Performance Management at XYZ Limited: Bonus Scheme and Alternatives

This report provides an in-depth analysis of the performance management system at the Irish subsidiary of XYZ Limited, focusing on the potential implementation of an employee bonus scheme. It begins by outlining the advantages of such a scheme, including increased employee motivation, improved company reputation, and enhanced employee loyalty. However, the report also acknowledges the disadvantages, such as potential financial strain on the company, the risk of employees becoming overly expectant, and the possibility of decreased productivity after bonus periods. The report then proposes alternative recommendations for improving performance management, such as team-based bonuses, individual incentives for sales staff, and rewards for extraordinary performance. The report emphasizes the importance of careful design and implementation of any bonus scheme, considering factors such as eligibility, performance evaluation, and the setting of realistic targets to maximize employee effort and satisfaction. The overall goal is to help XYZ Limited improve its profitability and address issues related to disappointing sales, defective products, and management effectiveness.

PERFORMANCE MANAGEMENT AT XYZ LIMITED
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Table of Contents
Introduction......................................................................................................................................3
The Advantages of Employee Bonus scheme in the XYZ LTD.....................................................3
The Disadvantages of Employee Bonuses in XYZ Ltd...................................................................4
The alternative options for improving the performance management process in XYZ Limited.....8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
Performance management is considered as one of the major operational areas of an organisation
which help in developing the performance standard of the employees to achieve the business
objectives. However, the performance standard of the employees can be analysed from
organisational profitability and productivity. The Irish subsidiary of XYZ Limited is failing to
increase its profitability due to some important reasons. The disappointing sales rate, defective
product rate and an effective middle and supervisory management are the areas, which the
organisation wants to improve by introducing bonus schemes. It is a proven as beneficial way
according to the US owners of this organisation and therefore bonus plan will be designed
accordingly in this study. The final section will be reflecting on the other type of alternative
recommendation, which can be used by this virus subsidiary to improve the performance level
and minimise the identified problems.
The Advantages of Employee Bonus scheme in the XYZ LTD
The most observed advantage of a bonus scheme in a company is the employee's appreciation
and motivation to them. A bonus helps an employee pay their extra bills or have a nice vacation
at the year-end. An employee who enjoys every year starts expecting bonuses whether it is more
or less based on the profitability of the company they are working. This increases their
motivation and dedication to some great extent at least in the final months of a typical year. The
bonus scheme also changes the perspective of an employer in an organization as after
announcing the bonus they feel that they have made a contribution to their employees for their
dedication and hard work for the company (Ahmed et al. 2016). This improved morale of an
employer gives a strong message to the job seekers about the reputation of the company
Companies who even do not pay high salaries to their employees also can attract well-qualified
job seeker through this gesture inside their organization. Because every job seeker wants to work
for a company where their values are appreciated by the employers and are rewarded
accordingly. This brings the assumption of job satisfaction in the mind of a job seeker. So
accordingly the XYZ company can earn reputation and respect and they can send a strong
message to their employees that they care for them. The decline of performance in their Irish
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production division might get motivated to improve their performance and accountability for
making the profit for this organization (Bianchi, 2016).
Another advantage of the bonus scheme is it gains the loyalty of an employee towards the
organization. An employee who gets a handsome package of bonus every year or quarterly is less
likely to switch to another job or organization. Which means bonus scheme can also be used for
employee sustainability. Also, bonus scheme brings healthy competition in between each
employee if the bonus is paid according to their performance.
Bonus scheme will also increase team collaboration. For instance, if XYZ company set bonus or
incentive after a specific production figure is crossed and the minimum wastage of product due
to faulty manufacturing, every employee will cooperate an help each other as they know that if
they want the incentive then everyone has to perform. This brings a healthy and friendly
environment in the workplace (Bititci, Cocca and Ates, 2016).
The Disadvantages of Employee Bonuses in XYZ Ltd
Bonus scheme generally has a disadvantage on the employer's side only. To start with, one of the
biggest disadvantages to the employer is a massive fall in turnover rate due to the
disembarrassment of funds for the bonus scheme. This, in turn, affects a company's revenue as
the bonus scheme doesn't have any possible returns from them and thus it is expenditure for a
company and not an investment. Also, people who are not happy with XYZ company may wait
for the year-end bonus to come and leave their company immediately turning in their resignation.
some employees may start expecting the year-end bonus to come as an increase in their pay
packet and may start asking to retain them throughout the year. They can get the bonus over that
package (Buckingham and Goodall, 2015). And if the company doesn't agree to do so then they
start feeling deprived by the company, even after getting the bonus. This, in turn, reduces the
morality. So the bonus scheme can make employee morale also to be over expecting.
Another disadvantage for the XYZ Company of introducing a bonus scheme is if the bonus is
given to the employees on the basis of their performance. Some bonuses are paid quarterly
instead annually on performance and production. This kind of bonus scheme, in turn, boosts the
motivation or morality to perform for that specific period only and when the bonus is paid and
the period expires, they tend to slow down or decrease their productivity (Conrad, 2015). They
are not eligible for a bonus every month. This type of increase and decrease of morality and
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productivity can cause the XYZ companies business costly as they are already making losses
every year and their sales are decreasing.
