© 2010 by Prentice Hall 11-1 Rewarding Performance Chapter 11 Copyright ©2010 Pearson Education,...

© 2010 by Prentice Hall 11-1

Rewarding Performance

Chapter 11

Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall


Pay for Performance Plans Challenges Meeting the Challenges

Types of Pay for Performance Plans Individual Group Plant Corporate

Pay for Performance Plans For Executives For Sales Persons

Chapter 11 OverviewChapter 11 Overview



Pay-for-performancePay-for-performance

Pay-for-Performance (P-f-P) Incentive System Rewards individuals and groups based

on their contributions

Challenges “Do only what you get paid for”

syndrome Unethical behavior——pressure to

produce Can foster competition, not cooperation



Factors beyond employee control

Pay-for-Performance: ChallengesPay-for-Performance: Challenges

Difficulties in measuring performance

Psychological contract Credibility gap Job dissatisfaction and stress Potential reduction of intrinsic drives



Link pay and performance Piece-rate system

Meeting the ChallengesMeeting the Challenges

Use P-f-P as part of broader HRM system

Build employee trust Culture can support or counter mgmt

efforts Promote the belief that performance

makes a difference Infuse into organization’s climate



Use multiple layers of rewards Different types of pay incentives

Meeting the ChallengesMeeting the Challenges

Increase employee involvement Participate in pay plan design

Stress importance of acting ethically

Use motivation and nonfinancial incentives



Types of Pay-for-Performance Types of Pay-for-Performance PlansPlans



Individual PlansIndividual Plans

Individual-based plans Merit pay, bonuses, and awards

Advantages: Performance rewarded likely to be

repeated Incentives can help shape person’s goals Rewarding individual performance is

equitable Fit with individualistic culture in the U.S.




Disadvantages: Can promote single-

mindedness Many do not see link

between pay and performance

Quality goals may not be given priority

May promotes inflexibility



Most likely to succeed when:


Individual contributions can be isolated The job demands autonomy Cooperation is less critical to successful

performance Competition is to be encouraged



Team-based PlansTeam-based Plans

Cash or noncash Generally given to all equally

Some teams decide how bonus distributed



Team-Based PlansTeam-Based Plans

Advantages: Foster group cohesiveness Easier to assess team performance

Disadvantages: Possible lack of fit with individual culture Free-riders Social pressures to limit performance Difficulties identifying meaningful

groups Intergroup competition



Most likely to succeed when:

Team-Based PlansTeam-Based Plans

Work so intertwined, hard to identify individual contributions

Organization’s structure facilitates groups and teamso Are few levels in hierarchyo Technology allows for separation of work

into independent groups Objective is to foster entrepreneurship in

self-managed work groups



Gainsharing Assumes competition to be avoided

Plantwide PlansPlantwide Plans

Advantages: Encourages active employee input Can increase cooperation levels Subject to fewer measurement errors Easier to calculate Workers more likely to accept program



Conditions favoring plantwide plans Small to mid-size firms Technology can improve efficiency Participative management Product market is stable

Plantwide PlansPlantwide Plans

Disadvantages: Protects low performers Management-labor conflict Improvements easier when first

instituted



Corporatewide PlansCorporatewide Plans

Profit Sharing Employee Stock Ownership Plan (ESOP)



Advantages: Financial flexibility for the firm Increased employee commitment Tax advantages

Disadvantages: Employees may bear financial risk Limited effect on productivity May have long-term ramifications on

firm’s financial position




Conditions favoring corporatewide plans:


Larger organizations Interdependence of different business

segments Cyclical market conditions

o During short term volatility, help firms save

o Are in retirement plans, so most employees not immediately affected

The presence of other incentivesCopyright ©2010 Pearson Education,

Inc. publishing as Prentice Hall


Executive Plans: Can’t always tell if pay tied to performance

Designing Executive P-f-P PlansDesigning Executive P-f-P Plans

Salary and short-term incentives Long-term incentives Golden Parachutes Perks——“ stealth wealth”

Board of Directors Sets top management’s pay More involved than in past



Key Strategic Pay QuestionsKey Strategic Pay Questions



For Salespeople:

Designing Salespeople’s P-f-P Designing Salespeople’s P-f-P PlansPlans

Straight Salaryo Maintain good customer relationso Service existing accounts

Straight Commissiono Generate more sales through new

accts Combination or Mixed Plans



Rewarding Excellence in Customer Rewarding Excellence in Customer ServiceService

Customer service rewards more common

May be individual, team, or plant-based



Pay-for-performance: many challenges Meeting the challenges requires planning

Should be part of larger compensation system Should fit with overall strategic plan of org.

Pay-for-performance at four levels: Individual, group, plant, organization wide

If P-f-P plan becomes entrenched Employees will expect them regularly

P-f-P for executives and salespeople requires additional thought

Summary and ConclusionsSummary and Conclusions


© 2010 by Prentice Hall 11-1 Rewarding Performance Chapter 11 Copyright ©2010 Pearson Education,...

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Transcript of © 2010 by Prentice Hall 11-1 Rewarding Performance Chapter 11 Copyright ©2010 Pearson Education,...