Dicuss Question 7

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Total Rewards

HRM 533

Linking Pay to Performance

WorldatWork (2007). The WorldatWork handbook of compensation, benefits & total rewards . Hoboken, NJ: John Wiley & Sons.

Welcome to Total Rewards. In this lesson, we will discuss Linking Pay to Performance.

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Objectives

  • Upon completion of this lesson, you will be able to:
  • Analyze an organization's strategy and integrate pay-for-performance plans and total rewards into a compensation strategy that will motivate desired behavior and improve job performance

 Upon completion of this lesson, you will be able to:

Analyze an organization’s strategy and integrate pay-for-performance plans and total rewards into a compensation strategy that will motivate desired behavior and improve job performance.

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Supporting Topics

  • Performance standards

  • Merit pay plans

  • Perceptions of fairness

Specifically, we will discuss the following topics in this lecture:

Performance standards.

Merit pay policy.

And perceptions of fairness.

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Merit Pay

  • Merit pay
  • Pay-for-performance
  • Motivational theories
  • Reinforcement theory
  • Expectancy theory
  • Equity theory
  • Successful merit pay program

Merit pay commonly called pay-for-performance, is perhaps the most widely used means by which United States organizations determine employee pay increases. The purpose of merit pay is to reward employees for individual contributions and to encourage the best performance possible.

The logic behind merit pay is straightforward: if pay is made contingent upon performance, then employee motivation to achieve high performance is increased. The key to merit pay is founded in three motivational theories.

First, reinforcement theory states that merit pay should motivate improved performance because the monetary consequences of good performance are made known.

Second, expectancy theory states that merit pay should motivate improve performance because performance is instrumental to the attainment of a pay increase.

And third, equity theory states that merit pay should lead to improved performance because a pay raise is seen as a fair outcome for once performance input.

A successful merit pay program will:

Reward employees for achieving performance results and exhibiting behaviors aligned with the objectives of the organization;

Provide rewards commensurate with contributions;

Be communicated easily to employees;

Be understood readily by employees;

Recognize bottom-line considerations in the organization's ability to deliver pay increases;

Rational, structured, and administer in a logical manner;

Conform to legal requirements;

Using well-founded, credible means of evaluating performance; and

Conform with and support management philosophy.

As with most business programs, and merit pay plan should be planned carefully to achieve these goals.

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What to Reward

  • Decisions
  • Values, contributions, ability to pay, communications, administer the plan
  • Individual goals aligned
  • Organization's identity
  • Strategic plan
  • Objectives

Before a merit pay plan can be designed, certain decisions have to be made such as what the organization values, which types of individual employee contribution should be rewarded, the organization's ability to pay, the organization’s ability and willingness to communicate the plan, and the organization’s ability to administer the plan.

A successful plan requires the individual goals be aligned with the organization’s:

Identity, which relates to whom the organization serves and what products and services are provided;

Strategic plan, which relates to how the mission of the organization is accomplished; and

Objectives, which relate to what corporate goals have been established.

Once the link between individual and organizational objectives has been defined, merit pay can be used to align individual goals with those of the organization.

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Documentation

  • Devise system to establish and evaluate performance against individual objectives
  • Performance standards/ goals
  • Basis which contributions are measured
  • Define expected level of performance
  • Objective and subjective standards
  • Emphasize results
  • Employees participation
  • Flexible

The second step in delivering a merit pay plan is to devise a system that establishes and evaluates performance against individual objectives. Performance standards also known as performance goals or objectives are written statements that help determine the extent to which employees have contributed to the mission of the organization. These standards establish the basis on which employee contributions are evaluated, and they define the expected level of performance.

While establishing performance standards, determining which standards best meet the organization's needs is critical. Objective standards should be assessed as well as more intangible, subjective aspects of the job such as teamwork, operation, and customer service.

Documentation to work standards is an essential part of performance evaluation process. Typically, this is an annual event in which supervisors and subordinates discuss goals and objectives for the coming year while evaluating the prior year's performance. In some organizations determining and documenting work standards is a joint effort between managers and employees.

To help ensure that employees accept and act upon performance standards, three actions should be taken.

First, emphasize results of behaviors rather than traits. Performance standards should reflect what the person produces or what the person does rather than personality characteristics.

Second, employees should participate in setting standards. For employees to act upon performance standards, they must be committed to them, which means that they need to have a sense of ownership in the process.

