Chapter 9.

Performance Management and Appraisal

1. Definition of Performance Appraisal

Performance appraisal is a systematic process of evaluating employee performance about
their roles and responsibilities. It includes reviewing how they meet the organization’s
expectations, giving helpful feedback, and working together to set goals and plans for
improvement. According to Raymond J. Stone (2008), this process encompasses:
• Evaluation of Job Performance: Assessing how employees contribute and achieve
their goals.
• Communication of Results: Sharing appraisal outcomes openly.
• Development Planning: Creating strategies to help employees grow and achieve
goals.

2. Goals of Performance Appraisal

Performance appraisals aim to achieve three main goals:
1. Evaluation Goals:
• Measure employee performance against standards.
• Check job fit and productivity.
• Inform decisions like promotions or terminations.
2. Development Goals:
• Identify skills that need improvement.
• Promote growth through training and mentoring.
• Encourage ongoing learning.
3. Rewarding Goals:
• Reward excellent performance with bonuses, promotions, or recognition.
• Motivate employees to maintain and improve.
• Boost morale by linking individual efforts to organizational success.

WHY APPRAISE PERFORMANCE?

There are five reasons to appraise subordinates’ performance:
i. Employers use performance appraisals to decide on pay raises, promotions, and
whether to keep an employee.
ii. Appraisals ensure employees' work aligns with the company’s overall goals.
 iii. They help managers and employees address problems and build on strengths.
iv. They provide an opportunity to discuss career plans and areas for improvement.
v. They help identify if the employee needs additional training.

3. Performance Appraisal Process

This structured approach ensures fairness and consistency:
i. Clearly define the reason for the appraisal, such as improving performance or
planning for the future.
ii. Set clear and fair standards for measuring performance.
iii. Decide who will evaluate and what methods will be used.
iv. Collect information through observations, reports, or feedback.
v. Analyze the employee's strengths, weaknesses, and performance trends.
vi. Share the results with the employee and discuss areas of improvement.
vii. Plan actions like training, rewards, or role adjustments based on the appraisal.

4. Three-Step Process of Performance Appraisal

This simplified model offers a focused framework:
i. Define clear and measurable goals.
ii. Compare performance to the set goals.
iii. Take action to address gaps with training or support.

5. Evaluators in Performance Appraisal/ Who Evaluates?

Performance evaluations benefit from diverse perspectives, including:
1. Supervisors provide direct insights into performance.
2. Peers give feedback based on collaboration.
3. Self-assessments encourage employees to reflect on their work.
4. Subordinates evaluate leadership and teamwork.
5. Clients assess performance in customer-facing roles.
6. Committees ensure fair and thorough evaluations.
7. 360-degree feedback combines input from various sources for a complete picture.

360-Degree Appraisal
The 360-degree appraisal is a feedback process where an employee’s performance is
evaluated from multiple perspectives. These include:
 • Self-Evaluation: The employee assesses their performance.
• Superior Evaluation: Feedback from the employee’s manager or supervisor.
• Client Evaluation: Input from customers or clients.
• Subordinate Evaluation: Feedback from team members reporting to the employee.
• Peer Evaluation: Insights from colleagues or coworkers.
This comprehensive method provides a well-rounded view of the employee’s strengths and
areas for improvement.

6. Performance Appraisal Methods

Several methods cater to diverse organizational needs:
1. Graphical Rating Scale
• Employees are rated on a scale (e.g., 1 to 5) for different traits like teamwork or
punctuality.
• Purpose: Quick and easy to compare performance levels.
2. Essay Method
• The evaluator writes a detailed report about the employee’s strengths, weaknesses,
and performance.
• Purpose: Offers qualitative feedback but can be subjective.
3. Checklist
• The evaluator checks “yes” or “no” for specific behaviors or tasks.
• Purpose: Simple and focused on specific tasks or behaviors.
4. Critical Incident Method
• Records specific examples of exceptional or poor performance during a period.
• Purpose: Provide concrete examples to support evaluations.
5. Management by Objectives (MBO)
• Individual and Group: Employees and managers set measurable goals together, and
progress is reviewed periodically.
• Purpose: Aligns employee efforts with organizational goals.
6. Individual Ranking Method
• Employees are ranked one by one from best to worst based on performance.
• Purpose: Simple for comparing employees individually.
7. Group Ranking Method
• Employees are ranked within a group, dividing them into performance categories
(e.g., top, middle, and bottom performers).
• Purpose: Useful for identifying relative performance within a team.
8. Forced Rating Method
• Employees are placed into fixed categories (e.g., top 10%, middle 70%, bottom 20%),
even if differences are small.
• Purpose: Forces differentiation but may not reflect actual performance.
9. Paired Rating Method
• Employees are compared in pairs, with the better performer from each pair getting a
higher rank.
• Purpose: Helps rank employees precisely but can be time-intensive.
10. Peer Rating Method
• Employees are evaluated by their coworkers based on teamwork, collaboration, and
reliability.
• Purpose: Offers insights from colleagues who interact closely with the employee.
11. Behavioral Rating Scale
• Rates specific behaviors (e.g., problem-solving, communication) against predefined
criteria.
• Purpose: Focuses on measurable actions and outcomes.
12. Assessment Centers
• Employees participate in simulated tasks (e.g., role-playing, presentations) to test
skills in a controlled environment.
• Purpose: Assesses competencies like leadership and problem-solving.
13. Annual Confidential Report (ACR)
o A confidential report by the supervisor evaluates an employee’s performance, often in
public sector jobs.
o Purpose: Keeps evaluations private, focusing on professional behavior and
achievements.
MBO Process
The term management by objectives (MBO) usually refers to a multistep companywide goal-
setting and appraisal program. MBO requires the manager to set specific measurable,
organizationally relevant goals with each employee, and then periodically discuss the latter’s
progress toward these goals.
Steps are:
i. Set the organization’s goals.
ii. Set departmental goals
iii. Discuss departmental goals
iv. Define expected results (set individual goals).
v. Conduct performance reviews
vi. Provide feedback

