FIT BEHP 5018 Unit 6

Flexible Scheduling (4)

-Compute the labor cost of a unit of work -As productivity increases, allow employees to work fewer hours -Ensure schedules match work cycles -Monitor output timeliness and quality

Fix-cost pay (sin)

Employees are entitled to a raise every year. --> This doesn't take into account revenue, and it isn't tied to performance.

Profit-sharing

Little impact on behavior, based on year-end profit

Name some responsibilities of a manager in a PFP system

Take data, evaluate scorecards, deliver reinforcement, remove work obstacles, facilitate cross-utilization, flexible scheduling, etc.

OBM

"A sub-discipline of ABA, which is the application of the science of behavior. ... OBM is guided by a single theory of human behavior and has historically emphasized identification and modification of the environmental variables that affect directly observable or verifiable employee performance."

Performance management (PM)

(Required for Pay for Performance models) -Analyzing individuals or small groups to make environmental modifications to improve performance --> Most straightforward application of ABA to business settings.

Typical management procedures

-"I pay the employees so they should work." -"Why do I need to tell them what to do? They should know." --> These statements typify the idea that behavior is primarily caused by internal influences. --> Traditional mgmt does not have a working understanding of what science of behavior, and it cannot explain why employees do what they do.

PFP system

-A PFP system 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.

Level IV: Self-Managing Employees (4)

-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

Advantages of Open Systems (5)

-Allows input; responsive to external events -Allows adaptation and continuous improvement -Customer and profit focus -Resilient and sustainable -Information is freely shared among all members

Typical interventions in traditional mgmt

-Antecedents: task clarification, checklists -Training (antecedent) -Consequences: lottery systems, goal setting, feedback -Process Interventions: job redesign

Gain sharing

-Based on gains from reduction of expenses -Cooperative -Self-limiting over time

Disadvantages of Open Systems (4)

-Burden on accounting -Employee trustworthiness -Managers fear loss of control -Information to competitors

Level I: Results Focus (3)

-Creation of objective measurement -Each position in the company has a scorecard developed for the role -PM practices are instituted here

How to ease the transition to PFP system

-Determine a rationale for the changeover -Make sure organization is ready for change -Make formal transition plan

What 3 things does the multiplier scale threshold consider?

-Employee wages -Debt pay down -Reasonable return on investment for employer

Short-term goal categories when developing an organizational scorecard

-Expense control (expenses that employees control, like supplies and scraps) -Productivity (a ratio of employee output to labor hours) -Cash flow (payables collections and inventory) -Sales

Computing multiplier scale

-Generally 50% times profit over threshold = 1 --> Threshold: 10,000 --> Profit/Exposure: 12,000 12,000/0.5 = 24,000 + 10,000 = $34,000 = 1

Piece rate

-High production (at risk of safety/quality) -Requires single output -Not cooperative

Level III Implementation (3)

-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

-Implement a hiring freeze -Ensure consistent performance pay opportunities by implementing: > Cross-utilization > Job enlargement > Job enrichment > Flexible scheduling > Work prospecting

Job Enlargement/Enrichment

-Increase the job functions of a specific position (enlargement) -Increase the authority of a specific position (enrichment)

Gaetani, Hoxeng, and Austin (1985)

-Increased rate (speed) of jobs completed -Significant increase in both mechanics in the incentive condition -Mechanics

Alternatives to PFP (7)

-Merit increase -Annual bonus -Stock options -Gainsharing -Piece rate -Commissions -Goalsharing

Annual bonus

-Non-contingent and subjective -Employees serve manager -Getting a bonus every year becomes an expectation

Voluntary Pay Reduction (6)

-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

Open book mgmt (3)

-Orienting employees to financial data before sharing -Link employee work to financial results -Link non-financial measures to financial results

George and Hopkins (1989)

-PFP (increase in pay versus hourly pay) -Waitresses

Long III, Wilder, Betz, and Dutra (2012)

-PFP increased performance, but 2/3 preferred pay for time conditions -Undergrads

Subsets of OBM (4)

-Performance management (PM) -Behavior-based safety -Behavioral systems analysis -Pay for performance (PFP) / Performance based pay

Level IV Implementation (5)

