Employee Rewards and Benefits Exam 3

Instrumentality (Expectancy Theory)

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

subordinate as rater

Employees want anonymous submissions, leaders should use feedback to modify their behavior.

First-impression error

developing a negative or positive opinion of an employee early in the review period and allowing that to negatively or positively influence all later perceptions of performance

What is the pro of Merit Pay?

does have a small, but significant, impact on performance.

horn error

downgrading an employee across all performance dimensions exclusively because of poor performance on one dimension

Risk Sharing Plan

employee not only shares successes but also penalized during poor performance years in the form of lower compensation, rewards are typically higher than success sharing plans

expectancy

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

Equity

employees are motivated when perceived outputs (pay) are equal to perceived inputs (effort, work behaviors)

long term incentive plans

focus on performance beyond one year -lots of recent growth of use to motivate long term value creation

The Taylor Plan

has two piecework rates

criterion-deficient

just because something is quantifiable does not mean it is an objective measure of performance.

merit pay system

links increases in base pay to how highly employees are rated on a performance evaluation and achievements are rewarded every year the employee remains on the job.

Performance-dimension training

Exposes supervisors to the performance dimensions to be used in rating (e.g., quality of work, job knowledge), thus clarifying dimensions.

True

Failure arises if incentives work too well because employees may exhibit rewarded behaviors to the exclusion of other desired behaviors.

True

Higher order needs become motivating after lower order needs have been met. (Maslow)

Alternation ranking appraisal

recognizes that raters are better at ranking people at extreme ends of distribution. Best and worst performers are rated first.

Ranking Formats

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

paired-comparison ranking appraisal

simplifies ranking by comparing pairs of people. Each individual is compared separately with all others in the group.

customer as rater

surveys and mystery shoppers rate performance

Individual Spot Rewards

these are usually awarded for exceptional performance

Management By Objectives (MBO)

uses outcomes as the standard of performance measure. -using this results in positive improvements in performance. -Managerial attitudes become more positive over time if the system is revised periodically.

Across-the-board increase

wage increase granted to all employees, regardless of performance, typically an add on to base pay in subsequent years, some risk to employee

When are standard rating scales effective?

Uncertain tasks

Raters are influenced by:

-general appearance - gender and race. -patterns and variability of performance. -improved/declining performance.

What are the cons of Merit Pay?

-it is expensive -many argue it does not achieve the desired goal

Disadvantages of group incentive plans

-line of sight may be lessened, -may lead to increased turnover by top employees -may influence some to apply for jobs where base pay is a larger compensation component

Group Incentive plan advantages

-positive impact on organization and individual performance -easier to develop performance measures than individual incentive plans -teamwork -may increase employees participation in the decision making process

A good appraisal format scores well on :

1. Employee Development 2. Administrative Criterion 3. Personnel Research Criterion 4. Cost Criterion 5. Validity Criterion

What are the types of large group incentive plans?

1. Gain sharing plans (operating measures) and 2. Profit sharing plans (financial measures)

Raters follow this process:

1. Observes behavior. 2.Encodes the behavior 3. Stores the information in memory.

What are the causes of failure of team incentive plans?

1. Team variety. 2. The "level problem" 3.Complexity. 4. Control. 5. Communications.

Variable pay can be traced to two trends:

1. increasing competition from foreign producers, 2. a fast-paced business environment requires workers adapt quickly to change.

While actually evaluating, the rater goes through this process:

1. reviews the performance dimensions and retrieves from memory stored observations/impressions 2.reconsiders and integrates with other information. 3. Decides on the final ratings.

Differences in individual incentive plans occur over two dimensions:

1. the method of rate determination 2. the relationship between production and wages.

Cash Profit-Sharing Plan

awarded based on organizational profitability shares a % of profits, usually annual payout

Team/group incentives

awards determined based on team/group performance goals or objectives, payouts can be more frequent than annual and beyond life of team

Balanced Scorecard

awards that combine financial and operating measures for organization, business unit and or individual performance, based on achieving performance targets

Productivity/gain sharing

awards that share economic benefits of improved productivity or quality(group, plant or division results)

risk sharing

base pay is reduced relative to level offered in success sharing plan May result in decreased employee satisfaction and higher turnover.

Flexible compensation

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

A well-designed plan linking pay to behavior results in what?

better individual and organizational performance.

