THE COPPERBELT UNIVERSITYSCHOOL OF GRADUATE STUDIES

BUSINESS POSTGRADUATE STUDIES

MASTERS IN HUMAN RESOURCE MANAGEMENT

GBS 650: PERFORMANCE AND REWARD MANAGEMENT

COURSE NOTES

DR. BIEMBA MALITI

COURSE OBJECTIVES

The objectives of this course are to ensure that students will have knowledge and understanding of the following:

1. Theories and research relevant to individual assessment in organizations.2. The role of competencies in assessment, performance and reward.3. The ethical and legal issues surrounding assessment, performance and reward.4. Good practice in techniques such as job analysis, interviewing and psychometric

testing.5. Methods used to evaluate the success of techniques designed to manage assessment,

performance and reward.6. Competency analysis.7. Performance management.8. Rewarding individuals and/or teams for their effective performance.9. Developing the skill of group work.10. Participating in group work in so far as to aid the above learning outcomes.

LEARNING OUTCOMES

At the end of this module, students should be able to:1. Design and manage reward systems.2. Utilize performance management to mobilize and motivate employees in line with the

business strategy of the organization.3. Apply theory to solve practical problems concerning reward and performance

management systems.4. Design and utilize systems which comply with legal and ethical requirements.5. Optimize the utilization of human resources in the organization.6. Ensure compliance with appropriate Zambian labour laws and Acts.

COURSE CONTENT

1 Introduction1.1 Assessment, Performance and Reward: Relationships1.2 Designing for Selection

2 Competence-based Approaches2.1 Identification2.2 Development2.3 Usage

3 Selection Techniques3.1 Types3.2 Operation3.3 Validity3.4 Reliability

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4 Recruitment and Selection4.1 Practical Experience4.2 Theory Application

5 Performance Assessment5.1 The Appraisal Process5.2 Designing the Appraisal Process

6 Performance Management6.1 Introduction6.2 Linking Individual Performance to Business Objectives

7 Reward Systems7.1 Introduction7.2 Design Considerations

8 Performance Pay8.1 Introduction8.2 ‘New Pay’ Ideology8.3 Empirical Research8.4 Use of Competencies

9 International Comparisons9.1 Selection9.2 Assessment 9.3 Performance Management

10 Cultural, Diversity and Ethnicity Issues10.1 Cultural Differences10.2 Diversity10.3 Ethnicity

11 Public and Private Sectors11.1 Case Studies11.2 Empirical Research

READING LIST

RECOMMENDED TEXTBOOKS1. Williams, R.S. (2002): Managing Employee Performance – Design and

Implementation in Organizations. 2nd Edition. Thompson, London.2. Thorpe, R. & Homan, G. (2000): Strategic Reward Systems. FT Prentice Hall,

London.3. Cooper, D., Robertson, I.T. & Tinline, G. (2003): Recruitment and Selection – A

Framework for Success. Thompson, London.4. Henderson, R.I. (2000): Compensation Management in a Knowledge-Based World.

8 th Edition. Prentice Hall, New Jersey.

RELEVANT BOOKS

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1. Aguinis, H. (2006): Performance Management. Pearson, London.2. Armstrong, M. (2002): Employee Reward. CIPD, London.3. Armstrong, M. & Baron, A. (2004): Managing Performance. CIPD, London.4. Cook, M. (2003): Personnel Selection – Adding Value Through People. 4th Ed.,

Wiley, Chichester.5. Fisher, C.D., Schoenfeldt, L.F. & Shaw, J.B. (1999): Human Resource Management.

4th Edition, Houghton Mifflin (Custom Edition), Boston: MA.6. Anderson, N. & Shackleton, V. (1993): Successful Selection Interviewing. Blackwell,

Oxford.7. Searle, R.H. (2003): Selection and Recruitment – A Critical Text. Palgrave.8. Marchington, M. & Wilkinson, A. (2002): People Management and Development. 2nd

Ed., CIPD, London.9. Roberts, G. (2005): Recruitment and Selection. CIPD, London.10. Lowenthal, K.M. (2001): An Introduction to Psychological Tests and Scales. 2nd Ed.

Taylor & Francis, London.11. Lindley, P. (Ed) (2000): Review of Personality Assessment Instruments (Level B). 2nd

Ed., British Psychological Society, Leicester.12. Arnold, J. (2005): Work Psychology. 4th Ed., Pitman, London.

ASSESSMENT

The course shall be assessed as follows:1. Continuous assessment composed of assignments and tests shall constitute 40 % of

the final grade.2. A written final examination shall contribute 60 % to the final grade.

DISCLAIMER: ALL THE MATERIAL FOLLOWING HAS BEEN REPRODUCED VERBATIM FROM SOME OF THE SOURCES LISTED ABOVE AND IT IS FOR TEACHING PURPOSES ONLY. (CBU - 2009)

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MODULE 1PERFORMANCE AND REWARD MANAGEMENT

1.0 Introduction

Traditionally, the human resources literature has considered as separate and distinct the issues of which types of performance to measure, methods of measuring performance, who should rate performance, and methods of improving performance. But now performance management has come in to integrate all these issues so that they are handled in a holistic and comprehensive fashion. This approach recognizes the critical/ strategic role performance management as a function of human resource management plays in the attainment of organizational objectives. This point is fully captured in the following definition of performance management.

People work for rewards of one type or the other hence individual differences make it impossible to come up with a reward system which would satisfy everyone. Rewards also differ from the individual in a given group to the group level itself. The rewards obtained provide some sort of satisfaction to both an individual and the group to which that individual belongs. Hence the satisfaction obtained will also differ among individuals and groups of individuals.

Members of an organization receive rewards from their employers. These could be monetary rewards paid either directly or indirectly to employees. They could also be non-monetary. These rewards may be paid in the short term or in the long term.

1.1 Assessment, Performance and Reward: RelationshipsDef.: Performance management is the integration of performance appraisal systems with broader human resource systems as a means of aligning employees’ work behaviours with the organization’s goals.

An organization exists to accomplish specific goals and objectives. To do this, it must attract and hire people who have certain knowledge, skills, aptitudes and attitudes. To attract and retain such people, the organization provides rewards. The individuals hired by the organization as employees have their own needs. One need is for money, which enables them to purchase a wide variety of goods and services available in the marketplace.

Hence there is a basis for an exchange: The employee offers specific behaviours desired by the organization to meet its goals and objectives in return for money, goods and/or services. If rewards are to be useful in stimulating desired behaviours, they must meet the demands of the employees whose behaviours they are intended to influence.

Taken together, the money, goods and/or services the employer provides employees constitute the employer’s compensation system. The system that an organization uses to reward employees can play an important role in the organization’s efforts to gain a competitive advantage and to achieve its major objectives.

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1.3 Designing for SelectionCompensation systems should do the following:

Signal to employees (and others) the major objectives of the organization, such things as quality, customer focus, and other goals, by emphasizing these through compensation.

Attract and retain the talent an organization needs. Encourage the employees to develop the skills and abilities they need. Motivate employees to perform effectively. Support the type of culture (e.g. entrepreneurial) the company seeks to engender.

Ideally, a reward system should align individual (personal) objectives with important strategic goals of the organization. An organization designs and implements a reward system to focus worker attention on the specific behaviours the organization considers necessary to achieve its desired objectives and goals. The behaviours range from simply arriving at work at the scheduled time to meeting specified performance standards and providing innovative contributions that lead to improved productivity.

The design and implementation of a compensation system constitute one of the most complex activities for which human resource managers are responsible. The following are some of the factors that contribute to this complexity:

While other aspects of human resource systems (e.g., training, career management, appraisal systems, and quality-of-work-life programs) are important to some employees, compensation is considered crucial by virtually everyone.

One goal of a compensation system is to motivate employees, yet there is tremendous variation in the value different individuals attach to a specific reward or package of rewards. Further, an individual’s values also may change over time.

The jobs in most organizations involve an almost endless variety of knowledge, skills, and abilities and are performed in situations with a wide range of demands.

Compensation systems consist of many elements in addition to pay for time worked; these components must be coordinated to work together.

Employee compensation is a major cost of doing business – up to 80 percent for service firms – and can determine the competitiveness of a firm’s products or services.

A number of central government and local government regulations affect compensation systems.

Employees, either directly or through collective bargaining arrangements, may desire to participate in the determination of compensation.

The cost of living varies tremendously in different geographic areas, an important consideration for firms with multiple locations.

In most organizations, the compensation system involves a multifaceted package, not just pay for work and performance. The components of the compensation system can be roughly divided into direct (wages) and indirect (benefits) forms of compensation as

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shown in the Figure below. Taken together, direct compensation and benefits define total compensation.

Figure 1: Components of the Compensation System

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Compensation System

Indirect Compensation Direct Compensation- Pay for Work and Performance

Base pay Merit pay

Salary Wage

Protection Programs Medical

insurance Life insurance Disability

income Pension Social

Security

Pay for Time Not Worked Vacations Holidays Sick leave Jury duty

Services and Perquisites

Recreational facilities

CarFinancial

planningLow-cost or

free meals

Incentive Pay

Bonus CommissionPiece rateProfit sharingStock optionShift

differential

Deferred Pay

Savings planStock

purchaseAnnuity

MODULE 2COMPETENCE-BASED APPROACHES

2.0 IntroductionDefinition: Competency is a combination of knowledge, skill, behaviours, and attitudes demonstrated by an employee in the performance of job assignments.

Some compensation professionals even include results achieved as part of employee competency.Knowledge, skills, and abilities (KSAs) may be defined as follows:Knowledge: Prerequisites for thinking and action required to perform assignments necessary to produce acceptable output.Skill: Demonstrated level of proficiency of an ability.Ability: A natural talent or acquired proficiency required in the performance of work assignments.

Although KSA information is typically collected for establishing minimum job qualifications and developing minimum hiring requirements, this kind of information can be developed to identify requirements normally expected of a fully proficient employee.

Not only are work requirements becoming more demanding, but the relationship between employee performance and organizational productivity is also increasing in complexity.Computer-assisted machines are replacing humans where there is an emphasis on repetitive physical labor and repetitive intellectual demands.Software that directs these machines accommodates a certain amount of flexibility in assignments and can quickly react to changes in input data. Human labor, however, is required to operate and repair these sophisticated machines.Many positions in contemporary organizations require the incumbent to act as an interface between different groups of computer-driven machines.

In this high-technology world, the workforce is called on to perform less physical work, but the speed and number of interactions and the accuracy demanded in every phase of operations require workers to have significantly higher levels of knowledge and skills and a broader understanding of the reasons or causes of the interactions that influence their assignments.Thus, workers have less time to make decisions, must consider more alternatives in the decision-making process, and frequently have less control over what they do than workers did prior to the computer revolution.This has resulted in emotional and intellectual stress, which is replacing physical stress at the workplace.

2.1 IdentificationThe level of complexity of responsibility and duty statements varies with the level of the job in the organization.The responsibility and duty statements for an office messenger, a cleaner, or a data entry operator will be formulated in very precise terms.

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On the other hand, responsibilities and duties of jobs higher in the organization hierarchy will be defined in more general terms.Because of the change in the level of the responsibility and duty statements, the same approximate number of statements can be used to describe the job of the CEO or the job of an entry-level filling clerk.A review of these two job definitions reveals that:

(1) The higher the level of the job, the more complex the job requirements and associated incumbent activities.

(2) The more complex the requirements and activities, the more difficult it is to describe them in clear, unambiguous terms.

(3) The more complex the activities, the more difficult it is to identify relevant activities that are observable and measurable in quantitative terms, although qualitative measurements are certainly possible and applicable.

(4) The higher the level of the job, the greater the likelihood that the way identified job activities are performed will vary significantly among incumbents.

(5) As jobs increase in importance, the cognitive (intellectual pursuits characterized by thinking, reasoning, and understanding skills) and affective (feelings and emotional pursuits characterized by interests, attitudes, openness to change, and appreciation of differences) domains become more important, and the psychomotor (physical pursuits characterized by motor skills involving synchronised and coordinated movement of hands, arms, legs, torso, head and eyes) domains become less important.

2.2 DevelopmentThe complexity issue also affects the development of skill-based pay, knowledge-based pay, and competency-based pay as being promoted for establishing pay systems within team-based organizations.Competency-based pay is one of the terms used to promote new and more appropriate methods for measuring job worth and determining rates of pay.

But the term competency has not had one commonly accepted definition. To develop a useful definition of the competency approach, it is helpful to start with an acceptable definition of competence:

Def.: Competence is a combination of knowledge and skills required to successfully perform an assignment.

Its attainment is evidenced by the ability of an individual to gather data, process it into useful information, assess it, and arrive at an appropriate and usable decision in order to initiate the actions necessary to accomplish that assignment in an acceptable manner.

2.3 UsageCompetency-based pay systems have been designed and used principally for employees in management and professional positions.

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The driving force underlying the development of a competency-based pay system is that the results expected of these management/professional jobs are difficult to define in precise terms.

To simplify and clarify both descriptions of what the work consists of and results expected, broadly defined competencies are established for these jobs. These competencies are a combination of knowledge and skills required and results expected in the performance of work assignments.In moving upward to the highest level of managerial and professional positions, the work performed becomes more and more influenced by the mission, policies, and strategies of the organization.The time dimension related to work assignments moves from the short term here and now to the much more indefinite future.In moving from tactical, day-to-day operations to long-term strategic operations, the work of those whose jobs influence and, in turn, are influenced directly by organizational strategies can only be defined in general or generic terms.Competencies become useful for establishing base pay for employees in these kinds of work settings.

In moving from the generic factors to organization-specific competencies, an in-depth analysis of the work performed by managers and professionals at various levels in different functional areas of the organization are required. Through an in-depth analysis of organizational work required, knowledge, problem-solving, and decision-making factors and their subfactors can be converted into pay determination competencies. The following can be used as a starting point for designing a competency-based pay plan:

Fig. 2: Components of Competency

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Communication

PROBLEM SOLVING

Compliance

Interpretation

Education

Experience

Skill Interpersonal

Assets

Managerial

KNOWLEDGE DECISION MAKING

I. Knowledge – prerequisites for thinking and action required to perform assignment necessary to produce acceptable output.

A.Eductaion – formal learning necessary for the development of sufficient mental capabilities to perform assignments.1. High school certificate2. Two-year college certificate (paraprofessional licensing)3. Four-year university degree (professional licensing)4. Education beyond undergraduate degree and/or professional licensing)5. Master’s degree and/or advanced professional licensing6. Doctorate and/or senior professional licensing

B.Experience – amount and complexity of direct participation in interaction with and training in use of equipment, materials, technology, processes, and systems necessary to perform assignment as measured by time. - from one month to over 10 years required.

C.Skill – dexterity, accuracy, alertness required relative to the flow of work or to levels of complexity in the use of and interaction with both human and nonhuman resources in performing assignments.

- skills requiring accuracy or alertness from moderate to extreme levels where output is of such importance that mistakes may jeopardize existence of operation if not the organization as a whole.

II. Problem Solving – applying knowledge through interpretation, compliance, and communication to solve organizational problems in order to achieve desired levels of performance.A.Interpretation – analyzing and evaluating action-oriented instructional

information.1. Requires moderate amount of interpretation. Complies with general policies,

practices, and/or procedures within differing situations relative to a job or grouping of jobs to determine action.

2. Requires moderate amount of interpretation. Complies with broad policies, practices, and/or procedures relative to a variety of situations involving work group, team, or a number of work groups or teams operating as a well-identified unit to determine action.

3. Requires broad amount of interpretation as actions in changing situations involve a variety of problems determined by broad policies, practices, and procedures relative to the operation of a basic cost or profit centre that combines the efforts of diverse functional groups.

4. Requires broad amount of interpretation in actions of constantly changing situations involving a variety of problems determined by broadest limits of organizational policies and procedures relative to the operation of an independent division.

5. Requires extensive amount of interpretation in actions of nonrecurring, unique situations involving widest variety of situations determined by broadest limits of

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organizational policy and procedures relative to the operation of the entire organization.

6. Requires extensive amount of interpretation in actions in nonrecurring, unique situations involving wide variety of problems limited only by basic organizational philosophy and the impact of external forces on the operation of the organization.

B. Compliance – requirements for following instructions or orders of varying degrees of complexity necessary for implementation and coordination of resources of the organization within limits of existing policies and precedents.

1. Written, oral, or visual directives involving use of quantitative information from specifications, graphs, pictures, blueprints, dials, gauges, and so on.

2. Basic directives relating to technological processes or flow of work in some stage of operation.

3. Complex directives relating to technological processes or flow of work in some stage of operation.

4. Basic, complex and extremely complex directives relating external forces with technological processes of the organization.

C. Communication – transmitting directions, instructions, and suggestions in varying degrees of complexity necessary for the utilization and coordination of resources of the organization.

1. Provide simple and/or oral communications concerning a variety of situations following a general pattern. Requires moderate grammatical skills.

2. Provide written and/or oral communications concerning changing standards and procedures for output within constraints set by quality, quantity, and cost. Requires moderate grammatical skills as well as ability to use basic coded information necessary in performance of assignment.

3. Provide written and/or oral communications involving multiunit operation or processes within framework of broad organizational policies. Requires moderate grammatical skills as well as ability to identify varied components of output involving both quantitative and qualitative indicators including coded information.

4. Provide written and/or oral communication concerning basic operations of organization including processes or systems involved in its output. Requires comprehensive grammatical skills as well as ability to identify varied components of output involving both quantitative and qualitative indicators including advanced skills in coded information.

5. Provide written and/or oral communications concerning general long-range plans of organization relating organizational objectives, policies, and strategy to both immediate and future output of the organization. Requires advanced grammatical skills as well as ability to use wide variety of information.

6. Provide written and/or oral communications concerning abstract and/or complex concepts relating to organizational philosophy, mission and strategies, financial

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and scientific processes; and external forces. Requires diverse as well as profound knowledge of grammar and composition.

III. Decision Making – intensity, scope, and complexity of interactions necessary to make decisions in order to achieve acceptable levels of performance.

A. Interpersonal – empathetic understanding and effectiveness in interaction with others in such areas as teaching, counseling, coaching, training, and

development.1. Frequent interchange of guidance information on nonroutine matters requiring

some involvement in both counselling and instruction of members of work group or individuals outside the organization who provide direct assistance to the organization.

2. Frequent interchange of guidance information on nonroutine matters requiring frequent involvement in interviewing, counselling, and/or instruction with members of adjoining or linking groups, and individuals or outside groups who have direct relationships with the organization.

3. Very frequent interchange of nonroutine information requiring interviewing, counselling, and/or instruction of managers and professionals in adjoining or linking sections or departments as well as occasional contact with individuals and groups outside the basic confines of the organization.

4. Extensive interchange of nonroutine information requiring interviewing, counselling, and/or instruction of managers and professionals within a major division of the organization as well as occasional involvement with groups outside the normal operating limits of the organization.

5. Continuous interchange of complex, nonroutine information in a teaching and counselling capacity with senior officials throughout the organization as well as frequent involvement with groups outside the normal limits of the organization.

6. Continuous involvement in exchange of complex, nonroutine information in a teaching and counselling capacity with members at all levels of the organization as well as individuals and groups outside the organization including suppliers, clients, special interest groups, and the general public.

B. Managerial – quantity and quality of supervision provided and received.1. Receives general supervision from superior. May provide moderate direction or

supervision to at least 5 but less than 20 other employees. If involved with self-managed work team, number of employees may increase to 100 or more.

2. Receives general supervision from superior; has rather broad latitudes for actions involving methods, procedures, and controls in achieving objectives. May provide direction for work group(s) ranging in total size from 5 to 100 employees. If involved with self-managed work team, number of employees may be greater than 200.

3. Receives nominal supervision from superior; has broad latitude for actions involving methods, procedures, and control in achieving objectives. Provides

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direction for broad grouping of work units ranging in size relative to function or output.

4. Receives nominal supervision, functioning rather independently under general guidelines set by senior executives. Provides direction for all members of broad grouping of work units ranging in size relative to function or output.

5. Receives minimal supervision. Functions independently under general policies of organization or broad guidelines set by senior executives. Provides direction for all members or organizationwide work units ranging in size relative to function or output.

6. Receives no supervision and functions under general guidance from boards or public policy. Provides direction and/or supervision for organization – if not directly, then by normal chain of command.

C. Assets- degree of accountability for human and nonhuman resources in the planning, operations, and control of the job.

1. Responsible for actions of small group; responsible for and has interaction with organizational resources of moderate costs.

