Sushanta Kr Sarma

▪ Performance appraisal means evaluating an employee’s current and/or past performance

relative to his or her performance standards.
▪ Appraisals play an integral role in the employer's performance management process.
▪ The appraisal lets the boss and subordinate develop a plan for correcting any deficiencies
while reinforcing those things the employee does correctly.
▪ Appraisals are a useful career planning tool.

The performance appraisal process steps

1. Sets work standards
2. Assesses performance
3. Provides feedback to the employee
▪ Five reasons:

1. Used for pay, promotion, and retention decisions

2. Links performance management to company goals
3. The manager can correct deficiencies and reinforce strengths
4. With appraisals employee’s can review career plans
5. Training needs are identified
▪ The continuous process of:

o Identifying

o Measuring

o Developing performance of individuals and teams

o Aligning performance with the organization’s goals

▪ Direction sharing means communicating the company’s goals throughout the company
and then translating these into doable departmental, team, and individual goals.
▪ Goal alignment means having a method to help managers and employees to see the link
between their goals and those of their department and company.
▪ Ongoing performance monitoring usually includes using computerized systems that
measure and then e-mail progress and exception reports based on the person’s progress
toward meeting his or her performance goals.
▪ Ongoing feedback includes both face-to-face and computerized feedback regarding
progress toward goals.
▪ Coaching and developmental support should be an integral part of the feedback
process.
▪ Recognition and rewards keep the employee’s goal-directed performance on track.
▪ Both performance appraisal and performance management function by comparing
“what should be” with “what is.”
▪ Managers use one or more of three bases—goals, job dimensions, and competencies—
to establish ahead of time what the employees' end results “should be.”

• Managers goals are SMART:

o Specific
o Measurable
o Attainable
o Relevant
o Timely

▪ Whichever you use, remember that employees need and expect to know ahead of time
on what basis their managers will appraise them.
▪ Should a manager tell employees what their goals are or let them participate in setting
the goals?

▪ Why is it not a good idea to simply tell employees to ‘do their best’ when assigning a
task?
▪ 1. Assign specific goals. Employees who receive specific goals usually perform better than
those who do not.
▪ 2. Assign measurable goals. Put goals in quantitative terms and include target dates or
deadlines.
▪ 3. Assign challenging but doable goals. Goals should be challenging, but not so difficult that
they appear unrealistic.
▪ 4. Encourage participation. Managers often face this question: Should I tell my employees
what their goals are, or let them participate with me in setting their goals?

▪ The evidence suggests that participatively set goals do not consistently result in higher
performance than assigned goals, nor do assigned goals consistently result in higher
performance than participative ones. It is only when the participatively set goals are set
higher than the assigned ones that the participatively set goals produce higher
performance. Because it tends to be easier to set higher standards when your employees
participate, participation tends to lead to improved performance.
▪ The immediate supervisor is usually in the best position to observe and evaluate the
subordinate’s performance.
▪ Peer appraisals are becoming more popular with firms using self-managing teams.
▪ Rating committees consist of multiple raters, typically the employee’s immediate
supervisor and three or four other supervisors.
▪ Self-ratings tend to be higher than supervisor or peer ratings although input from the
subordinate is always to be encouraged.
▪ Appraisal by subordinates is also known as upward feedback. In this instance,
subordinates anonymously rate their supervisor’s performance.
▪ 360-degree feedback. Ratings are collected from the employee’s supervisors,
subordinates, peers, and occasionally, internal or external customers.
▪ Graphic rating scale method
ALTERNATION RANKING METHOD
PAIRED COMPARISON METHOD
MANAGEMENT BY OBJECTIVES (MBO)

–The manager sets specific measurable goals with each employee and then
periodically discusses the employee’s progress toward them. The process consists of
six steps:
1.set organizational goals
2.set departmental goals
3.discuss
4.define expected results
5.conduct performance reviews
6.provide feedback
▪ Develop performance appraisal dimension to assess the performance of the
instructor
▪ If standards are unclear, ambiguous traits and degrees of merit can result in an unfair
appraisal.

