HUMAN BEHAVIOR IN

ORGANIZATION Chapter VI

Appraising and Rewarding

Performance

Reported by: Rhealyn P. Serenio

" The typical person rate his or her performance at
about the 80th percentile. so, people tend to believe
they're doing better than most of the people around
them."
-Edward E. Lawler

"Managers should give constructive feedback to

employees, so that they can improve their
performance."
-Sherry E. Moss and Juan I. Sanchez
 Chapter Objectives
TO UNDERSTAND:
• Total Reward System
• Money as an Economic and Social Medium of Exchanges.
• The Role of Money in a Motivational Models.
• Behavioral Considerations in Performance Appraisal.
• The characteristics of Good Feedback Programs
• The Process of Attribution
• How and Why to Like Pay with Performance
• uses of Profit-Sharing, Gain-Sharing and Skill-Base Pay
Programs
 Incentives

This chapter focuses first on how incentives

are combined with other parts of wage and
salary administration to build a complete
reward system that encourages motivation.
 Complete Program
Three incentive foundation of a complete pay
program:
1. Base Pay (according to level of responsibility
and market pressure)
2. Performance Rewards (based on contribution
of the employee)
3. Profit Sharing (rates the organization in terms
of its general economic performance)
 Non-
Reward Pyramid:
(Comp time, on-site
economic day care, etc)
award
The Makeup of a (Vacation, pensions,
Nonwork
unemployment
Complete Pay Program award
compensation, etc.)
Sacrifice (Overtime, shift
reward differential, etc.)

Service (Seniority
Reward increases, etc.)

Real Pay Adjustment

(cost-of-living adjustment etc)

Skill-base pay adjustment

Base pay
Perfomance (Internally aligned
reward by job evaluation; Profit reward
(Incentive and (Profit-sharing
determined primarily
gain-sharing systems, etc.)
sysytems, etc.) by market fectors)
 The three systems are complimentary because
each reflects a different set of factors in total
situation. Base pay and skill-based pay motivate
employees to progress to jobs of higher skills and
responsibility. Performance pay is an incentiveto
improve performance on the job. Profit sharing
motivates workers toward teamwork to improve an
organization's performance.
Money as Means of Rewarding Employees

 Money has Social Value

Certainly, money is valuable because of the goods
and services that it will purchase and also, money is a
social medium of exchange. Money has status value
when it is being received and spent. It represents to
employees what their employer thinks of them. It is
also an idication of one employee's status relative to
that of other employees.
 Application of the Motivational Models

 Money Satisfies many Drives and Needs

Drives Achievement-oriented employees maintain
a symbolic scorecard in their minds by monitoring
their total pay and comparing it with that of others.
Their pay is a measure of their accomplishments.
NeedsPay is viewed primarily as a hygiene factor,
although it may have at least short-term motivational
value as well.
Expectancy Expectancy Theory states that
Valence X Expectancy X Instrumentality = Motivation
This means that if money is to act as a strong motivator, an
employee must want more of it (valence), must believe that
effort will be successful in producing desired performance
(expectancy), and must trust that the monetary reward will
follow better performance (instrumentality).

Money often has high valence. This dual role means that most
employees do respond to money as a reward.
Behavior Modification The two desired conditions
for applying contingent rewards under behavior
modification principles, employees can see that there
is a direct connection between performance and
reward.

Level of Level of Economic Instrumentality

Situation Performance Reward Condition
1 HIGH HIGH Desirable
2 HIGH LOW Undesirable
3 LOW HIGH Undesirable
4 LOW LOW Desirable
Equity Employer must understand the employee's
perspective.

Cost-Reward Comparison
The employee identifies and compares personal costs
and rewards to determine the point at which they are
equal.
Additional Consideration in the Use of Money

Extrincsic and Intrincsic RewardsMoney is

essentially an extrincsic reward rather than an
intrincsic one, so it is easily administered in behavior
modification programs.

Four Interdependent Paths that lead to Intrincsic

motivation:
1. A sense of meaningfulness
2. A sense of choice
3. A sense of competence
4. A sense of progress
Compliance with the Law Compensation management
is also complicated by the need to comply with a
wide range of federal and state laws.

Equal Pay Act of 1963 Affects employers who are

engaged in interstate commerce and most employees
of federal, state, and local governments.
People doing the same work receive equal pay
regardless of the sex of the person holding the job.
Comparable Worth Seeks to guarantee equal pay
for equal work. This approach demands that reward
systems be designed so people in different but
comparable jobs those of equal value to the employer
receive similar levels of pay.

Other Factors Equality, secrecy, control, and

flexibility are considerations.
 Organizational Behavior and
Performance Appraisal
Management by Objectives (MBO) is cyclical process that often
consists of four steps as a way to attain desired performance:

1. Objective setting
-joint determinaton by manager and employee of
appropriate levels of future performance for the employee,
within the context of overall unit goals and resources.