7. Errors in Performance Appraisal

Despite its benefits, performance appraisals can be flawed due to:
o Management Attitude Error: Bias or unfair judgments due to the manager’s
attitudes.
o Leniency Error: Rating employees too favorably, giving everyone high scores.
o Strictness Error: Rating employees too harshly, with few or no high scores.
o Halo Effect: Letting one positive or negative trait affect the entire evaluation.
o Prejudice Error: Bias due to personal factors like race, gender, or age.
o Central Tendency Error: Avoiding extreme ratings and giving average scores to
everyone.
o Low Appraiser Motivation Error: The evaluator is not fully invested, leading to
careless ratings.
o Irrelevant Standard Error: Using standards that don’t apply to the job or
employee’s role.
o Unclear Standard Error: Ambiguous or unclear criteria used to evaluate
performance.
o Recency Error: Overemphasizing recent events rather than considering the entire
evaluation period.
o Unrealistic Standard Error: Setting performance expectations that are too high or
too low.
o Cross-Cultural Error: Misunderstanding cultural differences that affect performance
assessments.
o Lack of Training Error: Evaluators are not properly trained, leading to inconsistent
or unfair assessments.
o Poor Feedback Error: Providing vague or unhelpful feedback that doesn't guide
improvement.
o Complex and Time-Consuming Error: Making the appraisal process too
complicated, leading to inefficiencies.
o Bastardization of Instrument Error: Changing or misusing the appraisal tool in a
way that distorts results.
o Contrast Error: Comparing employees against each other rather than their
performance.
o Fear of Confrontation Error: Avoiding honest feedback to prevent conflict or
discomfort.
8. Overcoming Appraisal Errors
To minimize these errors, organizations should:
1. Train evaluators on objective assessment techniques.
2. Use both quantitative and qualitative metrics.
3. Standardize and clarify evaluation criteria.
4. Conduct structured appraisal interviews.
5. Simplify appraisal forms to focus on critical factors.
6. Reduce question volume for clarity and relevance.

9. Elements of Performance Management

Beyond individual appraisals, performance management is an ongoing process aimed at
aligning efforts with organizational objectives. It includes:
o Direction Sharing: Communicating the organization's goals and vision to employees.
o Goal Alignment: Ensuring individual and team goals match the overall goals of the
organization.
o Ongoing Performance Monitoring: Regularly tracking and reviewing employee
performance to identify issues early.
o Ongoing Feedback: Providing regular, constructive feedback to help employees
improve continuously.
o Coaching and Developmental Support: Offering guidance, training, and resources
to help employees grow and develop their skills.
o Recognition and Rewards: Acknowledging and rewarding employees for their
achievements and contributions to motivate them.

Chapter 08 – Training and Developing Employees

1. Introduction to Training and Development

Training and Development are core aspects of Human Resource Management (HRM),
designed to ensure that employees are equipped to meet job requirements effectively and
contribute to organizational goals. This concept focuses on:
• Skills: Abilities that enable employees to perform tasks efficiently (e.g., technical or
soft skills).
• Knowledge: Theoretical and factual understanding required to perform a job role
(e.g., company policies, industry insights).
 • Attitudes: Behavioral tendencies or mindsets that align with organizational culture
and objectives.
Learning Objectives:
• Understand the stages of the training process.
• Differentiate between orientation and training.
• Explore various training methods.
• Learn management development techniques to groom future leaders.
The Purpose of Employee Orientation (Also Called Onboarding).
It shows that orientation is a process where new employees are given basic information about
the company. The goal is to help them:
1. Feel Welcome and at Ease – Make them comfortable in their new workplace.
2. Understand the Organization – Teach them how the company works, including its
goals and policies.
3. Know What is Expected in Work and Behavior – Clarify their role, responsibilities,
and behavior standards at work.
4. Begin the Socialization Process – Help them integrate into the team and company
culture.
In short, orientation helps new employees settle in and succeed in their new jobs.

