Pay for Performance Evaluating Performance Appraisal and Merit Pay (1991) / Chapter Skim
Currently Skimming:
8 Findings and Conclusions
8 Findings and Conclusions
Pages 135-166
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From page 135... ...
To supplement the research findings, we were asked to look at private-sector practice as well, to see if there are successful compensation systems based on performance appraisal that might provide guidance for policy makers in reforming PMRS. We construed this charge as requiring an investigation of whether and under what conditions performance appraisal in the context of merit pay systems could assist the federal government in managing performance, fostering employee equity, improving individual and organizational effectiveness, providing consistent and predictable personnel costs, and not least—enhancing the legitimacy of public service.
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From page 136... ...
Our research has taken us into the literature of a variety of disciplines as we tried to piece together from fragmentary evidence the best possible scientific understanding of the adequacy of performance appraisal as a basis for making personnel decisions and of the effectiveness of using pay to improve performance. Investigation of the effects of linking compensation to performance led us from the question of individual effectiveness to organizational effectiveness and required an examination of both merit and variable pay plans.
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From page 137... ...
Both research fields are interested in the use of rating scales to evaluate job performance, although they have tended to focus on different questions and have different expectations of performance appraisal. At the risk of overemphasizing the distinctions, we have presented our discussion in this report in two parts, one focused on the measurement research, the second on the applied research.
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From page 138... ...
In the manner of the 1978 Uniform Guidelines on Employee Selection Procedures, which elaborates the requirements of Title VII of the Civil Rights Act of 1964, Office of Personnel Management regulations implementing the Civil Service Reform Act of 1978 called on federal agencies to develop job-related and objective performance appraisal systems. The regulations required that performance standards and critical job elements be specified consistent with the duties and responsibilities outlined in an employee's position description.
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From page 139... ...
Research on Job Analysis Findings: Job Analysis Applied psychologists have used job analysis as a primary means for understanding and describing job performance. There have been a number of approaches to job analysis over the years, including the job element method, the critical incident method, the Air Force task inventory approach, and methods that rely on structured questionnaires to describe managerial-level jobs in large organizations.
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From page 140... ...
An overly literal interpretation of the requirements of the Civil Service Reform Act taking job-related to mean job-specific, or treating objective as the opposite of judgment, would be particularly destructive for managerial appraisal. Research on Psychometric Properties Reliability Reliability analysis provides an index of the consistency of measurement, from occasion to occasion, from form to form (if there are several versions of a test or measure that are all intended to measure the same thing)
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From page 141... ...
Validity, therefore, is an accretion of evidence from many sources; it describes a research process that gradually lends confidence to the interpretations or judgments made on the basis of the measure. In the realm of job performance, validation begins in an important sense with an analysis of the job or category of jobs for which performance measures are to be developed.
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From page 142... ...
Recent military job performance measurement research, for example, demonstrated moderate correlations between supervisor ratings and each of the other types of criterion measures developed (hands-on test scores, training grades, written job knowledge tests) , which lends credibility to the claim that carefully developed performance appraisals can bear a meaningful degree of relationship to actual job performance.
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From page 143... ...
. Behaviorally anchored rating scales (BARS)
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From page 144... ...
The combination of research on job analysis, research on the reliability of appraisal results, and the direct and indirect evidence of a modest relationship between performance ratings and other sorts of measures (employment tests, other measures of job performance) leads us to conclude that the performance appraisal process, while by no means high-precision measurement, can achieve moderate levels of accuracy within the assumptions of the measurement tradition.
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From page 145... ...
Although such scholars do not reject the idea of accuracy, they tend to take a more commonsense approach, talking of the "relevance" of the appraisal to job performance, and to concentrate much more on the contextual factors that support or distort appraisal systems. From this perspective, the interesting research questions about performance appraisal systems are whether they enrich managerial judgment and improve employee understanding of organizational goals and standards of performance; encourage more communication between managers and employees; communicate a sense of equity and fair play in the distribution of rewards and penalties by making visible the grounds of these decisions; and enhance employee trust and acceptance.
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From page 146... ...
Approaches to Increasing Rating Quality Several approaches have been used to increase the quality of performance ratings. These have included developing training programs for supervisors responsible for providing performance appraisals and developing appraisal scales
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From page 147... ...
Sources of Rating Distortion Performance ratings are subject to distortion from many quarters, no matter how carefully designed the appraisal instrument. The measurement research has concentrated on statistical analysis to detect rater bias and rater errors such as halo and leniency.
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From page 148... ...
In contrast, there is nearly universal use of objective-based formats for managers and professionals; this format allows for joint manager-employee participation in defining performance objectives and, in some organizations, interim changes to objectives according to organization or individual needs. In addition, some organizations use joint management meetings for ranking employees after initial performance ratings are completed; these meetings provide a forum for negotiating the basic norms of "acceptable" individual performance for similar jobs or job areas.
