...Chapter 12 Pay for Performance & Financial Incentives Motivation, Performance, and Pay 1. Financial Incentives- Financial rewards paid to workers whose production exceeds standards. 2. Frederick Taylor- scientific management & use financial incentives in the late 1800s 3. Systematic soldering- employees work at the slowest pace possible an produce at the minimum level 4. Fair day’s work- output devised for each job based on careful, scientific analysis 5. People reacted to different incentives in different ways Employee Preference for Noncash Incentives 1. 40% A trip of your choice 2. 20% shopping spree 3. 19% Home Improvement 4. 10% Tickets 5. 4% Electronics Employee Incentive Plans- Pay for Performance Plans 1. Individual Employee Incentives & Recognition 2. Sales Compensation Programs 3. Team/Group based Variable Programs 4. Organization wide Incentives 5. Executive Incentives Compensation Programs Individual Incentive Plans Piecework Plans- Oldest incentive plan, still used widely, these works are paid a sum (piece rate for each unit he or she produces Pros of Piecework 1. Easily understandable, equitable, & powerful 2. Rewards are proportionate to performance Cons of Piecework 1. Employee resistance- to change in standards or work processes affecting output 2. Quality problems-when employees concentrate on output 3. Employee dissatisfaction- when incentives cannot be...
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...Individual employee incentive and recognition programs Incentive payments for hourly employees may be determined by the number of units produced, by the achievement of specific performance goals, or by productivity improvements in the organization as a whole. In the majority of incentive plans, incentive payments serve to supplement the employee's basic wage. Piecework One of the oldest incentive plans is based on piecework. Under straight piecework, employees receive a certain rate for each unit produced. Their compensation is determined by the number of units they produce during a pay period. At Steelcase, an office furniture maker, employees can earn more than their base pay, often as much as 35 percent more, through piecework for each slab of metal they cut or chair they upholster. Under a differential piece rate, employees whose production exceeds the standard output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard. Employers will include piecework in their compensation strategy for several reasons. The wage payment for each employee is simple to compute, and the plan permits an organization to predict its labor costs with considerable accuracy, since these costs are the same for each unit of output. The piecework system is more likely to succeed when units of output can be measured readily, when the quality of the product is less critical, when the job is fairly standardized, and when a constant flow of...
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... Based on this payment system the slope is positive for low performance, but there is no gain for superior performance. The employees have no incentive to go beyond the required minimum. This pay system was a disadvantage to the workers if they went beyond the expected the firm would have changed the rates against them. They would have to work harder for an even lesser pay. The easiest way to solve this problem is to introduce the performance pay plan. The switch would increase the workers performance and raise the competition level between the Employees. The incentive for moving from fixed rate to piece rate is the average output will rise. Output would be affected in a positive way, because this pay method would raise the standard and encourage speed and productivity. 2. Roy’s machine shop is facing many problems such as low production due to unmotivated employees. The employees have no incentive to cooperate with the firm because of its bad payment system. This firm lowers the money earned for over producing. It means that if a worker is going over his hourly limit, the management will have to pay workers more since earnings are relative to the amount of work completed. Thus the management will either reduce the pay rate or make the job harder. In the article it states that many workers deliberately slowed down, and reduced their efforts to the base rate level. If this firm maintains this pay system it will not improve in production or produce with high...
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... | |CHAPTER | |T Twelve | | | | | |Pay for Performance |12 | | |And Financial | | | |Incentives | | | |Lecture Outline | | | |Strategic Overview |In Brief: This chapter gives an overview of money | | |Money and Motivation: An Introduction |and motivation, and then outlines different | | |Performance and Pay |incentive programs that are used for different | | |Individual Differences |types of employees. It also discusses | | |Psychological Needs and Intrinsic vs. Extrinsic...
