PFP is not helpful for individual and/or organizational performance - Cognitive evaluation theory (Deci & Ryan 1985)

Chapter 13 Flashcards by Hope Tamoney

compensation =

pay

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main 3 areas

-Internal and External Labor Market
-Pay for Performance
-Pay dispersion

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Internal Labor Market

-employees are recruited at a very low level and they stay in that org. for a long time

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External Labor Market

-people move around from 1 org to another more frequently
- also means the lines between orgs get blurred

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Pay determinant: Internal

Position
-How much contribution is
made by the position

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Pay determinant: External

People
-Skillsets of the person

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Pay decision process: Internal

Job evaluation (of the position)

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Pay decision process: External

Demands and supply for the skillsets in the external labor market

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Which equity to focus on: Internal

Internal equity
o Comparison between
positions within the
organization
* Low mobility across
organizations
o Less focus on external equity
* Same job/function at different organizations can be paid differently

(another brick in the wall)

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Which equity to focus on: External

External equity
o Employers should attract and retain workers from external labor market with certain skills by paying
comparable pays
* Employees can move to other organizations if their current employers’ pay is not
satisfactory

(more autonomy over where you want to work)

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True or False
Company A relies on the internal labor market in its workforce
planning.

D. Pay levels differ significantly between employees with better
skillsets and worse skillsets.

False

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T/F: Company A relies on the internal labor market in its workforce
planning.

A. Pay is mainly decided based on the job evaluation of each job
position.

True

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T/F: Company A relies on the internal labor market in its workforce
planning.

B. Pay is mainly decided based on the person’s skills and abilities.

False

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T/F: Company A relies on the internal labor market in its workforce
planning.

C. Employees working for job positions with higher contributions to the organizational performance are paid higher than employees working for job positions lower contributions.

True

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T/F: Company A relies on the internal labor market in its workforce
planning.

E. The employer focuses on external equity.

False

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Pay for performance =

Incentive pay

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PFP: Positive view

PFP is helpful for individual and/or
organizational performance

-Goal setting theory (Locke et al. 1981)

-Expectancy theory (Vroom 1964)

-Tournament theory (Lazear 1998)

Upper echelons theory (Hambrick et al. 1984)

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PFP: Negative view

PFP is not helpful for individual and/or
organizational performance

Cognitive evaluation theory (Deci & Ryan 1985)

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Goal setting theory

if I have a goal I will work towards that goal

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Expectancy theory

if I expect to get more the more I work, then I’ll work more

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Tournament theory

life becomes a tournament, people preform better our worse than others, which results in how they get paid

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Upper echelons theory

employees know that if they preform better than they will get promoted and get paid more, there’s a need to work harder

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Cognitive evaluation theory

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pfp is bad because if you think about money you lose your intrinsic motivation “genuine motivation”

T/F: Goal setting theory (Locke et al. 1981) suggests generally
positive performance effects of PFP.

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True

"It depends..." theory or Self determination theory

there are 3 things that enhances their intrinsic motivation: autonomy, relatedness, competence

T/F: Expectancy theory (Vroom 1964) may suggest positive performance effects of PFP for employees.

True

T/F: Tournament theory (Lazear 1998) suggests positive performance effects of PFP.

True

T/F: Cognitive evaluation theory (Deci & Ryan 1985) supports positive view on PFP.

False

T/F: Self determination theory (Ryan & Deci 2000) suggests that PFP can be positive if it is designed in a way that enhances autonomy, competence, and relatedness.

True

Pay for performance categories

1. individual 2. team 3. group

Indi: Piecework Rates

Wages based on the amount workers produce - I get paid $1 for every juice I make so if I make 24 juices I make $24

Indi: Differential Piecework Rates

Incentive pay in which the piece rate changes as the number of products increases o Example: Jim assembles microchip boards. The rates for each board are as follows:  1 – 100 boards: Jim gets paid $1.50 for each board he assembles  101 – 300 boards: Jim gets paid $1.75 for each board he assembles  > 301 boards: Jim gets paid $2.00 for each board he assembles

Indi: Performance Bonuses

Diverse forms, diverse criteria o May be one-time reward; may be for each period o Companies can decide how to calculate * Gives companies great flexibility in deciding what/how to reward

Indi: Sales Commissions

Pay calculated as a percentage of sales * Some salespeople earn a commission in addition to a base salary; others earn only commissions (i.e., straight commission plan)

Group: Gainsharing

- Measures increases in group productivity and distribute a portion of each gain to employees. - Addresses challenge of identifying individual performance in interdependent jobs - Designed to promote group (vs. individual) performance - Ex) Team productivity increase

Group: Group Bonuses

- Reward the members of a group for attaining a specific group goal - Can create competition among groups

Group: Team Awards

- More likely to use a broad range of performance measures o Cost saving o Successful completing of a project o Meeting deadlines

Negative sides for team settings

Free-riding, social loathing

Org perform: Profit Sharing

o Incentive pay in which payments are a percentage of the organization’s profits o Encourage employees to think like owners o Evidence is not clear whether it helps organizations perform better

Org preform: Stock Options

Rights to buy a certain number of shares of stock at a specified price (usually at a lower-than market price)

Org preform: Employee Stock Ownership Plans

An arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust -Most common form of employee ownership

Rights to buy a certain number of shares of stock at a specified price is: A. Profit Sharing B. Employee Stock Ownership Plans (ESOP) C. Merit-based Pay D. Incentive Pay E. Stock Options

Stock Options

T/F: Team incentive plans effectively support individual-level planning and problem-solving.

False, team level

T/F: Team incentive plans hinder knowledge sharing within teams.

False

T/F: Individual members of a team may have difficulty understanding the relationship between their individual efforts and team-level incentives.

True

* Pay for “Individual” Performance

o Piecework Rates (whether straight or differential) o (Individual) performance bonuses o (Individual) sales commissions

* Pay for “Group” Performance

o Gainsharing o (Group) performance bonuses o Team Awards

* Pay for “Organizational” Performance

o Profit Sharing o Stock Options o Employee Stock Ownership Plans

Pay dispersion: positive view

Similar rationale to PFP (Connelly et al. 2016; Shaw 2014) o Pay dispersion can be helpful for individual and/or organizational performance - Goal setting theory (Locke et al. 1981) - Expectancy theory (Vroom 1964) - Tournament theory (Lazear 1998) - Pay dispersion instigates competition, which motivates employees’ performance.

Pay dispersion: Negative view

Similar rationale to PFP (Connelly et al. 2016; Shaw 2014) - Equity theory o Pay dispersion can provoke inequity perceptions, which will lower satisfaction/cooperation and increase turnover (Dallas 2011; Messersmith et al 2011)

Contingent view

Explained dispersion vs. Unexplained dispersion are the determinants of equity perception (Trevor et al. 2012)

T/F: Goal setting theory (Locke et al. 1981) suggests generally positive performance effects of pay dispersion.

True

T/F: Overall, tournament theory (Lazear 1998) suggests positive performance effects of pay dispersion.

True

T/F: Equity theory suggests that pay dispersion can provoke inequity perceptions of employees in some cases.

True

T/F: According to the contingent view (e.g., Trevor et al. 2012), pay dispersion can produce either equity or inequity perceptions depending on the source of dispersion.

True

Chapter 13 Flashcards

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