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Chapter 10-16

MHR 523 Chapter Notes - Chapter 10-16: Performance Appraisal, Total Rewards, Employee Benefits

Human Resources
Course Code
MHR 523
Anne Hardacre

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Chapter 10: Performance Management
The Strategic Importance of Performance Management
- Achieving strategic objectives requires employee productivity above all else
- Create a high-performance culture by using a minimum number of employees
- Better performance management represents a largely untapped opportunity to improve company
- Performance management: process encompassing all activities related to improving employee
performance, productivity, and effectiveness
- Goal setting, pay for performance, training, and development, career management, and
disciplinary action
- Must provide an integrated network of procedures across the organization that will direct all work
- Founded by performance appraisal process
- Purpose of appraising and coaching employees is to instill the desire for continuous improvement.
- Concrete basis for analysis of an employee’s work performance
The Performance Management Process
1) Defining performance expectations and goals to make sure that job duties and job standards are
clear to all
- Critical step in understanding how work makes a contribution to business results
- Should be linked to current strategic objectives and implementation plans
- ―Line of sight‖ from job duties to achievement of strategic goals is blurred
- Job description often is not sufficient to clarify what employees are expected to do
- To clarify expectations, measurable standards related to strategic objectives should be developed
for each
- In global companies, performance appraisal criteria may need to be modified to be consistent with
cultural norms and values
2) Providing ongoing feedback and coaching through open two-way communication
- Throughout the performance management process, managers and their reports should continue to
discuss progress
- Important to have open two-way communication
- Both employee and the manager need to check in frequently throughout the performance
management process
3) Conducting performance appraisal and evaluation discussions at specific intervals by comparing
an employee’s actual performance to the standards that have been set (usually involving some type
of rating form); the employee’s performance and progress are discussed to reinforce the things that
the employee is doing well and to develop a plan for correction of any deficiencies that the
appraisal might have identified
4) Determining performance rewards/consequences such as promotions, salary increases, and
5) Conducting development and career opportunities discussions in order to review each employee’s
career lands in light of his or her exhibited strengths and weaknesses, and in light of the
company’s strategic plans
Formal Appraisal Methods
- 1. Graphic Rating Scale
- 2. Alternation Ranking Scale
- 3. Paired Comparison Method
- 4. Forced Distribution Method
- 5. Critical Incident Method
- 6. Narrative Forms
- 7. Behaviourally Anchored Rating Scales
- 8. Management by Objectives (MBO)
- 9. Computerized and Web-Based Performance Appraisal

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- Graphic Rating Scale Scale that lists a number of traits and a range of performance for each. The
employee is then rated by identifying the score that best describes his or her level of performance
for each trait
- Alternation Ranking Method Ranking employees from best to worst on a particular trait
- Paired Comparison Method Ranking employees by making a chart of all possible pairs of
employees for each trait and indicating the better employee of the pair
- Forced Distribution Method Predetermined percentages of rates are placed in various
performance categories
- Critical Incident Method Keeping a record of uncommonly good or undesirable examples of an
employee’s work-related behaviour and reviewing the list with the employee at predetermined
- Narrative Forms Performance improvement plan. Performance problem is described in specific
detail; organizational impact is specified. It defines measurable improvement goals, provides
directions regarding training and any other suggested activities to address the performance issue,
and encourages the employee to add ideas about steps to be taken to improve performance.
Outcomes and consequences are explicitly stated.
- Behaviourally Anchored Rating Scales Aims to combine the benefits of narratives, critical
incidents, and quantified ratings by anchoring a quantified scale with specific narrative examples
of good and poor performance
1) Generate critical incidents. Performs who know the job being appraised are asked to describe
specific illustrations (critical incidents) of effective and ineffective performance
2) Develop performance dimensions. These people then cluster the incidents into a smaller set of
performance dimensions. Each cluster is then defined.
3) Reallocate incidents. Another group of people who also know the job then reallocate the
original critical incidents. They are given the clusters’ definitions and the critical incidents
and are asked to reassign each incident to the cluster that they think it best fits. A critical
incident is retained if some percentage of this second group assigns it to the same cluster as
the group did in Step 2.
4) Scale the incidents. Second group is generally asked to rate the behaviour described in the
incident as to how effectively or ineffectively it represents performance on the appropriate
5) Develop the final instrument. A subset of the incidents is used as behavioural anchors for each
Advantages and Disadvantages
1) A more accurate measure.
2) Clearer standards help clarify what is meant by good performance
3) Feedback
4) Independent dimensions
5) Consistency
•Validity & Reliability
•Rater errors
•Lack of standards; irrelevant, subjective, unrealistic standards, poor measures of performance
•Poor feedback to employees e.g. arguing
•Failure to use evaluation results for decision-making
Management by Objectives
- Involves setting specific measurable goals with each employee and then periodically reviewing the
progress made
1) Set the organization’s goals – Establish an organization-wide plan for next year and
set goals
2) Set departmental goals Here department heads and their superiors jointly set goals
for their departments
3) Discuss departmental goals Department heads discuss the department’s goals with
all employees in the department and ask them to develop their own individual goals
4) Define expected results Here, department heads and employees set short-term
performance targets

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5) Performance reviews: Measure the results Department heads compare the actual
performance of each employee with the expected results
6) Provide feedback Department heads hold periodic performance review meetings
with employees to discuss and evaluate progress in achieving expected results
Computerized and Web-Based Performance Appraisal
- Enables managers to keep computerized notes on employees
- Improve overall performance management process
- Performance management systems provide employees with a clear development path and better
understanding of how goals are aligned with organization; increases support of process
- Web provides advanced reporting capabilities; allows managers to track performance management
initiative status
Management by Objectives
1. Set the organization’s goals
2. Set departmental goals
3. Discuss departmental goals
4. Define expected results (individual)
5. Performance reviews: measure the results
6. Provide feedback
Setting unclear, immeasurable objectives
Time consuming
Tug of war between manager and employee
Strategic Pay Plans
The Strategic Importance of Total Rewards
Total Rewards: Integrated package of all rewards gained by employees arising from their employment
- Considers individual reward components as part of an integrated whole to determine the best mix
of rewards that are aligned with business strategy
- Alignment is the extent to which rewards support outcomes that are important to achieving the
organization’s strategic objectives
- Five Components of Total Rewards
o Compensation: Direct financial payments (wages, salaries, incentives, commissions, and
o Benefits: Indirect payments in the form of financial benefits (employer-paid insurance
and vacations)
o Work/life Programs: Relates to programs that help employees do their jobs effectively
(flexible scheduling, telecommuting, childcare)
o Performance and Recognition: Pay-for-performance and recognition programs
o Development and Career Opportunities: Planning for the advancement and/or change in
responsibilities to best suit individual skills, talents, and desires. Tuition assistance,
professional development, sabbaticals, coaching and mentoring opportunities, succession
planning, and apprenticeships are examples
Impact of Rewards
- Attract, retain, and motivate/engage employees
- Engagement: Positive emotional connection to the employer and a clear understanding of the
strategic significance of the job which results in discretionary effort on the part of the employee
- Competitive base pay is the number one actor in attracting employees to an organization
- Having excellent career opportunities was the most important factor in retaining employees
- Senior management’s interest in employee well-being was the top factor influencing employee
Basic Consideration In Determining Pay Rates
- Four basic considerations: Legal requirements, union issues, compensation policy, and equity
- Legal Considerations in Compensation
o Employment/Labour Standard Acts (Canada Labour Code)
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