2. Action planning
-participated or even independent planning by the
employee as to how to reach those objective.
3. Periodic reviews
-joint assessment of progress toward objectives
by manager and employee, perform informally
sometimes spontanously

4. Annual evaluation
-more formal assessment of success in ahieving
the employee's annual objectives, coupled with a
renewal of the planning cycle.
 Performance Appraisal
Performance AppraisalPlays a key role in reward
systems.

Appraisal is necessary in order to do the following;

1. Allocate scarce resources in a dynamic
environment.
2. Motivate and reward employees.
3. Give employees feedback about their work.
4. Maintain fair relationships within groups.
5. Coach and develop employees.
6. Comply with Regulations
 The Performance Appraisal System

• is an organizational necessity
• is based on well-defined, objectives criteria
• is based on careful job analysis
• uses only job-related criteria
• is supported by adequate studies
• is applied by trained, qualified raters
• is applied objectively throughout the
organization
 Appraisal Philosopy
Appraisal Philosophy Performance emphasis with goals
and mutual goal setting and feedback.

1. Performance Orientation
-it is not enough to put forth effort; that effort must result
in the attainment of desired outcomes(product or services)
2. Focus on goals or objectives
-employees need to have a clear of what they are suppose
to be doing and priorities among their task.
As the saying goes, "If you know where you want to go, you
are more likely to get there."
3. Mutual goal setting between supervisor and employee
-this is the belief that people work harder for goals and
objectives that they have participated in setting.
4. Clarification of behavioral expectations
-this is often done via a behavioraly anchored rating scale
(BARS), which provides the employee and manager with
concrete examples aof various levels of behaviors.
5. Extensive Feedback Systems
-employees can fine-tune their performance better if they
know what they are doing in the eyes of the organization.
 Appraisal Interview
Many appraisal systems also point toward both
historical performance and the individual's potential
for growth and advancement.

Appraisal Interviews are most likely to be successful

when the appraiser:
1. Is knowledgeable about the employee's job.
2. Has previously set measurable performance
standards.
3. Has gathered specific evidence frequently about
performance.
4. Seeks and uses inputs from other observers in the
organization.
5. Sharply limits the amount of criticism to a few major
items (so the employees can focus their improvement
efforts).
6. Provides support, acceptance, and praise for tasks
well done.
7. Listens actively to the employee's input and reactions.
8. Shares responsibility for outcomes and offers future
assistance.
9. Allows participation in the discussion.
 Appraisal Approaches
Self-Appraisal
This is an opportunity for the employee to be
introspective and to offer a personal assessment of his
or her accomplishments.

Performance Feedback
Feedback enhances an employee's self-image and
feeling of competence. It leads to both improved
performance and improved attitudes if handled
properly by the manager.
360 Degree Feedback
This is the process of systematically gathering data on
a person's skills, abilities, and behaviors from a
variety of sources -- the managers, peers,
subordinates, and even customers or clients.
This system works best if individuals match the data
gathered with their own self-assesments.
 Make it well-timed
Relate it ti the job be specific

Include positive Establish prioritiies for change

factors to praise

PERFORMANCE
FEEDBACK
Check for understanding
Determine if it is desire

State it objectively Focus on a few times

Allow choice
Appraisal Problems Performance
appraisal interview can be confrontational,
emotional, judgmental and complex.
Process of Making and Using Attributions

Nature of Attributions The process by which

people interpret and assign causes for their
own and others' behavior.
Personal Attributions (Ability and Effort)
They tend to be given as explanations when
there is judgement of high consistency, low
distinctiveness, and low consensus.

Situational Attributions (Task Difficulty snd

Luck) They tend to be used as explanations
when the behavior stands out as distinctive and
different from other, while also being
inconsistent.
Self Serving Bias People tend to exhibit a self-
serving bias, claiming undue credit for their success
and minimizing their own responsibility for
problems.

Fundamental Attribution Bias Is often exhibited

when judging others, people tend to attribute others
achievements to good luck or easy task, and they
assume that others failed to try hard enough or simply
lack the appropriate personal characteristics or overall
ability if they failed.
 Related Ideas
Perceptual Set Attributions illustrate the effects of
perceptual set, that is, people tend to perceive what
they expect to perceive.

Self-Fulfilling Prophecy or The Pygmalion Effect

This suggests that a manger's expectations for an
employee may cause the manger to treat the
employee differently and that the employee will then
respond in a way that confirms the initial
expectations.
Level of Employee
Perceived by Porteble Attribution
Performance

Personal Characteristics
Success Employee (high abillty or strong
effort)

Situational Factors (easy

Success Manager
task or good luck)

Failure Employee Situational Factors (hard

task or bad luck)

Personal Characteristics
Failure Manager (low ability or poor effort)
Galatea Effect High expectations by
employees themselves lead to high
performance.

