7 HORRIBLE HIRING MISTAKES

7 Horrible Hiring Mistakes

By :Michael Mercer, Phd

Republish : Zulfikar, ST (Industrial Engineer, Degree)

You need to hire the best employees. You undoubtedly hired some employees who were losers.Oops! Well, let’s be more diplomatic. Let’s just say you hired some “underachievers” you would have been better without.

Or maybe you have the curse of hiring only “average” employees – people who are average in productivity and average in producing profits.

Question: Who wants to hire “average” (or “below average”) employees?

Answer: No one!To hire the best, you need to avoid the problems that plagued your previous hiring decisions. So, let me reveal seven horrible hiring blunders or mistakes you may have made.

1st Horrible Mistake: Interviewers typically do a lousy job at predicting job success.

This is a proven fact, verified by a lot of research. Statistically, most interviewers do about as well as flipping a coin!

2nd Horrible Mistake: Reference checks fail to tell you what you really need to know.

Most employers are so freaked out about giving reference checks that they tell you nothing or barely anything useful about how an applicant performed on-the-job.

Another way to put that is most reference checks are about as non-useful as simultaneously (a) flipping a coin while (b) rubbing a rabbit’s foot!!

3rd Horrible Mistake: You relied on your “gut feel” or “intuition” & you were W-R-O-N-G.Later, as you moaned about the mistake you made by hiring the wrong person, you asked yourself, “I knew what I was feeling. But, what was I thinking?”

4th Horrible Mistake: You used subjective prediction methods to make hiring decisions.

For example, you relied on subjective interviews, subjective reference checks, objective “impressions “ of the applicant. Wow! Were you ever off-base. And then you and your company needed to pay for your incorrect hiring decisions. That is expensive, time-consuming, and frustrating.

5th Horrible Mistake: You used NO objective AND customized prediction method.

Important: Research shows pre-employment tests are the most objective method to make predictions. But, make sure you use a test customized for specific jobs in your company!If you have not used tests customized for specific jobs in your company, then you really have missed out on the most objective and customized prediction method you could use.

6th Horrible Mistake: You [stupidly] told the applicant what you were looking for!!Then, lo-&-behold, the applicant spent your entire interview telling you s/he just happens to possess all the skills, talents and qualities you – stupidly – told the applicant you want in an employee.For example, let’s say you – stupidly – told the applicant you need to hire an employee who excels at teamwork, customer-service, and correctly handling small details.

I bet I can predict what that applicant told you in the interview: The applicant told you – with a serious yet pleasant expression – that s/he excels at teamwork, customer-service, and correctly handling small details.And then, when you hired the person who gave you all the answers you – stupidly – told the applicant you want, you pay the price of having an employee who may not REALLY be talented at teamwork, customer-service, or handling small details. You got fooled – and you have only yourself to blame.

7th Horrible Mistake: You terribly harm any person you should not have hired.Let’s be humanistic about it. If you hire the wrong person, the applicant also loses.People crave to work in a job where they will do well and enjoy it. People hate a job where they will perform only average or below average, and not enjoy the work. So, you actually benefit the applicant you carefully evaluated using customized, objective hiring methods.

Summary: When you hire . . .1. high-achieving “superstar” employees, both you and your company win.2. underachieving employees, (a) you lose and (b) your company loses.So, make sure you use customized and objective prediction methods, like pre-employment tests, biodata and more, to make sure you hire employees who are(a) productive, (b) profitable, and (c) low turnover.

__________Michael Mercer, Ph.D., is nationally recognized as America’s Hire the Best Expert™.Dr. Mercer created widely used pre-employment tests – Abilities & Behavior Forecaster™ Tests – which many companies use to evaluate job applicants. He also invented the groundbreaking “7-Step Method to Hire the Best™.” His 5 books include “Hire the Best -- & Avoid the Rest™” & “Turning Your Human Resources Department into a Profit Center™.” Get his free 14-page Special Report on “Hiring Productive, Profitable, & Honest Employees”, plus a free subscription to his Management Newsletter at www.Pre-EmploymentTests.com

Importance Of Values

Importance Of Values

By : Muhammad Hatta

Republish : Zulfikar, ST (Industrial Engineer)

What is Values? Corporate values is often defined as set of distinctive or fundamental beliefs the corporation stands for (Quingley, 1994). It serves as guidelines in making decision within corporation.

