Management by Objectives (MBO) Based Approach to Performance Evaluation

1. Management by Objectives (MBO) Based Approach to Performance Evaluation • Performance objectives primarily based on desired results, or outputs, rather than inputs, which are work attitudes/attributes – should be quantified wherever possible – as unique to each employee as possible – should comprise 60% to 80% of employee performance plan • Work attitudes/attributes, such as initiative, teamwork, accuracy and completeness of work – should be as standard as possible for most employees – should comprise 20% to 40% of employee performance plan • Overall performance is weighted average performance in two areas above. – Varying weights assigned to each performance objective or attitude/attribute within each area • Objectives should be written down in the performance evaluation instrument and mutually agreed to by the employee and supervisor at the beginning of the performance evaluation cycle

2. A mid-year check of employee performance against the performance evaluation plan is advisable. – In its best and truest sense, performance evaluation should be ongoing and continuous, with employees getting direct feedback along the way. • The fundamental driving force for the performance objectives should be an institution’s strategic plan. – Direct reports objectives should be linked to the President’s performance objectives. – Their reports linked to their own objectives, and similarly, from level to level. – This process is known as “linkage of objectives”. – Underlying theory is that if each employee achieves his or her performance objectives, the institution achieves its overall objectives. • The performance objectives setting process should allow for incorporation of new objectives as the year proceeds and new needs emerge. • The words used in performance plans and written evaluations of performance should avoid prejudicial, speculative, or “psychological insight” kinds of statements which can also be potentially legally damaging.

3. Other Key Elements of a Good Performance Evaluation System • Training of supervisors and employees • Implementation of a pre-planned schedule and monitor to ensure that all activities are completed on a consistent and timely schedule • Preliminary review of evaluation results in advance – ensure resulting appraisal distributions are fair and balanced with no patterns of invidious distinctions based on race, gender, or religion, and that individuals do not suffer due to evaluations by unduly “hard” or “easy” graders • Performance plans written to describe what level of performance is required to attain mid-range performance • Use of software to automate the performance evaluation process

4. Various Potential Elements of Compensation • Merit pay or pay-for-performance – “earned” pay given to employees based on relative performance in the compensation pay period • Equity Adjustments – can be for either external or internal equity • Across-the-board adjustments – can be to offset inflation or increases in employee benefit costs • Bonuses – one-time payments given because of especially meritorious individual or work group performance

5. A Sample Pay-for-Performance Metric Highest Performance RatingSample % Distribution Excellent 10% Consistently Exceeds Expectations 20 to 25% Exceeds Expectations 30 to 35% Meets Expectations 39 to 25% Does Not Meet Expectations 1 to 5% Lowest Performance

6. Other Key Aspects of Employee Compensation • There should be minimum and maximum ranges of pay for each job. – No employee should be paid below the minimum for his or her job range. • Rate of pay increase should be moderated by an employee’s relative position within a pay range. • Overall level of compensation is determined by the level of funding provided by – external funding sources, such as the legislature, or –internal funding sources, such as increased enrollment and/or decreased costs. • Institutions must work to maximize their performance in order to set strategic compensation plans to achieve overall targets such as a planned reduction in competitive pay inequities.

7. Requirements Before Employee Evaluations or Pay Commitments are given • Agreement between supervisors and, ultimately, area vice presidents over – proposed ratings – affordability of resulting compensation results • The institution, as a whole, is balanced with respect to – planned appraisal distribution – funding commitments • No patterns of arbitrary or inappropriate distinctions exist.