Chapter 7
Rewards and Performance
Management
What gets measured
happens
Chapter 7 study questions
What is the link between motivation and
rewards?
What is performance management?
What are common performance appraisal
alternatives?
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Figure 7.1
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What is the link between
motivation and rewards?
• Intrinsic rewards
– positively valued work outcomes that the
individual receives directly as a result of task
performance
• Extrinsic rewards
– positively valued work outcomes that are given
to an individual or group by some other person
or source in the work setting
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What is the link between
motivation and rewards?
• Merit pay
– compensation system that directly ties an
individual’s salary or wage increase to
measures of performance accomplishments
during a specific time period
– should create a belief among employees that
the way to achieve high pay is to perform at
high levels
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What is the link between
motivation and rewards?
• Gain sharing
– gives workers the opportunity to earn more by
receiving shares of any productivity gains that
they help to create
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What is the link between
motivation and rewards?
• Profit-sharing plans
– reward employees based on overall
organizational profit
• Criticism is that organizational profits are
not always a direct result of employees’
efforts
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What is the link between
motivation and rewards?
• Employee stock ownership plans
(ESOPs)
– may give stock to employees, or allow stock to
be purchased by them at a price below market
value
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What is the link between
motivation and rewards?
• Bonuses
– the awarding of cash bonuses, or extra pay for
performance that meets certain benchmarks or
that is above expectations
– common practice for many employers
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What is the link between
motivation and rewards?
• Lump-sum increase
– allows someone to elect the option of receiving
all of an annual increase in one or more lumpsum payments
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What is the link between
motivation and rewards?
• Skill-based pay
– rewards people for acquiring and developing
job relevant skills
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What is the link between
motivation and rewards?
• Pay as benefits
– Fringe benefits often add 10 to 40 % to a
person’s salary
• Flexible benefit plans
– allow workers to select benefits according to
needs
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Figure 7.2
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What is performance
management?
• Performance management
– process of managing performance
measurement and the various human resource
management decisions and actions based on
such measurement
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What is performance
management?
Steps in performance management
1. Identify and set clear and measurable
performance goals
2. Take performance measurements to
monitor goal progress
3. Provide feedback and coaching on
performance results
4. Use performance assessment for human
resource management decisions
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What is performance
management?
• From an evaluative perspective,
performance measurement lets people
know where they stand relative to
objectives and standards
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What is performance
management?
• From a counseling perspective,
performance measurement facilitates
decisions relating to planning for and
gaining commitment to the continued
training and personal development of
workers
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What is performance
management?
Performance Measurement Criteria and
Standards
• Output measures
– assess actual work results
• Activity measures
– assess work efforts or inputs
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What are common performance
appraisal alternatives?
• Performance appraisal
– formal procedure for measuring and
documenting a person’s work performance
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What are common performance
appraisal alternatives?
• Comparative methods of performance
appraisal
– Ranking
• Raters rank order people from best to worst
– Paired comparisons
• Raters compare each person with every other
person
– Forced distribution
• Raters place a specific proportion of employees into
each performance category
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What are common performance
appraisal alternatives?
• Absolute methods of performance appraisal
– Graphic rating scales
• Raters assign scores on a list of dimensions related
to high performance outcomes in a given job
– Critical incident diary records
• Rater records incidents of unusual success or failure
in a given performance aspect
– Behaviorally anchored rating scales (BARS)
• Rater identifies observable job behaviors
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Figure 7.3
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Figure 7.4
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What are common performance
appraisal alternatives?
• Self evaluation
– individual rates himself or herself
• Peer evaluations
– persons in the work team or doing similar jobs
rate the individual as a co-worker
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What are common performance
appraisal alternatives?
• 360° Evaluation
– using not only the evaluations of bosses, peers,
and subordinates, but also self-ratings,
customer ratings, and ratings by others with
whom the ratee deals outside the immediate
work unit
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What are common performance
appraisal alternatives?
Group Performance Evaluation System
• Link the team’s results to organizational goals
• Start with the team’s customers and the team
work process needed to satisfy those needs:
customer requirements, delivery and quality,
waste and cycle time
• Evaluate team and each individual member’s
performance
• Train the team to develop its own measures
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What are common performance
appraisal alternatives?
• To be meaningful, an appraisal system must
be:
– Reliable - provide consistent results across
time
– Valid - actually measure people on relevant job
content
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What are common performance
appraisal alternatives?
• Measurement errors in performance
appraisal
– Halo errors
• Raters evaluate on several different dimensions and
give a similar rating for each dimension
– Leniency errors
• Raters tend to give everyone relatively high ratings
– Strictness errors
• Raters tend to give everyone relatively low ratings
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What are common performance
appraisal alternatives?
• Measurement errors in performance
appraisal
– Central tendency errors
• Raters lump everyone together around the average
or middle
– Low differentiation errors
• Raters restrict themselves to a small part of the
rating scale
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What are common performance
appraisal alternatives?
• Measurement errors in performance
appraisal
– Recency errors
• Raters allow recent events to exercise undue
influence on ratings
– Personal bias errors
• Raters let personal biases, such as stereotypes,
unduly influence the ratings
– Cultural bias errors
• Raters allow cultural differences of employees to
influence the performance appraisal
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What are common performance
appraisal alternatives?
Steps for improving performance appraisals
1. Train raters to understand the evaluation
process and recognize errors
2. Ensure that raters observe ratees on an
ongoing basis
3. Do not have the rater evaluate too many
ratees
4. Make sure that the performance dimensions
and standards are stated clearly
5. Avoiding terms that have different meanings
for different raters
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