If you find it too conceptual and difficult to grasp, let`s take analogy of our childhood times. Recall what your parents always taught you during that time: Say thank you.., Don`t lie.. or Ask permission if you want to use someone`s stuffs... Those are the guiding principles that they tried to indoctrinate within our life, as if we embraced those principles, then we would never play with the abandoned toys, for example, because it opposed what we valued during that time.

Similar to these values that we learned from our childhood times, corporate values is a fundamental element for a company. Because, as corporation becomes an institution, and thus a society in itself, a set of values becomes a necessity. It helps employees to learn and grow within the corporation, just like what we all experienced with our parents during our lives.

Soft Values Generates Hard Result

One empirical study done by James C. Collins and Jerry I. Poras (1993) as written in their book Built to Last, showed that most visionary companies,--- premier institutions in their respective industries which are widely admired by their peers and have long track record of making significant impact on the world around them---, are characterized by having a set of strong and deeply believed core values. Strongly hold to this set of ideology, these visionary companies, Citicorp, IBM, Nordstorm and Sony alike, outperformed their rival companies, such as Chase, Burroughs, Melville and Kenwood in terms of cumulative stock returns, as shown on the graphic: What`s the relation between the success of these companies to their set of values? Good question. Let`s take Sony for example. Sony is widely known for their values on innovation. This belief is clearly stated on their as their management guidelines, which part of it are read as follows:
Purpose of Incorporation:To establish a place of work where engineers can feel the joy of technological innovation, be aware of their mission to society, and work to their heart`s content. Management Guidelines: We shall welcome technical difficulties and focus on highly sophisticated products that have great usefulness in society, regardless of the quantity involved
Indeed a very strong message to support the innovation within corporation. A deep sense of purpose which aims far more beyond profits. But does it all what it takes? I witnessed a lot of corporations put those words nicely on their annual report, and nothing reflects the reality. Again, very good point. Remember, people won`t embrace words. They will be only highly influenced by actions, real actions.

This is what differentiates visionary companies with their comparisons. The set of values was deeply practiced into their day-to-day activities. In case of Sony, the innovation spirit is solidly cultivated that made them came with a series of decisions to launch products for which there was no proven demand, including the first all-transistor radio (1955) or the Sony Walkman (1979). As we know then, these products were very successful in the market, and had proven Sony`s innovation values lead them to be ahead in the competition. Moreover, on a case where values become deeply ingrained on each individual within organization, it creates a “cult-like environment which enable people who enter into organization to feel either fit or ejected like virus. It becomes a natural selection process that eliminates inappropriate behaviours or even people who don`t fit into corporation values. In case of Nordstorm, a giant retailer in the US, where customer satisfaction is their most sought after values, there are lot of people who were smart and technically excellent but in the end left the corporation within short period of time. This happened because they were not willing to “…not get irritated when facing a irrational customer, or start their career by being a gift wrapper. They left not because they are not good. Actually they`re among the best graduates in the country. They just don`t fit with the corporation values. And that`s already been a powerful mechanism to build a strong corporation. In a nutshell, company with strong values like the visionary companies, have such clarity about who they are, what they`re all about, and what they`re trying to achieve, and they tend to not have much room for people unwilling or unsuited to their demanding standards.

How to Build the Strong Values?

