Chapter 12 - Pay for performance Flashcards
** What are considerations to for an incentive plan to be a good fit?
WEP DOR
> Worker controls the performance outputs
Effort to performance relationship is clear
Performance output of job easy to measure / highly accurate performance appraisal
> Delays were few, consistent, or under the employee’s control
Other aspects of quality (other than rewarded output) less important
The reward system is easily understood and fits with the culture of the company and has employees’ and managers’ support
Discuss the impact of money as a means to incentivize employee motivation, and compare fixed and variable pay plans and the appropriate use of each.
When designing effective financial incentive plans, it’s important to understand the relationship between money and motivation. A job needs to satisfy a person’s higher-level needs as well as intrinsic and extrinsic needs. Rewards can be used as a behaviour-modification–based approach to help change behaviour through rewards and recognition contingent on performance.
Compare the five types of organization-wide incentive plans available to all employees.
Merit pay, profit-sharing plans, employee share purchase/stock ownership plans, scanlon plans, and gainsharing plans are examples of organization-wide incentive plans that are usually made available to all employees. Merit pay is an increase in base pay (fixed) that is tied directly to individual performance. Profit-sharing plans provide a share of company profits to all employees in the organization. The problem with such plans is that sometimes the link between a person’s efforts and rewards is unclear. Stock purchase plans provide a vehicle for employees to purchase company stock with their own and sometimes employer contributions. The Scanlon plan is an incentive plan designed to encourage cooperation, involvement and sharing of benefits. Gainsharing plans engage employees in a common effort to achieve a company’s productivity objectives in which incremental cost savings are shared among employees and the company. All these plans are intended to increase employee commitment toward the organization, and are ultimately designed to motivate workers.
Explain how to use short-term and long-term incentives for managers and executives.
Most management employees receive a short-term incentive, usually in the form of an annual bonus linked to company or divisional profits. Long-term incentives are intended to motivate and reward top management for the firm’s long-term growth and prosperity, and to inject a long-term perspective into executive decisions.
Analyze the emerging emphasis on employee recognition.
Employee recognition plans are growing in popularity as a cost-effective method of retaining employees by praising their achievements. Recognition has the most impact when it is sincerely and meaningfully provided by the supervisor in a public presentation format.
** What Incentives for all employees– Organization-wide incentives
Employee share purchase/stock ownership
> A trust holds shares of company stock issued to employees
> Profit-sharing plans
Employees share in company’s profits
> Gain-sharing
Shares the gains in productivity objectives with employees
** What are some Incentives for Senior Managers and Executives?
Short term incentives – annual bonus
Who is eligible?
How much to pay?
Individual rewards or team rewards?
Long term incentives – capital accumulation
Example - stock options
Appropriate link to strategy
** What are three incentive plans for salespeople? What are the pros and cons of each?
Salary plan
fixed salary
Pros:
> works for prospecting and account servicing
> sales people know their income in advance
> easy to reassign sales people
Cons:
> high performance not recognized/rewarded
> salary usually based on seniority, demotivating for high performing sales people
Commission plan
pay in direct proportion to sales generated
Pros:
> greatest incentive, attracts high performing sales > people >
sales costs proportion to sales level
Cons:
> focus on sales, not customer relationship
> variances in income among sales people
> sales people may neglect other duties
Combination plan base salary plus commission Pros: > earnings floor > allows compensation for administrative work Cons: > may be a compromise > often confusing to calculate
differential piece-rate plan
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.
instrumentality
The perceived relationship between successful performance and obtaining the reward.
piecework
A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day.
guaranteed piecework plan
The minimum hourly wage plus an incentive for each unit produced above a set number of units per hour.
gainsharing plan
An incentive plan that engages employees in a common effort to achieve productivity objectives and share the gains.
team or group incentive plan
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.
straight piecework plan
A set payment for each piece produced or processed.
