Module 4

Question 1

Why do organisations need to assess performance?

Answer 1

1. Employees need to understand the behavior requirements of the job.
2. Employee’s work is evaluated for its contribution to company goals.
3. Employees receive feedback on their contribution to company goals.
4. Employees’ motivation is increased by the performance appraisal system.
5. Employees’ performance levels should be used to make decisions about salaries, promotions, bonuses, training needs, etc.
6. Employees get clear feedback on the level of performance expectations from the company

Question 2

Define validity, Consistency and Stability in the context of performance measurement?

Answer 2

Validity is the quality of the measuring components of the performance appraisal system (do they measure what they should?).

Consistency, that is two or more ways to gather performance data producing results which agree.

Stability is the property of dependability of results over time.

Question 3

What are the errors in performance appraisals?

Answer 3

• Personal bias: a stereotype or bias which influences a supervisor’s rating upward of downward.
• Halo effect: rating an employee on one performance dimension based on the evaluation in other performance dimensions
• Recency Error: the emphasis on recent performance examples in making performance assessments
• Central tendency error: Assigning average ratings to all employees resulting in little variation
• Strictness or leniency errors: Supervisor’s ratings based on the belief the employees do not measure up or that all employees measure up
• Similarity error: the supervisor has a performance quality in himself that she is looking for in the employees
• Forcing the rating to match other criteria: Deciding on an overall rating first and then going back to individual dimensions to adjust ratings to match overall assessment

Question 4

Outline the forms of validity in the context of performance appraisals?

Answer 4

• Content validity: measures and their administration are logically related to the performance measured; evaluator and employees agree on the dimensions of performance measured and relationship to actual job behaviors.
• Empirical validity: measures are statistically related to work outcomes. Scores on the performance dimensions are related to quantitative measures of work output
• Construct validity: performance appraisal system logically derives from a model or theory of performance behavior and motivation.
• Convergent validity: Multiple measures of the same performance dimension result in equivalent scores. Observation methods correlate highly with paper and pencil measures of performance.
• Disciminant validity: Measures of performance using the same method produce different scores for different performance

Question 5

How do you overcome errors in performance appraisal systems?

Answer 5

1. Use multiple criteria
2. Emphasize behavior rather than traits
3. Use several raters (e.g. 360 degree reviews)
4. Train the raters

Question 6

What are three performance appraisal methods?

Answer 6

• Absolute Standards: Each employee is judged against a fixed and inflexible set of performance criteria.
• Graphic Scales Rating System: List of performance criteria are evaluated on a numerical scale.
• Behaviour Anchored Rating Scale (BARS) it emphasises work behavior and how the work gets done rather than characteristics of an employee

Question 7

What is the strong behavioural focus of the BARS system?

Answer 7

• might help to avoid the evaluation of irrelevant employee’s personality traits
• might increase the quality of the feedback compared to other systems
• might enhance the significance of the feedback in the employee’s minds through reduced defensiveness
• might require a long time to develop as different roles will require different BARS
• might be difficult to develop for jobs requiring creativity, curiosity, and complex problem-solving.

Question 8

What are goals?

Answer 8

They are end states that reduce the intensity of needs and motives.

Question 9

What are the benefits of goal setting systems?

Answer 9

• Increase motivation and performance
• Reduce the stress of conflicting or confusing expectations
• Improve accuracy and validity of performance evaluations

Question 10

What are the seven generic steps of an MBO program?

Answer 10

1. ANALYZE the mix of people, jobs, work methods, and external demands
2. PLAN goals, strategy, communication and training
3. DEFINE the employees’ job in terms of content, authority, and responsibility
4. ARTICULATE goal difficulty, clarity, number, feedback
5. Reach MUTUAL AGREEMENT about goals, work methods, goal measurements, and time frame
6. Make INFORMAL review of goal achievement, methods and probable rewards, and REVISION of goals and methods if necessary
7. Make FORMAL review of goal achievement and rewards to be obtained

Question 11

How do you preserve the quality of an MBO system?

