Module 5

Appraising and
Rewarding
Human
Resources
PART I APPRAISING HUMAN RESOURCES
Human Resource Management
Process
THE HRM FUNCTIONS
Learning Outcomes
1. Described the purpose of
performance appraisal in
organization and common methods
of performance evaluation .
2. Identified performance appraisal
process and the general factors
involving performance appraisal.
The Motivation Function

Components of the motivation

function include:
Performance Appraisals
Rewards and compensation
Employees Benefits
Introduction
 Employees generally see performance
evaluations as having a direct effect on
their work lives.
 May lead to increased pay, a
promotion, warning about sub-standard
performance, or assistance in
personal development areas for which
the employee needs some training.
Performance Management
 Performance Management is the
process through which managers
ensure that employees’ activities and
outputs are congruent with
organizational goals.
Purposes of Performance
Management
1) Strategic Purpose
 A performance management system
(PMS) should link employee activities
with the organization's goals.
 One of the most important uses for
PMS is to help motivate and reward
employees for effective performance.
Purposes of Performance
Management
2) Administrative Purpose
 Organizations use performance
management information
(performance appraisals) in many
administrative decisions: salary
administration (pay raises),
promotions, retention–termination,
layoffs, and recognition of individual
performance.
Purposes of Performance
Management
3) Developmental Purpose
 Performance management can be
used to develop employees who are
ineffective at their jobs.
 When employees are not performing
as well as they should, performance
management seeks to improve their
performance.
Purposes of Performance
Management
3) Developmental Purpose
 The feedback given during a
performance evaluation process often
pinpoints the employee’s weaknesses
and should be received on a day-to-
day basis as well as during the formal
annual performance review.
Performance Appraisal
 Performance Appraisal is the process
through which an organization gets
information on how well an employee
is doing his or her job.
 The appraisal process evaluates
employee performance by measuring
progress toward goals
1 Establish performance standards with employees.

2 Communicate expectations.

3 Measure actual performance

4
Compare actual performance with standards.

5 Discuss the appraisal with the employee

6 If necessary, initiate corrective action.

The Appraisal Process
1. Establishment of performance
standards
Derived from company’s strategic
goals.
Based on job analysis and job
description.
The Appraisal Process
1. Establishment of performance
standards
These performance standards
should also be clear and objective
enough to be understood and
measured.
The Appraisal Process
2. Communicate expectations
Once the performance standards are
established, it is necessary to
communicate these expectations;
employees should not have to guess
what is expected of them.
The Appraisal Process
3. Measure Actual Performance
Four common sources of information
frequently used by managers address how
to measure actual performance:
1. personal observation
2. statistical reports
3. oral reports
4. written reports
The Appraisal Process
3. Measure Actual Performance
Selecting the wrong criteria can produce
serious, dysfunctional consequences.
The criteria we measure must represent
performance as it was mutually set in the
first two steps of the appraisal process.
The Appraisal Process
4. Comparison of actual performance
with standards.
 This step notes deviation between
standard performance and actual
performance.
 The performance appraisal form should
include a list and explanation of the
performance standards.
The Appraisal Process
4. Comparison of actual performance
with standards.
 It should also include an explanation of
the different levels of performance and
their degree of acceptability against
performance standard.
 This provides a valuable feedback tool
as the manager moves on the next step,
discussing the appraisal.
The Appraisal Process
5. Discussion of appraisal with employee.
 The impression that employees receive
about their assessment has a strong impact
on their self-esteem and, importantly, on their
subsequent performance.
 The appraisal discussion can have negative
as well as positive motivational
consequences.
Performance Feedback
 Performance Feedback provides
employees information regarding their
performance effectiveness.
The Appraisal Process
6. Initiate Corrective Action if
Necessary
Two types of corrective action:
1. Immediate action
2. Basic corrective action
The Appraisal Process
Two types of corrective action:
1. Immediate action deals with
symptoms.
 Often described as “putting out
fires”
 It corrects problems such as
mistakes in procedures and faulty
training and gets the employee
back on the track right away.
The Appraisal Process
2. Basic corrective action deals with
causes.
 Touches the sources of deviation and
seeks to adjust the difference
permanently
 Asks why and how performance deviated
from the expected performance standard
and provides training or employee
development activities to improve
performance.
Appraisal Methods
Three approaches:
Absolute standards
Relative standards
Objectives
Appraisal Methods
Evaluating absolute standards:
An employee’s performance is
measured against established
standards.
Appraisal Methods
Evaluating absolute standards:
Evaluation is independent of any
other employee.
This process assesses employee job
traits and/or behavior.
Appraisal Methods
Evaluating absolute standards:
Following methods:
1. Essay Appraisal:
Appraiser writes narrative
describing employee performance
and suggestions.
Appraisal Methods
Evaluating absolute standards:
2.Critical Incident Appraisal:
A performance evaluation that
focuses on key behaviors that
differentiates between doing a job
effectively or ineffectively.
Appraisal Methods
Evaluating absolute standards:
3. Checklist Appraisal: Appraiser
checks off behaviors that apply to the
employee.
Appraisal Methods
Checklist Appraisal Example: Customer
service representative
Yes No
1.Are supervisor’s order always
followed? ___ ___
2.Does the individual approach
customers promptly? ___
___
Appraisal Methods
Evaluating absolute standards:
4. Graphic Rating Scale Appraisal:
A performance appraisal method

