The Best Appraisal System for an Organization

Mehrzad Manuel Ferdows
5 min readMar 24, 2021

Mehrzad Manuel Ferdows, a leading entrepreneur, advisor, investor and industrial Engineering graduate from University of Southern California has given speech at a conference held in Dubai on the best reward systems for an organization. Mehrzad Ferdows stated that after designing and implementing a systematic performance appraisal system and providing adequate feedback to employees, organization leaders need to consider how to tie available corporate rewards to the outcomes of the appraisal. It is evident that performance levels are highest when rewards are contingent upon performance. Mehrzad Ferdows added that reward systems in organizations have wide ranging consequences for both individual satisfaction and organizational effectiveness. Unfortunately, cases can easily be cited where reward systems have been distorted to punish good performance or inhibit creativity.

Mehrzad Ferdows elaborates Aspects of Reward Systems in Organizations

Functions Served by Reward Systems

Mehrzad Ferdows stated that reward systems are used for a variety of reasons. It is generally agreed that reward systems influence job effort and performance. This is an indication of expectancy theory which means employees effort and performance would be expected to increase when they understand that rewards were contingent upon good performance. Hence, reward systems serve a very basic motivational function. Attendance and retention is a key motivator in a reward system. The system shows to influence an employee’s decision to remain with the organization and to influence an individual’s commitment to the organization, primarily through the exchange process. Ferdows reiterated that when employees perceive that the organization is interested in their welfare and willing to protect their interest; they begin to develop ties with the organization. It is by all means shown that to the extent that employee needs and goals are met by the corporation, the commitment will be expected to increase. A key reason why reward systems work is job satisfaction. As Edward E. Lawler, a well-known researcher on employee compensation has pointed out, there are four conclusions concerning the relationship between rewards and satisfaction. These involve satisfaction with a rewards is a function of both how much is received and how much the individual feels should have been received, the next conclusion is that satisfaction is influenced by comparison with what happens to others especially one’s coworkers, the other two are people differ with respect to the rewards they value and some rewards are satisfying since they lead to other rewards. Mehrzad Ferdows thinks of occupational and organizational choice being influenced by the reward systems within an organization.

Bases for Reward Distribution

Mehrzad Ferdows stated that the inequity as well as equality that exists in the distribution of available rewards is a common reality in many contemporary work organizations. In case of inequity, one often sees little correlation between those who perform well and those who receive the greatest rewards. At the extreme, it is hard to understand how a company could pay its president a reward which is 1000 times more than what is paid to the secretary as they both are important for the organizational performance. The question arises here is how the organizations determine the distribution of available rewards.

The simple answer is that in more cases than we choose to admit, rewards go to those with the greatest power be it market power or personal power. In many of the corporations whose presidents earn eight-figure incomes, we find that these same people are either major shareholders in the company or have certain abilities, connections, or status that the company wants. Indeed, a threat of resignation from an important or high-performing executive often leads to increased rewards.

A second possible basis for reward distribution is equality where all individuals within one job classification would receive the same or indistinguishable rewards. Unionized workers can be regarded as an example, where pay rates are established and standardized with little or no reference to actual performance level. Seniority instead of ability or performance is usually recognized as the chief factor in pay raises or promotions. Mehrzad Ferdows put forward that team based rewards could be a viable solution to the problem of equality in the reward system as work has become more team oriented, performance appraisals measure how a team performs rather than just how an individual performs his job.

Intrinsic vs. Extrinsic Rewards

Mehrzad Ferdows stated that extrinsic or intrinsic rewards are the variety of rewards that employers can receive in exchange for their contribution of time and effort. Extrinsic rewards include wages and salary, fringe benefits, promotions, and recognition and praise from others. He added that these rewards are external to the work itself. On the other hand, intrinsic rewards represent those rewards that are related directly to performing the job. In this sense, they are often described as “self-governed” rewards, because engaging in the task itself leads to their receipt. Feelings of task accomplishment, autonomy, and personal growth and development that come from the job are considered as intrinsic rewards.

Mehrzad Ferdows added that studies suggest that extrinsic rewards tend to drive out the positive effects of some intrinsic rewards and can lead to unethical behavior. Also, because extrinsic rewards are administered by sources external to the individual, their effectiveness rests on accurate and fair monitoring, evaluating, and administration. Implementation can be expensive, and the timing of performance and rewards may not always be close while intrinsic rewards are a function of self-monitoring, evaluation, and administration; consequently, these rewards often are less costly and more effectively administered.

Mehrzad Ferdows Explains The Relationship between Money and Motivation

Mehrzad Ferdows mentioned that there has always been recurring debate among managers on the issue of whether money is a primary motivator. It is argued by some that most behavior in organizational settings is motivated by monetary factors, whereas others argue that money is only one of many factors that motivate performance. Whichever group is correct, we must recognize that money can have important motivational consequences for many people in many situations. In fact, money serves several important functions in work settings. It can serve a goal or incentive, a source of satisfaction, an instrument for gaining other desired outcomes, a standard of comparison for determining relative standing or worth, and a conditional reinforce. To put it further, Mehrzad Ferdows suggested that experience tells us that the effectiveness of pay as a motivator varies considerably. He stated that according to Lawler certain conditions need to be present in order for the money to perform as a strong incentive. These conditions include the trust levels between managers and subordinates, measurability of individual performance, higher pay rewards to high performers than poor performers.

Pay Secrecy

Mehrzad Ferdows pointed out that, employees are generally provided with more recognition for satisfactory performance and are often more motivated to perform on subsequent tasks when salary information is open. It is easier to establish feelings of pay equity and trust in the salary administration system. On the other hand, jealousy among employees will be aroused when publicizing pay rates are publicized and it will create pressures on managers to reduce perceived inequities in the system. There is no correct clear-cut hypothesis concerning whether pay rates should be secret or open. The point is that managers should not assume a priori to make a choice between pay secrecy or pay openness. Instead, careful consideration should be given to the possible consequences of either approach in view of the particular situation in the organization at the time.