2. Employee Orientation
Orientation (Onboarding):
Orientation is the structured process of integrating new employees into the organization. It
ensures they are familiar with company operations, policies, and culture, laying the
foundation for long-term engagement.
Purpose of Orientation:
1. Welcoming Employees: Helps new hires feel at ease in their new environment.
2. Socialization: Initiates the integration into the organizational culture and team
dynamics.
3. Understanding the Organization: Provides clarity on the company’s mission,
vision, and structure.
4. Clarifying Expectations: Defines the standards for work performance and behavior.
Information Shared During Orientation:
1. Company Organization and Operations: Overview of structure and departmental
roles.
2. Safety Measures and Regulations: Guidelines for ensuring a safe working
environment.
3. Facility Tours: Familiarity with the workplace layout.
4. Personnel Policies: Insights into rules, codes of conduct, and procedures.
5. Employee Benefits: Explanation of perks, healthcare, and leave policies.
6. Daily Routines: Introduction to work schedules and key workflows.

3. The Training Process

Training is the systematic approach to improving employee proficiency. It aligns employee
capabilities with organizational needs, ensuring productivity and growth.
The Training Process Training
• This is the process of teaching new employees the basic skills they need to perform
their jobs.
• Such as showing new salespeople how to sell your product.
Learning Outcomes of Training
• Skills – Skills is a proficiency at being able to do something.
• Knowledge – Knowledge is an organized body of facts, principles, procedures, and
information acquired over time.
• Attitudes – Attitudes are employee beliefs and opinions that support or inhibit
behavior

Steps in the Training Process:

1. Analysis Phase:

o Identifies gaps between current performance (AOP) and desired performance

(EOP).
o Distinguishes:
▪ Training Needs: Gaps due to lack of knowledge, skills, or attitudes
(KSAs).
▪ Non-Training Needs: Issues from external factors (e.g., poor
resources, unclear processes).
o Uses tools like performance reviews, surveys, interviews, and tests.

➢ Training Needs Analysis (TNA)

 • This is the process of determining whether employees need training and what type of
training they require. It involves two main components:
o Task Analysis: Focuses on identifying the training needs of new employees.
This involves analyzing the tasks and responsibilities of a job to figure out
what knowledge or skills new employees need.
o Performance Analysis: Focuses on identifying the training needs of current
employees. This involves checking their performance to see if it aligns with
expectations and identifying gaps that training can address.

➢ Assessing Current Employees’ Training Needs

o To figure out what training is needed, various methods are used:

o Assessment Center Results: Use simulations and exercises to evaluate
employee skills.
o Individual Diaries: Employees record their work experiences, challenges, or
training requirements.
o Attitude Surveys: Collect feedback on employee perceptions, satisfaction, or
attitudes to uncover training areas.
o Tests: Use exams or skill assessments to measure employees' knowledge or
abilities.
o Performance Appraisals: Analyze formal reviews of employees’
performance to identify improvement areas.
o Job-Related Performance Data: Study metrics and reports related to job
outcomes for gaps.
o Observations by Superiors: Supervisors observe employees to identify skill
gaps or training needs.
o Interviews: One-on-one discussions to understand employee training
requirements or challenges.

Analysis Phase

o Identify the organizational performance gap (AOP is less than EOP).

o Once a performance gap exists, the cause must then be determined.
o The analysis phase is often referred to as a training needs analysis (TNA). However,
both training and non-training needs are identified with this process.
o The cause of the performance gap might be inadequate knowledge, skills, or attitudes
(KSAs) of employees.
o Those performance gaps caused by KSA deficiencies are identified as “training
needs” because training is a solution.
o All other causes are defined as non-training needs and require other types of solutions.

2. Design Phase:
o Training design means planning the overall training program, including training
objectives, delivery methods, and program evaluation. Training objectives:
• Provides direction for what will be trained and how.
• Specify employee and organizational outcomes.
 • Become inputs to the development and evaluation phases.
o The design process determines how the organizational constraints will be addressed
by the training. o It identifies the factors needed in the training program to facilitate
learning and its transfer back to the job.
3. Development Phase:

Training Development:

• This phase involves creating the training content and materials.

• An instructional strategy is designed to meet the training objectives, outlining the
order, timing, and methods for the program.
• Key outputs include:
o Content: The specific topics covered in the training.
o Methods: How the content will be delivered (e.g., lectures, activities).
o Materials: Manuals, equipment, media, and other resources needed for
training.

4. Implementation Phase:

Implementation (Simplified):

• This step is about delivering the training using methods like lectures or
activities.
• A trial run or pilot program is done first to test the training.
• The pilot helps identify any needed improvements before the full rollout.

5. Evaluation Phase:

• Evaluation objectives come from the design phase.

• Tools to measure training effectiveness are developed during the development phase.
• Two types of evaluation:
1. Process Evaluation: Checks if the training was delivered as planned.
2. Outcome Evaluation: Measures the impact of training on employees and the
organization.

Training Effects to Measure:

1. Trainee Reaction: How participants felt about the program.

2. Learning: Knowledge or skills gained.
3. Behavior: Changes in on-the-job actions.
4. Results: Outcomes achieved due to the training.

