• Motivation comes from intrinsic and extrinsic rewards

• Abraham Maslow's Hierarchy of Needs Theory
• The most popular need theory, with 5 universal needs in a hierarchy of importance
• Prepotency: Higher-level needs are not important (and manifested) until lower-level needs are satisfied

• David McClelland's Learner Needs Theory
• Examined needs for Achievement, Affiliation, and Power
• A lot of attention on the need for achievement (nAch)
• Very important for entrepreneurial success, and learned at an early age

• Frederick Herzberg's Motivator-hygiene Theory
• Motivator factors (content) are separate from hygiene factors (context)
• Money is an hygiene factor and should not be used to motivate workers

• Self-determination Theory
• Examines the effects of extrinsic rewards on intrinsic satisfaction
• The idea is that when people are paid to do something, they feel a loss of personal control
• Intrinsic motivation was destroyed by all external factors

• Expectancy Theory
• People decide what to do by subjectively estimating the probability of being able to perform an activity and whether that activity is rewarding
• In short maximize pleasure, minimize pain

• It explains the relationship between effort, performance, and rewards (outcomes). And it depends on:

  
  

  1.Expectancy (perceived relationship between effort and performance)

  
  

  2.Instrumentality (perceived relationship between performance and outcomes)

  
  

  3.Valence (value of outcomes)

  
  

  ⛔ ⛔

  
  

• People are motivated to exert effort if by doing so, they can perform well and attain desired outcomes

• Expectancy Theory is based on perceptions

• Equity Theory
• A theory of job satisfaction suggesting that people compare their inputs/outputs with the inputs/outputs of others
• Attitude towards pay is determined by how much they receive, what they do to earn it, and whether they feel is fair compared to others
• Values are determined by people's perceptions, rather than an objective value

• Goal Setting Theory
• Individuals perform significantly better when they are attempting to achieve a specific goal
• 3 types of goals: Participative, Assigned, Do-your-best

• Merit Pay
• Wage level based upon performance levels (in addition to cost-of-living increases or YoS)
• In order to avoid long-term consequences of increasing the base pay, companies use lump-sum merit increases (one-time rewards for performance)
• Another method for calculating merit increase % is the comp-ratio approach (according to where they are in the pay range), preserving the integrity of the pay range

• Bonuses
• Do not increase base pay levels and provide greater discretion
  Signing bonus
  Performance bonus
  Project bonus
  Referral bonus
  Retention bonus
  Year-end or holiday bonus

• Price-rate Incentives
• Amount of $ an EE receives for performing a particular unit of work
• Straight piecework: individual incentive plan that provides a fixed rate pay for each item produced
• Differential piece-rate plan: incentive plan that provides a differentiated rate for low/mid/high standard producers. Recommended by Frederick W. Taylor ⛔ ⛔

• The Standard Hour Plan: workers are paid an hourly wage, but hour is measured in units produced rather than in minutes. If they produce above standard, they receive more
• The Hasley Premium Plan: Workers receive the premium for time saved

• Also called pay-for-knowledge, reward EEs for their ability to perform an array of related tasks rather than actual work performed
• EEs receive pay increases as they acquire additional skills
• Different models have been used in the design of these programs: stair-step model (hierarchical), building blocks model (any other), job-point accrual model (by points)
• Skill-based pay and and pay-for-knowledge programs also can be tied to performance

• Additional compensation for factors that make work more difficult or unpleasant
  Overtime
  Shift Pay
  Hazard Pay
  On-call Pay
  Call-back Pay
  Geo differentials
  Weekend and Holiday Pay

• Team incentives can be patterned after individual incentives
• Anything that can be paid as a group incentive can be paid as a group incentive (and distributed equally)
• Group incentives create greater cooperation among coworkers than individual incentives, reducing direct supervision
• Group incentives are most useful when jobs are interdependent
• Group incentives are paid to indirect labor departments (supporting groups)

• Profit Sharing
• Allows EEs to share in the profits (cash plan or deferred) of a company based on profitability and an allocation formula (how $ is divided among participants)
• Allocation are usually based on level of responsibility, merit, base pay, or YoS
• This reduces conflict between managers and production workers

