[PPT] - PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE PowerPoint Presentation

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PERFORMANCE APPRAISAL SYSTEMS

CHAPTER VII

REWARD FOR PERFORMANCE

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PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII

REWARD FOR PERFORMANCE

Objectives: Understand
1. Different reward systems & their role in
rganization.
2. Importance of profit sharing, stock
ptions & other incentive plans.
3. Different types of employee benefits &

their utility to the employer & employees.

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PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII

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Structure:
1. Reward systems.
2. Incentives & rewards.
3. Competence related pay.
4. Skill-based rewards.
5. Team-based rewards.
6. Profit-sharing.

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Structure: (cont.)
7. Gain sharing.
8. Sock options.
9. Merit pay.
10. Employee ownership.
11. Employee benefits

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7.1 Reward systems:

Five factors to be considered in designing

reward system:

1. Satisfaction depends on amount received and

expected.

2. It is influenced by comparison with what
thers got.
3. It affects overall job satisfaction.
4. Different people expect different rewards and

attach different values.

5. Rewards lead to more rewards and more

satisfaction.

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7.1 Reward systems:

Attributes of Reward system:
1. Equity.
2. Fairness
3. Effectiveness.
4. Motivation
5. Satisfy needs
6. Linked to performance.

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7.1 Reward systems:

Motivational aspect: Of late reward system

practices are changing consistent with participative management e.g. gain-sharing has become popular, skill-based pay plans have replaced job-based plans.

Best performers represent retention problem.

External comparisons make retention difficult. To counter turnover, rewards at a level higher than

thers is one solution. Connection between

performance and reward must be visible and a climate of trust and credibility must exist in the

rganization. Employees have to trust the

system that promises reward.

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PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII

REWARD FOR PERFORMANCE 7.1 Reward systems:

Reward can motivate the learning of skills and

development of knowledge. Since employees want to learn skills leading to promotions, companies use skill-based pay when they want employees to learn skills not leading to

promotions. Reward system may cause the

culture of a company to vary widely. Reward systems are often significant cost factor in

rganization.
The way rewards are distributed has a profound

effect on the quality of work –life as well as on effectiveness of organization.

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7.1 Reward systems:

Reward systems are expected to do

four things:

1. Motivate to perform effectively.
2. Motivate employees to join the
rganization.
3. To come to work
4. Motivate employees by indication their

position in the organization structure.

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7.1 Reward systems:

Factors determining satisfaction with

rewards:

1.Comparison with own expectations.

2. Comparison with others within & outside.
3. Internal feelings of competence, achievements,

personal growth and self-esteem.

4. Kind of reward they desire- cash or job content

etc.

5. Rewards leading to other rewards, or their

symbolic value.

Criteria of receiving award should be clear.

Management must ensure that workers perceive rewards as equitable and comparable with competitors.

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7.2 Incentives & rewards:

Incentives are forward looking, rewards are
retrospective. Financial incentives provide direct
motivation. Financial rewards give tangible

recognition for exceeding performance & reaching a level of competence. Financial incentives motivate to achieve objectives, improve performance and enhance competitive

skills. Financial rewards Payment by result on

shop floor and commission on sales are financial

incentives. Achievement bonus or team-based

lump-sum payment are financial rewards.

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7.3 Competence-related pay:

This is a method of rewarding people. By

reference to the level of competence they

demonstrate. It is about the effective use
f competence to generate added value.

The system works through competence analysis.

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7.4 Skill-based pay:

It links pay to the level of skill and

acquisition and application of additional

skills. It mainly is applied to manual work.

In competence related pay schemes, the behaviors and attitudes are assessed in addition to pure skills. Initially skill based pay provides incentive, but may outlive their usefulness and have to be revised or replaced to be cost effective

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7.5 Team-based rewards:

These are provided to members of

established team, linked to the performance of that team. These are shared amongst members. Rewards for individuals may be influenced by team

results. It is necessary to understand the

nature of teams and how they function. Team-based rewards are not easy to design or manage.