4. Training Methods Training Methods (Simplified):

1. On-the-Job Training (OJT): Learning by doing the actual job.
 o Types:
▪ Coaching/understudy.
▪ Job rotation.
▪ Special assignments.
o Advantages:
▪ Cost-effective.
▪ Hands-on experience aids learning.
▪ Immediate feedback.
Other Training Methods:
• Apprenticeship Training: Learning a trade by working with an expert.
• Informal Learning: Gaining skills naturally on the job.
• Job Instruction Training (JIT): Step-by-step job instructions.
• Lectures: Teaching a group through presentations.
• Programmed Learning: Self-paced learning using modules.
• Behavioral Modeling: Imitating skilled behavior.
• Audiovisual Training: Using videos or presentations.
• Simulated Training: Practicing in a realistic environment (e.g., simulators).
• Computer-Based Training (CBT): Learning via software or online tools.
• Electronic Performance Support Systems (EPSS): On-demand digital tools for
tasks.
• Distance/Internet-Based Training: Online learning from remote locations.

Steps for Successful On-the-Job Training (OJT):

1. Prepare the Learner: Explain the job and its importance.
2. Present the Operation: Demonstrate how to do the task.
3. Do a Tryout: Let the learner practice the task.
4. Follow-up: Provide feedback and support as needed.
Effective Lectures:
• Start strong and confidently.
• Signal new ideas to your audience.
• Pay attention to the audience's reactions and body language.
 • Maintain eye contact with everyone.
• Ensure everyone can hear you clearly.
• Use natural hand movements, don't overdo it.
• Speak from notes, not a script.
• Break long talks into shorter, 5-minute sections.
• Practice and rehearse before presenting.
Programmed Learning
Programmed Learning is a method of teaching where learners follow a structured process:
1. Steps:
o Present questions or problems to the learner.
o Allow the learner to respond to the question.
o Provide feedback on whether their response is correct or not.
2. Advantages:
o Saves training time.
o Allows learners to learn at their own pace.
o Gives immediate feedback.
o Reduces errors while learning.
3. Disadvantage:
o Its effectiveness is similar to a traditional textbook course, meaning it may
lack engagement or depth.
Computer-Based Training (CBT):
Types of CBT:
• Interactive multimedia training (e.g., videos, quizzes).
• Virtual reality training (immersive, simulated environments).
Advantages of CBT:
• Cuts learning time by about 50%.
• Cost-effective once created.
• Consistent instruction from the computer.
• Learners follow a required learning sequence.
• Better retention through repetition.
• Instant feedback boosts motivation.
Two training approaches:
1. Distance and Internet-Based Training:
• Methods for remote learning include:
o Tele-training: Training over the phone or audio channels.
o Videoconferencing: Interactive video-based training.
o Internet-Based Training: Online programs and modules.
o E-Learning and Learning Portals: Digital platforms for self-paced training.

2. Literacy Training Techniques:

• Focuses on helping employees with functional illiteracy (difficulty in basic reading,
writing, or math).
o Additional Preparatory Training: Extra training to build foundational skills.
o Using Different Training Media: Adapting methods like videos, visuals, or
interactive tools for better understanding.

5. Management Development
1. Long-Term Focus of Management Development:
• Assessing Strategic Needs: Understanding the company’s goals and what kind of
managers it needs.
• Appraising Managers’ Performance: Evaluating how current managers are doing.
• Developing Future Managers: Training people for future leadership roles.

2. Managerial On-the-Job Training:

• Job Rotation: Moving managers through different roles to build experience.
• Coaching/Understudy: Learning from senior managers or mentors.
• Action Learning: Solving real problems as part of training.
3. Off-the-Job Training Techniques:
• Managers analyze real-life examples to understand challenges and solutions.
• They participate in simulations to practice making decisions.
 • They attend formal classes, seminars, or university programs for learning.
• They act out scenarios to practice skills like communication or problem-solving.
• They observe and learn from experienced role models.
• They receive specialized training or guidance from corporate programs and mentors.

