NORTHERN LUZON ADVENTIST COLLEGE

DEPARTMENT OF BUSINESS EDUCATION

COURSE: HUMAN BEHAVIOR IN ORGANIZATION

LESSON 9: PERFORMANCE MANAGEMENT AND REWARDS

I. Introduction

How individuals and groups do their jobs is the main concern of those managing
organizations. It is easy to predict what will happen to organizations when members are
not performing effectively and efficiently. The task of management is to make sure that
every member is doing what is expected of them. How management will go about
doing this task is the aim of performance management. Since the principal means
designed to motivate employees to perform is the reward system, it will be included in
the discussions that will follow.

II. Learning Outcomes

After reading this chapter, the students should be able to:

 Explain performance management and rewards
 Discuss staffing, training, and career planning and development
 Identify performance appraisals and rewards

III. Integration of Faith:

“Whatever you do, work at it with all your heart, as working for the Lord, not for
human masters, since you know that you will receive an inheritance from the Lord as a
reward. It is the Lord Christ you are serving.” Colossians 3:23-24

IV. Topics for Reading:

Book/Reference: Human Behavior in Organization
Pinoy Human Behavior in Organization
 PERFORMANCE MANAGEMENT AND REWARDS
How individuals and groups do their jobs is the main concern of those managing
organizations. It is easy to predict what will happen to organizations when members are not
performing effectively and efficiently. The task of management is to make sure that every
member is doing what is expected of them. How management will go about doing this task is
the aim of performance management. Since the principal means designed to motivate
employees to perform is the reward system, it will be included in the discussions that will follow.

WHAT IS PERFORMANCE MANAGEMENT

Performance management refers to the procedures and systems designed to improve
employee outputs and performance, often through the use of economic incentive systems.

Apart from economic incentives, the other means used to improve employee
performance are:

1. Goal setting
2. Streamlined organizational structure
3. Better technology
4. New arrangements of working schedules
5. High involvement of employees
6. Better motivation of employees

An effective performance management process considers human resource (HR)

strategic planning as a basic requirement. HR strategic planning is the process of providing
capable and motivated people to carry out the organization’s mission and strategy.

A key element of the HR strategic planning is the staffing function which implements the
provision of qualified people to the identified job openings.

STAFFING
Effective performance begins with getting the right people, and then providing them
with the right environment. To achieve this, the staffing function of the organization must be
well implemented.

Staffing refers to the HR planning, acquisition, and development aimed at providing the
talent necessary for organizational success. The staffing process consists of the following:

1. Job analysis
2. Recruitment
3. Selection
4. Socialization
Job Analysis
The process of staffing starts with an understanding of the positions or jobs for which
individuals are needed in the organization. Job analysis is a technical procedure used
to define the duties, responsibilities, and accountabilities of a job.

The results of job analysis are very useful in:

1. Preparing job descriptions
2. Evaluating and classifying jobs
3. Training and career development
4. Performance appraisal
5. Other HR aspects

The job description contains information concerned with the job. The information
include job duties and responsibilities, equipment and materials used, working
conditions and hazards, supervision, work schedules, standards of performance, and
relationships to other jobs.

To meet the job requirements specified in the job description, the job specification is
derived. In a typical job specification, requirements about the following are indicated:
1. Education and experience;
2. Technical knowledge;
3. Physical aptitudes and abilities;
4. Interpersonal and communication skills;
5. Analytical aptitudes and abilities; and
6. Creative abilities.

Recruitment
After job analysis, the next step in the staffing process is the drawing of people to apply
for the various positions identified. This step is called recruitment and it may be defined
as a human resource management practice designed to locate and attract job
applicants for particular positions.

Recruitment involves the following:

1. Advertisement of a position vacancy
2. Preliminary contact with potential job candidates
3. Preliminary screening to obtain a pool of candidates

Recruitment are of two types: internal and external.

Internal Recruitment. It is a process for attracting job applicants from those currently
working for the firm.

The advantages of internal recruitment are:

1. It is good public relations.
2. It builds morale.
3. It encourages good individuals who are ambitious.
 4. It improves the probability of a good selection, since information on the
individual’s performance is readily available.
5. It is less costly than external recruitment.
6. Those chosen internally already know the organization.
7. When carefully planned, promoting from within can also act as a training device
for developing middle and top-level managers.

