Appraising and Rewarding Performance

Human Behavior in Organization Professor Melvin Vitug Moraga

Learning Objectives

• Understand money as an economic and social medium of exhange

• Discuss the role of money in motivational models

• Examine the behavioral considerations in performance appraisals

Learning Objectives

• Understand the chracteristics of good feedback program

• Describe the process of attribution

• Discuss how and why to link pay with performance

• Understand the uses of profit-sharing, gain-sharing, and skill-based programs

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“What counts in life is not the mere fact that we have lived. It is what difference we have

made to the lives of others that will determine the significance of the life we lead.”

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Apartheid: a system of racial segregation

“apartness”

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Robben Island

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Prisoners Stone Pounding

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• Served over 27 years in

prison

• President African

National Congress

(ANC)

• President of South

Africa (1994 – 1999)

Raise for the CEO

The board of directors of Manila Hospital were in executive meeting, discussing the CEO’s performance for the past year. After determining that it was “outstanding,” they set about establishing the appropriate level of compensation for her.

All of the directors agreed that a substantial pay increase was in order. However, when the newly adjusted level of compensation was calculated, one director (a physician) made a comment, “I don’t care how much you pay her he contented, as long as it isn’t any higher than the average of the physicians working in the clinic. After all, the hospital wouldn’t be able to function if it weren’t for us.”

Key Points:

• Economic rewards are important to employees

• Pay relationship carry immense social value

• In the past, money was believed to produced direct motivation

• Research reveals that economic rewards operated through the attitudes of workers in social system to produce an indirect incentive

Reward System

• consists of all organizational components involved in allocating compensation and benefits to employees in exchange for their contribution to the organization including:

• People

• Processes

• Rules

• Procedures

• Decision-making activities

Reward’s Purposes and Roles

• Purposes

– To attract, retain, and motivate qualified employees

• Roles of compensation structures

– To be equitable and consistent

– To be a fair reward for the individual’s contribution

– To be competitive in the external labor market

A Complete Reward Program

Performance Rewards

Profit Sharing

Base Pay & skill-based pay

I. Incentive

A Complete Reward Program

• Job analysis and wage survey rate jobs, comparing one job with another to determine base pay

•Motivate employees to progress to jobs of higher skills and responsibility

Base Pay Performance

rewards Profit

Sharing

I. Incentive

A Complete Reward Program

Base Pay Profit

Sharing Performance

Rewards

• Performance appraisal and incentives rate employees on their performance and reward their contribution

I. Incentive

A Complete Reward Program

Base Pay

• Profit sharing rates the company in terms of its general economic performance and rewards employees to improve performance on the job

Profit Sharing

Performance rewards

I. Incentive

A Complete Reward Program

• Seniority pay rewards workers for extended service

• Overtime pays workers for working overtime

• Vacation pays workers when employee does not work

II. NonIncentive

Seniority pay

Overtime Others

Vacation, Pension

A Complete Reward Program

Base Pay Performance

rewards Profit

Sharing

Real pay adjustment

Skill-based Pay

Service Reward

Sacrifice Reward

Nonwork Award

Noneconomic Award

• Compensatory time off,

on-site day care

• Vacations, pensions

• Overtime, differential

• Seniority

Money as Means of

Rewarding Employees

• Money is an economic value as a medium of exchange

• Money is also a social medium of exchange

• Differences in meaning of money by gender and culture

• Money is an important motivator

Application of Money to Motivational Models

• Drives - Achievement –oriented employees

monitor their total pay and compare it with others

• Needs – Herzberg model, pay is viewed as a

maintenance factor. Other need-based models, pay is seen as in its capacity to satisfy lower-order needs (i.e. Maslow and Alderfer’s existence needs)

Application of Money to Motivational Models (cont’n)

• Equity - employees identify and compares

personal costs and rewards to determine equality

Extrinsic and Intrinsic Rewards

• Money is essentially an extrinsic reward

rather than an intrinsic one

• Extrinsic – are external rewards that occur

apart from the nature of work , providing no direct satisfaction at the time the work is performed

Extrinsic and Intrinsic Rewards (cont’n)

• Intrinsic – are internal rewards that a person

feels when performing a job that has direct and immediate connection between work and reward

• Pay is something that originates outside the

job and is useful away from the job

Extrinsic and Intrinsic Rewards (cont’n)

• Economic rewards, cannot provide all

the rewards for psychologically healthy person

• An important task of manager is integrating extrinsic and intrinsic rewards successfully

Organizational Behavior and Performance Appraisal

• Management by Objectives (MBO) – a

cyclical process that often consists of four steps as a way to attain desired performance

Objective setting

Action planning

Periodic reviews

Annual evaluation

Organizational Behavior and Performance Appraisal

• Performance Appraisal – a process of

evaluating the performance of employees, sharing that information with them, and searching for ways to improve their performance

