Linking Employee and Organizational Performance with SPMS
Question:
Discuss About The Organization In Order To Enhance The Performance?
The strategic performance management system (SPMS) is a method of linking the performance of the employee with the performance of the organization in order to enhance the performance of compensation system on the whole (Petra 2016). The system ensures that the employees meet the goal assigned by the company and the company meet the goal assigned by the strategic plan.
- Linking the performance of the organization with the already assigned strategic development plan
- It ensures the effectiveness of the organization as well as increases the accountability
- The performance management system is linked with the HR system of the company.
- The agency assigned goals are the top priority for the organization
- It is output and outcomes oriented system
- Works on team management
- Monitoring and evaluation oriented
- A set communication plan(CSC 2017)
- Planning of performance and commitment
- Monitoring of the performance and coaching later
- Reviewing and evaluation of the performance
- Rewarding of the performance and making a development plan(bragias 2014)
A sense of satisfaction comes in the employees once they have achieved the goals set by the company. This satisfaction will motivate the employees to work harder and improve their performance in future. One of the most popular theories is the Maslow’s hierarchy of needs. Maslow classified the needs of the human being in a hierarchy from top to bottom. Maslow stated if the needs of one level are satisfied it no longer motivates employees. . Money is the major motivating factor. So, a salary hike is the most effective manner of motivating the employees to perform economy in a company.
The companies being considered in the assignment are AGL energy Ltd and Bank of Queensland. AGL is an Australian company that provides energy solutions to economy of Australia. The company is responsible for generation of electricity for domestic as well as the commercial use. AGL generated energy from the thermal power station, hydroelectricity, wind power and natural gas.The bank of Queensland has more than 252 existing branches. The bank has a very high rate of customer satisfaction which ranges up to 88%. The major products of the bank are consumer banking, commercial banking, mortgage loans, credit cards, finance and insurance.Both the companies use SPMS to enhancetheir performance. (Giri 2014)
A study by DDI in 1997 indicates that performance management is the most recent performance management system. It has proven to be successful in the organization along with bringing in strategic results. The outcomes of SPMS are as followed: productivity, financial performance, job satisfaction of the employees, product or service quality and satisfaction of the customers. In the study there was a survey of more than 88 organization and all the organizations seemed to be benefitting from the system. (striteska 2012)
Watkins in 2007 stated that in the use of SPMS is very efficient in the public sector organization. It is a tool that is used for improving the performance of the organization and also suggests the benefits of the performance management system (Veni 2012). It has found its efficient use both in public and private sector companies. It a systematic approach of managing people, measuring their performance and providing valuable feedbacks. It is also used a motivation tool from deriving best for the employees as well as the management. It helps in maintaining high quality as well as the competitive advantage. (Chenhall 2005)
Maslow’s Hierarchy of Needs and Employee Motivation
A study by Hewitt Associates in 1994 stated that in the present times, performance management has become essential for maintaining the productivity and efficiency within the company. It helps in tracking of the financial information and maintaining an effective feedback system. Companies having performance management increased profits and better position in the market. As the performance of the company is enhanced, its position in the market is also increased to a higher level. The human resource of the company becomes more effective and the performance of the organization can be seen and tracked. It helps in using the innovative techniques within the organization for enhancing the performance of the employees and providing valuable feedback. (Vashi 2014)
In 2011, SharmisthaBhttacharjeeandSantoshiSenguptastudy the most valuable asset of the company- The employees. Management of the human resource is essential for improving the performance of the company and maintaining productivity. Effective management of the human force is essential for ensuring quick growth of the company. It helps in bridging the gap between competent requirement of the business and the existing standards of the business. Management of the HR department of the organization is essential for maintaining the effectiveness within the organization.
In an article by Javed Iqbal and SabaArshd, it is mentioned that the performance management enhances the effectiveness of the company. In this article a survey is conducted and a review on the performance management is provided. The employees are very uncertain of the economic environment of the company. A review by the performance management system helps in predicting the economic environment and in turn provides them with the sense of stability. Motivation is used by performance management system in order to ensure the performance of the company. Researchers employ the approach of data analysis in order to track the performance. (Holloway 2017)
- Every employee is made accountable for his or her own performance
- Maintains complete transparency
- Clear methodology for implementation
- Provides us with the continuous monitoring system
- Improves the internal as well as the external performance
- Helps in maintaining competitive advantage.
