Performance, Promotion, and Firing

Review Techniques

The four methods of collecting performance review data: objective production, personnel, judgmental evaluation, and peer or self evaluation.

Learning Objectives

Explain the rationale and characteristics of review and turnover techniques

Key Takeaways

Key Points

  • The objective production method consists of direct, limited measures such as sales figures, production numbers, and electronic performance monitoring.
  • The personnel method involves the recording of withdrawal behaviors, such as absenteeism and accidents.
  • In Peer evaluations, members of a group evaluate and appraise the performance of their fellow group members, and in self-assessments, individuals assess and evaluate their own behavior and job performance.
  • Strategic Human Resource Management is gaining in popularity over Traditional Human Resource Management.

Key Terms

  • staff turnover: The relative rate at which an employer gains and loses staff.

Turnover Defined

In a human resources context, turnover is the rate at which employees leave an organization. Simple ways to describe it are “how long employees tend to stay” or “the rate of traffic through the revolving door. ”

Staff turnover can be optimal when a poorly performing employee decides to leave an organization, or dysfunctional when the high turnover rate increases the costs associated with recruitment and training of new employees, or if good employees consistently decide to leave.

image

Employee Turnover: Turnover can be optimal when a poorly performing employee decides to leave an organization.

Measuring Turnover

Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover may be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.

In the United States, the average total non-farm seasonally adjusted monthly turnover rate was 3.3% for the period from December 2000 to November 2008. However rates vary widely when compared over different periods of time or different job sectors. For example, during the period 2001 to 2006, the annual turnover rate for all industry sectors averaged 39.6% before seasonal adjustments, while the leisure and hospitality sector experienced an average annual rate of 74.6% during the same period.

Preventing Turnover

Preventing the turnover of employees is important in any business. Without them, the business would be unsuccessful. However, more and more employers today are finding that employees remain for approximately 23 to 24 months, according to the 2006 Bureau of Labor Statistics. The Employment Policy Foundation states that it costs a company an average of $15,000 per employee, which includes separation costs, including paperwork, unemployment; vacancy costs, including overtime or temporary employees; and replacement costs including advertisement, interview time, relocation, training, and decreased productivity when colleagues depart.

Research on employee job turnover has attempted to understand the causes of individual decisions to leave an organization. It has been found that lower performance, lack of reward contingencies for performance, and better external job opportunities are the main causes. Other variables related to turnover are the conditions in the external job market, the availability of other job opportunities, and the length of employee tenure.

Providing a stimulating workplace environment, which fosters happy, motivated, and empowered individuals, lowers employee turnover and absentee rates. Promoting a work environment that fosters personal and professional growth promotes harmony and encouragement on all levels, so the effects are felt company wide.

Continual training and reinforcement also develops a workforce that is competent, consistent, competitive, effective, and efficient. Beginning on the first day of work, providing individuals with the necessary skills to perform their job is important. Before the first day, it is important the interview and hiring process expose new hires to an explanation of the company, so individuals know whether the job is their best choice.

Networking and strategizing within the company provides ongoing performance management and helps build relationships among coworkers. It is also important to motivate employees to focus on customer success, profitable growth, and the company well-being. Employers can keep their employees informed and involved by including them in future plans, new purchases, policy changes, as well as introducing new employees to the employees who have gone above and beyond in meetings. Engagement shows employees that they are valuable through information or recognition rewards and makes them feel included.

In addition, by paying above-market wages, the worker’s motivation to leave the job and look for a job elsewhere will be reduced. This strategy makes sense because it is often expensive to train replacement workers.

When companies hire the best people, new hired talent and veterans are enabled to reach company goals, maximizing the investment of each employee. Taking the time to listen to employees and making them feel involved will create loyalty, in turn reducing turnover and allowing for growth.

Managing Up and Employee Feedback

Organizations derive significant value from empowering employees to help manage their managers.

