Measuring and Paying
For 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.

1
Measuring and Paying
For 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.
2
Measuring and Paying
For 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.
3
Measuring and Paying
For 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.
4
Measuring and Paying
For 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".
5
Measuring and Paying
For Performance

The result has been a
movement toward more
incentives and awards linked
directly to desired employee
behaviors, contributions, or
results.
6
Measuring and Paying
For Performance

More specifically the outcome
has been an increase in variable
compensation components and
a decrease in fixed
components.
7
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.
8
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.
9
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.
10
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.
11
Motivation Theories
Intrinsic Motivator

Those drives generated from
within the individual. Selfesteem and increased
responsibility coming from a
well designed job are intrinsic
motivators.
12
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.
13
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.
14
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.
15
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.
16
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.
17
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.
18
Popular Process Theories
Vroom Expectancy Theory

Represents ideas or thoughts an
individual develops about the
consequences that may result
from a certain action.
19
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).
20
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.
21
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.
22
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.
23
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".
24
Team-Based Pay

To support acceptable team
operations, a new kind of
performance related pay system
has emerged.
25
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
26
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.
27
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.
28
Merit Pay

Teel disagreed stating that
over the long haul a significant
difference did surface.
29
Performance Appraisal
Issues 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).
30
Performance Appraisal
Issues 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 nonhuman resources, increased
costs, and declining productivity.
31
Performance Appraisal
Issues And Opportunities

While performance appraisal
data and information is useful
in a number of areas our focus
in this chapter is compensation
administration.
32
Performance Appraisal and
Court Rulings

There is a strong correlation
between job evaluation,
performance measurement,
and EEO requirements.
33
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.
34
Performance Appraisal and
Court 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.
35
Performance Appraisal and
Court 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.
36
Performance Appraisal and
Court 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.
37
Performance Appraisal
EEOC 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.
38
Performance Appraisal
EEOC 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.
39
Performance Appraisal
EEOC 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.
40
Performance Appraisal
EEOC 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.
41
Performance Appraisal
EEOC and the Courts

For performance predictors to
be acceptable to the EEOC and
the federal courts, they must be
valid and reliable.
42
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.
43
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.
44
Designing a Job Content-Based
Program


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.
45
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.
46
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.
47
Performance Dimensions


Dimensions must not be included
that would result in contamination.
Dimensions must be weighted to
minimize distortion.
48
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
49
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.
50
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.
51
Performance Appraisals
Documenting

There are at least three kind of
acceptable documentation:
• Critical incidents
• On-going demonstrated behaviors
• Results obtained
52
Performance Appraisals
Other 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
53