3. Measuring Performance
The foundation of good performance management is correctly identifying what should be
measured and the selection of the best method(s) for measuring it.
Accurately defining job performance is critical: measuring the wrong things well is not
good performance management. Once the critical performance dimensions are known, the
best way(s) of assessing them can be identified.
C. The Balanced Scorecard Approach to Performance Management
A relatively new and increasingly popular form of performance management system is the
balanced scorecard approach.
VI. INDIVIDUAL REWARDS IN ORGANIZATIONS
One of the primary purposes of performance management is to provide a basis for rewarding
employees. Rewards are among the most powerful things managers can use to motivate behavior.
The reward system consists of all organizational components—including people, processes, rules
and procedures, and decision-making activities—involved in allocating compensation and benefits
A. Roles, Purposes, and Meanings of Rewards
The purpose of the reward system in most organizations is to attract, retain, and motivate
qualified employees. The organization’s compensation structure must be equitable and
consistent to ensure equality of treatment and compliance with the law. Finally, the system
must be competitive in the external labor market for the organization to attract and retain
competent workers in appropriate fields.
Managers need to tune in to the many meanings rewards can convey—not only the surface
messages but the symbolic messages as well.
Case Study: The Whole Truth
Summary: Whole Foods Market started with one store with 19 employees in Austin, Texas. Today, with
370 stores and 54,000 employees, it is the leading natural and organic foods supermarket. WFM’s motto
is “Whole Foods, Whole People, Whole Planet,” and its guiding “core value,” according to co-CEO
B. Types of Rewards
Most organizations use several different types of rewards. The most common are base pay
(wages or salary), incentive systems, benefits, perquisites, and awards. These rewards are
combined to create an individual’s compensation package.
1. Base Pay
For most people, the most important reward for work is the pay they receive. Pay is very
important to an organization for a variety of reasons.
2. Incentive Systems
Incentive systems are plans in which employees can earn additional compensation in return
for certain types of performance.
Examples of incentive programs include the following:
a. Piecework programs, which tie a worker’s earnings to the number of units
produced
b. Gain-sharing programs, which grant additional earnings to employees or
Plans oriented mainly toward individual employees may cause increased competition for
the rewards and some possibly disruptive behaviors. A group incentive plan, on the other
hand, requires that employees trust one another and work together.
3. Indirect Compensation
Another major component of the compensation package is indirect compensation, also
commonly referred to as the employee benefits plan.
Typical benefits provided by businesses include the following:
a. Payment for time not worked, both on and off the job: On-the-job free time
includes lunch and breaks. Off-the-job time includes vacation and sick leave.
b. Social Security contributions: The employer contributes half the money paid into
4. Perquisites
Perquisites are special privileges awarded to selected members of an organization, usually
top managers.
5. Awards
At many companies, employees receive awards for everything from seniority to perfect
C. Related Issues in Rewarding Performance
Much of our discussion on reward systems has focused on general issues. As Table 6.1 shows,
however, the organization must address other issues when developing organizational reward
systems.
1. Linking Performance and Rewards
For managers to take full advantage of the symbolic value of pay, there must be a
perception on the part of employees that their rewards are linked to their performance.
Organizations must ensure that pay differences are based strictly on performance (including
2. Flexible Reward Systems
Flexible, or cafeteria-style, reward systems are a recent and increasingly popular variation
on the standard compensation system.
3. Participative Pay Systems
4. Pay Secrecy
When a company has a policy of open salary information, the exact salary amounts for
employees are public knowledge. State governments, for instance, make public the salaries
of everyone on their payrolls.
5. Expatriate Compensation
Expatriate compensation is yet another important issue in managing reward systems.
Developing rewards for expatriates is a complicated process.
Figure 6.7 illustrates the approach to expatriate compensation used by one major
multinational corporation. The left side of the figure shows how a U.S. employee currently
uses her or his salary—part of it goes for taxes, part is saved, and the rest is consumed.
As shown on the right side of the figure, the individual’s compensation package will
potentially consist of six components.
Summary and Application
Managers seek to enhance employee performance by capitalizing on the potential for motivated behavior
to improve performance. Methods often used to translate motivation into performance involve work
design, participation and empowerment, alternative work arrangements, performance management, goal
setting, and rewards.
The goal-setting theory of motivation suggests that appropriate goal difficulty, specificity, acceptance,
and commitment will result in higher levels of motivated performance. Management by objectives, or
MBO, extends goal setting throughout an organization by cascading goals down from the top of the firm
to the bottom.
