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Sometimes ‘Pay for Performance’ Just Isn’t Enough

The practice of pay for performance has proven very effective since HR and management professionals began implementing ‘management by objectives’ (MBOs). It’s fairly predictable that if talented professionals are given clear objectives, and a strong enough financial incentive, they will work hard to achieve them.

But the process of managing performance is a lot more complex than just balancing objectives and incentives. Motivated professionals will pursue aggressive means to achieve challenging objectives if the right incentives are in place. But what does the objective tell employees about how to achieve the desired result? News reports have shown that recent corporate and financial industry collapses have been caused not by the failure to meet objectives, but by the overly aggressive pursuit of results – and compensation systems that actually rewarded bad behavior. One of my earlier posts discussed how Talent Management is different from other ERP and HCM processes because it’s possible to automate the process without achieving any beneficial business result – you can end up with a ‘garbage in, garbage out’ scenario if the decisions made about talent aren’t accurate and equitable.

SAP has taken a closer look at Performance Management, and made significant changes in Enhancement Package 4 which should help managers make better decisions while engaging with this process. For starters, there’s a new user experience that is much improved over previous releases. We’re also providing improved integration to other talent management processes: appraisal results feed a comprehensive Talent Profile that provides a more complete, three-dimensional view of an employee. Support tools like profile matchup allow managers to check an employee’s suitability for jobs further along in their career path. Calibration tools provide real-time simulations of the Compensation impact of Performance appraisal results. Additionally, there is better support for companies to centrally define not just objectives, but corporate values – and cascade them to the entire organization.

Cascaded goals and values can also support employees who create their own objectives, which they can now align back to goals assigned by management. This highlights the relevance of the individual goal to the organizational strategy.

As seen in the screen shot below from the Talent Management Specialist role in Enhancement Package 4, there is a very simple process for creating corporate values centrally and cascading them to the organization. In the system, values differ from corporate goals in that they do not have specific KPIs for measurement:


Creating and Cascading Goals and Values in EHP4 




















As Nish Pangali, an SAP Product Manager in this area puts it: “Core values are fundamental to a company’s culture. But our customers want them to be codified in employee goals and objectives, not just printed on the back of their ID badges”.

Enhancement Package 4 Performance Management gives some strong support for achieving corporate targets while staying focused on corporate values, with a user experience that makes managers and employees alike more comfortable with the overall process.

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  • Hi Harry,

    Very important and pragmatic blog about how HR can influence values-based governance at the operational level with performance management that aligns behavior with actions. There is a lot of research work on the role of functional departments in deploying governance that permeates the business. Yet, organizations still seem to be missing the boat when it comes to leveraging applications, like performance management, to institutionalize goverance at the user level. The research work that is based on some observed examples as well as anecdotal information and in relevance to your blog, provides a picture of the business governance relationship between IT and HR and the tremendous value that this relationship brings to the table.

    Acting on behalf of the corporation, the role of the HR department in governance is to set up the systems that will educate and influence ethical and legally compliant by the every level of the workforce and throughout each step of the employee life-cycle (Daily & Brookmire, 2005). HR’s role is critical to an organization’s ability successfully execute on strategies (Ulrich & Beatty, 2001). HR influences success by attracting, recruiting, hiring, developing, and retaining the right employees to do the right work and make the right decisions at the right time (Ulrich & Beatty). HR is also responsible for defining, governing, and executing on ethical exit strategy practices by employees and the corporation (Daily & Brookmire; Ulrich & Beatty).

    As you point out with the use of performance management tools, the HR organization is also responsible for enabling employees at all levels with the right tools and knowledge needed for ethical and compliant decision-making (Daily & Brookmire, 2005; Ulrich & Beatty, 2001). Through policies and procedures that provide guidelines of ethical behavior, HR ensures that employees are empowered to make decisions and take actions that are aligned with corporate goals, a common vision, and shared values and compliance requirements (Beatty, Ewing, & Tharp, 2003; Daily & Brookmire).

