Capitulo 10 - Incentives

Question 1

What is incentive pay?

Answer 1

Forms of pay linked to an employee’s performance as an individual, group member, or organization member.

Question 2

Why is incentive pay influential?

Answer 2

Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes.
For incentive pay to motivate employees to contribute to the organization’s success, the pay plans must be well designed.

Question 3

What requirements do the effective incentive pay plans meet?

Answer 3

Effective incentive pay plans meet the following requirements:
1. Performance measures are linked to the organization’s goals.
2. Employees believe they can meet performance standards.
3. The organization gives employees the resources they need to meet their goals.
4. Employees value the rewards given.
5. Employees believe the reward system is fair.
6. The pay plan takes into account that employees may ignore any goals that are not rewarded.

Question 4

What are the components of Pay for Individual Performance?

Answer 4

1. Piecework rates
2. Standard hours plans
3. Merit pay
4. Individual bonuses
5. Sales commissions

Question 5

Pay for Individual Performance - Piecework Rates

What is piecework rate?

Answer 5

A wage based on the amount workers produce.

Question 6

Pay for Individual Performance - Piecework Rates

What is straight piecework plan?

Answer 6

Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces.

Question 7

Pay for Individual Performance - Piecework Rates

What are differential piece rates?

Answer 7

Incentive pay in which the piece rate is higher when a greater amount is produced.

Question 8

Pay for Individual Performance - Merit pay

What is merit pay?

Answer 8

• A system of linking pay increases to ratings on a performance scale.
• They make use of a merit increase grid.
• The system gives the lowest paid best performers the biggest pay increases.

Question 8

Pay for Individual Performance - Standard Hour Plans

What is a standard hour plans?

Answer 8

• An incentive plan that pays workers extra for work done in less than a preset “standard time.”
• These plans are much like piecework plans.
• They encourage employees to work as fast as they can, but not necessarily to care about quality or service.

Question 9

Pay for Individual Performance - Performance Bonuses

What are performance bonuses?

Answer 9

– Not rolled into base pay.
– The employee must re-earn them during each performance period.
– Sometimes the bonus is a one-time reward.
– Bonuses may also be linked to objective performance measures, rather than subjective ratings.

Question 10

Pay for Individual Performance - Sales Commissions

What are commissions?

Answer 10

Incentive pay calculated as a percentage of sales.

– Some salespeople earn a commission in addition to a base salary.
– Straight commission plan – some salespeople earn only commissions.
– Some salespeople earn no commissions at all, but a straight salary.

Question 11

What are the types of pay for group performance?

Answer 11

Gainsharing
Bonuses
Team awards.

Question 12

Pay for Group Performance

What is gainsharing?

Answer 12

• Group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees.
• Gainsharing frees employees to determine how to improve their own and their group’s performance.

Question 13

Pay for Group Performance

What are bonuses?

Answer 13

• Bonuses for group performance tend to be for smaller work groups.
• These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output.

Question 14

Pay for Group Performance

What are Team Awards?

Answer 14

• Similar to group bonuses, but are more likely to use a broad range of performance measures:
  o Cost savings
  o Successful completion of a project
  o Meeting deadlines

Question 15

What are the types of pay for organisational performance?

Answer 15

Profit sharing
Stock options
Employee stock ownership plans (ESOPs).

Question 16

Types of Pay for Organisational Performance

What is profit sharing?

Answer 16

Incentive pay in which payments are a percentage of the organisation’s profits and do not become part of the employees’ base salary.

Question 17

Types of Pay for Organisational Performance

What are stock options?

Answer 17

Rights to buy a certain number of shares of stock at a specified price.

Question 18

Types of Pay for Organisational Performance

What are employee stock ownership plans (ESOPs)?

Answer 18

Arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.

Question 19

What is a balanced scorecard?

Answer 19

Combination of performance measures directed toward the company’s long and short term goals and used as the basis for awarding incentive pay.
It combines the advantages of different incentive pay plans.
It helps employees understand the organization’s goals.
By communicating the balanced scorecard to employees, the organization shows employees information about what its goals are and what it expects employees to accomplish.

Question 20

What are the four categories of a balanced scorecard?

Answer 20

– financial
– customer
– internal
– learning and growth

Question 21

What are incentive pays for executives?

Answer 21

• Incentive pay for executives lays the groundwork for significant ethical issues.
• When an organization links pay to its stock performance, executives need the courage to be honest about their company’s performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings.

Question 22

What is the importance of Pay in Employee Motivation

Answer 22

• Pay four times is more effective than interventions designed to make work more interesting
• Introduction of individual pay incentives increased productivity by an average of 30%
  o job enrichment: 9–17%
  o employee participation programs: less than 1%
• Incentive systems yielded productivity 1.36 standard deviations higher in manufacturing firms and .42 in service firms
  o Similar effect sizes were found for feedback and social rewards
• average correlation of .32 between incentives and quantity of production, but no consistent relationship between incentives and product quality

Question 23

What are the General Principles?

Answer 23

• Take complaints about pay seriously
• Do not fall very far below market pay levels
• Realize that most of the best employees want strong pay-performance relationships
• Evaluate current pay systems with respect to the strength of pay- performance relationships
• Examine whether executive pay is moving in the same direction, and at roughly proportionate rates, as employee pay increases