HRM str and planning

chapter 9

In Chapter 9, we are only to look at the training and development part of the chapter. Now remember, we want our employees to become effective, productive members of the organization soon after joining the firm. One of the main ways of doing this is through training and development. The goal of training and development should be to maintain or improve the performance of individuals in the organization and in so doing, that of the organization. Some companies spend much time, effort, and money on training their employees, including managers. In some organizations, this function can be formalized and sophisticated. In other organizations, training and development can be very informal and unstructured. Remember in a previous chapter, we said that organizations can "make" or "develop" employees by investing heavily in development programs. Or they can "buy" employees by recruiting employees who already possess the level of skills and development necessary. Training and Development can be costly to an organization so organizations have to make strategic decisions whether the organization will train and develop employees versus hiring already well-trained and developed persons. What is training? What is Development? These are not synonymous terms. Training refers to providing an employee with skills that can be used immediately on the job. It refers to instructions provided for the current job. Development refers to providing an employee with knowledge that may be used today or at some time in the future. It is a broader concept and may not be focused directly on the current job but rather on some future job. Management development refers to the training and development of managers. Now let's ask and answer who is responsible for training and development in the organization. TRAINING RESPONSIBILITIES The major responsibilities for training and development are shared by top management, human resources department, the employees' immediate supervisor, and the employee. Let's talk a little more about each: Top Management --- The commitment of top management is critical if training is to be a success. They have the responsibility to provide the general policies and required procedures to implement the training program. They provide the administrative control and set the proper culture for its encouragement. If they do not do these kinds of things and give training and development the attention, understanding, and commitment, then they will be severely limiting the changes it can bring about. Top management must give whole-hearted support to the process. The Human Resources Department --- The HR department should assist line personnel in training by providing resources, expertise, and sponsoring training conferences and programs. They assist line management in training by acting as supportive staff. The Immediate Supervisor — Supervisors have a direct responsibility to ensure that training occurs and should encourage employees to develop themselves and provide time for this to occur. They act in the role of coach and advisor. The Employee --- The primary responsibility of training and development lies with the individual. They need to demonstrate interest in personal career development and even encourage other employees to take advantage of development opportunities. So you can see that the responsibilities for training and development are shared among the human resources department, top management, the immediate supervisor and the employee. So let's look next at how companies decide what training and development programs should be offered. MODEL OF THE TRAINING PROCESS Exhibit 9.4 in the textbook shows us a model of the training process that allows us to answer that question. There are three stages in the model: assessment stage, training stage, and the evaluation stage. ASSESSMENT STAGE — In this stage, the training needs of the organization, job, and individuals are examined to see where training is needed. Before training can be done, the need for it must be analyzed in the assessment stage. The assessment stage consists of the following: O Organizational needs assessment — here one examines the proposed training projects with respect to the organization's goals, objectives, and strategies. Do the planned training and development programs support the overall mission, objectives, culture, strategies of the organization? Looking at the environment, the strategies, and resources, where should training be emphasized? O Task or Job needs assessment --- an assessment is done to isolate specific requirements of jobs. It is a process of determining what the content of the training and development program should be on the basis of a study of the tasks and duties of the job. O Employee needs assessment --- this is done to determine whether a gap exists between the requirements of the job and the skills of the employees. It is the determination of the specific individuals who need training. Information can be gotten from giving employees questionnaires to answer. Interviews can be done with employees. Managers can be asked. Operations reports and performance appraisals can be consulted to determine training needs. O Development of training objectives — Before training begins, the objectives of the training program should be identified. These should be behavioral objectives that specify what outcomes will be gained by training. O Development of criteria for training evaluation --- Some criteria must be developed so that the results of training can be measured. It is important to use more than one criterion ( that is, multiple criteria,) to ensure the measurement of the overall effect of training. They should be consistent with the overall objectives and strategies of the organization. TRAINING STAGE OF THE TRAINING PROCESS Once the training needs have been determined, the next stage is to design the type of learning environment necessary to enhance learning. The success of training programs depends on more than the organization's ability to identify training needs. Success hinges on taking that information and utilizing it to design training programs. A wide variety of methods is available for training employees at all levels. In designing and selecting training procedures, they fall into two categories of ON THE JOB training and OFF THE JOB training. One is not more effective than the other. Most organizations use both. An effective training and development program achieves a unique blend of on the job and off the job methods suitable for the individuals in the organization. ON THE JOB TRAINING --- there are many techniques that can provide on the job training. These techniques include: O expanding the job duties, O job rotation to foster cross-training and increase variety, O staff development meetings, O "assistant to" positions to help promising employees learn new responsibilities and prepare them for promotions, O problem-solving conferences, O mentoring (assigning a guide or knowledgeable person higher up in the organization to help a new employee learn the ropes), O special assignments, O in-company training done by company trainers or outside consultants, O