Assignment 9

Question 1

The greater interest in variable pay can be traced to 2 trends.

Answer 1

1) Increasing competition- from foreign producers forces American producers to cut costs and/or increase productivity.
2) Workers are willing to adjust what they do and how they do it.

Question 2

Reward system

Answer 2

System designed so that the workers will be willing and able to move quickly into new jobs and new ways of performing old jobs.

Question 3

Pay for performance plans that introduce variability into the level of pay wokers receive

Answer 3

seem to have a positive impact on performance if designed well.

Question 4

Merit pay

Answer 4

A merit pay system links increases in base pay, sometimes call merit increases, to how highly employees are rated on perfromance evaluation. Merit pay is expensive, but many argue it doesn’t acheive the desired goal- to improve employee and coporate performance.

Question 5

Allocation of raises under merit pay:

Answer 5

This usually means improving the accuracy of performance ratings, allocating enough merit money to truly reward performance and making sure the size of the merit increases differentiates across performance levels.

Question 6

Unless the reward for merit pay is made larger for every increment in performance

Answer 6

it will not act to motivate employees to perform at a higher level.

Question 7

Lump-sum bonuses

Answer 7

used as a substitute for merit increases. Based on company or employee performance. Employees receive an end of year bonus that does not build into base pay. Employees must re-earn this increase every year, so it is viewed less of an entitlement than merit pay. They can be considerably less expenive than merit pay over the long run.

Question 8

Spot Award

Answer 8

Should fall under pay for performance plans. Payouts are awarded for exceptional performance, often on special projects or for performance that so exceeds expecations as to be deserving of an add-on bonus.

Question 9

One feature that all incentive plans have in common

Answer 9

An established standard against which worker performance is compared to determine the magnitude of the incentive pay.

Question 10

For individual incentive systems, the stand is compared against

Answer 10

indivdual woker performance.

Question 11

2 dimensions on which individual incentive systems vary.

Answer 11

1) Rate of determination- plans either set up rates based on units of production per time period or on time period per unit of production.
2) Specified relationship between production level and wages.

Question 12

Straight piece work system

Answer 12

Rate determination is based on units of production per time period, and wages vary directly as a funciton of production level.

Question 13

Standard Hour plans

Answer 13

A generic term for plans setting incentive rate based on completion of a task in some expected time period. More practical than a straight piecework plan for long-cycle operations and jobs that are nonrepetitive and require numerous skills for completion.

Question 14

Bedeaux Plan

Answer 14

Provides a variation on straight piecework and standard hour plans. 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.

Question 15

Taylor Plan

Answer 15

establishes 2 peicework rates. One rate goes into effect when a worker exceeds the published standard for a given time period. The 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 age.

Question 16

Merrick System

Answer 16

Operates like the Taylor plan, except 3 piecework rates are set. The high end of the range for production exceeding 100% of standard is one rate set. The 2nd rate set is for production between 83% and 100% of standard. The 3rd rate set is the one for the low end, or less than 83% of standard.

Question 17

Hasley 50-50

Answer 17

Provides variable incentives linked to a standard expressed as time period per unit of production. Shared split between worker and employer on any savings in direct cost. An allowed time for a task is ls determined via time study. The savings resulting from the completion of the task in less than the standard time are allocated 50-50 b/t the worker and the company.

Question 18

Rowan PLan

Answer 18

Employer and employee both share in savings resulting from work completed in less than standard time. The major distinction in this plan is that worker’s bonus increases as time required to complete the task decreases.

Question 19

Gantt Plan

Answer 19

Differs from the Hasley and the Rowan plan in that standard time for a task is purposely set at a level requiring high effort to complete. Any worker who fails to complete the task in standard time is guaranteed a pre-established wage, but if the task is completed in standard time of less, earnings are pregged at 120% of the time saved.

Question 20

Main advantages of individualized incentive plans

Answer 20

1) The make a substantial contribution to raise productvity, to lower production costs and to increase earnings of workers
2) Less direct supervision is required to maintain reasonable levels of output than under payment by time
3) In most cases, systems of payment by results, if accomplished by improved organizational and work measurement, enable labor costs to be estimated more accurately than under payment by time.

Question 21

Disadvatages of individulized incentive plans

Answer 21

1) Greater conflict may emerge b/t employees seeking to maximize output and managers concerned about deteriorating quality levels
2) Attempts to introduce new technology may be resisted by employees concered about the impact on production standards
3) They may reduce willingness of employees to suggest new production methods for fear of subseuent increases in production standards
4) Increased complaints that equipment is poorly maintained, hindering employee efforts to earn larger incentives
5) Increased turnover among new employees discouraged by the unwillinness of experienced workers to cooperate in on-the-job training
6) Elevated levels of mistrust b/t workers and management

Question 22

Team incentives

Answer 22

focus is on people working together. Concept the same as invidial incentives.

