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Part
Part
III
III
Chapter 9 Pay
Chapter 9 Pay
-
-
for
for
-
-
Performance: The Evidence
Performance: The Evidence
Chapter 10 Pay
Chapter 10 Pay
-
-
for
for
-
-
Performance Plans
Performance Plans
Chapter 11 Performance Appraisals
Chapter 11 Performance Appraisals
Employee Contributions: Determining
Employee Contributions: Determining
Individual Pay
Individual Pay
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STRATEGIC
POLICIES
TECHNIQUES
STRATEGIC
OBJECTIVES
EFFICIENCY
Performance
Quality
Customers
Stockholders
Costs
FAIRNESS
COMPLIANCE
ALIGNMENT ALIGNMENT
COMPETITIVENESS COMPETITIVENESS
CONTRIBUTORS CONTRIBUTORS
ADMINISTRATION ADMINISTRATION
Work Descriptions Evaluation/ INTERNAL
Analysis Certification STRUCTURE
Market Surveys Policy PAY
Definitions Lines STRUCTURE
Seniority Performance Merit INCENTIVE
Based Based Guidelines PROGRAMS
Planning Budgeting Communication EVALUATION
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Chapter
9
9
Pay
Pay
-
-
for
for
-
-
Performance:
Performance:
The Evidence
The Evidence
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Learning Objectives
Learning Objectives
After studying Chapter 9, students should be able to:
After studying Chapter 9, students should be able to:
1.
1.
Discuss the relation of the content, process, and
Discuss the relation of the content, process, and
reinforcement theories of motivation to
reinforcement theories of motivation to
compensation.
compensation.
2.
2.
Discuss the important design issues in creating a
Discuss the important design issues in creating a
pay for performance program.
pay for performance program.
3.
3.
Discuss why a pay for performance program
Discuss why a pay for performance program
might not work in an organization.
might not work in an organization.
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Employee performance depends on
Employee performance depends on
three general factors:
three general factors:
Employee performance =
Employee performance =
f
f
(S,K,M)
(S,K,M)
where:
where:
S = Skill and ability to perform task
S = Skill and ability to perform task
K = Knowledge of facts, rules,
K = Knowledge of facts, rules,
principles, and procedures
principles, and procedures
M = Motivation to perform
M = Motivation to perform
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Performance Measurement Relates to
Performance Measurement Relates to
Compensation Strategy
Compensation Strategy
Variability in Organizational Performance
Low Variability: few
swings in overall
corporate performance
High Variability: regular
and large swings in overall
corporate performance.
Cell A provide wide
range of rewards
beyond just money.
Include significant
incentive component.
Cell B provide wide
range of rewards
beyond just money.
Emphasize base pay
with low incentive
portion.
Cell C emphasize
monetary rewards with
large incentive
component.
Cell D emphasize
monetary rewards. Large
base pay with low
incentive portion.
Stable and
easily
measured
Unstable,
unclear, and
changing
objectives
Variability and
ease of
measurement
in individual
performance
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What Behaviors Do Employers
What Behaviors Do Employers
Care About?
Care About?
!
!
How do we get good employment prospects to
How do we get good employment prospects to
join
join
our company?
our company?
!
!
How do we
How do we
retain
retain
these good employees once
these good employees once
they join?
they join?
!
!
How do we get employees to
How do we get employees to
develop skills
develop skills
for
for
current and future jobs?
current and future jobs?
!
!
How do we get employees to
How do we get employees to
perform well
perform well
on
on
their current job?
their current job?
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What Motivates Employees?
What Motivates Employees?
In the simplest sense, motivation involves three
In the simplest sense, motivation involves three
elements:
elements:
1. what is important to a person, and
1. what is important to a person, and
2. offering it in exchange for some
2. offering it in exchange for some
3. desired behavior
3. desired behavior
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What Motivation Theories Say
What Motivation Theories Say
!
!
Content Theories (what is important to a person)
Content Theories (what is important to a person)
! !
Maslows Need Hierarchy
Maslows Need Hierarchy
! !
Herzbergs 2
Herzbergs 2
-
-
Factor Theory
Factor Theory
!
!
Process Theories (the nature of the exchange)
Process Theories (the nature of the exchange)
! !
Expectancy Theory
Expectancy Theory
! !
Equity Theory
Equity Theory
! !
Agency Theory
Agency Theory
!
!
Reinforcement Theories (desired behavior)
Reinforcement Theories (desired behavior)
! !
Goal Setting
Goal Setting
! !
Reinforcement
Reinforcement
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Components of a Total Reward System
Components of a Total Reward System
1. Compensation Wages, Commissions and Bonuses
2.. Benefits Vacations, Health Insurance
3. Social Interaction Friendly Workplace
4. Security Stable, Consistent Position and Rewards
5. Status / Recognition Respect, Prominence Due to Work
6. Work Variety Opportunity to Experience Different Things
7. Workload Right Amount of Work (not too much, not too little)
8. Work Importance Is Work Valued by Society
9. Authority / Control / Autonomy Ability to Influence Others; Control Own Destiny
10. Advancement Chance to Get Ahead
11. Feedback Receive Information Helping to Improve Performance
12. Work Conditions Hazard Free
13. Development Opportunity Training to Learn New Knowledge / Skills / Abilities
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Wage
Components
Wage
Components
Across the Board
Across the Board
Cost of Living
Increase
Cost of Living
Increase
Base Pay
Base Pay
Merit Pay
Merit Pay
Lump Sum
Bonus
Lump Sum
Bonus
Individual
Incentive
Individual
Incentive
Success
Sharing Plans
Success
Sharing Plans
Gain Sharing
Gain Sharing
Profit Sharing
Profit Sharing
Risk
Sharing Plans
Risk
Sharing Plans
`
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Performance Depends on the
Performance Depends on the
Employees Perception of:
Employees Perception of: (1 of 2) (1 of 2)
!
