Unit 3 Flashcards
Pay for performance
Compensation based on employee and organizational performance
PFP stands for
Pay for performance
Open system
Receives input from outside its boundaries
Closed system
Does NOT receive input from outside its boundaries
Open book management:
What is it?
Sharing financial data with employees
Open book management:
Goal
Link nonfinancial measures and financial results
Merit increase
Salary raise without performance review
Examples of Incentive plans (3)
1) Stock options
2 Profit sharing
3) Gain sharing
Annual bonus
Once-a-year compensation added to base pay
Stock options
Allowing employees to buy company stock
Profit sharing
Portion of year-end profit given to employees
Gain sharing
Employees receive saved funds from expense reduction
Piece rate
Fixed amount for each unit created or performance completed
Sales commission
Portion of sales profit goes to salesperson
Goal sharing (2)
1) Set goals
2) Provide compensation for goal completion
Organizational scorecard helps you…
Develop employee performance scorecards
Performance scorecard
Identifies performance areas important to organizational objectives
Performance index score
Employee score derived from performance scorecard
Profit indexed performance pay (2):
Compensation based on
1) Employee performance
2) Organizational performance
PIPP stands for
Profit indexed performance pay
Incentive pay basis percent
Proportion of employee salary eligible for incentive pay
Threshold
Minimum funds needed to run the business
Exposure:
Calculation
Wages MULTIPLIED BY incentive pay basis percent
Exposure:
What is it?
Cost of full PFP bonus before company multiplier
Company multiplier (2)
1) Used to calculate PIPP
2) Based on profits
Multiplier scale
Profitability index that determines company multiplier
Cross-utilization
Employees trained to do other jobs
Job enlargement
Increasing job functions in a position
Job enrichment
Increasing authority within a position
Flexible scheduling (2)
1) Reduce work hours
2) Compensate for productivity
Work prospecting
Paying employees to build business
Improving and sustaining employee performance: Hire/Fire
Hire only good employees and fire the bad ones
Improving and sustaining employee performance: Work hard
Persuade employees that working hard is in their best interest
Improving and sustaining employee performance:
Performance system
Reengineer the organization’s performance system to maximize and sustain performance
Abernathy’s Seven Sins of Wages
1) Fix-cost pay
2) Pay for time
3) Corporate socialism
4) Performance-based promotions
5) Management by perception
6) Management by exception
7) Entitlement thinking
Steps for creating organizational scorecards (5)
1) Identify goals
2) Determine goal weights
3) Select goal measures
4) Identify measure ranges
5) Assign job weights
PIPP: Components (4)
1) Employee salary
2) Incentive pay basis percent
3) Performance index score
4) Company multiplier
Steps for transitioning to pay-for-performance system (4)
1) Results focus
2) Stakeholder pay
3) Job enrichment
4) Self-managed