And third, the standard should be flexible. Is the nature of work and organizations to be in a constant state of flux. Consequently, performance objectives and standards that are viable now may become obsolete. An organization should be willing to modify standards as shifting d demand dictate

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Merit Budget

  • Established budget
  • Endorsed by management
  • Size of budget and accommodating funds
  • Established each year
  • Salary budget reviews
  • Not to exceed bottom line budgets

A fundamental feature of any merit plan is an established budget that has been endorsed by management. Every year that a merit plan is in effect, the budget process should consist of two key activities:

First, determining the size of the budget; and

Second, accommodating funds to business units within the organization.

Typically, salary increase budgets will be established each year based upon many factors including:

Actual or anticipated organizational financial results;

Cost-of-living and/or inflation;

Industry trends;

Competitive factors;

The cost of labor and the competitive position of the organization’s pay in the marketplace; and

Finally, group performance and needs.

In most organizations, it is common to obtain or develop salary budget reviews each year that shows expected increase rates for similar employers. On the basis of survey information, senior management ordinarily will approve a not to be exceeded bottom-line increase budget computed as a percentage of current payroll.

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Budget Allocation

  • How funds are to be distributed
  • Uniform budget
  • Percentage of eligible payroll
  • Flexible budget
  • Measures of business unit performance
  • Geographical pay differences

The next step in the budget process is to determine how funds are to be distributed to business units within the organization. A simple and commonly used method for allocating merit pay dollars is to use a uniform budget. Under this procedure, merit pay budgets are distributed to divisions or departments as a percentage of eligible payroll, which is defined as the aggregate base salaries of all employees were eligible to participate in the merit pay plan.

Using the uniform budget approach, every business unit in the organization shares proportionately in the amount of money available for salary increases. To respond to differing achievement levels of various business units or the need to pay different wages in certain locations, some organizations use the flexible budget approach. Flexible budgets require some measures of business unit performance and geographical pay differences to distribute budget dollars.

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Merit Pay Policy

  • Link pay to performance
  • Pay increases vary according to contributions and effort
  • Variations measurable and measured
  • Tools to determine appropriate rewards
  • Key factors – size, timing and delivery
  • Merit increases built into salaries
  • Lump-sum increases

The essential goal for merit pay plan is to link pay to performance that is consistent with the mission of the organization. To cement this link, pay increases must vary according to the level of an employee's contributions and efforts. There are two required conditions:

First, the variations in employee performance must be measurable and measured.

And second, managers must be provided with the essential tools to determine the appropriate rewards.

Key factors in creating a merit pay policy or the size, timing, and delivery of merit increases.

The size of pay increases is a critical component in merit pay programs. A successful merit pay program will ensure that increases awarded to the best contributors will be substantially greater than increases awarded to the average or less than average performers. If differences among pay increases are deemed by recipients to be trivial, but merit pay program will be undermined because employees will not be motivated to improve their performance.

Another issue that must be addressed is the date merit-increase decisions are made. Using an anniversary date approach spreads the administrative burden throughout the year for managers and human resource staff. Payroll increases are also staggered, reducing the financial impact that accompanies a single jump in salaries. Also, the anniversary date approach focuses the performance evaluation and increase on an individual employee, ideally leaving the employee to believe the processes for specifically on him/her.

A common review date consolidates administrative burden for management and human resources, and increases can become part of the yearly budgeting process. Furthermore, because increases for all employees are determined at the same time, the appraisal ratings for all employees can be collected and relative performance can be factored into the decision more easily. If the merit budget is based on business unit performance, the linkage among business unit performance, individual performance, and merit increases can be clearer with the common fate.

Under traditional merit pay plans, merit increases are built into employee salaries for as long as they remain with the organization. Hence, the increases are permanent and their values are compounded over time as additional increases are granted.

One alternative to salary base increases that recently have become more popular is the use of lump-sum increases. Lump-sum increases are a one time payment made in lieu of a traditional base pay increase, and they typically are delivered annually by the merit pay program. Similar to a bonus payment, a lump sum must be of re-earned each year based on performance, it is not built into his base salary. Often, lump sums payments are provided to employees who are near, at, or over the maximum of their salary range.

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Policy Implementation

  • Merit pay matrix – amount and timing of increases
  • Operational statement
  • Performance only
  • Grade midpoint
  • Performance and position in range
  • Performance and position in range using variable timing

A merit pay matrix details the amount and timing of increases for various levels of performance at various locations in the pay grade. A merit pay matrix can be interpreted as an operational statement of the organization's pay for performance theory or policy. It spells out the contingency between pay and performance in specific terms.