Learning Objectives

Identify the value of empowering employees to provide feedback to managers

Key Takeaways

Key Points

  • Management can be viewed as a functional skill, just like any other field. As a result, the individuals being managed will be quite valuable in assessing how skilled a manager is at their function.
  • Not all management is from manager to employee. It is also critical for employees to assess management, and provide meaningful feedback about their performance.
  • Through promoting upwards management, organizations derive the substantial benefit of an iterative improvement between both managers and employees through a feedback loop.
  • Effective evaluations of performance should include a work assessment, comparison to established objectives, room for providing qualitative feedback, and rewards.

Key Terms

  • feedback: Providing observations and suggestions based on current performance to achieve improvements.

Management is more complex than a simple top-down mentality. Management is a functional discipline in many ways, where the ability for an individual to successfully manage is the professional skill being assessed. Just as an accountant is measured by their performance producing accurate and timely financial submissions, so too is a manager measured by the satisfaction and productivity of their employees.

Why Manage Up

As an employee, it is important to organizational success to manage one’s manager to some degree. This is because managers are working towards becoming better managers, and the people in the best position to help them accomplish this objective are the employees themselves. Good managers will value employees willing to provide feedback, make objective observations, and help managers grow.

Through encouraging employees across the organization to manage up, organizations capture the benefit of having an open feedback loop between work groups and their managers, where both parties can potentially improve their performance. Managing down improves employees’ ability to accomplish their tasks, while managing up improves management’s ability to enable employees.

Effective Evaluation in the Workplace

A proper evaluation will have different requirements based upon the function being evaluated. However, most effective evaluation approaches will include the following:

  • Assessment – For both managers managing down and employees managing up, some form of formal assessment is useful in enabling effective evaluations. This assessment should focus on strengths and weaknesses, usually utilizing some sort of sliding scale. An effective assessment should be as objective as possible, focusing on actionable areas of improvement.
  • Objectives – Evaluation requires an understanding of what that individual should be trying to accomplish, and some form of benchmark to measure if these objectives are being met. It can also be useful to provide feedback which can actively be applied to achieving these objectives.
  • Sharing Feedback – Aside from assessment metrics and objectives, good feedback also tends to include qualitative thinking. It’s not always as simple as rating an individual’s performance on a scale of 1-10. More often comments and discussions are necessary for feedback to be useful. Any evaluation in the workplace should have some outlet for this, be it 1-to-1 discussions or more formal quarterly feedback sessions.
  • Rewards and Consequences – Finally, feedback and evaluations must be tied to some sort of motivating outcome for the individual receiving it. If a manager is performing well, and the team is satisfied, it would be reasonable to provide the manager a bonus or a raise. Similarly, if employees are exceeding expectations, the same rules apply.
This image demonstrates the basic concept of iterative feedback, where suggestions lead to evolving behavior.

Feedback Loop: This image demonstrates the basic concept of iterative feedback, where suggestions lead to evolving behavior.

Promotions

When a person receives a promotion, they are rewarded for good performance by receiving a higher rank or position in the organization.

Learning Objectives

Explain the impact of a promotion

Key Takeaways

Key Points

  • A person’s promotion can involve advancement in several areas including: designation, salary and benefits, and the type of job activities they have to perform.
  • The power that hiring and promoting managers have in terms of awarding promotions differs from one organization to the next.
  • The degree to which job activities change varies between industries and sectors. In some fields, even after an employee is promoted, they continue to do similar work and the differences may be in the complexity of the task rather than the activity.

Key Terms

  • Promotion: the advancement of an employee’s rank or position in an organizational hierarchy system.

Promotions

A promotion is the advancement of an employee’s rank or position in an organizational hierarchy system.A promotion may be an employee’s reward for a good performance, such as a positive appraisal. Before a company promotes an employee to a particular position, it ensures that the person is able to handle the added responsibilities by screening the employee with interviews and tests and giving them training or on-the-job experience.

image

Organizational chart: A military organizational chart

A Promotion’s Impact on Salary & Benefits

A promotion can involve advancement in terms of designation, salary, and benefits. In some organizations, the type of job activities may change a great deal. In many companies and public service organizations, more senior positions have a different title: an analyst who is promoted becomes a principal analyst, an economist becomes a senior economist, and an associate professor becomes a full professor.