Question 23

Free Rider problem

Answer 23

This problem arises when team members who don’t carry their share of the workload still share in the rewards. Causes top-performing employees to become disenchanted

Question 24

Cash Profit Sharing

Answer 24

Award based on organizational profitablity, shares a percentage of profits, usually an annual payout, can be cash or deffered 401K.

Question 25

Advantages of cash profit sharing

Answer 25

Simple, easily understood. Low administrative cost.

Question 26

Disadvantages of cash profit sharing

Answer 26

Profit influenced by many factors beyond employee control, may be viewed as entitlement, limited motivational impact.

Question 27

Why do a cash profit sharing?

Answer 27

To educate employees about business operations, or to foster teamwork or “one-for-all” enviroment

Question 28

Stock Ownership or Options

Answer 28

Award of stock shares or options

Question 29

Advantages of stock ownership

Answer 29

If properly communicated, can have powerful impact on employee behaviro. Tax deferral to employee (new rules requiring the reporting of stock options at the time they are granted have limited the advantage of minimal impact on financial statements

Question 30

Disadvanatges of stock ownership

Answer 30

Indirect pay/performance link. Employees may be required to put up money to exercise grants.

Question 31

Why do stock ownership?

Answer 31

To recruit top quality employees when organization has highly uncertain future, to address employee retention concerns, to focus employees on need to increase shareholder value.

Question 32

Balanced Scorecard

Answer 32

Awards that combine financial and operating measures for organization, business unit, and/or indivdual performance. Award pool based on achieving performance targets. Multiple performance measures may include:

1) NonFinancial/Operating: Quality improvements, productvity gains, customers service improvements
2) Financial: EPS, ROE, ROA, revenues

Question 33

Advantages of balanced scorecard

Answer 33

Communicates organizational priorities

Question 34

Disadvantages of balanced scorecard

Answer 34

Performance criteria may be met, but if finaincal targets are not met, there may be a reduced payout or no payout at all, and it can be complex

Question 35

Why do a Balanced Scorecard?

Answer 35

To focus on employees on organization, division, and/or individual goals or to link payouts to a specfic financial and/or operational target

Question 36

Maslow’s Needs Hierarchy

Answer 36

People are motivated by inner needs, and these needs form a hierarchy from most basic to higher order needs. These needs are never fully met, and they operate cyclically. Higher order needs become motivating after lower order needs have been met, when needs are not met, they become frustrating.

Question 37

Herzberg’s Two Factor Theory

Answer 37

1) 2 types of motivators motivate employees, these are hygiene factors and satisfiers.
2) Hygiene, or maintenance, factors in their absence prevent behaviors, but in their presence cannot motivate performance. These are related to basic living needs, security and fair treatment
3) Satisfiers, such as recongition, promotion and achievement motivate performance

Question 38

Expectancy Theory

Answer 38

1) Motivation is the product of three perceptions: expectancy, instrumentality and valence
2) Expectancy is employees’ assessment of their ability to perform required job tasks
3) Instrumentality is employees’ beliefs that requisiste job performance will be rewarded by the organization
4) Valence is the value employees attach to the organization rewards offered for satisfactory job performance.

Question 39

Productivity/Gainsharing

Answer 39

Awards that share economic benefits of improved productivity, quality, or other measurable results. Focus on group, plant, department, or division results. Designed to capitalize on untapped knowledge of employees.

Question 40

Advantages of productivity/gainsharing

Answer 40

Clear performance-reward links. Productivity and quality improvements. Employees knowledge of business increases. Fosters teamwok and cooperation.

Question 41

Disadvantages of productivity/gainsharing

Answer 41

Can be administratively complicated, unintended effects, like drop-off in quality, management must “open the books”, payouts can occur even if company’s financial performance is poor

Question 42

Why do productivty/gainsharing?

Answer 42

To support a major productivty/quality initiative ( such as TQM or re-engineering), to foster teamwork envrionment, to reward employese for improvements in activities that they control

Question 43

Team/Group Incentives

Answer 43

1) Awards determined based on team/group performance goals or objectives
2) Payout can be more frequent than annual and can also extend beyond the life of the team
3) Payout may be uniform for team/group members

Question 44

Advantages of Team/Group Incentives

Answer 44

1) Reinforces teamwork and team identity/results
2) Effective in stimulating ideas and problem solving
3) Minimizes distinctions between team members
4) May better reflect how work is performed

Question 45

Why do team/group incentives?

Answer 45

1) To demonstrate an organizatinal committment to teams

2) To reinforce the need for employees to work together to acheive results

Question 46

Problems with team compensation:

Answer 46

1) There are many types of team compensation
2) Level Problem
3) Complexity
4) Control
5) Communicaton

Question 47

Scanlon Plan

Answer 47

Designed to lower costs without lowering the level of a firm’s activity. Incentives are derived as a function of the ration b/t labor costs and sales value of goods in inventory.

Question 48

Rucker Plan

Answer 48

Involves a somewhat more complex formula than a Scanlon plan for dertermining worker incentive bonuses. Essentially a ration is calculated that expresses the value of production required for each dollar of total wage bill.