Recognizing And Rewarding Day 24 Flashcards
Organizations have wide discretion in setting performance-related pay called
Incentive pay
This is pay specifically designed to energize, direct, or conte employees’ behavior
Incentive pay
Organizations select incentives based on (3)
Costs
Expected influence on performance
Fit with the organization’s broader HR policies and goals
Organizations can tie incentive pay to (4)
Individual performance
Profits
Seniority
Other measures of success
Three types of incentives
Individual incentives
Group incentives
Organizational incentives
Law of effect
What is rewarded gets done.
Two major rewards at work
Money
Praise
Individual incentives (5)
Piecework rate Standard hour plan Merit pay Performance bonuses Commission
Wage based on the amount workers produce
Piecework rate
Piecework rate is best for work that is
Stable, repetitive, worker paced, and easily measured
Piecework rate fits best with _______ between jobs
Low interdependence
Piecework rate is rarely used because (5)
Most jobs have no physical output
Individuals focus only on the incentive
Does not fit with team approach
Does not reward obtaining multiple skills
Rewards output at the expense of quality or service
An incentive plan that pays workers extra for work done in less than a preset “standard time”
Standard hour plan
Standard hour plan
An incentive plan that pays workers extra for work done in less than a preset “standard time”
Piecework rate
An incentive plan that pays wages based on the amount workers produce
Advantage of standard hour plans
They encourage employees to work as fast as they can and be efficient, can potentially bill more hours in a week than worked
Disadvantage of standard hour plans
Employees may not necessarily care about quality or service
System of linking pay increases to ratings on a performance scale
Requires quality performance appraisal
Supervisor provides most performance info
Merit pay
Most common individual incentive system
Merit pay
Merit pay
System of linking pay increases to ratings on a performance scale
Disadvantages of merit pay (5)
Discouraged teamwork
Too much reliance on supervisor for rating
Pay increase are not representative of performance and/or are too small to be motivating
An annuity based on the past rather than the present
Fail to account for short-term fluctuations in performance
Incentive not built into base pay so employees must re-earn it every year
Usually given in addition to or in place of merit “pay” incentives
Performance bonuses
Advantages of performance bonuses
Allows organizations to be flexible, year to year, in terms of what they want to reward
Incentive pay calculated as a percentage of sales, revenue, or profitability
Commissions
Commissions
Incentive pay calculated as a percentage of sales, revenue, or profitability
3 types of commissions
Straight commission
Salary-plus-commission
Commission-plus-draw
2 disadvantages of commissions
Contaminated - some things employees cannot control
Deficient - (make the sale regardless of the long term cost)
Group incentives (2)
Gainsharing
Bonuses and rewards
Measures increases in productivity or effectiveness and distributes part of the gain back to employees
Gainsharing
Gainsharing
Measures increases in productivity or effectiveness and distributed part of the gain back to employees
This frees employees to determine how to improve their own and group’s performance
Distributed payouts frequently
Gainsharing
Conditions for success of gainsharing (5)
Management commitment
Commitment to continuous improvement and change
High level of cooperation and information sharing
Employment security
Requirements clearly communicated with employee input
These reward the members of a group for attaining a specific goal, usually measured in terms of physical output
Group bonuses and rewards
Advantages of group bonuses and rewards
They encourage group or team members to cooperate
Disadvantage of group bonuses and rewards
Competition among individuals may be replaced by competition among groups
4 issues with group rewards
Hurdle too high/too low
Value the payout
Line of sight
Free rider
Organization incentives (2)
Profit sharing
Stock options
Incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary
Profit sharing
3 disadvantages of profit sharing
Many plans defer actual payments
Few plans pay out during business downturns
Increases variability of compensation costs
Profit sharing
Incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary
Opportunity to buy stock at a later date but at a price established when the option is granted
Stock options
Stock options
Opportunity to buy stock at a later date but at a price established when the option is granted
Advantage of stock options
Puts employees in the role of (part) owner
Employee stock ownership plans (ESOPs)
Stock distributed to employees to keep in a trust fund
Employees can sell stock when they leave the company
Must invest 51% or more of fund’s assets in the company’s own stock
A combination of performance measures directed toward the company’s long- and short-term goals and used as the basis for awarding incentive pay
Balance scorecard
Balance scorecard
A combination of performance measures directed toward the company’s long- and short-term goals and used as the basis for awarding incentive pay
When are organization-focused incentives effective? (4)
Performance measures should be linked to organization’s goals
Organization must give employees resources needed to meet goals
Plan should take into account that employees may ignore goals that are not rewarded
Establish concrete goals with sufficient feedback
When are employee-focused incentives effective? (5)
Employees believe they can meet performance standards Employees value rewards Employees perceive reward system as fair Do not make employees feel coerced Shield employees from unnecessary risk
Central tenet of this theory is that there is potential for mischief when the interests of owners and managers diverge
Agency theory
4 examples of agency theory
Used illegal accounting practices
Backdated stock options
Acted on internal knowledge and engaged in insider trading
Financially mismanage organization to attain bonuses