The amount of salary increase associated with a promotion varies between industries and sectors, and depends on what parts of the hierarchical ladder an employee is moving. In some industries or sectors, there may be only a modest increase in salary for a promotions; in other fields, a promotion may substantially increase an employee’s salary.

The same is true with benefits and other privileges. In some industries, the promotion only changes the title and salary, and there are no additional benefits or privileges (beyond the psycho-social benefits that may accrue to the individual). In some not-for-profit organizations, the values of the organization or the tightness of funding may result in there being only modest salary increases associated with a promotion. In other industries, especially in private sector companies, a promotion to senior management may carry a number of benefits, such as stock options, a reserved parking space, a corner office with a secretary, and bonus pay for good performance.

A Promotion’s Impact on Job Activities

The degree to which job activities change varies between industries and sectors. In some fields, even after an employee is promoted, they continue to do similar work. For example, a policy analyst in the federal government who is promoted to the post of senior policy analyst will continue to do similar tasks such as writing briefing notes and carrying out policy research. The differences may be in the complexity of the files to which the individual is assigned, or in the sensitivity of the issues with which they are asked to deal.

In other fields, when an employee is promoted, their work changes substantially. For example, whereas a staff engineer in a civil engineering firm will spend their time doing engineering inspections and working with blueprints, a senior engineer may spend most of their day in meetings with senior managers and reading financial reports.

Who Can Grant a Promotion

Different organizations grant hiring and promoting managers different levels of discretion with which to award promotions. In some parts of the private sector, the senior management has a very high level of discretion to award promotions. They can promote employees without going through as many procedures or formalities, such as testing, screening, and interviewing. In the public sector and in academia, there are usually many more checks and balances in place to prevent favoritism or bias.

In many Western public service bodies, when a manager wants to promote an employee, they must follow a number of steps, such as advertising the position, accepting applications from qualified candidates, screening and interviewing candidates, and then documenting why they chose a particular candidate. In academia, a similar approach is used, with the added safeguard of including several layers of committee review of the proposed promotion using committees that include members of other faculty and experts from other universities.

Terminations

Terminations occur in a variety of ways, both voluntary and involuntary, and determine the employee’s future relationship with the employer.

Learning Objectives

Explain the various methods of termination of one’s work

Key Takeaways

Key Points

  • Being fired is generally thought of as the employee’s fault, and therefore is mostly considered dishonorable and a sign of failure. Being laid off is a less severe form of involuntary termination because it is most often caused by economic cycles or the company’s need to restructure itself.
  • Firms that wish for an employee to exit on his or her own accord but do not wish to pursue firing, may degrade the employee’s working conditions, hoping that he or she will leave “voluntarily. ” This type of forced resignation is considered illegal in certain areas.
  • Whether a person’s ability to get a new job is negatively impacted by the termination or the person has the possibility to return to the former company in the future depends on the nature of the termination.

Key Terms

  • Dismissal: Dismissal is where the employer chooses to require the employee to leave, generally for a reason which is the fault of the employee. The most common colloquial term for dismissal in America is “getting fired” whereas in Britain the term “getting the sack” is used.

Terminations can occur in a variety of methods, both voluntary and involuntary. The type of termination will determine the employee’s future relationship (or lack of) with the employer.

Being Fired

To be fired is generally thought of to be the employee’s fault, and therefore is considered in most cases to be dishonorable and a sign of failure. Often, it may hinder the new job seeker’s chances of finding new employment, particularly if he or she has been fired from earlier jobs. Job seekers sometimes do not mention jobs which they were fired from on their résumés; accordingly, unexplained gaps in employment, and refusal to contact previous employers are often regarded as “red flags. ”

Being Laid-Off

A less severe form of involuntary termination is often referred to as a layoff. A layoff is usually not strictly related to personal performance, but instead due to economic cycles or the company’s need to restructure itself, the firm itself going out of business, or a change in the function of the employer. In a postmodern risk economy, such as that of the United States, a large proportion of workers may be laid off at some time in their life, and often for reasons unrelated to performance or ethics.

