Human Resource Management

CHAPTER IX
Employee Performance, wage and incentive
Presented by:
Rabindra kumar sharma
Email: rabipulchowk124@[Link]

Anjaya Kumar Mishra

Email: anjaymishra2000@[Link]
 Employee Performance
Employee: An employee is one who works for some-one else or a company in
exchange of wages or some other agree to compensaston
 An employee is an individual who was hired by an employer to do a specific
job .
 Employer: Organization,Institution,Government Entity, Company Service
Firm….

 Action and activities comply with the job description is called performance.
 An employee performs duty assigned for him/ her through
 Attitude:(a way of thinking that affects a person’s [Link]
 Skill (The ability to do something well expertise )
 Knowledge:facts, information, and skills acquired through experience or education; the
theoretical or practical understanding of a subject.
• Employee performance
Employee evaluation
• Employee Reward System
• Basic Pay
Incentive pay
•
 Employee Performance
 Employee Performance includes
how a member of staff
 Fulfils the duties of their roles
Completes required tasks
Behaves in the work place
Performance Appraisal
 Performance Appraisal
 Performance Appraisal is the systematic
evaluation of the performance of employees
 Helps to understand the abilities of a person
for further growth and development
 It refers to all those procedures that are used
to evaluate the personality, performance,
potential, of its group members.
 It reviews job related strength and
weaknesses of an employee
 Objectives of Performance Appraisal
 To maintain records in order to determine compensation packages, wage structure,
salaries raises, etc.
 To identify the strengths and weaknesses of employees to place right men on right job
 To maintain and assess the potential present in a person for further growth and
development.
 To provide a feedback to employees regarding their performance and related status.
 To review and retain the promotional and other training programs
 It serves as a basis for influencing working habits of the employees
 Advantages of Performance Appraisal
Performance appraisal is an investment
for the company which can be justified
by following advantages:
 Promotion
 Compensation
 Employees development
 Communication
 Motivation
 Process of Performance Appraisal
1. Establish performance standard with
employee
2. Communicate expectations among
supervisor
3. Measure actual performance
4. Compare actual performance with
standards
5. Discuss the appraisal with employee
6. Initiate corrective action if necessary
 Performance Appraisal Methods
A. Absolute Standard
B. Relative Standard
C. Objective Oriented
 Absolute Standard
Measures an employee’s performance against established standard.
Subjects are not compared with any other person.
It comprises the following method
The critical incident appraisal
Checklist appraisal
Graphic rating scale appraisal
Forced choice appraisal
 Absolute Standard
1. The critical incident appraisal
 the manager prepares lists of statements of very effective and ineffective behavior of an employee
 These critical incidents or events represent the outstanding or poor behavior of employees or the job
 The manager maintains logs of each employee, whereby he periodically records critical incidents of
the workers behavior
 At the end of the rating period, these recorded critical incidents are used in the evaluation of the
worker’s performance
 Example of a good critical incident of a Customer Relations Officer is : March 12 - The Officer
patiently attended to a customers complaint. He was very polite and prompt in attending the
customers problem.
critical incident appraisal
 Absolute Standard
Advantages of Critical Incident techniques
 This method provides an objective basis for conducting a thorough discussion of an employees performance.
 This method avoids recency bias (most recent incidents are too much emphasized)

Limitations of Critical Incident techniques

 Negative incidents may be more noticeable than positive incidents.
 The supervisors have a tendency to unload a series of complaints about the incidents during an annual
performance review sessions.
 It results in very close supervision which may not be liked by an employee
 The recording of incidents may be a chore for the manager concerned, who may be too busy or may forget to do it.
 Absolute Standard
2. Checklist appraisal
 In this system, a large number of statements that describe a specific job are given
 Under this method, checklist of statements of traits of employee in the form of Yes or
No based questions is prepared
 A checklist is constructed for each job by having persons who are quite familiar with
the jobs
 Advantage : Most frequently used method in evaluation of the employees performance
 Limitations : This method is very expensive and time consuming
Checklist appraisal
 Absolute Standard
[Link] rating scale appraisal
 Rating scales can be used to assess factors such as quantity and quality of work, job knowledge,
cooperation, honesty etc.
 A printed form is used to evaluate the performance of an employee.
 The appraiser would go through the set of factors rating them, on a scale- poor rating(1) to best
rating(5).
 Advantage : Easy to understand and use, quantifying behaviors makes the appraisal easier,
inexpensive to develop
 Limitations : Subjectivity of different evaluator, different types of biases, difficult to understand
employee’s strength.
Graphic rating scale appraisal

