Performance Management Study Guide: Key Concepts & Methods

HRIR 3021 Exam #3 Study Guide Performance Management- Chapter Ten 1. Begin by listing all the terms from this chapter and their definitions for easy reference. 2. What is the definition of performance management and the purposes of performance management? Performance Management - The process through which managers ensure that employees’ activities and outputs contribute to the org’s goals - Feedback, formal or informal - Guidance and assistance - identifying if training is needed - Creating goals 3 Purposes: 1. Strategic - Help org achieve business goals 2. Administrative - Ways the org uses the system to provide info for day-to day decisions about salary benefits, and recognition programs 3. Developmental - Developing employees’ knowledge and skills Additional Uses of PM - employment decisions (pay, promotions, discipline, firing) + legal justification - feedback: behavior modification, praise - Objectives for training and development programs - Diagnosis of Org Problems - rewarding right behaviors - Validation of selection criteria 3. What are the steps in a modern performance management system? How is this different from the traditional model? Modern PM System 1. Define performance outcomes for company division and department 2. Develop employee goals, behavior, and actions to achieve outcomes 3. Provide support and ongoing performance discussions 4. Evaluate performance 5. Identify improvements needed 6. Provide consequences for performance results (+ or -) Traditional / Old Way

4. Compare and contrast types of performance measures, subjective and objective. For instance: What’s wrong with rating traits and attributes? Low fit with strategy, low reliability (no definitions of attributes, low feedback specificity - needs to define high performance to make it reliable and valid - easy to develop and can be applied to variety of jobs/orgs What are result-oriented measures vs. behavioral? What employee accomplished (results) vs what employee does daily (behavioral) How does opportunity bias affect a seemingly objective measure, such as sales? Subjective - From managers, peers, and customers about personal qualities Objective - based on work process (causes of problems, measures of performance, relationships between work-related variables) Opportunity Bias: Merrill Lynch - Black employees not given same opportunities (affluent clients) as white employees - Given unfavorable accounts - Evaluated based on how much they sold (but given low $ accounts) 5. Understand the different evaluation methods mentioned in the reading (for instance, simple ranking, forced distribution, graphic rating scales, BARS, BOS, MBO, 360 reviews) and their benefits and disadvantages. We did not have time to discuss all in class, but you will be tested on any from class or in the reading.

Comparative Appraisals - Compare one person’s performance with that of others - moderate acceptability, low feedback specificity Simple Ranking - Method of performance measurement that requires managers to rank employees in their group from the highest performer to the poorest performer (easy, maybe not fair) Alternation Ranking - 1. Which employee is best and crosses that person’s name off the list, 2. For the remaining names, the manager selects the worst employee and crosses it off, 3. Process continues with the manager selected 2nd best, 2nd worst, 3rd best, so on - (con = needs validity, measure as “best or worst” doesn’t define what is good or bad about them) Forced-Distribution Method - Method of performance measurement that assigns a certain percentage of employees to each category in a set of categories Ex. rate 5% as exceptional, 25% as exceeds… - Works best if members of a group really do vary this much with performance - Overcomes temptation to rate everyone high to avoid conflict - Improves performance when combined with goals/rewards, in first few years, eliminate lowest people

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Paired-Comparison Method - Compares each employee with each other employee to establish rankings - Compares x with y’s performance, and assigns 1 point to higher performer, compares x with everyone– highest points is top-ranked employee Pros - Counteracts tendency to avoid controversy by rating everyone favorably or near the center scale - Useful for supporting decisions about distributing pay raises or layoffs - Some easy to use Cons - They are not often linked with org goals - Hurt morale or legal issues - Time consuming if group has > handful of employees Trait-based Appraisals - Desirable traits - good attitude, great work ethic - most popular way to measure performance in orgs Low fit with strategy, low reliability (no definitions of attributes, low feedback specificity - needs to define high performance to make it reliable and valid - easy to develop and can be applied to variety of jobs/orgs Graphic Rating Scale - Lists traits and provides a rating scale for each trait, the employer uses the scale to indicate the extent to which an employee displays each trait - Con: leaves it up to specific manager what is “excellent knowledge”..., the result is low reliability (managers have different judgements) Mixed-Standard Scales - Uses several statements describing each trait to produce a final score for that trait - Determine the traits, then for each traits, sentences were written to describe someone have a low, medium, and high level of it, rearrange them

Behavior-Based Appraisals - person’s behavior - assisted with xyz project in Jan, created new client database Critical-Incident Method - Based on manager’s records of specific examples of the employee acting in ways that are either effective or ineffective - Gives specific feedback, and could relate to achieving goals - Con: keeping daily log = time consuming - Unique, so no compassion among workers ex: how repairman effectively helps out customer by doing __ Behaviorally Anchored Rating Scale (BARS) - Rates behavior in terms of a scale showing specific statements of behavior that describe different levels of performance - 7 point scales (7 = good behaviors, 1 = bad behaviors), based on past performance and classifies them most to least effective (ex. late for roll call, not prepared for x) - BARS can help improve interrater reliability, CON: bias manager’s memory - Statements used as anchors can help managers remember similar behaviors Behavioral Observation Scale (BOS) - Variation of a BARS which uses all behaviors necessary for effective performance to rate performance at a task - Uses rating scales to define all necessary behaviors for good performance - Rate frequency with which employee showed behavior Con

- Amount of info required (could have 80 or more), and manager needs to remember each behavior of each employee in 6-12 month rating period - Prefer BOS for ease of use, feeback, maintaining objectivity, suggesting training needs Behaviorism - Holds the individual’s future behavior determined by their past experiences (which past behaviors have been reinforced) Organizational Behavior Modification (OBM) - A plan for managing the behavior of employees through a formal system of feedback and reinforcement 1. Define a set of key behaviors necessary for job performance 2. Use a measurement system to assess whether the employee exhibits the key behaviors 3. Inform employees of the key behaviors, perhaps in terms of goals for how often to exhibit the behaviors 4. Provide feedback and reinforcement based on employees behavior - Can be effective, link to org goals for specific behaviors, guidance in areas needing improvements - Valid, high Acceptance, when raters trained well = high Reliability - Don’t work well in complex jobs where it’s hard to see link with behavior and results or there’s more than more good way to achieve success

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Results-Based Appraisals - focus on what the employee accomplished : hired 10 ppl in 3 months with satisfactory performance ratings, sold 20 new products (sales, costs, productivity) Productivity - Getting more done with a smaller amount of resources (money/people) increases profits - Output of production workers - 1. Org identifies the product (set of activities/objectives) it expects a group or person to accomplish, 2. Define how to measure the product of these products, 3. Decide what level of performance is desired, 4. Org sets up system for tracking the measures and giving feedback Management by Objectives - People at each level of the organization set goals in a process that flows from top to bottom, so employees at all levels are contributing to the organization’s overall goals; these goals become the standards for evaluating each employee’s performance 1. Goals are specific, difficult, and objective 2. Managers and their employees work together to set the goals 3. The manager gives objective feedback through the rating period to monitor progress toward the goals. Pros - Can have positive effect on org’s performance - Evaluation of results = less subjective - Highly acceptable, easy to link to org goals Cons - Problems with validity, results may be affected by things beyond employee performance - If they only measure final results, it may fail to measure significant aspects of performance that are not directly related to those results What employee accomplished (results) vs what employee does daily (behavioral)

Quality Appraisals - Both individual performance and the system within which the individual works - high fit with strategy Top Quality Management (TQM) - Assess both individual performance and the system within which the individual works, employees and their customers work together to set standards and measure performance 1. Subjective Feedback from managers, peers, and customers about the employee’s personal qualities (ex. Cooperation and initiative) 2. Objective feedback based on work process a. From statistical quality controlL use charts to detail causes of problems, measures of performance, or relationships between work-related variables - Employees track measures to see areas they can avoid or correct problems - TQM has practical benefits, but not good to support decisions about work assignments, training, or compensation 5. 360-Degree Performance Appraisal 360-degree Performance Appraisal - Performance measurement that combines information from the employee’s managers, peers, subordinates, self, and customers Managers - Most-used source of performance information (extensive knowledge/opportunities to observe = possess basic qualifications) - They have an incentive to provide accurate and helpful feedback because their own success depends on it - Employees tend to perceive feedback as accurate, and it improves Peers - Good for when supervisor does not often observe the employee (ex. Police and sales) - Have expert knowledge of job requirements - Bring different perspective to evaluation and can provide valid assessment of performance - Comfortable when used for employee development Cons - Friendships or rivalries can bias ratings (not that big of an issue) - When it’s for administrative decisions, peers are uncomfortable rating people for decisions that may affect themselves Subordinates - Good for evaluating managers (how they treat employees)

Cons - Power relationships: subordinates might be scared to say negative things, prefer anonymous reporting - Managers like when feedback is shown as to who said it - Employees have more power here, so managers emphasize employee satisfaction, even at the expense of productivity - Most appropriate for developmental purposes - Should be anonymous and use at least 3 employees for one manager Self - Rarely used alone, can be valuable: evaluate yourself before feedback session - Areas of disagreement can be good topics for discussion in feedback Cons - People inflate assessments of their performance - People tend to blame external circumstances for failures, but take credit with success - Not appropriate for administrative decisions - Supervisors can soften this by giving frequent feedback Customers - Customer evaluations a part of employee performance Uses 1. When an employee’s job requires direct service to the customer or linking them to other service in the organization 2. Customer evaluations are appropriate when the organization is interested in gathering information to determine what products/services the customer wants (linked to org goals) Cons - Expensive - Limit gathering to short periods once a year 6. What types of biases/ratings errors exist (there was a slide with several) and how can a company deal with them? Similar-to-Me Error - People give higher evaluation to people they consider similar - We think we’re effective, so they must be too - Based on race, sex, etc. May be discriminatory Contrast Error - Rating a person, not against an objective standard, but against other employees

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Distributional Errors - Tend to use only one part of a rating scale - Leniency: reviewer rates everyone near the top - Strictness: rater favors lower rankings - Central Tendency: rater puts everyone in the middle Halo Error - Overrating based on one good quality Horns Error - Underrating based on one bad quality Ways to Reduce Errors - Raters can be trained to avoid errors - Raters learn to look at aspects of performance that deserve their attention - Bringing in data analytics into process (tracking activities, analyze sentiment with comments) - Avoid politics - Hold a calibration meeting - Audit the system

Encourage performance, but be careful - Managers often use rewards to motivate performance but we must be careful what we reward, and whom we reward - What you don’t reward often goes away - What you do edward becomes the focus - Who you reward becomes the example 7. Describe how to give performance feedback effectively (learning objective 10-7). Scheduling Performance Feedback - Regular, expected management activity (more than once/year) - Feedback is effective when it doesn’t surprise the employee and gives them more time to start improving - Employees are motivated and directed by regular feedback (right track or not) Preparing for Feedback Season - Location = neutral, - Announcement = “a chance to discuss the role of employee, manager, and relationship between them” and “open dialogue” - Enable the employee to be prepared, complete self-assessment before Conducting the Feedback Session 3 Approaches 1. Tell and Sell Managers tell employees their rating and justify them - Most common approach 2. Tell and Listen Managers tell employees their ratings and then let the employees explain their side of the story 3. Problem-Solving Approach Manager and employee work together to solve performance problems in an atmosphere of respect and encouragement Managers can improve employee satisfaction with the feedback process by letting employees voice their opinions and discuss performance goals - Open-ended questions to get convo started - Ex. What have you learned, what next steps are, what skills do you want? - Content = specific, emphasizing behavior, not personality

- Focus on strengths (building them) NOT weaknesses Feedback session should end by starting another round of the performance management process (setting/revising goals for the coming period, with timelines) Compensation, Chapter Twelve 1. Identify the kinds of decisions involved in establishing a pay structure. Job Structure - The relative pay for different jobs within the organization a. Ex. pay difference between accountant and receptionist Pay Level - The average amount (including wages, salaries, and bonuses) the organization pays for a particular job Together, job structure and pay levels establish a pay structure that helps the organization achieve goals related to employee motivation, cost control, and the ability to attract and retain HR Pay Structure Decisions - pay rates - Pay grades - Pay ranges - Pay differentials 2. Summarize legal requirements for pay policies. This should be mostly a review from our employment law unit. Equal Opportunity Employment a. Equal pay for equal work Minimum Wage ($7.25/hr) b. Training Wage: subminimum wage for workers under the age of 20 for a period of up to 90 days Overtime Pay for Non-Exempt Workers c. 1.5X hourly rate over 40 hrs d. Exempt vs Non-exempt (salary vs hourly) e. Includes all pay for the week (+ bonus/others) Computation of Overtime Pay:

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2 and 3 = FLSA (Fair Labor Standards Act) Child Labor - restrictions under 18 f. Under the FLSA, children 16-17 may not be employed in hazardous occupations g. 14-15 may work only outside school hours in jobs defined as non hazardous and for limited time periods i. Exemptions include acting, babysitting, and delivering newspapers Prevailing Wage - Federal Contractors must pay prevailing wage for certain contracts (depending on constant $ value) Pay Ratio Reporting - compares the CEO’s compensation to the median employee. Under Dodd-Frank , public companies are required to include this ratio in their annual financial statements - Ratio is high = CEO pay is high, but employees hold low-paying - Ratio is low = w/ doctors of tech 3. Discuss environmental forces that influence decisions about pay (economy, labor market, etc.) - Product markets - Labor market conditions Product Markets - Orgs in the same product market serve same customers - Cost of labor is significant part of org’s costs - To pay top wages, automation of routine activities may be necessary (or to persuade customers that high quality is worth a higher price) - Orgs under pressure to cut labor costs need to reduce staff levels, freeze or lower pay increases, postponing hiring decisions, etc. Labor Market Conditions

- Competition for labor establishes the min an org must pay to hire an employee for a particular job - The company wants to know what others are paying so that it will pay enough to attract and keep qualified employees - Generally, when unemployment is high and comp is low, wages go down. When unemployment is low and comp is high, wages go up. What determines pay? - Legislation (FLSA) - Product markets - Labor market conditions - Inflation (CPI) - Collective bargaining - Geography (pay differentials) What should not determine pay? - Employers must not base pay differences on age, sex, race, or other protected status - Equal pay for equal work Pay Level: Deciding What to Pay A range within which organizations can make decisions - Can pay above, at, or below rate set my market forces - Ex. pay above for knowledge/top talent like engineers (high demand for them) Gathering Info about Market Pay Benchmarking - A procedure in which an organization compares its own practices against those of successful competitors 4. Describe how employees evaluate the fairness of a pay structure. How can employer pay employees fairly, legally, and competitively By using a. Job Descriptions and Job Evaluation b. Pay Surveys (benchmarking) c. Transparency in Pay d. Auditing 5. How and why do we use job evaluation to evaluate compensable job factors, job worth, pay levels, etc. How can employer pay employees fairly, legally, and competitively

Use a. Job Description and Job Evaluation Four Steps 1. Analyze the job 2. Create the job description 3. Evaluate the job to determine its worth compared to other jobs in the org (internal). We use this information to create pay grades and ranges 4. Compare to the market to determine pay (external) through the use of salary surveys Job Evaluation involves the identification and use of compensable factors (factors that are important to the org and used to differentiate the value of each job to the org) Ex. skill, responsibility, effort, managerial responsibility and working conditions Example of Job Evaluation : typical point plan

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Pay Ranges - Market research + job evaluation = pay ranges - Pay ranges are a range of permissible pay for a job or grade of jobs with a min, a midpoint, and a max

b. Pay Surveys (benchmarking) Determining Compensation Requires both internal and external analysis Benchmarking - A procedure in which an organization compares its own practices against those of successful competitors Salary Data (on the internet) Most Companies Use These For profit salary survey providers - Aon hewitt, mercer, pay scale, BLR, etc Below Market Rate (market rate is how you make pay range) - Might compensate indirectly (packages, ex. Transportation + benefits, 401K contribution)

c. Transparency in Pay 1. Paycheck - Details about individual employee’s pay - Most companies at this level, but many have reached 3rd and 4th levels of disclosure 2. Market Data - Descriptions of data used for decision making 3. Pay Planning - Data about pay ranges and potential for future earnings 4. Pay strategy - Explanation of how pay decisions relate to the org’s objectives 5. Open salary d. Full disclosure of the org’s pay ranges and salaries paid e. Auditing 6. Be able to explain what equity theory is and ways people react when there is under or over- rewarded compensation. c. Transparency in Pay Equity Theory - How people make judgments about fairness - People measure outcomes such as pay in terms of their inputs - Ex. think of their pay in terms of their master’s degree, 12 years of experience, or 60 hour work weeks - Compare your pay/inputs/outcome to other peoples

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External Equity - Describes fairness of one’s pay relative to what employees in other orgs earn for doing the same job Internal Equity - Fairness of one’s pay relative to other employees in the same org. Employees make these comparisons relative to co-workers doing the same job, and employees at higher and lower levels 7. What are pay ranges and salary grades? Pay Ranges - A set of possible pay rates defined by a min, max, and midpoint of pay for employees holding a particular job or a job within a particular pay grade - Midpoint = market rate/pay policy line Pay Grade - Sets of jobs having similar worth or content, grouped together to establish rates of pay

- Cons” grouping jobs results in rates of pay for individual jobs that do not precisely match the levels specified by the market and org’s job structure Delayering Delayering - Reducing the number of levels in the org’s job structure - Combining more assignments into a single layer, the broader groupings are called broad bands , reduce opps for promoting employees (find other ways to reward employees) - Pro: give managers more flexibility in making assignments and awarding pay increases Skill-based Pay Systems - Pay structures that set pay according to the employees’ levels of skill or knowledge and what they are capable of doing - Pros: Helps orgs be more innovative, better quality, lower labor costs - Cons: rewards employees for acquiring skills, but doesn’t provide a way to ensure the employees more for learning skills that the employer is not benefitting from, difficult because most wage/salary surveys are job-based 8. What are compa-ratios and why are they used? Compa-Ratio - Ratio of average pay to the midpoint of the pay range Average paid to all employees in the pay grade / midpoint for pay grade - If avg = midpoint, the compa-ratio = 1 - Above 1 = avg pay > midpoint for pay grade - Org is paying more than planned for HR, may have difficulty keeping costs under control - Below = avg pay < midpoint

- Underpaying for HR and may have trouble attracting/keeping qualified ppl Global HR Issues- Chapter Sixteen 1. Summarize how the growth in international business activity affects human resource management. - People who understand customers and suppliers - Need to understand customs and languages - Adoption of policies and procedures to culture and laws - Competencies are needed to lead global teams - must prepare What are the HRM implications - Billions of new customers - Lower labor cost - Lower supply cost - Technology enables communication - Trade agreements 2. Be able to explain the terms in the chapter, including expatriate, host country national, global organizations, transnational HR systems, etc. Parent Country - country where an org’s HQ is located Host Country - a country (not parent company) where an org operates a facility Host Country National - employees who are citizens of the host company - Ex. Land O Lakes hires Indian workers in India facility

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Pros - Provides growth opportunities to locals + boost local econ - Know the cultural norms - Don’t look at lower cost Cons - Parent company opening a subsidiary in another country, C-Suite level might be a con because person has to be transferred to home country Third Country - a country that is neither the parent country nor the host country of an employer - Ex. LOL hires Russian manager to work at Indian facility Pros - TCNs are usually career international business managers with a wealth of experience - Don’t mind moving around Expatriates - employees assigned to work in another country - Ex. Americans or Russians working in India International Organizations - an org that sets up one or a few facilities in one or a few foreign countries Multinational Company - an org that builds facilities in a # of different countries in an effort to minimize production and distribution costs Global Organization - an org that chooses to locate a facility based on the ability to effectively, efficiently, and flexibly produce a product or service, using cultural differences as an advantage - Ex. Mcdonalds, suited to local tastes (Ex. India menu) Transnational HRM System - type of HRM system that makes decisions from a global perspective, includes managers from many countries, and is based on ideas contributed by people representing a variety of cultures 3. When might companies prefer to hire parent or host country nationals? Third country nationals?

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Parent Country Nationals - expertise and knowledge transfer - global standardization Host Country Nationals - local market knowledge - Cost considerations Third Country Nationals - combining skills and local knowledge - cultural sensitivity 4. Identify the factors that most strongly influence HRM in international markets. 1. Culture - Community’s set of shared assumptions about how the world works through religion, language, rites and rituals, etc. and what ideals are worth striving for - Most critical consideration as it affects other 3 factors - Determines effectiveness of HRM programs 2. Education 1) Companies relocate where they can find suitable employees 2) US skills gap, outsourcing to India, etc. 3) Areas are more impoverished, developing countries tend to have low-skilled, low-wage work 3. Economic systems - Economic system and culture closely tied - Socialist vs Capitalist societies and compensation - Socialism redistributes wealth, while capitalism rewards individual accomplishments (ex. Different take home pay for managers in different countries) 7. Discuss challenges related to compensating employees from other countries. Why is compensation so difficult? Socialist Systems - take higher % of each worker’s income as income increases - redistributes wealth from rich to poor - managers take home less Capitalist Systems - let workers keep more of their earnings - rewards individual accomplishments

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- managers take home more Pay Structures are different (India pay vs Switzerland pay) Culture / Legal Differences (taxes, holiday bonus) Employee Benefits (health insurance, long maternity leave, work/life balance) 4. Political-legal systems - Culture context of society creates legal system - Western europe, socialism and workers rights - US discrimination laws - Must hire experts to decipher the law 5. Discuss how differences among countries affect HR planning at organizations with international operations (culture, education, economic systems, political-legal systems). - Labor availability, analysis - Provide info regarding local pay rates - Plan for training of employees - Identify proper performance management systems - Help people to understand how to lead global teams 6. Describe how companies select and train human resources in a global labor market. - Hard to find international managers! - How do we find people receptive to international careers? - Competency in the employee’s area of expertise - Ability to communicate verbally and nonverbally in the foreign country - Flexibility, tolerance of ambiguity, and sensitivity cultural differences - Motivation to succeed and enjoyment of challenges - Willingness to learn about the foreign country’s culture, language, and customs - Support from family members US Expatriate Failure - ¾ of US multinational companies see failure of 10% or more European and Japanese multinationals reported and lower failure rates Emotional Stages Associated with a Foreign Assignment

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Test: given a situation, and asked what stage this is Culture Shock - A state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture - The cause of this is the trauma people experience in new and different cultures, where they lose the familiar signs and cues that they had used to interact in daily life and where they must learn to cope with a vast array of new cultural cues and expectations Symptoms of Culture Shock - Sadness, loneliness, melancholy - Preoccupation with health - Aches, pains, allergies - Insomnia or excessive sleep - Depression, feeling vulnerable - Anger, irritability, resentment - Loss of identity - Lack of confidence - Longing for family Global Staffing Considerations Reasons for Expatriate Failure - Inadequate preparation, training, and orientation prior to assignment - Alienation or lack of support from headquarters - Inability to adapt to local culture and working environment - Problems with spouse and children - poor adaptation, family unhappiness - Insufficient compensation and financial support Poor Repatriation 8. Be familiar with Hofstede’s cultural dimensions.

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9. Explain how employers both prepare managers for international assignments and assist them in their return home (repatriation). What is reverse culture shock?

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How companies can deal with culture shock: - Area Studies - Documentary programs about the nation’s geography, economics, socio political history, etc. - Culture Assimilators - Which expose trainees to the kinds of situations they are likely to encounter that are critical to successful interactions - Language training - Sensitivity - Field Experiences - Exposure to people from other cultures within the trainee’s own country Cross-Cultural Preparation - training to prepare employees and their family members for an assignment in a foreign nation 1) prep for departure (language instruction/orientation to culture) 2) The assignment itself- (formal program/mentoring relationship about culture) 3) Prep for the return home (info about employee’s community and home-country workplace, ex. newsletter) Expatriate Preparation: Understanding Your Own Culture Learning Objective #6: Describe how companies assist employees in their transition home Repatriation - The process of preparing expatriates to return home from a foreign assignment Reverse Culture Shock - When you come back to your own country - Ex. getting used to scale, travel time, different work day hours, cost of living, coworkers/mgmt might have changed, company culture changed Importance of communication and validation - Communication: keep in touch with the happenings while away, maintain contacts - Validation: praise and recognition for the assignment

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HRIR Final Exam Study Guide Fall_2023

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