HRM Finals Tips

PERFORMANCE MANAGEMENT AND APPRAISAL

Why Performance Appraisals Needed?

1.) Most employers' base pay, promotion, and retention decisions on the employee’s appraisal.
2.) Performance management means continuously ensuring that each employee’s performance
makes sense in terms of the company’s overall goals.
3.) The appraisal lets the manager and subordinate develop a plan for correcting any deficiencies,
and to reinforce the subordinate’s strengths.
4.) Appraisals provide an opportunity to review the employee’s career plans in light of his or her
exhibited strengths and weaknesses.
5.) Appraisals enable the supervisor to identify if there is a training need, and the remedial steps
required.

How Performance Appraisal can be effective?

1. Graphic Rating Scale Method

- The supervisor rates each subordinate by circling or checking the score that best describes
the subordinate’s performance for each trait based on graphic rating scale, and totals the
ratings.

2. Alternation Ranking Method

- Employee’s behavior and performance are analyzed and used for evaluating overall
performance of an employee.
- Based on the performance and behavior of an employee, they are anchored as good, average,
or poor.

3. Critical Incident Method

- Supervisor keeps a log of positive and negative examples (critical incidents) of a
subordinate’s work-related behaviors.
 - Every 6 months or so, supervisor and subordinate meet to discuss the latter’s performance,
using the incidents as examples.
- The conclusion of this and similar studies is that compiling critical incidents as they occur
anchors the eventual appraisal in reality and thus improves appraisal outcomes.

4. Behaviorally Anchored Rating Scales (BARS)

- An appraisal method that aims at combining the benefits of narrative critical incidents and
quantified ratings by anchoring a quantified scale with specific narrative examples of good
and poor performance.
- Developing a BARS typically involves five steps:
1. Write critical incidents. Ask the job’s jobholders and/or supervisors to write specific
illustrations (critical incidents) of effective and ineffective performance on the job.
2. Develop performance dimensions. Have these people cluster the incidents into 5 or 10
performance dimensions, such as “salesmanship skills.”
3. Reallocate incidents. To verify these groupings, have another team who also knows
the job reallocate the original critical incidents to the cluster they think it fits best.
Retain a critical incident if most of this second team assigns it to the same cluster as did
the first.
4. Scale the incidents. This second group then rates the behavior described by the incident
as to how effectively or ineffectively it represents performance on the dimension.
5. Develop a final instrument. Choose about six or seven of the incidents as the
dimension’s behavioral anchors.41 Figure 9-8 illustrates a BARS, for a car salesperson.

5. Management by Objectives
- Manager to set specific measurable, organizationally relevant goals with each employee,
and then periodically discuss the latter’s progress toward these goals.
- The steps are:
1. Set the organization’s goals. Establish a company-wide plan for next year and set
goals.
2. Set departmental goals. Department heads and their superiors jointly set goals for their
departments.
3. Discuss departmental goals. Department heads discuss the department’s goals with
their subordinates and ask them to develop their own individual goals. They should ask,
“How could each employee help the department attain its goals?”
 4. Define expected results (set individual goals). Department heads and their subordinates
set short-term performance targets for each employee.
5. Conduct performance reviews. After a period, department heads compare each
employee’s actual and expected results.
6. Provide feedback. Department heads hold periodic performance review meetings with
subordinates. Here they discuss the subordinates’ performance and make any plans for
rectifying or continuing the person’s performance.

What are biases in Performance Appraisal?

1. First Impression (primacy effect): Raters form an overall impression about the rate on the
basis of some particluar characteristics of the ratee
identified by them. The identified qualities and features
may not provide adequate base for appraisal.

2. Halo Effect: The individual’s performance is completely appraised on the basis of a perceived
positive quality, feature or trait. In other words this is the tendency to rate a man
uniformly high or low in other traits if he is extra-ordinarily high or low in one
particular trait. If a worker has few absences, his supervisor might give him a
high rating in all other areas of work.

3. Horn Effect: The individual’s performance is completely appraised on the basis of a negative
quality or feature perceived. This results in an overall lower rating than may be
warranted. “He is not formally dressed up in the office. He may be casual at
work too!"

4. Excessive Stiffness or Lenience: Depending upon the raters own standards, values and
physical and mental makeup at the time of appraisal, ratees
may be rated very strictly or leniently. Some of the managers
are likely to take the line of least resistance and rate people
high, whereas others, by nature, believe in the tyranny of
exact assessment, considering more particularly the
drawbacks of the individual and thus making the assessment
excessively severe.
5. Personal Biases: The way a supervisor feels about each of the individuals working under him
- whether he likes or dislikes them - as a tremendous effect on the rating of
their performances. Personal Bias can stem from various sources as a result
of information obtained from colleagues, considerations of faith and
thinking, social and family background and so on.

ESTABLISHING STRATEGIC PAY PLANS

What are the factors in determining basic pay rates?

1. Aligning Total Rewards with Strategy

- The rewards should provide a clear pathway between each reward and specific business
goals.
- Many employers formulate a total rewards strategy to support their strategic aims. Total
rewards encompass traditional pay, incentives, and benefits, but also “rewards” such as more
challenging jobs (job design), career development, and recognition.

2. Equity and Its Impact on Pay Rates

- Managers use various means to address such equity issues. For example, they use salary
surveys (surveys of what other employers are paying) to monitor and maintain external
equity.
- They use job analysis and comparisons of each job (“job evaluation”) to maintain internal
equity. They use performance appraisal and incentive pay to maintain individual equity.
- They use communications, grievance mechanisms, and employees’ participation to help
ensure that employees view the pay process as procedural fair.

3. Union Influences on Compensation Decisions

- unions also negotiate other pay-related issues, including time off with pay, income security
(for those in industries with periodic layoffs), cost-of-living adjustments, and health care
benefits.
4. Pay Policies
- Managers need pay policies on a range of issues. One is whether to emphasize seniority or
performance.
- One disadvantage is that top performers may get the same raises as poor ones. Seniority-
based pay might seem to be a relic reserved for some government agencies and unionized
firms. However, one survey found that 60% of employees responding thought high-seniority
employees got the most pay. Only about 35% said their companies paid high performers
more.

What is Performance-Pay-Plan?
- Employees are paid depending on how they perform. This could also be referred to as a
compensation pay structure in some cases.
- Performance-based pay could also include other arrangements that involve base pay and
incentives based on performance.
- When employees are paid with commission, they get a percentage of the sales that they
generate for the company.
- In other cases, the employees may be paid based on how many units they produce or
perform in some other statistical category.

What is Competency-Based Plan?

- Whenever an employee is compensated in accordance with her or his type and level of obtained
skills that are applied in the workplace, it’s known as competency-based pay.
- This salary structure differs from paying employees based on their tenure or seniority levels,
and is common in fields that require professionals who have specialized knowledge.
- Competency-based pay has the advantage of being simple to structure and utilizes readily
accessible salary tables.
- One unique disadvantage of the salary structure is it can be difficult to alter during times of
economic hardship. Competency-based pay might also be known as skills-based and
knowledge-based pay.

**All Answers gathered frm HRM E-book**