that list traits and a range of

performance for each.
Appraisal Methods
Evaluating absolute standards:
4. Graphic Rating Scale Appraisal:
Appraiser rates employee on a number
of job-related factors.
Assess factors such as quantity and

quality of work, job knowledge,

cooperation, loyalty, dependability,
attendance, honesty, integrity, attitudes
and initiative.
© 2005 Prentice Hall Inc. All rights reserved.
Appraisal Methods
Evaluating absolute standards:
5. Forced-Choice Appraisal:
Appraisers choose from sets of
statements which appear to be
equally favorable, the statement
which best describes the employee.
Appraisal Methods
Forced-Choice Appraisal:
For instance, students evaluating their college
instructor might have to choose between
a) Demonstrates how concepts are practically
applied in today’s organization
b) Keeps interest and attention of class
c) Keeps up with the schedule identified in the
syllabus
d) Allows students the opportunity to learn
concepts on their own
Appraisal Methods
Evaluating absolute standards:
5. Behaviorally Anchored Rating
Scales (BARS):
Appraiser rates employee on
factors which are defined by
behavioral descriptions
illustrating various dimensions
along each rating scale.
 Source:Walter C. Borman, “Behavior Based
Rating,” in Ronald A. Berk (ed.),
Performance Assessment: Methods and
Applications (Baltimore, MD: Johns
Hopkins University Press, 1986), p. 103.
Figure 9–9

© 2005 Prentice Hall Inc. All rights reserved.

Appraisal Methods
Relative standards:
Employees are evaluated by
comparing their performance to the
performance of other employees.
Appraisal Methods
Relative standards:
1.Group Order Ranking:
Employees are placed in a
classification reflecting their relative
performance, such as “top one-fifth.”
Appraisal Methods
Relative standards:
Group Order Ranking:
For instance, the evaluators are
asked to rank the student in the top
5%, the next 5%, the next 15
percent and so forth.
Appraisal Methods
Relative standards:
2. Individual Ranking:
Employees are ranked from
highest to lowest.
Appraisal Methods
Relative standards:
3. Paired Comparison:
Each individual is compared to

every other.
Final ranking is based on

number of times the individual

is preferred member in a pair.

