Research Report on Performance Management

Description
Performance measurement has been defined by Neely as “the process of quantifying the efficiency and effectiveness of past actions”, while Moullin

Performance Management Research Report
Literature Review & Best Practices

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Performance Management Research Report Literature Review & Best Practices Table of Contents
Section 1: Performance Appraisals – Historical Perspective
• • • • • • • • Introduction Why Appraise? Systemic Problems Table: Objective Evaluation - Disincentives and Incentives The Search for Solutions Chart: Diagnosing Training Need from Level and Source of Appraisal Rating Inaccuracy Components of Successful Performance Management Systems Legal Considerations 4 5 6 4 9 11 12 13 16 16 18 19 20 22 25 26 24 28 29 30 34 35 36 36 38 39 39 40

Section 2: Criteria for Success - Competencies
• • • • • • • • • • • • • Context for Competency Models Chart: OSI’s Complete Job Model Competency Models Constructing and Validating a Competency Model Organizational Uses for Competency Models Characteristics of Effective Competency Models Competency-Based Integrated Human Resource Management Information Systems Table: Competency -Based Assessment Methods Table: Competency Model Applications Competency Model Project Document List Competency Model Interviews and Focus Groups Sample Behavioral Episode Code Sheet Sample Generic Competency Model (from Polaris?)

Section 3: Measurement Systems
• • • • • Overview Management-By-Objectives Behaviorally-Anchored Rating Scales The Mixed-Standard Scale Quantitatively Measurable Performance Criteria

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Performance Management Research Report Table of Contents Continued Page 2 Section 4: Peer Assessment/Peer Review Section 5: Multiple Raters/360-Degree Feedback
• • • • • • • • • • • Overview 360° Feedback: A Graphical Representation Model and Scoring Variations 360 Degree Development The Rating Team Reporting Feedback Results The Benefits of 360-Degree Feedback Summary: Why Use Multiple Raters? Table: Advantages and Disadvantages of Colleague-Supplemented, MultipleRater Evaluations Costs Final Thoughts and Advice on 360-Degree Feedback 43 45 45 47 48 51 53 56 58 59 59 42

Section 6: Feedback
• • • • • • Overview The Johari Window Delivering Feedback Organizational Feedback Using Feedback for Employee Development Goals as Motivational Tools 61 61 69 69 70 72 73 74 78 79 79 80 82 85 87

Section 7: Incentives and Rewards
• • • • • • • Cash Awards Non-Cash Awards Recognition Types of Reward and Recognition Programs Program Design The Argument Against Cash Awards A Few Words About Goals

Section 8: References

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Performance Management
Literature Review & Best Practices
Introduction Performance appraisal ... two words with the power to strike fear into the hearts of managers and subordinates alike. Performance appraisals are much maligned in organizations today, and many suffer from a reputation for being unfair, biased, inaccurate, invalid, timeconsuming, unpleasant and demotivating. Still, most organizations, managers and employees would argue that performance appraisals are necessary. Current trends indicate that performance appraisal systems are moving away from the judgmental, single-source evaluations of the past toward a performance management orientation with an emphasis on employee development. The total quality management movement, heightened competitive pressures, declining profits, and an increasingly litigious workforce combined to slowly change the performance appraisal environment. In 1972, following lawsuits resulting in punitive and actual damages awarded to companies failing to provide adequate performance feedback, a United States court of appeals recommended that organizations implement “safeguards in the (appraisal) procedure to avert discriminatory practices” against employees (Edwards & Sproull, 1985b). “A performance management system that combines planning, management, and appraisal of both performance results and competency behaviors is called a “mixed model” of performance management or a “total” performance management approach. Mixed models assess and reward both performance and competence; what 4
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employees actually did and how they did it. Mixed models are particularly appropriate when organizations are in uncertain and rapidly changing environments, where results are not under employee control; for qualitative/process service jobs, where there are no measurable outcomes of performance; and for jobs intended for development of future performance” (Spencer & Spencer, 1993). Despite a wealth of articles on the subject, there is no consensus on the ideal performance management system. Indeed, most researchers would agree that performance appraisals or performance management systems should reflect unique organizational requirements. Why Appraise? Historically, organizations’ relied upon evaluations and ratings provided by their employees’ immediate supervisors to make pay, transfer, and promotion decisions. Although many performance appraisal systems contained an employee development element, the exercise was seldom followed up on, and developmental goals were rarely referenced until the next appraisal session. Organizational needs to improve employee motivation, morale, and productivity, and to avoid unnecessary litigation led to the redesign of performance appraisal and reward systems to facilitate employee development and to promote organizational goals. Specifically, organizations hope to improve motivation and productivity by defining, measuring and realigning employee behaviors to better reflect organizational goals and expectations. Employee development efforts are facilitated by improved feedback, counseling and goal setting techniques. In addition, well-designed performance management systems positively influence employee motivation by providing a 5
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vehicle for formally recognizing and allocating rewards to outstanding employees. Systemic Problems Despite growing knowledge and research, traditional and contemporary performance appraisal systems still suffer from claims of inaccuracy and invalidity caused by rater error and bias, lack of timeliness, and credibility issues. One study reported “less than 10% of companies expressed confidence in their performance appraisal system” (Edwards & Sproull, 1983). The total quality management movement has additional criticisms of employee appraisals, and believes performance appraisals create conflict and undermine cooperative efforts among the workforce. “This particularly occurs when appraisals are tied to merit pay and when they are based on a forced ranking. TQM rejects the traditional view of performance appraisal because appraisals cannot measure performance fairly and accurately. Employee performance is largely a function of systemic factors over which the employee has little control” (Boudreaux, G., 1994). Sources of rater error Facing often conflicting pressures (organizational and employee) many supervisors avoid, ignore, or delay the performance appraisal process. Some supervisors inflate their ratings to avoid demotivating or demoralizing their subordinates with less than stellar reviews. Others inflate their subordinates’ ratings in the belief that low ratings would reflect poorly on their managerial skills (or lack thereof). Yet other raters are considerably more rigorous than their counterparts, evaluating their subordinates more harshly than the norm. The

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following table outlines the incentives and disincentives faced by managers when developing performance appraisals. In addition, many raters never receive training in either performance/behavior-based observation nor in delivering feedback. As a result, the entire performance appraisal process can become a suspect, negative experience for both the employee and the supervisor. Indeed, as Edwards once stated, “traditional performance appraisals may do more harm than good. Another source of rater error is lack of feedback. Rarely are raters given feedback on their rating ability. Raters sometimes misunderstand or misinterpret performance criteria and rating instructions. Errors caused by positive or negative rater bias, stereotyping, or discrimination often go undetected for years. Some raters exhibit “greater leniency or rigor than other raters, lack of motivation to rate accurately, lack of objectivity, time pressure, lack of conscientiousness, fatigue, and/or an inability to make performance distinctions” (Edwards, et al., 1985). Examples of rater bias include rater leniency, where everyone receives good ratings; attribution error, where employees known to be effective are rated highly on any scales the rater believes are relevant to effectiveness, regardless of the employees actual behavior; the halo effect, where the same person is evaluated similarly on every item; and systematic tendencies of raters to give favorable or unfavorable treatment to specific groups, such as women, older workers, or minorities.

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Objective Evaluation - Disincentives and Incentives
Disincentives/Self-Serving Bias
• Confrontation: A desire to avoid a difficult confrontation • Documentation: Difficulty of assembling definitive documentation • Defensiveness: A wish to avoid an awkward defensive reaction • Reflective Attribution: Apprehension that mediocre performance problems reflect negatively on the supervisor • Action: A desire to avoid subsequent performance monitoring or intervention • History: Acknowledgment that behaviors may have been “acceptable” for a long time • In the line of duty: A feeling that, because performance decrement is related to the job, the problem should be overlooked • Personal problem: A belief that the organization should not become involved in personal problems • Fear of false accusation: A fear of being mistaken about the seriousness of the problem • Heartless attribution: A fear that others will view confrontation as unfeeling • Demotivation: A fear that confrontation will destroy vulnerable motivation • Crystal glass: A fear that confrontation will shatter the weak performer’s delicate selfimage • Coverage holes: A fear that a department’s deficiencies in providing service to other internal and external customers will be brought to light • Future accountability: A fear that subsequent mistakes by the weak performer will become the supervisor’s responsibility • Retention: A fear that a poor merit rating means that the supervisor will retain the problem employee • Marshmallow measurement system: A wish to manipulate soft, mushy performance measures.

Incentives
• Integrity: A feeling that supervisors “should do the right thing” • Knowledge: An understanding that confrontation may save a career life • High Dysfunction: A recognition that the problem is harming the organization • Exposure: A fear that others may point out the supervisor’s inaction

From: Making Performance Appraisals Meaningful and Fair, by Mark R. Edwards, Business, JulySeptember 1989.

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The Search for Solutions Much has been written about the failure of the performance appraisal process, and of methods for correcting or improving it. In misguided, though well-intentioned attempts to control for rater error, many organizations implement rater training and second-level supervisor reviews of appraisals. While these solutions make sense on the surface, closer examination reveals disagreement on the effectiveness of rater training in improving rater accuracy, and serious doubts about relying upon second-level appraisal reviews to mitigate rater error. Rater Training Rater training is thought by some to “produce fairer results by requiring the rater to focus on behaviors, not traits, and to review the employee’s performance during the entire appraisal period before drawing a conclusion. Also, training may help improve supervisors communication skills in providing feedback” (Brown, 1985). However, Edwards, Borman, & Sproull report that improvements in observation gained through training is usually just temporary. In addition, they add, “reviews of rater training for performance appraisal processes have concluded that, far from improving appraisals, in some cases training actually reduces rating accuracy. Rater leniency has been shown to be insolvable in the long term through training alone” (1985). According to Edwards, rater training is ineffective because raters do not usually receive individualized feedback on their own rating tendencies or errors. “Such training may decrease accuracy because raters become sensitive to typical rating errors and overcompensate by changing their own responses, thus creating a new group of errors” (Edwards, et al., 1985). 9
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Edwards, et al., suggest providing experiential learning for raters, where the raters can receive individualized feedback. They divide raters into one of three categories: 1. Wolves (1%) -make highly decisive judgments that tend to be inaccurate. Wolves can destroy confidence in a performance appraisal system. Simple feedback regarding their inconsistencies leads to behavior change. 2. Sloths (6%)-rate most comparisons equal, resist making decisions, and also tend to be inaccurate. 3. Eagles (93%) -are decisive and accurate. The following chart outlines the level, source and impact of rater errors on appraisal systems, and the training recommended to correct them.

