Performance Management:Goal Setting, Management by Objectives, Criticism of MBO

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Organization Development MGMT 628

Lesson 39

Performance Management

We discuss human resources management interventions concerned with managing individual and group

performance. Performance management involves goal setting, performance appraisal, and reward systems

that align member work behavior with business strategy, employee involvement, and workplace technology.

A Model of Performance Management:

Performance management is an integrated process of defining, assessing, and reinforcing employee work

behaviors and outcomes. Organizations with a well-developed performance management process often

outperform those without this element of organization design. As shown in Figure 52, performance

management includes practices and methods for goal setting, performance appraisal, and reward systems.

These practices jointly influence the performance of individuals and work groups. Goal setting specifies the

kinds of performances that are desired; performance appraisal assesses those outcomes; reward systems

provide the reinforces to ensure that desired outcomes are repeated. Because performance management

occurs in a larger organizational context, at least three contextual factors determine how these practices

affect work performance: business strategy, workplace technology, and employee involvement. High levels

of work performance tend to occur when goal setting, performance appraisal, and reward systems are

aligned jointly with these contextual factors.

Figure: 52

Business strategy defines the goals and objectives that are needed for an organization to compete

successfully, and performance management focuses, assesses, and reinforces member work behaviors

toward those objectives. This ensures that work behaviors are strategically driven.

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Workplace technology affects whether performance management practices should be based on the

individual or the group. When technology is low in interdependence and work is designed for individual

jobs, goal setting, performance appraisal, and reward systems should be aimed at individual work behaviors.

Conversely, when technology is highly interdependent and work is designed for groups, performance

management should be aimed at group behaviors.

Finally, the level of employee involvement in an organization should determine the nature of performance

management practices. When organizations are highly bureaucratic with low levels of participation, goal

setting, performance appraisal, and reward systems should be formalized and administered by management

and staff personnel. In high-involvement situations, on the other hand, performance management should

be heavily participative, with both management and employees setting goals and appraising and rewarding

performance. In high-involvement organizations, for example, employees participate in all stages of

performance management are heavily involved in both designing and administering its practices.

Goal Setting

OD in Practice: Big Hairy Audacious Goals

Employees at the Generic Electric are aiming at "stretch goals." At GE, stretch goals means encouraging

employee teams to try for huge gains in productivity and quality even though, at the outset, it is unclear

how they will get there, based on certainty that they will use their ingenuity to find ways to do what they are

asked. At other companies they call these goals BHAG big hairy audacious goals. These are the kind of

goals that stimulate everyone in the organization to shoot for extreme achievement. One thinks, for

instance, of the NASA moon mission. The NASA goal energized the entire country.

One major goal that GE is striving for is called Six Sigma. This program is the largest quality initiative ever

mounted at a U.S. corporation. Six Sigma is a statistical term for 3.4 defects per million products. This

translates to near-perfect manufacturing. GE began implementing Six Sigma in the mid-1990s, when

Lawrence Bossidy, who at the time was CEO of AlliedSignal, spoke to GE's top management about the

concept. Bossidy had been using Six Sigma at AlliedSignal for about five years. He had borrowed it from

Motorola. All three companies, Motorolla, AlliedSignal, and GE, have placed, and continue to place,

substantial resources into Six Sigma programs. GE has a way to go before it attains its goals. Currently GE

is running at three to four Sigma level. The gap between that and a six level is costing GE between $8

billion and $12 billion a year in lost productivity and inefficiencies. To attain a goal of Six Sigma requires

more than an edict from the CEO. It requires every employee to get on board and "walk the talk." For a

company the size of GE, this is a gargantuan task. Six Sigma is difficult to understand because of its heavily

laden statistical concepts. It is even more difficult to implement. Last year GE spent $600 million on Six

Sigma projects mostly for the salaries of 4,000 full-time Six Sigma experts plus 100,000 employees to

undergo basic training.