2. Responsible for actions of small group; responsible for and has interaction with organizational resources of considerable costs.

3. Responsible for actions of multigroup operations; responsible for and has interaction with organizational resources of moderate costs.

4. Responsible for actions of small group; responsible for and has interaction with organizational resources of considerable costs.

5. Responsible for organizationwide activities and resources.6. Responsible for total resources and operations of the organization.

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MODULE 3

SELECTION TECHNIQUES3.0 Introduction

The selection process for assessing job applicants follows human resource planning and recruiting.The purpose of selection is to identify from a pool of applicants those individuals who will be hired.Ideally, the people who are hired will be better employees, on average, than those who are rejected. If the selection devices or techniques used to assess candidates have been chosen and validated properly, this goal should be realized. This therefore indicates the importance of the selection techniques in the employee selection process.

3.1 TypesOrganizations vary in the complexity of their selection systems. Some merely skim

application forms and conduct brief, informal interviews, whereas others engage in testing, repeated interviewing, background checks, and so on. Although the later is more costly per applicant, many benefits are realized from careful, thorough selection of employees.

For example, in a situation where most of the applicants are deficient in the required skills, more careful selection clearly will be necessary to procure new recruits able to learn the job.Organizations need to have members who are both skilled and motivate to perform their organizational roles. Either such members can be identified by careful selection, or attempts can be made to develop them after recruitment by extensive training and socialization.Thus, careless selection may increase training and monitoring costs greatly, whereas spending more on the selection process will reduce these posthire expenses.

The kwacha savings (utility) of appropriate selection procedures can be very large.Selecting the right people is also critical to successful strategy implementation. The organization’s strategy may affect job duties and design, and the job should drive selection.For instance, if a company plans to compete on the basis of prompt, polite, personalized service, then service and communication skills should be featured in the job specification, and selection devices that can identify these skills in front-line applicants should be chosen. This argument is based on the assumption that the organization’s strategy is clear, well known, and fairly stable so that people who fit the strategy can be selected. However, in a rapidly changing, uncertain world, not all organizations are able to stick to a single strategy long enough for staffing practices to catch up and bear fruit.

Another approach to strategic staffing suggests that human resources come first and drive strategy rather than the reverse. Companies are beginning to realize that the foundation of their competitive strategy is the quality of their human capital. Having a top-notch, flexible, innovative staff may be a competitive advantage that is more sustainable than technological or marketing advantages. Such people will be able to generate and implement a wide range of new strategies to respond quickly to a changing environment. This suggests

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hiring the best individuals one can find rather than hiring those who fit a specific job or strategy that exists today but may be gone tomorrow.

Fig. 3: Typical Order in Which Selection Devices are Used

Most organizations use more than one selection technique to gather information about applicants. Often these techniques are used sequentially, in a multiple hurdle decision-making scheme: Candidates must do well on an earlier selection device to remain in the running and be assessed by later devices.The foregoing Fig. 3 is a fairly typical order in which selection techniques are used.

Often the HR department takes responsibility for the first few hurdles of assessing application forms, conducting brief screening interviews, and administering ability tests. Then one or more managers or supervisors interview the survivors of these hurdles. Finally, pending satisfactory reference checks, offers are made, medical examinations are completed, and hiring is finalized.

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Application form

Screening interview

Tests

More interviews

Reference checks

Conditional offer

Physical examination

Hire

Reject some candidates

Reject some candidates

Reject some candidates

Reject some candidates

Reject some candidates

Offers rejected by some candidates

3.2 OperationWe now look at the use and benefits of a variety of selection techniques as given in Fig. 3.

1. Application Forms and BiodataThe application form and/or the cv represents the first selection hurdle for most jobs. Application forms typically request information about education, work history, and skills, as well as the names and addresses of the applicant and several references/referees.Most of the information requested is factual and can be verified, such as degrees earned or dates of employment.

Application form or cv fraud is not uncommon. Some studies have found that 20 to 50% of candidates falsify or slightly inflate some of their credentials. Thus, seeking outside confirmation of important credentials is a wise practice.Most organizations use application forms or cvs to screen out candidates who do not meet the minimum job specifications on education or experience.Beyond these basics, a manager or HR officer may evaluate the application informally to find the candidates who look most promising. The criteria used in making this judgement may not be explicit, job-related or consistent from one screener to the next and thus may pose a legal problem.

A second way that organizations can use application form (blank) data is to apply a validated weighting scheme, in which only items known to relate to later job success are scored and utilized in decision making.Weighted application blank (WAB) procedures have been shown to produce scores that predict performance, tenure, and employee theft. Because the weights are valid and are applied consistently to all applicants, this method of using application form data is more defensible than the above-mentioned informal evaluation.

To comply with Zambian government employment laws, a firm must not discriminate in hiring on the basis of age, race, color, sex, religion, or national origin. Interviewers should avoid questions about any of these subjects unless they are clearly job-related.Additionally, application forms and interviews should avoid questions that appear neutral but cause disparate impact if used as selection standards – for example, questions about height and weight.

Biodata, experience, and accomplishment records can also be used for selection.Biodata is a term used to refer to any type of personal history, experience, or education information.Some organizations use a biographical information questionnaire instead of, or in addition to, the usual application form. These biodata questionnaires may be much more detailed than application forms and may be scored with keys based on very sophisticated statistical analyses.

In most studies that compare the validity of different types of predictors, empirically scored biodata are among the strongest predictors of subsequent job behaviour.

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An explanation for the success of biodata as a predictor of behaviour on the job suggests that many biodata items serve as indicators of important personality traits such as “will to achieve” or “conscientiousness”. These stable traits may both underlie past performance and contribute to future performance.

Rather than relying on informal methods of evaluating job experience and accomplishments, some organizations use content-valid job experience questionnaires to screen candidates for technical and professional jobs.The usual procedure is to conduct a job analysis by the task inventory method to identify the most important or time-consuming tasks.The results of this job analysis are turned into questions about past work experience with each task or with each type of equipment used.Usually a content-evaluation panel of job experts verifies the job relatedness of each question.A recent survey found that companies filled 62 % of their job openings requiring university degrees with experienced people rather than new graduates.Experienced candidates were seen as more skilled, better suited to demanding jobs, and more likely to perform immediately than new graduates.When candidates have job-related experience, appropriate measures of that experience can be valid predictors of subsequent job performance.

When selecting experienced professionals to hire or promote, a firm may find it helpful to use a structured, content-valid accomplishment record for soliciting information about candidates’ past achievements.

The procedure for developing the Individual Achievement Record has several steps.First, a job analysis is performed using the critical incident method. Incidents were sorted into job dimensions then a number of selected individuals in an organization provided examples of their accomplishments on each dimension.Next, a group of job experts applied a complicated sorting and rating procedure to generate keys and guidelines for scoring applicant accomplishments.Finally, the system is applied to assess the accomplishments of employees seeking promotion.

2. Screening InterviewVirtually all organizations use interviews as a selection technique for most jobs.Most commonly, candidates are interviewed by a panel of at least two people before being offered a job.Typically, an HR specialist and the individual who will be the candidate’s immediate supervisor will be among the people who conduct these interviews.For managerial and professional jobs, it is common for the candidate to have a third interview with a higher-level manager, such as a division head.A new trend in interviewing is to conduct preliminary interviews with distant candidates via videoconferencing.

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Types of Interviews: Interviews can be classified by their degree of structure or the extent to which interviewers plan the questions in advance and ask the same questions of all the candidates for the job.Three types of interviews, based on three degrees of structure, can be defined – unstructured, semistructured and structured interviews.

Unstructured Interviews. Here questions are not planned in advance, and interviews with different candidates may cover quite different areas of past history, attitudes or future plans. These interviews have low interrater reliability and overall have the lowest validity. Thus, unstructured interviews generally should not be used for evaluating job candidates.

Semistructured Interviews. These interviews involve some planning on the part of the interviewer but also allows flexibility in precisely what the interviewer asks candidates. These interviews are likely to be more valid than unstructured ones but not as valid as highly structured interviews.

Structured Interviews. In a structured interview, questions are planned in advance and are asked of each candidate in the same way. The only difference between interviews with different candidates might be in the probes, or follow-up questions, if a given candidate has not answered a question fully. Interviews that feature structured questions usually also provide structured rating scales on which to evaluate applicants after the interview. Research shows conclusively that the highest reliability and validity are realized in the structured interview. There are three types of structured interviews:

(a) The Patterned Interview (the traditional interview where questions tend to focus on past work activities, education, career goals, etc.). This type of structure does increase interrater reliability and may prevent the interviewer from talking too much, but it does not necessarily result in high validity.

The next two approaches are based on the assumption that high predictive validity depends on eliciting from the candidate relevant information on the skills, abilities, and attitudes needed for job success.

(b) The Situational Interview attempts to collect and properly evaluate job-relevant information. This approach begins with a thorough job analysis and the interview questions are based directly on the job analysis and are double-checked by job experts so that the interview is content valid.

This interview focuses mainly on future-oriented questions about what the candidate would do if faced with a hypothetical job situation. Hence it utilizes three types of interviews: situational or hypothetical questions where the interviewer asks the candidate what she would do in a particular job situation; job knowledge questions such as defining

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a term, explaining a procedure, or demonstrating a skill – such questions may be written rather than oral, depending on their number, and; job requirement questions which focus on the employee’s willingness to comply with job requirements such as different shifts, travel, or physically demanding work.In this approach, a panel of three or more interviewers conducts all the interviews. The interviewers do not attempt to reach a consensus on each candidate but their independent ratings are averaged to produce an overall score for each candidate.

(c) The Behaviour Description Interview also attempts to collect and properly evaluate job-relevant information and operates just like the Situational interview. But this approach focuses on past behaviours – what the candidate actually did do in past situations similar to those likely to occur on the job. This is based on the assumption that the best predictor of future performance is past performance in similar circumstances. Job experts derive behaviour description interview questions from the critical incidents technique of job analysis.

3. TestsDef.: A test is a means of obtaining a standardized sample of behaviour.

Tests are standardized in content, scoring, and administration. That is, every time the test is given, its questions are identical or, in the case of tests with more than one form, equivalent.The scoring rules are constant; the administration is also the same: All test takers get the same instructions, have the same length of time to work, and take the test under similar conditions of lighting, noise, and temperature.Because tests are standardized, they provide information about job candidates that is comparable for all applicants.All tests have to demonstrate the job relatedness (validity).

Paper-and-Pencil Tests of Ability

Choosing TestsThe procedure for empirical validation begins with job analysis, followed by selection of potential predictors, development of criteria, and collection and analysis of validity data.Because so many published tests are available, a firm must collect information and consider it carefully before selecting several tests for a validation effort.The choice process should involve reading test reviews written by knowledgeable people and carefully reading the test manual, which details test content, purpose, administration, scoring, and developmental procedures.

Among the several characteristics to look for in a published test are the following:o Specific ability assessed. The test should measure aptitudes or abilities that

make sense for the job in question.o Reliability. The test should have high internal consistency reliability and

reliability over time.

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o Proper test development procedures. Developing a test entails much more than writing questions on a piece of paper. These procedures include item and factor analysis, trying out successive versions of the test on large samples of people, developing evidence for the construct validity of the test, and compiling normative data on large samples of people.

o Administrative ease. This is how easy it is to administer the test to individuals or groups, time and expense to administer, score, and interpret the test; and cost of test materials.

o Past success. The success of past empirical validation studies on similar jobs, extent of test usage in industry, and any record of the test in legal cases.

Computerized TestingSome standard written tests are now administered and scored by computer rather than on paper. This can speed up testing and scoring and reduce the need for a trained test administrator.A more sophisticated application is to have the computer create a customized test for each candidate by selecting items on the basis of the correctness of past answers. For instance, if a moderately difficult item is answered correctly, the computer will next present a more difficult item. If the test taker fails this item, the computer will next choose an item between the first and second in difficulty.Called adaptive testing, this method quickly zeroes in on the person’s true ability level by selecting the most diagnostic items for the person being tested. This method can provide an accurate test score in about half the number of items needed to produce an equally accurate score via paper-and-pencil methods.

Work Sample TestsThese ask applicants to do a portion of the job to demonstrate that they have the skill to perform or learn the job. They are used when the applicant is expected to possess one or more crucial job skills – skills that the organization does not intend to teach to new hires.After conducting a thorough job analysis to verify the level and need for these kinds of skills, the HR specialist can construct a carefully standardized work sample test.The tester should give all candidates the same copy, equipment, instructions, and length of time to complete the test. Scoring standards that have been developed in advance should be applied consistently for all applicants.Work sample tests also may be paper-and-pencil tests of job knowledge.

There are two other important points to remember:First, the work sample test does not need to represent the entire job. Some skills may be better assessed by an interview or an ability test, and certain aspects of the job that can be readily taught to new hires should not be included.Second, the skills that are tested should be important skills, whether or not they take up a large portion of time on the job.

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Work sample and trainability tests are the most popular type of testing presently being conducted for employment purposes.

Trainability TestsThese also ask applicants to do a portion of the job to demonstrate that they have the skill to perform or learn the job. They are used for semiskilled jobs in which the candidate is not expected to know the skill when applying for the job.The first part of the process consists of a carefully standardized period of instruction during which the trainer introduces a task, explains and demonstrates each step, and has the candidate perform the task once or twice while being coached.The second portion is the test, during which the candidate performs the task several times without coaching. The trainer observes and uses a checklist to record errors. At the conclusion of the performance period, the instructor rates the overall trainability of the candidate.

Personality TestsUnlike the tests already described, personality tests do not have correct answers.The intent of these tests is to elicit self-descriptive answers.Personality inventories are sets of objectively scored questions or statements to which the test taker responds yes if the item is self-descriptive and no if it is not.Some personality inventories are long and some ask extremely personal questions, and other non-work-related issues that an interviewer would never even consider asking.Applicants may justifiably feel that their privacy has been invaded when asked to take some personality tests.Nevertheless, well-developed personality tests sum up a large number of questions to produce reliable scores on well-defined dimensions of personality like dominance, tolerance, extroversion, aggression, self-esteem, authoritarianism, neuroticism, and independence.But the proper interpretation of these inventories may require special training.A number of studies have recently shown that appropriately chosen personality measures (with a logical connection to job demands) often do help predict interpersonal, noncognitive aspects of job success, although cognitive ability measures remain the best predictors of job performance.Tests that specifically diagnose mental illnesses rather than relative standing on normal personality traits may be illegal in preemployment screening.

Integrity TestsMany employers today are interested in screening out job candidates who may be likely to steal from them.Traditionally, two methods have been used to identify potentially dishonest employees: polygraph examinations and paper-and-pencil tests.The polygraph, or lie detector, measures and graphs respiration, blood pressure, and perspiration while the person being tested answers questions.

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Doubts about the validity of the polygraph and horror stories of honest individuals who were discharged or denied employment because of erroneous polygraph results have led to legal restrictions on the use of polygraphs.But companies that provide security services or manufacture and distribute controlled drugs may continue to use polygraphs; polygraph tests also may be used for investigating specific crimes against the employer, such as theft or embezzlement.In no case, however, may a company discharge or discipline an employee solely on the basis of polygraph results.

As a result of the restriction on polygraph testing, paper-and-pencil honesty tests have increased in popularity.There are two types of written honesty tests: overt integrity tests that assess attitudes toward theft and ask about past dishonest behaviour, and personality-oriented tests that focus on broader traits such as dependability, rule-following, impulse control, and conscientiousness.Most available tests have satisfactory reliability and reasonable validity in identifying individuals who have been caught stealing in the past or who will be caught stealing in the future.Personality-oriented tests predict not only theft but also composite measures of other types of counterproductive behaviour, such as abuse of sick leave, excessive grievance filing, drug use at work, and rule breaking.

4. Reference checksMost organizations check candidates’ references in varying degrees of detail as part of the selection process.The goal in reference checking may be to verify information that the candidate has already given the organization, such as academic degrees, dates of employment, job responsibilities, and salary.

Reference and background checks are also used to discover new information on the history or past performance of the candidate, such as relevant criminal convictions or reasons for leaving a previous job.These investigations may be performed by the organization or by an investigative services firm hired by the employer.Reference information is usually collected from a candidate’s former employers or teachers or from other knowledgeable persons the candidate lists.Ideally, an organization should seek additional reference information from people other than those the candidate gives.

The most informative references are former or current superiors who know the candidate’s work well and who have observed the candidate perform in a similar job.Information from references may be solicited in writing, in a phone interview, or in a face-to-face interview.Generally, letters are the least useful because writers have time to carefully censor what they say, and their letters are nearly always positive and relatively unrevealing.

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There are several potential legal problems associated with references.The first involves the new employer: If an employer hires someone who subsequently causes injury to another – and the employer should have known, through reference and background checks, about the employee’s propensity for committing injurious acts – then the employer is liable for negligent hiring.

There also may be legal problems for employers who give references.One involves possible lawsuits for defamation when an employer or former employer gives a negative reference. Thus many companies are discouraging candidates’ superiors from giving any reference information at all.Instead, these firms are handling all requests for reference information centrally, from the personnel office, and they are limiting the information to facts such as dates of employment and job title. But this complicates the task of the potential future employer who would like a frank assessment of a candidate.

A second legal problem is that by remaining silent about a problem employee, the former employer may be liable for negligent referral, or for violating a duty to warn, if the candidate is hired and subsequently causes harm to others.

5. Physical examinationOne of the final steps in the selection process may be a physical examination or test.The physical examination traditionally has been part of the selection process in many organizations.The examination is required by law for some jobs, such as pilot, truck driver, and any position that involves handling of food.Information gained from physical examinations can serve several purposes:

To revoke conditional employment offers to persons who are found to be physically unable to perform the essential functions of the job. To place individuals in jobs that they are fit enough to handle. To prevent the spread of contagious diseases to current employees or customers. To document pre-existing injuries and illnesses to prevent fraudulent group

insurance or workers’ compensation claims.

As with all selection techniques, reliability, validity and utility are relevant in the evaluation of physical examinations.Reliability may not be extremely high: Doctors who are not knowledgeable about job demands may not be able to agree on whether a candidate is fit enough or can perform essential job functions.The validity of the physical examination is also questionable: When jobs require unusual strength or stamina, actual physical tests are likely to be more valid than a doctor’s opinion.In terms of utility, physical examinations are expensive because they must be administered individually by a costly tester.

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Physical examinations may also be challenged legally as being discriminatory against the handicapped and others.

Regarding strength and fitness testing – for physically demanding, employers may be wise to directly measure applicant strength or fitness as part of the selection process.In terms of drug testing, more and more employers have adopted drug and alcohol screening programs for both applicants and current employees.There may be good reasons for avoiding hiring substance abusers. Some studies suggest that drug and alcohol abusers have higher rates of absenteeism and accidents.Furthermore, employers may be liable for negligent hiring if a drug-using employee causes an accident that harms others.Drug tests appear to be reasonably reliable, but usually a second, more sophisticated confirmatory test is performed when a sample gives an initial positive reading.In order to be fair to candidates, it is important to choose a properly certified laboratory to conduct drug tests.

Overall, drug testing is a relatively expensive and invasive procedure.Whether or not it has utility (cost-effectiveness) in a given setting depends on the extent to which drug users are represented in the applicant pool and on the extent to which drug use actually compromises job performance, attendance or safety on the job in question.

Criteria For Choosing Selection TechniquesSome of the criteria that may be used are as follows.

Validity Utility Legality Acceptability to Managers Applicant reactions Societal impact

3.3 ValidityThe validity of the interview is how well it measures that which should be measured. This is the predictive ability of the interview with regards to job performance.Historically, the predictive validity of the interview has been thought to be quite low.It seems that interviewers often commit judgemental and perceptual errors that can compromise the validity of their assessments.

Similarity Error Contrast Error Overweighting of negative Information Race, Sex and Appearance Bias First Impression Error Traits Rated and Halo Error Nonverbal Factors Faulty Listening and Memory

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Differences Between Interviewers

However, recent research has suggested that some interview procedures can be quite valid.Interviews also tend to capture somewhat different aspects of a person than do cognitive ability tests, and it has been shown that a properly conducted interview can add to the prediction of job performance over and above tests.The predictive power of work sample tests has been found to be quite high.Trainability tests have shown moderate validities with job success, indicating that eventually even less trainable employees are able to learn the job.

Work sample and trainability tests can be developed and used even for very small samples, unlike tests requiring empirical validation.They also possess excellent face validity; thus applicants who do poorly can readily understand why they are being rejected and probably will not file complaints of unfair treatment.