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Diagnosing Training Need from Level and Source of Appraisal Rating Inaccuracy
Level of Rating Inaccuracy Source of Inaccuracy Impact on Appraisal System Priority for Training Training Needed

I
Personal bias or confusion about performance dimension Moderate Moderate Feedback-explain source of inconsistencies; Behavior observation: Performance dimensionexplanation by examples or redefinition Compare pre and post training levels of inconsistencies

II
Group bias or lack of understanding on performance dimension Serious High Items in I plus documentation of rated behaviors; Sensitivity to protected groups Compare pre and post training levels of inconsistencies

III
Poor rater, not objective; doesn’t understand performance dimensions Severe Very High Items in I and II plus decisionmaking skills

Compare pre and post training levels of inconsistencies. Remove from rater group if unreliability continues. From “Solving the Double Bind in Performance Appraisal: A Saga of Wolves, Sloths, and Eagles” by Mark Edwards, Walter Borman, and J. Ruth Sproull, Business Horizons, 1985, pp. 59-67. Measuring Training Effectiveness

Second-Level Supervisor Reviews Although second-level supervisor reviews may uncover gross errors or even systematic bias, reliance upon this method to improve performance appraisal accuracy poses three problems. “No evidence indicates that a second-level supervisor generally adds any constructive information to the first-level supervisor’s rating, except where the supervisor has been blatantly biased. Since most review discrimination is covert, this feature is of little value. Second, the second-level supervisor may be the least accurate of all possible raters because they have little opportunity to observe the performance of the individual being evaluated. Third, the immediate supervisor tends to 11
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prepare the review with two audiences in mind, and may try to please both, weakening the appraisal. While second-level reviews seem logical, they make no significant contribution to the improvement of performance appraisals, and may actually undermine the appraisal system” (Edwards & Sproull, 1985b). Components of Successful Performance Management Systems Successful performance management systems emphasize the following: • • Objective criteria or competencies Ongoing, systematic communication (particularly of performance expectations and competencies) - “what is important is that the system actually facilitates open, jobrelated discussions between the supervisor and the employee” (Boudreaux, 1994). • Timely, constructive feedback - “organizations should provide written, personal-performance profiles which include evaluations from several raters. It should illustrate where an employee’s performance is compared with others in relevant job groups” (Edwards & Sproull, 1985b). • • • • Multiple raters A self-appraisal component Personal goal setting Appeal process - “some companies have a formal appeal procedure that gives decision makers the power to change the appraisal rating if justified. Appeal boards should have minority and female representation, and should consist of 12
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individuals who have credibility with both the workforce and management” (Brown, 1985). • • • Written policies Employee participation in the planning process Separate pay increase and employee development processes - “performance feedback should be separated from salary discussions. Otherwise, appraisal judgments that may conflict with salary actions will focus the employee’s attention on salary rather than performance or its improvement” (Edwards, et al., 1985). • Rewards and incentives

Legal considerations An increasingly litigious society coupled with judgments awarded against organizations regarding the credibility, impartiality and fairness of their performance appraisal processes prompt review of the legal implications of the performance appraisal/management system. Legally speaking, performance appraisal/management systems should contain the following minimum*: 1. job analysis and descriptions - “the analysis of a job’s major elements yields the factors on which the employee’s performance will be judged. The basic job duties for professionals, for example, often include completion of a particular project or production of reports of a certain quality level. Producing work on a timely basis is also a common job element in this category. The central job duties should be reviewed with the employee at the start of the appraisal period so that the supervisor and employee share common expectations” (Brown, 1985). 13
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2. Objective behavior-based criteria - “describe the types of behavior that fits each rating level to help supervisors to focus on conduct rather than personality characteristics” (Brown, 1985). 3. “Job analysis, developing job descriptions and identifying and defining job-related observable performance criteria should be conducted in accordance with accepted human resource management procedures. Organizations must often justify both the decision and the manner in which it was made” (Edwards & Sproull, 1985b). 4. .“Once instituting a performance appraisal system, an employer should adhere to it carefully. Failure to follow the procedures may, be a basis for a breach-of-contract or negligence claim, and may also serve as harmful evidence in a discrimination suit. Employment decisions that are inconsistent with the written evaluation of the affected employees will also be difficult to defend” (Brown, 1985). *Consult your legal counsel for the specifics of California law. Conclusion In conclusion, London and Beatty offer the following perspective, “the roles of employees exist within the context of a business strategy. Managerial execution of strategy involves designing appropriate work structures (including job design), producing customer value, building appropriate workforce competencies, behaving in a supportive and effective leadership style, and aligning basic systems, such as financial, material, information, and human resources (e.g., appraisal, selection, rewards) to enhance organizational performance. Performance management systems should be designed to reflect 14
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organizational strategy, to realize the organization’s vision (strategic intent) and to develop the desired performance culture (values) such as teamwork, innovation, risk-taking, etc. Therefore, to be comprehensive, any measure of employee effectiveness must include not only contributions to organizational performance through measures of business success (such as financial and operational), but must also include behaviors that are aligned with the business strategy.”

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Criteria for Success - Competencies
Researcher David C. McClelland introduced the concept of competencies in the workplace in 1973. During his research, McClelland discovered that “traditional academic aptitude and knowledge content tests, as well as school grades and credentials did not predict job performance or success in life, and, were often biased against minorities, women, and persons from lower socioeconomic strata” (Spencer & Spencer, 1993). McClelland’s work in uncovering predictors of job or life success led to the definition of contemporary competency models and their methods of development. By 1991, it was estimated that competency assessments were being “used by more than 100 researchers in 24 countries” (Spencer & Spencer, 1993). Early definitions of competencies included too much emphasis on personal motives, traits, and self-image. Subsequent definitions were revised to reflect the “demonstratable characteristics of the person, including knowledge, skills, and behaviors that enable (job) performance. The emphasis is on the characteristics of the person. Competencies are independent of the job or position. An employee can transport them from one job to another. Competencies must be demonstratable to serve as the basis of pay. Competencies indicate the potential for performance” (Ledford, 1995). Individual competencies influence how a person will act across a broad scope of experiences over a period of time. “Competencies cause or predict behavior and performance” (Spencer & Spencer, 1993). Lyle and Signe Spencer, in their book Competencies at Work, Models for Superior Performance, identify “five types of competency characteristics: 16
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1. Motives - drive, direct, and select behavior toward certain actions or goals and away from others (i.e., achievement motivation) 2. Traits - physical characteristics and consistent responses to situations or information (i.e., good eyesight) 3. Self-Concept - a person’s attitudes, values, or self-image (i.e., self-confidence) 4. Knowledge - information a person has in specific content areas 5. Skill - the ability to perform a certain physical task According to Spencer and Spencer, “the type or level of a competency has practical implications for human resource planning. Knowledge and skill competencies tend to be visible, and relatively easy to develop through training. Motive and trait competencies are more difficult to assess and develop; it is most cost-effective to select for these characteristics. In complex jobs, competencies are relatively more important in predicting superior performance than are taskrelated skills, intelligence, or credentials. What distinguishes superior performers in these jobs is motivation, interpersonal and political skills, all of which are competencies. To improve performance, organizations should use the characteristics of superior performers as their “template,” or “blueprint,” for employee selection and development. Failure to do so is essentially to select and train to mediocrity” (1993).

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Context for Competency Models In applying competencies, a clear understanding of the organization’s complete job model is necessary. This provides an absolutely necessary context for application. For example, OSI’s job model combines competencies with two other components, objectives and roles, to completely understand and describe a particular job:

OSI’S COMPLETE JOB MODEL

COMPETENCIES
Knowledge Skills Motivations The knowledge, skills and motivations needed for this role

OBJECTIVES
• •

ROLE
• • •

Business Professional Specific objectives that focus the role on what is important in the short term

Responsibilities Outcomes Expected Indicators of Success

The core definition of a particular job: purpose, responsibilities, and performance measures

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Competency Models Competency models and corresponding competency dictionaries list the characteristics (competencies) found in common across superior organizational performers. While individual models may differ, most group competencies into major categories, such as “communication, or interpersonal skills”, along with narrative definitions and examples of what each behavior (or competency) looks like. Generic competency models “are applicable to all jobs-and none precisely” (Spencer and Spencer, 1993). In addition, while a competency may be essential to a particular job the extent or level of competence required for each job will vary. Competency models are developed through interviews, focus groups, research, and surveys. The competency modeling process identifies and validates the skills, abilities, knowledge and behavior required for exceptional performance within an organization or group. The result of this processes is a validated competency dictionary, which isolates and clusters groups of behaviors into complex roles. These competencies then serve as solid, legally defensible criteria for developing a wide variety of human resource processes and systems such as valid hiring and selection systems, assessment centers, performance reviews, succession and career planning, position descriptions, training and development programs. Without a clear understanding of these competencies the reliability and validity of all personnel processes, from employment interviews, to performance appraisals, to succession planning, are severely limited.

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Constructing and Validating a Competency Model The classic competency modeling process typically involves six phases. The first phase includes establishing model parameters by meeting with the organization to determine their requirements and intended applications. The second phase involves benchmarking best practices and reviewing internal documents such as performance appraisal, selection and succession planning criteria to identify existing internal models and generic “best practices”. A literature review is conducted to develop a generic list of competencies. Modifications and additions are made to any existing internal models. Phase three identifies the criteria to be used to identify high-performers within the organization and high-performers recruited for the process. Interviews and/or focus groups are conducted with high performing individuals to identify the knowledge, skills, and abilities that set them apart from the general organization. A significant portion of this phase is dedicated to soliciting examples of effective and ineffective performance that illustrate, contrast, and reflect the actual competencies needed for success within the organization. Electronic meeting technology is often utilized during this phase, to facilitate and expedite data collection. In phase four, a master list of competencies and prototype competency dictionary/model is generated by analyzing and coding the raw data collected in the previous phase, and integrating it with the competency list generated by the literature review. The prototype competency model is tested through a validation survey in phase five. The master competency list is converted to questionnaire 20
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format, and coded according to business unit, function, and level. The questionnaire is administered to a percentage of the organization’s population to test the statistical validity of the competency constructs. Respondents are asked to rate how essential a competency is to successful role performance (from “not necessary” to “absolutely essential”). A validity statistic is computed to help validate each competency in the model. This strategy of “content validation” is an accepted practice in defending the validity of a specific model. The questionnaire results are analyzed to determine valid competencies and sub-group differences. The final phase tests the now validated competency model with the group’s leadership against the future identified needs of the organization. The validated competency model is presented to upper management for review, discussion, and approval. The model is tested against the organization’s future vision to ensure it drives behavior toward the organization’s preferred future state. The completed product features a statistically valid competency model representing the organization’s current and future needs. Process Results The competency modeling process serves several distinct purposes. It identifies a complete set of skills, abilities and attributes needed for exceptional performance in a particular organization, it facilitates the development of concrete definitions for each competency, and it provides numerous examples or “critical incidents” of the competency at work.

