Human Resource Management

(HRM)
Part IV: Managing Performance and Compensation
1. Performance Appraisal
2. Job Evaluation
3. Wage and Salary Administration
4. Incentive compensation
 4.1. Performance Appraisal
• Performance Appraisal is the specific and formal
evaluation of an employee conducted to determine the
degree to which the employee is performing his or
her job effectively.
– A critical point in the definition is the word formal,
because in actuality, managers should be reviewing an
individual’s performance on a continuing basis.

• Performance management is the general set of

activities carried out by the organization to change
(improve) employee performance.
 4.1. contd
Reasons for Appraisals
– Compensation "Pay for Performance"
– Job Performance Improvements
– Feedback to Subordinates
– Documentation for Decisions
– Goal Setting - Later Evaluation
– Promotion Decisions
– Identify Training Needs
– HR Planning
 4.1. contd
Main Purposes of Performance Management
– Individual Rewards (Base and Incentive)
– Feedback for Sub-Ordinate (Plus and Minus)
– Recognition of Superior Performance
– Documentation of Weak Performance
– Personnel Decision-Making
– Future Goal Commitments (Planned Achievements)
 4.1. contd
Characteristic of Good P.A System
– Job-Related Criteria
– Performance Expectations- agreement on
expectation by employee and manger
– Standardization
– Trained Appraisers
– Continuous Open Communication
– Conduct Performance Review
– Due Process- open procedure for appeal
 4.1. contd
Who Performs the Appraisal?
– Immediate Supervisor
– Higher Management
– Self-Appraisals
– Peers (Co-Workers)
– Evaluation Teams
– Customers
– “360° Appraisals”
 4.1. Contd.
Appraisal Methods (some)
– Rating Scales
• Graphic Scale: Performance appraisal whereby
each employee is rated according to a scale of
pre-defined characteristics that are job
performance related.
• It is an effective appraisal method for assessing
unique traits and behaviors within your
workforce.
4.1. contd
 4.1. contd
Appraisal Methods (some)
– Rating Scales
• Behaviorally Anchored Rating Scale (BARS)
(Descriptions along the scale to define): A
behavioral approach to performance appraisal
that consists of a series of vertical scales, one for
each important dimension of job performance.
• It a type of performance management scale that
use behavior “statements” as a reference point
instead of generic descriptors commonly found
on traditional rating scales.
4.1. contd
 4.1. contd
Management by Objectives:
✓ It is the appraisal method where managers and
employees together identify, plan, organize, and
communicate objectives to focus on during a
specific appraisal period.
✓ So this philosophy of management rates
performance on the basis of employee achievement
of goals set by mutual agreement of employee and
manager.
4.1. contd
 4.1. contd
360-Degree Feedback:
✓ 360-degree feedback is a multidimensional
performance appraisal method that evaluates an
employee using feedback collected from the
employee’s circle of influence
✓ The circle may include managers, peers,
customers, and direct reports.
✓ This method will not only eliminate bias in
performance reviews but also offer a clear
understanding of an individual’s competence.
 4.1. contd
Critical Incidence methods:
✓ Check Lists by Key Words Unusual event that
denotes superior or inferior employee performance
in some part of the job.
✓ It focuses on the essential behaviors that determine
whether a task is done well or poorly.
✓ Documentation in this case involves briefly
summarizing situations (incidents) that demonstrate
either successful or unsuccessful behavior and
outcomes.
 4.1. contd
Guidelines for Effective Performance Appraisal
– Make sure the performance rating process is
strategically useful; i.e., based on the key
success factors needed for execution.
– Involve those being rated in the development of
the rating scheme.
– Ensure that the process is related to job
performance and meets legal requirements.
– Train the raters on evaluation and feedback.
 4.1. contd

Managing performance
– Evaluating performance

– Diagnosing performance

– Providing feedback on performance

– Linking performance with rewards & punishments

– Coaching, counseling & developing

 4.1. Contd.
Problems in Performance Rating
– Halo Effect: rating the employee high even if the employee
doesn't deserve. (high level of positivity).
– A Horns Error occurs when the manager downgrades other
aspects of an employee’s performance because of a single
performance dimension.
– Stereotypes – personal bias
– Overweight negative information
– Lack of sufficient observation
– Memory: primacy / recency
– Leniency/kindness/humanity
– Central tendency
– Lack of objectivity
– Ability to write
 4.2. Job Evaluation

What is Job evaluation?

