PERFORMANCE APPRAISAL AND REWARDS

1. FEEDBACK TO EMPLOYEES 2. SELF-DEVELOPMENT 3. REWARD SYSTEMS 4. PERSONNEL DECISIONS 5. TRAINING AND DEVELOPMENT

5 USES OF PERFORMANCE APPRAISALS

MANAGEMENT BY OBJECTIVES

A popular technique for evaluating employees who are involved in jobs that have clear quantitative output. It is closely related to the goal-setting theory of motivation.

FLEXIBLE BENEFITS PROGRAMS

A typical fringe benefit package provides the same benefits—and the same number of benefits—to all employees.

COMPARISON OF APPRAISAL TECHNIQUES

Although there is no simple answer to this question, we can consider the various strengths and weaknesses of each technique. It is important to keep in mind that the appropriateness of a particular appraisal technique is in part a function of the purpose for the appraisal.

- merit-based compensation (commonly known as merit compensation); - piece-rate incentive programs (where people are paid according to the quantity of output); - bonus systems of various sorts; and - commissions

Among individual incentive plans, several approaches can be identified, including:

LUMP-SUM PAY INCREASES

Another technique that has received some attention is to allow employees to decide how (that is, in what amounts) they wish to receive their pay raises for the coming year.

TRAINING AND DEVELOPMENT

Appraisals can help managers identify areas in which employees lack critical skills for either immediate or future performance.

REWARD SYSTEMS

Appraisals may form the bases of organizational reward systems particularly merit-based compensation plans.

1. Rewards go to those with the greatest power. 2. Second possible basis for reward distribution is equality. 3. The basis for the social welfare reward system in this country is need. 4. Fourth mechanism used by organizations in allocating rewards is distributive justice.

BASES FOR REWARD DISTRIBUTION: - At least four mechanisms can be identified

- Direction - Effort - Task persistence - Task resistance

Behavioral Consequences for Employee

PARTICIPATIVE PAY DECISIONS

By allowing employees to participate either in the design of the reward system or in actual pay raise decisions (perhaps through a committee)

- GAIN-SHARING PLANS - SKILLS-BASED INCENTIVES - LUMP-SUM PAY INCREASES - PARTICIPATIVE PAY DECISIONS - FLEXIBLE BENEFITS PROGRAMS

CREATIVE PAY PRACTICES Five such creative pay practices should be noted:

- Accuracy of feedback - Source of credibility - Fairness of system - Employee expectations - Reasonableness of standards

Employee's Cognitive Evaluation of Feedback

include feelings of task accomplishment, autonomy, and personal growth and development that come from the job.

Example of intrinsic reward

include wages and salary, fringe benefits, promotions, and recognition and praise from others.

Examples of extrinsic rewards

JOB EFFORT AND PERFORMANCE

Following expectancy theory, employees' effort and performance would be expected to increase when they felt that rewards were contingent upon good performance.

- satisfaction with a reward is a function of both how much is received and how much the individual feels should have been received; - satisfaction is influenced by comparisons with what happens to others, especially one's coworkers; - people differ with respect to the rewards they value; and - some rewards are satisfying because they lead to other rewards.

Four conclusions concerning the relationship between rewards and satisfaction:

- JOB EFFORT AND PERFORMANCE - ATTENDANCE AND RETENTION - EMPLOYEE COMMITMENT TO THE ORGANIZATION - JOB SATISFACTION - OCCUPATIONAL AND ORGANIZATIONAL CHOICE

Functions of Reward Systems:

- Any reward system or incentive plan should be as closely tied to actual job performance as possible. - If possible, incentive programs should allow for individual differences. They should recognize that different people want different outcomes from a job. - Incentive programs should reflect the type of work that is done and the structure of the organization. - The incentive program should be consistent with the culture and constraints of the organization. - Finally, incentive programs should be carefully monitored over time to ensure that they are being fairly administered and that they accurately reflect current technological and organizational conditions.

GUIDELINES FOR EFFECTIVE INCENTIVE PROGRAMS:

GAIN-SHARING PLANS

Giving executives and senior managers bonuses to reflect their contributions to organizational effectiveness is commonplace.

Strictness or Leniency Error

It fail to distinguish adequately between good and bad performers and instead relegate almost everyone to the same or related categories.

exchange process

It has been found that reward systems in no small way influence employee commitment to the organization, primarily through the ________.

Pay Secrecy

It is argued that salary is a personal matter and we should not invade another's privacy. It also affects motivation via feedback.

FEEDBACK

It represents a critical variable in determining the success or failure of the goalsetting process. The same applies to the performance appraisal process. Without effective knowledge of results, the motivational impact of the appraisal process is lost.

- Trust levels between managers and subordinates must be high. - Individual performance must be able to be accurately measured. - Pay rewards to high performers must be substantially higher than those to poor performers. - Few, if any, negative consequences for good performance must be perceived.

Lawler suggests that certain conditions must be present in order for pay to act as a strong motivator:

1. a goal or incentive, 2. a source of satisfaction, 3. an instrument for gaining other desired outcomes, 4. a standard of comparison for determining relative standing or worth, and 5. a conditional reinforcer where its receipt is contingent upon a certain level of performance.

Money serves several important functions in work settings. These include serving as:

RECENCY ERROR

Oftentimes evaluators focus on an employee's most recent behavior in the evaluation process. That is, in an annual evaluation, a supervisor may give undue emphasis to performance during the past months or even weeks and ignore performance levels prior to this.

