Human Resource Management

Unit 4 : PERFORMANCE APPRAISAL and

Compensation Management
Meaning of Performance Appraisal: -
Performance appraisal is the critical examination of employees'
effectiveness and recognition of a person's abilities for future growth and
development.

Nature of Performance Appraisal: -

(1) To provide valuable input on every employee's skill.

(2) To provide a foundation for modifying or changing behaviour patterns

toward more productive work habits.

(3) To provide managers with information to assist them while determining

on future job assignments and compensation.

Objectives of Employee Appraisal: - Performance

appraisal can be conducted with the following goals in mind:

1. To keep track so as to establish salaries and bonuses, pay structure,

annual bonuses, and so on.

2. To identify employees' quality and weak point such that they place the
right men at the accurate jobs.

3. To preserve and evaluate a human's potential for development and

advancement.

4. To assists workforce with suggestions on their performance and related

status.
5. It sets the stage for influencing employees' working habits.

6. To analyze and maintain advertising and other skills training

Process of Performance review:

 Process of Performance review: The very first stage in
performance review is to create the benchmarks that will be utilized
to draw comparisons staff members' actual performance.

 The dissemination of norms : Once established, its

management's responsibility to share information the benchmarks
to all employees of the organization. Employees must be informed,
and the standards must be clearly explained to them.

 Actual performance evaluation : The trickiest aspect of the

evaluation process is attempting to determine the performance of
the employee, which refers to the staff members' final release over
the period of time specified.

 Actual performance versus expected outcome : True

performance is assessed in contrast to preferred or level of
performance. The comparison reveals distinctions in job performance
from the accepted rules.

 Discussing results [Feedback] : The evaluation outcomes are

communicated by debating with employees one-on-one. This
conversation focuses on interaction and listening. The outcomes,
problems, and potential solutions are now being discussed with the
goal of conflict resolution and reaching consensus.
Performance Management :
Performance appraisal is a commercial tool that enables managers to track
and assess the work done by their staff. The objective of actual supervision
is to foster a setting where individuals can conduct themselves towards
the finest of their potential and deliver the work

Methods of Performance Management :

1. Management by Objectives (MBO) : After establishing specific
goals, managers and employees meet on a regular basis to discuss the
feasibility of achieving those objectives and the progress made. These
progress indicators aid in analyzing an employee's contributions towards
the end of review period.

2. Assessment Center Method :

Employees are evaluated based on their performance in social-stimulating

activities such as position, judgments, conversations, and so on. Employee
performance is examined in order to identify future leaders and managers

This method can be tailored to meet a specific requirement, position,

placement, or goals, and it can focus on providing insight into an
employee's public persona.

3. Human Resource Accounting Method :

It is used to assess an employee's score dependent upon economic rewards

they receive from the organization. It is also known as the Human Capital
Cost Accounting Method. This means that such an employee's performance
is assessed against the salary and other benefits provided by the company.
4. Behaviourally Anchored Rating Scale (BARS) :

BARS sets up typical workplace behaviours based on a job role and

evaluates an employee's performance in relation to these established
standards. The appropriate results of an employee in any given situation
(critical incidents) are measured.

Potential Appraisal :
Potential appraisal is a future-oriented appraisal with the primary goal of
determining and assessing employees' potential to presume higher
positions and duties in the organization chart.

Techniques of potential appraisal: -

• Self – appraisals. • Leadership exercises etc.

• Peer appraisals. • Management games like role playing.

• Superior appraisals. • Psychological and psychometric tests.

• MBO.

Employee Counselling :
Employee counselling is an integral part of annual reviews and potential
evaluations if they want to achieve their real purpose of aiding employees
in growing and developing.

Employee guidance is a technique of understanding and trying to assist

individuals who are starting to experience technological, individual, and
sentimental adjustment issues that are meddling with their job
performance.
Employee counselling is a method of understanding and assisting
individuals who are beginning to experience technical, personal, and
emotional adjustment issues that are interfering with their job
performance.

Need for Employee Counselling:

1. It is necessary for staff members to escape the troubles, which offers a
fresh way to deal with the issues.

2. The employees need to know as to what further worries the company

has about the worker.

3. A need to identify the workplace issues and ineffective results.

4. There is a need to increase the productivity of employee and the

confidence about the work.

Job Transfer and Promotion :

“Transfer” means the association of a worker from a site in a job class to a
vacant position for which the employee qualifies in the similar or different
job class in the same pay grade. A transfer may include a modification in
duties, work location, days of work or hours of work.

