EXAM 2 Comp & Performance Appraisal

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What behaviors should be reinforced (by good pay)?1. Attraction - makes recruiting and hiring easier (sorting effect) 2. Retention- hopefully good employees will stay (sorting effect) 3. Development - learn different things that employees need to learn (motivation/incentive effect) 4. Performance (motivation/incentive effect)What do employees prefer pay systems to be influenced by?1. based on individual performance 2. change in cost of living 3. seniority 4. market rateShould pay be tied to performance?data says YES - both managers and workers think pay should be based on this (incentive and sorting effect)Overall ideas from GE clipIdea of helping the 20% (top), firing the 10% (bottom), and then the 70% in the middle - tournament theory, a competitive environment. Works well in the short-term, but bad in the long-term (cannot just keep firing the bottom 10%)General ideas from Dan Pink's motivation clipDan Pink thinks that we motivate TOO much with pay - we need to do more with autonomy, mastery, and purpose. Motivating wrong = creation of blindersMerit pay plana compensation plan that bases pay on performance - giving people a raise to their base salaryConcerns of merit pay plans1. increases in compensation costs over time (how to avoid? one time thing = bonuses) 2. can become costly for ranking too many people too high 3. too small to motivate performance: NEEDS TO BE AT LEAST 5% 4. sometimes can't measure performance wellEvidence for merit pay planrewards excellence, creates sorting effectCompa-ratioGiving people who already get paid more LESS of a raise for the same performance rating - if you're already getting paid more than average, you are expected to perform better than averageSpot awardsseeing exceptional performance and rewarding it ($) Downside: not always totally fair, you might be missing seeing stuffgain sharingwhen we are hitting different targets but at a smaller level (EX. an increase in customer satisfaction scores) Reason: people feel like they have more control over a smaller unit than a bigger oneProfit sharinguses financial measures - expectancy theory "I can work super hard and not make enough money" - gain sharing can get rid of this concernmerit bonusesa one-time bonus that helps solve a problem of merit pay plans (still rewarding, but not a long-term thing)long-term incentive plansoften stock options - can be more motivating to lower employees. Benefits: 1. you don't have to pay it out right away 2. increases retention (EX. stock options, but they vest in 3 years)Employee stock ownership plans (ESOPs)gives employees the chance to own stock (EX. 401(k) plans) Benefits: 1. employees feel better 2. employees feel like a bigger part of the company"Does variable pay improve performance results?" slideOften the problems of pay for performance = too small a payout for the work expected OR too small metrics making it difficult to determine what is importantEmployee situations (memorize 4 steps)1. gather more information 2. be direct (when possible) 3. be empathetic 4. have a follow upGeneral problems with performance appraisals1. takes a lot of time 2. might not be accurate 3. increases bias 4. not frequent enoughWhat is the biggest employee complaint about performance appraisals?the process is too subjectivePerformance metrics: criterion-deficientdidn't measure something that we should have. EX. HBR case: company said they were only going to pay for clinical hours, not for research or teaching BUT the purpose of the hospital was all 3Performance metrics: criterion contaminationintroduce bias and other factors into what is influencing our decision. EX. recency bias, halo or horns bias, similar-to-me bias, promotability biasBalanced scorecard approach (memorize list)1. customer satisfaction 2. employee internal growth and commitment 3. operational efficiency in internal processes 4. financial measuresRankings: pros and consPros: able to standardize with different units (EX. Deloitte looking at different cities, able to compare across branches) Cons: managers don't like it, it is hard to measure employees across the board. Reason why we do it: corporate likes itRating formats: Standardsscale 1-5 "below average" to "above average". Benefits: simple, can do across all jobs (EX. Googleyness) Downside: tons of bias ("average" to one person is different to someone else)Rating formats: Behaviorally anchored rating scales (BARS)Benefit: 1. managers able to look and see where each employee is 2. courts like it AND it is more relatable Downside: takes more time to write out criteria.Rating formats: Management by objective (MBO)Set goal (performance objective) then find a resultRating formats: Essay3 things employee did well, 3 things they did poorly. Benefit: gives employees more feedback. Downside: less reliable, very subjective and biased360-degree feedbackfeedback from everyone around you (different levels). Decrease impression management: acting different around your boss rather than your subordinates or peerstraining raters to rate more accurately1. rater-error training: teaching people about biases and errors. 2. performance-dimension training: teaching what the different dimensions are EX. telling employees what Googleyness IS and what it IS NOT. 3. Performance-standard rating: similar to BARS EX. this is what a 1 looks like, this is what a 3 looks like etc.What is the toughest error to eliminate?Leniency bias - rating people too easyEqual Employment Opportunity (EEO) and performance evaluation: 6 issues1.Systems should give specific written instruction on how to complete 2. There should be clear criteria for evaluating performance 3. Job descriptions provide rational for personnel decisions 4. Supervisors should provide feedback to affected employees 5. Reviews by higher-level supervisors is a plus 6. Fair appraisals depend on consistent treatmentGoogle Performance Management: 7 steps1. Setting goals: OKRs (not too hard or easy, public, not synonymous with performance evals, "sweet spot" = 60-70% achievement) 2. monthly manager meeting 3. july meeting 4. evaluations (self eval, peer eval, manager eval) 5. calibration meeting 6. performance meeting (1 hr) 7. merit & promotion meeting (1 month after step 6)Types of turnoverVoluntary (avoidable, unavoidable) Involuntary (discharge, downsizing)Why do top performers leave?Pay, promotion opportunities, work/life balanceWhy do employers THINK employees leave?promotion opportunities, career developmentExit interviews vs post-exit surveysMore benefits from post-exit survey than exit interview: cheaper, easier to do, more honesty in answersPredictive Analysisanalyze what is causing turnover and when people leaveMost and least effective retention initiativesMost: retention bundles, benefits, dispute resolution, participation-enhancing work design Least: sophisticated selection system, trainingLayoffs vs. Downsizing vs. FiringDownsizing = making different changes. People are more likely to downsize rather than discharge in cases of poor performancealternatives to downsizingNo-layoff strategies (sometimes furlow OR might not hire as many people) Attrition (not replacing those who leave) Hiring freezes Non-renewal of contract workers Salary reduction Early retirementHow to deal with those who stay after downsizingClear & kind when communicating the downsize. Involve current workforce in redesigning jobs. Provide job search assistance.