Chapter 6 Appraisal and Rewards

MR. NAJIBULLAH A. UMPA, RN, MBA, DBM (ON-GOING)
AY 2016-2017 (2nd TRIMESTER)

APPRAISAL
AND
REWARD SYSTEM
CHAPTER 6

PERFORMANCE APPRAISAL
is the systematic evaluation of the
performance of employees and to
understand the abilities of a person
for further growth and development.
Performance appraisal is generally
done in systematic ways which are as
follows:

1. The supervisors measure the pay of
employees and compare it with targets
and plans.
1. The supervisor analyses the factors
behind work performances of employees.
1. The employers are in position to guide
the employees for a better performance.

OBJECTIVES
Performance Appraisal can be done with following
objectives in mind:
• To maintain records in order to determine
compensation packages, wage structure, salaries
raises, etc.
• To identify the strengths and weaknesses of
employees to place right men on right job.
• To maintain and assess the potential present in a
person for further growth and development.

OBJECTIVES
• To provide a feedback to employees
regarding their performance and related
status.
• To provide a feedback to employees
regarding their performance and related
status.
• It serves as a basis for influencing working
habits of the employees.
• To review and retain the promotional and
other training programs.

ADVANTAGES
It is said that performance appraisal is an
investment for the company which can be
justified by following advantages:
1. PROMOTION: Performance Appraisal
helps the supervisors to chalk out the
promotion programs for efficient
employees. In this regards, inefficient
workers can be dismissed or demoted in
case.

2. COMPENSATION: Performance
Appraisal helps in checking out
compensation packages for employees.
Merit rating is possible through
performance appraisal. Performance
Appraisal tries to give worth to a
performance. Compensation packages
which includes bonus, high salary rates,
extra benefits, allowances and pre-
requisites are dependent on performance
appraisal. The criteria should be merit
rather than seniority.

3. EMPLOYEES DEVELOPMENT: The
systematic procedure of performance
appraisal helps the supervisors to frame
training policies and programs. It helps to
analyze strengths and weaknesses of
employees so that new jobs can be
designed for efficient employees. It also
helps in framing future development
programs.

4. SELECTION VALIDATION:
Performance Appraisal helps the
supervisors to understand the validity and
importance of the selection procedure.
The supervisors come to know the
validity and thereby the strengths and
weaknesses of selection procedure.
Future changes in selection methods can
be made in this regard.

5. MOTIVATION: Performance appraisal
serves as a motivation tool. Through
evaluating performance of employees, a
person’s efficiency can be determined if
the targets are achieved. This very well
motivates a person for better job and
helps him to improve his performance in
the future.

6. COMMUNICATION: For an organization,
effective communication between
employees and employers is very important.
Through performance appraisal,
communication can be sought for in the
following ways:
Through performance appraisal, the
employers can understand and accept skills
of subordinates.
The subordinates can also understand and
create a trust and confidence in superiors.
It also helps in maintaining cordial and
congenial labor management relationship.
It develops the spirit of work and boosts the
morale of employees.

TOOLS AND TECHNIQUES
Following are the tools used by the
organizations for Performance Appraisals of
their employees.
1. Ranking
2. Paired Comparison
3. Forced Distribution
4. Confidential Report
5. Essay Evaluation
6. Critical Incident
7. Checklists
8. Graphic Rating Scale
9. BARS – Behaviorally
Anchored Rating
Scales
10.Forced Choice
Method
11.MBO – Management
by Objectives
12.Field Review

RANKING METHOD
 The ranking system requires the rater to rank
his subordinates on overall performance. This
consists in simply putting a man in a rank
order. Under this method, the ranking of an
employee in a work group is done against
that of another employee. The relative
position of each employee is tested in terms
of his numerical rank. It may also be done by
ranking a person on his job performance
against another member of the competitive
group.

ADVANTAGES OF RANKING METHOD:
 Employees are ranked according to their performance levels.
 It is easier to rank the best and the worst employee.
LIMITATIONS OF RANKING METHOD:
 The “whole man” is compared with another “whole man” in
this method. In practice, it is very difficult to compare
individuals possessing various individual traits.
 This method speaks only of the position where an employee
stands in his group. It does not test anything about how much
better or how much worse an employee is when compared to
another employee.
 When a large number of employees are working, ranking of
individuals become a difficult issue.
 There is no systematic procedure for ranking individuals in the
organization. The ranking system does not eliminate the
possibility of snap judgments.

FORCED DISTRIBUTION METHOD
 This is a ranking technique where raters
are required to allocate a certain
percentage of rates to certain categories
(eg: superior, above average, average) or
percentiles (eg: top 10 percent, bottom 20
percent etc). Both the number of
categories and percentage of employees
to be allotted to each category are a
function of performance appraisal design
and format.

ADVANTAGES OF FORCED DISTRIBUTION
This method tends to eliminate raters bias.
By forcing the distribution according to pre-
determined percentages, the problem of making
use of different raters with different scales is
avoided.
LIMITATIONS OF FORCED DISTRIBUTION
The limitation of using this method in salary
administration, however, is that it may lead low
morale, low productivity and high absenteeism.
Employees who feel that they are productive, but
find themselves in lower grade(than expected)
feel frustrated and exhibit over a period of time
reluctance to work.

CRITICAL INCIDENT TECHNIQUES
Under this method, the manager prepares
lists of statements of very effective and
ineffective behavior of an employee. These
critical incidents or events represent the
outstanding or poor behavior of employees or
the job. The manager maintains logs of each
employee, whereby he periodically records
critical incidents of the workers behavior. At
the end of the rating period, these recorded
critical incidents are used in the evaluation of
the worker’s performance.

ADVANTAGES OF CRITICAL INCIDENT TECHNIQUES
 This method provides an objective basis for conducting a
thorough discussion of an employees performance.
 This method avoids recent bias (most recent incidents are too
much emphasized)
LIMITATIONS OF CRITICAL INCIDENT TECHNIQUES
 Negative incidents may be more noticeable than positive
incidents.
 The supervisors have a tendency to unload a series of
complaints about the incidents during an annual performance
review sessions.
 It results in very close supervision which may not be liked by
an employee.
 The recording of incidents may be a chore for the manager
concerned, who may be too busy or may forget to do it.

CHECKLISTS AND WEIGHTED
CHECKLISTS
In this system, a large number of
statements that describe a specific job are
given. Each statement has a weight or
scale value attached to it. While rating an
employee the supervisor checks all those
statements that most closely describe the
behavior of the individual under
assessment. The rating sheet is then
scored by averaging the weights of all the
statements checked by the rater.

ADVANTAGES OF CHECKLISTS AND WEIGHTED
CHECKLISTS
Most frequently used method in evaluation of the
employees performance.
LIMITATIONS OF CHECKLISTS AND WEIGHTED
CHECKLISTS
This method is very expensive and time consuming
Rater may be biased in distinguishing the positive
and negative questions.
It becomes difficult for the manager to assemble,
analyze and weigh a number of statements about
the employees characteristics, contributions and
behaviors.

PERFORMANCE APPRAISAL
BIASES
• Managers commit mistakes while evaluating
employees and their performance. Biases and
judgment errors of various kinds may spoil the
performance appraisal process. Bias here refers to
inaccurate distortion of a measurement. These
are:
① FIRST IMPRESSION (PRIMACY EFFECT):
Raters form an overall impression about the ratee
on the basis of some particular characteristics of
the ratee identified by them. The identified
qualities and features may not provide adequate
base for appraisal.

② HALO EFFECT: The individual’s performance is
completely appraised on the basis of a perceived
positive quality, feature or trait. In other words
this is the tendency to rate a man uniformly high
or low in other traits if he is extra-ordinarily high
or low in one particular trait. If a worker has few
absences, his supervisor might give him a high
rating in all other areas of work.
② HORN EFFECT: The individual’s performance is
completely appraised on the basis of a negative
quality or feature perceived. This results in an
overall lower rating than may be warranted. “He
is not formally dressed up in the office. He may
be casual at work too!”.

