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CMS 2 > A8 - Rewarding Talent: Pay for Perf. > Flashcards

A8 - Rewarding Talent: Pay for Perf. Flashcards

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1
Q

theory that ppl behave as if they cognitively evaluate what behaviors are possible in relation to the value of rewards offered in exchg. for those behaviors

A

expenctancy theory

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2
Q

the guaranteed portion of an EE’s wage package

A

base pay

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3
Q

wage granted for indiv. perf. but not added to base pay; distributed as a one-time occurrence

A

lump-sum bonus

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4
Q

wage increase granted to all EEs, regardless of perf.

A

across-the-board increase

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5
Q

wage component that is an add-on linked to group perf. relative to exceeding some financial goal

A

profit sharing

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6
Q

Linking Org. Strat. to Comp. and Perf. Mgmt

A
  • success depends on finding ppl w/ ability -primary job of recruitment, selection, and training
  • once good ppl are hired, they need to be motivated to behave in ways that help the org.
  • then comp. enters the pic - pay and other rewards should reinforce desired behaviors
  • perf. mgmt should also make sure that what is expected of EEs, and what is measured in reg. perf. reviews, is consistent w/ what the comp. practices are doing
  • the culture of org. should point in the same direction
  • finally, HR needs to estab. policies and practices that minimize the chances that outside “distractors” hinder perf.
  • Comp. can’t do all of it alone
    • if you haven’t selected the right ppl, if they don’t have the necessary training, if you aren’t measuring perf., and if it’s not part of the culture to do things that way, you’re destined for failure
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7
Q

(3) general factors upon which EE behavior depends on

A
  1. M = Motivation
  2. A = Ability
  3. E = Environ. Obstacle
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8
Q

what behaviors does comp. need to reinforce?

(4) Qs orgs should ask regarding the comp of their EES

A
  • How do we attract good EE prospects to join our company?
    • s/b sufficiently attractive to make recruiting and hiring good potential EEs possible (attraction)
  • How do we retain these good EEs once they join?
    • need to make sure the good EEs stay w/ the company (retention)
  • How do we get EEs to develop skills for current and future jobs?
    • concentrate on building further knowledge and skills (develop skills)
  • How do we get EEs to perform well on their current jobs?
    • find ways to motivate EEs to perform well on their jobs - take their knowledge and abilities and apply them in ways that contrib. to org. perf.
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9
Q

perf. measurement and perf. mgmt

A
  • need to accurately measure perf. to tell if our comp. efforts are working
    • can’t reward perf. if it can’t be measured
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10
Q

Motivation involves (3) elements:

A
  • What is important to a person
    • some EEs prefer pay systems that recognize indiv. perf., chgs in cost of living, seniority and the mkt rate
  • offering it in exchg
  • some desired behavior
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11
Q
  • the allocation of EE comp. in a variety of forms tailored to org. pay objs. and/or the need of indiv. EEs
A

flexible compensation

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12
Q

Motivation Theories

A
  1. Maslow’s need hierarchy
  2. Herzberg’s 2-factor theory
  3. Expectancy theory
  4. Equity theory
  5. Reinforcement theory
  6. Goal-setting theory
  7. Agency theory
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13
Q

Motivation Theories

Maslow’s need heirarchy

Essential Features

A
  • ppl are motivated by inner needs
  • needs form a hierarchy from most basic (food,shelter) to higher-order (self-esteem,love,self-actualization)
  • needs are never fully met; they op.cyclically
  • higher-order needs become motivating after lower-order needs have been met
  • when needs are not met they become frustrating
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14
Q

Motivation Theories

Maslow’s need heirarchy

Predictions about Perf.-Based Pay

A
  1. base pay must be set high enough to provide indiv. w/ the econ. means to meet their basic living needs
  2. an at-risk program wil not be motivating since it restricts EEs’ ability to meet lower-order needs
  3. success-sharing plans may be motivating to the extent they help EEs pursue higher-order needs
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15
Q

