Using Reward Systems to Motivate Performance

Reward System

formal and informal mechanism by which employee performance is defined, evaluated, and rewarded

Employee Stock Ownership Programs (ESOPs)

gradually grant stock ownership of the firm to the employees as a reward

Gain Sharing

group based; all members get a bonus when predetermined levels are exceeded; this aligns employee and corporate interests

Merit

the relative value of an individual's contributions to the organization

Standard Executive Compensation

- base salary - incentive pay (bonuses)

Executive Compensation Criticism

- excessively large compensation amounts - compensation not tied to overall/long-term performance of the organization - earning gap between executive pay and employee pay

Special Executive Compensation

- stock option plans - executive perks

Incentive System

attempt to reward employees in proportion to what they do ex: piece-rate plan

Merit Pay Plan

compensation plan that formally bases at least some meaningful portion of compensation on merit

Incentive Reward System

employee pay is based on employee output - performance is under control of an individual worker - employee works at a single task continuously - pay is tightly tied to performance (pay varies with output)

Profit Sharing

provides a varying annual bonus to employees based on corporate profits

Merit System

reward system in which people get different pay raises at the end of the years; depending on their overall job performance