④ EXCESSIVE STIFFNESS OR LENIENCE:
Depending upon the raters own standards,
values and physical and mental makeup at the
time of appraisal, ratees may be rated very
strictly or leniently. Some of the managers are
likely to take the line of least resistance and rate
people high, whereas others, by nature, believe
in the tyranny of exact assessment, considering
more particularly the drawbacks of the individual
and thus making the assessment excessively
severe. The leniency error can render a system
ineffective. If everyone is to be rated high, the
system has not done anything to differentiate
among the employees.

⑤ CENTRAL TENDENCY: Appraisers rate all
employees as average performers. That is, it is
an attitude to rate people as neither high nor low
and follow the middle path. For example, a
professor, with a view to play it safe, might give a
class grade near the equal to B, regardless of the
differences in individual performances.
⑤ PERSONAL BIASES: The way a supervisor
feels about each of the individuals working under
him - whether he likes or dislikes them - as a
tremendous effect on the rating of their
performances. Personal Bias can stem from
various sources as a result of information
obtained from colleagues, considerations of faith
and thinking, social and family background and
so on.

⑦SPILLOVER EFFECT: The present
performance is evaluated much on the
basis of past performance. “The person
who was a good performer in distant past
is assured to be okay at present also”.
⑧RECENCY EFFECT: Rating is influenced
by the most recent behavior ignoring the
commonly demonstrated behaviors
during the entire appraisal period.

COMMUNICATING
PERFORMANCE APPRAISALS
• Performance appraisals enable superiors to
know what their team members are up to,
evaluate their performances and also give
them correct feedbacks so that they know
where they are lacking and work on their
shortcomings.
• The term “Performance Appraisal” generally
causes anxiety among employees, which
definitely should not be the case. You really
do not have to worry about your appraisal if
you have worked hard throughout the year.

• There is definitely a certain way appraisals
need to be communicated among
employees. There are organizations where
management tends to create unnecessary
hype about performance appraisal. In such
a scenario, trust me, employees think only
about their appraisals and find it extremely
difficult to concentrate on their routine
affairs. The appraisal process certainly
should not disturb your daily schedule.

• The rating procedure, appraisal form or any
other related information ought to be sent to
each and every individual separately. Do not
mark a common mail to everyone. If you do not
want to take the pain of sending separate mails
to everyone, create a common login id where
each and every individual can register using
their passwords and pull out the appraisal form.
The appraisal form generally has information
about employee’s designation, grade, level in
the hierarchy, responsibilities and thus must be
kept confidential.

• Counseling needs to be done on a one on
one basis. Address their queries,
confusions in private. Remember,
appraisal is a very sensitive subject and
should be handled gracefully. Call the
employees one by one either in your cabin
or conference room and try to find out if
they need any help or guidance. Trust me,
if you call them in a group, they would
never open up. It is unethical to discuss
one’s performance or salary in public.

• Once the appraisals are done,
communicating the same to the
employees is another big challenge. The
increment letters or appraisal letters
should be handed over to the employees
either by the functional head or human
resource team personally. Do not ask your
office staff to distribute the letters, it is very
insulting.

• Employee attrition is one of the major problems
faced by organizations after performance
appraisal.
– Employees who work only for money quit after a
salary hike to negotiate further with any other
organization.
– Individuals who do not get satisfactory appraisal
in any case get demotivated and look for a
change.
– Any employee who does not agree to his/her
appraisal or feel has not got what he/she
deserves needs to be addressed at the earliest.

• Employees need to be motivated after their
appraisals. Congratulate each and every one
irrespective of their salary hike or promotion.
Appreciate everyone for being consistent and
most importantly loyal towards the organization.
Make sure no one feels left out. Sit with them, give
them new realistic targets and guide them as to
how can they work together, come out with more
innovative ideas and show better performances in
the years to come.
• Performance appraisal should not be the only
method to evaluate or acknowledge employee’s
performance. Do not be rude to employees who
did not perform well. It is absolutely okay to
handhold them and give a second chance.

REWARD AND TOTAL REWARD
SYSTEM
Each element of compensation and
benefits, is known as reward.
Total rewards include everything the
employee perceives to be of value
resulting from employment relationship

REWARDS
FINANCIAL NON-FINANCIAL
DIRECT (CASH) INDIRECT
(BENEFITS)
JOB ENVIRONMENT
 SALARIES
 INCENTIVES
 BONUSES
 INSURANCE
 HOLIDAYS
 MEDICAL AND
HEALTH
 CHILD CARE
 EMPLOYEE
ASSISTANCE
 INTERESTING
WORK
 CHALLENGE
 RESPONSIBILIT
 RECOGNITION
 ADVANCEMENT
 GOOD POLICIES
AND PRACTICES
 COMPETENT
SUPERVISION
 CONGENIAL CO-
WORKERS
 SAFE AND
HEALTHY WORK
ENVIRONMENT
 FAIR
TREATMENT

TOTAL REWARDS
• All of the tools available to the employer
may be used to attract, motivate and retain
employees.
• Total rewards include everything the
employee perceives to be of value
resulting from the employment
relationship.
• Those collectively define an organization's
strategy to attract, motivate and retain
employees.

• There are five elements of total rewards,
each of which includes programs, practices,
elements & dimensions.
1. Compensation 
2. Benefits 
3. Work-Life 
4. Performance & Recognition
5. Developmental & Career Opportunities

1. COMPENSATION
Pay provided by an employer to an
employee for services rendered (i.e., time,
effort and skill).

2. BENEFITS
Programs an employer uses to supplement
the cash compensation that employees
receive. - These programs are designed to
protect the employee and his or her family
from financial risks.

3. WORK-LIFE
A specific set of organizational practices,
policies, programs, plus a philosophy, which
actively supports efforts to help employees
achieve success at both work and home.
Work-life strategies address the key
intersections of the worker, his or her family,
the community and the workplace.

4.PERFORMANCE & RECOGNITION
Performance
Alignment of organizational, team and
individual performance is assessed in order
to understand what was accomplished, and
how it was accomplished. - Performance
involves the alignment effort toward the
achievement of business goals and
organizational success. 

4.PERFORMANCE & RECOGNITION
Recognition
Acknowledges or gives special attention to
employee efforts or performance. It meets an
intrinsic psychological need for appreciation
and can support business strategy by
reinforcing certain behaviors that contribute
to organizational success. Awards can be
cash or non-cash (e.g., verbal recognition,
trophies, certificates, plaques, dinners,
tickets, etc.).

4. DEVELOPMENTAL & CAREER OPPORTUNITIES

Developmental Opportunities 
A set of learning experiences designed to
enhance employees’ applied skills and
competencies. Development engages
employees to perform better and leaders to
advance their organizations’ people
strategies. 

4. DEVELOPMENTAL & CAREER OPPORTUNITIES
Career Opportunities
A plan for an employee to advance their own
career goals and may include advancement
into a more responsible position in an
organization. 
The organization supports career
opportunities internally so that talented
employees are deployed in positions that
enable them to deliver their greatest value to
their organization.

Rewarding Your Employees:
15 Examples of Successful Incentives in
The Corporate World
Source: http://www.rrgexec.com/rewarding-your-employees-15-examples-of-
successful-incentives-in-the-corporate-world/

1. Taking Care Of The Family:
• Google – Surely you’ve heard all about Google’s
outdoor sports facilities, free food and more, but
there’s another perk that should be noted. If a
U.S. employee passes away while working for the
tech giant, the employee’s spouse or domestic
partner receives 50% of the deceased’s salary, no
matter how long or short his tenure, every year
for the next decade.

2. Giving Free Vacations:
• This is one thing that we noticed to be a trend
throughout the top 100 companies list. For
example, Ultimate Software, the developer of
people-management software such as
Quicken Loans treats workers to a free
vacation every two years.

3. Big Money Incentives:
• Hilcorp Energy Company promised staff in
2010 that if the company doubles its
production rate and reserves by 2015, every
employee will get a check for $100,000. An
earlier met goal rewarded 400 employees with
$50,000 toward a new car.