Answer 11

• Top management support, commitment, and involvement before and during the program
• The MBO system must have a strong relationship with routine activities and responsibilities. The company’s basic technology, products, and/or services have to be strengthened by the MBA system.
• MBO must emphasize organizational and personal development goals and thus aid in achieving higher-order need satisfaction.
• Personnel must be properly trained to administer and function under the MBO system.
• MBO must be tailored to the needs of the different departments
• Managers must avoid overemphasis on number of goals and how quantified they are. Keep the 80-20 rule in mind. Sticking with this rule prevents the definition of too many and too narrow goals
• The MBO benefit must far exceed the cost (e.g. paperwork) of the program
• Equal emphasis should be placed on discussion and evaluation. Too much discussion leads to uninspired goals. Too much evaluation leads to perceptions of manipulation and over-control.
• MBO works best when goals can be flexible and adjusted to unforeseen circumstances.

Question 12

Define extrinsic and intrinsic rewards?

Answer 12

Intrinsic rewards are defined as those rewards that the employee associates with the job itself. Extrinsic rewards are given to the employee by the company and they do not occur as the work unfolds. Extrinsic rewards can be classified as direct compensation, indirect compensation, and non-financial rewards.

Question 13

How do companies distribute direct compensation?

Answer 13

1. Performance
2. Effort (in the hope that effort will eventually lead to performance)
3. Seniority
4. Equality (common in partnerships for managing partners)
5. Power and Influence

Question 14

What determines the value of a job to the company?

Answer 14

1. Skill requirements
2. Mental requirement
3. Physical requirement
4. Responsibility
5. Working Conditions

Question 15

What are the current trends in executive compensation?

Answer 15

• Strengthening the link between executive compensation and the market value of firms
• Executive compensation rises faster than employee wages
• CEO pay rises much faster that the pay of the second in command
• Pay gaps between American and British executives narrow
• More emphasis on the company’s net income
• Preventing ISO plans from diluting stock value

Question 16

What are the five tests that any incentive or pay plan should pass?

Answer 16

1. Does the plan capture the attention of the employees?
2. Do employees understand the elements of the plan?
3. Does the plan improve communication?
4. Does the plan make payments to the employees when it should?
5. Is the company performing better as a result of the plan?

Question 17

What is a Scanlon Plan?

Answer 17

Gain-sharing plans (also called Scanlon Plans) share the gains associated with cost savings between the employer and the owner of the company. Scanlon plans use production and steering committees to screen and evaluate the suggested productivity enhancements. These programs are powerful tools to lower costs and foster innovation at the level at which the work is done. They also increase employee satisfaction and turnover

Question 18

What are the considerations for a Scanlon Plan?

Answer 18

• They work best if the company has a dependable history of labor cost. If there is good accounting data on labor and production cost, the formula to calculate the gain sharing percentage can easily be established.
• Seasonal product demand might make gain sharing plans more difficult
• The market might have to absorb additional production if the gains lead to higher output.
• The company should have a trusted labor-management relationship in order to develop trusted gain sharing formulae.
• Production units of 30-500 people work well. Larger units might need several gain sharing plans joined by a common accounting system.
• Management needs to be committed to the plan and train all employees on the operation of the system

Question 19

Describe the Rucker Plan?

Answer 19

In a Rucker Plan, the measurement of productivity used for incentives is called value added. Value added is the difference between sales income from goods produced and the cost of the materials, supplies, and outside services consumed in the production and delivery of that output. Payroll costs are all employment costs related to the employee group measured. To establish a Rucker plan,

Question 20

Compare Rucker Plan to the Scanlon Plan?

Answer 20

• Rucker plan links profit in terms of value added to labor’s contribution.
• Employees that understand the Rucker plan will have ideas for raising labor’s value added. Thus problem solving in the team is stressed.
• The Rucker plan is less rigid than the Scanlon plan in the requirements for participation (e.g. no review committees required) and leaves it up to the firm to develop a fitting system of generating value added suggestions.
• Lower level of hierarchical control in the Rucker plan can shorten time from idea to implementation.