Appraising and Rewarding Performance

Performance appraisal and incentives rate The break-even point is the point at which
employees on their performance and reward costs and rewards are equal for a certain level
their contributions. of expected performance

Together, these three systems—base pay, Extrinsic and Intrinsic Rewards -Money is
performance rewards, and profit sharing— essentially an extrinsic reward rather than an
are the incentive foundation of a complete pay intrinsic one, so it is easily administered in
program behavior modification programs. However, it
also has all the limitations of extrinsic benefits,
The three systems are complementary because payment of an extrinsic reward decreases the
each reflects a different set of factors in the intrinsic satisfaction received
total situation
Compliance with the Law- compensation
Base pay and skill-based pay motivate
management is also complicated by the need
employees to progress to jobs of higher skills
to comply with a wide range of federal and
and responsibility
state laws. The most significant one is the
federal Equal Pay Act of 1963, which affects
Performance pay is an incentive to improve
employers who are engaged in interstate
performance on the job
commerce and most employees of federal,
Profit sharing motivates workers toward state, and local governments
teamwork to improve an organization’s
comparable worth- also seeks to guarantee
performance
equal pay for equal work. This approach
money is important to employees for a number demands that reward systems be designed so
of reasons. Certainly, money is valuable that people in com
because of the goods and services that it will parable jobs—those of equal value to the
purchase. This aspect is its economic value as employer—receive similar levels of pay.
a medium of exchange for allocation of
Secrecy in pay programs is sometimes subject
economic resources; however, money also is a
to debate.
social medium of exchange.
Application of the Motivational Models Control can also be an issue
Drives - Achievement-oriented employees The level of flexibility has been subject to
maintain a symbolic scorecard in their minds debate.
by monitoring their total pay and comparing it
with that of others. Their pay is a measure of Management by objectives
their accomplishments. (MBO) is a cyclical process that often consists
of four steps as a way to attain desired
Needs - In the Herzberg model, pay is viewed performance:
primarily as a hygiene factor, although it 1. Objective setting—joint determination by
may have at least short-term motivational manager and employee of appropriate levels
value as well of future performance for the employee, within
the context of overall unit goals and re
Expectancy- Valence Expectancy sources. These objectives are often set for the
Instrumentality = Motivation This means that if next calendar year.
money is to act as a strong motivator, an 2. Action planning—participative or even
employee must want more of it (valence), must independent planning by the employee as to
believe that effort will be successful in how
producing desired performance (expectancy), to reach those objectives. Providing some
and must trust that the monetary reward will autonomy to employees is invaluable; they are
follow better performance (instrumentality). more likely to use their ingenuity, as well as
Equity- The employee’s approach to this feel more committed to the plan’s success.
complex problem is to make a rough type of 3. Periodic reviews—joint assessment of
cost–reward comparison, similar to the break- progress toward objectives by manager and
even analysis that is used in financial employee, performed informally and
assessments. The employee identifies and sometimes spontaneously.
compares personal costs and rewards to 4. Annual evaluation—more formal
determine the point at which they are assessment of success in achieving the
approximately equal employee’s annual objectives, coupled with a
renewal of the planning cycle. Some MBO
systems also use performance appraisal to tie
 Appraising and Rewarding Performance
rewards for employees to the level of results behaviors are specified for each major
attained. dimension of a
job, thus cueing the employee in advance
Performance appraisal plays a key role in regarding the organization’s expectations.
reward systems. It is the process of evaluating BARS help reduce a manager’s tendency to
the performance of employees, sharing that focus on attitudes, personality, and quirks of an
information with them, and searching for ways employee and shift the emphasis toward
to improve their performance productive behaviors.