assigning qualified employees to a consultant position, O distributing reading material relevant to the job to encourage reading and learning about different areas and O apprenticeships and internships. OFF THE JOB TRAINING --- There are various off the job training methods. Most of this type of training is classroom training. Some frequently used types of training include: O outside short courses and seminars, O college or university degree and certificate programs, O advanced management programs at colleges or universities, O correspondence schools, and O outside meetings and conferences. INSTRUCTIONAL TECHNIQUES FOR TRAINING AND DEVELOPMENT --- Instructional techniques have mushroomed over the past few years and the methods use can differ. They can range from lecturing, lecture-discussion, multimedia presentations, job coaching, self-paced (programmed) texts, computer assisted instruction, gaming and role-playing and case analysis. Newer techniques involve computer assisted instruction. A good program utilizes all techniques as appropriate rather than relying on any one technique at the exclusion of others. Probably the greatest criticism leveled at training and development, particularly management development, is the inability of the participants in training programs to practice on the job what has been learned in the classroom. TRANSFER OF TRAINING — This blockage of the "transfer of training" is a serious impediment to making training effective. Transfer of training refers to the extent to which what is learned in training is applied successfully to the job. Simply training an employee does not guarantee that the skills learned will transfer to the job and result in higher performance. Several factors, if present, can result in higher training transfer. Exhibit 9.7 in the textbook shows the factors that increase the likelihood that training will be used on the job. They include: O Theory ---individuals should be taught the theory behind the training they are receiving. This gives them the "why". Why they are being asked to do things a certain way. O Demonstration--- learn by example. A demonstration of concepts being taught increases the chances that the individual will use the training on the job. Actually see how the method or technique works. O Laboratory Practice or Simulation---- allowing participants to actually practice their new skill will help them learn by doing. It can work out the bugs and help answer questions or concerns. O Practice on the Job with Feedback --- this involves giving the participant a chance to practice the behavior on the job with some guidance. Similar to on the job training particularly apprenticeships or internships. O Practice on the Job with Coaching --- the best way to tie training to the job is by extending the coaching or feedback for a long period of time. This could involve using a mentor to help coach. EVALUATION OF TRAINING AND DEVELOPMENT The last stage of our model focuses on evaluating the training programs. Assessing their effectiveness is just as essential as assessing any other activity. Again a variety of methods can be used. O Reaction — one of the simplest and most common approaches to evaluating training is assessing participants' reactions. Happy trainees will be more likely to want to utilize the information on the job. They can give insights into the content and techniques they found most useful. They can critique the training and make suggestions for improvement. O Learning --- Beyond what participants THINK about the training, it might be a good idea to see whether or not they actually learned anything. Testing knowledge and skills through performance tests or pencil and paper tests or a simulated exercise or role playing can help to determine if learning did indeed take place. O Behavior --- You might be surprised to learn that much of what is learned in a training program never gets used back on the job. You want to make sure that transfer of training occurs. Check with supervisors or managers or even co-workers to see whether participants exhibit behavior changes in their jobs --- if the behaviors taught at the training programs are being used by the trainees. O Results --- this is the last evaluation level and investigates how the training program has impacted the organization in terms of increased productivity, fewer employee complaints, decreased costs, decreased waste, and profitability, increases in sales, improved employee attitudes, lower absenteeism and turnover, decreases in accidents, etc. Some companies can choose to do a cost benefit analysis to assess all the benefits and costs involved with training. Other companies may choose to do an alternative evaluation designs like posttest design---trainees are trained and then tested on what they learned. A pretest/posttest design can also be used that involves giving the trainees a test prior to and just after training to see how much of an improvement was realized. Or Multiple Pretest/Multiple Posttest Design can be utilized which involves using multiple pre and posttests to ensure improvement was actually due to training. In summary, the focus in this chapter was on training and development as two key methods to improve performance and productivity in the organization.

chapter 8

In Part Two, the last three chapters we talked about Strategies for Human Resource Acquisition and Placement. Now we want to move to PART THREE: STRATEGIES FOR MAXIMIZING HUMAN RESOURCE PRODUCTIVITY Assuming that the employees have been hired and placed, we are now interested in maximizing their productivity. CHAPTER 8 --- LOOK AT JOB DESIGN How a job is designed has a tremendous impact on the effectiveness of the organization and the quality of work life for employees. Job design is concerned with structuring jobs in order to improve organization efficiency and employee job satisfaction. Job design is concerned with changing, modifying, and enriching jobs in order to capture the talents of employees while improving organization performance. Given the importance of job design, it should be tied directly to the strategies and goals of the organization. An important element in job design/job redesign is the recognition that a change is needed. It is the first step in strategic job redesign. JOB DESIGN APPROACHES As shown in Exhibit 8.1 in the textbook, there are a variety of individual and group job design options for managers. Let's look first at some approaches for designing or redesigning INDIVIDUAL tasks. JOB ROTATION --- simply this is rotating employees between jobs. More specific, this is moving employees from one job to another within the organization for a specified period of time rather than requiring them to perform only one specialized job over the long term. For example, a gardener would just mow lawns, then he might just trim bushes, then just rake grass and sweep the sidewalk. Job rotation increases the number of skills and duties and can not only allow for cross-training but flexibility to the organization. The systematic movement of workers from one job to another was an attempt to minimize monotony and boredom on the job. However, it was not always