Chapter 11: how to Create a market-competitive pay plan

Employers must create a market-competitive pay plan to ensure that their compensation
structures are fair and aligned with the market. This approach combines internal equity—
ensuring employees are paid fairly relative to their colleagues—and external competitiveness,
meaning pay rates are aligned with what other employers pay for similar jobs. A common
method used in this process is the point method, which involves evaluating jobs based on
their value to the organization. Here are the first eight steps in developing a market-
competitive pay plan:
1. Choose Benchmark Jobs: The first step involves selecting benchmark jobs that represent
the different positions within the organization. Benchmark jobs are typically common roles
that other employers have, making comparing pay rates easier. For example, an "accounting
clerk" is a benchmark job that can be used to gather salary information from competitors. By
focusing on these representative roles, employers can streamline the evaluation process and
avoid the impracticality of assessing every single position within the company.
2. Select Compensable Factors: Compensable factors are the criteria used to evaluate jobs
and determine their value. These factors may include elements such as skill, effort,
responsibility, and working conditions. Depending on the organization's goals, some factors
may carry more weight than others. For instance, a company prioritizing quality may
emphasize “responsibility for quality” over “working conditions.” Clearly defining these
factors ensures that everyone involved in the evaluation process applies them consistently.
3. Assign Weights to Compensable Factors: Once compensable factors are identified, the
next step is to assign weights to each factor based on their importance. This step involves
determining how much each factor contributes to the overall job evaluation. For example, if
“job complexity” is deemed more critical than “effort,” it may receive a higher weight.
Employers typically allocate a total of 100 percentage points across the selected factors,
ensuring that the most important factors have a larger share of the total.
4. Convert Percentages to Points for Each Factor: After assigning percentage weights, the
next step is to convert these percentages into point values. A common practice is to use a total
of 1,000 points to represent the overall job evaluation. By multiplying the percentage weight
of each factor by 1,000, employers can establish a point value for each compensable factor.
For instance, if job complexity is weighted at 60%, it would be assigned 600 points.
5. Define Each Factor’s Degrees: In this step, each compensable factor is divided into
degrees, which describe the varying levels of that factor present in a job. For example, job
complexity might range from "routine" tasks to those that require "independent judgment."
Defining these degrees helps evaluators assess how much of each factor applies to a job. It is
important to limit the number of degrees to what is necessary for differentiation, usually
between five and six.
6. Determine Each Factor Its Factor Degrees’ Points: The evaluation committee must
assign points to each degree of each compensable factor. This means establishing how many
points correspond to each degree level. For example, if the first degree of job complexity is
worth 120 points, the second degree may be worth 240 points, and so on. This systematic
approach enables the committee to quantify the presence of each factor in different jobs.
7. Review Job Descriptions and Job Specifications: Before evaluating the jobs, the
committee reviews the job descriptions and specifications for each benchmark job. This
review helps them understand the duties, responsibilities, and compensable factors relevant to
each position. Ideally, job descriptions should include detailed information about the selected
compensable factors, which aids the evaluation process.
8. Evaluate the Jobs: The committee then uses the information gathered in the previous
steps to evaluate the benchmark jobs. By assessing each job's job description and
specification, they determine the degree to which each compensable factor is present. For
example, they may find that a master mechanic job warrants a certain degree of job
complexity, effort, and working conditions. By adding up the points for each factor, they
arrive at a total point score for each job, creating a hierarchy based on the jobs' value to the
organization.
9. Draw the Current (Internal) Wage Curve: Start by collecting data on the current pay
rates and job points for each position within the organization. Plot this data on a scatter graph,
where the x-axis represents job points and the y-axis represents pay rates. This visualization
allows for an analysis of how compensation correlates with job value. Identifying the internal
wage curve helps assess the internal equity of the compensation system. It provides a baseline
for understanding how jobs are currently compensated relative to their responsibilities.
10. Conduct a Market Analysis: Salary Surveys: Conduct salary surveys to gather data on
compensation for similar roles in the external labor market. This process involves collecting
information from various organizations, industry reports, and compensation databases. The
goal is to benchmark your organization’s salaries against competitors to ensure
competitiveness. Analyzing this data helps identify market trends and average pay rates for
benchmark positions. This information is crucial for maintaining an attractive compensation
package to attract and retain talent.
11. Draw the Market (External) Wage Curve: After collecting market data, create a scatter
diagram that plots the market wage rates against job points. This external wage curve visually
represents how compensation varies in the external market based on job complexity and
responsibility. By comparing this curve to the internal wage curve, you can identify gaps and
overlaps between internal and external compensation. This comparison highlights whether
your organization is paying competitively or if adjustments are needed. Understanding this
curve aids in aligning internal pay structures with market expectations.
12. Compare and Adjust Current and Market Wage Rates for Jobs: Overlay the internal
and external wage curves on the same graph to facilitate a direct comparison. This step
reveals how current compensation aligns with market data and identifies any significant
discrepancies. Analyzing these differences is critical for understanding whether employees
are underpaid or overpaid relative to market standards. Adjustments can then be made to
bring internal wages in line with the external market. This ensures that the organization
remains competitive in attracting and retaining skilled employees.
13. Develop Pay Grades: Group similar jobs into defined pay grades based on their
responsibilities and required competencies. This structure creates a hierarchy within the
compensation system, making it easier to manage pay equity. Pay grades help ensure that
employees in similar roles receive comparable compensation, fostering fairness within the
organization. Establishing clear pay grades also facilitates easier adjustments in
compensation when necessary. This organization enhances transparency and consistency in
salary administration.
14. Establish Rate Ranges: For each pay grade, develop a range of pay rates, including
minimum, midpoint, and maximum values. These ranges provide a framework for
determining salaries within each grade, accommodating differences in experience,
performance, and tenure. Establishing rate ranges helps ensure that compensation is both
competitive and equitable. This structure also allows for flexibility in compensation
decisions, accommodating various employee circumstances. Furthermore, clear rate ranges
guide managers in making informed pay decisions.
15. Address Remaining Jobs: Identify any positions that have not been classified into the
established pay grades. It is essential to ensure that all jobs within the organization are
included in the compensation structure to maintain equity. Reviewing these remaining jobs
involves assessing their responsibilities and aligning them with appropriate pay grades. This
classification process helps avoid potential disparities in compensation for similar roles.
Ensuring all jobs are categorized fosters a comprehensive compensation strategy.
16. Correct Out-of-Line Rates: Focus on jobs with significantly higher or lower
compensation rates than the established wage curves. These outliers can create issues of
equity and morale within the organization. Analyzing the reasons for these discrepancies
helps determine whether adjustments are necessary to bring rates in line with the established
compensation structure. Making these corrections ensures a fair and equitable pay system for
all employees. Addressing out-of-line rates is crucial for maintaining a motivated and
satisfied workforce.

