HRM in Canada Chapter 12: Pay-for-Performance
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Questions and Answers

What is the primary condition required for successful pay-for-performance plans?

  • Regular salary increases
  • Employee satisfaction surveys
  • Accurate performance appraisal (correct)
  • High levels of intrinsic motivation

According to Frederick Herzberg, what contributes most to motivation in a job?

  • Flexible work hours
  • Challenge and recognition (correct)
  • Job security and health benefits
  • High base salary

What describes intrinsic motivation?

  • Motivation driven by monetary rewards
  • Motivation that is self-derived from job satisfaction (correct)
  • Motivation based on social recognition
  • Motivation that results from fear of consequences

What is one potential downside of relying on extrinsic rewards, as noted by Edward Deci?

<p>They can detract from intrinsic motivation (A)</p> Signup and view all the answers

What does 'expectancy' refer to in Victor Vroom's expectancy theory?

<p>Expectation of effort leading to performance (B)</p> Signup and view all the answers

How should managers ensure that employees understand the instrumentality aspect of expectancy theory?

<p>Deliver promised rewards (C)</p> Signup and view all the answers

What must managers consider when offering rewards?

<p>Individual preferences and values (A)</p> Signup and view all the answers

What must occur if expectancy is lacking, according to expectancy theory?

<p>Provide additional training and support (D)</p> Signup and view all the answers

What does pay-for-performance plan primarily tie together?

<p>Pay and employee performance (C)</p> Signup and view all the answers

What is fixed pay primarily characterized by?

<p>It remains relatively consistent regardless of performance. (B)</p> Signup and view all the answers

Which type of pay plan is best used when employee performance directly influences company productivity?

<p>Variable pay (C)</p> Signup and view all the answers

What fundamental concept does the scientific management movement rely on?

<p>Improving work methods through observation and analysis. (A)</p> Signup and view all the answers

Under what condition is it most appropriate to implement an incentive plan?

<p>When there are clear performance metrics to measure success. (D)</p> Signup and view all the answers

Which group of employees is most likely to benefit from specific performance-based incentives?

<p>Operational employees (A)</p> Signup and view all the answers

What is a common misconception regarding variable pay plans?

<p>They provide consistent income for all employees. (A)</p> Signup and view all the answers

What is the primary goal of financial incentives in a workplace setting?

<p>To motivate employees to exceed predetermined performance standards. (B)</p> Signup and view all the answers

What is the primary goal of behavior modification in management?

<p>To change employee behavior through rewards or punishment (D)</p> Signup and view all the answers

What is a characteristic of traditional merit pay plans?

<p>Merit pay is based exclusively on individual performance and awarded once a year (C)</p> Signup and view all the answers

What does an employee share purchase/stock ownership plan (ESOP) encourage among employees?

<p>A sense of ownership and commitment to the firm (D)</p> Signup and view all the answers

What is the primary benefit of profit-sharing plans for employees?

<p>A share in the company's profits (A)</p> Signup and view all the answers

Which of the following is NOT a characteristic of traditional merit pay plans?

<p>They involve regular feedback from peers (B)</p> Signup and view all the answers

What is a potential drawback of profit-sharing plans?

<p>They might only produce one-time productivity improvements (D)</p> Signup and view all the answers

Which incentive plan is characterized by holding shares of company stock for employees?

<p>Employee share purchase/stock ownership plan (ESOP) (D)</p> Signup and view all the answers

Why is recognizing an employee’s contribution effective in performance improvement?

<p>It positively impacts performance independently or with financial rewards (C)</p> Signup and view all the answers

Which type of incentive plan is characterized by engaging employees to achieve productivity objectives and sharing the gains?

<p>Gainsharing plan (A)</p> Signup and view all the answers

What is a significant challenge in making incentive pay decisions for professional employees?

<p>They are already well-paid and motivated by intrinsic factors. (A)</p> Signup and view all the answers

Which incentive plan is the oldest and most common, based on the number of items processed by a worker in a given time?

