comp and benefits quiz 3

Maslow hierarchy -essential features

-People are motivated by inner needs -needs from a hierarchy from most basic (food and shelter) to higher-order (e.g self esteem, love, self-actualization) -needs are never fully met; they operate cyclically -Higher-order needs become motivating after lower-order needs have been met -when needs are not met, they become frustrating

What behaviors do employers care about?

1. How do we attract good employment prospects to join our company? 2. How do we retain these good employees once they join? 3. How do we get employees to develop skills for current and future jobs? 4. How do we get employees to perform well while they are here?

Group incentive plans : Cons

1. Line-of-sight may be lessened, that is employees may find it more difficult to see how their individual performance affects their incentive payouts 2. may lead to increased turnover among top individual performers who are discouraged because they must share with lesser contributors 3. Increases compensation risk to employees because of lower income stability. May influence some applicants to apply for jobs in firms where base pay is larger compensation component

Equity - predictions about performance - based pay

1. The pay performance link is critical; increases in performance must be matched by commensurate increases in pay 2. Performance inputs and expected outputs must be clearly defined and identified 3. Employees evaluate the adequacy of their pay via comparisons with other employees

Herzbergs predictions about performance - based pay

1. base pay must be set high enough to provide individuals with the economic means to meet hygiene needs, but it cannot motivate performance 2. Performance is obtained through rewards-payments in excess of that required to meet basic needs 3. performance-based pay is motivating to the extent it is connected with meeting employees' needs for recognition, pleasure attainment, achievement, and the like. 4. Other factors such as interpersonal atmosphere, responsibility, type of work, and workng conditions influence the efficacy of performance- based pay

Maslows heirarchy - predictions about performance - based pay

1. base pay must be set high enough to provide individuals with the economic means to meet their basic living needs 2. An at-risk program will not be motivating since it restricts employees' ability to meet lower-order needs 3. Success-sharing plans may be motivating to the extent they help employees pursue higher-order needs

Expectancy predictions about performance - based pay

1. job tasks and responsibility should be clearly defined 2. the pay-performance link is critical 3. Performance based-pay returns must be large enough to be seen as rewards 4. People choose the behavior that leads to the greatest reward

Expectancy -so what?

1. larger incentive payments are better than smaller ones. 2. Line of sight is critical- employees must believe they can influence performance targets 3. Employee assessments of their own ability are important - organizations should be aware of training and resource needs required to perform at target levels

Goal setting- so what?

1. line-of-sight is important; employees must believe they can influence performance targets 2. Performance targets should be communicated in terms of specific, difficult goals 3. Feedback about performance is important 4. Performance-based payouts should be contingent upon goal achievement

Equity - so waht?

1. pay levels is important - must meet minimum requirements before performance-based pay can operate a motivator 2. Security plans will induce minimum, but not extra performance. Success-sharing plans will be motivating. At-risk plans will be demotivating 3. Other conditions in the working relationship influence the effectiveness of performance-based pay

Herzbergs - so what?

1. pay levels is important must meet minimum requirements before performance-based pay can operate as motivator 2. Security plans will induce minimum, but not extra, performance. Success- sharing plans will be motivating. At-risk plans will be demotivating 3. Other conditions in the working relationship influence the effectiveness of performance- based pay

maslows - so what?

1. performance based pay may be demotivating if it impinges upon employees' capacity to meet daily living needs 2. Incentive pay is motivating to the extent it is attached to achievement, recognition, or approval

Goal setting predictions about performance-based pay

1. performance based pay must be contingent upon achievement of important performance goals 2. performance goals should be challenging and specific 3. the amount of the incentive reward should match the goal difficulty

Reinforcement - predictions about performance-based pay

1. performance based payments must follow closely behind performance 2. Rewards must be tightly coupled to desired performance objectives 3. Withholding payouts can be a way to discourage unwanted behaviors

Agency -predictions about performance-based pay

1. performance- based pay must be tightly linked to organizational objectives 2. employees dislike risky pay and will demand a wage premium ( higher total pay) in exchange for accepting performance based-pay 3. Performance based pay can be used to direct and induce employee performance

Agency - so what

1. performance-based pay is the optimal compensation choice for more complex jobs where monitoring employees' work is difficult 2. Performance targets should be tied to organization goals 3. Use of performance-based pay will require higher total pay opportunity

Group incentive plans : pros

1. positive impact on organization and individual performance of about 5-10% a year 2. easier to develop performance measures than it is for individual plans 3. signals that cooperation, both within and across groups, is a desired behavior 4. Teamwork meets with enthusiastic support from most employees 5. May increase participation of employees in decision-making process

Key elements of gain-sharing plan

1. strength of reinforcement 2. productivity standards - usually historical standards 3. sharing the gains 4. scope of the formula 5. ease of administration 6. production variability

Improshare (improved productivity through sharing)

A gain sharing program under which bonuses are based on the overall productivity of the work team easy to administer and communicate Develops standards to identify expected hours required to produce an acceptable level of output savings are shared by firm and workers

Exchange theories

A second set of theories (expectancy, equity, and agency theories) focus on the nature of the exchange Many compensation practices recognize the importance of a fair exchange. Pay decisions, and more, owe much to understanding how the employment exchange affects employee motivation.

