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Title: Performance Appraisel

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Description: How to do performance appraisel
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PERFORMANCE APPRAISAL
Performance appraisal is defines as evaluating an employee’s current and past performance
relative to his or her performance standards.

Appraisal process:
1. Setting work standards
2. Assessing the employees actual performance relative to these standards
3. Providing feedback to employee with aim at motivating that person to eliminate
performance deficiencies or to continue to perform above par

Why appraise performance:


1. Appraisal provide information upon which promotion and salary decisions can be made
(administrative purpose)
2. Provide opportunity for you and your subordinate to review subordinate work-related
behaviour, correct any deficiencies + reinforce the things being done right.
3. Career-planning process: provides an opportunity to review the persons career plans in
light of his/her strengths and weaknesses.
4. Overall help better manage and improve your organization’s performance.
The supervisor does the appraisal, help and advise from HR department

APPRAISAL METHODS
Graphic Rating Scale Method:
Most simple and most popular technique.
A scale that lists a number of traits (ex. Quality and reliability) and a range of performance
for each. The employee is than rated by identifying the score that best describes his or her
level of performance for each trait. The assigned values (ex from unsatisfactory to
outstanding) for the traits are then totalled.

Alternative ranking method


Ranking employees from best to worst on a particular trait, choosing highest, then lowest
until all are ranked. Usually easier to distinguish between the worst and best employees,
difficult to distinguish employees rated in the middle.
Paired Comparison Method
Ranking employees by making a chart of all possible pairs of the employees for each trait and
indicating which is the better employee.
Can only be used in small organizations.
Forced Distribution Method
Similar to grading on the curve, predetermined percentage of rates are placed in various
performance categories.

Critical Incident Method


Keeping a record of uncommonly good or undesirable examples of an employee’s work
related behaviour and reviewing it with the employee at predetermined time.
Advantage: provides specific hard examples of good and bad performance though out the
year so performance is not only based on recent performance. Disadvantage: not useful in
evaluating salary, promotion etc.

Narrative Forms
1. rate the employee’s performance for each performance factor or skill. 2. to write down
critical examples and an improvement plan designed to aid the employee in understanding
where his or her performance was good or bad, and for improving that performance.

Behaviourally Anchored Rating Scales (BARS)


An appraisal method that aims at combining the benefits of narrative critical incidents and
quantified ratings by anchoring a quantified scale with specific narrative examples of good
and poor performance.

5 steps:
1. Generate critical incidents. Persons who know the job being appraised (jobholders and/or
supervisors) are asked to describe specific illustrations (critical incidents) of effective and
ineffective performance.
2. Develop performance dimensions. These people then cluster the incidents into a smaller
set of performance dimensions.
3. Reallocate incidents. Another group of people who also know the job then reallocate the
original critical incidents. They are given the clusters’ definition and the critical incidents and
are asked to reassign each incident to the cluster they think it fits best.
4. Scale the incidents. This second group is generally asked to rate the behaviour described
in the incident as to how effectively or ineffectively it represents performance on the
appropriate dimension.
5. Develop final instrument. A subset of incidents is used a behavioural anchors for each
dimension.
Advantages:
1. A more accurate gauge.
2. Clearer standards
3. Feedback
4. Independent dimensions
5. Consistency
The Management by Objectives Method (MBO)
Involves setting specific measurable goals with each employee and then periodically
reviewing the progress made.
6 steps:
1. Set the organizations goals
2. Set department goals
3. Discuss department goals. Department heads discuss the goals with subordinates and ask
them to develop individual goals, how can each employee contribute to department goals.
4. Define expected results (set individual goals). Department heads and their subordinates
set short term performance targets.
5. Performance reviews, Measure the result. Compare the actual performance or subordinates
with expected results.
6. Provide feedback.

Problem: 1) setting unclear goals. 2) time consuming. 3) subordinates and heads has to
agree on the subordinates goals (subordinate: low vs. head: high)

APPRAISAL PROBLEMS
Unclear standards
An appraisal scale that is too open to interpretation, instead include descriptive phrases that
define each trait and what is meant by standards like “good” and “unsatisfactory”.

Halo effect
In performance appraisal, the problem that occurs when a supervisor’s rating of a
subordinate on one trait biases the rating of that person on other trait.
Halo effect has been defined as the influence of a rater’s general impression on ratings of
specific ratee qualities.

Central Tendency
A tendency to rate all employees the same way, such as rating them all average.

Leniency or strictness
The problem that occurs when a supervisor has a tendency to rate all subordinates either
high or low.

Bias
Individual differences among rates in terms of characteristics like age, race and sex can
affect their ratings, often apart from each ratee’s actual performance.

