Human Resources Management in Canada PDF

Human Resources Management in Canada Fifteenth Canadian Edition Chapter 12 Pay-for-Performance and Financial Incentives Copyright © 2023 Pearson Canada I...

Human Resources Management in Canada Fifteenth Canadian Edition Chapter 12 Pay-for-Performance and Financial Incentives Copyright © 2023 Pearson Canada Inc. 12 - 1 Learning Objectives 12.1 Discuss the impact of money as a means to incentivize employee motivation, and compare fixed and variable pay plans and the appropriate use of each. 12.2 Explain how to use incentives for various groups of employees, including all employees, professional employees, operational employees, teams/groups, sales employees, senior managers, and executives. 12.3 Explain under what conditions it is best to use an incentive plan. Copyright © 2023 Pearson Canada Inc. 12 - 2 Where Are We Now … Ellipsis The main purpose of this chapter is to explain how managers use incentives to motivate employees. The main topics discussed are money’s role in motivation, individual employee incentive and recognition programs, incentives for salespeople, incentives for managers and executives, team and organization-wide incentive plans, and incentives and employee engagement. Copyright © 2023 Pearson Canada Inc. 12 - 3 Money and Motivation (1 of 9) Financial incentives are financial rewards paid to workers whose production exceeds some predetermined standard. Productivity is the ratio of an organization’s outputs (goods and services) to its inputs (people, capital, energy, and materials). Fair day’s work are output standards devised based on careful, scientific analysis. The scientific management movement is a management approach based on improving work methods through observation and analysis. Copyright © 2023 Pearson Canada Inc. 12 - 4 Money and Motivation (2 of 9) Fixed and Variable Pay Plans Pay-for-performance is any plan that ties pay to some measure of performance, such as productivity or profitability. Fixed pay is compensation that is relatively consistent and independent of the performance level of the individual, group, or organization. – Includes base pay and other forms of compensation. Copyright © 2023 Pearson Canada Inc. 12 - 5 Money and Motivation (3 of 9) Fixed and Variable Pay Plans Variable pay is compensation that ties pay to productivity, profitability, or another organization performance measure and thus can be relatively inconsistent. – Employers prefer variable pay plans while holding salary increases of fixed compensation at modest levels. – Accurate performance appraisal is a condition of pay- for-performance plans. Copyright © 2023 Pearson Canada Inc. 12 - 6 Money and Motivation (4 of 9) Motivation and Incentives Motivation and Frederick Herzberg: – Best motivations comes from a job that provides challenge and recognition. – Satisfactory pay and working conditions just keeps the person from becoming dissatisfied. – Managers should emphasize job content to motivate – Intrinsic motivation is motivation derived from the non-monetary pleasure someone gets from doing the job or task. – Extrinsic motivation is motivation derived from earning a tangible reward, such as base salary or incentive pay. Copyright © 2023 Pearson Canada Inc. 12 - 7 Money and Motivation (5 of 9) Motivation and Incentives Demotivators and Edward Deci: – Potential downside of relying on extrinsic rewards: ▪ Could detract from the person’s intrinsic motivation. ▪ Highly motivated employees may find pay for productivity demeaning and lose the desire to do the job well out of sense of responsibility. Copyright © 2023 Pearson Canada Inc. 12 - 8 Money and Motivation (6 of 9) Motivation and Incentives Expectancy theory and Victor Vroom: – People won’t pursue rewards they find unattractive, or where the odds of success are very low. – Expectancy is a person’s expectation that their effort will lead to performance. – Instrumentality is the perceived relationship between successful performance and obtaining the reward. – Valence is the perceived value a person attaches to the reward. Copyright © 2023 Pearson Canada Inc. 12 - 9 Money and Motivation (7 of 9) Motivation and Incentives Expectancy theory and Victor Vroom: – If expectancy is lacking, manager must ensure that employee has the skills and confidence to do the job. ▪ Provide training and support. – Employees must believe in the instrumentality – that successful performance will lead to a reward. ▪ Provide easy to understand incentive plans. ▪ Deliver on promised rewards. – The reward must be of value to the employee. ▪ Take into account individual preferences. Copyright © 2023 Pearson Canada Inc. 12 - 10 Money and Motivation (8 of 9) Motivation and Incentives Using incentives also assumes the manager understands how consequences affect behaviour. Managers apply