9 - Aligning Strategy, Talent and Rewards: Pay-for- Performance Plans Flashcards
the greater interest in variable pay probably can be traced to two trends.
- first, the increasing _______ from foreign producers forces American producers to cut costs and/or increase productivity. well-designed variable pay plans have a proven track record in motivating better performance and helping cut costs.
- second, today’s fast- paced business environment means that workers must be willing to adjust ______ and how they do it.
there are new technologies, new work processes and new work relationships. All these require workers to adapt in ways and with speed that is unparalleled. failure to move quickly means market share goes to competitors. if this happens, workers face possible layoffs and terminations. to avoid this scenario, compensation experts are focusing on ways to design reward systems so that the workers will be willing and able to move quickly into ______ and new ways of performing old jobs.
competition
what they do
new jobs
Pay-for-performance plans that introduce ________ into the level of pay workers receive seem to have a positive impact on performance if designed well.
variability
A merit pay system links increases in ______, sometimes called merit increases, to how highly employees are rated on a performance evaluation. Merit pay has come under attack recently. Not only is it expensive, but many argue it doesn’t achieve the desired goal, that is, to improve employee and corporate performance. Historically, studies, though, have shown that merit pay does have a small, but significant, impact on performance.
For merit pay to live up to its potential, it needs to be _________. This requires a complete overhaul of the way raises are allocated. The allocation of raises usually means improving the accuracy of performance ratings, allocating enough merit money to truly reward performance and making sure the size of the merit increase differentiates across performance levels. Unless the reward difference is ______ for every increment in performance, it will not act to motivate employees to perform at a higher level.
base pay
managed better
made larger
_______ bonuses are used as a substitute for merit pay. Based on employee or company performance, employees receive an end-of-year bonus that does not build into base pay. Because employees must earn this increase every year, it is viewed as less of an _______ than merit pay. They also can be considerably less ______ than merit pay over the long run.
Lump-sum
entitlement
expensive
Technically, ________ should fall under pay-for-performance plans. About __% of all companies use them. Usually these payouts are awarded for exceptional performance, often on special projects or for performance that so exceeds expectations as to be deserving of an add-on bonus. The mechanics are simple. After the exceptional work has been performed, someone in the organization alerts top management that it has been done. If the company is large, there may be a formal mechanism for this recognition and perhaps some guidelines on the size. Smaller companies may be more casual about recognition and more subjective about deciding the size of the award.
spot awards
35%
The feature that all incentive plans have in common is an established _______ against which worker performance is compared to determine the ________ of the incentive pay. For individual incentive systems, this standard is compared against individual worker performance. From this basic foundation, a number of seemingly complex and divergent plans have evolved.
standard
magnitude
describe the two dimensions on which individual incentive systems vary.
- The first dimension on which incentive systems vary is in the method of _______ determination. Plans either set up a rate based on units of production per time period or on time period per unit of production. On the surface, this distinction may seem trivial but, in fact, the deviations arise because tasks have different cycles of operation. Short-cycle tasks, those that are completed in a relatively short period of time, typically have as a standard a designated number of units to be produced in a given time period. For long-cycle tasks, this would not be appropriate. It is entirely possible that only one task or some portion of it may be completed in a day. Consequently, for longer cycle tasks, the standard is typically set in terms of _____ required to complete one unit of production. Individual incentives are based on whether or not workers complete the task in the designated time period.
- The second dimension on which individual incentive systems vary is the specified relationship between ______ level and ______. The first alternative is to tie wages to output on a one-to-one basis, so that wages are some constant function of production. In contrast, some plans vary wages as a function of production level. For example, one common alternative is to provide higher dollar rates for production above the standard than for production below the standard.
rate
time
production
wages
A ________ plan provides a variation on straight piecework and standard hour plans. Instead of timing an entire task, this type of plan requires division of a task into simple actions and determination of the time required by an average skilled worker to complete each action. After the more detailed time analysis of tasks, this plan functions similarly to a standard hour plan.
Bedeaux
The two plans included in Cell 3 provide for variable incentives as a function of units of production per time period. Both the Taylor plan and the Merrick plan provide different piece rates, depending on the level of production relative to the standard. The Taylor plan establishes two piecework rates. One rate goes into effect when a worker exceeds the published standard for a given time period. This rate is set higher than the regular wage incentive level. A second rate is established for production below standard, and this rate is lower than the regular wage.
