1. Appraising and Rewarding
Performance
Human Behavior in Organization
Professor Melvin Vitug Moraga

2. Learning Objectives
• Understand money as an economic and social
medium of exhange
• Discuss the role of money in motivational
models
• Examine the behavioral considerations in
performance appraisals

3. Learning Objectives
• Understand the chracteristics of good feedback
program
• Describe the process of attribution
• Discuss how and why to link pay with
performance
• Understand the uses of profit-sharing, gain-
sharing, and skill-based programs

4. Chapter 5- slide 4Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
“What counts in life is not the mere fact that
we have lived. It is what difference we have
made to the lives of others that will determine
the significance of the life we lead.”

5. Chapter 5- slide 5Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Apartheid: a system of racial segregation
“apartness”

6. Chapter 5- slide 6Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Robben Island

7. Chapter 5- slide 7Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Prisoners Stone Pounding

8. Chapter 5- slide 8Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
• Served over 27 years in
prison
• President African
National Congress
(ANC)
• President of South
Africa (1994 – 1999)

9. Raise for the CEO
The board of directors of Manila Hospital were in executive
meeting, discussing the CEO’s performance for the past
year. After determining that it was “outstanding,” they set
about establishing the appropriate level of compensation for
her.
All of the directors agreed that a substantial pay increase
was in order. However, when the newly adjusted level of
compensation was calculated, one director (a physician)
made a comment, “I don’t care how much you pay her he
contented, as long as it isn’t any higher than the average of
the physicians working in the clinic. After all, the hospital
wouldn’t be able to function if it weren’t for us.”

10. Key Points:
• Economic rewards are important to employees
• Pay relationship carry immense social value
• In the past, money was believed to produced direct
motivation
• Research reveals that economic rewards operated
through the attitudes of workers in social system to
produce an indirect incentive

11. Reward System
• consists of all organizational components
involved in allocating compensation and benefits
to employees in exchange for their contribution
to the organization including:
• People
• Processes
• Rules
• Procedures
• Decision-making activities

12. Reward’s Purposes and Roles
• Purposes
– To attract, retain, and motivate qualified
employees
• Roles of compensation structures
– To be equitable and consistent
– To be a fair reward for the individual’s
contribution
– To be competitive in the external labor market

13. A Complete Reward Program
Performance
Rewards
Profit Sharing
Base Pay & skill-
based pay
I. Incentive

14. A Complete Reward Program
• Job analysis and wage survey rate jobs,
comparing one job with another to determine
base pay
•Motivate employees to progress to jobs of
higher skills and responsibility
Base Pay Performance
rewards
Profit
Sharing
I. Incentive

15. A Complete Reward Program
Base Pay
Profit
Sharing
Performance
Rewards
• Performance appraisal and
incentives rate employees on their
performance and reward their
contribution
I. Incentive

16. A Complete Reward Program
Base Pay
• Profit sharing rates the company in
terms of its general economic
performance and rewards employees to
improve performance on the job
Profit
Sharing
Performance
rewards
I. Incentive

17. A Complete Reward Program
• Seniority pay rewards workers for extended service
• Overtime pays workers for working overtime
• Vacation pays workers when employee does not work
II. NonIncentive
Seniority
pay
Overtime
Others
Vacation,
Pension

18. A Complete Reward Program
Base Pay
Performance
rewards
Profit
Sharing
Real pay
adjustment
Skill-based
Pay
Service
Reward
Sacrifice
Reward
Nonwork
Award
Noneconomic
Award
• Compensatory time off,
on-site day care
• Vacations, pensions
• Overtime, differential
• Seniority

19. Money as Means of
Rewarding Employees
• Money is an economic value as a
medium of exchange
• Money is also a social medium of
exchange
• Differences in meaning of money
by gender and culture
• Money is an important motivator

20. Application of Money to
Motivational Models
• Drives - Achievement –oriented employees
monitor their total pay and compare it with others
• Needs – Herzberg model, pay is viewed as a
maintenance factor. Other need-based models, pay is
seen as in its capacity to satisfy lower-order needs
(i.e. Maslow and Alderfer’s existence needs)

21. Application of Money to
Motivational Models (cont’n)
• Equity - employees identify and compares
personal costs and rewards to determine equality

22. Extrinsic and Intrinsic
Rewards
• Money is essentially an extrinsic reward
rather than an intrinsic one
• Extrinsic – are external rewards that occur
apart from the nature of work , providing no direct
satisfaction at the time the work is performed

23. Extrinsic and Intrinsic
Rewards (cont’n)
• Intrinsic – are internal rewards that a person
feels when performing a job that has direct and
immediate connection between work and reward
• Pay is something that originates outside the
job and is useful away from the job

24. Extrinsic and Intrinsic
Rewards (cont’n)
• Economic rewards, cannot provide all
the rewards for psychologically healthy person
• An important task of manager is integrating
extrinsic and intrinsic rewards successfully

25. Organizational Behavior and
Performance Appraisal
• Management by Objectives (MBO) – a
cyclical process that often consists of four steps as a
way to attain desired performance
 Objective setting
 Action planning
 Periodic reviews
 Annual evaluation