A promotion is situation in which a worker advances to a spot that is

classified at a higher salary grade, or in certain circumstances, an
acknowledgment of significant greater responsibilities surrounded by the
equivalent grade.
 COMPENSATION
CONCEPTS AND POLICIES
Compensation is a technique of providing monetary compensation to staff
in lieu of the work done. Compensation can be utilized to help with talent
acquisition, work performance, and job involvement.

Benefits and compensation plays an essential part due to their ability to

hire and keep talented employees.

An ideal compensation system guarantees that staff is satisfied and

content. This reduces worker turnover. Thus, the organisation achieves
market stability.

The compensation policy is the fundamental document that drives the

specific details of the organization's compensation practices. Whereas the
reward policy generates the companies’ reputed level of remuneration
goals, the remuneration guideline talks about precise details of the
individual components of compensation, followed by behavioural patterns,
individual’s involvement in the organization's payment system

BASE AND SUPPLEMENTARY COMPENSATION :

Base compensation comprised of financial benefits offered to employees in
the form of salaries and wages. It attempts to compensate employees for
their efforts

Staff is typically paid on an hourly, daily, weekly, or monthly basis. Wage,

on the other hand, is the compensation given to office workers.
INDIVIDUAL, GROUP AND ORGANIZATIONAL INCENTIVE :
Individual Incentive Plan: Individual incentive plans are emphasizes the
value which has been linked to the individual performance of the
employees. These plans are created for a specific group of employees.

A group incentive plan is centered on the collective achievement of a

group.

FRINGE BENEFITS :
A fringe benefit is an incentive received by an employee in lieu of their
regular wage. It may include a number of benefits, such as: Health
coverage, meals were being subsidized, corporate phone or laptop.

Different types of fringe benefits:-

 Stock options  Free or discounted meals

 Life, dental, and vision insurance  Daycare
reimbursement
 Contributions to a retirement plan  Paid sick days

PERFORMANCE LINKED COMPENSATION :

Performance-based compensation (PBC) is a framework for financially
lucrative workers in addition to the standard wages.

Individual workers, divisions, the organisation, or the quotation which is

compensated based on how people perform over a particular time period
and in complies with the group's pre-set plans.

Companies that use these systems must be prepared to describe and

monitoring performance, as well as provide compensation, such as
rewards, when benchmarks are met.
Advantages of Performance based compensation :
1. Retention of best employees: Employers can distinguish
between high- and low performing workers by taking the help of
performance linked compensation plans.
2. Motivation to employees: A performance-linked pay plan tends
to encourage more significant and contributing employees to keep
producing their best
3. Improved Recruitment: Businesses can enhance their hiring
procedures by identifying the workers who perform better
4. Less turnover costs: When employees will be paid according to
their work and efforts, they are less likely to leave their current
employer and switch to some other company

EMPLOYEE STOCK OPTION :

Employee stock option plans (ESOPs) or Employee Stock Ownership Plans
(ESOPs) are employee benefit strategies that allow employees to own stock
in the company.

Employees purchase these shares at a price below the market price, or at a

discount. Employees are granted possibilities under the employee stock
option plan, which allow them to buy stock at a lower cost than the
current market price/value of the stock, or they are given a certain
proportion of their compensation in company stock.

PAY BAND COMPENSATION SYSTEM :

A pay band is a component of the salary process in which different jobs are
ranked according to education and experience.
It is used to place applicants in the appropriate position and ensure that
they are fairly compensated. Employers are required by law to publish the
minimum and maximum amount they are willing to pay for each band.

A pay band is a set salary range for a group of jobs with known to have
similar characteristics, qualifications, and levels of responsibility.

JOB EVALUATION :
Job evaluation is a systematic and logical approach to determining the
comparative value of different jobs within such a corporation.

Job evaluation entails determining the significant meaning of various jobs

within an corporate body. It takes time and patience to develop a
technique for evaluating a broad range of jobs.

job evaluation comprises four steps:

1. Job analysis:- Job analysis is the practice of accumulating and
measuring appropriate job description
2. Job description:- The process of capturing job content information,
typically in the form of a written task description, is one of the most
important outcome of job analysis
3. Job analysis based on the organization's job evaluation
strategy - In the third step, the designated duties of a job are
evaluated with the help of job assessment strategy or device elected
by the organization
4. Establishing the job hierarchy : A job evaluation plan yields a
patriarchal ranking of job positions according to their relative
importance to the company