Human Resource Management

(HRM)
Alemseged Gerezgiher Hailu (BSc, MBA, PhD)
Assistant Professor of Development Studies
Addis Ababa University, College of Development Studies, CRD
 Part IV: Managing Performance and
Compensation
1. Performance Appraisal
2. Job Evaluation
3. Wage and Salary Administration
4. Incentive compensation
 Part IV: Managing Performance and
Compensation
1. Performance Appraisal
2. Job Evaluation
3. Wage and Salary Administration
4. Incentive compensation
 4.1. Performance Appraisal
• Performance Appraisal is the specific and formal
evaluation of an employee conducted to determine
the degree to which the employee is performing his or
her job effectively.
– A critical point in the definition is the word formal,
because in actuality, managers should be reviewing an
individual’s performance on a continuing basis.
• Performance management is the general set
of activities carried out by the organization to
change (improve) employee performance.
 4.1. Performance Appraisal
• Reasons for Appraisals
– Compensation "Pay for Performance"
– Job Performance Improvements
– Feedback to Subordinates
– Documentation for Decisions
– Goal Setting - Later Evaluation
– Promotion Decisions
– Identify Training Needs
– HR Planning
 4.1. Performance Appraisal
• Main Purposes of Performance
Management
– Individual Rewards (Base and Incentive)
– Feedback for Sub-Ordinate (Plus and Minus)
– Recognition of Superior Performance
– Documentation of Weak Performance
– Personnel Decision-Making
– Future Goal Commitments (Planned
Achievements)
 4.1. Performance Appraisal
• Characteristic of Good PA System
– Job-Related Criteria
– Performance Expectations- agreement on expectation by
employee and manger
– Standardization
– Trained Appraisers
– Continuous Open Communication
– Conduct Performance Review
– Due Process- open procedure for appeal
 4.1. Performance Appraisal
• Who Performs the Appraisal?
– Immediate Supervisor
– Higher Management
– Self-Appraisals
– Peers (Co-Workers)
– Evaluation Teams
– Customers
– “360° Appraisals”
 4.1. Performance Appraisal
• Appraisal Methods (some)
– Rating Scales
• Graphic Scale: Performance appraisal whereby each
employee is rated according to a scale of pre-defined
characteristics that are job performance related.
• Behaviorally Anchored Rating Scale (Descriptions along
the scale to define): A behavioral approach to
performance appraisal that consists of a series of vertical
scales, one for each important dimension of job
performance
– Essay: A trait approach to performance appraisal
that requires the rater to compose a statement
describing employee behavior
 4.1. Performance Appraisal
• Appraisal Methods(some)
– Management by Objectives: Philosophy of
management that rates performance on the basis of
employee achievement of goals set by mutual
agreement of employee and manager.
– Critical Incidence methods: Check Lists by Key
Words Unusual event that denotes superior or
inferior employee performance in some part of the
job.
 4.1. Performance Appraisal
• Guidelines for Effective Performance Appraisal
– Make sure the performance rating process is
strategically useful; i.e., based on the key success
factors needed for execution.
– Involve those being rated in the development of
the rating scheme.
– Insure that the process is related to job
performance and meets legal requirements.
– Train the raters on evaluation and feedback.
 4.1. Performance Appraisal
• Managing performance
– Evaluating performance
– Diagnosing performance
– Providing feedback on performance
– Linking performance with rewards & punishments
– Coaching, counseling & developing
 4.1. Performance Appraisal
• Problems in Performance Rating
– Halo Effect: rating the employee high even if the employee
doesn't deserve. (high level of positivity).
– A Horns Error occurs when the manager downgrades other
aspects of an employee’s performance because of a single
performance dimension.
– Stereotypes – personal bias
– Overweight negative information
– Lack of sufficient observation
– Memory: primacy / recency
– Leniency
– Central tendency
– Lack of objectivty
– Ability to write
 4.2. Job Evaluation
• What is Job evaluation?
– It is a Process of systematically determining the relative worth of
jobs to create a job structure for the organization.
• Evaluation is based on a combination of job content, skills required, value
to the organization, organizational culture and the external market.
– Job evaluation is the process of analyzing and assessing the
various jobs systematically to ascertain their relative worth in an
organization.
• Advantages of Job evaluation:
– Leads to Uniformity in wage rates.
– Use to remove grievances from employees regarding discrepancy
in wages.
– Information collected during Job Evaluation can be used for
improvement, Selection and and promotion procedures
 4.2. Job Evaluation
• Objectives Of Job Evaluation
– To maintain , accurate and impersonal description
of each distinct job.
– To provide standard procedure for determining the
relative worth of each job.
– To set wages and salary.
– To ensure like wages are paid off.
– To determine wage for the job and not for the man.