Managerial Effect On the positive side, a

formal appraisal system encourages managers
to do more analytic and constructive thinking
about their employees.
INCENTIVE SYSTEM
Economic Incentive System
This of some type can be applied to
almost any job. The basic idea of such
systems is to induce a high level of
individual, group, or organizational
performance by making an employee's
pay contingent on one or more of those
dimensions.
 Incentive Linking Pay with
Performance
Several broad types of variable reward
incentives link pay with performance.

Amount of Output, Quality of Output,

Success in Reaching Goals, Amount of
Profit, Cost Efficiency, Employee Skills

Piece Rate
It provides a simple, direct connection
between performance and reward.
Advantage
They increase employee beliefs that reward
will follow high performance. Strengthen
instrumentality beliefs, create perceptions of
equity, reinforce desirable behaviors, provide
objective basis for rewards.

Disadvantage
Certain unfavorable things such as the
following; cost, system complexity, declining or
variable pay , union resistance, delay in receipt,
rigidity of system, narrowness or performance.
 Incentive Measure Example

Amount of output Piece rate; sales Commision

Piece rate only for piece

Quality of output meeting the standard;
comission only for sales that
are without bad debts

Bonus for selling an established

Success in reahing goals number of items during a
predetermined tim span

Amount of profit Profit sharing

Cost efficiency Cost efficiency Gain sharing

Employees skills Skill-based pay

 Wage Incentives
More Pay for More Production
Basically, wage incentives, which are a
form of merit pay, provide more pay for
more output or results, often referred to as
pay for performance.
 Advantages Disadvantages

•Strengthen instrumental •Cost(to both employer and

baliefs employees)
•Create instrumentality of •System complexity
equity •Declining or variable pay
•Reinforce desirable •Union resistance
behaviors •Delay in receipt
•Provide objective basis for •Rigidity of system
rewards •Narrowness of performance
Profit Sharing
Is a system that distributes to
employees some portion of the profits of
business, either immediately (in form of
cash bonuses) or deferred until a later
date.
Difficulties Even in those situations wher
profit sharing seems appropriate, some
general disadvantages exist:

1. Indirect Relationship
2. Delay
3. Lack of Predictability
3. Union Skepticism
Gain Sharing
A gain-shairing plan establishes a
historical base period of organizational
performance, measures improvements,
and shares the gains with employees on
some formula basis.
Behavioral Basis Gain sharing plans use several
fundamental ideas from organizational behavior and are
much more than pay systems. Encourage employees
performance and provide an incentive for coordination
and teamwork.

Contingency Factors The success of gain sharing is

contingent upon a number of key factors, such as the
moderately small size of the unit, a sufficient operating
history to allow the creation of standards, the existence
of controllable cost areas, and the relative stability of the
business.
Skill-Based Pay
In contrast to salaries (which pay someone to hold a
job) a wage incentives (which pay for the level of
performance) this type of pay (also called knowledge
based pay or multi skill pay ) rewards individuals for what
they know how to do.

Advantages Although skill based pay systems are quite

new they provide strong motivation for employees to
develop their work related skills they reinforce an
employees sense of self esteem.
 Disadvantages Skill based pay presents
several disadvantages.

1. Since most employees will voluntarily learn

higher level jobs, the average hourly pay rate
will be greater than normal.

2. a substantial investment in employee training

must be made, esp. in the time spent coaching
by supervisors and peers.
3. Not all employees like skill based pay because it
places pressure on them to move up the skill
ladder.

4. Some employees will qualify themselves for skill

areas that they will be unlikely to use,, causing
the organization to pay them higher rates than
they deserve from a performance standpoint.
 Advice to Future Managers
1. Seek to establish accurate measures of performance,
and make the connection between performance and
rewards clear to all.

2. Provide rewards that people value; if you don't know

what they value, ask them.

3. Make it clear to employees how the organization's

monetary rewards relate to their various needs and
drives.

4. Make sure that the employees believe their goals are

attainable if they perform well.
5. if you are trying to promote teamwork, provide
team-based, not individual, rewards.

6. Be aware of unintended consequences that are

associated with any reward system, and try to
minimize these.

7. Utilize the advantages of 360-degree feedback

system for providing employees with a broad
and rich source of performance feedback
8. Monitor your own behavior, and that of your
employee, for signs of inappropriate attributions
of behavior during performance appraisals.

9.Remember that providing performance feedback

to some employees can be threatening; provide
opportunities for them to save face.

10. Encourage employees to become feedback

seekers; this will help open up productive and
ongoing dialogue with them.
 ACTIVITY
• Make a group of 2
• As managers, write your criterion on how
you will decide to reward your employees
based on their performance.
• Present your output
 For example:
Criterion Performance Reward/Incentive
Quota Should exceed quota by Grocery items worth
10 % after a given 1,000 pesos
deadline
End of Presentation