STRATEGIC COMPENSATION

Seniority and Merit Based Pay

Role of Collective Bargaining..

Designed to: Negotiate labor contracts Provide grievance procedures

Led to:
Job control unionism

Collective bargaining units Union shops

What Determines Base Rates

What Are You Worth to Your Company? + Experience + Time in Occupation/ W/ Org + Performance/ Merit + SKAs + Potential

Seniority Pay
Designed to award job tenure

Set base pay with time- designated increases

Facilitates administration of pay Avoids perception of favoritism Poor fit with most competitive strategies

Merit Pay Plans

Pay increases based on performance as predetermined criteria Reward excellent effort or results Motivate future performance Helps retain valued employees

Elements of Merit Pay

Based on objective & subjective indicators of job performance
Periodic performance reviews

Realistic & attainable standards

Pay increases reflect performance

Choices of Performance Appraisal Plans

1.
2. 3. 4.

Trait systems
Comparison systems Behavioral systems Goal - oriented systems

Trait System Characteristics

Work quality Judgment

Appearance

Leadership responsibility

Dependability Decision-making ability Cooperation Initiative Creativity

Comparison Systems
Rates & ranks performance Pay raises based on ranking Types
Forced distribution Paired comparisons

Behavioral Systems
Critical-incident technique (CIT) Behaviorally-anchored rating scales (BARS) Behavioral observation scales (BOS)

Critical Incident Technique

It is a written description of a highly effective or highly ineffective performance. The evaluator keeps a journal of critical incidents for each individual being evaluated. Incidents to be recorded as soon as they happens.

Behaviorally-Anchored Rating Scales

BARS is a sophisticated method of evaluating employee performance based on employee behavior rather than attitudes or assumptions about motivation or potential. BARS is a difficult and time consuming scale to develop Based on 8 - 10 expected job behaviors

Sample of BARS
INTERPERSONAL SKILL DESCRIPTION: Develops and maintains a friendly rapport with others; demonstrates a sensitivity to their feelings; respects the dignity of others and responds with empathy to their own sense of self-worth. Ratings 1 and 2: Demonstrates the ability to get along well with subordinates, managers, and peers; strives to achieve work group objectives. Can express own ideas, thoughts, and feelings and considers the needs, ideas, and feelings of others. Ratings 3 and 4: Demonstrates the ability to apply factors of effective listening, on a one-to-one basis, such as displaying interest, not interrupting when another is speaking, and withholding judgments. Consistently provides honest (both positive and negative) feedback and provides constructive criticism when appropriate. Ratings 5 and 6: Demonstrates the ability to consistently consider and respond to the needs and ideas of others which encourages and stimulates further communication. Effectively listens in group or one-to-one situations involving distractions, stress, complex information, or when the person speaking is emotional/distraught. Creates/maintains a positive working environment that encourages expression of thoughts, ideas, and feelings.
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Behavioral Observation Scales

Documents positive performance behaviors on job dimensions
Employees rated on exhibited behaviors Ratings averaged for over-all rating

Goal - Oriented System

Management- by-Objectives Supervisors & employees set objectives Highly effective technique Rated on how well objectives are met Mainly for professionals & managers

Essential Steps for MBO

Set Goals
The most difficult step Concrete Specific target and timeframe Assign responsibility

Develop Action Plan

Course of action For both workgroups and individuals

Review Progress
Periodic Course corrections

Appraise Overall Performance

How are we doing? Do we need to restate our goals?

Performance Appraisal Practices

Conduct a job analysis

Incorporate results into ratings

Trains supervisors on use Give the employee fair notice about when the review is to take place. Ask the employee to think and evaluate his or her own performance prior to the review session. Prepare for the review by examining information and seek additional information if needed. Begin the session on a positive tone to set the employee at ease. Explain the format of the performance review session. Implement Formal appeals process by incorporating in compensation plans

Sources of Performance Appraisal Information

Employee Supervisor

Coworkers
Subordinates Customers/clients

360 Degree Performance Appraisal

Uses more than one appraisal source Reduces recruiting & hiring costs Appropriate for work team evaluations

Common Raters Errors

1. 2. 3. 4. 5. 6. 7. 8. Bias Error Halo Effect Stereotyping Attributions Recency Effects Leniency/Strictness Errors Central Tendency Errors Contrast Errors

Bias

Errors

First-impression effect Positive halo effect Negative halo effect Similar-to-me effect Illegal discriminatory biases

Halo Effect
The halo effect occurs when the rater allows one trait or characteristic either positive or negative of the employee to override a realistic appraisal of other traits or characteristics.

Stereotyping
Stereotyping occurs when the rater places an employee into a class or category based on one or a few traits or characteristics. For example an old worker may be stereotyped as being slower, more difficult to train and unwilling to learn approaches.

Attributions
Another perceptual error that can effect the validity of the performance appraisal involves the attributions the rater makes about employee behavior. Making an attribution means to assign causation for another's behavior. For example attribute an employees good performance to external or internal causes such as luck. Holding an easy job, or receiving help from co workers.

Recency Effects
Recency errors occur when performance is evaluated based on performance information that occurred most recently. Recency errors are most likely to occur when there is a long period of time between performance evaluations (such as a year).

Leniency/Strictness Error
These errors occurs when the rater tends to use one of the extremes of a rating scale. In Leniency most of the employees receive very favorable ratings. Strictness error occurs when the rater erroneously evaluates most employees unfavorably as raters simply wants to appear tough or they may have unrealistic expectations of performance.

Central Tendency Errors

Central tendency error occurs when the rater avoids the extremes of the performance scale and evaluates most employees somewhere near the middle of the scale. This error results in most employees being rated as Average.

Contrast Errors
Supervisor compares employees performances to other employees, not to explicit performance standards
What if the best employee is average?

Limitations of Merit Pay Programs

Failure to differentiate Poor measures Supervisor biases Poor communication Undesirable social structures Using non-merit factors Undesirable competition Motivational value small

Competitive Strategies
Lowest-Cost
Reduce output costs per employee Merit pay works if tied to long term productivity

Differentiation
Make product or service unique Merit pay can promote creativity and risk-taking