Chapter 10 Implementing Productivity Improvement Programs

Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

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HRM and Competitive Advantage
HR Planning Job Analysis

Recruitment Selection Training/Develop. Performance App. Compensation Competence Motivation Work Attitudes Output Retention Legal Compliance Company Image Cost Leadership Product Differentiation

Productivity Imp.

Workplace Justice Unions Safety & Health International
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Productivity Improvement Programs and Competitive Advantage
Increase Employee Motivation Productivity Improvement Programs Increase Productivity Competitive Advantage Enhance Recruiting Efforts Hire More Productive Employees

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Desirable Employee Behaviors
• Attend work regularly • Come to work on time • Work well with others • Work “smart” • Work “hard”

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Types of Rewards
Rewards

Extrinsic
Given by someone else

Intrinsic
Come from within

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Expectancy Theory Model
Perceived Probability Successful Performance Perceived Probability Valued Extrinsic Reward Valued Intrinsic Reward Achievement of Organizational Goals
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Effort

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Types of Productivity Improvement Programs
Productivity Improvement Programs

Pay-for-Performance Programs

Employee Empowerment Programs

Extrinsic Rewards
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Intrinsic Rewards

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Rationale for Pay-for-Performance Programs
Top Performers Rewarded Pay Linked to Performance Low Performers Not Rewarded High Levels of Performance Maintained Increase Performance to Receive Future Rewards Leave the Organization
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Standards for Effective Pay-forPerformance Programs
∗ ∗ ∗ ∗ ∗ ∗
Effort-performance links Performance-reward links Value of rewards Timeliness of rewards Performance-organizational mission links Cost efficiency

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Effort--->Performance Links
• Clarify what behavior(s) is expected. • Set achievable goals. • Ensure that job performance is measured accurately.

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Performance--->Rewards Links
• Ensure that rewards are received only if desired level of performance is achieved. • Do not allow successful performance to go unrewarded!!!

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Value of Reward
• Sufficient • Important

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Timeliness of Reward
• As soon as possible after desired behavior has occurred

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Performance--->Organizational Mission Links
• Rewarded performance MUST contribute to the organization’s mission.

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Cost Efficiency
• Cost of rewards < benefits to organization

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Merit Pay
• Annual pay raises • Based on levels of performance
Performance High Pay Raises

Low
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Merit Pay Plans
• Merit pay guidecharts • Supervisory discretion

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Merit Pay Guidecharts
Performance Rating (%) Above Average Average 4 6 8 10 0 4 6 8

Current Pay Quartile 4th 3rd 2nd 1st

Superior 6 8 10 12

Below Average 0 0 0 0

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Why Merit Pay Plans Often Fail
o Poor performance appraisal system o Unclear performance-reward link o Rewards aren’t valued by employees o Failure to distinguish among employees o Time lag between behavior and reward o Not cost efficient o Reward the wrong behaviors
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Six Steps to an Effective Merit Pay Plan
• • • • • • Give rewards large enough to make a difference. Make pay increases public. Use bonuses, not salary increases. Make rewards timely. Develop an effective performance appraisal system. Involve employees in plan design.
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Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

Piece Rate Plans
• Wages based on number of “pieces” or units produced • Work best
– manufacturing – jobs simple and highly structured – employees control their own output

Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

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Piece Rate Plans
Strengths • Clear performance expectations • Objective performance standards • Rewards tied directly to performance • Cost efficient

Weaknesses • May create high job stress • May encourage undesired and discourage desired behaviors that contribute to performanceorganizational link
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Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

Gainsharing Plans
Cash award to employees for meeting or exceeding goals based on collaborative performance of a team of employees Increase Production or Reduce Costs

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Characteristics of Gainsharing Plans
• Productivity goals that can be achieved through effective teamwork • Employees receive cash bonuses if goals are met • Productivity measured by an explicit formula with objective measures • Employees encouraged to help increase productivity or cut costs
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Implementing a Scanlon Plan
• Production cost criteria? • Means to reduce costs? • Allocation of gains?

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Scanlon Plans
• Calculate the labor cost/production cost ratio expected in a typical year. • Decide how production costs are to be cut. • Allocate bonuses: 75% paid out, 25% held in reserve for lean periods.

