LESSON 6

Appraising and Rewarding

Performance

Dr. Mario A. Fetalver, Jr.

Professor
Money as means of rewarding employees
• Money has social value
• Money satisfies many drives and needs
• Money has often high valence
• Money is an extrinsic reward
Organizational behavior and performance appraisal
1. Objective setting
2. Action planning
3. Periodic reviews
4. Annual evaluation

Appraisal is necessary in order to:

• to allocate resources in a dynamic environment
• motivate and reward employees
• move employees feedback about their work
• maintain fair relationships within groups
• coach and develop employees
• comply with regulations
Hallmarks of a modern appraisal
philosophy
1. Performance orientation
2. Focus on goal objectives
3. Mutual goal setting between
supervisor and employees
4.Classification of behavioral
expectations
5.Extensive feedback systems
Appraisal interview
• This is a session in which the supervisor
provides feedback to the employee in past
performance, discusses any problems that have
arisen, and invites a response

Guidelines for effective performance feedback

 make it well-timed state objectively
 be specific determine if is desired
 establish priorities for change include positive factors
 check for understanding relate it to the job
 focus on few items allow choice
Economic incentive system

Purposes:
 to induce high level of individual, group, or
organizational performance
 to facilitate recruitment and retention of good employees
 To stimulate role behavior such as creativity
 To encourage the development of valued skills and
satisfying key employee needs
Appraissal problems
it can be confrontal
it is typically emotional
it is judgmental
it is complex
Attribution
a process by which people interpret and
assign causes for their own and other’s
behavior
Two kinds of attributions
 personal (ability and effort)
 situational (task difficulty and luck)

Self-serving bias vs Fundamental attribution

Self-serving bias – claiming undue credit for
success and minimizing their own responsibility
for problems

Fundamental attribution bias – tending to

attribute other’s achievements to good luck or
easy task and they assume that others failed to
try hard enough or simply lacked the appropriate
personal characteristics or overall ability if they
failed.
# Attributions illustrate the effects of perceptual
set; that is, people tend to perceive what they
expect to perceive.
 Self-fulfilling prophecy (Pygmalion effect)
 Self-efficacy (Galatea effect)
Managerial effect in conducting performance
appraisal
 encourages managers to do more analytical
and constructive thinking about their employees
 managers avoid giving appraisals because they
do not want to disrupt an existing smooth
relationship with an employee by providing
negative feedback.
Criteria for incentive systems
 employee output
 company profit
 cost savings
 unit shipped
 level of customer service
 ratio of labor cost to total sales
Incentives Linking Pay with
Performance

Advantages
• Instrumentality belief
• Create perceptions of equity
• Reinforce desirable behavior
• Provide objective basis for reward
 Disadvantages
 Cost (both employer and employee)
 System complexity
 Declining or variable pay
 Union resistance
 Delay in receipt
 Rigidity in the system
 Narrowness of performance
Types of Incentive Linking Pay with
Performance
Wage incentive (more pay for more production)
Advantages
• Employees receive satisfaction for a job well
done
• Their self-image may improve because of
greater feelings of competence
• They feel they are making a contribution to
society
• Cooperation is encouraged among workers
 Disadvantage
 Wage incentives normally require
establishments of performance standards
 Wage incentive may make the supervisor’s job
more complex
 A thorny problem with wage production
incentives involves loose rates
 Wage incentives may cause disharmony
between incentive workers and hourly workers.
 it may result in output restriction
Profit sharing – is a system that distributes
to employees some proportion of the
profits of business, either immediately or
deferred until a later date.
Advantages
• It recognizes mutual interest
• Greater institutional teamwork tends to
develop
 Disadvantages
• Profits are not directly related on an
employee’s effort on the job
• Employee must wait for their reward and
this lengthy delay diminishes its impact
• Total worker income may vary from year to
year
• Some union leaders are critical of this
Gain-sharing plan – establishes a historical
base period of organizational
performance, measures improvements,
and shares the gains with employees on
some formula basis. (inventory levels,
labor hours per unit of product, usage of
materials and supplies, and quality of
finished goods)
Skill-based pay (knowledge-based pay or
multiskill pay) – rewards employees for
what they know how to do. Employees are
paid for the range, depth, and types of
skills in which they demonstrate
capablities.
 Advantages
 Provides strong motivation for employees
to develop their work-related skills
 Reinforces an employee’s sense of self-
esteem
 Provides the organization with highly
flexible work force
 Disadvantages
 The hourly pay rate will be greater than normal
 A substantial investment in employee training
must be made
 It places pressure on them to move up the skill
rudder
 Some employees will qualify themselves for the
skill areas that they will be unlikely to use.
 Advice to future managers
• Seek to establish accurate measures of
performance, and make the connection
between performance and reward clear to
all
• Provide reward that people value
• Make it clear to the employees how the
organization’s monetary rewards relate to
their various needs and drives.
• Make sure that employees believe their
goals are attainable if they perform well
• If you are trying to promote teamwork,
provide team-based, not individual,
rewards
• Be aware of the unintended consequences
that are associated with any reward
system, and try to minimize these
• Utilize the advantages of 360-degree
feedback systems for providing employees
with a broad and rich source of
performance feedback
• Monitor your own behavior, and that of
your employees, for signs of inappropriate
attributions of behavior during
performance appraisals
• Remember that providing performance
feedback to some employees can be
threatening; provide opportunities for them
to save face
• Encourage employees to become
feedback seekers; this will help open up
productive and ongoing dialogue with
them