Employee Contribution 7

7/31/2019 Employee Contribution 7

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Employee Contribution

Pay-for-performance


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Motivational theories

Maslows need hierarchy

Herzbergs two-factor theory

Expectancy Equity

Reinforcement

Goal setting Agency


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Total reward system

Compensation Benefits Social interaction Security

Status/recognition Work variety Work load Work importance Authority /autonomy

Advancement Feedback Work conditions Development opportunity


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Wage ComponentsWage Component Definition

Base Pay Guaranteed portion

Cost of living Change in cost of living

Merit pay Assessment of performance ,add on to base pay

Lump-sum bonus One time bonus ,does notadd to base

Individual incentives Measures of performance areobjective

Success-sharing Variable pay measure ofgroup performance

Gain sharing Exceeding some cost index

Profit sharing Exceeding financial goal

Risk sharing Penalized for poorerformance


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Importance for Retention

Type of Reward

Work variety

challenges

Dev opportunity

Social

Status recognition Work imp

Benefits

% who think it isimportant forretention

50% 38%

40%

23% 20%

22%


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Personality indicators for preferred

rewardsPerson characteristic Preferred Reward

Materialistic More concerned about paylevels

Low self-esteem Want decentralized ,largeorganization with little pay forperformance

Risk taker Want more pay based onperformance

Risk averse Want less performance basedpay

individualistic Want pay plans based onindividual performance on

team performance


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Overall preference for alternative

Reward plans

Type of plan % of companies who thinksuch reward systemmotivates employee

Short-term incentives 92Annual pay rise 84

Restricted stock grant 79

Health care Benefits 75

Spot awards 72

Non cash recognition 57

Profit sharing 49


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Designing a Pay-For-Performance Plan

1. Efficiency:

Strategy: Does this plan supportcorporate objectives

Structure: Is the structuresufficiently decentralized fordifferent operating units to create

flexible pay Standard: Objectives,

Measures,Eligibility , Funding


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Cont

2. Equity/Fairness

3. Compliance


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Pay For-Performance Plan

1. Specific plan

Merit Pay: It links increase in basepay to the rating on subjectiveperformance

Lump-sum Bonuses: End-ofyearbonus that does not build into base

pay Individual Spot Awards: Awarded

for exceptional performance


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Cont

Individual incentive plan: Pay for someobjective ,pre established level of performance

Straight piece work plan: Based on units of

production per time period Standard hour plan: Based on completion of a

task in some expected time period

Taylor differential piece rate/Merrick plan:

Based on unit of production per time period Halsey 50-50 method: Based on shared split

between worker and employer of any saving indirect cost


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Advantages

Raises productivity ,lowerproduction cost and increaseearning of workers

Less direct supervision needed

Helps costing and Budgetary control


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Disadvantages

Greater conflict between employees

New technology introduction will be

resisted New production method will be resisted

Increased turnover among employees

Elevated level of mistrust


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Team incentive plans

Plan type What it is Adv Disadv

Cash profit

sharing

Shares

percentage ofprofit

Simple, easy to

understand

Profit influenced

by number offactors,demotivational

Stockoptions

Stock shares Impact employeebehavior, tax

deferral

Indirect pay/performance link,

Put moneyBalancedscore card

Combine financialand operating,quality measures

Communicateorganizationpriorities

Can be complex

Gain

sharing

Share economic

benefit ofimprovedproductivity ,quality

Clear

performancereward ,Fosterteam work

Can be

administrativecomplex

Team

incentive

Based on team

and group

Reinforce

teamwork

May create team

competition


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Advantages

Positive impact on employees

Easier to develop performance

measures Employee support

Increase employee participation indecision making


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Disadvantages

Individual performance may not beemphasized

Increased turnover among employee Increases compensation risk to

employee because of lower incomestability


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Comparison between Individual and Group plansCharacteristics Individual plan Group plan

Performance Measure Task accomplishmentnot dependent onperformance of others

Output is groupcollaborative

OrganizationalAdaptability

Individualperformance standardsare stable , Production

methods and labor mixconstant

Individualperformance standardschanges , Production

methods and labor mixmust adapt tochanging pressure

OrganizationalCommitment Superior viewed as unbiased andperformance standardsclearly stated

High commitment toorganization objectives

Union status Non union or union

treat everyone equal

Non Union or Union

less opposed to groupincentives


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Key Elements in Gain Sharing

Plan

Strength of reinforcement

Productivity standards

Sharing the gains between managementand workers

Scope of the formula

Perceived fairness of the formula Ease of administration

Production variability


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Various Gain sharing plansScanlon plan Rucker plan Improshare

Input factor Payroll costs Labor cost Actual hoursworked

Output factor Net sales Value added Total standard

value hours


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Cont

Scanlon plan :Incentives arederived as function of the ratiobetween labor costs and salesrevenue and the value of goods ininventory.

Rucker Plan : Incentives are derived

as function of the ratio betweenlabor costs and value added ofproduction.


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Difference between Scanlon and

Rucker Plan

Rucker plan ,tie incentive to a widevariety of savings ,not just laborsavings.

Rucker plan provide better flexibility


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Improshare

Improved Productivity Through sharing(Improshare) decides the standard thatidentifies the expected hours required toproduce an acceptable level of output .Any savings arising from production ofthe agreed-upon output in fewer than

expected hours is shared by the firm andby workers.


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Long term incentive plans

Focus on performance beyond oneyear

Motivates long-term value creation Increases internal growth

Create ownership


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Employee stock ownership

plans(ESOPs)

Effects are generally longterm

What effect stock price is difficult to

judge Performance measures are too

complex to understand

Sudden fall in stock price may leadto demotivation


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Performance plans

They features corporateperformance objectives for nextthree years

They are given for exceeding goalsrelated to financial earning or returnmeasure


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Broad based plans(BBOPs)

Shares of stock over a designatedtime period.

They show lot of versatility Create culture of ownership

Reinforce a strong performanceculture

Rewarding all employees(broadbased participation)


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Cont

Starbuck uses beanstock plan for thoseemployee who work for more than 500hrs per year, of 10 to 14 % of theirearning and expiring 10 years after thegrant date.

Microsoft BBOP is given to all

permanent employees starting 12month after the stock grant date,12.5% is vested every six month

Employee Contribution 7

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