PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION

LESSON- 8 REPORTING AND PERFORMANCE EVALUATION

Behavior Reporting and performance evaluation compensation
Compensation is the reward given to the employee as a consideration for performance in the organization. Compensation involves factor like expectations of the employers and cost incurred by the employer. Compensation is directly linked by the performance of the employees, which impacts the achievement of the objectives. Though many aspects of the job attract employees like status, interest in the task team participation etc. compensation is one constant factor that attracts almost all the employees. Compensation is determined based on some approaches and it is of many types.

Approaches in determining compensation

i. Entitlement approaches The organizations following this approach fix the compensation based on employee seniority. There will be guaranteed periodic movement (increase) of compensation. Compensation will be on par with industry standards and bounces will fixed arbitrarily by the top management. ii. Performance based approach In this approach employees performance levels are considered for determining the compensation rather than the seniority or experience of the employee. The compensation will be reflecting the market conditions and the bonuses will be arrived according to the total output.

Types of compensation
Compensation is classified as direct compensation and indirect compensation otherwise, they are known as monetary compensation and non monetary compensation. 1. Direct or monetary compensation

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION Direct or compensation is that which are given in actual cash to he employee. It is of the following types a. Base pay Base pay is the periodic fixed compensation given to an employee irrespective of the employees output level. Actually, base pay will cover the standard of living costs for an employee. Salaries and wages are the two common types of base pay. b. Variable pay Variable pay is given in addition to base pay. Variable pay is those that changes based on some criteria. Incentives bonus piece rate system is common examples of variable pay. Variable pay like incentives, bonus is determined based on the individual employee or team output levels. Variable pay may not be given on a periodic basis but will be given at occurrence of a certain output level or after a target due date. Variable pay induces the employees to actively participate in the organizations process and act as an important motivation tool. Some special types of variable pay are i. ii. i. Group incentive plans Organizational incentive plans Group incentives plans

The additional pay, which employees gains other than the base pay is sometimes tied with the group performance in which the employee is a member. When such group incentive plans are implemented the members of the group excerts cooperation and thus increases productivity. Some of the major group incentive plans are a. Team compensation The employees of a group like departments section receive additional rewards, if the production standard is achieved or surpassed. b. Gain sharing incentive plan In this scheme, the employees get some share in the profits of the organization if a certain production level is met. The sharing percentage in the profit is jointly fixed by both the employees and the organization. Some famous gain sharing incentive plans are Scanlon plan, Rucker plan, and Improshare Earnings at risk plan.

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION ii. Organizational incentive plans Organizational incentive plans are profit sharing programs between the organization and the employees. Such programs are carried out periodically. Usually once in a year. After profits are declared the employees receive additional cash rewards based on any employee-rating producer or salary grade. The organizational incentive plans are implemented under various names as follows a. Stock options Stock options schemes offer the employees the right to purchase a certain member of shares at a guaranteed prize with in a given time period. By this, the employees are made partners in the organization and a sense of ownership is induced in the employees. b. ESOP Under ESOP plan, the organization establishes a trust and allots cash to the trust by which the trust will, purchase the organizations shares and in turn allot there shares to the employees. The above method is called as stock bonus plan. Another variant of ESOP is leveraged money from a bank and the organization pay the principle and interest on the borrowed money to the bank. The payment is tax exempted for the organization 2. Indirect or non monetary compensation Indirect or non monetary compensation are those that are given to the employee in kind. Indirect compensation includes insurance paid by the employer for the employee, medical benefits provided by the employer. The sick leave benefits, holidays rest time transportation, housing and retirement benefits are also some of the common indirect compensation schemes adopted by the organization for its employees. Determination of compensation It is widely accepted that organizations have to adopt fair pay approach in arriving at employee compensation. The fair pay approach contains the following factors. a. Internal equity There must not be any discrepancies between individual employee salaries of the same grade within the organization.

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION b. External equity The organizations compensation levels must be on par with industry standards. c. Pay openers There must be transparency about the method adopted in determining the compensation. The employees must be informed about the way their compensation is determined so that they will be convinced.

Performance appraisal
Performance appraisal is a structured measurement of employees performance and their potential for improvement. Performance appraisals are useful for determine the merits and demerits of individual employees. Based on performance appraisal the compensation is revised and training needs are determine. Performance appraisal act as a tool for controlling the production process and for timely elimination of any shortcoming in the employee performances. Moreover as performance appraisals are standardized they eliminate any individual subjective judgment but the superiors.

Purpose of performance appraisal

Performance appraisal is done to evaluate the performance of individual workers. This evaluation is used to: a. Determine the employees strengths and weakness. b. Determine the training needs. c. Recognize the work done by the employee. d. Determine compensation. e. Determine rewards earned by the employee. f. Determine promotions transfers. g. Determine retention or termination of an employee. h. Determine production schedules and layoffs.