Generally there are three alternatives for issuing merit increases. First alternative is based only on performance, the second alternative is based on performance and position in range, and the third alternative is based on performance and position in range using variable timing.

When pay increases are granted based solely on performance, the resulting top performers receive bigger increases than lower performers. Typically, increases are calculated as a percentage increase in base pay. Basing merit increases on performance alone ignores internal pay comparisons. Within a performance class, higher paid employees receive greater absolute increases, even though the merit percentage reward is the same. This has the effect of perpetuating pay inequities that may exist, and it may reward long tenured and/or highly paid employees disproportionately.

An alternative is to calculate merit increases as a percentage of the employee salary grade midpoint rather than their base pay. This approach provides larger relative dollar increases to employees within a performance class who are paid lower in their salary range than it does for employees who are high in their salary range.

Basing increases on performance and position in range is based on the concept that the midpoint represents a competitive or fair wage for a particular set of skills in the marketplace, and that, over time, employees with a similar level of sustained performance should be paid an equivalent amount.

This merit matrix approach has several advantages. First the tendency is reduced to perpetuate tenure-based pay inequities and to continue to overpay highly paid employees. Second the approach is more likely to be deemed fair by the workforce because, over time, employees with similar performance in the same or salary grade will tend to be paid comparably.

In the performance and position in range using variable timing approach top performers receive bigger more frequent increases, while average and below-average contributors wait longer for smaller increases.

There are advantages to this approach. First top performers will receive bigger rewards with greater frequency, yielding significant increases because of the compounding effect. And second during the times of tight budgets, whether the issuing below market increases at regular intervals, normal increases can be granted at moderately delayed intervals.

A successful merit pay plan requires more than well-developed policy statements and a conceptually sound design. It also requires administrative processes and procedures that are logical and easily understood.

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Managing a Merit Pay Plan

  • Significant performance efforts = significant rewards
  • Relies on honest, open communications
  • Test validity and opportunities for dialogue
  • Key elements of communication plan
  • Information about performance appraisals
  • Information on compensation program
  • Specific information about merit pay program

The merit pay equation is simple. Significant performance efforts yield significant rewards, which in turn motivates significant performance efforts. However, this equation relies on trust to enforce the contract between employees in the organization. Honest, open communication between management, human resources, and employee serves as a means by which the message of merit pay can be conveyed and reinforced.

Thorough communication permits employees to test the validity of the organization's promises while conveying to them that the organization has nothing to hide. It also establishes opportunities for dialogue on issues of critical importance, enhances credibility in obtaining employee buy-in, and promotes overall trust.

Management should release enough information about the plan to demonstrate its faith in the process, but not so much information that is ability to exercise managerial discretion is impeded. Employees should be provided with enough information about the merit pay plan that it serves as a performance motivator without breaching their right to privacy.

Some key elements often introduced in a comprehensive communication program are:

One, general information about the performance appraisal program and process.

Two, general information about the organization’s compensation program.

Three, more specific information about the merit pay program.

And four, the size of the individuals increase, minimum and maximum raises granted, and the average size of the merit increase.

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Training

  • Performance appraisal program is foundation of merit pay program
  • Training
  • Plan performance that links individual efforts to business plan and strategies
  • Measure and evaluate performance
  • Provide feedback through intrinsic rewards
  • Use merit matrix to allocate rewards
  • Communicate to employees

An accurate, reliable, and credible performance appraisal program is the foundation of a successful merit pay program, and it is imperative that managers and supervisors be capable of evaluating employee behaviors and the results objectively and critically. To ensure adequate interpretation and understanding of program requirements and consistent application of program tenants, training should be provided for all managers who are given the task of implementing the merit pay program.

Training should include the following components.

How to plan performance that links individual efforts and accomplishments to business plans and strategies.

How to measure and evaluate performance fairly and consistently.

How to provide feedback through intrinsic rewards.

How to use the merit matrix to allocate rewards.

And lastly, how to communicate the assessment of performance and the allocation of rewards to the employees.

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Perception of Fairness

  • Program credibility
  • Accurate and fair
  • Tenets to ensure perception of fairness
  • Laws and regulations must be followed
  • Employee participation
  • Understand how program works
  • Appeal process

Program credibility is key to getting a favorable response among employees to merit pay. Employees need to feel that increases and the process used to drive the increases are accurate and fair. To help ensure the perception of fairness, the merit pay program should incorporate the following tenets:

Relevant laws and regulations must be followed.