Of course, after all these facts, the next question is How could we cultivate and build the strong values and eventually culture in our organization?
Based from Arthur Andersen experiences in several significant change within Indonesian companies or around the globe, there is actually no one size fits all approach. Each company is unique, and each of them needs a tailored approach that fit with their current culture. However, we noted that there are several common elements in the process that are critical to the success of the cultural change or values building programs. The remaining part of this article will discuss about these elements. It starts from the TopValues have to be driven by the top management team. The top management team are the role models for the rest. In the paternalistic culture like Indonesia, it is commonly cited that “organization is the shadow of their leaders. When leaders demonstrate the required behaviours that fit with the preached values, people got the message clearly. The leader is the message. Once the leaders are not committed or consistent with the so preached values, people quickly come into conclusion: It`s a lip service, it ain`t gonna change anything!

One experience came from a major mining company in Indonesia which experienced dramatic change during the early 90`s. To eliminate the culture of feudalistic in the company, the first step that the new CEO took, was demolishing all visible symbol of this culture. He traded his official luxury car with the most commonly used type of vehicle, Toyota Kijang. He prohibited person`s position level to be stated on both their name cards or room signs. And he refused to wear Safari, on that time was the suit of state top officials, and instructed all employees, from directors to the miners, to wear the same work uniform. And it did work out. The people got the message that the organization was serious to change as demonstrated visibly by the leaders. There`s Nothing Soft about Changing CultureEven though values and culture tends to be more soft issues, meaning that they`re more intangible in nature and deals more with hearts and less with head, the interventions for changing culture or building values are nevertheless hard stuffs.

Based on Peter Senges Fifth Discipline (1992) concept of Systems Thinking, we understand that structure drives behaviours For example, to change values and culture we need a reconstruction of organization structure. The old organization structure which tend to support the bureaucratic culture in one of our client, were reconstructed to become leaner and have element of matrices. Take a look on the case of Wainwright, a US company that has successfully transformed their company into customer focused organization. Before begun the era to promote their customer satisfaction philosophy, the organization had several hard systems in place that supported their philosophy, such as Internal and External Customer Satisfaction Process, a Continuous Improvement Program and a Performance Measurement system. These hard structures and systems are nonetheless the primary drivers in changing the behaviours. (Jay Fedora and Viki Welding, 1999).

For the same purpose, we have attempted to revise an Indonesian client`s HR system. The client`s Performance Appraisal system is realigned to more values-based, where people`s performance is partly rated by their peers, superiors and subordinates, on how well they have demonstrated the required behaviours on the work place. And to create such “motivation and drivers, it was directly linked to the employee`s compensation and career path. People started to listen, paid attention, and took actions. Their behaviours changed. The question of sustainability of this behaviour change is then lied on the application of the system and also how the company reinforce it with leading with the heart efforts described on the next element. But for sure, to successfully lead with the heart, organization must be healthy throughout. It requires a lot of TalkEven though most interventions are hard stuffs, the efforts of reminding and encouraging the appropriate behaviours are still needed as reinforcement. However, from our experience, it should come after people have seen the changes in hard stuffs. Communicating and preaching what are not visible is like hearing a fictional story from unpopular story teller. During the major transformation of the above mentioned major mining company in Indonesia, the leaders never get bored in preaching the employees about the new values and culture. Almost no single corporate meetings, gatherings or trainings were adjourned without mentioning or discussing about the new values and culture. Even the company invested 5 billion rupiahs to install a 120 hectares outdoor-experential learning activities, as a media to reinforce and indoctrinate the set of new values to every single of their employees. It is consistent with another finding came from the same book, Build to Last, suggested that visionary companies tend to employ stronger indoctrination of their employees into their core ideologies. This indoctrination is achieved through training, employee orientation, corporate mottos or slogans, and even singing company`s mars. In the end, nobody in the world dare to say that developing values and changing culture is easy. Actually it has been extremely difficult. But having seen the dramatic improvement resulted from both efforts, and how it sustained the competitiveness of the company over the long period of time, as what visionary companies on Built to Last benefited, every company should be tempted in moving to this direction. If you`re one of the many who haven`t, start to think about it! You don`t want to be outperformed in the end, do you? Ibnu A. Mulyanto, Arthur Andersen Business Consulting)

References:

James C. Collins and Jerry I. Porras (1994), Built to Last, p. 47-90, Harper Business Joseph V. Quigley (1993), Vision: How Leaders Develop It, Share It, and Sustain It, p.15-23, McGraw-Hill Peter Senge (1992), Fifth Discipline, Jay Fedora and Vicki Welding (1999), There is Nothing Soft About Changing Culture, Arthur Andersen BC Journal, June 1999

Assessment of Performance and Potential using the right tools the right way

Assessment of Performance and Potential using the right tools the right way

By : Muhammad Hatta

Republish : Zulfikar, ST (Industrial Engineer)

We also use assessment for many of the HR activities such as: recruitment & promotion, early identification of potential, diagnosis of training & development, organisation/ succession planning, management audit (in organisation restructuring) and career guidance/ counseling.
Some people will query the need to assess for internal candidates since companies already have their annual performance appraisal. In fact, an objective assessment process provides complementary information to the performance appraisal. While performance appraisal measures an individuals current performance, an assessment process is able to predict future potential, something which is critically important for companies to face the challenge of todays business environment.

From both angles performance appraisal and assessment of potential, companies can identify: The high fliers with particular potential and those with particular weaknesses · Individual development needs and their respective personal development plans · Suitable candidates for certain positions based on the assessment of current performance and future potential.
This will provide companies with a management audit, facilitate development action planning and facilitate succession planning.

To implement an assessment process in the organisation, there are some key steps that companies have to go through:

Job analysis and Competency identification:

Job analysis is a systematic process for defining the content of a particular job, position or level within organisation. This process should be comprehensive, detailed and should result in thorough definitions of the tasks to be performed, descriptions of the skills, behaviour, knowledge, personality and motivational characteristics required by job holders in order to perform these specific tasks. The common language for the above description is what we call COMPETENCIES, which is a structured way of describing effective job behaviour.

Select appropriate tools:
Assessment tools should answer our question about an individual: the CAN, the HOW and the WILL factor.

The following are examples of assessment tools:

Interview: This is probably the most popular method adopted by many organisations as it can be conducted inexpensively and provides an opportunity to assess the “chemistry factor as well as gain an insight to an individuals expectations and motivation. However, interviews are also one of the least reliable methods of assessment if not properly conducted. Studies have repeatedly demonstrated that interviews are conducted inconsistently, giving rise to perceptions and judgements about people which are inaccurate and lead to decisions which proved to be effective in the long run. In fact, it is precisely because they allow an opportunity to see people face-to-face that they are so unreliable. Because of their limited human capacity, people are notoriously subjective in their opinions and judgements about others and rarely make HR-related decisions on the basis of relevant characteristics such as actual ability to perform a particular job. So, often in the interview, articulate candidates who are able to project a good image would have a much better chance of doing well in the the interview.

A more structured way of conducting the interview, such as the competency-based approach, is significantly more reliable. This method of interview uses task-oriented and behaviourally defined job criteria to increase the accuracy of the assessment. However, the interviewer needs to be properly trained to carry this out effectively. Ability or Aptitude Tests: These tests measure an individuals skills and abilities in specific areas, such as spatial, numerical, mechanical or verbal skills. Ability tests answer the question of whether an individual can perform a specific task in a discrete skill area and if so, how does the score compare with similar individuals in relevant comparison group. Such tests provide an objective comparison of candidates on a specific ability within a short time scale and directly compare the individual with a relevant comparison group. However, the skill in the administration and interpretation of such data will play an important role in the implementation.

Personality Questionnaires: These are self report questionnaires which measure an individuals preference for certain styles of behaviour in a work setting. They answer the question of how an individual is likely to behave at work. Important factors to be considered in using these questionnaire are whether the questionnaires are designed to be job-relevant, equipped to anticipate faking and conducted by trained practioners.