26. Organizational Behavior and
Performance Appraisal
• Performance Appraisal – a process of
evaluating the performance of employees, sharing that
information with them, and searching for ways to
improve their performance
 Allocate resources
 Motivate and reward employees
 Give feedback
 Maintain fair relationships with groups
 Coach and develop employees
 Comply with regulation

27. Appraisal System
• Part of appraisal system which requires
supervisor to assess employees on various
aspects
 Productivity
 Behavior
 Personal traits
 Quality of work
 Quantity of output
 Attendance

28. Appraisal System
• Historical performance
• Potential for growth and advancement
• Forms and Procedures
• Rating scales
 A-B-C-D-E-
 1-2-3-4-5
 Essay
 Record of incidents – positive and negative

29. Appraisal Interview
• A session in which the supervisor provides:
† feedback to the employee on past performance
† discusses any problem
† invites a response
† opportunity to motivate the
employee

30. Suggested Approaches on
Appraisal Interview
• Is knowledgeable about the employee’s job
• Has previously set measurable performance standards
• Has gathered specific evidence frequently about
performance
• Seeks and uses inputs from other observers in the
organization

31. Suggested Approaches on
Appraisal Interview (cont’n)
• Limits amount of criticism to a few major items
• Provides support, acceptance, and praises for a task
well done
• Listens actively to employee’s inputs and reactions
• Share responsibility for outcomes and offer future
assistance
• Allow participation in discussion

32. Performance Feedback
• Helps employees know what to do and how well they
are meeting their goals
• Enhances an employee’s self-image and feeling of
competence
• Lead to both improved performance and improved
attitudes

33. Performance Feedback (cont’d)
• Attribution: the process by
which people interpret and assign
causes for their own and others’
behavior

34. Employee behavior
occurs:
- functional?
- dysfunctional
Future behavior is
predicted; methods
to assure it are
implemented
Attributions are made
to personal or
situational factors such
as:
- Ability
- Effort
- Task difficulty
- Luck
Performance Feedback (cont’d)
The Process of Making and Using Attributions
Observe
Describe/Preduct
Control

35. Performance Feedback(cont’d)
Manager…
• observes some employee’s behavior and describes it
as functional or dysfunctional
• Seeks to understand and diagnose the behavior
• Makes a causal attribution for it
• Predicts and controls future employee behavior

36. Economic Incentive
Systems
• Performance Management – holds that
employee performance can be managed and improved.
• Economic Incentive system - a system that induce
a high level of individual, group, or organizational
performance by making an employee’s pay contingent
connected with their performance

37. Major Incentive Measures to Link Pay with
Performance
Incentive Measures Example
Amount of inputs Piece rate, sales
commission
Quality of output Piece rate only for pieces
meeting standard
Success in reaching goals Bonus for reaching
esablished goals
Amount of profit Profit sharing
Const efficiency Gain sharing
Employee skills Skill-based pay

38. Economic Incentive
Systems
• Wage incentives
• Profit Sharing
• Gain Sharing
• Skills-Based Pay

39. Economic Incentive
Systems
• Wage incentives – form of merit incentive
providing more pay for more production
 Rationale: To increase productivity while
decreasing labor costs per unit of production
 Difficulty: Disruption in the social system may
lead to feelings of inequity and dissatisfaction

40. Advantages and Disadvantages of
Incentives Linking Pay with Performance
Advantages Disadvantages
Strengthen instrumentality
of beliefs
Cost (both to employer and
employee)
Create perception of equality System complexity
Reinforce desirable
behaviors
Union resistance
Provide objective basis for
rewards
Delay in receipt
Variable or declining pay

41. Economic Incentive
Systems
• Profit Sharing – system that distributes to
employees some portion of the profits of the
business
 Aims to recognize mutual interests
 Work better for fast growing, profitable
organizations

42. Economic Incentive
Systems
• Gain Sharing – measures improvements,
shares the gains with employees on some
formula basis
 Inventory levels
 Labor hours per unit of production
 Usage of materials and supplies
 Quality of finished goods

43. Economic Incentive
Systems
• Skilled-Based Pay – reward individual
employee for what they know how to do based
on:
 range
 depth
 type of skills

44. Case Focus: Village Grocery
Mark Rodriguez was the executive for Village Grocery, a family-owned chain of six
grocery stores in a medium-sized metropolitan area. The current problem he was
facing dealt with the stock clerks workers in the stores. Despite paying them the usual
wage rate (minimum legislated wage), he had trouble obtaining enough applicants for
the job. Worse still, many of them seemed to lack motivation once he hired them.
This situation created problems of empty shelves and slow service at the check out
lanes.
In an attempt to solve the problems, Mark met with small groups of the workers to get
their ideas. He also consulted with a local expert on compensation issues. Some
workers said they wanted a higher hourly wage rate; others said they wanted some
incentives to work faster; some had no comment whatsoever. The consultant
recommended that Mark consider using some of the more contemporary
compensation systems,
Questions:
1. Which of the major economic incentive systems discussed has the best chance of working
for Mark?
2. Can two or more incetive systems be combined, with an even greater likelihood of
success?
3. In your recommendation, which motivational theories are you most specifically using?