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Measuring and PayingFor Performance

Increasing organizational productivity is one of the hottest current topics in executive suites.

Managers discovered that simply paying employees more will not result in increased output and improved quality.

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Measuring and PayingFor Performance

The strong economy of the 50's and 60's and the high inflation of the 70's and early 80's helped establish the expectation among workers that their pay and benefits would be increased, as needed, to keep pace with the changes in the cost of living.

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Measuring and PayingFor Performance

These adjustments were, more often than not, granted without consideration to individual performance or organizational productivity.

What emerged was a mind-set of job and pay entitlement.

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Measuring and PayingFor Performance

All of which has come to an end with the current wave of restructuring and downsizing activities that are so prevalent on the economic landscape.

Employees understand that the days of job ownership and entitlement have ended.

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Measuring and PayingFor Performance

Organizations began to realize that if they were to become more competitive, they would have to change this mindset of ”I’m owed it" to ”I’ve earned it".

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Measuring and PayingFor Performance

The result has been a movement toward more incentives and awards linked directly to desired employee behaviors, contributions, or results.

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Measuring and PayingFor Performance

More specifically the outcome has been an increase in variable compensation components and a decrease in fixed components.

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Pay-For-Performance In A Knowledge Oriented Service Sector Economy

The Knowledge Directed Worker

The shift from manufacturing (low data retention) jobs to knowledge directed service (high data retention) jobs has introduced more complexity and created barriers to traditional job analysis and performance measurement.

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Pay-for-performance In A Knowledge Oriented Service

Sector Economy

These barriers limit the use of industrial engineering motion and time practices for designing pay-for-performance programs for the knowledge-directed worker.

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Motivation Theories

Over the years many scholars and researchers have made contributions to understanding why people behave the way they do.

Those involved in designing reward systems or pay-for-performance programs also want to understand more about human behavior.

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Motivation Theories

Content Theories Of Motivation Focus' in on the needs individuals attempt

to satisfy through various kinds of actions or behavior. This theory relates to a basic definition of motivation - activities undertaken to satisfy a need.

Another meaning of motivation is the inducement or incentive to action.

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Motivation Theories

Intrinsic Motivator

Those drives generated from within the individual. Self-esteem and increased responsibility coming from a well designed job are intrinsic motivators.

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Motivation Theories

Extrinsic Motivator

Comes from outside the individual. Pay that comes from the organization and the pat on the back from a supervisor in recognition of a job well done are examples of extrinsic motivation.

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Popular Content Theories

Maslow

Placed needs in five levels and developed the proposition that lower level needs must be reasonably satisfied before a person attempts to satisfy the higher order needs.

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Popular Content Theories

Herzberg

Repackaged Maslow into the concepts of “hygiene” factors and “motivators”.

The two factor theory of motivation identified the intrinsic and extrinsic motivator.

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Popular Content Theories

Herzberg

Major distinction between hygiene and motivator is "length of time" the particular factor continues to drive behavior.

• Pay for instance has a short life of not more than 30 days.

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Popular Content Theories

De Charms and Deci Claimed that pay-for-performance could

reduce employee motivation and block improved performance.

A pay incentive program without a strong relationship to the work performed, behaviors demonstrated, and results achieved can act as a demotivator.

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Process Theory Of Motivation

Expand on the content theories by describing how the motivational process works.

Recognition of motivation as a process with identifiable and potentially observable parts.

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Popular Process Theories

Vroom Expectancy Theory

Represents ideas or thoughts an individual develops about the consequences that may result from a certain action.

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Popular Process Theories

Skinners Operant Conditioning Theory

Operant behavior depends on its consequences and the influence the environment has in shaping, changing, and directing behavior. (Positive reinforcement, punishment, negative reinforcement, and extinction).

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Lessons From Process Theories

Pay-for-performance will be more effective when the employee recognizes a direct effect relationship between activities performed, results achieved, and rewards gained.

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Lessons From Process Theories

Motivational value increases when the timing of the delivery of the rewards closely approximates the demonstration of behavior, the completion of an assignment, or the achievement of the result.

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Using Incentives

When properly designed and administered, incentive programs can relate to an entirely different set of employee behavior factors than do wages and salaries.

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Using Incentives

Incentives can provide all kinds of recognition...They act as the "gold star", the carrot, the pat on the back...They communicate the message, "we recognize what you have done", "thank you".

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Team-Based Pay

To support acceptable team operations, a new kind of performance related pay system has emerged.

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Team-Based Pay

This pay system has been given a wide variety of titles, but the three basic titles that appear to be the most applicable are:

• Skill-based pay• Pay-for-knowledge• Pay-for-mastery

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Merit Pay

An adjustment to base pay that relates directly to employee performance.

It has evolved over time in most organizations into a an annual pay raise to literally every employee in the organization.