Skinner’s principles by using behaviour modification, which is using contingent rewards or punishment to change behaviour. Studies show that recognition of an employee’s contribution positively impacts performance, either alone or combined with financial rewards. Copyright © 2023 Pearson Canada Inc. 12 - 11 Money and Motivation (9 of 9) Figure 12.1 Social Recognition and Related Positive Reinforcement Managers Can Use Source: Based on B. Nelson, 1001 Ways to Reward Employees (New York, N Y: Workman Publishing, 1994), 19; S.C.L.Fong and M.A. Shaffer, “The Dimensionality and Determinants of Pay Satisfaction: A Cross-Cultural Investigation of a Group Incentive Plan,” International Journal of Human Resource Management 14, no. 4 (June 2003): 559. Copyright © 2023 Pearson Canada Inc. 12 - 12 Types of Incentive Plans (1 of 14) Incentives for All Employees Merit pay (merit raise) is any salary increase awarded to an employee based on their individual performance. Traditional merit pay plans are granted once a year as a pay raise, or a single lump sum without changing base salary. Traditional merit pay plans have two basic characteristics: 1. merit increases are usually granted to employees at a designated time of the year in the form of a higher base salary (or raise); and 2. the merit raise is usually based exclusively on individual performance. Copyright © 2023 Pearson Canada Inc. 12 - 13 Types of Incentive Plans (2 of 14) Incentives for All Employees Employee share purchase/stock ownership plan (ESO P) is a plan whereby a trust is established to hold shares of company stock purchased for or issued to employees. The trust distributes the stock to employees on retirement, separation from service, or as otherwise prescribed by the plan. – Can encourage employees to develop a sense of ownership and commitment to the firm. Copyright © 2023 Pearson Canada Inc. 12 - 14 Types of Incentive Plans (3 of 14) Incentives for All Employees Profit-sharing plan is a plan whereby most or all employees share in the company’s profits. – Help attract, retain, and motivate workers; offer tax advantages. – Easy to administer; broad appeal to employees. – Might produce one time productivity improvement only. – There are several types of profit-sharing plans. In cash plans, the most popular, a percentage of profits (usually 15 to 20 percent) is distributed as profit shares at regular intervals. Copyright © 2023 Pearson Canada Inc. 12 - 15 Types of Incentive Plans (4 of 14) Incentives for All Employees Gainsharing plan is an incentive plan that engages employees in a common effort to achieve productivity objectives and share the gains. – Works well in stable organizations. – Less flexible and useful in dynamic industries. – Payouts can vary by base salary and collective agreements. Copyright © 2023 Pearson Canada Inc. 12 - 16 Types of Incentive Plans (5 of 14) Incentives for Professional Employees Professional employees (a.k.a. knowledge workers) are those whose work involves the application of learned knowledge to the solution of the employer’s problems, such as lawyers and engineers. Making incentive pay decisions for professional employees is challenging. They are well-paid. They are often driven by the desire to produce high-calibre work, so extrinsic rewards have less impact on motivating them. Dual career ladders are a way to manage professionals pay. Another way is to supplement with non-financial and recognition-based award programs. Copyright © 2023 Pearson Canada Inc. 12 - 17 Types of Incentive Plans (6 of 14) Incentives for Operations Employees Piecework plan is a system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day. – Oldest and most common incentive plan. – Job evaluation determines production standards. – Simple to calculate, easy to understand, appears equitable. – Disliked by employees due to employers raising production standards to suppress wages. Copyright © 2023 Pearson Canada Inc. 12 - 18 Types of Incentive Plans (7 of 14) Incentives for Operations Employees Straight piecework plan is a set payment for each piece produced or processed. Guaranteed piecework plan is the minimum hourly wage plus an incentive for each unit produced above a set number of units within a predefined time frame (e.g., an hour, a shift, a week). Differential piece-rate plan is a plan in which workers are paid a basic hourly rate plus an extra percentage of their base rate for production exceeding the standard per hour or per day. It is similar to piecework payment, but is based on a percentage premium. Copyright © 2023 Pearson Canada Inc. 12 - 19 Types of Incentive Plans (8 of 14) Team or Group Incentives Team or group incentive plan is a plan in which a production standard is set for a specific work group and its members are paid incentives if the group exceeds the production standard. All