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For example, Customer Orientation is a competency commonly identified during the competency modeling process. A sample definition is: … the ability to anticipate and meet internal and external customer needs. A critical incident may state: “…I received a phone call from a person in field sales who needed some assistance. This is not what I ordinarily do as part of my job description. I spent quite some time inquiring into the nature of the problem, and then conferencing with different contacts in the marketing area until I found the correct person to supply the answers needed by the salesperson…” Upon completion, the results of the competency modeling process include a statistically valid model of the skills, knowledge, and abilities identified as necessary for success in that organization, and a competency dictionary, defining each competency and containing illustrative examples of critical incidents. Organizational Uses for Competency Models Organizational uses for competency models include: employee, management, and leadership development (assessment centers, team building, training, seminars, 360° surveys), selection (structured interview development, hiring decisions, succession planning), and performance management (structured review processes, personal and/or team development goals, coaching, compensation evaluation/decision making). 22
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Employee Development Competency-based assessments facilitate employee development efforts by identifying areas of developmental need for both individuals and groups. According to Spencer and Spencer, “competencies can be taught. Evidence from many studies indicates that even core motive competencies such as achievement orientation and traits such as self-confidence can be modified. Competency-based development should be implemented when there is a need to increase performance, and/or a desire to reduce learning curve time from job entry to full productivity.” Selection Most organizations are continually in the process of employee selection, whether selecting from within (placement and promotion), or from the outside (new hires). Competency models can play an important role in successful selection. “Competency-based selection is based on the following hypothesis: the better the fit between the requirements of a job and competencies of the jobholder, the higher job performance and job satisfaction will be. People well matched to their jobs intrinsically enjoy their work more, which produces a better organizational climate. Competency-based selection can be a way for organizations to gain competitive advantage” (Spencer & Spencer, 1993). In addition, by its nature and design, competency-based selection is non-discriminating on the basis of age, race, or sex. Spencer and Spencer recommend utilizing competency-based selection to address the following organizational-selection dilemmas: • Poor performance or productivity in critical jobs • High turnover/poor retention • Succession planning 23
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• Long learning curve times • Equal opportunity for nontraditional candidates • Organizational change • Determining training needs (1993) Succession Planning “Succession planning is an ongoing system of selecting competent employees ready to move into key jobs in the organization. Competency-based succession planning systems identify the competency requirements for critical jobs, assess candidate competencies, and evaluate possible job-person matches. The organizational issues that indicate a need for competency-based succession planning include: • Poor promotion or placement outcomes • A need to redeploy technical/professional staff people to marketing or line management jobs—or managers back to individual contributor roles • Organizational changes which require employees with different competencies (Spencer & Spencer, 1993). Performance Management The use of competency models in the performance management process switches the focus from what employees do, to how they do it. This realignment reflects the move to a developmental approach to performance management. The use of competency models in the appraisal process results in “more qualitative, longer range, futureoriented information which is used for employee development and career path planning” (Spencer & Spencer, 1993). The following organizational issues “indicate a need for competencybased performance management: 24
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• Job performance standards and appraisal criteria are seen as unfair • Performance appraisals are not taken seriously because they have little impact on employee performance or development • The performance management system does not reflect or reinforce the organization’s strategy because it fails to focus employee behavior on strategic priorities such as quality or service • Performance ratings are inflated (Spencer & Spencer, 1993) Characteristics of Effective Competency Models • A results driven focus to ensure the competency model supports outcomes important to the organization. Competency models must blueprint the knowledge, skills, and attributes required to produce desired results within the organization. • User ownership of the model is the key to successful implementation. Asking any manager to change current practices requires overcoming a “value added” hurdle (what is the benefit of change, what’s in it for me?). Training is a vital element of this conversion, as is continuous involvement during all phases of the project. When managers “own” the competency model they are much more likely to use it when the time comes. • Simple systems are the ones that last and are used most often. These are systems that do not tax already scarce resources, and do not require inordinate care and feeding. It is essential to design materials and processes that are easy to access and use. • Trained people must ultimately make human Resource decisions, not algorithms or formulas. Competency models cannot stand by 25
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themselves. Proper training to understand the synergistic nature of the model, techniques and mindsets required is vital for applying competency models successfully. • Finally, systems generated from competency models are more readily implemented if they are consistent with existing programs such as performance appraisal, development, or promotion systems. Models that reinforce and compliment existing programs will be more readily accepted, better integrated, and are more likely to succeed. Competency-Based Integrated Human Resource Management Information Systems Competency-based integrated human resource management information systems feature “a data-base containing information about the competency requirements of jobs and competencies of people, and is used by all human resources functions: recruitment, selection, placement, compensation, performance management, succession planning, and training and development. Such systems provide a “common language” and integrates all human resource services” (Spencer & Spencer, 1993). Competency-Based Assessment Methods The following employee assessment methods are built upon competency-based foundations: Behavioral Event Interviews Tests - work-sample, personality, ability Assessment Centers-simulated exercises designed to elicit desired behaviors Biodata Interviews - generate facts about a person’s life that provide evidence of competency expression 360-Degree or Multi-Rater Surveys 26
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Adapted from Competence at Work, Models for Superior Performance, by Lyle M. Spencer, Jr., Ph.D. and Signe M. Spencer, 1993.

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Competency Model Applications
Application Management Training Description i.e., Basic Skills Training for Managers- - typically nine training modules distributed over time which include: 1) Introduction to Management 2) Leadership & Motivation 3) Team Building 4) Effective Communication 5) Coaching/Counseling 6) Administrative Skills (Managing Multiple Priorities) 7) Problem Solving 8) Organizing and Planning 9) Work Project Presentation/Summary Typically one-day training programs targeting a “high need for training” competency (e.g., “How to Coach a Marginal Performer” or “Managing Conflict in the Workplace”) Customized Performance Management System incorporating competency model: 1. Policy/Procedure/Form Development 2. Training Program Custom Interview Program: 1. Program Design (Policy and Procedure, Questions) 2. Interview Training (1 day) External mentors diagnose and coach managers and supervisors. This process typically lasts three months with the coach administering instruments, interviewing co-workers, and observing and conducting feedback/development sessions.

Custom Training Modules Custom Performance Appraisal System Interview/Selection Training External Mentoring/Coachin g

Custom 360 Survey Custom questionnaire and administration to allow individual diagnosis against the competency model. Participants receive feedback from self, boss, peers, and direct reports or clients (if applicable). Includes design, development, and validation of survey (pilot group of 24 managers). Generic 360 Survey General feedback against generic model of leadership and management effectiveness provided by self, peers, boss, and direct reports. Assessment Center (Simulation based diagnosis and development) Typically a day of experiential simulations to diagnose leadership and management skills for development and selection. Assessment Center staff are trained to observe, analyze and provide one-on-one participant feedback.

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Competency Model Project Document List
The following documents have proven useful in capturing organizational perspectives on the role(s) being modeled.

• • • • • • • • • • •

Position descriptions for the role(s) Compensation analysis documents Succession Planning documents Performance Appraisal forms and process documents Training curricula, materials, and documentation (i.e., training needs analysis) Orientation material Recruiting material Interview and Selection criteria, forms, and documentation Job/Employee Satisfaction Surveys Results of role clarification, organization design, or other organizational development efforts Existing competency models - general or specific

While these documents reflect an organizational history, they can serve as a useful foundation and framework for modeling future performance expectations.

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Competency Model Interviews and Focus Groups
Overview High-performing employees are identified and invited to help develop a competency model, or blueprint, to describe ideal performance in the organization. A significant portion of this process involves gathering direct information from job incumbents and job content experts. Specific Interview/Focus Group Purpose • To generate “raw” information about the motivations, knowledge and skill necessary for superior performance now and in the future. • To collect “episodes and incidents” for use in competency model applications. Procedure Individual interviews run from 1 ½ to 2 hours each. They are typically tape-recorded. Focus groups of up to 12 high-performers participate in 3 to 4 hour electronic meetings. The interviews and meetings uncover the competencies needed for superior performance through a series of questions. These questions are designed to isolate the motivations, knowledge, skills, and attributes necessary for exceptional organizational performance now and in the future.

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Sample Interview Questions: 1. Please provide some background information to help us describe the sample of employees participating in the research. What is your role? How long have you worked here? 2. What sets this organization apart from its competitors? (What is your unique technology/process/knowledge/skill; what do you know or do better than any other organization?) 3. What are the most important results this organization needs now and in the future? 4. What are the greatest challenges this organization currently faces? 5. What do you like most about working here? What keeps you motivated and energized? 6. What do you like least about working here? What is discouraging and de-motivating? 7. Why have people “derailed” here? (terminate, plateau, demote, quit) 8. If we were to create a Hall of Fame to honor exemplary employees (those who generate results, respect, and like what they are doing) who would you nominate? What attributes define these people? Please provide one or two behavioral episodes to illustrate your choice. 9. Provide some personal episodes illustrating your own effective and ineffective performance. These are anonymous. 31
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Behavioral Episodes Behavioral episodes are anecdotes describing specific situations that exemplify effective performance. They are the “slices of work life” that provide insight into what effective performers actually do to bring out the results and respect they generate. Ingredients for good behavioral episodes include: • What was the situation (context)? • Who was involved (players)? • What was thought or felt in the situation (emotions and thoughts)? • What was actually done in the situation (actions)? • What was the positive (or negative) outcome or consequence (results)? Here are two examples: “This situation involved excess capacity in a production area in a plant near the home office. The production requirement for this line used about half the capacity. This situation drove costs up and made the overall profitability of the line look terrible. I asked the production manager to buy software and completely developed a business plan that started our own strategy to sell the excess capacity. It took four weeks, day and night, to develop the plan. When the plan was completed we presented it to my manager and let him know we had already made our first sales call and we were ready to write our first order with a company on the West coast! I felt really good about being able to improve the line’s profitability -- I was proud of the team’s accomplishments.” 32
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“A customer came in my store. We are in a large mall. His four year old had entered a contest at one of our facilities and won a $100 gift certificate (only to be redeemed at particular stores, clearly stated on the certificate) and wanted to redeem in at my store. I explained that it could not be redeemed here. The customer was bummed and the daughter was crying. Being a parent, I felt bad and also empathized because to our customers we are one big company. I tried to reach my district manager but she was not available. I decided to bend the rules and redeem it to keep the customer happy. The customer was very pleased and we kept our company image. I have noticed that this customer returns regularly. I was ultimately supported by the company, and felt good about making a customer happy.”

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SAMPLE CODING OF BEHAVIORAL EPISODE
A Support Analyst received a call from a troubled technician for one of our major customers, whose system had just gone down. This technician knew that if the system was not brought up within the next 10 minutes, he would be the center of great attention at his company. After some brief questions asked by the Support Analyst, it was found that the problem was a known one but with a slight twist. The Support Analyst had found that the problem also occurred on a system with a different piece of software than was mentioned in the knowledge repository he consulted. The Support Analyst was quickly able to send the patch to the customer and within 7 minutes the system was up and running. The Support Analyst then created the additional information he had found on this incident. Knowing the importance this information would have to other customers, to engineering and the other support Analysts he contacted Engineering and his manager to discuss this problem. Both took accountability for this newly discovered problem and were quick to react proactively to this. The analyst followed up later with his manger who informed him that a bulletin was sent out by Engineering who had investigated this problem. By working as a team, the group’s involved in this incident were able to proactively react to a problem that would have caused many down systems.”

