2.2 The Enhanced Performance Management Model
2.2.4 Stage two: Performance implementation
The performance management stages discussed so far have focused upon ensuring high employee performance in the current performance cycle and identifying potential goals to challenge the employee in the next performance cycle. Though challenging the employee in the current and next performance cycles is important, rewarding the employee at the end of the current performance cycle is critical (Latham & Locke, 1990a, 1990b; Latham & Wexley, 1994). This is because goal difficulty by itself is not enough to stimulate and sustain employee commitment
(Borgogni & Russo, 2013). The timely receipt of rewards and punishments—i.e., performance consequences—at the end of the current performance cycle promotes employee satisfaction and future goal commitment (Aguinis, 2009; Latham & Locke, 1990b; Podsakoff et al., 1982).
Performance consequences, the last stage of the enhanced performance management framework, focuses on applying rewards and sanctions ultimately to promote organizational commitment through job satisfaction. The idea of promoting employee commitment through job satisfaction is based upon the high-performance cycle, which theorizes that employee satisfaction leads to organizational and goal commitment. During the performance consequences stage, the organization (manager) distributes rewards and punishments in the form of pay increases, bonus, promotions, and terminations (Borgogni & Russo, 2013). The rewards and sanctions can be distributed in two forms: intrinsic and extrinsic rewards (and punishments). Intrinsic rewards are rewards that are offered to an employee by him or herself (Judge et al., 2010; Latham & Arshoff, 2013; Podsakoff, MacKenzie, Moorman, & Fetter, 1990). Conversely, extrinsic rewards are offered to the employee by others (such as the manager or the organization as a whole) (Latham
& Arshoff, 2013). Contingent rewards are based upon the outcome of performance and are awarded based on a merit system (Latham & Arshoff, 2013). Examples are pay raises, bonuses, promotions, and recognition. Non-contingent rewards, on the contrary, are not based upon how well an employee performs but are provided to the employee if minimum performance requirements are met (Cardy & Leonard, 2011; Cascio, 2006; Pulakos, 2009). Examples are base pay, fringe benefits, and seniority awards (Latham & Locke, 1990a).
Both the manager and the employee have important roles and responsibilities during the distribution of rewards and punishments (Latham & Locke, 1990a). The employee’s role and
responsibility are to evaluate the intrinsic and extrinsic rewards to derive personal and job satisfaction and, ultimately, organization commitment (Latham & Wexley, 1994). Rewards and punishments that meet the employee’s wants or values result in job and personal satisfaction (Latham & Locke, 1990a). On the contrary, rewards and punishments that negate or do not meet the employee’s wants and values result in both task and personal dissatisfaction (Latham & Locke, 1990a). The manager has two responsibilities in this phase of the performance management process. First, the manager must identify the kind of rewards (and punishments) the employee values and strive to provide them to the employee if they are sanctioned by the organization (Cascio, 2006). Second, the manager must apply fairness in the procedures used in the distribution of rewards and punishments to employees (Cascio, 2006; Latham & Wexley, 1994). The manager applies fairness by being consistent in the procedures he or she uses to arrive at the type and quantity of rewards and sanctions to employees (Cascio, 2006; Latham & Wexley, 1994).
Employees evaluate intrinsic and extrinsic rewards differently (Latham & Locke, 1990a).
Employees evaluate intrinsic rewards by comparing their performance to their performance goals (Bandura, 2013). Research shows that if an individual’s performance is successful when he or she compares it to his or her performance goals, the individual evaluates the performance positively, leading to high personal and job satisfaction (Borgogni & Russo, 2013; Latham & Arshoff, 2013).
In addition, positive performance evaluations lead to personal pride and a high sense of achievement, compared to negative performance evaluations (Latham & Locke, 1990b). On the contrary, if the individual’s performance is not successful in comparison to his or her performance goals, the individual appraises his or her performance negatively, leading to task and personal dissatisfaction (Latham & Locke, 1990b). According to self-attribution theory, individuals
attribute successful actions to themselves and unsuccessful actions to others (Latham & Locke, 1990a, 1990b). Self-attribution leads to higher satisfaction when the individual achieves success through his or her own efforts than when success is achieved through external factors such as luck (Latham & Locke, 1990a, 1990b; Latham & Wexley, 1994).
The positive relationship between goal attainment and job satisfaction poses a challenge for managers (Klein, Cooper, & Monahan, 2013; Latham & Locke, 2013b). Easy goals produce more satisfaction than difficult goals since easy goals are easier to attain, providing the employee with more satisfaction, compared to difficult goals (Latham & Locke, 1990a). Thus, when goals are set low, employees are satisfied but unproductive, and when goals are set high, employees are productive but unsatisfied (Latham & Arshoff, 2013; Latham & Locke, 1990a, 1990b). A way of addressing this dilemma is setting goals at moderate levels so that moderate levels of satisfaction and performance are attained (Latham & Locke, 1990b). Another way of addressing this challenge is setting combinations of high and low goals for the employee. This way, the employee achieves varieties of high and low personal and job satisfactions (Latham & Locke, 1990b).
Employees evaluate external rewards based on equity—i.e., fairness. According to equity theory, people appraise fairness by calculating the ratio of their output (their external rewards) to their input (their performance) and comparing their ratios to the output-input ratios of others (Latham & Locke, 1990a; Leventhal, 1980). Employees perceive fairness when their output-input ratios are comparable to the output-input ratios of others within and outside the employees’
organization (Latham & Locke, 1990a). When employees perceive fairness, they attain personal and job satisfaction. Conversely, when employees perceive unfairness, they attain personal and job dissatisfaction (Latham & Wexley, 1994).
Employee satisfaction with contingent rewards is positively related to the level of commitment they feel toward their organization (Borgogni & Russo, 2013; Latham & Locke, 1990a). Organization commitment is the consequence of job satisfaction and is defined as ‘(a) the acceptance of the goals of the organization; (b) willingness to exert effort on behalf of the organization; and (c) a desire to stay with the organization’ (Latham and Locke, 1990b, p. 244).
When employees are committed to the organization, they are willing to accept new difficult goals in the next performance cycle in order to repeat the performance management process (Borgogni
& Russo, 2013; Latham & Locke, 1990a; Whittington et al., 2017).