Since work sample and trainability tests embody important aspects of the job, they can serve as realistic job previews so that candidates who do not enjoy the work sample may choose to turn down a job offer.Historically, predictive validities have tended to be substantially lower for personality measures than for other types of tests.Studies of the validity of reference information agree that predictive validity tends to be low but is sometimes significant.

3.4 ReliabilityIn the interview context, reliability is consensus, or agreement, between two interviewers on their assessments of the same candidates. This is called interater reliability.Research shows that it is usually weak.Interviewers might agree fairly well on the overall assessment of a candidate and on factual issues but they seem unable to agree on more subjective or future-oriented characteristics.

MODULE 4

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RECRUITMENT AND SELECTION

4.0 IntroductionDef.: Recruiting is the process by which organizations locate and attract individuals to fill job vacancies.

Most organizations have a continuing need to recruit new employees to replace those who leave or are promoted, to acquire new skills, and to permit organizational growth.Recruiting an employee from the external labor market can be quite expensive. The recruitment cost includes the cost of advertising, agency fees, employee referral bonuses, applicant and staff travel. Relocation costs, and recruiter salaries.

Def.: Selection is the process by which organizations evaluate the suitability of candidates for various jobs.

Recruitment follows HR planning and goes hand in hand with the selection process.Without accurate planning, organizations may recruit the wrong number or types of employees.Without successful recruiting to create a sizable pool of candidates, even the most accurate selection system is of little use.

4.1 Practical ExperienceThis is the age of Human Capital which requires open-system thinking. It is a “big picture” approach to managing people and staying competitive.This is because we are living in a time when a new economic paradigm – characterized by speed, innovation, short cycle times, quality, and customer satisfaction – is highlighting the importance of intangible assets, such as brand recognition, knowledge, innovation, and particularly human capital.

Def.: Human capital encompasses all present and future workforce participants (employees) and emphasizes the need to develop their fullest potential for the benefit of everyone.

Central to this perspective is the assumption that every employee is a valuable asset, not merely an expense item.This broad concern for possible future employees is a marked departure from traditional “employees-only” perspectives.People-Centred Organizations Enjoy a Competitive Advantage: In an era of non-stop layoffs, the often-heard slogan “Employees are our most valuable asset” rings hollow.But such cynicism can be countered by looking at how leading companies build a bridge from progressive human resource practices to market success.Recent research has reported a strong connection between people-centred practices and higher profits and lower employee turnover.Pfeffer has identified the following seven people-centred practices: Protection of job security (including a no-layoff policy)

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Rigorous hiring process Employee empowerment through decentralization and self-managed teams Compensation linked to performance Comprehensive training Reduction of status differences Sharing of key information

These are seen as an integrated package and should not be implemented piecemeal.Unfortunately only about 12 percent of today’s organizations qualify as being systematically people-centred.Thus, we have a clear developmental agenda for human resource management.

4.2 Theory ApplicationThe following is an overview of the recruitment process from the perspectives of the organization and the candidate. This flow chart displays the process as it unfolds over time.When a vacancy occurs and the recruiter receives authorization to fill it, the next step is a careful examination of the job and an enumeration of the skills, abilities and experience needed to perform the job successfully.Existing job analysis documents can be very helpful in this regard.In addition, the recruitment planner must consider other aspects of the job environment – e.g. the supervisor’s management style, the opportunities for advancement, pay and geographic location – in deciding what type of candidate to search for and what search methods to use.

After carefully planning the recruiting effort, the recruiter uses one or more methods to produce a pool of potentially qualified candidates.A firm can generate candidates internally, from among its present employees who desire promotion or transfer, or externally, from the labor market.The organization then screens the candidates, evaluates some of them more thoroughly, and offers the best the position.Throughout the recruitment process, the organization attempts to “sell” itself to the more promising candidates – that is, to convince them that the organization is a good place to work and that it offers what they want in the way of both tangible and intangible rewards

Candidates searching for an employer also go through a parallel set of activities.

In the recruitment and selection process, the organization’s and the individual’s objectives may conflict.The organization is trying to evaluate the candidate’s strengths and weaknesses, but the candidate is trying to present only strengths.Conversely, although the candidate is trying to ferret out both the good and bad aspects of the prospective job and employer, the organization may prefer to reveal only positive aspects.

In addition, each party’s own objectives may conflict.

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The organization wants to treat the candidate well to increase the probability of job-offer acceptance, yet the need to evaluate the candidate may dictate the use of methods that may alienate the prospect, such as background investigations or stress interviews.Analogously, the applicant wants to appear polite and enthusiastic about the organization to improve the probability of receiving an offer, but he/she also may want to ask penetrating questions about compensation, advancement, and the company’s financial health and future.

The use of experience in recruitment has already been covered in Module 4 above.

Fig. 4.0: The Recruitment Process

Recruiting for Diversity:

The ultimate goal of recruiting is to generate a pool of qualified applicants for new and

existing jobs. Everyday recruiting tactics include internal job postings, referrals by present

and past employees, campus recruiters, newspaper ads, Web sites, public and private

employment agencies, head-hunters, job fairs, temporary-help agencies, and union halls.

But today’s recruiting is extremely challenging since applicant pools need to be

demographically representative of the population at large if diversity is to be achieved.

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ORGANIZATION APPLICANT

Vacant or new position occurs

Perform job analysis and plan recruiting effort

Generate applicant pool via internal or external recruitment methods

Evaluate applicants via selection process

Impress applicants

Make job offer

Receive education and choose occupation

Acquire employment experience

Search for job openings

Apply for jobs

Impress company during selection process

Evaluate jobs and companies

Accept or reject job offers

The Selection Process:

Equal employment opportunity (EEO) legislation in the United States and elsewhere attempts

to ensure a fair and unprejudiced race for all job applicants. The first two hurdles are résumé

screening and reference checking; both are very important because an estimated 40% of job

applications include false information.

Background checks for criminal records and citizenship/immigration status are more essential

than ever in an age of workplace violence and international terrorism.

Other hurdles may include psychological tests, physical examinations, interviews, work-

sampling tests, and drug tests.

A respected author and trainer summarizes the overall employee selection process with the

acronym PROCEED, with each letter representing one of the seven steps involved. This

model encourages managers to take a systems perspective, all the way from preparation to the

final hiring decision.

Step 1 is where job analysis and job descriptions come into play.

Def.: Job analysis is the process of identifying basic task and skill requirements for specific

jobs by studying superior performers.

Def.: A job description is a concise document outlining the role expectations and skill

requirements for a specific job.

Up-to-date job descriptions foster discipline in selection and performance appraisal by

offering a formal measuring stick.

Table 4.0: The Employee Selection Process- The PROCEED Model

Step 1: PREPARE

o Identify existing superior performers

o Create a job description for the position

o Identify the competencies or skills needed to do the job

o Draft interview questions

Step 2: REVIEW

o Review questions for legality and fairness

Step 3: ORGANIZE

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o Select your interview team and your method of interviewing

o Assign roles to your team and divide the questions

Step 4: CONDUCT

o Gather data from the job candidate

Step 5: EVALUATE

o Determine the match between the candidate and the job

Step 6: EXCHANGE

o Share data in a discussion meeting

Step 7: DECIDE

o Make the final decision

Strategic Issues In Recruiting

The nature of a firm’s recruiting activities should be matched to its strategy and values as

well as to other important features such as the state of the external labor market and the

firm’s ability to pay or otherwise induce new employees to join.

Recruitment Goals: A good recruiting program needs to serve many and sometimes

conflicting goals.

A commonly mentioned goal is to attract a large pool of applicants, but applicant pools can

be too large and thus very costly to process.

Recruiting also must attract a high proportion of well-qualified candidates who are seriously

interested in accepting a job offer.

Balancing these varied goals against one another should be done with reference to the

organization’s overall strategy and values.

Recruitment Philosophy: One of the key issues in recruitment philosophy is whether to

promote largely from within the organization or to hire from the outside for vacancies at all

levels.

A second aspect of recruitment philosophy concerns where the emphasis is: on merely filling

vacancies or on hiring for long-term careers.

A third aspect concerns depth of commitment to seeking and hiring a diverse range of

employees- a mere compliance with the law or valuing diversity as a central principle of

organizational life and actively encouraging participation by all types of people.

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A fourth aspect is whether applicants are viewed as commodities to be purchased or as

customers to be wooed (the marketing orientation).

A fifth aspect has ethical overtones, in terms of fairness and honesty in the recruitment

process.

Internal or External Sources: Deciding whether the position is to be filled internally or

externally is often an early task in recruitment planning for a specific vacancy.

Usually, entry-level jobs must be filled externally, and for other positions, the company’s

policy or union contract may require that internal sources be used first.

Most organizations use a mixture of internal and external sources – promoting from within

when qualified employees are available and recruiting from external sources when new skills

are needed or growth is rapid.

Countercyclical Hiring: One strategic issue relevant to external recruiting is when to recruit.

Most firms recruit each year to meet that year’s needs. They attempt to hire many people in a

boom year and hire very few during years when the industry, economy or company is on a

down cycle.

Research suggests that the firms most likely to engage in countercyclical hiring emphasize

human resource planning to avoid shortages, maintaining a regular age distribution of

managers, and training and development; these are also firms that can afford to hire in

downturns, since they are among the stronger financial performers.

Alternatives to Traditional Recruiting

Traditional recruiting is not always the answer to a firm’s human resource needs.

A traditional approach is to intensify essentially similar recruiting efforts – to run yet another

advertisement, extend a contract with an employment agency, or recruit in a larger

geographic region.

But additionally, firms can attempt to attract applicants by improving or changing the nature

of inducements, perhaps increasing wages or benefits or providing flexible work

arrangements.

Another strategy is to change the focus of recruiting to labor pools that are relatively more

plentiful and underutilized; for example, to recruit from retirees, people with disabilities,

disadvantaged urban residents, mothers with young children, and so on.

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Inducements as well as recruiting methods and messages will have to be tailored to the needs

and desires of these groups.

One of the distinct alternatives to traditional recruiting include not recruiting at all. Instead,

such firms have adopted the staffing strategy of keeping a small cadre of permanent

employees along with a buffer of temporary or contract workers.

Another alternative is to use temporary workers obtained from a temporary help agency.

Temporaries are especially helpful for covering peak demand periods, especially in an

uncertain economic climate when demand could drop sharply.

Employee leasing is a way to obtain the services of individuals over a longer period than

would normally be the case with temporaries.

An employee leasing firm recruits, hires, trains, and compensates employees, and the

organization that leases them provides their work facilities, direct daily supervision, and

duties.

Subcontracting is another alternative whereby an organization hires an outside firm to

perform the entire function, either on or off the organization’s premises.

External Recruiting Methods

These are often grouped into two classes: informal and formal.

Informal Methods:

These tap a narrower labor market than formal methods.

Informal methods include rehiring former employees or former cooperative education

students, hiring people referred by present employees, and hiring from among those who

have applied without being unsolicited ( “walk-ins” or “gate hires”).

Employee referral, also known as word-of-mouth advertising, is quick, effective, and usually

inexpensive.

Formal Methods:

These entail searching the labor market for candidates who have no previous connection to

the firm.

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These methods traditionally have included newspaper advertising, use of employment

agencies and executive search firms, campus recruiting, employee referrals, networking, and

internet.

Equal Employment Opportunity (EEO):

EEO law now provides a broad umbrella of employment protection for certain categories of

disadvantaged individuals. The result of this legislation has been that in virtually all aspects

of employment, it is unlawful to discriminate on the basis of race, colour, sex, religion, age,

national origin, etc. This means managers cannot lay off or discharge, refuse to hire, promote,

train, or transfer employees simply on the basis of the characteristics listed above. Selection

and all other personnel decisions must be made solely on the basis of objective criteria such

as ability to perform or seniority.

Lawsuits and fines by agencies such as the EEO Commission are powerful incentives to

comply with EEO laws.

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MODULE 5PERFORMANCE ASSESSMENT

5.0 IntroductionA critical factor related to an organization’s long-term success is its ability to measure how well employees perform and then use that information to ensure that performance meets present standards and improves over time.This process is referred to as performance appraisal or performance evaluation.It is a complex task that is difficult to do, and it is not done well by most organizations.Annual performance appraisals are such a common part of modern organizational life that they qualify as a ritual.But both appraisers and subjects tend to express general dissatisfaction with performance

appraisals.

For many organizations and their employees, the mechanism used to measure and rate

performance is the performance appraisal system.

5.1 The Performance Appraisal ProcessDef.: Performance appraisal is the process of evaluating individual job performance as a basis

for making objective personnel decisions.

Performance appraisal is the formal process, normally conducted by means of completing an

instrument that identifies and documents a jobholder’s contributions and workplace

behaviours.

It is the process by which an employee’s contribution to the organization during a specified

period of time is assessed.

Performance feedback lets employees know how well they have performed in comparison

with the standards of the organization.

A primary reason for appraising performance is to encourage employees to put forth their

best effort so that the organization can reach its mission and goals.

Through the appraisal process, the organization identifies and recognizes effort and

contributions.

Rewarding employees for effort and contributions reinforces their behaviours in a manner

that increases the likelihood that they will achieve their own goals.

Formally documented appraisals are needed both to ensure equitable distribution of

opportunities and rewards and to avoid prejudicial treatment of protected minorities.

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Two important aspects of performance appraisal are legal defensibility and alternative

techniques.

Appraisal and feedback can occur informally, as when a supervisor notices and comments on

a good or poor performance incident.

A more formal method is the structured annual performance review, in which a supervisor

assesses each employee’s performance using some official appraisal procedure.

Functions of Performance AppraisalThe uses of performance appraisal can be divided into 4 major categories:

Developmental Uses of appraisal focus on improving employees’ future performance

and career advancement.

Administrative Uses include decision making about merit increases and promotions.

Appraisal information is also used to contribute to organizational wellbeing (e.g. to

anticipate HR needs) and for documentation (e.g. to provide criteria for validation

research).

Organizational maintenance/objectives

Table 5.0: Multiple Organizational Uses for performance Appraisal Information

General Applications Specific Uses

Developmental Uses Identification of individual training needs.

Performance feedback

Determining transfers and job assignments

Identification of individual strengths and

developmental needs

Administrative Uses/ Decisions Salary; Promotion; Retention or termination;

Recognition of individual performance;

Layoffs; Identification of poor performers.

Organizational Maintenance/ Objectives Human resource planning

Determining organization training needs

Evaluation of organizational goal

achievement

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Information for goal identification

Evaluation of human resource systems

Reinforcement of organizational

development needs

Documentation Criteria for validation research

Documentation of human resource decisions

Helping to meet legal requirements

5.2 Designing the Appraisal Process

Criteria for a Good Appraisal System

The fundamental decisions about what type of performance to assess and how to measure that performance should be shaped by four desirable criteria:

ValidityA good measure of performance should measure important job characteristics (relevancy) and be free from extraneous or contaminating influences.It also should encompass the whole job (not be deficient).A measure is content valid if it measures important parts of a job and does so in a representative way.A performance appraisal system must be valid.It is essential that a good job analysis be conducted before developing the performance measure so that all relevant aspects of performance are covered and irrelevant factors do not contaminate the appraisal measure.

ReliabilityInterrater reliability is the most relevant type of reliability for performance appraisal.It is high when two or more raters agree on the performance of an employee and low when they do not.Interrater reliability is usually quite good when performance raters come from the same level of the organization.Internal consistency reliability and reliability over time are not especially important in performance appraisal because performance itself may not be internally consistent or stable over time.Thus, when evaluating the reliability of performance appraisals, it is very important to know exactly what type of measure is used and, in the case of subjective ratings of performance, who is making the ratings.

Freedom from Bias

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This has two components: legal issues of fairness to employees and the subjectivity of one person’s judgements about the performance of others (rating errors).An appraisal is free from bias if it is fair to all employees regardless of their race, sex, national origin, disability status, and so on.Ratings may also be biased either intentionally or unintentionally when an appraisal system requires individuals to make subjective judgements about the performance of others.Common rating errors include leniency errors (more positive performance ratings than employees deserve); severity errors (more unfavourable ratings than performance warrants); central tendency errors (rating all employees near the midpoint of a performance scale); halo errors (rating an individual on several aspects of performance, then an employee receives nearly identical performance ratings on all performance areas, and the resulting correlation among the ratings is very high).

PracticalityIt takes time, effort, and money to develop, implement, and use a performance appraisal system.The benefits to the organization of using the system must outweigh its costs.The appraisal system also should be relatively easy to use and should have a high degree of employee and managerial acceptance.The development and use of an appraisal system can be an expensive undertaking.Since kwacha costs are high, an important practical criterion against which to judge an appraisal system is the savings it might bring to the organization.The process of measuring kwacha return to an organization is called utility analysis.

Deciding What Types of Performance to Measure

There are three basic categories of performance information.

A trait-based appraisal system assesses the abilities or other personal characteristics of an employee.A behaviour-based appraisal system measures the extent to which an employee engages in specific, relatively well-defined behaviours while on the job.A results-based appraisal system measures the “bottom line” associated with an employee’s work: Did the job get done, and was a profit made?

Trait-Based AppraisalsThese are used to assess the personality or personal characteristics of employees, such as their ability to make decisions, loyalty to the company, communication skills, or level of initiative.This type of appraisal asks a lot about what a person is but relatively little about what he actually does.While trait-based appraisals are easy to construct, the disadvantages of focusing on traits are significant.Trait-based approaches have questionable validity.

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Traits assessed in this type of appraisal often do not relate well to how employees really behave on the job because job behaviour is strongly influenced by situational and environmental factors.Since the link between personal traits and actual job behaviour is weak, trait-based systems are potentially more susceptible to charges of unfairness by minorities, women, and other protected groups.Trait-based systems are not likely to be accepted by courts of law.

A further problem is that the interrater reliability of trait-based ratings is often low.The traits are difficult to define accurately, and the different frames of reference used by different raters make agreement among raters unlikely.A final disadvantage is that trait-based appraisals are not helpful for providing feedback to employees.The basic personality traits of individuals are relatively well fixed by the time they are hired by an organization and are very difficult to alter.

Behaviour-Based AppraisalsAppraisals can consider the behaviour of employees rather than their personal traits.Behaviour measures are appropriate when the process used to accomplish the job is very important, and thus behaviour measures are used to emphasize how a job is done.

In behaviour-based appraisals, employees are assessed on what they do on the job.Such assessments are more acceptable to the courts than trait-based appraisals.Behaviour measures can be very useful for feedback purposes because they indicate exactly what an employee should do differently.Deficiency may be a problem with some behaviour-based appraisals because they often will not include all behaviours that could lead to job effectiveness.For some jobs, effective performance can be achieved using a variety of different behaviours.

Research has produced 8 generic work behaviours organized into 5 minimum performance behaviours and 3 organizational citizenship behaviours. Table 5.1: The Generic Work Behaviours

Generic Work Behaviour Example

Industriousness (Work ethic) Takes the initiative to find another task when finished with regular work.

Thoroughness (Work ethic) Notices items out of place and returns them to the proper areas.

Schedule flexibility Works flexible hours by accepting schedule changes when necessary.

Attendance Stays away from work without notifying anyone.

Off-task behaviour Uses company phones to make unauthorized

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personal calls.Unruliness (Employee deviance) Refuses to take routine orders from

supervisorsTheft (Employee deviance) Advises friends how to steal company

property.Drug misuse (Employee deviance) Comes to work under the influence of drugs

or alcohol.

Results-Based AppraisalsTo avoid the problems inherent in a behaviour-based approach, appraisals may measure the results of work behaviour (the output of an employee).When it is not important how results are achieved, or when there are many different ways to succeed, a results-based appraisal would be appropriate.

Despite their intuitive appeal, results-based appraisals pose questions of practicality, contamination, and deficiency.Results-based measures may be difficult to obtain for some jobs.Furthermore, results are not always under the control of an individual employee.Equipment breakdowns, a change in the economy, bad luck, inadequate budgetary or staff support, or other factors not directly controlled by an employee may greatly affect the job results.Results measures are therefore contaminated by these external factors.

Another problem is that results-based appraisals may foster a “results at all cost” mentality among employees.Teamwork among employees may suffer if individuals are preoccupied with their own personal results and will not take the time to help coworkers.

A final disadvantage is that results-based appraisals are less helpful for employee development.They do not always provide clear information on how to improve work performance.

