ch 12: Pay for Performance Flashcards
1
Q
what is fixed pay?
A
- compensation independent of performance levels
- includes base pay and other forms of compensation
2
Q
what is variable pay?
A
- any plan that links pay with productivity, profitability, or some other measure of organizational performance
- employers prefer variable pay plans while holding salary increases of fixed compensation at modest levels
- accurate performance appraisal = a condition of pay-for-performance plans
3
Q
what are the motivation theories that have relevance to designing incentive plans?
A
- motivation and Frederick Herzberg
- demotivators and Edward Deci
- expectancy theory and Victor Vroom
4
Q
describe the motivation and Frederick Herzberg theory
A
- best motivations come from a job that provides challenge and recognition
- satisfactory pay and working conditions just keeps the person from becoming dissatisfied
- managers should emphasize job content to motivate
-
intrinsic motivation comes from the pleasure of doing a good job
- challenging work provides a sort of built-in motivation generator
- AKA motivator factors
-
extrinsic motivation comes from external rewards
- AKA hygiene factors
-
intrinsic motivation comes from the pleasure of doing a good job
5
Q
describe the demotivators and Edward Deci theory
A
- the potential downside of relying on extrinsic rewards:
- could detract from the person’s intrinsic motivation
- highly motivated employees may find pay for productivity demeaning and lose the desire to do the job well out of a sense of responsibility
- Be cautious in devising incentive pay for highly motivated employees, lest you inadvertently demean and detract from the desire they have to do the job out of a sense of responsibility
6
Q
describe the expectancy theory and Victor Vroom
A
- people won’t pursue rewards they find unattractive, or where the odds of success are very low
- a person’s motivation to exert some level of effort depends on three things:
- expectancy - the probability that effort will lead to performance
- instrumentality - the connection between performance and getting a reward
- valence - perceived value the person attaches to the reward
- if expectancy is lacking, the manager must ensure that the employee has the skills and confidence to do the job
- employees must believe in the instrumentality - successful performance will lead to a reward
- provide easy to understand incentive plans
- delivery on promised rewards
- the reward must be of value to the employee
7
Q
what is expectancy?
A
A person’s expectation that his or her effort will lead to performance.
8
Q
what is instrumentality?
A
The perceived relationship between successful perform ance and obtaining the reward.
9
Q
what is valence?
A
The perceived value a person attaches to the reward.
10
Q
what are the different types of incentive plans for all employees?
A
- merit pay
- traditional merit pay plans
- employee share purchase/stock ownership plans (ESOP)
- profit-sharing plans
- Scanlon plans
- gainsharing plans
- piecework plans
11
Q
describe merit pay
A
- any salary increase that is awarded based on individual performance
- only pay tied directly to performance can motivate improved performance
- usefulness depends on the validity of the performance appraisal system
- AKA merit raise
12
Q
why can merit pays backfire?
A
- the usefulness of the merit pay plan depends on the validity of the performance appraisal system, because if performance appraisals are viewed as unfair, so too will the merit pay that is based on them.
- supervisors often tend to minimize differences in employee performance when computing merit raises
- some believe that merit pay pits employees against each other and harms team spirit
13
Q
what are traditional merit pay plans?
A
granted once a year as a pay raise, or a single lump sum without changing base salary
14
Q
describe employee share purchase/stock ownership plans (ESOP)
A
- can encourage employees to develop a sense of ownership and commitment to the firm
- A plan whereby a trust is established to hold shares of company stock purchased for or issued to employees. The trust distributes the stock to employees on retirement, separation from service, or as otherwise prescribed by the plan
15
Q
describe profit-sharing plans
A
- help attract, retain, and motivate workers
- offer tax advantages
- easy to administer; broad appeal to employees
- might produce one-time productivity improvement only
- most or all employees receive a share of the company’s profits
16
Q
what are cash plans?
A
a percentage of profits (usually 15 to 20 percent) is distributed as profit shares at regular intervals
17
Q
describe Scanlon plans
A
- philosophy of cooperation; away from “us” and “them”
- employees must understand the identities of the firm; how the business operates
- high level of competence is demanded from employees at all levels; careful selection and training
- involvement of employees for improvement by offering suggestions
- sharing of benefits where employees share in savings
- An incentive plan developed in 1937 by Joseph Scanlon and designed to encourage cooperation, involvement, and sharing of benefits.
18
Q
what are the features in Scanlon’s plan?