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...Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction Pouliakas, K1 Centre for European Labour Market Research (CELMR), University of Aberdeen Business School, Scotland Keywords: Incentives, intensity, job satisfaction, non-monotonic JEL- Code: C23, J28, J33. Abstract This paper attempts to test the non-monotonic effect of monetary incentives on job satisfaction. Specifically, 8 waves (1998-2005) of the British Household Panel Survey (BHPS) are used to investigate the ceteris paribus association between the intensity of bonus/profit-sharing payments and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that relatively ‘small’ bonuses exert a significant negative effect on worker satisfaction. In contrast, job utility is found to rise only in response to ‘large’ bonus payments, primarily in skilled, non-unionized private sector jobs. The empirical evidence of the paper is therefore consistent with a ‘V-effect’ of incentives, suggesting that employers wishing to motivate their staff should indeed “pay enough or don’t pay at all”. 1 Research Fellow, Address: CELMR, University of Aberdeen Business School, Edward Wright Building, Dunbar Street, Old Aberdeen AB24 3QY, UK; Tel: ++44 01224 272172; e-mail: k.pouliakas@abdn.ac.uk. 1. Introduction The principal-agent model, with its convincing illustration of the trade-off that arises between risk...
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...it (valence), must believe that effort will be successful in producing desired performance (expectancy), and must trust that the monetary reward will follow better performance (instrumentality)* * * Many employees are not sure that additional performance will lead to additional pay (the performance-reward connection) Desirable and Undesirable Instrumentality Conditions Situation | Level of Performance | Level of Economic Reward | Instrumentality Condition | 1 | High | High | Desirable | 2 | High | Low | Undesirable | 3 | Low | High | Undesirable | 4 | Low | Low | Desirable | ECONOMIC INCENTIVE SYSTEMS Incentives linking pay with performance ADV. & DISADV. OF INCENTIVES LINKING PAY WITH PERFORMANCE ADVANTAGES * Strengthen instrumentality beliefs * Create perceptions of equity * Reinforce desirable behaviors * Provide objective basis for rewards DISADVANTAGES * Cost (to both employer and employee) * System complexity * Declining or variable pay * Union resistance * Delay in receipt * Rigidity of system * Narrowness of performance Incentive Measure | Example | Description | Amount of output | Piece rate; sales commission | Merit pay or more pay for more production. | Quality of output | Piece rate only for pieces meeting the standard; commission only for sales that are without bad debts | Pay determined by combination of quantity-quality. | Success in reaching goals ...
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...HRM 324 Final Exam Guide To Buy This material Click below link http://www.uoptutors.com/HRM-324/HRM-324-Final-Exam-Guide Base pay defined is? Pay by the drink Hourly or annual salary Service fees A fee that is paid per project How is base pay adjusted over time? Cost of living adjustments Seniority pay, merit pay Incentive pay, person focused pay All of the above Extrinsic compensation includes? Base salaries and bonuses Jobs that provide autonomy Both monetary and nonmonetary rewards Traditional pay 4) Competency based can be defined as? Two basic types of focused pay programs, pay for knowledge and skill base pay Compensation for longevity Phased wage approach Retirement compensation 5) Pay for knowledge can be defined as? a) Rewards for managerial, service, or professional workers for successfully learning specific curricula b) Consultant fees c) Measures labor productivity 6) Skill-based pay defined is? a) Employees who work on computers b) A term used mostly for employees who do physical work c) Trade that deals mainly with the restaurants industry d) Skills considered supervisory 7) Incentive pay defined is? Augments employees base pay Appears as a one-time payment Employees usually receive a combination of recurring base pay and incentive pay All of the above 8) Incentive pay plans can be broadly classified into what 3 categories. a) Store sales, profit levels, customer quality b) Cost savings, reduction, services c) Individual incentive...
