Chapter #12

Pay For Performance and Financial Incentives

Performance and Pay

Not all rewards are equal70 % of all ee surveyed believed that their pay plans were ineffectiveTrends are for more variable rate pay Shifts business risk to employees

Psychological insight

Individual differences Personality

#2 Needs theory (Maslow)

Intrinsic v. extrinsic5 step hierarchy

Look page #439

Employee preferences for non cash incentives

Frederick Herzberg & Edward Deci

Hygiene factors v. motivators

Both say that relying too much on extrinsic motivators is riskyIntrinsic motivators are motivated by drive for competence and self determination

#3 Instrumentality and RewardsExpectancy Theory

ExpectancyInstrumentalityValence

Frederick Taylor: Scientific Management“One Best Way”

Fair Day’s Work Quotas Standards Inspection and observation

Today’s Emphasis… Pay For Performance Again

Studies, Fortune 500 firms and DupontMore business risk on employeesMore mngt pay for performanceMore sales incentivesLess base pay

Types of Incentive Plans

Variable pay based on performance. Base pay + one lump sum bonus

Gift certificates.com Time off

Incentives for operations people (actually do work)

Piecework plans Oldest incentive Guaranteed base = increased pay for

each piece over a standard (base) Rate busters

Short term incentives

Annual bonusThree basic issues to consider

Eligibility Higher up you get

more Fund size Individual Rewards

IDEAAs program Mary Kay Recogiition

EE of the month

Long Term Incentives

Stock options Right to purchase shares Idea is that stock value will go up Not working today Overseas execs get taxed twice on

options 140,00$ bonus + 40,000$ in taxes

Incentive for Sales People

Fixed Salary Plan + Security – not results oriented

Commission Plans + more incentive- neglect other duties

-insecurity, - no sick pay – no vacation pay - higher turnover

Combination Plans 80% base 20% commission Best of both worlds

Set Sales Quotas Give sales incentives

Merit Pay

Salary increase based upon great performanceBecomes part of base pay Lump sum merit pay (one time $)

Profit Sharing Plans

A plan that allow ees to share in firms profits Cash plans

% of profits Lincoln incentive plans

$ based upon merit rating of individuals Deferred profit sharing plans

$ placed in trustee account, $ is there until retirement nd then taxed at lower amount

Employee Stock Ownership Plan ESOP

A firm contributes shares of its own stock to a trust. The trust distributes fund to ees upon retirementProblem too much delay Firm gets tax deduction

Can also claim income tax deduction Develops sense of ownership in employees

Scanlon Plans

Developed by Joe Scanlon l937Philosophy of cooperation“WE” attitude ee must understand company profits and losses Competence from ees Involvement Sharing of benefits As workers reduce costs that are rewarded

Proceeds are shared

Gainsharing

An incentive that engages employees in a common effort to achieve productivity objectives and share the gains

Same as Scanlon just today’s version