Allocate resources

Motivate and reward employees

Give feedback

Maintain fair relationships with groups

Coach and develop employees

Comply with regulation

Appraisal System

• Part of appraisal system which requires supervisor to assess employees on various aspects

Productivity

Behavior

Personal traits

Quality of work

Quantity of output

Attendance

Appraisal System

• Historical performance

• Potential for growth and advancement

• Forms and Procedures

• Rating scales

A-B-C-D-E-

1-2-3-4-5

Essay

Record of incidents – positive and negative

Appraisal Interview

• A session in which the supervisor provides:

† feedback to the employee on past performance

† discusses any problem

† invites a response

† opportunity to motivate the employee

Suggested Approaches on Appraisal Interview

• Is knowledgeable about the employee’s job

• Has previously set measurable performance standards

• Has gathered specific evidence frequently about performance

• Seeks and uses inputs from other observers in the organization

Suggested Approaches on Appraisal Interview (cont’n)

• Limits amount of criticism to a few major items

• Provides support, acceptance, and praises for a task well done

• Listens actively to employee’s inputs and reactions

• Share responsibility for outcomes and offer future assistance

• Allow participation in discussion

Performance Feedback

• Helps employees know what to do and how well they are meeting their goals

• Enhances an employee’s self-image and feeling of competence

• Lead to both improved performance and improved attitudes

Performance Feedback (cont’d)

• Attribution: the process by

which people interpret and assign causes for their own and others’ behavior

Employee behavior occurs:

- functional? - dysfunctional

Future behavior is predicted; methods to assure it are implemented

Attributions are made to personal or situational factors such as:

- Ability - Effort - Task difficulty - Luck

Performance Feedback (cont’d)

The Process of Making and Using Attributions

Observe

Describe/Preduct

Control

Performance Feedback (cont’d)

Manager…

• observes some employee’s behavior and describes it as functional or dysfunctional

• Seeks to understand and diagnose the behavior

• Makes a causal attribution for it

• Predicts and controls future employee behavior

Economic Incentive Systems

• Performance Management – holds that

employee performance can be managed and improved.

• Economic Incentive system - a system that induce a high level of individual, group, or organizational performance by making an employee’s pay contingent connected with their performance

Major Incentive Measures to Link Pay with Performance

Incentive Measures Example

Amount of inputs Piece rate, sales commission

Quality of output Piece rate only for pieces meeting standard

Success in reaching goals Bonus for reaching esablished goals

Amount of profit Profit sharing

Const efficiency Gain sharing

Employee skills Skill-based pay

Economic Incentive Systems

• Wage incentives

• Profit Sharing

• Gain Sharing

• Skills-Based Pay

Economic Incentive Systems

• Wage incentives – form of merit incentive

providing more pay for more production

Rationale: To increase productivity while

decreasing labor costs per unit of production

Difficulty: Disruption in the social system may

lead to feelings of inequity and dissatisfaction

Advantages and Disadvantages of Incentives Linking Pay with Performance

Advantages Disadvantages

Strengthen instrumentality of beliefs

Cost (both to employer and employee)

Create perception of equality System complexity

Reinforce desirable behaviors

Union resistance

Provide objective basis for rewards

Delay in receipt

Variable or declining pay

Economic Incentive Systems

• Profit Sharing – system that distributes to

employees some portion of the profits of the business

Aims to recognize mutual interests

Work better for fast growing, profitable

organizations

Economic Incentive Systems

• Gain Sharing – measures improvements,

shares the gains with employees on some formula basis

Inventory levels

Labor hours per unit of production

Usage of materials and supplies

Quality of finished goods

Economic Incentive Systems

• Skilled-Based Pay – reward individual

employee for what they know how to do based on:

range

depth

type of skills

Case Focus: Village Grocery Mark Rodriguez was the executive for Village Grocery, a family-owned chain of six

grocery stores in a medium-sized metropolitan area. The current problem he was

facing dealt with the stock clerks workers in the stores. Despite paying them the usual

wage rate (minimum legislated wage), he had trouble obtaining enough applicants for

the job. Worse still, many of them seemed to lack motivation once he hired them.

This situation created problems of empty shelves and slow service at the check out

lanes.

In an attempt to solve the problems, Mark met with small groups of the workers to get

their ideas. He also consulted with a local expert on compensation issues. Some

workers said they wanted a higher hourly wage rate; others said they wanted some

incentives to work faster; some had no comment whatsoever. The consultant

recommended that Mark consider using some of the more contemporary

compensation systems,

Questions:

1. Which of the major economic incentive systems discussed has the best chance of working

for Mark?

2. Can two or more incetive systems be combined, with an even greater likelihood of

success?

3. In your recommendation, which motivational theories are you most specifically using?