successful. JOB ENLARGEMENT --- simply, this is increasing the number of tasks to be performed. More specific, it is the process of increasing the number of tasks an individual performs on one job thereby increasing the diversity of the job. The gardener's job would become more satisfying as such activities as trimming bushes, planting flowers, raking grass, sweeping sidewalks were added to his initial activity of mowing grass. However, this job design is often perceived by workers as being given more work to do for no more pay. JOB ENRICHMENT --- simply is increasing the meaningfulness and responsibility of the job. It is enhancing a job by adding more meaningful tasks and duties to make the work more rewarding or satisfying. Managers must add meaningfulness to the job and allow workers more control over their work by planning their work and controlling their work if the job is to perceived as enriched. Now let's look at some ways of designing jobs for groups. WORK TEAMS — Here a group of workers is given a large task to complete and the team members decide on how it will be accomplished. Simply, it allows team members to decide on specific task assignments. The goal is to introduce job enlargement at the group level. AUTONOMOUS WORK GROUPS --- simply allowing work groups almost complete flexibility over how they will get the job done and accomplish the goals. These are work groups that have been assigned complex tasks and the authority to decide the best way to get the job done. Have a considerable amount of control over work assignments, rest breaks, selecting work members ...... This is implementing job enrichment at the group level. QUALITY CIRCLES ---- This is a management employee group effort designed to find and solve quality, production and coordination problems. A group of employees and supervisors regularly meet to discuss quality problems and solutions. Their main focus is on maintaining and enhancing the quality of product and to find ways to improve production processes, not to improve their salary and benefits. STRATEGIC GUIDELINES FOR JOB DESIGN --- One of the most comprehensive frameworks for job design is the job characteristics model. Let's look at it on Exhibit 8.4 in the textbook: The model proposes that there are specific characteristics of jobs that can lead to important psychological states which in turn can lead to a number of positive personal and work outcomes. Let's take a more detailed look: The five core job characteristics ( aspects of the job) that may be motivating for most people are: 1. Skill variety --- the degree to which employees are able to do a number of different tasks, using many different skills, abilities and talents. 2. Task identity --- seeing or completing a whole piece of work. Employees can complete a task from beginning to end with an identifiable outcome. 3. Task significance --- the importance of the job. The impact the employees work has on others within or outside the organization. 4. Autonomy --- the degree to which employees have control over their work regarding such things as scheduling, prioritizing and determining procedures. 5. Feedback --- the degree to which the job offers information to employees regarding performance and work outcomes. The model proposes that these five core job dimensions produce three psychological states of O Experienced Meaningfulness. The degree to which employees perceive the work as valuable and worthwhile O Responsibility for work outcomes. The degree to which s employees feel accountable and responsible for the outcomes of their work O Knowledge of Results. The degree to which employees know and understand how well they are performing on the job. Achieving these three psychological states serves as reinforcement to the employee and a source of internal motivation to continue doing the job well. These three psychological states result in personal and work outcomes such as high internal motivation, high satisfaction, high work quality, and low absenteeism and turnover. It is important to realize that each of the five job characteristics affects employee performance differently. Therefore employees will experience the greatest motivation when all five characteristics are present, since the job characteristics combine to produce the three psychological states. STRATEGIES FOR MANAGERS The job characteristics model offers managers strategic guidelines for increasing the core job dimensions in the workplace. Another way of saying it, It offers many guidelines for increasing core job dimensions in the workplace to foster the critical psychological states. As shown in Exhibit 8.5 in the textbook, each strategic guideline affects one or more job characteristic. 1. The strategic guideline of combining tasks that is take existing specialized tasks and combine them to form a larger module of work affects both Skill Variety and Task Identity. 2. The strategic guideline of creating natural work units, that is form employee tasks into an identifiable meaningful whole piece of work affects both Task Identity and Task Significance. 3. The strategic guideline of establishing client relationships, that is establish direct relationships between the employee and the user of the good or service affect Autonomy and Feedback. 4. The strategic guideline of vertical loading, that is, give the employee more responsibility, discretion, and control over his or her work affects Autonomy. 5. The strategic guideline of opening feedback channels, that is, increase employee feedback about how well he or she is performing and if his or her performance has remained stable, increased, or decreased affects Feedback. Thus, the job characteristics model offers managers strategic guidelines for increasing core job dimensions in the workplace. Now let's look at some CURRENT STRATEGIC ISSUES IN JOB DESIGN that allow for flexibility in the job. Remember the first step in strategic job design is the recognition that a change is needed. FLEXTIME or flexible working hours permits employees the option of choosing daily starting and quitting times. It gives employees latitude in when they begin and end their work day provided that they work a set number of hours per day or week. With flextime, employees are given considerable latitude in scheduling their work. JOB SHARING occurs when an employees shares his job with another employee. It is an arrangement whereby two part-time employees perform a job that otherwise would be held by one full-time employee. COMPRESSED WORK WEEK — work schedules that allow for a 40 hour workweek in fewer than the traditional five days. It allows an employee to work 40 hours in less than a 5 day workweek. E.g. working 10 hours for four days. TELECOMMUTING is a more recent trend resulting from the outgrowth of the computer revolution that allows employees to work from home or another location. It is the use of microcomputers, networks, and other communications technology such as fax machines to do work in the home that is traditionally done in the workplace. Deciding how to design a job is an important decision for managers and that an organization's job design should also be consistent with its overall strategy.

