Effect of Review of the Payment System on the Management of the Appraisal System

5.0 EFFECT OF REVIEW OF THE PAYMENT SYSTEM ON THE MANAGEMENT OF THE APPRAISAL SYSTEM

PERFORMANCE APPRAISAL SYSTEM

According to Dailey (2003:4/3), an organisation's performance appraisal system is defined as a process which generates valid information about employee work effectiveness for the purpose of making informed HRM decisions. Organisations must evaluate employee performance for a number of reasons:

* Employees need to understand the behavioural requirements of the job

* Employees' work is evaluated for its contributions to company goals

* Employees need to know where they stand within the organization in terms of their performance

* Employees' motivation to do a good job is increased by the performance appraisal system

* Valid information about performance levels of employees should be used to make decisions about salary increases, promotions, bonuses and training needs

* Employees need a clear understanding of what the firm expects from them in terms of performance

PAYMENT SYSTEM

Rewards strongly influence employee performance levels. Employees at all levels compare their efforts and rewards relative to those of other employees. A perceived equity of these comparisons leads to experienced levels of job satisfaction and motivation. The expectancy theory of motivation makes it clear that if employees perceive a weak connection between performance and reward, then the rewards will not function as motivators. (Dailey, 2005:4/14)

Group-Based Reward Systems

According to Dailey (2005:4/29), group based reward systems encourage team work and collaborative work activity in organizations where employees are arranged in self-directed teams. Managers must oversee workings of the group-based reward system to ensure that the group aspects of performance are equitably rewarded.

Group-based reward systems are overlaid on individual-based reward systems. The group-based portion has specific group performance behaviours which are linked to rewards received by work groups. Members of work groups covered by such pay systems usually receive bonuses which are linked to the specific aspects of group-based performance. The size of the bonuses is usually a function of job level, seniority and job difficulty. (Dailey, 2005:4/29)

BMW introduced the group based reward systems in order to remain competitive and sustainable.

5.0.1 Effect of the Review of the Payment System at BMW on the Appraisal System

BMW introduced new work structures with emphasis on multi-skilled workers, quality objectives and the individual contribution to group performance, which were accompanied by new payment arrangements.

The best appraisal approach for BMW's payment system would be by goal-setting and management by objectives (MBO).

Management by objectives is an organizational application of goal-setting theory. Drucker (Cited in Dailey, 2005: 4/12) coined the term and has been a leading proponent of the organizational process for several decades.

Experts in management and organizational behavior acknowledge the significance of goals in channeling employee behaviour towards organizational goals. The behavioural framework for a work-based theory of goal-setting was articulated by Edwin Locke, who describes the relationship between employees' goals and work performance. (Locke cited in Dailey, 2005: 4/9)

Table 1.0 shows the elements which make up the theory of goal-setting.

The process involves five motivational and behavioural steps.

* First, incentives for performance and channeled employee behaviour are provided by the organisational environment. The organization through its managers, specifies what must be accomplished and the rewards which go with goal accomplishment.

* The second component of the model highlights the importance of the goal-setting process. Note that the goals can be mutually determined, employer-centred or assigned, or generalized 'as do your best'. The process option chosen by the manager who is conducting goal-setting with subordinates is a function of :

Ш The importance of employee acceptance of the goals

Ш The amount of available time for goal setting

Ш The importance of employee development through goal-setting

* The third element in the model shown horizontally, highlights the importance of the attributes of the goals. Goals should be specific, measurable, achievable, resource-based and time-specific (SMART). When goals lack these properties, they have less motivational impact because employees lose interest in them.

* The fourth element indicates that employee commitment and acceptance of goals creates the behavioural intentions to strive for the pre-established goals. Intention is directly related to both properties. Employee intentions are deepened by the clear specification of the relationship between rewards and the goals in question

* The fifth element in the model specifies