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Milkovich/Newman: Compensation, Ninth Edition McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 Performance.

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Presentation on theme: "Milkovich/Newman: Compensation, Ninth Edition McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 Performance."— Presentation transcript:

1 Milkovich/Newman: Compensation, Ninth Edition McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 11 Performance Appraisals

2 11-2 Nature of Performance Appraisals You can’t manage what you don’t understand You can’t manage what you don’t understand You don’t understand what you don’t measure You don’t understand what you don’t measure What gets measured is what gets done What gets measured is what gets done What gets measured is what gets rewarded What gets measured is what gets rewarded What gets rewarded is what gets repeated What gets rewarded is what gets repeated

3 11-3 The Role of Performance Appraisals in Compensation Decisions Employees often frustrated about the appraisal process Employees often frustrated about the appraisal process –Appraisals are too subjective –Possibility of unfair treatment by a supervisor Experts argue that rather than throwing out the entire performance appraisal process, total- quality-management principles should be applied to improving it Experts argue that rather than throwing out the entire performance appraisal process, total- quality-management principles should be applied to improving it –Recognize part of performance influenced more by work environment and systems than by ee behaviors

4 11-4 Exhibit 11.1: Common Errors in the Appraisal Process

5 11-5 Exhibit 11.2: Ratings of Managers

6 11-6 Strategies to Better Understand and Measure Job Performance Clearly define job performance Clearly define job performance Recognize definition of performance and its components is expanding Recognize definition of performance and its components is expanding Improve appraisal formats Improve appraisal formats Select the right raters Select the right raters Understand way raters process information and mistakes that may be made Understand way raters process information and mistakes that may be made Train raters to improve rating skills Train raters to improve rating skills

7 11-7 Categories of Appraisal Formats Ranking - Rater compares employees against each other Rating - Rater evaluates employees on some absolute standard (measured on a continuum scale) Essay - Rater answers open- ended questions in essay form describing employee performance Categories

8 11-8 Ranking Formats Straight ranking Straight ranking Alternation ranking Alternation ranking Paired-comparison ranking Paired-comparison ranking See Ex. 11.3 See Ex. 11.3

9 11-9 Rating Formats Two common elements Two common elements –Raters evaluate employees on some absolute standard –Each standard is measured on a scale - performance variation is described along a continuum

10 11-10 Rating Formats (cont.) Types of descriptors Types of descriptors –Adjectives  Standard rating scale (Ex. 11.4) –Behaviors  Behaviorally anchored rating scales (Ex. 11.5) –Outcomes  Management by objectives (Ex. 11.7, 11.8)

11 11-11 Exhibit 11.9: Usage of Performance Evaluation Formats

12 11-12 Exhibit 11.10: An Evaluation of Performance Appraisal Formats

13 11-13 Training Raters to Rate More Accurately Rater-error training Rater-error training –Goal is to reduce psychometric errors by familiarizing raters with their existence Performance-dimension training Performance-dimension training –Exposes supervisors to performance dimensions used Performance-standard training Performance-standard training –Provides raters with a standard or frame of reference for making appraisal

14 11-14 Ways to Improve Rater Training Straightforward lecturing to ratees is ineffective Straightforward lecturing to ratees is ineffective Individualized or small group discussions more effective Individualized or small group discussions more effective When sessions are combined with extensive practice and feedback, rating accuracy improves When sessions are combined with extensive practice and feedback, rating accuracy improves Longer training programs are generally more successful than shorter programs Longer training programs are generally more successful than shorter programs Performance-dimension and performance- standard training more effective than rater-error training Performance-dimension and performance- standard training more effective than rater-error training Success results from efforts to reduce halo errors and improve accuracy Success results from efforts to reduce halo errors and improve accuracy

15 11-15 Putting it All Together: The Performance Appraisal Process Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension Need to involve employees in every stage of developing performance dimensions and building scales Need to involve employees in every stage of developing performance dimensions and building scales Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates

16 11-16 Putting it All Together: The Performance Appraisal Process (cont.) Need to ensure raters are motivated to rate accurately Need to ensure raters are motivated to rate accurately Raters should maintain a diary of employee performance Raters should maintain a diary of employee performance Raters should attempt a performance diagnosis to determine if performance problems exist Raters should attempt a performance diagnosis to determine if performance problems exist

17 11-17 Exhibit 11.11: Tips on Appraising Employee Performance

18 11-18 Exhibit 11.11: Tips on Appraising Employee Performance (con’t)

19 11-19 EEO and Performance Evaluation 1 1 Provide specific written instructions on how to complete appraisal 2 2 Incorporate clear criteria for evaluating performance - Performance dimensions should be written, objective, and clear 3 3 Provide a rational foundation for personnel decisions via adequately developed job descriptions 4 4 Require supervisors to provide feedback about appraisal results to employees 5 5 Incorporate a review of performance ratings by higher level supervisors 6 6 Consistent treatment across raters, regardless of race, color, religion, sex, and national origin should be evident Key Issues: Establishing a Performance Appraisal System

20 11-20 Tying Pay to Subjectively Appraised Performance How do we get employees to view raises as a reward for performance? Central issue involving merit pay

21 11-21 Provide equal increases to all employees regardless of performance Provide equal increases to all employees regardless of performance –General increase –Cost-of-living adjustments Pay increases based on a preset progression pattern based on seniority Pay increases based on a preset progression pattern based on seniority Pay Increase Guidelines with Low Motivational Impact

22 11-22 Requirements to Link Pay to Performance Define performance Define performance –Behaviors –Competencies –Traits Specify a continuum describing different levels from low to high on performance measure Specify a continuum describing different levels from low to high on performance measure Decide how much of a merit increase is given for different levels of performance Decide how much of a merit increase is given for different levels of performance

23 11-23 Exhibit 11.12: Performance-based Guidelines

24 11-24 Designing Merit Guidelines 1 1 What should the poorest performer be paid as an increase? 2 2 How much should average performers be paid as an increase? 3 3 How much should top performers be paid? 4 4 What should be the size of the percentage increase differential between different levels of performance? Four Questions...

25 11-25 Exhibit 11.14: Merit Pay Grid

26 11-26 Promotional Increases as a Pay-for- Performance Tool Promotion should be accompanied by a salary increase - 8 to 12% Promotion should be accompanied by a salary increase - 8 to 12% Characteristics of promotional pay increases Characteristics of promotional pay increases –Size of increment is approximately double a normal merit increase –Represent a reward to employees for commitment and exemplary performance


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