As the program at the GE illustrates, goals give direction and purpose. It is difficult to imagine an

organization that does not have goal setting of some kind. In a large and established company, goal-setting

may be a formal program as the development of an ideal model of the organization or the implementation

of a management by objective program. On the other hand, in a newly opened business, goal setting may

take the form of a mental image of what the business will be like in a year and then five years from now.

OD programs rely heavily upon the goal-setting process. OD, by definition, is planned change. In order for

that change to take place, goals need to be set to establish what the organization will be like. And then plan

a series of steps that will move the organization to accomplish the goals.

Goal setting involves managers and subordinates in jointly establishing and clarifying employee goals. In

some cases, such as management by objectives, it also can facilitate employee counseling and support. The

process of establishing challenging goals involves managing the level of participation and goal difficulty.

Once goals have been established, the way they are measured is an important determinant of member

performance.

Goal setting can affect performance in several ways. It influences what people think and do by focusing

their behavior, motivating people to put forth the effort to reach difficult goals that are accepted, and when

goals are difficult but achievable, goal setting prompts persistence over time. Goal-setting interventions

have been implemented in such organizations as GE, 3M, AT&T Universal Card, and Occidental

Petroleum's subsidiary Oxy-USA.

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Characteristics of Goal Setting

Challenging goals produce better performance:

Goals are only effective if they are difficult and challenging. Increasing the difficulty of employee goals, also

known as "stretch goals" can increase their perceived challenge and enhance the amount of effort

expended to achieve them. Thus, more difficult goals tend to lead to increased effort and performance, as

long as they are seen as feasible.

Specific hard goals are better than "do your best" Goals:

Goal setting involves specifying and clarifying the goals. When given specific goals, workers perform higher

than when they are simply told to "do their best" or when they receive no guidance at all.

People may abandon goals if too hard:

Although goals should be difficult, people must be able to attain or at least approach them; otherwise, they

will view the goal as impossible, become discouraged, and may abandon it. An individual is more likely to

accept or choose a goal when there is a high expectation of reaching it. If goals are set too high, people may

lose their motivating potential.

Participation in setting goals increases commitment and attainment of goals:

Employees are more committed to self-set goals than to goals assigned by a manager. It gives them

ownership.

Feedback and goals improve performance:

Information about the outcome of the performance, whether a goal was met or not, should be included. It

is also important to include information about how to adjust in order to accomplish the goal better.

Individual differences tend not to affect goal setting:

Goal setting programs are successful regardless of education and position. Production workers, clerical

workers, maintenance workers, managers, all can use goal setting successfully. CEO of Wal-Mart claims,

"There are no superstars. We're a company of ordinary people overachieving."

Goal-setting in teams deserves special consideration:

Setting difficult individual goals for an interdependent team task will likely result in poorer performance

than when a team goal is set or even when there is no team goal at all.

A manager explicitly specifying which goal is more important can achieve cooperation in goal setting.

Another to get cooperation is through participative goal setting in the context of a team-building session.

Support of management is critical:

Support for goal-setting programs by all levels of management is crucial to the success. Leaders should

maintain optimism by publicizing even small steps forward. Supervisors should be present to encourage the

acceptance of goals by employees, help them improve their skills, and give timely feedback on how the

goals are being accomplished. Those who accomplish goals should be rewarded, but the rewards need to be

applied consistently.

Application Stages:

Based on these features of the goal-setting process, OD practitioners have developed specific approaches

to goal setting. The following steps characterize those applications:

1. Diagnosis. The first step is a thorough diagnosis of the job or work group; employee needs; and the

three context factors, business strategy, workplace technology, and level of employee involvement. This

provides information about the nature and difficulty of specific goals, the appropriate types and levels of

participation, and the necessary support systems.

2. Preparation for goal setting. This step prepares managers and employees to engage in goal setting,

typically by increasing interaction and communication between managers and employees, and offering

formal training in goal- setting methods. Specific action plans for implementing the program also are made

at this time.

