HRM 380

COMPENSATION
Impact of Performance Appraisal on compensation Pay Model.

Group # 06; Group Name: HR Kingpins

Submitted to:

Md. Arif Shahjahan Bhuiyan

Faculty of North South University

Subimtted by:
1. Md. Hasan Sarker (Group Lead) 1520313030
2. Md. Asif Abdullah 1521888030
3. Md. Asaduzzaman Shawon 1721216630
4. Md. Maqsudur Rahman 1520325030
 Executive Summary

In this project we have focused on the impact of performance appraisal on the compensation
pay model. Our objective is to find out that in Bangladesh how much it impacts on the
compensation pay model.

We have analyzed the articles and as per the understandings that we have got from the HRM
380 course. We have also thoroughly read the book Compensation and answered the possible
scenarios in Bangladesh regarding performance appraisal.

We have talked about how performance appraisal system impacts compensation pay model in
Bangladesh and to what extent it impacts. We have also mentioned how we can implement
these findings in a management process. We have mentioned that how it can impact
organizational success and HR leadership. We also have mentioned the implications of
performance appraisal in the SHRM process. Finally we have added our recommendations
how we can establish competitive compensation in Bangladesh to achieve the organizational
objectives.

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 Table of Contents
Introduction...........................................................................................................1

Literature Review.................................................................................................2

Methodology.........................................................................................................5

Interpretation of research findings – understanding and application in the field

of Compensation...................................................................................................6

How to apply the findings into Compensation field in context of Compensation

management process.............................................................................................7

How they will impact organizational success and HR leadership........................8

Implications of Strategic human resource management developing total

compensation strategy..........................................................................................9

Recommendation – How can we establish competitive compensation model in

Bangladesh and achieve compensation objectives for our organization............10

Conclusion..........................................................................................................11

References...........................................................................................................12

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 Introduction
Performance appraisal is the process of evaluating the employee’s contribution to an
organization. Performance appraisal also works as motivational tool for the organization. As
management gets the clear review of every employee through performance appraisal, they
can assign their reward program accordingly and motivate the employees to increase their
productivity.

Pay model is the process to setup an organization’s whole compensation plan. This includes
aligning the policies, techniques and objectives to setup compensation plan for the whole
organization. This model doesn’t only help to setup the compensation model but also helps
the management to setup the duties and responsibilities of the employees accordingly.

This paper focuses on how performance appraisal impacts the pay model of an organization.
As mentioned before performance appraisal is a process of reviewing employee performance
and pay model is the process to setup an organizations compensation model. Performance and
compensation goes hand to hand. Compensation doesn’t only cover the basic salary of an
employee; it also covers the benefits and rewards. And assigning rewards based on
performance is an old and most used method. So a proper performance appraisal method can
make it easier for the management to setup an effective organizational pay model.

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 Literature Review
Performance appraisal is the annual interview that occurs between management and
employees. There is good justification and reasoning in the companies for utilizing
performance assessment. The primary purpose of the appraisal program is to promote
knowledge sharing from and to the staff. Therefore, in the lack of an evaluation system, an
organization is doubtful to provide feedback to the staff on the one side and understand from
their people performance issues on the other. Furthermore. According to the point of view of
the organization. To establish and uphold the principle of accountability is one of the most
important reasons for having a system of performance assessments [ CITATION Azi07 \l 1033 ].
In Bangladesh performance appraisal is not done properly. Especially when only one person
is responsible for doing the performance appraisal the matter gets even worse as the
immediate supervisor is mainly responsible for the outcome and thus the outcome is
manipulated.

The paper “Pay for What Performance? Lessons From Firms Using the Role-Based
Performance Scale” was written by Theresa M. Welbourne of Cornell University in the year
of 1997. This paper had introduced a new measurement process to measure individual
performance and shows the relation between how this measurement can be tied to payment of
that individual. The author had conducted this paper based on two studies; one of the studies
was conducted by comparing the practices of behavioral motivation between established
businesses and entrepreneurial fast growing business. The second study was about the
relationship between the satisfactory level of gainsharing and employee performance.

In the first study, while comparing the two types of businesses, the author had realized that
the big successful companies are more likely to use performance appraisal to motivate and
reward the job based behaviors. By doing so the big successful organizations are promoting
individual improvement and that in turn will increase the organizational productivity and
profitability. On the other hand entrepreneurial organizations use performance appraisal to
reward and appeal to the employee’s non job behavior, this would increase the employee’s
loyalty and would encourage them to be more involved for the betterment of the organization.
The second study had showed that that gainsharing or group based incentive system were
mainly linked to promote and reward non job behaviors and entrepreneurial firms are more
likely to get the better out of this gainsharing system.

