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Measuring & Paying For

Performance

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Measuring & Paying For Performance Employees are firms most important

resource but also most difficult to manage. Managers need to create a workplace that

motivates employees and allows them to perform at their best.

Trust, clear and fair policies, effective communication & performance evaluation methodology are key factors impacting employee motivation and organizational productivity.

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Measuring & Paying For Performance Managers know that simply paying more to

employees will not result in increased output and improved quality.

Sometime highly paid or overpaid employees are less productive.

Organizations realized to change from “ I owed it” to “ I earned it” mentality.

Fixed part of compensation reduced and variable part increased through short term / long term incentives.

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Measuring & Paying For Performance

In the knowledge based work environment, compensation linking performance , behaviour & contributions to the organization desired results is based on pay for performance concept .

Performance management system involves a clear understanding of job requirements and job expectations between those doing rating and those being rated.

Performance appraisal is formal process of identification and measurement of employee contributions and workplace behaviours during a specified period. It provides opportunity to employee and his supervisor to provide feedback each other on performance related issues

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Barriers to Pay For Performance

The work of individual employee vary from day to day. Difficulty in observing complete work cycle. Specific situation related work assignments, may be

weekly, monthly, quarterly. The required time period to perform an assignment

may not be indicator of the importance relative to other assignments within the job or of knowledge & skills.

The completion of a job assigned to an employee may be dependant on other employees contributions, cooperation or involvement.

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Motivation Theories- Content Theories

Content Theories of Motivation.(Focus on needs, individual attempts to satisfy through different actions & behaviours) Murray’s Manifest needs theory.(Needs to be satisfied which drives

behaviour) Maslow’s Hierarchy of needs.(psyclogical, safety/security,

belongingness, esteem, self actualization) Herzberg’s 2-factors need theory.(Devides Maslow theory needs into

Hygiene needs and motivator factors) McCelland’s four modes for success. (Autonomy, affiliation,

achievement & power) Alderfer’s 3-level Hierarchy. (Existence, Relatedness, Growth) No one model actually or completely describes why people behave

the way they do. Within each model is a seed that assists in explaining and

promoting understanding of human behaviour

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Motivation Theories- Process Theories

Process Theories. (Motivation is a process not a thing).

Festinger’s Cognitive difference( ingrained vs Operational values – Behaviour that adjust intellectual and emotional imbalance)

Adam’s Equity theory. (Rewards per contributions indicate equality or inequality and behaviours adjustment.

Vroom’s Expectancy theory.(actual vs perceived- efforts, performance, results, rewards)

Lock’s Goal achievement theory. (understanding requirements, setting goals, appreciating difficulties in process, quality of behaviour to achieve goals).

Rend’s Intellectual theory. ( Think, conceptualize, reason, focus, behave).

Skinner’sOperant conditioning ( learn & identify problems, reinforce schedule and behave per requirements, receive consequences, repeat/ modify / terminate that behaviour.)

Dunnett’s Disequilibrium Model ( Inner state of disequilibrium, need, desire, expectancy, anticipation, behaviour, Goals, incentives, modification of inner state)

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Content theories –research & application

Following up Maslow & Herzberg’s work, R. Decharmis

& E.L.Deci claimed that: Pay for performance could reduce employee motivation and

block improved performance. Intrinsic potential to motivate performance may actually yield

lower task motivation when an extrinsic reward is offered for task performed.

If a pay or incentive program does not have strong relationship with work performed, behaviour demonstrated and results achieved, pay or money can act as demotivator.

There are satisfying & dissatisfying job factors. Under pay for performance concept all jobs are to be completed properly.

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Content theories –research & application

Another Scholar, Emest.j.McConmic stated that missing element from Herzberg’s theory is : Systematic analysis of relationship between specific job

and job characteristics , job satisfaction and difference of individual interests .

Edward Lawler found that highly paid managers have more security and esteem needs than lower paid managers. He recognized that every part of management & human resources system must interact in a positive and dynamic manner otherwise the reward system will have minimum impact on employee behaviour.

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Process theories –research & application

Process theories expand on Content theories by describing how motivation process works.

Reward system designers have found process theories more helpful and useful than content theories.

The greater acceptance of process theories is due to recognition of motivation as process with identifiable and potentially observe able parts.

Process theories provide information on how to develop each part and how to review the results of each part of the process.

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Process theories –research & application

The expectancy theory developed by Victor H Vroom, on the basis of process theories, have received more acceptance from researchers.

{Expectancy Theory provides three guidelines for designing incentives: Need to identify certain desired actions. Need to relate specific outcomes to the demonstration of

certain actions. Need to provide consequences within established

schedules.

