1. Chapter 3: Merit Pay MGT 4543 Compensation Management

2. Seniority Pay Questions Describe seniority pay. Explain the rationale behind seniority pay (human capital theory).

3. Seniority Pay Questions Seniority pay is common in what types of organizations? What are advantages and disadvantages of seniority pay?

4. Seniority Pay Questions In your opinion, does seniority pay fit with competitive strategies? Why or why not?

5. Merit Pay Questions What is the purpose of merit pay? How does it fit with cultural values in the U.S.?

6. Exploring elements of merit pay In order for merit pay programs to succeed, employees must know _____________________________________. What is a just-meaningful pay increase? What are potential problems with merit pay for --- sales professionals? --- production workers?

7. Practice applying expectancy theory Write down an example of each: – A time when you tried very hard to accomplish something but felt your effort didn’t make a difference in your performance. – An employment situation in which you had good performance but received no reward – When you knew a reward was being offered but the type of reward didn’t motivate you How did you feel in these situations?

8. Why do merit pay systems work? Expectancy theory… Valence Expectancy Instrumentality Effort Performance Outcomes

9. What’s the take away from expectancy theory? Employees need to believe that 1.their level of _________ makes a difference in their ___________ 2.that _____________ will be rewarded 3.they will receive ____________ outcomes for their hard work

10. Performance Appraisal Explain Management by Objectives (MBO).

11. Making merit pay work 1)Job analysis 2)Performance appraisals that use info from job analysis 3)Train supervisors to do performance appraisals 4)Have an appeals process (justice theory)

12. Rater errors Describe the following errors in the performance appraisal process: – Bias – First impression effect – Positive halo effect – Negative halo effect (horn) – Similar-to-me effect

13. Rater errors Describe the following errors in the performance appraisal process: – Contrast errors – Central tendency error – Leniency error – Strictness error

14. Examples - - practice identifying rater errors Sarah works in medical records and has very high performance. Her manager gives most employees average ratings. What type of error has he made? Processing speed Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Accuracy of entries Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Correct use of medical terminology Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5

15. Examples - - practice identifying rater errors Jayden is a high performing welder. However, his manager gives him and most other workers low ratings. What type of error has been made? Promptness Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Quality of welds Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Adherence to safety standards Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5

16. Examples - - practice identifying rater errors Al is a computer technician who is generally a low performer. His manager Eva has given him the following ratings. What type of error has she made? Response time for claims Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Ability to explain problem to system users Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5 Up-to-date knowledge Poor Average Excellent 1 --------- 2 ----------- 3 ------------ 4 ------------ 5

17. Examples - - practice identifying rater errors Keisha has been a top-performing salesperson every quarter. In fact, she leads the company in sales. You feel very fortunate to have her in your department. You don’t mind overlooking minor things like her showing up late to meetings, turning in reports late, and not “playing well” with others.

18. Examples - - practice identifying rater errors Charles tends to do an average job (at best) of covering his sales territory. However, his manager has given him the following performance ratings.

19. Examples - - practice identifying rater errors Evan works on your team as the IT specialist. He generally seems to have woken up on the wrong side of the bed and is often the source of your headaches. On the other hand, he’s very knowledgeable about software development and implementation. However, it’s likely that his negative attitude affects all aspects of his work.

20. Possible limitations of merit pay programs & your own thoughts; think back to the merit pay activity. Explain why performance appraisals are important to effective merit pay systems. How might poor performance appraisals cause a problem in merit pay systems?