Management Exam 2

Performance Management – Two Purposes

Development and administrative (raises/promotions).

Self-Ratings – what is the main bias?

social desirability bias; more accurate when employees rate themselves relative to others.

Behaviorally Anchored Rating Scales (BARS)

Uses critical incidents attached to each number on a scale (1–5); higher validity than trait ratings but very time-consuming to create.

Management by Objectives (MBO)

Employees are graded based on achieving individualized objectives; difficult to compare employees with different goals.

Forced Distribution

“Cruelty curves” requiring you to place set percentages of employees in top/middle/bottom categories (e.g., 10% top, 10% bottom).

Deferred Core Compensation

Includes stock and golden parachutes (paid 1–5 years after ownership change; not for retirement or resignation).

What is the Salary percentage of Executive Compensation?

Base salary often makes up 2% or less of total executive compensation.

Agency Theory

Executives are paid highly to align their actions with shareholders’ long-term interests.

Tournament Theory

Job hierarchy creates competition.

Social Comparison Theory (Executive comp)

CEOs compare their pay to other CEOs; widespread high pay drives further increases.

Integrative vs. Distributive Negotiation

Integrative = win-win outcomes; distributive = fixed-pie, win-lose.

When must Negotiation be Distributive?

If both parties value the same factor (e.g., price of a car), negotiation is inevitably distributive.

Integrative Example – Orange Problem

One party needs the fruit, the other needs the peel → both can “win” by understanding interests.

Integrative Negotiation Tip

Ask “why?” to uncover underlying interests.

Anchor Point (Negotiation)

Initial offer sets the reference point (e.g., starting salary); better to give the first anchor.

BATNA – Best Alternative to a Negotiated Agreement

Your fallback option; publicizing your strong BATNA improves your leverage.