Often, layoffs occur as a result of “downsizing”, “reduction in force”, or “redundancy. ” These are not technically classified as firings; laid-off employees’ positions are terminated and not refilled, because either the company wishes to reduce its size or operations or otherwise lacks the economic stability to retain the position. In some cases, a laid-off employee may eventually be offered their old position again by his or her respective company, though by this time he or she may have found a new job.

Attrition

Some companies resort to attrition as a means to reduce their workforce. Under such a plan, no employees are forced to leave their jobs. However, those who do depart voluntarily are not replaced. Additionally, employees are given the option to resign in exchange for a fixed amount of money, frequently a few years of their salary. Such plans have been carried out by the United States Federal Government under President Bill Clinton during the 1990s, and by the Ford Motor Company in 2005. However, “layoff” may be specifically addressed and defined differently in the articles of a contract in the case of unionized work.

Mutual Agreement Termination

Some terminations occur as a result of mutual agreement between the employer and employee. When this happens, it is sometimes debatable if the termination was truly mutual. In many of these cases, it was originally the employer’s wish for the employee to depart, but the employer offered the mutual termination agreement in order to soften the firing (as in a forced resignation). But there are also times when a termination date is agreed upon before the employment starts in an employment contract.

Forced Resignation

Firms that wish for an employee to exit on his or her own accord but do not wish to pursue firing, may degrade the employee’s working conditions, hoping that he or she will leave “voluntarily”. The employee may be moved to a different geographical location, assigned to an undesirable shift, given too few hours if part time, demoted, or assigned to work in uncomfortable conditions. Other forms of manipulation may be used and often these tactics are done so that the employer won’t have to fill out termination papers in jurisdictions without at-will employment. In addition, with a few exceptions, employees who voluntarily leave generally cannot collect unemployment benefits. Such tactics may amount to constructive dismissal, which is illegal in some jurisdictions.

image

Gen. David H. Petraeus Retires August 2011: Most military or armed forces personnel are subject to a type of forced resignation. Retirement age for military personnel is between 55 to 65, no matter their level of performance.

Rehire Following Termination

Depending on the circumstances, one whose employment has been terminated may or may not be able to be rehired by the same employer. If the decision to terminate was the employee’s, the willingness of the employer to rehire is often contingent upon the relationship the employee had with the employer, the amount of notice given by the employee prior to departure, and the needs of the employer.

In some cases, when an employee departed on good terms, he or she may be given special priority by the employer when seeking rehire. An employee may be terminated without prejudice, meaning that the fired employee may be rehired readily for the same or a similar job in the future. This is usually true in the case of a layoff. Conversely, a person can be terminated with prejudice, meaning that an employer will not rehire the former employee to a similar job in the future. This can be for many reasons, including: incompetence, misconduct, insubordination or “attitude. ”

Retirements

When a person retires, they stop working completely or semi-retire by reducing their hours.

Learning Objectives

Explain post-retirement financing

Key Takeaways

Key Points

  • Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions no longer allow the person to work or as a result of legislation concerning their position.
  • Retirement in most countries is of recent origin, being introduced during the late 19th and early 20th centuries. Previously, low life expectancy and the absence of pension arrangements meant that most workers continued to work until death.
  • When retiring prior to age 59½, there is a 10 percent IRS penalty on withdrawals from a retirement plan like a 401(k) or IRA.

Key Terms

  • Retirement: Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.
  • Individual Retirement Account: An Individual Retirement Arrangement (IRA) is a form of retirement plan that provides tax advantages for retirement savings in the United States. The term encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company

Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours. Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions no longer allow the person to work (by illness or accident) or as a result of legislation concerning their position.

International Views on Retirement

In most countries, the idea of retirement is of recent origin, being introduced during the late 19th and early 20th centuries. Previously, low life expectancy and the absence of pension arrangements meant that most workers continued to work until death. Germany was the first country to introduce retirement. Most developed countries today have systems to provide pensions or retirement, which may be sponsored by employers and/or the state. In many poorer countries, support for the old is still mainly provided through the family.

