© 2010 mcgraw hill ryerson 10-1 compensation third canadian edition milkovich, newman, cole
TRANSCRIPT
© 2010 McGraw Hill Ryerson
10-1
COMPENSATIONThird Canadian Edition
Milkovich, Newman, Cole
© 2010 McGraw Hill Ryerson
10-2
STRATEGICPOLICIES
TECHNIQUES STRATEGICOBJECTIVES
EFFICIENCY
Performance
Quality
Customers
Stockholders Costs
FAIRNESS
COMPLIANCE
ALIGNMENTALIGNMENT
COMPETITIVENESSCOMPETITIVENESS
CONTRIBUTORSCONTRIBUTORS
MANAGEMENTMANAGEMENT
INTERNAL STRUCTURE
PAY
STRUCTURE
INCENTIVE
PROGRAMS
EVALUATION
THE PAY MODEL
© 2010 McGraw Hill Ryerson
10-3
Employee Performance
Employee performance = f (S,K,M) where:
S = Skill and ability to perform task
K = Knowledge of facts, rules, principles, and procedures
M = Motivation to perform
© 2010 McGraw Hill Ryerson
10-4
Performance Measurement Relates to 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
© 2010 McGraw Hill Ryerson
10-5
What Behaviours Do Employers Care About?
How do we get good employment prospects to join our company?
How do we retain these good employees once they join?
How do we get employees to develop skills for current and future jobs?
How do we get employees to perform well on their current job?
© 2010 McGraw Hill Ryerson
10-6
What Motivates Employees?
In the simplest sense, motivation involves three elements:
1. what is important to a person, and
2. offering it in exchange for some
3. desired behaviour
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10-7
What Motivation Theories Say
Content Theories (what is important to a person)Maslow’s Need HierarchyHerzberg’s 2-Factor Theory
Process Theories (the nature of the exchange)Expectancy TheoryEquity TheoryAgency Theory
Reinforcement Theories (desired behaviour)Goal SettingReinforcement
© 2010 McGraw Hill Ryerson
10-8
Does Compensation Motivate Behaviour?
Do people join a firm because of pay? Do people stay in a firm (or leave)
because of pay? Do employees more readily agree to
develop job skills because of pay? Do employees perform better on their
jobs because of pay?
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10-9
Process of evaluating or appraising an employee’s performance on the job
Often plagued by errors
Performance Appraisal
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10-10
Common Errors in the Appraisal Process
halo error negative halo error first impression error recency error leniency error strictness error central tendency error similar-to-me error spillover error
© 2010 McGraw Hill Ryerson
Strategies to Better Understand and Measure Job Performance
(and reduce errors)
Improve appraisal formatsSelect the right ratersUnderstand how raters process
informationTrain raters to rate more accurately
10-11
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10-12
Performance Appraisal Formats
Comparative ranking alternation ranking paired comparison
Attribute graphic rating scales
Behavioural BARS
Results/outcomes MBO
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10-13
An Evaluation of Performance Appraisal Formats
Format AdministrationHR
Research Cost Validity
Ranking
StandardRating Scale
BARS
MBO
poor
average
good
excellent
average
poor average
average
good good
poor poor
good
good
poor
average good
average
average
excellent
EmployeeDevelopment
CRITERIA
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10-14
Select the Right Raters
supervisors peers self customers subordinates 360-degree feedback (may include all five of the above raters)
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10-15
Errors in observation (attention)
Errors in storage and recall
Errors in actual evaluation
Information Processing
Errors
Errors in rating process
Information Processing Errors
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10-16
Training Raters to Rate More Accurately
rater-error training to reduce psychometric errors
performance dimension training reviews dimensions to be used in rating
performance-standard training provides frame of reference
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10-17
Effective Performance Evaluation Process
1. Performance dimensions should be relevant to the organization’s strategy
2. Involve employees at every stage
3. Raters need to be trained
4. Raters must be motivated to rate accurately
5. Raters should maintain a diary of employee performance
6. Raters should diagnose in advance whether problems are due to motivation, skill deficiency, or external environment
© 2010 McGraw Hill Ryerson
10-18
Designing a Pay-For-Performance Plan
EfficiencyStrategyStructureStandards
-Objectives
-Measures
-Eligibility
-Funding
Equity or FairnessDistributive justiceProcedural justice
ComplianceComply with
existing lawsEnhance and
maintain firm’s reputation
© 2010 McGraw Hill Ryerson
10-19
Linking Pay with Performance
Merit pay grids combine 3 variables:
1.Level of performance
2.Distribution of employees within pay ranges
3.Merit budget increase percentage
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Merit Pay Grid
10-20
Performance
Position in Salary Range
Unsatisfactory Satisfactory Very good Excellent
4th quartile 0% 1% 2% 3%
3rd quartile 0% 2% 3% 4%
2nd quartile 0% 3% 4% 5%
1st quartile 0% 4% 5% 6%
© 2010 McGraw Hill Ryerson
10-21
Conclusion
employee performance depends on skill, knowledge, and motivation
process of performance appraisal can be time-consuming and stressful
training supervisors in performance appraisal can improve the quality of appraisals
designing a pay-for-performance plan involves efficiency in setting clear standards that support strategic objectives; fairness; and legislative compliance
merit guidelines and promotional increases are forms of pay for performance