Traditional Basis for Pay seniority and Merit

Traditional Basis for Pay seniority and MeritChapter 4Chapter Road MapSeniority and longevity payEffectiveness of seniority pay systemsDesign of seniority and longevity pay systemsAdvantages of seniority pay systemsFitting seniority pay with competitive strategiesMerit PayElements of Merit PayPerformance management systemsMethods of appraising employeesSources of Performance Appraisal InformationErrors in Performance appraisal ProcessStrengthening the pay for performance linkLimitations of merit pay programsLinking Merit pay with competitive strategy

Seniority and Longevity PaySeniority or longevity pay systems reward employees with periodic additions to base pay according to employees length of service in performing their jobs.The rationale comes from human capital theory which states that employees knowledge and skills generate productive capital known as human capitalEmployees can develop such knowledge and skills from formal education and training including on-the-job experienceOver time, employees presumably refine existing skills or acquire new ones that enable them to work more productivelyThus, seniority pay rewards employees for acquiring and refining their skills as indexed by seniority Seniority and Longevity PayHistorical OverviewPresident Franklin D. Roosevelt advocated policies designed to improve workers economic status in response to economic depression of 1929Congress instituted National Labor Relations Act (NLRA) in 1935 to protect workers rightNLRA established a collective bargaining system to accommodate employers and employees partially conflicting and partially shared goalsCollective bargaining led to job control unionism, collective bargaining units negotiate formal contracts with employees provide quasi-judicial grievance procedures to adjust disputes between union members and employers

Seniority and Longevity PayIn a unionized work places, terms of collective bargaining agreements may determine the type of seniority system usedSeniority system tend to be deciding factor in nearly all job scheduling, transfer, lay offs, compensation , and promotion decisionsPolitical pressures probably drive the prevalence of public sector seniority paySeniority based pay system essentially provide automatic pay increases Performance assessment tend to be subjective rather than objective because accurate job performance measurement are very difficult to obtainIn contrast employees seniority is easily indexedImplementing such a system that specifies the amount of pay raise an employee will receive according to seniority is automaticPolitically, automatic pay increases protect public sector employees from the quirks of election-year politicsThe federal, state (provincial) governments can avoid direct responsibility for pay raises, so employees can receive fair pay without political objectionsSeniority and Longevity PayWho Participates?Approximately private sector union workers, mainly:a.Rank and fileClericalGovernment workersa.All levels i.Municipalii.StateFederalb.Most positionsi.Administrationii.Professionaliii.Managerial

Seniority and Longevity PayEffectiveness of Seniority Pay Systems 1.Little systematic research demonstrates seniority pay system plans effectiveness2.Will probably disappear from for-profit companies in the future due to:a.Increased global competitionb.Rapid technological advancesc.Skill deficits of new and current workersd.Aging baby boomer generation which would make these plans cost-prohibitive

Seniority and Longevity PayDesign of Seniority Pay and Longevity Pay Plans Seniority paya.Object is to reward job tenure through permanent increases to base salaryb.Employees start at set base pay, then receive time-designated pay increasesEmployees can reach a maximum pay level for a position, but are expected to be promoted and qualify for a new, higher pay structure2.Longevity pay a.Rewards employees who have reached pay grade maximums and who are not likely to move into higher gradesb.Can take the form of a percentage of base pay, a flat dollar amount, or a special step increase based on the number of years the employee has spent with the organization

Seniority and Longevity PayAdvantages of Seniority Pay Plans 1.Employees may perceive that they are treated fairly because they earn pay increases by an objective standard instead of supervisory judgment2.Set pay increases facilitate the administration of pay programs for employers3.Avoids the perception, by employees, of favoritism

Seniority and Longevity PayFitting Seniority Pay with Competitive Strategies 1.Seniority pay does not fit well with the imperatives of competitive strategies because employees can count on receiving the same pay raises regardless of performanceWith the exception of companies that are shielded from competitive pressures (e.g., public utilities), it is likely that companies that intend to remain competitive will set aside seniority pay practices .3.Although seniority pay plans reflect employees' increased worth, they measure such contributions indirectly, rather than based on tangible contributions or the successful acquisition of job-related knowledgeMerit Pay Plans 1.Pay programs that assume that employees' compensation over time should be determined, at least in part, by differences in job performance2.Permanent increases are based on performance3.Reward excellent effort or results4.Motivate future performance5.Help employers retain valued employees