The disadvantages of internal recruitment consist of the following:

1. It can be dysfunctional to the organization to utilize inferior internal sources only
because they are there, when excellent candidates are available on the
outside.
2. It may generate infighting among the rival candidates for promotion.
3. It may decrease the moral levels of those not selected.
4. It may promote “inbreeding”.

Methods of Internal Recruitment. There are several methods of internal recruitment.

These are the following:
1. Computerized career progression system
2. Supervisor recommendations
3. Job posting
4. Career development systems

The computerized career progression system (CCPS) is one that stores extensive
amounts of information about employees of a company. It is useful means of
recruiting people currently employed by the organization. The system’s computer
file contains information on employees such as job history, education, strengths and
weakness, leadership development needs, developmental needs, training, and
special skills.

The computer may also provide information on job title, location, skills requirements,
and potential successors to the position.

The advantage of CCPS is that candidates can be found quickly. A broad spectrum
of candidates can be identified and it will not be limited to candidates working in
the department where the vacancy exists.

The disadvantages of CCPS is that the skill inventory contained in the computer
database is limited only to objective or factual information, such as educational
degrees, certifications, training courses taken, and languages spoken. Information
of a more subjective nature (like interpersonal skills, judgment, integrity) is excluded.
Yet, for many jobs, this type of information is crucial.

Supervisor recommendations are another method of internal recruitment. When a

supervisor needs to fill a certain vacancy in his unit, he is in the best position to
identify the person who fits the job. He can be asked to nominate internal
candidates. Most likely, the supervisor will nominate those whose capabilities are
well-known to him.
The advantages of this method are:
1. The supervisor is given total discretion in selecting the person who will report
to him.
2. The supervisor is generally in a good position to know the capabilities of
potential candidates, especially those who already work for him and seeking
a promotion.

The disadvantages of using supervisors as source of internal recruitment are:

1. The supervisor’s recommendation is usually very subjective, and is thus
susceptible to bias and possible discrimination.
2. Some qualified employees may be overlooked because the supervisor wants
to help his or her favorite, or he or she may simply be unaware of the
capabilities possessed by some individuals.

Job posting is a method of internal recruitment in which a job vacancy notice is

posted and all qualified employees may bid. The notice describes the job, the
salary, work schedule, and necessary qualifications. The most qualified applicants
are chosen for interview.

The advantages of job posting are:

1. It enhances the probability that the firm’s most qualified employees will be
considered for the job.
2. It gives employees an opportunity to become more responsible for their own
career development. Many may attempt to improve their job skills and
performance because they perceive that such an effort can lead to greater
promotional opportunities.
3. It enables employees to leave a “bad” work situation. In the same light, it
encourages their present supervisors to manage more effectively to
discourage employees from leaving the company.

There are also some disadvantages attributed to job posting. These are the
following:
1. This method takes time in filling vacant positions.
2. The system may prevent supervisors from hiring the resort to other moves to
make sure that their favorites will get the jobs.
3. Some employees may move from one job to another without any clear
direction.
4. Employees who did not get the job may become alienated from the
organization.

Career development system constitutes another method of internal recruitment.

Under this method, the organization places ”fast-track” or high-potential employees
on a career path where they are groomed for certain target jobs.

Career development systems have certain advantages which are as follows:

1. The top performers are more likely to remain with the organization.
 2. It helps ensure that someone is always ready to fill a position when it becomes
vacant.

The disadvantages of career development systems are as follows:

1. An employee who is not selected even if he is good may become
disenchanted and leave the organization.
2. The selected employee may become frustrated if the expected promotion
does not materialize because the targeted position never becomes vacant.

External recruitment. It is a process of attracting job applicants from outside the

organization. It is undertaken when no suitable candidates are available from within the
organization. This recruitment source tends to bring in “new blood” and fresh ideas to
the organization.

Methods of External Recruitment. There are several methods of external recruitment:

1. Employee referrals is a method of recruitment in which organizations ask their

employees to solicit applications from qualified friends and associates.

The advantages of this method are:

a. Applicants referred by employees tend to perform better and remain with
the organization longer than applicants recruited by other means.
b. Employees tend to be good recruiters because they know a lot about both
the job being filled and the individual, and can therefore accurately judge
the “fit” character to fall under the job requirement.
c. Employees make good recruiters because believing their reputation is on the
line, they are encouraged to refer only the highest qualified applicants.

The disadvantage of this method is the limited choice offered to the

organization. Employees will tend to recruit only those they know. Even if some
are better qualified, they cannot be considered unless they are referred to by
employees.