What kind of pay systems do employees prefer?

by individual performance, COLA, seniority, and the market rate as the most important factors.

goal setting

-challenging performance goals influence greater intensity and duration in individual performance -goals serve as feedback standards to which employees can compare their performance. -individuals are motivated to the extent that goal achievement is combined without receiving valued rewards

factors that lead to inaccurate appraisals.

-guilt -Embarrassment about giving praise. -Taking things for granted. -Not noticing good or poor performance. -The halo effect.

Managers must focus on

:Customer satisfaction .Employee internal growth and commitment. Operational efficiency in internal processes. Financial measures.

Tying pay to performance requires three things:

A definition of performance. •A continuum showing levels from low to high. •Awarded merit increase at each level.

Profit Sharing plans

Focus on a predetermined index of profitability. However, most employees do not feel their jobs have a direct impact on profits. The trend is to combine the best of gain-sharing and profit-sharing plans. A company specifies a funding formula for any variable payout linked to some profit measure

rater error training

Goal is to reduce psychometric errors (leniency, severity, central tendency, halo), by familiarizing raters with their existence.

recency error

allowing performance, either good or bad, at the end of the review period to play too large a role in determining an employee's rating for the entire period

Materialistic

concerned about pay level

leniency error

consistently rating someone higher than is deserved

Agency Theory

depicts employees as agents who enter an exchange with principals- the owners or designated managers

The pay model suggests effectiveness depends on what?

efficiency, equity, and compliance.

Success Sharing (Risk sharing)

employee pay is constant but variable adds during successful years

Ratings appraisal

evaluate employees against a standard rather than against each other. -Each performance standard is measured on a scale so variation falls along a continuum.

Which theories focus on the nature of exchange?

expectancy, equity, and agency

Alfie Kohn and other critics argue that

extrinsic rewards (money) reduce intrinsic rewards (enjoyment of the task).

distrubutive justice

fairness in the amount that is distributed to employees.

procedural justice

fairness of the procedures used to determine the amount of rewards.

Equal Employment Opportunity (EEO)

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

Clone error

giving better ratings to individuals who are like the rater in behavior and/or personality

gain-sharing

goal to exceed is some cost index such as labor cost or utility costs, performance measure is more controllable

Merrick system

has three piecework rates

Combination plans

mixing individual and group plans.

Straight Ranking Appraisal

procedure is just that: employees are ranked relative to each other.

self-determination theory

purports to integrate motivation theories under a broad umbrella

Memory decay

rater forgets things

What are the pros and cons of cash profit sharing plans?

simple, low administrative costs but it may be viewed as entitlement and little motivational impact

Efficiency involves three areas of concern:

strategy, structure, and standards.

criterion contamination

the extent to which performance appraisals contain elements that detract from the accurate assessment of job effectiveness

Goal setting theory focuses on what?

the third element of motivation - desired behavior.

Valence (Expectancy Theory)

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

Special groups share two characteristics:

they are strategically important to the company, and their positions hold built in conflict.

Scanlon Plan

type of gain sharing plan in which it lowers labor costs without lowering the firm's level of activity -Incentives derived as a function of the ratio between labor costs and sales value of production (SVOP).

Risk-adverse

want less performance-based pay

Low self-esteem

want little pay for performance

Risk takes

wants pay based on performance

When do poor performers leave an organization?

when pay is based on individual performance

Experts estimate that every dollar spent on a performance-based pay plan

yields $2.34 more in organizational earnings

The plans often have too small a payout for the work expected, in which they can be:

*unattainable (or too easy) goals, •outdated or inaccurate metrics •too many metrics.

Herzberg's Two-Factor Theory

-Employees are motivated by hygiene factors and and satisfiers -Hygiene or maintenance, in their absence prevent behaviors but in their presence cannot motivate performance -***However, satisfiers( Promotion, recognition, and achievement) motivate performance ***

Do people stay in a firm (or leave) because of pay?

-Poor performers leave when pay is based on individual performance -Group incentive plans may lead to more turnover of better performers. -Dissatisfaction with pay may cause turnover. -Even the way an organization pays may impact turnover

What are the key elements of gain sharing?

-Strength of reinforcement -productivity standards -sharing gains -scope of the formula -perceived fairness of the formula -ease of administration -production variability

Do employees more readily agree to develop job skills because of pay?

-The answer is not known. -New skills will help employees on current and future job demands. Evidence points to paying for skill may not increase productivity but may improve quality.

Lincoln Electric Compensation System

-Trust -employment stability -market rate determined for base wages -employees share in pool is function of semiannual performance review -Employee stock ownership plan

What are the disadvantages of individual incentive plans?