COMPOSURE

FACT FINDING / LIST PROBLEM RESOLUTION TECHNICAL EXPERTISE

INDEPENDENCE

CUSTOMER IDENTIFICATION INFLUENCE SKILLS

PLANNING/PRIORITIZING TEAM PLAYER / INTERPERSONAL SKILLS

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Polaris? OSI’ s Universal Competency Model

Interpersonal Competencies Working Well With Others 1. Conflict Management 2. Diplomacy 3. Relationship Building 4. Sensitivity 5. Team Orientation 6. Assertiveness Communications Competencies Facilitating Information Exchange 1. Communicativeness 2. Informal Communication Skills 3. Listening Skills 4. Presentation Skills 5. Writing Skills Management Competencies Optimizing Talent and Resources 1. Coaching & Counseling 2. Team Management 3. Financial Acumen 4. Organizing & Planning 5. Delegation Leadership Competencies Providing Direction, Inspiring 1. Influence 2. Leader Identification 3. Mission Focus 4. Courage 5. Strategic Thinking 6. Visioning 7. Growth Orientation

Conceptual Competencies Thinking, Analyzing, Using Intuition 1. Creativity 2. Problem Analysis & Decision Making 3. Learning Agility 4. Systems Thinking 5. Self-Awarenss Personal Competencies Core Intrinsic Qualities 1. Adaptability 2. Composure 3. Initiative 4. Integrity 5. Energy 6. High Standards 7. Positive Impact 8. Results Orientation Contextual Competencies Knowing The Organization’s Environment 1. Industry / Market Knowledge 2. Global Skills 3. Organization Knowledge 4. Technical Knowledge 5. Customer Orientation

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Measurement Systems
Overview “Performance measurements—the important features of getting the job done, may include organizing and planning, quality of work, quantity of work, job knowledge, versatility, professional competence/competencies, cooperation toward achieving organizational goals, communication skills, decision making, etc. Jobrelated criteria for performance evaluation include job dimensions, performance standards and illustrative, observable behaviors. Criteria should be 1. Measurable through observation of behaviors on the job 2. Clearly defined 3. Job related Employee input can provide data for developing criteria—all employees should know and understand the performance dimensions before appraisals are conducted’ (Edwards & Sproull, 1985b). One common example of a traditional measurement system utilizes the following rating scale: Rating 5 4 3 2 1 Description Far exceeds expectations. Outstanding. Exceeds expectations. Proficient: Meets expectations. Below average. Needs improvement. Does not meet expectations. Improvement is required.

Boudreaux, in an article he wrote for Compensation & Benefits Review describes the shortcomings of this approach: “This system features small gradations based on imprecise performance appraisal 36
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categories. It forces managers to compare employees. This can create competition and not cooperation. If this is linked to a merit plan, it appears that the rating categories and the corresponding increases should be distributed across a normal distribution, with a majority of employees ranked as “3”’s. By definition, the system assumes that most employees fall two points below where they naturally want to be. The system necessarily attacks the self-esteem of a majority of employees. Further, few if any managers can objectively justify a distinction between greatly exceeds and exceeds” (1994). Several alternate measurement methods and systems have been developed over the years including Management-By-Objectives (MBO), Behaviorally Anchored Rating Scales (BARS), The MixedStandard Scale (MSS), quantitatively measurable performance criteria, and the use of multiple raters or 360-degree feedback. Management-By-Objectives (MBO) Performance management systems utilizing Management-ByObjectives strategies entail the setting of mutually agreed upon, observable, measurable objectives and goals between employees and their bosses. “Each level of the organization sets goals that complement those set at the next highest level. In many cases, individual monetary rewards (bonuses, merit increases, etc.) are tied to MBO goals” (Wright, 1994). One criticism of the management-by-objectives strategy is that employees tend to focus on attaining their objectives to the detriment of their other, non-measured responsibilities. Edwards, Borman, & Sproull characterize MBO “as one of the greatest management illusions. The technique simply increases pressure on the individual and is self-defeating” (1985). 37
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Behaviorially Anchored Rating Scales (BARS) Behaviorially Anchored Rating Scales are “descriptions provided on appraisal forms and surveys which describe a precise level of performance. BARS were developed with the hope of improving rater accuracy by providing job-related behavioral anchors and altering the format of rating scales. BARS anchor each rating interval with descriptions of a behavioral incident. BARS eliminate the confusion and common error caused by open-ended rating scales (i.e., what is the difference between satisfactory and good?). Another advantage provided by BARS is that they focus the appraisal on behavior rather than personality characteristics (Brown, 1985). Unfortunately, while behavioral anchors offer specificity in setting performance levels, research has indicated that BARS offer no performance measurement superiority over conventional systems. They are also time consuming and difficult to develop-especially if there are many dissimilar job slots. To develop BARS for just one job, that job must be separately and carefully analyzed and performance levels must be described in detail for several of the job’s areas” (Edwards, et al., 1985). The Mixed-Standard Scale (MSS) The Mixed-Standard Scale is considered “superior to BARS in reducing halo and leniency errors. MSS disguises dimensions and ordinal relationships among items so that the rater cannot detect an order of merit in the items. In the MSS, all items are presented in random order and raters must respond without knowing whether a low, medium or high rating for a particular item has a positive, neutral or negative correlation to performance. Raters are required to choose one of the following three responses for each item: the ratee’s 38
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performance is lower (or poorer) than the item description (-); the ratee’s performance fits the item description (0); or the ratee’s performance is higher (better) than the item description (+). This format provides for error counts that can be used to identify rater errors, systematic rating tendencies, and ambiguous dimensions, thereby providing the opportunity for rater feedback. MSS can be used with multiple raters. Despite its advantages, many raters experience frustration with this system, and it has little industry support” (Edwards & Sproull, 1983). Quantitatively Measurable Performance Criteria Quantitatively Measurable Performance Criteria are thought to be objective, reducing “conflict between the employee and the appraiser by restricting the focus of the appraisal to items that can be measured by number or quantity (e.g., production rates, sales…). The problem, is that quantitative measures do not guarantee objectivity, nor capture all components of an individual’s contribution to the organization’s productivity because there are numerous factors that influence the events being measured (degree of assistance, territory/departmental differences, etc.). Quantitative performance criteria, while apparently straightforward in their emphasis on numbers are flawed in that they may: • • • • Emphasize certain obvious but sometimes insignificant aspects of the job Negatively influence job holders by suggesting that only the numbers, and not the nuances of their jobs count Encourage short-term individual gain at the expense of longterm development and the organization’s success Need to be artificially created for many management jobs (Edwards & Sproull, 1985b) 39
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According to Edwards and Sproull, performance “standards don’t have to be quantifiable, but they must be keyed to observable behavior”.

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Peer Assessment/Peer Review

Although forms of peer assessment are found in multi-rater and 360degree survey instruments, not all peer assessments utilize these rating tools. According to Kane and Lawler, peer assessment methods were first developed in the 1920’s. The numerous research studies conducted on peer assessment methods over the years have determined them to be reliable and valid. Peer assessment is defined as the “evaluation of work performance by peers or colleagues of equal rank against established performance criteria or competencies” (Bader & Bloom, 1992). There are three methods of peer assessment: peer nominations, peer ratings, and peer rankings. 1. Peer nomination - each member of the group designates a specified number of group members (usually excluding themselves) as being the highest and/or lowest in the group on a particular characteristic or dimension of performance. Administration is simple for the rater, but complex from the standpoint of design, administration and scoring. This method is not recommended. Research on its effectiveness is inconclusive. It requires a group size of at least ten for reliability. Although it does not provide information about all group members, it requires responses from all group members to ensure reliable results. In addition, it is difficult to compare members of unequal size groups. This method can only be used to identify the extreme high and/or low members of a group and provides little, if any, discrimination between remaining members (Kane & Lawler, 1978). 41
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2. Peer rating - each group member rates every other group member on a given set of performance or personal characteristics, using any one of several different types of rating scales, including behaviorially anchored rating scales, adjective and numerically anchored graphic rating scales. Minimal group size is ten (Kane & Lawler, 1978). 3. Peer ranking - each group member ranks all the others from best to worst on one or more factors. Ranking is considered the most discriminating of all the peer assessment methods, since it is quite probable (if no ties are allowed) that the average rank received by each group member will be different from that received by any other. This method is therefore the method of choice when the purpose is solely to discriminate all the members of a group from one another (Kane & Lawler, 1978). According to Bader & Bloom (1992), proper preparation, design, and training is required to avoid the disadvantages of peer assessment which include the: • Initial time commitment • Difficulty for some people to keep input anonymous • Inappropriate use of input • Tendency of some people to use peer reviews vindictively • Tendency for reviewers to remember isolated or recent incidents or to blow incidents out of proportion • Tendency for reviewers to save feedback for the process, rather than delivering it as needed

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Multiple Raters/360-Degree Feedback

Overview Multiple-rater and 360-degree feedback instruments offer superior assessment alternatives to the prior measurement methods. Multiplerater surveys can differ from 360-degree surveys in that 360-degree surveys always sample feedback from several sources around the participant. Typical 360-degree surveys solicit and analyze input from the participants’ immediate supervisor(s), peers, and direct reports, suppliers and customers (if applicable). Self ratings are also often included. Multiple-rater feedback in contrast, consists of more than one rater, usually four or more, but they do not necessarily represent opinions from all sources around the participant. For the remainder of this discussion, the terms 360-degree and multi-rater feedback can be used interchangeably. Although the concept of 360-degree feedback has been around for almost twenty years, the tool was not often used until fairly recently. One reason for its increase in popularity lies with technological advances that ease administration by introducing computer-processing to a formerly time-consuming, manual task. One study estimates 13% of all organizations are currently using 360degree survey instruments (Gruner, 1997). 360-degree surveys are used for employee development, succession planning, training needs assessment, and for making appraisal, salary and promotion decisions. 360-degree, and multi-rater feedback is very powerful, and often more meaningful than single-source (supervisory) feedback. 360-degree feedback is valuable in that it provides additional sources of observations of behaviors from varying perspectives. 43
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“Subordinates, for example, are more directly affected by managerial behaviors and decisions in ways that are not always evident to supervisors. In fact, supervisory feedback may primarily reflect the performance of the manager’s work unit, rather than leadership behaviors, which they may not directly observe (what vs. how). Research by Bernadin and Beatty has shown that 360-degree feedback can enhance both communications and performance” (London & Beatty, 1993). Furthermore, numerous research studies have proven multiple assessment tools to be reliable and valid sources of data. In fact, studies correlating peer ratings with other measures of success show that peer ratings are valid and reliable predictors of performance (Pollack & Pollack, 1996). 360-degree assessment reports provide comprehensive summaries of an employee’s job related competencies (skills, abilities and knowledge). With 360-degree assessments, employees can compare their own ratings of their performance with the ratings they receive from their rating team. Since employees typically “see” themselves and give themselves higher ratings than others, 360s provide employees with valuable insight into their strengths and weaknesses. Most organizations use 360-degree feedback for developmental purposes only. Considerably fewer use it for merit review evaluations. 360-degree surveys are used by both management and nonmanagement personnel.

