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CHAPTER IV.
PERFORMANCE AND Creating measurable performance-based
REWARDS MANAGEMENT expectations. Defining job-development plans. I. PERFORMANCE MANAGEMENT Meeting regularly. History of Performance Management In line with the growth in interest in HRM since 4 Stages of Performance Management 1980's, there has been a commensurate significance attached to ‘managing’ 1.) Planning - The planning stage is dedicated to organizational performance. In private sector, establishing performance expectations with this has largely been in response to growing employees. Job descriptions should clearly outline global competitive pressures, the need for firms these goals to attract the right candidates to compete with lower-cost overseas competitors 2.) Monitoring - During this stage, HR and and to consistently deliver shareholder value. In managers must regularly monitor employee the public sector, the desire to improve the performance concerning the goals set and provide delivery of public services under successive feedback to employees on their progress. Doing this governments since 1980s has led to a plethora of regularly rather than annually allows issues to be initiatives, such as school league table and UK highlighted and corrected sooner rather than later. NHS waiting list targets designed to measure, manage and improve organizational 3. Developing - During the developing stage, the performance. data collected during the monitoring stage is analyzed and used to boost employee performance. Performance management systems have Underperformance may be corrected by suggesting subsequently become a widely practiced refresher courses, further training, performance organizational activity across the public, coaching, and other L&D methods. Superior private, and not-for-profit sector (Ridder et performance may have an extra project to help al., 2012), driven by the need for all improve knowledge and performance, allowing the organizational to become more efficient, employee to excel further. effective, and productive through improving the contribution of individuals, teams, and 4.) Rating and Rewarding - Employee performance department towards the achievement of explicit needs to be rated regularly throughout the year and organizational objectives. during a performance review or appraisal. This helps quantify employee performance, determine the value What is Performance Management? added by each employee to the organization, and make any changes as needed. Both employees and - Performance management is a tool that helps managers should give their evaluations for 360- managers monitor and evaluate employees' work. degree feedback. The goal of performance management is to create an environment where people can How to Measure Performance? perform to the best of their abilities and in alignment with the organization's overall (TWO BROAD APPROACHES) goals. Performance management is widely used Results-Oriented Approach (Outcome based) in both the private and public sectors. - Employees are evaluated based on objective Common Steps in the Performance Management criteria. The focus is not on input but on output in terms of quality and quantity. This approach is Aligning employees' activities with the suitable when there are multiple ways to do the company's mission and goals. job. The end result matters rather than how it has Developing specific job-performance been achieved. outcomes. Behavioral/Process-Oriented Approach 5. Improved Organizational Performance - (Input based) Managing employee performance ultimately leads - Behaviors are identified and evaluated, and to significant improvements in organizational employees are evaluated based on their performance, including revenue growth and behaviors and effort. This approach is suitable customer satisfaction. Helping your employees for giving detailed feedback on behaviors by learn, develop and perform better in their roles has a mapping desirable future behaviors and when positive knock-on effect on the wider business. individual results are hard to measure. Why Is Performance Management Important? Performance Management Methods - If the above performance management goals are 1. Goal Setting achieved, there are several benefits for both your employees and the wider organization. Setting SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals is a 1. Future-Proofing your Workforce’s Skills - popular method of performance management Establishing a continuous line of communication because it gives employees clarity, purpose, and with employees and monitoring their skills, learning, motivation. It also helps them understand how their and training developments helps uncover potential work and performance help the company achieve its skills and performance gaps in the organization. goals. With clear and specific goals, employees You can then work to close these, providing the know how to prioritize day-to-day tasks and are business with a strong competitive advantage. more motivated to achieve them. 2. Increased Employee Engagement - It provides 2. Continuous Performance Management them with learning and development opportunities, a clear career path in the organization, and an Continuous performance management is a holistic understanding of their role’s impact on meeting approach to performance management where organizational goals. Plus, continuous performance managers and employees discuss the employee’s management helps employees feel valued and work performance and goals on a continual basis cared for. That makes them more open to receiving throughout the year. The managers provide constructive feedback and working to improve. constructive, real-time performance feedback to their team members, which is combined with goal-setting 3. Higher Employee Retention - When an and check-ins. employee can see their progression at work and clearly understands their career path and what they 3. Management by Objectives (MBO) need to do to earn a promotion, it leads to more Management by objectives (MBO) is a great engaged employees who are likely to stay with performance management method that helps analyze your organization. the overall performance of an employee in their role. 4. Culture of Feedback and Trust - Establishing a It allows managers to assess the job requirements culture of communication, transparency, and trust of a role and see how they align with begins with leadership and HR initiatives that will organizational objectives, then set realistic goals trickle down to the rest of the organization. That for employees to achieve. includes the nature of your performance management process and a transparent performance 4. 