HR Chapter 12

Guaranteed loans to directors

Loans provided to buy company stock. A highly risky and now frowned upon practice

Use an engineered production standard based on the output of the group as a whole.

All members receive the same pay, based on the piece rate for the group's job.

Merit pay options

1)Annual lump sum-merit raises that do not make the raise part of an employee's base salary. 2)Merit awards tied to both individual and organizational performance.

Straight piecework

A fixed sum is paid for each unit the worker produces under an established piece rate standard

Straight piecework:

A fixed sum is paid for each unit the worker produces under an established piece rate standard

Merit pay

A permanent cumulative salary increase the firm awards to an individual employee based on his or her individual performance.

Pro and cons of piecework

Easily understandable, equitable, and powerful incentives Employee resistance to changes in standards or work processes affecting output Quality problems caused by an overriding output focus Possibility of violating minimum wage standards Employee dissatisfaction when incentives either cannot be earned due to external factors or are withdrawn due to a lack of need for output

Incentives

Financial rewards paid to workers whose production exceeds a predetermined standard.

• Combination plan

Pay is a combination of salary and commissions, usually with a sizable salary component. Plan gives salespeople a floor (safety net) to their earnings.

Commission-plus-bonus plan

Pay is mostly based on commissions. Small bonuses are paid for directed activities like selling slow-moving items.

• Fredrick Taylor

Popularized scientific management and the use of financial incentives in the late 1800s.

Profit Sharing plans: ○ The Lincoln incentive system

Profits are distributed to employees based on their individual merit rating

Online award programs

Programs offered by online incentives firms that improve and expedite the awards process.

Recognition-based awards

Recognition has a positive impact on performance, either alone or in conjunction with financial rewards. Day-to-day recognition from supervisors, peers, and team members is important.

Enterprise incentive management (EIM)

Software that automates the planning, calculation, modeling and management of incentive compensation plans, enabling companies to align their employees with corporate strategy and goals.

• Stock Option

The right to purchase a specific number of shares of company stock at a specific price during a specific period of time

Standard hour plan

The worker gets a premium equal to the percent by which his or her work performance exceeds the established standard. If Tom's standards is 160 email leads per day, and he brings in 200, he would get an extra 25% (40/160).

Profit Sharing Plans: Deferred profit-sharing plans

§ A predetermined portion of profits is placed in each employee's account under a trustee's supervision.

Profit Sharing Plans--Cash plans

§ Employees receive cash shares of the firm's profits at regular intervals.

Pay for performance plans

§ Variable pay (orgniazational focus) □ Team or group incentive plan that ties pay to some measure of the frims overall profitablitly § Variable pay (individual focus) § Any plan that ties pay to individual productivity or profitability, usually as one-time lump payments.

• Employee stock ownership plan (ESOP)

○ A corporation annually contributes its own stock— or cash (with a limit of 15% of compensation) to be used to purchase the stock—to a trust established for the employees.

Gainsharing

○ An incentive plan that engages many or all employees in a common effort to achieve a company's productivity objectives. ○ Cost-savings gains are shared among employees and the company.

Salary plan: Stratight Slaries

○ Best for: prospecting (finding new clients), account servicing, training customer's salesforce, or participating in national and local trade shows.

• Commission-plus-drawing-account plan

○ Commissions are paid but a draw on future earnings helps the salesperson to get through low sales periods.

Incentives for proffesional employees

○ Eg. Lawyers, doctors, economists, engineers ○ Possible incentives § Bonues, stokc options, grants, profit sharing § Better vacations § Imporved pension plans

• Herzberg Hygeine Motivator theory

○ Hygienes: adequate working conditions, salary, incentive pay, only prevent person from becoming dissatisfied. ○ Motivators: job enrichment (challenging job, feedback, and recognition) adresses higher level (achievement, self actualization) needs. ○ The best way to motivate someone is to organize the job so that doing it helps satisfy the person's higher-level needs.

tie rewards to goals based on an overall standard of group performance

○ If the firm reaches its goal, the employees share in a percentage of the improvement (in labor costs saved).

Edward Deci

○ Intirinsically motivated behaviors are motivated by the underlying need for comprehenivse and selfer determinination ○ Offering an extrinsinic reward for insitincally motivated act can conflit with the acting individuals internal sense of responsibility

• Salary Plan: Commission plan

○ Pay is only a percentage of sales

• Golden parachutes

○ Payments companies make to departing executives in connection with a change in ownership or control of a company.

• Vroom

○ Person moitvation to exert some level of effort is a function of 3 things § Expectacnly-effort will lead to permorance § Instrumentalality-connection between performance and appropriate reward § Valence: the value the person places on the reward ○ Motivation= E x I x V § If any factor is zero, there is no motivation toward the reward

Scanlon plan

○ Philosophy of cooperation No "us" and "them" attitudes that inhibit employees from developing a sense of ownership in the company.

Team or group incentive plan

○ Plain in which production standard is set for speficific work group, members are paid incentives if group exceeds production standard

Law of individual differences

○ The fact that people differ in personality, abilities, values , and needs ○ Different people react to different incentives in different ways ○ Managers should be aware of employee needs and fine-tune the incentives offered to meets their needs

• Piecework Plans

○ The worker is paid a sum (called a piece rate) for each unit he or she produces.

At-risk variable pay plans

○ put some portion of the employee's weekly pay at risk. ○ If employees meet or exceed their goals, they earn incentives. ○ If they fail to meet their goals, they forgo some of the pay they would normally have earned.