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All in all the paper had reflected upon that Pay for Performance varies from company to
company. Bigger company might use performance appraisal and reward to motivate
individual improvement in order to increase organizational profit and productivity. Whilst the
entrepreneurial firms would use performance appraisal to reward the non-job behaviors of the
employees to increase productivity and profit.

Being a close section of profession development, performance appraisals, consist of periodic

as well as everyday opinions of the performance of all the under command employees in any
organization. It is mainly a very systematic and advanced valuation of the performance of
employees in an employer with a view to rate understands the capacities of representatives
for their in addition development and improvement.

There are two types of compensation. One is direct form of compensation and another is
indirect form of compensation. The direct compensation is involved with the wages, profits
and indirect compensation is concerned with the fringe benefits which an employee enjoys in
response to working in an organization. Compensation is essentially to make into a total
through bringing all components together in a single bundle that will encourage the
achievement of average organizational goals.

Most beneficial and appropriate effects can effortlessly be received with a body of workers
that is flexible by way of introducing new and trendy work format practices, which can
contribute to job satisfaction, work performance as well as to the organizational
competitiveness as a whole.

Human resources have recommended effect on execution of individuals. The suitability will
alternate on the led of representatives as a result of human resource organization, which
moreover shows a tremendous connection. Employee overall performance examination has
been practiced via a number associations for the reason that thousands of years. Despite the
truth that overall performance evaluation framework has been mentioned through many, by
means of and large, it is seen that performance evaluation is an indistinguishable piece of
organizational life. [ CITATION Han18 \l 1033 ]

This research talks about performance appraisal through gainsharing procedures. In the basic
understanding gainsharing is followed through individual and team performance. The author
talks about how gainsharing procedure can be implemented through training and other
traditional techniques. The first hypothesis served to provide replication of prior work that
found a link between employees' perceptions of gainsharing fairness and their monitoring

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activity[ CITATION The96 \l 1033 ]. The results support the findings from earlier research and
offer additional evidence on the interaction between procedural and distributive fairness. The
company implemented the gainsharing plan for a group of service employees whose work
involved administrative, control, and paperwork processing (routing) activities for a custom
brokerage and freight forwarding division of the organization. The items for observational
monitoring ask whether an employee is aware of performance of others and whether
performance levels of peers are noticed, Items used for advisory monitoring focus on whether
an employee responds to the level of performance observed. The results for team advisory
monitoring suggest that this form of group activity has a negative effect on performance for
employees in traditional pay situations. This observation seems to provide some evidence for
agency theory assumptions that peer monitoring, when not formally influenced by a firm, can
result in outcomes that are inconsistent with the needs of owners or management.

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 Methodology
For our research we have selected some articles and reviewed those article through our
faculty instructor. We have thoroughly analysed the articles and took out the relevant data
from the articles to support our research topic. The data we collected was then used in the
context of Bangladesh. We also have collected some data from the book that our faculty
instructor has recommended us. We have analysed the data as per our understanding which is
mainly based on what our faculty has taught us.

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 Interpretation of research findings – understanding and
application in the field of Compensation
Performance appraisal is considered as an essential tool inside an organizations to manage
performance. Appraisal results are used in organizations to help identify reward results, either
actively or passively. This is, the outcomes of the evaluation that are used to determine
qualified employers who will earn more of the available raises, incentives, and promotions in
terms of performance pay. Similarly, appraisal outcomes are used to classify weak performers
who could need any sort of therapy or preparation, or in severe situations, demotion, firing, or
pay cuts[ CITATION Azi07 \l 1033 ]. From the article what we have found that in Bangladesh
there is some sort of performance appraisal but the real effect of performance appraisal is yet
to be seen. In our text book we have read about the use of performance appraisal to determine
the compensation in an organization. According to [ CITATION Geo14 \l 1033 ] as we can learn
the link between appraisal scores and those tests are not always as good as we expect. In
reality, having a difference between performance decisions and performance ratings is
normal. Quality levels on items we insert in the permanent record of an employee are
determined by a number of variables other than the actions of the employee witnessed by
raters. Certain issues as corporate principles such as greater recognition of technological
abilities or leadership expertise, department-to-department competitiveness, department-to-
department rank gaps, economic factors all affect the way workers are rated. There's also
some proof that a number of worker performance scores may be linked to a common success
indicator that is prevalent in a broad variety of occupations and circumstances. So, if all the
organizations practice the proper performance appraisal then the compensation pay model
will be well aligned. In Bangladesh some of the multinational companies use this tool for
designing the pay model. Most of the local companies they don’t follow the tool as they think
that appraisal results doesn’t motivate an employee. The local companies however is turning
to adopt compensation plans as the multinational companies are increasing in Bangladesh.
HR is a new term to many companies and new HR graduates are joining the corporate
workplace and the proper HR system as well as compensation system will be soon a must for
all the companies. Aligning the pay model with performance appraisal will result in more
productivity and employee satisfaction too. Thus companies will find low employee turnover.
As of now the findings show that there is a little evidence of the performance appraisal being
a strong and necessary tool for designing a compensation pay model.