How to avoid appraisal problems:


1) Understand the above problems
2) Choose the right appraisal tool
3) Train supervisors to eliminate errors
4) Diary keeping

See table 9-3 page 341 for similarities and difference in the appraisal tools.

Legal issues page 342

Who should do the appraising?


1. Appraisal by the immediate supervisor.
2. Using peer appraisals.
3. Rating committees. Rated by immediate supervisor plus 3-4 other supervisors
4. Self-ratings.
5. Appraisal by subordinates – upward feedback.

How to conduct the appraisal interview.


1. Be direct and specific. Objective data, 2. Don’t get personal, 3. Encourage the person to
talk, 4. Don’t tiptoe around

COMPENSATION
Employees compensation: All forms of rewards going to employees and arising from their
employment. Direct payments such as wages, salaries, commissions etc. Indirect payments
such as employer-paid insurance and vacations.

Establishing pay rates:


1. Conduct the Salary Survey. (to help ensure external equity) A survey aimed at
determining prevailing wage rates. A good salary survey provides specific wage rates for
specific jobs.
2. Determine the worth of each job (internal equity) Job evaluation: A systematic comparison
done in order to determine the worth of one job relative to another.
Ranking method: The simplest method of job evaluation that involves ranking each job
relative to all other jobs, usually based on overall difficulty.
Job classification: Jobs are categorized into groups. The groups are called classes if they
contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise
different.
Classes: Dividing jobs into classes based on a set of rules for each class, such as amount of
independent judgement, skill, effort etc. required for each class of jobs. Classes usually
contain similar jobs – all secretaries etc.
Point method: The job evaluation method in which a number of compensable factors are
identified and then the degree to which each of these factors is present on the job is
determined.
Factor comparison method: A widely used method of ranking jobs according to a variety of
skill and difficulty factors, then adding up these rankings to arrive at an overall numerical
rating for each given job.
3. Group similar jobs into pay grades.
A pay grade is comprised of jobs of approximately equal difficulty.
4. Price each pay grade – wage curves, shows the relationship between the value of the job
and the average wage paid for this job.
5. Fine tune pay rates.

Current trends in compensation


Skill based pay: With competency or skill based pay, you are paid for the range, depth and
types of skills and knowledge you are capable of using rather then for the job you currently
hold.

LAW
Fair labor standards act. To provide minimum wages, maximum hours, overtime pay, and
child labor protection.
Equal pay act.
ERISA Employee Retirement Income Security Act. The law that provides government
protection of pensions for all employees with company pension plans. It also regulates
vesting rights (employees who leave before retirement may claim compensation from the
pension plan).

Compensating managers
1. base salary
2. short term incentives (designed to reward managers for attaining short term goals- cash
or stock)
3. long term incentives (rewarding the person for long term performance – stock options)
4. executive benefits and perks. (time off with pay, health care, employee services,
retirement)

Chapter 12: Pay for performance


Spot bonus: A spontaneous incentive awarded to individuals for accomplishments not readily
measured by a standard.
Variable pay: Any plan that ties pay to productivity or profitability usually as one time lump
payments.

Piecework plans:
Piecework: A system of pay based on the number of items processed by each individual
worker in a unit of time, such as items per hour or items per day.
Straight piecework plan: Under this pay system each worker receives a set payment for each
piece produced or processed in a factory or shop.
Guaranteed piecework plan: The minimum hourly wage plus an incentive for each piece
produced above a set number of pieces per hour.
Advantage by piece plan: simple to calculate and understand by employees. Disadvantages:
problem when raising production standards, when attempt is made to revise production
standards, it meets considerable worker resistance, even if the change is fully justified.

Standard Hour Plan: A plan by which a worker is paid a basic hourly rate but is paid an extra
percentage of his or her base rate for production exceeding the standard per hour or per day.
Similar to piecework payment only based on a percent premium.

Team or group incentive plan: A plan in which a production standard is set for a specific work
group, and its members are paid incentives if the group exceeds the production standard.

Annual bonus: Plans that are designed to motivate short term performance of managers and
are tied to company profitability
Capital accumulation programs: Long term incentives most often reserved for senior
executives. Six popular plans include stock options, stock appreciation rights, performance
achievement plans, restricted stock plans, etc.
Merit pay (merit rate): Any salary increase awarded to an employee based on his or her
individual performance.
Profit sharing plan: A plan whereby most employees share in the company’s profit.

Scanlon plan: 1. philosophy of cooperation 2. identity 3. Competence 4. involvement system


5. sharing of benefits formula. ½