Performance Management & Pay Flashcards

What is the purpose of a 'performance calibration' session in a merit pay process?

Answer: To ensure rating consistency across managers by reviewing and adjusting ratings as a group

Calibration sessions bring managers together to review and align performance ratings, reducing halo/horn effects and inter-rater inconsistency before merit decisions are finalized.

An employee is placed on a Performance Improvement Plan (PIP). How should this typically affect their merit increase eligibility?

Answer: They are generally ineligible for a merit increase until performance meets expectations

Employees on PIPs are typically rated below the threshold required for merit increases, as merit pay is intended to reward and reinforce acceptable or above-average performance.

Which of the following best describes the concept of 'differential performance pay'?

Answer: Intentionally creating meaningful pay differences based on measurable performance differences

Differential performance pay involves creating intentional, meaningful compensation gaps between employees at different performance levels to reinforce and reward performance distinctions.

A company transitions from an annual merit review cycle to a continuous performance and pay adjustment model. What is the primary advantage?

Answer: It provides more timely reinforcement of high performance and faster correction of low performance

Continuous performance management allows organizations to recognize and reward high performance closer to when it occurs, strengthening the motivational link between behavior and compensation.

What is the primary difference between a 'spot award' and a 'merit increase'?

Answer: Spot awards are one-time, immediate recognition payments that do not affect base pay; merit increases permanently raise base salary

Spot awards are immediate, one-time cash or non-cash recognition for specific achievements and do not become part of base salary, while merit increases permanently adjust an employee's base pay.

When designing a sales incentive plan (SIP), which principle is most critical for maintaining motivational impact?

Answer: Ensuring salespeople have a clear line of sight between their selling activity and incentive earnings

Sales incentive plans are most effective when salespeople can directly see how their sales behaviors and results drive their incentive earnings, maximizing motivation to perform.

In the context of performance management, what does 'recency bias' mean and how does it distort merit pay?

Answer: Managers weight recent performance events too heavily, ignoring the full review period, leading to inaccurate ratings and inequitable pay decisions

Recency bias causes managers to overemphasize performance close to the review date while underweighting events from earlier in the cycle, distorting ratings and the merit pay tied to them.