2. Applicant-initiated recruitment is a method of external recruitment in which an

organization accepts unsolicited applications or resumes from individuals
interested in working for the organization.

The advantages of this method are:

a. It is both efficient and low cost.
b. The candidates are likely to be highly motivated, since they have taken the
time to learn about the organization.

The disadvantage of this method is one which concerns timing. When

applications and resumes remain “on file” for some time, applicants may no
longer be available when they are needed.
 3. Help-wanted advertisements is a method of external recruitment in which an
organization places an advertisement for the position in the appropriate media
such as newspaper, magazine, and the like. The advantage of this method is
that it allows the organization to reach a large audience in a relatively short
period of time. The disadvantage is that studies found out that people hired
through newspaper advertisements perform their job less efficiently and are
absent from work more often than those hired through other recruiting methods.

4. Private employment agencies and executive search firms constitute another

method of external recruitment. Under this method, the hiring organization
initiates the recruitment process by contacting the appropriate agency or firm
and informing if of the qualifications needed for the job in question. The agency
of firm assumes the task of soliciting and screening applications, and then refers
top applicants to the hiring organization for further screening.

Private employment agencies are those that provide organizations for a fee,
with clerical, blue collar, technical, and lower level managerial personnel. Their
services are especially useful when many individuals are expected to apply for a
job or when qualified candidates are hard to find.

Executive search firms are employment agencies used to recruit middle and top
level managers. These firms can locate successful executives working elsewhere
who are not even actively seeking a new job.

5. Campus recruiting is an external recruiting method in which the organization’s

recruiters visit various college and university campuses to recruit individuals for
positions requiring a certain degree. The advantage of this method is that it can
be used to fill specialized entry-level jobs in such fields as engineering, finance,
accounting, computer science, law, and supervisory management. The
disadvantage of this method is that it is costly and time consuming.

Selection
After recruitment, the next step in the staffing process is selection. This involves assessing
and choosing among job candidates. The selection process involves the following
steps:
1. Completing the application form;
2. Conducting an interview;
3. Completing any necessary tests;
4. Background investigation;
5. Physical and medical examination; and
6. A decision to hire or not.

At each step, applicants are screened out by the organization, or some applicants
accept other job offers and drop from the list of applicants.
Socialization
The final step in the staffing process is socialization, and it involves orienting new
employees to the organization and its work units, especially the work units where the
newly hired employee will be working. The purpose of socialization is to enable new
employees to quickly become productive members of the organization.

In socialization, the new employees are provided with information about the following:

1. Key organization factors which includes an overview of the organization, policies

and procedures, compensation, benefits, safety and accident prevention,
employee and union relations, physical facilities, and economics factors; and

2. Department and job-related issues including department functions; job duties

and responsibilities; policies, rules, procedures, and regulations; the autonomy of
the department; and socialization into the work group.
TRAINING AND CAREER PLANNING AND DEVELOPMENT
After the selection effort, the organization will have to undertake measures that will
ensure that the knowledge, skills, and abilities of employees are at par with the requirements
of their respective jobs. Even if the organization hires only very qualified individuals, it cannot
ensure that all jobs will be staffed by fully competent people. Nearly all employees require
some additional training in order to perform their jobs optimally.

Training
Training is the process of changing employee behavior, attitudes, or opinions through
some type of guided experience. Training the individual employee occurs not only initially but
anytime improved skills are needed to meet changing job requirements.

There are many ways to conduct training programs and they may be classified as follows:
1. On-the-job training; and
2. Off-the-job training.

On-the-job training. This training method is conducted while employees perform job-
related tasks. It is the most direct approach to training.

The common forms of on-the-job training are:

1. Internships
2. Apprenticeships
3. Job rotation

Internships are opportunities for students to gain real world experience. They are
often offered during summer breaks and may be with or without payment.

Apprenticeships involve learning a trade from an experiences worker.

Job rotation provides a broad range of experience in different kinds of jobs in an

organization. It is often used to provide background for future managers and is
sometimes used to try to alleviate worker boredom.

Off-the-job training. This type of training deals with work skills in setting away from their
ordinary workplace.

The various off-the-job training techniques are:

1. Classroom lectures. These consist of lectures designed to communicate specific
interpersonal, technical, or problem-solving skills.
2. Videos and films. This training method uses various media production to
demonstrate specialized skills that are not easily presented by other training
methods.
3. Simulation exercises. This is a training method that occurs by actually performing
the work. This may include case analysis, experiential exercises, role playing, or
group decision making.
 4. Computer-based training. This is a training method that simulates the work
environment by programming a computer to imitate some of the realities of the
job.
5. Vestibule training. This is a training method where training materials are
condensed into highly organized, logical consequences. It may include
computer tutorials, interactive video disks, or virtual reality simulations.

