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UnitV.pdf
BHR 3301, Compensation and Benefits 1
Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:
4. Compare and contrast merit-based and pay-for-performance programs. 4.1 Explain merit-based programs. 4.2 Explain performance programs.
5. Evaluate performance appraisal programs.
5.1 Discuss performance appraisals. 5.2 Evaluate how performance appraisals are used in pay-for-performance plans.
Course/Unit Learning Outcomes
Learning Activity
4.1 Unit Lesson Chapter 10, pp 348–361, 364–376 Unit V Assessment
4.2
Unit Lesson Chapter 9, pp. 320–327, 335–337 Chapter 10, pp 348–361, 364–376 Video: Step 6: Pay for Performance Unit V Assessment
5.1
Unit Lesson Chapter 11, pp. 384–411 Video: How to Create a Performance Appraisal Form Video: Performance Appraisal Rating Scales Video: Performance Appraisal Rater Errors Unit V Assessment
5.2
Unit Lesson Chapter 11, pp. 384–411 Video: HR Basics: Performance Appraisals Unit V Assessment
Reading Assignment Chapter 9: Pay-for-Performance: The Evidence, pp. 320–327, 335–337 Chapter 10: Pay-for-Performance Plans, pp. 348–361, 364–376 Chapter 11: Performance Appraisals, pp. 384–411 In order to access the following resources, click the links below. Learning, G. (2016, May 19). How to create a performance appraisal form [Video file]. Retrieved from
https://www.youtube.com/watch?v=2wfqQiUaLPQ Click here to access a transcript of the video above. Learning, G. (2016, September 23). Step 6: Pay for performance [Video file]. Retrieved from
https://www.youtube.com/watch?v=-XqfsfLiy90 Click here to access a transcript of the video above.
UNIT V STUDY GUIDE
Employee Contributions: Determining Individual Pay
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Learning, G. (2018, April 1). HR basics: Performance appraisals [Video file]. Retrieved from
https://www.youtube.com/watch?v=o2mi8zhnhYM Click here to access a transcript of the video above. Learning, G. (2018, September 1). Performance appraisal rating scales [Video file]. Retrieved from
https://www.youtube.com/watch?v=xvrAkxmtbl4 Click here to access a transcript of the video above. Learning, G. (2018, September 3). Performance appraisal rater errors [Video file]. Retrieved from
https://www.youtube.com/watch?v=WsFhzb3IqVo Click here to access a transcript of the video above.
Unit Lesson Introduction Pay must be efficient, fair, ethical, and compliant with the type of pay implemented and applied. In doing this, it is important to identify what makes up pay-for-performance plans. Each entity is based on the employees’ and organization’s performance. However, it is applied in different manners. According to Mayer (2016), one in five companies find merit pay programs to be effective in increasing performance levels of the employees (surveyed out of 150 companies). Below is a breakdown of the surveyed results, according to Mayer (2016):
50% short-term annual incentives are effective in increasing performance,
47% annual incentives are effective at differentiating pay based on performance,
32% merit pay is effective at differentiating pay based on performance, and
20% merit pay is effective at driving higher performance levels. Pay-for-Performance As you should recall, pay-for-performance is pay that varies with individual and organizational performance. Examples include merit pay, lump sum bonus plans, skill-based pay incentive plans, variable pay plans, risk sharing, and success sharing (Newman, Gerhart, & Milkovich, 2017). The chart below identifies the many examples of pay-for-performance plans.
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Merit pay, which falls under pay-for-performance, is used for a number of positions, from exempt positions to clerical and administrative. Over the years, this form of pay was mainly for executive-type positions; however, it is now being applied within lower-level positions. Per Newman et al. (2017), variable pay plans have proven to increase profits, cut costs, and motivate better performance. Below, each of the types of pay-for- performance plans are specifically identified. Merit pay: Pay, which is viewed as merit, increases on the base pay according to the results from the performance evaluation/appraisal. Merit pay is also referred to as a lump sum bonus, which usually costs the organization less due to not being included in the base pay. Merit pay includes individual spot awards and individual incentive plans, which are awarded for exceptional performance. Per Newman et al. (2017), about 35% of all companies use spot awards. Refer to the textbook for additional information on individual spot awards. In addition, merit pay includes individual incentive plans, which are different from merit pay and lump sum plans. Skilled-based pay: This is pay that is linked to knowledge, skills, and abilities (KSAs), which was previously discussed in Unit IV. Variable pay: This type of pay is tied to productivity. Variable pay includes cash profit sharing, stock ownership/options, a balanced scorecard, productivity/gainsharing (i.e., Scanlon plan, Rucker plan, and Improshare), and team/group incentives. Refer to Exhibit 10.11 on pages 362–363 of the textbook for an explanation of each.