Chart Title
18
16
14
12
10
8
6
4
2
0
Depen- Initiative Attitude cooperation Total
dendability

Ravi Krishna Ganesh

 Absolute Standard
 4. Forced choice appraisal
 the rater has to make a forced choice between the available characteristics, about the employees
 It is in the form of a survey questionnaire
 The raters are given a set of multiple choice questions, from which they are to select one option and
rate the employees
 This list contains only positive or only negative set of choices of behaviors to choose from
 Advantage : It provides a realistic scenario of the performance of an employee, rather than biasness
where only the good or the bad boxes are checked
 .Limitations : the supervisor, himself doesn’t know which is the best answer among the choices
available.
 Relative Standard Method
Evaluating an employee’s performance by comparing the employee with other
employee

I. Paired comparison
 In this method, each employee is compared with the other
on one-to-one basis.
 The number of times the employee is rated as better in
comparisons with others determines his or her final ranking.
 The total number of comparison can be ascertained by the
following formula :
 N×(N-1)/2 N stands for number of employees to be
evaluated.
 Relative Standard Method
II. Group Order Ranking
Evaluating an employees’ performance by placing them into a particular
classification.
It requires the evaluators to place employee into a particular classification, such
as top 20%.
 Groups are ranked on the basis of some competencies
It is often used in recommending students to graduate schools.
Top 5(A), Top 10(B) etc
 Objective oriented method(MBO)
 MBO becomes an appraisal method by
establishing a specific set of objectives for an
employee to achieve and review performance
based on how well those objectives have
been met..
 The steps involved in MBO are
 Collaborative goal setting
 Action planning(by developing actions)
 Performance review
 Performance evaluation
 Who should do the appraising
 The immediate supervisor
 Peer appraiser
 An employee choose an appraisal chairperson.
 Rating committee
 The committee usually contain the employees
Immediate supervisor and two or three other
supervisor
 Self rating
 Appraisal by subordinates(upward feedback)
 Problem in Performance Appraisal

• Judgment Error
• First Impression
• Appraiser Discomfort
• Lack of objectivity
• Central tendency Error
• Strictness or leniency error
 Potential appraisal problem
 [Link] Error
 Every evaluator has his or her own value system which
acts as a standard against which appraisals are made.
 Some evaluators mark high and other low
 When evaluators are positively lenient in their appraisal,
an individual’s performance becomes over-stated; that is,
rated higher than it actually should.
 Similarly, a negative leniency error understates
performance, giving the individual a lower appraisal.
 Potential appraisal problem
[Link] effect
The individual’s performance is completely appraised on the basis
of a perceived positive quality, feature or trait.
The halo effect or error is a “tendency to rate high or low on all
factors due to the impression of a high or low rating on some
specific factor.” Rating committee
 Potential appraisal problem
3. Similarity error
Rating other people in the same way that the evaluator perceives
themselves.
performance ratings, managers may be giving higher ratings to employees
who are similar to them rather than giving an accurate rating.
 For example, the evaluator who perceives himself or herself as aggressive
may evaluate others by looking for aggressiveness. Those who
demonstrate this characteristic tend to benefit, while others are penalized.
 Potential appraisal problem
4Low appraiser motivation
If the appraiser knows that a poor appraisal could significantly hurt the
employee’s future-particularly opportunity for promotion or salary
increase-the evaluator may be reluctant to give a realistic appraisal.
 Potential appraisal problem
[Link] tendency
The tendency of a rater to give average rating. Supervisor may rate all
employee as 3 on a scale of 1 to 5.
 Potential appraisal problem
[Link] Effect
 The individual’s performance is
completely appraised on the basis of
a negative quality or feature
perceived
 This results in an overall lower rating
than may be warranted. “He is not
formally dressed up in the office. He
may be casual at work too!”.
 Potential appraisal problem
7. Spillover Effect:
The present performance is evaluated much on the basis of past
performance. “The person who was a good performer in distant past is
assured to be okay at present also”
8. Recency Effect:
 Rating is influenced by the most recent behavior ignoring the commonly
demonstrated behaviors during the entire appraisal period.
 Reward
Monetary and non-monetary stimulus
provided by companies to attract,
motivate, and retain employees
Something paid to the employee in
exchange to his/ her job
An employee gives better
performance with expectation of
receiving something financial or non
financial.
 Types of Reward
A. Intrinsic vs. Extrinsic Rewards

