Performance appraisal

●​ Performance appraisal is a way of evaluating a person's work in an organized manner. It

measures performance based on factors like job knowledge, work quality and quantity,
initiative, leadership, teamwork, reliability, judgment, and overall ability. It looks at both
past performance and future potential.
●​ Other names for performance appraisal include performance rating, employee
assessment, employee performance review, personnel appraisal, performance evaluation,
and merit rating.
●​ Performance appraisal is a systematic evaluation of an employee’s work performance
based on set standards to assess their strengths, areas for improvement, and future
potential.

Objectives of Performance Appraisal :

1.​ Promotions – To decide who deserves a promotion based on their skills and
performance.
2.​ Confirming employees – To check if probationary employees have performed well
enough to become permanent.
3.​ Training needs – To identify areas where employees need more training and
development.
4.​ Salary decisions – To help decide pay raises, especially in workplaces without fixed
salary structures.
5.​ Feedback and improvement – To help employees understand their strengths and
weaknesses and guide them on how to improve.
6.​ Better communication – To create open discussions between managers and employees,
helping them understand each other better and build trust.
7.​ Evaluating HR programs – To check if HR efforts like hiring, training, and transfers are
working effectively.

Broadly, performance appraisal serves four objectives

1.​ Employee development – Helping employees grow and improve.

2.​ Administrative decisions – Making choices about promotions, salaries, and job roles.
3.​ Organizational maintenance – Ensuring the company is running efficiently.
4.​ Record-keeping – Keeping proper records of employee performance for future
reference.
Performance appraisal helps a company stay competitive by

●​ Improving employee performance

●​ Helping managers make the right decisions
●​ Ensuring legal rules are followed
●​ Reducing job dissatisfaction and employee turnover
●​ Aligning employee behavior with company goals

1.​ Improving Employee Performance​

○​ A good appraisal system helps employees focus on company goals.

○​ It ensures employees are working towards achieving these goals.
2.​ Helping Managers Make the Right Decisions​

○​ Performance appraisals help managers decide on promotions, pay raises, transfers,

and training.
○​ Fair promotions based on performance motivate employees to work harder.
3.​ Following Legal Rules​

○​ If promotions or other decisions are unfair, companies may face legal issues.
○​ A fair appraisal system helps avoid lawsuits and legal problems.
4.​ Reducing Job Dissatisfaction and Employee Turnover​

○​ Employees feel frustrated if they believe their performance ratings are unfair.
○​ This can lead to job dissatisfaction and quitting the company.
○​ A fair system keeps employees happy and motivated, reducing turnover.
5.​ Aligning Employee Behavior with Company Goals​

○​ Employees focus on tasks that will be rewarded.

○​ If the company values customer service, employees will improve service.
○​ If cost-saving is a priority, employees will work on reducing costs.
○​ The appraisal system ensures employees’ actions match the company’s strategy.
6.​ Helping with Long-Term Growth​

○​ Performance appraisals help find employees with high potential.

○​ They ensure fair rewards for good performance.
○​ They identify areas where employees need training and development.
○​ However, many companies focus only on short-term results instead of long-term
success.
A strong performance appraisal system helps a company stay competitive, improve employee
satisfaction, and achieve its long-term goals.

Principles of Performance Appraisal

1.​ Align with Company Goals – The company’s main goals should be broken down into
goals for teams, departments, and individuals.
2.​ Not Just About Money – Performance appraisal should not only focus on salary or
financial rewards.
3.​ Ongoing Improvement – Performance improves over time, so the appraisal process
should be continuous.
4.​ Encourage Cooperation – It should promote teamwork and agreement rather than control
and pressure.
5.​ Be Transparent – The process should be open and clear at every stage.
6.​ Give Regular Feedback – Employees should receive continuous feedback, not just during
appraisals.
7.​ Include Everyone – The system should cover all employees, not just a few.
8.​ A System, Not a Task – Performance appraisal should be a structured process, not a
one-time activity.
9.​ Keep It Simple – The system should be easy to understand, without too many complex
scales or factors.
10.​Involve Everyone – Employees, managers, and other stakeholders should help design the
process to make it fair and effective.