chapter 11

Providing fair and equitable monetary and other rewards that encourage desired performance is the subject of Chapter 11. So the goals of a compensation system can be many and varied and include o attraction and retention of employees o cost efficiency o legal compliance o equitable salaries for all employees o motivation of employee performance What is strategic compensation???? Simply stated, it is the compensation of employees in ways that enhance motivation and growth while, at the same time, align their efforts with the objectives, philosophies, and culture of the organization. It goes beyond determining what market rates to pay employees ---although market rates are one element of compensation planning ---- to purposefully linking compensation to the organization's mission and strategic objectives. STRATEGIC CHOICES: Designing a compensation system that reinforces the organization's corporate strategy can make the organization more competitive, increase its effectiveness, and help management focus on both long-term and short-term objectives. Therefore, managers must face several strategic choices with respect to the organization's reward system. 1. Management must decide the importance of external equity that is, how much to pay employees with respect to the competition, in the organization's compensation system. Firms can choose to match, beat, or lag behind external labor market wages. 2. The firm must choose how closely the compensation plan will be linked to the organization's overall strategic plan. Compensation should be designed to reward behavior leading to the accomplishment of overall goals. It should be tied to the firm's overall strategy in order to ensure that worker behaviors and management decisions will lead to the achievement of strategic goals. 3. A firm must choose between merit pay raises, that is, paying for performance and across the board pay raises. 4. Firms must decide on the level of pay secrecy. 5. An organization must decide on its stance on internal equity. Internal equity means that the pay structure reflects the relative worth of different jobs to the organization. 6. Managers must decide how to mix intrinsic rewards (rewards that come from performing the job) with extrinsic rewards (those given by the organization) when developing a compensation system. EXTERNAL ENVIRONMENTAL VARIABLES When designing a compensation system, organizations must take into consideration the external environment in which they do business. That is , there are external factors that can influence the rates at which employees are paid. The major external factors that influence wage rates are: A. Nature of the Competition--- When an organization has many competitors, cost control becomes very important. Price pressures exist and increased costs due to salary increases cannot be passed on to customers without risking loss of market share. In this situation, non-economic rewards ( e.g., promotions, job enrichment, training and development programs) might be more important. On the other hand, the presence of few competitors increases the organization's flexibility to pass on the cost of higher wages to the consumer. B. Nature of the Labor Market --- this focuses on two issues: labor supply and demand and the wage levels that competitors are paying to their employees. Some skills are in heavy demand with little supply (for example, high-tech jobs). Therefore, they will receive the highest salaries, because firms have to attract the employees to their company. If the reverse situation is true where the supply of labor is greater than demand, the competition among job applicants for a limited number of positions permits companies to pay lower salaries. C. Government Regulations --- Compensation management, like other areas of HRM, is subject to state and federal regulations. A majority of states have minimum wage laws or wage boards that fix minimum wage rates on an industry by industry basis. Most states also regulate the hours of work and overtime payments. Federal laws were also enacted to prevent the payment of abnormally low wage rates and to encourage the spreading of work among a greater number of workers. The minimum wage prescribed by federal law has been raised many times from an original figure of 25 cents per hour to $5.15 per hour on September 1, 1997. This is the minimum wage rate currently. Congress is now looking to perhaps raise this minimum rate. Also changes in tax legislation impact benefit decisions for companies. EXHIBIT 11.1 IN THE TEXTBOOK SHOWS THE CHANGES IN MINIMUM WAGE FROM 1938. INTERNAL ENVIRONMENTAL VARIABLES There are a number of internal variables to consider that are important to organizations when designing their compensation systems and include the following: A. Corporate Strategy --- the overall corporate strategy provides the direction for the organization. So the compensation system should be designed to support that direction which is long-term and to support the strategic goals of the strategy. B. Management Philosophy --- A component of this philosophy is the value that management places in its human resources, which then affects the compensation system. C. The Type of Job --- The variety of tasks performed; the amount of physical or mental effort required; the pleasantness of the working conditions; the degree of autonomy; the responsibility for labor, materials, and equipment; the amount of interaction with others all influence the type of job and hence, the type of compensation that must be offered. D. Productivity --- As you may already know, productivity is nothing more than the ratio of outputs (products ) to inputs e.g. costs of labor, materials, etc). Pay raises can be tied to increases in productivity. STRATEGIC COMPENSATION OPTIONS In developing a compensation system, several strategic options exist. Let's review them A. Pay-Level Policy --- An organization's "pay level" is simply the average wage rate paid for a specific group of jobs. Pay level is important because it influences the organization's ability to attract and retain competent employees and its competitive position in the marketplace. "Pay-level Policy" refers to how an organization's pay level compares to its competitors' level. The concept of external equity ( that is, the degree to which an organization's wages are competitive with those of its competitors) is reflected in pay-level policy. A firm can choose to MATCH, LEAD, OR LAG competitor pay as three possible strategies of compensation. Most firms choose a MATCH strategy to keep labor costs in line with competitors. This strategy allows them to attract and maintain competent but not superior workforce and to keep its labor costs in line with competitors 'costs. Firms desiring a superior labor force must LEAD competitor pay levels. This strategy allow them to pay higher wages than its competitors for similar employees in similar jobs. Firms that can offer benefits other than salary can choose a LAG strategy to attract and retain employees. Employees must have a great deal of intrinsic motivation when organizations choose a lag strategy. B. Pay-Structure Policy --- Here a firm must decide on pay ranges and the amount of overlap between ranges. The concept of internal equity ( that is, setting wage rates that conform to the job's internal worth to the employer) is reflected in a pay-structure policy. Ranges are usually composed of a series of steps or increments that permit employees to receive increases up to the maximum for the range on the basis of merit or seniority or a combination of both. Most salary structures provide for the ranges of adjoining pay grades to overlap. A "pay grade" is a group of jobs that have the same classification with respect to pay. A large spread between the minimum and maximum salary allowed in a pay range is called a wide pay range. The wider the pay range, the longer the employee can stay in the same job and still receive pay increases. Wide pay ranges are needed so that employees have room for movement in the pay range for a number of years before reaching a maximum. "Broad banding" is a new concept used in flatter organizations. It involves collapsing pay grades into a few wide bands. Example: Marriott International now places its 14,500 managers into four broad salary levels. Instead of being assigned to specific grade level, Marriott managers now have wide latitude to receive more pay and added experience. C. Extrinsic versus Intrinsic Rewards--- Financial remuneration is not the only alternative the company has for compensating its employees. Many companies today are cost conscious and are looking for ways to reduce costs. Good Morning America tells the incident of American Airlines cutting the olives in a salad by one and saving the company $100,000 a year. Other companies took this initiative and are asking employees to vacuum outside rugs (savings of $70,000) paying for coffee, etc. So in the absence of cash, firms may offer their employees intrinsic rewards that include challenging work and interesting tasks, greater freedom on the job, more recognition through titles, increased input in decision-making, casual dress days, etc. PAY FOR PERFORMANCE Pay for performance refers to