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Process theories –research & application

Operant Conditioning theory developed by B.F.Skinner states that behaviour depends on it’s consequences. The environment shapes, changes and directs behaviour.Other behavuoral scientists following Skinner developed reinforcement theory , which provides three views of human behaviour: Individuals take no active role in in shaping their own

behaviour, they are merely agents responding to outside forces.

Concepts of needs, drives or goal directed behaviour is unacceptable because of the ability to observe, identify and measure these forces.

Permanent change in individual behaviour results from reinforcement of a particular behaviour.

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Process theories –research & application

Four reinforcement approaches, used to encourage and achieve desired behaviour are Positive reinforcement, Punishments, Negative reinforcement and extinction .

Positive reinforcement --praise, attention, recognition, incentives, rewards etc.

A reward will have more motivational influence when the employee recognized direct relationship between activity performed, result achieved and reward gained.

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Scientific Management Designed by Fredrick Taylor Assumes all people are motivated by

economic means Based on 4 principles

Develop a scientific approach to each job element Scientifically select, train, teach, & develop

employees Encourage cooperation between workers &

managers Divide work among workers & managers based

on who is best suited for it

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Maslow’s Hierarchy of Needs

Based on universal human needs Individuals act to meet their unmet needs Managers try to create workplace that will

increase the likelihood that employees will meet all of their needs

If appealing to an already met need, it’s hard to motivate an employee

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Maslow’s Hierarchy of Needs

Physiological needs

Safety needs

Social needs

Esteem needs

Self-actualization

needs

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Herzberg’s Motivator-Hygiene Theory

“What do people really want from their work experience?” Motivating factors create job satisfaction Hygiene factors create job dissatisfaction

Proper management of hygiene factors can prevent dissatisfaction but cannot provide motivation

Management needs to focus on job satisfiers

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Expectancy Theory

How motivated an employee is depends on The link between effort & performance The link between performance & outcome The link between outcomes & individual needs

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Equity Theory Based on employees’ perception of how fairly

they are being treated and the rewards they are receiving

Outcomes-to-inputs ratio is compared to Past experience within the company Past experience outside the company Others experience within the company Others experience outside the company

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Equity Theory

Upward social comparison: comparing oneself to another who is better off on a particular attribute

frequently results in decreased satisfaction

Downward social comparison: comparing oneself to another who is worse off on a particular attribute

frequently results in increased satisfaction

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Equity Theory

If employees perceive an inequity they will take action

Managers need to understand employees’ perceptions and reduce concerns of inequity

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Goal Setting Theory

Working toward a goal is primary source of motivation

3 components Specific goals Difficult goals Feedback

Allow employees to participate in goal setting process

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Using Incentives. Compensation components

can not satisfy all needs of employees.

To reinforce the compensation program, the organizations introduce additional rewards to motive employees for higher level of performance.

Incentives are individual, Team & situations related not fixed.

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Merit Pay

A pay increase related to employee performance but not guaranteed in all cases.

The actual amount of merit pay may be different from employee to employee, grade to grade.

Critical for employee motivation as well as for organizations.

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Performance Appraisals –Issues & Opportunities A formal process to measure and rate individual employees

performance & work behaviour & to encourage them to perform at their best.

The measurement of performance is a complex & critical assignment.

Government regulations regarding performance evaluation. If performance appraisal system is not effective , it can

negatively impact management employees relationship and may harm organizational plans / objectives.

Performance appraisals is an extremely touchy issue & have a strong dissatisfaction component.

360 degree feedback? Monitoring performance appraisal ratings to develop an

understanding of organizational issues / needs for action.

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Performance Appraisals –Issues & Opportunities

Rating Errors: Halo Effect. (Rating employee excellent in one quality) Horn Effect. (Rating employee not good in one quality) Central Tendency. (Rating at average / midpoint) Strict Rating. (Rating consistently lower than normal) Lenient Rating.( Rating consistently higher than normal) Latest behaviour. (Rating influenced by recent act) Initial Impression. ( rating based on first impression) Spillover Effect. (Past appraisals impact on rating) Status Effect. ( Rating considering level of employee) Same as me. (Rating for matching qualities with rater) Different from me. ( Rating for difference with rater) Performance dimensions order.( follow rating pattern)

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Designing A Job Contents Based Appraisal Program. Setting SMART objectives / Goals setting. Performance standards, dimensions &

weight. Rating scales / performance evaluation

criteria. Performance feedback documentation

process and timeline. Performance evaluation review & approval

steps.

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