Appraisal process
 1.​ Objectives of performance appraisal :

Performance appraisal helps in making decisions about promotions, salary increases,

training needs, and in some cases, removing low-performing employees. Some companies, like
WIPRO, IBM, TCS, and HCL, have used appraisal data to terminate employees who did not
meet performance expectations. Traditionally, it focused only on individual performance, where
employees were rewarded or penalized based on their results. However, the modern approach
considers workplace factors such as office environment, available resources, and leadership
quality, which impact employee performance. Instead of promoting competition, it encourages
teamwork and shared goals for overall improvement. While employees are still responsible for
their performance, organizations must also address system-level challenges to create a supportive
work environment. This shift helps employees grow, enhances collaboration, and strengthens the
organization as a whole.

2.​ Establish job expectations:

The second step in the appraisal process is setting clear job expectations. This means
informing the employee about their duties and responsibilities. Usually, a discussion is held with
their supervisor to review key tasks from the job description. Employees should not start their
work until they fully understand what is expected of them.

A basic evaluation of a new employee's performance is usually done within the first six to
twelve weeks to see if they are suitable for the role. After that, regular performance assessments
take place.

3.​ Design an appraisal program:

When designing a performance appraisal program, several important questions need to be

addressed:

1.​ Formal vs. Informal Appraisal:​

○​ A formal appraisal follows a structured process, with scheduled evaluations,

documented feedback, and set criteria for assessment.
○​ An informal appraisal is more flexible, with ongoing feedback and discussions
between managers and employees without strict schedules.
2.​ Whose Performance is to be Assessed?​

○​ The appraisal program must define whether all employees will be evaluated or
only specific groups (e.g., full-time staff, probationary employees, managers).
○​ It should also decide if teams or individual employees will be assessed.
3.​ Who are the Raters?​

○​ Performance can be evaluated by supervisors, peers, subordinates,

self-assessment, or even customers, depending on the nature of the job.
○​ The choice of raters should ensure fairness and accuracy in the evaluation
process.
4.​ What Problems are Encountered?​

○​ Common issues in performance appraisal include bias, favoritism, unclear

evaluation criteria, employee anxiety, and resistance to feedback.
○​ Some raters may give overly high or low ratings due to personal biases.
5.​ How to Solve the Problems?​

○​ Providing proper training for raters can reduce bias and inconsistency.
○​ Using multiple raters, setting clear evaluation criteria, and offering constructive
feedback can improve the fairness of the process.
○​ Encouraging open communication between employees and supervisors can reduce
misunderstandings.
6.​ What Should be Evaluated?​

○​ Appraisals should assess key aspects such as job performance, skills, attitude,
teamwork, goal achievement, and areas for improvement.
○​ The evaluation criteria should align with the organization's objectives and
employee roles.
7.​ When to Evaluate?​

○​ Performance can be assessed annually, semi-annually, quarterly, or even monthly,

depending on the organization’s needs.
○​ New employees may undergo an initial assessment after a probationary period,
followed by regular reviews.
8.​ What Methods of Appraisal are to be Used?​

○​ Various methods can be used, such as:

■​ Rating scales (grading employees based on specific criteria)
■​ 360-degree feedback (gathering input from multiple sources)
■​ Self-assessment (employees evaluating their own performance)
■​ Management by objectives (MBO) (evaluating employees based on goal
achievement)
○​ The chosen method should be suitable for the organization’s culture and
objectives.
4. Appraising Performance in the Appraisal Process

Appraising performance is a key step in the performance appraisal process, where an employee’s
work is evaluated based on set criteria. This step helps determine how well an employee is
meeting job expectations and contributes to decision-making regarding promotions, training
needs, salary increases, and overall career growth.