Assessment Centres: This is a multiple method of assessment, using a range of job simulation and psychological tests to measure an individuals performance against core job competencies. It answers the questions of whether an individual CAN do the job and HOW he or she does the job. Because assessment centres involve several assessors and participants, as well as using several different tools, this method provides the highest prediction among all assessment tools. As a direct outcome of assessment centres, an individuals strengths and weaknesses will be clearly identified and fedback to participants for development action planning. While this approach is becoming more and more popular, the implementation process incurs significant amount of costs and management commitment.
Set Up The Assessment Policy It is very important to set up the Company Policy on Assessment Procedure before implementing it in the organisation. This policy will ensure the standard quality used for the assessment, its objectivity and fairness. It is also important from an ethical and legal point of view, especially in a country where these are potential issues.
The following are key points that need to be considered prior to the implementation of an assessment process in the organisation: · Objective of the Assessment · Procedure of the Assessment · Responsibility of Assessment Standard · Requirement of the Assessors · Confidentiality of Results · Lead time for re-assessment of employee · Monitoring of the tools, and the assessment result · Copy Right issues Clear Communication The communication process is very important, especially in the assessment of incumbents for development. The objectivity and fairness of its implementation as well as management support towards the programme will increase an employees motivation to undergo the assessment, as well as to reduce suspicion and skepticism.
Involve Line Managers Many HR professionals are finding it difficult to convince line managers of the value of objective tests, while the lack of line managers support not only threatens the use of psychometrics and the benefits it offers to the organisation. The most important thing is to recognise that line managers might object to testing for a wide range of different reasons and each is best tackled using a different approach. Examples could be to involve line managers in the initial discussions, conducting an assessment awareness workshop to emphasise the advantage of objective tests, and even to train line managers in the process are some of the ways to get the support of line managers.
Follow Through Following through an assessment process with development activities is something that many organisations do not emphasise on. Based on the outcome of an assessment process, training and development activities for individuals can be put in place. A structured development programme will provide immense benefit for both employees and the organisation.

PT Saville & Holdsworth IndonesiaCowieson, N (1998).

Best Practice in the Assessment and Development of Employees. Cowieson, N (1998).

Job Analysis. Cowieson, N (1998).

Psychometric Testing. Saville & Holdsworth (UK) Ltd, July 1997. OPQ Update. Chan, D (1996). Criterion and Construct validation of an assessment centre.

Journal of Occupational and Organisational Psychology.

Robertson, IT & Kinder, A (1993). P

ersonality and job competencies: an examination on the criterion-related validity of some personality variables. Journal of Occupational and Organisational Psychology. Russell, C.J. & Domm (1995).

Two field tests of an explanation of assessment centre validity. Journal of Occupational and Organisational Psychology.Shore et al. (1992).

Construct validity of self-and peer-evaluations of performance dimension in an assessment centre. Journal of Applied Psychology. Smith, M and George, D (1992).

Selection Methods. In international Review of Industrial and Organisational Psychology.

Performance Related Pay: an evaluation of raising employees’ motivation

Performance Related Pay: an evaluation of raising employees’ motivation

By : Muhammad Hatta

Republish : Zulfikar,ST

Introduction

Performance related pay schemes have been growing since the early 1990s (Lewis, 2006). The purposes of companies adopting such schemes were to motivate employees and to reward high performance employees in order to achieve the company’s goals (CIPD, 2007 and Kauhanen and Piekkola, 2004). However, there is also increasing concern whether it is able to motivate employees. Robbins (2003) suggests that there tended to be a weak link between pay and performance in most organizations. Similarly, Heery (1996) and Mitra, Gupta and Jenkins (1995) argue that the performance related pay scheme seemed to increase risk for employees. It, in theory, will improve employee motivation; however, there is evidence to suggest that, in practice, it appeared to fail to achieve the expected result.
The purpose of this essay is to discuss and evaluate to what extent the performance related pay will most likely motivate employees to achieve company objectives.
This essay has been organized in the following ways. First, it will review motivation theory and pay. Then, the trend and issues of performance related pay will be presented in next section. Finally, the rest of this essay will discuss companies’ reasons for implementing the scheme and present recommendations and conclusion

