BUS 681 Week 2 Assignment

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3 Traditional Bases for Pay Seniority and Merit

Learning Objectives

When you �inish studying this chapter, you should be able to:

3-1. Describe seniority and longevity pay practices. 3-2. Explain the merit pay approach to compensation.

3-3. Explore a variety of performance appraisal methods. 3-4. Discuss how compensation professionals can strengthen the pay-for-performance link.

3-5. Summarize the possible limitations of merit pay programs.

CHAPTER WARM-UP!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Warm-Up! and see what you already know. After reading the chapter, you’ll have a chance to take the Chapter Quiz! and see what you’ve learned.

For decades, companies have awarded raises to base pay according to employees’ seniority or job performance. Many companies, such as IBM, tended to pay employees according to performance, but the system became one of entitlements. Changes in the global marketplace forced many companies to reconsider their approach to employee compensation. Fierce global competition requires that employees perform their jobs better than ever before to enable companies to offer the best possible products and services at the lowest cost. As a solution, many companies use compensation programs that emphasize rewards according to performance attainment. Still, traditional seniority and longevity pay plans, which do not tie compensation to performance, remain in use in particular settings, which we will explore in this chapter.

In this chapter, we will consider the traditional seniority and longevity approaches to compensating employees. We will then turn our attention to merit pay, which is a widely used form of performance-based pay in U.S. companies. In Chapter 4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch04#ch04) , we will take up a variety of incentive programs that also reward pay for performance.

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3.1 SENIORITY AND LONGEVITY PAY

3-1 Describe seniority and longevity pay practices.

Seniority pay and longevity pay systems reward employees with periodic additions to base pay according to employees’ length of service in performing their jobs. These pay plans assume that employees become more valuable to companies with time and that valued employees will leave if they do not have a clear idea that their salaries will progress over time.1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end1) This rationale comes from human capital theory (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss205) ,2

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end2) which states that employees’ knowledge and skills generate productive capital known as human capital. Employees can develop such knowledge and skills from formal education and training, including on-the-job experience. Over time, employees presumably re�ine existing skills or acquire new ones that enable them to work more productively. Thus, seniority pay rewards employees for acquiring and re�ining their skills as indexed by seniority.

Historical Overview

A quick look back into U.S. labor relations history can shed light on the adoption of seniority pay in many companies. President Franklin D. Roosevelt advocated policies designed to improve workers’ economic status in response to the severely depressed economic conditions that had started in 1929. Congress instituted the National Labor Relations Act (NLRA) in 1935 to protect workers’ rights, predicated on a fundamental, but limited, con�lict of interest between workers and employers. President Roosevelt and other leaders felt that companies needed to be regulated to establish an appropriate balance of power between the parties. The NLRA established a collective bargaining system nationwide to accommodate employers’ and employees’ partially con�licting and partially shared goals.

Collective bargaining led to job control unionism (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss233) ,3

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end3) in which collective bargaining units negotiate formal contracts with employees and provide quasi-judicial grievance procedures to adjudicate disputes between union members and employers. Union shops establish workers’ rights and obligations and participate in describing and delineating jobs. In unionized workplaces, terms of collective bargaining agreements may determine the speci�ic type of seniority system used, whereas seniority tends to be the deciding factor in nearly all job scheduling, transfer, layoff, compensation, and promotion decisions. Moreover, seniority may become a principal criterion for selecting one employee over another for transfer or promotion. Table 3-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#ch03tab01) illustrates the rules for a seniority pay program contained in a collective bargaining agreement between the Board of Trustees of the University of Illinois and Local 698 of the American Federation of State, County, and Municipal Employees. That is, Table 3-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#ch03tab01) shows the actual rates for job classi�ication and seniority level.

Political pressures probably drive the prevalence of public sector seniority pay. Seniority-based pay systems essentially provide automatic pay increases. Performance assessments tend to be subjective rather than objective because accurate job performance measurements are very dif�icult to obtain. In contrast, employees’ seniority is easily indexed because time on the job is a relatively straightforward and concrete concept. Implementing such a system that speci�ies the amount of pay raise an employee will receive according to his or her seniority is automatic. Politically, “automatic” pay adjustments protect public sector employees from the quirks of election-year

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politics.4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end4) In addition, the federal, state, and local governments can avoid direct responsibility for pay raises so employees can receive fair pay without political objections.

Who Participates?

TABLE 3-1 Hourly Wage Rates by Seniority Level

Classi�ication Title Start ($) 13 Months ($) 25 Months ($) 37 Months ($)

Staff Nurse I 19.07 20.19 21.31 22.40

Nursing Assistant 9.94 10.17 10.53 10.83

Medical Assistant 14.65 15.40 16.13 16.92

Medical Technologist 17.66 18.90 20.13 21.38 Source: Based on Agreement between the Board of Trustees of the University of Illinois and Local 698 of The American Federation of State, County, and Municipal Employees, AFL-CIO.

Today, most unionized private sector and public sector organizations continue to base salary on seniority or length of employee service, though the number of these workplaces is steadily declining as described in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) . In 2014, the overall unionization rate was 11.1 percent. Members of union-bargaining units whose contracts include seniority provisions, usually rank-and-�ile as well as clerical workers, receive automatic raises based on the number of years they have been with the company. In the public sector, most administrative, professional, and even managerial employees receive such automatic pay raises.

Effectiveness of Seniority Pay Systems

Virtually no systematic research has demonstrated these pay plans’ effectiveness nor is there any documentation regarding their prevalence in the private sector. Seniority or longevity pay plans are likely to disappear from for- pro�it companies in increasingly competitive markets. Such external in�luences as increased global competition, rapid technological advancement, and skill de�icits of new and current members of the workforce necessitate a strategic orientation toward compensation. These in�luences will probably force companies to establish compensation tactics that reward their employees for learning job-relevant knowledge and skills and for making tangible contributions toward companies’ quests for competitive advantage. Seniority pay meets neither goal.

Public sector organizations had until the 1990s, faced less pressure to change these systems because they exist to serve the public rather than make pro�its. For example, the Internal Revenue Service (IRS) is responsible for collecting taxes from U.S. citizens. Paying taxes to the federal government is an obligation of virtually all U.S. citizens. The amount of taxes each citizen pays is based on established tax codes. The IRS is not in the business of �inding new customers to pay taxes. It does not compete against any other businesses for taxpayers.

The federal government, however, has now raised questions about the effectiveness of its seniority pay system for white-collar workers—the General Schedule—because most employees receive raises regardless of how well they perform. Questions about the effectiveness of its seniority pay system are based on how the world of work has dramatically changed since the system’s inception in 1949. The federal government has extensively considered the strategic importance of moving beyond seniority-based pay by studying the experience of private sector companies, though it has not made noteworthy modi�ications to its current pay system.5

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end5)

Design of Seniority Pay and Longevity Pay Plans

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Although seniority pay and longevity pay are similar, there are some important distinctions between them. The object of seniority pay is to reward job tenure or employees’ time as members of a company explicitly through permanent increases to base salary. Employees begin their employment at the starting pay rate established for the particular jobs. At speci�ied time intervals, which can be as short as 3 months and as long as 3 years, employees receive designated pay increases. These pay increases are permanent additions to current pay levels. Over time, employees will reach the maximum pay rate for their jobs. Companies expect that most employees will earn promotions into higher-paying jobs that have seniority pay schedules. Figure 3-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#ch03�ig01) illustrates a seniority pay policy for a junior clerk job and an advanced clerk job. Pay rates are associated with seniority. When employees reach the top pay rate for the junior clerk position, they are presumably quali�ied to assume the duties of the advanced clerk position.

If employees choose to remain in their job classi�ications or are not quali�ied to advance to the next level, longevity pay plans rewards employees who have reached pay range maximums and who are not likely to move into higher grades. Longevity pay plans are used to help reward long-service employees for their continued contributions, without regularly paying more than the job is worth based on knowledge, skills, abilities, and other job-related requirements.

Most federal government employees are subject to longevity pay via the General Schedule (GS) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss172) , which is shown in Table 3-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#ch03tab02) . The General Schedule classi�ies federal government jobs into 15 classi�ications (GS-1 through GS-15) based on such factors as skill, education, and experience levels. The GS-1 category include the lowest-level jobs and GS-15 include the highest-level jobs. In addition, jobs that require high levels of specialized education (e.g., a physicist), in�luence public policy signi�icantly (e.g., law judges), or require executive decision making are classi�ied in separate categories (the top executive in a U.S. government agency such as the U.S. Department of Labor): Senior Level (SL), Scienti�ic and Professional (SP) positions, and the Senior Executive Service (SES).