Variable pay can drive organizational performance through focus, alignment, motivation, and reinforcement. Each of the components play a vital role to the success of the pay plan. Following is a breakdown of each, according to Learning (2016):
Pay-for- Performance Plans
Merit pay: lump sum
bonus
(short- term)
Individual spot
award
Individual incentive
plans
Skill- based pay
incentive
(long- term)
Variable pay
Cash profit
sharing
Stock ownership or options
(long-term)
Balanced scorecard
Productivit y/gain
sharing
Scanlon plan
Rucker plan
Improshare
Team/ group
incentives
Risk sharing
Success sharing
Focus
•clarifies what is important
Alignment
• links performance to organization
Motivation
•how employees make a difference
Reinforcement
•provides positive support and encouragement
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The following are five eligibility requirements for variable pay, according to Learning (2016):
employment status,
pay structure level,
performance ratings,
variable pay plans, and
eligibility timing. Risk sharing: This type of pay is linked to employees’ base wages, which are set below a specific level, and incentives are used to raise wages above the base. Risk sharing includes success sharing plans, which is where pay is based on the employees’ base wages, and variable pay is added according to successful years of employment and performance. The following is a video relating to pay-for-performance plans and specifics and can be accessed by clicking the link below. Learning, G. (2016, September 23). Step 6: Pay for performance [Video file]. Retrieved from
https://www.youtube.com/watch?v=-XqfsfLiy90 Click here to access a transcript of the video above. Performance Appraisal: What Is a Performance Appraisal? Of course, while in the process of determining the type of pay plan to be applied, you must identify with the data to help determine the appropriate pay-for-performance plan. Data is collected from the job analysis, job evaluation, job description, and performance appraisal (evaluation). The performance appraisal is identified as the tool used to determine correspondence between workers’ behavior/task outcomes and the employer’s expectations/standards (Newman et al., 2017). A performance appraisal can come in many forms with different raters. The forms can range from ranking, standard rating scales, behaviorally anchored rating scales, management by objectives, and essay forms. The raters can be the supervisor, peers, self, customer, and/or subordinates. The following is a video relating to performance appraisals and can be accessed by clicking the link below. Learning, G. (2018, April 1). HR basics: Performance appraisals [Video file]. Retrieved from
https://www.youtube.com/watch?v=o2mi8zhnhYM Click here to access a transcript of the video above. The following is a video relating to performance appraisal forms and can be accessed by clicking the link below. Learning, G. (2016, May 19). How to create a performance appraisal form [Video file]. Retrieved from
https://www.youtube.com/watch?v=2wfqQiUaLPQ Click here to access a transcript of the video above. Performance Appraisal Rating Scales Performance appraisals should be conducted on a regular basis (i.e., every 6 months, quarterly, and/or yearly). It has been identified that a yearly performance evaluation is not the best business practice due to the lapse of time in effectively providing performance feedback. The appraisal is usually put on the backburner due to lack of time and supporting data needed for the appraisal. It is recommended that ongoing, frequent communication is key to conducting informal and formal evaluations. Informal evaluations can take place on a regular basis with impromptu observations and/or question-and-answer (Q&A) sessions. This can help lead to the more formal evaluation(s), which should take place at least every 6 months and/or quarterly (or yearly if in conjunction with every 6 months and/or quarterly). When appraisals are conducted, be sure to have
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structured documents that are used in fairly assessing each employee for consistency. However, some items that can be found within an evaluation are listed below:
performance levels,
performance ratings,
performance scales,
position range (quartiles),
merit grids,
behavioral assessments,
capability assessments, and
comment sections for employee/employer. The following is a video relating to performance scales and can be accessed by clicking the link below. Gregg Learning. (2018, September 1). Performance appraisal rating scales [Video file]. Retrieved from
https://www.youtube.com/watch?v=xvrAkxmtbl4 Click here to access a transcript of the video above. Performance Appraisal Rater Errors Of course, the structure can vary according to the position level held within the organization. It is important to communicate this to the employees in a timely manner in order to properly prepare for the evaluation. This includes scheduling time, location, other personnel, and the needed supporting data for the evaluation (i.e., attendance records, performance/productivity data, and/or any other needed documents to verify performance feedback). In the process, make for sure the raters have been properly trained on how to successfully complete the evaluation. If not, there are some concerns that can develop in the completed evaluations; some of these issues are listed below:
errors in the rating process,
criterion contamination,
errors in observation,
errors in storage and recall, and
errors in actual evaluation. The following is a video relating to errors and can be accessed by clicking the link below. Learning, G. (2018, September 3). Performance appraisal rater errors [Video file]. Retrieved from
