HR Chapter 11: Rewarding Performance

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Questions and Answers

What is an advantage of using plantwide plans?

Cost savings earned by treating employees better (correct)

Increased management control over employees

Enhanced job security for all employees

Reduction in turnover rates

Which of the following is a disadvantage of plantwide plans?

Increased employee participation in decision-making

Enhanced competitiveness in the market

Improvement in employee morale

Protection of low performers (correct)

What condition does NOT favor the implementation of plantwide plans?

Firm size

High employee turnover (correct)

Stability of the product market

Corporate culture

Which advantage is associated with corporatewide plans?

Financial flexibility for the firm Signup and view all the answers

What is a significant disadvantage of corporatewide plans?

Limited effect on productivity Signup and view all the answers

Which condition is least likely to favor corporatewide plans?

Small firm size Signup and view all the answers

Which feature is typically included in executive pay-for-performance plans?

Golden parachutes Signup and view all the answers

What is a common goal of implementing pay-for-performance plans for salespeople?

Increase in sales productivity Signup and view all the answers

What is a primary goal of pay-for-performance systems?

To build employee trust and boost performance Signup and view all the answers

Which of the following is NOT considered an individual-based pay-for-performance plan?

Profit sharing Signup and view all the answers

What is one advantage of individual-based pay-for-performance plans?

They align employee goals with organizational goals Signup and view all the answers

Using motivation and nonfinancial incentives is crucial for

Increasing employee involvement Signup and view all the answers

Which of the following layers of rewards can enhance a pay-for-performance system?

Implementing multiple types of rewards Signup and view all the answers

What is an example of a macro-level pay-for-performance plan?

Gainsharing Signup and view all the answers

In the context of pay-for-performance plans, which culture would benefit the most from individual-based rewards?

Individualistic culture Signup and view all the answers

What is a potential disadvantage of individual-based pay-for-performance plans?

They may create inflexibility within organizations. Signup and view all the answers

Which statement describes a potential misconception about pay-for-performance systems?

They solely rely on financial incentives. Signup and view all the answers

Under what condition is an individual-based pay-for-performance plan most likely to succeed?

When the contributions of individual employees can be accurately isolated. Signup and view all the answers

What is one advantage of implementing team-based pay plans?

They foster group cohesiveness. Signup and view all the answers

Which disadvantage is commonly associated with team-based pay plans?

Difficulty in identifying meaningful groups. Signup and view all the answers

For team-based plans to be successful, which factor is essential?

Intertwined work tasks. Signup and view all the answers

What type of reward system is exemplified by plantwide plans?

Rewards based on the performance of the entire plant. Signup and view all the answers

Which factor contributes to the success of team-based pay plans?

When employees are intrinsically motivated. Signup and view all the answers

What challenge may arise from team-based plans in terms of performance?

Creation of social pressures to limit performance. Signup and view all the answers

What is a potential disadvantage of a straight-commission sales compensation plan?

It may lead to aggressive behavior from sales representatives. Signup and view all the answers

Which group is primarily responsible for setting executive pay?

The board of directors Signup and view all the answers

What is one major challenge of pay-for-performance systems?

Difficulties in measuring performance Signup and view all the answers

Which psychological impact can a pay-for-performance system have on employees?

Job dissatisfaction and stress Signup and view all the answers

What advantage is associated with a straight-salary compensation plan for salespeople?

It helps reduce stress levels among sales force. Signup and view all the answers

What approach can help address the challenges of pay-for-performance systems?

Developing a complementary relationship between extrinsic and intrinsic rewards Signup and view all the answers

Incentive systems used for customer service are designed to encourage what?

Better customer service. Signup and view all the answers

What is a characteristic difference between compensation programs for salespeople and other employees?

Sales compensation plans typically focus on individual performance. Signup and view all the answers

What negative behavior could be encouraged by certain pay-for-performance incentives?

Unethical behavior Signup and view all the answers

Which issue is associated with the credibility gap in pay-for-performance systems?