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360° Feedback: A Graphical Representation
Boss Work Unit Results - -Financial - -Operational Leader Behaviors Peers/Suppliers Behavior -Cooperation -Planning -Teamwork Customer Work Unit Results Leader Behaviors

Manager Work Unit

Subordinates Leader Behaviors

From “360-Degree Feedback as a Competitive Advantage” by M. London & R. Beatty, Human Resource Management, Summer/Fall 1993.

Model and Scoring Variations K. M. Nowack identified five basic models of 360-degree instruments, and three distinct scoring methods, in a 1993 Training & Development article entitled “360-Degree Feedback: The Whole Story”. 360-degree models include: job analysis, competencybased, strategic planning, developmental and personality theory models. Competency-based models are probably most often used for employee development purposes. 1. Job analysis - measure knowledge, skills and abilities determined through focus groups and job-task information questionnaires

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2. Competency based - measure competencies which are determined by identifying the behaviors of high performing employees 3. Strategic planning- measure knowledge, skills and abilities required based upon the organization’s strategic plan, and identified through interviews and focus groups with key senior executives. 4. Developmental theory - measure knowledge, skills and abilities based on theoretical and conceptual models of employee growth and development. These models note critical skills for various developmental stages. 5. Personality theory - measure knowledge, skills and abilities associated with personality, such as qualities, traits, temperaments and styles in communication, leadership, interpersonal relations, and cognition. There are three different ways to score 360 degree survey instruments. It is possible for one comprehensive feedback report to represent all three types of scoring methods. The various methods of scoring 360degree instruments include ipsative, normative, and competencybased norm scoring. 1. Ipsative scoring - where employees can track and compare their own scores over time. Initial scores serve as a baseline against which later scores are compared. Ipsative scoring can focus on behavioral changes or on the employee’s degree of awareness of his or her interpersonal, communication, or leadership styles at given points in time. 46
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2. Normative scoring - employees compare their scores with the scores of a representative group of similar employees (same job, organization or industry). Normative scoring also allows organizations to determine training needs. 3. Competency-based norms - are determined by surveying a group of high performing employees, and calculating the means and standard deviations from the individual scales. These means are used for comparison purposes. (Nowack, 1993). 360-Degree Development Development of a 360-degree or multi-rater instrument is, as in competency modeling, a multi-phase process. In phase one, the organization must determine their requirements and intended applications of the instrument (e.g., development, appraisal, selection). Phase two focuses upon determining the content and survey format. The development of an organizational competency model typically precedes 360-degree survey design. According to London & Beatty (1993), 360-degree surveys “should be based on behaviors strategic to organizational success and relevant to the job, and can include new behaviors top management may wish to reward.” Questions should describe specific, observable, job-related behaviors. Raters should be provided with a “cannot rate option for areas of performance they have not had sufficient opportunity to observe” (Pollack & Pollack, 1996). The third phase includes “establishing a report format and distribution procedures, clear instructions, rater and participant training. Report formats vary from narrative summary statements to statistical 47
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summaries averaging ratings across items or clusters of items. Some include departmental or group norms. The more detailed the report, the more managers focus on results that match their self-perceptions. Reports that summarize data on statistically derived factor analyses and by averaging items across predetermined factors provide reliable, more easily digestible data without losing distinguishing information” (London & Beatty, 1993). In addition, many reports include transcriptions of written comments made by the rating team. Such data is particularly valuable as it provides a context from which to view the quantitative results. Phase four focuses on training. Facilitators must be trained to interpret and deliver meaningful feedback on report results. It is strongly recommended the organization provide pre-assessment training sessions for all raters. The Rating Team Although multi-rater and 360-degree ratings team membership may vary, all sources agree that rater anonymity must be guaranteed. Protecting the confidentiality of respondents helps to ensure honest, objective survey responses. To this end, many organizations use third party firms to collect and analyze the data, and prepare feedback reports. Subordinate and peer ratings are either not reported, or are combined, if fewer than three responses are received. “Data from three or more raters improves the reliability and validity of the ratings, reduces the amount of bias, and helps to maintain the anonymity of the raters” (Pollack & Pollack, 1996). Supervisor ratings are not kept anonymous.

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The make-up of the employees rating team is important, because raters must be respected for their feedback to be valued. Although many organizations allow participants to choose their own rating teams, “the research literature and organizations surveyed indicated that if left to select respondents on their own, employees will often select only those who are likely to provide them with positive ratings” (Pollack & Pollack, 1996). Other organizations require supervisor approval of team selections. Raters should be selected based upon frequency and significance of their contact with the participant, and “should have had the opportunity to observe the participants’ behavior for at least four months” (Yukl & Lepsinger, 1995). Supervisors are almost always required to submit ratings. Self-Ratings Many 360-degree survey instruments include self-ratings. One advantage of self-ratings is that completing an instrument helps participants to better understand the behavior scales in the final report (Yukl & Lepsinger, 1995). Self ratings tend to facilitate behavioral change because managers can compare their self-perceptions directly with how others see them (London & Beatty, 1993). However, selfratings examined on their own, tend to be more lenient than others’ ratings, and have “less variability, more bias, and less agreement with ratings from other sources” (Pollack & Pollack, 1996). Peer Ratings Peers are those employees found at the same organizational level as the participant. “Peers may be in the best position to provide feedback on skills such as working with others and teamwork, decision-making and technical capabilities” (Pollack & Pollack, 1996).

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Subordinate Ratings “Numerous writers have discussed and illustrated the importance of selecting, promoting, rewarding, and developing good managers. Some organizations spend millions of dollars each year on managerial training programs and assessment procedures to increase the probabilities for better management. Subordinate appraisals of managers are an assessment and development tool which has an excellent track record” (Bernadin, 1986). Subordinates provide a valid source of information about their managers because they are often in better positions to observe and evaluate certain managerial dimensions than any other source of assessment. According to Pollack and Pollack (1996), “subordinates may be the best source of information on delegation, interpersonal, teambuilding, communication, and leadership skills.” Since appraisals are often available from several subordinates, the multiple assessments have potential for greater validity than that which is typically found in ratings by a single rater, most often the superior to the manager. A formal system fits nicely into the employee commitment or involvement models which are gaining in popularity today” (Bernadin, 1986). In addition, “studies have found significant but moderate correlation between subordinate and supervisory ratings, with higher correlation on some managerial dimensions than on others. These findings reflect a position that subordinates share a common perspective with superiors on some managerial dimensions but also a unique and important perspective on other aspects of the manager’s performance. Another study also found few significant correlations between subordinate appraisals and self-ratings on the same managerial 50
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dimensions. Thus, for example, those managers who perceived themselves to be effective at ‘Providing clear instruction and explanation to employees when giving assignments” were not perceived as such by those on the receiving end of the instructions (Bernadin, 1986)”. Customer Ratings Customers, either internal or external are sometimes tapped as sources of feedback. Although Pollack & Pollack suggest that “customers may be the best source of input on quality of work and service orientation”, they also note that there are no studies confirming the validity of customer derived data. In fact, they, and the organizations they studied recommend against using customer feedback. Reporting Feedback Results When 360-degree feedback is to be used for developmental purposes only, many organizations deliver feedback reports directly to the employees, who may or may not choose to share them with their supervisors. However, research indicates that participants who share their results with someone else within the organization tend to be more likely to act on the data. “Feedback data is most valuable when used in the development of action plans. Action plans should be developed as soon after the feedback reports are received as possible” (Pollack & Pollack, 1996). Reports are delivered to the supervisor or employer when they are to be used for succession planning, appraisals and assessment centers. Feedback reports tend to be reported in summary form, both to protect the confidentiality of the respondents, and to reduce the effects of overly complimentary or negative ratings (Nowack, 1993). Feedback reports should separate data according to

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respondent type (e.g., self, supervisor, peers, and direct reports) for ease of interpretation (Yukl & Lepsinger, 1995). A study by Hautaluoma, Jobe, Visser, and Donkersgoed (1992) examining the use of feedback results reports that “most employees favor formal policies requiring upward feedback use and a strong developmental purpose, but no direct contact between manager and subordinate.” Feedback reports vary in size, detail and format. Some reports allow for the comparison of scores across multiple years, and against group norms. Norms show participants where they stand compared to a large sample of other employees. Norms may be reported by group, department, division, organization or industry. Some reports include response range and/or distribution data. In addition, “comparing each employee against others in the organization or against performance benchmarks provides a check against leniency and favoritism” (Edwards & Sproull, 1985b). Feedback reports are typically delivered in facilitated, group or one-onone sessions, where the reports are explained and developmental action plans completed. Programs tend to be more successful when the participants’ supervisors are involved in the action planning process (Pollack & Pollack, 1996). In addition, participants are more likely to accept feedback when they are allowed to interpret some of their reports themselves (Yukl & Lepsinger, 1995). The Benefits of 360-Degree Feedback Multi-rater and 360-degree assessment and feedback tools provide many organizational benefits. The use of multiple raters adds objectivity to the appraisal system, and lends credibility. “Most 52
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research shows that multiple rater composites are better estimates of an employees’ true value than individual judgments” (Edwards & Sproull, 1983). Multiple raters provide a more accurate picture than single raters due to their varied perspectives on the participants’ behavior. In addition, the use of multiple raters improves fairness by minimizing the rating errors and biases common in single-rater evaluations. “Experience also indicates that minority groups who are not well represented in the organization hierarchy often receive higher evaluations using a multi-rater process than with supervisor-only ratings” (Edwards, et al., 1985). Organizations using multi-rater instruments report employee support and acceptance of the process when it is used for developmental purposes. “Leading court decisions such as Rowe v. General Motors Corp., (1972) and Watkins v. Scott Paper Co. (1976) further recommend the use of someone other than the supervisor to determine performance level. When an appraisal process has a discriminatory impact, single rater determinations of performance may be disallowed unless they can be supported by documented, objective, reliable evidence for each performance criterion rated. Such support may be unlikely under a single rater performance appraisal system that may be both subjective and lacking in any means to measure the reliability of performance ratings” (Edwards, et al., 1985). Multi-rater assessments also provide insight and data on rater accuracy. Computer software is available which is able to identify ratings that are inconsistent with the average ratings of other (multiple) raters. “Inconsistent ratings may be a function of confusion or misunderstanding of a definition of behavior, or the result of blatant 53
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bias (positive or negative—indicated by consistent ratings which differ from the others), or that the rater may have information the other raters did not have” (Edwards and Sproull, 1985). London & Beatty concur and add, “ 360-degree feedback can call attention to performance dimensions previously neglected by the organization, can enhance two-way communication, increase formal and informal communications, build more effective work relationships, increase opportunities for employee involvement, uncover and resolve conflict, and demonstrate respect for employee opinions on the part of top management.” Motivational Benefits “Supervisory evaluations provide little motivation, especially when the supervisor is not held in esteem by the subordinates. In contrast, colleague evaluation has a substantial impact on motivation. People have a strong need to be held in esteem by the colleagues with whom they work. Therefore, when employees select a personal evaluation team, the credible information from colleagues motivates activities directed toward performance improvement. When employees select internal customers to serve on their evaluation team, they gain substantial incentives for high performance when serving internal customers throughout the organization” (Edwards, 1989). In addition, the use of multiple-raters reduces the judge-coach conflict experienced by managers who have sole responsibility for rating subordinates. “Managers have dual roles as judges and coaches, and the sole responsibility for making performance judgments is likely to interfere with their coaching effectiveness. Subordinates are not likely to request the support they need from a person who will ultimately stand as the sole judge of whether they have “the right stuff. 54
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Compared with supervisor-only systems, multiple-rater systems offer improved motivation for supervisors and employees due to social facilitation, improved accuracy, and credibility. Relieving the supervisor of the sole responsibility for performance judgments dramatically improves the prospects for building trust and being effective in the other, more constructive role as performance and career development coaching” (Edwards, et al., 1985; Edwards, 1989). Summary: Why Use Multiple Raters? 1. Enhance credibility -employees tend to believe performance evaluation information from work associates more than they believe information from the boss. Associates (peers, direct reports, customers), usually have more day-to-day contact with the employee than the boss. 2. Motivation-people are positively motivated by behavioral feedback from work associates because it has higher credibility. 3. Competitive advantage - organizations need to make better decisions (by collecting more information) about deploying human resources 4. Total quality management - multiple-rater teams lead to greater employee participation 5. Cultural diversity - multiple-raters reduce evaluation bias and represent each employee fairly and accurately.