The Motivation Theory and Pay

Before discussing the performance related pay scheme, this section will review the motivation theory in order to provide the basic principle of motivation. According to Robbins (2003), motivation is related to intensity, direction and persistence of effort in order to achieve a goal in general. In this context it will focus on the company’s goal. Intensity is how hard an employee will work to achieve the goal. Direction is the alignment between the individual and the organization’s goals and persistence means how long employees will put the effort in order to achieve the goal. So, the performance related pay could be maintained as a motivator if all those three respects are fulfilled. If one of those factors is absent, it can be argued that people are not motivated, although they put effort into working.

Despite the fact that there were some critics about the methodology, Frederick Herzberg’s two factors theory, also called hygiene and motivation theory, is significantly relevant to be used as a basic principle in examining the relationship between performance related pay and motivation. In brief, the theory explains that increasing a salary might only fulfill their hygiene factors and give them “no dissatisfaction” or make them happy but not give them satisfaction. Robbins (2003) suggests that to increase employee salaries might not directly motivate employees to perform better in their job. Likewise, Mitra, Gupta and Jenkins (1995) argue that even if employees are given a large increase in their salaries, it probably will make them happier at the time of the salary increase, and short term, but it does not mean that it improves their motivation. However, if companies want to motivate employees, they need to satisfy them. This includes providing employees opportunities for personal achievement, growth and recognition.

These theories indicate very important points for the pay scheme, particularly, for what factors companies should focus on in designing and implementing the scheme in order to motivate employees to achieve company goals.

Another theory that is also relevant to any review is equity theory, which emphasises equality in the treatment of employees. Robbins (2003) argues that people will be motivated when they are equally treated and rewarded. As an illustration, AA, a new graduate student, has just been accepted at an information technology company as a program analyst. He shows as a very highly motivated employee. However, after one year, the company recruits another new employee, called BB, whose ability is as same as AA but BB is paid much higher. As a result, AA decides to resign from the company because he feels that the company treats and rewards him unequally. This shows us that employees can be motivated in certain periods and can be unmotivated in the other periods, which is related to persistence as Robbins suggested. Therefore, it is important to design the pay scheme that ensures employees will be rewarded equally.

Regarding the direction in definition of motivation, the Vroom’s Expectation Theory suggests that to fulfill employees’ expectations may lead to improve their motivation. Therefore, it is essential to establish clear performance criteria and match company goals and employee expectations. Robbins (2003) argues that people will be motivated when they believe that they are rewarded the same as their effort, performance and expectations. Employees will most likely be unmotivated when performances are not measured based on the agreed criteria and the reasonable performance target. In addition, employees will also not be satisfied if the benefit or incentive scheme does not match with their individual need or goal. Despite the fact that it is virtually impossible to satisfy all employees’ needs, it important for companies to attempt to provide an accommodative reward scheme, which accommodates most of their expectations. It appears that expectation theory is relevant to what Robbins called direction, which means companies need alignment between company goals and employees’ expectations.

In summary, having reviewed the motivation theory above, it appears that in order to motivate employees, the company might need to focus on not only the employee hygiene factor but also motivator factors which include providing fair treatment and aligning employee expectations and company objectives.


The Performance Related Pay Trend and Issues

Performance related pay trend
Recently, performance related pay is gaining popularity. The findings from the Workplace Employment Relation Survey (WERS) 2004 indicates that the percentage of companies who adopted performance related pay schemes increased significantly by approximately 60% in the period of 1998 and 2004. In 1998, that was only 20% of the company, who participate the survey, adopted the scheme and in 2004, the percentage has increased to 32%. The survey involved over 20,000 employees, and around 3,200 managers in the United Kingdom (Kersley et. al. 2006). A similar trend was also shown in Finnish industry. There was a small proportion (10%) in 1990 of the Finnish industry who adopted the performance related pay, whereas, it became a majority of them (more than 50%) who had applied the scheme as their pay system in 1998 (Kauhanen and Piekkola, 2006).

