Capitulo 10 - Incentives Flashcards
What is incentive pay?
Forms of pay linked to an employee’s performance as an individual, group member, or organization member.
Why is incentive pay influential?
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.
What requirements do the effective incentive pay plans meet?
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.
What are the components of Pay for Individual Performance?
- Piecework rates
- Standard hours plans
- Merit pay
- Individual bonuses
- Sales commissions
Pay for Individual Performance - Piecework Rates
What is piecework rate?
A wage based on the amount workers produce.
Pay for Individual Performance - Piecework Rates
What is straight piecework plan?
Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces.
Pay for Individual Performance - Piecework Rates
What are differential piece rates?
Incentive pay in which the piece rate is higher when a greater amount is produced.
Pay for Individual Performance - Merit pay
What is merit pay?
- 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.
Pay for Individual Performance - Standard Hour Plans
What is a standard hour plans?
- 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.
Pay for Individual Performance - Performance Bonuses
What are performance bonuses?
– 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.
Pay for Individual Performance - Sales Commissions
What are commissions?
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.
What are the types of pay for group performance?
Gainsharing
Bonuses
Team awards.
Pay for Group Performance
What is gainsharing?
- 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.
Pay for Group Performance
What are bonuses?
- 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.
Pay for Group Performance
What are Team Awards?
- 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
What are the types of pay for organisational performance?
Profit sharing
Stock options
Employee stock ownership plans (ESOPs).
Types of Pay for Organisational Performance
What is profit sharing?
Incentive pay in which payments are a percentage of the organisation’s profits and do not become part of the employees’ base salary.
Types of Pay for Organisational Performance
What are stock options?
Rights to buy a certain number of shares of stock at a specified price.
Types of Pay for Organisational Performance
What are employee stock ownership plans (ESOPs)?
Arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.
What is a balanced scorecard?
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.
What are the four categories of a balanced scorecard?
– financial
– customer
– internal
– learning and growth
What are incentive pays for executives?
- 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.
What is the importance of Pay in Employee Motivation
- 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
What are the General Principles?
- 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
