Performance Ratings and Rewards in HR: Challenges and Solutions
Performance ratings or quantitative measurements of employee effectiveness and performance are widely used to allocate monetary rewards and stimulate employees to work harder. There are simplistic ideas, including the equity and attribution theories, that establish the principles of performance evaluation and providing fair rewards. This essay explores challenges to observing these principles, such as incorrect attributions, poor standardization, and biases, and possible solutions to promote improvement.
The Selected Challenge: Performance Ratings and Their Connections to Rewards
Connections between employee appraisal results and reward allocation decisions can be established according to the attribution theory, but there are barriers to applying it. This theory provides a logical model for determining whether some factor, for instance, insufficient workplace performance, should be attributed to internal or external factors. According to it, one’s poor performance has internal causes when problematic behaviors are stable over time, consistent, and manifested by this person and not the entire group (Ramamoorthy et al., 2019). As Ramamoorthy et al. (2019) demonstrate, performance raters in the U.S. make internal attributions extensively compared to raters from collectivistic cultures, resulting in more stringent reward-related decisions. Therefore, in an approach where performance ratings are not analyzed retrospectively, a potential challenge might involve removing rewards for organizational problems mistakenly identified as employee-controlled factors.
Despite the propositions of the equity theory, biases and the lack of standardization also pose challenges to proper connections between performance ratings and employee rewards. The equity theory posits that rewards should be proportionate to individual contributions to the organization (Ramamoorthy et al., 2019). Even identical performance rating profiles produce dissimilar reward allocation decisions depending on the rater’s cultural environment, thus signifying the lack of universal frames of reference (Ramamoorthy et al., 2019). Supervisor-completed employee ratings involve the risks of systematic errors in reward allocation. In the halo effect, one outstanding accomplishment makes the rater overestimate the employee and ignore insufficient performance in other areas (Merkel et al., 2021). Similar barriers to reward proportionality to contribution include intertemporal cognitive biases, such as unrealistic optimism and a positivity bias resulting in inaccurate backward-/forward-looking evaluations of performance ratings (Bellé et al., 2017). Moreover, biases linked with the rater’s and the employee’s age, gender, or ethnicity can also promote rewards that are disproportionate to actual performance (Bellé et al., 2017; Chattopadhyay, 2020). Therefore, biases and insufficient standards contribute to flawed reward allocation decisions following performance rating analysis.
Possible Practical Solutions
There are possible solutions for improving the accuracy of using performance ratings in reward allocation. Having explored a sample of UK-based public and private organizations, Perkins (2018) concludes that traditional approaches to reward allocation should dominate different industries despite the increasingly proclaimed “abandonment of traditional performance appraisal” (p. 289). To guarantee that reward decisions are unbiased, organizations can deal with potential biases proactively. It is possible to use individual ratings and reward outcomes from previous reporting periods to analyze the consistency of evaluation practices retrospectively, thus spotting possible deviations from guidelines or theories (Merkel et al., 2021). Next, to improve the application of the attribution theory, raters can develop evaluation processes in which short-term and unusual decreases in individual performance give rise to detailed investigations or cannot affect reward outcomes severely (Ramamoorthy et al., 2019). Finally, since the rater’s motivation to make a certain reward-related decision increases the risks of biases, assigning performance review tasks to different raters might be beneficial (Merkel et al., 2021). Thus, anti-bias measures and raters’ self-assessment could support employers in utilizing performance ratings properly.
Finally, theoretical principles to establish the link between reward allocation and employee assessment are not always implemented thoroughly and consistently. Performance raters’ biases, overly flexible rating interpretation standards, and excessive internal attributions of poor performance can create barriers to the use of employee ratings in a way to promote the proportionality of rewards to contributions. Addressing such challenges might require organizations to assess themselves in terms of rating methods’ consistency over time or appoint several raters with diverse characteristics.
Bellé, N., Cantarelli, P., & Belardinelli, P. (2017). Cognitive biases in performance appraisal: Experimental evidence on anchoring and halo effects with public sector managers and employees. Review of Public Personnel Administration, 37(3), 275-294. Web.
Chattopadhyay, R. (2020). Is performance evaluation gendered for behavioural dimension?. International Journal of Productivity and Performance Management, 70(3), 489-506. Web.
Merkel, S., Chan, H. F., Schmidt, S. L., & Torgler, B. (2021). Optimism and positivity biases in performance appraisal ratings: Empirical evidence from professional soccer. Applied Psychology, 70(3), 1100-1127. Web.
Perkins, S. J. (2018). Processing developments in employee performance and reward. Journal of Organizational Effectiveness: People and Performance, 5(3), 289-300. Web.
Ramamoorthy, N., Yu, C. S., Kulkarni, S. P., Gupta, A., & Mkamwa, T. (2019). An examination of attributions, performance rating and reward allocation patterns: A comparative study of China, India, Tanzania and the United States. South Asian Journal of Human Resources Management, 6(2), 202-221. Web.