Chapter 12: Pay-For-Performance And Financial Incentives Flashcards
Fixed pay
compensation that is independent of the performance level of the individual, group, or organization
aka base pay and allowances
Variable pay
any plan that links pay with productivity, profitability, or some other measure of organizational performance
Motivators and Frederick Herzberg
the best way to motivate someone is to organize the job so that doing it provides the challenge and recognition that we all need to help satisfy “higher-level” needs, such as accomplishment and recognition.
Doing things to satisfy a worker’s “lower-level” needs for things—such as better pay and working conditions—just keeps the person from becoming dissatisfied
If hygiene factors are inadequate than workers become dissatisfied
hygiene factors
factors outside the job itself, such as working conditions, salary, and incentive pay
intrinsic motivation
motivation that derives from the pleasure someone gets from doing the job or task
Demotivators and Edward Deci
Deci found that extrinsic rewards could at times actually detract from the person’s intrinsic motivation
Expectancy Theory and Victor Vroom
In general, people won’t pursue rewards they find unattractive or where the odds of success are very low.
He says a person’s motivation to exert some level of effort depends on three things:
1) the person’s expectancy (in terms of probability) that his or her effort will lead to performance;
2) instrumentality, or the perceived connection (if any) between successful performance and actually obtaining the rewards;
3) and valence, which represents the perceived value the person attaches to the reward.
expectancy
A person’s expectations that his effort will lead to performance
instrumentality
The perceived relationship between successful performance and obtaining the reward
Valence
Perceived value a person attaches to the reward
Motivation =
equation
Vroom theory
(E x I x V)
where E represents expectancy, I instrumentality, and V valence
Organization-wide incentive plans
provide monetary incentives to all employees of the organization. Examples are profit-sharing plans that provide employees with a share of the organization’s profits in a specified period
Group incentive programs
are like individual incentive plans, but they provide payments over and above base salary to all team members when the group or team collectively meets a specified standard for performance, productivity, or other work-related behaviour.
nonmonetary recognition programs
motivate employees through praise and expressions of appreciation for their work.
Merit Pay
aka merit raise
any salary increase that is awarded to an employee based on his or her individual performance
Merit pay vs Bonus
It is different from a bonus in that it usually represents a continuing increment, whereas the bonus represents a one-time payment
However, although problems such as these can undermine a merit pay plan, the consensus of opinion is that merit pay can and does improve performance
Word
Traditional merit pay plans have two basic characteristics:
(1) merit increases are usually granted to employees at a designated time of the year in the form of a higher base salary (or raise)
(2) the merit raise is usually based exclusively on individual performance, although the overall level of company profits may affect the total sum available for merit raises
Employee Share Purchase/Stock Ownership Plan
ESOPs
A plan whereby a trust is established to hold shared 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
Profit-Sharing Plans
A plan whereby most or all employees share in the company’s profits
Scanlon Plans
An incentive plan developed in 1937 by Joseph Scanlon and designed to encourage cooperation, involvement, and sharing of benefits
Scanlon plans have five basic features
1) philosophy of cooperation: assumes that managers and workers must rid themselves of the “us” and “them” attitudes that normally inhibit employees from developing a sense of ownership in the company
2) Identity: in order to focus employee involvement, the company must articulate its mission or purpose, and employees must understand how the business operates in terms of customers, prices, and costs
3) Competence: The program, say three experts, “explicitly recognizes that a Scanlon plan demands a high level of competence from employees at all levels; this suggests careful selection and training.
4) Involvement system: Employees present improvement suggestions to the appropriate departmental-level committees, which transmit the valuable ones to the executive-level committee
5) sharing of benefits formula: If a suggestion is implemented and successful, all employees usually share in 75 percent of the savings.
Gainsharing Plans
an incentive plan that engages many or all employees in a common effort to achieve a company’s productivity objectives; any resulting incremental cost-saving gains are shared among employees and the company
The Rucker formula
One type of gainsharing
uses sales value minus materials and supplies, all divided into payroll expenses
The improshare plan
One type of gainsharing
creates production standards for each department. It does not include a participative management component but instead considers participation an outcome of the bonus plan.
Piecework Plans
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
Oldest incentive plan
Straight piecework plan
A set payment for each piece produced or processed
paid on the basis of the customer service calls he completes; there would be no guaranteed minimum wage
Guaranteed piecework plan
Minimum hourly wage + an incentive for each unit produced above a set number of units per hour