- The complex matters are oversimplifies in the report
- There are lot of assumptions made in the report
- Setting of the target is very poor
- There is a lot of difficulty in handling of the timing
- The cost building of the information is very difficult
- Estimating the managerial time is very difficult(BSA 2016)
Balanced scorecard was introduced by Kaplan and Nortan. Previously it was used as a measurement technique but now it is used as a performance development plan. All the previous performance management system failed because they relied on the performance management excessively. There were only the short term performance indicator of the plan and no long term indication was there (Zizlavsky 2014).Adoption of SPMS is a very efficient manner of enhancing the performance of the organization. Most of the performance system still has a strong focus on the bottom line research but performance management system provides us with the comprehensive result. Internal and financial results can be obtained distinctly and are supposed to be more precise in nature. (Duque 2015)
Benefits of Performance Management Systems
Balanced scorecard is complementing many of the performance management system namelysix sigma, European foundation for quality management, Total quality management and 360 degree appraisal. It can be considered as a backbone for managing many other systems. Recently balanced scorecard has gain a lot of popularity as a strategic management tool. In Australia more than 50% of the organizations are dependent on the use of balanced scorecard. (Nikafs 2017)
- Provides the sufficient to address the grievances of the people
- The processes of the company are guided in all the phases
- The approach uses an open mind to find the need of the stakeholders
- A proper relationship between the cause and effect of the company is listed
- Effective performance review and feedback. (Jackson 2015)
There are two theories for motivating the employees under the performance management system. According to Salaman the two important theories under the performace management are as followed:
- Goal setting theory: There is a goal for every employee that he is supposed to achieve. Goal setting for every employee improves the performance of the employee as well as the company on the whole(Lunenburg 2011). Employees keep working hard in order to achieve the goal. There are incentives given to the employees once the goal is achieved by them. If the goal is not achieved by the employees then the goal are modified and made more realistic according to the personal needs of the employees. (Hetch 2017)
- Expectancy theory:The performance of the individuals within an organization depends upon the satisfaction employees derive from the performance within the organization(Simone 2015). The goals must be made realistic so that they can be achieved by the employees within the specified time frame without much difficulty. A sense of satisfaction comes in the employees once they have achieved the goals set by the company. This satisfaction will motivate the employees to work harder and improve their performance in future. (Business 2017)
One of the most popular theories of motivation is the Maslow’s hierarchy of needs. This theory of motivation is based on the needs of the human beings. Maslow classified the needs of the human being in a hierarchy from top to bottom. Maslow stated if the needs of one level are satisfied it no longer motivates employees. Then next higher level of need must be set as a target in order to motivate the employees (Kaur 2013). According to Maslow the needs of the human being are classified in the following five categories which are described below:
- Psychological needs: Needs to be satisfied in order for the survival of the human being.
- Safety needs: This includes personal as well as the financial security
- Social needs: These are the needs of the friendship, relations and the family.
- Esteem needs: It is the need to enhance confidence and be respected in the society.
- Self-actualization: It is the desire to achieve everything that falls within the spectrum(Boundless 2014)
Application in the workplace: The need of the hierarchy is applied within the organization. Managers within the organization strive to achieve the highest level of the needs that is self-actualization. Satisfaction of the higher level of needs motivates the employees to work harder for achieving their needs. The employees want to feel respected in the organization and thus work harder to achieve their goals. In order to motivate the employees, the management must also understand the needs of the employees. It is made sure that the employees are provided with the incentives and rewards on completion of their targets. The employees must be given flexible working timings and appropriate leaves. (Contactzilla 2014)
The basic goal of the comparing motivational theory with the reward system is to improve the performance of the employees. Performance management system serves to motivate the employees by assessing their performance and rewarding them later on (Jawaria Andleeb Qureshi 2010). Various researches and surveys have stated that the use of the reward system by the organization helps in improving the performance of the employees. The motivation and the reward system have been proved to be very helpful to the world of business.Organization keeps on improving and modifying their reward systems in order to motivate the employees for improving their performance. The effective of the performance of the employees can be assessed by this theory (Sharma 2014). The reward system and the motivation of the employees are closely linked and both of them help in improving the performance of the employees. (Devz 2013)
The Use of SPMS in Public and Private Sector Companies