Merit Pay Plans Exploring the Elements of Merit Pay Based on objective and subjective indicators of an employees job performance 2.Periodic review, by supervisors, of employees' job performance compared to performance standards and goals3.Accurate performance appraisals are key to effective merit pay programs4.To be effective, standards and goals must be realistic and employees must be prepared to meet job goals with respect to their skills and abilities5.Employees must perceive a strong relationship between attaining performance standards and pay increases

Merit Pay Plans Exploring the Elements of Merit PayImportant considerations for deciding on using merit paya.That adequate funds are available to fulfill promises to compensate employeesb.Adjustments to base pay should be made according to changes in the cost of living or inflation before awarding merit pay raisesc.Is there a commitment for merit pay from top management?d.Is the job design conducive to making merit pay effective in improving or maintaining job performance levels?Do employees have control over their performance without outside influences that can affect the attainment of performance goalsHave employers set explicit performance standards that specify the procedures or outcomes against which employees' job performance can be clearly evaluated?

Performance Management systemPerformance management is the systematic process by which an organization involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of organizational mission and goals.

Performance Management System

Performance Management In an effective organization, work is planned out in advance. Planning means setting performance expectations and goals for groups and individuals to channel their efforts toward achieving organizational objectives. Getting employees involved in the planning process will help them understand the goals of the organization, what needs to be done, why it needs to be done, and how well it should be done.The requirements for planning employees' performance include establishing the elements and standards of their performance appraisal plans.

Performance Management Performance elements and standards should be measurable, understandable, verifiable, equitable, and achievable. Through critical elements, employees are held accountable as individuals for work assignments or responsibilities. Employee performance plans should be flexible so that they can be adjusted for changing program objectives and work requirements. When used effectively, these plans can be beneficial working documents that are discussed often, and not merely paperwork that is filed in a drawer and seen only when ratings of record are required

Performance Management In an effective organization, assignments and projects are monitored continually. Monitoring well means consistently measuring performance and providing ongoing feedback to employees and work groups on their progress toward reaching their goals.Requirements for monitoring performance include conducting progress reviews with employees where their performance is compared against their elements and standards. Ongoing monitoring provides the opportunity to check how well employees are meeting predetermined standards and to make changes to unrealistic or problematic standards. By monitoring continually, unacceptable performance can be identified at any time during the appraisal period and assistance provided to address such performance rather than wait until the end of the period when summary rating levels are assigned

Performance Management In an effective organization, employee developmental needs are evaluated and addressed. Developing in this instance means increasing the capacity to perform through training, giving assignments that introduce new skills or higher levels of responsibility, improving work processes, or other methods. Providing employees with training and developmental opportunities encourages good performance, strengthens job-related skills and competencies, and helps employees keep up with changes in the workplace, such as the introduction of new technology.Carrying out the processes of performance management provides an excellent opportunity to identify developmental needs. During planning and monitoring of work, deficiencies in performance become evident and can be addressed. Areas for improving good performance also stand out, and action can be taken to help successful employees improve even further

Performance Management From time to time, organizations find it useful to summarize employee performance. This can be helpful for looking at and comparing performance over time or among various employees. Organizations need to know who their best performers are.Within the context of formal performance appraisal requirements, rating means evaluating employee or group performance against the elements and standards in an employee's performance plan and assigning a summary rating of record. The rating of record is assigned according to procedures included in the organization's appraisal program. It is based on work performed during an entire appraisal period. The rating of record has a bearing on various other personnel actions, such as granting within-grade pay increases and determining additional retention service credit in a reduction in force.Note: Although group performance may have an impact on an employee's summary rating, a rating of record is assigned only to an individual, not to a group.