360-Degree Feedback management policy. When managers are open and 360-degree feedback (also known as 360 review) is give honest, constructive feedback to employees, a performance management method where an this encourages employees also to be open and employee receives feedback from their manager, honest, building mutual trust. It also fosters a peers, and self-evaluation. Not only does this healthy overall company culture. provide employees with a broad overview of their performance, rather than a single view from their manager, but the act of creating this feedback for not just about attaching value to them. Its aims are peers encourages them to constantly consider their to: own performance and development needs. Reward people 5. Performance Appraisals Support the achievement of business goals Promote high performance Support and develop One of the more traditional performance the organization’s culture management systems is the performance appraisal. Define the right behaviours and outcomes This will typically take place annually, bi-annually, or quarterly, and involve a one-to-one meeting between the employee and their manager. Managers Pay Determination will often prepare thoughtful feedback relating to - Pay determination is the process of deciding on the all areas of the employee’s performance, level of pay for jobs or people. identifying their strengths, weaknesses, and key areas for improvement Aims of Pay Determination: 1) To be externally competitive to attract, engage and retain the people required by the organization; 6. Coaching 2) To be internally equitable in the sense that rates of Coaching is a performance management process pay correctly reflect the relativities between jobs. aimed at mentoring and developing an employee’s skills, knowledge, and performance primarily through one-to-one conversations. Typically focusing on specific skills or goals, Competitive Pay coaching sessions are non-directive. That means that - Pay is by no means the only factor that influences employees are not given specific solutions but people to join or remain with an organization, but encouraged to find solutions for themselves, which it is important. The most significant influence on pay fosters autonomy and initiative. levels is the law of supply and demand. If the demand for labour exceeds supply, pay levels will be higher and vice versa. Organizations pay more to II. REWARD MANAGEMENT AND SYSTEM attract and retain high-quality employees in critical DESIGN positions. What is Reward Management? - The need to be competitive means that organizations have to take account of market - Reward Management is concerned with the rates when deciding on the level of pay for a job. strategies, policies and practices required to ensure They bear in mind the saying: ‘A job is worth what that the value of people and the contribution they the market says it’s worth. make to achieving organizational, departmental and team goals is recognized and rewarded. - It is about the design, implementation and Market Pricing maintenance of reward systems that aim to satisfy - Market pricing is the process of making the needs of both the organization and its decisions on pay structures and individual rates stakeholders and to operate fairly, equitably and of pay and obtaining information on market rates consistently. (market rate analysis). Aims of Reward Management - Market rate analysis may be associated with As Ghoshal and Bartlett (1995) pointed out, reward formal job evaluation. The latter establishes management is there to add value to people. It is internal relativities and the grade structure, and market pricing is used to develop the pay defined elements or factors such as structure – the pay ranges attached to grades. responsibility, decisions and the knowledge and Information on market rates may lead to the skill required. introduction of market supplements for individual jobs or the creation of separate pay structures (market groups) to cater for particular Advantages of an Analytical Approach: market rate pressures. Evaluators have to consider each of the characteristics of the job separately before Use of Market pricing forming a conclusion about its relative value. - Market pricing informs decisions on base Evaluators are provided with defined yardsticks rates of pay, i.e., the amount of pay that or guidelines that help to increase the objectivity constitutes the basic rate for the job or the and consistency of judgements. person. The aim is to ensure that the rates are competitive. It helps to develop the pay structure Non- Analytical Job Evaluation – Enable – the pay ranges attached to grades. Information whole jobs to be compared in order to place them on market rates may lead to the introduction of in a grade or a rank order – they are not analyzed market supplements for individual jobs or the by reference to their elements or factors. creation of separate pay structures (market - Non-analytical schemes are simple to introduce groups) to cater for particular market rate and operate but provide no defined standards of pressures. It is referred to as ‘extreme market judgement. Differences between jobs are not pricing’ when market rates are the sole means of measured and they do not provide a defense in an deciding on internal rates of pay and relativities, equal pay case. and conventional job evaluation is not used.