1. CENTRAL TENDENCY ERROR 2. STRICTNESS OR LENIENCY ERROR 3. HALO EFFECT 4. RECENCY ERROR 5. PERSONAL BIASES

PROBLEMS OF PERFORMANCE APPRAISALS

SELF-DEVELOPMENT

Performance appraisals can also serve as an aid to employee self-development.

FEEDBACK TO EMPLOYEES

Performance appraisals provide feedback to employees about quantity and quality of job performance.

PERSONNEL DECISIONS

Performance appraisals serve personnel-related functions as well. In making personnel decisions, such as those relating to promotions, transfers, and terminations, they can be quite useful. Employers can make choices on the basis of information about individual talents and shortcomings.

- Ensuring that each dimension or factor on a performance appraisal form represents a single job activity instead of a group of job activities. - Avoiding terms such as average, because different evaluators define the term differently. - Ensuring that raters observe subordinates on a regular basis throughout the evaluation period. It is even helpful if the rater takes notes for future reference. - Keeping the number of persons evaluated by one rater to a reasonable number. When one person must evaluate many subordinates, it becomes difficult to discriminate. Rating fatigue increases with the number of ratees. - Ensuring that the dimensions used are clearly stated, meaningful, and relevant to good job performance. - Training raters so they can recognize various sources of error and understand the rationale underlying the evaluation process.

REDUCING ERRORS IN PERFORMANCE APPRAISALS INCLUDES:

Employee Invests: time, effort, knowledge, skills and creativity The Organization: Wants to attract and retain a productive workforce Organization invests: Pay, benefits, status and recognition, job opportunities and social opportunities The Employee: Wants interesting work and fair compensation

Reward Systems in Organizations:

ATTENDANCE AND RETENTION

Reward systems have also been shown to influence an employee's decision to come to work or to remain with the organization.

- The task - Supervisor - Co-worker - Self

Sources of Feedback

1. GRAPHIC RATING SCALES 2. CRITICAL INCIDENT TECHNIQUE 3. BEHAVIORALLY ANCHORED RATING SCALES 4. BEHAVIORAL OBSERVATION SCALES 5. MANAGEMENT BY OBJECTIVES 6. ASSESSMENT CENTERS 7. COMPARISON OF APPRAISAL TECHNIQUES

TECHNIQUES OF PERFORMANCE APPRAISAL:

EMPLOYEE COMMITMENT TO THE ORGANIZATION

That is, employees develop ties with organizations when they perceive that the organization is interested in their welfare and willing to protect their interests.

BEHAVIORALLY ANCHORED RATING SCALES (BARS)

This system requires considerable work prior to evaluation but, if the work is carefully done, can lead to highly accurate ratings with high inter-rater reliability.

SKILLS-BASED INCENTIVES

Typical compensation programs are tied to job evaluations. In these, jobs are analyzed to assess their characteristics, and then salary levels are assigned to each job on the basis of factors such as job difficulty and labor market scarcity.

Edward E. Lawler

a well-known researcher on employee compensation

CRITICAL INCIDENT TECHNIQUE

appraisal, supervisors record incidents, or examples, of each subordinate's behavior that led to either unusual success or unusual failure on some aspect of the job.

Intrinsic rewards

are a function of self-monitoring, evaluation, and administration; consequently, these rewards often are less costly and more effectively administered.

extrinsic rewards

are external to the work itself. They are administered externally—that is, by someone else (usually management).

ASSESSMENT CENTERS

are unique among appraisal techniques in that they focus more on evaluating an employee's long-range potential to an organisation than on her performance over the past year.

Group incentive programs

base at least some of an employee's rewards on group or organization performance. Hence, employees are encouraged to cooperate with one another and with the corporation so that all employees can benefit.

Personal Biases

can interfere with the fairness and accuracy of an evaluation and are illegal in many situations.

Job Satisfaction

has also been shown to be related to rewards.

BEHAVIORAL OBSERVATION SCALES (BOS)

is similar to BARS in that both focus on identifying observable behaviors as they relate to performance. It is, however, less demanding of the evaluator.

CENTRAL TENDENCY ERROR

it is the failure to recognise either very good or very poor performers.

halo effect

occurs when managers have an overly positive view of a particular employee. This can impact the objectivity of reviews, with managers consistently giving an employee high ratings and failing to recognize areas for improvement.

PERFORMANCE APPRAISAL SYSTEMS

provide a means of systematically evaluating employees across various performance dimensions to ensure that organizations are getting what they pay for.

INTRINSIC REWARDS

represent those rewards that are related directly to performing the job. In this sense, they are often described as "self-administered" rewards, because engaging in the task itself leads to their receipt.

GRAPHIC RATING SCALES

the most popular method of evaluation used in organizations today. Although this method appears in many formats, the supervisor or rater is typically presented with a printed or online form that contains both the employee's name and several evaluation dimensions (quantity of work, quality of work, knowledge of job, attendance). The rater is then asked to rate the employee by assigning a number or rating on each of the dimensions.

OCCUPATIONAL AND ORGANIZATIONAL CHOICE

the selection of an occupation by an individual, as well as the decision to join a particular organization within that occupation, are influenced by the rewards that are thought to be available in the occupation or organization.

This process moves from evaluating employee performance to providing adequate and constructive feedback to determining discretionary reward.

three interrelated aspects of the performance appraisal and reward process: