Riphah ADP B.M_ Human Resource Management

Sir Asad Ali Malik 1 | P a g e
Riphah International College
Harbanspura Campus, Lahore.
Associate Degree Program
Business Management
Semester IV
Human Resource Management
By Sir Asad Ali Malik
Mid & Final Term Syllabus

1.Explain what human resource management is and how it
relates to the management process.
 What Is Human Resource Management (HRM)?
o The process of acquiring, training, appraising, and compensating employees, and of
attending to their labor relations, health and safety, and fairness concerns.
 Organization
o People with formally assigned roles who work together to achieve the organization’s
goals.
 Manager
o The person responsible for accomplishing the
organization’s goals, and who does so by managing the
efforts of the organization’s people.
Most experts agree that managing involves five functions:
planning, organizing, staffing, leading, and controlling. In total,
these functions represent the management process.
Managers are involved daily with many of the personnel aspects of HRM in accomplishing the organization’s
goals, and managing the efforts of the organization’s people.

Why Is Human Resource Management Important to All Managers?
AVOID PERSONNEL MISTAKES
• Hire the wrong person for the job
• Experience high turnover
• Have your people not doing their best
• Waste time with useless interviews
• Have your firm in court because of discriminatory actions
• Have your firm cited by OSHA for unsafe practices
• Have some employees think their salaries are unfair and inequitable relative to others in the
organization
• Allow a lack of training to undermine your department’s effectiveness
• Commit any unfair labor practices
Line and Staff Aspects of Human Resource Management
Line managers manage operational functions that are crucial for the company’s survival. Staff
managers run departments that are advisory or supportive, like purchasing, HRM, and quality control.
Human resource managers are usually staff managers. They assist and advise line managers with
recruiting, hiring, and compensation. However, line managers still have human resource duties.
• Line Manager
 Is authorized (has line authority) to direct the work of subordinates and is responsible
for accomplishing the organization’s tasks.
• Staff Manager
 Assists and advises line managers.
 Has functional authority to coordinate personnel activities and enforce organization
policies.
Line Managers’ HRM Responsibilities
1. Placing the right person on the right job
2. Starting new employees in the organization (orientation)
3. Training employees for jobs that are new to them
4. Improving the job performance of each person
5. Gaining creative cooperation and developing smooth working relationships
6. Interpreting the firm’s policies and procedures
7. Controlling labor costs
8. Developing the abilities of each person
9. Creating and maintaining department morale
10. Protecting employees’ health and physical condition
An HR manager directs the activities of the people in the HR department, coordinates organizational-
wide personnel activities and provides HRM assistance and advice to line managers.

Briefly discuss and illustrate the important trends influencing human
resource management?
The trends include workforce demographic
trends, trends in jobs people do,
technological trends, and globalization and
economic trends.
Demographic trends are making finding, hiring, and supervising
employees
More challenging.
Globalization
Means more competition, and more competition
Means more pressure to lower costs and to make employees more productive and
quality conscious
Technology is requiring more employees to be
technologically
Well informed and pressuring employers to
improve their human resource processes by
applying new
Distributive technological tools. There is
more emphasis on “knowledge work” and
therefore on building “human capital,” the knowledge,
education, training, skills, and expertise of a firm’s employees.
Workforce and demographic changes mean that the workforce is becoming older and
more diverse.
HR managers can play big roles in strategic planning and management by helping the
top managers in devising functional and departmental plans that support the
organization’s overall strategic plan, and then assisting in execution of the plans.

Explain why strategic planning is important to all managers?
Strategic plan
The company’s plan for how it will match its internal strengths and weaknesses with external opportunities
and threats in order to maintain a competitive advantage.
Strategy
A course of action the company can pursue to achieve its strategic aims.
Strategic management
The process of identifying and executing the organization’s strategic plan by matching the company’s
capabilities with the demands of its environment.
The Strategic Management Process
This includes (1) defining the business and developing a mission, (2) evaluating the firm’s internal and
external strengths, weaknesses, opportunities, and threats, (3) formulating a new business direction,
(4) translating the mission into strategic goals, and (5) formulating strategies or courses of action.
Step (6) and Step (7) entail implementing and then evaluating the strategic plan.
What Is Strategic Human Resource Management?
 The linking of HRM with strategic goals and objectives in order to improve business
performance and develop organizational cultures that foster innovation and flexibility.
 Involves formulating and executing HR systems—HR policies and activities—that
produce the employee competencies and behaviors that the company needs to
achieve its strategic aims.

The basic idea behind strategic human resource management: In formulating human
resource management policies and activities, the manager’s aim must be to produce
the employee skills and behaviors that the company needs to achieve its strategic aims.
Management formulates a strategic plan that implies certain workforce requirements.
Given these requirements, human resource management formulates HR strategies
(policies and practices) to produce the desired workforce skills, competencies, and
behaviors.
Finally, the human resource manager identifies the
measures he or she can use to gauge the extent to
which its new policies and practices are actually
producing the required employee skills and
behaviors.

Strategic HRM Tools
Managers use several tools to
help them translate the
company’s broad strategic
goals into specific human
resource management policies
and activities. Three important
tools include the strategy map,
the HR Scorecard, and the
digital dashboard.
What are High Performance Work Systems (HPWS)?
High-performance work systems became popular in the 1990s. Faced with global competition, U.S.
companies needed ways to improve quality, productivity, and responsiveness.
Characteristics of high-performance work organizations include multi-skilled work teams, empowered
front-line workers, extensive training, labor-management cooperation, commitment to quality, and
customer satisfaction.
• High-Performance Work System (HPWS)
 A set of human resource management policies and practices that promote
organizational effectiveness.
• High-Performance Human Resource Policies
and Practices
 Emphasize the use of relevant HR metrics.
 Set out the things that HR systems must do to become an HPWS.
 Foster practices that encourage employee self-management.
 Practice benchmarking to set goals and measure the notable performance differences
required of an HPWS.
That a human resource manager can influence things like “number of qualified applicants per
position” and “percentage of jobs filled from within” is apparent. After all, those are the sorts of
activities that human resource managers oversee.
Every department manager and supervisor can also play an important role in activities like these and
thus build, within his or her own departmental domain, a higher performing organization.

4.1) - Define talent management, and explain what talent management-
oriented managers do?
Talent management
Results- and goal-oriented process of planning, recruiting, selecting, developing, managing, and
compensating employees. The manager who takes a talent management approach tends to take
actions such as the following:
1. He or she starts with the results and asks, “What recruiting, testing, training, or pay action should I
take to produce the employee competencies we need to achieve our company’s goals?”
2. He or she treats activities such as recruiting and training as interrelated.
For example, the manager knows that having employees with the right skills depends as much on
recruiting and training as on applicant testing.
3. Because talent management is holistic and integrated, he or she will probably use the same
“profile” of required human skills, knowledge, and behaviors (“competencies”) for formulating a job’s
recruitment plans as for making selection, training, appraisal, and compensation decisions for it.
4. And, to ensure the activities are all focused on the same ends, the manager will take steps to
coordinate the talent management functions (recruiting and training, for example). Doing so often
involves using talent management software.
4.2) - Discuss the nature of job analysis, including what it is and how it’s
used?
Job analysis is the procedure through which you determine the duties of these positions and the
characteristics of the people to hire for them.
Job Analysis
The procedure for determining the duties and skill requirements of a job and the kind of person who
should be hired for it.
Job Description
A list of a job’s duties, responsibilities, reporting relationships, working conditions, and supervisory
responsibilities—one product of a job analysis.
Job Specifications
A list of a job’s “human requirements,” that is, the requisite education, skills, personality, and so on—
another product of a job analysis.
• Actual work activities of the job—
how, why, and when the worker
performs each activity.
• Human behaviors the job requires:
communicating, deciding, and writing,
lifting weights or walking long
distances.
• Machines, tools, equipment, and work
aids used on the job: tools used,
materials processed, knowledge dealt
with or applied, and services
rendered.
• Standards of expected employee job performance: quantity and quality output levels that can
be used to appraise employees.

• The organizational and social context in which the job exists: physical working conditions, work
schedules, and incentives
• The job’s human requirements: job-related knowledge or skills (education, training, work
experience) and required personal attributes (aptitudes, physical characteristics, personality,
interests).
Job analysis provides the information required
for other organizational activities that depend on
and also support the job. Job analysis provides
required duties and desired human
characteristics information needed to effectively
Recruit and Select individuals for jobs.
Compensation factors such as skill and
education level, safety hazards, degree of
responsibility, and so on are assessed by job
analysis.
Knowledge of specific duties and requisite skills
of a job is required for proper Training of
employees.
Correctly conducting a Performance Appraisal requires knowledge of the job’s duties and standard.
Job analysis is a method for Discovering Unassigned Duties that should become a formal part of a job.
Job analysis is required to validate essential job functions and other HRM for EEO Compliance under
the Uniform Guidelines on Employee Selection
Uses of Job Analysis Information
Steps in Job Analysis

Organization chart: A chart that shows the organization wide distribution of work, with
titles of each position and interconnecting lines that show who reports to and
Communicates with whom.
Process chart: A workflow chart that shows the flow of inputs to and outputs from a
particular job.
Workflow analysis: A detailed study of the flow of work from job to job in a work
process.
Business process reengineering: Redesigning business processes, usually by combining
steps, so that small multifunction process teams using information technology do the
jobs formerly done by a sequence of departments.
Job enlargement: Assigning workers additional same-level activities.
Job rotation: Systematically moving workers from one job to another.
Job enrichment: Redesigning jobs in a way that increases the opportunities for the
Worker to experience feelings of responsibility, achievement, growth, and recognition.
4.3)- Use at least three methods of collecting job analysis information,
including interviews, questionnaires, and observation?
There are various ways to collect information on a job’s duties, responsibilities, and activities.
Interviews, questionnaires, observations, and diaries/logs are the most popular methods for gathering
realistic information about what job incumbents actually do. Managers use these methods for
developing job descriptions and job specifications.
Methods for Collecting Job Analysis Information:
The Interview:
Job analysis interviews range from completely unstructured interviews to highly
structured ones containing hundreds of specific items to check off.
Managers may conduct individual interviews with each employee, group
interviews with groups of employees who have the same job, and/or supervisor interviews with one
or more supervisors who know the job.
Questionnaires can be structured or opened-ended. A questionnaire is a quick, efficient, and
cost-effective way to obtain information from a large number of employees.

Observation
Direct observation is especially useful when jobs consist mainly of observable
physical activities. Observation is usually not appropriate when the job entails a lot of
mental activity or if the employee only occasionally engages in important activities.
Participant Diaries/Logs
Workers are asked to keep a record of what they do during the day by writing a
diary/log. Employees record each of their activities (along with the time) in a log.
This can produce a very complete picture of the job, especially when
supplemented with subsequent interviews with the worker and the supervisor.
4.4)_ Write job descriptions, including summaries and job functions, using
the Internet and traditional methods?
Writing Job Descriptions
A job description is a written statement of what the worker actually does, how he or she does it, and
what the job’s working conditions are. You use this information to write a job specification; this lists
the knowledge, abilities, and skills required to perform the job satisfactorily, most descriptions
contain sections that cover:
1. Job identification
2. Job summary
3. Responsibilities and duties
4. Authority of incumbent
5. Standards of performance
6. Working conditions
7. Job specifications
Job Identification
 Job title
 FLSA status section
 Preparation date
 Preparer
• Job Summary
 General nature of the job
 Major functions/activities
• Relationships
 Reports to:
 Supervises:
 Works with:
 Outside the company:
• Responsibilities and Duties
 Major responsibilities and duties
(essential functions)
 Decision-making authority
 Direct supervision
 Budgetary limitations
• Standards of Performance and Working Conditions
 What it takes to do the job successfully

4.5 Write a job specification.
The job specification focuses on the person in answering the question, It shows what kind of person to
recruit and for what qualities you should test that person.
Job specifications for trained employees focus on traits like length of previous service, quality of
relevant training, and previous job performance.
• Steps in the Statistical Approach
1. Analyze the job and decide how to measure job performance.
2. Select personal traits that you believe should predict successful performance.
3. Test candidates for these traits.
4. Measure the candidates’ subsequent job
performance.
5. Statistically analyze the relationship between the human
traits and job performance.
Competency-Based Job Analysis
• Competencies
 Demonstrable characteristics of a
person that enable performance of a job.
• Reasons for Competency-Based Job Analysis
 To support a high-performance work system (HPWS).
 To create strategically-focused job descriptions.
 To support the performance management process in fostering, measuring, and
rewarding:
 General competencies
 Leadership competencies
 Technical competencies
• Interview job incumbents and their supervisors
 Ask open-ended questions about job responsibilities and activities.
 Identify critical incidents that pinpoint success on the job.
• Use off-the-shelf competencies databanks
Skills Matrix
The skills matrix lists the basic skills needed for that job (such as technical expertise) and the
minimum level of each skill required for that job or job family. The emphasis is no longer on specific
job duties. Instead, the focus is on developing the new skills needed for the employees’ broader and
empowered responsibilities.

5.1 Explain the main techniques used in employment planning and
forecasting.
The process of deciding what positions the firm will have to fill, and how to
fill them.
Job analysis identifies the duties and human requirements for each of the company’s jobs. The next
step is to decide how many of these jobs you need to fill, and to recruit and select employees for
them.
5.2 Explain and give examples for the need for effective recruiting.
Definition:
Effective recruitment means more than hiring the right person for the job. A fast and
efficient recruitment process can reduce costs, enhance a company’s reputation both
from a market and candidate perspective and ensure that the very best talent is
identified, engaged and brought into the business.
• External Factors Affecting Recruiting
 Supply of workers
 Outsourcing of white-collar jobs

 Fewer “qualified” candidates
• Other Factors Affecting Recruiting Success
 Consistency of recruitment with strategic goals
 Types of jobs recruited and recruiting methods
 Nonrecruitment HR issues and policies
 Successful prescreening of applicants
 Public image of the firm
1. Name and describe the main internal sources of candidates.

1. List and discuss the main outside sources of candidates.
‘

Recruiting a more Diverse Workforce
• Advantages
 Cost-effective way to publicize job openings
 More applicants attracted over a longer period
 Immediate applicant responses
 Online prescreening of applicants
 Links to other job search sites
 Automation of applicant tracking and evaluation
• Disadvantages
 Exclusion of older and minority workers
 Unqualified applicants overload the system
 Personal information privacy concerns of applicants
Developing and Using Application Forms
Application Forms and the Law

Two-Stage Process
06-07
Employees Testing and Selection
• Basics Testing Concepts
• Types of Tests
• Background Investigation and Other Selection Methods
• Test Design Evaluation and validity
 Management Assessment Centre and Interest
 Fair and unbiased hiring
Basics Testing Concepts
• Reliability
 Describes the consistency of scores obtained by the same person when
retested with the identical or alternate forms of the same test.
 Are test results stable over time?
• Validity
 Indicates whether a test
is measuring what it is
supposed to be
measuring.
 Does the test actually
measure what it is
intended to measure?

In employment testing, there are two main ways to demonstrate a test’s validity:
criterion validity and content validity.
Criterion validity means demonstrating that those who do well on the test also do well
on the job, and that those who do poorly on the test do poorly on the job. In
psychological measurement, a predictor is the measurement (in this case, the test
score) that you are trying to relate to a criterion, such as performance on the job.
Employers demonstrate the content validity of a test by showing that the test
constitutes a fair sample of the job’s content. The basic procedure here is to identify
job tasks that are critical to performance, and then randomly select a sample of those
tasks to test
Types of Tests
Cognitive tests include tests of general reasoning ability (intelligence) and tests of
specific mental abilities like memory and inductive reasoning.
Tests of motor and physical abilities measure motor abilities, such as finger dexterity,
manual dexterity, and reaction time.
Personality tests measure basic aspects of an applicant’s personality, such as
introversion, stability, and motivation.
Achievement tests measure what someone has learned. Most of the tests you take in
school are achievement tests. They measure your “job knowledge” in areas like
economics, marketing, or human resources.

Background Investigation and Other Selection Methods
• Investigations and Checks
 Reference checks
 Background employment checks
 Criminal records
 Driving records
 Credit checks
• Why?
 To verify factual information provided by applicants
 To uncover damaging
information
To avoid negligent hiring mistakes,
employers must check the candidate’s
background thoroughly
Background Investigations and Reference
Checks
Limitations on Background Investigations and Reference Checks
In practice (as most people
instinctively know), giving
someone a bad reference can
drag you into a legal mess.
A communication is defamatory
if it is false and tends to harm
the reputation of another by
lowering the person in the
estimation of the community or
by deterring other persons from
associating or dealing with him or her.
Employees can sue employers for disclosing true but embarrassing private facts about
the employee.
In practice, many firms have a policy of not providing any information about former
employees except for their dates of employment, last salary, and position titles.

To avoid potential invasion of privacy issues, employers should obtain the applicant’s
written permission before checking into the applicant’s background information, even
if that information is publicly available (e.g., published on social networking sites).
Making Background Checks More Useful
1. Include on the application form a statement for applicants to sign explicitly
authorizing a background check.
2. Use telephone references if possible.
3. Be persistent in obtaining information.
4. Compare the submitted résumé to the application.
5. Ask open-ended questions to elicit more information from references.
6. Use references provided by the candidate as a source for other references.
Using Preemployment Information Services
Management
Assessment
Centre and
Interest
Management
assessment
centers are a
type of ACDC (Assessment Center Development Center), specifically designed to assess
professionals in or applying for managerial roles. It includes several problem-solving
activities to gauge how well a candidate is likely to perform in real-life workplace
scenarios.
Happens At An Assessment Centre:
The majority of assessment days are held in person and can be anywhere from the
employer's offices to a hotel or training facility. You will work both individually and as
part of a group on a variety of exercises, including:
 case studies
 group discussions
 in-tray exercises

 presentations
 psychometric tests
 role play
 social events
 written tests.
Fair and unbiased hiring
Fair recruiting is a term that encompasses not only job discrimination
laws but also the idea that hiring should be based on merit — and not
related to a candidate’s ethnicity, gender, religion, or any other quality
unrelated to their skills and expertise.

08
Interviewing Candidates
 Types of Interviews
 How should we administer the interview
 How to design and conduct an effective interview
 What errors can undermine an interview’s usefulness
 Guide line
Types of Interviews
Managers use several interviews
at work.
For example, an appraisal
interview is a discussion,
following a performance
appraisal, in which supervisor and
employee discuss the employee’s
ratings and possible remedial
actions. When an employee leaves a firm, one often conducts an exit interview. This
aims at eliciting information that might provide some insight into what’s right or wrong
about the firm. Many techniques in this chapter apply to appraisal and exit interviews.
How to design and conduct an effective interview
The interview holds an ironic place
in the hiring process: If done
poorly, it’s generally not too
useful. If done properly, then the
interview can be a much better
predictor of performance than
previously thought and is
comparable with many other
selection techniques.
The Structured Situational Interview
Use either situational questions or behavioral questions that yield high criteria-related
validities.
 Step 1: Analyze the job.
 Step 2: Rate the job’s main duties.
 Step 3: Create interview questions.

 Step 4: Create benchmark answers.
 Step 5: Appoint the interview panel and conduct interviews.
What errors can undermine
an interview’s usefulness?
Potential Interviewing Errors to Avoid:
• First impressions (snap judgments)
• Not clarifying what the job involves
and requires
• Candidate-order error and pressure to
hire
• Nonverbal behavior and impression
management
• The effects of interviewees’ personal characteristics
• The interviewer’s inadvertent behavior
Guide line Preparation is essential.
• Uncover the interviewer’s real needs.
• Relate yourself to the interviewer’s needs.
• Think before answering.
• Remember that appearance and enthusiasm are important.
• Make a good first impression.
• Ask questions.

1. Summarize the purpose and process of employee orientation.
Employee orientation (often called “onboarding”) provides new
employees with the information they need to function; it should
Also help new employees start getting emotionally attached to
the firm.
An orientation typically includes information on employee
benefits, personnel policies, the daily routine, company
organization and operations, safety measures and regulations, and a facilities tour.
A supervisor could use an orientation checklist such as Figure above to explain to a new
employee the organization and workings of the department.

List and briefly explain each of the four steps in
the training process.
Training means giving new or current employees the skills they need to perform their jobs. Training is a
hallmark of good management. Employers today must make sure that their training programs are supporting
their firms’ strategic goals.
Training Is the process of teaching new employees
the basic skills they need to perform their jobs Is a hallmark of good management Reduces an employer’s
exposure to negligent training liability Training’s Strategic Context The aims of firm’s training programs must
make sense in terms of the company’s strategic goals.
Training fosters employee learning, which results in enhanced organizational performance
Steps in the Training Process
Training programs consist of four steps.
1. In the needs analysis step, identify the specific knowledge
and skills the job requires, and compare these with the
prospective trainees’ knowledge and skills.
2. In the instructional design step, formulate specific,
measurable knowledge and performance training objectives,
review possible training program content (including
workbooks, exercises, and activities), and estimate a budget
for the training program.
3. Implement the program, by actually training the targeted employee group using methods such as on-
the-job or online training.
4. In the evaluation step, assess the program’s success (or failures).
Discuss how you would motivate trainees?
• Make the Learning Meaningful
1. At the start of training, provide a bird’s-eye view
of the material to be presented to facilitate learning.
2. Use a variety of familiar examples.
3. Organize the information so you can present it logically, and in meaningful units.
4. Use terms and concepts that are already familiar
to trainees.
5. Use as many visual aids as possible.
6. Create a perceived training need in trainees’ minds.
7. Make Skills Transfer Easy
8. Maximize the similarity between the training situation and the work situation.
9. Provide adequate practice.
10. Label or identify each feature of the machine
and/or step in the process.
11. Direct the trainees’ attention to important aspects
of the job.

12. Provide “heads-up,” preparatory information that lets trainees know what might happen back
on
the job.
13. Reinforce the Learning
14. Trainees learn best when the trainers immediately reinforce correct responses, perhaps with a
quick
“well done.”
15. The schedule is important. The learning curve goes down late in the day, so that “full day
training is not as effective as half the day or three-fourths of the day.”
Describe and illustrate how you would identify
training requirements.
Analyzing Training Needs
Task analysis is a detailed study of the job to determine what specific skills
the job requires. Performance analysis is the process of verifying that
there is a performance deficiency and determining whether the
employer should correct such deficiencies through training or some
other means (like transferring the employee).
As shown in Table , the task analysis record form consolidates six types of information regarding required tasks
and skills that is helpful for determining training requirements.

The competency model consolidates, usually in one diagram, a precise overview of the competencies
(knowledge, skills, and behaviors) someone would need to do a job well. As an example, Figure 8-2 shows an
illustrative competency model for a human resource
manager.
In this case, the model shows three things: At the top of
the pyramid, it shows four roles we would expect the
human resource manager to fill—line, staff, coordinative,
and strategic. Beneath that, it shows the areas of expertise
in which he or she must be expert to fill these roles, such
as an expertise in HR practices and strategic planning. Next
step down are basic competencies one would need to
exhibit the required expertise and to fill the HR manager’s
roles.
Performance analysis is the process of verifying that
there is a performance deficiency and determining whether the employer should correct such deficiencies
through training or other means (motivation).
The heart of performance analysis is determining why
performance is down. It is futile to train an employee
whose work actually is deficient because of insufficient
motivation. Distinguishing between can’t-do and won’t-
do problems is therefore crucial.
Explain how to use
training techniques.
Training Methods
With the program designed and budgeted and objectives set, you can turn to implementing the training
program. This means actually doing the training, choosing and using one or more of the simpler, low-tech
methods and, then perhaps, proceeding on to computer-based ones.
• On-the-Job Training
• Apprenticeship Training
• Informal Learning
• Job Instruction Training
• Lectures
• Programmed Learning
• Audiovisual-Based Training
• Vestibule Training
• Videoconferencing
• Electronic Performance Support Systems (EPSS) Computer-Based Training (CBT)
• Simulated Learning
• Internet-Based Training
• Learning Portals

On-the-job training (OJT) means having a person learn a job by actually doing it. Every employee, from
mailroom clerk to CEO, gets on-the-job training when he or she joins a firm. In many firms, OJT is the only
training available.
• On-the-Job Training (OJT)
 Having a person learn a job
by actually doing the job.
• Types of On-the-Job Training
 Coaching or understudy
 Job rotation
 Special assignments
• Advantages
 Inexpensive
 Learn by doing
 Immediate feedback
List and briefly discuss four management development programs.
Implementing Management Development Programs
Management development is any attempt to improve
managerial performance by imparting knowledge, changing
attitudes, or increasing skills. The management development
process consists of (1) assessing the company’s strategic
needs (for instance, to fill future executive openings or to
boost competitiveness), (2) appraising managers’ current
performance, and then (3) developing the managers (and future managers).
Development is usually part of the employer’s
succession planning. Succession planning
refers to the process through which a company plans
for and fills senior-level openings.

Management Development Techniques
Managerial on-the-job training methods include job rotation, the coaching/understudy approach, and
action learning.
Other Management Training Techniques
There are also many other off-the-job
techniques for training and developing
managers.
Behavior modeling involves (1) showing trainees the right (or “model”) way of doing something, (2)
letting trainees practice that way, and then (3) giving feedback on the trainees’ performance.
List and briefly discuss the importance of the steps in leading
organizational change?
Managing Organizational Change Programs
Faced with the need to change,
managers can change one or
more of five aspects of their
companies—their strategy,
culture, structure, technologies, or the attitudes and skills of the employees.

Knowing how to deal with resistance to change is the heart of implementing an organizational change
program. Implementing change can mean either reducing the forces for the status quo or building up
the forces for change.
Psychologist Kurt Lewin formulated a model of change to summarize what he believed was a three-
step process for implementing a change with minimal resistance.
How to Lead the Change
Lewin’s three-step change process.
• Unfreezing Stage
1. Establish a sense of urgency (need for change).
2. Mobilize commitment to solving problems.
• Moving Stage
1. Create a guiding coalition.
2. Develop and communicate a shared vision.
3. Help employees to make the change.
4. Consolidate gains and produce more change.
• Refreezing Stage
1. Reinforce new ways of doing things.
2. Monitor and assess progress.
Using Organizational Development
Organizational development (OD) is a change process through which employees formulate the change
that’s required and implement it, often with the assistance of trained consultants.

The four basic categories of OD applications: human process, techno structural, human resource
management, and strategic applications.
Action research—getting the employees themselves to review the required data and to design and
implement the solutions—is the basis of all four.
Evaluating the Training Effort
There are two basic issues to address when evaluating training programs. The first is the design of the
evaluation study and, in particular, whether to use controlled experimentation. The second issue is of
“What should we measure?” and involves choosing which training outcomes to assess.
• Designing the Evaluation Study
 Time series design
 Controlled experimentation
• Choosing Which Training Effects to Measure
 Reaction of trainees to the program
 Learning that actually took place
 Behavior that changed on the job
 Results achieved as a result of the training

The assessment of a training program’s effects by a series
of measures taken before and after the training program.
Figure presents one page from a sample
Evaluation questionnaire for assessing
trainees’ reactions to training.
Define performance management and discuss how it differs from
performance appraisal?
Basic Concepts in Performance Management and Appraisal
Every manager needs some way to appraise
employees’ performance. If employees’
performance is good, you’ll want to reinforce it,
and if it’s bad, you’ll want to take corrective
action.
Performance appraisal means evaluating an
employee’s current and/or past performance
relative to his or her performance standards.
Defining the Employee’s Goals and Work
Standards
Managers should appraise employees based on previously assigned criteria (goals and standards) that
they are expected to achieve, such as “add 10 new customers next year.”

Setting SMART Goals
• Specific, and clearly state the desired results.
• Measurable in answering “how much.”
• Attainable, and not too tough or too easy.
• Relevant to what’s to be achieved.
• Timely in reflecting deadlines and milestones.
An Introduction to Appraising
Performance
Appraisals have several purposes that relate both
to the appraised employee and the organization.
It doesn’t matter which tool you use if you’re less than candid when your subordinate is
underperforming. A supervisor who rates an employee too high is doing a disservice to them and to
the company. There’s nothing crueler than telling someone who’s doing a mediocre job that he or she
is doing well.
• Motivations for Soft Appraisals
 The fear of having to hire and train someone new.
 The unpleasant reaction of the appraise.
 An appraisal process that’s not conducive to candor.
• Hazards of Soft Appraisals
 Employee loses the chance to improve before being discharged or forced to change
jobs.
 Lawsuits arising from dismissals involving inaccurate performance appraisals.
Performance Appraisal Roles
Supervisors must therefore be familiar with appraisal techniques, understand and avoid problems
that can cripple appraisals, and know how to conduct appraisals fairly.
• The Supervisor’s Role
 Usually do the actual appraising
 Must be familiar with basic appraisal techniques
 Must understand and avoid problems that can cripple appraisals
 Must know how to conduct appraisals fairly
The human resources department serves a policy-making and advisory role. The human resource
team should also be responsible for training supervisors to improve their appraisal skills, for
monitoring the appraisal system’s effectiveness, and for ensuring that it complies with EEO laws.

• The HR Department’s Role
 Serves a policy-making and advisory role.
 Provides advice and assistance regarding the appraisal tool to use.
 Trains supervisors to improve their appraisal skills.
 Monitors the appraisal system effectiveness and compliance with EEO laws.
Set effective performance appraisal standards.
Effectively Appraising Performance:
Effective appraisals should follow these three
steps.
The manager generally conducts the actual appraisal using a predetermined and formal tool like
one or more of those described next. The two basic questions in designing the actual appraisal tool
are what to measure and how to measure it.
• What to Measure?
 Work output (quality and quantity)
 Personal competencies
 Goal (objective) achievement
• How to Measure?
 Generic dimensions
 Actual job duties
 Behavioral competencies
Describe the appraisal process?
Performance Appraisal Methods
Appraising performance requires choosing an appraisal tool, form, or methodology that provides
an effective means for comparing a subordinate’s actual performance to the standards for his or her
job.

Figure shows one graphic rating scale. A graphic rating scale lists traits (such as “quality and reliability” or
“teamwork”) and a range of performance values (from “unsatisfactory” to “outstanding,” or “below
expectations” to “role model”) for each trait.
Figure shows part of an appraisal form for a pizza chef.
This form assesses the job’s main sets of job-specific
duties, one of which is “Maintain adequate inventory of
pizza dough.” Here you would assess how well the
employee did in exercising each of these duties.
Appraisal Form for Assessing Both Competencies and Specific Objectives
Some graphic rating forms assess several things. Figure assesses the employee’s performance
relating to both competencies and objectives. The employee and supervisor would fill in the objectives
section at the start of the year, and then assess results and set new ones as part of the next appraisal.

In Figure, Section II illustrates the competencies an employee is expected to develop and exhibit
such as “identifies and analyzes problems” (Problem Solving), and “maintains harmonious and
effective work relationships with co-workers and constituents” (Teamwork).
Scale for Alternate Ranking of Appraise
Ranking employees from best to worst on a
trait or traits is another option. Supervisors
choosing the alternation ranking method
would use a form like that in Figure to
alternately choose and list employees who are
the highest on the characteristic being
measured and the ones who are the lowest.
Ranking Employees by the Paired Comparison
Method
The paired comparison method helps
make the ranking method more precise. For
every trait (quantity of work, quality of work,
and so on), you pair and compare every

subordinate with every other subordinate. In the paired comparison method, you make a chart, as in
Figure 9-6, of all possible pairs of employees for each trait.
Examples of Critical Incidents for Assistant Plant Manager
With the critical incident method, the supervisor keeps a log of positive and negative examples (critical
incidents) of a subordinate’s work-related behavior. Every 6 months or so, supervisor and subordinate meet to
discuss the latter’s performance, using the incidents as examples.
one of the assistant plant manager’s continuing duties was to supervise procurement and to minimize
inventory costs. The critical incident log shows that the assistant plant manager let inventory storage costs rise
15%; this provides an example of what performance she must improve in the future.
Develop, evaluate, and administer at least four performance appraisal
tools?
Behaviorally Anchored Rating Scale (BARS)
A behaviorally anchored rating scale (BARS) is an appraisal tool that anchors a numerical rating
scale with specific examples of good or poor performance. Its proponents say it provides better, more
equitable appraisals than do the other appraisal tools. It takes more time to develop a BARS, but the
tool has several advantages.

Example of a Behaviorally Anchored Rating Scale for the Dimension Salesmanship Skills
Figure presents an example of a section of a final BARS
instrument that lists the critical incidents that serve as
behavioral anchors on the performance scale for the
dimension Salesmanship Skills.
Management by Objectives (MBO)
Employers use management by objectives (MBO) for
one of two things. Many use it as the primary appraisal
method. Others use it to supplement to a graphic rating or
other appraisal method. MBO generally refers to the
comprehensive and formal organization wide goal-setting
and appraisal program.
A comprehensive and formal organization wide goal-setting
and appraisal program requiring:
 Setting of organization’s goals
 Setting of departmental goals
 Discussion of departmental goals
 Defining expected results (setting individual goals)
 Conducting periodic performance reviews
 Providing performance feedback
Using MBO
In using MBO, it is best to keep the
guidelines for goal setting (SMART, specific, and
so on) in mind. Setting objectives with the
subordinate sometimes turns into a tug-of-war,
with the supervisor pushing for higher quotas
and the subordinate pushing for lower ones.
The more that is known about the job and
the person’s ability, the more confident a
supervisor can be about setting standards.

Computerized and Web-Based Performance Appraisal Systems
Employers increasingly use computerized or Web-based performance appraisal systems that
enable them to keep computerized notes on subordinates during the year. The notes can then be
merged with ratings of employees on several performance traits. The software then generates written
text to support each part of the appraisal. Most appraisal software combines several of the basic
methods such as graphic ratings plus critical incidents or BARS.
Electronic performance monitoring (EPM) systems use computer network technology to allow
managers access to their employees’ computers and telephones. They allow managers to monitor the
employees’ rate, accuracy, and time spent working online.
• Allow managers to keep notes on subordinates.
• Notes can be merged with employee ratings.
• Software generates written text to support appraisals.
• Allows for employee self-monitoring and self-evaluation.
• Electronic Performance Monitoring (EPM) Systems
 Use computer network technology to allow managers access to their employees’
computers and telephones.
 Managers can monitor the employees’ rate, accuracy, and time spent working online.
Dealing with Performance Appraisal Problems
Table illustrates the unclear standards problem. This graphic rating scale seems objective.
However, it would probably result in unfair appraisals, because the traits and degrees of merit are
ambiguous. The best way to fix this problem is to include descriptive phrases that define or illustrate
each trait.

Guidelines for Effective Appraisals
Managers can do these five things to help ensure that they fairly conduct effective appraisals.
Use the right appraisal tool—or combination of tools. Each has its own pros and cons. For example,
the ranking method avoids central tendency but can cause bad feelings when employees’
performances are in fact all “high.” Table summarizes each tool’s pros and cons.

Choosing the Right Appraisal Tool
In practice, employers choose an appraisal tool based on several
criteria. Accessibility and ease-of-use are probably first. Employers
(and supervisors) prefer to avoid the push-back from employees
who resist certain appraisal methods. For other employers,
accuracy is a great concern.
Selected Best Practices for Administering Fair Performance Appraisals
1. Base the performance review on duties and standards from a job analysis.
2. Try to base the performance review on observable job behaviors or objective performance
data.
3. Make it clear ahead of time what your performance expectations are.
4. Use a standardized performance review procedure for all employees.
5. Make sure whoever conducts the reviews has frequent opportunities to observe the
employee’s job performance.
6. Either use multiple raters or have the rater’s supervisor evaluate the appraisal results.
7. Include an appeals mechanism.
8. Document the appraisal review process and results.
9. Discuss the appraisal results with the employee.
10. Let the employees know ahead of time how you’re going to conduct the review and use the
results.
11. Let the employee provide input regarding your assessment of him or her.
12. Indicate what the employee needs to do to improve.
13. Thoroughly train the supervisors who will be doing the appraisals.
Guidelines for developing a legally defensible appraisal process.
1. Preferably, conduct a job analysis to establish performance criteria and standards.
2. Communicate performance standards to employees and to those rating them, in writing.
3. When using graphic rating scales, avoid undefined abstract trait names (such as “loyalty” or
“honesty”).
4. Use subjective narratives as only one component of the appraisal.
5. Train supervisors to use the rating instrument properly.
6. Allow appraisers substantial daily contact with the employees they’re evaluating.
7. Using a single overall rating of performance is usually not acceptable to the courts.
8. When possible, have more than one appraiser, and conduct all such appraisals independently.
9. One appraiser should never have absolute authority to determine a personnel action.
10. Give employees the opportunity to review and make comments, and have a formal appeals
process.
11. Document everything: Without exception, courts condemn informal performance evaluation
practices that eschew documentation.
12. Where appropriate, provide corrective guidance to assist poor performers in improving.

Who Should Do the Appraising?
Traditionally, the employee’s direct
supervisor appraises his or her performance.
However, other options are available and used.
The Appraisal Interview
As a supervisor, you will face four types of appraisal interviews, each with its unique objectives.
Figure presents a form that can be used when
the person’s performance is unsatisfactory but
correctable and the interview objective is to lay
out an action plan for correcting the
unsatisfactory performance.
Appraisal Interview Guidelines
These are four main things to keep
mind when actually conducting the
interview.
Figure provides a checklist to help
managers cover all the appraisal interview bases.