3. Setting of goals. In this step challenging goals are established and methods for goal measurement are

clarified. Employees participate in the process to extent that contextual factors support such involvement

and got the extent that they are likely to set higher goals than those assigned by management.

4. Review. At this final step the goal-setting process is assessed so that modifications can be made, if

necessary. The goal attributes are evaluated to see the goals are energizing and challenging and whether they

support he strategy and can be influenced by the employees.

Goal-Setting Model:

A goal setting program in an organization requires careful planning. As shown in the figure, the first three

factors in goal-setting process are establishing the goal, achieving goal commitment, and overcoming

resistance to goal acceptance.

Goals can be established in a variety of ways. Best way is to set by joint participation between the

employee and the supervisor. This method often leads to employee commitment, a crucial ingredient in

effective goal setting.

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Goal commitment can be achieved in a variety of ways. Trust in upper management, support by

management, and an effective reward and incentive system are all helpful in commitment. Competition

between employees may be useful in some cases, but managers should be careful designing competitive

situations, especially in interdependent situations. Employees may become so involved in competing with

one another, that they lose sight of the goals.

Resistance to goal acceptance can be overcome by several methods, and a combination of methods will

likely result in a more successful goal-setting program. Providing special training for employees in new

techniques and procedures and providing rewards and incentives can encourage goal acceptance.

Participation in setting goals can lead some employees to accept goals.

Goals should be specific, measurable, and compatible with the goals formulated at higher levels of the

organization. As an example of goal setting Bell Canada's telephone operators are required to answer calls

within 23 seconds and Federal Express customer agents are expected to answer customer questions within

140 seconds. Both goals were considered very difficult when initially set, but employees eventually met and

exceeded these goals.

A period of performance follows upon the setting of specific performance goals during this time, managers

must be prepared to provide support. To achieve specific goals, employees may require training or

additional resources, such as new equipment or information. Managers may need to work with employees

in developing action plans. Finally, managers should provide timely and objective feedback when the goal is

completed.

The results of the employees' performance can be beneficial or negative. The benefits may incur to the

organization or the individual. When individuals successfully meet a goal, they feel competent and

successful. Better performance and pride in the achievement of successes can be expected. Employees are

more likely to have clearer roles if they more fully realize the performance expected of them. Negative

consequences can be expected when the goals are not achieved. This is most problematic in situations

where specific and measurable goals could not be set.

Figure 53: Goal Setting

Management by Objectives:

MBO is a specific technique used by organizations to set goals. It is a process aimed at the integration of

individual and organization goals. MBO may be defined as a system of management set up to help in

planning, organizing, problem-solving, motivating, and other important managerial activities. It involves the

participation of subordinates and their managers in setting and clarifying the goals for subordinates. A

leading MBO consultant defines it as a process whereby the superior and subordinate managers of an

Organization Development MGMT 628

organization jointly identify common goals, define each individual's major areas of responsibility in terms

of results expected, and use these measures as guides for operating the unit and assessing the contribution

of each of its members. The goals of this approach include improved performance, more communication

and participation, higher morale and job satisfaction, and a better understanding of the organization's

objectives at all levels.

MBO approaches goal-setting on the assumption that people have higher-level needs for competence and

achievement, and want to satisfy these higher-level needs in their work. In addition, people will work harder

and perform better if they participate in setting goals they have to achieve.

An MBO program often goes beyond the one-on-one, manager-subordinate relationship to focus on

problem-solving discussions involving work teams as well. Setting goals and reviewing individual

performance are considered within the larger context of the job. In addition to organizational goals, the

MBO process gives attention to individuals' personal and career goals and tries to make those and the

organizational goals more complementary. The target-setting procedure allows real subordinate

participation in goal setting, with open, problem-centered discussions among team members, supervisors,

and subordinates.