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 How to apply the findings into Compensation field in
context of Compensation management process
Compensation process management is the process of managing employee compensation and
benefits. This helps the management to plan out and maintain an efficient organizational pay
model. Performance appraisal can be used as a tool to manage and plan the compensation
process. Even though performance appraisal has been around for a while but the use of
performance appraisal isn’t very famous, especially in Bangladesh (Azim & Haque 2007).
According to a survey and research conducted by Md. Tahlil Azim & Md Moinul Haque, the
most used performance appraisal method used in Bangladesh is observation through the
supervisors and their report. But this might not be the most effective technique, because of
this the result can be easily manipulated by the supervisor. This would highly compromise
the integrity of compensation process management of an organization.

There are other performance appraisal methods that can be used and tied to compensation
process management. Multiple performance appraisal methods could be helpful to maintain
the transparency and effective compensation process management (Azim & Haque 2007).
Use of multiple performance appraisals would help the management to assess the employees
more effectively, like use of psychological appraisals would able the management to assess
the employees future performance and at the same time implementation of 360 degree
feedback would help the management to get clearer idea about the employees current
condition. So, with combination of these two methods would help to the management to plan
the compensation process management for both futures of the employee and organization and
manage the process for existing condition at the same time.

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 How they will impact organizational success and HR
leadership
The current state of HRM practices is far beneath the degree Bangladesh wishes to achieve.
Most organizations are family owned and controlled by family members, and human resource
management activities have a tendency to be viewed as simply a business enterprise owner’s
wish. But in current years, labour-intensive and export-oriented industries have begun
experiencing stress from the EU and North American countries to preserve their labour-rights
requirements and to improve their factories working prerequisites (Bowden, 2014; ILO,
2013). This stress from outdoor the country is compelling businesses to exchange their
corporate subculture and HRM practices. Researchers have indicated that improved working
prerequisites and higher wage quotes should improve the productiveness and the profitability
of corporations in Bangladesh (Ahmed & Peerlings, 2009). Therefore, these groups need to
enhance systematic and efficient HRM practices to be aggressive globally and to cope with
the altering needs of the economy. However, in a “family or crony-capitalism” situation,
employers have but to realize, or be convinced, that it would be in their first-class activity to
adopt systematic and superb HRM practices. [ CITATION Mah15 \l 18441 ]

Moreover, at present, both public and private sector organizations in Bangladesh are
practicing HRM practices through Recruitment, Selection, Training, Development, Pay
Structuring, Job Grading and Industrial Relations etc. Thus, Bangladesh organizations impact
organizational success and HR leadership.

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 Implications of Strategic human resource management
developing total compensation strategy
Strategic human resource management is a procedure that includes the utilization of general
ways to deal with the advancement of HR methodologies, which are incorporated vertically
with the business system and on a level plane with each other. These systems characterize
aims and plans identified with the general authoritative contemplations. SHRM centers on
activities that separate the firm from its competitors. To generate organizational capability by
ensuring that the organization has the skilled, engaged, committed and well-motivated
employees it needs to achieve sustained competitive advantage is the aim of SHRM.
Thinking about organization’s culture, business, strategy and HR strategy is plan to attract,
motivate, and retain the right employees at the right time to achieve organizational goals and
it takes as compensation strategy. Performance management system is important to have a
structured process to ensure employees are meeting corporate objective and are assessed on a
regular basis. This procedure ought to incorporate the advancement of yearly objectives,
yearly execution evaluations and an organized procedure for training and tutoring
representatives.

Implications of strategic human resource management developing total compensation

strategy, because of Performance appraisal can SHRM developing total compensation
strategy. Compensation Strategies can positively influence employee engagement and
improve employee productivity.

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 Recommendation – How can we establish competitive
compensation model in Bangladesh and achieve
compensation objectives for our organization
Employee compensation is one of the key functions of HRM. According to (Dessler, et al,
2007) defined worker compensation as the “all types of pay or rewards going to employees
and arising from their employment”. Compensation is a vital for both employers and
employees. It is vital to the personnel because it is one of the important motives for which
human beings work. Employees living fame in the society, motivation, loyalty, and
productiveness are additionally influenced via the compensation (Aswathappa, 2008). Again,
it is very essential for the employers because it creates big money out drift of an enterprise
(Weeratunga, 2003). Compensation includes both economic and non-financial advantages
(Aswathappa, 2008). Financial factors incorporate of two factors specifically direct and
indirect types of payments to the employee. Direct compensation consists of wages and
incentives such as bonuses, commissions, and profit sharing plans. Indirect compensation
consists of benefits such as provident fund, gratuity, fitness insurance, vacations, and
retirement advantages etc.