Steps in Appraising Performance:

1.​ Collecting Performance Data:​

○​ Supervisors or designated raters gather information about the employee’s

performance over a specific period.
○​ This can include project outcomes, attendance records, customer feedback, peer
reviews, and self-assessments.
2.​ Using Appraisal Methods:​

○​ Different methods are used to assess performance, such as:

■​ Graphic Rating Scale – Rating employees on various performance factors
like quality of work, communication, and teamwork.
■​ 360-Degree Feedback – Collecting input from supervisors, peers,
subordinates, and customers for a comprehensive review.
■​ Management by Objectives (MBO) – Evaluating employees based on
specific goals they have achieved.
■​ Behavioral Observation Scales (BOS) – Assessing how frequently an
employee demonstrates key behaviors required for their job.
3.​ Comparing Performance to Expectations:​

○​ The employee’s performance is measured against previously set goals and job
descriptions.
○​ Any gaps between expected and actual performance are identified.
4.​ Identifying Strengths and Weaknesses:​

○​ Strengths highlight areas where the employee excels, while weaknesses indicate
areas that need improvement.
○​ This helps in planning future training and development programs.
5.​ Providing Documentation:​

○​ A formal record of the appraisal is prepared, summarizing the findings.

○​ This documentation is useful for tracking progress, making HR decisions, and
maintaining fairness in performance evaluations.
5. Performance Interview in the Appraisal Process

A performance interview is a key step in the performance appraisal process where the employee
and the evaluator (usually a manager or supervisor) discuss the appraisal results. This interview
helps employees understand their performance, receive feedback, and set future goals.

Objectives of a Performance Interview:

●​ To provide employees with constructive feedback on their strengths and areas for
improvement.
●​ To discuss the reasons behind the ratings given in the appraisal.
●​ To allow employees to share their perspective on their performance.
●​ To identify training and development needs for skill enhancement.
●​ To set future performance goals and expectations.

Types of Performance Interviews

1.​ Satisfactory Performance – Praise and Encourage:​

○​ If an employee has performed well, the interview focuses on recognition and

motivation.
○​ The manager appreciates their achievements and discusses opportunities for
further growth.
2.​ Satisfactory Performance – Development Discussion:​

○​ When an employee meets expectations but has potential for improvement, the
focus is on skill enhancement and career growth.
○​ The discussion may involve training programs or new responsibilities.
3.​ Unsatisfactory Performance – Corrective Action Needed:​

○​ If an employee’s performance is below expectations, the discussion focuses on

identifying issues and solutions.
○​ The manager provides specific feedback, sets clear improvement goals, and may
recommend a Performance Improvement Plan (PIP).

6. Archiving Appraisal Data in the Appraisal Process

Archiving appraisal data involves securely storing performance evaluation records for future
reference. It helps track employee progress, make informed decisions on promotions and
training, ensure legal compliance, and identify performance trends. Organizations archive data
using physical records or digital HR systems, ensuring confidentiality and access control. Best
practices include maintaining accuracy, using standardized formats, securing data, and reviewing
records periodically. Proper archiving enhances transparency, supports employee development,
and strengthens HR processes.

7. Using Appraisal Data for the Right Purposes

Appraisal data helps organizations make key decisions, such as:

●​ Promotions & Transfers: Identifying high-performing employees for career growth.

●​ Training Needs: Addressing skill gaps through targeted learning programs.
●​ Salary & Rewards: Deciding on pay raises and bonuses based on performance.
●​ Employee Motivation & Retention: Encouraging job satisfaction and reducing turnover.
●​ Performance Improvement: Providing feedback and support to underperforming
employees.
●​ Termination Decisions: Ensuring fair dismissals based on objective performance records.
●​ Workforce & Succession Planning: Preparing future leaders and managing workforce
needs.
●​ Legal Compliance: Maintaining fair and documented appraisals to prevent disputes.

Using appraisal data correctly benefits both employees and the organization, leading to better
performance and long-term success.

Appraisal methods

When designing an appraisal program, organizations must decide which method to use for
evaluating employees. Different methods suit different purposes and types of employees.

Appraisal methods are generally divided into two categories:

(i) past-oriented methods

(ii) future-oriented methods.