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Where Scanlon Plans Work Best
• Manufacturing organizations • Recent adoption in some service organizations

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Gainsharing Plans
Strengths • Effort-performance and performancereward links strong • Performance linked to organization’s mission • Promote teamwork • Cost effective Weaknesses • High-performing individuals may feel cheated • Suggestions may dwindle over time • Inflexible payout formulas may create problems
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Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

How to Make Gainsharing Plans Succeed
 Create a culture of respect, cooperation, and open communication.  Make payout based on factors employees can control.  Share information with employees and gather suggestions.

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Profit-Sharing Plans

Deferred

Combination

Distribution

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Profit-Sharing vs. Gainsharing Plans
Profit-Sharing Gainsharing

Reward group performance

Reward group performance

Payout is profit

Payout is gains from increased productivity/ decreased costs
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Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

Profit-Sharing
Strengths • Links employees’ interests with employers’ goals • Employees
– identify with organization – internalize goals – work harder

Weaknesses • Payouts based on many factors outside of employee control • Not always cost efficient • Not timely

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“Line-of-Sight” Problem with Profit-Sharing Plans
Legal Conditions Individual Effort Foreign Exchange Rates
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Market Conditions Organizational Profits

Competitor Actions

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Employee Empowerment Programs
give suggestions veto decisions make decisions

Decision Making

Issues

jobrelated

working conditions

company policy

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How Employee Empowerment Programs Improve Productivity
Provide opportunity for employees to obtain intrinsic rewards

Employee Empowerment Programs

Improve Productivity

Improve organizational decision making
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Informal Participative Decision-Making
• Managers and subordinates make joint decisions on a day-to-day basis.

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Informal Participative Decision-Making
Strengths • Positive impact on productivity Weaknesses • Interests of employees may not align with those of employer • Some employees don’t want to participate

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What Makes a Job Intrinsically Motivating?
skill variety

task identify

Job Characteristics

job feedback

task significance
Human Resource Management, 2/E, Lawrence S. Kleiman © 2000 by South-Western College Publishing

autonomy
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Job Enrichment Strategies
• • • • Combine tasks. Establish client relationship. Reduce direct supervision. Increase identification with product/service.

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Job Enrichment
Strengths • Often leads to improvements in productivity, quality, absenteeism rates, and retention Weaknesses • Production may become less efficient

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Quality Circles
• Six to twelve employees • Identify and resolve production problems in their unit • Meet once a week • Led by a coordinator

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Quality Circles
Strengths • Gain valuable input from employees • Improve communications among workers and management • Increase motivation through empowerment Weaknesses • Often used as a quick fix • Creates an “insideroutsider” culture • Sometimes operated improperly

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Continuous Improvement Programs
• Build quality into all phases
– Design – Production – Delivery

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Self-Managed Work Teams
• Six to eighteen employees • From different departments • Work together • Produce a welldefined segment of finished work

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Self-Managed Work Teams
• • • • Plan Organize Coordinate Take corrective action

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Obstacles to Self-Managed Work Teams
• Managers reluctant to give up their power • Employees reluctant to accept their new responsibilities

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Training for Self-Managed Work Teams
• Technical skills • Interpersonal skills • Administrative skills

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Self-Managed Work Teams
Strengths Weaknesses • Empower • Departmental employees to make rivalries when teams day-to-day decisions formed • Provide greater • Absence of flexibility supervisor may cause problems

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Where Self-Managed Work Teams Work Best
• • • • Manufacturing organizations New manufacturing strategies Competitive pressures Advanced production technologies

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Line Managers and Employee Motivation
 Strengthen the effort-performance link  Strengthen the performancereward link  Provide rewards that are valued by employees
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Line Managers and Informal Participation
 Match the level of participation to each employee’s desire for challenge, responsibility, and opportunity  Match the level of participation to each employee’s KSAs
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Line Managers and Self-Managed Work Teams
 Serve as a technical consultant to teams  Serve as a facilitator  Serve as an area manager

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The HRM Department and Productivity Improvement Programs
§ Work with top management to establish an appropriate corporate culture § Provide training

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