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?

They can detract from intrinsic motivation Signup and view all the answers

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

Expectation of effort leading to performance Signup and view all the answers

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

Deliver promised rewards Signup and view all the answers

What must managers consider when offering rewards?

Individual preferences and values Signup and view all the answers

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

Provide additional training and support Signup and view all the answers

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

Pay and employee performance Signup and view all the answers

What is fixed pay primarily characterized by?

It remains relatively consistent regardless of performance. Signup and view all the answers

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

Variable pay Signup and view all the answers

What fundamental concept does the scientific management movement rely on?

Improving work methods through observation and analysis. Signup and view all the answers

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

When there are clear performance metrics to measure success. Signup and view all the answers

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

Operational employees Signup and view all the answers

What is a common misconception regarding variable pay plans?

They provide consistent income for all employees. Signup and view all the answers

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

To motivate employees to exceed predetermined performance standards. Signup and view all the answers

What is the primary goal of behavior modification in management?

To change employee behavior through rewards or punishment Signup and view all the answers

What is a characteristic of traditional merit pay plans?

Merit pay is based exclusively on individual performance and awarded once a year Signup and view all the answers

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

A sense of ownership and commitment to the firm Signup and view all the answers

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

A share in the company's profits Signup and view all the answers

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

They involve regular feedback from peers Signup and view all the answers

What is a potential drawback of profit-sharing plans?

They might only produce one-time productivity improvements Signup and view all the answers

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

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

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

It positively impacts performance independently or with financial rewards Signup and view all the answers

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

Gainsharing plan Signup and view all the answers

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

They are already well-paid and motivated by intrinsic factors. 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?

Piecework plan Signup and view all the answers

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

Employers may raise production standards to suppress wages. Signup and view all the answers

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

An incentive for exceeding a defined production threshold Signup and view all the answers

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

Differential piece-rate plan Signup and view all the answers

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

They are less influenced by extrinsic rewards. Signup and view all the answers

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

Piecework plan Signup and view all the answers

What is the primary basis for group incentive plans?

Production standards set for the group Signup and view all the answers

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

May reduce the motivation for individual effort Signup and view all the answers

When are group plans most effective?

When there is a high level of communication and worker involvement Signup and view all the answers

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

Stock options Signup and view all the answers

What is a characteristic of a commission plan for salespeople?

Rewards are based solely on individual sales results Signup and view all the answers

How does team incentive planning reduce jealousy among members?

By making all members accountable for each other's performance Signup and view all the answers

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

Offers a fixed amount with sporadic bonuses Signup and view all the answers

What is a potential reason for using team incentives?

To motivate teamwork in interrelated job functions Signup and view all the answers

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

It may lead to rush work and reduce quality. Signup and view all the answers

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

Increase the base salary without performance tie-ins. Signup and view all the answers

How should incentives be linked to career development?

Incentives can be used as a reward for career development activities. 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?

75 percent or more Signup and view all the answers

Which principle is essential in implementing incentive plans?

Incentives should align with the organization’s values. Signup and view all the answers

What role does recognition play in employee engagement?

It is critical throughout an employee’s career. Signup and view all the answers

What is an important consideration before implementing an incentive plan?

It is necessary to build other motivators into jobs. 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?

5 to 10 percent Signup and view all the answers

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.