paying employees based on their level of performance rather than number of hours spent on the job. Pay for performance gives merit raises and reward behaviors that have already occurred. Usually, a lower base salary is offered and some type of incentive system is set up to reward employees for reaching production goals. For a pay for performance system to work, three critical factors are needed: 1. Tie pay to performance 2. Accurately measure performance 3. Provide appropriate incentives To raise productivity and lower labor costs in today's competitive environment, organizations are increasingly setting compensation objectives based on a PAY FOR PERFORMANCE standard. Unfortunately, one drawback of these pay systems is that they are hard to implement in jobs where performance is hard to define or quantify. EXECUTIVE PAY AND PAY FOR PERFORMANCE Many elements of the total compensation are offered to top executives. Executives often receive compensation in forms other than their base salary. Instead of just a base salary, executives receive perks like stock options, bonuses, houses, cars, that make their compensation well above the average pay of employees. Some of the more common perks given to top executives include the following: O company owned or leased car O company plane O cellular phone O home security system O personal liability insurance O physical exams O financial counseling O home computer Many shareholders are revolting against the compensation plans offered to many executives. The executives are often guaranteed increases in their compensation regardless of the company's performance. Executive pay is an area likely to see lot of controversy in the future. PAY FOR PERFORMANCE AT INDIVIDUAL AND GROUP LEVELS Due to the need to increase productivity to keep up with competition particularly foreign competition, firms are seeing that they can no longer simply give an employee a base salary with across the board raises. A "base pay" is the basic cash received for the work performed, adjusted for the individual's skill, education, experience, or some other attribute. Most compensation systems use some form of base pay for employees. For individuals, pay for performance can take the form of merit pay, incentives, and bonuses. MERIT PAY --- Merit pay rewards work behaviors that have already occurred. It can be given as an increase to base pay or as a lump sum payment. The primary issue of merit pay is whether pay truly is based on performance. Often, the pay received for good performance is only marginally more than that received for poor performance. Another issue is that employees do not often see the link between pay and performance. Oftentimes, it is unclear how one person got a merit increase over another. INCENTIVES — these systems are more future-oriented. They are used to induce the desired behavior. Straight piecework plans which pays a constant amount for each unit produced and standard hour plans which ties pay to a standard amount of time that it takes to complete a task are two common types of incentive plans. Skill-based pay , also referred to as knowledge-based pay or pay-for knowledge or multiskilled pay is a type of incentive plan that has received a lot of attention. Under this pay plan, employees are paid for the skills they possess, not just the skill performed. Now let's look a pay for performance at the GROUP level. GAIN SHARING PLANS --- these involve a participative management approach . Here you are paying for gains in reduction of costs, whether or not the organization is profitable at the end of the year. These plans are based on a mathematical formula that compares a baseline of performance with actual productivity during a given period. When productivity exceeds the baseline, an agreed-upon savings is shared with employees. Inherent in gainsharing is the idea that involved employees will improve productivity through more effective use of organizational resources. PROFIT SHARING PLANS ---- this refers to paying bonuses to employees based on company profits. This is any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred sums based upon the profits of the enterprise. They can represent cash payments made to eligible employees at designated time periods, or contributions to employee pension funds, or a combination of both. These plans are intended to give employees the opportunity to increase their earnings by contributing to the growth of their organization's profits. COMMISSIONS --- typically developed for sales employees. They may be paid on straight commission which pay employees a percentage of sales that are made or a combination of sales and bonus. They can also pay on a straight salary and commission plan. Example: A salesperson can work under a 70/30 combination plan which means that he would receive total cash compensation paid out as 70% base salary and 30% commission. STOCK OWNERSHIP PLANS — usually offered to top management. Managers are partially paid in stock in order to foster an interest in the long-term good of the company. Three major forms of stock ownership are o stock options --these give the employee the right to buy a firm's stock at some point in the future at a specified price. Can be a classic stock option which gives the employee the right to buy the company's stock during a certain period of time usually 10 years for a set price. Can be restricted stock option which restricts the length of time the employee must own the stock before it can be sold. O stock purchases--- these are similar to stock options offered to top management except that stock purchases are offered to all employees. O Employee Stock Ownership Plans (ESOP) — These allow employees to borrow against the firm's assets in order to purchase large quantities of stock. The organization contributes shares of its stock to an established trust for the purpose of stock purchases by its employees. PAY SECRECY VERSUS OPENNESS Many companies consider employee salaries to be confidential information. Still other organizations may post the salaries of all employees. Many employees feel that pay secrecy is best. There is much controversy concerning pay secrecy. On one hand, there is reason to believe that pay secrecy can generate distrust in the compensation system, reduce employees' motivation, and inhibit organizational effectiveness. Yet pay secrecy seems to be an accepted practice in many organizations. On the other hand, managers may justify secrecy on the grounds that most employees prefer to have their pay kept secret. Probably one of the reasons for pay secrecy that managers may be unwilling to admit is that it gives them greater freedom in compensation management, since pay decisions are not disclosed and there is no need to justify or defend them. Employees who are not supposed to know what others are being paid have no objective basis for pursuing complaints about their own pay. Secrecy also covers up inequities existing within the internal pay structure. Furthermore, secrecy surrounding compensation decisions may lead employees to believe that there is not direct relationship between pay and performance. Let's go back to theory for a while and look at three different motivation theories associated with compensation: EQUITY THEORY -- Equity theory is a motivation theory that explains how employees respond to situations in which they feel they have received less (or more) than they deserve. Specifically, this theory says that employees determine their own perceptions of their compensation equity by comparing themselves to others. If the individual's ratio of outcomes (that is salary or benefits) to inputs (abilities, skills, experiences) is different than the ratio of the referent other's outcomes to inputs, the employee will be motivated to restore the equity. If one employee feels that his outcome to input ratio is less than the outcome to input ration of another person he has chosen to compare himself to, equity theory predicts that he would feel under rewarded. Feeling under-rewarded results in more direct actions to reduce the inequity. EXPECTANCY THEORY — The expectancy theory of motivation predicts that one's level of motivation depends on the attractiveness of the rewards sought and the probability of obtaining those rewards. E = I X P Specifically, it refers to the process by which one is motivated to engage in some effort to achieve an outcome. Expectancy theory tells us that, to be motivated by the compensation system, employees must see three relationships. First, they must perceive that effort will lead to good performance; second, performance must lead to a reward; and third, the reward must be valued by the employee. If any of these three does not exist, the compensation system could be ineffective. REINFORCEMENT THEORY --- explains an individual behavior as a response to a stimulus in the environment. Simply, those behaviors that result in positive or desired outcomes will increase behaviors and be repeated, and those that result in undesired outcomes will decrease behaviors and be ceased. In summary, these theories stress that all rewards are not relevant to all employees. Managers must identify what employees value and then try to match rewards with employees.