• Gainsharing
• Bonuses are based on improved productivity rather than % of the profit
• Gainsharing is paid monthly/quarterly as opposed to profit-sharing (annually)
• The most popular plans are:
  Scanlon Plans: EEs share labor-cost savings, productivity increases, and suggestions
  Rucker Plans: similar to Scanlon but based on "value added"
  Improshare Plans: tied directly to measures of productivity. Improved Productivity through Sharing)

• What % of an EE"s pay should be base pay and/or incentive?
• Two compensation objectives must be balanced: security and motivation
• Stable bureaucratic companies need a different compensation program compared to a flexible one
• Three compensation objectives are security, equity, and motivation
• Base pay and incentives must be balanced in order to maximize pay objectives
• Issues to be considered:
  Ability to measure individual performance accurately, objectively and conveniently
  Extent to which workers can control the rate of production
  Degree of independence and cooperation
  The size of the group
  The organization's ability to produce a profit with timely and accurate measures of performance

• ExCo compensation is much larger than that of other EEs, including monetary and nonmonetary rewards (car, parking etc.)

• Executive compensation is influenced by revenue, profitability, responsibility and setting their own salary
• Sales is the best predictor, and the larger the company, the bigger the revenue
• Salaries are closely related to revenue, not profitability
• Just Noticeable Difference (JDN): Amount of money required to make a significant difference in the perception of an incentive. For an executive, a large sum is required

• The basic philosphy behind bonuses is reward for performance
• Bonus size depends, salary level, salary grade, or organizational level ($ or %)
• There are both short and long-term bonuses

• Viewed as an inexpensive benefit
• The basic premise of most is that executives are given the option of buying a specified number of shares at a fixed price
• For high-salaried executives, this can double their income
• Companies can often deduct the value of the options gains for tax purpsoes

• Known as perquisites (perks)
• Top-level executives receive more perks than middle-level executives

• Many executives receive additional compensation for serving on a board of directors for their own (or outside) corporation
• Most outside directors receive an annual retariner fee, plus a separate fee for each board meeting or committee they attend
• They can also opt for perks, stocks or even liability insurance coverage

• Pension: income individuals receive during retirement, as a deferred payment for past services
• Defined benefit (DB) pension plan: company-provided plan gives an income to retirees based on a formula (yrs of service and avg annual income for last 5 years)
• Defined contribution (DC) pension plan: individual pension fund created for each EE into which company invests a specified amount of $ each year until the EE retires
• Cash balance plan: repalce a defined benefit pension plan and allow EEs to decide how their funds will be invested (and is porable)

• Medical insurance: medical services and hospitalization coverage
• Dental care: dental and orthodontic
• Dependent care: on-site childcare facilities, childcare allowances, day-care information, and flexible scheduling

• Life insurance and income-continuation plans help alleviate such illnesss/accident difficulties by sharing the cost of risks
• Severance pay: for terminations
• Disability
• Long-term disability (LTD) help with incapacitating accident/illness
• Sick Leave: help getting regular salary when unable to work due to illness. Sometimes can be accumulated
• Personal time: can be used for illness or vacation
• Long-term-care (LTC) insurance: for people unable to care for themselves due to age or disability

• Life Insurance
  
  • The two major forms of insurance convering death are life insurance and accidental death and dismemberment
  • Group term life insurance: help for beneficiary
  • Accidental death and dismemberment: special form of insurance for accidents resulting in death, loss of limbs or eyesight

• Also called voluntary benefits, include a broad range of benefits
• The costs to the employer are typically limited to administrative costs
• Employee Assistance Program (EAP)
• Legal Assistance
• Auto and Property Insurance
• Retirement Counseling
• Transfer and Relocation Assistance (Relo expenses, sometimes lump-sum)
• Tuition Reimbursement Benefit
  

