©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Newstrom 12/e PPT Chapter 6 ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Chapter Six Appraising and Rewarding Performance ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Objectives To understand: Total reward systems Money as an economic and social medium of exchange The role of money in motivational models Behavioral considerations in performance appraisal The characteristics of good feedback programs The process of attribution How and why to link pay with performance Uses of profit-sharing, gain-sharing, and skill-based pay programs ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Introduction Pay relationships carry immense social value Money is not a direct incentive Motivation is encouraged by a complete reward system ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved A Complete Program Many types of pay are required for a complete economic reward system Base pay (jobs) Performance rewards (individuals) Profit sharing (the organization) Non-incentive Pay Adjustments Seniority pay Pay for inconvenience Pay for time not worked ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved The Reward Pyramid ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Rewarding Employees with Money Money has Social Value Status value when received Status value when spent Represents to employees what their employer thinks of them Indicates one employee’s status relative to that of other employees Has as many values as there are possessors ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Money and the Motivational Models Drives and Needs Herzberg’s hygiene factors Maslow’s physiological and security needs Alderfer’s existence needs Expectancy and Valence Valence x Expectancy x Instrumentality = Motivation Behavior Modification High instrumentality is desired Equity Cost-reward comparison ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Cost of Performance to Reward ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Additional Money Considerations Extrinsic and Intrinsic Rewards Money is less immediately satisfying than intrinsic rewards Difficult Integration Employees differ in amount of intrinsic and extrinsic rewards desired Payment of an extrinsic reward decreases the intrinsic satisfaction received Hard to administer intrinsic rewards on a systematic basis ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Additional Money Considerations Compliance With the Law Equal Pay Act of 1963 Comparable worth Equal opportunity Other Factors Equality Secrecy Control Flexibility ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

OB and Performance Appraisal Management by Objectives is a four-step, cyclical process… Objective setting Action planning Periodic reviews Annual evaluation ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

OB and Performance Appraisal Reasons For Employee Appraisal Allocate resources in a dynamic environment Motivate and reward employees Give employees feedback about their work Maintain fair relationships within groups Coach and develop employees Comply with regulations Formal opportunity to express appreciation for employee contributions Compliance with state and federal laws ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Compliance with EEO Laws The performance appraisal system should be… An organizational necessity Based on well-defined, objective criteria Based on careful job analysis Based only on job-related criteria Supported by adequate studies Applied by trained, qualified raters Applied objectively throughout organization Nondiscriminatory ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Appraisal Philosophy Hallmarks of Modern Appraisal Philosophy Performance orientation Focus on goals or objectives Mutual goal setting between supervisor and employee Clarification of behavioral expectations Extensive feedback systems ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

The Appraisal Interview Based on various aspects of… Productivity Behavior Personal traits Also touches on… Historical performance Potential for growth Potential for advancement ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

The Appraisal Interview During the appraisal interview, the supervisor… Provides feedback on past performance Discusses any problems that have risen Invites a response Informs employee about future salary The interview is also used to… Set future objectives Increase motivation ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

The Appraisal Interview Most likely to be successful when the appraiser… Understands the employee’s job Has previously set measurable performance standards Has specific evidence about performance Seeks and uses inputs from other observers Limits criticism to a few major items Provides support, acceptance, praise for tasks done well ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