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7.6 Profit-sharing:

It is a participative management theory, a group-

based organization plan.

Objectives:
1. Encourage employees to identify themselves with

company.

2. Stimulate greater interest in the affairs of

company.

3. Encourage cooperation between employees &

management.

Under this scheme, employees get concerned with

success of organization and it permits labour costs to vary with organisation’s ability to pay.

Companies use it to educate employees on its

financial performance

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7.7 Gain-sharing:

It is a factory or company-wide plan, where

employers share the financial gain and create a motivated and committed workforce. Traditional forms of gain-sharing plans are Scanlon plan and Rucker plan.

Success of the plan depends on creating a

feeling of ownership, involvement of employees and their commitment to plan. Three main principles on which gain-sharing plan is based are- ownership, involvement and

commitment. Gain-sharing plan focuses the

attention of all employees on key issues and enlists their support.

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7.7 Gain-sharing:

There are three differences between Gain-

sharing and profit-sharing.

1. Gain-sharing is based on productivity

rather than profits. Thus pay is linked to what employee can control.

2. Gain-sharing is paid more frequently.
3. Gain-sharing pay is not deferred.

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7.7 Gain-sharing:

Common results of Gain-sharing plan:

1.Coordination, teamwork and sharing of knowledge are enhanced at lower level.

2. Social needs are recognised through participation

& reinforcing group behavior.

3. Attention is focused on cost savings, not just

quantity of production.

4. Acceptance of change due to technology, market

and new method is greater because higher efficiency leads to bonus.

5. Attitudinal change occurs among workers and

they demand more efficient management, planning and good performance from co-workers.

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7.7 Gain-sharing:

Common results of Gain-sharing plan: (cont)
6. Employees try to reduce overtime, and to work

smarter.

7. Employees produce ideas as well as effort.
8. Union-management relations can be more flexibly

administered.

9. Unions get stronger by supporting the plan due to

better work situation and higher pay.

10. Unorganised locations remain free from unions.
Limitations of Gain-sharing are: As they do not pay

more for better performance, they do not attract and retain best performers. It pays bonus even when

rganization is not earning profits. Gain-sharing

plans do not fit in with every situation.

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7.8 Stock options:

These are long term incentives. It is a right to

purchase shares at specific price. It is long term executive incentive and retention tool.

Goals of this plan are:
1. motivate employees to act in best interest of

the company.

2. Enhance their identification with the company.
3. Make labour cost variable with company

performance.

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7.9 Merit pay:

It pays salary increase for performance

based on appraisal. Purpose of merit pay is to motivate and retain best performers. However if appraisal is not done well, good measure of individual performance does not exist.

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7.10 Employee ownership:

In this some or total ownership of

company is put in the hands of employees. These include stock option, stock purchase plans & employee stock

wnership plans (ESOPs). It creates

integration across the company and attracts and retains employees. However its usefulness is situational.

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7.11 Employee benefits:

This is remuneration given in addition to pay, in

the form of pension schemes, insurance cover, sick pay, company car, annual holiday etc.

Objective is to
1. Increase employee commitment.
2. Demonstrate that company cares.
3. Meet personal security & personal needs.
4. Cost-effective benefits improve recruitment &

retention rates.

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7.11 Employee benefits:

Statutory benefits: Social security benefits,

Employee State Insurance scheme, Provident fund, maternity benefits, Gratuity, compensation under workmen compensation act, and under Industrial disputes act etc. These are given compulsorily.

Voluntary benefits: have significant cost to

employer and include vacations, holidays, special leave, sick leave, recreational facilities, subsidized meals, credit cards, mobile telephones etc.

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7.11 Employee benefits:

Flexible benefits: These control costs &

give satisfaction to employees. To maximize satisfaction and minimize cost, employees are given choice from various alternatives within a financial limit. However wrong choice, keeping track of changing needs and administrative complexities are some disadvantages of the system.