FIGURE 3-1 A Sample Seniority Policy for Junior and Advanced Clerk Jobs

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The government typically increases all pay amounts annually to adjust for in�lation. The 2015 schedule represents a 1 percent increase over 2014 rates. The federal government relies on a base schedule, shown in Table 3-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#ch03tab02) , to compensate employees in most locations. Additional schedules are published for particular geographic areas where the cost of living differs substantially from the national average. Examples include the greater Boston and Los Angeles areas.

Employees are eligible for 10 within-grade step pay increases, each increase amounts to about 3 percent of the employee’s salary. At present, it takes employees 18 years to progress from Step 1 to Step 10 if they were to remain within a single GS grade. Progression through the steps is based on an assumption that their job performance is acceptable. The increase from step to step equals the within-grade increase (WGI) amount. The waiting periods within steps are:

Steps 1–3: 1 year

Steps 4–6: 2 years

Steps 7–9: 3 years

Position descriptions usually indicate a series of GS ranges for which the job may be classi�ied. For example, a Human Resources Assistant position6

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end6) could �it within GS ranges 5 through 7. Determination of the grade depends upon the quali�ication level of the newly hired employee. For this position, an individual with the minimum acceptable quali�ications would be placed in GS-5. An individual with one or more years of specialized experience would be placed in GS-6 if the experience were at least equivalent to GS-5 requirements. Placement in GS-7 would require at least one year of specialized experience �itting with GS-6 requirements. Employees could be eligible for promotions to classi�ications that are higher than advertised. For this job, movement to GS-8 would be based on competition under merit system principles, to be discussed in the next section. The pay increase associated with any promotion would typically be equal to at least two steps at the GS grade immediately before promotion. For this human resources assistant job, an employee whose classi�ication is GS-7 (let’s assume Step 6) could be promoted to GS-8 based on merit. Pay would increase from $40,437 to at least $42,747 based on the following calculation: ($40,437 + [$1,155 × 2 steps]) where $1,155 is the WGI for Grade 7.

TABLE 3-2 Salary Table 2015-GS (Annual Rates by Grade and Step)

Grade Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 WGI

1 18161 18768 19372 19973 20577 20931 21528 22130 22153 22712 VARIES

2 20419 20905 21581 22153 22403 23062 23721 24380 25039 25698 VARIES

3 22279 23022 23765 24508 25251 25994 26737 27480 28223 28966 743

4 25011 25845 26679 27513 28347 29181 30015 30849 31683 32517 834

5 27982 28915 29848 30781 31714 32647 33580 34513 35446 36379 933

6 31192 32232 33272 34312 35352 36392 37432 38472 39512 40552 1040

7 34662 35817 36972 38127 39282 40437 41592 42747 43902 45057 1155

8 38387 39667 40947 42227 43507 44787 46067 47347 48627 49907 1280

9 42399 43812 45225 46638 48051 49464 50877 52290 53703 55116 1413

Source: U.S. Of�ice of Personnel Management. Available: http://www.opm.gov/policy-data-oversight/pay-leave/salaries- wages/salary-tables/pdf/2015/saltbl.pdf (http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary- tables/pdf/2015/saltbl.pdf) , accessed February 15, 2015

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Grade Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 WGI

10 46691 48247 49803 51359 52915 54471 56027 57583 59139 60695 1556

11 51298 53008 54718 56428 58138 59848 61558 63268 64978 66688 1710

12 61486 63536 65586 67636 69686 71736 73786 75836 77886 79936 2050

13 73115 75552 77989 80426 82863 85300 87737 90174 92611 95048 2437

14 86399 89279 92159 95039 97919 100799 103679 106559 109439 112319 2880

15 101630 105018 108406 111794 115182 118570 121958 125346 128734 132122 3388 Source: U.S. Of�ice of Personnel Management. Available: http://www.opm.gov/policy-data-oversight/pay-leave/salaries- wages/salary-tables/pdf/2015/saltbl.pdf (http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary- tables/pdf/2015/saltbl.pdf) , accessed February 15, 2015

Advantages of Seniority Pay

Seniority pay offers a number of advantages to both employees and employers. Employees are likely to perceive they are treated fairly because they earn pay increases according to seniority, which is an objective standard. Seniority stands in contrast to subjective standards based on supervisory judgment. The inherent objectivity of seniority pay systems should lead to greater cooperation among coworkers.

Seniority pay offers two key advantages to employers. First, seniority pay facilitates the administration of pay programs. Pay increase amounts are set in advance, and employers award raises according to a pay schedule, much like the federal government’s GS. A second advantage is that employers are less likely to offend some employees by showing favoritism to others because seniority is an objective basis for making awards. The absence of favoritism should enable supervisors and managers effectively to motivate employees to perform their jobs even in the absence of a formal performance appraisal system.

Fitting Seniority Pay with Competitive Strategies

Seniority pay does not necessarily �it well with the imperatives of competitive strategies because employees can count on receiving the same pay raises for average and exemplary performance, and this fact represents the greatest disadvantage of seniority pay systems. Employees who make signi�icant contributions in the workplace receive the same pay increases as coworkers who make modest contributions. In addition, employees receive pay raises without regard to whether companies are meeting their competitive objectives. Employees clearly do not have any incentives to actively improve their skills or to take risks on the job because they receive pay raises regardless of any initiative they show. Finally, because seniority increases become a recurring part of base pay, the growing costs can become burdensome to employers. Besides, do pay raises earned years in the past continue to bene�it the employer? Probably not. This especially would be the case if the employee were once a stellar performer and regressed to just an acceptable performer.

So, in light of increased external pressures on companies to promote productivity and product quality, will seniority or longevity pay be gradually phased out? With the exception of companies that are shielded from competitive pressures, it is likely that companies that intend to remain competitive will set aside seniority pay practices. Although seniority pay plans re�lect employees’ increased worth, they measure such contributions indirectly rather than based on tangible contributions or the successful acquisition of job-related knowledge or

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skills. Now more than ever, companies need to be accountable to shareholders, which will require direct measurement of employee job performance.

To illustrate the incompatibility of seniority pay structures with the attainment of competitive strategy further, Toyota, a manufacturer of automobiles, is reconsidering its use of seniority-based wage system for a performance- based pay system. Traditional Japanese companies de�ined seniority as employee age, leaving substantial pay gaps between younger and older employees. These gaps are making it dif�icult to attract younger talent to the company.7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end7) Despite Toyota’s worldwide reputation as a manufacturer of high-quality automobiles, company management continually adopts employment practices that encourage even better-quality products. Performance-based pay �its with Toyota’s mission. Other Japanese companies, Hitachi, Panasonic, and Sony, are following suit.8

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end8)

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3.2 MERIT PAY

3-2 Explain the merit pay approach to compensation.

Merit pay programs (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss284) assume that employees’ compensation over time should be determined, at least in part, by differences in job performance.9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end9) Employees earn permanent merit increases based on their performance. The increases reward excellent effort or results, motivate future performance, and help employers retain valued employees. Merit increases are usually expressed as a percentage of hourly wages for nonexempt employees and as a percentage of annual salaries for exempt employees. In 2014, employees earned average merit increases of 3.0 percent across all industries, and the projected average increase for 2015 was 3.1 percent.10

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end10) This average increase did not vary signi�icantly across employee groups (exempt vs. nonexempt, nonunion vs. union); however, the average raise differed based on employee performance and industry. Merit increases for high performers averaged 4.1 percent.11 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end11) The health care and social assistance industry’s average merit increase was 2.5 and 3.8 percent for the mining industry.

Who Participates?

Merit pay is one of the most commonly used compensation methods in the United States. In 2014, a survey of WorldatWork members revealed that 72 percent of companies indicated that they use a rating system with a performance score that is tied to pay increases. The rates were 65 percent and 71 percent in 2010 and 2011, respectively.12 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end12) Merit pay programs occur most often in the private for-pro�it sector of the economy rather than in such public sector organizations as local and state governments.

