chapter 7 rewards and performance management what gets measured happens

Chapter 7

Rewards and Performance Management

What gets measured happens

Copyright © 2008 John Wiley & Sons, Inc. 7-2

Chapter 7 study questions

What is the link between motivation and rewards?

What is performance management?

What are common performance appraisal alternatives?


Figure 7.1



• Intrinsic rewards – positively valued work outcomes that the

individual receives directly as a result of task performance

• Extrinsic rewards – positively valued work outcomes that are given

to an individual or group by some other person or source in the work setting



• Merit pay – compensation system that directly ties an

individual’s salary or wage increase to measures of performance accomplishments during a specific time period

– should create a belief among employees that the way to achieve high pay is to perform at high levels



• Gain sharing – gives workers the opportunity to earn more by

receiving shares of any productivity gains that they help to create



• Profit-sharing plans – reward employees based on overall

organizational profit

• Criticism is that organizational profits are not always a direct result of employees’ efforts



• Employee stock ownership plans (ESOPs)– may give stock to employees, or allow stock to

be purchased by them at a price below market value



• Bonuses – the awarding of cash bonuses, or extra pay for

performance that meets certain benchmarks or that is above expectations

– common practice for many employers



• Lump-sum increase – allows someone to elect the option of receiving

all of an annual increase in one or more lump-sum payments



• Skill-based pay – rewards people for acquiring and developing

job relevant skills



• Pay as benefits– Fringe benefits often add 10 to 40 % to a

person’s salary

• Flexible benefit plans – allow workers to select benefits according to

needs


Figure 7.2



• Performance management – process of managing performance

measurement and the various human resource management decisions and actions based on such measurement



Steps in performance management1. Identify and set clear and measurable

performance goals2. Take performance measurements to

monitor goal progress3. Provide feedback and coaching on

performance results4. Use performance assessment for human

resource management decisions



• From an evaluative perspective, performance measurement lets people know where they stand relative to objectives and standards



• From a counseling perspective, performance measurement facilitates decisions relating to planning for and gaining commitment to the continued training and personal development of workers



Performance Measurement Criteria and Standards

• Output measures – assess actual work results

• Activity measures – assess work efforts or inputs



• Performance appraisal – formal procedure for measuring and

documenting a person’s work performance


What are common performance appraisal alternatives?• Comparative methods of performance

appraisal– Ranking

• Raters rank order people from best to worst

– Paired comparisons• Raters compare each person with every other

person

– Forced distribution• Raters place a specific proportion of employees into

each performance category



• Absolute methods of performance appraisal– Graphic rating scales

• Raters assign scores on a list of dimensions related to high performance outcomes in a given job

– Critical incident diary records• Rater records incidents of unusual success or failure

in a given performance aspect

– Behaviorally anchored rating scales (BARS)• Rater identifies observable job behaviors


Figure 7.3


Figure 7.4



• Self evaluation – individual rates himself or herself

• Peer evaluations – persons in the work team or doing similar jobs

rate the individual as a co-worker



• 360° Evaluation – using not only the evaluations of bosses, peers,

and subordinates, but also self-ratings, customer ratings, and ratings by others with whom the ratee deals outside the immediate work unit



Group Performance Evaluation System• Link the team’s results to organizational goals• Start with the team’s customers and the team

work process needed to satisfy those needs: customer requirements, delivery and quality, waste and cycle time

• Evaluate team and each individual member’s performance

• Train the team to develop its own measures



• To be meaningful, an appraisal system must be:– Reliable - provide consistent results across

time– Valid - actually measure people on relevant job

content



• Measurement errors in performance appraisal– Halo errors

• Raters evaluate on several different dimensions and give a similar rating for each dimension

– Leniency errors• Raters tend to give everyone relatively high ratings

– Strictness errors• Raters tend to give everyone relatively low ratings



• Measurement errors in performance appraisal– Central tendency errors

• Raters lump everyone together around the average or middle

– Low differentiation errors• Raters restrict themselves to a small part of the

rating scale


What are common performance appraisal alternatives?• Measurement errors in performance

appraisal – Recency errors

• Raters allow recent events to exercise undue influence on ratings

– Personal bias errors• Raters let personal biases, such as stereotypes,

unduly influence the ratings

– Cultural bias errors• Raters allow cultural differences of employees to

influence the performance appraisal



Steps for improving performance appraisals1. Train raters to understand the evaluation

process and recognize errors2. Ensure that raters observe ratees on an

ongoing basis3. Do not have the rater evaluate too many

ratees4. Make sure that the performance dimensions

and standards are stated clearly5. Avoiding terms that have different meanings

for different raters

chapter 7 rewards and performance management what gets measured happens

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