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Performance appraisal is the process used by the management to evaluate the productivity of the employees through thorough documentation of the employees’ performance (Falcone & Tan, 2014). The aim of the performance appraisal is sensitizing the employees on their performance in relation to their assigned responsibilities. Additionally, performance appraisal is aimed at correcting the employees where they fall short of expectations. It is also via performance appraisal that the management is able to realign the employees’ actions to serve better the interest of the organization (The University of Chicago, 2015). It provides a platform where employees can interact with their superiors about their performance. It is this healthy exchange between the employees and their supervisors that makes it possible to ensure maximum output from the employees through a conducive, guidance-based platform. However, it is essential to appreciate that the success rate of performance appraisal heavily depends on the clarity of the objective at hand. The paper aims at identifying the way performance appraisal fits under the compensation platform.
Pointers on Performance Appraisal
Performance appraisal provides a platform, under which the management can get a fair comparison between the employees’ individual output. All the relevant parties should be involved to ensure the appraisal tool used is agreed upon by all parties. This is in the line upholding the basic aspect of any performance appraisal, that of honesty and fairness. Performance appraisal entails two components - performance and the appraisal. Performance is the degree, at which the assigned responsibility has been met by the concerned employee. On the other hand, appraisal is the review of the level of employees’ performance (Falcone & Tan, 2014). To ensure that any performance appraisal is conducted in a diligent manner, there is the need to have clarity on what performance appraisal serves to do.
Purpose of Performance Appraisal
The primary role of a sequenced performance appraisal undertaking as mention earlier is to provide a platform, through which the performance of the employees can be evaluated (SHRM, 2014). It is through performance appraisal that individual performance is compared to the set expectation to verify whether or not the concerned employee has met the given expectations. It is also via performance appraisal that employees have clarity on their responsibilities. Through the appraisal, an employee might find out that he or she has meandered away from the core responsibility, thereby understanding better what is expected based on the assigned task. Performance appraisal also entails a healthy exchange between juniorworkers and their supervisors; this exchange is aimed at coming up with the best way forward in terms of rectifying the mishaps identified via the appraisal.
Performance appraisal may also play the role of identifying the workers with potential for career advancement (SHRM, 2014). Through the findings on how well the employees have met their expected level of performance, it is possible to select based on performance those who are eligible for promotions. The findings are also of high importance to the managers and departmental heads when it comes to meeting the organization’s goals. The findings help the managers to identify areas of weakness that might delay the organization’s ability to meet the set objectives. However, performance appraisal plays a role that is of more importance to the task; it brings forth a fair basis, through which employees are fairly compensated based on merit. Here, the employees’ performance is evaluated, and those who meet the agreed upon target are given corresponding compensation. In most cases, the fact is that the manner and the kind of compensation are usually predetermined by relevant parties before the appraisal. Once the performance appraisal is completed, then compensation that reflects individual employee is given to different employees.
Performance Appraisal and Compensation
Performance appraisal provides data that demonstrate whether the performance of the employees meets the predetermined objectives within an organization. It takes into account the employee’s ‘work result’ and the level of competence (Milkovich, Newman, & Gerhart, 2014). Once they have been verified with respect to the pre-determined objectives, it is possible to classify a worker accordingly as meeting the corresponding compensation. It is, therefore, evident that performance appraisal provides a fair platform, through which the deserving employees can be rewarded/compensated. Performance appraisal enables allocation of both direct and indirect compensation in a manner that is centered on individual performance/output (Milkovich, Newman, & Gerhart, 2014). A good example is in a marketing company where human resource department can do a performance appraisal to identify the employees who meet their set goals. Afterward, from the feedback attained, it is possible to note the employees who did attain their set target and determined the fair corresponding compensation.
After performance appraisal comes the compensation, which is the corresponding amount payable to an employee by the employer for the services offered. Compensation is calculated in terms of the value of the employee’s input. The value of the employee’s input is calculated in comparison to the level, at which it conforms to the pre-determined set of objectivees. These objectives cut across all employees under the same job description (The University of Chicago, 2015). This occurs because there is the need to be job description specific when undertaking performance appraisal. It allows the process to be mindful of the realities of the market that affects the employees in a similar manner. The result is the fact that employees with similar approval levels and those who are on the same job group enjoy equal compensation. It is this trait about performance appraisal that makes it play a motivating role in an organization.
From the above interrelation, it is clear that performance appraisal heavily influences the nature and the level of compensation subjected to the employee. It provides a fair common ground where individual worker output is assessed and compensated in an appropriate manner. Although in America there is no law at federal or state level on matters of performance appraisal (SHRM, 2014), a majority of companies do undertake frequent performance appraisals. This enables the organization to ensure that it consistently pays for value. It means that the results attained via performance appraisal give companies an opportunity to ensure that they continue to pay for the actual value of input from the employees. This, in turn, helps to maintain high profit margins since the compensation given to each employee reflects his or her performance at their assigned capacity.
Performance appraisal, therefore, remains heavily intertwined with compensation by the mere fact that the former (performance appraisal) provides the basis for the credibility of the latter (compensation). This is vividly evident on the fact that companies that rely heavily on performance appraisal to set the different compensation rarely face litigation on matters of remuneration. Performance appraisal enables a company to compensate in a credible manner that can be empirically analyzed. If the appraisal in done in an ethical manner, it also serves as a motivation since the employees know that added effort means better compensation.
The illustrations above bring forth a conclusion that indeed, performance appraisal and compensation are two phenomena that work hand in hand. It is also evident that for credible and fair compensation, there is the need to ensure that the performance appraisal follows the due process. This enables all the players within an organization to a bind to the findings from the evaluation, thereby adding a company to have a smooth compensation exercise. Over and above, it is through a comprehensive performance appraisal that organizations can ensure a fair compensation for a fair effort by the employees. Working in a complementary manner, not only do performance appraisal and compensation make an organization profitable but also efficient.