5. Extensive feedback systems—employees

Appraisal is necessary in order to (1) allocate
can fine-tune their performance better if they
resources
know how they are doing in the eyes of the
in a dynamic environment, (2) motivate and
organization.
reward employees, (3) give employees
feedback about their work, (4) maintain fair APPRAISAL INTERVIEW-This is a session in
relationships within groups, (5) coach and which the supervisor provides feedback to the
develop employee on past performance, discusses any
problems that have arisen, and invites a
The performance appraisal system response.
• Is an organizational necessity SELF-APPRAISAL- This is an opportunity for
• Is based on well-defined, objective criteria the employee to be introspective and to offer a
• Is based on careful job analysis personal assessment of his or her
• Uses only job-related criteria
• Is supported by adequate studies
accomplishments, strengths, and weaknesses
• Is applied by trained, qualified raters FEEDBACK helps them know what to do and
• Is applied objectively throughout the organization how well they are meeting their goals.
• Can be shown to be nondiscriminatory as defined
by law
PERFORMANCE FEEDBACK leads to both
Appraisal Philosophy: improved performance and improved attitudes
—if handle properly by the manager.
1. Performance orientation—it is not enough
for employees to put forth effort; that effort 360-DEGREE FEEDBACK. This is the process
must result in the attainment of desired of
outcomes (products or services). systematically gathering data on a person’s
2. Focus on goals or objectives—as the skills, abilities, and behaviors from a variety of
discussion of MBO shows, employees need to sources—the manager, peers, subordinates,
have a clear idea of what they are supposed to and even customers or clients
be doing and the priorities among their tasks;
as the saying goes, “If you know where you want to Appraisal Problems -The need to perform the
go, you are more likely to get multiple functions in the appraisal process
makes the appraisal interview difficult and
even threatening for many managers. In
3. Mutual goal setting between supervisor
addition, several behavioral problems are
and employee—this is the belief that people
inherent in the process.11 It can be
will work harder for goals or objectives that
confrontational, because each party is trying to
they have participated in setting. Among their
convince the other that her or his view is more
desires are to perform a worthwhile task, share
accurate.
in a group effort, share in setting their
objectives, share in the rewards of their efforts,
Emotional -the manager’s role calls for a
and continue personal growth. The (Theory Y)
critical perspective, while the employee’s
assumption is that people want to satisfy some
desire to save face easily leads to
of their needs through work and that they will
defensiveness
do so if management will provide them with a
supportive
Judgmental- the manager must evaluate the
environment.
employee’s behavior and results, and this
4. Clarification of behavioral expectations aspect places the employee in a clearly
—this is often done via a behaviorally anchored subordinate position.
rating scale (BARS), which provides the
employee and manager with concrete performance appraisals- are complex tasks
examples of various levels of behaviors. Brief for managers, requiring job understanding,
descriptions of outstanding, very good, careful observation of performance, and
acceptable, below average, and unacceptable sensitivity to the needs of employees.
 Appraising and Rewarding Performance
Nature of Attributions -Attribution theory
has provided an intriguing contribution to the
appraisal literature
.
Attribution is the process by which people
interpret and assign causes for their own and
others’ behavior. It stems from the work of Fritz
Heider and has been expanded and refined by
Harold Kelley and others

Ability and effort are personal attributions;

they tend to be given as explanations when
there is a judgment of
high consistency and low distinctiveness and
low consensus

Task difficulty and luck are situational

attributions; they tend to be used as
explanations when the behavior stands out as
distinctive and different from that of peers,
while also being inconsistent.

self-serving bias-, claiming undue credit for

success and minimizing their own responsibility
for problems.

fundamental attribution bias—is often

exhibited when
judging others. People tend to attribute others’
achievements to good luck or easy tasks, and
they assume that others failed to try hard
enough or simply lacked the appropriate
personal
characteristics or overall ability if they failed.

RELATED IDEAS
Attributions illustrate the effects of perceptual
set; that is, people tend to perceive what they
expect to perceive

self-fulfilling prophecy, or the Pygmalion effect-

suggests that a manager’s expectations for an
employee will cause the manager to treat the
employee differently and that the employee
will respond in a way that confirms the initial
expectations
 Appraising and Rewarding Performance
GALATEA EFFECT-in which high expectations depth, and types of skills in which they
by employees themselves lead to high demonstrate capabilities.
performance. The Galatea effect stems from
employee perceptions of self-efficacy on the
task, as well as general self-confidence.

MANAGERIAL EFFECTS -Conducting

performance appraisals also has substantial
impact on the appraiser.

ECONOMIC INCENTIVE SYSTEM of some

type can be applied to almost any job. The
basic idea of such systems is to induce a high
level of individual, group, or organizational
performance by making an employee’s pay
contingent on one or more of those dimensions

PIECE RATE
It provides a simple,
direct connection between performance and
reward. Those workers who produce more are
rewarded more.

More Pay for More Production

Basically, WAGE INCENTIVES, which are a
form of merit pay, provide more pay for more
production.

RATE SETTING
is the process of determining the standard
output for each job, which becomes the fair
day’s work for the operator

LOOSE RATES-
A rate is “loose” when employees are able to
reach standard output with less than normal
effort. When management adjusts the rate to a
higher standard, employees predictably
experience a feeling of inequity

OUTPUT RESTRICTION-
by which workers limit their production and
thus defeat the purpose of the incentive

PROFIT SHARING
is a system that distributes to employees some
portion of the profits of business, either
immediately (in the form of cash bonuses) or
deferred until a later date (held in trust in the
form of employee-owned shares).

GAIN-SHARING
plan establishes a historical base period of
organizational performance, measures
improvements, and shares the gains with
employees on some formula basis.

SKILL-BASED PAY
(also called knowledge-based pay or multi skill
pay) rewards individuals for what they know
how to do. Employees are paid for the range,