▪ The influence of a rater’s general impression on ratings of specific qualities is known as the
halo effect.
▪ Central tendency occurs when supervisors stick to the middle of the rating scales, thus
rating everyone average.

▪ Leniency or strictness occurs if supervisors have a tendency to rate everyone either high
or low.

▪ Recency effects involve letting what the employee has done recently blind the manager
to the employee’s performance over the entire year.

▪ Bias is a tendency to allow individual differences such as age, race, and sex affect
employee appraisal ratings.
▪ Appraisals can be more effective by following these five guidelines:
1. Know the problem
2. Use the right appraisal tool
3. Keep a diary
4. Get agreement on a plan
5. Be fair
▪ Reema is a student. Deepak is an instructor. Reema has received a low grade on an assignment. She is
caught off guard since all her other assignments have received good grades. The instructor has a
reputation of marking harder as the semester unfolds and is known for rarely changing marks. Reema
has asked for a meeting with Deepak.
• Purpose of the conversation, what is the that you hoping to achieve or change through the conversation

• What would be the opening statement ?

o Describe your purpose
o Talk about the need to figure out how to go forward?
o Clearly share your views of the problem – identify the gap
o Invite them to share their perspective
▪ Deepti and Shiva are friends and classmates. They are working on a group project together that is due
within a week. Deepti is not doing her share of the work. She keeps showing up without her part of the
work completed. Shiva is not happy and is tired of carrying the load, but they need a good mark on the
project which is 35% of their overall grade.
• Purpose of the conversation, what is the that you hoping to achieve or change through the conversation

• What would be the opening statement ?

o Describe your purpose
o Talk about the need to figure out how to go forward?
o Clearly share your views of the problem – identify the gap
o Invite them to share their perspective
▪ 1. Frame negative feedback in positive terms,
▪ 2 make negative feedback very specific, and reinforce negative feedback with examples.
▪ 3. Make comments specific using examples of behaviors,
▪ 4. Focus on employee behaviors, not the person,
▪ 5.Give helpful feedback, not hurtful,
▪ 6. Focus on factors that can be improved or changed,
▪ 7. Share information, don’t give advice,
▪ 8. Encourage the employee to solicit information rather than impose it upon him/he,
▪ 9 Avoid information overload. Point out only a few, most critical problems,
▪ 10 Establish specific, agreed-upon goals for improvement, and
▪ 11 Ensure communication clarity in both directions.
• How to conduct the appraisal interview
o Objective data

o Don’t get personal

o Encouragement

o Agreement
Sushanta Kr. Sarma
▪ Career development plan
▪ Career coach
▪ Manager as mentor and coach
▪ Set high standard and invest time
▪ Build trust
▪ Depends on mentor’s professional competency, consistency, ability to communicate and
readiness to share control
1. Identify issues with surveys

2. Compensation

3. Selection

4. Professional growth

5. Meaningful work/ownership
6. Work–life balance

7. High engagement

8. Counter offers

9. Workforce planning
▪ Making promotion decision
▪ Is seniority or competence the rule?

▪ How should we measure competence?

▪ Is the process formal or informal?

▪ Vertical, horizontal, ?

▪ Glass ceiling

▪ Eliminate barriers

▪ Improve networking

▪ Flexible career tracks

▪ Unsatisfactory performance
▪ Misconduct
▪ Lack of qualifications for the job
▪ Changed requirements of the job
▪ Insubordination
▪ unwillingness to carry out the manager’s orders
▪ Disrespectful behavior toward the manager.
▪ 1. First is making sure the right people are let go; this requires having an effective
appraisal system in place.
▪ 2. Second is compliance with all applicable laws.
▪ 3. Third is executing the dismissals in a manner that is just and fair.
▪ 4. Fourth is security, for instance, retrieving keys and ensuring that those leaving
don’t take prohibited items with them.
▪ 5. Fifth is reducing the remaining employees’ uncertainty and addressing their
concerns.
 Sushanta Kr. Sarma

COMPENSATION MANAGEMENT (1)