-greater conflict may emerge between employees seeking to maximize profits -mistrust between workers and management -increased turnover among new employees -new technology may be resisted by employees concerned about the impact on production standards

Agency Elements

-pay directs and motivates employee performance -employees prefer static wages to performance based pay -payments should be based on satisfactory completion of work duties

Reinforcement features

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

What are the advantages of individualized incentive plans?

-substantial impact that raises productivity, lowers production costs -less direct supervision -enable labor costs to be estimated more accurately

Maslow's Need Hierarchy

-the idea that people are motivated by their inner needs -needs form a hierarchy from most basic ( food and shelter to higher like self actualization and love )

Merit Bonus

-thought to be a substitute for merit pay -based on performance and received at the end of the year, not built into base pay -can be less than merit pay in the long run -employees are not fond of these -giving these is essentially freezing base pay

When should you choose an individual plan?

-when good measures of individual performance exist -task is not dependent upon others, - performance standards are stable -nonunions -supervisor is viewed as unbiased

When should you choose a group plan?

-when output is group collaborative effort -individual contributions to output cannot be assessed -usually changing pressures and must adapt -union or nonunion - less opposed to plans that foster distribution of rewards evenly

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?

How do you properly manage Merit Pay?

1. Improve accuracy of performance ratings 2. Allocate enough money to truly reward performance 3. Make sure the size of the merit increase differentiates across performance levels.

What are the types of motivation theories?

1. Maslow's Need Hierchy 2. Herzberg's Two Factor Theory

Motivation involves three elements

1. what's important to a person 2. •offering it in exchange for some• 3. desired behavior.

balanced scorecard approach

looks at what contributes value in an organization.

Key elements in a good appraisal

-Culture and strategy determine measure factors. •Involve employees in all stage of the process. •Raters should be trained and motivated .•Raters should maintain a diary. •Raters should conduct a pre-diagnosis. •Feedback must be timely.

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 was Edward Deming opposed of Performance Appraisals?

-He believed the work situation, not the individual, determined performance -led to variations from lack of info, technology and control -hurts pride and self esteem

essay format

-Supervisors answer open-ended questions describing employee performance

Team Incentives Features

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

Do people join a firm because of pay?

-Yes, perceived as more objective. -Candidates look for a 'fit

Performance ratings are influenced by

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

What are the two major components that are vital for success of a Rucker or Scanlon plan?

A productivity norm (effective measurement of base-year data) and effective worker committees that review suggestions on how to improve productivity or reduce costs.

Group incentive plans tend to lead to more turnover from what group?

Better performers

Purpose of an evaluation influences results.

Can send a political message. If the purpose divides a fixed pot of merit increases, ratings are less accurate. Providing face-to-face feedback to subordinates is daunting, leading to inaccuracies. When required in writing, ratings are more accurate.

What are the types of variable pay?

Cash Profit Sharing Stock Ownership or option Balanced Scorecards Productivity/gain sharing

What is the key element in fairness?

Communications

True

Companies are moving toward compensation programs higher on the risk continuum.

Merit increases may be tied to:

Competency (customer care) and performance and position based guidlines

Spillover error

Continuing to downgrade an employee for performance errors in prior rating periods

What are the two types of equity/fairness?

Distributive Justice and Procedural Justice

Managers can be grouped into one of three categories - based on their focus.

Either task performance, counterproductive performance, or both.

What is the overall idea about Maslow's Need Hierchy?

If employees are offered rewards that satisfy one or more needs, they will behave in desired ways.

What companies usually use formal mechanisms with individual spot rewards?

Larger companies

When is an MBO strategy effective?

Less routine tasks

behavior equals

Motivation, ability and environment

individual incentive plans

Offer a promise of pay for some objective, pre-established level of performance. -use an established standard for comparing worker performance to determine magnitude of the pay

Straight Piecework Plan and Standard Hour and Bedeaux Plans

Pay is constant function of production level

gain sharing plans

Pay offs for teams defined at the level of a strategic business unit.

Taylor differential piece-rate system, halsey 50-50 method, Gannt plan, rowan plan

Pay varies as function of production level

Does Variable Pay Improve Performance Results?

Pay-for-performance plans have a positive effect if they are designed well.

Level Three High Risk/Rewards (Long Term Incentive)

Premium Priced Stock Option Indexed Stock option Performance Vested Stock Option

Performance-standard training

Provides raters with a standard of comparison or frame of reference for making appraisals (what constitutes good, average, and bad).

