Class #6 - Performance Appraisal Process; Merit Pay Programs; Pay-for-Performance; Types of Plans; Performance Appraisals; & Is There Merit in Merit Pay?

Exceptional (Performance Factor Rating)

contributions and excellent work are widely recognized; performance consistently exceeds all defined expectations, producing important and impactful results through superior planning, executing, and creativity

First Impression Error (Appraisal Process)

developing a negative or positive opinion of an employee early in the review period and allowing that to negatively influence all later perceptions of performance

Straight Ranking (Appraisal Format)

employees are ranked relative to each other

Equity (Motivation Theory)

employees experience equity and will be motivated to perform when the ratio of their perceived outputs (ex: pay) to perceived inputs (ex: effort, performance) is equal to the perceived outputs/inputs of a comparison person; if the two ratios above are not equal, perceived inequity results and the person is motivated to take action to restore equity; some actions employees take (ex: lower effort) to restore perceived equity are not helpful to organizations

Performance Dimension Training

exposes supervisors to the performance dimensions to be used in rating (ex: quality of work, job knowledge), thus making sure everyone is on the same page when thinking about specific performance dimension

Clone Error (Appraisal Process)

giving better ratings to individual's who are like the rater in behavior and/or personality

Base Pay

guaranteed portion of an employee's wage package

Herzberg's Two Factor (Motivation Theory)

hygiene/maintenance factors (ex: pay) prevent dissatisfaction, but do not motivate or cause satisfaction. Hygiene factors, which include pay, help with basic living needs, security, and fair treatment

Merit Pay System

links increases in base pay to how highly employees are rated on a performance evaluation

Behaviorally Anchored Rating Scales (BARS)

most common format using behaviors as descriptors for employees

Highly Effective (Performance Factor Rating)

most performance objectives exceed expectations; projects and objectives are completed in a manner that expands the scope and impact of the assignment and increases the impact on the business; the employee is viewed as having made notable contributions to the department

Expectancy (Motivation Theory)

motivation is the product of the following three perceptions: (1) expectancy is employees' assessment of their ability to perform required job tasks, (2) instrumentality is employees' beliefs that higher job performance will be rewarded by the organization, and (3) valence is the value employees attach to the organization rewards received for job performance; motivational force to choose high performance is higher to the degree expectancy, instrumentality, and valence are high for that choice

Merit Bonus

non-permanent (variable) payment form of variable pay granted to employee as function of some assessment of individual employee performance

Incentive Effect

pay can motivate current employees to perform better

Gain Sharing

variable pay plan where payout depends not on company level performance such as profitability, but rather on performance at some sub-unit such as plant/facility

Profit Sharing

variable pay plan where payout depends on company profitability

Success Sharing Plans

variable pay plans that pay to measures of group/organization performance

Risk Sharing Plans

variable pay plans that tie pay to measures of group/organization performance

Individual Incentive

variable pay tied directly to objective measure of individual performance such as sales, production volume, or production quality

Criterion Contamination

allowing non-performance factors to affect performance scores, occurs in every company and every job, and probably affects each of us at some time during our careers

360 Degree Feedback

also known as multi source feedback, has grown more popular in recent years; evidence suggests that this style has value

Halo Error (Appraisal Process)

an appraiser giving favorable ratings to all job duties based on impressive performance in just one job function

Central Tendency Error (Appraisal Process)

avoiding extremes in ratings across employees

Management by Objectives (MBO)

both a planning tool and an appraisal tool, and has many variations across firms

Goal Setting (Motivation Theory)

challenging and specific performance goals generate the most employee effort; goals serve as feedback standards to which employees can evaluate their performance; employees must be motivated to choose and persevere in (be committed to) pursuing performance goals.

Leniency Error (Appraisal Process)

consistently rating someone higher than they deserve

Spillover Error (Appraisal Process)

continuing to downgrade an employee for performance errors in prior rating periods

Agency (Motivation Theory)

pay directs and motivates employee performance; employees are risk-adverse. They prefer certain/fixed income flows (wage, salary) to variable income flows (ex: performance-based pay); if performance can be accurately monitored without undue cost or if risk due to variability in outcomes (ex: profits) is large (increasing risk-bearing concerns among employees), payments should be based upon behaviors (satisfactory completion of work duties); if monitoring of behaviors is difficult or costly and if risk due to variability in outcomes is not large, pay should be based on outcomes.

Maslow's Need Hierarchy (Motivation Theory)

people are motivated by needs. Needs form a hierarchy from most lower/basic (food & shelter) to higher-order (ex: love, self-esteem, self-actualization)

Sorting Effect

people sort themselves by what is important to them

MBO or Results Appraisals

performance compared against achievement of goals as opposed to attributes; ideally employees will help with formation of goals

Improvement Required (Performance Factor Rating)

performance falls below expectations on one or two job requirements and responsibilities; a performance improvement plan should be created

Unsatisfactory (Performance Factor Rating)

performance falls below expectations on several critical job requirements and responsibilities; without significant improvement

Effective (Performance Factor Rating)

performance is competent and effective along established expectations, initiative, resourcefulness and good judgment are consistently exercised; employee makes a solid, reliable and meaningful contribution to the department

Across the Board Increase

permanent wage/salary increase granted to all employees, regardless of performance

Cost of Living Increase

permanent wage/salary increase granted to all employees, regardless of performance based on change in living expenses

Merit Pay

permanent wage/salary increase granted to employee as function of some assessment of individual employee performance

Performance Standard Training

provides raters with a standard of comparison or frame of reference for making appraisals

Alternation Ranking (Appraisal Format)

recognizes that rates are better at ranking people at extreme ends of the distribution; rates are asked to indicate the best employee and then the worst employee; working at the two extremes permits a rater to get more practice prior to making the harder distinctions in the vast middle ground of employees

Reinforcement (Motivation Theory)

rewards reinforce (motivate and sustain) performance; rewards are most effective when they follow directly after behaviors to be reinforced; behaviors that are not rewarded will be discontinued (extinction)

Paired Comparison (Appraisal Format)

simplifies the ranking process by forcing raters to make ranking judgments about discrete pairs of people; each individual is compared separately with all others in the work group; the person who "wins" the most paired comparisons is ranked top in the group, and so on; when the size of the group goes above 10 to 15 employees, the number of paired comparisons becomes unmanageable

Essay Format Appraisal

supervisors answer open-ended questions, in essay form, describing employee performance

Rater Error Training

the goal is to reduce psychometric errors (leniency, severity, central tendency, halo) by familiarizing raters with their existence

Horn Error (Appraisal Process)

the opposite of a halo error. Downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension

Recency Error (Appraisal Process)

the opposite of first impression error. Allowing performance, either good or bad, at the end of the review period to play too large a role in determining an employee's rating for the entire period

Severity Error (Appraisal Process)

the opposite of leniency error. Rating individuals consistently lower than they deserve

Standard Rating Scale

uses adjectives are used as anchors for descriptors of employees