Performance Management Rewarding means recognizing employees, individually and as members of groups, for their performance and acknowledging their contributions to the organizations mission. A basic principle of effective management is that all behavior is controlled by its consequences. Those consequences can and should be both formal and informal and both positive and negative.Good performance is recognized without waiting for nominations for formal awards to be solicited. Recognition is an ongoing, natural part of day-to-day experience. A lot of the actions that reward good performance like saying "Thank you" don't require a specific regulatory authority. Nonetheless, awards regulations provide a broad range of forms that more formal rewards can take, such as cash, time off, and many nonmonetary items. The regulations also cover a variety of contributions that can be rewarded, from suggestions to group accomplishments.

Managing Performance EffectivelyIn effective organizations, managers and employees ensure: Goals are set and work is planned routinely. Progress toward those goals is measured and employees get feedback. High standards are set,Care is also taken to develop the skills needed to reach them. Formal and informal rewards are used to recognize the behavior and results that accomplish the mission. All five component processes working together and supporting each other achieve natural, effective performance management.

Performance AppraisalA performance appraisal, is a method by which the job performance of an employee is evaluated (generally in terms of quality, quantity, cost, and time) typically by the corresponding manager or supervisorIt is the process of obtaining, analyzing, and recording information about the relative worth of an employee to the organization. Performance appraisal is an analysis of an employee's recent successes and failures, personal strengths and weaknesses, and suitability for promotion or further training. It is also the judgment of an employee's performance in a job based on considerations other than productivity alone.

Types of Performance Appraisal SystemsTrait Based ApproachesGraphic Rating ScalesCheck ListComparative Methods Ranking MethodPaired ComparisonForced DistributionNarrative MethodsCRITICAL INCIDENTESSAYFIELD REVIEWBEHAVIORAL RATING APPROACHESBehaviorally anchored rating scales (BARS),Behavioral observation scales (BOS),Behavioral expectation scales (BES).Management by Objectives (MBO)360 degree performance appraisal

Trait Based Approaches

Graphic rating scalesThe Rating Scale is a form on which the manager simply checks off the employees level of performance. This is the oldest and most widely method used for performance appraisal. The scales may specify five points, so a factor such as job knowledge might be rated 1 (poorly informed about work duties) to 5 (has complete mastery of all phases of the job).Trait Based ApproachesGraphic rating scales (contd.)Content of appraisalQuantity of work. Volume of work under normal working conditions, Quality of work. Neatness, thoroughness and accuracy of work Knowledge of job.Dependability, Conscientious, thorough, reliable, accurate,Judgmentattitude. Exhibits enthusiasm and cooperativeness on the job Cooperation . Willingness and ability to work with others to produce desired goals.Initiative.Decisiveness ,Communication skillsLeadership

Trait Based Approaches

Graphic rating scales (contd.).Rating scalesRating scales can include 5 elements as follows:Unsatisfactory FairSatisfactoryGoodOutstanding Advantages of the rating scalesGraphic rating scales are less time consuming to develop.They also allow for quantitative comparison.Disadvantages of the rating scalesDifferent supervisors will use the same graphic scales in slightly different waysOne way to get around the ambiguity inherent in graphic rating scales is to use behavior based scales, in which specific work related behaviors are assessedMore validity comparing workers ratings from a single supervisor than comparing two workers who were rated by different supervisors.

Trait Based Approaches

CHECKLISTThe checklist is composed of a list of statements or words. Raters check statements most representative of the characteristics and performance of employees. The following are typical checklist statements:________ can be expected to finish work on time________ seldom agrees to work overtime________ is cooperative and helpful________ accepts criticism________ strives for self-improvementThe checklist can be modified so that varying weights are assigned to the statements or words. The results can then be quantifiedUsually, the weights are not known by the rating supervisor because they are tabulated by someone else, such as a member of the HR unit.

Trait Based Approaches

CHECKLIST (Contd.)There are several difficulties with the checklist:as with the graphic rating scale, the words or statements may have different meanings to different raters(2)raters cannot readily discern the rating results if a weighted checklist is used;(3) raters do not assign the weights to the factors.