https://www.youtube.com/watch?v=WsFhzb3IqVo Click here to access a transcript of the video above. The outcome of a performance appraisal can yield a number of things (i.e., pay increase, increased duties/responsibilities, promotion, demotion, and/or termination). However, we are focusing more on pay. It has been identified that pay can increase productivity, performance, morale, and profits within an organization as well as change behaviors. According to Mayer (2016), one in five companies find merit pay programs to be effective in increasing performance levels of the employees (surveyed out of 150 companies). In order for this to be effective, pay increase guidelines must be identified and implemented in the areas of efficiency, fairness, compliance, and ethics. Once developed, it is easier to assess performance appraisals/evaluations and determine if a pay increase is warranted. Following is a sample performance rating scale. Attendance ____________________________________________________________________________ 0 1 2 3 4 5
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Meet outlined essential duties and functions ____________________________________________________________________________ 0 1 2 3 4 5 Continued education and/or training ____________________________________________________________________________ 0 1 2 3 4 5 Coaching and/or mentoring needs ____________________________________________________________________________ 0 1 2 3 4 5 Professional behavior ____________________________________________________________________________ 0 1 2 3 4 5 Communication skills ____________________________________________________________________________ 0 1 2 3 4 5 Scale
0 = Does not meet 1 = Well below average 2 = Below average 3 = Average 4 = Above average 5 = Well above average
Note: Compensable reward is, according to final total, in 5% increments. The highest total possible is 30. As you consider how to develop and implement a performance rating scale, keep in mind that it can be made up of adjectives, behaviors, and/or outcomes. Refer to the previously provided video, and/or refer to the textbook on page 391. Summary Overall, Unit V presented material on pay-for-performance plans and performance appraisals. As we move into Unit VI, we will be exploring benefits and how they contribute to the overall compensation. Benefits include mandatory and non-mandatory benefits, which are listed below.
We identified indirect compensation benefits in Unit IV, where we discussed that benefits make up about 30% of the total compensation package. The illustration below identifies the indirect compensation benefits.
Health care, dental, and
vision
Paid time off (PTO)
401k Stock option Tuition
reimbursement Supplemental
insurance
Disability Social
Security Bonuses
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References Learning, G. (2016, September 23). Step 6: Pay for performance [Video file]. Retrieved from
https://www.youtube.com/watch?v=-XqfsfLiy90 Mayer, K. (2016, February 8). Employers say pay for performance programs are falling short. Employee
Benefit News. Retrieved from https://www.benefitnews.com/news/employers-say-pay-for- performance-programs-are-falling-short
Newman, J. M., Gerhart, B., & Milkovich, G. T. (2017). Compensation (12th ed.). New York, NY: McGraw-
Hill/Irwin.
Suggested Reading The article below discusses how pay-for-performance is not driving performance like it used to. However, it addresses how more must be done to drive and reward employee performance. Merit increases are not meeting the standards, so new ideas must be considered. Mayer, K. (2016, February 8). Employers say pay for performance programs are falling short. Employee
Benefit News. Retrieved from https://www.benefitnews.com/news/employers-say-pay-for- performance-programs-are-falling-short
The article below discusses how Walmart is actively contributing to the wellness of their employees with more engagement via the use of the Sharecare app. This will boost wellness by increasing engagement, improving health awareness, and reinforcing healthy habits. Walmart is enhancing the benefits offered to the employees. Mayer, K. (2018, May 17). Walmart partners with health app Sharecare to engage workforce. Employee
Benefit News. Retrieved from https://www.benefitnews.com/news/walmart-benefits-add-wellness-app- sharecare-to-engage-workers
Indirect Compensation
Bonuses Pensions Health Care
Disability 401k Social Security
Paid Time Off (PTO)
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Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Refer to page 340 of the textbook, and complete the following “Review Questions” for Chapter 9.
4. Companies focus heavily on cost-saving strategies to be competitive today. Identify both monetary and nonmonetary ways of cost saving that would be relevant to a compensation person’s job.
5. You supervise in a company that is a low payer relative to competitors. What things do you have
control over to increase the likelihood that workers will feel fairly treated? Refer to page 378 of the textbook, and complete the following, which is one of the “Review Questions” in Chapter 10.
5. You are the teacher in a class where team project account for 25 percent of course grades. Each student is assigned to a team and that team is responsible for all team assignments. Student come to you and complain bitterly about one of their members who does absolutely nothing. You know this will affect your teaching ratings if you don’t do something about it. What should you do?
Refer to pages 416–417 of the textbook, and complete the following “Review Questions” for Chapter 11.
1. We talked in depth about four ways to improve performance ratings. Pick one that you think shows the most promise and defend your position.
3. Think about the last group project you worked on. Describe that project and identify three
performance criteria you think would be appropriate for evaluating the team members. Should every team member be able to rate one another on all these dimensions? Should the team-member ratings be used for feedback only or for feedback and part of the overall grade (with teacher approval, of course)? Should the teacher rate each team member on performance (all three criteria) in the group assignment? How are these questions relevant to setting up a 360 degree performance review?