Again bonuses are paid in a different mode like goal related incentives, profit sharing,
performance related, holiday bonuses etc. every employee always may not get the same amount
of bonuses. They get according to their designation also. This is where sometimes dissatisfaction
of job comes to play in an employee's mind. It also makes their morality down even when they
get paid the bonuses. Employees get jealous of each other's good fortune. Though some
employers give the same amount of bonuses to their employees the large part of them stay away
from paying the same amount to everyone (Cooper, Ezzamel and Robson, 2019). In both cases,
there are issues like fairness. Also here comes the seniority factor. If an XYZ companies
employee is working there for 8 years and another has just worked for 2 years but the senior
employee is not a performer or has issues with working quality and the 2-year-old employee a
skilful performer he should get more sharing of the bonuses. But that doesn't happen all the time
as there is some system where bonuses are paid by seniority. Which in turn demoralize the
performing employees and they will start less performing. Also, this would bring satisfaction in
the job rate down.
Rewards are a necessary instrument to motivate the employees at a different level. But the bonus
scheme needs to be designed carefully as thee will attempt of manipulation t earn the bonus.
Both the management and the auditor who are responsible for designing should be aware of these
things that no one can manipulate the bonus payment scheme and take advantage of it.
Financial result reflecting profit or loss is needed because bonus schemes are most if the time
span is short between achieving the desired target and payment of the bonus accordingly. The
basic design for a bonus plan for this company XYZ LTD should be based upon who is eligible,
how their eligibility is could be determined and how a unit’s total bonus should be calculated
considering an individual contribution (DeNisi and Murphy, 2017).
In case of eligibility for the bonus scheme, employees of the XYZ ltd should be thoroughly
scrutinized and only those people should get the incentives whose performance has live up to the
expectations. The performance should have a significant impact on the result of an organizational
goal.
To achieve the desired result the manager of XYZ LTD should carefully decide the amount to be
paid in the mode bonus, that it should be significant enough to motivate the employees of the
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Irish set-up. They have to keep it in mind that there should be several types of bonus scheme for
the employees. Such as for the production line, team bonus system should be considered.
Because in the production line the employees are responsible from production to packaging is
150 in XYZ LTD, they need to do the job together and that is the reason there is no scope of the
individual bonus scheme. They should be given a team bonus scheme so that they are
encouraged to do the job efficiently together and as a result, the production quantity and quality
should be at the optimum level. Bonus should be made on the basis of production quantity and
minimal waste (Ewenstein, Hancock and Komm, 2016). On the other hand, the sales department
should be treated individually in terms of the bonus scheme as their contribution individually
matters. They should be given a target sales figure, which if they cross they would be eligible for
the bonus scheme. also, administrative people should be treated as a team. because their
individual performance doesn't significantly impact the company's interests.
Again the management has to keep it in mind that if the amount which is paid in the form of
bonus to the employees should be enough or else It will never going to moralise them to increase
their efficiency and urge to work dedicatedly. Most of the company's offer 40-50% of the salary
as an amount of bonus to be paid to the performing employees. This, in turn, motivates and
encourages them to perform more for the company and generate the desired result. This type of
bonus scheme actually generates a powerful motivation and job satisfaction in the employees.
XYZ company should think over this before planning and allocating any amount to be paid as
bonuses to the employees (Faisal et al. 2015). Even if the Irish set up is not performing at this
moment, an effective bonus scheme might make them start again with a new dimension and
passion to thrive for more perfection and achieve the target.
In case of the bonus, the organization can be given as a team bonus or group bonus, earning that
bonus is not about individual effort but achieving the entire unit's goal together. Here an
individual's performance doesn't impact the target of the company. Suppose a guy in the material
handling division works efficiently bt the other workers of the division doesn't perform that way,
then the ultimate target of the company to produce a required number of the product is not
achieved. In that case, given that specific person who had a great performance in the handling,
division bonus is not at all reasonable. So the group bonus scheme to make all of them works
hard and achieves the target together (Gerrish, 2016). On the other hand, a single person’s sales
figure can actually impact a company's profit figure so in the sales or marketing division
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individual incentive should be considered. And it is effective as the XYZ LTD marketing
department is lagging behind even in a strong market.
Extraordinary Performance
In many programs, a provision is made for rewarding extraordinary performance if the top of the
target range is exceeded. Extraordinary performance should be subject to critical scrutiny, as it is
frequently not real (Kuvaas, Buch and Dysvik, 2016).
Again there should be the provision of rewarding the extraordinary performer of the XYZ LTD
who reaches a lot beyond the target set by the management. They should be rewarded s
handsomely that they could become the role model and inspirations to other employees in XYZ
LTD. It might initiate a healthy competition between the employees.
The target of a bonus scheme should be to motivate maximum efforts. Too high targets for the
Irish set-up of XYZ LTD could be viewed by the employee as unattainable who will lead to
disappointment and dissatisfaction and the decrease in mortality (Leisen, 2015). On the other
hand, if the target set by the management is too low then also it generates an adverse effect. the
target are viewed as "in the bag" type of mentality by the employees in an organization. It also
encourages an indolent attitude among the employees. Target should be like not so easy but
attainable stage.
