exam #2- MHR 386

key elements in designing a gain-sharing plan

-Strength of reinforcement -Productivity standards -Sharing the gains -Scope of the formula -Perceived fairness of the formula -Ease of administration -Production variability

compensation data

-base pay -total cash -total compensation

Straight piecework (Individual incentive plans)

-based on units of production per time period and wages vary directly as a function of production level

which jobs to include?

-benchmark jobs (stable content) -low-high approach (identify lowest and highest paid benchmark jobs )

Goal Setting Theory

-challenging performance goals influence greater intensity and duration in employee performance -line of sight is important employees must believe they can influence performance targets

factors to be considered when offshoring/outsourcing

-differences in labor cost -labor costs savings will not be neutralized by lower productivity -affect value of brands or corp reputation -customers reactions

lump-sum bonus

-does not build into base pay so not as expensive -employees are not a fan

equity theory

-employees are motivated when perceived outputs are equal to perceived inputs -performance measures must be clearly defined and employees must be able to affect them through work behaviors

Herzberg's Two-Factor Theory

-employees motivated by hygiene & satisfiers -pay level is important must meet min before performance based pay can operate as motivator

merit pay

-expensive & does not improve employee and corp performance

Organizational data

-metrics on orgs success -turnover -recruiting

Expectancy Theory

-motivation is the product of 3 perceptions (expectancy, instrumentality, valence) -larger incentive payments are better - employees must believe they can influence performance targets

standards (efficiency)

-objectives (are they specific yet flexible) -measures (do employees know what measures will be used to assesses whether performance is sufficiently good to merit a pay out -eligibility (how far down the organization will the plan run?) -funding (Will you fund the program out of extra revenue generated above and beyond some present standard)

agency theory

-pay directs and motivates performance -performance based pay is the optimal compensation choice for more complex jobs where monitoring employee work is difficult

Maslow's Hierarchy of Needs

-people are motivated by inner needs -base pay must be set high enough to meet basic living needs

group/team incentive plans advantages/disadvantages

-positive impact on org -easier to develop performance measures than individual -signals that cooperation is desired -line-of-sight may be lessened -may lead to increases turnover

Reinforcement

-rewards reinforce performance -timing of payouts is very important

efficiency

-strategy (does the plan support corporate objectives) -structure (is the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations on a general pay for performance plan?)

lead pay policy

ability to attract and maintain quality employees with pay

profit sharing

add on linked to group performance relative to exceeding some financial goal

marginal PRODUCT of labor

additional output associated with the employment of one additional person

employer conducts surveys to??

adjust pay levels adjust pay mix( what forms? base bonus) adjust pay structure (job evaluations) analyze pay related problems estimate the labor costs

efficiency wage (employer)

an above-market wage that a firm pays to increase workers' productivity

Pay level

average of the array of rates paid by an employer base+bonuses+benefits+value of stock holdings/ # of employees

choice/shared policy

begins w traditional alternatives & the offers employee choices

broad banding

collapses many traditional salary grades into a few wide salary bands

compliance

comply w existing laws -reward system that maintains and enhances the reputation of our firm

survey leveling/benchmark conversion

difference between job evaluation points for internal jobs and survey jobs provides estimate of relative value

pay range

exists whenever two or more rates are paid to employees in the same job

How to create market line

free hand or regression analysis

Human capital (job seeker)

general and specific skills require an investment in Human capital - jobs that require long training should pay more

risk sharing

generic category of pay add-on that differs from success sharing in that employee not only shares success but also is penalized during poor performance years

gain sharing

goal to exceed is not financial performance of organization but some cost index

lump-sum bonus

granted for individual performance but is a ONE time bonus

compensating differentials (employer)

higher wages that compensate workers for unpleasant aspects of a job

standard deviation

how tightly all the rates are clustered around the mean

Reservation (job seeker)

if pay is below a certain wage, wont accept a job no matter how attractive other job aspects are

Gainsharing Plan

incentive plan that rewards groups for productivity improvements

Rowan plan (individual incentive plans)

kind of like Halsey but workers bonus increases at the time required to complete the task decreases

broad-based option plans

stock options provided to employees at all levels

Quoted price market

stores that label each item's price or ads that list a job's opening starting wage are examples of this

job structure

orders jobs on the basis of internal factors (reflected in job evaluation or skill certification)

lag pay policy

paying below market but having higher future returns

Distributive Justice

perceived fairness of the amount and allocation of rewards among individuals

procedural justice

perceived fairness of the process used to determine the distribution of rewards

Marginal REVENUE of labor

the additional revenue generated when the firm employs one additional person, with other production factors held constant

