Contents

Acknowledgements………………………………………………………………………………….....................
1
Introduction………………………………………………………………………………………….....................
2
What is employee pay…………………………………………………………………………………………...3
Bases for pay……………………………………………………………………………………………………….3
Employee
benefits………………………………………………………………………………………………….3
Discretionary benefits…………………………………………………………………………………………….3
Legally required benefits…………………………………………………………………………………………4
Unemployment insurance………………………………………………………………………….....................4
Family and medical
leave………………………………………………………………………………………...5
Workers’ compensation insurance………………………………………………………………………………5
Disability insurance……………………………………………………………………………………………….5
Compensation………………………………………………………………………………………………………
6
Types of compensation……………………………………………………………………………………………7
Laws relating Pay ………………….…………………………………………………………………………….7
Themes of laws………...………………………………………………………………………………………….7

Performance appraisals…………………………………………………………………………………………8

Purpose…………………………………………………………………………………………………………….8

Current trends……………………………………………………………………………………………………9

Legality and Discrimination issues and how those be tackled…………………………………………….9

Biases /
errors…………………………………………………………………………………………………….10

Advantages of fair performance appraisals…………………………………………………………………11

Disadvantages of poor performance appraisals……………………………………………………………12

Conclusion……………………………………………………………………………………………………….13

Sources…………………………………………………………………………………………………………….13

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Acknowledgments:

I am very thankful to ma’am Samar Batool Shah for assigning me the topic relating the Pay
and Performance appraisals. I got a lot of knowledge of the related laws and issues and had a
great experience amid pandemic.

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Introduction:

This is a detailed report of Pay and Performance appraisals. The purpose of the report is to
analyse and examine various aspects and types of it. How the discriminatory action by the
employers and management can affect on the pay and performance appraisals. What will be
the cost related issues for employers to set the fair pay and the benefits achieved by the
company if they implement the fair pay and performance appraisals in terms of motivation,
satisfaction, and high performance of employees and ultimately the meeting of long-term
strategic objectives.

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What is Employee Pay:

The employee pay consists of employee Benefits and Compensation which are provided to
the employees as a remuneration to their contribution in the organization and helping and
meeting the strategic objectives of the company. The pay policies vary from organization to
organization in terms of the nature of business and their cost considerations. There are three
Bases for pay:

Seniourity-
based
Traditional
bases for pay
Merit-based

Profit share

Shares of
stock
Incentive pay Training &
non-financial
recognition
Retention
Bonuses

Skill-based
pay

Person Pay for

Focused pay knowledge

Competency
based pay

Employee Benefits:

Psychologically employees will perceive a company fair and good to get a job there where
there are number of benefits because they will think the company is caring for them. In
addition, the company will benefit for attracting and retaining the talented employees in their
organization. There are two types of employee benefits:

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 1) Discretionary benefits:

The benefits became popular specifically after world war II with the introduction of mainly
Pension plans with the other retirement plans in order to protect the workers and their life
after leaving jobs. The first pension plan was designed in 1759 and were provided to the
children and widows1. Officially these benefits were declared by American Express Company
in 1875 for their employees. Later it was provided as a form of motivational tool and then the
Welfare practices were beginning to be practiced by the companies. And for the welfare the
benefits were offered; something for ease and enhancement, intellectual or societal for the
employees, paid over and above wages, which is not a compulsory to be paid in the industry
nor obligatory by law.

These benefits can include:

 vacation leave
 health insurance
 maternity leave
 sick leave
 pension plans
 life insurance

 prescription drug insurance.

2) Legally required benefits:

The legally required benefits incur most of the costs to the employers. The research shows on
average, a company pays $5200 per employee for the legal benefits. Now its is required by
the Patient Protection and Affordable Care Act of 2010 to include the Health insurance as a
part of legal required benefit not the discretionary. If it included in the legal benefits the
average cost will be around $10,100, the figure is about 15.6% of the total compensation cost.
Four types of legally required benefits are:

1. Unemployment Insurance:

Unemployment insurance is applicable to those who have lost their jobs not because of their
faults but laid-off because the company was downsizing, restructured, or merged etc. they
classically collect the semi pay for 26 weeks.
1
According to Employee Benefits Research Institute

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 2. Family and medical leave:

It requires that works can easily balance the work and domestic responsibilities. It offers
employees to have unpaid, family protected leave for up to 12 weeks for the health-related
emergency. It is also associated with the maternity and paternity leaves.