Chapter 12: Herzberg's Two-Factor Theory and Expectancy Theory of

Motivation
Herzberg's Two-Factor Theory
Herzberg's Two-Factor Theory, also called the Motivation-Hygiene Theory, was developed by
Frederick Herzberg in the 1950s to explain what drives job satisfaction and dissatisfaction.
The theory highlights two distinct types of factors: motivators and hygiene factors. These
influence job satisfaction in different ways and are not merely opposite ends of the same
spectrum.
Herzberg conducted research where employees were asked about situations that made them
feel particularly good or bad at work. He discovered that factors leading to satisfaction
(motivators) were different from those causing dissatisfaction (hygiene factors). This
distinction provides valuable insights into how organizations can create a positive and
motivating work environment.
Motivators (Satisfaction Factors)
Motivators are intrinsic to the job and drive job satisfaction by addressing employees' need
for personal growth, achievement, and recognition. These factors make work meaningful and
engaging.
• Achievement: Employees feel satisfied when they successfully complete tasks or
accomplish goals.
• Recognition: Being acknowledged for hard work or accomplishments boosts morale.
• Work Itself: When the job is interesting, challenging, or fulfilling, it increases
satisfaction.
• Responsibility: Having control over one's tasks and being trusted with important
responsibilities creates motivation.
• Advancement: Opportunities for career growth and promotion contribute to job
satisfaction.
• Personal Growth: Learning new skills and developing professionally makes work
rewarding.
For example, a programmer feels motivated when completing a challenging project and
receiving recognition from their manager. These intrinsic factors make employees feel valued
and engaged in their roles.
Hygiene Factors (Dissatisfaction Factors)
Hygiene factors are external to the job itself and do not create satisfaction, but their absence
can lead to dissatisfaction. These factors are necessary to maintain a neutral work
environment.
• Company Policies: Fair, transparent, and well-communicated policies prevent
dissatisfaction.
• Supervision: Competent and supportive management ensures employees feel guided
and valued.
• Salary: Competitive pay ensures financial security and fairness but does not
inherently motivate employees.
• Interpersonal Relationships: Positive interactions with coworkers and supervisors
reduce workplace conflicts.
• Work Conditions: Safe, clean, and comfortable environments are essential for a
productive workforce.
 • Job Security: Employees need assurance of continued employment to feel stable.
• Work-Life Balance: Reasonable hours and flexibility prevent burnout and frustration.
For example, poor lighting or a noisy workspace may lead to dissatisfaction, but improving
these factors alone will not necessarily make employees feel motivated or engaged.
Key Insights from Herzberg's Theory
The theory emphasizes that job satisfaction and dissatisfaction are influenced by separate
factors. Eliminating dissatisfaction through improved hygiene factors does not automatically
create satisfaction. For true motivation, organizations must focus on providing motivators
like meaningful work and opportunities for growth. However, maintaining hygiene factors is
critical to avoid dissatisfaction and employee turnover.
Practical Implications
For Managers:
• Address hygiene factors first by ensuring fair pay, supportive policies, and safe
working conditions. This minimizes dissatisfaction.
• Enhance motivators by offering opportunities for personal growth, recognition, and
autonomy in work. This boosts satisfaction and motivation.
• Take an individualized approach, as different employees may value motivators
differently.
For Organizations:
• Structure jobs to include challenging tasks that enrich employees' experiences.
• Offer career development and training programs to foster growth.
• Implement systems to recognize and reward outstanding performance.
Criticism of the Theory
Herzberg’s theory has been critiqued for oversimplifying the relationship between job factors
and satisfaction. The distinction between motivators and hygiene factors is not always clear-
cut, as some factors (like salary) might act as both a motivator and a hygiene factor
depending on the context. Additionally, the theory assumes all individuals respond similarly
to these factors, which ignores personal and cultural differences. Herzberg's reliance on self-
reported data for his research may also have introduced bias.
Conclusion
Herzberg’s Two-Factor Theory provides a valuable framework for understanding workplace
motivation. By addressing hygiene factors to prevent dissatisfaction and focusing on
motivators to foster engagement, organizations can create a more satisfied and productive
workforce. However, effective application of this theory requires a nuanced approach that
considers individual preferences and organizational context. Expectancy Theory of Motivation
The Expectancy Theory of Motivation, developed by Victor Vroom in 1964, is a framework used to
understand how individuals make decisions about their actions in the workplace. It suggests that
motivation depends on how strongly a person believes their effort will lead to desired results. This
theory focuses on three key elements: effort, performance, and rewards, and how they influence
motivation through a rational decision-making process.

