...MANAGING A REWARD STRATEGY Top of Form 1 History of Reward The aims of a reward strategy are to try and be systematic about which HR mechanisms attract, retain and motivate staff. Historically the view was that salaries were what attracted a person to an organisation, benefits kept them there, while bonus and incentive schemes motivated them. Reward was regarded as consisting of three distinctive parts: Remuneration - covering such aspects as job evaluation, salary structures and incentive schemes. Benefits - which tend to be offered to all employees irrespective of their grade, such as paid leave, employee assistance programmes or Christmas parties. Perquisites - which are benefits that tend to provided to discrete categories of employees, such as a company car/car allowance, 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...
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...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 performance. Pay structures are different - they are used to determine specific pay rates for particular jobs, usually based on the nature of the job, its content and requirements. A pay structure provides the framework within which the organisation places the pay rates for its various jobs or groups of jobs. Pay systems fall into two main categories: • • those where pay...
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...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 and incentive provision when attempting to align the conflicting interests of two contracting parties, remains central for our understanding of the compensation strategies employed by firms (Mirlees, 1976; Holmstrom, 1979). According to the standard model of agency theory, the introduction of financial incentives as part of an agent’s remuneration package will increase his/her productivity...
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...Pay for Performance: It’s Effect on Employee Motivation Name Course Title Professor’s Name Date Pay for Performance: The Effect on Employee Motivation Managers are continuously looking for ways to motivate their employees. Many methods have been tried and many methods have failed. Consequentially, human resource professionals and managers continue to work to develop effective performance management systems which serve to motivate employees, with an end result of improved morale and increased productivity. Designing an effective performance management program, combined with the appropriate compensation methods, can serve as tools to inspire and motivate employees to improve and/or maintain the highest levels of performance. Compensation administrators are encouraging the use of pay-for-performance plans to meet this goal. Pay-for-performance plans motivate employees to be productive and perform at higher levels by linking their pay directly to their pay. The idea behind pay-for-performance plans is that money serves to motivate employees to perform. Maslow’s theory of motivation “suggests that employee needs are arranged in priority order such that lower-order needs must be satisfied before higher-order needs become motivating” (Leonard, 2010, p. 121) with the lowest level of needs being basic biological needs and the highest level being self-fulfillment. When an individual is on the lower levels of the spectrum and trying to fulfill his/her basic...
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...1. What is Lincoln Electric’s strategy? Lincoln Electric’s strategy relies on its low cost to manufacture and low overhead. The company has been able to achieve this by continually improving its 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...
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...1. Level I Incentives: Level I incentives are geared towards increasing employee productivity, but usually for a short amount of time. I have personally never been given these kinds of incentives in my internships, but it is similar to being given extra credit on coursework if you do the extra problems. If I were working in sales, an incentive to sell a certain amount (i.e. 5% of the sale) would have motivated me to work harder to achieve a greater sale. Level II Incentives: Level II incentives give employees motivation to find a better or smarter way of getting work done. At GE, engineers were encouraged to find a problem in the process of gas turbine manufacturing by awarding the best innovative idea/improvement with a cash award. The most beneficial aspect of this option for the company was the submission of several good improvements, but only the loss of one cash prize. Level III Incentives: Level III incentives last the longest, because it pertains to an overall improvement in work culture. Whether it’s the encouragement of employee recognition, friendly competition, openness of management, any of these cultural aspects could foster greater productivity. At GE, it was generally understood that if you shared responsibilities/shadowed your manager consistently for a year or two, you would be entitled to the next level managerial position. Knowing there is always room to move up, as long as you achieve the best results, keeps employees working harder or better for a longer...
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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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...Money often has high valence. Valence x Expectancy x Instrumentality = Motivation * Money as a motivator: an employee must want more of 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;...
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...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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...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 plans, group incentive plans, company wide plans d) Number of units produced, amount of sales, error rate 9) Individual incentive pay plans are most appropriate under what 3 conditions? a) Where employee’s performance can be measured objectively, employees have sufficient control over work outcomes; incentive plans do not create a level of unhealthy competition b) Piecework plans,...
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...literature: premium incentives. While premium incentives, just like xed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the rm's success: the prize is high if the rm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform xed-prize tournaments as well as piece rates. Our theoretical result is qualitatively con rmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems. JEL Classi cation: C72, C91, J33 Keywords: Tournaments, Incentives, Economic experiments Max Planck Institute for Economics, Kahlaische Strasse 10, 07745 Jena, Germany. yEberhard Karls Universitat Tubingen, Faculty of Economics and Business Administration, Nauklerstrasse 47, 72074 Tubingen, Germany. zThe Hebrew University, Center for the Study of Rationality, Giv'at Ram, Jerusalem 91904, Israel. 1 1 Introduction and Motivation As documented by Orrison et al. (2004) or Bothner et al. (2007), tournament incentives have developed into an increasingly important component of compensation systems; they are `pervasive in organizations' (Casas-Arce and Martnez-Jerez, 2009). Unlike piece rates, which are awarded according to absolute performance, tournament incentives are awarded...
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...about individual incentives. Knowledge Gap The share scheme is extended rapidly these years. The incentive helps the employees perform as the shareholders do. When the company’s retained earnings increases, they are also benefited. Another advantage of this incentive is tax-avoiding. Merit pay is a traditional but effective motivating method. How much one earns depends on his performance. However, it is also difficult to determine what kind of expectation should be rewarded and how to reward. If the standard is not fair enough, it might lead to contradiction between the employees and executives. (David & Richard, 2010) EVA-based mechanism grantees the profit of the company. EVA defines company profit as the part of the return exceeds the capital cost. Under the mechanism, the more profit the company earns, the more incentive the staff will have. Also, when the company’s revenue is negative, the incentive will be reduced as well. (Yongjian, Lei &Donghua, 2015) For senior-level executives, formula-based calculation is often used. The formula links the annual bonus with the financial performance. Each executive has a minimum and maximum goal bonus, which promises the senior staff a fruitful income and protects the firm’s benefit. (Robert, David & Richard, 1995) In conclusion, share scheme...
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...a. Piece-rate pay coexists in our economy with hourly wage pay, because of efficiency and effectiveness. If a firm implements the pay by performance method they are concerned with the individual worker becoming efficient. By paying employees by the number of units they produce, incentivizes employees to work harder for “more minutes of each hour and for more hours during the workday” (477). However, “if workers are paid by the number of parts produced, with the quantity of individual parts not considered, some workers could be expected to sacrifice quality in order to increase their production cost” (478). Therefore, that is why piece rate pay and hourly wage coexist. When it comes to hourly wage page, employers goal is quality of the product. Therefore, “workers know that if they don’t eventually add more to the revenues of their companies than they take home in pay, their jobs will be considered jeopardy” (478). Overall, pay is based on if the firms want to focus on efficiency or quality when it comes to output. b....
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...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. Group pressures may likewise have an upward leveling effect upon the operator who would be satisfied with relatively low individual earnings. Therefore, average group output often is higher than average individual output. EARNINGS Individual Incentives If the...
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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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