Market Rate Analysis Base Pay Management
Market rate analysis involves the following steps: - The management of base pay uses the information from market pricing and job evaluation to design and Identify and define the jobs for which market rate operate grade and pay structures that cater for job- data is required. based pay and allow scope for pay to progress within Identify the sources of information. the structure through person-based pay. Collect, analyze and interpret the information. Apply the information in line with a policy decision on market stance Grade and Pay Structures - Grade and pay structures provide a framework Job Evaluation within which an organization’s pay policies can be implemented. They enable the organization to - Job evaluation is a systematic and formal determine where jobs should be placed in a process for defining the relative worth or size of hierarchy, define pay levels and the scope for pay jobs within an organization in order to establish progression, and provide the basis upon which internal relativities. It is carried out through either relativities can be managed, equal pay achieved and an analytical or a non-analytical scheme. the processes of monitoring and controlling the The Main Analytical Schemes: implementation of pay practices can take place.
Analytical Job Evaluation - Based on a process
of breaking down whole jobs into a number of Pay Structures - Consists of pay ranges, Be constructed logically and clearly so that the brackets or scales that are attached to each grade, basis upon which they operate can readily be band or level in a grade structure. Pay structures communicated to employees; are defined by the number of grades they contain Enable the organization to exercise control over and, especially in narrow- or broad-graded the implementation of pay policies and budgets. structures, the span or width of the pay ranges attached to each grade. ‘Span’ is the scope that the grade provides for pay progression and is usually measured as the difference between the lowest and the highest point in the range as a percentage of the lowest point.
Grade Structures - Consists of a sequence or
hierarchy of grades, bands or levels into which groups of jobs that are broadly comparable in size are placed. A grade structure becomes a pay structure when pay ranges, brackets or scales are attached to each grade, band or level.
The Main Types Of Grade And Pay Structures Are:
narrow graded Pay Progression broad-graded - Pay progression takes place when base pay broad-banded advances through pay ranges or brackets in a grade and pay structure, or through promotions or Pay spines. upgradings. Contingent Pay Guiding Principles for Grade and Pay Structures - Contingent pay can be related to individual merit or Grade and pay structures should: service or to team or organizational performance or a combination of these. For salary earners, individual Be appropriate to the culture, characteristics and contingent pay can take the form of consolidated needs of the organization and its employees; increases to base pay that provide for pay Facilitate the management of relativities and the progression, or cash bonuses (or both). Wage earners achievement of equity, fairness, consistency and may receive unconsolidated cash payments, in transparency in managing gradings and pay; addition to their base pay, through an incentive Enable jobs to be graded appropriately and not be scheme. subject to grade drift (unjustified upgradings); Team Pay Be flexible enough to adapt to pressures arising from market rate changes and skill shortages; - Team pay links payments to members of a formally Facilitate operational flexibility and continuous established team to the performance of that team. development; This is a popular form of reward – the 2009 e- Provide scope as required for pay progression; reward reward survey found that 59 per cent of clarify reward, lateral development and career respondents had such schemes. opportunities; Pay for Organizational Performance - The provision of financial rewards that are A payment made at the end of a performance related to business or organizational performance period (typically a year) for achieving pre-set (sometimes known as ‘company-wide’ or objectives. ‘factory-wide’ schemes). They include profit- sharing, share schemes and gain-sharing. Types of Incentive Plans Tangible Incentives: Recognition Schemes - Recognition schemes as part of a total reward Profit-Sharing Plans: A single payment funded package enable appreciation to be shown to by a portion of the company's annual profit, paid individuals for their achievements, informally on a to an individual or group at year-end. day-to day basis or through formal recognition Stock Options: The employer gives employees arrangements. the option to purchase shares at a future date at today’s price, encouraging long-term Employee Benefits commitment. - Employee benefits consist of arrangements made Phantom Stock Plans: A promise to pay a bonus by employers for their employees that enhance the equivalent to the value or increase in value of latter’s well-being. They are provided in addition to company shares over time. pay and form important parts of the total reward Intangible Incentives: package. Stock Appreciation Rights (SARS): Provides the Evaluating Reward right to receive the monetary equivalent of the - Reward evaluation uses information obtained from