BEHP 5018 Unit 6

Profit-Indexed Performance Pay (PIPP)

Fairly index performance to employee performance e

Level III Job Enrichment

Implement hiring freeze Ensure consistent pay performance

Level IV: Self-Managing Employees

All managers practice PM Managers performance pay increases as span of control increases Team leaders ID and trained A manager hiring freeze is implemented

Compute the multiplier scale

All wages multiplied by the basis. $300000 x 4% =12000

Performance Management (PM)

Analyzing individual or small groups of employees and modifying the environment to improve performance.

Goal sharing budget

Each incentive pay period the employees scorecard score is multiplied by the assigned opportunity 10% opportunities x 80% score = 8% payout

Monthly compensation

Employee monthly salary

stock options

Management control Variable expense Tax benefit Retain employees Non contingent No impact on bx May be inequitable Repeatability Becomes an expectation

Merit increases

Low effort Employees prefer No contingent Inequitable Fixed cost Subjective

Create the threshold

Zero: no payouts to anyone. Uncontrollable expenses met first.

Company multiplier

0.0 to 3.0 based on company profit

Level 1 and 2 process

1. Assess current management practices 2. Manage design seminar 3. Executive session to design strategic and senior management scorecards 4. PFP design session with senior management 5. Manage interviews to design lower level scorecards 6. Set up database to report the scores each month 7. Data collection installation and training 8. Employee orientation 9. Three Months of test reports and refinement 10. Teach management how to improve the measures

Developing an organizational scorecard

1. Expense control-ST 2. Productivity-ST 3. Cash flow-ST 4. Sales-ST 5. Regulatory compliance-LT 6. Customer service-LT 7. strategic projects-LT

Test the scale

Against previous 12 months numbers Ensure payout in 6 months or revise to lower threshold.

3 strategies for improving and sustaining employee performance

1. Hire only good wmployees and fire the bad ones 2. Persude employees that working hard is in their best interest. 2. Reengineer the organizations performance system to maximize and sustain performance

Goal sharing budget

A fixed percentage of each employees base pay is assigned as incentive opportunity

Organizational behavior management (OBM)

A sub-discipline of ABA, which is the application of the science of behavior Guided by the single theory of human behavior and has historically emphasized identification and modification of the environmental variables that affect directly observable or verifiable employee performance

open system

A system with input, that changes its behavior in response to conditions outside the boundaries.

Typical interventions in PM

Antecedents: task clarification, checklists Training (antecedent) Consequences: lottery systems, goal setting, feedback Process Interventions: job redesign

annual bonus

At the managers discretion May retain employees Non contingent Does not impact bx May be inequitable Employees serve manager, not the customer Becomes an expectation

Performance scorecards

Based on Felix and Riggs work Variation of point system Several permutations

profit sharing

Based upon year end profit Easy to administer May retain employees Non contingent Little impact on bx Inequitable Becomes an expectation

PIPP components and formula

Basis percent Monthly compensation Performance index score Company multiplier

Drawbacks of an open system

Burden on accounting Employee trustworthiness Managers fear loss of control Information to competitors

To ease transition

Determine rationale for changeover Make sure the organization is ready for change Formal transition plan ready Abernathys 4 phase plan for complete Change over

Determine incentive pay basis

Can be increased Assigned to each employee Can be based on organizational level, key positions, tenure, or equal for everyone Examine company culture

Describe organizational Measurement

Cascaded through organization What the organization wants to achieve on an organizational scorecards Using the vision statement as a guide, balance short and long term goals

flexible scheduling

Compute the labor cost of a unit of work As productivity increases, allow employees to work fewer hours Ensure schedules match work cycles Monitor output timeliness and quality

Level 1: Results focused

Create objective measurement Each position has a scorecard PM practices are instituted here

How to develop an organizational scorecord

Decide the weight of each category List the specific measure that impacts the category Decide measures/ranges in each category List jobs and assign weights based on what they can influence

Voluntary pay reduction

Do if you have a reliable scorecard Top performers are eligible to volunteer Each one percent of salary given up is offset by 3 above salary incentive opportunity 3-6 month grace period Market your strategy and future performance No longer supervising. Your ensuring opportunities to perform

Level 11: stakeholder Pay

Employees give up their base pay to receive greater opportunities to earn based upon performance Best to make it a voluntary switchover

pay for performance (PFP)

Equitably aligns the contingencies in an origination so that the better the employees and company do, the more money they can make, all things being equal.

