customer satisfaction ratings or measure of service timeliness and accuracy 7. Strategic Projects - measured in terms of milestone accomplishments: (actual completion date - assigned date) / (goal completion date - assigned date)

7.1 Describe the Performance Matrix. Where did it originate?

A point system that enables you to measure any job. It combines judgement measures and counts into a single index representative of the total performance that you expect of a person or group.

6.4 What are accelerating intervals, linear conversion scales and conversion scales with stretch intervals?

Accelerating intervals - incremental improvements become more difficult as you go for top intervals Linear conversion scale - eliminates the negative intervals bc some organizations find it demoralizing Conversion scales with stretch - 30 to 130. 100 is the max and anything above represents a stretch performance

min/max levels have impact? What about frequency of changes in min/max, weight?

After the min the variability increases, but above the max doesn't change as much Yes bc there is more variability where you set the min, after the max there is no more value-added so little changes. Want to put min at 20 and max at 65. .Changes in min and max create more variable in trend, changes in any one of the parameters appear to lower the performance trend. Don't want more than 2 changes.

5.1 What are cascading objectives and how do you design them? What are they based on?

Cascading objectives are no more than nine organization-wide objectives. These objectives should be given priority weights, stated as quantifiable measures, and should compare to a min and max. the objectives should then be cascaded down through the organization by identifying and measuring results that drive the strategy for divisions, departments, teams and individuals. Designing: use the organization's vision statement as a guide. The measures of scorecard objectives need to be quantifiable, they also should balance short-term and long-term goals.

12.2 Discuss incentive pay alternatives, noting advantages and limitations.

Commissions and Piece-Rates, Goal Sharing, Gainsharing, Profit-Sharing, Profit-Indexed Performance Pay

6.7 What is the Weighted Score? What is the Performance Index?

Computed by locating the interval in which the actual data falls for each measure. The conversion score at the top is then multiplied by the priority weight to compute the weighted score. The weighted scores are summed to compute an overall score or performance index - range from 0% to 100%

3.3 How does Profit-Indexed Performance Pay work?

Employees participate in an incentive plan in which a portion of profits are shared with employees. Profit share is based on employees' scorecard performance.

Organizational Risks

Faith - will the company obtain consistent profits and continual growth. If not conversion is a poor investment to the employee Trust - will the organization consistently share profits with employees or will they alter the share formula and requirements to reduce the share over time Reducing trust in company when alter Opportunity - can I influence my assigned scorecard measures and will the performance goals be attainable Help - if I am not able to earn a good score on the scorecard will my manager, co-workers assist me? Want to improve all employees not survival of the fittest

7.5 Relate to Abernathy's Scorecard in other text.

Functionally they are the same - came from the same idea and both give you a performance matrix

What about hourly vs salaried employees? If you have an existing hourly system you seem to see the biggest impact to performance. But salary can affect some measures more.

Hourly employees perform better on all types except expense control and customer service. In what ways? Carefully examine the charts.

2.2 Are there any of the seven sins of wages you would change or add to? Why?

I would say corporate socialism is only true if the manager is no longer working and just looking after other employees.

19.1 What does it mean to manage without supervising?

It means implementing the systems discussed earlier in this unit, such as a scorecard, and total performance systems, so that employees are self-motivated and driven by these systems rather than a regular supervisor.

6.6 What are the min/max settings? Note the decision tree.

Min and max must be defined before a performance measure scale is constructed Min - is current or minimally accepted performance Max - look over max settings

7.3 Why are there anchors 4-13?

People like a scale that allows for exceeding a goal. Goes beyond scale of 1-10

How does one transition toward stakeholder pay? What are the necessary conditions?

Profit-indexed pay increases Substitutes increased profit-sharing opportunity for annual wage and salary increases. Annually increases each employee's basis percentage. Voluntary Stakeholder Plan Provide employees the choice to participate in an immediate pay reduction. Enables employees to choose one of three levels of stake holding with a pay reduction allowing for an increase in basis opportunity. Should only be eligible to top performers at beginning to ensure success

Best practices:

The level of control employees have over assigned performance measure the better. Individual measures produce more improvement than team measures, hourly employees improve more than salaried, more controllable measure types display more improvement, and a low number of changes in scorecard parameters the more improvements. Only high levels of incentive pay appear to have a relationship to performance improvement. Hard to implement incentive pay correctly unless everything else above is done right.