 4.2. Job Evaluation
1. Non-analytical
• Ranking Method
• Job-Grading Method
2. Analytical
• Point- Ranking Method
• Factor Comparison Method
 4.2. Job Evaluation
Job Factors Job factors
•Skill •Responsibility
– Education – For Equipment
– Experience – Material / Product
– Initiative
– Safety of others
– Work of others
•Effort •Job Conditions
– Physical Demand – Working Conditions
– Mental Visual Demand – Hazards
 4.2. Job Evaluation
• Ranking Method
– Jobs are arranged or ranked in their importance i.e from lowest to highest
or vice versa.
– Committee assesses the worth of each job on the basis of its title or on its
content, if the latter are available.
– Job Description can be used for ranking different jobs.
– Ranked jobs are classified into groups, and jobs under particular groups
may receive the same salary or salary range.
• Job-Grading Method
– As in the ranking method, the Job-grading method does not call for a
detailed or quantitative analysis of job factors.
– Facts about the job are collected and matched with the grades which have
been established by the raters (Committee)
– Grades are arranged in the order of their importance
– Lowest grade may cover jobs requiring greater physical work under close
supervision, but carrying little responsibility.
 4.2. Job Evaluation
• Point- Ranking Method
– PRM is one of the most widely used JE Plan.
– It involves identifying number of factors, sub factors and degree
to which these factors are present in Job
– Points are assigned for each degree of each factor
– Grand Total of these points ,classify the Job Worth
• Factor Comparison Method
– Under this method, one begins with selection of factors .
– Each factor is ranked individually with other jobs.
– Each job is ranked several times like,
1. Skill requirements,
2. Physical exertion,
3. Responsibility, and
4. Job conditions
 4.3. Wage and Salary Administration
• Wage And Salary Administration?
– Wage salary administration is essentially the application of
a systematic approach to the problem of ensuring that
employees are paid in a logical, equitable and fair manner.
– Wage and salary administration refers to the establishment
and implementation of sound policies and practices of
employee compensation. Thus, it is:-
• Administration of employee compensation.
• Systematic approach to provide monetary value to employees.
• Establishment and maintenance of equitable as well as cost-
effective wage structure.
•  
 4.3. Wage and Salary Administration
• COMPENSATION:
– It can be defined by as money received in performance of work
plus many kinds of services and benefits that organizations
provide to their employees.
– Compensation may be classified into
• Base or primary compensation: refers to basic pay in the form of wages
and salaries. It is a fixed and non-incentive payment on the basis of time
expended on the job.
• Supplementary compensation. consists of incentive and variable
payments, based on either individual output or output of the group as a
whole.
• WAGE:
– Wage is a general term referring to direct monetary compensation.
It is also used specifically to refer to payments to service workers on
the basis of hourly rated production.
 4.3. Wage and Salary Administration
• Objectives of Wage and Salary Administration
– Acquire competent personnel
– Retain present employees
– Provide fair and equitable compensation
– Ensure desired behavior
– Keep labor costs in control
– Keep organization ability in mind
– Improve motivation and morale
– Project good image of the organization
– Impartial implementation
 4.3. Wage and Salary Administration
• Factors Influencing Wage and Salary Structure
and Administration
– The Organization's ability to pay
– Supply and demand of labor
– The prevailing market rate
– The cost of living
– Living wage
– Productivity
– Trade Union’s Bargaining power
– Job requirements
 4.3. Wage and Salary Administration
• Principles of Wage and Salary Administration
– Differences in pay should be based upon variations in JOB
REQUIREMENTS
– Wages should be in line with that prevailing in the labor
market
– Equal pay for equal work
– There should be recognition of individual differences in
ability and contribution
– There should be established structure for redressal of wage
complaints
– Wages should ensure a reasonable standard of living for the
worker and his family
– The wage structure should be flexible
– WAGE COMMITTEE should be appointed for revision of
wages.
 4.4. Incentive Compensation
• Incentive pay links pay (as a reward) to performance
– The idea of incentive pay is to create incentives for
employees to improve their job performance by linking
employee pay to employee job performance
– Incentive pay is also called:
• Pay for performance
• Performance-based pay systems
• Performance-based reward systems
• The reward for performance doesn’t have to be pay
– Pay is one possible reward, not the only possible reward
 4.4. Incentive Compensation
• Types of incentive scheme
– Piece rate: Each unit produced over the target is rewarded
with a bonus or commission payment.
– Profit sharing: Profits are shared equally or as agreed by
partners.
– Profit-related pay: Employees are paid a bonus as a
percentage of the profit amount made by a company.
– Share-related pay: Employees are offered some shares or
the possibility of purchasing some shares as an incentive
– Performance-related pay: Employees’ annual salary is
linked to their performance in the job. The size of payment
is determined by the achievement of the set target.