!
The probability the performance will meet or
The probability the performance will meet or
exceed managers objective.
exceed managers objective.
!
!
The probability that if the objective is met, the
The probability that if the objective is met, the
manager will give extrinsic rewards.
manager will give extrinsic rewards.
!
!
The probability the extrinsic rewards will satisfy
The probability the extrinsic rewards will satisfy
some needs.
some needs.
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Performance Depends on the
Performance Depends on the
Employees Perception of:
Employees Perception of: (2 of 2) (2 of 2)
!
!
The probability that doing the task will provide
The probability that doing the task will provide
intrinsic rewards.
intrinsic rewards.
!
!
The probability the intrinsic rewards will satisfy
The probability the intrinsic rewards will satisfy
needs.
needs.
!
!
How much satisfaction of these needs is
How much satisfaction of these needs is
important or valued.
important or valued.
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Does Compensation Motivate Behavior:
Does Compensation Motivate Behavior:
Specific Comments
Specific Comments
!
!
Do people join a firm because of pay?
Do people join a firm because of pay?
!
!
Do people stay in a firm (or leave) because of
Do people stay in a firm (or leave) because of
pay?
pay?
!
!
Do employees more readily agree to develop job
Do employees more readily agree to develop job
skills because of pay?
skills because of pay?
!
!
Do employees perform better on their jobs
Do employees perform better on their jobs
because of pay?
because of pay?
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The Fit Between People and Rewards
The Fit Between People and Rewards
Want pay plans based on individual Want pay plans based on individual
performance, not group performance performance, not group performance
Individualists Individualists
(I control my destiny) (I control my destiny)
Want more pay based on performance Want more pay based on performance Risk Takers Risk Takers
Low self Low self- -esteemindividuals want large, esteemindividuals want large,
decentralized organization with little pay for decentralized organization with little pay for
performance performance
Low Self Low Self- -Esteem Esteem
Relatively more concerned about pay level Relatively more concerned about pay level Materialistic Materialistic
Preferred Reward Characteristics Preferred Reward Characteristics Person Characteristics Person Characteristics
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Examples of Group Incentive Plans
Company Company Company Company Pay Component Pay Component Pay Component Pay Component
Corning Competitive Base Pay. Group Bonus based on
meeting certain quality measures, customer
satisfaction measures, and protection targets.
Plant Manager base pay 25 percent below
market. Five percent of excess over target goes
to bonus. Bonus often equals base pay in
amount.
Competitive Base Pay. All employees get stock
options equal to 10 percent of base pay.
Employees share in corporate triumphs and
failures as stock prices rise or fall.
Nucor
PepsiCo
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Overall Effectiveness of Alternative
Overall Effectiveness of Alternative
Reward Plans
Reward Plans
29 Project incentive
20 Individual incentive
31 Team/small group
incentive
30 Gainsharing
% of companies reporting
significant business result
impact
Type of Plan
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Designing A Pay
Designing A Pay
-
-
For
For
-
-
Performance Plan
Performance Plan
!
!
Efficiency
Efficiency
! !
Strategy
Strategy
! !
Structure
Structure
! !
Standards
Standards
"Objectives
"Measures
"Eligibility
"Funding
!
!
Equity or Fairness
Equity or Fairness
! !
Distributive justice
Distributive justice
! !
Procedural justice
Procedural justice
!
!
Compliance
Compliance
! !
Comply with existing
Comply with existing
laws
laws
! !
Enhance and
Enhance and
maintain firms
maintain firms
reputation
reputation
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Summary
Summary
! !
Employee performance depends upon some blend of
Employee performance depends upon some blend of
skill, knowledge, and motivation.
skill, knowledge, and motivation.
! !
Absent any of these three ingredients, performance is
Absent any of these three ingredients, performance is
likely to be sub
likely to be sub
-
-
optimal.
optimal.
! !
Rewards must:
Rewards must:
! !
Help organizations attract and retain employees
Help organizations attract and retain employees
! !
Make high performance an attractive option for
Make high performance an attractive option for
employees
employees
! !
Encourage employees to build new skills and
Encourage employees to build new skills and
gradually foster commitment to the organization
gradually foster commitment to the organization
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Review Questions
Review Questions
1.
1.
Do you think incentive pay will motivate faster
Do you think incentive pay will motivate faster
performance? Is this desirable?
performance? Is this desirable?
2.
2.
Should rewards focus mostly on money, or
Should rewards focus mostly on money, or
should employers work hard to incorporate the
should employers work hard to incorporate the
other 12 rewards discussed in this chapter?
other 12 rewards discussed in this chapter?
3.
3.
If you wanted workers to perceive their
If you wanted workers to perceive their
compensation package as secure, what
compensation package as secure, what
components would you include and which
components would you include and which
would you avoid?
would you avoid?
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Review Questions
Review Questions (continued) (continued)
4.
4.
How does procedural justice differ from
How does procedural justice differ from
distributive justice?
distributive justice?
a. a.
Defend the position that supervisors have
Defend the position that supervisors have
considerable control over procedural justice in their
considerable control over procedural justice in their
departments but little control over distributive
departments but little control over distributive
justice.
justice.
b. b.
How might you use the principles of procedural
How might you use the principles of procedural
justice to avoid having an employee quit because
justice to avoid having an employee quit because
she believes her boss gave her an unfair evaluation?
she believes her boss gave her an unfair evaluation?