PERFORMANCE APPRAISAL Performance appraisal is defines as evaluating an employee s current and past performance relative to his or her performance standards. Appraisal process: 1. Setting work standards 2. Assessing the employees actual performance relative to these standards 3. Providing feedback to employee with aim at motivating that person to eliminate performance deficiencies or to continue to perform above par Why appraise performance: 1. Appraisal provide information upon which promotion and salary decisions can be made (administrative purpose) 2.

Provide opportunity for you and your subordinate to review subordinate work-related behaviour, correct any deficiencies + reinforce the things being done right. 3. Career-planning process: provides an opportunity to review the persons career plans in light of his / her strengths and weaknesses. 4. Overall help better manage and improve your organization s performance. The supervisor does the appraisal, help and advise from HR department APPRAISAL METHODS Graphic Rating Scale Method: Most simple and most popular technique.

A scale that lists a number of traits (ex. Quality and reliability) and a range of performance for each. The employee is than rated by identifying the score that best describes his or her level of performance for each trait. The assigned values (ex from unsatisfactory to outstanding) for the traits are then totalled. Alternative ranking methodRanking employees from best to worst on a particular trait, choosing highest, then lowest until all are ranked.

Usually easier to distinguish between the worst and best employees, difficult to distinguish employees rated in the middle. Paired Comparison MethodRanking employees by making a chart of all possible pairs of the employees for each trait and indicating which is the better employee. Can only be used in small organizations. Forced Distribution Method Similar to grading on the curve, predetermined percentage of rates ar placed in various performance categories.

Critical Incident Method Keeping a record of uncommonly good or undesirable examples of an employee s work related behaviour and reviewing it with the employee at predetermined time. Advantage: provides specific hard examples of good and bad performance though out the year so performance is not only based on recent performance. Disadvantage: not useful in evaluating salary, promotion etc. Narrative Forms 1. rate the employee s performance for each performance factor or skill. 2.

to write down critical examples and an improvement plan designed to aid the employee in understanding where his or her performance was good or bad, and for improving that performance. Behaviorally Anchored Rating Scales (BARS) An appraisal method that aims at combining the benefits of narrative critical incidents and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance. 5 steps: 1. Generate critical incidents. Persons who know the job being appraised (jobholders and / or supervisors) are asked to describe specific illustrations (critical incidents) of effective and ineffective performance. 2.

Develop performance dimensions. These people then cluster the incidents into a smaller set of performance dimensions. 3. Reallocate incidents. Another group of people who also know the job then reallocate the original critical incidents.

They are given the clusters definition and the critical incidents and are asked to reassign each incident to the cluster they think it fits best. 4. Scale the incidents. This second group is generally asked to rate the behaviour described in the incident as to how effectively or ineffectively it represents performance on the appropriate dimension.

5. Develop final instrument. A subset of incidents is used a behavioural anchors for each dimension. Advantages: 1.

A more accurate gauge. 2. Clearer standards 3. Feedback 4. Independent dimensions 5. Consistency The Management by Objectives Method (MBO) Involves setting specific measurable goals with each employee and then periodically reviewing the progress made.

6 steps: 1. Set the organizations goals 2. Set department goals 3. Discuss department goals. Department heads discuss the goals with subordinates and ask them to develop individual goals, how can each employee contribute to department goals. 4.

Define expected results (set individual goals). Department heads and their subordinates set short term performance targets. 5. Performance reviews, Measure the result. Compare the actual performance or subordinates with expected results. 6.

Provide feedback. Problem: 1) setting unclear goals. 2) time consuming. 3) subordinates and heads has to agree on the subordinates goals (subordinate: low vs. head: high) APPRAISAL PROBLEMS Unclear standard sAn appraisal scale that is too open to interpretation, instead include descriptive phrases that define each trait and what is meant by standards like good and unsatisfactory. Halo effect In performance appraisal, the problem that occurs when a supervisor s rating of a subordinate on one trait biases the rating of that person on other trait.

Halo effect has been defined as the influence of a rater s general impression on ratings of specific ratee qualities. Central Tendency tendency to rate all employees the same way, such as rating them all average. Leniency or strictness The problem that occurs when a supervisor has a tendency to rate all subordinates either high or low. Bias Individual differences among rates in terms of characteristics like age, race and sex can affect their ratings, often apart from each ratee s actual performance. How to avoid appraisal problems: 1) Understand the above problems 2) Choose the right appraisal tool 3) Train supervisors to eliminate errors 4) Diary keeping See table 9-3 page 341 for similarities and difference in the appraisal tools. Legal issues page 342 Who should do the appraising 1.

