Appraising and Rewarding Appraising and Rewarding PerformancePerformance

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Mehmet BarkınayMehmet Barkınay

In this presentation the In this presentation the relationship between relationship between economic reward systemseconomic reward systems and and organizational behaviororganizational behavior will be discussed.will be discussed.

The chapter focusesThe chapter focuses;;

1.1. First on how incentives are First on how incentives are combined with other parts combined with other parts of wage administration to of wage administration to build a complete reward build a complete reward system that encourages system that encourages motivation. motivation.

2. 2. Then on, money as a means Then on, money as a means of rewarding employees, of rewarding employees, motivational models applied to motivational models applied to pay, cost-reward comparisons, pay, cost-reward comparisons, and behavioral considerations in and behavioral considerations in performance appraisal. performance appraisal.

3.3.Finally, Finally, onon incentive pay, an incentive pay, an approach in which each worker’s approach in which each worker’s pay varies in relation to employee pay varies in relation to employee or organizational performance.or organizational performance.

1. A COMPLETE PROGRAM1. A COMPLETE PROGRAM

This program has three incentive This program has three incentive foundationfoundationss;;

1. Base pay1. Base pay 2. Performance Reward2. Performance Rewardss 3. Profit Sharing3. Profit Sharing

* Each can contribute something * Each can contribute something to the employee’s economic to the employee’s economic satisfaction.satisfaction.

2. 2. Money As a Means of Rewarding Money As a Means of Rewarding EmployeesEmployees

Money is important to employees Money is important to employees for a number of reasons. for a number of reasons.

Certainly ,money is valuable Certainly ,money is valuable because of the goods and services because of the goods and services that it will purchase. All of us have that it will purchase. All of us have seen its importance as a status seen its importance as a status symbol for those who have it and symbol for those who have it and can thus save it, spend it can thus save it, spend it conspicuously, or give it away conspicuously, or give it away generously.generously.

Money has status value when it is being Money has status value when it is being received and when it is being spent. It received and when it is being spent. It represents to employees what their represents to employees what their employer thinks of them. It is also an employer thinks of them. It is also an indication of one employee’s status indication of one employee’s status relative to that of other employees. It relative to that of other employees. It has about as many values as it has has about as many values as it has possessors. possessors. (e.g. P135)(e.g. P135)

Application of the Motivational Application of the Motivational ModelsModels

A useful way to think about money as A useful way to think about money as a reward is to apply it to some of the a reward is to apply it to some of the motivational models. Such as;motivational models. Such as;

DrivesDrives NeedsNeeds ExpectancyExpectancy

Additional Considerations in the Additional Considerations in the Use of MoneyUse of Money

Extrinsic and Intrinsic RewardsExtrinsic and Intrinsic Rewards::

Money is essentially an extrinsic Money is essentially an extrinsic reward rather than an intrinsic reward rather than an intrinsic one, so it is easily administered one, so it is easily administered in behavior modification in behavior modification programs. programs.

However, it also has all the limitations of extrinsic benefits. No matter how closely management attaches pay to performance, pay is still something that originates outside the job and is useful only away from the job. Therefore, it tends to be less immediately satisfying than intrinsic job rewards.

For example; the personal satisfaction of a job well done is a powerful motivator for many people.

Organizational Behavior and Organizational Behavior and performance Appraisalperformance Appraisal

Organizations require consistent Organizations require consistent levels of high performance from levels of high performance from their employees in order to their employees in order to survive in a highly competitive survive in a highly competitive environment. Many firms use environment. Many firms use some form of results-oriented some form of results-oriented planning control systems.planning control systems.

1. Objective Settings1. Objective Settings

2. Action Planning2. Action Planning

3. Periodic Reviews3. Periodic Reviews

4. Annual Evaluation4. Annual Evaluation

Managements by objectives (MBO) is a Managements by objectives (MBO) is a cyclical process that often consists of cyclical process that often consists of four steps as a way to attain desired four steps as a way to attain desired performance.performance.