<p>Piecework plan (B)</p> Signup and view all the answers

What is a key disadvantage of the piecework plan for employees?

<p>Employers may raise production standards to suppress wages. (C)</p> Signup and view all the answers

What does a guaranteed piecework plan provide in addition to the minimum hourly wage?

<p>An incentive for exceeding a defined production threshold (B)</p> Signup and view all the answers

Which plan offers an extra percentage of the base rate for production exceeding the standard?

<p>Differential piece-rate plan (C)</p> Signup and view all the answers

What characteristic distinguishes professional employees from other workers regarding incentive pay?

<p>They are less influenced by extrinsic rewards. (B)</p> Signup and view all the answers

Which incentive plan type provides a fixed compensation per item produced?

<p>Piecework plan (A)</p> Signup and view all the answers

What is the primary basis for group incentive plans?

<p>Production standards set for the group (D)</p> Signup and view all the answers

Which of the following is a disadvantage of team or group incentives?

<p>May reduce the motivation for individual effort (B)</p> Signup and view all the answers

When are group plans most effective?

<p>When there is a high level of communication and worker involvement (C)</p> Signup and view all the answers

What type of compensation is considered a long-term incentive?

<p>Stock options (C)</p> Signup and view all the answers

What is a characteristic of a commission plan for salespeople?

<p>Rewards are based solely on individual sales results (B)</p> Signup and view all the answers

How does team incentive planning reduce jealousy among members?

<p>By making all members accountable for each other's performance (C)</p> Signup and view all the answers

Which of the following best describes a salary plan for salespeople?

<p>Offers a fixed amount with sporadic bonuses (B)</p> Signup and view all the answers

What is a potential reason for using team incentives?

<p>To motivate teamwork in interrelated job functions (C)</p> Signup and view all the answers

What is a potential drawback of using an incentive plan that rewards production?

<p>It may lead to rush work and reduce quality. (A)</p> Signup and view all the answers

Which of the following is NOT a suggested way to enhance employee engagement?

<p>Increase the base salary without performance tie-ins. (D)</p> Signup and view all the answers

How should incentives be linked to career development?

<p>Incentives can be used as a reward for career development activities. (B)</p> Signup and view all the answers

What percentage of the sales force is considered to have achieved quota or better for an incentive plan to be deemed effective?

<p>75 percent or more (C)</p> Signup and view all the answers

Which principle is essential in implementing incentive plans?

<p>Incentives should align with the organization’s values. (A)</p> Signup and view all the answers

What role does recognition play in employee engagement?

<p>It is critical throughout an employee’s career. (C)</p> Signup and view all the answers

What is an important consideration before implementing an incentive plan?

<p>It is necessary to build other motivators into jobs. (C)</p> Signup and view all the answers

What percentage of the sales force is aimed to be under a coaching category due to below-quota performance?

<p>5 to 10 percent (D)</p> Signup and view all the answers

Flashcards

Pay-for-performance

A plan that links employee pay to their performance metrics, like productivity or profitability.

Fixed Pay

Consistent compensation that doesn't change based on performance.

Variable Pay

Compensation that changes based on performance levels, such as productivity or profitability.

Financial Incentives

Rewards paid to employees exceeding pre-set output targets.

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Productivity

Outputs (goods and services) divided by inputs (resources).

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Fair Day's Work

Output standards scientifically calculated for tasks.

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Scientific Management

A movement focusing on improving work methods via observation and analysis.

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Employee motivation

The drive within an employee to work toward a company goal.

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Variable pay plans

Compensation plans where the amount earned varies based on performance.

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Fixed compensation

Salary plans offering consistent pay regardless of performance.

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Performance appraisal

Evaluating employee performance for pay-for-performance plans.

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Intrinsic motivation

Motivation driven by personal satisfaction from work itself.

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Extrinsic motivation

Motivation linked to tangible rewards like salary or bonuses.

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Expectancy theory

Employees are motivated to perform when finding the reward attractive.

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Expectancy

Employee's belief effort leads to performance.

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Instrumentality

Employee's belief performance leads to reward.

