Chapter 12, Pay-for-performance and financial incentives Flashcards
Discuss the impact of money as a means to incentivize employee motivation and compare fixed and variable pay plan and their appropriate use.
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 contingents on performance.
Compare the four types of organization-wide incentive plans available to all employees
Merit Pay:
- Increase in base pay tied to individual performance
- Acts as a motivator for employees to excel in their roles
- Success relies on the validity of the performance appraisal system
Profit-sharing Plans:
- Involves most or all employees sharing in the company’s profits
- Fosters a sense of ownership and alignment with organizational success
- Rewards employees based on overall company performance
Employee Share Purchase/Stock Ownership Plans:
- A trust holds shares of company stock for employees
- Shares are distributed to employees according to the plan’s guidelines
- Provides employees with a stake in the company’s performance and potential financial growth
Gainsharing Plans:
- Engage employees in achieving productivity objectives
- Employees share in the gains resulting from improved performance
- Effective in stable organizations with measurable performance goals.
Explain how to use short-term and long-term incentives for managers and executives
Short-term incentives - Annual Bonus
- Who is eligible? who get it
- How much to pay? How much are you going to set aside to pay?
- Individual rewards? Combination of organizational and individual?
Long-term incentives - Capital Accumulation
- Stock options (opportunity to buy at today’s price in the future)
- Performance share units plan (give units that are tied to company performance. If performance targets are not met or exceeded then the units are worthless)
- Appropriate link to strategy (both plans tie rewards to company success, motivating employees)
Analyze the main advantages and disadvantages of salary plans for salespeople
Advantages:
- Works for prospecting and account servicing: suitable for various sales tasks
- Salespeople know their income in advance: provides financial predictability
- Easy to reassign salespeople: flexibility in team management
- Enhances long-term perspective: Encourages stability and strategic planning.
Disadvantages:
- High performance not recognized/rewarded: Salary-based, not tied to performance
- Seniority-based salary: can demotivate high performers
Analyze the main advantages and disadvantages of commission plans for salespeople
Advantages:
- Greatest incentive, attracts high-performing salespeople: Encourages top performance
- Sales costs proportional to sales level: Directly ties costs to revenue
- Easy to understand/compute: simple and transparent compensation structure
Disadvantages:
- Focus on sales, not customer relationships: May prioritize short-term gains over long-term relationships.
- Variances in income among salespeople: Can create disparities and potential morale issues
- Salespeople may neglect other duties: which could lead to neglect of important tasks beyond sales.
- It may be hard to retain employees: Income fluctuations may lead to turnover concerns.
Explain under what conditions it is best to use an incentive plan
Incentive plans are particularly appropriate when units of output are easily measured, employees can control production, the effort-reward relationship is clear, work delays are under the employee’s control, and quality is not paramount.
Recognition has the most impact when the supervisor in a public presentation format sincerely and meaningfully provides it.
Analyze the emerging emphasis on employee recognition
- Emerging as a critical component of incentive plans
- traditionally, recognition has been for long service
- Movement toward recognition throughout the career
- Particularly effective in smaller entrepreneurial companies
- effective in achieving improved attitudes, increased workloads, and productivity
- Goals is to remind employees they are valued and noticed
Explain how to use incentives for various groups of employees, including all employees, professional employees, operational employees, teams/groups, sales employees, senior managers, and executives.
All Employees:
- Merit pay: Tie individual performance to base pay increases.
- Profit-sharing plans: Share company profits among all employees.
- Stock ownership plans: Allow employees to buy company stock, often with employer contributions.
- Gainsharing Plans: Share cost savings or productivity gains among employees and the company.
Professional Employees:
- Dual Career Ladders: Recognize technical expertise and managerial skills in advancement paths
- Social Recognition: Publicly acknowledge professional achievements
Operational Employees:
- Placework Compensation: Pay based on work completed
- Differential Piece-Rate Plan: Adjust pay based on work complexity or quality
Teams/groups:
- Team-based incentives: Reward collective achievements and collaboration
- Gainsharing Plans: Share productivity gains or cost savings among team members.
Sales Employees:
- Salary Plans: Suitable for client acquisition or account servicing
- Commissions Plans: Directly reward sales performance, balancing short-term focus and long-term relationships
- Combination Plans: Blend salary and commission for stability and performance incentives
Senior managers:
- Short-term Incentives (e.g. Annual Bonuses): Tie to company or divisional profits
- Long-term incentives (e.g. Stock options): Align with long-term growth and strategic decisions
Executives:
- Long-term Incentives (e.g stock options): Align executive interests with shareholder value
- Performance-based bonuses: Reward exceptional performance in achieving strategic objectives.
Ensure alignment with organizational goals, fairness, transparency, and clear communication when implementing incentives. Regularly evaluate and adjust programs to stay responsive to business needs and employee dynamics.
