Performance Management and Compensation Dr. Jeanne Michalski michalski@uta.edu 1

Problems at RightNow!

Merits of Secrecy? Should pay be secret? Should performance evaluations be secret?

Equity Theory Comparison of my input / reward ratio with that of similar others. Employees may seek to address imbalance by changing their inputs. Fairness of pay differentials between different performance levels depends large part on the content and process of performance appraisal.

“Monkeys Demand Equal Pay” A recent study shows brown capuchin monkeys refused to play along when they saw another monkey get a better payoff for performing the same work. The monkeys were trained to trade a granite token for a piece of cumber. When the reward was the same for both monkeys, they took the cucumber 95 percent of the time. But it was a different story when one monkey was given something better -- namely, a grape. Then, the other monkey often pitched a fit -- either throwing the token, refusing to eat the cucumber or giving it to the other monkey. Associated Press 2003

Linking Evals and Merit Raises How to get employees to view merit raises as linked to performance? Types of raises: Across the board or COLA (cost of living adjustments) Seniority pay Pay for performance

Pay for Performance Requires Definition of performance How are we going to measure and compare people? Distribution of performance Can we distinguish high and low performers? Decide the increase for each level of performance. How large a difference between high and low performers?

Questions Should low performers be paid an increase? Should average performers be paid an increase? What about cost of living? What about existing difference in pay distribution? Promote the top performers?

Alternatives Market driven pay Variable pay plan linked to organizational performance. Year end bonuses rather than raises. Use promotion to reward top performers. Specific incentives for each job.