Chapter 10
the actual appraisal process should provide
1. A clear sense of direction 2.An opportunity for employees to participate in setting the goals and standards for performance Prompt, honest, and meaningful feedback 4. Immediate and sincere reinforcement 5.Coaching and suggestions for improving future performance 6. Fair and respectful treatment 7. An opportunity for employees to understand and influence decisions that affect them
Components of a Total Reward System
1. Compensation 2. Benefits 3. Social interaction 4. Security 5. Status/recognition 6. Work variety 7. Workload 8. Work importance 9. Authority/control/autonomy 10. Advancement 11. Feedback 12. Work conditions 13. Development opportunity
strategy Two: Select the Right Raters
360-degree feedback performance appraisal method that includes feedback from up to five sources: supervisor, peers, self, customers, and subordinates
JImilar-to-me error
Giving better ratings to individuals who are like the rater in behaviour and/or personality.
Common Errors in the Appraisal Process
Halo error yiegative halo error ecency error Leniency error strictness error :entral tendency error 5imilar-to-me error Spillover error
actors that lead raters to give inaccurate appraisals:
(1) guilt, (2) embarrassment about giving praise, (3) taking things for granted, (4) not noticin (5) halo effect, (6) dislike of confrontation, or (7) spending too litde rime on preparation of the appraisal
Strategies to better understand and measure job performance
(1) improve evaluation formats; (2) select the right raters; and (3) understand how raters process information, and (4) train raters how to avoid common errors in appraising performance.
Halo error
An appraiser giving favourable ratings to all job duties based on impressive performance in just one job function. For example, a rater who hates tardiness rates a prompt subordi¬ nate high across all performance dimensions exclusively because of this one characteristic.
Central tendency error
Avoiding extremes in ratings across employees.
Leniency error
Consistently rating someone higher than is deserved.
4 Questions to ask
How do we attract good employment prospects to join the company? How do we retain these good employees once they join? How do we get employees to develop their skills for current and future jobs? How do we get employees to perform well while they are with the company?
Strategy Three: Understand How Raters Process Information
I. In general, it appears that the following kinds of processes occur. First, the rater observes behaviour of a ratee. Second, the rater encodes this behaviour as part of a total picture of the ratee. Third, the rater stores this information in memory, which is subject to both short- and long-term decay—simply put, raters forget things, ro Fourth, when it comes time to evaluate a ratee. the rater reviews the performance dimensions and retrieves stored observations/impressions to determine their relevance to the performance dimensions. Finally, the information is reconsidered and integrated with other available information as the rater decides on the final ratings
Do Employees Perform Better on Their Jobs Because of Pay?
In general, linking pay to behaviours of employees results in better individual and organizational •erformance.
Motivation Theories
Maslow's Need hierarchy Herzberg's TwoFactor Theory Expectancy theory Equity Theory Reinforcement Theory Goal Setting heory Agency Theory
strategy Four: Train Raters to Rate More Accurately
Rater-training programs can be divided into three distinct categories:^^ (1) Rater-error training, in which the goal is to reduce psychometric errors (e.g., leniency, severity, central tendency, halo) by familiarizing raters with their existence; (2) performance dimension training, which exposes supervisors to the performance dimensions to be used in radng; and (3) performance-standard training, which provides raters with a standard of comparison or frame of reference for making appraisals.
pay-for-performance plan
a pay plan that links individual pay to so some measure of performance on the job
motivation
a process involving the determination of what is important to a person, and offering it in exchange for desired behaviour
total reward system
all financial and nonfinancial rewards provided by organizations to their employees
agency theory
motivation theory stating that employees and management/owners both will act opportunistically to obtain the most favourable exchange possible
equity theory
motivation theory stating that people are concerned about fairness of the reward about fairness of the reward outcomes exchanged for employee inputs
expectancy theory
motivation theory stating that people cognitively evaluate potential behaviours in relation to rewards offered in exchange
paired comparison performance ranking
ranking each employee against all other employees, one pair at a time
Wage Components
Base pay, Across-the-board Increase, Cost-of-living increase Merit pay Lump-sum bonus Individual incentive Group incentive Gain-sharing plans Profit-sharing plans Risk-sharing plans
Spillover error
Continuing to downgrade an employee for performance errors in prior rating periods.