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...private healthcare or concierge service. 2 Reward Today More recently, this divide between which parts of reward are best suited for attraction and recruitment, retention and motivation has broken down. Modern research shows that individuals are attracted, retained and engaged by a whole range of financial and non-financial rewards and that these can change over time depending on their personal circumstances. The financial elements of a package are not considered particularly important by individuals in some situations. For instance, people at the beginning of their career may be more interested in getting access to training and career development. People at the end of their career are more concerned with job satisfaction rathe than pay necessarily; those with childcare responsibilities are more concerned about work life balance policies and flexibility. It is crucial when creating a reward policy that organisations try to ensure that they align their practices to the needs of the organisation and employees, and integrate the various elements of the reward package so that...
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...Pay systems Introduction Pay is a key factor affecting relationships at work. The level and distribution of pay and benefits can have a considerable effect on the efficiency of any organisation, and on the morale and productivity of the workforce. It is therefore vital that organisations develop pay systems that are appropriate for them, that provide value for money, and that reward workers fairly for the work they perform. Pay systems are methods of rewarding people for their contribution to the organisation. Ideally, systems should be clear and simple to follow so that workers can easily know how they are affected. In considering rewards it should be borne in mind that pay and financial benefits are not the only motivator for worker performance. Other important motivators for individuals may include job security, the intrinsic satisfaction in the job itself, recognition that they are doing their job well, and suitable training to enable them to develop potential. What are pay systems? Key Points: Pay systems provide the foundation for financial reward systems There are basic rate systems, where the worker receives a fixed rate per hour/week/month with no additional payment There are systems related in whole or part to individual or group performance or profit There are systems based in part on the worker gaining and using additional skills or competencies Pay systems provide the bases on which an organisation rewards workers for their individual contribution, skill and...
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...to motivate labor. Companies are learning that they can no longer cling only to individual incentive pay plans. Just as an artist relies on a whole pallet of colors, the future success of incentives is having and using many different pay plans, each tailored to achieve a desired effect. There are many incentive plans for you to consider. Some even de-emphasize money and appeal to employees higher needs. I even discussed one plan, Merit Pay, in a previous Industry Advisor article. Now I will compare individual to group incentives – in certain key areas and provide highlights of the differences. Be aware that I am an advocate of group incentives. PERFORMANCE Individual Incentives Since each direct labor employee – who is motivated by money – is theoretically in "business for him/her self" there should be a strong inducement for high performance. A piece work operator could care less about a fellow operator’s performance. The relative productivity of each individual can be readily determined. Likewise, actual time spent on specific jobs is also easily determined and standards set. Individual incentives work best on singularity of product and long runs. They lose their effectiveness and are usually costly to maintain in a high style, fast in-process turnover environment. Group Incentives Groups attempt to empower people and tend to have a leveling effect on labor’s performance. Rather than restrict production, the group pressures the superior producer to handle more job assignments...
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...products. Differential Piece rates A wage plan based on a standard task time whereby the worker receives increased or decreased piece rates as his or her production varies from that expected for the standard time. Also known as accelerating incentive. 2. Define Sales Commission, and explain the conditions that should exist/be met within a position for this pay-for-performance methodology to be successful. Answer: The amount of money that an individual receives based on the level of sales he or she has obtained. The sales person is provided a certain amount of money in addition to his/her standard salary based on the amount of sales obtained. Conditions that should exist: 1. Organizations must tailor pay for performance systems to their mission and environment 2. A pay for performance system can only be effective if employees value the pay or recognition that the organization offers in return for high performance, understand what is required of them, believe that they can achieve the desired level of performance, and believe that the organization will actually recognize and reward that performance. Those conditions are not likely to be achieved unless an organization meets certain requirements. These requirements...