increase in the value of a set number of shares reward reviews and reward measurements to assess over a period of time. the level of effectiveness achieved by existing or new Gain Sharing Plans: Employees receive a share reward policies and practices of the savings resulting from efforts to reduce costs. Administering Reward Management Short-Term Incentive Plans - The administration of reward management is conducted through three main activities: base pay Sniffs: A small, immediate bonus paid directly to management through compa-ratio analysis, a salesperson for selling a specific product in a conducting general pay reviews and conducting short time period. This boosts short-term sales individual pay reviews. performance. Key Contributor Plans: Designed to retain and motivate a select group of key individuals critical III. INCENTIVE PROGRAMS to a project or the company's overall success. These are typically short-term plans focused on Incentive Programs immediate project success. - provide tangible or intangible rewards designed Profit-Sharing Plan: A single payment made at to otivate individuals or groups to behave in the end of the fiscal year, derived from a portion certain ways, usually to achieve specific goals. of the company’s profit, often shared among all employees or teams. Purpose: Long-Term Incentive Plans Unlike bonuses, incentives clearly define what must be achieved and what will be given in Multi-Year Incentive Plans: These plans return, creating a stronger link between measure and reward performance over a longer performance and reward. period (typically more than one year), providing employees with sustained motivation to achieve Example: long-term goals. Sometimes called Long-Term conducive environment and sustaining Incentives (LTI). organizational growth. Companies are moving Stock Options and Phantom Stock: Stock beyond traditional approaches, embracing innovative options allow employees to purchase shares at a strategies that resonate with employees. set price in the future, while phantom stock pays Usage of Rewards out bonuses equivalent to the increase in company share value over time. Both foster long- - 52% of employees prefer monetary rewards, while term loyalty. 24% prefer non-monetary rewards, and 24% receive Competency-Based Plans: These plans reward no rewards at all. Money allows employees to employees based on the acquisition of specific address personal priorities, making financial competencies (knowledge, skills, abilities) incentives a crucial element in engagement plans. critical to long-term organizational success. Offering fair pay and meaningful financial rewards helps companies build loyalty, retain top talent, and reduce attrition. However, a well-rounded rewards Performance-Driven Incentive Plans system is essential to ensure that all employees feel valued, addressing the gap where many still feel Merit Increase Plans: Employees’ base salary unseen and unheard. Cultivating this recognition- increases are based on the manager’s perception driven culture fosters sustainable growth and keeps of the individual’s performance. These increases employees engaged. serve as long-term recognition of employee contributions. The R and R Revolution: Putting People First 360-Degree Review Plans: The employee’s - Rewards and recognition are not just HR initiatives salary increase is determined by the feedback but essential components of the employer-employee from multiple sources—peers, subordinates, and relationship. They contribute to happier employees, managers—offering a holistic view of better company culture, and long-term success. performance. Trends show the importance of paying for skills and Performance Management Plans: These plans performance while focusing on holistic employee tie salary increases to specific pre-set criteria well-being. Data analysis, AI, and digital solutions communicated to employees in advance, are transforming R & R programs, making them ensuring employees understand what is expected more personalized and rewarding experiences. R&R and rewarded. strategies must keep pace with these changes. Rewards Vs. Recognition IV. EMERGING TRENDS IN REWARDS AND - Tangible rewards, such as financial incentives, RECOGNITION PROGRAMS THAT are important, but they are not always the most ORGANIZATIONS ARE EMBRACING memorable for employees. Intangible rewards, - Employees are the most important asset of any like recognition from peers or managers, can organization and vital for its success. To maximize create significant, lasting moments. A McKinsey their potential, it is crucial to keep them motivated. study found that 67% of workers rated praise and Rewards & Recognition are proven strategies for commendation from managers as the top motivator, driving employee engagement and job satisfaction, surpassing financial incentives. While it is up to the which lead to higher productivity. Top-tier organization to decide whether to link monetary companies globally have adopted comprehensive benefits to their R&R program, the return on systems of recognition and appreciation to engage investment is high when considering both tangible and retain talent. The power of rewarding and and intangible rewards. recognizing employees is a strategic imperative. Acknowledgment is essential for cultivating a Emerging Trends in Rewards and Recognition contributions and fostering a supportive Programs environment. 