Performance appraisalPerformance appraisal plays a key role plays a key role in reward systems. It is the process of in reward systems. It is the process of evaluating the performance of employees, evaluating the performance of employees, sharing that information with them, and sharing that information with them, and searching for ways to improve their searching for ways to improve their performance.performance. Appraisal is necessary in order Appraisal is necessary in order to;to;

1. allocate resources in a dynamic 1. allocate resources in a dynamic environment,environment,

2. motivate and reward employees,2. motivate and reward employees, 3. give employees feedback about their work,3. give employees feedback about their work, 4. maintain fair relationship within groups,4. maintain fair relationship within groups, 5. coach and develop employees,5. coach and develop employees, 6. comply with regulations6. comply with regulations

Appraisal PhilosophyAppraisal PhilosophyThe hallmarks of modern appraisal The hallmarks of modern appraisal

philosophy are as follows;philosophy are as follows; 1. 1. Performance Orientation,Performance Orientation, 2. Focus on Goals or Objectives2. Focus on Goals or Objectives 3. Mutual Goal Setting between 3. Mutual Goal Setting between

Supervisor and EmployeeSupervisor and Employee 4. Clarification of Behavioral 4. Clarification of Behavioral

ExpectationsExpectations 5. Extensive feedback Systems 5. Extensive feedback Systems

Suggested Approaches for the Suggested Approaches for the Appraisal InterviewAppraisal Interview

* * Is knowledgeable about Is knowledgeable about the employee’s job,the employee’s job,

* Has previously set * Has previously set measurable measurable performance standardsperformance standards

* Has gathered specific * Has gathered specific evidence frequently evidence frequently about performanceabout performance

* * Seeks and uses inputs Seeks and uses inputs from other observers in from other observers in the organizationthe organization

* * Provides support, Provides support, acceptance, and praise acceptance, and praise for talks well donefor talks well done

* Listens actively to the * Listens actively to the employee’s input and employee’s input and reactionsreactions

Appraisal interviews are most likely to be successful when the appraiser;

* * Shares responsibility for outcomes Shares responsibility for outcomes and offers future assistanceand offers future assistance

* Allows participation in the discussion* Allows participation in the discussion

* Sharply limits the amount of criticism * Sharply limits the amount of criticism to a few major itemsto a few major items

360- Degree Feedback Programs360- Degree Feedback Programs All appraisal systems build on the All appraisal systems build on the

assumption that employees need assumption that employees need feedback about their performance. feedback about their performance. Feedback helps them know what to Feedback helps them know what to do and how well they are meeting do and how well they are meeting their goals. It shows that others are their goals. It shows that others are interested in what they are doing. interested in what they are doing. Assuming that performance is Assuming that performance is satisfactory, feedback enhances an satisfactory, feedback enhances an employee’s self-image and feeling of employee’s self-image and feeling of competence.competence.

In general, feedback should In general, feedback should focus onfocus on;;

* * Specific job Specific job behaviorsbehaviors

* Rely on objective * Rely on objective data, rather than data, rather than subjective subjective opinions and opinions and influencesinfluences

* * Be well-timed by Be well-timed by being given soon being given soon after a critical after a critical event, event,

• * Be checked for * Be checked for understanding understanding by the receiver by the receiver

360- degree feedback360- degree feedback is the is the process of systematically gathering process of systematically gathering data on a person’s skills, abilities, and data on a person’s skills, abilities, and behaviors from a variety of sources- behaviors from a variety of sources- the manager, peers, subordinates, the manager, peers, subordinates, and even customers or clients.and even customers or clients.

The 360-degree feedback The 360-degree feedback system works best if system works best if individuals match the data individuals match the data gathered with their own self-gathered with their own self-assessments, for this assessments, for this approach encourages can dapproach encourages can doo confrontation of one’s need confrontation of one’s need for change.for change.

However, 360-degree feedback However, 360-degree feedback programs can be time-programs can be time-consuming, intimidating to the consuming, intimidating to the recipients, and expensive.recipients, and expensive.

Appraisal ProblemsAppraisal Problems

• ConfrontationalConfrontational (because each party is trying to (because each party is trying to convince the other that her/his view is more accurate)convince the other that her/his view is more accurate)

• EmotionalEmotional• JudgmentalJudgmental (because the manager must evaluate (because the manager must evaluate

the employee’s behavior and results and this aspect the employee’s behavior and results and this aspect places the employee in a clearly subordinate position)places the employee in a clearly subordinate position)CComplexomplex

Several behavioral problems inherent in the Several behavioral problems inherent in the processprocess. . It can be;It can be;

Managerial EffectsManagerial Effects Managerial Effects Conducting performance Managerial Effects Conducting performance

appraisals also has substantial impact on appraisals also has substantial impact on the appraiser. On the positive side, a formal the appraiser. On the positive side, a formal appraisal system encourages managers to do appraisal system encourages managers to do more analytical and constructive thinking more analytical and constructive thinking about their employees.about their employees.