Steps in MBO Process:

There are six basic steps in implementing an MBO process.

1. Work group involvement. In the first step of MBO, the members of the primary work group define

overall group and individual goals and establish action plans for achieving them. If this step is omitted or if

organizational goals and strategies are unclear, the effectiveness of an MBO approach may be greatly

reduced over time.

2. Joint manager-subordinate goal setting. Once the work group's overall goals and responsibilities

have been determined, attention is given to the job duties and responsibilities of the individual role

incumbents. Roles are carefully examined in light of their interdependence with the roles of others outside

the work group.

Establishment of action plans for goals. The subordinate develops action plans for goal

accomplishment, either in a group meeting or in a meeting with the immediate manager. The action plans

reflect the individual style of the subordinate, not that of the supervisor.

4. Establishment of criteria, or yardsticks, of success. At this point, the manager and subordinate

agree on the success criteria for the goals that have been established--criteria that are not limited to easily

measurable or quantifiable data. A more important reason for jointly developing the success criteria is to

ensure that the manager and subordinate have a common understanding of the task and what is expected

of the subordinate. Frequently, the parties involved discover that they have not reached a mutual

understanding. The subordinate and the manager may have agreed on a certain task, but in discussing how

to measure its success, they find that they have not been communicating clearly. Arriving at joint

understanding and agreement on success criteria is the most important step in the entire MBO process.

5. Review and recycle. Periodically, the manager reviews work progress, either in the larger group or

with the subordinate. There are three stages in this review process. First, the subordinate takes the lead,

reviewing progress and discussing achievements and the obstacles faced. Next, the manager discusses work

plans and objectives for the future. Last, after the action plans have been made, a more general discussion

covers the subordinate's future ambitions and other factors of concern. In this final phase, a great deal of

coaching and counseling usually takes place.

6. Maintenance of records. In many MBO programs, the working documents of the goals, criteria,

yardsticks, priorities, and due dates are forwarded to a third party. Although the evidence is indirect, it is

likely that the MBO program, as an OD effort, suffers when the working papers are reviewed regularly by a

third party, such as higher management or the personnel department. Experience shows that when the

working papers routinely are passed on, they are less likely to reflect open, honest communication within

the supervisor-subordinate pair or the work group. Often they represent instead an effort to impress the

third party or to comply with institutionalized rules and procedures.

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Figure 54: Steps in the MBO Process

Criticism of MBO:

Implementing MBO is expensive and time-consuming, and usually entails great effort. Because of these

factors, the use of MBO has traditionally been limited to managerial and professional employees. Obtaining

benefits whose value exceeds the costs is more difficult with employees performing routine work at the

lower levels of an organization.

Some MBO programs encounter difficulties because management does not recognize that proper

implementation of MBO requires improved managerial skills and competence. Critics question whether

joint goal-setting among un-equals is possible, and whether subordinates at lower levels are free to select

their objectives. In some application MBO may be too quantitative, and setting objectives as explicitly as

possible may not be functional. In other MBO programs, communication may come from the top dictating

to the bottom instead of open communication and mutual goal setting. Thus there is also a danger that

MBO will focus only on certain aspects of the job (such as sales) and ignore other areas (for example,

customer satisfaction).

Performance Appraisal:

Performance appraisal is a feedback system that involves the direct evaluation of individual or work group

performance by a supervisor, manager, or peers. Most organizations have some kind of evaluation system

that is used for performance feedback, pay administration/and, in some cases, counseling and developing

employees. Thus, performance appraisal represents an important link between goal-setting processes and

reward systems. One survey of more than five hundred firms found that 90 percent used performance

appraisal to determine merit pay increases, 87 percent used it to review performance, and 79 percent used it

as the opportunity to set goals for the next period.

Abundant evidence, however, indicates that organizations do a poor job appraising employees. One study

found that 32 percent of managers surveyed rated their performance appraisal process as very ineffective.

