Pay-for-Performance

Raters

A rater is an individual responsible for assessing performance. Typically, the rater is an employee’s direct supervisor or manager. Raters do not have to be supervisors or even members of management.

Ideally, raters should be the people who best know the employee's performance and are in a position to evaluate performance.

Possible raters are:

• Supervisors
• Peers
• Subordinates
• Customers

Supervisors

Almost all formal appraisals in organizations include those done by an employee’s supervisor. However, in some instances, this is not the individual who knows what or how well the employee is doing. In addition, performance appraisal puts the supervisor's employees in a competitive position while the supervisor is trying to obtain cooperation and coordination.

At best, performance appraisal is an uncomfortable process for supervisors. Supervisors often feel like they are "playing judge." And because employees know that pay is a direct outcome of this evaluation, they will put as much pressure as possible on supervisors to receive a positive rating. In the end, the best argument for having the immediate supervisor do the rating is so she may be seen as having the authority to influence rewards.

Higher-level managers may be useful raters too, assuming they have a chance to observe the employee's performance. Like the other sources, the higher-level manager offers the advantage of a different perspective. A manager one or two levels removed is less likely to be influenced by immediate events and is more likely to look at the employee's customary performance.

Peers

Using coworkers as raters provides a great deal of reliability, validity, and freedom from bias in ratings. These appraisals can help to determine an employee’s ability to work well with the team, take the initiative and be reliable.

Peer-review programs are often resisted because supervisors typically are in a better position to understand assigned job responsibilities. Employees resist peer-review programs because they are concerned that peers will have their own interests at heart, especially if all employees perceive the situation as a zero-sum game.

Subordinates

Subordinates of the employee being evaluated may serve as raters. Each subordinate has unique information that may be useful in a comprehensive evaluation, but by itself might be incomplete. Also, fear of retribution may make the subordinate rater reluctant to give a complete picture of their supervisor, thus skewing appraisal results.

Customers

Customers are often an untapped resource in performance rating even though they may have the best perspective on the behavior and effectiveness of employees. Customers may be internal, users of a company product or service, or external and have regular interaction with the employees being evaluated.

When using customer ratings, it is important to keep in mind that employees may be operating within company prescribed guidelines, which may affect a customer’s perception of them.

Choosing Multiple Raters

Research tends to support the multi-rater approach. Averaging the ratings of several people is more reliable than basing pay adjustments on the rating of one person. This is the idea behind 360-degree feedback.

The problem in using multiple raters, however, is appropriate selection of a second or third rater. It is important to identify what behaviors a prospective rater knows about.