Misalignment between perception and reality of rewards Signup and view all the answers

Which of the following is an implication of using a straight-salary plan?

It may require more managerial oversight. Signup and view all the answers

Which strategy can be used to enhance the effectiveness of pay-for-performance plans for executives?

Designing plans that align with company goals Signup and view all the answers

Which of the following is NOT a potential benefit of a straight-commission sales compensation plan?

It may lead to more robust customer relationships. Signup and view all the answers

What could be a downside of high fixed compensation costs in a sales team?

It may lead to reduced motivation in sales performance. Signup and view all the answers

What is a potential disadvantage of using pay-for-performance systems?

Reduction of intrinsic motivation Signup and view all the answers

What is a potential disadvantage of combining salary with straight commission sales?

Sales force may not understand the most important objectives Signup and view all the answers

How should organizations structure performance incentives to avoid hindering teamwork?

By utilizing group-based performance metrics Signup and view all the answers

Why can pay-for-performance contribute to greater commitment among employees in small firms?

It provides clear feedback regarding contributions Signup and view all the answers

Which of the following is a benefit of implementing a pay-for-performance plan?

It attracts and retains talent effectively Signup and view all the answers

Which of the following represents a challenge in designing pay-for-performance systems?

Establishing consistent company-wide performance metrics Signup and view all the answers

What is a potential problem for top salespeople in a combined salary and commission structure?

They may find the current job less attractive than alternatives Signup and view all the answers

How can feedback improve the efficacy of pay-for-performance in small firms?

By helping employees understand their individual contributions Signup and view all the answers

What might be a consequence of poorly designed pay-for-performance systems?

Confusion regarding performance expectations among employees Signup and view all the answers

What is one way to effectively implement pay-for-performance in small firms?

Encouraging employee input in setting performance goals Signup and view all the answers

Study Notes

Chapter 11: Rewarding Performance

Learning Objectives:
- Grasp major challenges in pay-for-performance systems
- Develop competence in dealing with potential problems in pay-for-performance systems
- Understand advantages and disadvantages of various pay for performance plans
- Develop competence in designing pay for performance for executives and sales people

Pay-for-Performance: Challenges

Challenges (1 of 3):
- Individual employees and work teams contribute differently to the firm
- Firm performance depends on individual and group performance
- High performers are rewarded based on relative performance
Challenges (2 of 3):
- "Do only what you get paid for" syndrome
- Unethical behavior
- Negative impact on cooperation
- Lack of control
- Measurement difficulties in performance
Challenges (3 of 3):
- Psychological contracts
- Credibility gap
- Job dissatisfaction and stress
- Potential reduction in intrinsic drives
Incentives may cause unethical behaviors:
- Rewarding hospitals for quality care
- Gainsharing for doctors
- Doctors paid to prescribe generic pills
- Surgeons report cards
- Undisclosed doctor practices
- Use of orthopedic devices

Meeting the Challenges of Pay-For-Performance Systems

Meeting the Challenges (1 of 3):
- Develop a complementary relationship between extrinsic and intrinsic rewards
- Appropriately link pay and performance
- Integrate pay for performance into a broader HRM system
Meeting the Challenges (2 of 3):
- Build employee trust
- Promote belief that performance makes a difference
- Use multiple layers of rewards
Meeting the Challenges (3 of 3):
- Increase employee involvement
- Stress the importance of acting ethically
- Use motivation and non-financial incentives

Pay-for-Performance Programs

Unit of Analysis:
- Micro Level (Individual): Merit pay, Bonuses, Awards, Piece rate
- Micro Level (Team): Bonuses, Awards
- Macro Level (Business Unit/Plant): Gainsharing, Bonuses, Awards
- Macro Level (Organization): Profit sharing, Stock plans

Types of Pay-For-Performance Plans

Pay-for-performance plans are designed to reward:
- Individual performance
- Team performance
- Business unit or plant performance
- Organization performance
- Any combination of the above