Consequently, a growing number of firms have sought ways to improve performance appraisal. Some

innovations have been made in enhancing employee involvement, balancing organizational and employee

needs, and increasing the number of raters. These newer forms of appraisal are being used in such

organizations as AT&T, Raychem, Levi Strauss, Intel, and Monsanto.

The Performance Appraisal Process:

Table 18 summarizes several common elements of performance appraisal systems. For each element, two

contrasting features are presented, representing traditional bureaucratic approaches and newer, high-

involvement approaches. Performance appraisals are conducted for a variety of purposes, including

affirmative action, pay and promotion decisions, and human resources planning and development. Because

each purpose defines what performances are relevant and how they should be measured, separate appraisal

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systems are often used. For example, appraisal methods for pay purposes are often different from systems

that assess employee development or promotability. Employees also have a variety of reasons for wanting

appraisal, such as receiving feedback for career decisions, getting a raise, and being promoted. Rather than

trying to meet these multiple purposes with a few standard appraisal systems, the new appraisal approaches

are more tailored to balance the multiple organizational and employee needs. This is accomplished by

actively involving the appraisee, co-workers, and managers in assessing the purposes of the appraisal at the

time it takes place and adjusting the process to fit that purpose. Thus, at one time the appraisal process

might focus on pay decisions, another time on employee development, and still another time on employee

promotability. Actively involving all relevant participants can increase the chances that the purpose of the

appraisal will be correctly identified and understood and that the appropriate appraisal methods will be

applied.

The new methods tend to expand the appraiser role beyond managers to include multiple raters, such as

the appraisee, co-workers, and others having direct exposure to the employee's performance. Also known

as 360-degree feedback, this broader approach is used more for member development than for

compensation purposes. This wider involvement provides a number of different views of the appraisee's

performance. It can lead to a more comprehensive assessment of the employee's performance and can

increase the likelihood that both organizational and personal needs will be taken into account. The key task

is to form an overarching view of the employee's performance that incorporates all of the different

appraisals. Thus, the process of working out differences and arriving at an overall assessment is an

important aspect of the appraisal process. This improves the appraisal's acceptance, the accuracy of the

information, and its focus on activities that are critical to the business strategy.

Table 18

Performance Appraisal Elements

Elements

Traditional Approaches

High-involvement Approaches

Purpose

Organizational, legal fragmented

Developmental Integrative

Appraiser

Supervisor, managers

Appraise, co-workers and others

Role of appraise

Passive, recipient

Active participant

Measurement

Subjective

Objective and subjective

Concerned with validity

Training

Periodic, fixed, administratively

Dynamic, timely, employee or

driven

work-driven

The newer methods also expand the role of the appraiser. Traditionally, the employee is simply a receiver

of feedback. The supervisor unilaterally completes a form concerning performance on predetermined

dimensions, usually personality traits, such as initiative or concern for quality, and presents its contents to

the appraiser. The newer approaches actively involve appraisers in all phases of the appraisal process. The

appraiser joins with superiors and staff personnel in gathering data on performance and identifying training

needs. This active involvement increases the likelihood that the content of the performance appraisal will

include the employee's views, needs, and criteria, along with those of the organization. This newer role for

employees increases their acceptance and understanding of the feedback process.

Performance measurement is typically the source of many problems in appraisal because it is seen as

subjective. Traditionally, performance evaluation focused on the consistent use of pre-specified traits or

behaviors. To improve consistency and validity of measurement, considerable training is used to help raters

(supervisors) make valid assessments. This concern for validity stems largely from legal tests of

performance appraisal systems and leads organizations to develop measurement approaches, such as the

Behaviorally Anchored Rating Scale (BARS) and its variants. In newer approaches validity is not only a legal

or methodological issue but a social issue as well; all appropriate participants are involved in negotiating

acceptable ways of measuring and assessing performance. Increased participation in goal setting is a part of

this new approach. All participants are trained in methods of measuring and assessing performance.