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6. Subordinate evaluation - multi-rater evaluations provide information that is more accurate and more predictively valid than supervisory judgments (Edwards, 1991). 7. Improve accuracy - studies prove multiple-rater evaluations are statistically predictive, reliable and valid. Multiple-raters minimize the opportunity for rater error and bias.

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Advantages and Disadvantages of Colleague-Supplemented, Multiple-Rater Evaluations
Advantages
• • • • • • Accurate, discriminate, valid Moderates biases Moderates rater inflation Allows ratee and rater validation Allows comparability of ratees and raters Simple and time-efficient--decreases time required of supervisor for performance measurement Moderates politics and cronyism Supports a participative culture Helps supervisor shift from “judge” to a more constructive coaching role Highly credible to employees Provides substantial motivation Provides valuable feedback to the employee Reinforce “good” behavior that may otherwise go unrecognized Enhance employees’ feelings that they have a voice in organizational decision making • • • • •

Disadvantages
Modest change from existing culture Modest threat to supervisor’s power Modest threat to colleagues Requires change of false beliefs Cost

• • • • • • • •

Adapted from: “Making Performance Appraisals Meaningful and Fair”, by Mark R. Edwards, Business, July-September 1989; and “Subordinate Appraisal” A Valuable Source of Information About Managers”, by H. John Bernardin, Human Resource Management, Fall 1986.

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Costs 360-degree instruments require preparation time and money (for design, implementation). They may add complexity to the appraisal administration process (distributing and collecting forms, processing data, producing reports, delivering feedback, developing and followingup on action plans). In addition, the process establishes expectations that behaviors will change. For participants, negative information becomes more powerful and difficult to deny, especially when raters agree. Final Thoughts and Advice on 360-Degree Feedback “Research and practice both overwhelmingly indicate that the data collection and feedback processes are most effective and efficient when performance ratings are collected for developmental rather than evaluation purposes. When feedback data are used for evaluation purposes, employees often concentrate only on what needs to be done to achieve better ratings. Furthermore, the research shows that ratings collected for evaluation purposes are more lenient, less reliable, less valid and contain more halo effect than ratings made for developmental reasons” - Pollack & Pollack “How 360-degree feedback is used influences the seriousness with which it is regarded and how quickly it becomes an integral managerial tool. Some organizations integrate 360-degree feedback results with performance evaluation. Others expect managers to reach or exceed threshold ratings. Some use 360-degree feedback for development only, where participants receive reports but are not required to share the results with either their boss or subordinates. Guidance or counseling sometimes supplement feedback. When using peer and/or subordinate ratings for evaluation managers are more likely to be defensive and to respond to feedback by criticizing the validity of the 58
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data, an issue that is usually less critical in the developmental context. However, using feedback for development only can impede the effective use of the results unless there is a requirement for the participant to be responsive to the feedback. A useful strategy might employ 360-degree feedback for development for several years before using it as input to evaluations and decisions about pay and promotion - London & Beatty “There is no one right answer, no silver bullet” - Bruce Griffiths

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Feedback
Overview The process of giving and receiving feedback is one of the most important concepts in professional growth and development. It is through feedback that we implement the poet’s words, “to see ourselves as others see us.” It is also through feedback that other people discover how we see them. Feedback is defined as verbal or nonverbal communication to a person or group providing them with information regarding how their behavior is affecting you (giving feedback). Feedback is also a reaction of others, usually in terms of feelings and perceptions, as to how your behavior is affecting them (receiving feedback). Kurt Lewin, one of the founding fathers of Organizational Development, originally borrowed the term from electrical engineering. In the field of rocketry, for example, each rocket has a built in mechanism that communicates with the steering apparatus, correcting in mid-course any deviation from the intended flight path. In organizations the group acts as a steering mechanism for individual members who, through the process of feedback can be kept on track in terms of their own performance and learning goals. The Johari Window The Johari Window is a model that illustrates the importance of soliciting and giving feedback. This model was originally developed by two psychologists, Joseph Luft and Harry Ingham, for a program in group process, and can be looked upon as a communication window through which you give and receive information about yourself and others.

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Imagine a window with four panes of glass. Looking at the four panes in terms of columns and rows, the two columns represent the self and the two rows represent the group. Column one contains “things that I know about myself”; column two contains “things that I do not know about myself”. Row one contains “things that the group knows about me”; row two contains “things that the group does not know about me.” The information contained in these rows and columns is not static but moves from one pane to another as the level of mutual trust and the exchange of feedback varies in the group. As a consequence of this movement, the size and shape of the panes within the window will vary.

The first pane, called the ARENA, contains things I and the group know about me.. It is an area characterized by free and open exchange of information between myself and others. The behavior here is public and available to everyone. The Arena increases in size as the level of trust increases between individuals or between an individual and his or her group, and as more information, particularly personal relevant information, is shared.

The second pane, the BLIND SPOT, contains information that I do not know about myself but of which the group may know. As I begin to 61
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participate in the group I communicate all kinds of information of which I am not aware, but does other people pick up being. This information may be in the form of verbal cues, mannerisms, the way I say things, or the style in which I relate to others. The extent to which we are insensitive to much of our own behavior and what it may communicate to others can be quite surprising and disconcerting.

In pane three are things that I know about myself but about which the group is unaware. For one reason or another I keep this information hidden from them. My fear may be that if the group knew of my feelings, perceptions and opinions about the group or individuals in the group, they might reject, attack, or hurt me in some way. As a consequence I withhold this information. This pane is called the FACADE or “Hidden Area.” One of the reasons I may keep this information to myself is that I do not see the supportive elements in the group. My assumption is that if I start revealing my feelings thoughts, and reactions, group members might judge me negatively. I cannot find out, however, how members will really react unless I test these assumptions and reveal something of myself. In other words, if I do not take some risks, I will never learn then reality or unreality of my assumptions. On the other hand, I may keep certain kinds of information to myself when my motives for doing so are to control or manipulate others.

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The last pane contains things that neither the group nor myself knows about me. Some of this matter may be so far below the surface that I may never become aware of it. Other matter, however, may be below the surface of awareness to both the group and myself but can be made public through an exchange of feedback. This area is called the UNKNOWN and may represent such things as interpersonal dynamics, early childhood memories, latent potentialities and unrecognized resources. Since internal boundaries can move back or forth or up and down as a consequence of soliciting or giving feedback, it would be possible to have a window in which there would be no Unknown. Since knowing all about oneself is extremely unlikely, the Unknown will probably never be totally eliminated. If you are inclined to think in Freudian terms, you can call this pane the “unconscious.”

One goal we may set for ourselves in the group setting is to decrease our Blind Spots, e.g. move the vertical line to the right. How can I reduce my Blind Spots? Since this area contains information that the group members know about me but of which I am unaware, the only way I can increase my awareness of this material is to get feedback from the group. As a consequence, I need to develop a receptive attitude to encourage group members to give me feedback. That is, I need to actively solicit feedback from group members in such a way that they will feel comfortable in giving it to me. The more I do this the more the vertical line will move to the right. 63
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Another goal we may set for ourselves, in terms of our model, is to reduce our Facade, i.e., move the horizontal line down. How can I reduce my Facade? Since this area contains information that I have been keeping from the group, I can reduce my Facade by giving feedback to the group or group members concerning my reactions to what going on in the group and inside of me. In this instance, I am giving feedback or disclosing myself in terms of my perceptions, feelings, and opinions about things in myself and in others. Through this process the group knows where I stand and does not need to guess about or interpret what my behavior means. The more selfdisclosure and feedback I give, the farther down I push the horizontal line. You will notice that while we are reducing our blind spots and facades through the process of giving and soliciting feedback, we are, at the same time increasing the size of our Arena or public area. In the process of giving and asking for feedback some people tend to do much more of one than the other, thereby creating an imbalance of these two behaviors. This imbalance may have consequences in terms of the individuals’ effectiveness in the group and group members' reactions to him or her. The size and shape of the Arena, therefore, are a function of both the amount of feedback shared and the ratio of giving versus soliciting feedback.

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The size of the Arena increases as the level of trust in the group increases, and the norms that have been developed for giving and receiving feedback facilitate this kind of exchange. A large Arena suggests that much of the person’s behavior is aboveboard and open to other group members. As a consequence, there is less tendency for other members to interpret (or misinterpret) or project more personal meanings into the person’s behavior. Very little guesswork is needed to understand what the person is trying to do or communicate when his interactions are open both in terms of soliciting and giving feedback. It is not necessary, however, to have a large Arena with everybody. The persons with whom you have casual acquaintanceships may see this kind of openness as threatening or inappropriate in terms of the kinds of relationships you have with them. It is important to note, however, in your group or with some of your more significant relationships, that when most of your feelings, perceptions, and opinions are public, neither person has to engage in game behavior.

A large facade suggests a person whose characteristic participation style is to ask questions of the group but not to give information or feedback. This person is sometimes called an INTERVIEWER. Thus the size of the Facade is inversely related to the amount of information or feedback flowing from the individual. He or she responds to the group norm to maintain a reasonable level of participation, however, by soliciting information. Many of his or her interventions are in the form of: “What do you think about this?”, “How would you have acted if you were in my shoes?”, “How do you feel about what I just said?”, or “What is your opinion about the group?” The person wants to know 65
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here other people stand before they commit themselves. This person solicits much more feedback than provides feedback. Since this person does not commit themselves in the group, it is hard to know where they stand on issues. At some point in the group’s history other members may confront this person with a statement similar to “Hey, you are always asking me how I feel about what is going on, but you never tell me how you feel.” This style, characterized as the INTERVIEWER may eventually evoke reactions of irritation, distrust, and withholding.