Exploring the Elements of Merit Pay

Managers rely on objective as well as subjective performance indicators to determine whether an employee will receive a merit increase and the amount of increase warranted. As a rule, supervisors give merit increases to employees based on subjective appraisal of employees’ performance.13

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end13) Supervisors periodically review individual employee performance to evaluate how well each worker is accomplishing assigned duties relative to established standards and goals. Thus, as we will discuss later in this chapter, accurate performance appraisals are key to effective merit pay programs.

For merit pay programs to succeed, employees must know that their efforts in meeting production quotas or quality standards will lead to pay raises. Job requirements must be realistic, and employees must have the skills and abilities to meet job goals. Moreover, employees must perceive a strong relationship between attaining performance standards and receiving pay increases.

Furthermore, companies that use merit programs must ensure that the funds needed to ful�ill these promises to compensate employees are available. For now, we assume that adequate funding for merit pay programs is in place. We will address the rami�ications of insuf�icient budgets for funding merit pay programs in Chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) .

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Finally, companies should make permanent adjustments to base pay according to changes in the cost of living or in�lation before awarding merit pay raises. Then, permanent merit pay raises should always reward employee performance rather than represent adjustments for in�lation. In�lation represents rises in the cost of consumer goods and services (e.g., food and health care) that boost the overall cost of living. Over time, in�lation erodes the purchasing power of the dollar. You’ve no doubt heard the comment, “It’s harder to stretch a dollar these days.” Employees are concerned about how well merit increases raise purchasing power. Compensation professionals attempt to minimize negative in�lationary effects by making permanent increases to base pay, known as cost-of- living adjustments. For now, let’s assume that in�lation is not an issue. (As a side note, this principle also applies to seniority pay. Pay increases should re�lect additional seniority after making speci�ic adjustments for in�lation.)

Although fairly common, merit pay systems are not appropriate for all companies. Compensation professionals should consider two factors—commitment from top management and the design of jobs—before endorsing the use of merit pay systems. Top management must be willing to reward employees’ job performances with meaningful pay differentials that match employee performance differentials. Companies ideally should grant suf�iciently large pay increases to reward employees for exemplary job performance and to encourage similar expectations about future good work.

The amount of a merit pay increase should re�lect prior job performance levels and motivate employees toward striving for exemplary performance. The pay raise amount should be meaningful to employees. The concept of just-meaningful pay increase (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss242) refers to the minimum pay increase that employees will see as making a meaningful change in compensation.14

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end14) The basic premise of this concept is that a trivial pay increase for average or better employees is not likely to reinforce their performance or to motivate enhanced future performance. In addition to top management’s commitment to merit pay programs, HR professionals must design jobs explicitly enough that employees’ performance can be measured accurately. Merit programs are most appropriate when employees have control over their performance and when conditions outside employees’ control do not substantially affect their performance. Conditions beyond employees’ control that are likely to limit job performance vary by the type of job. For sales professionals, recessionary economic spells generally lead consumers to limit spending on new purchases because they anticipate the possibility of layoffs. Sales professionals certainly do not create recessionary periods nor can they allay consumers’ fears about the future. For production workers, regular equipment breakdowns will lead to lower output.

Furthermore, there must be explicit performance standards that specify the procedures or outcomes against which employees’ job performance can be clearly evaluated. At Pratt & Whitney, HR professionals and employees worked together to rewrite job descriptions. The purpose was to de�ine and put into writing the major duties of a job and to specify written performance standards for each duty to ensure that the job requirements provided a useful measurement standard for evaluation. The main performance standards included such factors as quality, quantity, and timeliness of work.

Table 3-3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec2#ch03tab03) displays a job description for an Account Clerk II in the California Department of Rehabilitation Services. The description lists the activities the jobholder performs and quali�ications necessary to perform the job at an acceptable level. For instance, a successful candidate must demonstrate knowledge of bookkeeping practice.

TABLE 3-3 Account Clerk II

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Job: Account Clerk II Agency/Department: California Department of Rehabilitation Services Location: Fresno, CA

Job Summary: Under the supervision of the Supervising Program Technician II (SPTII), the Account Clerk II provides support for the district accounting unit. Follow prescribed procedures involving arith-metical calculations. Compile, investigate and verify numerical or �inancial information. Follow written and oral instructions. Must be courteous and tactful and work cooperatively with others.

Key Job Duties: Process revolving fund checks and bank drafts Maintain check counterfoils and bank drafts audit �ile Provide check/bank draft information to staff Ready invoices for processing by auditing invoice for appropriate/necessary information, number of copies/supporting documents, receipts, underscoring participants name, date of services, FEIN #, amount of invoice Verify funds are available/encumbered to make payment.

Quali�ications Required: Good communication skills Willingness to learn Ability to use various assistive technology communication devices, and other adaptive re-sources in order to meet the needs of individuals with different abilities and diverse back-grounds Ability to use good judgment and awareness and knowledge of disability conditions to independently act, respond, and assist with various consumer situations Ability to interact in a team environment with consumers and coworkers in a professional manner, and with integrity and respect Ability to follow approved department policies and procedures

Source: State of California, Department of Rehabilitation. Account Clerk II (position number 813-150-1733-XXX). Available: http://jobs.spb.ca.gov/wvpos/more_info.cfm?recno=512397 (http://jobs.spb.ca.gov/wvpos/more_info.cfm?recno=512397) , accessed February 1, 2015.

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3.3 PERFORMANCE APPRAISAL

3-3 Explore a variety of performance appraisal methods.

Effective performance appraisals drive effective merit pay programs. Merit pay systems require speci�ic performance appraisal approaches, as noted previously. Administering successful merit pay programs depends as much on supervisors’ appraisal approaches as it does on the professionals’ skills in designing and implementing such plans. The frequency of providing employees with performance feedback is critically important. The following Watch It! video describes The Weather Channel’s performance appraisal process in which appraisals are recommended to be done on an ongoing, continual basis so that an employee always knows where he or she stands as far as what is expected and how well he or she is currently performing. This way, the employee can look forward to performance reviews instead of dreading them; they will be an of�icial con�irmation of all of the progress that the employee has been making under the ongoing relationship of appraisal and feedback with the employee’s manager. Many other companies have followed suit, including VMware Inc., Wayfair Inc., and the Boston Consulting Group where they particularly instil the importance of celebrating small performance victories.15 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end15)

WATCH IT!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the video exercise titled Weather Channel: Appraising.

Types of Performance Appraisal Plans

Performance appraisal methods fall into four broad categories:

Trait systems

Comparison systems

Behavioral systems

Goal-oriented systems

The four kinds of performance appraisal methods are next described in order.

TRAIT SYSTEMS

Trait systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss453) ask raters to evaluate each employee’s traits or characteristics (e.g., quality of work, quantity of work, appearance, dependability, cooperation, initiative, judgment, leadership responsibility, decision-making ability, or creativity). Appraisals are typically scored using descriptors ranging from unsatisfactory to outstanding. Table 3-4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#ch03tab04) contains an illustration of a trait method of performance appraisal.

Trait systems are easy to construct, use, and apply to a wide range of jobs. They are also easy to quantify for merit pay purposes. Trait systems are increasingly becoming common in companies that focus on the quality of interactions with customers. For example, Leon Leonwood Bean, founder of L. L. Bean, made customer service the foundation of his business from its beginning in 1912. That focus translates into employee traits of dependability,

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friendliness, trustworthiness, and honesty.16

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end16)

The trait approach does have limitations. First, trait systems are highly subjective17

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end17) because they are based on the assumption that every supervisor’s perception of a given trait is the same. For example, the trait “quality of work” may be de�ined by one supervisor as “the extent to which an employee’s performance is free of errors.” To another supervisor, quality of work might mean “the extent to which an employee’s performance is thorough.” Human resource professionals and supervisors can avoid this problem by working together in advance to specify the de�inition of traits clearly.

TABLE 3-4 A Trait-Oriented Performance Appraisal Rating Form

Employee’s Name: Supervisor’s Name:

Employee’s Position: Review Period:

Instructions: For each trait below, circle the phrase that best represents the employee.