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▪ Is the bundle of pay choices available to management that may, under some
conditions, have an impact on organization’s performance and the effective use of
its human resources.
▪ Dimensions
▪ Basis for pay
▪ Design issues
▪ Administrative framework

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▪ Job vs. skills
▪ Performance vs. seniority – depends on ability to measure performance
▪ Individual and group performance – measuring individual contribution and focus on
collaboration
▪ Base salary based on individual performance
▪ Bonus based on group performance
▪ Firm with focus on innovation would find group performance convenient

▪ Short vs. long-term orientation

▪ Focus on Short term performance may not align with long-term objective
▪ Time orientation may be culture bound. 3 level of culture affect the time orientation – societal,
industry and corporate
▪ Short-term performance is easily quantifiable
▪ Firm focusing on current maintenance of current market share focus on short-term performance
▪ Firms focusing on growth and acquiring new businesses focuses on long-term performance

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▪ Risk aversion vs Risk taking
▪ Risk aversion is preferred in matured corporates focusing on maintenance of market share
▪ Risk taking is preferred in growing organization focusing on expansion

▪ Corporate vs Division performance

▪ Focusing on Division performance may lead to loss of synergy
▪ Focusing on Corporate performance may lead to rewarding undeserving divisions
▪ Rewarding based on corporate performance is present in firms that have stable product market
domain
▪ Division performance are recommended to firms

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▪ Internal vs External Equity
▪ For autonomous division internal equity in relation to corporate is not critical
▪ Diversified firms focus on internal equity over external equity
▪ external equity is important for single product firms

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▪ Hierarchical vs. Egalitarian
▪ Hierarchical – money and perquisites for moving up the corporate ladder
▪ Firms focusing on current market share prefer hierarchical pay structure
▪ Firm taking risk prefer egalitarian pay structure

▪ Qualitative vs quantitative measures of performance

▪ Firms growing through mergers and acquisitions should focus on quantitative measures
▪ Firms expanding internally should focus on qualitative measures
▪ Firms as first movers should use qualitative measures
▪ Firms focusing on securing market share focus on quantitative measures

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▪ Compensation level vs. Market
▪ Setting pay rates higher than market will usually enhance firm’s ability to attract and retain
employees.
▪ High base pay should be associated with firms that continually search for new product and market
opportunities
▪ Future income stream is rarely considered in market comparison

▪ Fixed pay vs. incentives

▪ Matured firms focus on fixed pay
▪ Firms focusing on growth prefer incentives over base pay

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▪ Bonuses vs. Deferred Compensation
▪ Bonuses are associated with an emphasis on short-term performance
▪ Deferred compensation is associated with long-term perspective

▪ Intrinsic vs extrinsic rewards

▪ Intrinsic rewards are important for organizations that rarely make major adjustment in their
technology, structure, or method of operation

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▪ Centralized vs Decentralized Pay administration
▪ Centralized works when expertise from headquarter is necessary and when internal equity is
important
▪ Decentralized is best when local innovation is beneficial to the organization

▪ Open vs Secret Pay

▪ Keeping pay issues secret leads to low trust
▪ Open is more effective with policies that focuses on pay for performance

▪ Participation vs. nonparticipation of employees

▪ Highly knowledgeable workers engaged in other aspects of organizational decision making would
prefer a participation-based approach
▪ Bureaucratic vs Flexible pay
▪ System should be formalized yet flexible enough to allow modification

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▪ Aligning reward with strategy
▪ Purpose is to produce an aligned reward strategy to create compensation plans that
guide employee behaviors in the desired, strategic direction

▪ Questions to ask when crafting a strategy-oriented pay policy

▪ What are our strategic aims?
▪ What employee behavior and skills do we need to achieve our strategic aims
▪ What compensation policy and practices will help to produce the employee behavior we need
to achieve our strategic aims?

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▪ Equity and its impact on pay rates

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External equity refers to how pay compares with rates in other organizations.

Internal equity refers to employees viewing their pay as equitable given other pay rates
in the organization.

Individual equity refers to the fairness of an individual’s pay as compared to what his/her
coworkers are earning for the same or very similar jobs in the company.