3. Workers compensation insurance:

This insurance is provided to the employees and applicable for those who suffer from illness
or injury while performing the job duties. The company has to reimburse them for their injury
and the loss of pay.

4. Disability insurance:

It is applicable for the employees who become severely ill or injured because of performing
duties in the workplace, and who will not be able to perform again at-least on the similar pace
like before the injury.

Here are different benefits the organization can choose to offer,

 health life insurance

 vacation
 life insurance
 retirement plans
 employee stock ownership plans
 disability insurance
 personal assistance programs, etc

the benefits are being expensive for the businesses to provide to their employees and this
might incur cost more than in financial terms. For example: retirement benefits to the older
employees will cost the company financially also the company might have issues to provide
benefit to the young talent, that will dissatisfy them and hinder creativity. Because of this the
pattern of the benefits is changing rapidly such as Flexible benefits plans. The list of benefits
from which the employees have to choose which benefits they want to have.

Above are all the tangible benefits, though the employees might receive the intangible
benefits too like; appreciation from boss, good conditioned office, or likelihood of promotion
etc.

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Compensation:

The word compensation derived from the Latin term Compensare which means ‘weigh
against’. It is the monetary payment in exchange for labour, time, and expertise used by
labour in the workplace. When it comes to the term compensation it refers to the salary,
benefits, wages, and variable pay. It also includes the remuneration paid to someone in
exchange of something just like the workers’ compensation of unemployment or for some
injuries caused due to the work. Or the pay-out by the employer in the lawsuit.

Understanding and determination of the compensation is very important for every business.
Because they are legally bound to pay to the employees in the employment relationship. And
it is important for the employees to know how they are being paid, different types of
compensation that apply to them and the total compensation package, the relation of their
work and the pay so they can see a clear link between their pay and contribution. The total
compensation package includes:

 base pay
 stock options
 commission tips
 variable pays
 hourly wages
 bonuses
 benefits
 other types of rewards.

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 Types of compensation:

2) Indirect 3) Non-financial
Benefits package Time-off Wages
Health insurance Flexible work hours
Retairment plans Recognition &
Stock options award
Coaching &
training
opportunities Salary
Other perks e.g., car

Commission

Bonuses

1) Direct

Laws relating Pay:

There are various compensation laws that govern the employer employee relationship in a
smooth way, these laws have the main four Themes.

1) Income continuity, safety, and work hours

And the laws for the above theme are:

 Equal Pay Act of 1963

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  Fair Labour Standards Act of 1938
 Portal-to-Portal Act of 1947
 McNamara–O’Hara Service Contract Act of 1965
 Work Hours and Safety Standards Act of 1962

2) Prevailing wage laws

 Walsh–Healey Public Contracts Act of 1936
 Davis–Bacon Act of 1931

3) Accommodating disabilities and family needs

 Pregnancy Discrimination Act of 1978
 Family and Medical Leave Act of 1993
 Americans with Disabilities Act of 1990 (amended in 2008)

4) Pay discrimination
 Civil Rights Act of 1991
 Equal Pay Act of 1963
 Bennett Amendment (1964)
 Civil Rights Act of 1964, Title VII
 Lilly Ledbetter Fair Pay Act (2009)
 Age Discrimination in Employment Act of 1967 (amended in 1978, 1986, and 1990)

These several laws provide complete guidance in various aspects for the pay and
compensation such as; for the fair compensation to the employees, providing the fair wages
in true relation to the working hours, providing the 1.5 times more for each extra hour work,
reducing and getting rid of the discrimination in the pay between opposite genders, age
discrimination, or because of favouritism, these laws guides for the children and women, for
the pay secrecy thus every aspect.

The employers who implement and practice these laws will be perceived as fair by the stack
holders especially the employees. And company will be able to attract and retain the true
talent.

Performance appraisals:

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For the number of organizations, the performance appraisals and reviews help to make the
decisions related to training and development of employee, promotions, transfers,
compensation, terminations. In the performance appraisals and reviews the clear performance
objectives and expectation are specified to tell the employees what is expected of them. And
constructive feedback is given to them by either formal or informal means so that they can
improve their performance as expected and reducing the chances of errors.

Purpose:

Its purpose is to judge their performance how well they have accomplished their set targets
and objectives.