The Performance related Pay as motivators?
Although performance related pay has gained popularity and been widely adopted, as mentioned above, there is also increasing concern whether the pay system relates directly to people’s motivation or whether the system might even demotivate employees. Holbeche (2005) argues that such pay schemes affect only a small proportion of employee performance and it tends to have an effect in the short term. Similarly, Herry (1996) suggests that performance related pay creates risk for employees in different ways; reducing the proportion of total remuneration, employees cannot control overall performance and employees feel uncertainty.

Regarding reducing the proportion of total remuneration, this occurs because the proportion of some its components are based on achieved performance. Armstrong and Murlis (2004) suggest the total remuneration, including base pay, contingent pay, variable pay and other forms of cash payment. Since the contingent and variable pay in the pay scheme will depend on company employees’ performance and company performance, the total remuneration will vary and depend on the achievement of both performance; individual and company. If they fail to achieve the performance, then total remuneration will be reduced.

As far as control is concerned, it is obvious that certain performance targets are not under the employees’ control. They might depend on many other aspects. On the other hand, the achievement of the target still affects the total employee remuneration, so that, Herry (1996) argues, that factor might also generate another risk employees will feel uncertainty about. As a result, employees, cannot secure their total remuneration for their income as a whole, because it might for some time be lower than expected.

If we refer back to the definition of motivation above, that motivation is related to direction, then, it can be argued that performance related pay could not be suggested as a motivator tool because it is a different direction. Employees may attempt to work hard not because the scheme motivates them but rather they try to keep the same amount of their total remuneration in order to secure their income, which might affect their mental state and behavior toward their job. On the other hand, the main objective of the company adopts the scheme is to motivate employees.

The Pay Increment Issues
The second issue is related to pay increments. According to Robbins (2003) and Mitra, Gupta and Jenkins (1995), the most common issue in performance related pay is around pay increments. A similar argument is also maintained by Wilensky (2007) that small increases will most likely demotivate employee. With a small pay increment, employees will see the pay does not relate to their performance. The Mitra, Gupta and Jenkins’s study result suggests that the merit increment should be a least around 6% to 7% to keep employees motivated. On the other hand, based on that similar study and three other different surveys, conducted by Hewitt Associates, Buck Consultants, and ORC Worldwide, as summarised by IOMA (2006), suggest that the average salary increase in most companies is only between 3.9 to 4.4 %.

To this point, the evidence above shows that the performance related pay would not be able to be a motivator if the salary increment is not high enough.

Concern about Performance Management
Another concern about performance related pay schemes is performance management because, in most companies, its result will determine some component of employees’ remuneration. However, Armstrong and Murlis (2004) maintain that, some companies only focus on appraisal, which is the last path of the performance management system. They tend to avoid paying attention to planning, reviewing and giving feedback. The common reasons for such responses are that they are time consuming and involve many resources, include administration and management focus. The other problems are lack of understanding and inability to appraise fairly (Wilensky, 2007). Those problems can lead to demotivated employees because they will perceive unfairness and cannot fulfill their expectation, as mentioned in expectation theory above.

According to Redman and Wilkinson (2006), the other criticisms of performance management were as a source of conflict and its subjectivity. The former has a potential for disagreement between superiors and employees in the performance management process. In the early stage of the process, setting targets, it can be argued, the superior will try to set a high target because the target will also relate to their own targets. However, employee will attempt to have the job targets as low as possible, because the achievement of the target will determine their reward. The latter, as human beings, appraisers or superior also have their own human relationship in their workplace. Consequently, they might be biased in the performance management processes; they will probably give a little higher mark for close friends and they will give a normal mark for the other employees. That is also called ‘crony effect’

It appears that the performance management process could also become a source of problem in implementing the pay scheme.


