6- Performance Based Pay Flashcards by Kathleen Dugan

“I pay the employees so they should work.”
“Why do I need to tell them what to do? They should know.”

These statements typify the
idea that behavior is primarily caused by Internal influences.

does not have a working understanding of the Science of behavior.

cannot explain Why employees do what they do.

Traditional management attitudes

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hire only good employees and fire the bad ones,
persuade employees that working hard is in their best interest,

3 Reengineer the organization’s performance system to maximize and sustain performance.

three strategies for improving and sustaining employee performance,

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• Sub- discipline of ABA which is the
application of the science of behavior.

• GUIDED by a single theory of human
behavior and has historically emphasized identification and modification of the
ENVIRONMENTAL variables that affect directly observable or verifiable employee performance (Bucklin, Alvero, Dickinson, Austin, & Jackson, 2000).

• necessary in all aspects of ABA

Organizational Behavior Management (OBM)

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PERFORMANCE MANAGEMENT
Behavior best safety
Behavioral Systems Analysis,
PAY for Performance/Performance Based Pay

sub-divisions of OBM,

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The most straightforward application
of ABA to a Business setting.

Typically involves analyzing individual or small groups of employees and modifying the environment to improve PERFORMANCE

Necessary but may not be sufficient

If you are self-employed you probably don’t need this

Performance Management

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Typical interventions include:

antecedents (such as task clarification, and checklists),
Training (antecedent intervention),
Consequences: (such as lottery systems, goal setting, and feedback),
Process interventions (such as job redesign).

Performance Management

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necessary but may not be Sufficient

If you are SELF- employed, you probably don’t need this
- Those who are self-employed care quite
a bit about the company and the customers. All contingencies are aligned but for many employees this is not the case.

Equitably aligns the contingencies in an organization
so that the Better the employees and company do, the more money they can make, all things being equal

Performance management

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A system with input, an entity that changes its behavior in response to
conditions Outside its boundaries.

Systems rarely ever either open or closed but open to some and closed to other influences.

Adaptations, learning and all manifestations of intelligence require….

open system

…..Some openness to information

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Orienting employees to financial data before sharing it.
Then link the employee’s Work to financial Results
link the non-financial measures to financial results.

Open book management

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Advantages

employee is responsive to external events
nimble
has the ability to change Rapidly
allows for Continuous improvement
customer focus
profit Focus
resilient, sustainable.

Some drawbacks:

Burden on accounting,
relies on employee trustworthiness,
managers fear loss of Control
information could get to competitors.

Open book management-Pay for Performance

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If a behavior analyst were to design an ideal organization, it would
likely utilize a ….

. You might be a business owner someday

PFP system.

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• monetary incentives are Counter-productive.
- Some reasons they offer include: - —rewards encourage people to focus only on one task, to do it as often as possible, and to
take few Breaks.
-people come to see themselves as
Manipulated
- problems associated with valid performance management,
- programs are Complex
-Extrinsic rewards can demotivate,
- employees can game the system
-determining correct Objectives is difficult
- (teachers), and employers do not believe
superiors will accurately Evaluate their performance.
-lhard to put in place

Objections to PFP Pay for performance

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Fixed cost
Pay for Time.
Corporate Socialism.
Performance-Based Promotions
Management by Perception
Management by Exception
Entitlement Thinking

Sin of Wages

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• Merit increase,

annual bonus,

stock options,

profit sharing

Gain sharing,

piece rate,

commissions,

Goal sharing.

Traditional performance pay plans

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• management’s discretion

variable expense,

may retain employees.

non contingent
does not impact behavior
May be inequitable
employees serve the Manager not the customer
Becomes an Expectation

Annual bonus
Alternatives for PFP-
Traditional performance pay plans

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Pays from expense Reduction

may promote cooperation

impacts performance relative to group size

Unbalanced

Inequitable

modest performance gains

self-limiting over time.

Example:
(Please see video and presentation slides for images
.)

Gain sharing

Alternatives For Performance Based Pay
- Traditional

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-generates High production

equitable

no limits to earning

unbalanced for quality or safety,
limited to a Single output that requires high volume
discourages cooperation.

Piece rate- Traditional performance pay plan

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is familiar,

low-effort,

employees tend to prefer, but it’s
Non-Contingent

inequitable

fixed cost

often Subjective.

Based upon :

Ranking
supervisor rating,
Company performance
peer assessment
or a combination of these.

The merit increase

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allow management control

Variable expense

provide a tax benefit,

retain employees.

non-contingent

no impact on behavior

may be Inequitable

involves repeatability

becomes an expectation.

Stock options :

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based upon year-end Profit, easy to administer, may retain employees.

non-contingent

little impact on behavior,

Inequitable

becomes an expectation

-Non Profit Sharing Calculation:
(Please see video and presentation slides for images

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Profit sharing

setting a goal(s) and paying money when Goals are met

provides for balanced performance goals

May produce higher level of performance

can be applied to most jobs

Can be customized

may not motivate,

payouts for each measure often independent which discourages balanced performance.

Can pay out when the company is unprofitable

Budget: fixed percentage of each employee’s base pay is assigned as an Incentive opportunity.
- Each incentive pay period the employee’s
scorecard score is multiplied by the assigned opportunity (e.g. 10% opp. X 80% score =
8% payout).

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Goals sharing

Generates high production

equitable

No limits on earning Potential

May encourage discounting, selective selling,
poor service, and credit risks

Discourages cooperation.

ethical considerations

not indexed to Profitably

employee does not care about others or the
company.

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Sales commissions - Traditional pay

jobs will fill the time.

might abuse overtime

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Pay for Time-

- Sin of Wages

Conventional pay rewards Under-performers and punishes top performers.

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Corporate Socialism.

- Sin of Wages

Management cannot reward top performers by increasing pay, so the only way to increase pay is through promotions. Promoting in this manner creates competition/tension among employees. -top performers are not always good Managers.

4. Performance-Based Promotions | - Sin of Wages

Weekly paychecks are not dependent upon Performance so managers often use Subjective measures to evaluate employees

5. Management by Perception. | - Sin of Wages

When Employees are noticed under a Pay scheme, typically because there are performance “problems.” Results in Neg. reinforcement contingencies: manage by Fear; Excessive use of N.R - unpredictable effects. •Excessive negative reinforcement, can result in: -Performance to the Minimum standard -restricted innovation - Adversarial relationships, - excuses, - may make necessary negative reinforcement Less effective. - catch them being Good -Punishes “bad” behavior -Ignores good” behavior.

6. Management by Exception: | - Sin of Wages

Involves the thought that “the company Owes me money”, not “we need the company to do well

7. Entitlement Thinking: Sin of Wages

1. Every year employees are “entitled” to a 3-5% raise. What happens in a downturn?

Fixed cost to pay – sin of wages

Measurement will be ‘cascaded’ through an organization. Start with what an organization wants to achieve (strategy) on organizational Score cards Balance short- and long-term measurable goals (use the vision statement as a guide).

Measurement Creating a Pay for Performance System- organizational measures

1. expense control – short term (expenses that Employees control, e.g. supplies, scrap – not labor), 2. productivity – short term (a ratio of employee output to labor hours, e.g. Volume by employee hours), 3. cash flow – short term (payables collections and inventory) 4. sales – long term 5. regulatory ST Compliance – long term, 6. customer service – LT 7. strategic projects – LT

organizational scorecard- Categories

- Decide the Weight of each category - List specific measures that impacts category • If more than one measure used to,adjust percentages Decide measures/ranges in each category. List jobs and assign weights based upon what they can Influence. Organizational Scorecard Example: (Please see video and presentation slides for images.

Developing an organizational scorecard

based upon Felix and Riggs’ work from the 1980s, variation of a point system permutations (percent gain)

performance scorecard

Aubrey Daniels International We must make sure pay is affordable and that we fairly index performance to employee performance components of PIPP 1. Basis Percent (the percent of the monthly salary that is eligible for incentives) 2. Monthly Compensation (employee’s monthly salary), 3) Performance Index Score ( from scorecard 0%-100%), 4) Company Multiplier (0.0 to 3.0 based upon company profit). The formula for PIPP is: Salary x Basis % x Scorecard PI x Company Multiplier = Incentive Pay

Profit Indexed Performance Pay PIPP

How much money do you want to keep before you start paying out (dollar amount)? If we don’t make enough money (zero) there are no payouts to anyone. Unlike piece rate, goal sharing, etc., ensures uncontrollable expenses are met. You could pay based upon any profit, but most companies want a reasonable return before they begin sharing (want reserves, debt reduction, return for investors, etc.).

threshold

1. Determine the incentive pay BASIS: The percentage of salary available to earn May be increased over time. A basis is assigned to each employee. may be based upon organizational level, key Positions tenure, or be the same for everyone. Exam Culture (i.e., same basis for all, more for key positions). 2. Compute

BASIS: Determine the incentive pay basis

Compute the multiplier scale by calculating your exposure (all wages multiplied by the basis; e.g. $300,000 x 4% = $12,000). You could Budget this money (If you have the money) But that doesn’t tie the employees to the company. Compute how much profit want to share with employees. - share all profit over threshold 50%. Compute the Multiplier Scale: $12,000/.50 = $24,000 $24,000 + Threshold = 1 create the scale by prorating the scores. use an Interval scale scale is typically between 0 and 3. Some companies start at 1 so that employees contact some payout. Example: Threshold in a restaurant is $200,000 (return on investment, payroll, expenses) All employees receive 5% and management receives 10% Managers $50,000 10% $5,000 Employee $90,000 5% $4,500 Total $9,500 – Exposure Management decides to share 40% of profit over threshold with employees 0 = $200,000 9,500/.40 = $23,750 1 = ($200,000 + $23,750) = $223,50 ``` Compute the Multiplier Scale: 0.00= $200,000. 200,000 + (.50 x23,750) .50 equals 211,875 1.00 = $223,750 1.25 equals $229,687 1.50 = $235,625 1.75 = 241,563 ```

Compute the multiplier scale

Examine quarterly Use an Interval scale. Again the scale is typically between 0 and 3. Some companies start at 1 so that employees contact some payout.

multiplier scale

Could Budget this money (if you have the money) but that doesn’t tie the employees to the company. We will calculate from the Organizational level A word on departments and necessary jobs that do not impact the bottom line: If you calculate at levels smaller than the Organization you may lose the ability to tie employees to Organizational results A more systematic way: determine what Percentage payroll takes up of revenue by dividing the payroll by the revenue. This will give you a percent that you can share.

Computing the multiplier score

Level: ___. Results Focus: - creation of an Objective measurement. - Each position in the company has a Scorecard developed for the role. - PM practices are instituted here. Level ___. Stakeholder Pay - employees give up part of their Base pay to receive a greater opportunity to earn based upon Performance -best to begin with a voluntary switch-over. Both of these levels – Process (1) assess current management practices 2. manager design seminar 3. executive session to design strategic and senior Management scorecards 4. PFP design session with senior management 5. manager interviews to design lower level scorecards 6. set up a database to report scores each month, ( 7. data Collection installation and training 8. employee orientation 9. three months of test reports and refinement 10. Teach management how to improve measures.

Level l and Level ll 11.Steps involved in transitioning to a PFP system

Assess the scale to the previous 12 months’ financial numbers. Make sure there is a payout in at least 6 months. If not, revise the scale by Lowering the threshold.

How does this apply to an individual?

Level ___: ``` •••job enrichment: • Implement a hiring freeze. • Ensure consistent performance pay opportunities by implementing: cross-utilization, job Enlargement job enrichment Flexible scheduling work prospecting. ``` • Cross-utilization: Train employees to complete other jobs within the company. • Job enlargement/enrichment: increase the job Functions of a specific position (enlargement) or increase the authority of a specific position (enrichment). I• Flexible scheduling: compute the labor cost of a unit of work. As productivity increases, allow employees to work Fewer hours. ex: share 50% of productivity gain in reduced work hours with employees. - Ensure schedules match work Cycles - monitor output timeliness and quality. • Work Prospecting:: When work prospecting, be careful with Paying for training (this training should increase staff ability to earn). - Special projects often require Separate scorecards (you then prorate based on the hours worked at each job, then average the two). - Payroll Savings with Worker Hiring Freeze: (Please see video and presentation

Level III

Level ___: IMPLEMENTATION: •identify work prospecting, cross utilization job enlargement, flexible scheduling opportunities • Design programs to capitalize on identified Opportunities Roll the program out.

Level III implementation

All wages multiplied by the basis; e.g. $300,000 x 4% = $12,000).

Exposure: calculating your exposure

Conventional workplace Level l: results focus Level ll: stakeholder Level lll: Job Enriched Level lV: Self managed

Transition from conventional to self managed

Base pay options: 1. After base pay frozen for some time, raises can be reinstated Below market value. 2. Permanent freeze. 3. Reduction in base pay. • Voluntary pay reduction: - when scorecard is Reliable: - top performers are eligible to volunteer . Each one percent of salary given up will be offset but a Three percent above salary incentive opportunity. - three to six month Grace period. -organization’s strategy and future performance must be marketed to stakeholders -Management shifts from supervision to ensuring the Opportunity to perform.

Level II: Sharing risks with the employees: Please see video and presentation slides for images.)

Level ___: self-managing employees * All managers practice Performance Management. * Managers’ performance pay opportunities are Increased as their span of control increases * Team Leaders are identified and trained. * manager hiring freeze implemented. * Savings with Manager Hiring Freeze implementation: - a plan for increasing manager’s span of control. - Allow for flexible Scheduling opportunities. - Identify team leaders, provide team leaders training - Conduct “Lateral career path” training with employees . roll-out program one step at a time. To ease the transition, determine a R________________ for the changeover, e.g. recruitment, reduced overhead, or performance improvement. Make sure the organization is R________ for change with things like PM training for management and employee buy-in. Have a F__________ transition plan ready. Abernathy recommends a 4-phase plan for complete change-over.

Level lV

1. Create the threshold (How much money do you want to keep Before paying out) 2. Determine incentive pay BASIS (%) 3. Compute the multiplier scale by calculating your exposure (All wages multiplied by the basis) 4. Compute how much profit you want to share

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6- Performance Based Pay Flashcards

(48 cards)