3.2 Note the Performance Scorecard/Performance Matrix.

The scorecard typically consists of two to seven objective measures which evaluate the progress of the organization's strategy. A min (current performance) and max performance are set for each measure and assigned a priority weight. Scorecard allows managers to provide objective feedback to the team or individual on measures assigned.

18.5 Be able to discuss best practices for the use of PFP.

There is an unexpected absence of any significant relationship between the level of guaranteed incentive opportunity an performance trend. Incentive pay opportunity must be 30% or higher to substantially influence performance. Where opportunity improved above 30%, an actual payout percentage of 20% or higher appeared to improve performance.

What happens if they are conducted in isolation of each other?

They don't work as well alone, need all for TPS.

6.1 The Performance Scorecard has several unique features and advantages. Discuss them.

Universal Approach, Balance Performances, align measure with strategy

18.4 If priority weights are moved, what is the effect on performance?

When you are assigning weights. The higher the weights the bigger impact to the performance index. Something rlly matters weight it 40 but aboce 40% produces high variability in trend improvements. Average is around 23% weight.

4. Profit-Sharing

a. Annual cash awards to employees if profits are over a predefined threshold. b. Create employees who are committed the organization's long-term success bc organization is willing to share success with them. Most affordable plan because only awards payment if over a set amount. c. Fails to specify each employee's role in the company's strategy. Group nature of plan does not provide any employee focus or feedback, therefore does little to foster performance improvement. Pays all employees similarly regardless of their personal contributions

2. Goal Sharing

a. Establish measures and goals for individuals or teams which provide a high degree of focus. Produce high performance but less than commissions. Improves alignment of employee goals with organizations strategy. b. Disconnects employees from ownership, whose earnings are only limited by the organization's ability to generate additional profits. Employee long-term commitment is compromised.

1. Commissions and Piece-Rates

a. Focus employees on one performance dimension - scales or production. Reliable in its payout and often lead to higher performance then more complex plans b. Can lead to narrow focus that makes unbalanced performance in which quality and teamwork suffer. Plans don't align with long-term strategic goals. Create "Lone-Ranger" workers who have no personal investment in organization.

3. Gainsharing

a. Group plans which management or all employees are awarded a share of the savings, based on wage or salary as a percentage of total payroll b. Do improve productivity c. Do not include quality of strategic issues, and do not align with organization's long-term objectives, fail to focus employees on specific performance and recognize personal contributions, poor candidates for securing employee commitment

5. Profit-Indexed Performance Pay

a. Integrates goal-sharing and profit sharing determined by organization's profitability but is adjusted for personal or team performance on predetermined measures and goals b. Meets all five listed objected c. Complex, will not produce the short-term level of sales or productivity improvements, requires effective and continuous communication to ensure the plan's success

1. Universal Approach

a. Scorecard provides internal look-up scales eliminating calculations that could be difficult for some employees b. Can use an type of measure that can be expressed as ordinal numbers (dollars, percent, ratings)

Employee risks

a. Skills - don't have the skills to achieve the scorecard goals b. Effort - will effort of scorecard be too great c. Investment - will I fare as well in the new system as I do currently in the current pay and recognition system

2. Balance Performances

a. converts all measure data to a common conversion scale b. Percent gain between a min and max is computed, rather than a simple percent goal c. Each measure scale is capped at both ends, this ensures balance by not allowing extreme performances either above max or below min

Employee Benefits

a. no restrictions on pay increases b. beneficial to entry level employees c. partner for employees d. relationship between effort and reward

5

breaks down out

3

examine the

15.1 What are the ABCs of what a manager would do?

• Antecedents ○ Scorecards, weekly meeting • Behaviors ○ Planning, execution, adjustment • Consequences ○ Feedback, recognition, incentive pay