Managing Human Resources Chapter 11 PDF

Managing Human Resources Ninth Edition Chapter 11 Rewarding Performance Copyright © 2020 Pearson Education, Inc. All Rights Reserved Learning Objectives 11.1 Grasp the major challenges in pay for performan...

Managing Human Resources Ninth Edition Chapter 11 Rewarding Performance Copyright © 2020 Pearson Education, Inc. All Rights Reserved Learning Objectives 11.1 Grasp the major challenges in pay for performance systems 11.2 Develop competence in dealing with potential problems with pay for performance systems 11.3 Understand the advantages and disadvantages of various types of pay for performance plans 11.4 Develop competence in designing pay for performance plans for executives and sales people Copyright © 2020 Pearson Education, Inc. All Rights Reserved Pay-for-Performance: Challenges (1 of 3) 1. Individual employees and work teams differ in how much they contribute to the firm 2. The firm’s overall performance depends on the performance of individuals and groups within the firm 3. To attract, retain, and motivate high performers, rewards are given on the basis of their relative performance Copyright © 2020 Pearson Education, Inc. All Rights Reserved Pay-for-Performance: Challenges (2 of 3) “Do only what you get paid for” syndrome Unethical behavior Negative effects on the spirit of cooperation Lack of control Difficulties in measuring performance Copyright © 2020 Pearson Education, Inc. All Rights Reserved Pay-for-Performance: Challenges (3 of 3) Psychological contracts The credibility gap Job dissatisfaction and stress Potential reduction of intrinsic drives Copyright © 2020 Pearson Education, Inc. All Rights Reserved Incentives May Cause Unethical Behaviors Rewarding hospitals for quality care Gainsharing for doctors Doctors paid to prescribe generic pills Report cards for surgeons What doctors aren’t disclosing Use of orthopedic devices Copyright © 2020 Pearson Education, Inc. All Rights Reserved Meeting the Challenges of Pay- For-Performance Systems (1 of 3) Develop a complementary relationship between extrinsic and intrinsic rewards Link pay and performance appropriately Use pay for performance as part of a broader HRM system Copyright © 2020 Pearson Education, Inc. All Rights Reserved Meeting the Challenges of Pay- For-Performance Systems (2 of 3) Build employee trust Promote the belief that performance makes a difference Use multiple layers of rewards Copyright © 2020 Pearson Education, Inc. All Rights Reserved Meeting the Challenges of Pay- For-Performance Systems (3 of 3) Increase employee involvement Stress the importance of acting ethically Use motivation and nonfinancial incentives Copyright © 2020 Pearson Education, Inc. All Rights Reserved Pay-For-Performance Programs Unit of Analysis Micro Level Micro Level Macro Level Macro Level Individual Team Business Unit/Plant Organization Merit pay Bonuses Gainsharing Profit sharing Bonuses Awards Bonuses Stock plans Awards Awards Piece rate Copyright © 2020 Pearson Education, Inc. All Rights Reserved Types of Pay-For-Performance Plans Pay-for-performance plans – Designed to reward the performance of: ▪ The individual ▪ Team ▪ Business unit or plant ▪ Organization ▪ Or any combination of the above Copyright © 2020 Pearson Education, Inc. All Rights Reserved Individual-Based Plans (1 of 4) Individual-based pay plans are the most widely used pay-for-performance plans in industry – Merit pay – Bonus programs (lump-sum payments) – Awards Copyright © 2020 Pearson Education, Inc. All Rights Reserved Individual-Based Plans (2 of 4) Advantages of individual-based pay-for- performance plans: – Performance that is rewarded is likely to be repeated – Individuals are goal oriented; financial systems can shape a person’s goals – Rewarding individual equity – Fit with an individualistic culture Copyright © 2020 Pearson Education, Inc. All Rights Reserved Individual-Based Plans (3 of 4) Disadvantages of individual-based pay-for- performance plans: – Tying pay to goals may promote single- mindedness – Many do not see link between performance and pay – Individual pay plans may work against achieving quality goals – Individual-based programs promote inflexibility in some organizations Copyright © 2020 Pearson Education, Inc. All Rights Reserved Individual-Based Plans (4 of 4) Individual-based pay-for-performance plans are most likely to succeed: – When the contributions of individual employees can be accurately isolated – When the job demands autonomy – When cooperation is less critical to successful performance Copyright © 2020 Pearson Education, Inc. All Rights Reserved Team-Based Plans (1 of 4) Growing number of firms are redesigning work to allow employees to work in teams Cash or noncash Provide integral support for effective team arrangements Members rewarded equally Members decide on distribution Copyright © 2020 Pearson Education, Inc. All Rights Reserved Team-Based Plans (2 of 4) Advantages of team-based plans: – Foster group cohesiveness – Aid in performance measurement Copyright © 2020 Pearson Education, Inc. All Rights Reserved Team-Based Plans (3 of 4) Disadvantages of team-based plans: – Free-riders – Social pressures to limit performance – Identifying meaningful groups – Intergroup competition Copyright © 2020 Pearson Education, Inc. All Rights Reserved Team-Based Plans (4 of 4) Team-based plans are most likely to succeed: – When work tasks are intertwined – When implemented with