Fundamentals of Human Resource Management 8e,

DeCenzo and Robbins
Note: + means “better than.” − means “worse than.” For each chart, add up the number
of 1’s in each column to get the highest-ranked employee.
Appraisal Methods
Using Achieved Outcomes to Evaluate
Employees
Management by Objectives (MBO)
A performance appraisal method that
includes mutual objective setting and
evaluation based on the attainment of the
specific objectives
Appraisal Methods
Using Achieved Outcomes to Evaluate
Employees
Common elements in an MBO program are:
goal specificity
participative decision making
an explicit time period
performance feedback
Effectively increases employee performance
and organizational productivity.
Factors that can Distort Appraisals
1. Leniency error
Each evaluator has his/her own value
system.
Some evaluate high (positive leniency)
and others, low (negative leniency).
The problem that occurs when a
supervisor has a tendency to rate all
subordinates either high or low.
Factors that can Distort Appraisals
Leniency error
Example:
• Assume a situation where Jones and Smith
are performing the same job for different
supervisors with absolutely identical job
performance.
• If Jones’s supervisor tends to err toward
positively leniency while Smith’s supervisor
errs negatively leniency, we might confronted
with two dramatically different evaluations.
Factors that can Distort Appraisals
2. Halo error or effect: Evaluator lets
an assessment of an individual on
one trait influence evaluation on all
traits
Occurs when a supervisor’s rating
of a subordinate on one trait biases
the rating of that person on other
traits.
Factors that can Distort Appraisals
Halo error or effect
Example: Supervisors often rate unfriendly
employees lower on all traits, rather than just
for the trait “gets along with others”
If an employee tends to be conscientious and
dependable, we might become biased toward
that individual to the extent that we will rate
him or her positively on many desirable
attributes.
Factors that can Distort Appraisals
3. Similarity error: Evaluator rates
others in the same way that the
evaluator perceives him or herself.
Example: The evaluator who
perceives himself or herself as
aggressive may evaluate others by
looking for aggressiveness.
Factors that can Distort Appraisals
4. Central tendency:
The reluctance to use the
extremes of a rating scale and to
adequately distinguish among
employees being rated.
A tendency to rate all employees the
same way, such as rating them all
average.
Factors that can Distort Appraisals
Central tendency:
Example: If the rating scale ranges
from 1 to 7, they tend to avoid high (6
and 7) and lows (1 and 2) and rate
most of their people between 3 and 4.
Who Should Do the Appraising?
The immediate supervisor
Peers
Rating committees
Self-ratings
Subordinates
360-Degree feedback – performance
evaluations in which supervisors, peers,
employees, customers, and the like evaluate
the individual.
PART II REWARDING HUMAN
RESOURCES
Learning Outcomes
3. Distinguished the basic issues in the
development of compensation strategy
and develop organizations wage
salary structure.
4. Recognized and described
government mandated and non-
mandated benefits
PART II REWARDING HUMAN
RESOURCES
REWARDS
 The most obvious reward is pay,
but there are many others,
including:
 promotions
 desirable work assignments
 peer acceptance
 Work recognition
 work freedom
Three Classification of Rewards
Three classification of Rewards:

1. Intrinsic or extrinsic rewards

2. Financial or nonfinancial rewards
3. Performance-based or membership-
based rewards
 Types of Reward Plans
Intrinsic versus Extrinsic Rewards
Intrinsic rewards
Refers to satisfactions derived from the
job itself, such as:
pride in one’s work,

a feelings of accomplishment or

being part of a work team

Types of Reward Plans
Intrinsic versus Extrinsic Rewards
Extrinsic rewards
Refers to benefits provided by the
employer, usually
Money

Promotions or

Benefits
Types of Reward Plans
Financial versus Nonfinancial Rewards
Financial Rewards
Rewards may or may not enhance the
employee’s financial well being.
Those that do, do so directly, for instance,
through
wages
bonuses
profit sharing
Types of Reward Plans
Financial versus Nonfinancial Rewards
Financial rewards
or Indirectly through employer-subsidized
benefits such as
Retirement plans
paid vacations
Paid sick leaves
purchase discounts
 Types of Reward Plans
Nonfinancial rewards emphasize making
life on the job more attractive;
employees vary greatly on what types
they find desirable.
Examples: Status conscious
 Impressive job title
 Their own business cards
 Own administrative assistants
 A well-located parking space with their names
Types of Reward Plans
Performance-based versus
Membership-Based Rewards
Performance-based rewards are
tied to specific job performance
criteria.