4. Saying Thank You!:
• Often times, employees just want to be
recognized for their good work. A simple “Good
Job” from the CEO can go a long way. Employees
at NetApp often get a chance to receive special
recognition. Vice Chairman Tom Mendoza asks
managers to notify him when they “catch
someone doing something right,” and then calls
10 to 20 employees every day to thank them.

5. Rewarding Safety:
• Chesapeake Energy paid out more than $8
million in “safety bonuses” in 2011 to more
than 6,000 employees across the company for
following safe work practices.

6. Keeping Employees Healthy:
• At JM Family Enterprises, health and wellness
centers staffed by doctors, nurses, and other
health care professionals now function at
eight locations of this Toyota distributor,
providing primary care, wellness exams,
complete physicals, vaccines, and lab tests at
little to no cost to employees.

7. On-Site Personal Massages &
Mental Health Resources:
• Employees at Mayo Clinic can get massages
while its Arizona facility’s “stress-free zone”
offers resources to cope with work anxieties.

8. Having Fun At The Office:
• Stryker, a medical-device manufacturer, keeps
things light by offering Ping-Pong tables on-
site and having “pie-your-manager”
competitions.

9. Reloadable Gift Cards:
• Producers Assistance Corporation, in an attempt
to refresh their safety program, chose reloadable
gift cards as an incentive. Here’s how it works:
when an employee takes an action, like attending
a safety meeting, points are loaded onto their
card. The lure of point collecting (and spending)
has focused employees back on doing the right
thing to be safe. After a 6-month trial,
participation had more than doubled and there
was a significant decline in the incident rate.

10. Tuition Reimbursement:
• Intel offers $50,000 for tuition reimbursement
and an eight-week paid sabbatical every seven
years, which 4067 employees took advantage
of just last year.

11. Employee Appreciation Week:
• The insurance giant Aflac hosts an annual six-
day appreciation week; last year it included
theme park visits, film showings, skating, and
daily giveaways.

12. Immediate Vacation Time:
• Hasbro, the world’s second-largest toy
company, enhanced its vacation policy by
giving new employees three weeks off in their
first year instead of having to wait five years.

13. Profit-Sharing Plan:
• Seventy-eight percent of Robert W. Baird &
Co. is owned by non-senior management. All
hourly and salaried associates enjoy annual
profit-sharing contributions from a pool that
represents 10% of Baird’s pretax net operating
income.

14. Offsite Employee Activities:
• GoDaddy sets money aside every month that is
used to take employees off-site for activities
during paid work hours. This isn’t a once a year
thing, either. They do this once a month, EVERY
month. Recent GoDaddy expeditions included:
whitewater rafting, gold panning, cooking classes,
and trapeze classes. The employees obviously
love it, and who wouldn’t?

15. The Monthly Hero:
• Zappo’s has a rather unconventional “recognition” program
in place. Their program is called the “Monthly Hero”
program and here’s how it works. Every month, every
Zappo employee is given $50 they can “give” to a coworker
as a bonus and as a way of to recognize that coworker for
doing a great job and being awesome. Once a month Zappo
executives pick a name from the workers that were given
the $50 bonus and dub him/her the “Monthly Hero.” The
company then proceeds to throw a mini-parade to
announce the monthly hero through a rolling sound system
that’s accompanied by noise makers and playing of the
song “I Need A Hero” by Bonnie Tyler. If all that wasn’t
amazing enough, the monthly hero then wins a covered
parking spot, a $150 Zappo’s gift card, and a cape to
proudly wear!

REFERENCES
• http://www.managementstudyguide.com/perfor
mance-appraisal.htm
• http://www.businessballs.com/performanceappr
aisals.htm
• http://www.slideshare.net/gayathriyuvaraj/rewar
d-system
• http://www.slideshare.net/GaurangaMohanta/co
ncept-of-reward-and-total-reward-system-
26186242?next_slideshow=1
• https://en.wikipedia.org/wiki/Behaviorally_ancho
red_rating_scales

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