Appraising and Rewarding Performance

I. Money as a mean of Rewarding Employees

Money is valuable because of the goods and services that it will purchase. This aspect is its
economic value as a medium of exchange for allocation of economic resources; however, money
also is a social medium of exchange. All of us have seen its importance as a status symbol for
those who have it and can thus save it, spend it conspicuously, or give it away generously.
Money has status value when it is being received and when it is being spent. It represents to
employess what their employer thinks of them. It is also an indication of one employee's status
relative to that of other employees. It has about as many values as it has possessors. The biggest
problem with using money as a reward has been that it was seldom immediate or directly related
to the behaviors it was supposed to reward because it was usually paid out in a bi-weekly or
monthly pay check or one time during the year. Research shows for a reward to be effective and
sustaining, it needs to be directly related to the desired behavior. This is best achieved by
rewarding the performance immediately after the behavior occurs.

II. Application of the Motivation Models

Drives
Achievement-oriented employess maintain a symbolic scorecard in their minds by
monitoring their total pay and comparing it with that of others. Their pay is a measure of their
accomplishments. Money also relates to other drives, since people can use it to buy their way into
expensive clubs (affiliation) and give them the capacity (power) to influence others, such as
through political contributions.

Needs
In the Herzberg model, pay is viewed primarily as a hygiene factor, although it may have
atleast short-term motivational value as well. In the other need-based models, pay is most easily
seen in its capacity to satisfy the lower order needs (such as Maslow's physiological and security
needs or Alderfer's existence needs). However, we can easily see how it relates to other levels as
well.

Expectancy
Expectancy theory states that: Valence x Expectance x Instrumentality =
Motivation.
This means that if money is to act as a strong motivation, an employee must want more
of it (valence), must believe that effort will be successful in producing desired performance
(expectancy), and must trust that the monetary reward will follow better performance
(instrumentality). Value of money is not easily influenced by mangement. It is contingent upon an
employee's personal values, experience, and needs as well as the macromotivational
environment.

III. Additional Considerations in the Use of

Money
Extrinsic and Intrinsic Rewards
Money is essentially an extrinsic reward rather than an intrinsic one, so it is easily
administered in behavior modification programs. Intrinsic motivating jobs are those that generate
positive emotions in employees and are rewarding in and of themselves. Intrinsic motivation
results best from self-management, which is critical for organizational success in the twenty-first
century.
Four independent paths may lead to intrinsic motivation:
•A sense of meaningfulness (brought about through identified passions, an exciting vision,
relevant and whole tasks)
•A sense of choice (created by delegated authority, demonstrated trust, provision of security,
clear purpose, and relevant/timely information).
•A sense of competence ( created through training, positive feedback, skill recognition, fit
between tasks and abilities and challenging standards).
•A sense of progress (stimulated by a collaborative climate, tracking of milestones, celebrations
of progress, access to customers, and measured improvements).

Compliance with the Law

In addition to complexities involved in applying various motivational models and building
on both extrinsic and intrinsic factors, compensation , manegement is also complicated by the
need to comply with a wide range of federal state laws.
The most signifacant one is the federal Equity Pay Act of 1963, which affects employers who
are engaged in interstate commerce and most employees of federal, state, and local government.
Also legislated by many state, the law demands that reward system be designed and
administered so that many people doing the same work receive equal pay regardless of the sex
of the oerson holding the job.

Comparable worth also seeks to guarantee equal pay for equal work. This approach demands
that reward system be designed so that in comparable jobs-- those of equal value to the
employer-- receive similar levels of pay.

Other Factors
Secrecy in pay programs is sometimes subject to debate. Some organizations guard all
information about compensaton from employees; others freely share it in the belief that openness
is preferable.
Control can also be an issue. Should reward system be designed by staff experts, or
should employees be allowed to participate in their creation and governance?
Flexibility , even though some clothing products claim "one size fits all", to expect that all
dimensions of compensation will meet the needs of all employees may not be reasonable.

IV. Organizational Behavior and Performance

Appraisal
Organizations require consistent levels of high performance from their employees in
order to survive in a highly competitive global environment. Many firms use some form of results-
oriented planning and control systems. Management by Objectives (MBO) is a cyclical process
that often cinsists of four steps as a way to attain desired performance:

1. Objective selling - joint determination by the manager and employee of appropriate levels of
future performance by the employee, within the contsxt of overall unit goals and resources. These
objectives often set for the next calendar year.
2. Action planning - participative or even independent planning by the employee as to how to
reach those objectives. Providing some autonomy to employees is invaluable; they are more
likely to use their ingenuity, as well as feel more committed to plan's success.
3. Periodic reviews - joint assessment of progress toward objectives by manager and employee,
performed informally and sometimes spontaneously.
4. Annual evaluation - ,ore formal assessement of success in achieving the employees annual
objectives, coupled with a renewal of the planning cycle.