• Paid vacations and paid holidays create the impression that EEs are being paid for not working
• Paid holidays (full, partial, or time-off work)
• Paid vacations (fixed or based on LoS)
• Paid Personal Leave
• Union Activities
• Reporting time (getting paid for showing up and not working)
• Sabbatical Leaves (can be used for social work or studies)
• Paid Caregiver Leave
• Paid Parental Leave
• Paid Funeral Leave

• Companies use a variety of nonfinancial incentives
• Award Programs: can be motivating if part of an overall program that includes a history of meaningful presentations
• Suggestion Systems: formal systems for encouraging idea sharing (efficiency or profitability)
• EE recognition software: most are cloud-based and many include mobile apps

• Are based on 3 philosophies:
  1.Sharing the risks of accidents and illness
  2.Forced savings for retirement or bad times
  3.Sharing costs of special services
  
  
  

• In essence, benefit programs provide a dignified way for EEs to receive a relatively secure and constant level of income in spite of accident/illness or time away from work
• Benefit programs require EEs to adopt an attitude of sharing and giving
• Benefit programs force people to provide for themselves by requiring them to save for retirement

• Most surveys find that benefits and pay are the most highly ranked factors for EE satisfaction regardless of age
• The most important benefits are healthcare and medical benefits, followed by flex hours, retirement benefits, paid time off (depending on age)

• There are four methods for analyzing the costs of EE benefit plans
• Annual cost method: reports the total annual cost for each benefit
• Cost per employee per year: divides the total annual cost of each benefit by the # of EEs
• Percent of payroll: calculates the costs of EE benefits by expressing the cost as a % of the total payroll costs

• Cents-per-hour: divides the total annual cost per EE by the # of hours worked per year

  
  

• Benefit Plan Audits: companies should audit plans regularly (eligibility and claims audits)

• Coordination of Benefits: problems occur with overlapping coverages
• Utilization Review: examines how often each benefit is used by EEs and the costs of providing each benefit program

• A variety of communication strategies can be used (portals, agent enrollment sessions, newsletters, lunch-and-learn sessions etc.)
• Benefits websites should be mobile-optimized and available 24/7
• The benefits' descriptions need to be written in language the EE can understand and included as part of the NEO
• Total Reward Statement: a personalized summary of an organization"s financial commitment for each of its EEs

• It is through budgeting that compensation cost-benefit objectives are achieved
• Pay budgeting involves forecasting the compensation costs associated with employing HR for the next budget year
• The two approaches are:
• Bottom-up: individual pay rates for the next plan year are forecasted and summed to create a total budget. This is consistent with "zero-based budgeting"
• Top-down: total pay budget for a unit is centrally determined and then allocated to each unit and individual. HR provides merit increase grids (pay increase for each performance levels). There's also a strategy called planned pay-level rise (centralized in top mgmt)

• Cost Management
  
  
  

• Three variables are involved: number of EEs, average cash compensation, average benefit cost
• Formula: Labor Costs = Employment x (Average Cash Compensation + Average Benefit Cost)
• Controlling Employment: head count control (cost reduction strategy with + and -)
• Controlling Cash Compensation: labor cost control through contingent workers or variable pay (instead of fixed pay)
• Controlling benefits cost: various strategies in place with flexible benefit plans

• Compensation impact analysis: comparing outcomes of the firm against 6 criteria (legal, adequate, motivating, equitable, secure, cost-benefit effective)
• Whether a pay system is adequate, motivating, equitable, and secure is based on subjective factors
• Obtaining measures for these criteria require index generation (and comparing them with comp-ratios)
• EE attitudes are an important source of information and can be done via a questionnaire

• Contries have laws that regulate the compensation and benefits of EEs based on the next aspects:
  Minimum wage
  Overtime
  Equal pay for equal work
  Paid leave
  Worker's compensation
  Unemployment compensation
  Pensions
  Benefits
  Taxation

Motivation and Financial Incentives (Reinforcement theory)

• Money is a generalized secondary reinforcer
• Predicts that the individual will perform the task as long as the $ is considered and adequate reward
• Predicts performance will improve as financial rewards become larger and tied to performance