Human Resource Management

(HRM)
Part 5: Managing Performance and Compensation

1. Performance Appraisal
2. Job Evaluation
3. Wage and Salary Administration
4. Incentive compensation
 5.1. 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.
 5.1. 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
 5.1. 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)
 5.1. 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
 5.1. Performance Appraisal
• Who Performs the Appraisal?
– Immediate Supervisor
– Higher Management
– Self-Appraisals
– Peers (Co-Workers)
– Evaluation Teams
– Customers
– “360° Appraisals”
 5.1. 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
 5.1. 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.
 5.1. 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.
 5.1. Performance Appraisal
• Managing performance
– Evaluating performance
– Diagnosing performance
– Providing feedback on performance
– Linking performance with rewards & punishments
– Coaching, counseling & developing
 5.1. 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