The MBO approach overcomes some of the problems that arise as a result of assuming that the
employee traits needed for job success can be reliably identified and measured. Instead of
assuming traits, the MBO method concentrates on actual outcomes. If the employee meets or
exceeds the set objectives, then he or she has demonstrated an acceptable level of job
performance. Employees are judged according to real outcomes, and not on their potential for
success, or on someone’s subjective
opinion of their abilities. The guiding principle of the MBO approach is that direct results can be
observed, whereas the traits and attributes of employees (which may or may not contribute to
performance) must be guessed at or inferred.

Performance appraisal plays a key role in reward system. It is the process of evaluating the
performance of employees, sharing that information with them, and searching for ways to improve
their performance. Appraisal is necessary in order to (1) allocate resource in a dynamic
environment, (2) motivate and reward employees, (3) give employees feedback about their work,
(4) maintain fair relationships within groups, (5) coach and develop employees, and (6) comply
woth regulations. It is also a formal opportunity to do what should e done much more frequently in
organizations-- express appreciation for employee contributions.

Appraisal Philosophy
A generation ago, appraisal programs tended to emphasoze employee traits,
deficiencies, and abilities, but modern appraisal philosophy emphasizes present performance and
future goals. Modern philosophy also stresses employee participation in mutually setting goals
with the supervisor and knowledge of results.
Hallmark of Appraisal Philosophy are as follows:

•Performance orientation- it is not enough for employees to put forth effort; that effort must result
in the attainment of desired outcomes.
•Focus on goals or objectives
•Mutual goal setting between supervisor and employees
•Clarofocation of behavioral expectations
•Extensive feedback systems

The Appraisal Interview

It is a session in which the supervisor provides feedback to the employee on past
performance, discusses any problems that have arisen, and invites a response. It provides a rich
opportunity to motivate the employee.

Suggested Approaches, appraisal interviews are more likely to be successful when the
appraiser:
•Is knowlegeable about the employee's job
•Has previously set measurable perforamance standards
•Has gathered specific avidence frequently about performance
•Seeks and uses inputs from other observers in the organization
•Sharply limits the amount of criticism to a few major items
•Provides support, acceptance and praise for task well done
•Listen actively to the employee's input and reactions
•Shares responsibility for outcomes and offers future assistance
•Allows participation in the discussion

Self-appraisal is an opportunity for the employees to be introspective and to offer a personal

assessment of his or her accomplishments, strengths and weaknesses. The process of
evaluating one’s own performance can help to increase employee’s commitment to the appraisal
process, perceptions of appraisal fairness, and satisfaction with the appraisal process
Performace feedback leads to both improved attitudes-- if handled properly by the manager.
Attribution is the process by which people interpret and asign causes for their own and others'
behavior.
Fundamental attribution bias is often exhibited when judging others. People tend to attribute
others achievement to good luck or easy task and they assume that others failed to try hard
enough or simply lacked appropriate personal characteristics or overall ability if they failed.
Galatea effect is about high expectation by employees themselves lead to high performance.

V. Economic Incentive Systems

An 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 thoe dimensions.
Additional objectives include facilitating recruitment and retention of good employees, stimulating
desirable role bewhavior such as creativity, encouraging the development of valued skills, and
satisfying key employee needs. Temporary incentives also have a role to play in compensation.
Sometimes they provide just the right amount added motivation to cause a desired increase in
perfirmance.
-System that varies an employee's pay in proportation to some criterion of individuals,
group, or organizational performance.

VI. Incentive Linking Pay with Performance

Perhaps the most popular measure is for the amount output to determine pay, as
illustrated by a sales commission or a piece rate. It provides a simple, direct connection between
performance and reward. Incentives provides several potential employee advantages. A major
advantage is that they increase employee beliefs that reward will follow high performance.
Piece rate is a reward system that pays employees according to the number of acceptable
pieces produced.