1.​ Past-Oriented Methods of Performance Appraisal

Past-oriented methods evaluate an employee’s past job performance and are commonly used to
make decisions about promotions, salary increases, rewards, and performance improvement
plans. Below are some key past-oriented appraisal methods:

1. Rating Scales Method

●​ In this method, employees are rated on different performance factors such as teamwork,
communication, productivity, punctuality, and problem-solving skills.
 ●​ A numerical or descriptive scale is used, such as 1 to 5 (where 1 = Poor and 5 =
Excellent).
●​ This method provides a structured way to measure performance but can sometimes be
subjective if not used carefully.

2. Checklist Method

●​ A list of statements related to employee behavior and job performance is prepared.

●​ The evaluator checks “Yes” or “No” based on whether the employee displays the listed
behaviors.
●​ For example, a checklist for a customer service employee may include:
○​ Responds to customer queries promptly – Yes/No
○​ Maintains professionalism during interactions – Yes/No
●​ This method is simple and quick but may not provide detailed insights into performance.

3. Ranking Method

●​ Employees are ranked from best to worst based on their overall performance.
●​ This can be done in different ways, such as:
○​ Simple Ranking: Employees are listed from highest to lowest in performance.
○​ Paired Comparison: Each employee is compared with every other employee, and
the one who performs better is ranked higher.
●​ While useful for identifying top performers, this method may create unhealthy
competition among employees.

4. Critical Incident Method

●​ Specific instances of good or poor performance are recorded over time.

●​ The evaluator notes significant incidents that had a major impact on the job.
●​ Example:
○​ Good Incident: An employee successfully handled an angry customer and turned
the situation into a positive experience.
○​ Bad Incident: An employee failed to meet a project deadline due to negligence.
●​ This method provides real-life examples of performance but requires detailed
record-keeping.

5. Annual Performance Review

●​ Employees receive feedback on their work over the past year.

●​ This is usually a formal discussion between the employee and the manager.
●​ Performance is reviewed based on set goals, achievements, strengths, and areas for
improvement.
 ●​ It helps in deciding salary increments, promotions, and training needs.
●​ The drawback is that waiting for a year to give feedback may delay performance
improvements.

These past-oriented methods help organizations track employee performance and make informed
decisions. However, they should be used carefully to ensure fairness and effectiveness.

2.​ Future-Oriented Methods of Performance Appraisal

Future-oriented methods focus on improving employees' future performance by identifying their

strengths, weaknesses, and development needs. These methods help organizations plan for career
growth, leadership development, and succession planning. Below are some key future-oriented
appraisal methods:

1. Management by Objectives (MBO)

●​ In this method, employees and managers work together to set specific, measurable goals
that align with the company’s objectives.
●​ Employees regularly evaluate their progress toward these goals.
●​ For example, a sales employee may have a goal to increase sales by 20% in six months.
●​ Performance is assessed based on goal achievement rather than subjective opinions.
●​ This method improves motivation and accountability but requires continuous monitoring.

2. 360-Degree Feedback

●​ Feedback is collected from multiple sources, including supervisors, colleagues,

subordinates, and sometimes even customers.
●​ This provides a well-rounded view of an employee’s strengths and areas for
improvement.
●​ For example, a team leader might receive feedback from their team members on
communication skills and from their manager on leadership abilities.
●​ The advantage of this method is that it reduces bias and provides diverse perspectives,
but it requires honesty and proper handling to be effective.

3. Psychological Appraisal

●​ A trained psychologist assesses an employee’s leadership potential, emotional

intelligence, personality, and decision-making skills.
●​ This method is useful for identifying employees who are suitable for promotions or
leadership roles.
●​ Psychological tests, interviews, and behavioral observations are used in the assessment.
 ●​ The advantage is that it predicts future performance rather than just evaluating past
achievements. However, it can be expensive and time-consuming.

