Introduction
• Previous slides: different measures of performance evaluation
• How should a firm use the performance evaluation to motivate employees?
• Pay for performance helps the organization improve many human re
...
Introduction
• Previous slides: different measures of performance evaluation
• How should a firm use the performance evaluation to motivate employees?
• Pay for performance helps the organization improve many human resource
objectives, not just motivation
• This idea is very important, thus it is worth illustrating before we turn to
motivating effort
• Therefore, for now we assume that there is no motivation problem for
employees
• Is there still any benefit from tying pay to performance?
• Yes, lets illustrate it formally:
• Suppose firm bases pay on some abstract way on performance,
• Not necessarily through some kind of deferred pay or probationary period
• It should still expect to improve recruiting, and investment skills Assume that potential employees differ in Ability (A) or accumulated
capital (H), and performance/performance measure depend on both
• PM=PM(A,H)
• If pay is a function of performance, then it is also a function of ability (A)
and human capital (H)
• Those with higher ability/skills can expect to earn more
•
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• Employees will have greater motivation to invest in skills because return on
skills will be higher if their performance is tied more strongly to pay
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