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Behavior Modification

Using rewards or punishments to change behavior, based on Skinner's principles.

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Contingent Rewards

Rewards given only when a desired behavior is demonstrated.

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Employee Recognition

Acknowledging and praising employee contributions.

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Merit Pay

A salary increase based on individual performance.

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Employee Stock Ownership Plan (ESOP)

A plan where employees own company stock.

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Profit-Sharing Plan

A plan where employees share in company profits.

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Cash Profit-Sharing

Distributing a percentage of profits to employees.

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Incentive Plans

Strategies to motivate employees with rewards linked to performance.

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Gainsharing plan

An incentive plan that rewards employees for achieving productivity goals, with the gains shared among them.

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Professional employees

Employees with specialized knowledge and skills, like lawyers or engineers, who apply their expertise to solve problems.

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Dual career ladders

A system allowing professionals to advance both in their technical expertise and management responsibilities.

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Piecework plan

A pay system where employees are paid based on the number of items they produce or process in a specific time.

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Straight piecework plan

A fixed payment for each item produced, regardless of any minimum wage or production targets.

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Guaranteed piecework plan

A plan offering a minimum hourly wage plus an incentive for exceeding a set production target.

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Differential piece-rate plan

A plan where employees earn a base rate plus a percentage bonus for exceeding production standards.

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Why are professional employees challenging to incentivize?

They are already highly paid and motivated by intrinsic factors like challenging work, making extrinsic rewards less impactful.

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Team Incentives

A plan where a group's overall performance is measured, and all members receive incentives if they exceed a set standard. Rewards can be based on the highest, lowest, or average producer in the group.

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Rationale for Team Incentives

Team incentives are used when jobs are interconnected, encouraging collaboration and reducing individual competition. They aim to foster a sense of unity and shared responsibility.

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When are Team Incentives Effective?

Group incentives work best when there's open communication about the plan, worker involvement in its design, and a perception of fairness.

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Executive Compensation

Remuneration packages for senior managers, including salary, benefits, short-term bonuses, long-term incentives, and perks.

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Short-Term Incentives for Executives

Rewards that focus on immediate performance, such as annual bonuses based on company goals for the current year.

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Long-Term Incentives for Executives

Rewards designed to encourage executives to stay with the company and align their goals with long-term shareholder value, often through stock options or equity grants.

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Salesperson Salary Plan

Fixed pay with potential incentives that are not directly tied to sales results, providing consistent income.

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Commission Plan for Salespeople

Pay structure where income is solely based on sales achieved, rewarding high performers and motivating them to close deals.

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Combination Plan

A compensation plan that combines a fixed base salary with commissions, where performance is not directly linked to the base salary.

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Incentive Plan Effectiveness

A successful incentive plan motivates sales activity without leading to excessive commissions, with a balanced performance distribution: 75% meeting or exceeding quota, 10% exceeding expectations, and 5-10% below quota, receiving coaching.

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Employee Engagement Goal?

Employee engagement is rarely considered a primary goal in company compensation plans.

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When to Use Incentives?

Incentives shouldn't replace good management, reward piece-work production, be the only motivator, or disrupt relationships.

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Incentive Plan Implementation

Incentives should be linked to key business goals, career development, valued competencies, company culture, and clear, simple group goals.

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Overcommunication and Recognition

Regular communication and recognition of employee contributions are essential for effective incentive plans.

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Motivation Beyond Money

Meaningful work can be equally motivating as financial rewards.

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Recognition's Importance

Appreciation and recognition are crucial aspects of total rewards, and should be present throughout an employee's career journey.

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Study Notes

Human Resources Management in Canada - Chapter 12: Pay-for-Performance and Financial Incentives

  • This chapter explains how managers use incentives to motivate employees.
  • Key topics include money's role in motivation, individual employee incentives, incentives for salespeople, managers, and executives, team, organization-wide incentive plans, and employee engagement.
  • Learning objectives include discussing the impact of money on employee motivation, comparing fixed and variable pay plans, explaining how to use incentives for different employee groups, and explaining when to use an incentive plan.

Money and Motivation

  • Financial incentives reward workers whose production exceeds predetermined standards.
  • Productivity is the ratio of outputs (goods/services) to inputs (people, capital, energy, and materials).
  • Fair day's work are output standards based on careful scientific analysis.
  • The scientific management movement focuses on improving work methods through observation and analysis.

Fixed and Variable Pay Plans

  • Pay-for-performance ties pay to performance measures like productivity or profitability.
  • Fixed pay is relatively consistent regardless of individual, group, or organizational performance. It includes base pay and other compensation forms.
  • Variable pay ties pay to productivity, profitability, or other organizational performance measures.
  • Employers often prefer variable pay plans while keeping base salary increases modest.
  • Accurate performance appraisals are crucial for variable pay plans.

Motivation and Incentives

  • Motivation comes from jobs offering challenge and recognition (Herzberg).
  • Satisfactory pay and conditions prevent dissatisfaction but don't motivate.
  • Managers should focus on job content for motivation.
  • Intrinsic motivation arises from the non-monetary pleasure of doing a job.
  • Extrinsic motivation comes from tangible rewards like salary or incentive pay.
  • Potential downsides of relying solely on extrinsic rewards include detracting from intrinsic motivation for already highly motivated staff.

Expectancy Theory

  • People avoid unattractive rewards if success odds are low (Vroom).
  • Expectancy is the belief that effort leads to performance.
  • Instrumentality is the perceived link between performance and getting a reward.
  • Valence is the perceived value of the reward.
  • If expectancy is lacking, managers must ensure employees have the skills and confidence to do their job, offering training and support.
  • Effective plans are clear, deliver on promises and account for individual preferences.

Using Incentives

  • Managers need to understand how consequences affect behavior when using incentives.
  • Behavior modification uses contingent rewards or punishment to change behavior.
  • Studies show recognition positively impacts performance, adding to financial rewards.

Types of Incentive Plans (for various employee groups)

  • All Employees: Merit pay (salary increase based on performance), Employee stock ownership plans (ESOPs, employees buy/receive company stock), Profit-sharing plans (employees share in company profits), and Gainsharing plans (common effort to improve and share gains).
  • Professional Employees: Making incentive pay decisions for high-calibre professionals is challenging. Rewards often have less impact, and dual career ladders and recognition-based programs are needed.
  • Operations Employees: Piecework plan (pay based on output), Straight piecework (set payment for each piece), Guaranteed piecework (minimum wage + incentive for surpassing predetermined output), Differential piece-rate (basic hourly + percentage premium for exceeding output).
  • Team/Group Incentives: Performance is based on overall group output. Payouts depend on the output from the group. Success relies on high communication and employee ownership.
  • Senior Managers/Executives: Executive compensation includes salary, benefits, short-term/long-term incentives, and perquisites. Common long-term plans include stock options, performance share plans, and restricted stock units.
  • Salespeople: Salary plans (fixed salary/occasional incentives), Commission plans (pay only for results), and Combination plans (base salary & commissions). Strategies in maximizing sales results include reasonable sales quotas and commission rates.
  • Employee Engagement: Employee engagement isn't always directly included in an organization's compensation plan. Effective strategies to measure engagement include incentives rewarding supervisors that encourage employee engagement, and involving employees in developing reward programs.
  • Effective Incentive Plan Implementation:
    • Tie pay to critical business goals that are measurable
    • Link incentives to other activities like career development.
    • Clearly define incentives and link them to valued skills.
    • Maintain company culture that aligns with incentives.
    • Ensure transparency in group incentives and accountability.
    • Regularly communicate and acknowledge individual and team achievements.
    • Recognition alongside pay builds confidence, pride, and value for employees.

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Description

Explore Chapter 12 of Human Resources Management in Canada, which focuses on the role of financial incentives in motivating employees. This chapter delves into different types of incentives, their impact on motivation, and their application across various employee groups. Understand how pay-for-performance strategies can enhance productivity and employee engagement.

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