Because it focuses on both objective and subjective measures of performance, the appraisal process is more

understood, accepted, and accurate.

The timing of performance an appraisal traditionally is fixed by managers or staff personnel and is based on

administrative criteria, such as yearly pay decisions. Newer approaches increase the frequency of feedback.

Although it may not be practical to increase the number of formal appraisals, the frequency of informal

feedback can increase, especially when strategic objectives change or when the technology is highly

uncertain. In those situations, frequent performance feedback is necessary for appropriate adaptations in

work behavior. The newer approaches to appraisal increase the timeliness of feedback and give employees

more control over their work.

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Application Stages:

The process of implementing a performance appraisal system has received increasing attention. OD

practitioners have recommended the following six steps:

1. Select the right people. For political and legal reasons, the design process needs to include human

resources staff, legal representatives, senior management, and system users. Failure to recognize

performance appraisal as part of a complex performance management system is the single most

important reason for design problems. Members representing a variety of functions need to be in

volved in the design process so that the essential strategic and organizational issues are addressed.

2. Diagnose the current situation. A clear picture of the current appraisal process is essential to

designing a new one. Diagnosis involves assessing the contextual factors (business strategy,

workplace technology, and employee involvement), current appraisal practices and satisfaction with

them, work design, and the current goal-setting and reward system practices. This information is

used to define the current system's strengths and weaknesses.

3. Establish the system's purposes and objectives. The ultimate purpose of an appraisal system is to

help the organization achieve better performance. Managers, staff, and employees can have more

specific views about how the appraisal process can be used. Potential purposes can include serving

as a basis for rewards, career planning, human resources planning, and performance improvement

or simply giving performance feedback.

4. Design the performance appraisal system. Given the agreed-upon purposes of the system and the

contextual factors, the appropriate elements of an appraisal system can be established. These

should include choices about who performs the appraisal, who is involved in determining

performance, how performance is measured, and how often feedback is given. Criteria for

designing an effective performance appraisal system include timeliness, accuracy, acceptance,

understanding, focus on critical control points, and economic feasibility.

First, the timeliness criterion recognizes the time value of information. Individuals and work groups need

to get performance information before evaluation or review. When the information precedes performance

evaluation, it can be used to engage in problem-solving behavior that improves performance and

satisfaction. Second, the information contained in performance feedback needs to be accurate. Inaccurate

data prevent employees from determining whether their performance is above or below the goal targets and

discourage problem-solving behavior. Third, the performance feedback must be accepted and owned by

the people who use it. Participation in the goal-setting process can help to ensure this commitment to the

performance appraisal system. Fourth, information contained in the appraisal system needs to be

understood if it is to have problem-solving value. Many organizations use training to help employees un-

derstand the operating, financial, and human resources data that will be fed back to them. Fifth, appraisal

information should focus on critical control points. The information received by employees must be

aligned with important elements of the business strategy, employee performance, and reward system.

For example, if the business strategy requires cost reduction but workers are measured and rewarded on the

basis of quality, the performance management system may produce the wrong kinds of behavior. Finally,

the economic feasibility criterion suggests that an appraisal system should meet a simple cost-benefit test. If

the costs associated with collecting and feeding back performance information exceed the benefits derived

from using the information, then a simpler system should be installed.

5. Experiment with implementation. The complexity and potential problems associated with

performance appraisal processes strongly suggest using a pilot test of the new process to spot, gauge, and

correct any flaws in the design before it is implemented system wide.

6. Evaluate and monitor the system. Although the experimentation step may have uncovered many

initial design flaws, ongoing evaluation of the system once it is implemented is important. User satisfaction,

from human resources staff, manager, and employee viewpoints, is an essential input. In addition, the legal

defensibility of the system should be tracked by noting the distribution of appraisal scores against age, sex,

and ethnic categories.