Motivation Theories

Maslow’s need heirarchy - Implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • perf. based pay: may be de-motivating if it infringes upon EEs’ capacity to meet daily living needs
  • **incentive pay: ** motivating to the extent it is attached to achievement, recogn, or approval
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16
Q

Motivation Theories

Herzberg’s 2-factor theory

Essential Features

A
  • EEs are motivated by 2-types of motivators: hygiene factors and satisfiers
    • Hygiene Factors: or maintenance factors; in their absense prevent behaviors, but in their presence cannot motivate perf.; they are related to basic living needs, security, and fair treatment
    • Satisfiers: recognition, promo, and achievement; motivate perf.
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17
Q

Motivation Theories

Herzberg’s 2-factor theory

Predictions about Perf.-Based Pay

A
  1. base pay must be set high enough to provide indivs. w/ the econ. means to meet hygiene needs, but it cannot motivate perf.
  2. perf. is obtained through rewards–pmts in excess of that req’d to meet basic needs
  3. perf-based pay is motivating to the extent it is connected w/ meeting EEs’ needs for recognition, pleasure attainment, achievement , and the like
  4. other factors such as interpersonal atmosphere, responsbility, type of work, and working conditions influence the effectiveness of perf.-based pay
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18
Q

Motivation Theories

Herzberg’s 2-factor theory - Implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • pay level is important – must meet min. requirements b4 perf.-based pay can operate as motivator
  • secuirty plans will induce min, but not extra, perf.
    • success-sharing plans will be motivating
    • at-risk plans will be demotivating
  • other conditions in the working relationship influence the effectivenss of perf.-based pay
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19
Q

Motivation Theories

Expectancy

Essential Features

A

motivation is the product of (3) perceptions

  1. Expectancy - EEs’ assessment of their ability to perform req’d job tasks
  2. Instrumentality - EEs’ beliefs that requisite job perf. will be rewarded by the org.
  3. Valence - the value EEs attach to the org. rewards offered for satisfactory job perf.
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20
Q

Motivation Theories

Expectancy

Predictions about Perf.-Based Pay

A
  1. job tasks and responsibilities s/b clearly defined
  2. pay-perf. link is critical
  3. perf.-based pay returns must be lg enough to be seen as rewards
  4. ppl choose the behavior that leads to the greatest reward
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21
Q

Motivation Theories

Expectancy - Implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • larger incentive pmts are better than smaller ones
  • line of sight is critical – EEs must believe they can influence perf. targets
  • EE assessments of their own ability are important – orgs s/b aware of retraining and resource needs req’d to perform at target levels
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22
Q

Motivation Theories

Equity

Essential Features

A
  • EEs are motivated when perceived outputs (pay) are equal to perceived inputs (effort, work behviors)
  • a disequilibrium in the ouput-to-input balance causes discomfort
  • if EEs perceive that others are paid more for the same effort, they will react negatively to correct the output-to-input balance
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23
Q

Motivation Theories

Equity

Predictions about Perf.-Based Pay

A
  1. pay-perf. link is critical
    • increases in perf. must be matched by equivalent increases in pay
  2. perf. inputs and expected outputs must be clearly defined and ID’d
  3. EEs eval. the adequacy of their pay via comparisons w/ other EEs
24
Q

Motivation Theories

Equity - Implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • perf. measures must be clearly defined, and EE must be able to affect them through work behaviors
  • if payouts do not match expectations, EE wil react negatively
  • fairness and consistency of perf.-based pay across EEs in an org. is important
  • since EEs eval. their pay-effort balance in comparison to other EEs, relative pay matters
25
Q

Motivation Theories

Reinforcement

Essential Features

A
  • rewards reinforce perf.
  • rewards must follow directly after behaviors to be reinforcing
  • behaviors that are not rewarded will be discontinued
26
Q

Motivation Theories

Reinforcement

Predictions about Perf.-Based Pay

A
  1. perf.-based pmts must follow closely behind perf.
  2. rewards must be tightly coupled to desired perf. objs.
  3. w/holding payouts can be a way to discourage unwanted behaviors
27
Q