Methods of Appraising PerformancePerformance can be measured in many different ways.Most of the performance measures currently in use can be characterized as either objective or subjective.Objective measures are typically results-based measures of physical output, whereas subjective measures can be used to assess traits, behaviours or results.

Objective MeasuresThese assess performance in terms of numbers, such as the amount of a product an employee produces or sells, the number of defective products produced, the number of times an employee is absent or late to work, or some other direct numerical index of how well or quickly an employee can perform certain tasks.

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There are five major types of objective measures: production measures, kwacha sales, personnel data, performance tests, and business unit performance measures.

Objective measures have the advantages of being free from the types of errors and biases that plague subjective measures.However, objective measures seldom capture the individual’s total contribution to the organization.Measures of quantity, quality, attendance, and even profit may represent important dimensions of performance but ignore dimensions such as cooperation or willingness to contribute in ways that go beyond the job description.

Subjective MeasuresBecause they rely on human judgement, subjective measures are prone to the rating errors mentioned above.Most performance appraisal systems place heavy emphasis on subjective ratings of performance.Unlike objective measures, subjective judgements can be used even when the employee does not produce a measurable physical product.The major problem with subjective measures of performance is that the raters have to observe and evaluate job-related behaviour.Raters may not have the chance to observe relevant behaviour, and even if they do, their ratings may be biased.

Several different types of subjective measures can be used and generally, they can be classified as either comparative procedures (ranking) or assessments against absolute standards (rating).

Comparative Procedures: Subjective comparison of the overall work performance of individual employees can yield a rank ordering of employees from best to worst.Three kinds of comparative procedures are used in performance appraisal – ranking (employees compared directly against one another), paired comparisons (all possible pairs of employees are formed and the better performer is chosen from each pair) and forced distributions (placing a percentage of employees into each of several performance categories).

Ranking – When ranking is used, employees are compared directly against one. Ranking is faster, less expensive, easy to understand and use than the other evaluation techniques.The simplest ranking procedure is straight ranking whereby the evaluator arranges employees in order from best to worst on the basis of their overall performance.Alternate ranking is a variation whereby the evaluator first ranks the best employee, next the worst employee, then the second best, then the second worst, and so on until all employees are ranked.

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Absolute Standards: Instead of comparing an employee’s performance with that of fellow employees, an appraisal system can be based on absolute performance standards for the job.Each employee is evaluated against the standards.Absolute standards facilitate comparison of employees from different departments and performance is measured on a number of specific dimensions so that employees can be given more helpful feedback than is generated by comparative measures.Variations of the absolute standards technique include graphic rating scales, weighted checklists, the critical incidents technique, behaviourally anchored rating scales (BARS) and behavioural observation scales.

Graphic Rating Scales – are the most widely used evaluation technique where the rater evaluates an employee on each of several performance dimensions using a continuum made up of clearly defined scale points.The scale points can be assigned scores and a total score for an employee can be computed by summing the ratings across all dimensions rated.If some characteristics are more important than others, the rating on these dimensions can be multiplied by an appropriate weight before the total is calculated.

Weighted Checklists - In this approach, a rater is given a list of job-related characteristics or behaviours and is asked to tick the items that are typical of a particular employee.When such a weighted checklist is developed, job experts indicate how good or poor behaviour is. These goodness weights are then used in summing ratings to determine the overall performance of an employee.A variant of this technique is the forced-choice system, a procedure developed specifically to reduce leniency error.

Critical-Incident Technique - When performance appraisal is to be based on critical incidents, the evaluator keeps a log for each employee, recording behaviours and performance incidents that are particularly effective or ineffective.Incidents are recorded for each employee as soon as possible after they occur.At the end of the evaluation period, this log is used to evaluate the performance of an employee.This technique is time-consuming for the evaluators, and it may be hard to quantify or structure the incidents into a final narrative evaluation.

Behaviorally Anchored Rating Scales (BARS) - Some appraisal systems use graphic rating scales on which anchor points are defined in considerable detail, using examples of behaviour that represent particular levels of performance.Such a BARS is developed for each of several important performance dimensions.Raters are asked to mark the scale point that best represents the performance of an employee.

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Development - The development of a BARS is a time-consuming and costly process that involves the efforts of many people. The development steps are as follows:

1. A group of knowledgeable employees (perhaps including both workers and supervisors) identifies the important dimensions that make up effective performance. This group writes a clear definition for each dimension.

2. A second group comes up with as many critical incidents as it can to illustrate effective, average, and ineffective performance for each dimension.

3. A third group is given the list of dimensions and a stack of cards, each containing one of the critical incidents. The task of each member of this group is to assign each critical incident to the dimension it seems to characterise. This is called “retranslation”. Critical incidents that are not placed in the same dimension by a majority of the retranslation group are discarded as unclear.

4. A fourth group rates the level of performance each remaining incident represents, i.e. outstanding, above-average, average, or below-average performance. The mean and standard deviation of these ratings are computed for each critical incident. Items are discarded if group members are unable to agree on the performance level represented. From the remaining items, incidents are chosen to anchor each point along the BARS. Each anchor is worded “Could be expected to .......”.

5. The final step is to pilot test the rating scale in the organization.

The BARS can also be developed with only two groups rather than four, each group carrying out two of the steps listed above.

The following Figure 5.0 illustrates a BARS developed for the performance dimension “problem solving/ decision making” for the job of middle manager.

Raters of Employee PerformanceIn most organizations, supervisors provide subjective ratings of employee performance.However, there are several other potential sources for performance ratings, including employees themselves, peers, subordinates, and customers, both internal (e.g. the customers of HRM) or external to the organization.

Self-Evaluation: Employees are sometimes asked to evaluate themselves.It seems logical that individuals would be the best judges of their own performance, particularly if supervisors cannot observe them on a regular basis.If employees are asked to evaluate themselves, they may respond by becoming more motivated and involved in the process.Self-evaluations have become popular as a part of the management by objectives (MBO) process, when the supervisor and the subordinate jointly evaluate goal attainment.Self-evaluation may also serve as an important input into a supervisory appraisal as an employee’s self-appraisal may provide important information of which the supervisor was not aware.

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Fig. 5.0: Example of Behaviourally Anchored Rating Scale for the Performance Dimension of Problem Solving/Decision Making

Peer Evaluation:Compared with supervisory ratings, peer or co-worker evaluations are more stable over time, can tap more dimensions of performance, are better able to distinguish effort from performance, and can focus more on task-relevant abilities.Peer evaluations can be particularly useful when supervisors do not have the opportunity to observe an individual’s performance, but fellow employees do.When teamwork, participation, and cohesiveness are part of the organization’s culture, peer evaluations can work well.

Subordinate Evaluation:Evaluation by subordinates may provide valuable information and is becoming a popular mechanism in many organizations.Subordinates know how well a supervisor performs with respect to leading, organizing, delegating, and communicating.Complete anonymity is essential if this technique is to provide valid ratings due to fear of victimization by the supervisor.

Customer Evaluation:

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Could be expected to conduct detailed talks with workers to solve technical problems

Could be expected to solve problems as they arise

Could be expected to take problem to a higher level when problem is beyond his/her ability to

Could be expected to provide temporary solutions to problems that keep appearing

Could be expected to make decisions without considering reactions from subordinates

Could be expected to give personal feelings priority when making decisions

Could be expected to refuse to make decisions when needed

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5

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Appraisal information from customers or clients is popular in the context of service delivery, where there is a high degree of client involvement and when the service employee is relatively removed from other employees or supervisors.Customers can be internal or external to the organization. The customer set for human resource professionals includes the employees of the organization.Customer feedback can also be through “shoppers”, individuals appearing to be regular customers but who are actually carefully observing and rating the service.

360-Degree Appraisals:A new approach to performance appraisal is that of simultaneously using many or all of the sources of feedback mentioned above.This is a contemporary innovation described below.

Contemporary Appraisal Practices

Self-Managed Teams as a Performance Appraisal Challenge:More and more companies are looking to self-managed teams as the productivity and quality-of-work-life breakthrough of the 21st century.Self-managed teams create special challenges for performance appraisal.When teams perform highly interdependent activities, evaluating them using an appraisal system that focuses only on individual results may be inaccurate as well as discouraging to necessary teamwork.In addition, when teams are working effectively, they manage themselves.There is no supervisor, yet historically it is the supervisor who has made performance appraisal judgements about employees.Consequently, teams are responsible either for developing a performance appraisal system for their members or for applying an existing system to suit the purposes of the team.

360-Degree Appraisals as an Innovation in Performance Appraisal:More and more companies are implementing 360-degree appraisals, where performance ratings are collected simultaneously from subordinates, peers, supervisors, and employees themselves.The 360-degree method provides a complete portrait of behaviour on the job – one that looks at people from every angle and every perspective.Typically, 360-degree appraisals are used for development and feedback purposes.The focus is on evaluation of skills that are relevant for job performance in useful behavioural terms.Information can be collected through rating forms, open-ended comments, or some combination of both.This approach works best when results are filtered through a coach and combined with self-evaluation.It is most successful in organizations that offer open and participative climates, along with active career development systems.

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Supervisors, peers, subordinates, and employees themselves typically differ in their ability to appraise various dimensions of performance.These raters observe different behaviours and may interpret them with divergent standards.Thus each source has access to unique information about performance and the best approach is to use as many different sources as possible to maximize the breadth of information and cancel out biases unique to a particular source.

MODULE 6PERFORMANCE MANAGEMENT

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6.0 IntroductionTraditionally, the human resources literature has considered as separate and distinct the issues of which types of performance to measure, methods of measuring performance, who should rate performance, and methods of improving performance.

Def.: Performance management is the integration of performance appraisal systems with broader human resource systems as a means of aligning employees’ work behaviours with the organization’s goals.

The purpose of performance management is to make sure that employee goals, employee behaviours used to achieve those goals, and feedback of information about performance are all linked to the corporate strategy.

There is no one way to manage performance. Whatever system is adopted needs to be congruent with the culture and principles that pervade the organization.However, most systems of performance management have several parts:

6. Defining performance. It is desirable to carefully define performance so that it supports the organization’s strategic goals.

7. Empowering employees. It is important to empower workers to deal with performance contingencies, i.e. situations which are important for an employee to achieve goals successfully.

8. Measuring performance. Measuring performance can bring together multiple types of performance measured in various ways. The key is to measure often and use the information for midcourse corrections.

9. Feedback and Coaching. In order to improve performance, employees need information (feedback) about their performance, along with guidance in reaching the next level of results. Without frequent feedback, employees are unlikely to know that behaviour is out of synchronization with relevant goals or what to do about it.

6.1 Linking Individual Performance to Business ObjectivesA primary purpose of job evaluation is to establish the relative worth of jobs in an organization.Performance appraisal has already been discussed above as an important tool in the management of employee performance. The compensation strategy of an organization should facilitate the design of jobs that:

Support a desired organizational structure that in turn ensures organizational effectiveness;

Are compatible with organizational culture and philosophy; and Permit each jobholder to recognize the relationship between job activities and the

common purpose (objectives) of the organization.One of the most important outputs of job analysis is the job description.The job description comes in a wide variety of forms but essentially it attempts to provide statements of facts that describe the job.

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In most organizations, job analysis data are reviewed, edited, and then formatted into the job description.

A Job ContractAn organization that provides the employee with an accurate and current job description is in reality giving the employee a deed to the job.Like a true deed, the job description acts as a contract – it conveys employee rights to the job, and also establishes obligations to maintain those rights.A quality job description provides a sound base for determining the comparable worth of jobs and for establishing employment and performance standards for each job.

The deed/job description works in two ways: It protects the employee by letting him know what is expected. It protects the employer by letting the employee know what must be done.

Like a deed, to be a valid and useful contractual instrument, it must be accurate and complete, hence it must describe the job as it is.A job description differs from a normal contract in that jobs change, and their descriptions must change too.

Recognizing what must be done and coming to an agreement with the immediate supervisor regarding job activities go a long way toward enhancing job security and trust, which in turn promote the commitment and involvement of each employee.

PLANNING, OPERATIONS AND CONTROLThe job description is one of the few tools available to managers in performing the three basic functions of management – planning, operations and control.The job description is basic to operational planning (the planning of day-to-day activities), and it also serves as a direct link to the area of strategic or long-range planning.From an operations point of view, the most important single part of a job description is that which describes the activities and requirements of the job as it exists today.When used as one of the basic elements for setting performance standards (expected results), the job description becomes a valuable tool of control – an instrument with immense feedback value.

PlanningThe job description can be valuable in a number of planning activities which include organization design, staffing levels, career ladders and career pathing, job design and pay system design.

Organization Design: The job description supplements other descriptive instruments such as organization charts, work unit function statements, and input-output charts by providing more complete information regarding organizational relationships and outputs.

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It becomes useful when decisions must be made about centralization/decentralization, about some form of functional, geographic or product dispersion, or about reengineering, downsizing or restructuring.

Staffing Levels: The review of the job definition section (responsibilities and duties) assists in pinpointing potentially unneeded positions and missing activities. A comparison of job description data with workload requirements can be useful for determining staffing levels.

Career Ladders and Career Pathing: The identification of responsibilities and duties requiring a common body of knowledge, skills and other requirements can be used in establishing classes, class-series, and families of jobs for designing career development programs.By recognizing job-specific knowledge and skills, it is possible to develop career ladder programs and to identify bridging jobs for career pathing opportunities to other career ladders.

Job Design: The development of teams and the rotation of individuals among a number of jobs or workstations makes it essential that there be clear and understood explanations of what must be done at each job/workstation.It also helps in reallocating activities among various employees, ensuring that activities are performed and making jobs more interesting and vital to incumbents.

Pay System Design: The job description is a basic tool in determining or documenting internal job worth decisions. It provides job data for comparison with jobs in other organizations when capturing market data.The combination of internally equitable and externally competitive data then becomes the basic inputs for designing a pay structure.

OperationsThe job description is a useful document for individuals who have various responsibilities in the day-to-day operation of the organization. These activities include (1) recruiting and screening, (2) test design, (3) hiring and placement, (4) orientation, (5) developing procedures, and (6) training and development.

Recruiting and Screening: The job description provides individuals responsible for recruiting and screening with a clear picture of the job, its requirements, and the demands it places on an employee. It also provides a preview for the job applicant.

Test Design: Those involved in designing tests that will be used for identifying the most suitable candidates for the job must be certain that they can relate test items to job requirements.Being able to relate knowledge, skill, and ability requirements to job description duties assists in designing tests and significantly enhances their probable validity, legality, and acceptability to job applicants.

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Hiring and Placement: Final selection and placement are normally the joint responsibilities of HR specialists and the job candidate’s immediate supervisor.When the Hr specialist has total responsibility, however, the knowledge, responsibilities and duties, and physical working requirements spelled out in the job description are usually relied on heavily in matching the candidate’s qualifications with the job requirements.

Orientation: Possibly the most important predictor of job success is the new employee’s first impression of the job.Using the job description as an introduction to the job assists in setting forth its requirements and helps the new jobholder to understand more fully what the organization expects and how the job fits into the overall structure of the organization.

Developing Procedures: For many jobs, it is necessary to develop specific procedures that describe the step-by-step actions an employee must take in performing job assignments.The duties within the job description provide a starting point for the development of procedures.

Training and Development: It is seldom for an organization to fill a vacancy without providing some degree of training to new jobholders. Also the fact that as the job and its description change, training and development must keep pace.

ControlRecognition of individual contributions is increasing in importance.Over 70 percent of all workers are now employed in service industry jobs, which, like their manufacturing counterparts of a hundred years ago, are now being scrutinized to identify possible ways of measuring performance objectively.Control systems must be implemented to ensure compliance with legal requirements and, when necessary, to meet union demands.

Performance Standards: Almost all employees want to know how well they are doing.To be effective, a performance measurement must be able to identify demonstrated behaviours and compare actual with expected or desired results.Well-written duty statements provide the basis for setting performance standards.These standards inform an employee of the minimal acceptable level of performance and can also identify levels of performance ranging up to excellent or superior.

Legal Requirements: Changes in legislation, as well as changing emphasis in enforcement patterns, have placed new stress on the importance of the job description.

Collective Bargaining: A key labour principle is “equal pay for equal work.”Many union demands focus on the elimination of varied pay rates for similar work or the distortion or imbalance of the pay structure among comparable organizations.The job description provides a starting point for standardization.

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Although unions want uniform rates, organizations must defend themselves by recognizing and identifying which jobs are similar and protecting those pay levels that truly discriminate among jobs that require different levels of knowledge and responsibilities and among employees who provide different contributions.

APPLICATION OF MOTIVATION THEORIESOver the years, many scholars and researchers have made contributions to understanding why people behave the way they do.Those involved in designing reward systems or pay-for-performance programs also want to understand more about human behaviour.Their goal is to design programs that direct employee behaviour in a manner that benefits both the employee and the organization.

Content Theories of MotivationThe content theories of motivation focus on the needs individuals attempt to satisfy through various kinds of actions or behaviours. They describe what motivation is.Hence motivation here is defined as activities undertaken to satisfy a need. Motivation then is a process.Another meaning of motivation is the inducement or incentive to action - this is the reward.But every part of the management and human resources system must interact in a positive and dynamic nature, or the reward system will have only minimal influence on employee behaviour.Thus there is need for employers to hire the right person for each job (properly match employee knowledge, skills and abilities with job requirements) and the right person to match the organization’s culture (select individuals with values that are similar and reinforce organizational values), for the reward system to operate much more effectively.

Process Theories of MotivationThese expand on the content theories by describing how the motivation process works.One process theory is the expectancy theory.These theories have an implicit recognition of motivation as a process with identifiable and potentially observable parts. This is why reward system designers have found them to be more helpful and useful than content theories.Expectancy represents ideas or thoughts an individual develops about the consequences that may result from a certain action.Expectancy theory models provide these three guidelines for designing incentives:

1. The need to define or identify explicitly certain desired actions (activities)2. The need to relate specific outcomes and consequences to the demonstration of certain

actions.3. The need to provide within some established schedule.

Reinforcement theories tell pay-for-performance designers that a reward (consequence or reinforce) will have more motivational influence when the employee recognizes a direct relationship between activities performed, results achieved, and rewards gained.

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Motivational value also increases when the timing of the delivery of the rewards closely approximates the demonstration of a behaviour, the completion of an assignment, or the achievement of a result.These elements of motivational theory support the concept that the most powerful short-term incentive is one that relates to individual performance, and the weakest is one that relates the individual to the overall performance of the organization.

STRATEGIC IMPORTANCE OF PERFORMANCE APPRAISAL: PERFORMANCE

– OBJECTIVES LINKING

Strategically, it is hard to imagine a more important HR system than performance appraisal.

Organizations strive to do the following at all levels:

Design jobs and work systems to accomplish organizational goals.

Hire individuals with the abilities and desire to perform effectively.

Train, motivate, and reward employees for performance and productivity.

It is this sequence that allows organizations to disperse their strategic goals throughout the

organization.

Within this context, the evaluation of performance is the control mechanism that provides not

only feedback to individuals but also an organizational assessment of how things are

progressing.

Without performance information, managers of an organization can only guess as to whether

employees are working toward the right goals, in the correct way, and to the desired standard.

Consistency Between Organizational Strategy and Job Behaviour (Performance)

Performance appraisal plays another important role in organizational strategy, that of

ensuring consistency between organizational strategy and job behaviour (strategy-consistent

behaviour).

A truism of organization life is that people engage in the behaviours that they perceive will be

rewarded.

Employees want to be rewarded and will try to do those things that the organization is

emphasizing.

So if the focus is on rewarding productivity, employees will strive for productivity.

If the focus is on service, employees will behave in that gain the rewards associated with

service delivery.

If the focus is on cost control, employees will seek ways to control cost and thus be

recognized and rewarded.

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Performance appraisal becomes a means of knowing if employee behaviour is consistent with

the overall strategic focus and a way for bringing to the front any negative consequences of

the strategy-behaviour link.

For example, a single-minded productivity focus may include potential negative

consequences, such as decreased quality and cooperation.

Performance appraisal is an important organizational mechanism to elicit feedback as to the

consistency of the strategy-behaviour link.

Consistency Between Organizational Values and Job Behaviour (Performance)

Performance appraisal is also a mechanism to reinforce the values and culture of the

organization, i.e. ensuring consistency between organizational values and job behaviour.

For example, how is an organization that articulates the value of developing its people to

know if managers throughout the organization share this value? If managers are held

accountable for developing their people by being judged on this task in their own

performance appraisal, they will be likely to spend more time developing subordinates.

A further element in the strategic importance of performance appraisal is in the alignment of

the appraisal with the organizational culture.

For instance, in a team-oriented system, the traditional appraisal that rates one employee in

comparison with others may be counterproductive.

Such a system will engender competition rather than teamwork among employees.

Thus, an appraisal system that emphasizes coaching and development, and involves feedback

from co-workers, may be more appropriate than the traditional supervisor-based rating.

MODULE 7REWARD SYSTEMS

7.0 Introduction

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People work for rewards of one type or the other hence individual differences make it impossible to come up with a reward system which would satisfy everyone. Rewards also differ from the individual in a given group to the group level itself. The rewards obtained provide some sort of satisfaction to both an individual and the group to which that individual belongs. Hence the satisfaction obtained will also differ among individuals and groups of individuals.

Meanwhile, as the individual and the group coordinate their needs and efforts, a third set of satisfactions develops. These satisfactions are those gained by the leaders or employers of the group – those who both receive and offer some form of reward for the services provided by the individual and the group.

Members of an organization receive rewards from their employers. These could be monetary rewards paid either directly (base pay or cash incentives) or indirectly (employee benefits paid for by an employer) to employees. They could also be non-monetary (promotions, recommendations, facilities, arrangements, etc.). These rewards may be paid in the short term (within one year) or in the long term (beyond one year).

Employers use their reward systems to attract and retain those who not only have the desired knowledge and skills, but also have the interest and are willing to put forth the effort needed to link their knowledge and skills to the accomplishment of organizational goals and objectives.

But the value an individual attaches to a specific reward or reward package may vary significantly over time, and the time span need not be too long.Furthermore, the worth of a reward is greatly affected by any factor that influences the lifestyle of an individual.

Because of the almost endless variety of human qualities, workplace requirements, and situational demands, the task of designing and managing a reward system so that it will benefit the organization is a difficult and complex undertaking.

7.1 Design ConsiderationsThe reward system of an organization includes anything that an employee may value and desire and that the employer is able or willing to offer in exchange for employee contributions.

A rather broad classification scheme that facilitates the identification of the various kinds and qualities of rewards provided by employers is to separate the compensation components from the non compensation components.That is to say, all rewards that can be classified as monetary payments and in-kind payments constitute the compensation system of an organization.

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Monetary payments can be in the form of coins or paper money, or in the less tangible form of cheques or credit cards.They have value in use and they simplify exchange transactions.In-kind payments are goods or services that are used in lieu of money and that provide an equivalent value for what has been offered or received.

All other rewards constitute the noncompensation system.

7.1.1 Employee Satisfaction and Motivation Issues in Compensation DesignPeople have no basic or instinctive need for money, a commodity that is important only if it can satisfy other needs.Organizations frequently overestimate the value workers place on monetary reward.For example, if money were the primary motivation for working, why would hourly employees object to overtime, given the premium rate of pay associated with it?

Many supervisors become frustrated and disillusioned when pay increases do not produce a corresponding rise in productivity.Still more troublesome is the fact that the rewards that effectively motivate some workers do not succeed with others.The equity and expectancy theories can help explain employees’ reactions to compensation systems.

Equity Theory: Employees want to be treated fairly. Thus equity theory suggests that individuals determine whether they are being treated fairly by comparing their own input/outcome ratio with that of someone else.

A sense of inequity arises when the comparison process uncovers an imbalance between inputs and outcomes of the employee compared with others. And thus individuals will make some attempt to relieve the tension created by any perceived inequity.The desire to achieve equity even extends to the point of employee theft as a reaction to underpayment.

Satisfaction with Pay: Survey data regularly show compensation to be one of the areas of employment with which employees are least satisfied.It is not unusual to find that individuals, otherwise satisfied with their career and the organization for which they work, believe that their compensation leaves something to be desired.

One reason for the reduced degree of satisfaction with compensation has to do with the number of possible comparisons.Individuals seem to seek comparison information from a wide variety of sources, both internal and external to the organization, and then hold to the least favourable comparison.If there are not unfavourable comparisons with those in their line of work, individuals may compare themselves to those in a related line of work.

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A successful compensation system needs to incorporate the equity concerns of all participants in the employment relationship.This is achieved by establishing a system that includes both external and internal comparisons in setting pay levels.

In addition, it is more important to focus on the specific employees who are dissatisfied with compensation than on the overall level of satisfaction. If poor performers are dissatisfied, this may be as desired.

7.1.2 Designing Equitable Compensation SystemsCompensation Components

Three elements of equity can be distinguished: internal, external and individual.Internal equity refers to the relationship among jobs within a single organization.Employees expect the CEO of a company to earn more than a director, who in turn earns more than the plant manager, and so on.

Among other things, compensation is presumed to be correlated with the level of knowledge, skill and experience required to do the job successfully.Internal equity exists when the pay differentials between different jobs within the organization are perceived as fair – neither too large nor too small.

External equity refers to comparisons of similar jobs in different organizations.Hence the CEO of a bigger firm might earn more than a counterpart in a small firm.Presumably a doubling of company size requires more knowledge, skill and experience on the part of its leader.Locality matters as well (local comparisons rather than nationwide) as industry and company size.

Individual equity refers to comparisons among individuals in the same job with the same organization.In many ways this is the most critical aspect and if it is not addressed satisfactorily, attention to internal and external equity will have been wasted.Employees must ensure that issues related to this aspect are handled fairly in order for individual equity to exist.

COMPONENTS OF THE COMPENSATION PACKAGEThe major parts that can be included within a compensation package are base wages and salaries, wage and salary add-ons, incentive payments, both short and long term, and employee benefits and services.

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Pay for Work and PerformancePay for work and performance includes money that is provided in the short term (weekly, monthly, and annual bonuses/awards) and that permits employees to pay for and contract for the payment of desired goods and services.

The amount of money payments provided to employees normally depends on specified job requirements; outputs that meet or exceed quantity, quality or timeliness standards; innovations that may lead to improved productivity; dependability; loyalty; and some combinations of these items.

Typical components within this dimension are base pay, premiums and differentials, short-term bonuses, merit pay and certain allowances.Incentive pay is payment for a specified output.

Pay for Time Not WorkedOver the years, there has been a decrease in hours worked per week and the number of days worked per year. Instead workers have enjoyed more days off with pay for holidays, longer paid vacations, and paid time off for a wide variety of personal reasons.These components of pay for time not worked significantly increase labor costs and also enhance quality-of-work-life (QWL) opportunities for most employees.

Loss-of-Job Income Continuation (Protection Programs)Job security is and always has been the primary consideration for most workers.They want assurance that their jobs and the income derived from working will continue until they are ready to retire.

Workers also know that few jobs are guaranteed to continue to retirement.Not only may accident and sickness problems occur, but personal performance or interpersonal dynamics problems may cause temporary layoff or termination of employment.

A variety of components such as unemployment insurance, supplemental unemployment benefits (SUBs), and severance pay help unemployed workers to subsist until new employment opportunities arise.

Disability Income Continuation (Protection Programs)The possibility always exists that a worker may incur health or accident disability.Because of these disabilities, employees are frequently unable to perform their normal assignments.Even so, individual and family living expenses continue; and medical, hospital, and surgical bills create additional burdens.Social security, workers’ compensation, sick leave, and short- and long-term disability plans are examples of components that provide funds for employees who are unable to work for health-related reasons.

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Deferred IncomeMost employees depend on some kind of employer-provided program for income continuation after retirement.There are two basic reasons for these programs.Firstly, most employees do not have sufficient savings at retirement to continue the lifestyles they provided while working.Various kinds of programs, such as Social Security, employer-provided pension plans, savings and thrift plans, annuities, and supplemental income plans provide income after retirement.

Secondly, tax laws and regulations make deferred income plans more appealing to many employees.Because of tax regulations, employers can often take immediate deductions and employees can defer tax obligations until income tax rates are possibly more favourable.In addition, funds invested in many of these deferred plans draw tax-free interest, significantly increasing the amount of money available upon retirement.Stock purchase, options, and grant plans are components commonly used to achieve tax deduction, estate building, and deferred goals.

Spouse (Family) Income ContinuationMost employees with family obligations are concerned with what may happen if they are no longer able to provide money that will allow their families to maintain a particular standard of living.Certain plans are designed to provide dependents with income when an employee dies or is unable to work because of total and permanent disability.

Specific features within life insurance plans, pension plans, Social Security, workers’ compensation, and other related plans provide income for the families of employees when these conditions arise.

Health, Accident and Liability ProtectionWhen a health problem occurs, employees must be concerned not only with income continuation, but also with payment for the goods and services required in overcoming the illness or disability.Organizations provide a wide variety of insurance plans to assist in paying for these goods and services.

In recent years, the cost of medical-related goods and services has increased at a greater rate than almost any other good or service desired or required by employees.Medical, hospital, and surgical insurance plans and major medical, dental, and vision insurance are only a few of the numerous compensation components designed to provide such protection for workers.Because of savings available through group purchasing, organizations are now providing various kinds of liability-related insurance plans for their employees.

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These plans include group legal, group automobile, group umbrella liability, employee liability, and other insurance plans.

Income Equivalent PaymentsMany of these compensation components are frequently called perquisites or “perks”.Employees usually find them highly desirable, and both employers and employees find certain tax benefits in them.Some perks are tax free to employees and tax deductible to employers.Some of the more desirable perks are the use of a company car or company credit card, payment for expenses to professional meetings, subsidized housing and food services, housekeeping expenses (maid, gardener, etc.) and child care services.

The NonCompensation SystemThe other major part of the reward system consists of noncompensation rewards.These rewards are much more difficult to classify and their components far more complex than is the case for compensation rewards and components.

Def.: Noncompensation rewards are all the situation-related rewards not included in the compensation package.

These rewards have an almost infinite number of components that relate to the work situation and to the physical and psychological well-being of each worker.In fact, any activity that has an impact on the intellectual, emotional, and physical well-being of the employee and is not specifically covered by the compensation system is part of the noncompensation reward system.The noncompensation system contains many of the reward components that behavioural scientists have been describing for the past 50 years as critical for improving workplace performance. The figure below shows this system.

Enhance Dignity and Satisfaction from Work PerformedPossibly the least costly and one of the most powerful rewards an organization can offer to an employee is to recognize the person as a useful and valuable contributor.This kind of recognition leads to employee feelings of self-worth and pride in making a contribution.Few people want to be simply given something but would prefer to know that through their own efforts they have earned and deserved rewards.

Enhance Physiological Health, Intellectual Growth, and Emotional MaturityConsidering the number of hours a person spends on the job, on travel to and from the work site, and off the job in attempting to resolve job-related problems, work obviously has a great effect on the health of employees.

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Modern health practices recognize the direct relationship between the physiological health and intellectual and emotional well-being of each individual.A safe working environment in terms of provision of safe equipment; a work environment that is as risk free as possible; minimization of noxious fumes; avoidance of extreme heat, cold and humidity conditions; and elimination of contact with radiation, carcinogens, and other disease-related materials and substances is expected by all employees.

Figure 7.0: Dimensions of a Noncompensation System

More and more attention is now being focused on the emotional strains that result from the extreme specialization of work assignments and the complex interactions caused by this specialization.Additional psychological and emotional stress is caused by technological advancements that require rapid changes in the knowledge and skills of workers, and the demands for a greater share of the limited resources of both organizations and society as a whole.

Management recognition of these universal problems and letting employees know what the organization can provide to help them maintain a secure and stable lifestyle will help minimize job-induced stress.

Training employees to perform current jobs in an acceptable manner and offering developmental opportunities that will help employees attain their potential are noncompensation components that can influence this health-related dimension in a positive manner.

Promote Constructive Social Relationships with Coworkers

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NoncompensationSystem

Offer Supportive Leadership and Management

Grant Sufficient Control Over the Job to Meet Personal Demands

Allocate Sufficient Resources to Perform Work Assignments

Design Jobs That Require Adequate Attention and Effort

Promote Constructive Social Relationships with Coworkers

Enhance Physiological Health, Intellectual Growth and Emotional Maturity

Enhance Dignity and Satisfaction from Work Performed

One of the most valued rewards gained from working is the opportunity to interact in a socially constructive manner with other people – to enjoy the comradeship of workplace associates.The chance to communicate and interact with others is another inexpensive but valuable reward.

A workplace environment where trust, fellowship, loyalty, and love emanate from the top level of management to the lowest levels of the organization promotes the kinds of social interaction most people need in order to thrive.

All parts of the reward system can enhance the establishment of a trusting workplace environment; or they can provide barriers where suspicion, jealousy, and intrigue can destroy any opportunity to productivity-promoting social relationships.The move toward team-based operations is an example of what organizations are doing to improve social interactions among employees.

Design Jobs that Require Adequate Attention and EffortThe problems arising from boredom related to work has been extensively discussed over many years now.Specific attention has been focused on “scientific management” efforts to specialize work assignments that were developed hundreds of years ago.Jobs were designed so that workers could quickly be taught how to perform a few highly repetitive tasks. Workers were then required to perform these few tasks for as long as they remained on the job.

What first appeared to be an efficient way of melding human resources with machine technology proved to have serious drawbacks- boredom, dissatisfaction, work-related anxieties and frustration all produced employee behaviour that led to declining performance.Employee turnover, absenteeism, lateness, minimal concern for quality or productivity, waste of physical resources, and even theft and malicious damage were behaviours attributed to unacceptable workplace and job design.

Recognizing these problems, behavioural scientists and managers at all levels have been searching for and implementing new approaches to improve the quality-of-work-life.On both an individual and team or group basis, employees are being given more opportunity to have a voice in how their jobs should be performed.Restructuring of job tasks and job responsibilities is receiving top attention.

Flexibility in job requirements is being provided by rotating work assignments and by giving employees more opportunity to schedule workdays and workweeks.Managers are being taught to recognize when to provide needed support, when to tell employees what they are doing right, and when to assist them in correcting their errors.

Allocate Sufficient Resources to Perform Work Assignments

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Requiring employees to perform assignments for which they have neither the knowledge nor the skills opens the door for problems.Not only is the organization likely to suffer because of outcome failures, but employee job-related interest and satisfaction are likely to break down because of the likelihood or inevitability of failure.

Most employees seek a sense of accomplishment from their work, they want some degree of challenge, but they also want to feel reasonably sure that they can succeed.In addition, when employees are told they must produce certain kinds and quantities of output within a specified time, they want to know that resources are available to help them meet these demands.

To make work a satisfying and exhilarating experience, employees must not be placed in a no-win situation.This means that with the proper interested effort, success is likely. The organization, therefore, must do everything possible to assist the employee in completing missions successfully.

Grant Sufficient Control Over the Job to Meet Personal DemandsBehavioral scientists have for many years been discussing the need to grant employees greater opportunity to participate in organizational decision-making processes.One problem with this participation concept is that organizations are composed of all kinds of people with all kinds of decision-making desires.

Some people simply want to be told what to do, to be shown what is an acceptable level of performance, and then to be left alone to do their jobs.A few people in every organization want to tell top management how to run the organization.Between these two extremes is a wide variety of demands for a greater voice in determining how to perform assignments.

One of the most important decisions being made by more and more workers is that of scheduling work activities and, in some cases, of choosing the location of assignments. This involves flexible work schedules that can range from compressed workweeks to the flextime programs.Another advancement allows two part-time employees to share one full-time job.Another change to make life easier is the casual dress day.

Offer Supportive Leadership and ManagementPractically all people look to certain individuals for guidance and support.They have a need to recognize and respect those who can help them achieve goals.They look to managers who have influence and can bring about desired changes.Followers must have faith in and abide by the actions taken by their leaders, and the leaders must heed the requests of their followers.

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Employee faith and trust in management assist in establishing a workplace environment where job security becomes accepted, where social interaction thrives, and where work satisfaction is possible.

Supportive leadership is demonstrated in many ways: skill and interest in coaching and counselling; praise for a job well done; and constructive feedback leading to improvement of job performance.

Leaders must be sufficiently flexible with policies, rules, and regulations so that an employee can meet both job and nonjob responsibilities without infringing on the rights and the opportunities of other employees.

The selection, training, and promotion of individuals who will later become effective leaders and managers are the cost components of this dimension.But the benefits far outweigh the costs.

JOB EVALUATION

The major purpose of job evaluation is to determine the relative worth of the jobs within an

organization with regard to the fulfilment of the company’s objectives.

Since there is no direct way to measure the value of jobs in relation to organizational

objectives, rewards are usually based on important components generally agreed to make one

job worth more than another is.

These aspects, called compensable factors, may include such things as skills, effort, and

education required; amount of responsibility involved; and working conditions.

Approximately 75 percent of all companies employ some form of job evaluation.

To be most effective, the process needs to involve the employees whose jobs are affected.

The five most frequently used job evaluation methods are job ranking, job grading or

classification, the point method, the Hay plan and factor comparison.

Fig. 7.1: Job Evaluation Procedures

Basis for Job Hierarchy Nonquantitative Comparison

Involving Job as a Whole

Quantitative Comparison

Involving Job Components

Job versus Job Comparison Job Ranking Factor Comparison

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Job versus Scale Comparison Job Grading or Classification Point Method

Hay Plan

Job Ranking:

The simplest way to evaluate jobs, is used primarily in small organizations.

Normally, a committee of managers reviews all the job descriptions and ranks them in order

of their relative worth or importance to the organization.

The ranking method is simple, inexpensive, fast, and easy to understand.

However, it is nonquantitative and rather subjective, for although jobs are compared with

each other, there is no explicit set of compensable factors used in this comparison.

Table 7.0: Paired Comparison Ranking Table

M DPM DEO ES CO SA CC P FC AD Total

Messenger (M) - 0

Data Processing

Manager (DPM)

X - X X X X X X X X 9

Data Entry Operator

(DEO)

X - X 2

Executive Secretary (ES) X X - X X X X 6

Computer Operator (CO) X X - X X 4

Systems Analyst (SA) X X X X - X X X 7

Control Clerk (CC) X X - X 3

Programmer (P) X X X X - X 5

File Clerk (FC) X - 1

Assistant Director (AD) X X X X X X X X - 8

Additionally, simple ranking gives no information about the distances between jobs, making

it difficult to assign salary levels.

Also, except in a very small organization, there may be no one who is knowledgeable about

every single job in the organization, as would be necessary for meaningful ranking.

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A special method of ranking is the paired-comparison technique used in performance

appraisal for comparing employees with each other on the basis of overall performance.

In the job evaluation context, the content and importance of different jobs, not the

performance of incumbents, is the object of comparison.

In this approach, each job is compared directly against every other job, using a matrix like the

one depicted above (Table 7.0).

Reading across each row, an X is marked each time the job is ranked more highly than the

job in that column.

The totals column records the number of comparisons in which the job is ranked higher and

this total determines the job’s overall rank.

Some evidence suggests this approach is more reliable than simple ranking.

Job Grading or Classification:

The job grading or job classification method is a nonquantitative job evaluation technique

that compares the whole job with a predetermined standard.

In this approach, jobs are assigned to predefined grades or classes.

Job grading is common in the public sector and the U.S. federal government’s General

Schedule (GS) has eighteen (18) grades.

In the private sector, job classification is commonly used in managerial and scientific or

engineering jobs.

It is usually fairly easy for organizations to group jobs and for employees to accept the

classifications.

Flexibility is another advantage of the job classification method as it can be applied to a large

number and wide variety of jobs.

As the number of jobs in the organization grows, these new jobs can easily be assigned to the

grades that already exist.

But when a job seems to fall between two grades, this method is not good since subjective

judgements are used to place jobs into the grades.

Another disadvantage is that of relying heavily on the use of job titles rather than on a more

detailed examination of job content.

The Point Method:

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Unlike job ranking or classification, the point method breaks the job into components and

evaluates each of these job elements against specially constructed scales.

A quantitative approach, the point method is rather complex to design but relatively simple to

understand and administer once it is in place.

It is the most widely used method of job evaluation as well over half the organizations that

use job evaluation use the point method, especially Lott’s method.

Four steps are followed in applying the point method:

Selection of compensable factors. Organizations select 3 to 25 compensable factors,

with the typical point method using about 10 factors. One firm uses 11 factors that are

grouped into the following 4 dimensions: (1) skill (education, experience,

knowledge), (2) effort (physical demand, mental or visual demand), (3) responsibility

(equipment or process, material or product, safety of others, work of others), and (4)

job conditions (working conditions, hazards).

Establishment of factor scales. Once the compensable factors have been chosen,

scales reflecting different degrees (levels) within each factor are constructed.

Assignment of points to degrees. The next step is to assign points to degrees. First,

however, the job evaluation committee decides on the relative importance of the

different factors. The most important factor is then awarded the largest number of

points and the lower degrees are assigned proportionately lesser point values in accord

with factor importance. The determination of factors and the assignment of points to

these factors become an important mechanism for communicating to employees what

is valued in the organization.

The typical plan illustrated below tells employees that experience, education, and

knowledge are equal to all the other factors taken together.

Application to organizational jobs. Once the compensable factors have been

identified, defined, and assigned points, jobs can be evaluated and “scored”. In this

process, the committee will thoroughly review job analysis data and perhaps observe

the job or speak with incumbents. Then it will determine which degree of each factor

best describes that job. The points associated with these degrees are summed for each

job. Often jobs with similar point totals are later grouped together to form a single pay

grade for administrative convenience.

In principle, the point method could be used to develop a single set of factors and

weights for all jobs in the organization.

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In practice, however, organizations tend to use several different point plans, e.g. one

plan for office and clerical employees, another for production workers, and a third for

managerial staff. Rarely do the same compensable factors apply to jobs at widely

different levels.

Table 7.1: A Typical Point Plan

Factors Points

Degrees 1st 2nd 3rd 4th 5th

Skill

1. Education 14 28 42 56 70

2. Experience 22 44 66 88 110

3. Knowledge 14 28 42 56 70

Effort

4. Physical demand 10 20 30 40 50

5. Mental demand 5 10 15 20 25

Responsibility

6. Equipment/process 5 10 15 20 25

7. Material/product 5 10 15 20 25

8. Safety of others 5 10 15 20 25

9. Work of others 5 10 15 20 25

Job Conditions

10. Work conditions 10 20 30 40 50

11. Hazards 5 10 15 20 25

The Hay Plan:

The Hay plan is a well-known version of the point method.

It is used for evaluating managerial and executive positions by a large number of

organizations worldwide.

The universal factors used by the hay plan are know-how, problem solving, and

accountability.

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Know-how is the total of all the knowledge and skills required to do the job; it includes the

subfactors of technical knowledge, management responsibility, and responsibility for

motivating others.

Problem solving is the amount of original thinking required by the job for arriving at

decisions; it includes the subfactors of degree of freedom and type of mental activity.

Accountability is defined as being answerable for actions taken on the job; its three

subfactors are freedom to act, money magnitude, and impact.

The Hay guide chart allows the evaluator to assign a point value for each factor and the total

of the points across all factors is the value of the job.

Factor Comparison:

The factor comparison method is a method of quantifying the job versus job comparison.It is the least commonly used method of job evaluation.The first step is to select key jobs to help anchor the systemKey jobs are those that are found in many organizations and have relatively stable job content; they also have to be jobs for which the prevailing wage rates are known.

The second step is to rank the key jobs on a few compensable factors, such as skill, effort, responsibility, and job conditions.The third step is to determine for each key job the amount of the present pay rate that is attributable to each of the factors.

The factor comparison method can be applied to other jobs by comparing their standings on each factor with that of the key jobs and summing the associated kwacha values to arrive at an hourly rate.The procedure is rather cumbersome and requires constant updating, hence the relative infrequency of its use.

DETERMINING RATES OF PAYHow are decisions made that determine what each employee in the organization should be paid?The critical or basic reasons underlying the differences in pay and compensation packages for different employees relate to the following correlates or determinants.

Kinds and levels of required knowledge and skills

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The most important factor influencing the rate of pay of an employee is the kind of job the person performs. The highly paid people in all fields all have a common skill- the ability to influence others.

Kind of businessFor some jobs (especially higher-level jobs), private-sector businesses provide higher rates of pay than those in the public sector.

Union-nonunion statusSince the blossoming of unions, those businesses with the highest rate of unionization have also included some of the highest-paid members of the workforce.

Capital- versus labor-intensiveQuite often, businesses that have low labor costs relative to revenues pay employees higher rates of pay. Probably no one cost of business is more controllable and has a greater influence on profits than labor costs.

Size of businessLarge businesses quite often provide higher wage rates than smaller businesses. Profitability and unionization are frequently related to company size. Firms normally increase in size because their products are in demand – economies of scale and opportunities to increase profit.

Philosophy of managementSome owners and top executives have a philosophical bias toward paying their employees as much as possible. Other owners and managers may have a completely opposite bias.

Total compensation packageToday, employees have sufficient interest in and knowledge of their compensation packages to recognize the value or worth of its major components.

Geographic locationEmployment and unemployment do not affect all sections of the nation equally.Not only do employment opportunities dampen or improve job wage rates, but certain regions have historically paid higher wages than others.

Supply and demand of laborEven in times of high unemployment, individuals with certain sets of skills or abilities are in demand. Sometimes the demands are in specific locations; at other times, they are national in scope. Jobs high in demand are frequently called “exotic” jobs, and those who have the necessary skills can demand and will receive premium wages.

Profitability of the firm

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Employees working for highly profitable businesses have a greater chance of receiving higher wages than those working for less profitable firms.Historically, high-paying firms felt they had an edge in hiring and retaining the best workers by paying above the going rate in their markets.

Employment stabilityPractically all workers want the psychological security of knowing that their jobs will be there as long as they want them so that they can be able to maintain their current lifestyles and pay the many incurred debts and existing living costs.Thus, an employee who feels that her job is permanent is often willing to take lower pay, knowing that the pay will be there as long as the assignments are performed in an acceptable manner.

Gender differenceHistorically, women have earned approximately 60 percent of what men have earned although this gap is steadily being closed with the passage of time.

Employee tenure and performanceIn most cases, an employee’s rate of pay increases with years of service since through their experience, they become more effective problem solvers, dependable and predictable. It is thus not unusual to find very senior employees being paid double the amount received by new employees for comparable jobs.Individual performance can also make a significant difference in the pay received by incumbents in similar jobs.

Pay Level PolicyOnce an organization has completed an internal job evaluation and obtained wage survey data, it needs to translate this information into pay rates for each class of job.This process involves interpretation of survey results, the merging of the job evaluation with the survey data, and consideration of the organization’s pay level policy.

The first step in merging the internal and external data is a strategic decision on the organization’s positioning in terms of the competition.The three fundamental options are to match, lead or lag behind the market.

By setting its pay levels at the market rate, or matching the competition, an organization tries to keep its labor costs comparable with those of competitors.Such an approach tends to neutralize pay as a factor in attracting, retaining, and motivating employees while ensuring that labor costs are competitive.

In adopting a lead policy – that is, paying a higher wage rate than its competitors – a firm hopes to attract and retain higher-quality employees while maximizing satisfaction of its current employees.

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Firms with a lead policy want to be the preferred employer so that they can select the best applicants while making it costly for competitors to persuade current employees to leave.

Some organizations follow a lag approach, setting their pay rates below those of their competitors.On the surface, it might seem that such a policy inevitably would lead to difficulties in attracting, motivating and retaining qualified employees.But some companies have other ways to attract applicants, such as employment security (as with government jobs), superior benefits (e.g. holidays, vacation time, tuition reimbursement), or an enjoyable environmentSome organizations, because of the nature of the business, social or business philosophy, or excellent reputation, will attract well-qualified applicants even at below-market wages.Still other organizations may adopt this approach because they simply cannot afford to pay competitive salaries.

Finally, an organization need not have one policy for all jobs.

DESIGNING PAY RANGESJobs evaluated as having nearly the same value are usually combined into a single wage grade.Thus wage grades are established, and all jobs within the grade are paid identically.More commonly, however, a range of pay rates is set for each grade.

When a range is set, the issue of individual equity becomes important, and the organization must have a system for determining where in the range the compensation of each employee should be.The range associated with a pay grade sets the upper and lower bounds of possible compensation for individuals whose jobs fall in the grade.There is no optimal number of pay grades for a wage structure, although most organizations define 10 to 16 pay grades.

Establishing Pay RangesThe first step is to define the pay policy line linking pay to job evaluation points.The policy line is based on salary survey data, appropriately adjusted and taking into consideration the firm’s policy (lead, match, or lag).The points on the line will represent the midpoints of the wage ranges, which are calculated next.Each grade has a minimum, maximum and midpoint and the spread around the midpoint may vary.The percentage spread is frequently greater for higher-level positions, on the assumption that there is more leeway to make an outstanding or very poor contribution in these more important jobs.

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It is important that adjacent grades overlap, since an experienced employee in a lower grade may make a greater contribution than a relatively new employee in the next higher grade.At some point, the top-performing employees eventually will reach the maximum within a range.They should then be considered for promotion to a higher grade.

BroadbandingThis makes job evaluation to be more compatible with the downsizing and delayering that characterize many restructured organizations.An increasing number of companies are using broadbands or are considering applying this concept as a way to remove the artificial barriers created by job grades.An advantage of broadbanding is in the flexibility it provides and the signals it sends to employees.For example, an employee may be interested in a job but will be reluctant to explore moving into it if is not at a higher grade.With broadbanding, the position may be in the same band, so the employee can focus on the content of the job, its challenges, and its developmental opportunities rather than on its grade level.In this way the employee can learn new skills and better contribute to the team without the possible stigma of a demotion or reduction in pay.

MODULE 8PERFORMANCE PAY

8.0 IntroductionGlobal competition has posed a difficult challenge for organizations in general and human resource specialists in particular.HR managers must try to develop human resource programs that improve productivity and enhance organizational effectiveness.

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Attaining these goals will help ensure that Zambian businesses will be competitive in national and world arenas.

One popular approach to enhancing productivity has been the linking of rewards to performance through various forms of incentive pay.In fact, the idea of incentive pay is so widely accepted that most organizations say that they pay for performance.Most managers and many workers believe that performance should be the most important factor in determining salary increases.Besides, studies indicate that linking pay to performance can lead to better employee performance.

The goal of performance-based reward systems is to reward participants in direct relation to their individual performance and contribution to organizational success.

8.1 ‘New Pay’ IdeologyIn the past, compensation practice was dominated by traditional (fixed) pay plans, in which pay increases were given across the board or based on the cost of living or seniority.

Lawler gave the name new pay to reward programs that seek to align compensation with organizational goals, values, and culture, as well as with the challenges of the global economy.This indicates the strategic importance of variable pay.New pay goes beyond individual or group incentive pay and seeks to provide a mechanism for an organization to use all elements of compensation, direct (cash compensation) and indirect (benefits), to help forge a partnership between the organization and its employees.The aim is to have employees who:

Understand the goals of the organization Know their role in accomplishing these goals Become appropriately involved in decisions of the organization Accept that their rewards are related to their contribution to the goal attainment of the organization.

Having determined their goals, objectives, and values, how do organizations signal these elements to their employees?Assuming that an organization has selected the right individuals, has trained these individuals, and has established appropriate work systems, it is still a challenge to have these employees understand what needs to be done.

A major mechanism for indicating the organizational goals and objectives is the compensation system.This can best be understood from examples of misalignment:

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What is being signalled to co-workers when well-intentioned but ineffective employees are given above-average merit increases?

What is being signalled to employees when executives are given large bonuses after the organization has had a below-average year, and only small increases are given to other workers?

What is being signalled if high commissions and other incentives are paid to field sales representatives, but there is no monitoring of sales practices?

What is being signalled if an organization has an established bonus system, does not attain the profits necessary to trigger the bonuses in a given year, but decides to pay them anyway “because it was a tough year?”

Basic to the effective functioning of any organization is the way it uses its system of total compensation to communicate to employees both what needs to be done and their role in accomplishing those objectives.The above examples frequently are well-intentioned actions on the part of managers but obviously are not consistent with the desired alignment between rewards and organizational objectives.

8.2 Empirical Research

8.2.1. Linking Pay to PerformanceEmployers believe that reward systems in general and incentive systems in particular influence performance positively.In addition, many workers prefer that pay be linked to performance, reinforcing the motivation to use such reward systems.

There are numerous ways of linking pay to performance.One consideration is the level of aggregation of the incentive pay: Will the incentive be based on the performance of the individual employee, the work group, the division, or the entire organization?Another consideration is the degree of objectivity involved in measuring performance (subjective supervisory rating of performance or purely objective measures such as sales, production or profit).

Reasons to Link Pay to Performance Motivation: Several studies, including research based on free agency and

final-offer arbitration in sports (major league baseball), have indicated that when pay is contingent on performance, individual and group performance are consistently higher than when this contingency is not present.Vroom’s expectancy theory suggests that a pay-performance link is essential for motivating performance.Among approaches to understanding work motivation, the expectancy theory is widely accepted and has fairly strong empirical support in applied and theoretical settings.

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To produce maximum motivation, all the three components of the expectancy model (expectancy, instrumentality, valence) must be high. Incentive compensation systems are designed to raise two of the three components. Instrumentality beliefs should be strengthened by making rewards contingent on good performance, and valence should be high because more money is a reward that most people find highly attractive.

Retention: Linking pay to performance is likely to help improve work force composition.High performers will tend to gain a larger share of compensation resources and thus be motivated to stay with the organization.Below-average performers will become discouraged and will tend to leave the organization.Reward systems that are not linked to performance tend to have the opposite effect and thus result in the worst of both possibilities.Some organizations link rewards to performance by using commissions as the primary or exclusive basis for compensation.To performers in real estate, insurance agencies, and stock brokerage houses, for example, may earn ten times more than poor performers.

Productivity: When performance is linked to rewards, those capable of doing what will lead to top productivity are motivated to do so.In the organizations mentioned above, nobody becomes productive by waiting for business to come along. The top performers make the extra effort that will result in productivity when they know they will share in the rewards of their productivity.In the financial services business, the “extras” that result in productivity frequently involve working evenings, entertaining clients, soliciting business, and volunteering in community activities, etc.

Cost Savings: An obvious benefit of pay for performance is the capability to link compensation costs with productivity results.By basing pay on performance, employers can ensure that compensation costs, typically a major cost of doing business, will be tied to organizational results.When the results are poor and the organization is less able to pay, compensation costs are lower.With a salaried and/or hourly work force, compensation costs are not related to business results and, even worse, continue to grow each year as cost-of-living and merit increases are added.

Organizational Objectives: It is always a challenge to make sure that all employees understand organizational objectives.Because of their important influence on motivation and satisfaction, reward systems have the ability to communicate organizational objectives.

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By linking pay to organizationally defined performance, it is also possible to ensure that individual objectives are in line with organizational objectives.Employees whose efforts are not synchronized with organizational objectives will not enjoy an equal share of the rewards.

Reasons Not to Link Pay to PerformanceLinking pay to performance is not always possible or successful.For example, pay-for-performance systems can be misguided by focusing too much on output at the expense of quality or service.Pay-for-performance systems also take more time to administer successfully than do traditional reward systems, i.e. continuous fine-tuning of the system to make sure that rewards are aligned with desired performance.A union’s position on this type of reward system also may influence the feasibility of instituting the system in a particular organization. Historically, unions have opposed performance-based pay systems.

Table 8.0: Classification of Pay Incentive Plans

Type Basis for Reward Type Basis for RewardSalary Reward BonusIndividual Plan Productivity

Cost-effectivenessSuperiors’ rating

Individual Plan ProductivityCost-effectivenessSuperiors’ rating

Group Plan ProductivityCost-effectivenessSuperiors’ rating

Group Plan ProductivityCost-effectivenessSuperiors’ rating

Organizational Plan ProductivityCost-effectiveness

Organizational Plan

ProductivityCost-effectivenessProfit

INDIVIDUAL INCENTIVESWhen individual productivity is measurable, individual incentives are most successful in boosting performance through a fairly direct link between performance and rewards.Popular individual incentive plans include piece-rate incentive, commissions, bonuses, skill-based pay and merit pay.

Piece-Rate IncentiveThis is the most common form of individual enticement for production workers.

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Employees are paid a fixed rate for each unit of output produced. The incentive is paid for all units in the excess of the standard.

The major shortcoming of the typical piece-rate incentive is in the signal it sends.Instead of suggesting a partnership between the goals of the individual and those of the organization, it implies that the organization actually distrusts the individual.As a result, a piece-rate system is likely to encourage behaviours opposite to those sought.

CommissionsCommission reward systems, which are usually found in sales jobs, allow the salesperson to receive a percentage of his gross receipts.About two-thirds of all salespeople are paid on commission basis – either straight commission or a base salary plus commission.Commission payments offer a very clear link between pay and worker performance and therefore are an effective financial incentive.Commission plans are easy to administer and justify because there is no subjective element, and rewards are purely a function of performance.

BonusesOne of the most popular trends in compensation is the use of bonuses: one-time lump-sum payments given for meeting a performance goal.Bonuses can be based on objective goal attainment or a subjective rating.In some organizations all employees share in the bonus awards if organizational goals are met, whereas in others the size of the bonus is tied to each individual’s performance.Bonuses not only help the employer control costs but appear to improve employee satisfaction.

Skill-Based PaySkill-based pay (or pay for knowledge) is a reward system that pays employees on the basis of the work-related skills they possess rather than associating rewards with performance levels or seniority. Under a typical skill-based pay plan, an employee is hired and receives initial training on one job.She then joins a work group at the entry-level rate of pay and has the opportunity to learn new job-related skills through on-the-job experience and further training.As the employee demonstrates mastery of different jobs performed by other group members, her pay is increased.Part of the reason for the popularity of skill-based pay lies in what it indicates to employees.

For example, skill-based pay is: Associated with work teams or self-managed work groups

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Prevalent in organizations committed to egalitarian principles – high-involvement or all-salaried work forces

Embraced by reorganized organizations that have adopted a broadened conceptualization of the job.

Merit PayMerit pay is an annual increment tied to the employee’s performance during the preceding year.

Because it is the standard procedure for attempting to tie pay increases to individual performance, merit pay is a major motivational device for employees at all levels.In practice, the size of merit raises usually depends on both performance and the employee’s current position in the salary range established for that job.

There are several important difficulties in using merit increases to link pay to performance.First, merit raises represent a permanent commitment to an increased salary (pay is virtually never reduced if performance falls), thereby creating an annuity that can be an expensive fixed cost to an organization during economic downturns.

Second, merit increases are almost always based on the supervisor’s subjective evaluation, so employees may perceive a weak link between performance and pay.Many employees like the idea of a merit system but feel that the system in their organization is not implemented in a completely fair, unbiased manner.

Third, merit increases are usually awarded annually, so they do not immediately follow the specific instances of good performance that the organization wishes to reinforce.

Fourth, variations in the size of merit raises are generally not large enough to be highly motivating.Fifth, the size of the total merit budget may vary substantially from year to year so that the same performance level does not always earn the same reward.

GROUP INCENTIVESGroup incentives, just like individual incentives, are designed to link rewards to performance.The difference is that performance is measured on the level of an organizational unit and is viewed as resulting from the combined efforts of a group rather than from individual efforts.Individual and group incentives are not mutually exclusive but can be combined to emphasize the desired mix of individual and group linkage of rewards to performance.

Profit Sharing

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This is an incentive system in which designated employees share the business profits.Profit-sharing plans:

Are often implemented corporation-wide, whereas gain sharing is often at the unit level.

Use a formula based on profit rather than on productivity improvement.The usual profit-sharing program establishes a base-level profit target.After this target is achieved, a percentage of additional profits is set aside in a bonus pool to be distributed to participants.Sometimes the bonus pool is distributed in equal money shares to all employees while at other times the distribution is made according to organizational level or salary/wages.

There are three broad types of profit-sharing plans:1. Current distribution plans (or cash plans), which pay a share of the company’s

profits in cash or in company shares.2. Deferred payout plans, in which an employee’s share of the company’s profits is

placed in a trust fund to be distributed at a later date, usually on retirement, disability, death or termination.

3. Combination plans of the two above.

Some features of profit-sharing plans are very attractive.First, when there are no profits, the company bears no costs for this type of reward system.Second, these plans also make employees more aware of the organization’s competitive position in its industry and facilitate a cooperative atmosphere.Third, the deferment plan allows employees tom postpone taxation and therefore increase rewards.

Gain-Sharing PlansThis is a type of group incentive in which a portion of the gains the organization realizes from group effort is shared with the group.The concept also implies an organizational philosophy that engenders the kind of cooperativeness and trust needed to facilitate group efforts.Many organizations are seeking productivity and quality improvement through gain-sharing plans.Other important reasons for adopting gain-sharing plans have to do with employee relations, labor costs, and a desire to link pay to performance.

Employee Stock Ownership Plans (ESOPs)In many companies, employees at all levels own stock in the organization for which they work.

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ESOPs are now a common vehicle for profit sharing and the funding of pension plans.They also have been used by employees to buy out firms that might otherwise have been sold or closed.There is some evidence that employee ownership may increase employee commitment, loyalty, and motivation.

8.3 Use of Competencies

Already covered under Module 2.

MODULE 9INTERNATIONAL COMPARISONS

9.0 IntroductionCompensation managers of many organizations are now facing an entirely new set of issues – designing and managing the compensation of employees who work for the company in a foreign nation.The unique compensation issues are in these areas:1. Incentives provided to stimulate movement or expatriation to a foreign location or

host country.2. Allowances for repatriation to home country.3. Additional tax burdens placed on employees working in a foreign location.4. Labor regulations in both host country and home country.

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5. Cost-of-living allowances in the host country.6. Home country and host country currency fluctuation.7. Formal and informal compensation practices unique to the host country.8. Determining home country for setting base pay of third-country nationals.

There are a number of reasons for sending employees to a foreign work site.Among the most common and critical are:1. Existing or potential employees who already live at the foreign work site do not

have the necessary knowledge and skills and related work experience.2. Existing or potential employees who already live at the foreign location do not

have the knowledge of the business, its operations, plans, policies, and strategies.3. The organization desired to develop a global perspective among employees and

make it part of a career development program.

9.1 SelectionAn organization operating in one or more foreign nations may draw employees from three different places of residence: (1) the specific nation or host country where the operation is located; (2) the home nation of the parent operation; and (3) foreign countries other than the site of the operation.

The title given to those employees whose basic residence or home is the host nation is nationals or locals.Those who come from the home country of the operation are expatriates and those whose nation of residence is neither the host country nor the home country are third-country nationals (TCNs).

The compensation provided to locals, expatriates and TCNs can vary considerably.Normally, the total compensation package provided to locals is the least costly whereas that provided to expatriates is most costly.From strictly a cost point of view, the more locals employed at the work site, the less the labor cost and the greater the return on invested capital.The expenses involved in stimulating an employee to move to a foreign site, the payment of relocation costs (both ways), and, finally the additional tax burden incurred by having expatriates and, at times, TCNs in foreign operations are substantial.These expenses often result in an excessive drain on the profitability of the foreign operation.

Attracting Individuals to a Foreign Work SiteRecruiting new employees with the requisite knowledge and skills, or influencing current employees to move to a foreign site, requires a wide array of compensation-related incentives.The kind of compensation components offered and the amount or quality of components available vary according to the desirability of the location.

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Site Desirability: Each site has its unique strengths and weaknesses, and these vary according to the way each individual perceives them.Some of these strengths or weaknesses relate to geographical location and climate.Others relate to social and political conditions.

Transfer Incentives: Usually, the first compensation issue that confronts the compensation manager is the amount of additional pay required to induce an employee to move from the present job site to the new one in the foreign country.In some cases, the site may be so desirable that almost any job candidate would find it sufficient if the organization guaranteed that the individual would be as financially well-off in the host country as at home.In most cases, however, the person asked to move to a foreign site will demand some premium over that earned in the present assignment.

The next set of compensation issues revolves around present housing.In many cases, the employee owns a house and looks to the employer to cover some or all of the expenses involved in selling it.Hence organizations now provide home rental assistance and absentee ownership management services for the homeowner who rents rather than sells while on foreign assignment.In most cases, the organization again takes care of all moving expenses to the new site.

During the selection phase, the usual interview should be supplemented with an orientation session for the candidate’s family.This session gives everyone an opportunity to “select themselves out” before a great deal of time and money has been invested.

9.2 Assessment Expatriates can be difficult to manage because of the problems associated with adapting to and working in unfamiliar environments, concerns about their development and careers, difficulties encountered when they re-enter their parent company after an overseas assignment, and how they should be remunerated.Special policies for them are required, covering:

Resourcing PoliciesThe challenge is that of resourcing international operations with people of the right calibre.Policies are required on the employment of local nationals and the use of expatriates for long periods or shorter assignments.The advantages of employing local nationals are that they:

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1. Are familiar with the local markets, the local communities, the cultural setting and the local economy;

2. Speak the local language and are culturally assimilated;3. Can take a long-term view and contribute for a long period (as distinct from

expatriates who are likely to take a short-term perspective);4. Do not take the patronizing (neo-colonial) attitude that expatriates sometimes

adopt.

Expatriates may be required to provide the experience and expertise that local nationals lack, at least for the time being.But there is much to be said for a long-term resourcing policy that states that the aim is to fill all or the great majority of posts with local people.Parent companies that staff their overseas subsidiaries with local nationals always have the scope to ‘parachute in’ specialist staff to deal with particular issues such as the start-up of a new product or service.

Recruitment and SelectionPolicies for recruitment and selection should deal with specifying requirements, providing realistic previews and preparation for overseas assignments.

Role Specifications:Role specifications should take note of the behaviours required for those who work internationally. They should be able to:1. Recognize the diversity of overseas countries;2. Accept differences between countries as a fact and adjust to these differences

effectively;3. Tolerate and adjust to local conditions;4. Cope in the long term with a large variety of foreign contexts;5. Manage local operations and personnel abroad effectively;6. Gain acceptance as a representative of one’s company abroad;7. Obtain and interpret information about foreign national contexts (institutions,

legislations, practices, market specifics, etc.);8. Inform and communicate effectively with a foreign environment about the home

company’s policies;9. Take into account the foreign environment when negotiating contracts and

partnerships;10. Identify and accept adjustments to basic product specifications in order to meet

the needs of the foreign market;11. Develop elements of a common framework for company strategies, policies and

operations;12. Accept that the practices that will operate best in an overseas environment will not

necessarily be the same as the company’s ‘home’ practices.

Realistic Previews

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At interviews for candidates from outside the organization, and when talking to internal staff about the possibility of an overseas assignment, it is advisable to have a policy of providing a realistic preview of the job.The preview should provide information on the overseas operation, any special features of the work, what will need to be done to adjust to local conditions, career progression overseas, re-entry policy on completion of the assignment, pay, and special benefits such as home leave and children’s education.

Preparation PolicyThe preparation policy for overseas assignments should include the provision of cultural familiarization for the country/ies in which the expatriate will work (‘acculturization’), the preferred approach to leading and working in international teams, and the business and HR policies that will apply.

Assimilation and ReviewAssimilation policies will provide for the adaptation of expatriates to overseas posts and their progress in them to be monitored and reviewed.This may take the form of conventional performance management processes but additional information may be provided on potential and the ability of individuals to cope with overseas conditions.Where a number of expatriates are employed it is customary for someone at headquarters to have the responsibility of looking after them.

Training PolicyThe following steps should be taken to design a training programme for expatriates:1. Identify the type of global assignment, e.g. technical, functional, tactical,

developmental or strategic/executive.2. Conduct a cross-cultural training needs analysis covering organizational analysis

and requirements, assignment analysis of key tasks and individual analysis of skills.

3. Establish training goals and measures – cognitive and affective.4. Develop the programme – the content should cover both general and specific

cultural orientation; a variety of methods should be used.5. Evaluate the training given.

Career Management PolicySpecial attention has to be paid to managing the careers of expatriates as part of their experience overseas, or on return permanently or for a period to their home country.

Re-entry PoliciesRe-entry policies should be designed to minimize the problems that can arise when expatriates return to their parent company after an overseas posting.

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They want to be assured that they will be given positions appropriate to their qualifications, and they will be concerned about their careers, suspecting that their overseas experience will not be taken into account.Policies should allow time for expatriates to adjust. The provision of mentors or counsellors is desirable.

Pay and Allowances Policies (Home-based or Host-based pay)The factors that are likely to impact on the design of reward systems are the corporate culture of multinational enterprise, expatriate and local labor markets, local cultural sensitivities and legal and institutional factors.They refer to the choice that has to be made between seeking internal consistency by developing common reward policies to facilitate the movement of employees across borders and preserve internal equity, and responding to pressures to conform to local practices.Studies of cultural differences suggest that reward system design and management need to be tailored to local values to enhance the performance of overseas operations.

9.3 Performance Management

The management of expatriates is a major factor determining success or failure in an international business.Expatriates are expensive; they can cost three or four times as much as the employment of the same individual at home.They can be difficult to manage because of the problems associated with adapting to and working in unfamiliar environments, concerns about their development and careers, difficulties encountered when they re-enter their parent company after an overseas assignment, and how they should be remunerated.

Establishing a compensation plan for a job in a foreign location begins with the determination of base pay.The market or going rate of pay for a comparable job in the home country at the time of expatriation is normally used for setting this rate.

After setting the base pay comes the determination of a Foreign Service Premium (FSP), which is an incentive bonus for performing the assignment in the host country.The FSP is usually expressed as percentage of base pay and is part of the total pay received by the employee each pay period.Some organizations are now granting expatriates lump-sum bonuses in lieu of FSPs.These lump-sum payments are made at the time of expatriation and repatriation.

To maintain the employees’ present standard of living in the foreign location, organizations provide a number of allowances to keep them “whole”.A major one provides money for additional living costs.

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In host areas where conditions (climatic, political, social) are undesirable, a “hardship” or “location” allowance is added to base pay.Most pay plans include a cost-equalization allowance that includes cost-of-living (COLA) and housing allowances.Many organizations also provide a tax equalization allowance for the tax liabilities incurred by the employee.

To minimize problems related to exchange of currency and to protect the employee, many organizations now “split” an expatriate’s compensation between home country and host country compensation packages (a split-pay plan).

Many payments and services in addition to the compensation items above are also provided to employees willing to accept a foreign assignment.

(See also Case 5, Module 11)

MODULE 10CULTURAL, DIVERSITY AND ETHNICITY ISSUES

10.0 IntroductionA critical challenge for organizations from both the public and private sectors in the 21st century is the need to operate across national boundaries.International human resource management is the process of managing people across international boundaries by multinational companies.It involves the worldwide management of people, including expatriates.

10.1 Cultural Differences

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In managing globally, cultural differences must be taken into account.The following HR areas may be affected by national culture:

Decisions of what makes an effective manager; Giving face-to-face feedback; Readiness to accept international assignments; Pay systems and different concepts of social justice; Approaches to organizational structuring and strategic dynamics.

Culture has been defined as the collective mental programming of people in an environment.

Another definition is that culture is the pattern of taken-for-granted assumptions about how a given collection of people should think, act, and feel as they go about their daily affairs.

Since cultural lessons are imparted from birth to death via role models, formal education, religious teachings, and peer pressure, cultural undercurrents make international dealings immensely challenging.Cultural roots run deep, have profound effects on behaviour, and are not readily altered.

Cultural values are broad tendencies to prefer certain states of affairs over others.The cultural values within a nation are substantially more similar than the values of individuals from different nations.Culture varies more between organizations than countries.Culture has a powerful impact on people’s behaviour. National culture differences can be critical and insensitivity to national culture differences can and does result in business failure (as well as failure and career consequences for individual managers).Cross-cultural business negotiators who ignore or defy cultural traditions do so at their own risk.The means the risk of not making the sale or of losing a contract or failing to negotiate a favourable deal.

Four national cultural dimensions have been identified: uncertainty avoidance, masculinity/femininity, power distance and individualism/collectivism.

10.2 DiversityDealing effectively with both co-workers and customers in today’s diverse workplaces requires a good deal of cultural intelligence.This involves cultural accommodation which is possible with a knowledge of the following important sources of cultural diversity.

High-Context and Low-Context Cultures

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People from European-based cultures typically assess people from Asian cultures such as China and Japan as quiet and hard to figure out.Conversely, Asians tend to view Westerners as aggressive, insensitive, and even rude.True, language differences are a significant barrier to mutual understanding but something more fundamental is involved, something cultural.

The difference between high-context and low-context cultures centres on how much meaning one takes from what is actually said or written versus who the other person is.In high-context cultures, people rely heavily on nonverbal and subtle situational messages when communicating with others.The other person’s official status, place in society, and reputation say a great deal about the person’s rights, obligations and trustworthiness.In high-context cultures, people do not expect to talk about such “obvious” things.Conversation simply provides general background information about the other person.Thus, in high-context Japan, the ritual of exchanging business cards is a social necessity, and failing to read a card you have been given is a grave insult.The other person’s company and position determine what is said and how.African, Arab, Chinese, Latin/Romance languages and Korean cultures also are high-context.

People from low-context cultures convey essential messages and meaning primarily with words.Low-context cultures in Germany, Switzerland, Scandinavia, North America and Britain expect people to communicate their precise intended meaning.Low-context people do read so-called body language, but its messages are secondary to spoken and written words.Legal contracts with precisely worded expectations are important in low-context countries such as the USA.However, in high-context cultures the process of forging a business relationship is as important as, if not more important than, the written details of the actual deal.This explains why Americans tend to be frustrated with the apparently slow pace of business dealings in Japan.For the Japanese, the many rounds of meetings and social gatherings are necessary to collect valuable contextual information as a basis for judging the other party’s character.For the schedule-driven American, anything short of actually signing the contract is considered a pointless waste of time.Thus, patience is a prime virtue for low-context managers doing business in high-context cultures.

The Nine Dimensions of CultureThese are key cultural dimensions which provide practical guidelines for international management. These are shown in the table below.

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Table 10.0: Nine Cultural Dimensions from the GLOBE Project

DIMENSION DESCRIPTION PREDOMINANT CULTURE

Power Distance Should leaders have high or low power over others?

High-Context

Uncertainty avoidance

How much should social norms and rules be used to reduce future uncertainties?

Low-Context

Institutional collectivism

To what extent should society and institutions reward loyalty?

High-Context

In-group collectivism

To what extent do individuals value loyalty to their family or organization?

High-Context

Assertiveness How aggressive and confrontational should one be with others?

Low-Context

Gender equality How nearly equal are men and women?

Low-Context

Future orientation How much should one work and save for the future, rather than just live for the present?

Low-Context

Performance orientation

How much should people be rewarded for excellence and improvement?

Low-Context

Humane orientation

How much should people be encouraged to be generous, kind, and fair to others?

High-Context

Other Sources of Cultural DiversityManagers headed for a foreign country need to do their homework on the following cultural variables to avoid awkwardness and problems.There are no rights or wrongs here, only cross-cultural differences.

o Individualism versus CollectivismThis distinction between “me” and “we” cultures deserves closer attention because it encompasses two of the nine GLOBE cultural dimensions.People in individualistic cultures focus primarily on individual rights, roles, and achievements.The USA and Canada are highly individualistic cultures.

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People in collectivist cultures – such as Zambia, Egypt, Mexico, India and Japan – rank duty and loyalty to family, friends, organization, and country above self-interests.Group goals and shared achievements are paramount to collectivists; personal goals and desires are suppressed.

o TimeTime is a salient language of culture and we can distinguish between monochromic and polychromic time.Monochronic time is based on the perception that time is a unidimensional straight line divided into standard units, such as seconds, minutes, hours, and days.In monochromic cultures, including North America and Northern Europe, everyone is assumed to be on the same clock and time is treated as money.The general rule is to use time efficiently, to be on time, and not to waste time.

In contrast, polychromic time involves the perception of time as flexible, elastic, and multidimensional.African, Latin American, Mediterranean and Arab cultures are polychromic.Managers in polychromic cultures tend to view schedules and deadlines in relative rather than absolute terms.Different perceptions of time have caused many cultural collisions.

It is important to reset your mental clocks (and expectations) when living and working in a culture with a different time orientation or when working globally on a virtual team.o Interpersonal Space

People in a number of cultures prefer to stand close when conversing.Many Africans, Asians and Arabs fall into this group.But this is disturbing to a Northern European or Northern American who is accustomed to conversing at arm’s length – a proper social distance.

o LanguageForeign language skills are the gateway to true cultural understanding.Translations are not an accurate substitute for conversational ability in the local language.

o ReligionAwareness of a business colleague’s religious traditions is essential for building a lasting relationship.

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Those traditions may dictate dietary restrictions, religious holidays, and Sabbath schedules, which are important to the devout and represent cultural minefields for the uninformed.Of course, it is important to be aware of and follow applicable laws regarding religion in the workplace.

10.3 Ethnicity

Three managerial attitudes toward international operations have been identified and have been labelled ethnocentric, polycentric and geocentric.

Ethnocentric AttitudeManagers with an ethnocentric attitude are home-country-oriented.Home-country personnel, ideas, and practices are viewed as inherently superior to those from abroad.Foreign nationals are not trusted with key decisions or technology.Home-country procedures and evaluation criteria are applied worldwide without variation.

Proponents of ethnocentrism say that it makes for a simpler and more tightly controlled organization.Critics believe this attitude makes for poor planning and ineffective operations because of inadequate feedback, high turnover of subsidiary managers, reduced innovation, inflexibility, and social and political backlash.

Polycentric AttitudeThis host-country orientation is based on the assumption that because cultures are so different, local managers know what is best for their operations.A polycentric attitude leads to a loose confederation of comparatively independent subsidiaries rather than to a highly integrated structure.Because foreign operations are measured in terms of ends (instead of means), methods, incentives, and training procedures vary widely from location to location.

On the negative side, wasteful duplication of effort occurs at the various units within the confederation precisely because they are independent.Such duplication can erode the efficiency of polycentric organizations.Moreover, global objectives can be undermined by excessive concern for local traditions and success.

The main advantages are an intensive exploitation of local markets, better sales since local management is often better informed, more local initiative for new products, more host-government support, and good local managers with high morale.

Geocentric AttitudeManagers with a geocentric attitude are world-oriented.

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Thinking globally to them means taking the best other cultures have to offer and blending that into a third culture.Skill, not nationality, determines who gets promoted or transferred to key positions around the globe.In geocentric companies, local and worldwide objectives are balanced in all aspects of operation.Collaboration between headquarters and subsidiaries is high, but an effort is made to maintain a balance between global standards and local discretion.

Of these three contrasting attitudes, only a geocentric attitude can help management take a long step toward success in today’s vigorously competitive global marketplace.

MODULE 11PUBLIC AND PRIVATE SECTORS

11.0 Introduction The Public Sector in Zambia

Public companies comprise this sector. These are large companies whose stocks are owned

by a large number of investors, most of whom are not active in management. Such companies

are called publicly owned corporations, and their stock is called publicly held stock.

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Characteristics and Challenges:

This sector has few large enterprises that enjoy the following advantages:

a) Economies of scale.

b) High credit-worthiness.

c) High access to capital resources.

d) High access to technology and latest developments.

e) Wide customer base.

f)High variety of products.

g) Some are branches of multinational corporations.

h) High access to skilled human resources and new knowledge bases.

i) Strong market leadership.

j) Strong lobbying capabilities.

But this sector is one which has a low growth rate due to high barriers to entry.

Thus, the levels of innovation tend to be moderate. On average, the economic factors

mentioned above create serious challenges for the management of this sector.

The Private Sector in Zambia

Some companies are so small that their common stocks are not actively traded; they are

owned only by a few people, usually the companies’ managers. Such firms are said to be

privately owned, or closely held, corporations.

Characteristics and Challenges:

This sector has the majority of the companies in Zambia and most of them belong to the

informal sector. This is the sector which has seen the largest increase in growth over the last

decade or so. Most of the companies here have a lot of constraints in terms of the following:

a) Small production capacity.

b) Limited access to capital resources.

c) Limited access to sources of financial resources like commercial banks.

d) Poor creditworthiness.

e) Limited access to technology and technological developments.

f) Narrow information pertaining to markets and market trends.

g) Excessive dependency on local and domestic markets.

h) Limited number of products and product offerings.

i) Shortages of critical skills and knowledge in human resources.

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j) High rate of business failures.

k) Low barriers to entry.

l) Highly competitive environment.

This is a sector which exhibits high levels of innovativeness. These and the other factors

already mentioned above make the management of this sector very hard.

Thus, management needs to be multi-skilled in terms of managing the enterprise almost

single-handedly.

11.1 CASE STUDIES

CASE 1: The Validity of Educational Level for Selection: Some Different Perspectives

In Griggs v. Duke Power Company (1971), the Supreme Court ruled that requiring a high school certificate in selection was illegal because the company could provide no evidence that a high school education was a valid predictor of job performance.

Elsewhere, however, the use of educational level as an important or even sole factor in selection is widespread. Japan, Taiwan, Korea and Singapore see selection based on education level as a means of achieving broader organizational and national goals and show

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much less concern about whether education level is a valid predictor of performance on specific jobs.

