Linking Pay to Performance

Error of Central Tendency

is when all employees are rated as “average” with no really high or low performers.

Halo Effect

is either the positive (or negative) rating of an employee on one trait will bias the other traits positively (or negatively). 

Leniency Bias

results from raters being too lax in evaluating employee performance. And by contrast, strictness bias is just the opposite; it results from the rater being too harsh in the evaluation of performance.  Both of these biases tend to occur mainly in work environments where standards are vaguely expressed.

Merit Pay

is a monetary reward given in recognition of outstanding performance which increases base pay. It may be paid in a lump-sum or added incrementally to base pay.

Performance Appraisal

(Performance Review) is a process in which a manager evaluates an individual’s past performance and sets goals for their future.

Performance Management

is a process that not only focuses on the performance of the individual but also can be expanded to encompass groups and the organization as a whole.  This is accomplished through goal setting, feedback, encouragement and support and rewards for successes.

Performance Pay

is a monetary onetime payment made to an employee, team or the whole organization for achieving results established at the beginning of a performance cycle.

Recency Effect

refers to ratings that are affected strongly by the employee’s most recent actions.  Recent actions – either good or bad – are most likely to be remembered by the rater. 

Seniority

is the length of time an employee has been with an organization.  It is compulsory in a unionized setting when considering promotions and lay-offs.