Career Planning and Development

Organizations need to grow and develop and this is possible if the individual workers
including managers are given the opportunity to grow and develop. Such relationships
indicate a need for individual employees to adapt a positive outlook in career planning and
development. A requirement however, is for the employee to have some basic knowledge of
careers and its various aspects.

Career may be defined as the pattern of work-related experiences that span the
course of a person’s life.

Career stages. This item refers to the distinct stages that individuals go through in their
careers, typically including establishment, advancement, maintenance, and retirement.

The establishment stage is one of the apprenticeship where the young employee enters
an organization who may be technically able but often without an understanding of the
organization’s demands and expectations. As a consequence, they work fairly closely with
more experienced people.

In the advancement stage, the employee seeks growth and increased responsibility
through the continued development and utilization of his skills. This stage calls for the
employee to work as an independent contributor of ideas in a chosen area. He is expected to
rely much less on direction from others. Advancement may be pursued through internal
career paths within the organization or through external career paths that involve taking
advantage of opportunities that require a change of employer.

During the maintenance stage, the employee may experience continued growth of
performance and accomplishments, or he may encounter career stability. Sometimes, a
further change in employers is necessary to sustain advancement, but often the employee
loses career flexibility. This may be a result of personal considerations such as:
1. Limited interest in learning new skills;
2. Organizational considerations, such as a basic lack of opportunity; and
3. Family considerations that make it difficult to change jobs or to take additional work
responsibilities.

Many people experience career plateau during the maintenance stage. A career
plateau is a situation in which, for either organizational or personal reason, the probability of
moving up the career ladder is low.
Career plateau are of three types:

1. Structural plateau – which marks the end of promotions and the affected employee,,
will now have to leave the organization to find new opportunities and challenges.

2. Content plateau – which occurs when a person has learned a job well and is bored
with day-to-day activities.

3. Life plateau – which occurs when an employee experiences a loss of identity and self-
esteem when there is no longer success in his work area.

Career plateau can be a cause of low employee performance. However, a leader’s

understanding of individual needs can help in developing appropriate responses on these
occasions. For instance, leaders can make organizations help individuals cope with plateaus
by providing opportunities for lateral growth where opportunities for advancement do not
exist.

The retirement stage is that stage when formal preparation for retirement is made. The
individual learns to accept a reduced role and less responsibility. Depending on the individual,
this can be either a positive or a highly upsetting stage of one’s career.
PERFORMANCE APPRAISAL
Performance appraisal is a key aspect of performance management. It may be
defined as the process of evaluating the performance of employees, sharing the information
with them, and searching for ways to improve their performance.

Functions of Performance Appraisal

Performance appraisal is undertaken for the following reasons:
1. To give employees feedback on performance;
2. To identify the employee’s developmental needs;
3. To make promotion and reward decision;
4. To make demotion and termination decisions; and
5. To develop information about the organization’s selection and placement decisions.

Criteria for Performance Appraisal

In performance appraisal, there are certain criteria that are used. The three most popular sets
of criteria are:
1. Individual task outcomes;
2. Behaviors; and
3. Traits.

Individual task outcomes. One way of appraising performance is evaluating the

employee’s task outcomes. For instance, the manager of a bank could be judged on
criteria such as deposit generation and loans collected. In the same light, a credit
investigator could be judged on the number of good accounts that turned out from the
credit applications he investigated and recommended for approval.

Behavior. There are instances when it is difficult to measure an individual’s task

outcomes. This is so on advisory jobs or support positions and those who are assigned to
work in a group. Examples of jobs encountering this difficulty are those of teachers,
nurses, and filing clerks. In such cases, management tend to evaluate the employee’s
behavior. Teachers, for instance, are evaluated according to how well they manage
classroom activities, the quantity and quality of professional training attended, research
output, community service, and the like.

Traits. Many organizations use traits as criteria in appraising employee performance. This
is true even if it is a very weak means. It is weak because it has little connection with the
actual performance of the job. The traits commonly used as basis for performance
appraisal include:
1. Good attitude
2. Showing confidence
3. Being dependable
4. Looking busy
5. Possessing a wealth of experience
The Process of Performance Appraisal
Performance appraisal is a process in an organization whereby each employee is
evaluated to determine how he or she is performing. It consists of the following steps:
1. Establishment of performance standards
2. Mutually set measurable goals
3. Measure actual performance
4. Compare actual performance with standards
5. Discuss the appraisal with the employee
6. If necessary, initiate corrective action.