Individual-Based Plans

(1 of 4): Individual-based pay plans are the most widely used plans in industry
- Merit pay
- Bonus programs (lump-sum payments)
- Awards
(2 of 4): Advantages of individual-based plans:
- Repeated performance
- Goal orientation and shaping goals through systems
- Reward-individual equity fit with an individualistic culture
(3 of 4): Disadvantages of individual-based plans:
- Tying pay to goals might promote single-mindedness
- Difficulty linking performance and pay
- Individual pay plans might hinder quality goals
- Individual-based programs may be inflexible in some organizations
(4 of 4): Individual-based plans are more likely to succeed when:
- Individual contributions are easily isolated
- The job demands autonomy
- Cooperation is not critical to performance

Team-Based Plans

(1 of 4): Increasing number of firms redesigning work for teams. Cash or non-cash rewards. Provide integral team support. Equal rewards for members. Members decide on distribution.
(2 of 4): Advantages of team-based plans are:
- Fostering group cohesiveness
- Aid in performance measurements
(3 of 4): Disadvantages of team-based plans:
- Free riders
- Social pressures to limit performance
- Identifying meaningful groups
- Intergroup competition
(4 of 4): Team-based plans are more likely to succeed when:
- Work tasks are intertwined
- Implemented with team-based incentives
- Employee intrinsic motivation
- Group goals exist
- Blend diverse backgrounds

Plantwide Plans

(1 of 4): Reward all workers in a plant or business unit based on the plant's performance
- Gainsharing
(2 of 4): Advantages:
- Capitalizes on intrinsically motivated employees
- Cost savings from better treatment of employees
- Employee input and improved production process
(3 of 4): Disadvantages:
- Protection of low performers
- Problems stemming from criteria used to trigger rewards
- Management-labor conflict
(4 of 4): Conditions favoring plantwide plans:
- Firm size
- Technology
- Historical performance
- Corporate culture
- Product market stability

Corporatewide Plans

(1 of 4): Profit sharing and employee stock ownership plans (ESOPs)
(2 of 4): Advantages:
- Financial flexibility for the firm
- Increased employee commitment
- Tax advantages
(3 of 4): Disadvantages:
- Employees may be at risk due to macroeconomics
- High exposure to macroeconomic forces
- Limited impact on productivity
- Long-term financial difficulties
(4 of 4): Situations favorable for corporatewide plans:
- Firm size
- Interdependence of different business parts
- Market conditions
- Presence of other incentives

Executive and Salespeople Plans

Executives (1 of 2): Salary, short-term incentives, long-term incentives, golden parachutes, rewards for social responsibility, perks
Executives and Salespeople (2 of 2):
- Boards set executive pay
- Salespeople bring revenue to the company
- Compensation for salespeople has unique program needs

Rewarding Excellence in Customer Service

Many companies use incentive systems to encourage better customer service
Customer service rewards can be individual, team- or plant-based.

How Should Employees in Sales Be Compensated?

Direct Commission Plan:
- Goods: Generates more accounts, motivates sales force, entrepreneurial orientation, reduces expenses
- Bads: Quality of service may suffer, representatives may exaggerate the product features
Straight Salary Plan:
- Goods: Employees spend more time with customers, reduces stress, and cooperation increases.
- Bads: Reduced motivation to sell, increases fixed costs might increase costs and may reduce incentives for superior sales people.
Combined Plan:
- Goods: Reinforces good citizenship behavior while motivating sales, middle-ground solution, and supports multiple marketing goals
- Bads: Designing and managing the plan can be complicated, representatives may not understand the most important objectives, might encourage higher earnings in other companies

Pay for Performance in Small Firms

Active participation builds commitment
Easy for employees to see their contributions
Frequent feedback helps employees see contributions
Offers opportunity to attract and retain talent
Increases employee identification with the company

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Description

Explore the complexities of pay-for-performance systems in this quiz focused on Chapter 11 of Human Resource Management. Learn about the challenges, advantages, and disadvantages of various pay-for-performance plans, and develop skills in designing effective compensation strategies for executives and salespeople. Test your knowledge on key issues that impact firm performance and employee motivation.