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Human Resource Management > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

Fixed rewards

A

are all types of predetermined compensation including salary and benefits

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2
Q

Variable rewards

A

also called incentives, links rewards to factors identified as valuable, including performance, skills, competence, and contribution.

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3
Q

Top four reasons for tying pay to performance

A
  • Recognize, reward and motivate high performers
  • Increase the likelihood of achieving corporate goals
  • Improve productivity
  • Move away from an entitlement culture
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4
Q

Reinforcement theory

A
  • people are likely to repeat actions that result in positive consequences.
  • Incentives reinforces desirable behaviors in rewarded individuals and signals what the organizations considers as important to their peers.
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5
Q

Goal setting theory

A
  • goals serve as a motivator to focus the efforts of employees when the goals are:
  • Specific/clear
  • Measurable
  • Challenging
  • Attainable and Realistic
  • Timely
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6
Q

Expectancy theory

A
  • employees make decisions regarding how to act at work based on which behaviors they believe will lead to their most valued rewards and outcomes.
  • Expectancy — the degree to which employees believe they will be able to achieve the objective
  • Instrumentality— employees believe that achieving the objective will be rewarded; link between achievement and reward.
  • Valence — the degree of value employees place on different rewards
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7
Q

Agency theory

A

managers motivate their employees to act in certain ways by aligning their interests with the firm’s other stakeholders (e.g., the owners).

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8
Q

Agency Problems

A

occurs when the two parties (the principal/owner and the agent/employee) have different interests and goals.

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9
Q

Short-term incentives

A
  • are one-time variable rewards used to motivate short-term employee behavior and performance (typically one year or less).
  • Bonuses and profit sharing
  • Attendance, customer service, safety behaviors,
    production quality and quantity.
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10
Q

Long-term incentives

A

are intended to motivate employee behaviors and performance that support company values (e.g., share price) and long-term organizational health.

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11
Q

Extrinsic motivation

A
  • comes from outside the individual, including performance bonuses
  • When motivated to do a task because doing so will lead to a valued reward (money or money-equivalent incentives).
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12
Q

Intrinsic motivation

A
  • comes from an interest in or enjoyment from doing a task.
  • When motivated by the task rather than by tangible external rewards for doing it
  • When people engage in a hobby, they are experiencing intrinsic motivation.
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13
Q

Merit Pay Programs

A
  • employees receive a compensation adjustment based on results of their performance evaluation.
  • The highest performers receive the greater percentage increase to their base pay.
  • Performance evaluations should be valid, reliable and bias-free
  • Permanently raises base salary and company’s costs
  • Employees might be incapable to differentiate between merit-based salary increases and cost-of-living adjustments.
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14
Q

Lump-Sum Merit Bonuses

A
  • one-time payment for performance not rolled into employees’ salaries.
  • Tend to be preferred by organizations as they won’t be raising the salary.
  • Has a significant psychological impact on employees due to receiving a substantial amount of money at one shot.
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15
Q

Piecework Incentive Plans

A

reward employees for future performance

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16
Q

Straight piecework plan

A

receive a certain rate of pay for each unit produced

17
Q

Differential piecework plan

A
  • the pay received per unit produced changes at certain levels of output
  • Makes employees focus on specific tasks with clear outputs; thus easy to communicate.
  • Employees may focus only on aspects of job that get rewarded
  • Some tasks are difficult to measure
  • Therefore, such plans are highly effective for narrow scope jobs that involve frequent performance of certain objective tasks.
18
Q

Standard Hour Plan

A
  • pay rate set based on expected amount of time an employee needs to complete task
  • If employees complete the tasks in less time than expected, they still receive the full pay rate.
  • If employees complete more tasks than they are expected to in a given time period, they will receive a premium for their higher level of work.
  • It encourages employees to work fast.
    Compared to piecework systems, they motivate employees at more complex jobs.
19
Q

Spot-Awards

A
  • used to encourage employees to work toward specific outcomes
  • Manager gives awards “on the spot” when they see certain behaviors exhibited by employees
  • Can be cash or non-cash (e.g., merchandise, gift certificates, paid time off)
  • Recognition programs like employee-of-the-month can also be used
  • Provide managers with flexibility as they can link them to variety of actions at any time.
20
Q

Straight commission plan

A
  • pays an employee a percentage of the total sales they generate
  • Company pays employees only for what they sell.
  • High financial risk for employees
  • Focused only on sales, thus might inhibit cooperation
21
Q

Straight salary plans

A
  • employees receive a set compensation, regardless of their level of sales (employees may not be as motivated to sell as much as they can)
  • Might not be motivated to focus on sales figures
  • More income security
  • Employees might tend to focus more on quality, customer relations and cooperation
22
Q

Mixed salary/commission plan

A
  • employees receive a lower base salary and the remaining is commission based.
  • Try to maximize the benefits of both
23
Q

Team Incentive Plans

A
  • All members are rewarded when team reaches or exceeds its target objectives
  • Highly useful when tasks are interdependent and cooperation and collaboration are required to achieve objectives.
  • Potential for “free riders” who do not work as hard as others, which might de-motivate high performers and dysfunction the team
24
Q

Gain Sharing Plans

A

designed to help increase a company’s efficiency by rewarding teams that exceed productivity levels and/or lowering labor costs with a share of the gains realized

25
Q

Scanlon plans

A

implementing employee suggestions for lowering the cost per unit produced; the gains are shared with employees.

26
Q

Improshare Plan

A
  • compares a performance baseline with actual productivity during a given period with the goal of reducing production time; the gains of more production is shared with employees.
  • Foster a participative environment and cooperation.
  • Instrumentality – clear link between output and incentives.
  • Potential for free riders
  • The plan might be complex to understand by common employees.
  • Goals might be unachievable, especially when a plant is performing at maximum efficiency.
27
Q

Profit Sharing Plans

A

company profits are shared with employees; can be directly distributed to employees or can be deferred.

28
Q

Deferred profit sharing plan

A

incentive money paid to an employee is put into a retirement account for the person (tax advantage).

29
Q

Stock option plans

A
  • provides employees the right to purchase shares of their company stock at some established price (exercise price) during some future period of time.
  • Vesting the point at which employees can sell or transfer the stock options
30
Q

Employee stock ownership plan (ESOP)

A

company contributes shares of its stock to a trust set up for its employees (tax-exempt for employees and tax reduction for firms).

31
Q

Leveraged ESOP

A
  • the trust borrows against the company’s future earnings in order to buy the organization’s stock. And as debt is repaid, employees receive shares of stock from trust.
  • Employees can sell the stocks to the organization or in the open market after they leave or retire.
32
Q

Mixed-level plans

A
  • multiple incentives are used simultaneously.
  • Goal is to maximize the benefits of each plan and minimize the downsides of each
  • Usually a mix of individual, group and organizational incentives.
  • Limit free riders – as part of income is dependent on individual performance.
  • Encourage cooperation – as part of income is dependent on others.
33
Q

Executive compensation

A
  • designed to attract, motivate and retain top managerial talent.
  • Has similar components as other compensation packages but there is more emphasis on variable pay as part of the total compensation package.
34
Q

Common components are:

A
  • Base Salary
  • Short and long-term incentives
  • Benefits
  • Services (Perks)

Human Resource Management (7 decks)

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