1. Diligence

a. outstanding b. above average c. average d. below average e. poor

2. Cooperation with others

a. outstanding b. above average c. average d. below average e. poor

3. Communication skills

a. outstanding b. above average c. average d. below average e. poor

4. Leadership

a. outstanding b. above average c. average d. below average e. poor

5. Decisiveness

a. outstanding b. above average c. average d. below average e. poor

Another drawback is that systems rate individuals on subjective personality factors rather than on objective job performance data. Essentially, trait assessment focuses attention on employees rather than on job performance. Employees may simply become defensive rather than trying to understand the role that the particular trait plays in shaping their job performance and then taking corrective actions.

TABLE 3-5 A Forced Distribution Performance Appraisal Rating Form

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Instructions: You are required to rate the performance for the previous 3 months of the 15 workers employed as animal keepers to conform with the following performance distribution:

15 percent of the animal keepers will be rated as having exhibited poor performance. 20 percent of the animal keepers will be rated as having exhibited below-average performance. 35 percent of the animal keepers will be rated as having exhibited average performance. 20 percent of the animal keepers will be rated as having exhibited above-average performance. 10 percent of the animal keepers will be rated as having exhibited superior performance.

Use the following guidelines for rating performance. On the basis of the �ive duties listed in the job description for animal keeper, the employee’s performance is characterized as:

Poor if the incumbent performs only one of the duties well. Below average if the incumbent performs only two of the duties well. Average if the incumbent performs only three of the duties well. Above average if the incumbent performs only four of the duties well. Superior if the incumbent performs all �ive of the duties well.

COMPARISON SYSTEMS

Comparison systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss60) evaluate a given employee’s performance against that of other employees. Employees are ranked from the best performer to the poorest performer. In simplest form, supervisors rank each employee and establish a performance hierarchy such that the employee with the best performance receives the highest ranking. Employees may be ranked on overall performance or on various traits.

An alternative approach, called a forced distribution (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss165) performance appraisal, assigns employees to groups that represent the entire range of performance. For example, three categories that might be used are best performers, moderate performers, and poor performers. A forced distribution approach, in which the rater must place a speci�ic number of employees into each of the performance groups, can be used with this method. Table 3-5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#ch03tab05) displays a forced distribution rating form for an animal keeper job with �ive performance categories.

Many companies use forced distribution approaches to minimize the tendency for supervisors to rate most employees as excellent performers. This tendency usually arises out of supervisors’ self-promotion motives. Supervisors often provide positive performance ratings to most of their employees because they do not want to alienate them. After all, their performance as supervisors depends largely on how well their employees perform their jobs.

Although used by some prestigious �irms, the forced distribution system appears to be unpopular with many managers.18 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end18) Some believe it fosters cutthroat competition, paranoia, and general ill will, and destroys employee loyalty.19

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end19) For example, David Auerback, a former Microsoft employee, stated that this type of appraisal system had employees feeling helpless and “encouraged people to backstab their co-workers.”20

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end20) Many believe that a “rank-and-yank” system such as forced distribution is not compatible when a company encourages teamwork. In addition, critics of forced distribution contend that they compel managers to penalize a good, although not a great, employee who is part of a superstar team. Another reason employees are opposed to forced ranking is that they suspect that the rankings are a way for companies to rationalize terminations more easily.

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Forced distribution approaches have drawbacks. The forced distribution approach can distort ratings because employee performance may not fall into these predetermined distributions. Let’s assume that a supervisor must use the following forced distribution to rate her employees’ performance:

15 percent well below average

25 percent below average

40 percent average

15 percent above average

5 percent well above average

This distribution is problematic to the extent that the actual distribution of employee performance is substantially different from this forced distribution. If 35 percent of the employees’ performance were either above average or well above average, then the supervisor would be required to underrate the performance of 15 percent of the employees. Based on this forced distribution, the supervisor can rate only 20 percent of the employees as having demonstrated above-average or well-above-average job performance. Management–employee relationships ultimately suffer because workers feel that ratings are dictated by unreal models rather than by individual performance.

A third comparative technique for ranking employees establishes paired comparisons (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss316) . Supervisors compare each employee to every other employee, identifying the better performer in each pair. Table 3-6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#ch03tab06) displays a paired comparison form. Following the comparison, the employees are ranked according to the number of times they were identi�ied as being the better performer. In this example, Allen Jones is the best performer because he was identi�ied most often as the better performer, followed by Bob Brown (identi�ied twice as the better performer) and Mary Green (identi�ied once as the better performer).

Comparative methods are best suited for small groups of employees who perform the same or similar jobs. They are cumbersome for large groups of employees or for employees who perform different jobs. For example, it would be dif�icult to judge whether a production worker’s performance is better than a secretary’s performance because the jobs are substantively different. The assessment of a production worker’s performance is based on the number of units he or she produces during each work shift; a secretary’s performance is based on the accuracy with which he or she types memos and letters.

As do trait systems, comparison approaches have limitations. They tend to encourage subjective judgments, which increase the chance for rater errors and biases. In addition, small differences in performance between employees may become exaggerated by using such a method if supervisors feel compelled to distinguish among levels of employee performance.

TABLE 3-6 A Paired Comparison Performance Appraisal Rating Form

Instructions: Please indicate by placing an X next to which employee of each pair has performed most effectively during the past year.

X Bob Brown X Mary Green

Mary Green Jim Smith

X Bob Brown Mary Green

Jim Smith X Allen Jones

Bob Brown Jim Smith

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X Allen Jones X Allen Jones

BEHAVIORAL SYSTEMS

Behavioral systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss25) rate employees on the extent to which they display successful job performance behaviors. In contrast to trait and comparison methods, behavioral methods rate objective job behaviors. When correctly developed and applied, behavioral models provide results that are relatively free of rater errors and biases. The main types of behavioral systems are the critical incident technique (CIT) and behaviorally anchored rating scales (BARS).

TABLE 3-7 A Critical Incidents Performance Appraisal Rating Form

Instructions: For each description of work behavior below, circle the number that best describes how frequently the employee engages in that behavior.

1. The incumbent removes manure and unconsumed food from the animal enclosures.

1

Never

2

Almost never

3

Sometimes

4

Fairly often

5

Very often

2. The incumbent haphazardly measures the feed items when placing them in the animal enclosures.

1

Never

2

Almost never

3

Sometimes

4

Fairly often

5

Very often

3. The incumbent leaves refuse dropped by visitors on and around the public walkways.

1

Never

2

Almost never

3

Sometimes

4

Fairly often

5

Very often

4. The incumbent skillfully identi�ies instances of abnormal behavior among the animals, which represent signs of illness.

1

Never

2

Almost never

3

Sometimes

4

Fairly often

5

Very often

The critical incident technique (CIT) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss89) 21

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end21) requires job incumbents and their supervisors to identify performance incidents (e.g., on-the-job behaviors and behavioral outcomes) that distinguish successful performance from unsuccessful ones. The supervisor then observes the employees and records their performance on these critical job aspects. Supervisors usually rate employees on how often they display the behaviors described in each critical incident. Table 3-7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#ch03tab07) illustrates a CIT form for an animal keeper job. Two statements represent examples of ineffective job performance (numbers 2 and 3), and two statements represent examples of effective job performance (numbers 1 and 4).

The CIT tends to be useful because this procedure requires extensive documentation that identi�ies successful and unsuccessful job performance behaviors by both the employee and the supervisor. The CIT’s strength, however, is also its weakness: Implementation of the CIT demands continuous and close observation of the employee. Supervisors may �ind the record keeping to be overly burdensome.

Behaviorally anchored rating scales (BARS) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss26) 22

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end22) are based on the CIT, and these

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scales are developed in the same fashion with one exception. For the CIT, a critical incident would be written as “the incumbent completed the task in a timely fashion.” For the BARS format, this incident would be written as “the incumbent is expected to complete the task in a timely fashion.” The designers of BARS write the incidents as expectations to emphasize the fact that the employee does not have to demonstrate the exact behavior that is used as an anchor in order to be rated at that level. Because a complete array of behaviors that characterize a particular job would take many pages of description, it is not feasible to place examples of all job behaviors on the scale. Experts therefore list only those behaviors that they believe are most representative of the job the employee must perform. A typical job might have 8–10 dimensions under BARS, each with a separate rating scale. Table 3-8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#ch03tab08) contains an illustration of a BARS for one dimension of an animal keeper job (i.e., cleaning animal enclosures and removing refuse from the public walkways). The scale re�lects the range of performance on the job dimension from ineffective performance (1) to effective performance (7).

