CHAPTER 13
MEASURING AND PAYING FOR PERFORMANCE
As already mentioned, a “hot button” term among USA executives and managers is productivity
improvement. The movement of a labor force that was once predominantly manufacturing oriented to
one that predominantly provides services further complicates productivity improvement opportunities.
During the 1980s, USA goods producing businesses improved their manufacturing facilities and
equipment. Labor costs were reduced and many improvements were made in the way employees work
and perform job assignments. These same kinds and degrees of improvements have not been enjoyed in
the service sector. Significant changes are now underway, however, and productivity improvement of
knowledge-directed workers in the service sector will rival the improvements made in the goods-
producing sector of the economy.
An important point to recognize is that each individual has his or her own unique set of demands,
expectations, and desires. It is impossible to design a specific reward program for each worker. It is
possible, however, to design a reward program that can satisfy a significant number of human demands
that are made by almost all people.
A model for integrating content and process theories of motivation was developed by Lyman W.
Porter and Edward E. Lawler, III. Their elaborate model combined needs satisfaction that occurs through
the receipt of extrinsic and intrinsic rewards and the processes that occur in gaining these rewards.
A major part of many productivity improvement programs is a merit pay plan. To many
executives, any kind of a “guaranteed” annual increase in pay is a terrible, horrible, and awful concept.
Merit pay means that any increase in pay is the result of a level of individual performance that is valued
by the organization.
quality of my performance. This is the kind of work situation many employees look forward to but few
have the opportunity to enjoy. The major focus of this book is on designing and administering
compensation reward systems. But any reward system that assists in creating a motivating workplace
environment must be able to relate rewards (in this case, compensation rewards) to quantity and quality of
results obtained from work effort expended. If any organization wishes to implement an honest and
viable merit pay system, it must be able to measure output. In the service-related, high-technology world
we live in, it is seldom possible to count units of output for measuring quantity or quality of employee
work effort. Practically the only option available to management to differentiate rewards based on
demonstrated, observable, and measurable behavior is through the use of a performance appraisal
program. This chapter introduces the reader to this area. Appraising employee performance has been and
continues to be one of the most puzzling, difficult issues facing management in all conceivable types of
organizations.
KEY CONCEPTS:
2. Barriers to pay for performance.
4. Process theories of motivation.
6. Importance of human perception (what a person perceives is reality to that person).
8. The importance and use of validity and reliability.
10. Use of the critical incident technique (CIT) in documenting behaviors.
12. Using multiple raters (the 360 degree performance appraisal process).
1. Behavioral science theories and models are of some value to compensation managers.
3. Intrinsic rewards are those internally operationalized rewards employees gain from the work
they do—work itself.
4. Although motivation is an intuitively appealing process to most people, actual, demonstrated
6. A well-designed compensation system integrates extrinsic and intrinsic rewards. For
example, the employee just completed a successful project. The worker knows a good job
7. Adams’ equity theory identifies the importance of relative considerations in compensation
system design and administration.
8. Victor Vroom’s contribution to a better understanding of human behavior relates to the
9. Content theory of motivation (what is happening inside the human being to direct behavior)
11. B. F. Skinner’s concepts of operant conditioning are of value to compensation system
12. The kind, amount, and timing of rewards is a vital part of any reinforcement process
designed to influence employee behavior.
14. Appraising employee performance is one of management’s most important responsibilities.
15. All employees have the right to know what their managers think of their performance.
17. Because of court rulings and EEOC investigations, businesses are becoming more aware of
the validity and reliability of their appraisal programs.
19. Developing appraisal methods that relate directly to accurate and valid job content is a
20. Over the years, a wide variety of performance appraisal methods and instruments have been
developed for identifying, measuring, and rewarding employee performance.
22. Trait rating techniques have been under severe criticism from both the EEOC and the courts
23. Job content related appraisal techniques are moving in the direction of appraisal instruments
using performance dimensions, performance standards, and performance goals.
24. The principal appraiser in practically all appraisal systems is the immediate supervisor, but
there is increasing interest in having peers, co-workers, subordinates, and self involved in
26. Underlying reasons for appraisal errors are (1) desire to be accepted, (2) concern with job
27. One opportunity available for increasing employee acceptance of the appraisal process is to