Comparative Methods

Comparative methods require that managers directly compare the performance of their employees against one another. For example, a data-entry operators performance would be compared with that of other data-entry operators by the computing supervisor. Comparative techniques include ranking, paired comparison, and forced distributionComparative Methods

Performance ranking MethodThe ranking method consists of listing all employees from highest to lowest in performanceThe primary drawback of the ranking method is that the size of the differences among individuals is not well definedFor example, there may be little difference in performance between individuals ranked second and third, but a big difference in performance between those ranked third and fourthThis drawback can be overcome to some extent by assigning points to indicate the size of the gapsRanking also means that someone must be last. It is possible that the last-ranked individual in one group would be the top employee in a different groupRanking becomes very unwieldy if the group to be ranked is very large.

Comparative Methods

Performance ranking MethodRating scale of rankingMuch better 5 pointsSlightly better 4 points Equal 3 points Slightly worst 2 pointsMuch worst 1 point

A paired Comparison Performance Appraisal Rating FormInstruction: Please indicate by placing an X which employee of each pair has performed more effectively during the past year__X__ Bob Brown____ Mary Green__X___ Bob Brown_____ Jim Smith____ Bob Brown_X___ Allen Jones__X___ Mary Green_____ Jim Smith_____ Mary Green__X___ Allen Jones_____ Jim Smith___X___ Allen Jones In the example Allen Jones is the best performer because he was identified most often as the best performer, followed by Bob Brown, (identified twice as better performer) and Mary Green ( identified once as a best performer ) Comparative Methods

Paired Comparison MethodSupervisor compare each employee to to every other employee Identifying the better performer in each pair Following the comparison, the employee are ranked according to the number of times they were identified as being the better performerSuited for small group of employees performing similar jobsAdvantages and disadvantages of paired comparison analysisIt is useful where priorities are not clear.It is particularly useful where you do not have objective data to base this on. It helps you to set priorities where there are conflicting demands on your resources. This makes it easy to choose the most important problem to solve, or select the solution that will give you the greatest advantageComparative Methods

FORCED DISTRIBUTIONPerformance appraisal method in which ratings of employees performance are distributed along a bell-shaped curve.This method assumes that the widely known bell-shaped curve of performance exists in a given groupThe top-ranked employees are considered high-potential employees and are often targeted for a more rapid career and leadership development programsIn contrast, those ranked at the bottom are denied bonuses and pay increases. They may be given a probationary period to improve their performance.

Comparative Methods

FORCED DISTRIBUTION (Contd.)Advantages:They force reluctant managers to make difficult decisions and identify the most and least talented members of the work groupThey create and sustain a high performance culture in which the workforce continuously improvesDisadvantagesThey increase unhealthy cut-throat competitiveness They discourage collaboration and teamwork;They harm morale;They are legally suspect giving rise to age discrimination cases

Forced Distribution on a Bell-Shaped Curve

Narrative Methods

Managers and HR specialists frequently are required to provide written appraisal informationDocumentation and description are the essence of the critical incident, the essay, and the field review methodsThese records describe an employees actions rather than indicating an actual ratingNarrative Methods

CRITICAL INCIDENTThe manager keeps a written record of both highly favorable and unfavorable actions in an employees performance.When a critical incident involving an employee occurs, the manager writes it down.A list of critical incidents is kept during the entire rating period for each employee.The critical incident method can be used with other methods toDocument the reasons why an employee was rated in a certain way.Disadvantages of critical IncidentNegative incidents may be more noticeable than positive incidents. It results in very close supervision which may not be liked by the employee.The recording of incidents may be a chore for the manager concerned, who may be too busy or forget to do it.The supervisors have a tendency to unload a series of complaints about incidents during an annual performance review session.