Employees should participate in the setting of performance goals and standards, they should know what performance is expected of them, and they should be able to control the specific aspects of the performance on which their pay will be based.

Employees should know and understand how the pay program works, and they should be encouraged to raise concerns, ask questions, and seek clarification of their increases.

And an appeal process should be established to provide employees with an opportunity to discuss a performance evaluation and their increase with an authority other than the direct supervisor.

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Computer Technology

  • Budget planning
  • Data analyzed by position, department, organization or individual
  • Records
  • Cost projections
  • Summary reporting

Computer technology can assist in the management of the merit pay plan in a number of ways.

First, budget planning can be facilitated by generating different increase matrix models, testing various options, and deriving forecasts of the economic impact of alternatives.

Second, the data can be probed to evaluate the effectiveness, impact, and equity of the merit pay plan. Increases, performance distribution, and other factors can be analyzed by department, position, organization or individual.

Third, employee records can be stored, monitored, and analyze overtime.

Fourth, data can be managed to formulate cost projections based on the salary structure changes, and impact of inflation, and other financial factors.

And finally, summary reporting can be streamlined for internal and external purposes, tedious administrative tasks and reporting efforts can be automated, and productivity can be improved by reducing the amount of time, labor and expense involved in managing to pay program.

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Evaluation

  • Regular evaluation
  • Many factors can be analyzed
  • Measurement before and after
  • Productivity or performance improvements measured over time
  • Accurately, fairly and consistently administered

To ensure that a merit pay plan is operating as intended and is effective in meeting an organization’s compensation needs, a systematic, post implementation evaluation of the plan should be conducted regularly.

Many factors can be analyzed to assess plan effectiveness such as:

Employee satisfaction with the pay program;

Employee job satisfaction;

Employee perception that pays based on performance;

Employee acceptance of and trust in the performance appraisal process;

Employee trust in management;

Employee and organizational performance;

Employee commitment to the organization; and

Correlation between actual performance ratings and actual merit increases.

Measurement of these success factors before and after implementation of a merit pay plan is likely to yield the most meaningful information, and it can be accomplished through various means such as: control comparable studies, employee attitude surveys, focus group discussions, and management and employee feedback.

Some organizations attempt to gauge success of newly introduced merit pay plans by measuring productivity and or performance improvements over time and then correlating their information was appraisal ratings and salary increases.

Because employee perception of fairness is so important in determining the success of the merit pay program, one analysis that should be performed is to test how accurately, fairly, and consistently the program has been administered throughout the organization.

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Advantages and Disadvantages

  • Compatible with culture and philosophy
  • Sound system of measuring performance accepted by employees
  • Discouraging to average or below average employees
  • Deemphasize intrinsic rewards
  • Create trust through communication plan
  • Enhance competitiveness, productivity and bottom-line results

As in the case of any reward system, merit pay must be compatible with an organization's culture and philosophy if it's going to be effective. For example, merit pay will not work for organizations that values tenure over performance. Also, merit pay may be inappropriate for a growing number of organizations that are trying to emphasize good performance is that of individual performance. By rewarding individuals, merit pay can help undermine the cooperation and interdependency that are needed in a team environment.

Merit pay will not work unless an organization has a sound system of measuring individual performance that is accepted by the workforce. Merit pay may be discouraging to average or below average employees, who typically will fail to qualify for higher pay raises. By tightly linking pay them performance, merit pay can also deemphasize the intrinsic rewards and satisfaction gains simply from doing a job.

By linking a merit pay program with a sound communication strategy, an organization can clarify its performance expectations and create an atmosphere of trust between employees and management. This atmosphere tends to increase overall employee satisfaction with work and pay, and is likely to lead to improved individual performance.

The main reason an organization chooses a reward system is to enhance its competitiveness, productivity, and bottom-line results. A merit pay system can help ensure that an organization’s rewards policy fits the performance-based philosophy it needs to survive and prosper.

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Results and Competencies

  • Performance management system
  • Key result areas
  • Competencies
  • Specific behaviors
  • Measures

A performance management system functions as a management tool to help ensure that employees are focused on organizational priorities and operational factors that are critical to the organization's success. An organization's critical success factors form the basis for key result areas for the measurement of organizational, department, team, and individual performance. Key result areas define what is to be accomplished and generally are defined as key responsibilities, one time or periodic projects, or annual objectives.