Performance standards are those by which performance is to be evaluated. It should be

clearly defined and communicated to the employee. These standards should be based on
job-related requirements derived from job analysis and reflected in the job descriptions and
job specifications. An example of performance standard is: “all customer orders will be filled in
4 hours with a 98 percent accuracy rate.”

When goals are set with the active participation of the employees, appraising employee
performance will be an easy task.

Measuring performance is the third step in the appraisal process. To determine what actual
performance is, it is necessary to acquire information about it. Information may be derived
from the following sources:

1. Personal observation
2. Statistical reports
3. Oral reports
4. Written reports

Methods of Performance Appraisal

There are three different approaches which can be used for appraising employees:
1. Absolute Standards. Under this approach, the subjects of appraisal are not compared
with other persons. This approach consists of the following methods: the essay appraisal,
the critical incident appraisal, the checklist, the adjective rating scale, forced choice,
and behaviorally anchored rating scales.
a. The essay appraisal is a performance appraisal method whereby an appraiser writes
a narrative about the employee. The employee’s strengths and weaknesses are
described and recommendations for development are indicated.

The essay method provides an excellent opportunity to point out the unique
characteristic of the employee being appraised. The disadvantages, however, are
the following:
 it is very time consuming;
 the quality of the appraisal may be influenced by the appraiser’s writing skill
and composition style;
  it tends to be subjective and may not focus on relevant aspects of job
performance.

b. The critical incident appraisal is a performance appraisal method which requires

effective or ineffective performance for each employee being appraised. These
incidents are critical incidents.
 The checklist is a performance appraisal method wherein the evaluator uses
a list of behavioral descriptions and checks off those behaviors that apply to
the employee. A checklist developed for motorcycle salespersons might
include a number of statements.

The advantage of checklist method is that it reduces some bias since the
rater and the scorer are different. The disadvantage is where there are many
job categories; a checklist of items must be prepared for each job categories
that is costly in terms of materials and time consumed.
 The adjective rating scale, also known as graphic rating scale, is a
performance appraisal method that lists a number of traits and a range of
performance for each. The traits listed are assumed to be necessary to
successful job performance. Examples of traits are quality of work, quantity of
work, job knowledge, and dependability. Each trait is accompanied by a five
or seven-point rating scale.

The advantage of adjective rating scale is that it is practical and cost little to
develop. The disadvantages, however, are as follows:
o It does not clearly indicate what a person must do to achieve a given
rating.
o It does not provide a good mechanism for providing specific,
nonthreatening feedback.
o Accurate ratings are not likely to be achieved because the points on
the rating scale are not clearly defined.

c. The forced-choice appraisal is a type of performance appraisal in which the rater

must choose between two or more specific statements about an employee’s work
behavior. The supervisor or others familiar with the ratee’s performance evaluate
how applicable each statement is. Oftentimes, the statements are ranked from
most to least descriptive. This appraisal can be used by superiors, peers,
subordinates, or a combination of these in evaluating employees.

d. Behaviorally anchored rating scale (BARS) is a rating instrument composed of traits

anchored by job behaviors. Appraisers select the behavior that best describes the
worker’s performance level. The typical BARS includes seven or eight traits called
“dimension” each anchored by seven or nine-point scale. A BARS anchors each
trait with examples of specific behaviors that reflect varying levels of performance.

The greatest advantage of BARS is its ability to direct and monitor behavior. The
behavioral anchors let employees know what types of behavior are expected of
 them which give appraisers the opportunity to provide behaviorally based
feedback.

The weakness of BARS is the difficulty of selecting the one behavior on the scale that
is most indicative of the employee’s performance level. Sometimes, an employee
may exhibit behaviors at both ends of the scale, so the rater would not know which
rating to assign.

2. Relative Standards. This category of appraisal methods compare individuals against

other individuals. The most popular in this category are:
o Group order ranking is a relative standard of performance characterized as
placing employees into a particular classification such as top “one-fifth.” Under
this method, the evaluators are asked to rank the employees as follows: top 5
percent, second 5 percent, third 5 percent, and the like. This evaluation method
prevents evaluators from inflating their evaluations or from homogenizing the
evaluations. The disadvantage of this method is its inapplicability when the
number of subjects is small.
o Individual ranking method requires the evaluator merely to list the employees in
order from highest to lowest. This method does not show the difference between
the first and second, or between the second and third.
o Paired comparison is an appraisal method whereby subordinates are placed in
all possible pair and the supervisor must choose which of the two in each pair is
the better performer. This method ensures that each employee is compared
against each other, but the method can become unwieldy when large numbers
of employees are being compared.