Procedural equity refers to the perceived fairness of the processes and procedures used
to make decisions regarding the allocation of pay.

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▪ External equity : salary survey
▪ Internal equity : Job evaluation
▪ Individual Equity: Performance appraisal
▪ Procedural Equity: Employee grievance addressal mechanism

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▪ Legal Considerations
▪ The workday – overtime
▪ Minimum wage
▪ Equal remuneration
▪ Payment of gratuity
▪ Provident fund, health insurance etc
▪ Pay policies – seniority /performance / geography

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▪ Employers use two basic approaches to setting pay rates: market-based approaches and
job evaluation approaches
▪ Job evaluation is a formal and systematic comparison of jobs to determine the worth of
one job relative to another.
▪ Job evaluation eventually results in a wage or salary structure or hierarchy.
▪ Principle of job evaluation
▪ Job that requires greater qualification, more responsibilities, and more complex job duties
should receive more pay than jobs with lesser requirements.
▪ Job evaluation and salary survey would give – market- competitive pay plan. This is a
play plan where pay rates are equitable both internally (based on each job’s relative
value) and externally (what other employers are paying)

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▪ A fundamental compensable element of a job such as skills, effort, responsibility, and
working condition.
▪ Compensable factors are those that jobs have in common that can be used to establish
how the jobs compare to one another.
▪ Example of compensable factors— know-how, problem solving, accountability
requirement

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▪ Job evaluation is a judgmental process demanding close cooperation among
supervisors, HR, employees, and union representatives.
▪ The main steps include
▪ identifying the need for the program,
▪ getting cooperation,
▪ choosing an evaluation committee

▪ Evaluation committee perform three function

▪ Identify 10-15 benchmark jobs.
▪ select compensable factors
▪ Actually evaluating the worth of each job

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▪ Obtain job information

▪ Select and group jobs

▪ Select compensable factors

▪ Rank jobs

▪ Combine ratings

▪ Compare current pay with what others

are paying

▪ Assign a new pay scale

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▪ Method of categorizing jobs in classes or grades

▪ Classes- grouping of job based on a rule like amount of

independent judgement etc. usually contain similar jobs
▪ Grades- classification system based on compensable factors and
contain dissimilar jobs
▪ Rater writes grade definition depending upon the level of
compensable factors required.
▪ Evaluation committee review the job description and place the
jobs in the grades or classes
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▪ The job evaluation method in which a number of compensable factors are
identified and then the degree to which each of these factor is present on the job is
determined
▪ Assume there are 5 degrees of a compensable factor “responsibility”
▪ You assign a different number to each degree
▪ Evaluation committee decides to which degree the compensable factor
“responsibility’ is present in the job
▪ You can add the points for corresponding compensable factors for each job

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▪ 1. Choose benchmark jobs
▪ 2. Select compensable factors

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3. Assigning weights to compensable factors determines the relative amount of each
compensable factor the job contains. Assume there is a total of 100 percentage points for
each job that needs to be allocated among those compensable factors selected.

4. Convert percentages to points for each factor.

5. Define each of several degrees for each factor so raters may judge the amount or degree
of a factor that exists in a job. The number of degrees usually does not exceed five or six,
and the actual number depends mostly on judgment.
6. Determine for each factor its factor degree’s points.

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▪ 7. Determining the amount or degree to which the job contains the selected
compensable factors such as skill, effort, responsibility, and working conditions. Those
conducting the job evaluation will frequently do so by reviewing each job’s job
description and job specification.

▪ 8. Evaluate the jobs

o Market competitive pay plan

o Wage curves

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▪ 9. Draw the internal wage curve -Plotting each
job’s points and wage rate produces a scatter plot
resulting in a drawing of the internal wage curve.
▪ 10. Conduct a salary survey – formal survey,
telephone conversation etc can be the source;
paycheck india; salary.com
▪ 11. Draw the external wage curve

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▪ 12. compare and adjust wage rate-
▪ Combine both the current/internal and market/external wage
curves on one graph.
▪ Based on comparing the current/internal wage curve and
market/external wage curve you must decide whether to adjust
the current pay rates for your jobs, and if so how and how much.
▪ Your policies, history and current business strategy play a major
part.