First impression error
Developing a negative or positive opinion of an employee early in the review period and allowing that to influence negatively or positively all later perceptions of performance.
DESIGNING A PAY-FOR-PERFORMANCE PLAN
, the effectiveness of reward systems is dependent on three things: efFiciency, fairness, and legislative compliance. \ Efficiency involves three general areas of concern—strategy, structure, and standards. Strategy Does the pay-for-performance plan support corporate objectives Is the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations on a general pay-for-performance plan; Operationally, the key to designing a pay-for-performance plan rests in setting performance standards. Specifically, performance objectives mnsi be specific, yet flexibli Fairness s. The first type is fairness in the amount that is distributed to employees. This type of fairness is labelled distributive justice. procedural justice. Legislative Compliance
Employee performance
Employee performance = f{A,M,E) where A = Ability M = Motivation to perform E = Supportive environment Pay and other rewards should encourage and reinforce desired behaviours.
Evaluating Performance Evaluation Formats
Evaluation formats can be evaluated on four different dimensions: (1) employee development potential (amount of feedback about performance that the format offers), (2) administrative value, (3) cost, and (4) validity.
Do People Join a Firm Because of Pay?
Materialistic Relatively: more concerned about pay level Low self-Esteem: Want large, decentralized organization with little pay for performance Risk takers: Want more pay based on performance Risk-averse: Want less performance-based pay Individualists ("I control •ny destiny"): Want pay plans based on individual performance, not group performance
Recency error
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.
strictness error
The opposite of leniency error. Rating someone consistently lower than is deserved.
Do People Stay in a Firm (or Leave) Because of Pay?
There is clear evidence that poor performers are more likely to leave an organization than good performers. Turnover is much higher for poor performers when pay is based on individual performance (a good outcome!). Conversely, group incentive plans may lead to more turnover of better performers—clearly an undesirable outcome Recent efforts to use different types of compensation as a tool for retaining workers have focused on what is called scarce talent Individual worker productivity was measured before and after a glass installation company switched one of its plants from a salary-only (no pay •r performance) system to an individual incentive plan under which each employees pay depended his/her own performance. An overall increase in plant productivity of 44 percent was observed. Roughly one-half of die produaivity increase was due to individual employees becoming more productive, while the other half of die productivity gain was explained by the fact diat less productive workers were less likely to stay under such incentive plan because it was less favourable to diem.
strategy One: Improve Evaluation Formats
evaluation format the method used to evaluate an employee's performance, either ranking against other employees or rating on one or more performance criteria
THE PERFORMANCE APPRAISAL PROCESS
performance dimensions should be relevant to the strategic plan of the company. 1 it is important to involve employees in every stage of developing performance dimensions and building scales to measure how well they perform on these dimensions. raters need to be trained in use of the appraisal system, and all employees need to understand how the system operates and what it will be used for. , raters must be motivated to rate accurately raters should maintain a diary of employee performance, both as documentation and to jog the memor raters should attempt a performance diagnosis to determine in advance whether performance problems arise because of motivation, skill deficiency, or external environmental constraints
management by objectives (MBO)
performance rating method based on meeting objectives set at the beginning of the performance review period
)ehaviourally anchored rating scale (BARS)
performance rating scales using behavioural descriptions as anchors for different levels of performance on the scale
Performance Appraisal
process of evaluating or appraising an employee's performance on the job.
alternation ranking
ranking the best employee, tfien the worst employee, then the next-best and nextworst and so on
Negative halo error
rhe opposite of a halo error. Downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension.