session 24 perf romance based pay1

8/8/2019 Session 24 Perf Romance Based Pay1

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Performance Based Pay


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Motivation, Performance, and Pay

Incentives

Financial rewards paid to workers

whose production exceeds a

predetermined standard.

Frederick Taylor

Popularized scientific management and

the use of financial incentives in the late1800s.

Systematic soldiering

Fair days work (Improve work

Methods & Incentive Pay)


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Consulting Survey Reports

Mercer Human Resource

2600 US workers Surveyed

28% personally motivated by Incentiveplans

29% felt rewarded because of good

performance

Hewitt Associates 95% of the company tie performance with

incentive

83% say programs are successful /

somewhat successful.


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Employee Preferences for Noncash Incentives


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125

Motivation and Incentives

Herzbergs HygieneMotivator theory

Hygienes (extrinsic job factors)

Inadequate working conditions, salary, and

incentive pay can cause dissatisfaction andprevent satisfaction.

Motivators (intrinsic job factors)

Job enrichment (challenging job, feedback,

and recognition) addresses higher-level(achievement, self-actualization) needs.

The best way to motivate someone is to organize

the job so that doing it helps satisfy the persons

higher-level needs.


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126

Motivation and Incentives

Edward Deci

Intrinsically motivated behaviors are motivated by

the underlying need for competence and self-

determination.

Offering an extrinsic reward for an intrinsically-

motivated act can conflict with the acting

individuals internal sense of responsibility.

Some behaviors are best motivated by job

challenge and recognition, others by financial

rewards.


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Motivation and Incentives (contd)

BehaviorModification/Reinforcement Theory

B. F. Skinners Principles

To understand behavior one must understand theconsequences of that behavior.

Behavior that leads to a positive consequence

(reward) tends to be repeated, while behavior that

leads to a negative consequence (punishment)

tends not to be repeated.

Behavior can be changed by providing the

properly scheduled rewards (or punishments).


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128

Employee Incentive Plans

Individual Employee Incentive

and Recognition Programs

Sales Compensation

Programs

Organization wide Incentive

Programs

Executive Incentive

Compensation Programs

Team/Group-based Variable

Pay ProgramsPay-for-Performance

Plans


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129

Individual Incentive Plans

Piecework Plans

The worker is paid a sum (called a

piece rate) for each unit he or she

produces. Eg. Leads Generated

Straight piecework - Slabs

Standard hour plan %age


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Individual Incentive Plans (contd)

Pros and Cons of Piecework

Easily understandable, equitable, and

powerful incentives

Employee resistance to changes instandards or work processes affecting

output

Quality problems caused by an overriding

output focus

Possibility of violating minimum wage

standards (Private shirt manufacturers)

Employee dissatisfaction when incentives

either cannot be earned or are withdrawn


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Individual Incentive Plans (contd)

Merit Pay

A permanent cumulative salary

increase the firm awards to an

individual employee based on his or herindividual performance.

Merit Pay Options

Annual lump-sum merit raises that do

notmake the raise part of anemployees base salary.

Merit awards tied to both individual and

organizational performance.


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Lump-Sum Award Determination Matrix (an Example)

The Companys Performance (Weight =

0.50)

The Employees Performance

Rating (Weight =

.50)

Outstandin

g Excellent Good

Margin

al

Unaccepta

ble

Outstanding 1.0 0.9 0.8 0.7 0.0Excellent 0.9 0.8 0.7 0.6 0.0

Good 0.8 0.7 0.6 0.5 0.0

Marginal

Unacceptable


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Pay Plans forManagers

Base Short

Term

Long

Term

Benefits

Mature 60% 15% 15% 10%

Growing 40% 45% 25% 10%


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At-Risk Variable Pay Plans

Put some portion of the employees weekly payat risk.

If employees meet or exceed their goals,

they earn incentives. Eg. DuPont

If they fail to meet their goals, they forgosome of the pay they would normally have

earned. Eg. TCS Rs. 830 Mn


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Incentives forManagers and

Executives

Short-Term Incentives: The Annual

Bonus

Plans that are designed to motivateshort-term performance of managers

and are tied to company profitability.

Issues in Awarding Bonuses

Eligibility basis 45%, 25%, 12%

Fund size basis (10% Share holders,

20% Bonus)

Individual awards & Split Awards

session 24 perf romance based pay1

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