members receive pay earned by highest or lowest producer; or average earned by the group. Production standard is based on the final output of the group. Choose a measurable definition of group performance or productivity that the group can control. Copyright © 2023 Pearson Canada Inc. 12 - 20 Types of Incentive Plans (9 of 14) Team or Group Incentives Rationale for using team incentives: – Many jobs are interrelated not independent. – Encourages cooperation through group planning, problem solving, and collaboration. – Reduces jealousy; members are indebted to each other. Disadvantages: – May be less effective at motivation as rewards are no longer based on each worker’s own effort. Copyright © 2023 Pearson Canada Inc. 12 - 21 Types of Incentive Plans (10 of 14) Team or Group Incentives Group plans are most effective when: – There is a high level of communication about the specifics of the plan. – There is strong worker involvement in plan design. – Plan is perceived to be fair. Copyright © 2023 Pearson Canada Inc. 12 - 22 Types of Incentive Plans (11 of 14) Incentives for Senior Managers and Executives Executive compensation includes salary, benefits, short- term incentives, long-term incentives, and perquisites. Short-term incentives: – Annual bonus Long-term incentives: – Intended to motivate and reward; encourage executive to stay with company. – Capital accumulation plans: ▪ Stock options Copyright © 2023 Pearson Canada Inc. 12 - 23 Types of Incentive Plans (12 of 14) Figure 12.2 Long-Term Incentive Plans Note: n = 114; percent based on organizations with at least one long-term incentive plan in place. Figures do not add to 100 because some respondents have more than one plan. Source: K. Coburn and A. Cowan, Compensation Planning Outlook 2020 (Ottawa, ON: The Conference Board of Canada, 2019). Copyright © 2023 Pearson Canada Inc. 12 - 24 Types of Incentive Plans (13 of 14) Incentives for Salespeople Salary plan: – Fixed salary with occasional incentives; does not depend on results. Commission plan: – Pay only for results; focuses on making a sale rather than cultivating customers. Combination plan: – Base salary and commissions. – Salary is not tied to performance. Copyright © 2023 Pearson Canada Inc. 12 - 25 Types of Incentive Plans (14 of 14) Incentives for Salespeople Maximizing sales results: – In setting sales quotas and commission rates, one wants to motivate sales activity but avoid excessive commissions. – One expert suggests this rule as to whether the sales incentive plan is effective: 75 percent or more of the sales force achieving quota or better, 10 percent of the sales force achieving higher performance level (than previously), and 5 percent to 10 percent of the sales force achieving below-quota performance and receiving coaching. Copyright © 2023 Pearson Canada Inc. 12 - 26 Developing Effective Incentive Plans (1 of 4) Role of Incentives in Employee Engagement: Employee engagement is often not included as a goal of an organization’s compensation plan. To encourage employee engagement: – Measure the extent supervisors encourage subordinates to be engaged. – Use incentives to reward supervisors for improving employee engagement. – Get employees involved in developing rewards programs. Copyright © 2023 Pearson Canada Inc. 12 - 27 Developing Effective Incentive Plans (2 of 4) When to Use Incentives Before implementing an incentive plan, remember: 1. Performance pay cannot replace good management. 2. Incentive plan that rewards pieces of production could lead to rush work and lower quality. 3. Pay is only a temporary motivator; build other motivators into jobs. 4. Rewards rupture relationships. 5. Rewards may undermine responsiveness. Careful management of rewards enhances performance. Copyright © 2023 Pearson Canada Inc. 12 - 28 Developing Effective Incentive Plans (3 of 4) How to Implement Incentive Plans 1. Pay for performance tied to successful achievement of critical business goals. 2. Link incentives to other activities (career development). 3. Link incentives to valued measurable competencies. 4. Match incentive to company culture. 5. Keep group incentives clear and simple. 6. Overcommunicate to recognize employee contributions. 7. Meaningful work can be as motivating as financial rewards. Copyright © 2023 Pearson Canada Inc. 12 - 29 Developing Effective Incentive Plans (4 of 4) Employment Engagement and Incentives Recognition is a critical component of total rewards. Recognition needs to be show throughout employee’s career. Employees consistently feel they receive little or no recognition and feel ignored and undervalued. Recognition is cost-effective. Effective recognition is specific, immediate, personal and spontaneous. – Builds confidence, and pride, is inspiring and makes one feel valued. Copyright © 2023 Pearson Canada Inc. 12 - 30