Retirement with a pension is considered a right of the worker in many societies. Hard ideological, social, cultural and political battles have been fought over whether this is a right. In many western countries, this right is mentioned in national constitutions. While conventional wisdom has it that one can retire and take 7 percent or more out of a portfolio year after year, this would not have worked in the past. Making periodic inflation -adjusted withdrawals from retirement savings can make meaningless many assumptions that are based on long term average investment returns.

Post-Retirement Finances

Those contemplating early retirement will want to know if they have enough to survive possible bear markets. The history of the U.S. stock market shows that one would need to live on about 4 percent of the initial portfolio per year to ensure that the portfolio is not depleted before the end of the retirement. This allows for increasing withdrawals with inflation to maintain a consistent spending ability throughout the retirement, and to continue making withdrawals even in dramatic and prolonged bear markets. The 4 percent figure does not assume any pension or change in spending levels throughout the retirement.

When retiring prior to age 59½, there is a 10 percent IRS penalty on withdrawals from a retirement plan like a 401(k) plan or a Traditional Individual Retirement Account (IRA). Exceptions apply under certain circumstances. At age 59 and six months, the penalty-free status is achieved and the 10 percent IRS penalty no longer applies. To avoid the 10 percent penalty prior to age 59½, a person should consult a lawyer about the use of IRS rule 72 T. This rule must be applied for with the IRS. It allows the distribution of a IRA account prior to age 59½ in equal amounts of a period of either 5 years or until the age of 59½, which ever is the longest time period without a 10 percent penalty. Taxes still must be paid on the distributions.

image

Navy Retiree: In addition to traditional retirement benefits from 401(k)s or IRAs, military personnel are eligible for veterans benefits from things such as the G.I. Bill.

image

World Pop 65+, retirement age: This bubble map shows the global distribution of population aged at least 65 years in 2005 as a percentage of the top nation (China – 99,142,000).

Attrition

An employee leaving one company to join another one is known as attrition.

Learning Objectives

Explain how and why people leave their company

Key Takeaways

Key Points

  • The contract between employees and employers specifies the responsibility of each party in the case that the employment relationship ends.
  • Personal reasons and the state of the company itself make up the reasons an employee may decide to leave and join a new organization.
  • Attrition rate (%) = number of employees resigned for the month / (total number of employees at the start of the month + number of employees joined for that month – number of employees resigned) x 100.

Key Terms

  • severance pay: Money paid as compensation to someone whose employment is ended.

Attrition

An employee or employer may end the relationship at any time. This is referred to as at-will employment. The contract between the two parties specifies the responsibilities of each when ending the relationship and may include requirements such as notice periods, severance pay, and security measures.

Employees leaving a company to join another company is known as attrition.

The top reasons why people change careers:

  • The downsizing or the restructuring of an organization (54%)
  • New challenges or opportunities that arise (30%)
  • Poor or ineffective leadership (25%)
  • Having a poor relationship with a manager (22%)
  • For better work-life balance (21%)
  • Contributions are not being recognized (21%)
  • For better compensation and benefits (18%)
  • For better alignment with personal and organizational values (17%)
  • Personal strengths and capabilities are not a good fit with an organization (16%)
  • The financial instability of an organization (13%)
  • An organization relocated (12%)

Churn Rate

In some business contexts, churn rate could also refer to high employee turnover within a company. For instance, most fast food restaurants have a routinely high churn rate among employees. For larger companies, such as Fortune 500 companies, the attrition rate tends to be much lower compared to a fast food franchise. The company size and industry also play a key role in attrition rate. An “acceptable” attrition rate for a given company is relative to its industry. It would not likely be useful to compare the attrition of fast food employees with a Fortune 500 company in a corporate setting.

Attrition Rate

Churn rate can also describe the number of employees that move within a certain period. For example, the annual churn rate would be the total number of moves completed in a 12-month period divided by the average number of occupants during the same 12-month period. Monthly and quarterly churn rates can also be calculated.

Formulae:

Attrition rate (%) = number of employees resigned for the month / (total number of employees at the start of the month + number of employees joined for that month – number of employees resigned) x 100

image

Labor Economics – Short Run Supply: The income and leisure trade-off in the short run