chapter 10

STRATEGIES FOR EFFECTIVE PERFORMANCE APPRAISAL SYSTEMS In this chapter, we want to take a look at how performance appraisal can be used to develop employees and make them more productive. In the preceding chapters, we have discussed some of the most effective methods available to managers for acquiring and developing top-notch employees. But talented employees are not enough --- successful organizations are particularly adept at engaging their workforce to achieve goals that benefit the organization as well as the individuals. In this chapter we turn to performance appraisal programs, which are among the most helpful tools an organization can use to maintain and enhance productivity and facilitate progress toward strategic goals. Performance appraisals are useful tools not only for evaluating the work of employees but also for developing and motivating employees. STRATEGIC CHOICES Managers have a number of strategic choices to make regarding the performance appraisal system. They need to decide on o the objectives and purpose for the performance appraisal o can choose between formal and informal methods o the formats chosen can emphasize more objectivity versus subjectivity o must decide on the frequency of performance appraisals o must decide who conducts the performance appraisal. PERFORMANCE APPRAISAL OBJECTIVES Now let's talk generally about performance appraisals. Remember we just said that performance appraisals should be used not only to evaluate the performance of employees, but also to improve their performance, and also to motivate them and develop them. A. Formal versus Informal Appraisals --- formal appraisals are structured and occur at a specific point in time usually once or twice a year. The longest amount of time generally recommended between formal performance appraisals is one year. They are usually required by the organization to evaluate employee performance. Informal appraisals can occur when the manager and employee feels communication is needed to discuss ways to correct problems as they occur or to simply recognize the good performance of the employee of exceeding standards. Most organizations encourage a combination of both but the formal appraisal is most often used as the primary evaluation. Informal appraisals should never take the place of formal appraisals. B. Objective versus Subjective Performance Appraisals --Although most performance measures should be objective using concrete factors such as number of units produced, subjective measures can be used if desirable characteristics are hard to quantify like communication skills or management potential. In subjective measures, managers use their own judgments when evaluating employees. A formal performance appraisal should never contain all subjective measures but it can contain both objective and subjective measures of performance. C. Frequency of Performance Appraisals — formal appraisals should occur at least every six months to a year. Most often, yearly appraisals are performed. The longest amount of time generally recommended between formal performance appraisals is one year. However, with new job procedures in which feedback about performance is given monthly, daily, perhaps hourly, perhaps less frequent formal review could be performed. On the other hand, if the job provides no specific feedback about performance, yearly intervals may be too long between appraisals. Informal appraisals usually occur more frequently which will help to minimize surprises at the formal appraisal. D. Who Conducts the Performance Appraisal??? Performance appraisal can come from a number of sources. 1. Supervisors --- the most common evaluator is the employee's immediate supervisor. 2. Co workers — in some situations, co workers may evaluate their peers' performance. Evaluations for coworkers can be used if contact with the supervisor is limited or if they work in self managed teams. 3. Employees Themselves ---Sometimes employees are given the opportunity to assess their own performance. Self-ratings can be a valuable source of information for the supervisor particularly if used for employee development purposes. However, research has found that employees who are given the opportunity to evaluate themselves have a tendency to inflate their ratings. 4. Subordinates --they are a valuable source of information when examining managerial performance. 5. Computers — computer aided management involves the use of computers to monitor, supervise, and evaluate performance. The use of computers in the appraisal process will likely increase in the future. 6. Customers — in service organizations, the customer can be a good source of performance feedback. Example: guests checking out of a hotel, restaurants asking patrons to fill out a card, etc. 7. The Job Itself --- many jobs inherently provide performance evaluation as the job is being performed. Software in PC's underlining in red misspelled words or beep if an error is made. Another example would be where your output is another department's input. E. Which and How Many Raters Should Be Used??? The culture, strategy and purpose of the evaluation all combine to determine which type of appraisal system to use and who should use it. The hottest new approach is termed 360-degree feedback system where the employee is rated by multiple sources of managers, peers, customers, and even the individual himself. In a formal definition, it is the process by which an individual's performance is assessed through confidential feedback from managers, peers, customers, and the individual himself. Different people see different things. As the name implies, 360-degree feedback is intended to provide employees with as accurate a view of their performance as possible by getting input from all angles: supervisors, peers, subordinates, customers and the like. Some pros and cons of 360 degree appraisals are: PROS: O The system is more comprehensive in that responses are gathered from multiple perspectives O Quality of information is better. (Quality of respondents is more important than quantity.) O It complements TQM initiatives by emphasizing internal/external customers and teams. O It may lessen bias/prejudice since feedback comes from more people, not one individual. O Feedback from peers and others may increase self-development. CONS: O The system is complex in combining all responses. O Feedback can be intimidating and cause resentment if employee feels the respondents have "ganged up". O There may be conflicting opinions, though they may all be accurate from the respective standpoints. O The system requires training to work effectively. O Employees may collude or "game" the system by giving invalid evaluations to one another. O Appraisers may not be accountable if their evaluations are anonymous. USES OF PERFORMANCE APPRAISALS Performance appraisals is one of the most versatile tools available to managers. They can serve many purposes that benefit both the organization and employee whose performance is being appraised. The results of a research study showing the rank-ordering of the most common uses of performance appraisals are the following: 1. Salary Administration 2. Performance Feedback 3. Identification of individual strengths and weaknesses 4. Documentation of personnel decisions 5. Recognition of individual performance 6. Determination of promotion 7. Identification of poor performance 8. Assistance in goal identification 9. Decision in retention or termination. 