A large Blind Spot may characterize a BULL IN A CHINA SHOP. This person maintains a level of interaction primarily by giving feedback but soliciting very little. Their participation style is to tell the group what they think of them, how they feel about what is going on in the group, and where they stand on group issues. Sometimes they may lash out at group members or criticize the group as a whole, believing that they are being open and aboveboard. For one reason or other, however, they either appear to be insensitive to the feedback given to them or do not hear what group members tell them. They may either be a poor listener or may respond to feedback in such a way that group members are reluctant to give them feedback, (e.g., gets angry, cries, threatens to leave). As a consequence, they do not know how they are coming across to other people or what their impact is on them. Because they do not appear to use the corrective function (reality) of group feedback, many of their reactions or self-disclosures appear out of touch, evasive, or distorted. The result of this one-way communication (from them to others) is that they persist in behaving ineffectively. Since they are insensitive to the steering function of the group, they do not know

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what behaviors to change. They give much more feedback than they receive and consequently appear like a BULL IN A CHINA SHOP.

The last window, having a large unknown, represents the person who does not know much about himself, nor does the group know much about them. He may be the silent member of the “observer” in the group who neither gives nor asks for feedback. They are mystery people because it is difficult for the group to know where this person stands in the group or where the group stands with them. They appear to have a shell around them that insulates them from other group members. When confronted about this lack of participation they may respond with, “I learn more by listening.” Group members who are not actively involved in the group or who do not participate get very little feedback because they do not provide the group with any data on which they can react. A person who is very active in the group exposes more facets of himself, and provides group members with more information about which they can give feedback. While this kind of exchange may cause the active participant some discomfort, they learn considerable more than the low participant who does not give or solicit feedback. Thus this person is characterized as a TURTLE because of the shell that keeps people from getting in and data regarding the person from getting out. It takes a considerable amount of energy to maintain an Arena this small in a group situation because of the pressure group norms exert against this kind of behavior. Energy channeled in maintaining a closed system is not available for self-exploration and personal growth.

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The goal of soliciting feedback and self-disclosure or giving feedback is to move information from the Blind Spot and the Facade into the Arena, where it is available to everyone. In addition, through the process of giving and receiving feedback, new information can move from the Unknown into the Arena. A person may have an “aha” experience when he suddenly perceives a relationship between here and now transactions in the group and some previous event. Movement of information from the Unknown into the Arena can be called “insight” or “inspiration”. Delivering Feedback It is not an easy task to give feedback in such a way that it can be received without threat by the other person. This technique requires practice in developing sensitivity to other people’s needs and being able to put oneself in other people’s shoes. Some people feel that giving and receiving feedback cannot be learned solely by practice but requires that a basic philosophy or set of values first be adopted. This basic philosophy is that the individual accepts him or herself and others. As this acceptance of self and others increases, the need to give feedback that is construed as evaluative or judgmental decreases. Organizational Feedback Organizational feedback is “any feedback that can be used for the benefit of the organization. Feedback provides information that is vital for teamwork and for effective decision making, and facilitates improvement and development. Organizational feedback can be divided into two categories, hard and soft” (Roebuck, 1996). Quantitative data obtained through formalized systems and processes is typically considered hard feedback. Soft feedback, “although it can 68
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be expressed in terms of statistics, norms and trends, is obtained from individuals and relates to ideas, opinions or perceptions. Soft feedback pertains to four main areas: 1. Performance of others 2. Ideas to improve organizational effectiveness 3. Ideas to improve individual performance 4. Individual perceptions and attitudes relating to the organization (Roebuck, 1996).

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Using Feedback for Employee Development Optimally, feedback should be delivered and accepted on a continual, ongoing basis. The frequency of feedback delivery is typically a function of organizational culture and the environment it creates. For greatest impact, feedback should be delivered as soon as possible following assessment activities. “Research shows that people are more likely to reject feedback if it is consistently negative. Managers must keep a balanced perspective by stressing positive as well as negative feedback” “Feedback is more likely to result in behavior change if each employee develops a specific action plan. Action planning encourages employees to take control of their lives and decide for themselves how to become more effective” (Yukl & Lepsinger, 1995). Evidence suggests that employees should focus on three to five areas of improvement. “Employees focusing on more than three to five areas tend to feel overwhelmed by the amount and complexity of data, and tend to not allocate sufficient time in any one area to make an impact” (Pollack & Pollack, 1996). Arrangements should be made to follow-up on action plan progress six weeks after the feedback session. The amount of support offered by the organization following employee feedback sessions greatly influences whether behavior changes are realized. Follow-up activities include providing opportunities for skill training, support and coaching (Yukl & Lepsinger, 1995).

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Goals as Motivational Tools “More than 30 years of research demonstrate the efficacy of goal setting as a motivational tool. Most important, the research consistently shows that difficult, specific goals that are accepted by individuals lead to higher performance than easy or “do your best” goals. According to this theory, such goals boost individuals’ efforts, increase their persistence, direct their attention, and cause them to develop strategies for goal attainment. Numerous studies demonstrate that individuals who are assigned and accept difficult goals will exert greater effort than individuals operating without goals” (Wright, 1994). In addition, “higher goals are associated with higher productivity. However, in laboratory studies, researchers discovered that the quality of performance was negatively related to goal difficulty. They explained that individuals make systematic trade-offs between quantity and quality. Managers must take great care so that their goal-setting programs do not undermine quality. Other research has revealed that one of the major problems with goal setting –and particularly with setting difficult goals—is that it can produce a dysfunctional inertia, encouraging individuals to cling to ineffective approaches rather than developing better ways of doing things” (Wright, 1994).

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Incentives and Rewards

Incentives and rewards have long been employed by organizations in efforts to motivate employee performance and increase productivity. Despite a long history of use and numerous research studies, opinions of the overall effectiveness of incentives and rewards on influencing employee behavior vary. Some believe incentives and rewards are beneficial, and even necessary to maintain employee effectiveness, motivation and morale. Others believe external incentives and rewards actually undermine and have a negative impact on employee motivation. Traditional wisdom espouses the belief that employees who are rewarded for excellent performance are more productive, more satisfied and more willing to go the extra mile. A recent study estimates that, in 1997, “more than one third of all hourly workers will get some incentive or bonus pay, which was once reserved mostly for a company’s top brass and sales staff. Bonuses may be disguised as incentive or variable pay, but the concept is an old one: paying employees for performance” (Buchholz, 1996). “In past years, the performance criteria for rewards at many companies were arbitrary or esoteric. But increasingly, companies are gauging performance according to a defined profit pool—such as true operating profits” (Tannenbaum, 1997). Even non-profit and government agencies have revised their operating strategies. “Nonprofit organizations have sought to enhance their effectiveness and efficiency through a variety of means. One of the most visible ways that non-profits attempt to improve their performance is by adopting the practices of the nonprofit sector. Since these 72
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practices are well accepted by businesses, nonprofit organizations have expected them to be sound in theory and implementation. A recent survey noted that up to 42 percent of all non-profits use some form of “variable compensation such as incentive or bonus pay” (Alvarado,1996). An incentive is defined as something that incites or has a tendency to incite behavior. Incentives and rewards can be divided into two categories: cash and non-cash awards. Cash Awards Cash awards continue to be the most popular type of employee incentive offered. Bonuses, incentive pay, variable pay, merit pay increases, competency and skill-based pay are all examples of cash awards. Bonuses A trend in awarding bonuses is recognizing and rewarding the performance of a group, division or an entire company, as opposed to distributing individual bonus awards. Bonuses may be capped or uncapped. “At many companies, bonuses are in addition to annual merit raises, which are based on an individual’s work, not the group’s. But experts say incentive plans could eventually replace merit-based pay. Why the change? With merit raises, a percentage of salary becomes a permanent part of paychecks, and is factored into pensions. Bonuses are a way to bolster productivity while keeping a lid on fixed costs. According to some employees “It gives you the motivation to work harder, it makes you better aware of operations and gets you away from the tunnel vision of your own department” (Buchholz, 1996). 73
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“There are other reasons for bonus pay. Bonuses can be distributed in a slew of variations to meet specific company needs. Among the most popular are annual incentive awards paid in a lump sum, and broadbanding, which reduces the number of salary grades at a company but increases the amount of money available in each grade. And while bonuses can be given to individuals or to an entire staff, the trend is to reward small groups so people felt they had contributed. Many experts on compensation say the benefits outweigh the disadvantages” (Buchholz, 1996). Variable Pay Variable pay is so named because award amounts vary according to organization performance. “Variable pay can include group incentives, gain sharing, win sharing and lump-sum awards. By design, variable pay awards must be re-earned each year” (Smith, 1992). Merit Pay Merit pay increases have traditionally been awarded following traditional, annual performance reviews. Merit pay focuses upon past, individual behavior, presumably over the course of the prior year. Although still a popular form of reward in organizations today, merit pay has been subject to increasing criticism and scrutiny. According to Smith (1992), alternative award programs, such as variable pay “must replace merit pay because merit-increase systems become cost-of-living programs that grant virtually no difference in the size of base-pay increases to the best performers compared to poor performers”. The idea of merit pay programs replacing cost of living increases is echoed by Buchholz: “merit pay is often pegged to inflation. Since the inflation rate is about 3 percent, companies are finding it hard to motivate workers with such tiny raises.” These 74
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perceptions make merit increases too easily confused with base compensation. Mitra, Gupta, and Jenkins, in a 1995 article published by Compensation & Benefits Review caution against the use of merit raises when the pool of available funds is limited. Rather, they state, it would be better to distribute small lump sums or vacation days than award merit raises. According to the authors, “although use of merit raises is widespread, merit pay systems fail to achieve desired results. Little systematic evidence exists to support the assumption that any pay raise, no matter how small, can be motivational if the pay system itself is designed, implemented, and communicated carefully. “Actual research shows that when merit raises are less than 6-7% of base pay people may not view them as raises, and their reactions may range from neutral to negative. In addition, when raises are too small, people are less likely to believe that good performance is being rewarded—even if those small raises are, in fact, performance-based. As raises decrease below 10% of base pay, perceptions of a linkage between performance and pay steadily weaken, and the more likely the pay may decrease motivation. However, once pay raises rise above the perceptual threshold, the actual size of the raise does not strengthen any perceptions about merit pay. Large raises may make them happier, but it does not necessarily enhance motivation” (Mitra, et al, 1995). Mitra, Gupta, and Jenkins, provide the following conclusions: 1. Unless a merit raise is at least 6-7% of base pay, it will not produce the desired effects on employee attitudes and behaviors. Explore other options, such as lump-sum bonuses or additional vacation days. 75
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2. Beyond a certain point, increases in merit-raise size are unlikely to improve motivation and performance. If raises are large enough to be seen as raises, any additional money will yield few additional motivational benefits, although it may improve satisfaction and morale. 3. When merit raises are too small, employee motivation and morale will suffer 4. Cost of living adjustments, seniority, and other non-merit components of a raise should be clearly separated from the merit component. Combining them weakens the perceived connection between performance and pay. 5. Smaller percentage raises given to employees at higher ends of base pay ranges are demotivating (Mitra, et. al., 1995). Competency and Skill-Based Pay “Competency-based pay is compensation for individual characteristics, for skill or competencies over and above the pay a job or organizational role itself commands. Problems with the pay-forcompetence concept include internal equity and the potential for misuse” (Spencer & Spencer, 1993). “Increasingly, organizations are creating pay systems that reward employees for their skills and knowledge, rather than the jobs they hold. Organizations are no longer limiting their pay-for-skills plans to employees in manufacturing and high-volume service jobs. Why the change? Current conditions in most markets, such as continuous organizational change, steady downsizing and reengineering of work, 76
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and increasing teamwork, are rendering the discrete, well-defined job obsolete. “Over 75% of companies using skill-based pay report increased worker productivity, motivation, flexibility to adapt to changing needs, and work team effectiveness. In addition, the plans enhanced recruitment and retention while reducing labor costs, despite creating higher average wages. There is much variation in competency based pay design, such as whether the competencies are narrowly (similar to a job description), or broadly (emphasizing managerial, organizational and cultural skills) defined; and whether it will emphasize existing or new competencies (needed in organizations operating in changing environments)” (Ledford, 1995). Non-Cash Awards Even more so than cash awards, non-cash awards provide numerous implementation options. Once awarded only to sales people, non-cash awards are becoming increasingly common throughout the organization. Stories abound of the creative ways organizations have found to reward their employees. Non-cash incentives fall into one of six categories-merchandise, travel, vacation time, recognition, status and a miscellaneous category. Merchandise, vacation time and travel (for the individual, family or group) fuel performance in the short term, while the recognition and status often contribute to the organizational culture and long-term change. Companies usually pay the taxes on noncash gifts. The variety of noncash items is as diverse as the employee base they are designed to stimulate. Popular big-ticket items include tuition 77
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credits, consumer merchandise, flexible working hours, and paid time off. Other organizations provide company-sponsored annual and holiday picnics and parties, dinner for two at local restaurants. Other companies allow employees to accumulate points, for resolving customer complaints for example, which they can redeem for noncash awards” (Brooks, 1994). Yet other “organizations are offering complimentary services that reduce stress and, ideally, promote more productive, focused workers. These services provide psychological value that far outweighs the cost (e.g., shuttles to and from public transportation, on-site lunch or coffee service, etc.)” (Brooks, 1994). “Then there are those incentives that money can’t buy. Quality-of-life issues, such as whether employees can take time off to watch their children play softball. Responsibility motivates. Freedom and free time motivate” (Tannenbaum, 1997). Recognition Recognition motivates by “appealing to an employee’s sense of pride. Recognition is a reward that costs less than an incentive. Its power relies mainly on the employee’s desire to be publicly affirmed as a good performer, rather than on material desires for cash or merchandise. Employee recognition should be delivered by top executives for greatest impact” (Filipczak, 1993). Common methods of recognition include awards ceremonies, banquets, lunches and breakfasts. Types of Reward and Recognition Programs Sandra O’Neal, in her 1995 Compensation & Benefits Review article, R2 : The Reward and Recognition Phenomenon, outlines three 78
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categories of reward and recognition programs: broad-based group incentive programs, special individual contributor/team contribution approaches, reward/recognition schemes for technical or specialized personnel. Broad-Based Incentives According to O’Neal, there are three categories of broad-based incentives: group incentives, broad-based stock plans, and milestone plans. Broad-based stock plans are not applicable to the GrossmontCuyamaca Community College District. 1. Group Incentives - where rewards are based upon the achievement of group, departmental or unit goals. Rewards range from 0 to 30% of the employees base pay, and average 7%. Group incentive plans include profit sharing and gain sharing. 2. Broad-Based Stock Plans 3. Milestone Plans - are similar to group incentives in that rewards are based upon the achievement of a goal. Milestone plans differ in that they provide rewards for reaching interim goals along the way. Individual Contributor/Team Contribution Awards “Individual and team contributor awards are usually open to all employees. Usually linked to identifiable results, these awards are granted retroactively, and may be large or small. More cultural than compensatory, individual/team awards are as important for the singular recognition they provide as for the dollars they grant.” (O’Neal, 1995).

