UNIT VI

PERFORMANCE AND COMPENSATION

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MANAGEMENT
 Concept and issues in performance management,
 Criteria of performance management,

 Performance evaluation approaches,

 Problems of performance evaluation,

 Compensation management,

 Considerations for Determining Compensation,

 The Legal Environment and Pay System Governance in Nepal.

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 CONCEPT OF PERFORMANCE
• Performance is the quality and quantity of accomplishment of a

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given task measured against preset known standards of accuracy,
completeness, cost, and speed.
• It is also the fulfillment of an obligation of an employee in terms
of the given task within the standard.
• Organizations plan the performance to each employee, measure
their performance and reward as their performance.
• This is a systematic and structured approach to successfully
achieve the desired goals of an individual or team.

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 PERFORMANCE MANAGEMENT
 Performance management is the process of performance

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planning, developing skills in the organization, supervising,
and ensuring the corrective actions to attain predetermined
performance goals.

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 SIGNIFICANCE OF PERFORMANCE
MANAGEMENT
 Provides competitive strength

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 Business-HR partnership

 Fulfills employees expectations

 Integrates motivational tools

 Institutionalizing high performance work culture

 Source for sustainability

 Overall development

 Optimizing human capital

 Maintaining and retaining HR abilities

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 ISSUES OF PERFORMANCE MANAGEMENT

 Strategic focus

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 Effective feedback
 Leadership support
 Stakeholder review
 Proper training and communication
 Recognition and rewards
 Simplicity

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 CONCEPT OF PERFORMANCE EVALUATION

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 Performance evaluation is the managerial task of determining
the work performance standard and deciding whether the
employee’s task is as per the standard or not.
 It serves as a basis for compensation and reward management.

 The performance evaluation is the process through which

managers assess employee’s present performance and
potential for future development.

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 USE OR IMPORTANCE OF
PERFORMANCE EVALUATION

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1. Determination of compensation
2. Training and development planning
3. Succession planning
4. Reward management
5. Easy for supervision
6. Motivation
7. Proper control
8. Validity of selection test
9. Career planning
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10. Policy formulation
 SELECTION OF PERFORMANCE
EVALUATION CRITERIA
1. Relevant

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2. Validity
3. Free from bias
4. Reliability
5. Sensitivity
6. Corrective
7. Feedback
8. Feasibility
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 METHODS FOR PERFORMANCE
EVALUATION
1. Absolute Standards Methods

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i. Essay method
ii. Check list method
iii. Critical incident evaluation method
iv. Graphic rating scale Method
v. Forced choice method
vi. Behaviorally anchored rating scale (BARS)
2. Comparison – Oriented Methods
i. Individual ranking method
ii. Group order ranking method
iii. Paired comparison method
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3. Management by Objective (MBO)
PROBLEMS OF PERFORMANCE EVALUATION

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1. Rater bias
2. Stereotyping
3. The Halo effect
4. Leniency tendencies
5. Similarity error
6. The recency effect
7. Contrast error
8. Attribution error
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