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▪ 13. Develop pay grades
▪ 14. Establish rate range
▪ 15 Address the remaining job
▪ 16 Correct out of line rates

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▪ Job complexity
▪ Employer’s ability to pay
▪ Executive’s human capital

▪ Compensating executives
▪ Base pay
▪ Short term incentive – cash bonus
▪ Long term incentive – stock options
▪ Executive benefits and perks - pension plan etc.

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▪ Competency based pay – where the company pays for the
employee’s range, depth, and types of skill and knowledge,
rather than for the job title he or she holds.
In practice competency-based pay consists of four main
components. These are a:
1) system that defines skills and processes;
2) training system;
3) competency testing system; and
4) work design that allows employees to move among jobs

▪ Broadbanding – consolidating salary grades and ranges into just

a few wide levels or bands, each of which contain a relatively
wide range of jobs and salary levels.

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Herzberg’s Two-Factory Theory

Hygiene

Motivators

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▪ Expectancy theory suggests that a person’s motivation to exert some level of effort
is a function of three things.
▪ First is the person’s expectancy (in terms of probability) that his or her effort will
lead to performance.
▪ Second is the instrumentality, or the individual's perceived connection (if any)
between successful performance and actually obtaining the rewards.
▪ Third, valence, represents the perceived value the person attaches to the reward.
▪ Motivation = (E x I x V)

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▪ Piecework involves paying the worker a specified amount for each piece or unit he/she
produces.
▪ Straight piecework entails a strict proportionality between results and rewards regardless of
output.
▪ With a standard hour plan, the worker gets a premium equal to the percent by which his/her
performance exceeds the standard.
▪ The pluses for piecework are that piecework plans are understandable, appear equitable, and
can be powerful incentives, since rewards are proportionate to performance.
▪ On the other hand, workers may resist even justified attempts to raise production standards.
This may occur in part because a cultural norm has been established between the employees
performing the same work.
▪ Occasionally, employees may well downplay quality, or resist switching from job to job (since
doing so could reduce productivity). Attempts to introduce new technology or processes may
trigger resistance, for much the same reason.

▪ Merit pay or a merit raise is any salary increase the firm awards to an employee based on
his/her individual performance.
▪ Two adaptations of merit pay plans are popular. One awards merit raises in a lump sum once a
year and does not make the raise part of the employee’s salary. The other adaptation ties merit
awards to both individual and organizational performance.

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▪ Fixed salaries are offered by some firms.
▪ Salespeople are paid for results, and only for results. Thus, commission plans tend to attract high-
performing salespeople who see that effort clearly leads to rewards.

▪ Most companies pay salespeople a combination of salary and commissions, usually with a sizable
salary component.

▪ There is a tendency to set commission rates informally, without considering how much each sale
must contribute to covering expenses.

▪ To maximize performance, the sales manager typically needs evidence. Answering the following
questions will provide such information.
- Do the sales team members understand the compensation plans?
- Do they know how we measure and reward performance?
- Are quotas set fairly?
- Is there a positive correlation between performance and commission earnings?
- Are commissions more than covering total salespersons expenses?
- Does our commission plan maximize sales of our most profitable products?

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▪ There are three approaches to designing team incentives.
▪ First, members are paid based on one of three team-based formulas wherein all
members receive the pay (a) earned by the highest producer, (b) earned by the lowest
producer, or (c) equal to the average pay earned by the group.

▪ Second, set a production standard based on the final output of the group as a whole.

▪ Finally, tie rewards to goals based on some overall standard of group performance.

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▪ Profit-sharing plans involve employees receiving a share of the company’s annual profits.

▪ A Scanlon Plan is an incentive plan developed in 1937 by Joseph Scanlon. The basic
features of the plan include: philosophy of cooperation, identity, competence, involvement
system, and sharing of benefits formula.

▪ Employee stock ownership plans (ESOP) are company-wide plans in which a firm
contributes shares of its own stock (or cash to purchase the stock) to a trust. The trust is
established to purchase shares of the firm’s stock for employees.

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