Managing Employee Performance (Cambridge (CIE) A Level Business): Revision Note

Measurement of employee performance

• The effectiveness of a business's workforce can be measured in a number of ways, including

  • Labour productivity

  • Absenteeism

  • Employee costs as a percentage of turnover

• These metrics are compared over time, between functional areas, branches or outlets, or against competitors

• They can provide the basis for workforce planning and performance management

1. Labour productivity

• Labour productivity measures output per worker during a specified period of time

  • It is expressed as a number of units and calculated using the formula

• Businesses aim to increase the level of labour productivity to improve competitiveness

The link between high labour productivity and competitive edge

2. Absenteeism

• The absenteeism rate is a measure of the proportion of staff were absent from work during a specific period of time (e.g. a day, week or month)

• It is expressed as a percentage and is calculated using the formula

• High levels of absenteeism can cause several problems for a business, including

  • Absence due to illness requires sick pay to be paid

  • Hiring temporary staff to cover for those absent increases costs

  • Output is likely to be temporarily reduced if staff are key to production process

  • Other staff may become demotivated if they have to constantly cover for absent workers

  • A wider culture of absenteeism may develop

3. Employee costs as a percentage of turnover

• This metric shows how much of a business’s revenue is spent on paying employees

  • It helps assess how efficiently the workforce is being used

• It is calculated using the formula:

Causes and consequences of poor employee performance

Causes of poor employee performance

• Skills gaps

  • Weak recruitment or training means staff lack the skills or knowledge to do a job properly

• Low motivation

  • Poor pay, little recognition or limited career prospects may cause employees to make less effort with their work

• Weak management

  • Unclear goals, poor communication or inconsistent feedback can confuse staff, reducing their productivity

• Unsuitable working conditions

  • Unsafe, uncomfortable or poorly equipped workplaces can reduce output

• Personal issues

  • Health, stress or family problems can distract employees from work

Consequences of poor employee performance

Strategies for improving employee performance

• Key HR objectives include

  • Raising labour productivity, as this lowers labour cost per unit, improving business competitiveness

  • Reducing absenteeism, as this can reduce training costs and overtime payments, and can build a positive team spirit

  • Reducing labour costs as a proportion of revenue, as this increases efficiency and lowers unit costs

Ways to improve employee performance

Financial rewards

• Paying workers more or sharing profits may increase commitment and effort, leading to higher output and productivity

• Bonuses and commissions are only paid when they have been earned or if targets have been met

• Attendance and loyalty rewards may improve the intrinsic motivation of workers as they feel valued

Employee share ownership

• Rewarding senior executives and managers with shares may increase their commitment to achieving objectives

• Employees who own shares in the business may work harder and take less time off as they have a financial stake in the success of the business

Consultation

• Consultation involves managers obtaining the views of employees when making decisions

• Workers are likely to feel more involved within the business and work hard, and may be less likely to take days off work

Empowerment

• Providing employees with autonomy and responsibility to make their own decisions and work on their own behalf encourages them to use knowledge and experience and develop their own solutions

• Workers must be properly trained and equipped with the necessary resources to be properly empowered

• Leaders need to be prepared to hand over authority and focus on providing encouragement, praise and feedback