4. Assessment Centers

●​ Employees participate in various simulations, role-plays, and exercises that mimic real
job situations.
●​ Common activities include group discussions, problem-solving tasks, leadership
exercises, and presentations.
●​ This method helps organizations identify employees with the potential for higher
responsibilities.
●​ For example, a managerial candidate may be given a case study where they must make
strategic decisions.
●​ The benefit of this method is that it provides a realistic evaluation of an employee’s
abilities, but it requires significant resources and planning.

Conclusion

Both past- and future-oriented methods play an important role in performance appraisal. While
past-oriented methods help evaluate an employee’s past achievements, future-oriented methods
focus on preparing employees for growth and improvement. Organizations choose a combination
of these methods based on their goals and workforce needs.

Factors Distorting Performance Appraisal

These factors can make performance appraisals inaccurate and unfair. They often lead to biased
evaluations, which can affect employee motivation and career growth.

1.​ Halo Effect – This happens when one good quality of an employee influences the entire
appraisal. For example, if an employee is friendly, the manager might rate them highly in
all areas, even if their actual performance in some tasks is average.​

2.​ Horns Effect – This is the opposite of the halo effect. A single negative trait affects the
whole evaluation. For instance, if an employee is often late to work, the manager may
assume they are also inefficient in their job, even if they perform well in other aspects.​

3.​ Recency Effect – Recent events influence the appraisal more than past performance. If an
employee performed well just before the evaluation, they might receive a high rating,
even if their overall performance was inconsistent throughout the year.​

4.​ Leniency or Strictness Bias – Some managers tend to be too lenient and give high ratings
to all employees, while others may be too strict and give low ratings. This makes it
 difficult to differentiate between high and low performers.​

5.​ Central Tendency Bias – The manager avoids giving extreme ratings and marks most
employees as "average." This prevents outstanding employees from being recognized and
poor performers from being identified for improvement.​

6.​ Personal Bias – Personal feelings, stereotypes, or favoritism can affect ratings. For
example, a manager may give higher ratings to employees they personally like, or lower
ratings to those they have conflicts with, even if performance is similar.​

Rewarding Productive Employees

Rewarding productive employees is essential for maintaining motivation, increasing job

satisfaction, and improving overall workplace performance. A well-structured reward system
encourages employees to perform better and remain committed to the organization. Here are
some effective ways to reward productive employees:

1. Financial Rewards

●​ Bonuses: Providing performance-based bonuses motivates employees to achieve and

exceed their targets.
●​ Salary Increments: Regular pay raises based on performance ensure employees feel
valued.
●​ Profit Sharing: Offering a share in the company’s profits encourages employees to
contribute to the organization’s success.

2. Recognition and Appreciation

●​ Employee of the Month/Year: A formal recognition program boosts employee morale.

●​ Public Appreciation: Announcing achievements in meetings or newsletters makes
employees feel valued.
●​ Personalized Thank You Notes: A simple handwritten note or email from management
can be highly motivating.

3. Career Growth Opportunities

●​ Promotions: Offering growth opportunities within the organization encourages employees

to stay and perform better.
●​ Training and Development: Sponsoring courses, certifications, or workshops helps
employees enhance their skills.
 ●​ Mentorship Programs: Connecting high-performing employees with mentors supports
their career advancement.

4. Non-Monetary Perks

●​ Flexible Work Hours: Allowing productive employees to have flexible schedules shows
trust and appreciation.
●​ Extra Time Off: Rewarding employees with an additional day off as a performance
incentive helps in maintaining work-life balance.
●​ Exclusive Benefits: Providing gym memberships, wellness programs, or
company-sponsored vacations serves as a great incentive.

5. Team-Based Rewards

●​ Group Celebrations: Hosting team lunches, outings, or events acknowledges collective

success.
●​ Departmental Rewards: Recognizing the highest-performing teams promotes healthy
competition and collaboration.

By implementing a fair and motivating reward system, organizations can retain talent, boost
employee engagement, and foster a positive work culture.

Types of Rewards

Rewards are essential for motivating employees, enhancing job satisfaction, and improving
productivity. Organizations use different types of rewards to recognize employees' contributions
and encourage high performance. Rewards can be broadly classified into

1. monetary rewards

2. non-monetary rewards

3. intrinsic rewards.