In the usual system, personnel are paid on the foundation of job or membership that has no
connection with the organization’s performance. On the contrary, in the case of performance
or ability based pay, personnel are compensated with admire to their performance, abilities,
and knowledge. In addition, performance based compensation leads to high motivation of
personnel (Decenzo and Robbins, 1999). Compensation need to be reviewed and modified
after sure length through suited survey. Additionally, compensation can attract, motivate, and
maintain competent personnel of an agency (Werther and Davis, 1996). (Absar, 2010).

To follow above procedures we can establish competitive compensation model in Bangladesh

and achieve compensation objectives for our organization.

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 Conclusion
Considering the study, previous literature and analysis of results we can draw positive
conclusion. In order to conclude the discussion first we have to appear at the propositions and
their outcomes. To answer the research questions distinctive hypothesis were created and
after that tried to see if any relationship exists between the human resources practices and
employee performance. All the three speculation have considerable value much less than 0.05
i.e., 0.000. It indicates that the performance appraisal, compensation and work design, have
advantageous effect on employee performance. The end result of this research suggests that
human resource practices have a have an impact on employee performance.

Human Resource Management is a fairly new concept in Bangladesh. The organizations and
managements are still learning the importance of HRM and its practices. Performance
appraisals and pay model is one of the most important parts of Human Resource
Management. This study had taught us the importance of performance appraisal and how it
can affect the pay model and compensation management in an organization. As future
graduates of HRM, this knowledge would help us to bring forth the revolution in the field of
Human Resource Management and prosper further in the world of corporate and business.

So far what we have come to know that performance appraisal is an essential tool in an
organization and it can greatly impact on the compensation pay model. In context of
Bangladesh there are little evidence that this tool is properly used. We now have a clear
image that properly using this tool a company can succeed very rapidly. In Bangladesh
compensation is a term which is not well defined. To define this term the first tool that we
will need is performance appraisal. Performance appraisal can lead to a healthy work
environment and increase the productivity of the employees. Thus the organization becomes
the ultimate gainer.

Strategic human resource management is developing total compensation strategy because of

performance appraisal which is developing total compensation strategy. Performance
appraisal is one of the most important part in human resource management. In this study we
can know the importance of performance appraisal is strategic human resource management
developing total compensation strategy. This knowledge can help us for the future HR
manager. The end result of this research talks about performance appraisal through
gainsharing procedure which is individual or team performance. And the organizational
culture, business strategy, HR strategy, motivate and performance management system is

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important also. So, the implications of SHRM developing total compensation strategy
through performance appraisal.

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 References
Azim, M. T. & Haque, M. M., 2007. A survey on Practices of Performance Appraisal in Bangladesh.
Researchgate, p. 15.

Ehsan, H., 2018. Impact of Performance Appraisal, Work Design and Compensation on Employee
Performance: A Study of Telecom Sector, Islamabad: Preston University.

Mahmood, M. &. A. M., 2015. Human Resources Management Practices in Bangladesh: Current
Scenario and Future Challenges. South Asian Journal of Human Resourses Management, p. 3.

Milkovich, G., Newman, J. & Gerhart, B., 2014. Compensation. 11th ed. New York: McGraw-Hill.

Sturman, M. C., Trevor, C. O., Boudreau, J. W. & Gerhart, B. A., 2003. Is It Worth It To Win The Talent
War? Evaluating the Utility of Performance-based Pay. Center for Advanced Human Resource
Studies, p. 48.

Welbourne, T. M., 1996. Effects of Individual and Team Monitoring. CAHRS Working Paper Series, pp.
1-23.

https://www.researchgate.net/publication/236764529_A_survey_on_Practices_of_Performance_Ap
praisal_in_Bangladesh

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 Group Member Contribution
1) Cover Page, Executive Summary, Table of Contents, Compiling - Md. Hasan Sarker
2) Introduction – Md. Maqsudur Rahman
3) Literature review – everyone has written in this part
4) Methodology used for our findings - Md. Asif Abdullah
5) Interpretation of our research findings – understanding and application in the field of
Compensation? – Md. Hasan Sarker
6) How to apply the findings into Compensation field in context of Compensation management
process – Md. Maqsudur Rahman
7) How they will impact organizational success and HR leadership? – Md. Asaduzzaman
Shawon
8) Implication of Strategic Human Resource Management (SHRM) developing Total
Compensation Strategy? – Md. Asif Abdullah
9) Recommendations – Md. Asaduzzaman Shawon
10) Conclusion – everyone has written in this part

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