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CHAPTER 9: PAY FOR PERFORMANCE: THE EVIDENCE (Components of a Total Reward…
CHAPTER 9: PAY FOR PERFORMANCE: THE EVIDENCE
Do People Stay or Leave Because of Pay?
Factors impacting turnover
-Pay based on individual performance
-Group incentive plans
-Level of employee satisfaction with pay
-Changing base pay
Other rewards that influence the decision to stay
Work variety and challenge
-Development opportunity
-Social
-Status recognition
-Work importance
-Benefits
Wage Components
Base pay
- The guaranteed portion of an employees' wage package
As long as employment continues, this is the secure portion of wages
Merit pay
- Wages increase granted to employee as function of some assessment of employee performance. Adds on to base pay in subsequent year.
Lump-sum bonus
- As with merit pay, granted for individual performance. Does not add into base pay, but is distributred as a one-time bonus
Cost of Living increase
-Same as across the board increase, except magnitude based on change in cost of living
Across the board
- Wage increase granted to all employees, regardless of performance, typically an add on to base pay in subsequent year
What Behaviors Do Employers Care About?
Org. strategy is the guiding force that determines what kinds of employee behaviors are needed
Behaviors that compensation needs to reinforce
:
-Compensation should be sufficiently attractive to make recruiting and hiring good potential employees possible (attraction)
-Make sure the good employees stay with the company (retention)
-Build further knowledge and skills
-Find ways to motivate employees to perform well on their jobs-to take their knowledge and abilities and apply them in ways that contribute to org. performance
Employers want employees to perform in ways that lead to better org. performance
Performance must be accurately measured to tell if compensation efforts are working
Performance management
Motivation Theories
Maslow's Need Hierarchy
Needs from basic (food and shelter) to higher order (self-esteem, love)
-Base pay must be set high enough to provide economic means to meet their basic living needs
-An at-risk program will not be motivating since it restricts employees ability to meet lower order needs
Herzberg's two factor theory
Hygiene factors in their absence prevent behaviors, but in their presence cannot motivate performance. related to basic living needs
-Satisfiers such as recognition and achievement motivate performance
-Base pay must be set high enough to provide individuals with the economic means to meet hygiene needs, but it cannot motivate performance
-Performance is obtained through rewards
Expectancy
-Expectancy is employee assessment of their ability to perform required job tasks
-Instrumentality is employee beliefs that requisite job performance will be rewarded by the org.
-valence is the value employee attach to the org. rewards offered for satisfactory job performance
Equity
- A disequilibrium in the output to input balance causes discomfort
Performance input and expected output must be clearly defined and identified
Reinforcement
Rewards must follow directly after behaviors to be reinforcing
-Behaviors that are not rewarded will be discontinued
-Performance based pay must follow closely behind performance
Components of a Total Reward System
Compensation - Wages, commissions, and bonuses
Benefits - Vacations, health insurance
Social interaction - Friendly workplace
Security - Stable, consistent position and rewards
Work variety - Opportunity to experience different things
Workload - Right amount of work
Do Employees More Readily Agree to Develop Job Skills Because of Pay?
-Skill based pay is intended to pay employees for learning new skills
-Evidence indicates that pay for skill may not increase productivity, but it does focus people on believing in the importance of quality and in turning out significantly higher quality products
Designing A Pay For Performance Plan
Efficiency
-Strategy
-Structure
-Standards(Objectives, Measures, Eligibility, Funding
Equity/Fairness
-Distribute justice
-Procedural justice
-Communications
Compliance
-Comply with existing laws
-Enhance and maintain firm's reputation
Do Employees Perform Better On Their Jobs Because of Pay?
A well design plan linking pay to behaviors of employees generally results in better individual and org. performance
If the incentive depends on the individual performance, applicants find the company more attractive
Team based incentives in contrast are less attractive
One view suggest that linking pay to performance occurs through two mechanism, an incentive effect and sorting effect