As with all performance appraisal techniques, BARS has its advantages and disadvantages.23

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end23) Among the various performance appraisal techniques, BARS is the most defensible in court because it is based on actual observable job behaviors. In addition, BARS encourages all raters to make evaluations in the same way. Perhaps the main disadvantage of BARS is the dif�iculty of developing and maintaining the volume of data necessary to make it effective. The BARS method requires companies to maintain distinct appraisal documents for each job. As jobs change over time, the documentation must be updated for each job.

TABLE 3-8 A Behaviorally Anchored Rating Scale

GOAL-ORIENTED SYSTEMS

Management by objectives (MBO) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss263) 24

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end24) could be the most effective performance appraisal technique because supervisors and employees determine objectives for employees to meet during the rating period and employees appraise how well they have achieved their objectives. Management by

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objectives is used mainly for managerial and professional employees and typically evaluates employees’ progress toward strategic planning objectives.

Employees and supervisors together determine particular objectives tied to corporate strategies. Employees are expected to attain these objectives during the rating period. At the end of the rating period, the employee writes a report explaining his or her progress toward accomplishing the objectives, and the employee’s supervisor appraises the employee’s performance based on accomplishment of the objectives. Despite the importance of managerial employees to company success, it is often dif�icult to establish appropriate performance goals because many companies simply do not fully describe the scope of these positions. Management by objectives can promote effective communication between employees and their supervisors. On the downside, management by objectives is time-consuming and requires a constant �low of information between employees and employers. Moreover, its focus is only on the attainment of particular goals, often to the exclusion of other important outcomes. This drawback is known as a “results at any cost” mentality.25

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end25) The role of automobile sales professionals historically was literally limited to making sales. Once these professionals and customers agreed on the price of a car, the sales professionals’ work with customers was completed. Automobile salespeople today remain in contact with clients for as long as several months following the completion of the sale. The purpose is to ensure customer satisfaction and build loyalty to the product and dealership by addressing questions about the vehicle’s features and reminding clients about scheduled service checks.

Goal-oriented systems are often a component of broader development programs that help employees achieve career goals.

Exploring the Performance Appraisal Process

Performance appraisals represent a company’s way of telling employees what is expected of them in their jobs and how well they are meeting those expectations. Performance appraisals typically require supervisors to monitor employees’ performance, complete performance appraisal forms about the employees, and hold discussions with employees about their performance. Companies that use merit pay plans must assess employee job performance, which serves as a basis for awarding merit pay raises. Awarding merit pay increases on factors other than job performance, except for four exceptions (i.e., a seniority system, merit system, quality or quantity of production, and any factor besides sex), could lead some employees to level charges of illegal pay discrimination against the employer based on the Equal Pay Act of 1963.

One such violation of the Equal Pay Act involved two female employees of Cascade Wood Components Company, which remanufactures lumber products.26

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end26) The job in question was the sawyer job; a sawyer is responsible for cutting the best-grade wood segments that will be manufactured into the highest- grade lumber. Cascade awarded pay increases to male sawyers before awarding pay increases to more experienced female sawyers. The court found Cascade in violation of the Equal Pay Act because the higher pay raises awarded to the male sawyers could not be accounted for by commensurate differences in job performance, seniority, a merit system that measures earnings by quantity or quality of production, or any factor other than sex.

Legislation and court decisions have subjected performance appraisals to close scrutiny. In Brito v. Zia Company (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss32) , the court found that the Zia Company violated Title VII when a disproportionate number of protected class individuals were laid off on the basis of low performance appraisal scores. Zia’s action was a violation of Title VII because the use of the performance appraisal system in determining layoffs was indeed an employment test. In addition, the court ruled that the Zia Company had not demonstrated that its performance appraisal instrument was valid. In other words, the appraisal did not assess any job-related criteria based on quality or quantity of work.27

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end27)

FOUR ACTIVITIES TO PROMOTE NONDISCRIMINATORY PERFORMANCE APPRAISAL PRACTICES

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Since the Brito v. Zia Company decision, court opinions and compensation experts suggest the following four points to ensure nondiscriminatory performance appraisal practices and to protect �irms using merit pay systems if legal issues arise.28 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end28) Nondiscriminatory performance appraisal systems are key to effective merit pay systems because they accurately measure job performance.

1. Conduct job analyses to ascertain characteristics necessary for successful job performance.

Companies must �irst establish de�initions of the jobs and then discover what employee behaviors are necessary to perform the jobs. Job analysis is essential for the development of content-valid performance appraisal systems. Content validity displays connections between the measurable factors upon which the employee is being appraised and the job itself. For example, customer service associates’ performance might be judged on the basis of courtesy and knowledge of the company’s products or services, and these measures would be content-valid dimensions.

Human resource and compensation experts must review performance appraisal tools regularly to ensure that the tools adequately re�lect the key behaviors necessary for effective job performance. Jobholders, supervisors, and clients can often give the most relevant input to determine whether a performance appraisal system contains dimensions that relate to a particular job.

2. Incorporate these characteristics into a rating instrument.

Although the professional literature recommends rating instruments that are tied to speci�ic job behaviors (e.g., behaviorally anchored rating scales), the courts routinely accept such less-sophisticated approaches as simple graphic rating scales and trait ranges. Regardless of the method, HR departments should provide all supervisors and raters with written de�initive standards, such as illustrated by the animal keeper job.

3. Train supervisors to use the rating instrument properly.

Raters need to know how to apply performance appraisal standards when they make judgments. The uniform application of standards is extremely important. In addition, evaluators should be aware of common rater errors, which will be discussed later in this chapter.

4. Several cases demonstrate that formal appeal mechanisms and review of ratings by upper-level personnel help make performance appraisal processes more accurate and effective.

Allowing employees to voice their concerns over ratings they believe to be inaccurate or unjust opens a dialogue between employees and their supervisors that may shed light on the performance appraisal outcomes. Employees may be able to point out instances of their performance that may have been overlooked in the appraisal process or explain particular extreme instances as the result of extraordinary circumstances. For example, an ill parent in need of regular attention is the reason for an employee’s absence.

SOURCES OF PERFORMANCE APPRAISAL INFORMATION

Information for performance appraisal can be ascertained from �ive sources:

Employee (i.e., the individual whose job performance is being appraised)

Employee’s supervisor

Employee’s coworkers

Employee’s supervisees

Employee’s customers or clients

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More than one source can provide performance appraisal information. Although supervisory input is the most common source of performance appraisal information, companies are increasingly calling on as many sources of information as possible to gain a more complete picture of employee job performance. Performance appraisal systems that rely on many appropriate sources of information are known as 360-degree performance appraisals (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss1) . By shifting the responsibility for evaluation to more than one person, many of the common appraisal errors can be reduced or eliminated. Software is available to permit managers to give the ratings quickly and conveniently. Furthermore, including the perspective of multiple sources results in a more comprehensive and fair view of the employee’s performance by minimizing biases resulting from limited views of performance.

In a survey of training participants, 84 percent said their 360-degree experience was useful. However, some managers believe that the 360-degree feedback method has problems. General Electric’s (GE’s) former CEO Jack Welch maintains that the 360-degree system in his �irm had been “gamed” and that people were saying nice things about one another, resulting in all good ratings. Another critical view with an opposite twist is that input from peers, who may be competitors for raises and promotions, might intentionally distort the data and sabotage the colleague. Yet, because so many �irms use 360-degree feedback evaluation, it seems that many �irms have found ways to avoid the pitfalls.

Signi�icant risks with 360-degree feedback are con�identiality and possible legal rami�ications. Many �irms outsource the process to make participants feel comfortable that the information they share and receive is completely anonymous. Information is very sensitive, and, in the wrong hands, could impact careers. In addition, Nesheba Kittling, an attorney at labor law �irm Fisher & Phillips, states that “Employees’ performance reviews are an employers’ �irst line of defense against discrimination claims.” Detailed documentation of job performance “provides support for an employer’s contention that it had legitimate, non-discriminatory reasons” for adverse action against employee such as a demotion or termination.