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...February 2012 Pay for Performance What better way to drive people to work harder and more efficiently, you may ask, than to offer them a special carrot: more money for hitting specific company targets? The idea seems perfect. Studies have shown time and again that pay represents one of the most important factors involved in retaining qualified employees, it is little wonder that there has been a great deal of attention focused on how best to compensate employees for their performance in recent years. Moreover, because employee performance and productivity is inextricably related to organizational profitability, these issues have assumed new relevance and importance in the current economic environment. There have been some mixed reviews concerning pay-for-performance approaches to enhancing employee performance, though, that suggest there is more involved than simply throwing money at top performers. Despite these constraints, many authorities suggest that pay-for-performance programs have a lot to offer organizations seeking to identify better ways to improve employee performance. Pay for performance is not a new idea. Organizations all over the world use this type of system when offering bonuses based on predetermined results or commission. Pay-for-performance programs, also known as incentive pay or merit pay, are a solid approach to rewarding top-quality performance by employees in many types of organizations including healthcare settings. Pay for performance is a motivation...
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...Compensation and Benefits Strategies Recommendations Elizabeth Copeland, Emily Krzyzaniak, Frederick McFarland, and Mary Thomas HRM/531 9/23/15 Maria Ziegler Compensation and Benefits Strategies Recommendations Landslide Limousines will be opening soon and they will be employing twenty-five people to keep the business in operation. The owner, Bradley Stonefield, wants to be comparable to the other limousine services around town so this must be considered when recommendations for compensation and benefits are made. Although the company is projected to see a 5% revenue growth over the first few years, they are estimating to have a net revenue of -$50,000 for the first year. The recommendations provided in this paper shall assist Landslide with securing their place in the transportation market in Austin, Texas. Market Research Evaluating companies in the relevant market will keep you competitive. We have researched 2 established car service companies in Austin, Texas operating with 25 employees or less. We started with a company you may be familiar with. Founded in 1989 by Tony Alyassin, Royal Carriages Limousine operates a substantial fleet of more than 25 vehicles (http://royalcarriages.com/). Employee are independent contractors with a compensation package of a flat wage rate and a corporate contribution to the National Taxi Drivers Association of Austin. The National Taxi Drivers Association is an organization that was founded in 2009 that focuses on taxi and limousine...
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...Pay for Performance Case Meredith Viera 22 August 2010 Job Evaluation Case 1. The new Utley management would like to establish a pay-for-performance system. What does this mean to the Utley management Pay for performance system is designed to reward employees that meet and exceed performance objectives and exhibit behaviors that are aligned with company’s goal. Utley management must determine what does the organization values, which type of individual employee contribution should be rewarded, their ability to pay, administer and willingness to communicate a merit pay plan before it is created. Management must also establish some performance standards as the basis of measurement of employee’s contribution against organization’s goals and objectives. In order to establish a reliable, fair and valid pay for performance system, Utley management must make sure that employee’s performance objectives are aligned with the organizational goals (WorldatWork, pg.312). 2. What changes will have to be made in the way the system operates now? The actual pay for performance system is not working because the process has several flaws. The system is not reliable and it does not capture the necessary information needed to perform a more accurate evaluation of employee’s contribution towards organizational goals. For instance, the use of a single question in a performance assessment cannot capture all the elements that...
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...labor productivity. Its innovative management style and incentive based pay system has been at the core of Lincoln’s strategy. The company’s success relied heavily on the culture in which it created. The founder was focused on erasing any heirarchical distinctions and creating an environment that fostered production and innovation through trust, openness and shared control. To gain the employees trust, Lincoln sought to gurantee the workers employment by instituting policy prohibiting lay-offs. They did this by producing invnetory and if demand didn’t pick-up would scale back employee hours. This was not only an efficient model, but reduced overhead costs otherwise endured by competitors. Lincoln was not faced with the costs associated to recruiting and the retraining of its workers. The company fostered creativity with its open-door policy by allowing its experienced production workers to openly share complaints and ideas for improvement with management. An Advisory Board elected employee representatives to share feedback, which was later posted on bulletin boards throughout the facility. Many of the company’s workers are hired straight from high school and trained to perform in many roles. To further gain loyalty from its workforce, many of Lincoln’s executives were employees that were promoted from within. This created a culture in Lincoln that was unmatched by its competitors. The company’s pay system incentivized its production workers to work not only harder, but...
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