In addition to key result areas, an organization may include identification of competencies that will focus on how results are to be attained.

Competencies generally are defined as the knowledge, skills, and abilities exhibited by individuals as they work to accomplish key result areas. Competencies may be developed universally for the organization, for job families, or for individual jobs. Competencies are often selected to reflect an organization's values.

While using competencies, is important to identify specific behaviors associated with them. For example, associated behaviors for teamwork may be communicating openly with others in achieving win-win solutions while working with peers.

If an organization has developed comprehensive performance measures that are evaluated and used regularly to manage overall organizational performance, these measures should be included in the system so all employees can focus their priorities and energies on these strategies.

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Performance Management Cycle

  • Performance management system
  • Ongoing cycle
  • Usually one year cycle
  • Phase 1: Planning performance
  • Phase 2: Coaching and feedback
  • Phase 3: Rating performance

A performance management system is an ongoing cycle. For most organizations, the typical performance period or cycle is one year, although this period may vary depending on the business cycles and a probationary periods for new hires, promotions, and transfers.

This cycle is likely to consist of three phases including: planning performance for the upcoming period, coaching performance and giving feedback throughout the period and evaluating performance for the just completed period.

Phase one: planning performance for the upcoming period, includes defining key results for each position as well as establishing performance standards and can switch key result areas are measured. Because the performance planning process requires detailed knowledge of job responsibilities and performance expectations, line management should play a significant role in the process and be ultimately accountable for the performance plans of their employees.

Phase two: coaching performance and giving feedback throughout the period. An important step for the design team involves the concept of open, honest, positive, two-way communication between supervisors and employees throughout the period. The goal of a performance management system should be to improve employee performance, not to find an easier way to terminate employee for poor performance. Therefore, a system should emphasize coaching and feedback from the supervisor as well as feedback and input from the employee throughout the performance period.

And phase three: rating performance for the just completed period. One of the most challenging aspects of developing individual performance management system is developing the approach for rating employee performance. When identifying an approach, it is important to focus on the characteristics of the organization and the objectives of the performance management system. For example, a traditional hierarchical organization is to focus on judging employees pass performance. In organizations oriented towards total quality management might focus less on judging past performance and more of strategies to improve future performance.

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Performance Ratings

  • Summary rating focus on the system objective
  • Summary point scores
  • Summary labels
  • Summary statements
  • Role is important
  • Employee involvement

Design of a summary rating should focus on the objective of the system. With that in mind, design teams may consider three options:

The first option, summary point scores. In a weighted and scored system in which the rating of each key result is assigned a number, the overall rating is a point score. The issue, then, is to convert the overall point score back into a rating category.

The second option, summary labels. If the purpose of the system is primarily to judge pass performance, and if the method for evaluating performance is fairly objective, then the use of rating categories or labels, may be appropriate. These labels may be the same as those used to rate each key result ,for example “consistently exceeds expectations”, “it exceeds most expectations”, “meet expectations”, and so on.

The third option, summary statements. To reduce the subjectivity of performance management systems and increase the focus on continuous improvement, organizations have tended to move away from rating categories or labels toward summary statements that are behavior oriented and more focused on future improvement. For this approach, the challenge for supervisors is to communicate the performance evaluation clearly to employees so that there is no misunderstandings when the employees are, or are not, consider for promotional transfers, or when they are terminated for poor performance.

The role of an employee is an important aspect for evaluation process. As organizations flatten and the scope of supervision expands, it becomes increasingly difficult for supervisors to interact with employees to judge performance. Looking at this situation along with organizational initiatives to empower employees, the design team should consider the extent to which employees may be involved in the evaluation process. This involvement may include:

Evaluating their own performance;

Completing a self-evaluation and includes identifying developmental plans and career objectives;

Gathering performance related information; or

Scheduling evaluation sessions.

Employee involvement in performance evaluations can facilitate the evaluation process. If used as part of the multi-reader assessment process, employee involvement can allow supervisors to function more as coaches and assist judges of performance.

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Multi-Rater Assessment

  • Who will rate performance
  • Multi-rate or 360 feedback
  • 5-9 raters
  • Regular and direct contact
  • Evaluate their own performance

One question for the design team to consider is who will rate performance? In an organization focused more on developing future performance, that development includes a high degree of involvement by those other than the supervisor, including the employees themselves. Under these circumstances, a technique known as multi-rater assessment, three sixty feedback, might be used.