Advantages
•Strengthen instrumentality beliefs
•Create perceptions of equity
•Reinforce desirable behaviors
•Provide objectib\ve basis for rewards

Disadvantages
•Cost
•System complexity
•Declining or variable pay
•Union resistance
•Delay in receipt

Wage incentives which are a form of merit pay, provide more pay for more production. Workers
under normal conditions without wage incentives have the capacity to produce more, and wage
incentives are one way to release that potential.
Lump sum payments (such as sales commissions) is another traditional method. It is not added
to base pay. Usually the formula and the relationship between performance and the payment of
the lump sum are known beforehand.
Sales commissions may often have little to do with performance because factorssuch as
product quality, brand name and price may contribute more to sales than the abilityto convince
buyers. Appraisals are less significant to this category where the criteria (e.g.sales figures) are
statistical and no further measurement is needed.
Rate setting is the process of determining the standard output for each job, which becomes fair
days work for the operator.
Loose rates is when employees are able to reach standard output with less than normal effort.
Payments at a rate that allows employees to reach standard output with less&-than&-normal
effort.
Output Restriction is the situation in which workers choose to produce less than they could
produce with nornal effort.

VII. Profit Sharing

Profit sharing is a system that distributes to employees some portion of the profits of
business, either immediately or deferred until a later date. the growth of profit sharing has been
encourage by federal tax laws that allow employees income taxes to be deferred on funds placed
in profit-sharing pension plans. Profit sharing, when used as a special term, refers to various
incentive plans introduced by businesses that provide direct or indirect payments to employees
that depend on company's profitability in addition to employees' regular salary and bonuses. In
publicly traded companies these plans typically amount to allocation of shares to employees.

The profit sharing plans are based on predetermined economic sharing rules that define the split
of gains between the company as a principal and the employee as an agent. For example,
suppose the profits are x, which might be a random variable. Before knowing the profits, the
principal and agent might agree on a sharing rule s

Gain sharing is another useful group incentive. It establishes a historical base period of
organizational performance, measures improvements and sharea the gains with employees on
some formula basis. Gainsharing is a program that returns cost savings to the employees, usually
as a lump-sum bonus. It is a productivity measure, as opposed to profit-sharing which is a
profitability measure.

There are three major types of gainsharing:

•Scanlon plan: This program dates back to the 1930s and relies on committees to create cost-
sharing ideas
•Rucker plan: This plan also uses committees, but although the committee structure is simpler
the cost-saving calculations are more complex.
•Improshare: Improshare stands for "Improved productivity through sharing" and is a more
recent plan. With this plan, a standard is developed that identifies the expected number
of hours to produce something, and any savings between this standard and actual
production are shared between the company and the workers.

Skill-Based pay also called knowledge-based pay or multiskill 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. Skill-based pay refers to a system which promotes
workforce flexibility by rewarding individuals based on the number, type and depth of skills
acquired, mastered and applied.

The pay increases are usually tied to four types of skills:

•horizontal skills, which involve a broadening of skills in terms of the range of
tasks across several jobs, e.g. in the field of accounts.
•vertical skills, which involve acquiring skills of a higher level within a single
job
•depth skills, which involve a high level of skills in specialised areas relating
to the same job, e.g. a computer programmer specializing in data base
programming
•basic skills, which involve developing expertise in basic skill areas, e.g.
maths, fluency in a particular language.

Advantages of skill-based pay are the following:

• It contributes to job enlargement, enrichment and satisfaction by breaking
down narrow job classifications.
•Flexibility is increased by encouraging the performance of multiple tasks,
fewer job classifications, job rotation, and filling of temporary vacancies due,
for instance, to absenteeism. It therefore contributes to a leaner workforce.
•It enhances productivity and quality through better use of human resources.
•It facilitates technological change, which may meet with resistance in a purely
job-based system.
•The higher pay levels, continuous training, and job enlargement through the
broadening of skills tend to reduce staff turnover.
Disadvantages of skill-based pay are the following:
•the extra payment involved
•training costs
•the fact that some skills may be paid for but used infrequently
•the possibility that unusable skills may be acquired unless the system is
properly administered
•the fact that it is not always easy for an employer to anticipate accurately
what skills will be needed in a few years' time

VII. Flexible Benefits

Flexible benefits refer to a system which allows employees some control or choice over
how the benefits part of their total compensation package is distributed using the quantum of
money available for benefits such as health insurance, holidays, etc. Such schemes work on the
principle of the employer attaching a financial value to each benefit and arriving at a maximum
monetary value for the totality of benefits. An employee can then choose from among the menu
of benefits, allocating more resources to one rather than another benefit. In this way employees
are able to take into account their individual and family circumstances to maximise benefit from
the package.

Fundamentals
of
Human Resource
Management
 Appraising
and
Rewarding
Performance

Submitted by:
Calingasan, Irene Grace
BSBA Financial Management

Submitted to:
Prof. Palileo

TTh 6:30 - 8:00