-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

Long-term goals categories when developing an organizational scorecard

-Regulatory compliance -Customer service -Strategic projects

Goals sharing

-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 -May not motivate -Payouts for each measure often independent which discourages balanced performance -Can pay out when company is unprofitable

Level II: Stakeholder Pay (2)

-This is where the 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

Some criticisms of PFP

-Using money as an incentive -People are only focused on one task -People feel manipulated -Too complex -Money can demotivate natural contingencies -Employees can game the system

Profit Indexed Performance Pay (PIPP)

-We must make sure that the pay is affordable -Fairly index performance to employee performance

Describe the role of managers in a PFP system (5)

-Without stakeholder pay, mangers must continue to 'manage' employees, and the scorecards will be the new tool. -As the organization moves toward stakeholder pay the role of the manager shifts to a facilitator -Monitoring monthly data (validate and improve scorecards) -Remove obstacles: scheduling, materials, data collection, etc. -PM practices continue

Base Pay Options (3)

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 (10 steps)

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 scorecards 6. Set up database to report the scores each month 7. Data collection installation and training 8. Employee orientation 9. Three months of test reports and refinement 10.Teach management how to improve the measures

4 Components of Profit-Indexed Performance Pay (PIPP)

1. Basis %: This is the percent of your monthly compensation that is available for incentives. Decided by the company for each employee. 2. Monthly Compensation: This is either a monthly salary amount or total wages earned for the month. 3. Scorecard Performance Index: This score ranges from 0% to 100%. 4. Company Multiplier: The multiplier typically ranges from 0.0 to 3.0 and is an indicator of company profit. The company uses the multiplier scale to determine how much to pay out given the monthly revenue.

PIPP Components (4)

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

Steps to creating PIPP (3)

1. Create threshold (how much money do we need to keep before paying out?) 2. Create basis % (how much percent of the salary is performance-based?) 3. Compute multiplier scale (how much profit is being shared?)

Steps to developing an organizational scorecard (4)

1. Decide the weight of each category 2. List a specific measure that impacts the category --> If more than one measure is used, adjust the percentages. 3. Decide measures/ranges in each category 4. List jobs and assign weights based upon what they can influence

6 Sins of Wages

1.) Fix-cost pay 2.) Pay for time 3.) Corporate socialism 4.) Performance-based promotions 5.) Management by perception 6.) Management by exception

Typical Strategies for Improvement (3) (all ineffective except #3)

1.) Hire 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.

Open system

A system with input, an entity that changes its behavior in response to conditions outside its boundaries. Systems are rarely ever either open or closed but open to some and closed to other influences.

Pay for time (sin)

Be being there, you're getting paid. --> This fills up time (rather than maximizing performances), and it also encourages overtime, which takes longer to execute.

Corporate socialism (sin)

Conventional pay rewards underperforms and punishes top performers --> Eventually the top performers may leave.

Formula for computing the revenue

Exposure / Profit Share % X Multiplier + Threshold

Steps to transitioning to a PFP system (5)

Level I: Results Focus Level II: Stakeholder Level III: Job Enriched Level IV: Self-Managed

Management by exception (sin)

Managing through fear and negative reinforcement --> Only bad on reactivity to performance problems -Traditional management punishes "bad" behavior, and largely ignores "good" behavior

Stock options

May be inequitable

Other research: group versus individual incentives

Mixed results

PIPP formula

Monthly Salary x Basis% x Scorecard x Company Multiplier

Zero (0) threshold means what?

No payouts to anyone; unlike piece rate, goal sharing, etc. it ensures uncontrollable expenses are met.

Merit increase

Non-contingent and subjective

Commission

Not linked to profit; discourages cooperation

Management by perception (sin)

Paychecks don't depend on performance, so managers use subjective measures to evaluate someon.

Would you expect employees of a PFP system to rise up to managerial positions?

Probably not... there's not much room for growth if there are existing managers (only need to facilitate).

Performance based promotions (sin)

Rewarding top performers by giving more responsibilities (therefore, can justify higher pay) --> However, not everyone is suitable to manage

PIPP Formula

Salary X Basis % X Scorecard PI X Company Multiplier = Incentive Pay

Cross-Utilization

Train employees to complete other jobs within the company