1
Q
Fixed rewards
A
are all types of predetermined compensation including salary and benefits
2
Q
Variable rewards
A
also called incentives, links rewards to factors identified as valuable, including performance, skills, competence, and contribution.
3
Q
Top four reasons for tying pay to performance
A
- Recognize, reward and motivate high performers
- Increase the likelihood of achieving corporate goals
- Improve productivity
- Move away from an entitlement culture
4
Q
Reinforcement theory
A
- people are likely to repeat actions that result in positive consequences.
- Incentives reinforces desirable behaviors in rewarded individuals and signals what the organizations considers as important to their peers.
5
Q
Goal setting theory
A
- goals serve as a motivator to focus the efforts of employees when the goals are:
- Specific/clear
- Measurable
- Challenging
- Attainable and Realistic
- Timely
6
Q
Expectancy theory
A
- employees make decisions regarding how to act at work based on which behaviors they believe will lead to their most valued rewards and outcomes.
- Expectancy — the degree to which employees believe they will be able to achieve the objective
- Instrumentality— employees believe that achieving the objective will be rewarded; link between achievement and reward.
- Valence — the degree of value employees place on different rewards
7
Q
Agency theory
A
managers motivate their employees to act in certain ways by aligning their interests with the firm’s other stakeholders (e.g., the owners).
8
Q
Agency Problems
A
occurs when the two parties (the principal/owner and the agent/employee) have different interests and goals.
9
Q
Short-term incentives
A
- are one-time variable rewards used to motivate short-term employee behavior and performance (typically one year or less).
- Bonuses and profit sharing
- Attendance, customer service, safety behaviors,
production quality and quantity.
10
Q
Long-term incentives
A
are intended to motivate employee behaviors and performance that support company values (e.g., share price) and long-term organizational health.
11
Q
Extrinsic motivation
A
- comes from outside the individual, including performance bonuses
- When motivated to do a task because doing so will lead to a valued reward (money or money-equivalent incentives).
12
Q
Intrinsic motivation
A
- comes from an interest in or enjoyment from doing a task.
- When motivated by the task rather than by tangible external rewards for doing it
- When people engage in a hobby, they are experiencing intrinsic motivation.
13
Q
Merit Pay Programs
A
- employees receive a compensation adjustment based on results of their performance evaluation.
- The highest performers receive the greater percentage increase to their base pay.
- Performance evaluations should be valid, reliable and bias-free
- Permanently raises base salary and company’s costs
- Employees might be incapable to differentiate between merit-based salary increases and cost-of-living adjustments.
14
Q
Lump-Sum Merit Bonuses
A
- one-time payment for performance not rolled into employees’ salaries.
- Tend to be preferred by organizations as they won’t be raising the salary.
- Has a significant psychological impact on employees due to receiving a substantial amount of money at one shot.
15
Q
Piecework Incentive Plans
A
reward employees for future performance
16
Q
Straight piecework plan
A
receive a certain rate of pay for each unit produced
17
Q
Differential piecework plan
A
- the pay received per unit produced changes at certain levels of output
- Makes employees focus on specific tasks with clear outputs; thus easy to communicate.
- Employees may focus only on aspects of job that get rewarded
- Some tasks are difficult to measure
- Therefore, such plans are highly effective for narrow scope jobs that involve frequent performance of certain objective tasks.
18
Q
Standard Hour Plan
A
- pay rate set based on expected amount of time an employee needs to complete task
- If employees complete the tasks in less time than expected, they still receive the full pay rate.
- If employees complete more tasks than they are expected to in a given time period, they will receive a premium for their higher level of work.
- It encourages employees to work fast.
Compared to piecework systems, they motivate employees at more complex jobs.
19
Q
Spot-Awards
A
- used to encourage employees to work toward specific outcomes
- Manager gives awards “on the spot” when they see certain behaviors exhibited by employees
- Can be cash or non-cash (e.g., merchandise, gift certificates, paid time off)
- Recognition programs like employee-of-the-month can also be used
- Provide managers with flexibility as they can link them to variety of actions at any time.
20
Q
Straight commission plan
A
- pays an employee a percentage of the total sales they generate
- Company pays employees only for what they sell.
- High financial risk for employees
- Focused only on sales, thus might inhibit cooperation
21
Q
Straight salary plans
A
- employees receive a set compensation, regardless of their level of sales (employees may not be as motivated to sell as much as they can)
- Might not be motivated to focus on sales figures
- More income security
- Employees might tend to focus more on quality, customer relations and cooperation
22
Q
Mixed salary/commission plan
A
- employees receive a lower base salary and the remaining is commission based.
- Try to maximize the benefits of both
23
Q
Team Incentive Plans
A
- All members are rewarded when team reaches or exceeds its target objectives
- Highly useful when tasks are interdependent and cooperation and collaboration are required to achieve objectives.
- Potential for “free riders” who do not work as hard as others, which might de-motivate high performers and dysfunction the team
24
Q
Gain Sharing Plans
A
designed to help increase a company’s efficiency by rewarding teams that exceed productivity levels and/or lowering labor costs with a share of the gains realized
25
Scanlon plans
implementing employee suggestions for lowering the cost per unit produced; the gains are shared with employees.
26
Improshare Plan
- compares a performance baseline with actual productivity during a given period with the goal of reducing production time; the gains of more production is shared with employees.
- Foster a participative environment and cooperation.
- Instrumentality – clear link between output and incentives.
- Potential for free riders
- The plan might be complex to understand by common employees.
- Goals might be unachievable, especially when a plant is performing at maximum efficiency.
27
Profit Sharing Plans
company profits are shared with employees; can be directly distributed to employees or can be deferred.
28
Deferred profit sharing plan
incentive money paid to an employee is put into a retirement account for the person (tax advantage).
29
Stock option plans
- provides employees the right to purchase shares of their company stock at some established price (exercise price) during some future period of time.
- Vesting the point at which employees can sell or transfer the stock options
30
Employee stock ownership plan (ESOP)
company contributes shares of its stock to a trust set up for its employees (tax-exempt for employees and tax reduction for firms).
31
Leveraged ESOP
- the trust borrows against the company’s future earnings in order to buy the organization’s stock. And as debt is repaid, employees receive shares of stock from trust.
- Employees can sell the stocks to the organization or in the open market after they leave or retire.
32
Mixed-level plans
- multiple incentives are used simultaneously.
- Goal is to maximize the benefits of each plan and minimize the downsides of each
- Usually a mix of individual, group and organizational incentives.
- Limit free riders – as part of income is dependent on individual performance.
- Encourage cooperation – as part of income is dependent on others.
33
Executive compensation
- designed to attract, motivate and retain top managerial talent.
- Has similar components as other compensation packages but there is more emphasis on variable pay as part of the total compensation package.
34
Common components are:
- Base Salary
- Short and long-term incentives
- Benefits
- Services (Perks)
Human Resource Management
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