A
- philosophy of cooperation
- identity
- Competence
- involvement system
- sharing of benefits formula
19
Q
describe gainsharing plans
A
- an incentive that engages employees in a common effort to achieve productivity objectives and share the gains
- works well in stable organizations
- less flexible and useful in dynamic industries
- payouts can vary by base salary and collective agreements
20
Q
describe piecework plans
A
- oldest and most common incentive plan
- pay is based on the number of items processed by each worker in a unit of time
- job evaluation determines production standards
- simple to calculate, easy to understand, appears equitable
- disliked by employees due to employers raising production standards to suppress wages
21
Q
what are the types of incentive plans for teams or groups?
A
- options
- rationale for using team incentives
- disadvantages
22
Q
what are straight piecework plans?
A
A set payment for each piece produced or processed
23
Q
what are guaranteed piecework plans?
A
The minimum hourly wage plus an incentive for each unit produced above a set number of units per hour
24
Q
what is a differential piece-rate plan?
A
A plan in which a worker is paid a basic hourly rate plus an extra percentage of his or her base rate for production exceeding the standard per hour or per day. It is similar to piecework payment but is based on a percentage premium
25
what are team or group incentive plans?
A plan in which a production standard is set for a specific work group and its members are paid incentives if the group exceeds the production standard.
26
what are the formulas/options that determine members pay
1. all members receive the pay earned by the highest producer
2. all members receive the pay earned by the lowest producer
3. all members receive a payment equal to the average pay earned by the group
4. production standard is based on the final output of the group
5. choose a measurable definition of group performance or productivity that the group can control
27
what would be some rationale for using team incentives?
* many jobs are **interrelated** not **independent**
* encourages cooperation through **group planning, problem-solving, and collaboration**
* reduces jealousy; members are indebted to each other
28
what are the disadvantages of team incentives?
* may be less effective at **motivation** as rewards are no longer based on each worker's own effort
29
when are group plans most effective?
* there is a high level of communication about the specifics of the plan
* there is strong worker involvement in plan design
* plan is perceived to be fair
30
what are the incentives for team incentives senior managers and executives?
* Executive compensation includes salary, benefits, short-term incentives, long-term incentives, and perquisites
* short-term incentives
* annual bonus
* long-term incentives
* intended to motivate and reward; encourage executive to stay with company
* capital accumulation plans
31
what are capital accumulation programs?
longterm incentives most often reserved for senior executives.
32
what is a stock option?
The right to purchase a stated number of shares of a com pany stock at today’s price at some time in the future.
33
what are incentives for salespeople?
* salary plan
* commission plan
* combination plan
34
what is a salary plan?
* fixed salary with **occasional** incentives
* does not depend on results
* Straight salary makes it simple to switch territories or quotas or to reassign salespeople, and it can develop a high degree of loyalty among the sales staff
35
describe commission plans
* pay only for results
* focuses on making a sale rather than **cultivating customers**
36
describe the role of incentives in employee engagement
* employee engagement is often not included as a goal of an organization's compensation plan
37
what should be done to encourage employee engagement?
* measure the extent supervisors encourage subordinates to be engaged
* use incentives to reward supervisors for improving employee engagement
* get employees involved in developing rewards programs
38
when should we use incentives?
* performance pay cannot replace good management
* an incentive plan that rewards pieces of production could lead to rush work and lower quality
* pay is **only a temporary** motivator; build other motivators into jobs
* rewards **rupture** relationships
* rewards **may undermine** responsiveness
39
how do you implement incentive plans?
* pay for performance tied to successful achievement of critical business goals
* link incentives to other activities (career development)
* link incentives to **valued measurable** competencies
* match incentive to company **culture**
* keep group incentives clear and simple
* overcommunicate to recognize employee **contributions**
* meaningful work can be as motivating as financial rewards
40
what are the values of recognition programs?
* Recognition is a critical component of total rewards.
* Recognition needs to be shown throughout an employee’s career.
* Employees consistently feel they receive little or no recognition and feel ignored and undervalued.
* Recognition is cost-effective.
* Effective recognition is specific, immediate, personal and spontaneous.
* Builds confidence, and pride, is inspiring and makes one feel valued
41
describe recognition and incentives for entrepreneurs
* best option is the simplest
* recognition has a positive impact on performance
* The best goals are SMART goals
* there are numerous positive reinforcement rewards that can be used on a day-to-day basis, independent of formal incentive plans
42
what are positive reinforcement rewards?
* challenging work assignments
* freedom to choose own work activity; set own goals
* have fun built into work
* take a role in presentations
* job rotation
* encouragement of training/learning