Motivation Theories

Reinforcement - implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • timing of payouts is very important
28
Q

Motivation Theories

Goal Setting

Essential Features

A
  • challenging perf. goals influence greater intensity and duration in EE perf.
  • goals serve as feedback standards to which EEs can compare their perf.
  • indivs. are motivated to the extent that goal achievement is combined w/ receiving valued rewards
29
Q

Motivation Theories

Goal Setting

Predictions about Perf.-Based Pay

A
  1. perf.-based pay must be contigent upon achievement of important perf. goals
  2. perf. goals s/b challenging and specifc
  3. the amt of the incentive reward should match the goal difficulty
30
Q

Motivation Theories

Goal Setting - Implications for EEs

So What? (perf.-based pay vs. incentive pay)

A
  • line-of-sight is important; EEs must believe they can influence perf. targets
  • perf. targets s/b communicated in terms of specific, difficult goals
  • feedback about perf. is important
  • perf-based payouts s/b contingent upon goal achievement
31
Q

Motivation Theories

Agency

Essential Features

A
  • pay directs and motivates EE perf.
  • EEs prefer static wages (a slry) to perf.-based pay
  • if perf. can be accurately monitored, pmts s/b based upon satisfactory completion of work duties
  • if perf. cannot be monitored, pay s/b aligned w/ achieving org. objs.
32
Q

Motivation Theories

Agency

Predictions about Perf.-Based Pay

A
  1. perf-based pay must be tightly linked to org. objs.
  2. EEs dislike risky pay and will demand a wage premium (higher total pay) in exchg for accepting perf.-based pay
  3. perf.-based pay can be used to direct and induce EE perf.
33
Q

Motivation Theories

Agency - Implications of EEs

So What? (perf.-based pay vs. incentive pay)

A
  • perf.-based pay is the optimal comp. choice for more complex jobs where monitoring EEs’ work is difficult
  • perf. targets s/b tied to org. goals
  • use of perf-based pay will require higher total pay opps.
34
Q

compare and contrast

theories that focus on CONTENT

A
  • Maslow’s and Herzberg’s theories
  • ppl have certain needs such as physiological, security and self-esteem that influence behavior
  • neither theory is clear on how these needs influence behavior, presumably if we offer rewards that satisfy one or more needs, EEs will behave in desired ways
  • issue of needs clearly drives flex. pay, w/ EEs choosing from a menu of pay and benefit choices
35
Q

compare and contrast

theories that focus on the NATURE OF THE EXCHG

A
  • we eval jobs using a common set of compensable factors in part to let EEs know that an explicit set of rules governs the eval. process
  • _Expectancy theory: _ **ppl behave as if they cognitively eval. what behaviors are possible in relation to the value of rewards offered in exchg for those behaviors **
  • _Equity theory: _ focuses on what goes on inside an EE’s head
    • ppl are highly concerned about equity or fairness of the exchg process
    • EEs look at the exchg as a ratio b/w what is expected and what is rec’d
  • _Agency theory: _ EEs are depicted as agents who enter an exchg w/ principals
    • assumed that both sides to the exchg seek the most favorable exchg possible and will act opportunistically if given a chance
    • try to get by w/ doing as little as possible to satisfy the contract
    • Comp is major element in this theory, b/c it is used to keep EEs in line
      • ERs ID important behaviors and important outcomes and pay specifically for achieving desired levels of each
36
Q

compare and contrast

theories that focus on MOTIVATION

A
  • desired behavior
  • vast majority of studies show that goal setting find a postive impact of goal setting on perf.
    • workers assigned “hard” goals consistently do better than workers told to “do their best”
37
Q

components of a total rewards system

A
  • compensation - wages, commissions, bonuses
  • benefits - vac, health, retirement, other
  • social interaction - friendly workplace
  • security - stable, consistent position, rewards
  • status/recog - respect, prominence due to work
  • work variety - opp. to experience diff. things
  • workload - right amt of work (not too much, not too little)
  • work importance - work is valued by society
  • authority/control/autonomy - ability to influence others; control own destiny
  • advancement - chance to get ahead
  • feedback - rec. info helping to improve perf.
  • work conditions - hazard free
  • development opp - formal and informal training to learn new knowledge/skills/abilities
38
Q

types of wage components

(from least risk to riskiest)