Appraisal by the immediate supervisor. 2. Using peer appraisals. 3.

Rating committees. Rated by immediate supervisor plus 3-4 other supervisors 4. Self-ratings. 5.

Appraisal by subordinates upward feedback. How to conduct the appraisal interview. 1. Be direct and specific. Objective data, 2. Don t get personal, 3.

Encourage the person to talk, 4. Don t tiptoe around COMPENSATION Employees compensation: All forms of rewards going to employees and arising from their employment. Direct payments such as wages, salaries, commissions etc. Indirect payments such as employer-paid insurance and vacations. Establishing pay rates: 1. Conduct the Salary Survey.

(to help ensure external equity) A survey aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for specific jobs. 2. Determine the worth of each job (internal equity) Job evaluation: A systematic comparison done in order to determine the worth of one job relative to another.

Ranking method: The simplest method of job evaluation that involves ranking each job relative to all other jobs, usually based on overall difficulty. Job classification: Jobs are categorized into groups. The groups are called classes if they contain similar jobs or grades if they contain jobs that are similar in difficulty but otherwise different. Classes: Dividing jobs into classes based on a set of rules for each class, such as amount of independent judgement, skill, effort etc. required for each class of jobs. Classes usually contain similar jobs all secretaries etc.

Point method: The job evaluation method in which a number of compensable factors are identified and then the degree to which each of these factors is present on the job is determined. Factor comparison method: A widely used method of ranking jobs according to a variety of skill and difficulty factors, then adding up these rankings to arrive at an overall numerical rating for each given job. 3. Group similar jobs into pay grades. A pay grade is comprised of jobs of approximately equal difficulty. 4.

Price each pay grade wage curves, shows the relationship between the value of the job and the average wage paid for this job. 5. Fine tune pay rates. Current trends in compensation Skill based pay: With competency or skill based pay, you are paid for the range, depth and types of skills and knowledge you are capable of using rather then for the job you currently hold. LAW Fair labor standards act.

To provide minimum wages, maximum hours, overtime pay, and child labor protection. Equal pay act. ERISA Employee Retirement Income Security Act. The law that provides government protection of pensions for all employees with company pension plans. It also regulates vesting rights (employees who leave before retirement may claim compensation from the pension plan). Compensating managers 1.

base salary 2. short term incentives (designed to reward managers for attaining short term goals- cash or stock) 3. long term incentives (rewarding the person for long term performance stock options) 4. executive benefits and perks. (time off with pay, health care, employee services, retirement) Chapter 12: Pay for performance Spot bonus: A spontaneous incentive awarded to individuals for accomplishments not readily measured by a standard. Variable pay: Any plan that ties pay to productivity or profitability usually as one time lump payments.

Piecework plans: Piecework: A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day. Straight piecework plan: Under this pay system each worker receives a set payment for each piece produced or processed in a factory or shop. Guaranteed piecework plan: The minimum hourly wage plus an incentive for each piece produced above a set number of pieces per hour. Advantage by piece plan: simple to calculate and understand by employees. Disadvantages: problem when raising production standards, when attempt is made to revise production standards, it meets considerable worker resistance, even if the change is fully justified. Standard Hour Plan: A plan by which a worker is paid a basic hourly rate but is paid an extra percentage of his or her base rate for production exceeding the standard per hour or per day.

Similar to piecework payment only based on a percent premium. Team or group incentive plan: A plan in which a production standard is set for a specific work group, and its members are paid incentives if the group exceeds the production standard. Annual bonus: Plans that are designed to motivate short term performance of managers and are tied to company profitability Capital accumulation programs: Long term incentives most often reserved for senior executives. Six popular plans include stock options, stock appreciation rights, performance achievement plans, restricted stock plans, etc. Merit pay (merit rate): Any salary increase awarded to an employee based on his or her individual performance. Profit sharing plan: A plan whereby most employees share in the company s profit.

Scanlon plan: 1. philosophy of cooperation 2. identity 3. Competence 4. involvement system 5. sharing of benefits formula.