PERFORMANCE MANAGEMENT PRACTICE OF ROYAL DUTCH SHELL

PERFORMANCE MANAGEMENT PRACTICES OF ROYAL DUTCH SHELL

INTRODUCTION

 Shell brand name enjoys a 100-year history, dating back to 1899 when Asiatic Petroleum, began importing kerosene oil from Azerbaijan into the subcontinent. It is a global group of energy and petrochemical companies. Currently it is operating in 140 countries and territories and employs around 108,000 people worldwide. Shell explores for and produces oil and gas to create essential products from them, such as fuels and petrochemicals. Currently its exploration and production network has been expanded across 38 countries worldwide with employees around 17,500, along with a further 10,000 contractors and joint venture employees. Shell has also pioneered the gas industry for more than 30 years. It’s now one of the largest equity producers of natural gas with a fast-growing presence in the Power business. Shell emphasizes a lot on its core values. These values are honesty, integrity and respect which have formed the basis of its General Business Principles for 30 years and remain as important as ever. The company is convinced that its short- and long-term business success depends on finding environmentally and socially responsible ways to help meet the world’s future energy needs. It also has downstream classes of businesses (manufacturing, supply and distribution, retail, business to business, chemicals and lubricants businesses), trading and shipping business within the Shell Group and Global solutions which provides business and operational consultancy, technical services, and research and development expertise to the energy industry world-wide. The strategy of Shell is more of an upstream and profitable downstream. The company aims to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world’s growing demand for energy. 

STRATEGY ADOPTED BY HR

HR professionals of Shell continuously work hard to enhance the performance and long term sustainability of Shell. HR collaborates with the business leaders around the world. It solves employee issue and supports their interests. It implements robust processes and procedures along with effective functional strategic plans to deliver better business results. However, there is one hindrance of establishing a shared understanding of their role within the HR function. There is one unique strategy named as plan, carried out by HR known as ‘More Upstream and Profitable Downstream’. This plan clarifies the functional accountabilities and has the capability to bring any fundamental transformation within the organization. This plan is central part of functional leadership role at Shell and is directly related to the overall strategy.

PERFORMANCE MANAGEMENT SYSTEM: A GENERAL PERSPECTIVE

Performance Management System is the heart of any ‘people management’ process in the organization. Performance Management involves the careful selection of employees communication of work expectations, monitoring of performance, feedback and support for ongoing development and recognition for excellent performance. It enhances organizational success through increased employee clarity regarding organizational goals and individual contributions towards goals. A unified approach to performance management—one that ties together the organizational and individual aspects.

COMPONENTS OF PERFORMANCE MANAGEMENT

Performance management is an amalgamation of five missing linkages. These are combined together through the organizational and individual aspects. These core components include: Align the objectives, resources and budgets of the different parts of the organization and the goals, opportunities and quotas of individuals. Measure organizational and individual performance. Reward individuals for performance. Report organizational and individual performance. Analyze organizational and individual strategy execution.

Alignment

An organization consists of business units, departments and divisions, each with its own set of objectives. Alignment must exist between the objectives of the various organizational entities and the strategic objectives of the organization itself. This grouping must be frequently adjusted — at least quarterly — in response to new objectives, changes in the business environment or problems with achieving current objectives. Aligning employees involves cascading strategic objectives down to all levels of the workforce. This enables members of the workforce to understand how their performance will be measured and evaluated, and also how their efforts tie into the overall strategy. This linkage between organizational objectives and individual goals and activities is at the core of effective performance management.

Measurement

Although all organizations measure performance, most focus on financial metrics and meeting government regulations. An organization that only measures historical financial performance, however, is focusing on the past rather than driving future performance. To drive performance, one must link organizational objectives and individual employee goals — and their associated metrics of performance — with the measurement of actual organizational and individual performance. Measurement is of critical value in linking pay to performance and in laying out a feedback mechanism that allows one to adjust their strategy and tactics over time. Measuring individual performance through a tight link to goal achievement defines expectations for the employees, thus providing an equitable and predictable basis for accountability. It also provides a way for management to assess employee capabilities. Such measurement provides a consistent and objective basis for determination of employee rewards. Frequent, objective measurement facilitates in assessing whether the organization is on the right path or needs to adjust objectives—and the goals of individual employees—to drive desired behaviors.

Reward

Linking performance measurement to rewards is the power steering that enables the organization to drive the behaviors of the entire workforce and keep them on the straightest path to achieving the organization’s strategic objectives. All employees in the organization should be on a variable pay plan that is linked to their individual performance. Although rewarding people based only on individual performance may make for an overtly competitive culture, teamwork and collaborative effort can be factored in to preclude unhealthy competition.

Report

Reporting is about providing timely information to executives, managers and individuals about the performance of the organization and its people. However, for most organizations reporting is more a matter of compliance with government regulations. Effective reporting allows you to see the degree of objective and goal achievement and provides a feedback mechanism that allows you to adjust your strategy, tactics, objectives and goals over time.