A
  1. base pay
  2. across-the-board increase
  3. cost-of-living increase
  4. merit pay
  5. lump-sum bonus
  6. indiv. incentive
  7. success-sharing plans
  8. gain-sharing
  9. profit-sharing
  10. risk sharing plans
39
Q

types of wage components

Base Pay

A
  • the guaranteed portion of an EE’s wage pkg
  • Level of Risk to EE:
    • as long as employment continues, this is the secure portion of wages
    • some risk to EE since at discretion of ER
    • but not tied to perf. differences, so risk lower in that respect
40
Q

types of wage components

Across-the-board increases

A
  • wage increase granted to all EEs, regardless of perf.
  • size related to some subj. assessment of ER about ability to pay.
  • typically an add-on to base pay in subsequent years
  • Level of Risk to EE:
    • some risk to EE since at discretion of ER
    • but not tied to perf. differences, so risk lower in that respect
41
Q

types of wage components

Cost-of-living increase

A
  • same as across-the-board increase, except magnitude based on chg in cost of living (CPI)
  • Level of Risk to EE:
    • some risk to EE since at discretion of ER but not tied to perf. differences, so risk lower in that respect
42
Q

types of wage components

Merit Pay

A
  • Wage incr. granted to EE as function of some assessment of EE perf.
  • adds on to base pay in subsequent yrs
  • measures of perf. are subj.
  • Level of Risk to EE: (2)
    • size of total merit pool at discretion of ER (risk element)
    • indiv. portion of pool depends on perf. which also is not totally predictable
43
Q

types of wage components

Lump-sum bonus

A
  • as w/ Merit Pay, granted for indiv. perf.
  • does not add into base pay, but is distrib’d as 1-time bonus
  • measures of perf. are subj.
  • Level of Risk to EEs:
    • size of total merit pool at discretion of ER (risk element)
    • indiv. portion of pool depends on perf. which also is not totally predictable
    • not added in to base – requires annually “re-earning” the added pay
44
Q

types of wage components

Indiv. incentive

A
  • sometimes this variable pay is an add-on to fixed base pay
  • incentive component ties increments in comp. directly to extra indiv. production (commission, piece rates)
  • this form of variable pay differs b/c measures of perf. are obj. (sales volume)
  • Level of Risk to EE:
    • most risk comp. component if sole element of pay but often combined w/ a base pay
    • no or low fixed-base pay means each year EE is dependent upon # of units of perf. to determine pay
45
Q

types of wage components

Success-sharing plans

A
  • a generic category of pay add-on (variable pay) which is tied to some measure of group perf., not indiv. perf.
  • not added into base pay
  • distinguished from risk-sharing plans b/c EEs share in any success–perf. above standard– but not penalized for perf. below standard
  • Level of Risk to EEs:
    • all success-sharing plans have risks noted in above pay components plus the risk associated w/ group perf. measure
    • now indiv. worker is also dependent upon the perf. of others included in the group
46
Q

types of wage components

gain sharing

A
  • differs from profit sharing in that goal to exceed is not fin. perf. of org. but some cost index (labor cost, scrap costs, utility costs)
  • Level of Risk to EE:
    • less risk to indiv. than profit sharing b/c perf. measure is more controllable
47
Q

types of wage components

profit sharing

A
  • add-on linked to group perf. (team, division, total company) relative to exceeding some fin. goal
  • Level of Risk to EE:
    • profit measures are influenced by factors beyond EE control (econ. climate, acctg write-offs)
    • less control means more risk
48
Q

types of wage components

Risk Sharing plans

A
  • most risky
  • generic category of pay add-on (variable pay) that differs from success-sharing in that EE not only shares in the successes but also is penalized during poor perf. yrs
  • penalty is in form of lower total comp. in poor corp. perf. yrs
  • reward, though is typically higher than that for success-sharing programs in high perf. yrs
  • Level of Risk to EEs
    • greater risk than success-sharing plans
    • EEs absorb a “temporary” cut in base pay
    • if perf. targets are met, this cut is neutralized by one component of variable pay
    • risk to EE is incr’d though b/c even base pay is no longer totally predictable
49
Q

Do ppl join a firm b/c of pay?

