Pay-for-Performance

Employee Comparison Systems

Now that we have discussed how to conduct performance appraisal based on standards, we'll look at another approach, in which employees are compared against each other to come up with a performance rating.

Employee comparison systems compare employees directly with each other and not against any standard of performance. This gives an organization a relative positioning of all rated employees.

Although it is possible to rate employees against each other on a number of factors, employee-comparison systems typically rely on a global evaluation of employees.

We'll now take a look at 4 different employee comparison systems:

1. Rank-order rating
2. Alternation ranking
3. Paired-comparison ranking
4. Stacked Ranking

1. Rank-order rating

Rank-order rating is the simplest form of employee comparison. In rank-order rating the rater is required to rank all the employees from best to worst. Ranking is typically facilitated by providing raters with a pack of cards, one for each employee. The rater then numbers the cards in sequence.

Rank ordering works best where all employees occupy similar jobs. Large engineering organizations are likely to use this kind of ranking for all their engineers.

Advantages. Rank order rating has the advantage of simplicity. It also is not unrealistic, since, as discussed, most uses of rating scales have a global impression that influences their ratings anyway.

Disadvantages. It is difficult to keep the performance of many employees in mind at one time. Ranking systems often involve a number of raters ranking their employees and then amalgamating their lists into a master list. This can be done by having all raters meet together with their manager acting as arbitrator.

2. Alternation ranking

Alternation ranking requires the rater to indicate the best and the worst performers. Then the rater records the next best and the next worst, and so on until all employees have been rated.

Advantages. Alternation ranking avoids central tendency.

Disadvantages. In situations where there is a small gap between individual performance levels, the altering between "best" and "worst" creates an illusion of a wide disparity between performance levels when none may exist.

3. Paired-comparison ranking

In paired-comparison ranking, one employee, Employee A, is paired with another employee to achieve a ranking based on predetermined criteria. After the results of this pairing are recorded, the same employee (Employee A) is paired with another employee and is ranked again. This continues until Employee A has been paired with all other employees. Then, the next employee, Employee B, is compared to all employees in the same manner. This continues until all employees are compared to all other employees.

Advantages. Paired-comparison ranking is more accurate, especially when multiple raters are used.

Disadvantages. This ranking method is cumbersome to use when appraising large numbers of employees. Paired-comparison ranking is more time consuming than most appraisal techniques.