ERRORS IN THE PERFORMANCE APPRAISAL PROCESS

Almost all raters make rating errors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss366) . Rating errors re�lect differences between human judgment processes versus objective, accurate assessments uncolored by bias, prejudice, or other subjective, extraneous in�luences.29

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end29) Rating errors occur because raters must always make subjective judgments. Human resource departments can help raters to minimize errors by carefully choosing rating systems and to recognize and avoid common errors. Major types of rating errors include:30 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end30)

Bias errors

Contrast errors

Errors of central tendency

Errors of leniency or strictness

Bias Errors

Bias errors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss29) happen when the rater evaluates the employee based on a personal negative or positive opinion of the employee rather than on the employee’s actual performance. Four ways supervisors may bias evaluation results are �irst-impression effects, positive and negative halo effects, similar-to-me effects, and illegal discriminatory biases. A manager biased by a �irst-impression effect (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss160) might make an initial favorable or unfavorable judgment about an employee and then ignore or distort the employee’s actual performance based on this impression. A positive halo effect

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(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss344) or negative halo effect (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss290) occurs when a rater generalizes an employee’s good or bad behavior on one aspect of the job to all aspects of the job. A similar-to-me effect (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss409) refers to the tendency on the part of raters to judge favorably employees whom they perceive as similar to themselves. “Similar- to-me” errors or biases easily can lead to charges of illegal discriminatory bias (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss209) , wherein a supervisor rates members of his or her race, sex, nationality, or religion more favorably than members of other classes.

Contrast Errors

Supervisors make contrast errors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss79) when they compare an employee with other employees rather than to speci�ic, explicit performance standards. Such comparisons qualify as errors because other employees are required to perform only at minimum acceptable standards. Employees performing at minimally acceptable levels should receive satisfactory ratings, even if every other employee doing the job is performing at outstanding or above-average levels.

Errors of Central Tendency

When supervisors rate all employees as average or close to average, they commit errors of central tendency (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss136) . Such errors are most often committed when raters are forced to justify only extreme behavior (i.e., high or low ratings) with written explanations; therefore, HR professionals should require justi�ication for ratings at every level of the scale and not just at the extremes.

Errors of Leniency or Strictness

Raters sometimes place every employee at the high or low end of the scale, regardless of actual performance. With a leniency error (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss249) , managers tend to appraise employees’ performance more highly than they really rate compared with objective criteria. Over time, if supervisors commit positive errors, their employees will expect higher-than-deserved pay rates.

On the other hand, strictness errors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss435) occur when a supervisor rates an employee’s performance lower than it would be if compared against objective criteria. If supervisors make this error over time, employees may receive smaller pay raises than deserved, lower their effort, and perform poorly. In effect, this error erodes employees’ beliefs that effort varies positively with performance and that performance in�luences the amount of pay raises.

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3.4 STRENGTHENING THE PAY-FOR-PERFORMANCE LINK

3-4 Discuss how compensation professionals can strengthen the pay-for-performance link.

Companies who don’t consider these possible limitations ultimately weaken the relationship between pay and performance. Human resource managers can employ a number of approaches to strengthen the link between pay and job performance.

Link Performance Appraisals to Business Goals

The standards by which employee performance is judged should be linked to a company’s competitive strategy or strategies. For example, each member of a product development team that is charged with the responsibility of marketing a new product might be given merit increases if certain sales goals are reached.

Analyze Jobs

Job analysis (Chapter 6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06#ch06) ) is vital to companies that wish to establish internally consistent compensation systems (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss226) . As discussed earlier, job descriptions—a product of job analyses—can be used by supervisors to create objective performance measures. Job descriptions note the duties, requirements, and relative importance of a job within the company. Supervisors appraising performance can match employees’ performance to these criteria. This approach may help reduce supervisors’ arbitrary decisions about merit increases by clarifying the standards against which employees’ performance is judged.

Communicate

For merit pay programs to succeed, employees must clearly understand what they need to do to receive merit increases and what the rewards for their performance will be. Open communication helps an employee develop reasonable expectations and encourages him or her to trust the system and those who operate it. Figure 3-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec4#ch03�ig02) illustrates worksheets both supervisors and employers may use to establish performance expectations.

Establish Effective Appraisals

During performance appraisal meetings with employees, supervisors should discuss goals for future performance and employee career plans. When performance de�iciencies are evident, the supervisor and employee should work together to identify possible causes and develop an action plan to remedy these de�iciencies. The performance standards listed within job descriptions should serve as the guides for establishing performance targets. For example, a company’s job description for a secretary speci�ies that the job incumbent must be able to use one word processing software package pro�iciently. The supervisor should clearly explain what software usage pro�iciency means. Pro�iciency may refer to the ability to operate certain features of the software well, including the mail merge utility, the table generator, and the various outlining utilities, or pro�iciency may refer to the ability to operate all features of the software well.

Empower Employees

Because formal performance appraisals are conducted periodically—maybe only once per year—supervisors must empower their employees to make performance self-appraisals between formal sessions.31

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(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end31) Moreover, supervisors need to take on a coach’s role to empower their workers.32

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end32) As coaches, supervisors must ensure that employees have access to the resources necessary to perform their jobs. Supervisors-as-coaches should also help employees interpret and respond to work problems as they develop. Empowering employees in this fashion should lead to more self-corrective actions rather than reactive courses of action to supervisory feedback and only to the criticisms addressed in performance appraisal meetings.

Differentiate among Performers

Merit increases should consist of meaningful increments. If employees do not see signi�icant distinctions between top performers and poor performers, top performers may become frustrated and reduce their levels of performance. When companies’ merit increases don’t clearly re�lect differences in actual job performance, they may need to provide alternative rewards (e.g., employee bene�its—additional vacation days or higher discounts on the company’s product or service—can complement merit pay increases).

FIGURE 3-2 Supervisor’s and Employee’s Performance Planning Worksheets

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3.5 POSSIBLE LIMITATIONS OF MERIT PAY PROGRAMS

3-5 Summarize the possible limitations of merit pay programs.

Despite the popularity of merit pay systems, these programs are not without potential limitations, which may lessen their credibility with employees. If employees do not believe in a merit pay program, the pay system will not bring about the expected motivational impacts. Supervisors, HR managers, and compensation professionals must address the following nine potential problems with merit pay programs.

Failure to Differentiate among Performers

Employees may receive merit increases even if their performance does not warrant them because supervisors want to avoid creating animosity among employees. Poor performers, therefore, may receive the same pay increase as exemplary performers, and poor performers may come to view merit pay increases as entitlements. Superior performers consequently may question the value of striving for excellent performance.

Poor Performance Measures

Accurate and comprehensive performance measures that capture the entire scope of an employee’s job are essential to successful merit pay programs. In most companies, employees’ job performance tends to be assessed subjectively, based on their supervisors’ judgments. As discussed, merit pay programs rely on supervisors’ subjective assessments of employees’ prior job performance. Developing performance measures for every single job unfortunately is both dif�icult and expensive.

Supervisors’ Biased Ratings of Employee Job Performance

As we discussed earlier, supervisors are subject to a number of errors when they make subjective assessments of employees’ job performance. These errors often undermine the credibility of the performance evaluation process. Performance evaluation processes that lack credibility do little to create the perception among employees that pay re�lects performance.

Lack of Open Communication between Management and Employees

If managers cannot communicate effectively with employees, employees will not trust the performance appraisal processes. Trust is dif�icult to build when decisions are kept secret and employees have no in�luence on pay decisions. Thus, merit pay decision systems can cause con�lict between management and employees. If mistrust characterizes the relationship, then performance appraisals will mean little to employees and could even lead to accusations of bias. In an environment of secrecy, employees lack the information necessary to determine if pay actually is linked to job performance.

Undesirable Social Structures

We acknowledged that relative pay grades can re�lect status differentials within a company: Employees with lucrative salaries are usually granted higher status than lower-paid employees. Permanent merit increases may rigidify the relative pay status of employees over time.33

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end33) Table 3-9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec5#ch03tab09) shows the permanence of the relative pay difference between two distinct jobs that each receives a 5 percent merit increase each year. Even though both employees performed well and received “equal” merit increases in percentage terms,

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the actual salary differentials prevail each year. Thus, where pay level is an indicator of status, permanent merit increases may reinforce an undesirable social structure. Lower-paid employees may resent never being able to catch up.

