STANDARD-BASED WORK PERFORMANCE

Forces in the workplace such as organizational values, work cultures, and business goals shape the structures, strategies, and human resource processes of most successful organizations. One change emerging from these forces is the development and implementation of work standards. Work standards deliver specific goals to employees, helping them understand exactly what is expected of them in order to earn a fair and equitable pay for their job performance. These work standards also provide employers with a reliable performance appraisal system. This compensation process is referred to as standard-based work performance.

Standard-based work performance came into vogue in the 1990s, when many U.S. organizations began using it in some way. Pay-for-performance, at-risk compensation, and merit pay are other terms for standard-based work performance. Standard-based pay is a form of compensation known as incentive pay. With an incentive pay plan, pay increases are granted to employees based on their rated performance in a given period. Pay increases are granted with the goal of motivating future, and, it is hoped, more productive, performance. Some organizations view standard-based work-performance compensation as a way to change behavior; others view it as a reward mechanism. Clearly for many, "incentive compensation is the motivational tool that drives employees to meet their goals which in turn drives the company to new levels of success" (Human Resource Department Ltd.).

Indeed, an effective compensation strategy is crucial to achieve organizational goals. A key element in compensation strategy is monitoring and improving employee performance and productivity. Compensation & Performance Management stated that among other things, an effective compensation strategy helps a firm recruit and retain valuable employees, ensure equitable pay levels, use compensation as a motivator, and manage compensation costs.

STANDARD-BASED WORK-PERFORMANCE PLAN REQUIREMENTS

Key to success with standard-based work performance in an organization is to have the appraisal system backed by a clear sense of corporate purpose. Thus, designing and implementing a new compensation program and appraisal system requires a great deal of planning in deciding what action management wants to elicit from employees. Obviously, organizational and corporate culture and management styles will determine how to implement the changes in compensation. Generally, priority may be given to corporate strategy rather than to industry standards when developing pay plans. A two-tiered approach, however, may be the best choice in order to develop goals appropriate for both management and labor.

Another issue to consider regarding the organizational culture is whether to promote teamwork or individual effort. The goals of each are very different and must be clearly stated. If compensation rewards are to be based on the effectiveness of the team's work rather than individual effort, the organization needs to help employees learn to function as members of a team.

An organization must also decide whether performance-based compensation is practiced at only executive and middle-management levels or at all employee levels. This decision is critical as it determines the type of training required throughout the organization.

Standard-based performance is based on the assumption that performance can be measured. It is difficult to objectively measure job performance in many positions. William Abernathy with Organizational Performance Systems suggested that poor measurement is one of the reasons results vary when organizations implement incentive pay plans. Abernathy suggested five measurement problems that can affect the success of an incentive pay compensation plan. The measurement problems are:

1. Subjective measures: Use of subjective versus objective measures fails to provide to the employee important information needed to improve performance
2. Multiple measures: Measure fewer and more important job responsibilities
3. Group measures: Group measures are more successful with smaller groups (fewer than 15)
4. Process measures: Typically, outcomes should be the target of the measurement, not processes
5. Uncontrollable measures: Unfair to employees to be measured/evaluated on outcomes over which they have no control

Successful performance-based pay plans have three common qualities. They must be clearly communicated to employees, they must include an annual review of the plan, and they need appropriately ambitious goals. Abernathy suggested that these are common communication problems:

• Employees do not understand the system
• Feedback is delayed
• Recognition is for goal achievement only—none for improvement
• Measures and goals are changed frequently
• Closed-book management—information is not shared with employees
• Employees do not know how to improve—education is critical

Abernathy also suggested that management problems may contribute to a lack of success with standard-based work performance. Failure happens when managers do not manage to measure, do not coach employees, do not support the system, do not negotiate measures and goals, and do not help design performance improvement plans.

In sum, effective communication up and down the chain of command is key to a successful standard-based work-performance plan. The plan is also something that must be jointly developed between manager and employee to not only establish clear goals but also establish appropriate measurement strategies.

STANDARD-BASED WORK-PERFORMANCE THEORIES

Four psychological theories address how work standards relate to work performance. The psychological expectancy theory suggests that standard-based work performance is likely to motivate increased performance when performance is necessary to attain a pay increase. The theory states that for the performance-based pay plan to be successful, performance must be accurately measured, pay must be a valued outcome, pay must be made contingent on performance, and the employee must have the opportunity to have an impact on performance.

The psychological reinforcement theory suggests that standard-based performance should motivate increased performance when the outcomes of favorable performance are clearly defined to the employee, the rewards are contingent on a desired performance, and compensation is increased in a timely manner when performance improves.

The psychological equity theory suggests that standard-based pay will increase employee motivation when it leads to perceptions of equity by the employee. It requires an organization to shift from valuing seniority to valuing performance inputs and basing compensation on performance rather than years of employment.