Intrinsic Rewards Estrinsic Rewards

 can’t be seen or touched. They are  Are controlled and distributed
related to the job content directly by the organization and
 They result from the following: are of a tangible nature.
Interesting work, responsibility, job
freedom, participation etc.  An increase in salary, formal
recognition, promotion, incentive
 An intrinsic reward is an internal reward
that employee achieve from completing payment etc
their task or project successfully
 Types of Reward
B. Financial vs. Non Financial Rewards

Financial rewards Non-Financial rewards

directly or indirectly enhance the do not directly increase the
employee’s financial well-being employee’s financial position, but
Wages salary, bonus, profit rather add attraction to life on the
sharing, incentive, bonus, job.
commission etc.. Such as job status, carpeted floor,
New chair etc.
 Types of Reward
C. Performance based vs. Membership based Rewards

Performance based rewards Membership based reward

 Performance based rewards can be exemplified by the use  includes- profit sharing, benefits and salary
of- piece work pay plan, commission, incentive system or
other form of ,merit pay planWages salary, bonus, profit
increase etc.
sharing, incentive, bonus, commission etc.. • Membership-based rewards are given in
• What are performance-based rewards? the form of benefits and services
• A performance-based bonus is an extra provided to the company's employees.
compensation granted to an employee as a reward
for reaching pre-established goals and
For example, it might be in the form of
benchmarks. Employers often reward employees with the annual Christmas bonus, company
performance bonuses after evaluating outstanding retreat, upgraded office furnishing,
projects or high-quality work performances etc.
 Performance based

Performance based
• Pay. ...
• Bonuses. ...
• Working on special projects or tasks. ...
• Working with a particular colleague or team. ...
• Travelling (or not) for business.
• Promotion. ...
• Secondment to another area.
• Attending a course, seminar or exhibition
 Basic Pay
A employee’s initial rate of compensation excluding extra lump sum
compensation or increase in the rate of pay
Base pay expressed as base hourly rate pay or annual pay (In case of
Nepal generally monthly pay)
After certain period basic pay get increase with certain amount,
commonly known as increasing pay
 Incentive Pay
A monetary gift provided to an
employee based on their performance
which helps to motivate employees
and increase their performance.
Incentive pay may come in the form
of a bonus, profit sharing or
commission.
An all-expense paid trip can be an
effective incentive.
 Employee Benefits
Employee benefits is various type of non wage compensation provided to
employees in addition to their normal wages or salaries
Purpose is to increase economic security of staff member and in doing so,
improve worker retention across the organization.
Examples; housing (employer provided or employer paid), group
insurance, disability income protection, retirement benefit, sick leave,
vacation, social security etc.
 Compensation
Typically money rewarded to someone in recognition of loss, suffering or
injury suffered at work
Compensation includes all forms of employees’ pay or rewards arising
from the employment
It is the cost to the employer
 Types of Compensation
A. Direct Compensation
I. Pay
 Wages and salaries received for performing work. It can be base pay and merit pay
 Base pay is hourly, weekly or monthly pay employees receive in exchange for work.
 Merit pay is based on performance. It is an addition to the base pay. Those who perform
better receive merit pay.
II. . Incentives:
 Incentives are provided for higher performance. They can be commission, bonus, profit
sharing etc. It is the cost to the employer
 Types of Compensation
A. Indirect Compensation
I. Benefits
Benefits: Employees receive them as a result of continuing their employment in
the organization
 Pay for time not worked example; paid vacation, holidays, leaves etc
 Retirement benefits for example; pension, insurance payments, provident fund,
medical care)
 Executive benefits for example; Free newspaper, telephone etc.)
 Types of Compensation
A. Indirect Compensation
II. Services
They are normally not paid in cash. They increase employees well-being
at no cost or at significantly reduced cost to employee.
Free furnished housing, special food services.
Discount on purchase, loans.
Company car, aero plane.