 Analyze

 Analysis answers the why and how of performance management. The purpose of analysis is to initiate change—changes in strategy, in tactics, in personnel, in budgets and many other aspects of managing the enterprise. Analysis of organizational performance provides actionable, timely, meaningful information that enables the organization to take corrective action proactively and to learn and adapt rapidly. Analysis of individual performance enables managers to help employees understand how specific behaviors affect the company’s performance, identify trouble points in processes that are restricting individual performance and make the best use of resources by optimally aligning people and activities. In essence, effective performance management is when every part of the organization and every person is drumming to the same beat and marching in step. For many organizations, becoming performance-driven might cause a cultural upheaval that, at least in its early stages, results in turmoil, a perception of chaos and a lot of discomfort. It can trigger turnover of long-time employees who do not like to be held accountable for goal achievement and who feel entitled to a certain level of pay regardless of their performance. And it might cost money as they make the initial investments. But with the leadership and commitment of senior management, becoming performance driven will lead to dramatic improvements in performance in financial terms, with respect to employee productivity and morale and in the flexibility to quickly adapt to change. The effort will be well worth it.

 ROADBLOCKS TO PERFORMANCE MANAGEMENT

 Rating scales are applied inconsistently Evaluators are not trained leading to rater errors Supervisors do not value the procedure and use it for reprimanding or arguing Standards and criteria are not objective, relevant and realistic or are unrelated to the work performed. Failure to use evaluation results for decision. It is highly personal and time consuming Supervisors are reluctant to measure performance of the very employees they depend on to get work accomplished from. Self Appraisal: when the employee is asked to evaluate his/her own work Peer Appraisal: staff of equal rank within the organization are asked to evaluate the employee Team Appraisal: similar to peer appraisals; employees who work as a part of the team are asked to evaluate the team work. Assessment centre: the employee is assessed by professional assessors using several types of evaluation such as work simulations and actual activities 360-degree Appraisal: the employee’s work is reviewed by gathering input from representatives of all the groups the employee interacts with as supervisors, peers, subordinates and clients. Management by Objectives: the employee’s achievements of work objectives that are set in collaboration with his/her supervisor are assessed. Combination Methods: some organizations combine different methods into their performance management process. Some organizations include an evaluation of competencies such as the KSAs that distinguish superior performance

MANAGEMENT BY OBJECTIVES

Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives. Managerial Focus MBO managers focus on the result, not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation. Management by Objectives (MBO) is about setting objectives and then breaking these down into more specific goals or key results. Main Principle The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization

PERFORMANCE MANAGEMENT SYSTEM AT SHELL

Being the third largest corporation in the world, Shell employs a highly proficient performance evaluation system. Performance management is an annual activity. It facilitates the organization to plan in advance and to achieve its strategic goals. It gives a bird’s eye view of the performance of the whole organization and aids in tracking and steering it towards the right direction. The upper level management is very committed towards performance management and plays a crucial part in ensuring that appraisals are unbiased and are conducted on time. One major reason for the commitment of upper level management towards performance management system is that the employee’s performance is reported on a global level. A standard appraisal system is used throughout Shell which was designed in Hague. It aligns the organization’s vision/mission and objectives and takes into account the company’s strategic business plans. In Pakistan, Shell has the six departments, including: Finance, Global Functions &Learning Advisor, Retail, Lubes & Commercial Fuels, Lubricants, Operations and S&D & Aviation. For each department there is a separate Human Resource Accounts Manager/ HR Relationship Manager. His major duties include: building effective working relationships with leadership teams to create significant business value, identifying where changes are necessary and how these can be implemented effectively and representing the interests of line managers. The HR Relationship Manager is also responsible for facilitating processes; coaching, advising and guiding senior leaders; managing communication delivery; ensuring HR strategies operate correctly; balancing individual team requirements with those of the business as a whole and enabling change to happen. Among the duties mentioned above, his one main job includes conducting performance appraisal for his/her department

PERFORMANCE EVALUATION PROCESS

Employees record their targets in a document called Goals and Performance Appraisal (GPA). The goals are made for the current year and are aligned to the business objectives because individual performance goals are linked to it. Achievement is focused on current successes, results and development actions within the current performance year, and also involves goal setting for the following year. The GPA is linked to Individual Development Plan (IDP) which is a plan for development of a Shell employee in his current role as well as the next. This is also an ongoing document which is continually updated and recorded in ‘Shell People’. IDP facilitates in recruitment and granting promotion and is incredibly useful for personnel responsible for resourcing and talent management. Because it helps match employees with positions that best fit their skills and identifies potential opportunities for development. Employee performance evaluation is called the Individual Performance Review (IPR). IPR is conducted by three individuals in the presence of the employee. These three include the employee’s line manager; HR Relationship Manager and the General Manager, both are of the employee’s department. The employee’s goals, which were set at the beginning of the year with his line manager, are compared with the employee’s achievements for the passing year. At the end of the IPR, the employee is given an Individual Performance Factor (IPF) score. The score comprises of numbers ranging from 0.7 (lowest) to 1.5 (highest). These numbers are based on forced ranking distribution. Bonuses and increments are granted on the basis of the IPF score. Goals are set on the basis of SMART technique. Business goals and individual development goals are set during the months of January and February. A midyear review is conducted to gauge the progress made. Feedback is given, on performance against.