The Merrick system operates in the same way, except that ______ piecework rates are set. The high end of the range for production exceeding 100% of standard is one rate set. The second rate set is for production between ____% and 100% of standard. The third rate set is the one for the low end, or less than 83% of standard.
three
83%
The Halsey 50-50 method derives its name from the ______ between worker and employer of any savings in direct cost. An allowed time for a task is determined via time study. The savings resulting from the completion of a task in less than the standard time are allocated 50-50 between the worker and the company.
The Rowan plan is similar to the Halsey plan in that an employer and employee both share in _____ resulting from work completed in less than standard time. The major distinction in this plan, however, is that a worker’s ______ increases as time required to complete the task decreases.
shared split
savings
bonus
The Gantt plan differs from both the Halsey and Rowan plans in that standard time for a task is purposely set at a level requiring ______ to complete. In general, any worker who fails to complete the task in standard time is guaranteed a preestablished wage. However, for any task completed in standard time or less, earnings are pegged at _____% of the time saved. Consequently, workers’ earnings increase faster than production whenever standard time is met or exceeded.
high effort
120%
The main advantages of individualized incentive plans are:
- (1) They make a substantial contribution to raise _______, to lower ______ costs and to increase earnings of workers.
- (2) Less _________ is required to maintain reasonable levels of output than under payment by time.
- (3) In most cases, systems of payment by ______, if accomplished by improved organizational and work measurement, enable labor costs to be estimated more accurately than under payment by ____. This helps costing and budgetary control.
- productivity / production
- direct supervision
- results / time
Disadvantages of individualized incentive plans are:
- (1) Greater _____ may emerge between employees seeking to maximize output and managers concerned about deteriorating quality levels.
- (2) Attempts to introduce ________ may be resisted by employees concerned
- about the impact on production standards.
- (3) They may reduce willingness of employees to suggest new production ______ for fear of subsequent increases in production standards.
- (4) Increased complaints that _______ is poorly maintained, hindering employee efforts to earn larger incentives
- (5) Increased _______ among new employees discouraged by the unwillingness of experienced workers to cooperate in on-the-job training
- (6) Elevated levels of _______ between workers and management.
- conflict
- new technology
- methods
- equipment
- turnover
- mistrust
When the focus is on people working together, group incentive plans become relevant. The group might be a work team. It might be a department. Or the focus might be on a division or the whole company. The basic concept is still the same, though. A _______ is established against which worker performance, this means the teams, is compared to determine magnitude of the incentive pay. The standard might be an expected level of operating income for a division.
Historically, _______ measures have been the most widely used performance indicator for large group incentive plans. Top executives express concerns that these measures do a better job of communicating performance to stock analysts than to managers trying to gure out how to improve operating effectiveness. One problem that team incentive plans suffer from is called the “______” This problem arises when team members who do not carry their share of the workload still share in the rewards. This problem has caused companies to abandon their team reward plans because top-performing employees become disenchanted. However, good performance measurement techniques and clear standards lessen this problem.
standard
financial
“free rider”
The problems with team compensation are:
- (a) There are many types of team compensation. With so many varieties of team compensation, it is hard to argue for one consistent type of compensation plan.
- (b) A second problem with rewarding teams is called the “_____ problem.” If teams are defined at a very broad level—the whole organization being an extreme example—much of the motivational impact of incentives can be lost. Conversely, if the teams are too small, other problems can arise. Experience has found that small work teams competing for a fixed piece of incentive awards tend to gravitate to _____ that are clearly unhealthy for overall corporate success. Teams hoard ______, refusing to allow transfers even for the greater good of the company. Teams are reluctant to take on new employees for fear that time lost to training will hurt the team. Finally, bickering arises when awards are given.
- (c) The third major problem with team compensation deals with _______.
- (d) The fourth major problem with team compensation is control. Key to the control issue is the whole question of _____. Recent research suggests this perception of this is crucial. With it, employees feel it is appropriate to monitor all members of the group. Without it, employees seem to have less sense of responsibility for the team’s outcomes.
- (e) The final problem with team compensation is a familiar factor in compensation successes and failures. This is ________. Team-based pay plans simply are not ________. Employees asked to explain their plans often ounder because more effort is devoted to the mechanics by the design team than to deciding how to explain the plan.
- “level”
- behaviors
- star performers
- complexity
- fairness
- communication / communicated
