Subjective and objective performance assessment : Performance pay at Trelleborg Forsheda AB

Bachelor thesis English OPEN
Luotonen, David ; Hasselström, Markus (2009)
  • Publisher: Internationella Handelshögskolan, Högskolan i Jönköping, IHH, Företagsekonomi
  • Subject: performance assessment | performance pay | individual salaries | incentive systems | Business studies | Företagsekonomi

  The purpose of this thesis is to understand the opinions and potential effects of objective and subjective assessments of performance as a basis for performance pay for blue-collar workers. The study takes a qualitative approach to find out how and why four companies - Trelleborg Forsheda, Finnveden Powertrain, Isaberg Rapid and Parker Hannifin- work with salaries, incentive system and performance assessment the way they do. The concept of individual salary is central in this thesis, and individual salary is based on four criteria; capabilities, performance, work demand and formal competence. These can be divided in subjective or objective criteria. Individual salaries also contribute to salary divergence, which in many studies have indicated higher performance. Important to remember is that it has to exist a purpose to salary divergence and how salary is diverged in the company is related to the goals and strategy of the company. If the company chooses to have performance based salaries- which is salary divergence- another question arise; what is good performance? In organizations that have performance salaries, a group or an individual (often the middle manager) have to decide if a certain group of personnel performs good or bad. This can mainly be done in two different ways; objective performance assessment or subjective performance assessment. Objective performance assessment is based on numerical calculation of measures, which will form the basis for rewarding employees using a salary system that reward performance. Subjective performance measurements are based on judgment. Instead of relying on numerical calculations, one evaluates if the results reflect good or bad performance. For both methods it is essential that the personnel feels that the salaries are fair, and that the salary system is clear and easy to understand. Something else that is important to understand is that employer and employee have different views in what is a fair salary. Objective assessments are based on numerical calculations of measures, and one important property such measures have is that they don’t leave any room for excuses. Research indicate that performance pay has important motivation enhancing effects, but the profitability doesn’t always benefit from it. When monitoring costs are high, or product quality or long term thinking is required, hourly wages may be preferable. Tasks which are measured, will naturally be prioritized by the organization. This means that the choice of measures is very important. The amount of measures mustn’t be too high, and they have to be carefully considered. Subjective assessments are the opposite to objective ones. The advantages with subjective performance assessments are, among other things, that additional information which have surfaced during the period of measurements can be taken into consideration, errors in the measurement process can be corrected and unlucky circumstances can be dealt with. However, problems exist in unfair assessments, which are based on prejudice. Findings in this report shows that profitable companies have large differences in their salary systems. This is also supported by other research. The company Isaberg Rapid AB only uses objective criteria, focused on simplicity and group rewards. Finnveden Powertrain on the other hand, has a system focused on individuals and subjective assessments. Some conclusions could be drawn; one of the most important being that connections between the type of activities and the salary system is positive, and that salary systems have to be updated and revised continuously.  
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