There are various extrinsic and intrinsic rewards provided to the employees that help them in motivating to work harder for the success of the company (Ayesha Ajmal 2015). There are two types of the rewards that the given to the employees of the company. Extrinsic rewards are the rewards that the employees rewards that the employee receives with extraordinary performance such as bonus, gifts and salary hikes. Intrinsic rewards are more linked to the personal satisfaction of the employees such as effective feedback, recognition and trust. Money is the major motivating factor. So, a salary hike is the most effective manner of motivating the employees to perform better in a company. Promotion is also a very important form of motivating the employees and giving them rewards. Promotion increases their status and position in the organization which satisfies the need of self-actualization in a company. With the increased level of promotion, the employees’ retention in the company increases and the employees fell to be more valued in the company.Promotion also helps in improving the morale of the employees and giving them job satisfaction. By providing the employees with the effective rewards the performance of the employees within the company enhances. Employees work harder to achieve the target set by the company. With the reward system employees also work hard to improve their skills and work towards improving their personal growth. Reward system also helps in boosting the performance of the company and providing good returns. It also brings the positive contract between the employee and the employer. Reward system also helps in maintaining a healthy environment within the workplace. (Jenkins 2017)
The two companies we have selected in this assignment is AGL Energy ltd and Bank of Queensland Ltd. AGL is an Australian company that provides energy solutions to economy of Australia. The company is responsible for generation of electricity for domestic as well as the commercial use. AGL generated energy from the thermal power station, hydroelectricity, wind power and natural gas. In report in 2016, AGL confirmed that there are more than 3 million customers of the company. In the recent times the company has also started supplying natural gas.It is the Australia’s largest private owners of the company. The net income of the company is 1.2 million and it employees more than 4 thousand people. The company has its various subsidiaries in Australia. AGL Energy Ltd is the second company on the list of the American Stock Exchange. (AGL 2017)
Extrinsic and Intrinsic Rewards for Employee Motivation
Bank of Queensland is the retail bank of Australia. It has its headquarters in Brisbane, Australia and it is the oldest financial institution there. The bank has more than 252 existing branches. The bank has a very high rate of customer satisfaction which ranges up to 88%. The major products of the bank are consumer banking, commercial banking, mortgage loans, credit cards, finance and insurance. The net income of the bank is more than 260 million by employing only 2500 employees. The company started as a society in 1887 and later received a trading licence in 1942. The bank switched ro the electronic system in 1982. Later on the bank also acquired ATM solution. (BOQ 2017)
AGL Energy ltd uses SPMS system to evaluate the performance of the employees. As AGL Energy ltd is a big organization it requires a well-defined system for performance management. It requires a very specific and accurate data for the management of its information. Through the performance management system the company is able to internal processes as well as accesses the external systems. The company ensures the strategic maintenance of balance. AGL Energy Ltd also utilizes the balance scorecard method in order to ensure that top to down performance analysis is made keeping in mind that the employees are provided with the constructive feedbacks. The performance management by SPMS helps in maintaining the efficiency within the organization.AGL Energy Ltd. utilizes performance managementto formulate the strategies and objectives of the company.There has been many benefits to the company by the adoption of the SPMS such as strong leadership, better implementation of the strategy and effective communication within the organization. With the SPMS there has been increased involvement of the staff at all levels of management. There have been changes in the SPMS system of AGL Energy Ltd with the time. Now the company has adopted new and effective reward system which will help in motivating the employees. SPMS also helps in developing the cause and effect relationship within the organization. With the implementation of the new reward system the employees were given valuable feedbacks which improved the performance of the employees over the span of time. As the company has seen significant growth with time there has been a lot of change in perspective and objectives of SPMS. (Gungor 2011)
Bank of Queens land also uses strategic performance management system to handle their finances. As the company belongs to the financial system the use of SPMS for handling the financial data is even more effective. The financial growth of the company could be tracked easily with the help of this software. Banking is a very vast domain and with the use of the SPMS bank of Queensland is able to maintain accuracy and transparency in its business operations. As banking has evolved a lot with time, there has been many changes in the SPMS systems for the banks. SPMS makes the banks services more effective and efficient. The rate of Customer satisfaction for the banks is 88%. This high level of customer satisfaction was possible with the help of SPMS software. SPMS also helps in the personal growth of the employees which increases their customer satisfaction.
Balanced Scorecard as a Strategic Management Tool
The implication of a Strategic Performance Measurement System (SPMS) helps an organisation to measure the non-financial aspects that help increase the overall efficiency of a firm. Such information provided to the shareholders also is critical to making final decisions in terms of investing monetary resources (Ward 2012). The effective incorporation of such system is utilised to measure employee performances during a financial year and also aids the managers to formulate strategies for the long run. The blueprint created with the usage of the SPMS framework helps a company to evaluate its current strategy and compare it that to its rival present in the current market. There are several tools present in the SPMS framework starting with the balanced scorecard, performance prism, and value chain scorecard. The use of such non-financial measurement tool indirectly helps increase a company’s financial position. In the context of AGL Energy Limited and Banks of Queensland Limited, the financial position of the firm is analysed by examination of the general purpose financial report for the accounting year 2016.