1. Pay for Skills and Performance - Organizations 10.Focus on Inclusivity and Diversity Recognition are shifting towards compensation models that - practices that celebrate diverse contributions and reward specific skills and individual performance, cultural backgrounds create a fair and welcoming promoting upskilling and reskilling in the workforce. workplace, enhancing overall employee satisfaction. 2. Personalization - Tailoring rewards to individual 11.Creative and Tailored Rewards - preferences and contributions is becoming essential. Organizations are designing creative rewards that are Organizations are leveraging data analytics to create tailored to individual interests, such as personalized personalized recognition experiences that resonate gifts or experiences, ensuring they leave a lasting with employees. impression on employees. 3. Instant and Real-Time Recognition -The trend 12. Learning and Development Opportunities - is moving away from delayed recognition systems Investing in employee development through towards immediate acknowledgment of employee seminars, courses, and conferences not only serves achievements. Real-time recognition, facilitated by as a reward but also encourages growth and career technology, reinforces positive behaviors and keeps advancement. employees engaged. 13. Unique Experience Rewards - Offering unique 4. Holistic Employee Wellness - Rewards programs experiences, such as staycations or event tickets, acts are expanding to encompass holistic wellness as a powerful motivator and enhances employee initiatives, including mental health support, flexible engagement. work arrangements, and overall well-being benefits. 14. Integration of Technology - Utilizing 5. Cultural Alignment - Effective rewards programs technology for tracking recognition and align with the organization's core values, fostering a implementing gamification elements makes the sense of belonging and reinforcing desired behaviors process engaging and efficient, providing insights for that contribute to a positive work culture. continuous improvement. 6. Employer Branding - Transparent and well- The Effectiveness of Employee Recognition publicized rewards and recognition programs are Programs used to enhance employer branding, positioning the - Designing recognition programs with fairness, organization as an attractive workplace. transparency, and inclusivity is vital. Effective 7. Digitization of Recognition - Digital platforms programs consider employees' varied needs and are transforming how recognition is administered, preferences, ensuring recognition is meaningful and making it more accessible, interactive, and data- just. Well-implemented programs can driven, through tools like virtual walls of fame and significantly enhance job satisfaction, staff blockchain-powered systems. retention, and overall performance. 8.Emphasis on Non-Monetary Rewards - Increased Employee Engagement: Regular Recognizing the emotional impact of non-monetary recognition makes employees feel valued, leading to rewards, organizations are offering options such as higher engagement and commitment to their work. public acknowledgment, additional time off, and Improved Retention Rates: Acknowledging personalized gifts, which can be more meaningful employees' efforts can reduce turnover, as employees than monetary bonuses. are more likely to stay with a company where they 9.Peer-to-Peer Recognition - Encouraging peer feel appreciated. recognition builds a collaborative work culture, empowering employees to appreciate each other's Boosted Productivity: Recognized employees often show higher productivity and are more willing to go above and beyond in their roles. Enhanced Workplace Culture: Recognition programs contribute to a positive workplace culture, promoting mutual respect and collaboration among team members. Higher Job Satisfaction: Employees who receive regular recognition report higher job satisfaction, contributing to overall workplace happiness and morale. Better Team Dynamics: Recognition can improve teamwork and cooperation, as employees strive to meet shared goals and support each other's success.
Effective Reward Strategies
V. BEST PRACTICE IN DESIGNING - An effective reward strategy is one that provides EFFECTIVE REWARDS SYSTEM clear guidance on development planning and The formulation of reward strategy can be described implementation and that achieves its objectives when as a process for developing and defining a sense of implemented. Duncan Brown (2001: 14–15) has direction. There are four key development phases: suggested that effective reward strategies have three components: 1. The diagnosis phase, when reward goals are agreed, current policies and practices assessed 1. They must have clearly defined goals and a well- against them, options for improvement considered defined link to business objectives. and any changes agreed. 2. There have to be well-designed pay and reward 2. The detailed design phase, when improvements programmes, tailored to the needs of the and changes are detailed and any changes tested organization and its people, and consistent and (pilot testing is important). integrated with one another. 3. The final testing and preparation phase. 3. Perhaps most important and most neglected, there needs to be effective and supportive people 4. The implementation phase, followed by ongoing management and reward processes in place. review and modification.