Narrative Methods

Essay evaluationThis method asked managers / supervisors to describe strengths and weaknesses of an employees behavior. Essay evaluation is a non-quantitative techniqueThis method usually combined with other method.Input of information sourcesJob knowledge and potential of the employee; Employees understanding of the companys programs, policies, objectives, etc.;The employees relations with co-workers and superiors;The employees general planning, organizing and controlling ability;The attitudes and perceptions of the employee, in general

Narrative Methods

Essay evaluation (contd.)Disadvantages of essay evaluationManager / supervisor may write a biased essay.A busy rater may write the essay hurriedly without properly assessing the actual performance of the worker. Apart from that, rater takes a long time, this becomes uneconomical from the view point of the firm, because the time of rater is costly.Some evaluators may be poor in writing essays on employee performance. Others may be superficial in explanation and use flowery language which may not reflect the actual performance of the employee.

Essay evaluation form. Please give examples of the employees ineffective behavior2. Please give examples of the employees effective behavior3. What steps have been taken (or will be taken) to modify ineffective behavior?4. What are additional comments related to the conditions and circumstances of effective/ineffective behavior?5. Does the jobholders job description need revision? And how to?6. Jobholders commentsFIELD REVIEWThe field review has as much to do with who does the evaluation as the method used.This approach can include the HR department as a reviewer, or a completely independent reviewer outside the organizationIn the field review, the outside reviewer becomes an active partner in the rating processThe outsider interviews the manager about each employees performance, then compiles the notes from each interview into a rating for each employee.Then the rating is reviewed by the supervisor for needed changes.This method assumes that the outsider knows enough about the job setting to help supervisors give more accurate and thorough appraisals.This method assumes that the outsider knows enough about the job setting to help supervisors give more accurate and thorough appraisals.The major limitation of the field review is that the outsider has a great deal of control over the rating. Managers may see it as a challenge to their authorityIn addition, the field review can be time consuming, particularly if a large number of employees are to be rated.

BEHAVIORAL RATING APPROACHESAttempt to assess an employees behaviors instead of other characteristicSome of the different behavioral approaches are behaviorally anchored rating scales (BARS), behavioral observation scales (BOS), and behavioral expectation scales (BES).BARS match descriptions of possible behaviors with what the employee most commonly exhibits.BOS are used to count the number of times certain behaviors are exhibited.BES order behaviors on a continuum to define outstanding, average, and unacceptable performanceBARS were developed first and are used here as an example of behavioral rating approachesBehavioral rating approaches describe examples of employee job behaviorsThese examples are anchored, or measured, against a scale of performance levels.

Behaviorally anchored rating scales

CONSTRUCTING BEHAVIORAL SCALESConstruction of a behavioral scale begins with identifying important job dimensionsThese dimensions are the most important performance factors in an employees job descriptionFor example, for a college professor, the major job dimensions associated with teaching might be (a)course organization, (b) attitude toward students, (c) fair treatment, and (d) competence in subject area.Short statements, similar to critical incidents, are developed that describe both desirable and undesirable behaviors (anchors)Then they are retranslated, or assigned to one of the job dimensionsThis task is usually a group project, and assignment to a dimension usually requires the agreement of 60% to 70% of the group.Example behaviors of a telephone customer service representative taking orders for a national catalog retailer

Development Process for Behavioral Anchors

Behaviorally anchored rating scalesProblems:Developing and maintaining behaviorally anchored rating scales require extensive time and effortIn addition, several appraisal forms are needed to accommodate different types of jobs in an organization3. Separate BARS forms would need to be developed for each distinct job.BOS a.Displays illustrations of positive incidents (or behaviors) of job performance for various job dimensionsb.Evaluators rates the employee on each behavior according to the extent to which the employee performs in a manner consistent with each behavioral descriptionc.Scores are then averaged to provide an overall rating numberd.Difficult and time consuming to develop and maintain, especially for the supervisor who must observe the behaviors

Management by Objectives (MBO)Specifies the performance goals that an individual hopes to attain within an appropriate length of timeThe objectives that each manager sets are derived from the overall goals and objectives of the organization MBO should not be a disguised means for a superior to dictate the objectives of individual managers or employees.Other names for MBO include appraisal by results, target-coaching, work planning and review, performance objectives, and mutual goal setting.