Key Components of Expectancy Theory

1. Expectancy (Effort → Performance)
Expectancy is the belief that an individual’s effort will lead to a specific level of
performance. When people feel confident that they can achieve their goals with the
right effort, their motivation increases. Several factors affect expectancy:
o Skills and Abilities: Whether the person feels capable of doing the task.
o Role Clarity: Understanding what is expected of them in their job.
o Resources and Support: Having the tools, environment, or help needed to
succeed.
Example: A salesperson might believe working extra hours will increase their sales,
motivating them to put in the effort.
2. Instrumentality (Performance → Outcome)
Instrumentality is the belief that achieving a certain level of performance will result in
specific outcomes or rewards. When people trust that good performance will lead to
desired results, they are more likely to be motivated. Factors influencing
instrumentality include:
o Transparency: Clear communication about how performance is linked to
rewards.
o Trust: Confidence that the organization will follow through on promises.
o Policies: Fair and consistent procedures for rewarding performance.
Example: An employee might work harder if they believe meeting targets will earn them a
bonus or promotion.
3. Valence (Value of Outcomes)
Valence refers to the value or appeal of a reward to the individual. People are more
motivated when the reward aligns with their personal goals and preferences. Factors
affecting valence include:
o Personal Goals: How well the reward fits an individual’s ambitions.
o Preferences: Whether the person genuinely values the reward.
Example: A promotion might be highly valued by someone focused on career growth but less
appealing to an employee prioritizing work-life balance.
The formula for Expectancy Theory
Vroom proposed that motivation depends on the combined effect of the three components:
Motivation = Expectancy × Instrumentality × Valence
If any one of these components is zero, motivation will also be zero. This means all three
factors must work together to drive motivation effectively.
Applying Expectancy Theory in Management
Managers can use this theory to improve motivation by focusing on each component:
1. Enhancing Expectancy
o Provide training to ensure employees feel capable of performing their tasks.
o Set clear and achievable goals.
o Supply the necessary resources, tools, and support to help employees succeed.
2. Strengthening Instrumentality
o Clearly link performance to rewards and outcomes.
o Be transparent about performance evaluations and reward systems.
o Build trust by consistently delivering promised rewards.
3. Increasing Valence
o Understand employees’ individual preferences and motivations.
o Offer personalized rewards that align with what employees value, such as
bonuses, recognition, or career growth.
o Communicate regularly to ensure employees’ goals align with organizational
objectives.
Examples in Management
1. Motivating a Sales Team
o Expectancy: Provide training on sales techniques to boost confidence and
skill.
o Instrumentality: Create a clear commission structure linking sales
performance to earnings.
o Valence: Offer rewards like high commissions or trips that align with what the
team values.
2. Managing a Project Team
o Expectancy: Assign tasks based on team members’ strengths and provide
clear instructions.
o Instrumentality: Recognize and reward milestones achieved during the
project.
o Valence: Offer tailored rewards such as bonuses, public recognition, or
promotions, depending on individual preferences.
Criticisms of Expectancy Theory
While the theory provides valuable insights, it has some limitations:
• Complexity: It assumes that people calculate effort, performance, and outcomes
rationally, which may not always reflect reality.
• Subjectivity: The three components vary greatly between individuals, making it hard
to predict behavior universally.
• Simplification: The theory overlooks emotions, intrinsic motivation, and social
factors that can also drive behavior.
Conclusion
The Expectancy Theory of Motivation helps managers understand how effort, performance,
and rewards interact to influence employee motivation. By addressing each component—
expectancy, instrumentality, and valence—organizations can create motivational strategies
that align employees’ goals with company objectives. While the theory has its limitations, its
focus on rational decision-making provides a practical framework for boosting productivity
and engagement in the workplace.

Chapter 13 Benefits and Services

Overview of Benefits and Services
What Are Benefits?
Benefits are extra forms of compensation provided to employees beyond their regular pay.
They can be financial, like health insurance, or non-financial, like childcare services. These
"indirect" payments are not part of the paycheck but add value to the employee's overall
package.
• Examples of Benefits:
o Health and Life Insurance: Helps cover medical expenses and provides
financial support to families.
o Retirement Plans: Pensions and savings plans ensure income after retirement.
o Paid Time Off (PTO): Includes vacation, holidays, and sick leave.
o Childcare Assistance: Supports employees with dependents.
Purpose:
• Increases job satisfaction by showing employees they are valued.
• Improves work-life balance with flexible schedules and health programs.
• Encourages loyalty and long-term commitment to the organization.

What Are Services?

Services are additional programs or facilities employers offer to improve employees’ quality
of life and productivity.
• Examples of Services:
o Workplace Facilities: Parking, free food, childcare centers, and gyms.
o Financial Support: Tuition reimbursement, car loans, and severance pay.
o Lifestyle Enhancements: Shopping discounts, office events, and retirement
planning help.
o Convenience Services: Transportation support, relocation assistance, and
snacks during breaks.
Purpose:
• Makes daily life easier for employees.
• Builds loyalty and reduces turnover.

Types of Benefits
1. Pay for Time Not Worked:
o Paid days off for vacations, public holidays, and sick leave.
2. Insurance:
o Health, life, and disability insurance protect employees and their families.
3. Retirement:
o Pensions and savings plans help employees prepare financially for retirement.
4. Personal Services:
o Tuition reimbursement for education and wellness programs for health.
5. Flexible Benefits:
o Employees can choose benefits that suit their personal needs, like more
vacation days instead of additional insurance.