How to Build a Successful Employee Recognition
Program? A Model of the Reward Strategy Development - Recognition programs are used correctly, they can Process enrich company culture, increase employee engagement, reduce turnover, and provide a fulfilling employee experience. - Before implementing any employee recognition program, it’s necessary for everyone involved to understand the characteristics of effective recognition: Understand The Characteristics Of Effective recognition programs and how they impact business Recognition objectives. Timely - Recognition is most effective when given in a timely manner. Unfortunately, the association What types of behaviors will be rewarded? between contribution and recognition weakens over - Reference your business objectives and decide time. Aim to give recognition as soon as possible to which behaviors to incentives, and remember produce a clear connection to positive behavior. that effective recognition is tied to organizational Frequent - Frequent recognition translates into more values! engaged employees, stronger business results, and lower turnover. Employees make contributions every How should desired behaviors be rewarded? week, and failing to provide regular feedback about - t’s important to know your team and reward those contributions increases the likelihood of behavior accordingly. Tying that praise to a individuals feeling undervalued in their role. tangible employee reward or experience can remind employees of their achievements long Specific - Why is it important to call out and after praise is given. recognize specific contributions? Specific recognition helps employees understand exactly How often should recognition occur? which of their actions contributed to their team’s - Effective praise is frequent, so it’s important to goal. regularly recognize your team. Visible - Private recognition can be effective, but public recognition offers several additional Who should recognition come from? advantages. - Peer-to-peer recognition, coming from all levels, is the most effective. In fact, peers are Inclusive - Inclusive recognition helps foster a sense the top influence in driving colleagues to go the of equity, belonging, and psychological safety for all extra mile. employees. 2.) Use a multifaceted rewards and recognition Values-based-Values-based recognition encourages program teams to work toward the same vision. When sharing positive feedback, think about how a contribution - Many employers assume that employees always lines up with your values. want money instead of non-tangible rewards, but research suggests that’s not necessarily true. For example, identified two different types of VI. IMPROVING EXISTING RECOGNITION recognition: PROGRAM • Praise and emblematic recognition - Improving an existing recognition program involves several key steps to ensure it effectively • Token and monetary rewards motivates and rewards employees. That it can - It’s beneficial to understand the difference significantly boost employee engagement, between extrinsic and intrinsic motivation in the productivity, and morale. Recognition programs help workplace. Whether the praise or the monetary employees feel valued and motivated, which reward is the primary form of recognition, both ultimately leads to better performance. approaches complement each other..” 6 Employee Recognition Program Best Practices 3). Give employees voice and choice - Engage your 1.) Define clear recognition program objectives employees to better understand the types of rewards and criteria - Employers should be clear about what they’re most interested in. behaviors or actions they’d like to see from 4). Ensure an effective launch and implementation - When introducing a new system or approach, it’s important that communication around the is clear and the implementation is as painless as possible. Think about the following factors when rolling out your program: Align your organization on recognition - should be aligned on the program’s purpose, especially when they’re leading the roll-out of the program. Make recognition programs visible - should strive for publicly-visible recognition, especially at the start of any recognition program. Plan for a seamless, multi-pronged, and consistent delivery of your program - Use existing team meetings to reiterate recognition where appropriate, and consider using an automated system to fulfill rewards.
5.) Measure your recognition program’s
effectiveness - Recognition programs impact many different areas of an organization. Using a measurement system like employee net promoter score can provide a useful framework to measure the effect of recognition on factors like employee engagement and morale. Successful recognition programs should positively impact other factors like performance, productivity, and turnover 6.) Revisit and revise regularly - No program is perfect, and even excellent programs should be well- maintained to remain effective. Soliciting program feedback quarterly can help you determine whether or not employees still value the types of rewards they’re receiving. - Continuous Improvement in the context of strategic HR recognition programs refers to the ongoing process of evaluating, refining, and updating the recognition system to ensure its effectiveness, relevance, and alignment with both employee needs and organizational goals. It involves regularly assessing the program's impact, gathering feedback, and making necessary adjustments to keep it dynamic and adaptable to changes in business strategies, workforce dynamics, and external market conditions.