10. variable pay Flashcards
pay structure VS variable pay
base salary VS reward
consideration when designing pay programs
cost, returns, fit with strat, unintended consequence
incentive effect
pay influence employee behaviour
reinforcement theory
Thorndike law effect: perf + reward -> induce repetitiveness
expectancy theory
focus on future expectation
3 component of motivation
expectancy
instrumentality
valence
intrinsic VS extrinsic motivation
intrinsic = driven by external reward (bonus)
extrinsic = driven by internal reward (work)
agency theory
focus on divergence of interest between principals and agents
agency cost arise from
goal congruence
information asymmetry
solution for agency cost
outcome oriented contract
behaviour oriented contract
factors influencing contract choice (6)
risk aversion
outcome uncertainty
job programmability
measurable outcome
ability to pay
tradition
sorting effect
pay influence the type of employees attracted and retained
type of pay-for-performance programs (7)
merit pay
merit bonus,
incentive pay
profit sharing
stock options
gainsharing
skill based
merit pay and merit bonus
determined by perf rating and compa-ratio
(+) reward individual perf
(-) discourage teamwork, not always fair, pay differences
incentive pay
measured by physical output
(+) increase perf
(-) undermine teamwork and skill development, employee focus only on what they are paid for, reward quantity over quality
profit sharing
share profit in good eco but reduce payment in bad eco
(+) incentive to think like owner, reduce labor cost
(-) no link between effort and reward, deferred
stock options
(+) focus on company LT success, aligns interest
(-) no direct link, only when sell stock -> no immediate motivation
gainsharing
based on group or plant
(+) teamwork and cooperation, more in control
(-) competition
interwined effects
pay programs need to be align with other HR practices and orga strat.