Types of performance appraisal

Performance appraisal is done based on three methods. The methods are a. RukshiCA Traits based performance appraisal.

PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION b. c. Behavior based performance appraisal Results based performance appraisal.

The traits based methods deal with the characteristics of employees. This method tries to identify whether the employee posses certain characters needed for the performance of the assigned tasks. The characters may be trustworthiness, honesty, creativity, leadership, etc. Rating scales A rating scale is a method, which is used to conduct performance appraisal based on traits. In this method, scales are drawn with units like bad good best or least moderate maximum for each character. Then the employees are assigned a scoring in any of these categories for each character. The behavior based on performance appraisal methods concentrate on the employees associated with his / her job. Critical incident This method is used to ascertain an employees performance based on his / her behavior at work. The responses on an employee to unusual incidents at work may be favorable or unfavorable to the task under process. Such favorable and unfavorable responses are recorded for a period. A final judgment about the employees performance is made based on the analysis of the responses. The result based performance appraisal methods focus on the employees output rather than on the employees character or his / her behavior. The bars method consists of a series of vertical scales, each scale for one important job element. A committee observes an employee, determines the production level of the employee, and marks the same in the bars scale. Later after some complex analysis the productivity as well as the performance of the worker is appraised. Management by objectives

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION Management by objectives or MBO is used as results based performance appraisal method. Under MBO, the employees jointly establish their departmental or sectional objectives in consultation with their superior. They also agree with their superiors on a jointly drafted evaluation method to evaluate their process. Thus under MBO, the employees are given the liberty to set the goals and they subject themselves to superiors analysis on their achievement of these goals.

Requisites for a good appraisal system

The following elements are considered as necessary for a good performance appraisal system: a. Reliability Reliability means uniformity the evaluation. Reliability implies that the performance appraisal must be test for consistency in evaluation of different employees. b. Validity Validity denotes relevancy of the performance appraisal method for a particular job or particular set of employees. c. Sensitivity Sensitivity implies that the performance appraisal method must clearly sort out efficient performer and inefficient performer among the employees. d. Acceptability Acceptability means that the methods used in the performance appraisal system must have been understood by the employees and they must be convinced of the of the systems impartiality and other factors.

Methods of performance appraisal

Various parties on an employee conduct performance appraisal. Those parties are: 1. Immediate superior of an employee 2. Peer i.e. co workers 3. Self appraisal 4. Subordinates of an employee 5. Group or team appraisal

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION 6. Customer appraisal 7. 360 appraisal or mutilated appraisal Of the above methods, two important appraisal methods are discussed below: 1. Group or team appraisal Group or team performance appraisal is a part of TQM (Total Quality Management) concept. In this method, a group of employees set the standards on their own. Then they measure their actual performance with the set standards. By this they spot out deviations and areas of excellence. 2. 360 degree performance appraisal A 360-degree performance appraisal is a mutirated and multifacted method. In this method, evaluations about an employees performance are done from different angle by various parties. The parties involve in appraising are the superiors, subordinates, coworkers, customers, etc. It is a complex process but it reduces bias as information is received from various sources. However, a 360 performance appraisal requires training and adequate practice before full implementation.

Balanced score card method (BSC)

The balanced score card is performance appraisal method developed by Robert Kaplan and David nortor. This method translates the organizational objective into departmental goals. This method believes that the internal process of an organization, if improved will lead to productivity, which in turn will satisfy customer and this will ultimately result in higher profits to an organization. Thus balanced score card method concentrates learning (training). The steps involved in the balanced score card methods are: 1. Translate organization objectives into sectional goals. 2. Determine measures to scale the achievement of organization goals. 3. Priorities the goals. 4. Provide feedback about progress. 5. Equip employees for improvement in performance.

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PART 4 LESSON 8 REPORTING AND PERFORMANCE EVALUATION 6. Review the organization objectives.

Problems in performance appraisal

The problems associated with performance appraisal are usually human shortcoming, and they are as follows: Halo effect The overall evaluation of an employee based on a single character is called as halo effect. Some appraisers tend to generates employees based on the presence or absence of a particular character. Central tendency error Some appraisers evaluate all the employees on the average level by avoiding being strict or lenient. This will give a distorted evaluation about the employees. Recency error Recency effect is committed when the appraiser evaluates the employees based on only on the recent performance of the employee. The appraiser completely avoids the past performance and focuses only on the latest performance, which is the fresh in his memory. Leniency error When the appraisers awards above average ratings for all the employees, the leniency error occurs. Contrast error The appraiser commits contrast error when he compares employees and rates the employees based on this comparison. In this error, appraiser neglects the standard criteria is fixed to appraise the employees. Personal bias Personal bias error is said to be committed when the appraiser shows discrimination between employees in performance evaluation.

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