Chapter Six

Appraising and Rewarding Performance

A COMPLETE PROGRAM

Many types of pay are required for a complete economic reward system. Base pay, Performance rewards, and Profit sharing

The Reward Pyramid

(Comp Time, on-site Day care etc)
(Vacations, Pensions, unemployment compensation etc) (Overtime, Shift differential etc)

Non Economic award

Non work award Sacrifice Reward Service Reward Real Pay Adjustment (Cost of living adjustment etc)

(Seniority increase etc)

Skill based pay adjustment

Performance Reward (Incentives and gain sharing system Base Pay (Internally aligned By job evaluation Determined primarily by market forces

Profit reward (Profit Sharing System)

ORGANIZATIONAL BEHAVIOR AND PERFORMANCE APPRAISAL

Organizations require consistent levels of high performance from their employees in order to survive in a highly competitive global environment.
Management by objectives (MBO) is a cyclical process that often consists of four steps as a way to attain desired performance

PROCESS OF MBO
1. Objective setting
joint determination by manager and employee of appropriate levels of future performance for the employee, within the context of overall unit goals and resources. These objectives are often set for the next calendar year

2. Action planning-participative or even independent planning by

the employee as to how to reach those objectives. Providing some autonomy to employees is invaluable; they are more likely to use their ingenuity, as well as feel more committed to the plan's success

3. Periodic reviews-joint assessment of progress toward objectives by

manager and spontaneously employee, performed informally and sometimes

4.

Annual Evaluation: more formal assessment of success in achieving

the employee's annual objectives, coupled with a renewal of the planning cycle. Some MBO systems also use performance appraisal to tie rewards for employees to the level of results attained

PERFORMANCE APPRAISAL

Performance appraisal is the process of evaluating the performance of employees, sharing that information with them, and searching for ways to improve their performance.

NECESSITY OF APPRAISAL
Appraisal is necessary in order to

(1) allocate resources in a dynamic environment,

(2) motivate and reward employees, (3) give employees feedback about their work, (4) maintain fair relationships within groups, (5) coach and develop employees, and (6) comply with regulations

APPRAISAL PHILOSOPHY
A generation ago, appraisal deficiencies, and abilities systems emphasized traits,

Modern appraisal systems emphasize present performance and future goals The hallmarks of modern appraisal philosophy are as follows:

1. 2.

Performance orientation- Employees effort must result in the attainment of desired outcomes (products or services) Focus on goals or objectives- Employees need to have a clear idea of what they are supposed to be doing and the priorities among their tasks Mutual goal setting between supervisor and employee- People will work harder for goals or objectives that they have participated through sharing in a group effort

3.

APPRAISAL PHILOSOPHY 4. Clarification of behavioral expectations- behaviorally anchored rating scale (BARS), provides the employee and manager with concrete examples of various levels of behaviors. BARS help reduce a manager's tendency to focus on attitudes, personality, and quirks of an employee and shift the emphasis toward productive behaviors 5. Extensive feedback systems- employees can fine-tune their performance better if they know how they are doing in the eyes of the organization

PERFORMANCE FEEDBACK
Feedback on the performance appraisal helps employees Performance feedback leads to both improved performance and improved attitude to know what to do and how well they are meeting their goals. It should Focus on specific job behaviors, Rely on objective data rather than subjective opinions and inferences, Be well-timed and Be checked for understanding by the receiver

GUIDELINES FOR EFFECTIVE PERFORMANCE FEEDBACK

Be specific Make it well-timed

Establish priority for change

Relate it to the job

PERFORMANCE FEEDBACK

Check for Understanding

Include positive factors to praise

Focus on a few times

Determine if it is desired

Allow choice
State it objectively

APPRAISAL PROBLEM Several behavioral problems are inherent in the appraisal process: Confrontational: each party trying to convince the other that one view is more accurate Emotional: managers role is critical, while the employee is defensive

Judgmental: the manager must evaluate the employee's behavior and results; this places the employee in a subordinate position Complex: requires job understanding, observation of performance, and sensitivity to the needs of employees

ATTRIBUTION

Attribution is the process by which people interpret and assign causes for their own and others' behavior.

ATTRIBUTION PROCESS

Observation/description

Understanding

Prediction/control

Employee behavior Occurs: Functional Dysfunctional

Attribution are made to personal or situational factors such as: Ability Effort Task Difficulty Luck

Future behavior is Predicted; methods to assure it are implemented

Different Attributes for an Employees Behavior Level of Employee Perceived By Performance

Success Success Employee Manager Employee Manager

Probable Attribution
Personal Characteristics
(High Ability or Strong Effort)

Situational Factors (Easy Task or Good Luck)

Failure
Failure

Situational Factors (Hard Task or Bad Luck)

Personal Characteristics (Low Ability or Poor Effort)

ECONOMIC INCENTIVE SYSTEM

An economic incentive system is a systems to induce a high level of individual, group, or organizational performance through facilitating recruitment and retention of good employees, stimulating desirable role behaviors and satisfying key employee needs.

The criteria for these incentives could include employee output, company profit, cost savings, units shipped, level of customer service, or the ratio of labor cost to total sales.

INCENTIVES LINKING PAY WITH PERFORMANCE

Incentive Measure
Amount of output Quality of Output

Example
Piece rate, Sales Commission Piece rate only for pieces meeting the standard, Commission only for sales that are without bad debts

Success in reaching goals Amount of profit Cost efficiency Employee skills

Bonus for selling an establish number of items during a predetermined time span Profit sharing Gain sharing Skill-based pay

INCENTIVES LINKING PAY WITH PERFORMANCE

Piece Rate

Incentive bonus
Skill-based pay systems

ADVANTAGES AND DISADVANTAGES OF INCENTIVES LINKING PAY WITH PERFORMANCE

DISADVANTAGES

ADVANTAGE

Cost
System complexity Declining or variable pay Union resistance Delay in receipt Rigidity of a system Narrowness of performance

Strengthen instrumentality benefit

Create perceptions of equity Reinforce desirable behavior Provide objective basis for reward

WAGE INCENTIVES Wage incentives, which are a form of merit pay, provide more pay for more production. The reason for use of wage incentives: Increase productivity while decreasing labor costs per unit of production. Increase the capacity to produce more

PROFIT SHARING

Profit sharing is a system that distributes to employees some portion of the profits of business.

DIFFICULTIES IN PROFIT SHARING

1. Indirect relationship 2. Delay 3. Lack of predictability 4. Union skepticism
Profits are not directly related to an employees effort on the job. Poor market nullify an employees hard work.

Employees must wait for their reward and this lengthy delay diminishes its impact.
Since profits are unpredictable, total worker income may vary from year to year. Some worker may prefer the security of a more stable wage or salary. Some union leaders have historically been suspicious of profit sharing. They fear that it would undermine union loyalty, result in varied total earnings from company to company, and weaken their organizing campaigns. More progressive unions have welcomed the opportunity for their members to share in corporate profits

GAIN SAHRING
A gain-sharing plan establishes a historical base period of organizational performance, measures improvements, and shares the gains with employees on some formula basis. Examples of the performance factors measured include inventory levels, labor hours per unit of product, usage of materials and supplies, and quality of finished goods.

SKILL BASED PAY Skill-based pay (also called knowledge-based pay or multi skill pay) rewards individuals for what they know how to do. Employees are paid for the range, depth, and types of skills in which they demonstrate capabilities.

End of the chapter