AGL Energy Limited – on observation of the annual report, the size and scale of the company significantly increase gradually as the company takes part in large scale sales. The revenue generated increases from an initial value of $7,456 million in 2012 to $11,150 in 2016. However, on analysing the profit margin of the company, it is established that the business entity has experienced a huge level of loss at the end of the financial year of 2016. The rate of percentage change also gradually reduces from $115 million statutory profit out of $7,456 sales to a loss of $408 out of $11,150 revenue.
On the other hand, there has been an overall growth of 11% in the firm with an overall net profit after taxation amounting to $701 million. Based on the result of company growth, a committee known as People and Performance Committee is responsible for rewarding the employees based on the firm’s finances and strategies adopted. The company is entertaining the idea of short term incentives which an employee can obtain based upon the sales and profit growth of the firm. Based on the performance level of the financial year 2016, the employees are liable to obtain 127% of STI. On the other hand, long term incentive plans are in correlation with the share price performances. Along with these benefits, the firm is also responsible for paying the employees a sum amount as fixed remuneration either monthly, quarterly or on an annual basis.
Bank of Queensland Limited – In the case of Bank of Queensland, the banking institution also experiences a growth in the profit level generated as there is an increase from $292 million from $379 million. The organisation also makes considerable effort to minimise its expenses as the level of expenses incurred increases only by a $2 million. In terms of the assets held by the firm, the organisation takes part in investment and increases in the capacity of the asset value from $44,512 to $47,354 million. The level of equity issued by the company also increases from that of the financial year 2015 with a positive difference of $122 million. However, the financial leverage of the firm is highly in favour of the liabilities owed which can affect the company adversely. The risk level of losing money greatly increases and thus investors will also be more likely to hesitate before taking the decision of investing in the firm (Ozdagli 2012).
As per the remuneration report of Bank of Queensland Limited, the statement has been prepared in complete compliance as per Section 300A of the Corporation Act of 2001. The firm takes part in short as well as long term incentive plans and is measured on the standards maintained by the departments of Threshold, target, Superior and Exceptional. Based on the level of performance which is adequately categorised into the individual department, employees are adequately compensated. The categorisation of performance is to be carried based on the employee measurement standards created as per SPMS framework. The rewards are often presented in terms of shares to the employees that are performing under the Exceptional level. The amount due on annual incentive is to be paid to the employee by October and the shares awarded must be released at the end of the accounting year.
With the change in the Australian economy and the introduction of the SPMS framework companies are provided a better opportunity to analyse the level of input contributed by every recruit and to reward them based on their performances (Bititci 2012). However, in this case, both the companies selected for case study do not make any disclosure about the SPMS strategies adopted. Therefore, the governing body responsible for upholding preparation of GPFS namely AASB and IFRS must formulate standards that encourage companies to issue or disclose a certain portion of their SPMS strategies to ensure investor and bring a sense of security in the long run.
Conclusion
SPMS system ensures that the employees meet the goal assigned by the company and the company meet the goal assigned by the strategic plan. . The outcomes of SPMS are as followed: productivity, financial performance, job satisfaction of the employees, product or service quality and satisfaction of the customers. Balanced Scorecardcan be considered as a backbone for managing many other systems. Recently balanced scorecard has gain a lot of popularity as a strategic management tool. Various advantages of SPMS are as followed: every employee is made accountable for his or her own performance, maintains complete transparency, clear methodology for implementation. Most of the performance system still has a strong focus on the bottom line research but performance management system provides us with the comprehensive result. Internal and financial results can be obtained distinctly and are supposed to be more precise in nature. (chand 2017)
Employees keep working hard in order to achieve the goal. There are incentives given to the employees once the goal is achieved by them. If the goal is not achieved by the employees then the goal are modified and made more realistic according to the personal needs of the employees. Maslow classified the needs of the human being in an hierarchy from top to bottom. Maslow stated if the needs of one level are satisfied it no longer motivates employees. Then next higher level of need must be set as a target in order to motivate the employees. There are various extrinsic and intrinsic rewards provided to the employees that help them in motivating to work harder for the success of the company. Various researches and surveys have stated that the use of the reward system by the organization helps in improving the performance of the employees. The motivation and the reward system have been proved to be very helpful to the world of business.
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