10. Evaluation of goal achievement 11. Meeting legal requirements 12. Determination of transfers and assignments 13. Decision on layoffs 14. Identification of individual training needs 15. Determination of organizational training needs 16. Personnel planning 17. Reinforcement of authority structure 18. Identification of organizational development needs 19. Establishment of criteria for validation research 20. Evaluation of personnel systems PERFORMANCE APPRAISAL PROCESS Developing and conducting performance appraisals should not be done in isolation. The performance appraisal is closely related to a number of human resource management activities that should be considered. Exhibit 10.3 in the textbook shows that o job analysis — performance appraisals should be based on a formal job analysis. Job analysis produces job descriptions and job specifications that should be used in the performance evaluation. These should be current. O performance standards — performance standards should be developed from the job analysis as input into the performance appraisal. Performance standards against which to compare employee performance can be derived from the job analysis information. Standards should be clear as to what is acceptable and unacceptable behavior. They should describe what an employee should have produced or accomplished upon completing a specific activity. Example: a performance standard for a sales rep might be to obtain $1000 worth of new business by the end of the quarter. O the performance appraisal system --- performance appraisals should evaluate a number of specific behaviors as opposed to evaluating "overall job performance" using one or a few global measures. Another way of saying it, employees should be evaluated on a number of relevant job dimensions that are specific to the job, rather than on a global or overall measure. O assessing performance — one purpose of a performance appraisal is to improve the employee's performance. Assessing performance is determining the employee's strengths and weaknesses. O performance review --- this is the actual discussion between the rater and the employee. The performance review discussion should be a two-way communication between the evaluator and the employee. There are three types of performance reviews: 1. Closed reporting — when the appraisee has very little input into the discussion. This is more of a tell and sell interview which tries to persuade an employee to change in a prescribed manner. 2. Open reporting — after the performance review is complete, the appraiser listens to the reactions of the appraisee. The appraiser tells the ratee about his or her performance and then listens to the ratees reactions and/or concerns. This is more of a tell and listen interview in which the strong and weak points of an employees job performance are communicated, after which the employees feelings about the appraisal get explored. 3. Coaching --- the appraisee evaluates his own performance while the appraiser serves as a coach, not a critic. This is more of a problem solving interview by allowing the employee to discuss problems, needs, innovations, satisfactions and dissatisfactions the employee has encountered on the job. The objective of the coach is to stimulate growth and development in the employee. All three approaches have their strengths and weaknesses. Exhibit 10.4 in the textbook gives you some tips for improving performance reviews. TIPS FOR A SUCCESSFUL PERFORMANCE REVIEW: O Give the employee fair notice as to when the review is to take place. O Ask the employee to think about and evaluate his or her own performance prior to the review session. O Prepare for the review by examining information available about the employee's performance. Seek additional information if needed. O Begin the session on a positive tone to set the employee at ease and make him or her receptive to the performance review process. O Explain the format of the performance review session. O Make the employee aware of the used of the performance appraisal results (e.g., training and development, salary decisions, promotion decisions). O If needed, set a second meeting to discuss nonperformance-related issues such as the salary increase, future goals, or developmental suggestions. O Encourage the employee to participate, especially when his or her appraisal differs from yours. O Review the standards to which the employee will be compared to remind him or her that the process is not completely subjective. O Make sure to praise the employee for his or her accomplishments during the evaluation period. Recognize his or her achievements, and indicate where the employee has excelled. O Highlight, but do not dwell on, areas in which performance did not meet the standards. O Discuss ways to improve performance in the areas in which the employee was weak or to solve problems that have caused the employee to be less effective than desired. O Make sure that the employee fully understands the appraisal. O End the discussion on a positive note. Now let's talk about some different TYPES OF PERFORMANCE APPRAISAL METHODS The performance appraisal methods can be categorized into trait approaches, behavior approaches, and results approaches. We are going to focus mainly on the behavioral performance appraisal methods. For your information, the TRAIT approaches are designed to measure the extent to which an employee possesses certain characteristics such as dependability, creativity, initiative and leadership. Rather than looking at the traits of employees or the behaviors they exhibit on the job, many organizations use a RESULTS approach where they evaluate employee accomplishments --- the results they achieve through their work. Example — Management by Objectives Now let's look at the different types of BEHAVIORAL approaches: O CHECKLISTS ---- these are lists of descriptive statements or adjectives that describe job-related behavior. All are weighted equally. If the employee exhibits that behavior, the item is checked. If not, the item is left blank. SEE EXHIBIT 10.5 IN THE TEXTBOOK. O WEIGHTED CHECKLISTS ---These are similar to checklists, except certain items are weighted heavier since they are more predictive of job success. This method uses essentially the same format as the one described above. But after the list is compiled, a weighted value is applied to the responses. The evaluator does not know how the items are weighted. The points get totaled to provide an overall rating. SEE