Als another point should be in the mind of the XYZ LTD that whatever target they set for the
employees to reach for the bonus bag should be understood by them easily. Clarity in this
process is necessary otherwise it will create confusion in employees. Which in turn again
demoralize them (Noe, Hollenbeck, Gerhart and Wright, 2017). The employees of the Irish set-
up of XYZ LTD should be included in the bonus scheme related meeting and their suggestions
should be taken seriously. If any of their proposal or suggestion is rejected by the management
the clear statement of the refusal should be made. Otherwise, it will rise disputes a result in
unproductive hours and also demoralizing for the employees.
Bonus can be considered as a reward to the performing employee of a company to motivate
them. Or sometimes companies share their risen share with the employees. (Richards, Yeoh,
Chong and Popovič, 2019) Some company just shares their wealth with the employees just as
good gesture towards them. As well a high performing individual or team may get also bonuses
after their annual review.
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The alternative options for improving the performance management process
in XYZ Limited
The identified problems primary creating a concern related to the performance management
within the Irish subsidiary of XYZ Limited. Bonus and reward schemes always consider as one
of the most influential ways for managing performance. But there are also other useful
techniques, which can be used by the high-level management for improving performance
management.
Job design- The job designing process includes the personal specification for every job role. The
different level of these organisational employees has different type of requirements in terms of
technical skills, interpersonal skills, courses and degree (Smith and Bititci, 2017). Therefore, the
focus needs to give on the process of designing the job for the production level, delivery level,
sales level and marketing level according to the need of this manufacturing organisation.
Technical abilities will get the highest priority in this process.
Recruitment process- Skillful labours recruitment is one of the basic requirement for any
manufacturing organisation including XYZ Limited. Recruiting more number of the skilful level
will automatically increase the productivity of the organisation which will simultaneously
increase the profitability. That is the major reason why a very specific requirement process leads
to a design by the high-level management of this organisation. Technical abilities and
interpersonal skills need to verify from every candidate who has applied for a specific job role.
However, aptitude test, technical ability, the experience of the same kind of job, understanding
the organisational objective and vision need to analyse in the process of recruitment (Torsvik,
2017).
Selection process- the Selection process is counted as the most essential part of hiring an
employee for which technical ability to be the first priority. For selecting an individual for a
specific department their understanding and working ability in this determined need to be
examined. For selecting the employee’s face to face interview is highly required where the high-
level management will understand the potential of the employee which can contribute the
organisational productivity.
Training process- For the process of performance management providing periodical training is
required to develop skilful employees is required (Van Dooren, Bouckaert and Halligan, 2015).
It has been analysed that the training process is highly required for the production and packaging
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level, which can increase productivity. Besides that, the warehouse management includes proper
training for arranging the products. Using modern technology, like small robots can also useful
for developing a better warehouse system. It will increase the rate of productivity and minimise
problems from the manual processes are used by this organisation. Training will also be required
to understand the operating process of using this type of modern technology.
Continuous monitoring and coaching- finally the performance management process need to be
proper monitor by the high-level Management process. Using Human Resource Management
software is also useful for developing a better monitoring process for XYZ Limited. It will be
useful for analysing the performance of the employees and rating it. Depending on the rating
given by the software the improvement can be measured easily. This monitoring process will
help the management to understand the required area, where the employees need coaching. After
measuring the performance development continuous coaching is required where their employees
are given direction to work more appropriately to achieve profitability in future (Yin and Chen,
2015). The monitoring and coaching process is also similar to enhance the potentials within the
employees which can easily improve their performance.
These alternative identified options can be used by XYZ Limited to increase the performance of
the employees which will create a better performance from the organisation. However, the bonus
scheme and reward program generally increase the motivation level of the employees and the
employee tries to achieve personal benefits by improving their performance. This process is
directly related to the organisational profitability increase. The use of alternative ways is also
directly related to the process of improving the performance management process. Among which
providing training for minimising the identified problems like defective products, decreasing
sales and supervisor or middle-level management increase the credentials. The motivational
theory identifies that the psychological needs and personal needs always come in the bottom of
The Maslow's hierarchy pyramid. Therefore an individual or employee can increase their
performance more effectively for their personal needs. From the scenario, it can be said that
bonus games and rewards are always the most effective way for the talent of performance
management but the other alternatives are simultaneously useful to provide more productivity
and profitability for the organisation XYZ Limited.
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Conclusion
In light of the above discussion, it can be apprehended that bonus is always useful for improving
employee performance. The design bonus scheme for every level of this organisation will going
to improve the job satisfaction and organisational commitment of the employees. With the
enhancement of employee engagement, the production level and other operational levels will
start to work in the process of improvement. But the subsidiary of XYZ Limited has to
understand that there are also alternative ways which are equally beneficial than providing a
bonus scheme to the employees. However, it is not always about the decreasing level of job
satisfaction or commitment, but the cause of these identified problems can also occur from
unskilled labours or proper training. Therefore, the Organisational Management system also need
to focus on the process of job design, organizational recruitment and selection process, employee
orientation and training.
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