Managing an organization means dealing with multiple issues simultaneously and keeping everything in check through compensation, whether intrinsically or extrinsically. A manager should also be able to maintain everything related to the work plan and team. First, the management needs to set harmony among the employees by defining everyone’s duties, responsibilities and position. However, this needs to be done within a budget, time frame, and technology. One of the essential responsibilities of the management is performance appraisal. Nonetheless, measuring performance is considered a technical process that evaluates employee performance.
Management By Objectives (MBO)
One of the performance appraisal methods beneficial for our organization is management by objectives (MBO). This is a strategic approach used to enhance the performance of an organization. It is a technical process where the goals of an organization are documented and released to the organization members to achieve every objective.
It is important to note that objectives management involves evaluating and monitoring employee performance and their progress against the set objectives (Nuta & Nuta, 2018). Indeed, if employees are involved in setting the objectives and deciding which method to achieve the goals, they are more obliged to fulfill their objectives.
There are several steps involved in the management by objectives performance appraisal method. They include:
Definition of Goals
Having organizational objectives is essential for business success and serves several purposes. Besides, it needs to incorporate different stakeholders in the organization. For instance, the objectives arrived at by supervisors are termed provisions since they are based on evaluation and interpretation of what a company can achieve within a specified time.
Definition of Employee Objectives
When employees are informed about the plan, objectives, and strategies, managers can begin to work with subordinates to narrow down personal objectives. This can be a one-to-one discussion where subordinates inform the managers about their goals and objectives and the time they need to accomplish the goals within a specific time. At this point, the managers will dedicate all the resources required to achieve the goals and targets while also giving tentative thoughts about the organization’s objectives.
Continuous Monitoring and Performance Evaluation
Although the management by objectives method is necessary for increasing the manager’s effectiveness, it is also essential to monitor each worker’s progress and performance. Besides, within the MBO framework, performance monitoring encompasses all managers involved in setting the goals and objectives of an organization (Rahman et al., 2020).
Feedback and Performance Appraisal
This is one of the most critical steps in the management by objectives. It entails continuous feedback regarding the objectives and helps employees correct where needed. After feedback has been conveyed, it is now time for performance appraisal based on performance reviews of employees’ progress.
Forced Distribution Method
Forced distribution is also a performance appraisal method that I deem fit for our organization. It comprises a rating system that is used around the world to evaluate employees. This system requires the management to assess employees based on pre-determined parameters then rank them in at least three categories.
This performance appraisal method creates a visible differentiation between the performance of every employee in an organization. Most organizations always choose the normal distribution curve, which represents the distribution of performance among employees in the organization (Evans & Bae, 2018). This ensures that few employees are placed in the extreme of outstanding performers and average performance. It is important to note that many employees fall in the middle section of the distribution.
While this method seems easy to use, there are several things that the management needs to understand. For starters, they need to understand the parameters to use and define these parameters to avoid unambiguity. While this approach cultivates a high-performing organizational culture, it is cost-effective and straightforward. Most of the time, employees claim that this performance appraisal method is not fair and can result in rivalry and unhealthy competition.
Comparing management by objectives (MBO) and forced distribution, I would undoubtedly align our organization with the management by objectives approach. This is because MBO promotes prior planning, employee involvement, measurable goals, improved communication, and a stronger criterion for employee evaluation. I do not side with forced distribution because of the rivalry that it might bring in the workplace, creating unhealthy grounds for work.
Performance appraisal is a term that goes hand in hand with compensation. Several factors affect compensation within an organization. For instance, compensation policy can directly affect the talent an organization attracts and achieve a lower rate per unit of labor than organizations that offer competitive pay. Also, employee affordability affects compensations. If one assesses organizations with a high market share and huge profit, they have the upper hand to pay better than others. As such, the ability of a company to afford its employees can be affected by acute competition and sector-specific fiscal recession. Externally, compensation is also affected by union influence, cost of living, and government control.
Just as there are many factors affecting compensation within an organization, several factors affect employee compensation. For starters, the compensation strategy is quite critical when determining employee compensation. A compensation strategy aims at keeping employees satisfied for a long time. Having the proper compensation structure that rewards employee value, gets new hires, and motivates employees to grow within an organization is crucial (Lazear, 2018). Also, the history of organization compensation affects the compensation of employees since most organizations are stuck in old compensation methods. It is also important to note that new hires and market data also affect employee compensation since recruiting new talent involves conversation, and the market has many compensation comparison methods that affect compensation.
The recommendation I would make for a variable pay program is an individual incentive plan. This approach involves paying an employee incentive based on their output or performance. The management is liable to pay the incentives to employees who produce more than the normal output.
It is essential to understand that the individual incentive plan can be implemented in two ways. First, it can be production-based or time-based. Time-based incentives focus on a standard time used to do a job that is compensated (Schraeder & Becton, 2022). Most of the time, employees are considered efficient if they can finish their job within the standard time set. As such, employees are rewarded based on their efficiency.
On the other hand, production-based incentives are given based on the unit output. As such, employees are rewarded based on their output in a given department or production site. Some production incentive plans include Taylor’s differential piece rate system and Merrick’s multiple piece rate plan.
Evans, L., & Bae, K. H. (2018). Simulation-based analysis of a forced distribution performance appraisal system. Journal of Defense Analytics and Logistics.
Lazear, E. P. (2018). Compensation and incentives in the workplace. Journal of Economic Perspectives, 32(3), 195-214.
Nuta, A. C., & Nuta, F. (2018). Management of objectives and budgetary planning. EuroEconomica, 37(3).
Rahman, A., Islam, H., Islam, R., & Sarker, N. K. (2020). The effect of management by objectives on performance appraisal and employee satisfaction in commercial banks. European Journal of Business and Management, 12(20), 15-25.
Schraeder, M., & Becton, J. B. (2022). An overview of recent trends in incentive pay programs. The coastal business journal, 2(1), 3.