Gaetani, Hoxeng, and Austin (1985)

Found significant increase in both mechanics speed with an incentive condition

Piece rate

Generates high production Equitable No limits to earning Unbalanced for quality or safety Limited to single output that require high volume Discourages cooperation

sales commission

Generates high production Equitable No Limits on earning potential May encourage discounting Selective selling Poor service Credit risks Discourages cooperation Not indexed to profitability Employee does not car about the company

Level III implementation

Identify work prospecting, cross utilization, job enlargement, and flexible scheduling opportunities Design programs to capitalize on identified opportunities Program roll out

job enrichment

Increase the authority of a specific position

job enlargement

Increase the job functions of a specific position

Steps involved in transitioning to PFP system

Level 4 self managed Level 3 job enriched Level 2 stakeholder Level 1 results focused Bottom of pyramid: conventional workplace

Traditional performance pay plans

Merit increase Annual bonus Stock options Profit sharing Gain sharing Piece rate Commissions Goal sharing

Common objections to PFP systems

Monetary systems are counter productive Problems associated with valid performance measurement The programs are complex Extrinsic rewards can demotivate Employees can game the system Determining correct objectives is difficult Employers do not believe superiors will accurately evaluate their performance Hard to put in place

Performance Management

Most straightforward application of ABA to a business setting.

open-book management

Orienting employees to financial data before sharing Link employee work to financial results Link non financial measures to financial results

Long III, wilder, Betz, and Dutra

Pay for performance increased responding and on task bx than pay for time Pay for time was preferred for participants

Gain sharing

Pays from expense reduction May promote cooperation Impacts performance relative to group size Unbalanced Inequitable Modest performance gains Self limiting over time

Basis percent

Percent of monthly salary eligible for incentives

Subdivisions of OBM

Performance Management Behavior Based Safety Behavioral Systems Analysis Pay for performance/performance based pay

What happens with excessive negative reinforcement?

Performance to the minimum standard Restricted innovation Adversarial relationships Excuses Makes necessary negative reinforcement less effective Punishes bad behavior and ignores good behavior

Level IV Implementation

Plan for increasing managers span of control Allow for flexible scheduling opportunities Identify team leaders and provide team leader trainings Conduct lateral career path training with employees Program roll out

goal sharing

Provides for balanced performance goals Goal directed plan may produce higher levels of performance Can be applied to most jobs Can be customized May not motivate Payouts for each measure often independent which discourages balanced performance Can pay out when company is unprofitable

How often do you Compute the multiplier scale

Quarterly

Merit increase is based on:

Ranking Supervisor training Company performance Peer assessment Combination

Base pay options

Reinstate raises below the market value Permanent freeze Reduction in base pay

Advantages of an Open System

Responsive to external events Nimble, ability to change rapidly Continuous improvement Customer focus Profit focus Resilient and sustainable

management by exception

Results in negative reinforcement contingencies Manage by fear

Rewards are counterproductive b/c:

Rewards encourage people to focus only on one tasks and to take few breaks People come to see themselves as manipulated

Performance index score

Score from card 0% to 100%

goal sharing

Setting a goal and paying money when the goal is met

Work prospecting

Special projects often require separate scorecards

cross utilization

Train employees to complete other jobs in the company

Role of managers in a PFP system

Use the scorecards as a tool to create stakeholders. Manager becomes a facilitator. Monitoring monthly data scorecards Remove obstacles PM practices continue Facilitate work prospecting Specific performance improvement plans as needed Evaluate scorecards Assist employees in maximizing earning potential

George and Hopkins

When hourly pay was replaced with the ability to earn up to 7% of gross sales, wait persons pay increased 20-30% For managers the results were mixed