Spot awrads

About 35 percent of companies use them. 74 percent reported them effective. Usually awarded for exceptional performance. Larger companies use formal mechanisms while smaller companies may be more casual

Goal setting

Challenging performance goals influence greater intensity and duration in employee performance Goals serve as feedback standards to which employees can compare their performance individuals are motivated to the extent that goal achievement is combined with receiving valued rewards

Value of Employee Benefits

Companies spend trillions on benefits. ---Yet a typical employee recalls only 15 percent. Some say benefits are taken for granted. ---Yet they drive job satisfaction. One study says employees don't want more benefits, rather a choice of benefits. ---Perceived value rises when employers offer a flexible benefit package.

Performance Plans (performance shares and performance units)

Driven by financial earnings or return measures. Pay for meeting or exceeding specific goals

Low variability and stable/clear performance measures

Emphasize monetary rewards with large-incentive component

High variability and stable/clear performance measures

Emphasize monetary rewards: large base pay with low-incentive portion

Equity

Employees are motivated when perceived outputs (pay) are equal to perceived inputs (effort, work behaviors) A disequilibrium in the output-to-input balance causes discomfort If employees perceive that others are paid more for the same effort, they will react negatively (shirk) to correct the output-to-input balance

Employee stock ownership plans (ESOPs)

Generate long-term effects. Foster employee willingness to participate in the decision-making process. Have little impact on productivity or profit.

Why the Growth Over Time?

Government mandated: Worker's compensation Unemployment Social security Other laws ERISA (Employee Retirement Income Security Act) Patient Protection Affordable Care Act FMLA Others?

Team incentive plans

Group incentive gain-sharing

Administering the program

Hinges on employee communication What to communicate To whom How it is communicated How frequently

Variable pay can be traced to two trends

Increasing competition from foreign producers A fast paced business environment requires workers adapt quickly to change

Valence

Is the value employees attach to the organization rewards offered for satisfactory job performance

Wage and price controls during WWII and the Korean War

Limitations on wage increases Unions and employers negotiated benefits as an alternative

Risks and rewards of LTI's: level one

Low Risk/reward 1. Time-based restricted stock - an award of shares that actually are received only after the completion of a predefined service period. Employees who terminate employment before the restriction lapses must return their shares to the company 2. Performance-accelerated restricted stock: restricted stock granted only after attainment of specified performance objectives 3. Stock purchase plan: opp to buy shares of compnay stock either at prices below market price or with favorable financing

Risks and rewards of LTI's: level two

Medium Risk/Reward 1. time-vest stock option: this is what most stock options are - the right to purchase stock at a specified price for a fixed time period 2. Performance-vest restricted stock: this is a grant of a stock to employees upon attainment of defined performance objectives 3. Performance-accelerated stock option: an option with a vesting schedule that can be shortened if specific performance criteria are met

How should benefits be financed?

Noncontributory (employer pays total costs). Contributory (costs are shared with employee). Employee financed

individual incentive plans

Offer a promise of pay for some objective, pre-established level of performance. All plans use an established standard for comparing worker performance to determine magnitude of the incentive pay. Differences in plans occur over two dimensions: the method of rate determination, and the relationship between production and wages.

Employee benefits

Part of total compensation package Life insurance, pension, worker's compensation, health, dental, vision, retirement, paid leave, vacation, what else?

Agency -

Pay directs and motivates employee performance Employees prefer static wages ( a salary) to performance-based pay If performance can be accurately monitored, payments should be based upon satisfactory completion of work duties If performance cannot be monitored, pay should be aligned with achieving organization objectives

Wagner Act of 1935 - AKA the National Labor Relations Act

Promotion of collective bargaining Began with preventing unfair or abusive labor practices Also impetus for benefits that today are considered standard

low variability and unstable/unclear performance measures

Provide a wide array of awards beyond just money -include significant incentive component

Two categories of evaluation formats are:

Ranking and rating

A productivity norm

Requires effective measurement of base-year data acceptance by workers and management of this standard for calculating bonuses.

Reinforcement

Rewards reinforce (motivate and sustain) performance Rewards must follow directly after behaviors to be reinforcing Behaviors that are not rewarded will be discontinued

Two differences between scanlon and rucker plans

Rucker plan ties incentives to a variety of savings Scanlon plans focus on labor savings Rucker plans are more amenable to linkages with individual incetnive palns

Three plans have variable incentives linked to a standard expressed as a time period per unit of production.

