Chapter 7 Rewards and Performance Management What gets measured happens.
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Chapter 7
Rewards and Performance Management
What gets measured happens
Copyright © 2008 John Wiley & Sons, Inc. 7-2
Chapter 7 study questions
What is the link between motivation and rewards?
What is performance management?
What are common performance appraisal alternatives?
Copyright © 2008 John Wiley & Sons, Inc. 7-3
Figure 7.1
Copyright © 2008 John Wiley & Sons, Inc. 7-4
What is the link between motivation and rewards?
• Intrinsic rewards – positively valued work outcomes that the
individual receives directly as a result of task performance
• Extrinsic rewards – positively valued work outcomes that are given
to an individual or group by some other person or source in the work setting
Copyright © 2008 John Wiley & Sons, Inc. 7-5
What is the link between motivation and rewards?
• Merit pay – compensation system that directly ties an
individual’s salary or wage increase to measures of performance accomplishments during a specific time period
– should create a belief among employees that the way to achieve high pay is to perform at high levels
Copyright © 2008 John Wiley & Sons, Inc. 7-6
What is the link between motivation and rewards?
• Gain sharing – gives workers the opportunity to earn more by
receiving shares of any productivity gains that they help to create
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What is the link between motivation and rewards?
• Profit-sharing plans – reward employees based on overall
organizational profit
• Criticism is that organizational profits are not always a direct result of employees’ efforts
Copyright © 2008 John Wiley & Sons, Inc. 7-8
What is the link between motivation and rewards?
• Employee stock ownership plans (ESOPs)– may give stock to employees, or allow stock to
be purchased by them at a price below market value
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What is the link between motivation and rewards?
• Bonuses – the awarding of cash bonuses, or extra pay for
performance that meets certain benchmarks or that is above expectations
– common practice for many employers
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What is the link between motivation and rewards?
• Lump-sum increase – allows someone to elect the option of receiving
all of an annual increase in one or more lump-sum payments
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What is the link between motivation and rewards?
• Skill-based pay – rewards people for acquiring and developing
job relevant skills
Copyright © 2008 John Wiley & Sons, Inc. 7-12
What is the link between motivation and rewards?
• Pay as benefits– Fringe benefits often add 10 to 40 % to a
person’s salary
• Flexible benefit plans – allow workers to select benefits according to
needs
Copyright © 2008 John Wiley & Sons, Inc. 7-13
Figure 7.2
Copyright © 2008 John Wiley & Sons, Inc. 7-14
What is performance management?
• Performance management – process of managing performance
measurement and the various human resource management decisions and actions based on such measurement
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What is performance management?
Steps in performance management1. Identify and set clear and measurable
performance goals2. Take performance measurements to
monitor goal progress3. Provide feedback and coaching on
performance results4. Use performance assessment for human
resource management decisions
Copyright © 2008 John Wiley & Sons, Inc. 7-16
What is performance management?
• From an evaluative perspective, performance measurement lets people know where they stand relative to objectives and standards
Copyright © 2008 John Wiley & Sons, Inc. 7-17
What is performance management?
• From a counseling perspective, performance measurement facilitates decisions relating to planning for and gaining commitment to the continued training and personal development of workers
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What is performance management?
Performance Measurement Criteria and Standards
• Output measures – assess actual work results
• Activity measures – assess work efforts or inputs
Copyright © 2008 John Wiley & Sons, Inc. 7-19
What are common performance appraisal alternatives?
• Performance appraisal – formal procedure for measuring and
documenting a person’s work performance
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What are common performance appraisal alternatives?• Comparative methods of performance
appraisal– Ranking
• Raters rank order people from best to worst
– Paired comparisons• Raters compare each person with every other
person
– Forced distribution• Raters place a specific proportion of employees into
each performance category
Copyright © 2008 John Wiley & Sons, Inc. 7-21
What are common performance appraisal alternatives?
• Absolute methods of performance appraisal– Graphic rating scales
• Raters assign scores on a list of dimensions related to high performance outcomes in a given job
– Critical incident diary records• Rater records incidents of unusual success or failure
in a given performance aspect
– Behaviorally anchored rating scales (BARS)• Rater identifies observable job behaviors
Copyright © 2008 John Wiley & Sons, Inc. 7-22
Figure 7.3
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Figure 7.4
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What are common performance appraisal alternatives?
• Self evaluation – individual rates himself or herself
• Peer evaluations – persons in the work team or doing similar jobs
rate the individual as a co-worker
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What are common performance appraisal alternatives?
• 360° Evaluation – using not only the evaluations of bosses, peers,
and subordinates, but also self-ratings, customer ratings, and ratings by others with whom the ratee deals outside the immediate work unit
Copyright © 2008 John Wiley & Sons, Inc. 7-26
What are common performance appraisal alternatives?
Group Performance Evaluation System• Link the team’s results to organizational goals• Start with the team’s customers and the team
work process needed to satisfy those needs: customer requirements, delivery and quality, waste and cycle time
• Evaluate team and each individual member’s performance
• Train the team to develop its own measures
Copyright © 2008 John Wiley & Sons, Inc. 7-27
What are common performance appraisal alternatives?
• To be meaningful, an appraisal system must be:– Reliable - provide consistent results across
time– Valid - actually measure people on relevant job
content
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What are common performance appraisal alternatives?
• Measurement errors in performance appraisal– Halo errors
• Raters evaluate on several different dimensions and give a similar rating for each dimension
– Leniency errors• Raters tend to give everyone relatively high ratings
– Strictness errors• Raters tend to give everyone relatively low ratings
Copyright © 2008 John Wiley & Sons, Inc. 7-29
What are common performance appraisal alternatives?
• Measurement errors in performance appraisal– Central tendency errors
• Raters lump everyone together around the average or middle
– Low differentiation errors• Raters restrict themselves to a small part of the
rating scale
Copyright © 2008 John Wiley & Sons, Inc. 7-30
What are common performance appraisal alternatives?• Measurement errors in performance
appraisal – Recency errors
• Raters allow recent events to exercise undue influence on ratings
– Personal bias errors• Raters let personal biases, such as stereotypes,
unduly influence the ratings
– Cultural bias errors• Raters allow cultural differences of employees to
influence the performance appraisal
Copyright © 2008 John Wiley & Sons, Inc. 7-31
What are common performance appraisal alternatives?
Steps for improving performance appraisals1. Train raters to understand the evaluation
process and recognize errors2. Ensure that raters observe ratees on an
ongoing basis3. Do not have the rater evaluate too many
ratees4. Make sure that the performance dimensions
and standards are stated clearly5. Avoiding terms that have different meanings
for different raters
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