Compensation Strategies and Employee Performance

Compensation Strategies and Employee Performance

• When employee performance measures are unclear but organizational performance is stable, a variety of rewards with significant incentive pay is most effective.
• For Yellow Corporation, where company performance is stable but individual performance is hard to measure, a wide range of awards beyond just money is most effective.
• When employee performance is easily measured and organizational performance is stable, monetary rewards with large incentives are most effective.
• When an organization's performance fluctuates and individual performance is hard to measure, a base pay with low incentives and a wide array of awards is most effective.

Motivational Theories and Pay Systems

• Reinforcement theory states performance-based payments work best when closely following performance.
• Equity theory emphasizes that relative pay is important as employees evaluate their pay through comparisons.
• The agency theory suggests pay should be based on outcomes if monitoring behaviors is difficult or costly, and risk due to variability in outcomes isn't large.
• Expectancy theory suggests people choose the behavior that leads to the most satisfactory exchange.
• Designing a pay-for-performance plan effectively relies on efficiency, equity, and compliance.

Sorting Effects and Pay Preferences

• Someone who loves to take on a challenge with more performance-based pay, Stella, is most likely to join Droppiece, Inc, which provides more performance-based pay and less base pay than its competitors.
• Allan leaving Company X because he dislikes their pay-for-performance system is an example of the sorting effect.
• Ability is considered the most obvious sorting factor.
• Standards include objectives, measures, eligibility, and equity, and form the key to designing a pay-for-performance system.

Fairness and Performance Evaluation

• The amount of fairness given to employees refers to distributive justice.
• Telling raters the work environment and system affect job performance more than individual behavior leads to higher ratings.
• Paired-comparison ranking is the least preferred ranking method by managers of more than 10-15 employees.
• Management by Objectives is the most common form of outcome-based appraisal.
• An essay format is an open-ended performance appraisal using descriptors ranging from comparisons to adjectives, behaviors, and goal accomplishment.
• Management by Objectives rating format has the lowest rating errors.
• A standard rating scale is the most appropriate rating format when the nature of the task is uncertain.
• Ensuring managers are graded on how well they utilize and develop human resources motivates accurate rating.
• High-performing workers give the most objective evaluations among peer raters.
• A horn error downgrade across all performance dimensions because of poor performance on one dimension.
• A spillover error is most likely committed when past performance affects the current performance rating.
• A balanced scorecard approach acknowledges success doesn't just happen and looks at all aspects of job performance that contribute value.
• All other things being equal, males are rated higher than females in the context of performance appraisals.
• Workers whose performance is consistently average are rated higher than those who perform better at the end of a rating cycle.
• Teaching raters what constitutes good, average, and bad performance is performance-standard training.
• Training to reduce halo errors and improve accuracy has been most successful regarding rater training.

Employee Benefits

• Work/life balance is not mandated by either the state or federal government.
• Surveys show medical insurance is the most highly valued employee benefit.
• Employers are responding to increased benefit costs by requiring employees to pay higher deductibles and copays.
• A flexible benefit plan allocates a set dollar amount to employees, allowing them to select benefits.
• Flexible benefit plans increase employee involvement in choosing benefit plans.
• Medical coverage is most likely to reduce turnover for DrenchFort Corporation, as the company did not provide benefits.
• The Maintenance Act (1973) required employers to offer alternative health coverage options to employees.
• The Patient Protection and Affordable Care Act (2010) requires individuals to maintain minimal essential health insurance coverage.
• Tax reforms established 401(k) programs
• Pensions and medical coverage are two specific benefits that curtailed employee turnover.
• The Family Medical Leave Act (1993) mandates 12 weeks of leave for all workers at companies that employ 50 or more people.
• The Consolidated Omnibus Budget Reconciliation Act (1984) allows employees who resign or are laid off through no fault of their own to continue receiving health coverage.
• The Fair Labor Standards Act created time-and-a-half overtime pay and required that any benefits linked to pay increase correspondingly with those overtime hours.
• Benefit communication through an information portal requires ongoing maintenance and an intuitive user interface.
• When initiating claims processing for an employee injury, Trumbrella Corporation should first determine whether the accident actually happened.

Cost Containment and Compensation Trends

• Requiring employees to pay a fixed or percentage amount for coverage best describes "copay".
• The biggest cost-containment strategy in recent years is the movement to outsourcing.
• GrindStop Corp is using a benefit limitations strategy.
• Executives, supervisors, and sales staff often receive special compensation treatment because these jobs face conflicting demands.
• The biggest trend in supervisory pay centers on increased use of variable pay.
• Annual bonuses often play a major role in executive compensation and are primarily designed to motivate better short-term performance.
• Stock appreciation rights use cash or stock award that is determined by an increase in stock price during any time chosen (by the executive) in the option period.
• A performance share plan uses cash or stock award if specific goals are achieved.
• A phantom stock plan uses cash or stock award that is determined by an increase in stock price at a fixed future date.
• Non-qualified stock options require purchase of stock at a stipulated price, not conforming with the Internal Revenue Code.
• Incentive stock options do not have tax implications for an executive at the time they are granted.
• Long-term incentives accounts for the bulk of total CEO compensation.
• A recent article analyzing the results from over 100 executive pay studies shows that the best predictor of executive pay is by far firm size.
• Hannah is most likely to increase base pay for her sales employees.
• A compensation consultant is hired to survey actual competitors of the company if the CEO is truly underpaid.
• Recent tax law changes in many countries have made stock options more attractive, but limited ownership of many companies remains the rule.
• Traditionally, Japan's employment relationships were supported by lifetime security within the company.
• Labor markets in Germany remain highly regulated, and price agreements set pay for union workers.
• Unlike German companies, Japanese organizations encourage flexible workers.
• A Korean citizen working for Toshiba, a Japanese company, in Canada is a third-country national.
• The balance sheet approach seeks to ensure that employees on overseas assignments have the same spending power as they would in their home country.