Interactional Justice

the degree to which others are treated with dignity and respect

base pay

the guaranteed portion of an employee's wage package

External Competitiveness

the organization's pay relative to its competitors

self-funding plan

these plans specify that payouts only occur after the company reaches a certain profit target. Then variable payouts for individual, team, and company performance are triggered

match pay policy

wage costs are approx equal to those of its product competitors

unusual shapes in a frequency distribution may indicate?

problems with job matches, widely dispersed pay rates or employers with widely divergent pay

how to establish pay range

range max sets the lid on what the employer is willing to pay for that work, range min sets the floor

weighted mean

rate of each company X # of employees / by total # of employees

bedeaux plan

requires division of a task into simple actions and determination of the time required by an average skilled worker to complete each action

across-the-board increases

wage increase granted to all employees, regardless of performance

Individual Incentives

reward individual performance but payments are not rolled into base pay. Performance is measured as physical output rather than by subjective ratings.

cost of living increase

same as across-the-board increase, except magnitude based on change in cost of living

merrick plan (individual incentive plan)

set up kind of the same way as taylor but has 3 piece work rates 1. exceeding 100% 2. medium production 83-100 % 3. low for production less than 83%

standard hour plan (individual incentive plans)

setting the incentive rate based on completion of a task in some expected time period

halsey 50-50 method (individual incentive plans)

shared split between worker and employer of any savings in direct cost

Sorting and Signaling (employer)

signal to applicants the attributes that fit the org

gantt plan (individual incentive plans)

standard time is for a task is purposely set at a level requiring high effort to complete

Employee Stock Ownership Plan (ESOP)

a compensation system that awards employees shares of company stock in addition to their regular compensation

success-sharing plans

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

Labor costs

(pay level) X (# of employees)

pros and cons of broad banding

-FLEXIBILITY -favoritism & chaos

Improshare plan

a group-based incentive plan based on the number of hours a firm expects to take to reach a certain level of output

Pay level and mix decisions focus on what 2 objectives?

1. controls costs & increase revenues 2. attract & retain employees

What determines external competitiveness?

1. labor market factors (Supply & demand) 2. Product market factors (degree of competition & level of product demand) 3. organization factors (industry, ,strategy, size individual manager)

Basic assumptions of labor markets

1. seek to maximize profits 2. people are homogeneous therefore interchangeable 3. pay rates reflect all costs associated w employment 4. competition, so no advantage for a single employer to pay above or below market rate

how to create bands?

1. set the number of bands 2. price the bands

Rucker Plan

A gain-sharing plan similar to the Scanlon plan but that expresses labour costs as a percentage of value added.

Scanlon Plan

A system that recognizes and rewards individuals for collaboration, leadership, education, and training given to another individual or group cohesively.

pay structure

Anchored by the organization's external competitive position and reflected in its pay-policy line

Bourse Market

a market that allows haggling over terms and conditions until an agreement is reached

why market price?

Fairness and makes things less complicated

pay grade

Grouping of similar jobs to simplify pricing jobs

product demand

If employers pay above max. it must pass on to consumers the higher pay level through price increases or hold prices fixed and allocate a greater share of total rev to cover labor costs

market pricing

a method for determining pay for jobs by collecting salary information from the external labor market first rather than starting with the development of an internal structure based on the value of the jobs within the company

How can the relevant labor markets be determined?

Managers look at both their competitors their products, location, and size - and the jobs - the skills and knowledge required, and their importance to an organization's success

Group Incentive Plans

Pay incentives to group of individuals. These plan include garnishing plans and group performance incentives.

how do you set pay mix?

Performance driven (half base and some bonus benefits & options) market match (mostly base) security (mostly base and very little benefits ) work life (half base and little of benefits)

performance plans

Plans that tie management compensation to measures such as EPS or growth in EPS. Performance shares, cash bonuses, or both are used as compensation under these plans.

Pay forms

The mix of the various types of payments that make up total compensation

merit pay

Wage increase granted to employee as function of some assessment of employee performance. Adds on to base pay in subsequent years.

profit-sharing plan

a benefit whereby employees may share in the profits of the business

taylor plan (individual incentive plan)

one rate goes into effect when a worker exceeds the standard in given time & a second rate is established for production below standard