Pay for Performance Evaluating Performance Appraisal and Merit Pay (1991) / Chapter Skim
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7 The Importance of Context
7 The Importance of Context
Pages 122-134
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From page 122... ...
Research on pay now stresses the importance of viewing pay and pay-forperformance plans in the context of an organization's personnel system, its structure and managerial styles, and its strategic goals (Balkin and GomezMejia, 1987a, 1990, Carroll, 1987~. Managers of performance appraisal, merit pay, and variable pay plans stress that these plans must fit or be consistent with the organization's personnel practices, culture, and strategic mission or goals if they are to work as the organization intends.
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From page 123... ...
For example, stable jobs characterized by low complexity, in which performance goals can be easily specified for each employee and in which employee performance is easily observed, are compatible with more quantitative, carefully scaled individual evaluations based on specific work output or behavior. However, using highly specific, individual performance appraisals and incentives with jobs that are complex and involve multiple and ambiguous goals can result in employees ignoring important aspects of their jobs or distorting job information to make their performance look good.
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From page 124... ...
The premium that such appraisal systems place on specific, narrowly defined goals and the likelihood that negotiated goals will tend to be lenient would seem also to increase the likelihood that important aspects of the job will be ignored or the appraisal otherwise distorted. BROADER ORGANIZATIONAL FACTORS While the relationships among an organization's technology, job designs, performance evaluation plans, and pay-for-performance plans have been the contextual factors most directly examined, many others are thought to influence an organization's success in adopting and implementing these plans.
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From page 125... ...
Steady-state strategies were defined as emphasizing holding onto current market positions through internal development of technology, improvements in products or services, increasing work force productivity, internal coordination, and economies of scale. Kerr found that executives in firms successfully pursuing evolutionary strategies were more likely to be evaluated strictly on quantitative, organizationlevel measures of strategic performance tied to bonus plans that offered high returns (40 percent or more of base salary)
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From page 126... ...
There are also theoretical perspectives suggesting that organizations vary in their ability to define strategic goals so that they are likely to be understood and seen as legitimate by their employees, their other stakeholders, and the public. For example, organizations in highly institutionalized sectors or those relying significantly on public trust may be more likely to adopt very formal, precise performance evaluations in response to external pressures or regulations (Meyer and Rowan, 1977~.
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From page 127... ...
By virtue of their history, growth patterns, strategic goals, and the environmental challenges they face, organizations make decisions about their physical and geographic structures, their job designs and hierarchies, their management systems, and so forth. While the conceptual writing and the research undertaken to examine the relationships between organization strategy, structure, management, and environment are extensive, we focus here only on selected work used in normative proposals about the relationship between organization structure, management systems, and performance appraisal and pay systems.
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From page 128... ...
have proposed that organizations pursuing growth-oriented, innovative strategies, which have organic structures and management systems and personnel practices that emphasize buying an entrepreneurial work force will be best served by performance evaluations that emphasize competitive, organization-level performance and by pay systems that emphasize group incentives and bonuses. Organizations pursuing cost efficiencies and maintenance strategies, with mechanistic structures and management systems and personnel practices that emphasize internal skill development and the importance of work force norms, would be better served by more traditional performance appraisal and merit plans or other policies that recognize an employee's long-term contributions to the organization.
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From page 129... ...
The business policy studies of the 1960s and 1970s illustrated two basic approaches to corporate structuring and control of large, diverse businesses: one in which corporate management took a hands-off or holding company approach to managing business divisions; the other in which the corporate management tried to set basic policy guidelines and used both performance evaluation and pay systems to tie division managers to corporate as well as divisional goals (Chandler, 1962; Berg, 1965; Pitts, 19761. Recent case studies of globalizing or transnational firms have noted that, while some firms try to manage and coordinate diverse businesses and work forces by developing more elaborate bureaucratic and centralized structures and controls, most have moved to global statements of corporate values that are intended to guide, but not dictate, business
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From page 130... ...
also supports decentralized control of performance appraisal and pay-for-performance plans based on the nature of the work being performed (e.g., team-based, task interdependence, task concreteness, stability of technology, etc.~. Work Force Climate and Employee-Management-Labor Relations The research we reviewed earlier on pay-for-performance plans indicated that such factors as employees' confidence and trust in management, their opportunities to participate in setting performance goals, and the availability of channels for appeals of performance appraisal ratings and merit allocations can influence both their motivation to perform and their assessments of the fairness of performance appraisals and pay-for-performance plans.
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From page 131... ...
. In short, some assurances that pay-for-performance plan payouts are feasible and that job security is not jeopardized by the plan appear to be important to employee acceptance and motivation under pay-for-performance plans.
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From page 132... ...
Overall, then, the extent of unionization and professionalization in an organization's labor markets will tend to reduce support for the adoption of performance evaluation and pay-for-performance plans. In the federal government, there are four associations that represent managers and professionals and at least four employee unions.
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From page 133... ...
There are some specific concerns with regard to the protections afforded federal employees. While due process requirements giving employees the right to appeal their evaluations are common in the public sector and are related to the concept of fairness in the public and private sectors, some of the bases for appealing performance appraisals under the Civil Service Reform Act may hamper effective managerial discretion.
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From page 134... ...
5. Many large firms with diverse goals and work forces have moved towards decentralized management strategies, with the home office providing policy and audit functions and the local units designing and implementing performance evaluation and pay systems.
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