Two categories of evaluation formats are:

Rating and Ranking

severity error

Rating individuals consistently lower than is deserved

BATS

Routine tasks may benefit from this

How do scanlon and ruckler plans differ?

Rucker tie incentives to a variety of savings and Scanlon plans focus more on labor savings

pay for performance plan

Signals a movement away from entitlement toward pay that varies with performance.

What companies use casual mechanisms with individual spot rewards?

Smaller companies

What is the most frequently implemented individual incentive plan?

Straight Piecework system

earnings-at-risk plans

Success sharing and Risk sharing

linking pay to performance occurs through two mechanisms:

The incentive effect and the sorting effect

Behaviorally anchored rating scales (BARS)

The most common format using behaviors as descriptors.

True

There is very little evidence that stock ownership leads to better corporate performance

What is the biggest complaint of performance appraisals?

They are too subjective

Peers as raters

They have an undistorted perspective, however, they have no rating experience and are very lenient.

self as rater

They have complete knowledge of performance, yet they are the most lenient. Used for development rather than administration.

Supervisors as raters

They have experience rating employees and know the job requirements, however, they are prone to leniency errors.

Level one of Low Risk/Rewards (Long Term Incentive)

Time Based Restricted Stock Performance Accelerated Restricted Stock Stock Purchase Plan

Level Two Medium Risk/Rewards (Long Term Incentive)

Time Vested Stock Option Performance Vested Restricted Stock Performance Accelerated Stock

Standard hours plan and Bedeaux plans.

Two common plans that set standards based on time per unit and tie incentives to level of output.

Standard rating scale

When adjectives are used as anchors

Rucker Plan

a gain sharing plan that is a ratio expressing the value of production for each dollar of total wage bill.

Improshare (improved productivity through sharing)

a gain-sharing plan that is easy to administer and communicate in which it develops standard to identify expected hours required to produce an acceptable level of output. -Savings are shared by firm and workers.

success-sharing plans

a generic category of pay add-on which is tied to some measure of group performance, not individual performance

How many companies use individual spot rewards?

about 35 percent, but 74 percent effective

profit sharing

add on linked to group performance relative to exceeding some financial goal -profit measures influenced beyond employee control ( economic climate ), risk

halo error

an appraiser giving favorable ratings to all job duties based on impressive performance in just one job function

Broad-Based Option Plans (BBOPs)

are stock grants and versatile.

Expectancy Theory

argues that people behave as if they cognitively evaluate what behaviors are possible in relation to the value of rewards offered in exchange.

How is overall employee performance calculated?

as a weighted average of the ratings on all performance dimensions in both the standard rating scale and BARS

360-degree feedback

assesses performance from five points of view: Supervisor, peer, self, customer, and subordinate. -it has grown popular

central tendency error

avoiding extremes in ratings across employees

Stock Ownership or Options

award of stock shares or options

The Halsey 50-50 method. The Rowan plan. The Gantt plan.

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

Incentive effect

pay can motivate people to perform better.

Self-funding plans

payouts only occur after the company reaches a certain profit target.

Sorting effect

people sort themselves by what is important to them

Group Incentive Plans

Team performance is measured against a set standard to determine incentive pay.

merit pay

Wage increase granted to employee as function of some assessment of employee performance. Adds on to base pay in subsequent years. -the starting point of all pay for performance plans

Merit Bonused (Lump Sum Bonus)

granted for individual performance, does not add into base pay and is one time bonus

What are the pros and cons of Stock Ownership or Options?

if properly communicated, can have powerful impact on employee behavior, have minimal impact on financial statements of company, but employees may be required to put up money to exercise grants

What are the pros and cons of a balanced scorecard?

it communicates organizational priorities, but can be complex and may be reduced payout or no payout at all

gain sharing plans

look at cost components of the income ledger, identifying areas where employees have an impact.

What are the pros and cons of productivity/gain sharing?

productivity and quality improvements, teamwork, clear performance reward-links but can be complicated

What are the pros and cons of team/group incentives?

reinforces teamwork, minimizes distinctions between team members but may be difficult to isolate impact of team, complex, may create team competition, difficult to set equitable targets for everyone

sales value of production (SVOP)

sales revenue and value of inventory.

Individual Incentives

sometimes this is an add on to a fixed pay, ties increments directly to individual production like commission systems or piece rate, measures of performance are objective -most risk component if it is sole element of pay

Individualist

want pay based on individual performance