Management by Objectives (MBO)KEY MBO IDEASThree key assumptions underlie an MBO appraisal systemIf an employee is involved in planning and setting the objectives and determining the measure, a higher level of commitment and performance may result.If the objectives are identified clearly and precisely, the employee will do a better job of achieving the desired resultPerformance objectives should be measurable and should define results. Objectives are composed of specific actions to be taken or work to be accomplished.Sample objectives might include:Submit regional sales report by the fifth of every month. Obtain orders from at least five new customers per month.Maintain payroll costs at 10% of sales volume. Have scrap loss of less than 5%. Fill all organizational vacancies within 30 days after openings occurManagement by Objectives (MBO)THE MBO PROCESSImplementing a guided self-appraisal system using MBO is a four-stage process.1.Job review and agreement: The employee and the superior review the job description and the key activities that comprise the employees job. The idea is to agree on the exact makeup of the job. 2.Development of performance standards: Specific standards of performance must be mutually developed. In this phase a satisfactory level of performance that is specific and measurable is determined., Guided objective setting: Objectives are established by the employee in conjunction with, and guided by, the superior4.Continuing performance discussions: The employee and the superior use the objectives as bases for continuing discussions about the employees performance. Although a formal review session may be scheduled, the employee and the manager do not necessarily wait until the appointed time to discuss performance.

MBO Process

Management by Objectives (MBO)MBO CRITIQUENo management tool is perfect, and certainly MBO is not appropriate for all employees or all organizationsJobs with little or no flexibility are not compatible with MBO. (For example, an assembly-line worker)The MBO process seems to be most useful with managerial personnel and employees who have a fairly wide range of flexibility and control over their jobs.When imposed on a rigid and autocratic management system, MBO may fail360 degree performance appraisal

In the formatted from of 360-degree performance appraisals, the performance of an employee will be assessed based on ideas of many other different people, for example customers, suppliers, peers and direct reportsIn case of using 360-degree performance appraisal, it is vital that the process be implemented by the manager of Human Resources Department so that the subordinate reviewers (or staff) are made sure that all their assessments on performance are kept anonymous360 degree appraisal has four components: Self appraisal Subordinates appraisal Peer appraisal. Superiors appraisal

360 degree performance appraisalWhats 360 degree measures?360 degree measures manners and capacities. 360 degree improves such skills as listening, planning and goal-setting. 360 degree concentrates on subjective areas, for example efficiencies of teamwork character, and leadership. 360 degree supplies on the way others think about a specific staff.

360 degree performance appraisal Advantages of 360 degree appraisal Offer a more comprehensive view towards the performance of employees. Improve credibility of performance appraisal. Such colleagues feedback will help strengthen self-development. Increases responsibilities of employees to their customers.The mix of ideas can give a more accurate assessment.Opinions gathered from lots of staff are sure to be more persuasive.Not only manager should make assessments on its staff performance but other colleagues should do, too. People who undervalue themselves are often motivated by feedback from others. If more staff takes part in the process of performance appraisal, the organizational culture of the company will become more honest.

360 degree performance appraisalDisadvantages of 360 degree appraisalTaking a lot of time, and being complex in administrationExtension of exchange feedback can cause troubles and tensions to several staff. There is requirement for training and important effort in order to achieve efficient working. It will be very hard to figure out the results. Feedback can be useless if it is not carefully and smoothly dealt.Can impose an environment of suspicion if the information is not openly and honestly managedMultisource Appraisal