Handling Defensive Responses
Defenses are a familiar aspect of our lives. When a
supervisor tells someone his or her performance is poor,
the first reaction is often denial. Denial is a defense
mechanism. By denying the fault, the person avoids
having to question his or her own competence. Others
react with anger and aggression. This helps them let off
steam and postpones confronting the immediate
problem.
How to Deliver Criticism
When you must criticize, do so in a manner that lets the person
maintain his or her dignity—in private, and constructively.
Performance Management
Performance management is the continuous process of
identifying, measuring, and developing the performance of
individuals and teams and aligning their performance with
the organization’s goals.
• Performance Management
 Is the continuous process of identifying, measuring, and developing the
performance of individuals and teams and aligning their performance with
the organization’s goals
• How Performance Management Differs From Performance Appraisal
 A continuous process for continuous improvement
 A strong linkage of individual and team goals to strategic goals
 A constant reevaluation and modification of work processes

Basic Building Blocks of Performance Management
Performance management’s basic building blocks or “DNA” are:
Direction sharing means communicating the company’s higher-level goals (including its vision,
mission, and strategy) throughout the company and then translating these into doable departmental,
team, and individual goals.
Goal alignment means having a process that enables any manager to see the link between an
employee’s goals and those of his or her department and company.
Ongoing performance monitoring usually includes using computer-based systems that measure
and then e-mail progress and exception reports based on the person’s progress toward meeting his or
her performance goals.
Ongoing feedback includes both face-to-face and computer-based feedback regarding progress
toward goals.
Coaching and developmental support
should be an integral part of the feedback
process.
Rewards, recognition, and
compensation all play a role in providing
the consequences needed to keep the
employee’s goal-directed performance on track.
Why Performance Management?
Employers are moving to performance management for three main reasons—total quality,
appraisal issues, and strategic planning.
Using Information Technology to Support Performance Management
• Assign financial and nonfinancial goals to each team’s activities along the strategy map chain
of activities leading up to the company’s overall strategic goals.
• Inform all employees of their goals.
• Use IT-supported tools like scorecard software and digital dashboards to continuously monitor
and assess each team’s and employee’s performance.
• Take corrective action at once.
Performance Management Report
Information technology does enable management to automate performance management. Figure
presents an example of an employee’s online performance management report.

14.1) - Corporate Policies, Competitive Strategy and Compensation
The compensation plan should advance the firm’s strategic aims—management should produce an
aligned reward strategy. This means creating a bundle of rewards—a total reward package including
wages, incentives, and benefits—that aims to produce the employee behaviors the firm needs to
support and achieve its competitive strategy.
 Aligned reward strategy
– The employer’s basic task is to create a bundle of rewards—a total reward
package—specifically aimed at eliciting the employee behaviors the firm
needs to support and achieve its competitive strategy.
– The HR or compensation manager will write the policies in conjunction with
top management, in a manner such that the policies are consistent with the
firm’s strategic aims.
Week 14
Establishing Strategic Pay Plans
1. Competitive Strategy, Corporate Policies, and
Compensation
2. Establishing pay rates
3. Developing a Workable Pay Plan
4. Pricing Managerial and Professional Job
5. Competency Based Pay
6. Why Competency Based Pay?
7. Special Topic in Compensation

Developing an Aligned Reward Strategy
Questions to Ask:
1. What are our company’s key success factors?
What must our company do to be successful in fulfilling its mission or achieving its desired competitive
position?
2. What are the employee behaviors or actions necessary to successfully implement this competitive
strategy?
3. What compensation programs should we use to reinforce those behaviors? What should be the
purpose of each program in reinforcing each desired behavior?
4. What measurable requirements should each compensation program meet to be deemed successful
in fulfilling its purpose?
5. How well do our current compensation programs match these requirements?
Compensation Policy Issues
 Pay for performance
 Pay for seniority
 The pay cycle
 Salary increases and promotions
 Overtime and shift pay
 Probationary pay
 Paid and unpaid leaves
 Paid holidays
 Salary compression
 Geographic costs of living differences
 Salary compression
– A salary inequity problem, generally caused by inflation,
resulting in longer-term employees in a position earning less than
workers entering the firm today.
–
Equity and Its Impact on Pay Rates
With respect to compensation, managers should address four forms of equity: external, internal, individual,
and procedural.
Forms of Equity
 External equity refers to how a job’s pay rate in one
company compares to the job’s pay rate in other
companies.
 Internal equity refers to how fair the job’s pay rate
is when compared to other jobs within the
same company (for instance, is the sales
manager’s pay fair, when compared to what
the production manager is earning).

 Individual equity refers to the fairness of an individual’s pay as compared with what his or her
coworkers are earning for the same or very similar jobs within the company, based on each individual’s
performance.
 Procedural equity refers to the “perceived fairness of the processes and procedures used to make
decisions regarding the allocation of pay.”
 The equity theory of motivation
– States that if a person perceives an inequity, the person will be motivated to
reduce or eliminate the tension and perceived inequity.
Methods to Address Equity Issues
 Salary surveys
To monitor and maintain external
equity.
 Job analysis and job evaluation
To maintain internal equity,
 Performance appraisal and
incentive pay
To maintain individual equity.
 Communications, grievance mechanisms, and employees’participation
To help ensure that employees view the pay process as transparent and fair.
List the basic factors determining pay rates?
Employee compensation refers to all forms of pay going to employees and arising from their
employment. It has two main components, direct financial payments (wages, salaries, incentives,
commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid
insurance and vacations).
There are two basic ways to make direct financial payments to employees: base them on
increments of time or on performance.
Determining Pay Rates
Employee compensation
All forms of pay or rewards going to
employees and arising from their
employment.
 Direct financial payments
Pay in the form of wages, salaries, incentives, commissions, and bonuses.
 Indirect financial payments
Pay in the form of financial benefits such as insurance.

14.2)- Establishing Pay Rates
The process of establishing pay rates while ensuring external, internal, and (to some extent) procedural
equity consists of five steps.
Step 1. The salary survey
It’s difficult to set pay rates if you don’t know what
others are paying, so salary surveys of what others are
paying play a big role in pricing jobs. Virtually every
employer conducts at least an informal telephone,
newspaper, or Internet salary survey.
– Aimed at determining prevailing wage
rates.
• A good salary survey provides specific wage rates for specific jobs.
– Formal written questionnaire surveys are the most comprehensive, but telephone surveys
surveys and newspaper ads are also sources of information.
• Benchmark job: A job that is used to anchor the employer’s pay scale and around
which other jobs are arranged in order of relative worth.
Sources for Salary Surveys:
Salary surveys can be formal or informal.
Informal phone or Internet surveys are good
for checking specific issues. Some large
employers can afford to send out their own
formal surveys to collect compensation
information from other employers. Many
employers use surveys published by
consulting firms, professional associations, or government agencies.

 Self-conducted Surveys
 Consulting firms
 Professional associations
 Government agencies
– U.S. Department of Labor’s Bureau of Labor Statistics (BLS) conducts three
annual surveys:
• Area wage surveys
• Industry wage surveys
• Professional, administrative, technical, and clerical (PATC)
surveys.
 Some Pay Data Web Sites
Step 2. Job evaluation
Job evaluation is a formal and
systematic comparison of jobs to
determine the worth of one job
relative to other jobs in the
organization.
Compensable factors are certain
basic factors the jobs have in
common that are used to establish
how the jobs compare to one another, and that determine the pay for each job.
The Job Evaluation Process
Job evaluation is a judgmental process and demands close cooperation among
supervisors, HR specialists, and employees and union representatives. The main steps
include identifying the need for the program, getting cooperation, and then choosing an
evaluation committee. The committee then performs the actual evaluation.

Preparing for the Job Evaluation
Identifying the need for the job evaluation
 Getting the cooperation of
employees
 Choosing an evaluation
committee.
 Performing the actual
evaluation.
Job Evaluation Methods: Ranking
 Ranking each job relative to all other jobs, usually based on some overall factor.
 Steps in job ranking:
– Obtain job information.
– Select and group jobs.
– Select compensable factors.
– Rank jobs.
– Combine ratings.
Job Evaluation Methods: Job Classification
 Raters categorize jobs into groups or classes of jobs that are of roughly the same value for
pay purposes.
– Classes contain similar jobs.
– Grades are jobs that are similar in difficulty but otherwise different.
– Jobs are classed by the amount or level of compensable factors they contain.
Example of A Grade Level Definition

This is a summary chart of the key grade level criteria for the GS-7 level of clerical and assistance
work. Do not use this chart alone for classification purposes; additional grade level criteria are in the
Web-based chart.
Job Evaluation Methods: Point Method
 A quantitative technique that involves:
– Identifying the degree to which each compensable factors are present in the
job.
– Awarding points for each degree of each factor.
– Calculating a total point value for the job by adding up the corresponding
points for each factor.
 Each job is ranked several times—once for each of several compensable factors.
 The rankings for each job are combined into an overall numerical rating for the job.
Computerized Job Evaluations
 A computerized system that uses a structured questionnaire and statistical models to
streamline the job evaluation process.
– Advantages of computer-aided job evaluation (CAJE)
• Simplify job analysis
• Help keep job descriptions up to date
• Increase evaluation objectivity
• Reduce the time spent in committee meetings
• Ease the burden of system maintenance
•
 Step 3. Group Similar Jobs into Pay Grades
– A pay grade is comprised of jobs of approximately equal difficulty or
importance as established by job evaluation.
• Point method: the pay grade consists of jobs falling within a
range of points.
• Ranking method: the grade consists of all jobs that fall within
two or three ranks.
• Classification method: automatically categorizes jobs into
classes or grades.
 Step 4. Price Each Pay Grade
— Wage Curve
– Shows the pay rates currently paid for jobs in each pay grade, relative to the points or
rankings assigned to each job or grade by the job evaluation.
– Shows the relationships between the value of the job as determined by one of the job
evaluation methods and the current average pay rates for your grades.

 Step 5. Fine-tune pay rates
– Developing pay ranges
• Flexibility in meeting external job market rates
• Easier for employees to move into higher pay grades
• Allows for rewarding performance differences and seniority
– Correcting out-of-line rates
• Raising underpaid jobs to the minimum of the rate range for
their pay grade.
• Freezing rates or cutting pay rates for overpaid (“red circle”)
jobs to maximum in the pay range for their pay grade.

14.3) - Pricing Managerial and Professional Jobs
Compensation for a company’s
top executives usually consists of
four main elements:
 Compensating managers
– Base pay: fixed salary, guaranteed
bonuses.
– Short-term incentives: cash or stock
bonuses
– Long-term incentives: stock options
– Executive benefits and perks: retirement plans, life insurance, and health insurance without a
deductible or coinsurance.
 What Really Determines Executive Pay?
For top executive jobs (especially the CEO), job evaluation typically has little relevance. One recent
study concluded that three main factors, job complexity (span of control, the number of functional
divisions over which the executive has direct responsibility, and management level), the employer’s
ability to pay (total profit and rate of return), and the executive’s human capital (educational level, field
of study, work experience) accounted for about two-thirds of executive compensation variance.
– CEO pay is set by the board of directors taking into account factors such as the business strategy,
corporate trends, and where they want to be in a short and long term.
– Firms pay CEOs based on the complexity of the jobs they filled.
– Boards are reducing the relative importance of base salary while boosting the emphasis on
performance-based pay.
 Compensating Professional Employees
 Employers can use job evaluation for professional jobs.
 Compensable factors focus on problem solving, creativity, job scope, and technical
knowledge and expertise.
 Firms use the point method and factor comparison methods, although job classification
seems most popular.
 Professional jobs are market-priced to establish the values for benchmark jobs. .
14.4) What Is Competency-based Pay?
Some managers question whether job evaluations that slot jobs into narrow cubbyholes (“Machinist I,”
“Machinist II,” and so on) might not actually be counterproductive. For example, high-performance work
systems depend on flexible multi skilled job assignments and on teamwork, and there’s no place here for
employees to say, “That’s not my job.” Competency-based pay aims to avoid that problem. With competency
(generally skill or knowledge-based) pay, you pay the employee for the skills and knowledge he or she is
capable of using rather than for the responsibilities or title of the job currently held.117 Experts variously call
this competence-, knowledge-, or skill-based pay. With competency-based pay, an employee in a class I job who
could (but may not have to at the moment) do class II work gets paid as a class II worker, not a class
I.
Competencies are demonstrable personal characteristics such as knowledge, skills, and personal behaviors such
as leadership. Why pay employees based on the skill levels they achieve, rather than based on the jobs they’re

assigned to. Because, for example, a company that organizes a facility around teams may want to encourage
employees to get and to use the skills required to rotate among jobs.
 Competency-based pay
– Where the company pays for the employee’s range, depth, and types of
skills and knowledge, rather than for the job title he or she holds.
 Competencies
– Demonstrable characteristics of a person, including knowledge, skills, and
behaviors, that enable performance.
14.6) Why Use Competency-Based Pay?
Competency-based pay ties the worker’s pay to his or her competencies—pay is more person oriented.
Employees here are paid based on what they know or can do—even if, at the moment, they don’t have to do it.
Traditional pay plans may backfire if a high-performance work system (HPWS) is the goal. HPWS employees
must be enthusiastic about learning and moving among other jobs.
Paying for competencies encourages employees to develop the competencies the companies require to
achieve their strategic aims.
Paying for measurable and influence-able competencies provides a focus for the employer’s performance
management process.
Competency-Based Pay in Practice
 Main components of skill/competency/ knowledge–based pay programs:
– A system that defines specific skills, and a process for tying the person’s pay
pay to his or her skill
– A training system that lets employees seek and acquire skills
– A formal competency testing system
– A work design that lets employees move among jobs to permit work
assignment flexibility.
Competency-Based Pay: Pros and Cons
 Pros
– Higher quality
– Lower absenteeism and fewer accidents
 Cons
– Pay program implementation problems
– Cost implications of paying for unused knowledge, skills and behaviors
– Complexity of program
– Uncertainty that the program improves productivity

14.7 )- Special Topics in Compensation
Broad banding means collapsing salary grades into a few wide levels or bands, each of which
contains a relatively wide range of jobs and pay levels.
Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a
relatively wide range of jobs and salary levels.
• Wide bands provide for more flexibility in assigning workers
to different job grades.
• Lack of permanence in job responsibilities can be unsettling to
new employees.
•
Broad banded Structure and How It Relates to Traditional Pay
Grades and Ranges
Comparable Worth
Comparable worth refers to the requirement to pay men and
women equal wages for jobs that are of comparable (rather than
strictly equal) value to the employer. Women tend to predominate
in lower-paid (lesser-valued) jobs.
• Concept:
Employers should be required to pay men and women equal wages for dissimilar jobs that are of
comparable (rather than strictly equal) value to the employer.
• Basis:
Seeks to address the issue that women have jobs that are dissimilar to those of men and those jobs are
often consistently valued less than men’s jobs.
• Question at Hand:
Who will get to make final decisions on the comparability of jobs?
 Employers
 Courts
Strategic Compensation
 Strategic compensation
– Using the compensation plan to support the company’s strategic aims.
– Focuses employees’ attention on the values of winning, execution, and
speed, and on being better, faster, and more competitive..
 IBM’s strategic compensation plan:
– The marketplace rules.
– Fewer jobs, evaluated differently, in broadband.
– Managers manage.
– Big stakes for stakeholders.
 Comparable worth
– Refers to the requirement to pay men and women equal wages for jobs that
are of comparable (rather than strictly equal) value to the employer.
– Seeks to address the issue that women have jobs that are dissimilar to those
of men and those jobs often consistently valued less than men’s jobs.

Financial incentives
Financial rewards paid to workers whose production exceeds some predetermined standard.
Productivity
The ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital).
Fair day’s work
Output standards devised based on careful, scientific analysis.
Scientific management movement
Management approach based on improving work methods through observation and analysis.
Pay-for-performance
Any plan that ties pay to some measure of performance, such as productivity or profitability.
Variable pay
Any plan that ties pay to productivity or profitability, usually as one-time lump payments
Linking Strategy, Performance, and Incentive Pay
Incentives play an important role in any pay plan. The main purpose of this chapter is to explain how
managers use performance-based incentives to motivate employees.
After a brief overview of motivation theories, we’ll discuss incentives for individual employees, and then
for managers and executives, salespeople, and professionals, as well as organization wide incentive plans.
Incentive pay—tying worker pay to performance—is popular. The problem is that doing so is easier said
than done. United Airlines tried replacing its quarterly bonus with a lottery. Instead of getting quarterly
bonuses when United attained its performance goals, qualified employees would instead be eligible to
win, say, $100,000 prizes. Employees revolted, and United returned to its bonus plan. Another incentive
plan, at Levi Strauss, is widely assumed to have been the last nail in the coffin Of Levi’s U.S.-based
production.
28% of 2,600 U.S. workers said their companies’ incentive plans motivated them. “Employees don’t see
a strong connection between pay and performance, and their performance is not particularly influenced
by the company’s incentive plan,” said one expert.
One problem is that many incentive plans incentivize the wrong behavior. For example, a Wells Fargo
Bank incentive plan pushed bank employees to hit high sales goals, such as selling eight bank products
per customer. Bank employees opened accounts for thousands of customers without the customer’s
permission. At ethics workshops, managers told employees not to create fake bank accounts. But
employees knew they had to meet their sales goals, so they opened fake accounts. Fines, lawsuits, and
the CEO’s exit came next. Another big reason for incentive plans’ often-dismal results is that incentives
that may motivate some people won’t motivate others.

15.1) - Explain how you would apply five motivation theories in
formulating an incentive plan.
Motivation, Performance, and Pay
Frederick Taylor popularized using financial incentives—financial rewards paid to workers whose
production exceeds some predetermined standard—in the late 1800s. Compensation experts argue that
managers need to have a better understanding of the motivational bases of incentive plans in order for
their plans to succeed.
• Incentives
 Financial rewards paid to workers whose production exceeds a
predetermined standard.
• Frederick Taylor
 Popularized scientific management and the use of financial
incentives in the late 1800s.
 Systematic soldiering
 Fair day’s work
• Linking Pay and Performance
 Understanding the motivational
bases of incentive plans
The Hierarchy of Needs
Abraham Maslow made what may be the most popular observation on what motivates people in
proposing that people have a hierarchy of needs that they are motivated to satisfy. Maslow’s theory has
many practical implications for managers using incentive programs.
• Maslow’s Hierarchy of Needs:
 Physiological (food, water, warmth)
 Security (a secure income, knowing one has a job)
 Social (friendships and camaraderie)
 Self-esteem (respect)
 Self-actualization (becoming a whole person)
• Maslow’s prepotency process principle:
 People are motivated first to satisfy each lower-order need and then, in sequence, each of the
higher-level needs.
Herzberg’s Hygiene–Motivator Theory
Frederick Herzberg said the best way to motivate someone is to organize the job so that doing it
provides the feedback and challenge that helps satisfy the person’s “higher-level” needs for things like
accomplishment and recognition.
Herzberg’s theory makes the point that relying exclusively on financial incentives is risky. The
employer should also provide the recognition and challenging work that most people desire.
• Hygiene’s (extrinsic job factors)
 Satisfy lower-level needs
 Inadequate working conditions, salary, and incentive pay can cause dissatisfaction and prevent
satisfaction.
• Motivators (intrinsic job factors)
 Satisfy higher-level needs
 Job enrichment (challenging job, feedback, and recognition) addresses higher-level
(achievement, self-actualization) needs.

• Premise:
 The best way to motivate someone is to organize the job so that doing it provides feedback and
challenge that helps satisfy the person’s higher-level needs.
De-motivators and Edward Deci
Psychologist Edward Deci’s work highlights another potential downside to relying too heavily on
extrinsic rewards: They may backfire. Deci found that extrinsic rewards could at times actually detract
from the person’s intrinsic motivation. Managers should be cautious in devising incentive pay for
highly motivated employees, lest they inadvertently demean and detract from the desire they have to do
the job out of a sense of responsibility.
• Intrinsically motivated behaviors are motivated by the individual’s underlying need for competence and
self-determination.
 Offering an extrinsic reward for an intrinsically-motivated act can conflict with the acting
individual’s internal sense of responsibility.
 Some behaviors are best motivated by job challenge and recognition, others by financial
rewards.
Victor Vroom’s Expectancy Theory
Victor Vroom’s expectancy motivation theory posits that people will pursue rewards they desire when
they believe that they are likely to be successful in obtaining the rewards.
• Motivation is a function of:
 Expectancy: the belief that effort will lead to performance.
 Instrumentality: the connection between performance and the appropriate reward.
 Valence: the value the person places on the reward.
• Motivation = (E x I x V)
 If any factor (E, I, or V) is zero, then there is no motivation to work toward the reward.
 Employee confidence building and training, accurate appraisals, and knowledge of workers’
desired rewards can increase employee motivation.
Behavior Modification / Reinforcement Theory
Managers apply Skinner’s principles by using behavior modification. Behavior modification
means changing behavior through rewards or punishments that are contingent on performance.
• B. F. Skinner’s Principles
 To understand behavior one must understand
the consequences of that behavior.
 Behavior that leads to a positive consequence (reward) tends to be repeated, while behavior that
leads to a negative consequence (punishment) tends not to be repeated.
 Behavior can be changed by providing properly scheduled rewards (or punishments).
15.2 ) - Discuss the main incentives for individual employees.
Incentive Pay Terminology
Managers often use two terms synonymously with incentive plans. Traditionally, all incentive plans
are pay-for-performance plans. They all tie employees’ pay to the employees’ performance. Variable
pay is more specific: It is usually an incentive plan that ties a group or team’s pay to some measure of
the firm’s (or the facilities) overall profitability.

Individual Incentive Plans
Piecework is the oldest and still most popular individual incentive plan. Here the worker is paid a
sum (called a piece rate) for each unit he or she produces.
The standard hour plan is like the piece rate plan, except that, instead of getting a rate per piece,
the worker gets a premium equal to the percent by which his or her performance exceeds the standard.
• Piecework Plans
 The worker is paid a sum (“piece rate”) for each unit he or she
produces.
 Straight piecework
 Standard hour plan
Pros and Cons of Piecework
Piecework plans are understandable, appear equitable in principle, and
can be powerful incentives, since rewards are proportionate to performance.
However, employees may not respond positively to changes in output or
their ability to earn incentives.
• Easily understandable, equitable, and powerful incentives
• Employee resistance to changes
in standards or work processes affecting output
• Quality problems caused by
an overriding output focus
• Possibility of violating minimum wage standards
• Employee dissatisfaction when incentives either cannot be earned or are
withdrawn
Merit pay or a merit raise is a permanent salary increase the firm
awards to an individual employee based on his or her individual
performance.
Merit pay advocates argue that awarding pay raises across the board
(without regard to individual merit) may actually detract from performance, by showing employees
they’ll be rewarded regardless of how they perform. The solution is not to throw out merit raises, but to
design them to be more effective. Among other things, this means establishing effective appraisal
procedures and ensuring that managers in fact tie merit pay awards to performance.
• Merit Pay
 Is a permanent cumulative salary increase the firm awards to an individual employee based on his or her
individual performance
 Can detract from performance if awarded across the board
 Becomes permanent ongoing reward for past performance
• Merit Pay Options
 Give annual lump-sum merit raises that do not make the raise part of an employee’s base salary.
 Tie merit awards to both individual and organizational performance.
Merit Award Determination Matrix (an Example)
Table presents a sample matrix for merit award determination. In this example, the company’s
performance is measured by, say, rate of return, or sales divided by payroll costs. Company
performance and the employee’s performance (using his or her performance appraisal) receive equal
weight in computing the merit pay.

Incentives for Professional Employees: Professional employees are those whose work involves the
application of learned knowledge to the solution of the employer’s problems. They include lawyers,
doctors, economists, and engineers.
• Professional Employees
 Are those whose work involves the application of learned knowledge to the solution of the
employer’s problems?
 Lawyers, doctors, economists, and engineers
• Possible Incentives
 Bonuses, stock options and grants, profit sharing
 Better vacations, more flexible work hours
 Improved pension plans
 Equipment for home offices
Nonfinancial and Recognition Awards
Recognition programs are one of several types of nonfinancial incentives. The term recognition
program usually refers to formal programs, such as employee-of-the-month programs. Social
recognition program generally refers to informal manager-employee exchanges such as praise,
approval, or expressions of appreciation for a job well done. Performance feedback means providing
quantitative or qualitative information on task performance for the purpose of changing or maintaining
performance; showing workers a graph of how their performance is trending is an example.
• Effects of Recognition-Based Awards
 Recognition has a positive impact on performance, either alone or in conjunction with financial
rewards.
 Day-to-day recognition from supervisors, peers, and team members is important.
• Ways to Use Recognition
 Social recognition
 Performance-based recognition
 Performance feedback

Figure presents a short list of social recognition (such as compliments) actions that can be used as
positive reinforcements on a day-to-day basis.
Online and IT-Supported Awards
• Information Technology and Incentives
 Enterprise incentive management (EIM)
 Software that automates planning, calculation, modeling, and management of incentive
compensation plans
 Enabling companies to align their employees with corporate strategy and goals
• Online Award Programs
 Programs offered by online incentives firms that improve and expedite the awards process
 Broader range of awards
 More immediate rewards
• Pay-for-Performance Plan
 Ties employee’s pay to the employee’s performance
• Variable Pay Plan
 Is an incentive plan that ties a group or team’s pay to some measure of the firm’s (or the
facility’s) overall profitability
 Example: profit-sharing plans
 May include incentive plans for individual employees
15.3 ) - Discuss the pros and cons of commissions versus straight pay
incentives for salespeople.
Incentives for Salespeople
Sales compensation plans typically rely heavily on incentives in the form of sales commissions.
However, some salespeople get straight salaries, and most receive a combination of salary and
commissions.
• Salary Plan
 Straight salaries
 Best for: prospecting (finding new clients),
account servicing, training customer’s sales force,
or participating in national and local trade shows

• Commission Plan
 Pay is a percentage of sales results.
 Keeps sales costs proportionate to sales revenues
 May cause a neglect of no selling duties
 Can create wide variation in salesperson’s income
 Likelihood of sales success may be linked to external factors rather than to salesperson’s
performance
 Can increase turnover of salespeople
Most companies pay salespeople a combination of salary and commissions, usually with a sizable
salary component. An incentive mix of about 70% base salary / 30% incentive seems typical; this
cushions the salesperson’s downside risk (of earning nothing), while limiting the risk that the
commissions could get out of hand from the firm’s point of view.
• Combination Plan
 Pay is a combination of salary and commissions, usually with a sizable
salary component.
 Plan gives salespeople a floor
(safety net) to their earnings.
 Salary component covers company-specified service activities.
 Plans tend to become complicated,
and misunderstandings can result.
Specialized Commission Plans
In a “commission-plus-drawing-account” plan, the salesperson is paid based on commissions.
However, he or she can draw on future earnings to get through low sales periods. Similarly, in the
“commission-plus-bonus” plan, the firm pays its salespeople mostly based on commissions. However,
they also get a small bonus for directed activities like selling slow-moving items.
• Commission-plus-Drawing-Account Plan
 Commissions are paid but a draw on future earnings helps the
salesperson to get through low sales periods.
• Commission-plus-Bonus Plan
 Pay is mostly based on commissions.
 Small bonuses (“spiffs”) are paid for directed activities like
selling add-ons or slow-moving items.
15.4 Employee Incentives and the Law
Managers must be aware of how incentive programs can affect how individuals must be properly
compensated under the Fair Labor Standards Act (FLSA).
• FLSA Wage Calculations and Incentive Payments
 Bonuses included in overtime calculations:
 Those promised to newly hired employees
 Those provided for in union contracts or other agreements
 Those announced to induce employees to work more productively, steadily, rapidly, or
efficiently or to induce them to remain with the firm
 Bonuses excluded from overtime calculations:
 Christmas and gift bonuses not based on hours worked.
 Bonuses so substantial that employees don’t consider them a part of their wages
 Purely discretionary bonuses in which the employer retains discretion over how much, if
anything, to pay

Types of Employee Incentive Plans
Managers should seek to choose the incentive
plan that best suits the work that an employee
does. Various incentive plans focus on either
individuals, groups or teams, or
organizations.
15.5 ) - Describe the main incentives for managers and executives.
Incentives for Managers and Executives
Managers play a crucial role in divisional and company-wide profitability, and most firms therefore put
considerable thought into how to reward them. Most managers get short-term and long-term incentives in
addition to salary.
The Sarbanes-Oxley Act of 2002 affects how employers formulate their executive incentive programs. Congress
passed Sarbanes-Oxley to inject a higher level of responsibility into executives’ and board members’ decisions.
• Executive Total Reward Package
 Base salary (cash)
 Short-term incentives (bonuses)
 Long-term incentives (e.g., stock options)
• Sarbanes-Oxley Act of 2002
 Makes executives and the board of directors personally liable for violating
their fiduciary responsibilities to their shareholders.
 Requires the CEO and CFO to repay bonuses, incentives, or equity-based compensation received
following issuance of a financial statement that the firm must restate.
As noted, most firms have annual bonus plans aimed at motivating managers’short-term
performance. Short-term bonuses can easily result in plus or minus adjustments of 25% or more to total
pay. Three factors influence one’s bonus: eligibility, fund size, and individual performance.
Short-Term Incentives: The Annual Bonus
 Plans intended to motivate short-term performance of managers and tied to company
profitability.
 Issues in awarding bonuses
 Eligibility basis
 Fund size basis
 Individual performance award
 Long-term incentives
 Stock options
 Performance shares
 Indexed options
 Premium price options
 Stock appreciation rights
 Perks

Team/Group Incentive Plans
Firms increasingly rely on teams to manage their work. They therefore need incentive plans that
encourage teamwork and focus team members’ attention on performance. Team (or group) incentive
plans pay incentives to the team based on the team’s performance.
• Team (or Group) Incentive Plans
 Incentives are based on team’s performance.
• How to Design Team Incentives
 Set individual work standards.
 Set work standards for each team member
and then calculate each member’s output.
 Members are paid based on one of three formulas:
 All receive the same pay earned by the highest producer.
 All receive the same pay earned by the lowest producer.
 All receive the same pay equal to the average pay
earned by the group.
Team incentives often make sense. They reinforce team planning and problem solving, and can help
ensure collaboration. In Asia in general (and Japan in particular), the tendency is to reward the
group—to reduce jealousy, to make group members indebted to one another, and to encourage a sense
of cooperation. Team incentives also facilitate training, since each member has an interest in getting
new members trained as fast as possible.
The main disadvantage is that a good worker’s pay may not be proportionate to his or her personal efforts.
• Pros
 Reinforces team planning and problem solving
 Helps ensure collaboration
 Encourages a sense of cooperation
 Encourages rapid training of new members
• Cons
 Pay is not proportionate to an individual’s effort
 Rewards “free riders”
Organization wide Incentive Plans
Organization wide incentive plans are plans in which all or most employees can participate, and
which generally tie the reward to some measure of company-wide performance.
Profit-sharing plans are plans in which all or most employees receive a share of the firm’s annual
profits.
• Profit-Sharing Plans
 Current profit-sharing (cash) plans
• Employees receive cash shares of the firm’s profits at regular intervals.
 Deferred profit-sharing plans
• A predetermined portion of profits based on the employee’s contribution to the firm’s
profits is placed in each employee’s retirement account under a trustee’s supervision.
• Employees’ income taxes on the distributions are deferred, often until the employee
retires.

The main purpose of Chapter is to discuss employee benefits. Four main types of plans: supplemental
pay benefits (such as sick leave and vacation pay); insurance benefits (such as workers’
compensation); retirement benefits (such as pensions); and employee services (such as child-care
facilities). Because legal considerations loom large in any benefits decision, we cover applicable
federal laws and their implications for managers. This chapter completes our discussion of employee
compensation.
Benefits: There are many benefits and various ways to classify them. We will classify them as (1) pay
for time not worked, (2) insurance benefits, (3) retirement benefits, and (4) services.
Figure confirms what employers are well aware of: health care costs are rising. Since 2001, health
care premiums have risen about 78%, while inflation rose only 17%. However, in 2009, employee costs
rose only 6.4% compared with an average 15% since 2002, largely because of the employer cost
containment efforts we’ll discuss shortly.

Private-Sector Employer Benefits Costs by
Category, March 2009
Figure summarizes the breakdown of benefits as a
percentage of wages and salaries.
Table lists benefits mandated by federal laws while
other benefits are at the employer’s discretion.
Policy Issues in Designing Benefit Packages
A short list of policy issues that firms confront when designing benefit packages include what
benefits to offer, who receives coverage, whether to include retirees in the plan, whether to deny
benefits to employees during initial “probationary” periods, how to finance benefits, the degree of
employee choice in determining benefits, cost-containment procedures, and how to communicate
benefits options to employees.

1.Name and define each of the main pay for time not worked benefits.
Pay for time not worked also called supplemental pay benefits—is the most costly benefit,
because of the large amount of time off that most employees receive.
Common time-off-with-pay periods include holidays, vacations, jury duty, funeral leave, military
duty, personal days, sick leave, sabbatical leave, maternity leave, and unemployment insurance
payments for laid-off or terminated employees.
Pay for Time Not Worked: All states have unemployment insurance or compensation laws. These
provide benefits if a person is unable to work through no fault of his or her own. The benefits derive
from a tax on employers that can range from 0.1% to 5% of taxable payroll in most states. An
employer’s unemployment tax rate reflects its rate of employee terminations. States have their own
unemployment laws, but they all follow federal guidelines.
Firms have to address several holiday- and vacation-related policy issues. They must decide, of
course, how many days off employees will get, and which days (if any) will be the paid holidays, and
how much employees will be paid for vacations and holidays.
• Unemployment Insurance
 Provides for benefits if a person is unable to work through
no fault of his or her own.
 Is an employer payroll tax that is determined by an employer’s rate of personnel
terminations?
 Tax is collected and administered by the state.
• Vacations and Holidays
 Number of paid leave days and holidays varies by employer.
 Qualification for and calculation of holiday and leave pay varies by employer.
 Premium pay for those who work on holidays.
Sick leave provides pay to employees when they’re out of work due to illness. Most sick leave
policies grant full pay for a specified number of sick days—usually up to about 12 per year. The sick
days usually accumulate at the rate of, say, 1 day per month of service.
The problem is that while many employees use their sick days only when they are sick, others use it
for personal leave. To reduce the cost of absences and give employees more discretionary leave time,
many employers now use pooled paid leave plans that lump together sick leave, vacation, and personal
days into a single leave pool.
FMLA leaves are usually unpaid, but they’re not costless. The costs associated with hiring
temporary replacements, training them, and compensating for their lower productivity can be
considerable.

• Sick Leave
 Provides pay to an employee when he or she is out of work because of illness.
 Costs for misuse of sick leave
 Pooled paid leave plans
• Parental Leave
 The Family Medical Leave Act of 1993 (FMLA)
 Up to 12 weeks of unpaid leave within a one-year period.
 Employees must take unused paid leave first.
 Employees on leave retain their health benefits.
 Employees have right to return to job or equivalent position.
Many employers provide severance pay, a one-time separation payment when terminating an employee.
• Severance Pay
A one-time payment when terminating an employee.
• Reasons for granting severance pay:
 Acts as a humanitarian gesture and good public relations.
 Mirrors employee’s two-week quit notice.
 Avoids litigation from disgruntled former employees.
 Reassures employees who stay on after the employer downsizes its workforce of employer’s good
intentions.
• Supplemental Unemployment Benefits (SUB)
Payments that supplement the laid-off or furloughed employee’s unemployment compensation.
 The employer makes contributions to a SUB reserve fund.
 SUB payments are made to employees for the time the employee is out of work due to layoffs,
reduced workweeks, or relocations.
 SUB payments are considered previously earned compensation for unemployment calculation
purposes.
SUB benefits are cash payments that supplement the employee’s unemployment compensation to
help the person maintain his or her standard of living while out of work. They generally cover
three contingencies: layoffs, reduced workweeks, and facility relocations.
Describe each of the main insurance benefits.
Workers’ compensation laws aim to provide sure, prompt income and medical benefits to work-
related accident victims or their dependents, regardless of fault. Every state has its own
workers’compensation law and commission, and some run their own insurance programs.
It is important to control workers’compensation claims (and therefore costs). The employer’s
insurance company usually pays the claim. However, the costs of the employer’s premiums
reflect the amount of claims. Workers’comp claims also tend to correlate with injuries, so
fewer claims is usually a good sign of fewer accidents.
• Workers’ Compensation
Provides income and medical benefits to work-related accident victims or their dependents, regardless of
fault.
 Death or disability: a cash benefit based on earnings per week of employment.
 Specific loss injuries: statutory list of losses.
 Injured workers are protected by ADA provisions.
Controlling workers’ compensation costs
 Screen out accident-prone workers.
 Make the workplace safer.
 Thoroughly investigate accident claims.
Use case management to return injured employees to work as soon as possible

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