team-based incentives – When employees are intrinsically motivated – When group goals exists – When team-based incentives blend diverse backgrounds Copyright © 2020 Pearson Education, Inc. All Rights Reserved Plantwide Plans (1 of 4) Reward all workers in a plant or business based on performance of the entire plant – Gainsharing Copyright © 2020 Pearson Education, Inc. All Rights Reserved Plantwide Plans (2 of 4) Advantages – Capitalize on intrinsically motivated employees – Cost savings earned by treating employees better – Can elicit active employee input and improve the production process Copyright © 2020 Pearson Education, Inc. All Rights Reserved Plantwide Plans (3 of 4) Disadvantages – Protection of low performers – Problems with the criteria used to trigger rewards – Management–labor conflict Copyright © 2020 Pearson Education, Inc. All Rights Reserved Plantwide Plans (4 of 4) Conditions favoring plantwide plans – Firm size – Technology – Historical performance – Corporate culture – Stability of the product market Copyright © 2020 Pearson Education, Inc. All Rights Reserved Corporatewide Plans (1 of 4) Profit sharing Employee stock ownership plan (ESOP) Copyright © 2020 Pearson Education, Inc. All Rights Reserved Corporatewide Plans (2 of 4) Advantages of corporatewide plans include: – Financial flexibility for the firm – Increased employee commitment – Tax advantages Copyright © 2020 Pearson Education, Inc. All Rights Reserved Corporatewide Plans (3 of 4) Disadvantages of corporatewide plans include: – Employees may be at considerable risk – High exposure to macroeconomic forces – Limited effect on productivity – Long-run financial difficulties Copyright © 2020 Pearson Education, Inc. All Rights Reserved Corporatewide Plans (4 of 4) Conditions favoring corporatewide plans – Firm size – Interdependence of different parts of the business – Market conditions – The presence of other incentives Copyright © 2020 Pearson Education, Inc. All Rights Reserved Designing Pay-For-Performance Plans for Executives and Salespeople (1 of 2) Executive Plans – Salary and short-term incentives – Long-term incentives – Golden parachutes – Rewards for social responsibility – Perks Copyright © 2020 Pearson Education, Inc. All Rights Reserved Designing Pay-For-Performance Plans for Executives and Salespeople (2 of 2) Directors and shareholders – Board of directors sets executive pay Salespeople – Responsible for bringing revenue into the company – Many reasons why setting up a compensation program for salespeople is different than other compensation programs Copyright © 2020 Pearson Education, Inc. All Rights Reserved Rewarding Excellence in Customer Service More and more companies are using incentive systems – To encourage better customer service – Customer service rewards may be individual-, team-, or plant-based Copyright © 2020 Pearson Education, Inc. All Rights Reserved How Should Employees in Sales Be Compensated? (1 of 2) Straight-Commission Sales Compensation Plan Goods Bads May generate more accounts Quality of service may suffer May motivate sales force to sell more Sales representative may overstate the May foster entrepreneurial orientation positive features of the product May reduce supervisory expenses Sales representative may become overly May reduce fixed costs aggressive with customers and they might not May attract employees who are willing to take come back risks Straight-Salary Sales Compensation Plan Goods Bads Sales force may be willing to spend more time May reduce the motivation to sell with customer Increases fixed compensation costs May reduce stress levels among sales force, Best sales performers may go to a firm that reducing turnover provides incentives May engender greater cooperation and less Greater need to appoint sales managers to competition among the sales workforce supervise sales workforce Copyright © 2020 Pearson Education, Inc. All Rights Reserved How Should Employees in Sales Be Compensated? (2 of 2) Combining Salary with Straight Commission Sales Goods Bads Reinforces good citizenship behavior and at Plan could be complex to design and the same time provides an incentive to sell administer more Sales force may not be clear as to which May offer a good middle solution to the objectives or targets are most important conflicting demands of spending time with Top sales people may find it more customers versus selling to a broader advantageous to get a job with another customer base employer in order to make more money Support a greater variety of marketing goals Copyright © 2020 Pearson Education, Inc. All Rights Reserved Pay-For-Performance in Small Firms Active participation can generate greater commitment It’s easier for employees to discern their contributions Feedback should be given more often with the goal of helping employees see their contribution Offers the opportunity to attract and retain talent Increases employee identification with the firm Copyright © 2020 Pearson Education, Inc. All Rights Reserved Summary and Conclusions Pay-for-performance: the challenges Meeting the challenges of pay-for-performance systems Types of pay for performance Designing pay-for-performance plans for executives and salespeople Designing pay-for-performance plans in small firms Copyright © 2020 Pearson Education, Inc. All Rights Reserved Copyright This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Copyright © 2020 Pearson Education, Inc. All Rights Reserved