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Managing Employee Performance and Reward Shields
In a sentence
A conceptually integrated treatment of employee performance management and reward management that argues both must be designed and aligned using a 'best fit' strategic approach to elicit desired employee attitudes, behaviours, competencies and results.
Managing Employee Performance and Reward is the first major text to treat the closely connected yet often separately taught fields of performance management and reward management as an integrated whole. Drawing on organisational psychology, strategic management, labour economics, corporate governance and critical management studies, John Shields offers students, managers and HR professionals a conceptually informed yet eminently practical framework for diagnosing, designing and improving performance and reward systems. The book argues against fashion-driven 'best practice' bandwagons and in favour of a 'best fit' approach in which performance criteria, base pay structures, benefits, and individual, collective and executive incentives are tailored to an organisation's competitive strategy, structure, management culture and—crucially—to its employees' psychological contract. Rich in real-world cases (Hewlett-Packard, Lincoln Electric, the Australian Public Service), model solutions, and a balanced, evidence-based weighing of competing theories, it equips readers to avoid the all-too-common pitfalls of performance and reward mismanagement.
The four lenses
- Science
- Statistics
- Systems
- Strategy
The model
A causal-structural model in which design levers (performance management practices and reward/remuneration practices), contextual conditions (competitive strategy, organisational structure, management culture) and the employee psychological contract jointly shape employee attitudes and behaviour, which in turn drive individual, group and organisational outcomes. Strategic alignment ('best fit') among levers and conditions moderates these effects.
Competitive strategycontextual condition
The organisation's chosen approach to competing in its product/service markets (e.g. cost defender, quality defender, analyser, prospector) and its associated key success factors that determine which performance factors must be elicited.
Organisational structurecontextual condition
The framework of roles, relationships and rules ranging from mechanistic (high formalisation, specialisation, hierarchy) to organic (low formalisation, flexible, decentralised, team-based) that conditions which practices fit.
Management culture/stylecontextual condition
Management-espoused assumptions, values and beliefs about employees and how they should be managed, ranging from traditional/low-trust/control to high-involvement/high-trust/commitment.
Performance management practicedesign lever
The design and administration of performance criteria, measurement/assessment methods (results, behaviour, competencies), feedback, review and development that define and direct desired contribution.
Reward/remuneration practicedesign lever
The configuration of total reward—base pay structure and level, benefits, and individual/collective/executive incentives—and the mix of intrinsic, social, developmental and financial rewards.
Strategic alignment (best fit)contextual condition
The degree of horizontal (practice complementarity) and vertical (practice-to-strategy/structure/culture) fit among design levers and contextual conditions; greater alignment is hypothesised to strengthen practice-outcome relationships.
Employee psychological contractpsychological state
The employee's subjective perceptions of the promissory-based reciprocal exchange with the employer, comprising trust, perceived deal delivery and felt-fairness; a key mediating cognitive-affective state.
Organisational justice perceptionspsychological state
Employee perceptions of fairness across procedural (decision processes), distributive (outcomes) and interactional dimensions, central to the state of the psychological contract.
Task motivationpsychological state
The strength, direction, intensity and duration of an employee's willingness to deliver work effort; the most direct attitudinal determinant of task behaviour.
Job and reward satisfactionpsychological state
The overall positive or negative attitude/affective state employees hold toward the job, its context and their rewards.
Organisational commitmentpsychological state
The strength of an employee's attachment to the organisation, comprising affective, normative and continuance components.
Membership behaviourbehavioral pattern
Behaviour reflecting joining and remaining with the organisation—low absenteeism, low turnover, attendance and staff attraction/retention.
Task behaviour (work effort)behavioral pattern
Performance of assigned core work tasks; the actions employees take toward completing assigned tasks (work effort).
Organisational citizenship behaviourbehavioral pattern
Voluntary, altruistic, discretionary effort exceeding membership and task compliance (e.g. helping, initiative, extra customer service).
Employee/organisational performance outcomesoutcome metric
Individual, group and organisation-wide results (productivity, quality, financial outcomes, customer satisfaction, market share) that performance and reward systems ultimately seek to enhance.