Combinations of MethodsThere is no one best appraisal methodResearch has suggested that the method used does not change the accuracy or solve rater errorsA performance measurement system that uses a combination of the preceding methods is possible and may be sensible in certain circumstances.Consider combinations to offset the following advantages and disadvantages:Category rating (trait) methods are easy to develop, but they usually do little to measure strategic accomplishments. Further, they may make inter-rater reliability problems worseCombinations of MethodsComparative approaches help reduce leniency, central tendency, and strictness errors, which makes them useful for administrative decisions such as pay raises. But the comparative approaches do a poor job of linking performance to organizational goals, and they do not provide feedback for improvement as well as other methodsNarrative methods work best for development because they potentially generate more feedback information. However, without good definitions of criteria or standards, they can be so unstructured as to be of little value. Also, these methods are poor for administrative uses.The behavioral/objective approaches work well to link performance to organizational goals, but both can require much more effort and time to define expectations and explain the process to employees. These approaches may not work well for lower-level jobs.Combinations of MethodsWhen managers can articulate what they want a performance appraisal system to accomplish, they can choose and/or mix the methods just mentioned to get the combinations of advantages they wantFor example, one combination might include a graphic rating scale of performance on major job criteria, a narrative of developmental needs, and an overall ranking of employees in a department.Different categories of employees (e.g., salaried exempt, non exempt salaried, maintenance) might require different combinations63Exploring The Performance Appraisal Process Purposes1.Represents a companys way of telling employees the companys expectations of themInforms employees how well they are meeting those goalsTypical Process Includes Supervisors1.Monitoring employees' performance2.Documenting observations on appraisal forms3.Sharing appraisals with employeesBasing merit pay increases on appraisals Issues:Merit pay increases based on factors other than job performance can lead to charges of illegal pay discriminationAppraisals must be based on job-related factors not on any discriminatory factors

Four Activities to Promote Non-Discriminatory Performance Appraisal Practices Conduct job analyses to ascertain characteristics necessary for a content valid performance appraisal systema.Accurately define parameters of the jobb.Define behaviors necessary to perform the job effectivelyc.Content validity displays the connection between a. and b. (above)d.Periodically review the appraisal instrument for validity Four Activities to Promote Non-Discriminatory Performance Appraisal Practices2.Incorporate these characteristics into a rating instrument3.Train supervisors to use the rating instrument properly4.Set-up formal appeal mechanisms and have upper-level personnel review the ratings to insure accuracy and effectiveness

Sources of Performance Appraisal Information Sources of Performance Appraisal Information Five main sources are the employees:a.Selfb.Supervisorc.Coworkersd.Subordinates (if applicable)e.Customers or clients (if applicable)360-degree performance appraisals a.Are performance appraisal systems that rely on many appropriate sources of performance related information b.Helps companies develop a more complete understanding of current employee performance

Sources of Performance Appraisal InformationCriteria for determining appropriateness of the information sources:i.Is the evaluator aware of the objectives of the employees job?ii.Has the evaluator frequently observed the employee?iii.Is the evaluator qualified to determine if the performance is satisfactory?Its use is on the rise because:i.Organizational structures are becoming less hierarchicalii.These instruments are more conducive with the increased prevalence of work teamsiii.Companies are able to get and use feedback from customers, which increases customer satisfaction

Errors in the Performance Appraisal Process 1.Rating errors reflect differences between human judgment processes versus objective, accurate assessments uncolored by bias, prejudice, or other subjective, extraneous influences2.Rating errors occur because raters must make subjective judgments3.Most common types of raters errors include:a.Bias errorsb.Contrast errorsc.Errors of central tendencyd.Errors of leniency or strictness

Bias errors Happen when rater evaluates employees based on a negative or positive opinion of the employee rather than on the employees actual performanceFirst-impression effecta manager would have a tendency to make an initially favorable or unfavorable judgment about an employee, and then ignore or distort the employees actual performance based on this impressionPositive halo effectrater generalizes good behavior on one aspect of the job to all aspects of the jobNegative halo effectrater generalizes bad behavior on one aspect of the job to all aspects of the jobSimilar-to-me effecti.Tendency on the part of raters to favorably judge employees whom they perceive as similar to themselvesii.Can lead to charges of illegal discriminatory bias wherein a supervisor rates members of his or her race, gender, nationality, or religion more favorably than members of another class

Contrast errors a.Takes place when rater compares the employee to other employees rather than to specific performance standardsb.This is an error because the employee is required to perform only at minimally acceptable standards

Errors of central tendency a.Occurs when a supervisor rates all employees as average or close to averageb.Most often are committed by supervisors or managers who want to play it safec.It usually is a good idea to require justification at every level of the scale and not just the extremes