TABLE 3-9 The Impact of Equal Pay Raise Percentage Amounts for Distinct Salaries

At the end of 2015, Anne Brown earned $50,000 per year as a systems analyst and John Williams earned $35,000 per year as an administrative assistant. Each received a 5 percent pay increase every year until the year 2020.

Anne Brown ($) John Williams ($)

2016 52,500 36,750

2017 55,125 38,587

2018 57,881 40,516

2019 60,775 42,542

2020 63,814 44,669

Mounting Costs

As is the case with seniority pay, merit pay presents an escalating cost burden to companies because pay increases are recurring, as illustrated in Table 3-9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec5#ch03tab09)

Factors Other than Merit

Merit increases may be based on factors other than merit, which will clearly reduce the emphasis on job performance. For example, supervisors may subconsciously use their employees’ ages or seniority level as bases for awarding merit increases. Studies show that the extent to which supervisors like the employees for whom they are responsible determines the size of pay raises in a merit pay program.34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end34) In addition, company politics assumes that the value of an employee’s contributions depends on the agenda, or goals, of the supervisor35

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end35) rather than on the objective impact of an employee’s contributions to a rationally determined work goal. For instance, an accounting manager wishes to employ accounting methods other than top management’s accounting methods. She believes that she can gain top management support by demonstrating that the accounting staff agrees with her position. The accounting manager may give generally positive performance evaluations, regardless of demonstrated performance, to those who endorse her accounting methods.

Undesirable Competition

Because merit pay programs focus fundamentally on individual employees, these programs do little to integrate workforce members.36 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec10#ch03end36) With limited budgets for merit increases, employees must compete for a larger share of this limited amount. Competition among employees is counterproductive if teamwork is essential for successfully completing projects. Thus, merit increases are best suited for jobs where the employee works independently (e.g., clerical positions) and many professional positions from job families (e.g., accounting).

Little Motivational Value

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Notwithstanding their intended purpose, merit pay programs may not positively in�luence employee motivation. Employers and employees may differ in what they see as “large enough” merit increases really to motivate positive worker behavior. For example, increases diminish after deducting income taxes and contributions to Social Security, and differences in employees’ monthly paychecks may be negligible.

COMPENSATION IN ACTION

Employee compensation will ultimately be a managerial decision. As a line manager, your focus will be on the broader issues of production, revenue, and competition; however, the rate at which employees are paid—and why—will be an important factor in sustaining high levels of production, revenue, and competitive advantage. In making these decisions, line managers and HR (and in many cases the compensation specialist within the HR department) must work together in order to reward employees on measurable accomplishments and effectively communicate how the measured performance led to the resulting compensation decision.

Action checklist for line managers and HR—accurately tying performance to compensation

HR takes the lead

Work with line managers to design the performance appraisal plan that best �its the speci�ic duties and responsibilities of particular roles.

Consider implementing a training program wherein line managers are trained in two areas: (1) accurately assessing performance and (2) recording the assessment in a way that is lawful and easily understood by both the employer and employee.

Review the �inal distribution allocation made by the managers and, after approving the complete plan, set in motion the discussions between managers and employees where performance will be discussed and compensation increases will be communicated.

Line managers take the lead

Determine performance criteria and accurate measurements to ensure that a speci�ic output is the expectation of both the employee and employer.

Work with HR to become educated on the subjective limitations of performance reviews. While certain roles may have very objective standards (e.g., sales numbers) by which employees are measured, supervisor judgment is subject to error.

Use appraisals to accurately compensate employees. Working with HR, use the total annual increase to make compensation increases accordingly (e.g., if you are allotted a 5 percent increase to distribute among your employees, top performers may get an 8–10 percent increase, steady performers 5–6 percent, and underperformers 0–2 percent).

END OF CHAPTER REVIEW

MyManagementLab

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Go to mymanagementlab.com (http://mymanagementlab.com) to complete the problems marked with this icon .

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Summary

Learning Objective 1: Seniority and longevity pay reward employees with periodic additions to base pay according to length of service. Whereas seniority pay increases become a part of base pay, longevity awards do not.

Learning Objective 2: Merit pay rewards employees based on performance with periodic, recurring additions to base pay. Merit pay systems commonly incorporate subjective measures of employee performance.

Learning Objective 3: Performance appraisal is a mechanism that helps determine whether employees qualify for merit pay raises as well as the amount based on performance attainment. There are four types: trait systems, comparison systems, behavioral systems, and goal-oriented systems.

Learning Objective 4: Possible limitations of performance appraisal practices stand to weaken the pay-for- performance link, ultimately, undermining merit pay systems. With proper attention, compensation professionals can design performance appraisal methods that help to overcome these limitations.

Learning Objective 5: Merit pay programs have inherent limitations. With proper attention, compensation professionals can help minimize the impact of these limitations.

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Key Terms seniority pay 52 (ch03.xhtml#page_52) longevity pay 52 (ch03.xhtml#page_52) human capital theory 53

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#page_53) job control unionism 53

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#page_53) General Schedule (GS) 54

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#page_54) merit pay programs 57

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec1#page_57) just-meaningful pay increase 58

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec2#page_58) trait systems 60 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_60) comparison systems 61

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_61) forced distribution 61 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_61) paired comparisons 62

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_62) behavioral systems 62 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_62) critical incident technique (CIT) 63

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_63) behaviorally anchored rating scales (BARS) 63

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_63) management by objectives (MBO) 64

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_64) Brito v. Zia Company 65

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_65) 360-degree performance appraisal methods 66

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_66) rating errors 66 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_66) bias errors 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) �irst-impression effect 67

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) positive halo effect 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) negative halo effect 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) similar-to-me effect 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) illegal discriminatory bias 67

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) contrast errors 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) errors of central tendency 67

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) leniency error 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) strictness errors 67 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec3#page_67) internally consistent compensation systems 68

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec4#page_68)

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MyManagementLab CHAPTER QUIZ! If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Quiz! and see what you’ve learned.

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Discussion Questions 3-1. Human capital theory has been advanced as a rationale underlying seniority pay. Identify two individuals

you know who have performed the same job for at least 2 years. Ask them to describe the changes in knowledge and skills they experienced from the time they assumed their jobs to the present. Discuss your �indings with the class.

3-2. Subjective performance evaluations are subject to several rater errors, which makes objective measures seem a better alternative. Discuss when subjective performance evaluations might be better (or more feasible) than objective ratings.

3-3. Consider a summer job that you have held. Write a detailed job description for that job. Then develop a behaviorally anchored rating scale (BARS) that can be used to evaluate an individual who performs that job in the future.

3-4. This chapter indicates that merit pay plans appear to be the most common form of compensation in the United States. Although widely used, these systems are not suitable for all kinds of jobs. Based on your knowledge of merit pay systems, identify at least three jobs for which merit pay may be inappropriate. Be sure to provide your rationale given the information in this chapter.

3-5. Select three distinct jobs of your choice. Go to the Occupational Information Network (O*NET), http://onetonline.org (http://onetonline.org) . Review the major tasks for each job. Then, for each job, identify what you believe is the most appropriate performance appraisal method. Based on your choices, sketch a performance appraisal instrument. Discuss the rationale for your choice of performance appraisal methods.

CASE Appraising Performance at Precision

An additional Supplemental Case can be found on MyManagementLab.

Precision Manufacturing produces machine parts and has nearly 200 production employees and 50 employees in its front of�ice with responsibilities ranging from data entry to marketing. Jackson Smith is the new compensation manager at Precision, and his �irst task is to implement a merit pay program that would tie to the company’s performance appraisal process. For the last 10 years, all employees have received an annual pay increase, but it has been an across-the-board increase, with all employees receiving the same percentage increase in base pay. Jackson and the company president have agreed that implementing a merit pay program to provide pay increases based on performance would support the company’s competitive strategy by rewarding employee productivity.

The �irst step in developing the merit pay program is to ensure that the performance appraisal process aligns with the proposed program. The purpose in implementing the merit pay program is to provide employees with pay increases as a reward for performance, and, therefore, effective measurement of performance is essential. Jackson must now review the current appraisal process to ensure it will tie to the proposed merit pay program.

The current appraisal process is fairly simple. Once each year, the supervisors at Precision provide their employees a written performance appraisal. The supervisors use a generic form to conduct their appraisals, and the same form is used for all employees. The form asks the supervisor to rate the employee on a scale of 1 to 5 in four areas: quantity of work, quality of work, attendance, and attitude. Once the form is completed, the supervisor meets with the employee to share the results. Both the supervisor and the employee sign the form, and then it is placed in the employee’s personnel �ile.