With multi-rater assessment, employee performance evaluations are compiled by several, usually five to nine people who come in regular, direct contact with the employee, including peers, internal and external customers, and supervisors. Most important, employees are able to evaluate their own performance.

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Check Your Understanding

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Linking Pay to Performance

  • Whether and how system linked to compensation or pay increases
  • Performance evaluation system perceived as part of the pay system
  • Shift to narrative summary
  • Merit budget to departments
  • How linked to performance
  • Compatible with pay delivery system

When designing a performance management system, the design team should consider whether and how the system will be linked to employee compensation or to determination of pay increases. Traditionally, an overall rating has been developed that determines a pay increase from merit guidelines. Although this approach strictly links performance and pay, it might cause budget overruns unless the guidelines are based on analysis of past performance-rating distributions. Supervisors may tend overate employees’ performance to justify larger merit increases for them.

Where there is a direct link between the performance evaluation and merit pay increases, especially when the two were done at the same time, the performance evaluation system is likely to be perceived as part of the pay system.

One solution may to be to separate performance appraisal ratings and pay increases by deemphasizing the judgment aspect of point scores or overall rating labels and shifting to a narrative statement that summarizes overall performance. The performance appraisal might be further separated from the pay increase by changing the timing of the two activities or by changing the appraisal and pay cycles.

Another solution may be to provide a merit budget to the department heads and require them to allocate pay increases to the employees on the basis of relative performance. Department heads then have to determine who their top performers are in order to allocate merit money without exceeding budget.

Because a performance management system is most useful when it is used to manage performance, organizations need to consider carefully how they will be linked to a performance rating as well as the impact this linkage will have on the operation of the performance management system. If the primary objective of the system is to determine ratings for pay increases, the system should be designed to differentiate performance levels. Organizations are more interested in using performance management as a tool to develop their employees may want to separate the performance management and pay delivery systems to prevent either system from having a negative impact on the other.

In general, the design of a performance management system should be compatible with the pay delivery system philosophy and should support that philosophy. At the same time, how performance management is linked, or not linked, to pay will send a strong message to the work force about organizational priorities and values. The decision as to how performance management and composition will be related should not be made lightly.

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Summary

  • Merit pay
  • Key decisions
  • Essential goal for merit pay plan
  • Performance appraisal program
  • Continual evaluation
  • Options for summary rating

We have now reached the end of this lesson. Let’s take a look at what we have just covered:

We first learned that merit pay is commonly called pay-for-performance and is the most widely used means by which most organizations determine pay increases. The logic behind merit pay is that if pay is made contingent upon performance then employee motivation to achieve high performance is increased. We also discussed three key theories of motivation related to merit pay which include reinforcement theory, expectancy theory and equity theory.

We next discussed the key decisions that must be made before and merit pay plan can be designed. We discussed the importance of performance standards used to document performance. Additionally, we learned that the fundamental feature of any merit pay plan is an established budget that is endorsed by management. The budget determines how funds are just distributed.

We then learned that the essential goal for merit pay plan is to link pay to performance is consistent with the mission of the organization. We discussed the merit pay matrix which details the amount in the timing of increases. The importance of a communication plan is that the employees can test the validity of the organization’s promises and establishes opportunities for dialogue on critical issues.

We also discussed that an accurate, reliable, credible performance appraisal program is the foundation of a successful merit pay program and that managers and supervisors must be trained to evaluate employee performance. Program credibility is the key to getting a favorable response from employees with regard to the merit pay program and computer technology can assist in the management of the merit pay plan in several ways including budget planning, data analysis, employee records, cost projections, and summary reporting.

Then we learned that a successful merit pay program must be evaluated on a continual basis. Key result areas and competencies can be used to measure performance. A performance management system is an ongoing cycle consisting of three phases including: planning performance for the upcoming period, coaching performance and giving feedback throughout the period, and evaluate performance for the just completed period.

Finally, we examined the three options for a summary rating. The first option is summary point scores, the second option is the summary table and the third option is a summary statement. With multi-rater assessment, employee performance evaluations are compiled by several, usually five to nine people who come in regular, direct contact with the employee, including peers, internal and external customers, and supervisors. When designing a performance management system, the design team should consider whether and how the system will be linked to employee compensation or to a determination of pay increases.

This concludes this lesson.

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