The Appraisal Interview Most likely to be successful when the appraiser… Listens actively to the employee’s input and reactions Shares responsibility for outcomes Offers future assistance Allows participation in the discussion ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Self-Appraisal Opportunity for Employees to be Introspective Personal assessment of accomplishments, strengths, and weaknesses Potential Problems Diminishing level of difficulties Attributing problems to situational factors Rating oneself too leniently Benefits Candid self-assessment Less threatening to one’s self-esteem ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Performance Feedback Leads to improved performance and improved attitudes If handled properly Greatest chance for behavioral change if… Feedback is desired by the employee It is connected to job tasks Receiver can choose a new behavior from alternatives offered It is provided on an ongoing basis ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Performance Feedback ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Performance Feedback Failure to Provide Feedback Too busy Assumption that employees already know their performance level Reluctance to share bad news ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved 360-Degree Feedback Systematic data gathering from a variety of sources Manager(s) Peers Subordinates Customers or clients Advantages Can be compared across time Rich feedback Can aid in performance improvement ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Appraisal Problems Behavioral Problems Confrontational Emotional Judgmental Complex ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Appraisal Problems Management Problems Lack of vital skills Failure to gather data systematically Reluctance to address difficult/sensitive topics Failure to involve employees in assessment process and discussion Cynical about probability that changes will occur in employees Sees appraisals as a meaningless game Intentional distortion of feedback and ratings ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Attribution The process by which people interpret and assign causes for their own and others’ behavior Observation/Description Understanding Prediction/Control ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Attribution ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Nature of Attributions Personal Versus Situational Attributions Self-serving bias Fundamental attribution bias Perceptual set Self-fulfilling prophecy ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Application of Attributions ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Nature of Attributions Self-Expectations Psychological process known as Galatea effect Similar to the Pygmalion effect A person’s behavior tends to be consistent with someone’s expectations ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Performance Appraisals Encourages managers to… Think analytically and constructively about employees Be more specific about identifying each employee’s abilities, interests, and motivation Perceive employees as individuals ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Performance Appraisals Difficulties for managers… Negative feedback can disrupt relationships Poor performers are particularly hard to deal with No organizational rewards for conducting the appraisal process No long-term performance changes ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Economic Incentive Systems Performance Management Stems from belief that employee performance can be managed and improved Uses various rewards and incentives to encourage better productivity ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Economic Incentive Systems Can be applied to almost any job Facilitates recruitment and retention Stimulates desirable role behaviors Encourages development of valued skills Satisfies key employee needs Based on various criteria Can be temporary or permanent ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Linking Pay with Performance ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Linking Pay with Performance Advantages Strengthens instrumentality beliefs Creates perceptions of equity Reinforces desirable behaviors Provides objective basis for rewards ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

Linking Pay with Performance Disadvantages Cost to both employer and employee System complexity Declining or variable pay Union resistance Delay in receipt Rigidity of system Narrowness of performance ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Wage Incentives More pay for more production (merit pay) Increases production Decreases labor costs per unit of production Criteria for Incentive Systems Must be simple Objectives, eligibility requirements, performance criteria, and payment system must be understood by participants ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Wage Incentives Difficulties Disruption of social systems Rate setting Loose rates Output restrictions ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Profit Shaving Distributes some share of profits to employees Immediate or deferred Encouraged by federal tax laws Mutual interest is emphasized Works better for fast-growing, profitable organizations Works better under good economic conditions Is well received and understood by managers and high-level professionals Less initial appeal for operating workers ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Profit Shaving Difficulties Indirect relationship Delay Lack of predictability Union skepticism ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Gain Sharing A gain-sharing plan… Establishes a historical base period of organizational performance Measures improvements Shares the gains with employees on some formula basis The idea is to… Pinpoint areas controllable by employees Give them incentives for identifying and implementing cost-saving ideas ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Gain Sharing Behavioral Basis Encourages employee suggestions Provides incentive for coordination and teamwork Promotes improve communication Improves union-management relations Improves attitudes toward technological change Gives employees broader view of the system ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Gain Sharing Contingency Factors Size of the unit Enough history to allow creation of standards Existence of controllable cost areas Relative stability of business Management receptive to employee participation Organization willing to share profits Union cooperation Managers receptive to employee ideas and criticism ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Skill-Based Pay Rewards individuals for what they can do Also called knowledge-based pay or multiskill pay Flat hourly rate, then increases for developing skills Substantial amounts of training must be available for system to work Methods for pricing jobs and certifying employee skills must be established ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Skill-Based Pay Advantages Strong motivation for employees to develop work-related skills Reinforces employee’s sense of self-esteem Provides organization with flexible workforce Reduces boredom High pay satisfaction Workers perceive the system as equitable ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved

©2007 The McGraw-Hill Companies, Inc., All Rights Reserved Skill-Based Pay Disadvantages Average hourly pay rate is greater than normal Requires substantial investment in training Not liked by all employees because of pressure to move up the skill ladder Some employees will qualify themselves for skills they will be unlikely to use Works best when the organizational culture is supportive and trusting ©2007 The McGraw-Hill Companies, Inc., All Rights Reserved