How they connect
- performance management practice → influences psychological contract
- reward management practice → influences psychological contract
- performance management practice → influences organisational justice
- reward management practice → influences organisational justice
- organisational justice → mediates psychological contract
- psychological contract → predicts job reward satisfaction
- psychological contract → predicts organisational commitment
- psychological contract → predicts task motivation
- job reward satisfaction → predicts membership behaviour
- job reward satisfaction → mediates organisational citizenship behaviour
- organisational commitment → predicts organisational citizenship behaviour
- task motivation → predicts task behaviour
- organisational commitment → influences task motivation
- membership behaviour → predicts employee performance outcomes
- task behaviour → predicts employee performance outcomes
- organisational citizenship behaviour → predicts employee performance outcomes
- strategic alignment → moderates employee performance outcomes
- competitive strategy → influences strategic alignment
- organisational structure → influences strategic alignment
- management culture → influences strategic alignment
- competitive strategy → moderates performance management practice
- management culture → moderates reward management practice
A candidate measure
Managing Employee Performance and Reward Shields — derived measurement candidates
Competitive strategy
strategy-type classification; R&D/new product development rate; product/market breadth
self-report suitability: medium
Organisational structure
formalisation index; span of control; departmentalisation vs divisionalisation
self-report suitability: medium
Management culture/style
climate/attitude survey indices; presence of involvement mechanisms; union recognition stance
self-report suitability: medium
Performance management practice
proportion of roles with goal-setting; incidence of BARS/BOS/GRS; incidence of 360-degree feedback; existence of development plans
self-report suitability: medium
Reward/remuneration practice
grade/band design parameters; percentile positioning vs market; proportion of pay at risk; benefit coverage rates
self-report suitability: low
Strategic alignment (best fit)
fit-matrix scoring; absence of conflicting reward signals; configuration consistency index
self-report suitability: low
Employee psychological contract
trust index; perceived obligation-fulfilment index; felt-fairness index
self-report suitability: high
Organisational justice perceptions
procedural justice score; distributive justice score; interactional justice score
self-report suitability: high
Task motivation
self-reported motivation/effort; observed persistence; effort allocation
self-report suitability: high
Job and reward satisfaction
overall satisfaction index; reward satisfaction index
self-report suitability: high
Organisational commitment
affective commitment score; normative commitment score; continuance commitment score
self-report suitability: high
Membership behaviour
turnover rate; absenteeism rate; average tenure; recruitment yield
self-report suitability: low
Task behaviour (work effort)
output quantity; output quality; supervisory/peer effort ratings
self-report suitability: medium
Organisational citizenship behaviour
OCB observation ratings; peer-nominated helping incidents
self-report suitability: medium
Employee/organisational performance outcomes
productivity; quality/defect rate; profit/ROA/ROE/EVA; cycle time; customer/employee satisfaction
self-report suitability: low
The story
The reader A manager, HR professional or student who wants to design and run performance and reward systems that genuinely work—eliciting the right attitudes, behaviour and results while being fair to employees.
External problem
Performance and reward systems frequently fail—producing demotivation, distrust, dysfunctional behaviour, fraud, attrition and poor returns—because they are ill-fitted, badly designed or poorly implemented.
Internal problem
They feel overwhelmed by a bewildering array of competing theories, fads and consultant pitches, and fear making costly, reputation-damaging mistakes.
Philosophical problem
It is just plain wrong to copy fashionable 'best practice' blindly or to treat people management as a cookbook exercise that ignores employee well-being, fairness and organisational specifics.
The plan
- Understand the psychological and motivational foundations of employee behaviour and the psychological contract.
- Adopt a 'best fit' strategic lens aligning strategy, structure, culture and practice.
- Choose performance management methods (results, behaviour, competencies) that fit the work and context.
- Design base pay, benefits and individual/collective/executive incentives as an integrated 'total reward'.
- Review, rehearse and roll out changes with attention to validity, reliability and felt-fairness.
Success
- Performance and reward practices that are strategically aligned, organisationally effective and supportive of employee well-being, satisfaction and felt-fairness.
- Stronger motivation, commitment, membership and citizenship behaviour and reduced mismanagement risk.
At stake
- Ill-conceived systems that communicate the wrong expectations, elicit misbehaviour or fraud, erode trust and impair organisational effectiveness.
- Breach of the psychological contract leading to dissatisfaction, attrition and reputational and financial damage.
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