Key Takeaways
• Strategic Value: Benefits and services are essential tools to attract and retain
employees.
• Holistic Approach: Offering a mix of support ensures employees feel cared for on all
fronts.
• Customization: Tailoring benefits to employees’ needs boosts satisfaction and
productivity.
Case: Human Resource Strategy and Productivity at Wal-Mart

Wal-Mart's success can be largely credited to its founder, Sam Walton, and his visionary
leadership. Walton's management philosophy focused on empowering employees, boosting
productivity, and creating a unique company culture based on respect and teamwork. Inspired
by his experience at J.C. Penney, Walton introduced practices that changed the retail industry
and made Wal-Mart stand out.
One of his key strategies was calling employees “associates” to show their importance to the
company. Walton believed that by respecting and empowering employees, they would be
more motivated and work better together. This led to a decentralized management structure
where associates could see how their efforts contributed to the company’s success. Walton
encouraged listening to ideas from frontline workers, as they had valuable insights into
improving operations.
Walton also introduced the “Sundown Rule,” which encouraged completing tasks the same
day. This created a sense of urgency and efficiency, and Walton, along with senior managers,
would visit stores unannounced to make sure employees were following the rules and to
celebrate those who did. This focus on quick action helped Wal-Mart’s productivity.
To further motivate employees, Walton created profit-sharing and stock ownership programs,
giving associates a share in the company’s success. Even though wages were relatively low,
these programs made employees feel loyal and invested in Wal-Mart’s growth, which helped
the company succeed.
However, as Wal-Mart grew into a global giant with 2.2 million associates by 2012, it became
harder to maintain Walton’s employee-focused philosophy. The company struggled to recruit
and keep employees willing to work long hours for low pay, despite profit-sharing incentives.
Additionally, Wal-Mart’s resistance to unions and criticism of employee treatment led to legal
issues and negative public perception.
As the company expanded, its focus on low wages and demanding work conditions became a
bigger issue. Critics argued that Wal-Mart's original model, which worked in its early years,
was no longer suitable in a labor market where employees wanted fair pay, better work-life
balance, and fair treatment. These challenges hurt the company’s reputation and showed how
hard it is to maintain Walton's people-centered strategies as a large organization.
In conclusion, Wal-Mart’s success was built on Sam Walton’s innovative strategies,
emphasizing respect, empowerment, and shared success. While these practices worked well
in the company’s early years, as Wal-Mart grew, it faced challenges adapting to the changing
workforce and labor market. This highlights the need for companies to evolve their strategies
as they expand to stay competitive.
Case: Managing Global HRM at Hotel Paris
Hotel Paris’s strategy focuses on providing excellent guest service to stand out from
competitors and keep customers coming back, which leads to longer stays and higher profits.
However, the company faced challenges in managing its global workforce. One major issue
was the lack of formal training programs for employees moving to international roles. For
example, a U.S. manager sent to Europe had to return early because of family problems,
costing the company both money and disrupting operations.
Additionally, the company experienced high turnover rates, with 90% of top-performing
employees leaving every year. They also lacked HR metrics to track important factors like
employee morale, attendance, and customer service, making it hard to assess and improve
their global workforce.
Initiatives to Address HR Issues
Lisa Cruz, the HR manager, made several changes to address these problems and align HR
practices with the company’s goals. First, she integrated the HR systems across all locations
to streamline tasks like benefits, performance evaluations, and morale tracking. This system
allowed the company to better monitor and improve global HR practices.
To support expatriates, Lisa worked with an international HR training company to offer
cultural training and pre-departure support for employees and their families. She also
launched “Manager Seminars” to promote idea sharing and introduce new HR programs.
Additionally, she implemented an incentive system for local managers to encourage
behaviors that aligned with the company’s service-focused strategy. Lisa also developed HR
metrics to track key performance indicators to ensure recruitment, training, and counseling
met high standards.
Results of the HR Changes
The changes led to improvements in key areas like employee morale, attendance, and
customer service. Employee turnover decreased, and expatriates were better prepared for
international assignments. By the end of the year, the company’s HR performance was on par
with top-performing organizations, and the global HR system was effectively under control.

Question 17-19: What hotel managers should know to help expatriates adapt to new
roles?
Hotel managers need to understand the challenges expatriates face when moving to a new
location. They should ensure expatriates receive cultural orientation and pre-departure
training to get familiar with their new environment. Managers should also provide ongoing
support through counseling and open communication to help them handle both personal and
professional challenges. Encouraging expatriates to integrate with local teams and
communities will also help them feel included.
Question 17-20: HR practices from Dessler’s recommendations that can improve the
Hotel Paris.
Dessler recommends competency-based training programs, which could greatly benefit Hotel
Paris. Implementing such programs would help employees develop the skills and behaviors
needed to deliver superior guest service. Training might focus on cultural awareness,
problem-solving, and customer interaction skills, helping employees align with the
company’s service goals and improve overall performance.
Question 17-21: Essential HR practice for global implementation.
The most important HR practice introduced by Lisa is pre-departure and cultural training for
expatriates. This supports the company’s goal of high-quality service by preparing employees
for international roles. To implement this globally, the company should standardize training
across all locations and partner with specialized HR training firms to ensure consistency and
better support for expatriates, leading to improved performance and reduced turnover.