PROPOSED PERFROMANCE MANAGEMENT SYSTEM 

Areas for development: behaviors, skills, knowledge and / characteristics that the employee needs to acquire or address for future success Actions to address development needs: identify recommended learning opportunities to address development needs e.g. formal courses, special projects. Next job/ position option: the likely position or generic job that may be appropriate for the employee’s next assignment. Long term career options: likely types of generic jobs or roles for longer time frame (3- 5 years) taking Current Estimated Potential (CEP) into account Own views and wishes: an employee’s view on his current assignment and preferences for short and long term development. Mobility: accurate reflection of an employee’s willingness to change location Availability date: earliest date the employee is available for re assignment. Strengths, areas for development, actions to address development needs, next job/ position option, and long term career options are filled by the employee. Own views & wishes and mobility are discussed with the supervisor whereas the availability date is discussed and agreed upon in consultation with the supervisor.

COMPENSATION & BENEFITS

The remuneration and benefits department at Shell plays a major impact on the success of the business as it helps to attract and retain the best people for the right jobs. Regular, indepth benchmarking processes are carried out. Job evaluation is conducted to establish a hierarchy of job groups. Pay is managed among these levels and is linked to performance which results in rewards and promotion. In some locations, subsidized services such as sports facilities, medical & dental care and car parking are offered. In some countries, employees are offered a chance to participate in a Share save program. It is administered by Halifax. And allows Shell employees to save money and invest in Royal Dutch Shell plc. Individual contributions are recognized and rewarded through performance-related pay and bonuses. They are granted in the form of merit increment, annual bonus and the MD’s Award (a prize which equivalent to one month’s salary). The higher the IPF score the higher the increment and bonus. If the achiever is an extraordinary high performer, he is nominated for a VP Award. The VP Award is a global prize, in which the employee with his family is invited to The Hague (Royal Dutch Shell’s headquarters), in all expense paid trip, where he is awarded a prize of 5000 Euros in a special ceremony. Executive remuneration supports the policies and practices for the top executives and directors at Shell. Global benefits are responsible for the global governance and support of retirement benefits arrangements throughout Shell. Annual leave entitlements and maternity/paternity leave allowances are given. Career breaks and sabbaticals are also accommodated wherever possible. Flexible working practices are granted where necessary and operationally possible. Employees can ‘telecommute’ and work from home. Some locations also offer flexi-time working – enabling the employee to start his work day earlier or later to fit his needs. Some of the actions taken to date include: advocating video or teleconferences to reduce travel, organizing midweek meetings to avoid weekend travel, promoting an email Code of Conduct to improve efficiency and standardizing the recognition of unavoidable overtime work. Special packages and support is granted to expatriates to make their relocation pleasant. These people are immensely respected because they have a combination of analytical and creative problem solving techniques. It’s comprehensive and contains policies from temporary accommodation requirements to schooling. Compensation adopted as a strategy can be improved if benefits are granted in accordance to the contribution each employee makes; it will generate a very valuable perception of rewards among employees. Rewards offered should be uniform i.e. an employee in one company of Shell performing, should get the same award granted to another employee working for Shell in another country. The benefits mentioned above should be extended to all employees around the globe and they should be facilitated with the opportunity of investing in Share save.

CAREER PLANNING

New employees are placed in G scheme. They take two assignments in three year period in two different functions. Appraisal is conducted every six months. Coaching program is given to help the graduates so they learn the procedures of Shell. When they successfully exit the G Scheme at SG5 or SG6, they are allowed in the normal salary progression policy. Career development is greatly emphasized at Shell. Line managers and employees work together. They highlight the development framework of competency based jobs and note the qualities necessary for the specific role of each job. The employee thus identifies his needs and avails the career opportunities. As Shell operates in over 140 countries employees are exposed to projects in every corner of the globe. A special career development program was introduced for women as part of an overall strategy to accelerate their development and progression. The Individual Development Plan is a good way of fostering employees to plan for their careers. It also emphasizes the importance and value of career planning.

TEAMWORK

Team work is employed to conduct appraisals. This eliminates biasness altogether or at least ensures that it’s at a minimal level. An employee’s immediate line manager, the HR relationship manager and the General Manager of the concerned department do the appraisal. The final IPF score is awarded to employee based on voting by these three people. HR Business Development Partners are integral members of management teams. Their job is to co-ordinate the delivery of the HR Functional Plans. They also ensure that robust processes and procedures are in place and that effective delivery takes place of functional strategic plans. They provide advice and guidance to line managers, on the appropriate HR tools, facilitate processes, addressing performance issues and ensure proper feedback is provided. They help other teams move from where they are to where they want to be by providing support in a variety of areas - from recruitment and performance management to leadership and development. Team efforts in Shell can further be improved if HR has a strong base in the organization. Since every department has an HR relationship manager, there is no separate department for HR. this weakens the power of the HR manager when he tries to implement change. If a separate department is formed, it will extend a good backing for the HR officer in implementing new strategies and practices especially those that are relatively new for the company. It will also control different areas of HR including reward management, talent management, employee development etc.