Currents trends:

Now the trends are shifting in the performance appraisals, the employers are now focusing on
the less formalized process and more emphasis on the training, ongoing feedback and
coaching during goal performance, and thus reducing the paper trail and the traditional
approach to the performance management which is often burdensome, time-consuming, and
generating less value for the organization. The traditional approach might result of
favouritism, discrimination, and conscious or unconscious errors by the manager or
supervisor.

Many organizations see the failure in the performance appraisals because of the beliefs and
attitudes of:

 Employees: they say that; “the performance appraisals no longer motivate the poor
performers and deal with them effectively, and does not reward the high performers.
 Executives: they believe that the performance ratings any not be the accurate
reflection of performance and making those ratings as the bases for capturing talent
and related decisions might not worth, because the ratings might include various
errors (conscious or unconscious), and discrimination by the management.
 Managers: believe the process to too much time taking and they may not complete
the other valuable work.

Because of these believes they consider to change their approach which is less time
consuming and more value providing. But most hesitate to change because of some potential
risks associated with change. But the change is worth considering because as discovered by
Deloitte; performance management and appraisals might be costly and suck a huge money

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from the organization without bringing appropriate value. But the costs relating to poor
morale and less engagement resulting from a poorly implemented process might be countless.
Orgs. are continuously looking for improvements in performance, but they lack a concrete
performance management and appraisal approach and that is a lost opportunity to support
employees perform as per their potential.

Legality and Discrimination issues and how those be tackled:

Federal, National and local laws that forbid the prejudice and discrimination in terms and
conditions of employment they all put on to an enclosed organization's performance
management actions, practices, and policies. All the employers must take those laws in
account and prevent any type of discrimination, and favouritism apart in the development and
implementation of the system.

The managers or the supervisors responsible of giving reviews and feedback may use
offensive language and be less cooperative while they are giving the feedback to their
subordinates. The managers should use the less offensive language and give the constructive
feedback so that the subordinates be motivated to improve their performance and get the
expected results.

Moreover, there in the performance reviews there the managers might get overwhelmed by
the errors like:

Halo/horn effect: that is based on the previous performance of the employees. If the
employees were good in the past performance, they are likely to get good ratings by the
manager (no matter how is the current performance)- horn effect. And the horn effect occurs
when the employees are not much liked by the supervisor because his past performance was
bad, he will likely to get bad reviews (no matter if the current performance is exceptional or
good).

Similar to me error: making this error lets the supervisor correspond the employees similar
to him/her in terms of likes/ dislikes, activities, and behaviours. And that employee is likely
to get good reviews always by that supervisor, no matter how the employee performs on daily
performances.

Central tendency: the error lets the supervisor give the average scores and results to each and
every employee. And that’s because of many causes like the supervisor want to satisfy every

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employee, take on every employee on the same board, avoid workload and burdensome, and
avoid negative feedbacks by the employee.

Lacking Differentiation:

Leniency errors: the leniency errors let the supervisor give all the employees a lenient, good,
or above average ratings and reviews to every employee. In order to avoid Burdon, and
workload, or to satisfy each and every employ. These types of errors supervisors neglect the
long-term objectives and goals of the organization for having their short-term comfort and
ease.

The results of the lacking differentiation by the ratter are the leniency error, severity error
(giving the poor ratings to every employee), and central tendency errors. This lack is because
of the ratters are often reluctant to pass judgement and they might not defend their feedback
and reviews.

In order to avoid these types of errors that cause the discrimination in the workplace, and
hindrances in the strategic objectives to be met should be stopped. These can be stopped by
taking corrective actions like;

 Trainings and coaching the managers and supervisors who are responsible for giving
the reviews and feedback to the employees.
 Providing them incentives to carry a fair performance appraisal system.
 Bonuses and Reward for those who have done a fair assessment of each employee.
 The mangers or supervisor’s performance appraisals should be based and linked on
how they conduct the appraisal of their subordinates.

Performance reviews & feedback meetings:

The performance reviews and feedback meeting should be the constructive in the sense that
managers/supervisors must:

 first encourage the employees be free and easy, offer them tea or coffee, and ask
about their experience to achieve the set targets.
 Appreciate the good performance and the targets achieved.
 Ask for the limitations and hindrances of why they could not accomplish their set
targets.

