Appraising and Rewarding Performance by Mehmet Barkınay

In this presentation the relationship between economic reward systems and organizational behavior will be discussed.

The chapter focuses; 1. First on how incentives are combined with other parts of wage administration to build a complete reward system that encourages motivation.

2. Then on, money as a means of rewarding employees, motivational models applied to pay, cost-reward comparisons, and behavioral considerations in performance appraisal.

3.Finally, on incentive pay, an approach in which each worker’s pay varies in relation to employee or organizational performance.

1. A COMPLETE PROGRAM This program has three incentive foundations; 1. Base pay 2. Performance Rewards 3. Profit Sharing * Each can contribute something to the employee’s economic satisfaction.

2. Money As a Means of Rewarding Employees Money is important to employees for a number of reasons.

Certainly ,money is valuable because of the goods and services that it will purchase. All of us have seen its importance as a status symbol for those who have it and can thus save it, spend it conspicuously, or give it away generously.

Money has status value when it is being received and when it is being spent. It represents to employees what their employer thinks of them. It is also an indication of one employee’s status relative to that of other employees. It has about as many values as it has possessors. (e.g. P135)

Application of the Motivational Models A useful way to think about money as a reward is to apply it to some of the motivational models. Such as; Drives Needs Expectancy

Additional Considerations in the Use of Money Extrinsic and Intrinsic Rewards: Money is essentially an extrinsic reward rather than an intrinsic one, so it is easily administered in behavior modification programs.

However, it also has all the limitations of extrinsic benefits However, it also has all the limitations of extrinsic benefits. No matter how closely management attaches pay to performance, pay is still something that originates outside the job and is useful only away from the job. Therefore, it tends to be less immediately satisfying than intrinsic job rewards.

For example; the personal satisfaction of a job well done is a powerful motivator for many people.

Organizational Behavior and performance Appraisal Organizations require consistent levels of high performance from their employees in order to survive in a highly competitive environment. Many firms use some form of results-oriented planning control systems.

Managements by objectives (MBO) is a cyclical process that often consists of four steps as a way to attain desired performance. 1. Objective Settings 2. Action Planning 3. Periodic Reviews 4. Annual Evaluation

Performance appraisal plays a key role in reward systems Performance appraisal plays a key role in reward systems. It is the process of evaluating the performance of employees, sharing that information with them, and searching for ways to improve their performance. Appraisal is necessary in order to; 1. allocate resources in a dynamic environment, 2. motivate and reward employees, 3. give employees feedback about their work, 4. maintain fair relationship within groups, 5. coach and develop employees, 6. comply with regulations

Appraisal Philosophy The hallmarks of modern appraisal philosophy are as follows; 1. Performance Orientation, 2. Focus on Goals or Objectives 3. Mutual Goal Setting between Supervisor and Employee 4. Clarification of Behavioral Expectations 5. Extensive feedback Systems

Suggested Approaches for the Appraisal Interview Appraisal interviews are most likely to be successful when the appraiser; * Is knowledgeable about the employee’s job, * Has previously set measurable performance standards * Has gathered specific evidence frequently about performance * Seeks and uses inputs from other observers in the organization * Provides support, acceptance, and praise for talks well done * Listens actively to the employee’s input and reactions

* Shares responsibility for outcomes and offers future assistance * Allows participation in the discussion * Sharply limits the amount of criticism to a few major items

360- Degree Feedback Programs All appraisal systems build on the assumption that employees need feedback about their performance. Feedback helps them know what to do and how well they are meeting their goals. It shows that others are interested in what they are doing. Assuming that performance is satisfactory, feedback enhances an employee’s self-image and feeling of competence.

In general, feedback should focus on; * Specific job behaviors * Rely on objective data, rather than subjective opinions and influences * Be well-timed by being given soon after a critical event, * Be checked for understanding by the receiver

360- degree feedback is the process of systematically gathering data on a person’s skills, abilities, and behaviors from a variety of sources- the manager, peers, subordinates, and even customers or clients.

The 360-degree feedback system works best if individuals match the data gathered with their own self-assessments, for this approach encourages can do confrontation of one’s need for change.

However, 360-degree feedback programs can be time-consuming, intimidating to the recipients, and expensive.

Appraisal Problems Several behavioral problems inherent in the process. It can be; Confrontational (because each party is trying to convince the other that her/his view is more accurate) Emotional Judgmental (because the manager must evaluate the employee’s behavior and results and this aspect places the employee in a clearly subordinate position) Complex

Managerial Effects Managerial Effects Conducting performance appraisals also has substantial impact on the appraiser. On the positive side, a formal appraisal system encourages managers to do more analytical and constructive thinking about their employees. The requirement of a face-to-face interview encourages managers to be more specific about identifying each employee’s abilities, interests, and motivation. Managers often begin to perceive that each employee is truly different and must be treated that way.

Realistically, however, managers sometimes avoid giving appraisals because they do not want to disrupt an existing smooth relationship with an employee by providing negative feedback. It is particularly difficult to deal with low-performing employees, who may require more frequent monitoring and reviews. In other cases , managers simply do not see any organizational rewards coming to them from the appraisal process. Where there is no extrinsic or intrinsic incentive to perform the task, managers may neglect it entirely (i.e. P 147)

Incentives Linking Pay with Performance Incentive Measure Example Amount of output Quality of output Success in reaching goals Piece rates; sale commission Piece rate only for pieces meeting the standard commission only for sales that are without bad debts. Bonus for selling an established number of items during a predetermined time span

Amount of profit Cost efficiency Employee skills Profit sharing Incentive Measure Example Amount of profit Cost efficiency Employee skills Profit sharing Gain sharing Skill-based pay

Advantages Incentives provide several potential employee advantages. A major advantage is that they increase employee beliefs (instrumentality) that reward will follow high performance. Incentives also appear favorable from the point of view equity theory. Those who perform better are rewarded more.

Another advantage from the employee’s point of view is that incentives are comparatively objective. They can be computed from the number of pieces, dollars, or similar objective criteria.

Difficulties Potential equity is offset by other developments that are perceived as inequities. In behavior modification terms, certain unfavorable consequences exist alongside the favorable consequences of more pay, as they tend to reduce the potential advantages of incentive pay. When workers make their cost-reward analyses, they find that cost have risen along with rewards. The result may be that the break-even point has changed very little, if at all.

Wage Incentives Basically Wage Incentives provide more pay for more production. It nearly always increases productivity while decreasing unit labor costs. Therefore, the main reason for using this, is clear. Ex: p 150

Profit Sharing Profit Sharing is a system that distributes to employee some portion of the profits of business, either immediately or deferred until a later date. Ex; p- 152

Gain Sharing This is another useful group incentive. Gain Sharing plan is a program that establishes a historical base period of organizational performance, measures improvements and shares the gains with employees on some formula basis. Ex: p-153

Skill-Based Pay In contrast to salaries and wage incentives, Skill-Based Pay rewards individuals for what they know how to do. Employees are paid for the range, depth and types of skills in which they demonstrate capabilities.

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