– It is a Process of systematically determining the
relative worth of jobs to create a job structure for
the organization.
• Evaluation is based on a combination of job
content, skills required, value to the
organization, organizational culture and the
external market.
– Job evaluation is the process of analyzing and
assessing the various jobs systematically to
ascertain their relative worth in an organization.
 4.2. Job Evaluation
Advantages of Job evaluation:
– Leads to Uniformity in wage rates.
– Use to remove grievances from employees
regarding discrepancy in wages.
– Information collected during Job Evaluation can
be used for improvement, Selection and
promotion procedures
 4.2. contd
Objectives Of Job Evaluation
– To maintain accurate and impersonal description
of each distinct job.
– To provide standard procedure for determining the
relative worth of each job.
– To set wages and salary.
– To ensure like wages are paid off.
– To determine wage for the job and not for the man.
 4.2. contd
Objectives Of Job Evaluation

1. Non-analytical
• Ranking Method

• Job-Grading Method

2. Analytical/logical/systematic
• Point- Ranking Method

• Factor Comparison Method

 4.2. contd
Job Factors Job factors
• Skill • Responsibility
– Education – For Equipment
– Experience – Material / Product
– Initiative – Safety of others
– Work of others
• Effort
• Job Conditions
– Physical Demand
– Working Conditions
– Mental Visual Demand – Hazards
 4.2. Contd.
Ranking Method
– Jobs are arranged or ranked in their importance i.e
from lowest to highest or vice versa.
– Committee assesses the worth/importance of each job
on the basis of its title or on its content, if the latter
are available.
– Job Description can be used for ranking different
jobs.
– Ranked jobs are classified into groups, and jobs
under particular groups may receive the same salary
or salary range.
 4.2. Contd.
Job-Grading Method
– As in the ranking method, the Job-grading method
does not call for a detailed or quantitative analysis of
job factors.
– Facts about the job are collected and matched with
the grades which have been established by the raters
(Committee)
– Grades are arranged in the order of their importance
– Lowest grade may cover jobs requiring greater
physical work under close supervision, but carrying
little responsibility.
 4.2. Contd.
Point- Ranking Method
– PRM is one of the most widely used JE Plan.
– It involves identifying number of factors, sub
factors and degree to which these factors are
present in Job
– Points are assigned for each degree of each
factor
– Grand Total of these points, classify the Job
Worth
 4.2. Contd.
Factor Comparison Method
–Under this method, one begins with selection of
factors .
–Each factor is ranked individually with other
jobs.
–Each job is ranked several times like,
1. Skill requirements,
2. Physical exertion,
3. Responsibility, and
4. Job conditions
 4.3. Wage and Salary Administration
Wage And Salary Administration?
– Wage & salary administration is essentially the
application of a systematic approach to the problem of
ensuring that employees are paid in a logical, equitable
and fair manner.
– Wage and salary administration refers to the
establishment and implementation of sound policies and
practices of employee compensation. Thus, it is:-
• Administration of employee compensation.
• Systematic approach to provide monetary/financial
value to employees.
• Establishment and maintenance of equitable as well
as cost-effective wage structure.
 4.3. contd
COMPENSATION
– It can be defined by as money received in performance of
work plus many kinds of services and benefits that
organizations provide to their employees.
– Compensation may be classified into
• Base or primary compensation: refers to basic pay in the
form of wages and salaries. It is a fixed and non-incentive
payment on the basis of time expended on the job.
• Supplementary/extra/additional compensation. consists
of incentive and variable payments, based on either
individual output or output of the group as a whole.
WAGE:
– Wage is a general term referring to direct monetary
compensation. It is also used specifically to refer to payments to
service workers on the basis of hourly rated production.
 4.3. contd
Objectives of Wage and Salary Administration
– Acquire competent personnel
– Retain/keep present employees
– Provide fair and equitable compensation
– Ensure desired behavior
– Keep labor costs in control
– Keep organization ability in mind
– Improve motivation and morale
– Project good image of the organization
– Impartial implementation
 4.3. contd
Factors Influencing Wage and Salary Structure and
Administration
– The Organization's ability to pay
– Supply and demand of labor
– The prevailing/current/existing market rate
– The cost of living
– Living wage
– Productivity
– Trade Union’s Bargaining power
– Job requirements
 4.3. contd
Principles of Wage and Salary Administration
– Differences in pay should be based upon variations in JOB
REQUIREMENTS
– Wages should be in line with that prevailing/current labor
market
– Equal pay for equal work
– There should be recognition of individual differences in ability
and contribution
– There should be established structure for redressal of wage
complaints
– Wages should ensure a reasonable standard of living for the
worker and his family
– The wage structure should be flexible
– WAGE COMMITTEE should be appointed for revision of
wages.
 4.4. Incentive Compensation
• Incentive pay links pay (as a reward) to performance
– The idea of incentive pay is to create incentives for
employees to improve their job performance by
linking employee pay to employee job performance
– Incentive pay is also called:
• Pay for performance
• Performance-based pay systems
• Performance-based reward systems
• The reward for performance doesn’t have to be pay
– Pay is one possible reward, not the only possible
reward
 4.4. Contd.
Types of incentive scheme
– Piece rate: Each unit produced over the target is rewarded
with a bonus or commission payment.
– Profit sharing: Profits are shared equally or as agreed by
partners.
– Profit-related pay: Employees are paid a bonus as a
percentage of the profit amount made by a company.
– Share-related pay: Employees are offered/obtained some
shares or the possibility of purchasing some shares as an
incentive
– Performance-related pay: Employees’ annual salary is
linked to their performance in the job. The size of payment
is determined by the achievement of the set target.