710-chapter 6

Pay-for-performance philosophy:

Assumes that compensation decisions reflect performance differences. Pay and raises are based on performance.

Entitlement philosophy:

Assumes that individuals who have worked another year with the company are entitled to pay increases with little regard for performance differences. Pay and raises are based on length of service.

1. What are the negative consequences of ineffective performance appraisals?

Failure to reward better performing employees reduces their motivation to exert higher levels of effort. Failure to identify employees who are ready for promotion leads to less effective promotion decisions. Failure to identify areas of employees' job performance that need improvement makes employees less productive than they could be.

1. Understand the three basic functions of performance appraisal.

Performance appraisal has three basic functions: reward, develop, and promote.

1. What are the reasons for using work team variable pay?

· It may be easier to measure group output than individual output. · It can foster team cohesiveness. · It can improve productivity. · It can increase retention. · It can improve quality.

1. Understand the rating errors:

Leniency Bias- If a supervisor is doing performance appraisals on a number of employees and makes too many high ratings, that supervisor is displaying a Leniency Bias. Severity Bias- If a supervisor is making too many low ratings, there is a Severity Bias. Central Tendency- if the supervisor is making too many ratings in the middle of the scale, there is a Central Tendency. Contrast Effect- Halo Effect- occurs when raters let an overall impression of an employee affect their ratings across a set of performance dimensions (i.e., an employee receives higher ratings; or lower ratings, if there is a negative impression) so that the ratings they make tend to be consistent with the rater's overall impression. Recency Error- occurs when the rater focuses only on recent performance, instead of evaluating the employee's job performance over the entire evaluation period. Similarity- is the tendency for raters to judge more favorably those perceived to be similar to themselves (i.e., employees are rated more favorably if they are similar in background, attitudes, or other characteristics).

1. Understand the four requirements for an effective performance appraisal system.

Relevance- there are clear links between the performance standards for jobs and the organization's goals and between the performance standards for jobs and the performance dimensions evaluated in the performance appraisal. Sensitivity- the performance appraisal system can distinguish effective from ineffective performers. Reliability- there is consistency in the performance appraisal process. Acceptability- the performance appraisal system has the support of the managers and employees who use it. If the system is not acceptable, it may be undermined or used ineffectively.

1. According to Longenecker and Goff (1990), although many organizations have a performance appraisal system, it has been estimated that less than 20% of all performance appraisals are effective. What are the reasons that performance appraisals fail?

The performance standards against which employees are to be evaluated may be unclear. The manager may not have had opportunities to observe the employee's job performance, the manager may lack skill in conducting the appraisal. The appraisal is not taken seriously by the person doing the rating

What is "glass ceiling"?

refers to the smaller percentage of women than men in management positions.

Understand the five common ways of conducting a performance appraisal

· A Checklist- A Checklist contains a list of job tasks, and the manager conducting the performance appraisal checks off those tasks that have been completed satisfactorily. The employee's score on the performance appraisal is the number of items on the Checklist that have been checked off. Essentially, each job task is evaluated as satisfactory or unsatisfactory, although relatively more important job tasks can be given more weight in the total score. Checklists are easy for the supervisor to use and for the employee to understand, but they are relatively insensitive to differences between employees and within an employee over time, because it is only a 2-point scale. · Rank Ordering- a group of employees on their job performance is easy for the manager to do, if the number of employees is not too large. With larger numbers of employees, it may be easy for the manager to determine which employees should get the highest and lowest ranks but deciding on appropriate rankings for employees in between can be more difficult. Also, a rank ordering is an ordinal scale, which hides differences between groups of employees evaluated by different managers. If one manager had three employees, one a superior performer and two below-average performers on an absolute measure of performance, they would be ranked first, second, and third. If another manager had three employees, two superior performers and one below-average performer, they would also be ranked first, second, and third. · Narrative Appraisals- require managers to write an essay about the job performance of the employee. Although this has the advantage of providing a richer description of the employee's performance (e.g., the mitigating and aggravating circumstances, the situational constraints, and unexpected events), the result is words, not numbers. Administrative decisions about continued employment, transfer, promotion, and merit pay must still be made, and these decisions are easier to make when they are based on numbers. Also, the quality of narrative appraisals depends on the writing skills of the manager doing the appraisal. · Graphic Rating Scales (GRS)- Managers evaluate an employee's performance on a number of performance dimensions, using a scale with definitions for each point on the scale. The primary advantage of GRS over other performance appraisal methods is that they are easy to develop, easy for supervisors to learn to use, and easy for employees to understand. Other methods of performance appraisal cannot match these advantages. Graphic Rating Scales have been used for many years. · A Behaviorally Anchored Rating Scale (BARS). A BARS is difficult and time-consuming to develop.- To evaluate the employee's job performance, the manager matches the behavior on the scale that is typical of the employee. This improves the response clarity of the scale, because raters do not have to interpret a subjective term such as "outstanding" or "satisfactory." A BARS is typically more than a 5-point scale, which improves its sensitivity to differences in job performance between employees and within an employee over time.

1. Why can benefits be offered as a competitive advantage? Benefits are offered to:

· Aid recruiting and retention - Which employer to work for - Whether to stay with or leave an organization - When to retire · Improve organizational performance · Meet legal requirements · Reinforce the company philosophy of social and corporate citizenship

What are the challenges with work team incentives?

· Rewards distributed in equal amounts to all members may be perceived as unfair. · There may be free rider issues. Free rider refers to a member of the team who contributes little. · Large team size can be a challenge because individual efforts of employees have little effect on the total performance of the team in large teams.

Benefit is defined as tangible indirect rewards provided to an employee or group of employees for organizational membership

· U.S. employers often provide benefits. · U.S. benefit cost average 33%-50% of payroll expenses. · Health insurance is the largest percentage.