5018 Unit 6
Test the Scale
You need to ________________. Assess scale to the previous 12-months financial numbers. Make sure there is a payout in at least 6 months If not, revise the scale by lowering the threshold
Level II: Stakeholder Pay
Employees give up part of their base pay to receive a greater opportunity to earn based upon performance. Best to begin with voluntary switch-over with best, top, workers. Slow process to turn over.
PIPP
Components and formula of _________________ 1.Basis Percent: Percent of monthly salary eligible for incentives 2.Monthly Compensation: Employee monthly salary 3.Performance Index Score: Score from card (0%-100%) 4.Company Multiplier:= 0.0 to 3.0 based upon company profit SalaryXBasis %XScorecardPIXCompany Multiplier=IncentivePay Ex: $3000 X 5% X 80% X 2.0 = $240
Level I: Results Focus
Creation of objective measurement Develop score cards Each position in the company has a score card developed for the role Performance Management aka PM practices are instituted here - positive reinforcement, etc. are taught
Gaetani, Hoxeng, and Austin
Dependent variable: daily productivity(dollars billed) Subjects: Two mechanics at a small auto shop Baseline: (30 days) Feedback alone: (30 days) Mechanics completed a daily report by their invoices for the day Reversal: (5 days) Feedback and commission Significant increase in both mechanics in the incentive condition. That is, the speed of jobs completed increased significantly
To Ease the Transition
Determine a rationale for the changeover E.g., recruitment, reduced overhead, performance improvement Make sure the organization is ready for change: PM training for management Employee buy-in Have a formal transition plan ready Abernathy recommends a 4-phase plan for complete change-over
Open System
Drawbacks of an ______________ -Burden on accounting -Employee trustworthiness -Managers fear loss of control -Information to competitors Davis, 1997
Transition from Conventional to Self-Managed
Level I: Results Focus Level II: Stakeholder Pay Level III: Job Enrichment Level IV: Self-Managing Employees
Voluntary Pay Reduction
Only when scorecard is reliable Only top performers are eligible to volunteer Each one percent of salary given up will be offset by a three percent above salary incentive opportunity Three to six month grace period The organization's strategy and future performance must be marketed to stakeholders Management shifts from supervision to ensuring the opportunity to perform
What is the monthly payment to the nearest dollar for this employee according to PIPP?
Salary: $5,000 Basis: 10% Score:90% Multiplier: 2.0 a.998 b.900 c.950 d.90 (b)
The New Role of Management
Without stakeholder pay, mangers must continue to 'manage' employees The scorecards will be the new tool
Define the Scale
You have to ________________. This example will use an interval scale Again the scale is usually between 0 and 3 and increments from .25-.5 Some companies start at 1 so that employees contact some payout Example 1.Threshold in a restaurant is $200,000 (return on investment, payroll, expenses) 2.All employees receive 5% and management receives 10% Management decides to share 40% of profit over threshold with employees 0 = $200,000 9 ,500/.40 = $23,750 1 = ($200,000 + $23,750) = $223,750
Multiplier Scale
You have to figure the __________________. Calculate your exposure: If you do all employees at 4% then all wages multiplied by the basis $300,000 x 4% = $12,000 You could budget this money (if you have the money) but that doesn't tie the employees to the company. Look at everyone form a organizational level. -If you calculate at levels smaller than the organization you may lose the ability to tie employees to organizational results -Compute how much profit you want to share with employees. One easy way: we will share all profit over threshold 50% A more systematic way: Determine what percentage payroll takes up of revenue Payroll/Revenue Whatever you do, examine this at least quarterly $12,000/.50 = $24,000 $24,000 + Threshold = 1 Now, we can create the scale by prorating the scores
Incentive Pay Basis
You need to determine ______________. This basis maybe increased over time . A basis is assigned to each employee or all. Set it low and go up. *May be based upon organizational level, key positions, tenure, or the same for everyone Examine the culture(i.e., same basis for all, more for key positions)
OBM
______ is a sub-discipline of ABA, but necessary in all aspects of ABA There are several sub-divisions of OBM: 1-Performance Management (foundation) 2-Behavior Based Safety 3-Behavioral Systems Analysis 4-Pay for Performance/Performance Based Pay
Performance Scorecard
_________ is based upon Felix and Riggs' work from the 1980s. Calculated Monthly. It's a variation of point system. - Weigh each category and they have to equal 100 percent for each employee.
Annual Bonus
__________ is a bonus that occurs annually. -Management discretion, variable expense, may retain employees -Non-contingent -Does not impact behavior -May be inequitable -Employees serve manager, not the customer -Becomes an expectation
Profit Sharing-share in annual profits
___________ is based upon year-end profit, easy to administer, may retain employees Non-contingent Little impact on behavior Inequitable Becomes an expectation
Performance Management
___________ is the most straightforward application of ABA to a business setting - it typically involves analyzing individual or small groups of employees and modifying the environment to improve performance
Open Book Management
___________ is typically in a open system. Orienting employees to financial data before sharing -Link employee work to financial results -Link non-financial measures to financial results Davis, 1997
Job Enlargement/Enrichment
___________- involves: Increase the job functions of a specific position (enlargement) Increase the authority of a specific position (enrichment)
Goals Sharing-incentive pay when goal is attained
____________ is setting a goal(s) and paying money when the goals are met. Provides for balanced performance goals, goal-directed plan may produce higher level of performance, can be applied to most jobs, and can be customized. Probably best of these methods, but... -May not motivate -Payouts for each measure often independent which discourages balanced performance - may not be able to pay out when company is unprofitable
Closed vs Open system
-Closed: Employees and Company do not communicate -Open: Employees and Company communicate, share feedback -Typical business: Some slight communication occurs
Traditional Performance Pay Plans
-Merit increase -Annual bonus -Stock options -Profit sharing -Gain sharing -Piece rate -Commissions -Goal sharing (closer to pay for performance)
Level IV Implementation
-Plan for increasing manager's span of control -Allow for flexible scheduling opportunities -Identify team leaders and provide team leaders training (workshop) -Conduct 'lateral career path' training with employees -Program roll-out
Base Pay Options
1.After base pay has been frozen for some time, raises can be reinstated below the market value 2.Permanent freeze 3.Reduction in base pay
Level I and II Process
1.Assess current management practices 2.Manager design seminar 3.Executive session to design strategic and senior management scorecards 4.PFP design session with senior management 5.Manager interviews to design lower level score cards 6.Set up database to report the scores each month 7.Data collection installation and training - way to measure, systems in place to do. 8.Employee orientation 9.Three months of test reports and refinement 10.Teach management how to improve the measures - by teaching to make adjustment to measures that are relevant.
Sin of Wages
1.Fix-Cost Pay -Every year employees are "entitled" to 3-5% raise 2.Pay for Time -When you pay for time, jobs will fill the time -Overtime (abuse-just do nothing during that time) 3.Corporate Socialism -Conventional pay rewards under performers and punishes top performers (everyone gets same raise/bonus) 4.Performance-Based Promotions -Management can not reward top performers by increasing pay, so... The only way to increase pay is through promotions-what if no open supervisor spots available -Promoting in this manner creates competition/tension among employees fighting for promotion -Best person on the floor is now gone-what happens to production -Top performers are not always good managers 5.Management by Perception -Weekly paychecks are not dependent upon performance -Managers often use subjective measures to evaluate employees 6.Management by Exception -When employees are noticed under a pay scheme, it is typically because there are performance "problems" -Negative reinforcement contingencies 7.Entitlement Thinking -The company owes me money—not we need the company to do well
Open System
Advantages of an ____________ -Responsive to external events -Promotes continuous improvement -Customer focus -Profit focus -Resilient and sustainable
Managing Entrepreneurs
As the organization moves toward stakeholder pay the role of the manager shifts to a facilitator A note on measuring results... Monitoring monthly data (validate and improve scorecards) Remove obstacles: scheduling, materials, data collection, etc. PM practices continue Facilitate work prospecting Specific performance improvement plans as needed Evaluate scorecards Assist employees in maximizing earning potential
Level IV: Self-Managing Employees
At __________________ all managers practice PM. Managers' performance pay opportunities are increased as their span of control increases. Team leaders are identified and trained A manager hiring freeze is implemented.
Other Research
Group versus individual incentives: Mixed results
Level III Implementation
Identify work prospecting, cross-utilization, job enlargement, and flexible scheduling opportunities Design programs to capitalize on identified opportunities Program roll-out
Level III: Job Enrichment
In _____________ you implement a hiring freeze Ensure consistent performance pay opportunities by implementing: Cross-utilization - train employees to complete other jobs. Job enlargement - increase job functions Job enrichment - Increase the authority of a position Flexible scheduling Work prospecting
PFP system
In a _______ equitably aligns the contingencies in an organization so that the better the employees and company do, the more money they can make, all things being equal -Contingencies are aligned so that the harder I work the better the company does so that I get more money too.
7 most common thing a organization wants
In developing an organizational scorecard you look at what the organization wants. Below are _________________. 1.Expense Control-ST (short term) Expenses that employees control; e.g., supplies, scrap (not labor). 2.Productivity-ST A ratio of employee output to labor hours;e.g., volume by employee hours 3.Cash Flow-ST Payables collections and inventory 4.Sales-ST 5. Regulatory Compliance-LT (Long term) 6. Customer Service-LT 7. Strategic Projects-LT Decide the weight of each category List a specific measure that impacts the category If more than one measure is used, adjust the percentages Decide measures/ranges in each category List jobs and assign weights based upon what they can influence Abernathy, 2011
monetary incentives
Some suggest that ____________ are counter-productive. Reasons they offer: -Rewards encourage people to focus only on one task, to do it as often as possible, and to take few breaks -People come to see themselves as manipulated -Problems associated with valid performance measurement -The programs are complex -Extrinsic rewards can demotivate -Employees can game the system -Determining correct objectives is difficult (teachers)-must be under the employees direct control -Employees do not believe superiors will accurately evaluate their performance -PFP is hard to put in-place
Threshold
The company multiplier has to have a ___________. Determine how much you need to keep doors open and how much money you need as profit. -Zero: No payouts to anyone, unlike piece rate, goal sharing, etc. it ensures uncontrollable expenses are met. All obligations and payouts, needed profits are met. Then it goes up. Can be pay based upon any profit, but most companies want a reasonable return before they begin sharing (want reserves, debt reduction, return for investors, etc.). How much money do you want to keep before you start paying out? (dollar amount)
Self Employed
Those who are ____________ their personal and business contingencies are aligned, but for many employees this is NOT the case. Employee gets paid no matter what even if the company does well one quarter/year.
Long III, Wilder, Betz, and Dutra
Three undergraduates participated in an analogue task where pay for time and pay for performance were directly compared in terms of productivity and time spent on-task Pay for performance increased responding and on-task behavior more than pay for time However, in a follow-up assessment two of the three participants preferred to work in the pay for time condition
George and Hopkins
Waitpersons (29 in three restaurants) and management—the old cyclical problem DV: Dollars earned by waitpersons per hour IV: Hourly pay was replaced with the ability to earn up to 7% of their gross sales Baseline: Range of $1.90 (minimum at the time) and $3.50 Intervention Range: Increase in pay for all participants (from 20% to 30%) What happened to management?
Stock Options
_____________ are like bonuses. -Management control, variable expense, tax benefit, retain employees -Non-contingent -No impact on behavior -May be inequitable -Repeatability -Becomes an expectation
Merit Increase
_____________ is an annual increase in salary. -Familiar, low effort, employees tend to prefer -It's non-contingent -Inequitable -Fixed cost -Often subjective -Based upon a: Ranking Supervisor rating Company performance Peer assessment Combination
Management by Exception
_____________ is controlling performance mostly with negative reinforcement contingencies. Excessive use of negative reinforcement has unpredictable effects Traditional management punishes "bad" behavior, and largely ignores "good" behavior
Profit Indexed Performance Pay
_____________ or PIPP is trade marked by Aubrey Daniels International, Developed by Dr. Abernathy. Have to make sure that the pay is affordable. Fairly index performance to employee performance - make sure its equatable
Work Prospecting
______________ involves going outside the work area and work on another contract or going out and getting other contracts. - be careful with paying for training (this training should increase staff ability to earn) - special projects often require separate scorecards (you then prorate based on the hours worked at each job, then average the two)
Goal Sharing Budget
______________ is a fixed percentage of each employee's base pay is assigned as an incentive opportunity. Each incentive pay period the employee's scorecard score is multiplied by the assigned opportunity 10% opp. x 80% score = 8% payout
Sales Commissions
______________ is where you get money from the sale of item. Generates high production, equitable, no limits on earning potential -May encourage discounting, selective selling, poor service, credit risks -Discourages cooperation -Ethical concerns -Not indexed to profitability -Employee does not care about others or the company
Flexible Scheduling
_______________ involves computing the labor cost of a unit of work. So as productivity increases, allow employees to work fewer hours Example: Share 50% of productivity gain in reduced work hours with employees -Ensure schedules match work cycles -Monitor output timeliness and quality
Cross-Utilization
_______________ involves training employees to complete other jobs within the company.
Piece Rate
_______________ pay per piece you make. More you make more you get. Generates high production, equitable, no limits to earning. -Unbalanced for quality or safety -Limited to a single output that require high volume -Discourages cooperation *MUST be a DEMAND for the product
Measurement
__________________ will be 'cascaded' through an organization in the PFP process. We start with what an organization wants to achieve (strategy) on an organizational scorecards. You have to develop short-and long-term measurable goals (use the vision statement as a guide)
Gain Sharing-share in cost reduction
_______________________ pays from expense reduction, may promote cooperation, impacts performance relative to group size. Good if restrictions are put in place. -Unbalanced -Inequitable -Modest performance gains -Self-limiting over time
Three Strategies for Improving and Sustaining Employee Performance
___________________________ that are typical in most businesses. 1.Hire only good employees and fire the bad ones 2.Persuade employees that working hard is in their best interest 3.Reengineer the organization's performance system to maximize and sustain performance(probably the best way)
Alpha company would like to share 40% of profits over the threshold of $150,000. If the exposure was $5,500 what is the revenue if the multiplier is 1?
a.$155,500 b.$163,750 c.$170,000 d.$172,500 (b)
Beta company would like to share 30% of profits over the threshold of $300,000. If the exposure was $9,000 what is the revenue if the company multiplier is 2?
a.$300,000 b.$330,000 c.$360,000 d.$365,000 (c)
Organizational multipliers typically run:
a.0-3 b.1-3 c.0-5 d.1-10 (a)
Open systems:
a.Are very responsive to external events b.Focus on business-related behavior c.Tend to change slowly to environmental stimuli d.Difficult to sustain over time (a)
_____ is required for PFP to be effective.
a.BSA b.PM c.EAB d.BBS (b)
_____ is a critical component to the success of a PFP system:
a.Human factors b.BBS c.PM d.Forensic accounting (c)
Staff hiring freezes are implemented in phase _____, while management hiring freezes are implemented in phase _____.
a.II; III b.I; IV c.II; IV d.III; IV (d)
Management by exception involves:
a.Inequitable reinforcement delivery b.Punishment of poor performance c.Both A and B d.Neither A or B (c)
Voluntary pay reductions should be implemented in which phase?
a.Level I b.Level II c.Level I or II d.Neither I nor II (b)
The most important role of managers in a PFP system is:
a.Manage employees b.Facilitate employee achievement c.Monitor for problem behavior d.Ensure employees are acting in the best interest of the company (b)
Piece rate:
a.May undermine safety b.Does not influence production c.Requires a high need for products d.A and C (d)
Which is the best alternative to PFP from these options:
a.Merit increase b.Stock options c.Annual bonus d.Gain sharing (d)
Which of the following is not a criticism of PFP:
a.Not ethical for the employees b.Rewards decrease intrinsic motivation c.Manipulates employees d.It is not effective at motivating employees (d)
An organization may select measures based upon:
a.Project measures b.Sales c.Productivity d.Cash flow (a)
Which of the following is not a sin of wages:
a.Promotions for exceptional performance b.Paying extra for exceptional performance c.Management by exception d.Management by perception (b)
PM might include all of the following except
a.Training for employees b.Reinforcement systems c.Personnel selection d.Job redesign (c)
Long et al. (2012) demonstrated that PFP was _____ in increasing performance but was not preferred by _____ of the participants
a.effective; some b.not effective; some c.effective; all d.not effective; all (a)