3. Objectives. The third approach to appraisal makes use of objectives. This approach,
also known as management by objectives (MBO), is a process of joint goal setting
between a supervisor and a subordinate. It is also a process of converting
organizational objectives into individual objectives. MBO consists of four steps: goal
setting, action planning, self-control, and periodic reviews.

In goal setting, the individual objectives are set based on the organization’s overall
objectives. These goals are agreed upon and then become the standards by which the
employee’s results will be evaluated.

In action planning, realistic plans are developed to attain the objectives.

Self-control refers to the systematic monitoring and measuring of performance.

Periodic reviews are the means used to determine whether there is a need for
corrective action.

The advantages of MBO are the following:

1. It improves job performance by monitoring and directing behavior;
2. It is practical and inexpensive; and
3. It fosters better communication between employees and supervisors.
 The disadvantages of MBO are the following:
1. It does not specify the behavior required to reach goals;
2. It tends to focus on short-term goals;
3. The successful achievement of MBO goals may be partly a function of factors
outside the worker’s controls;
4. MBO does not provide a common basis for comparison of performance standards;
and
5. It often fails to gain acceptance.

Errors in Performance Appraisal

A perfect performance is an ideal goal and to make it happen, errors should be
prevented from happening. To eliminate the possibility of errors, they must first be identified.

The following are brief descriptions of errors in performance appraisal.

o Halo Error. This is a rating error that occurs when a rater assigns ratings on the basis of an
overall impression (positive or negative) of the person being rated. For example, a
teacher who topped the board examination for electrical engineers is regarded as
outstanding in the aspect of professional qualification. If that impression spills over the
other aspects of evaluation, a halo error is committed.

o Leniency Error. This is a rater’s tendency to give relatively high ratings to virtually
everyone. The opposite of this is strictness error where the raters tend to give everyone a
low rating. Most often, leniency errors happen when peers asses one another.

o Central Tendency Error. This occurs when a rater lump everyone together around the
average, or middle, category. The idea is that there are no very good or very poor
performers on the dimension being rated. As a result, no true performance
discrimination is made.

o Recency Error. This is a biased rating that develops by allowing the individual’s most
recent behavior to speak for his or her overall performance on a particular dimension.
The result is a false picture of the individual’s job performance during the entire period.

o Personal Bias Error. This occurs when a rater allows specific biases, such as racial, age,
and gender, to enter into performance appraisals. For example, a rater may
intentionally give higher rating to a member of a certain fraternity than to a non-
member.
REWARDS
After staffing, training, career planning and development, and performance appraisal,
a final requirement is necessary to ensure effective performance. The requirement refers to the
design and implementation of reward systems.

Types of Organizational Incentives

Organizational incentives consist of rewards to motivate people to work. Rewards may be
classified as either:

1. Intrinsic or Extrinsic
Intrinsic rewards are those that the worker receives from the job itself, such as pride in
one’s work, a feeling of accomplishment, or being part of a team. These rewards are
self-regulated as the worker is not dependent on an outsider, such as the manager, to
provide for them. Managing intrinsic work rewards present the additional challenge of
designing a work setting so that employees can, in effect, reward themselves for a job
well done.

Extrinsic rewards are those that the workers get from the employer, usually money, a
promotion, or benefits.

2. Financial or Nonfinancial
Financial rewards are those that enhance an employee’s financial well-being directly
through wages, bonuses, profit sharing, and the like.

Nonfinancial rewards are indirect enhancement of an employee’s financial well-being.

This is done through supportive benefits like pension plans, paid vacations, paid sick
leaves, and purchase discounts.

3. Performance-based or Membership-based
Performance-based rewards are those given using performance as basis. These rewards
take the form of commissions piecework pay plans, incentive systems, group bonuses,
or other forms of merit pay.

Membership-based rewards refer to those that are given to all employees regardless of
performance. This type includes cost-of-living increases, benefits, and salary increase
attributable to labor-market conditions, seniority or time in rank, credentials such as a
college degree, or future potential such as new MBA degree from a prestigious
university.