10.7. PERFORMANCE APPRAISAL AND MONETARY REWARDS

Giving monetary rewards to those who perform well seems logical enough. In an acquisitive and consumption-oriented modern society, higher pay satisfies basic human needs and more. For an individual, receiving monetary remuneration above what is required for basic human needs can also provide security, autonomy, recognition, and esteem.

The motivation model, generally referred to as the expectancy model, suggests that high performance is likely to occur if the individual feels capable of achieving it, if pay is closely tied to performance level, and if the individual finds pay to be important (this would of course vary across individuals).

In a research and development organization, indeed in most complex professional organizations, a number of reasons make tying pay inexorably to performance appraisal an imprudent approach:

• Significant accomplishments in an R&D organization often require input by many individuals. Singling out one person for a monetary reward creates the problem of inequity for others.

• The purpose of performance appraisal shifts, on the part of the supervisor, to justifying the pay decision already made, and, on the part of the employee, to comparing himself or herself to others and shaping his or her performance data to outdo others.

• Cooperation among peers is reduced because of competition for pay for performance, where total monetary rewards are viewed as a zero-sum game.

• During performance appraisal the employee is likely to exaggerate (some might suggest falsify) his or her performance to gain higher monetary rewards. This would not create the proper environment for counseling and feedback—two of the important purposes of performance appraisal.

It is therefore desirable to hold performance appraisal discussions at one time and then, later, at a different time, discuss pay increases or monetary rewards, if any. Frequency of discussions can depend on factors such as duration of projects, the employee's tenure, and organization policies. If projects are of long duration, these discussions could be as far apart as six months or a year; for shorter-duration projects, discussions could be tied to completion of projects. New employees are most anxious to find out how well they are doing. Feedback after the first 30 days, however brief, is most reassuring to a new employee. Tenured employees are quite satisfied to have these discussions held roughly at a time when some pay decisions are going to be made.

Some of the pay decisions are rather subjective. While no system can provide complete equity in pay, it should be recognized that "relative deprivation" in terms of pay, or any other rewards, acts as a strong demotivator and, thus, adversely affects performance. External equity (by reviewing data from a professional society and other wage surveys) and internal equity (by reviewing the contribution of the individual vis-à-vis others in the organization) are essential. Any mechanism one can use to minimize inequities in pay is worth the effort. Academic institutions often use committees to review performance of faculty members. This tends to minimize individual biases. This practice is not so common in industry and government. Most managers find this committee approach an intrusion into their domain. Periodically seeking input from an independent board or committee about researcher performance can be worthwhile. A manager can always choose to use the outside review to justify a salary decision.