The Halsey 50-50 method. The Rowan plan. The Gantt plan. Individual incentive plans

Employees are often frustrated with the appraisal process.

The biggest complaint from employees and managers is they are too subjective. There lurks the possibility of unfair treatment by supervisors.

individual incentive plans

The most frequently implemented is a straight piecework system. Two common plans set standards based on time per unit and tie incentives to level of output. Standard hours plan. Bedeaux plans. The Taylor plan: two piecework rates The Merrick system: three piecework rates

All team incentive plans can be described by common features:

The size of the group that participates in the plan. The standard against which performance is compared. The payout schedule.

Effective worker committees

Their primary function is reviewing suggestions on how to improve productivity or reduce costs.

Risks and rewards of LTI's: level three

These plans are grouped by the level or risk faced by employees having these incentives, as well as the expected rewards that might come from them. 1. Premium-prices stock option: a stock option that has an exercise price about market value at the time of grant. This creates an incentive for employees to create value for the company, see the stock price rise,, and thus be eligible to purchase the stock 2. Indexed stock option: an option whose exercise price depends on what peer companies experiences are with stock prices. If industry stock prices are generally rising. It would be difficult to attribute any similar rise in specific improvements beyond general industry improvement 3. Performance-vested stock option: one that vests only upon the atainment of a predetermined performance objective

merit bonuses

Thought to be a substitute for merit pay. Based on performance and received as an end-of-year bonus. Not built into base pay. Can be less expensive than merit pay over the long run. Employees are not fond of merit bonuses.

Motivation is a product of

Three perceptions: expectancy, instrumentality, valence

Reinforcement - so what?

Timing of payouts is very important

Combination plans: Mixing individual and group plans

Variable pay depends on individual performance and company performance.

Individual spot awards

an incentive that companies use to encourage their employees to work toward specific outcomes

risk sharing

base pay is reduced relative to the level offered in a success-sharing plan These plans shift part of the risk from the company to the employee.

Flexible compensation

based on the idea that only the individual employee knows what package of rewards would best suit personal needs

Performance ratings are influenced by:

behaviors observed by raters, organization values, competition among departments, status differences between departments, and economic conditions.

Alternation ranking

crosses off best and worst employees

Success sharing

employee pay is constant -variable pay adds on during successful years

Expectancy

employee's assessment of their ability to perform required job tasks

Herzberg's Two-Factor Theory

employees are motivated by two types of motivation: hygiene factors and satisfiers Hygiene (or maintenance) factors in their absence prevent behaviors, but in their presence cannot motivate performance. They are related to basic living needs, security and fair treatment Satisfiers - such as recognition, promotion, and achievement, motivate performance

Instrumentality

employees' beliefs that requisite job performance will be rewarded by the organization

distributive justice

fairness in the amount that is distributed to employees

procedural justice

fairness of the procedures used to determine the amount of rewards

Long-term incentives (LTIs)

focus on performance beyond one-year. Recent growth in LTI plans is spurred by a desire to motivate longer-term value creation -Little evidence that stock ownership elads to better corporate performance -some evidence that stock ownership increases internal growth

Equal Employment Opportunity (EEO)

forces organizations to document decisions to ensure they are firmly tied to performance or expected performance

What do employers prefer pay systems influenced by?

individual performance, COLA, seniority, and the market rate as the important factors?

Merit pay

links increases in base pay to how highly employees are rated on a subjective performance evaluation

Scanlon plans

low labor costs without lowering the level of the firm's activity incentives derived as a function of the ratio between labor costs and sales value of production (SVOP) -SVOP includes sales revenue and value of inventory

Starting point of all plans is?

merit pay

paired comparison method

method of performance measurement that compares each employee with each other employee to establish rankings

Incentive effect

pay can motivate people to perform better

Gain-sharing plans

pay offs for team defined at the level of a strategic business unit uses operating measures to gauge performance

Sorting effect

people sort themselves by what is important to them

High variability and unstable/unclear performance measures

provide a wide array of awards beyond just money. Emphasize base pay with low-incentive portion

straight ranking method

rank employees from best performing employee (with rank of 1 indicating best performance) to lowest performing employee

Rucker plan

ratio expressing the value of production for each dollar of total wage bill

Ranking formats

requires comparing employees against each other to determine the relative ordering of the group on some performance measure

Behaviorally anchored rating scales (BARS)

seems to be the most common format using behaviors as descriptors

pay for performance

signals a movement away from entitlement toward pay that varies with performance

Self-funding plans

specify that payouts only occur after the company reaches a certain profit target

Broad-based option plans (BBOPs)

stock options provided to employees at all levels - stock grants and versatile

Group incentive

team performance is measured against a set standard to determine incentive pay

Standard rating

when adjectives are used as anchors, the format is called..