    Governance is established through checks and balances to ensure that the organization is compliant with regulatory and ethical standards (Downes & Russ, 2005). As an enabling function, the role of the IT organization is to ensure that the technology strategy is aligned with the business and delivers value (Brent & Petrick, 2007; Thibodeau, 2007). Technology enables to institutionalize the governance plan and grants critical insight into exceptions and risks (Brent & Petrick; Thibodeau). IT governance is put into place to aid the enterprise to meet objectives, keep direction, achieve compliance requirements, and understand roles and responsibilities (Brent & Petrick; Thibodeau). The data and information gathered from exception risk reports will give leaders insight into breaches of ethical codes (Brent & Petrick; Thibodeau). The exceptions should be addressed at regularly scheduled operational and strategic governance meetings, enabling regular insight by all levels of management (Brent & Petrick; Dalton & Dalton, 2006; Thibodeau).

    The use of best practices may aid IT in establishing and sustaining governance. Control Objectives for Information and related Technology (COBIT) are established best practices for the practice, management, and governance of information technology in organizations (Lainhart, 2000; Thibodeau, 2007). COBIT provides a governance framework that makes the link between IT and business requirements, organizes activities into process models, identified IT resource requirements and roles, and defines control objectives and mechanisms (Lainhart; Thibodeau). Maturity models and metrics are provided in COBIT to aid IT in measuring the effectiveness and efficiencies of IT governance and management (Lainhart; Thibodeau). COBIT directs IT governance plans to include the assurance of the value of IT in managing IT-related risks such as data-privacy, increasing control over information, and increasing compliance risks, and mitigating risks through analytics capabilities (Lainhart; Thibodeau). The ultimate goal for IT governance is to enable the organization to satisfy the quality, fiduciary and security requirements and similar compliant frameworks while optimizing enterprise information to achieve business value (Lainhart; Thibodeau).


    Beatty, R. W., Ewing, J. R., Tharp, C. G. (2003). HR’s role in corporate governance: Present and prospective. Human Resource Management, 42(3). Retrieved July 14, 2008 from EBSCOhost database.

    Brent, A. C., & Petrick, Werner. (2007/June). Environmental impact assessment during project execution phases: towards a stage-gate project management model for the raw materials processing industry of the energy sector. Impact Assessment & Project Appraisal, 25(2), 111-122. Retrieved January 28, 2008 from EbscoHost database.

    Daily, P. R., & Brookmire, D. A. (2005). Back to our future: Challenging new compliance and leadership accountabilities for human resources courtesy of Sarbanes-Oxley. Human Resource Planning, 28 (3), 38-44. Retrieved June 30, 2008 from EBSCOhost database.

    Dalton, C. M., & Dalton, D. R. (2006). Corporate governance best practices: The proof is in the process. Journal of Business Strategy, 27(4), 5-7. Retrieved June 30, 2008 from Emerald database.

    Downes, M., & Russ, G. S. (2005). Antecedents and consequences of failed governance: the Enron example. Corporate Governance, 5(5), 84-98. Retrieved February 16, 2008 from Emerald database.

    Lainhart, J. W. (2000). COBIT: A methodology for managing and controlling information and information technology risks and vulnerabilities. Journal of Information Systems, 14(1), 21-26. Retrieved June 30, 2008 from EBSCOhost database.

    Thibodeau, P. (2006). IT auditors turn to Cobit for Sarb-Ox guidance. Computerworld, 40 (20). 9, Retrieved July 15, 2008 from EBSCOhost database.

    Ulrich, D., & Beatty, D. (2001). From partners to players: Extending the HR playing field. Human Resources Management, 40, 293-307. Retrieved July 10, 2008 from ProQuest database.

      • Patti’s research is going into a dissertation I think, but I certainly like seeing it on my blog. Thanks for this info and the references look very useful!