Some rewards are membership-

based because one receives them for
belonging to the organization.
Types of Reward Plans
Performance-based versus Membership-
Based Rewards
Performance-based rewards
Refers to rewards exemplified by the use of:
commissions
piecework pay plans
incentive systems
group bonuses
Other forms of merit pay
Types of Reward Plans
Membership-based rewards include
such as
 cost-of-living increases,
 benefits, and
 salary increases attributable to labor-
market conditions
 Seniority rank
Compensation Administration
Compensation Administration
The process of managing a
compensation program so that the
organization can attract, motivate and
retain competent employees who
perceive that the program is fair.
Job Evaluation and the Pay Structure
Job Evaluation
The essence of compensation administration
is job evauation and the establishment of a
pay.
Job evaluation – the process used to
determine each job’s appropriate worth within
the organization
?
Job Evaluation Methods
1. Ordering method: (or Ranking
Method)
 A committee places jobs in a simple rank order
from highest (worth highest pay) to lowest.
The committee members merely compare two
jobs and judge which one is more important or
more difficult to perform.
Then compare another job with the first two , and
so on until all the jobs have been evaluated and
ranked.
Job Evaluation Methods
2. Classification method:
Jobs are placed in classification grades.
Grades
A job classification system like the class system,
although grades often contain dissimilar jobs
such as secretaries, mechanics, and firefighters.
Once the classifications are established, they are
ranked in an overall order of importance
according to the criteria chosen, and each job is
placed in its appropriate classification.
Job Evaluation Methods
3. Point method:
Breaking down jobs based on identifiable
criteria and the degree to which these
criteria exists on the jobs.
Categories such as education, skill,
effort, responsibility and working
conditions.
Job Evaluation Methods
Pay grade
A pay grade is comprised of jobs
of approximately equal difficulty
Pay ranges
A series of steps or levels within

the pay grade, usually based upon

years of service.
Establishing the Pay Structure
Wage curves
After the compensation committee
arrives at point totals from job
evaluation and obtains survey data
on what comparable organizations
are paying for similar jobs, a wage
curve can be fitted to the data.

Fundamentals of Human Resource Management 8e,

DeCenzo and Robbins
Establishing the Pay Structure
Wage curves
Shows the relationship between the
value of the job and the average
wage paid for this job.
Drawn by plotting job evaluation
data (such as job points or grades)
against pay rates (actual or from
survey data).
Note: This shows
overlapping wage
classes and
maximum–
minimum wage
ranges.
Establishing the Pay Structure
Wage structure
Jobs with similar classes, grades, or
points are grouped together to create an
organization’s wage structure.
Grades overlap each other, encouraging
employees reaching the top of one pay
grade to move to a higher grade.
Employee Benefits
Benefits
Indirect financial and nonfinancial
payments employees receive for
continuing their employment with the
company.
Employee Benefits
Why employers offer benefits to their
employees?
1. Employers offer benefits to
employees to attract and retain
them.
2. Benefits are expected by today’s
workers and must provide meaning
and value to the employees.
Legally Required Benefits
Legally Required Benefits
Employee benefits mandated by
law.
These benefits provide a broad
range of personal financial security
when an employee is unable to
work, either temporarily or
permanently.
Legally Required Benefits
Social Security
Retirement, disability, and survivor
benefits paid by the government to the
aged, former members of the labor force,
or their survivors.
Financed by equal employee and
employer contributions, based on a
percentage of earnings.
Legally Required Benefits
Workers’ Compensation
It is an employee insurance that
provides income continuation if a
worker is injured on the job.
Paid for by the organization
Rates based on likelihood of
accidents, past history, and the type
of industry
Legally Required Benefits
Workers’ Compensation
It is an employee insurance that
provides income continuation if a
worker is injured on the job.
Paid for by the organization
Rates based on likelihood of
accidents, past history, and the type
of industry
Voluntary Benefits
 The voluntary benefits offered by an
organization are limited only by
management’s creativity and budget.
Organizations work hard to put
together a package of voluntary
benefits that will attract, motivate, and
retain the most qualified employees.
Voluntary Benefits
 Some of the most common and critical
ones are health insurance, retirement
plans, time-off from work and disability
and life insurance benefits.
 Organization work hard to put together
a package of voluntary benefits that
will attract, motivate and retain the
most qualified employees.
Voluntary Benefits
Paid Time Off
Benefits provide pay for time off from
work such as vacation and holiday
leave and disability insurance, which
includes sick leave and short and long-
term disability program.
THANK YOU. GOD BLESS

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