A
  • Yes
  • pay is one of the more visible rewards in the whole recruitment process – more objective
  • research suggests that job candidates look for orgs w/ reward systems that fit their personalites
  • orgs. should design their reward systems to attract ppl w/ desired personalities and values
50
Q

Do ppl stay in a firm (or leave) b/c of pay?

A
  • turnover is much higher for poor performers when pay is based on indiv. perf. (good outcomes)
  • Pay can be a factor for staying or leaving a firm
    • too little pay triggers feelings of unfair treatment = turnover
  • the way that we pay can impact turnover
  • research shows that superior performing EEs are less likely to leave if they received bonuses
  • must not let our design of new reward systems rupture our relationship w/ existing EEs
51
Q

Do EEs more readily agree to develop job skills b/c of pay?

A
  • not really measured yet or unable to be accurately measured
  • evidence is starting to accumulate that pay for skill may not incr. productivity, but it does focus ppl on believing the importance of quality and in turning out signif. higher quality prods.
52
Q

Do EEs perform better on their jobs b/c of pay?

A
  • most studies say that rewards motivates perf.
    • well-designed plan linking pay to behaviors of EEs generally results in better indiv. and org. perf.
  • critics say that incentives are both morally and practically wrong
    • they are flawed b/c they involve 1 person controlling another
    • some say that incentives can harm productivity by reducing the interest in the task
  • other studies say job perf. as the most important variable in allocating pay raises
53
Q

DESIGNING A PAY-FOR-PERF. PLAN

A
  • effectiveness of this is dependent on (3) things in designing a pay system:
    • efficiency
    • equity
    • compliance
54
Q

DESIGNING A PAY-FOR-PERF. PLAN

Efficiency

A
  • involves (3) areas:
    1. Strat.
      • Does the pay-for-perf. plan support corp. objs.?
      • should link well w/ HR strat. and objs.
      • How much of an incr. makes a difference?
    2. Struct.
      • Is the struct. of org. sufficiently decentralized to allow different operating units to create flexible variations on a general pay-for-perf. plan?
    3. Standards
      • Objs: Are they specifice yet flexible?
      • Measures: Do EEs know what measures will be used to assess whether perf. is sufficiently good to merit a payout?
      • Eligibility: How far down the org. will the plan run?
      • Funding: Will you fund the program out of extra revs. generated above and beyond some preset standard?
55
Q

DESIGNING A PAY-FOR-PERF. PLAN

Equity/Fairness

A
  • ensure that the system is fair to EEs
  • (2) types
    1. distrib. justice - amt of fairness that is distrib’d to EEs
      • is comp. fair in relation to others?
    2. procedural justice - fairness of the procedures used to determine the amt of rewards they receive
      • research suggest that orgs. using fair proceds. and having supers who are viewed as fair in the means they use to allocate rewards are perceived as more trustworthy and command higher levels of commitment
      • other reserach suggests that EE satisfaction w/ pay may depend more on the proceds. used to determing pay than on the actual level distrib’d
  • key element - communication
    • EEs want to know in advance what is expected of them
    • want to be able to provide input into the standards
    • if perf. is judged as lacking, then they want to know how they can appeal them or even how they can fix them.
56
Q

DESIGNING A PAY-FOR-PERF. PLAN

Compliance

A
  • system should comply with existing laws
  • must maintain and enhance the reputation of the firm

CMS 2 (13 decks)

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