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Jackson’s initial research on the appraisals has brought several concerns to his attention. First, employees do not have written job descriptions that clearly state their performance expectations. Further, his review of past appraisals suggests that the supervisors tend to rate all of the employees about the same. Very rarely is an employee rated exceptionally high or low; most are rated as average. Finally, it seems that employees and supervisors communicate very little about performance. Aside from the one meeting a year to deliver the performance appraisal, the supervisors tend to talk to employees about their performance only if the employee is having a problem.

Jackson knows he has a lot of work ahead of him to create a performance appraisal process that will provide a reliable assessment to support a merit pay program. First, he must clearly identify the problems with the current performance appraisal process, and then he must lay out a plan to correct any de�iciencies.

Questions:

3-6. What are some problems with Precision’s performance appraisal process that might cause challenges for Jackson to implement a merit pay program?

3-7. What changes do you recommend Precision make to the performance appraisal process to align it with a merit pay program?

Crunch the Numbers! Costs of Longevity and Merit Pay

An additional Crunch the Numbers! exercise can be found on mymanagementlab.com (http://mymanagementlab.com) .

We learned that merit pay increases may create a cost burden to employers because these increases carry over in base pay. Refer to Table 3-9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03lev1sec5#ch03tab09) , in which Anne Brown’s annual salary is listed at the end of 2015 was $50,000 and John Williams’ was $35,000.

Questions:

3-8. Under a merit pay system, calculate Anne’s salary based on a 7 percent annual increase through the year 2020. For John, apply a 3 percent annual increase rate. What are their adjusted salaries for each year?

3-9. Let’s assume that both employees have reached the maximum pay rates for their jobs in 2015. Under a longevity pay system, calculate the annual longevity payments for each employee through the year 2020. Using a 5 percent rate for each, what will the annual increases amount to? What will their base pay rates be at the end of 2020?

3-10. Under a merit pay system scenario, let’s assume the goal is to provide Anne and John with the same annual pay increases as measured in dollars, just for 2016. It’s been determined that Anne’s annual increase rate will be 5 percent. What should the rate be for John? After applying the increase amounts, what will Anne’s and John’s new salaries be at the end of 2016?

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) for Auto-graded writing questions as well as the following Assisted-graded writing questions:

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3-11. A company of 15 employees has recently decided to overhaul its performance appraisal system. Which plan would be most appropriate for the company to adopt? Why?

3-12. Using the principles of seniority pay and merit pay, explain whether you believe it makes sense to apply both programs simultaneously.

3-13. MyManagementLab Only – comprehensive writing assignment for this chapter.

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Endnotes 1. Cayer, N. J. (1975). Public Personnel Administration in the United States. New York: St. Martin Press. 2. Becker, G. (1975). Human Capital. New York: St. Martin Press. 3. Kochan, T. R., Katz, H. C., & McKersie, R. B. (1994). The Transformation of American Industrial Relations. Ithaca,

NY: ILR Press. 4. Cayer, Public Personnel Administration. 5. James, K. C. (April 2002). A Fresh Start for Federal Pay: The Case for Modernization. Washington, DC: U.S.

Government Printing Of�ice. 6. U.S. Department of the Interior, Bureau of Land Management. Human Resources Assistant (GS-0203-06/07).

Available: http://www.usa.jobs.gov (http://www.usa.jobs.gov) , accessed January 31, 2015. 7. Trudell, C., & Hagiwara, Y. (2015). Toyota plans overhaul to seniority-based pay, BloombergBusiness (January

26). Available: http://www.bloomberg.com (http://www.bloomberg.com) , accessed February 3, 2015. 8. Inagaki, K. (2015). Japan Inc shuns seniority pay in favour of merit-based pay. The Financial Times (January 27).

Available: http://www.ft.com (http://www.ft.com) , accessed February 3, 2015. 9. Peck, C. (1984). Pay and Performance: The Interaction of Compensation and Performance Appraisal (Research

Bulletin No. 155). New York: The Conference Board. 10. WorldatWork. (2014). WorldatWork Salary Budget Survey, Top-Level Results. Pay Increases for U.S. Employees

Illustrate the ‘New Normal’ by staying the course. Available: http://www.worldatwork.org (http://www.worldatwork.org) , accessed February 21, 2015.

11. Cohen, K. (2014). Modest pay increases a symptom of a recovering economy. Workspan (September): 19–22. 12. WorldatWork (2015). Compensation Programs and Practices. Available: http://www.worldatwork.org

(http://www.worldatwork.org) , accessed February 3, 2015. 13. Latham, G. P., & Wexley, K. N. (1982). Increasing Productivity through Performance Appraisal. Reading, MA:

Addison-Wesley. 14. Krefting, L. A., & Mahoney, T. A. (1977). Determining the size of a meaningful pay increase. Industrial Relations,

16, pp. 83–93. 15. Feintzeig, R. (2015). Everything is awesome! Why you can’t tell employees they’re doing a bad job. The Wall

Street Journal (February 10). Available: http://www.wsj.com (http://www.wsj.com) , accessed February 12, 2015. 16. Bean, L. L. Culture. Available: https://llbeancareers.com/culture.htm (https://llbeancareers.com/culture.htm) ,

accessed January 21, 2015. 17. Bernardin, H. J., & Beatty, R. W. (1984). Performance Appraisal: Assessing Human Behavior at Work. Boston, MA:

Kent. 18. Brustein, J. (2013). “Microsoft Kills Its Hated Stack Rankings. Does Anyone Do Employee Reviews Right?”

Bloomberg Businessweek (November 13). Accessed January 25, 2014, at http://www.businessweek.com (http://www.businessweek.com) .

19. Ryan, L. (2012). “Ten Management Practices to Throw Overboard in 2012,” BusinessWeek.com (http://BusinessWeek.com) (January 23): 1.

20. Brustein, J. “Microsoft Kills Its Hated Stack Rankings. Does Anyone Do Employee Reviews Right?” Bloomberg Businessweek (November 13, 2013). Accessed January 25, 2014, at http://www.businessweek.com (http://www.businessweek.com) .

21. Fivars, G. (1975). The critical incident technique: A bibliography. JSAS Catalog of Selected Documents in Psychology, 5, p. 210.

22. Smith, P., & Kendall, L. M. (1963). Retranslation of expectation: An approach to the construction of unambiguous anchors for rating scales. Journal of Applied Psychology, 47, pp. 149–155.

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23. Latham & Wexley, Increasing Productivity. 24. Bernardin & Beatty, Performance Appraisal. 25. Ibid. 26. Coe v. Cascade Wood Components, 48 FEP Cases 664 (W.D. OR. 1988). 27. Brito v. Zia Company, 478 F2d 1200, CA 10 (1973). 28. Barrett, G. V., & Kernan, M. C. (1987). Performance appraisal and terminations: A review of court decisions

since Brito v. Zia Company with implication for personnel practices. Personnel Psychology, 40, pp. 489–503. 29. Blum, M. L., & Naylor, J. C. (1968). Industrial Psychology: Its Theoretical and Social Foundations. New York:

Harper & Row. 30. Bernardin & Beatty, Performance Appraisal. 31. Noe, R. A. (2005). Employee Training (3rd ed.). Burr Ridge, IL: McGraw-Hill. 32. Evered, R. D., & Selman, J. C. (1989). Coaching and the art of management. Organizational Dynamics, 18, pp. 16–

33. 33. Haire, M., Ghiselli, E. E., & Gordon, M. E. (1967). A psychological study of pay. Journal of Applied Psychology

Monograph, 51 (Whole No. 636), pp. 1–24. 34. Cardy, R. L., & Dobbins, G. H. (1986). Affect and appraisal: Liking as an integral dimension in evaluating

performance. Journal of Applied Psychology, 71, pp. 672–678. 35. Murphy, K. R., & Cleveland, J. N. (1991). Performance Appraisal: An Organizational Perspective. Boston, MA: Allyn

& Bacon. 36. Lawler, E. E., III, & Cohen, S. G. (1992). Designing a pay system for teams. American Compensation Association

Journal, 1, pp. 6–19.