1. Monetary Rewards

Monetary rewards are financial incentives given to employees in recognition of their

performance and contributions. These rewards provide tangible benefits that directly impact an
employee’s earnings.

a. Salary Increments
 ●​ Employees receive periodic salary increases based on their performance, experience, or
tenure.
●​ These increments can be annual or performance-based, ensuring that employees are fairly
compensated for their efforts.

b. Bonuses

●​ A one-time financial reward given to employees for outstanding performance, achieving

business goals, or company profits.
●​ Examples include performance bonuses, festival bonuses, and retention bonuses.

c. Profit Sharing

●​ Employees receive a share of the company’s profits, which motivates them to contribute
to the organization's success.
●​ This method ensures that employees feel a sense of ownership in the company’s financial
growth.

d. Commission-Based Rewards

●​ Commonly used in sales jobs, where employees earn extra money based on the revenue
they generate.
●​ For example, a salesperson may receive a percentage of the sales they make, encouraging
them to perform better.

e. Stock Options

●​ Employees are given the opportunity to buy company shares at a lower price.
●​ This long-term incentive ensures that employees are invested in the company’s future
success.

2. Non-Monetary Rewards

Non-monetary rewards do not provide direct financial benefits but focus on employee
recognition, career growth, and workplace well-being.

a. Recognition Awards

●​ Publicly acknowledging employees' achievements through awards like "Employee of the

Month," certificates, or appreciation plaques.
●​ Recognition can be verbal, written, or formalized through company events.
b. Career Advancement Opportunities

●​ Providing employees with opportunities for promotions, leadership roles, and

professional development.
●​ Includes mentorship programs, leadership training, and sponsorship for further education.

c. Work-Life Balance Benefits

●​ Offering flexible work arrangements, remote work options, and additional leave days.
●​ Helps employees manage personal and professional commitments efficiently.

d. Wellness and Lifestyle Benefits

●​ Providing gym memberships, health and wellness programs, and counseling services.
●​ Some companies offer on-site fitness centers, yoga sessions, or stress management
workshops.

e. Team-Based Rewards

●​ Celebrating collective achievements through team outings, corporate retreats, and

team-building activities.
●​ Strengthens workplace relationships and promotes a positive work environment.

3. Intrinsic Rewards

Intrinsic rewards come from within the employee and are linked to job satisfaction, personal
growth, and fulfillment.

a. Job Satisfaction

●​ Employees feel motivated when they enjoy their work and see the impact of their
contributions.
●​ Meaningful tasks and projects enhance their sense of purpose.

b. Autonomy and Trust

●​ Giving employees more responsibility and freedom in decision-making.

●​ Increases motivation and encourages a sense of ownership over their work.

c. Challenging Work

●​ Assigning tasks that challenge employees to develop new skills and grow professionally.
●​ Encourages learning and engagement in their roles.
Qualities of Effective Rewards

For rewards to be truly effective in motivating employees and improving performance, they must
possess certain qualities. A well-designed reward system encourages productivity, job
satisfaction, and loyalty. Below are the key qualities of effective rewards:

1. Fairness and Equity

●​ Rewards should be distributed fairly based on employee performance, effort, and

contributions.
●​ Employees should feel that the reward system is transparent and that everyone has an
equal opportunity to earn rewards.
●​ Example: Two employees with similar performance levels should receive similar
bonuses.

2. Relevance to Performance

●​ Rewards should be directly linked to an employee’s performance and achievements.

●​ Employees must understand what actions and behaviors lead to rewards.
●​ Example: A salesperson should receive a commission based on sales achieved, not
unrelated factors.

3. Timeliness

●​ Rewards should be given as soon as possible after an achievement or milestone.

●​ Immediate rewards reinforce positive behavior and encourage continued effort.
●​ Example: Recognizing an employee for completing a challenging project right after its
completion is more impactful than waiting for an annual review.

4. Meaningfulness

●​ Rewards should be valuable and meaningful to employees.