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  And then suggest the employees how can they improve their performance. And
provide them necessary resources if they need any.

In this way the employees will be open, motivated, and productive in the next session of the
performance.

Advantages of fair performance appraisals:

1) Communication: The employers can prohibit or get rid of many appraisal and
performance problems by guaranteeing that two-way communications that occur
among employees and managers, results in a full understanding of what is expected,
when it is expected and how every employees’ contribution is measured. Everyone is
advantaged when:

 The employees get to know exactly where he is standing and what are their expected
objectives, and how can they improve for career development and advancement and
promotions.
 The manager gets to know the limitations and hindrances that happen with the
employees and motivate them and provide them required resources if any.
 The employer can sustain the talented and motivated employees who recognise their
and others roles in taking the parts in overall organizational success and their
contribution in the meeting the strategic objectives.

2) Promotions: It assists the management and supervisors to get the true picture of
which employees are efficient and effective and get promoted to the next position.
3) Compensations: The fair performance appraisal will help the employers to decide the
compensations packages for the employees. The packages that include; extra
benefits, higher pay, pay rates, pre-requisite and other allowances. The fair
compensations will be the reflection of good performance appraisals.
4) Training opportunities: The deserving candidates can avail the training and
development opportunities for their advancement and they can improve in those areas
where they are weak at, if the systematic procedure is followed.
5) A Motivation tool: The effective and systematic approach will let the employees
understand the loopholes, where they have difficulties, and they will evaluate their
own performance followed by the constructive feedback by the manager/ supervisor.

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 If they know they directions and loopholes they will be motivated to improve and do
perform better.
6) To assess: A systematic performance appraisal helps employers to check the validity
of the selection process, and let the employees evaluate their abilities and their
weaknesses.

Disadvantages of poor performance appraisals:

If not implemented effectively, it will be a bad experience for both the employees and
managers/ supervisors. They will be frustrated and results will be shown in the shape of
dissatisfaction, lesser productivity, infect bad performance than the past.

This will be time consuming if not done creatively and done through traditional means.
Ultimately it will be over whelming for the managers and will be workload. And other goals
will be half done and at stack.

If this is wholly or to great extent based on the subjectivity, judgements, and on the
qualitative terms thus will generate errors and biases by the ratter. Further if done
inappropriately will cause the stressful environment for the other employees who have rated
with the poor ratings.

Conclusions:

Pay is ultimate goal of the employees by the employers because this is the remuneration and
compensation in the contributions, time, and expertise they contribute to the company and
meeting its strategic and long-term objectives. If pay is in accordance with their
contributions, it will result in satisfaction, being more productive, and exhibiting good
performance. Further there are the laws and regulations across the world as well as at the
individual country level to govern the pay practices, fair wages in relation to the working
hours and others.

The systematic and effective performance appraisal will serve as a tool for motivating
employees, assisting for the fair training, compensation, and promotion opportunities. If done
without errors, discrimination will enhance the employee performance and meeting the
company’s objectives. And the feedback will improve for the loopholes in the performance
and ultimately organizational performance. Moreover, there should the change must be
welcomed the methods should be updated and the paper work should be reduced.

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Sources:

4 Legally Required Benefits Every Employer Should Know. (n.d.). Retrieved from
https://www.inguard.com/newsroom/4-legally-required-benefits-every-employer-should-know/
DORSEY, D. A. V. I. D., & HANSON, R. O. S. E. M. U. E. L. L. E. R. (n.d.). Performance Management That
Makes A Difference: An Evidence-Based A (pp. 5–48).
Employee Benefits and Compensation (Employee Pay). (n.d.). Retrieved from
https://managementhelp.org/payandbenefits/index.html
MSG Management Study Guide. (n.d.). Retrieved from https://www.managementstudyguide.com/performance-
appraisal.html
S, M. (2019, September 28). Performance Appraisal in HRM: Meaning, Characteristics, Process, Methods.
Retrieved from https://www.economicsdiscussion.net/performance-appraisal/performance-appraisal-in-
hrm/31873
Stewart, A., Amy, Stewart, A., Amy, Stewart, A., Amy, … PayScale. (2020, April 30). What Are the Different
Types of Compensation? Direct, Indirect, Non-Financial. Retrieved from
https://www.payscale.com/compensation-today/2020/01/what-are-the-different-types-of-compensation

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