Company Attitude and Recommendations

The reason for implementation and implication
As has been discussed above, performance related pay tends not to improve employees’ motivation but rather it generates risk for employees, yet the system is increasingly adopted by companies. The most common objectives of the company introducing the performance related pay scheme were productivity related (Kauhanen and Piekkola, 2006). According to Harris (2001) there are two agendas for the company implementing the scheme; official and hidden. The former agenda is aimed to increase employee motivation. The latter is to manage the company effectively and to reduce costs while raising workload. Harris’s study conducted in 1998-9 shows that majority (above 55%) of respondents identified the benefits of the pay system and were able to recognize individual contributions, as tools to manage work and to have a formal appraisal system. Interestingly, the majority of respondents (68%) said that the system does not work as a motivator.

Therefore, it can be argued that the scheme is implemented as a mechanism to encourage employees to contribute toward company goals rather than to improve employees’ motivation. A number of studies, as cited in Rynes et al (2004), argue that performance related pay would increase productivity and product quality. It is obvious that from a company’s point of view, there is a tendency to focus on the company’s achievement rather than employee satisfaction. Consequently, those factors would be most likely to increase stress levels among the employees. Based on the Management Agenda survey, many employees feel much stressed at their workplace because their superiors set unrealistic targets and give them almost no help when the employees have difficulties in achieving their target (Holbeche, 2005).

It is obvious, that there are different agendas. The main purpose of the company in implementing the scheme is related to company performance and productivity. On the other hand, employees perceive it as a source of stress.

What do companies or managers need to do?
As has been discussed above, it seems obvious that companies tend to have a greater benefit than employees do from the scheme. Then, what can and should companies do in order to ensure they gain benefit and satisfy employees. As the Two-Factors theory has explained above, to motivate employees, company need to satisfy them. If companies focus only on ‘transactional remuneration’, financial reward and benefit, it will only fulfill their hygiene factors and give them ‘no dissatisfaction’. However, if company wants to motivate or satisfy employees, providing the total reward seems the right way to reward employees’ ability and performance. The total reward will include not only transaction remuneration but also non-financial recognition, responsibility, equal career opportunities and a work life balance (Armstrong and Murlis, 2004).

As far as improving motivation is concerned, consistency and employee involvement is the key factor to success in implementing performance related pay. Reward systems should be not only good in design but also need to be right in implementation process. Kauhanen and Piekkola (2006) found from their study that performance related pay could be a motivator when employers and employees establish the scheme together. Hickman (2000) argues that to balance between pay for performance and pay for the person will encourage them to be innovative and perform better. Wilensky (2007) states the scheme is only one of many other initiatives that will motivate employees. Those include improving employee engagement and communication. Rynes et al (2004) recommend five key general principles to implement the scheme; seriously handle the pay complaint; pay around and above market average; strong relation with performance; evaluate the strength of the system regularly and executive and employee pay increases move in the same direction.
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Conclusion

Returning to the purpose suggested at the beginning of this essay, to examine the effectiveness of performance related pay scheme as a motivator, it is now possible to suggest that to a greater extent the scheme appears to be as a mechanism to achieve individual and company performance rather that to motivate employees.
As has been discussed, the motivation will related to the intensity, persistence and direction of employees’ effort toward goals. Whereas, from many studies as discussed above, it appears that the performance related pay schemes tend not to fulfill all those three aspects. The scheme seems to encourage employees to put effort toward their work in order to gain more incentives. Even worse, it also generated risk for employees because they might feel uncertainty, particularly in relation to their income. Hence, because of the absence one of more those components, then it can be argued the scheme cannot be classified as a motivator.
Although, the scheme has some issues and problems, such as generating risk for employees, small increments, lack of understanding of performance management, still gives benefits for companies in encouraging employees to put their effort toward work. However, such situations will have implications, which cause and increase the degree of employee stress level. It would seem therefore, it is important for a company to communicate and to help employee to be familiar with the scheme. So that, they will both have benefit. The company can achieve company goals and at the same time the scheme will also satisfy employees.
It is suggested that a broader study is also needed to examine other factors, that would determine the effectiveness of the scheme as a motivator tool.
Word count: 2751

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