Discussion Questions
1. What are the primary similarities and differences between job enrichment and the approach
proposed by job characteristics theory?
Both job enrichment and the job characteristics theory focus on changing objective characteristics of
2. What are the motivational consequences of increased employee involvement from the frame of
reference of expectancy and equity theories?
The motivational consequences of increased employee involvement can be explained in terms of both
the expectancy and equity theories of motivation. From the standpoint of expectancy theory,
3. What motivational problems might result from an organization’s attempt to set up work
teams?
4. Which form of a flexible work schedule might you prefer? How do you think you would like
telecommuting?
Students’ responses will vary on the first question, depending on the types of work they may have
5. Develop a framework whereby an instructor could use goal setting in running a class such as
this one.
The frameworks developed by the students should specify how the four goal attributes will be
6. Why are employees having their performance measured and evaluated all the time instead of
simply being left alone to do their jobs?
7. In what ways is your performance as a student evaluated? How is the performance of your
instructor measured? What are the limitations of this method?
Students’ performances are evaluated in terms of exams, class participation, class attendance, and
8. Can performance on some jobs simply not be measured? Why or why not?
If performance in a job is important to organizational success, then there must be some way to
9. As a student in this class, what “rewards” do you receive in exchange for your time and effort?
Rewards students might receive from a class are a sense of accomplishment, new acquaintances,
Understand Yourself Exercise—Making Tough Decisions
1. Is there a clear difference between the highest and lowest performer? Why or why not?
2. Did you notice differences in the types of information that you had available to make the
raise decisions? How did you use the different sources of information?
Students should note that they had information on managers’ personal lives (including marital
3. In what ways did your assignment of raises reflect different views of motivation?
Students should consider intrinsic and extrinsic motivations when answering this question. If they
Group Exercise
Summary: Albert Q. Fixx, the founder and CEO of your company, a small manufacturer of auto parts,
has spent the past weekend at a seminar conducted by a nationally respected consultant on management
effectiveness. The principal speaker and the group sessions focused squarely on the use of employee
participation as means of improving company-wide productivity and enhancing employees’ commitment
to their jobs.
So inspired was Mr. Fixx, that he composed and sent an e-mail that all managers would find in their
inboxes bright and early on Monday morning:
I am convinced that participative management is the key to improving
productivity at this company. Because you did not have the advantage of
Task: Divide the class into groups of four to seven people. Each member of the group will pretend to be a
manager at A.Q. Fixx, and your group of “managers” will discuss each of the following issues. Be
prepared to discuss the group’s thinking on each issue, even if the group doesn’t reach a consensus.
1. What are the chances that Mr. Fixx’s e-mail will spur effective participative management at
the company? Are the odds better or worse than 50/50?
Video Exercise
Videos and questions can be found in the eBook and MindTap video folder.
Flight 001
Summary: Until the late 1990s, Brad John and John Sencion worked in different areas of New York’s
fashion industry. During a flight from New York to Paris in 1998, the weary travelers came up with an
1. Can you describe Brad’s motivation in terms of the goal-setting theory of motivation?
Brad’s goal making Flight 001 the international authority on travel is ambitious and a difficult goal to
2. How does Emily see her job from the standpoint of motivating Flight 001 employees? What
motivates her?
Emily believes that employees feel a sense of personal connection and loyalty to the store because the
3. What are the roles of performance management and individual rewards in a start-up company
like Flight 001?
Owners of start-ups must recognize that managers can, and should, manage employee performance.
Now What?
Imagine that a coworker is complaining to you about being upset after learning that another coworker is
being paid more despite the complaining coworker being at the company a year longer. What do you say
or do? Go to this chapter’s “Now What?” video, watch the challenge video, and choose a response. Be
sure to also view the outcomes of the two responses you didn’t choose.
Discussion Questions
1. What role do rewards play in this situation? How do the surface and symbolic values of the
rewards influence what happens?
In this situation, the reward is base pay. Ryan is upset that John makes more money even though
Ryan has worked at Happy Time Toys longer. Ryan was only comparing the numbers and not
2. In Chapter 5, we discussed equity theory. How do the concepts from equity theory apply to this
situation? Explain your answer.
Ryan wants fair treatment and defines an inequity in the fact that John makes more money Ryan has
been at Happy Time Toys for longer. Ryan likely arrived at this perception after going through the
3. As a manager, what could you have done to better handle the situation? Why would this be a
better solution?