In Japan, the “best” organizations recruit only students who have graduated from the top universities. Singapore provides another example in which the concern for job-specific validity often takes a back seat to the concern for broader (in this case, national) issues.In a study conducted by Morgan Guaranty Trust Company of New York, the economic success of Singapore, Korea, Taiwan and Hong Kong was attributed partly to their success in increasing the education level of their populations.

In line with government policy, organizations in Singapore place very high importance on educational level in their selection decisions. The importance of education continues beyond the selection stage; both the earnings and promotions of Singaporeans are substantially dependent on their education levels. Thus substantial incentives exist for obtaining and then furthering educational credentials.

For both Japan and Singapore, the use of education level as a primary selection tool has resulted in considerable national benefits. However, because the link between education and performance on specific jobs is often weak, there are dangers associated with this practice. These dangers lie primarily in the underutilization of available human resources. Individuals who, for whatever reason, do not achieve high levels of education may, through experience and/or natural ability, have skills of great value to organizations. In Japan and Singapore, these individuals often find it impossible to gain access to positions commensurate with their true abilities. Thus both the individuals and organizations lose.K.F. Taylor (1987) cites other dangers of “credentialism”.

Performance appraisal, promotions, and compensation may be used on continued educational attainment rather than on actual contributions to the organization.

When less educated employees see that their opportunities for advancement and increased pay are restricted, they may exhibit lower motivation and productivity.

Tony Buon and Bob Compton (1990) point out that credentialism also tends to perpetuate social inequality if access to more prestigious education is based partly on social class.

(Source: Fisher et al., 1999.)CASE 2: Ethics in Recruiting and Job Search

A number of ethical challenges can arise in the recruiting process. Both parties to recruiting may be motivated to present their best sides while concealing their weaknesses, and this may lead to a temptation to lie or mislead by omission or commission.

Applicants may engage in resume fraud, though most organizations have a policy of firing employees if significant resume fraud is later detected. Firms sometimes emphasize the most positive aspects of jobs while failing to mention less pleasant aspects, and in extreme cases, firms have been sued for fraudulent recruiting. In one case, a firm enticed an individual to relocate with promises of a bright future. However, the firm knew that its financial condition

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was very shaky and that there was a good probability that the new employee would soon be laid off. A jury later awarded the employee damages of $250,000.

Honesty is a central value in most ethical systems, so blatant lying probably would be regarded by both employers and applicants as unacceptable. However, the morality of other recruiting behaviours is not so clear-cut and may be defined situationally by common practice in the industry. Theft of property would be by most people, but what about theft of employees and their organization-specific knowledge? When one organization raids a competitor by hiring away its best talent, has an unethical act been committed by the raider? What if the new hire passes on critical insider knowledge of the strategies, customers, or technology of the former employer? “Noncompete” agreements signed on hiring are efforts to prevent employees, if they later quit, from using their organization-specific knowledge to the disadvantage of their former employer, but such agreements are not always legally enforceable.In some industries, raiding is commonplace and accepted. Any company that hires an executive search firm is essentially hiring a raider, since nearly all candidates referred will be employed already.But do some firms go too far? Microsoft’s recruiters go out of their way to make friends with technical talent employed by their competitors. They learn as much as possible about these individuals’ lifestyle and personal needs, job preferences, and career aspirations so that they can make a customized recruiting offer. But so do other firms in the same industry!More clearly problematic behaviour sometimes occurs when an employment agency acts as an intermediary in the recruiting process. The organization wants to find a well-qualified candidate, and the candidate wants to find a suitable job. The agency wants to make a placement so that it can collect a fee. In the long run, making a suitable placement should pay off for all parties, with the agency gaining a good reputation and repeat business from the employer.However, making a good match may take substantial time and effort. Some agencies and consultants may be motivated to make quick, unsuitable placements so that they can collect their fee. Stories are told of applicants’ self-esteem being intentionally undermined by personnel consultants so that the applicants can be intimidated into accepting the first job offered even if it is below their abilities and aspirations.Other alleged violations include fee-splitting between agency and employer when the candidate pays the fee, charging excessive fees, advertising without identifying the agency as fee-charging, and misrepresenting the job. Some states license and regulate employment agencies and/or their personnel consultants to try to reduce the incidence of these abuses.

(Source: Fisher et al., 1999.)

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CASE 3: Employee Selection in Korea

The basic idea underlying many HR practices in the West is that “people are different” – different in skills, aptitudes, and job performance. Hr practices are based on measuring and responding to these differences throughout the employee’s career via selection testing, differential assignment to training programs, individual performance appraisal, and performance-based pay. Implicit in these processes is the need to evaluate and judge others.A Korean HR scholar points out that the basic assumption in many Asian countries is that people are the same, and it is in bad taste for one individual to notice or judge differences in others. This cultural tendency is called “collectivism”, as opposed to the “individualism” that is prevalent in the West.

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Collectivism also means that group membership and group identities are very important to people. Korean organizations see themselves as family groups, with employees being given lifetime employment. Loyalty from employees (family members) is a prime expectation, even more than competence. As in a biological family, each family member remains such regardless of how good or bad their behaviour or performance might be, and other members do not judge them on their contribution to the family. A manifestation of this in Korean organizations is that performance-based pay is very seldom used.

Korean companies usually recruit generalists at the entry level, who they develop in-house through job rotation. This contrasts with the Western approach of hiring people with specific skills for specific jobs. Nearly all promotions in Korean companies are from within, because only family members who have proven their loyalty over time are trusted to take important roles in the company. Because the family relationship of employment is lasting, it is very important to adopt the right people into the family. At blue-collar level, much of recruiting is via the “back door”. This refers to selecting people who are recommended by or related to a present employee and thus already have an indirect relationship with the organization. Who you know is more important than what you know in getting a job. Coming from the same geographic region as other company members is also desirable, because it makes one already part of the extended family. When recruiting university graduates, connections also matter. References from professors and other high status people are very important in the “who you know” lottery. Which school a candidate attended is also critical. Competition to get into the top schools is fierce, so having attended a highly ranked university is considered to guarantee a desirable level of mental ability and motivation. It is also an indicator of social status, and this is very important because someone of lower status probably will not be able to credibly manage subordinates of higher status. Other indicators of status depend on the region in which one was born, the prestige of the district in which one presently resides, and the occupations and affluence of one’s parents and grandparents.

Most companies follow the approach of screening based on university and social status, followed by company-sponsored examinations in English and in one’s major subject. A new economic graduate, for instance, would be asked to take an economics examination as part of the selection process. A graduate of a technical or vocational institute would need to present a certificate from the national Skill Testing Agency to document his knowledge. Testing is followed by extensive interviews, often with top executives or even the company CEO. Throughout this process, prior work experience is considered much less important than being of “good character”. (Source: Fisher et al., 1999.)

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CASE 4: Developing a Procedurally Just Performance Appraisal Process

When organizations make decisions about people, such as whom to hire or promote, what appraisal ratings or merit raise to give, or how to discipline a particular misbehaviour, it is very important that the decisions are seen as fair and just. Research has shown that at least two aspects of justice influence employees’ job satisfaction and organizational commitment, and both must be considered in organizational decisions.

The first type is “distributive justice”, or the perceived fairness of particular outcomes. It has to do with the distribution of rewards and punishments across people. Distributive justice would exist if employees agreed that the best person had been chosen for a promotion, that

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the punishment fit the crime in a discipline case, or that the size of merit raises accurately reflected true differences in performance across the people involved.

Distributive justice is specific to a particular decision – we might agree that one promotion decision was fair, but that is no guarantee that we will think the next one is fair. This is because distributive justice doesn’t include evaluation of the fairness of the method or process by which the decision was made. The latter is called “procedural justice”.

Presumably, a just policy or procedure should help assure equitable outcomes every time, whereas a single instance of distributive justice could occur by chance, favouritism, or some other unfair process.

What makes an allocation procedure just? Following are six rules for procedural justice (Folger and Greenberg 1985, p.146):

Consistency Rule: Allocation procedures should be consistent across persons and over time.

Bias Suppression Rule: Personal self-interest in the allocation process should be prevented.

Accuracy Rule: Decisions must be based on accurate information. Correctability Rule: Opportunities must exist to enable decisions to be modified. Representativeness Rule: The allocation process must represent the concerns of all

recipients. Ethicality Rule: Allocations must be based on prevailing moral and ethical standards.

Performance appraisal represents a situation in which decisions are made about individuals (allocation of ratings or rankings and associated rewards) and the potential for misunderstandings and feelings of injustice are great. This means that a very fair and clear process should be adopted.

Research has shown that appraisals are seen as more fair when consistent standards are applied to all ratees, there is a system by which the rate can appeal or refute the evaluation, and when raters are familiar with ratee’s work, solicit employee input before assigning ratings, provide prompt feedback, and allow two-way communication in the appraisal interview. In addition, procedures should be more likely to be perceived as fair if employees understand the rating dimensions and superior’s expectations well before the rating takes place. Ideally, rates would also have input into determining the rating criteria.

These appraisal procedures meet most of the six rules given above, and should help to assure that the emotionally laden process of performance appraisal is seen as fair, insofar as is humanly possible. (Source: Fisher et al., 1999.)

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CASE 5: International Compensation Comparisons

Substantial variation in compensations rates can be seen around the world; costs tend to be lower in the developing economies compared with those that are more developed. Many European countries pay more than the USA.

The U.S. Bureau of Labor Statistics has developed comparative measures of manufacturing compensation costs, allowing for international comparisons. These statistics provide a general indication of the relative total compensation cost in each country.Total compensation cost is made up of payment for time worked, holiday pay, and the cost of providing required benefits such as health insurance, pensions, workers’ compensation, and unemployment insurance.

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In order to make a direct comparison, the USA is used as the benchmark country with defined costs at 100. The rest of the countries are reported relative to this standard. The Table below illustrates how other countries compare with the USA in terms of manufacturing compensation for the years 1990 and 1994.In 1994, U.S. manufacturing costs were $17.10 per hour. Germany had the highest compensation costs, totalling 160 percent of the United States level. Second was Switzerland with costs at 145 percent of the U.S. level and then Belgium at 134 percent. Overall costs in non-European countries except for Japan were below the levels of the U.S.

There are differences in compensation structures among the countries, such as variations in levels of paid leave and health insurance provisions. For example, holiday pay and bonuses accounted for approximately 30 percent of total compensation costs in Japan, compared with some European countries, where it accounts for 15 to 20 percent of costs, and the United States, where it accounts for 6 percent. In Japan, an annual bonus of three months’ pay is typical, whereas in Europe, an annual bonus of one to two months’ pay plus four to six weeks of paid holidays are common.

Mexico is often seen as a low-wage country, and since the passage of the North American Free Trade Agreement, many companies have tried to take advantage of this by opening facilities in Mexico. Some of them have found that actual wage costs are greater than anticipated. While the official minimum wage is low, very few people actually work for the minimum wage. In addition, there are legally required cash allowances: fifteen days’ pay for a Christmas bonus (though most employers pay a full month), a vacation premium of 25 percent beyond regular pay, and required sharing of 10 percent of pretax profits. Overtime must be paid at twice the normal rate. A number of additional bonuses, such as fifteen to twenty days’ pay as a reward for perfect attendance over one year, are not mandatory but are widely used and hence necessary to attract and keep good employees.

Table 11.0: Hourly Compensation Costs for Production Workers in the Manufacturing SectorCountry 1990 1994Australia 88 80Austria 119 127Belgium 129 134Canada 106 92Denmark 120 120Finland 141 110France 102 100Germany 147 160

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Hong Kong 21 28Italy 119 95Japan 86 125Korea 25 37Mexico 11 15Norway 144 122Portugal 25 27Singapore 25 37Spain 76 67Sweden 140 110Switzerland 140 145Taiwan 26 32United Kingdom 85 80United States 100 100(Source: Fisher et al., 1999.)

11.2 EMPIRICAL RESEARCH

1. EXTERNAL RECRUITING

A study by Armacost and Jauernig (1991) indicates a sophisticated example of recruitment planning in a large city. The manucipality authorized a single position, that of pension financial manager, in early November and requested that it be filled by the first or second week of January. This was a high-level position that involved managing a $14 billion pension fund. The city’s civil service rules specified a complex set of recruiting and selection steps.The recruiter assigned to the project first estimated the time required to complete each step, determined which steps could occur concurrently, and identified steps that were critical in

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that they could slow down the entire project. The recruiter applied the critical Path Method (CPM) and the Program Evaluation Review Technique (PERT) to identify the quickest way to move through the set of activities to the final step of producing a ranked eligibility list of candidates.The recruiter also identified activities that could be speeded up over their expected duration by overtime work (“crashed”). Ultimately, the recruiter forwarded the eligibility list to decision makers just 41 days after the project began.The table below shows the activities involved, the estimated and actual time in days to complete each one, and the activities that were “crashed” through overtime to keep the recruitment plan on schedule when other activities took longer than expected.

Table 11.1: Finding a Pension Financial Manager: Time in Days for Recruitment and Selection Activities

Activities Expected Time

Actual Time

Crash Time

Crash Cost

Job analysis and announcement sheet 2.33 2.00Education and experience questionnaires 1.00 0.50Advertisement/Legal notice 1.00 3.50Recruitment/accepting applications 20.17 23.00Application review 2.33 1.00 $124Oral board list development 1.92 3.00Lining up raters 1.25 0.50 $69Questionnaire rating form 1.08 0.50Oral examination and rating form 4.83 1.00 $263Ranking questionnaires 7.17 6.00 $155Scheduling oral examinations 1.92 0.50 $132Oral examination 2.00 2.00Eligibility list development 2.00 1.00 $94(Source: Fisher et al., 1999.)

2. FORMAL RECRUITING METHODS

A 1996 survey of 201 HR executives shows the rated effectiveness of various recruiting methods for producing high-performing employees. On a scale from 1 (not effective) to 5 (extremely effective), it is clear that 3 methods were considered superior: employee referrals, university recruiting and executive search firms. The most commonly used method, newspaper advertising, was rated only average in effectiveness. These findings are shown in the table below.

Table 11.2: Mean Rated Effectiveness of recruiting Sources

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Source EffectivenessEmployee referrals 3.84College recruiting 3.81Executive search firms 3.71Professional associations 3.08Newspaper advertisements 3.05Direct (unsolicited) applications 2.86Private employment agencies 2.78Public employment agencies 1.92Unions 1.64Scale: 1 = Not good

2 = Average 3 = Extremely good

(Source: Fisher et al., 1999.)

3. JOB CHOICE

A study involving 1000 American employees ranked the importance of 10 job factors in 1994 and their rankings are given below:

Table 11.3: Average Ranks of the Importance of 10 Job Characteristics to American EmployeesJob Characteristic All

EmployeesAge < 30

Ages 31-40

Ages 41-50

Age > 50

Earnings <$25000

Earnings $40000-$50000

Interesting work 1 4 2 3 1 5 1

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Full appreciation of work done – others show appreciation of my work

2 5 3 2 2 4 3

A feeling of being “in on things”, being well informed and involved

3 6 4 1 3 6 2

High job security 4 2 1 4 7 2 4Good wages 5 1 5 5 8 1 6Promotion and growth in my skills within the organization

6 3 6 8 9 3 5

Good working conditions

7 7 7 7 4 8 7

Personal loyalty to employees from superiors and the organization

8 9 9 6 5 7 8

Tactful discipline from superiors

9 8 10 9 10 10 9

Sympathetic help with personal problems from superiors

10 10 8 10 6 9 10

Male and female employees had very similar preferences.However, there were pronounced differences in the ranks given to various job characteristics by employees of different age groups and income levels.Note that pay was ranked only 5th. Other studies also have found that pay comes in at about 5th when individuals rank their own preferences but is almost always ranked 1st in importance to “other people” or to “subordinates”.

(Source: Fisher et al., 1999.)

4. SELECTION DEVICES

One survey determined the percentage of companies that use each of a number of selection devices to hire employees in 5 different job groups from production workers to managers. The findings are given in the table below.Another survey assessed who made hiring decisions and found that the immediate supervisor made the actual decision to hire in 52 percent of the companies, the department/division head made the decision in 32 percent of the firms, and the personnel officer either made or influenced the final decision in 19 percent of the firms.

Table 11.4: Popularity of Selection Devices for Different Job Classes

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Percent of Companies

Any Job Categorya

Office/Clerical

Production/ Service

Professional/ Technical

CommissionedSales

Managers/Supervisors

(# of Firms) (245) (245) (221) (237) (96) (243)Skill performance test/ or work sample

63 55 19 10 4 3

Medical examination

57 43 57 47 46 45

Mental ability test

31 23 10 8 9 9

Job knowledge test

27 14 14 14 3 5

Drug test 26 21 26 22 23 21Personality test

17 1 2 6 23 13

Assessment centre test

12 b 1 3 4 10

Physical abilities test

11 1 12 2 1 1

Written honesty test

7 4 6 2 4 3

Polygraph test 5 2 4 2 5 2Genetic screening

3 2 2 2 - 1

AIDS test 1 b b 1 - bOther 2 b 1 1 1 1Note: Percentages for each job category group are based on the number of organizations that provided data for that category, as shown by the numbers in parentheses.aPercentages in this column show the proportion of all responding organizations that administer a preemployment test to applicants in any job category.bLess than 0.50% (Source: Fisher et al., 1999.)

5. PREFERENCES FOR JOB CHARACTERISTICS AND REWARDS IN SEVERAL COUNTRIES

In recruiting new employees as well as managing present employees, it is important to know what their preferences are for the various rewards and inducements organizations can offer in exchange for becoming and remaining productive organizational members.Preferences vary around the world. Multinational companies and expatriate managers need to be aware of these preferences so that they can target their recruiting messages, reward systems, and management styles accordingly.

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The table below shows importance ranks for 10 job characteristics in 1992 by employees in 4 nations. Interesting work is ranked 1st in the USA but 7th in China. Being in on things is 3rd in the USA and last in China.These differences suggest that job enrichment, empowerment, and participative management may be better received by U.S. than Chinese employees. Employees in China and Taiwan should be very attracted by good wages, whereas this seems to be much less important to Russian employees (at least it was at the time these data were collected).An additional item that was rated separately as most important by employees in the people’s Republic of China was employer-subsidized housing, yet this is something that few Western managers would think of as a reasonable benefit for rank and file employees.

Table 11.5: Ranked Preferences for Job Characteristics

Job Characteristic USA CHINA TAIWAN RUSSIAInteresting work 1 7 5 3Full appreciation of work done – others show appreciation of my work

2 5 4 7

A feeling of “being in on things”, being well informed and involved

3 10 8 2

High job security 4 6 1 6Good wages 5 1 2 10Promotion and growth in my skills within the organization

6 4 3 1

Good working conditions 7 2 7 9Personal loyalty to employees from superiors and the organization

8 3 9 4

Tactful discipline from superiors 9 9 10 5Sympathetic help with personal problems from superiors

10 8 6 8

(Source: Fisher et al., 1999.)

6. INCENTIVE PLANS

Lawler (1981) carried out a study of incentive pans with regard to the factors affecting the design of incentive systems. His analysis is shown below:

Table 11.6: Ratings of pay incentive Plans

Basis for Reward Tie Pay to Performance

Produce Negative

Encourage Cooperation

Employee Acceptance

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Side EffectsSalary rewardIndividual plan

Productivity 4 1 1 4Cost-effectiveness 3 1 1 4Superiors’ rating 3 1 1 3

Group plan Productivity 3 1 2 4Cost-effectiveness 3 1 2 4Superiors’ rating 2 1 2 3

Organizational plan

Productivity 2 1 3 4Cost-effectiveness 2 1 2 4

BonusIndividual plan

Productivity 5 3 1 2Cost-effectiveness 4 2 1 2Superiors’ rating 4 2 1 2

Group plan Productivity 4 1 3 3Cost-effectiveness 3 1 3 3Superiors’ rating 3 1 3 3

Organizational plan

Productivity 3 1 3 4Cost-effectiveness 3 1 3 4Profit 2 1 3 3

On a scale of 1 to 5: 1 = low and 5 = high(Source: Fisher et al., 1999.)

Objective measures of performance (productivity and cost savings) tend to have greater employee acceptance and credibility.Individual incentive programs are often reported to yield higher productivity than group incentives.One explanation is that linking individuals’ pay to the group’s performance diffuses the connection between pay and each person’s effort.But group systems often result in more cooperation and coordination.They are better suited for organizations in which performance is difficult to measure at the individual level and success depends on effective teamwork.

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