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From page 149... ...
We know, for example, that when performance ratings are used in the context of merit pay allocations, managers tend to inflate ratings. We know too that specifying behaviors of interest in the appraisal format (e.g., BARS or management-by-objective systems)
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From page 150... ...
Few organizations attempt to establish the scientific validity of performance appraisal using typical psychometric procedures. The focus in applied settings appears to be on performance appraisal as a means of supporting an ethos of meritocratic personnel decisions, and on the development and administration of performance appraisal in ways that foster employee perceptions of equity and fairness using goal setting formats, using joint management negotiations to define job performance norms, and measuring employee perceptions of performance appraisal fairness.
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From page 151... ...
As an important element in a meritocratic personnel system, merit pay plans link annual pay increases, at least in part, to how well the incumbent has performed on the job. As a consequence, performance appraisal is at the heart of most merit plans.
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From page 152... ...
Although payouts can be large in good times, they are not usually added to base pay hence the designation variable pay plan. All pay-for-performance plans are designed to deliver pay increases to employees based, at least in part, on some measure of performance.
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From page 153... ...
4. Merit pay plans do not conform as closely as individual incentive plans to the theoretical conditions thought to be conducive to improved performance.
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From page 154... ...
We have found but one experimental study (involving white-collar workers in Navy labs) that relates retention to the adoption of a merit pay system.
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From page 155... ...
The various performance-based pay systems studied in this report approach these trade-offs differently. The design of merit pay plans appears to emphasize predictability and stability over time.
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From page 156... ...
6. The personnel managers interviewed also emphasized the importance of communicating merit pay increases as part of an overall pay system and a meritocratic personnel philosophy.
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2. There is insufficient research to determine conclusively whether merit pay can enhance individual performance or to allow us to make comparative statements about merit and variable pay plans.
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From page 158... ...
However, it is not possible from existing research to conclude that these plans cause performance changes, to specify how they do so, or to understand how the behavior of individuals under these plans aggregates to the organization level. III: THE IMPORTANCE OF CONTEXT Our reviews of performance appraisal and merit pay research and practice indicate that their success or failure will be substantially influenced by the broader features of the context in which they are embedded.
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From page 159... ...
Their personnel practices emphasize internal skill development, the importance of work force norms, and the employee's long-term contribution. Such firms would seem to be well served by traditional performance appraisal and merit pay plans.
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From page 160... ...
The federal government faces special, if not entirely intractable, problems that work against any easy transferability of private-sector experience. The very term merit pay carries far more meaning in the context of a public civil service than in the private sector—above all, the absence of partisan political considerations in the determination of pay levels of career employees.
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From page 161... ...
The issue of divided leadership provides a particularly salient example of the inherent difficulties of creating a successful merit pay system in the federal context. A continuing theme in modern government has been the need to make the bureaucracy more responsive to the chief executive.
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From page 162... ...
Other institutional influences that profoundly shape federal agencies and their activities include civil service laws and regulations that impose great complexity and rigidity on the system. Recruiting, testing, hiring, firing and rewarding are all constrained in the federal government (National Academy of Public Administration, 19831.
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From page 163... ...
On one hand, Civil Service Reform Act legislation provided the requirement for detailed performance appraisal standards that could be used by managers as proof of unsatisfactory performance. On the other hand, the managers' ability to act regarding unsatisfactory performance was limited in the statute by providing employees with strong substantive rights, such as the opportunity to improve before an unacceptable performance action can be taken and the ability to appeal performance appraisal ratings both within the agency and externally to the Merit Systems Protection Board.
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From page 164... ...
the size of the merit pay offered allows managers to differentiate outstanding performers from good and poor performers, and thus provides them with incentives to differentiate. For example, top performers may receive 10 percent of their base salary in merit pay, good performers, 5 percent, and poor performers, no merit increase.
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From page 165... ...
We can suggest that, given this diversity and the importance of matching pay-for-performance plans to organization context, federal policy makers consider: a. Decentralizing the design and implementation of many personnel programs, including appraisal and merit pay programs, within the framework of central policy guidelines and to the extent possible given the government's legitimate concerns about facilitating interagency mobility, standardization and comparability, and equity.
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From page 166... ...
166 PAY FOR PERFORMANCE contextual factor, the issue of comparability of federal base salaries with pay for equivalent private-sector jobs may pose severe problems for the acceptance of merit pay or any other pay-for-performance system if the promise of recently enacted legislation proves illusory. We realize that the broader changes suggested by an analysis of context can be costly, but we suggest that making programmatic changes to the Performance Management and Recognition System in isolation is unlikely to enhance employee acceptance of the system or improve individual and organizational effectiveness significantly and, in the long run, may prove no less costly.
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