The requirement of a face-to-face interview The requirement of a face-to-face interview encourages managers to be more specific encourages managers to be more specific about identifying each employee’s abilities,about identifying each employee’s abilities, interests, and motivation. Managers often interests, and motivation. Managers often begin to perceive that each employee is truly begin to perceive that each employee is truly different and must be treated that way. different and must be treated that way.

Realistically, however, managers Realistically, however, managers sometimes avoid giving appraisals sometimes avoid giving appraisals because they do not want to disrupt an because they do not want to disrupt an existing smooth relationship with an existing smooth relationship with an employee by providing negative feedback. employee by providing negative feedback.

It is particularly difficult to deal with low-It is particularly difficult to deal with low-performing employees, who may require performing employees, who may require more frequent monitoring and reviews. more frequent monitoring and reviews.

In other cases , managers simply do not In other cases , managers simply do not see any organizational rewards coming to see any organizational rewards coming to them from the appraisal process. Where them from the appraisal process. Where there is no extrinsic or intrinsic incentive there is no extrinsic or intrinsic incentive to perform the task, managers may to perform the task, managers may neglect it entirelyneglect it entirely (i.e. P 147)(i.e. P 147)

Incentives Linking Pay with Incentives Linking Pay with PerformancePerformance

Incentive MeasureIncentive Measure Amount of outputAmount of output

Quality of outputQuality of output

Success in reaching Success in reaching goalsgoals

ExampleExample Piece rates; sale Piece rates; sale

commissioncommission Piece rate only for Piece rate only for

pieces meeting the pieces meeting the standard commission standard commission only for sales that are only for sales that are without bad debts.without bad debts.

Bonus for selling an Bonus for selling an established number of established number of items during a items during a predetermined time predetermined time spanspan

Amount of profitAmount of profit

Cost efficiencyCost efficiency

Employee skillsEmployee skills

Profit sharingProfit sharing

Gain sharingGain sharing

Skill-based paySkill-based pay

Incentive Measure

Example

AdvantagesAdvantages

Incentives provide several potential Incentives provide several potential employee advantages. A major employee advantages. A major advantage is that they increase advantage is that they increase employee beliefs (instrumentality) that employee beliefs (instrumentality) that reward will follow high performance.reward will follow high performance.

Incentives also appear favorable from Incentives also appear favorable from the point of view equity theory. Those the point of view equity theory. Those who perform better are rewarded more.who perform better are rewarded more.

Another advantage from the Another advantage from the employee’s point of view is employee’s point of view is that incentives are that incentives are comparatively objective. They comparatively objective. They can be computed from the can be computed from the number of pieces, dollars, or number of pieces, dollars, or similar objective criteria.similar objective criteria.

DifficultiesDifficulties Potential equity is offset by other Potential equity is offset by other

developments that are perceived as developments that are perceived as inequities. In behavior modification terms, inequities. In behavior modification terms, certain unfavorable consequences exist certain unfavorable consequences exist alongside the favorable consequences of alongside the favorable consequences of more pay, amore pay, ass they tend to reduce the they tend to reduce the potential advantages of incentive pay. potential advantages of incentive pay.

When workers make their cost-reward When workers make their cost-reward analyses, they find that cost have risen analyses, they find that cost have risen along with rewards. The result may be that along with rewards. The result may be that the break-even point has changed very the break-even point has changed very little, if at all.little, if at all.

Wage Incentives

Basically Wage Incentives provide more pay for more production. It nearly always increases productivity while decreasing unit labor costs. Therefore, the main reason for using this, is clear. Ex: p 150

Profit Sharing

Profit Sharing is a system that distributes to employee some portion of the profits of business, either immediately or deferred until a later date. Ex; p- 152

Gain Sharing

This is another useful group incentive. Gain Sharing plan is a program that establishes a historical base period of organizational performance, measures improvements and shares the gains with employees on some formula basis. Ex: p-153

Skill-Based Pay

In contrast to salaries and wage incentives, Skill-Based Pay rewards individuals for what they know how to do. Employees are paid for the range, depth and types of skills in which they demonstrate capabilities.

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