EXHIBIT 10.6 IN THE TEXTBOOK. O GRAPHIC RATING SCALES --- raters are asked to evaluate employees on a number of dimensions that contain a range of responses for example, from outstanding to unacceptable. This format contains a series of scales ranging from one extreme to another i.e. 1=unsatisfactory to 5=outstanding. SEE EXHIBIT 10.7 IN THE TEXTBOOK O MIXED STANDARD SCALES --- similar to graphic rating scales except that the rater is given three conceptually compatible statements describing the behavior at high, medium, or low levels. SEE EXHIBIT 10.8 IN THE TEXTBOOK. These scales give a wider range of scores than do graphic rating scores. O FORCED CHOICE SCALE — This performance evaluation method requires raters to pick a limited number of descriptive statements out of a set in order to describe performance. These are based on statistical properties and give the rater a number of choices that describe certain behaviors. The rater then selects only (for example) one of the two choices, without knowing which are more heavily weighted or predictive of success than the others. They are designed to reduce subjectivity and increase objectivity. SEE EXHIBIT 10.9 IN THE TEXTBOOK. O CRITICAL INCIDENT METHOD --- A critical incident is a written description of a highly effective or highly ineffective performance. Evaluators collect reports of behaviors that are said to be very favorable and very unfavorable over a period of time. These reports are then used as the basis for the performance evaluation. O BEHAVIORALLY ANCHORED RATING SCALES ( BARS) --- This is a sophisticated method of rating performance based on descriptions of employee behaviors rather than attitudes or assumptions about motivation or potential. BARS is a numerical scale that is anchored by specific narrative examples of behaviors that range from very negative to very positive descriptions of performance. SEE EXHIBIT 10.10 IN THE TEXTBOOK. BARS are time consuming, difficult to construct and costly to develop. O FORCED DISTRIBUTION This is a performance evaluation method that requires raters to put a certain percentage of employees in each performance category. For example, 10 percent of the employees must be placed in the "unsatisfactory" category, 15 percent must be placed in the "fair" category, 50 percent must be place in the "satisfactory or average " category, 15 percent in the "good" category, and 10 percent in the "outstanding" category. SEE EXHIBIT 10.11 IN THE TEXTBOOK PERCEPTUAL ERRORS IN EVALUATION It should be noted that performance evaluations can be biased due to a variety of perceptual errors made by the raters. Let's look at some of these errors: O HALO EFFECT --this occurs when a rater rates an employee on a number of characteristics based on the perception of one critical characteristic. Example: if an employee is always on time for work which is a positive halo, a supervisor may allow this characteristic to influence his or her evaluation of this employee's performance on other dimensions and overrides the fact that he is a marginal performer and misses deadlines. O STEREOTYPING --- this occurs when the ratee is placed in some category based on some identifiable trait. Example: an older worker may be stereotyped as being slower and more difficult to train. This perceptual error could negatively affect the overall performance evaluation. O ATTRIBUTIONS — the cause of the employee's behavior as perceived by the rater can directly affect the evaluation of that behavior. Example if a supervisor attributes an employee's good performance to luck or having an easy assignment then the performance evaluation will not be as positive as if the supervisor has attributed the good performance to effort or ability. BARS can help reduce these errors because it asks raters to rate behavior and not judge it. O RECENCY EFFECTS --- Error in which the appraisal is based largely on the employee's most recent behavior rather than on behavior throughout the entire appraisal period. O LENIENCY/STRICTNESS ERRORS --- error in which the appraiser tends to give employees either unusually high or unusually low ratings. The raters rate everyone toward the extreme ends of a scale. O CENTRAL TENDENCY ERRORS --- error in which all employees are rated above average. Occurs when the rater rates everyone at the center of a scale and fails to use the ends of the scale. NOTE: PROPER TRAINING IS OFTEN THE BEST METHOD TO ELIMINATE PERCEPTUAL ERRORS. SIMPLY TELLING RATERS ABOUT THE SEVERAL TYPES OF COMMON ERRORS AND HOW TO BE AWARE OF WHAT THEY ARE DOING CAN GO A LONG WAY TO REDUCING PERCEPTUAL ERRORS. Training programs should be implemented to (a) help raters avoid common perceptual errors in evaluations and (b) help raters with their performance review/feedback skills. STRATEGY AND THE PERFORMANCE APPRAISAL PROCESS As the theme of this course keeps emphasizing, organizational effectiveness can be improved by strengthening the linkage between the performance appraisal system and the long-term strategic plans. You want to design a system that matches the organization's strategy so individuals can perform in ways that support the organization's overall mission. The linkage between the performance appraisal system and the organization's long-term strategic plans should be clearly defined. CRITERIA FOR A SUCCESSFUL PERFORMANCE SYSTEM SEE EXHIBIT 10.14 IN THE TEXTBOOK Successful performance appraisal systems have a number of common characteristics. Let's look at them: 1. Clear objectives --- a successful performance appraisal system should be built around clear and specific objectives. 2. Management and Employee Endorsement --- should have the support of both management and employees 3. Flexibility ---- be flexible enough to adapt to organizational changes that may occur 4. Predictability --- the timing of the reviews and feedback sessions should be predictable. Know when to expect them 5. Performance dialogue --- Performance reviews should not be a "tell and sell" approach. Rather it should foster open discussions between supervisors and employees. 6. Appraisal Form --- The appraisal form should be tailored to objectives and should be understandable. 7. Periodic system checks --- systematically, the validity of the performance appraisal system should be checked at regular intervals. Let's look at the top 10 reasons performance appraisals can fail. 1. Manager lacks information concerning an employee's actual performance. 2. Standards by which to evaluate an employee's performance are unclear. 3. Manager does not take the appraisal seriously. 4. Manager is not prepared for the appraisal review with the employee. 5. Manager is not honest/sincere during the evaluation. 6. Manager lacks appraisal skills. 7. Employee does not receive ongoing performance feedback. 8. Insufficient resources are provided to reward performance. 9. There is ineffective discussion of employee development. 10. Manager uses unclear/ambiguous language in the evaluation process.