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Programs for Technical or Specialized Personnel Technical and specialized personnel rewards recognize significant and interim technical events, ideas, or achievements. Cash awards are typically accompanied by publicity and celebration (O’Neal, 1995). Program Design In order for work to provide intrinsic motivation, workers must know their work has made a real difference and has added real value. According to Cumming (1994), incentive awards must be tied to “results or accomplishments that, by themselves, can be viewed by participants as evidence of their success. Incentive awards that are a source of pride, that cause others to view the recipients with respect, and that communicate tangible appreciation for what has been accomplished will engender feelings of good will and commitment on the part of the recipients toward the organization. Most people have a need for their achievements to be acknowledged by others.” There are several components of successful reward systems: 1. They send a clear message about what is important to the organization. “Most programs fail because they are designed as short-term cures for long-term business issues. Reward systems are complicated matters of aligning objectives, motivational strategies and resources to achieve lasting improvements in performance” (Filipczak, 1993). “Without this alignment, the reward system can drive the inappropriate behaviors” (Overman, 1994). 2. They reinforce that message by rewarding those who accomplish what is important

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3. They support the organization’s career development philosophy 4. They make people feel good about their current and past accomplishments and energize them to achieve even more 5. They combine a mix of cash and non-cash incentives 6. They are available to every employee. “You’ll hear cries of “unfair” if too few employees, or the same employees, always get the rewards. It doesn’t take a genius to figure out what happens to the motivation of those who know they’re not in the running” (Filipczak, 1993). 7. They are simple and user-friendly. “Easy to understand does not translate into easy to design (there is actually an inverse relationship)” (Filipczak, 1993). 8. They are measurable. 9. They are cost-effective Deming, Filipczak, and others caution against designing competitive reward systems as they undermine cooperation and teamwork. “Because workers are competing for a limited supply of rewards, you end up with more losers than winners” (Filipczak, 1993). And remember, what gets measured, gets done. Don’t base incentive systems on only one measure,.

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The Argument Against Cash Awards “Every reward has three components: monetary value, recognition value, and incentive value, the part of the reward that makes the person want to do it again. Most companies focus on the monetary value, and ignore the other two. (Filipczak, 1996) According to Brooks and others, non-cash rewards have major advantages over cash rewards: 1. Memory value- cash has no memory value. If an award is something they can enjoy with their family, they will remember how they earned it, who sponsored it, and what business goal was met. The memory lasts. Monetary rewards don’t have much staying power. They are commingled with other monies and soon forgotten. Studies have shown that a pay raise, on average, has a motivational impact of less than two weeks. Furthermore, direct deposit has contributed significantly to reducing the motivational impact of monetary rewards (Wright, 1994). 2. Trophy value- merchandise is more socially acceptable than cash (you can show it off, brag about it). Also, the value of a noncash item often goes farther. Noncash incentives hold a valuable mental cost/benefit tradeoff, and as income increases, a person’s perception of the value of a dollar decreases. Trophy value means that an award received in the past still provides motivation because it is a constant reminder.

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3. Flexibility- non-cash reward programs can be easily tailored to meet many organizational goals. Another advantage is that companies can control the duration and impact of a noncash rewards program. Most rewards work best for a defined period of time. Reevaluating the program every year to see whether it’s meeting business objectives helps avoid the entitlement mentality, while still serving as a reminder of what you want people to do. 4. Cash offers less leverage and perceived value - the value of a cash award, after taxes will not be as much. Perceived value means that the company can buy certain prizes in bulk and get substantial discounts for objects the employee perceives are worth much more (than their actual purchase price). Also, there is the time factor, between being recognized and the award going through payroll. It is much more motivating to the employee to be handed something (Brooks, 1994). Also, money rewards are very costly. Attempting to motivate workers by financial means requires ever-increasing financial rewards to make the same impact (Wright, 1994). “Every time any pollster asks employees what’s important to them on the job, what motivates them or what leads to job satisfaction, money ends up pretty far down on the list. Things like good managers, control over their work, good co-workers, recognition for accomplishments, and a variety of other environmental factors always rate higher than money. But if you ask managers what motivates employees, the almost unanimous response is that money is the primary motivator. Unfortunately, cash becomes confused with compensation, it is spent like salary, and becomes perceived as salary. Once it becomes like 83
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salary-an entitlement, it loses its power to motivate performance” (Filipczak, 1993, 1996). According to Frederick Herzberg, “the opposite of job satisfaction was not dissatisfaction, but just the absence of satisfaction. Likewise, he wrote, the opposite of job satisfaction is not positive satisfaction with the job, but the absence of factors that make employees disgruntled. He proposed that money, in the form of compensation, helps prevent employees from being demotivated. Alfie Kohn, in his book, Punished by Rewards, agrees. Kohn’s answer is to tap into employees’ intrinsic motivation, their internal desire to do a good job, produce quality, and take pride in their workmanship. The things that excite the intrinsic motivation of employees, according to Kohn: allowing them to have a say in their jobs, respect from management, and ultimately, having a good job. Kohn thinks you should pay employees well, pay them fairly, and then do everything in your power to keep their minds off the money. Money focuses employees on an external, or extrinsic motivator. Some companies abolish their performance management systems and just pay a general increase to all employees.” (Filipczak, 1996) “Finally, excessive emphasis on financial rewards tends to create “money motivation”, rather than “good work motivation”. When people are striving for money, they will often take the shortest and fastest route to maximize their financial gain, even if it means sacrificing quality” (Wright, 1994)

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A Few Words About Goals “According to goal-setting theory, monetary incentives also play an important role in determining task performance by encouraging individuals to set higher goals, and/or increasing individuals’ commitment to achieving a goal. Goal setting /incentive schemes can be both beneficial and destructive” (Cumming, 1994). “Significant evidence points to the fact that goals, particularly when tied to incentives, can create a “goal only” mentality, whereby individuals focus all of their time and energy on the goal-driven task and fail to perform other behaviors that may be quite important. This effect is often observed with MBO programs. For example, one negative consequence of results-based appraisal systems is that when appraisals are based on individual performance results, each individual has little incentive to engage in behaviors that help his or her coworkers. Research shows that a high commitment to goals coupled with bonuses for goal attainment is strongly negatively related to helping behavior (Wright, 1994).

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Conclusion As with performance management, measurement and appraisal systems, there is no one answer to the question of which incentives and rewards will best motivate employees. Most will agree that a combination of awards, creativity, communication, and involving employees in the planning process all contribute to successful reward systems.

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References
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