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