The psychological goal-setting theory suggests that standard-based performance increases motivation when it is the result of setting more-difficult goals and demonstrating a commitment to reach these goals. Goals should be weighted by difficulty, and compensation rewards should be given based on degree of difficulty of the goal achieved.

As stated earlier, examining performance in terms of measurable outcomes is key to a pay-for-performance plan. Employees must know what will determine a pay increase: the manner in which the work performed is being measured, the work itself, or the factor to be measured.

EXAMPLES OF STANDARD-BASED WORK PERFORMANCE

Many examples of work standards exist in business today. Compensation experts say the key is to design a plan that enforces the goals of the organization and to regularly evaluate the effectiveness of the plan. Compensation & Performance Management reported these benefits of pay-for-performance plans:

Increased productivity and efficiency

Better understanding of goals

Clearer communication

Improved collaboration

Successful retention

The standard-based work-performance plan used by the Ford Motor Company measures quality using warranty figures expressed as repairs per thousand vehicles and both short- and long-term customer satisfaction.

In the late 1990s, Sun Microsystems started tracking quality of customer loyalty and customer quality. Employees understand that the corporation's overall success will affect their compensation. Employees know their annual bonus is based on a reduction in customer dissatisfiers (such as late delivery, software defects, and poor product quality) and an increase in customer loyalty. The idea for the Sun Microsystems plan emanated from quality benchmarking strategy meetings of chief executive officers of Sun Microsystems, Federal Express, Motorola, and Xerox. The successful standard-based work-performance plans of these companies have three qualities in common: clear communication with employees, annual plan reviews, and appropriately ambitious goals.

Employees must have a clear idea of the organization's goals, how their jobs factor into meeting those goals, and how they will be rewarded for doing their part to achieve the goals. The degree to which an employee is accountable for results on the job is the amount of control or opportunity available to the employee. Standard-based performance focuses on the importance of providing accountability for work performance. Goals and compensation should be assessed, reviewed, and updated at least once a year.

LAYING THE FOUNDATION

When an organization hires new employees, the assumption is often made that the employees have the requisite technical skills needed to get the job done. Nevertheless, the notion of a skill being performed to a particular standard may not have been part of the novice employees' education and/or training, to say nothing of the employees considering their skill levels being tied to compensation. Thus the notion of developing standards as a route to accountability and increased job performance slowly emerged.

In 1994, Congress created the National Skill Standards Board (NSSB) to develop a voluntary national system of skill standards, assessment, and certification to enhance the ability of the United States to compete effectively in the global economy and to increase opportunities for America's workers (American Youth Policy Forum)

The American Youth Policy Forum also reported that skill standards were being developed across a number of industries, starting with the manufacturing industry sector and the sales and service industry sector. Skill standards tell the student and teacher not only the specific skill required, but also the level at which the skill must be performed.

The state of Texas, for example, has developed a skill standards program to guide the incorporation of industry-specific skill standards into the curriculum in technical and community colleges throughout the state. The Texas program suggested skill standards are comprised of seven essentials, divided into three parts:

1. Work-oriented elements:
   • Critical work functions
   • Key activities
   • Performance criteria
2. Worker-oriented elements:
   • Occupational skills, knowledge, conditions
   • Academic knowledge and skills
   • Employability knowledge and skills
3. Evaluate performance:
   • Statement of assessment

In summary, standard-based work performance is an extraordinarily useful tool for both management and employees to set both workplace expectations and measurement strategies. Postsecondary education can serve a unique role in including skill standards-based instruction throughout their programs of study.

see also Employee Compensation ; Performance Appraisal ; Productivity

bibliography

Abernathy, William (n.d.). Obstacles to the effective execution of an incentive pay system. Organizational Performance Systems. Retrieved December 1, 2005 from http://www.organizationalsystems.com/articles/incentive-payobstacles.cfm

American Youth Policy Forum. (2002, February 1). National skill standards board: Integrating manufacturing skill standards into education and training programs. A forum brief. Retrieved November 23, 2005, from http://www.aypf.org/forumbriefs/2002/fb020102.htm

Compensation & Performance Management. http://www.compensation.com/servicescompstrategy.cfm

Heneman, Robert L., and Werner, Jon M. (2005). Merit pay: Linking pay to performance in a changing world (2nd ed.). Greenwich, CT: Information Age.

Human Resource Department Ltd. (n.d.) Incentive plans (pay for performance). Retrieved November 23, 2005, from http://www.thrd.com/services/incentive_plans.php

Texas Skill Standards Board. (n.d.). A user's guide: Incorporating skill standards into community & technical college curriculum. Retrieved November 23, 2005, from http://www.tssb.org/wwwpages/pdfiles/TSSBUsersGuide1.doc

Wanda L. Stitt-Gohdes