●​ They should align with employees’ needs, preferences, and career aspirations.
●​ Example: A cash bonus may be meaningful to one employee, while career development
opportunities may be more valuable to another.

5. Visibility and Recognition

●​ Publicly recognizing employees for their achievements can boost morale and motivation.
●​ Visible rewards encourage a positive work culture and inspire others to perform well.
 ●​ Example: An "Employee of the Month" award displayed on a noticeboard or company
newsletter.

6. Sustainability

●​ The reward system should be consistent and sustainable over time.

●​ Frequent changes or unpredictable rewards can reduce motivation and create
dissatisfaction.
●​ Example: A company should not introduce and then suddenly discontinue a performance
bonus program.

7. Balance Between Intrinsic and Extrinsic Rewards

●​ Effective rewards should include both monetary (extrinsic) and non-monetary (intrinsic)
incentives.
●​ While financial rewards (bonuses, salary hikes) are important, intrinsic rewards
(recognition, challenging work, career growth) also play a crucial role in long-term
motivation.

8. Goal Alignment

●​ Rewards should align with the organization’s goals and values.

●​ Encouraging behaviors and achievements that contribute to business success ensures
long-term growth.
●​ Example: A company focused on customer service excellence should reward employees
who consistently deliver outstanding customer experiences.

9. Flexibility and Customization

●​ Employees have different preferences and motivations, so rewards should be flexible.

●​ Offering a mix of reward options allows employees to choose what best suits them.
●​ Example: Some employees may prefer additional paid leave, while others may opt for
cash incentives or gift vouchers.

10. Encourages Continuous Improvement

●​ Rewards should inspire employees to keep improving and reaching higher goals.
●​ A system that only rewards one-time achievements may not sustain long-term motivation.
●​ Example: Instead of rewarding employees only for meeting a target, recognizing
continuous progress and skill development fosters growth.
Criteria for Distribution of Rewards

For a reward system to be fair and effective, organizations must establish clear and well-defined
criteria for distributing rewards.

1. Performance-Based Criteria

●​ Rewards should be given based on measurable performance indicators such as

productivity, efficiency, quality of work, and goal achievement.
●​ Example: A salesperson who exceeds their sales target by 20% receives a higher
commission.

2. Achievement of Organizational Goals

●​ Employees who contribute significantly to company objectives should be rewarded.

●​ Example: An employee who develops a new strategy that increases customer retention is
recognized for their impact.

3. Innovation and Creativity

●​ Employees who introduce innovative ideas, improve processes, or solve complex

problems should be rewarded.
●​ Example: A team that develops a cost-saving method for production receives a bonus or
recognition.

4. Leadership and Initiative

●​ Employees who take the initiative, demonstrate leadership, or contribute beyond their job
roles should be recognized.
●​ Example: A junior employee who mentors new hires and improves team collaboration
gets rewarded.

5. Team Contribution and Collaboration

●​ Teamwork and cooperation should be considered when distributing rewards to promote a

positive work culture.
●​ Example: A project team that successfully completes a challenging assignment before the
deadline receives a collective reward.
6. Skill Development and Learning

●​ Employees who upskill themselves, earn certifications, or improve their qualifications

should be rewarded.
●​ Example: A software developer who learns a new programming language and applies it
in their work gets a training incentive.

7. Customer Satisfaction and Service Excellence

●​ Employees who deliver outstanding customer service should be recognized.

●​ Example: A customer service representative who consistently receives positive feedback
earns a bonus or recognition.

8. Employee Loyalty and Tenure

●​ Long-term commitment and dedication should be acknowledged through rewards for

loyalty and service.
●​ Example: An employee who completes five years in the company receives a milestone
award.

9. Ethical Behavior and Integrity

●​ Employees who uphold company values, ethics, and professional conduct should be
rewarded.
●​ Example: An employee who reports unethical practices and helps maintain company
integrity gets recognized.

10. Work Consistency and Reliability

●​ Employees who maintain high standards of performance over time should be rewarded
for consistency.
●​ Example: An accountant who delivers accurate reports and meets deadlines every month
is rewarded for reliability.