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Merit Pay

E. E. Lawler promoted the idea that merit pay is a terrible way to increase productivity.

• He observed that the difference in merit pay between the outstanding and poor performers is so small that there is no incentive value at all.

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Merit Pay

Teel disagreed stating that over the long haul a significant difference did surface.

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Performance AppraisalIssues and Opportunities

A formal process, normally conducted by means of completing an instrument that identifies and documents a job holders contributions and workplace behaviors, it occurs constantly in every organization (formally or otherwise).

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Performance AppraisalIssues And Opportunities

When appraisal is done poorly, or even done under unsatisfactory operating conditions, it may lead to increased employee anxiety and hostility, and eventually to poor use of both human and non-human resources, increased costs, and declining productivity.

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Performance AppraisalIssues And Opportunities

While performance appraisal data and information is useful in a number of areas our focus in this chapter is compensation administration.

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Performance Appraisal and Court Rulings

There is a strong correlation between job evaluation, performance measurement, and EEO requirements.

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Performance Appraisal and Court Rulings

The EEOC and the courts recognize the impact that the appraisal process has on employment opportunities

And the possibility of inherent bias in many parts of the process.

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Performance Appraisal andCourt Rulings

Griggs Vs Duke Power

• Landmark case - established disparate impact theory--personnel policies and practices that are neutral on their face can have an adverse impact on protected groups.

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Performance Appraisal andCourt Rulings

Griggs Vs Duke Power

• Measuring and rating performance based on the unique job requirements of each incumbent is a significant first step in complying with the court requirements set forth in Griggs.

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Performance Appraisal andCourt Rulings

Rowe Vs General Motors

• Supervisory recommendations based on subjective and vague standards -

• Inadequate performance appraisal processes led court to conclude that discriminatory practices were present.

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Performance AppraisalEEOC and the Courts

Guidelines and Requirements

Performance rating methods must be job related or validated.

Content or performance rating methods must be based on through job analysis.

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Performance AppraisalEEOC and the Courts

Raters must have been able consistently to observe ratees’ perform their assignments.

Raters must use the same rating criteria, and ratings must be scored under standardized conditions.

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Performance AppraisalEEOC and the Courts

Criteria used for appraising performance must not unfairly depress the scores of minority groups.

Appraisal forms and instructions to raters are an essential part of the process and require validation.

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Performance AppraisalEEOC and the Courts

Criteria such as regularity of attendance, tenure, and training time are usually not considered part of actual work proficiency.

Because they are frequently used as a performance appraisal criteria, they require validation evidence.

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Performance AppraisalEEOC and the Courts

For performance predictors to be acceptable to the EEOC and the federal courts, they must be valid and reliable.

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A Cost Effectiveness Analysis

Performance appraisal is a labor intense activity and it contains a strong dissatisfaction component because in some manner pay adjustments, short and long term incentives, and promotions are tied to the ratings.

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A Cost Effectiveness Analysis

Because of the problems involved, organizations implementing a formal performance appraisal program must make some hard decisions regarding the use to be made of the outputs.

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The responsibilities and duties of the job definition become transformed into performance dimensions and rating items.

After establishing performance dimensions, rating scales can be designed for each rating item.

Designing a Job Content-Based Program

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Designing a Job Content-Based Program

During the rating period, the supervisor documents observed behaviors and achieved results to support a selected rating score.

Finally, all rating scores are entered into a computerized database, permitting the parties involved to analyze rating scores from a variety of critical perspectives.

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Performance Dimensions

Those qualities or features of a job or the activities (10 to 15) that take place at a work site that are conducive to measurement.

There must be sufficient dimensions to cover the most important aspects of the job.

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Performance Dimensions

Dimensions must not be included that would result in contamination.

Dimensions must be weighted to minimize distortion.

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Rating Scale Design

The desired strength of all rating scale techniques are that they:

• Are easy to administer• Translate into quantitative terms • Permit standardization• Relate to rating items

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Performance Standards

Criterion...Gauge...Yardstick... Used to measure an employee's performance.

A performance standard may measure a defined part or the total job and are useful only when they are commonly understood and voluntarily acknowledged and accepted.

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Performance Standards

They Must Be: Valid.... Measurable... Challenging...

Realistic Differentiating... Timely... Observable

They Must Provide: A mandatory guideline for work output or

a minimum acceptable level of employee behavior.

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Performance Appraisals Documenting

There are at least three kind of acceptable documentation:

• Critical incidents• On-going demonstrated behaviors• Results obtained

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Performance AppraisalsOther Issues

Raters other than the immediate supervisor (peers - subordinates - customers)

Rater error and rater training (halo effect-horn effect - central tendency-strict/lenient - latest behavior)

Monitoring of performance appraisal ratings