Errors of leniency or strictness Reflects the tendency to rate every employee at the high end or low end of the scale, respectively, regardless of actual performanceb.Causes employee to believe he or she is going to receive larger or smaller pay raises, respectively, than deservedc.These errors mitigates the beliefs that effort varies positively with performance, and that performance influences the amount of pay raisesd.Positive leniency errorA supervisor tends to appraise an employees performance more highly than what it compares against objective criteriae.Negative leniency errorA supervisor rates an employees performance less than what it compares against objective criteria

Strengthening The Pay-For-Performance Link Activities 1.Link performance appraisals to business goals2.Communication3.Establish effective appraisals Empower employeesDifferentiate among performersLink Performance Appraisals to Business Goalsa.Employee performance should be linked to competitive strategiesb.Should be established in relation to the evaluative criteria for competitive strategies

Strengthening The Pay-For-Performance LinkAnalyze jobsa.Job analysis is important for establishing internally consistent compensation systemsb.Supervisors should match the employees performance to the job descriptioni.Descriptions are a product of job analysesii.Descriptions note the duties, requirements, and relative importance of a job within the company c.May help to reduce arbitrary decisions about merit increasesC.Communicate1.Employees must clearly understand the link between performance and merit increases2.Employees need to trust the system and the evaluators

Strengthening The Pay-For-Performance LinkEstablish Effective Appraisals1.Should be tied to employees future performance goals and career plans2.Deficiencies in performance should include methods to remedyPerformance standards should be used for establishing performance targetsEmpower Employees1.Encourage employee self-appraisals2.Supervisors as coachesa.By ensuring that employees have access to the resources to perform their jobb.Allowing employees to interpret and respond to work problems as they occurc.Should lead to more self-corrective actions

Strengthening The Pay-For-Performance LinkDifferentiate Among Performers1.Merit increases should consist of meaningful increments2.Merit increases should clearly reflect differences in actual job performance 3.Rewards can be other than base pay increases, such as:a.Additional time offb.Higher company discountsPossible Limitations of Merit Pay ProgramsEight Potential Problems 1.Failure to differentiate among performers 2.Poor performance measures3.Supervisors' biased ratings of employee job performance4.Lack of open communication between management and employees5.Undesirable social structures6.Factors other than merit7.Undesirable competition8.Little motivational valuePossible Limitations of Merit Pay ProgramsFailure to Differentiate among Performers1.Poor performers may view merit pay increases as entitlements2.Superior performers may lose motivation to excelPoor Performance Measures1.May evaluate invalid behaviors2.May not be comprehensive enough3.May be too subjectiveSupervisors' Biased Ratings of Employee Job Performance1.Bias errors2.Contrast errors3.Errors of central tendency4.Errors of leniency5.Errors of strictness6.Personal biases for or against employees 7.These errors can undermine the credibility of the performance evaluation processPossible Limitations of Merit Pay ProgramsLack of Open Communication between Management and Employees1.Concerning employees' performance2.Concerning supervisors' performance 3.Concerning factors beyond an employees control that effect job performance Mistrust can lead to accusations of biasUndesirable Social StructuresPay grades can reflect status differentials Lower-paid employees may resent never being able to catch-upFactors Other Than Merit1.Supervisors may subconsciously use age or seniority instead of merit 2.Supervisors may let personal feeling determine pay increases 3.Company politics that puts focus on supervisors' agendas or goals instead of work goals

Possible Limitations of Merit Pay ProgramsUndesirable Competition1.Between individual employees for limited funds2.Between individuals in team settingsLittle Motivational Value1.When employers and employees disagree on what is a large enough increase2.When the yearly increase seems negligible on each paycheck

Linking Merit Pay with Competitive Strategy Strategies to Match Compensation Practices with Companys Competitive StrategyLowest Cost Competitive StrategyRequires companies to reduce output costs per employeeMerit pay systems appropriate only whena.Pay increases are commensurate with employee productivity, andEmployees maintain productivity levels over timeDifferentiation Competitive Strategy1.Requires creative, open-minded, risk-taking employees2.Companies must take a long-term focus to attain their objectives3.Merit pay can promote creativity and risk-taking by linking pay with innovative job accomplishments that are established on a regular basis (merit bonus)

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