Reward Systems:

Organizational rewards are powerful incentives for improving employee and work group performance. As

pointed out earlier, rewards also can produce high levels of employee satisfaction. OD traditionally has

relied on intrinsic rewards, such as enriched jobs and opportunities for decision making, to motivate

employee performance. Early quality-of-work-life interventions were based mainly on the intrinsic

satisfaction derived from performing challenging, meaningful types of work. More recently, OD

practitioners have expanded their focus to include extrinsic rewards: pay; various incentives, such as stock

options, bonuses, and gain sharing; promotions; and benefits. They have discovered that both intrinsic and

extrinsic rewards can enhance performance and satisfaction.

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OD practitioners increasingly are attending to the design and implementation of reward systems. This

recent attention to rewards has derived partly from research in organization design and employee

involvement. These perspectives treat rewards as an integral part of organizations. They hold that rewards

should be congruent with other organizational systems and practices, such as the organization's structure,

top management's human relations philosophy, and work designs. Many features of reward systems

contribute to both employee fulfillment and organizational effectiveness. In this section, we describe how

rewards affect individual and group performance and then discuss three specific rewards: pay, promotions,

and benefits.

How Rewards Affect Performance:

Considerable research has been done on how rewards affect individual and group performance. The most

popular model describing this relationship is value expectancy theory. In addition to explaining how

performance and rewards are related, it suggests requirements for designing and evaluating reward systems.

The value expectancy model posits that employees will expend effort to achieve performance goals that

they believe will lead to outcomes that they value. This effort will result in the desired performance goals if

the goals are realistic, if employees fully understand what is expected of them, and if they have the

necessary skills and resources. Ongoing motivation depends on the extent to which attaining the desired

performance goals actually results in valued outcomes. Consequently, key objectives of reward systems

interventions are to identify the intrinsic and extrinsic outcomes (rewards) that are highly valued and to link

them to the achievement of desired performance goals.

Based on value expectancy theory, the ability of rewards to motivate desired behavior depends on these six

factors:

1. Availability. For rewards to reinforce desired performance, they must be not only desired but also

available. Too little of a desired reward is no reward at all. For example, pay increases are often highly

desired but unavailable. Moreover, pay increases that are below minimally accepted standards may actually

produce negative consequences.

2. Timeliness. Like effective performance feedback, rewards should be given in a timely manner. A

reward's motivating potential is reduced to the extent that it is separated in time from the performance it is

intended to reinforce.

3. Performance contingency. Rewards should be closely linked with particular performances. If the goal

is met, the reward is given; if the target is missed, the reward is reduced or not given. The clearer the

linkage between performance and rewards, the better able rewards are to motivate desired behavior.

Unfortunately, this criterion often is neglected in practice. Forty percent of employees nationwide believe

that there is no linkage between pay and performance. From another perspective, merit increases in 1988

were concentrated between 4 and 5 percent nationwide. That is, almost everyone, regardless of

performance level, got about the same raise.

4. Durability. Some rewards last longer than others. Intrinsic rewards, such as increased autonomy and

pride in workmanship, tend to last longer than extrinsic rewards. Most people who have received a salary

increase realize that it gets spent rather quickly.

5. Equity. Satisfaction and motivation can be improved when employees believe that the pay policies of

the organization are equitable or fair. Internal equity concerns comparison of personal rewards to those

holding similar jobs or performing similarly in the organization. Internal inequities typically occur when

employees are paid a similar salary or hourly wage regardless of their level of performance. External equity

concerns comparison of rewards with those of other organizations in the same labor market. When an

organization's reward level does not compare favorably with the level of other organizations, employees are

likely to feel inequitably rewarded.

6. Visibility. To leverage a reward system, it must be visible. Organization members must be able to see

who is getting the rewards. Visible rewards, such as placement on a high-status project, promotion to a new

job, and increased authority, send signals to employees that rewards are available, timely, and performance

contingent.

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