HR Chapter 11

What is intrapreneuring?

Giving certain groups extensive autonomy to perform their task or achieve certain objectives.

The more closely pay is tied to particular performance indicators, the more employees tend to focus on those indicators and neglect other important components that are more difficult to measure. What is this known as?

The "Do Only What You Get Paid For" Syndrome

What are the most widely used pay-for-performance plans in industry?

Individual-based pay plans.

When extrinsic motivation and incentives are introduced, what tends to be lowered?

Intrinsic motivation.

What's another term for bonus programs?

Lump-sum payments.

What are free riders?

Those who contribute little to the team - either because of low effort or limited ability

What are perquisites ("perks")?

Noncash incentives given to a firm's executives.

What is the primary criticism of long-term incentive plans?

Not very closely linked with executive performance.

What are two problems that may arise with respect to psychological contracts?

1) Because employees feel entitled to the reward spelled out in the pay-for-performance, it is difficult to change the plan even when conditions call for a change 2) It is sometimes hard to come up with a formal that is fair to diverse employee groups

What are the disadvantages of corporate wide pay-for-performance plans?

1) Employees may be at considerable risk 2) High exposure to macroeconomic forces 3) Limited effect on productivity 4) Long-run financial difficulties

What four problems may arise with the criteria used to trigger rewards?

1) Employees may expect the formula to remain the same forever 2) Improving cost savings will not necessarily improve profitability 3) When gainsharing is first instituted, it is easier for inefficient than got efficient plants or business units to post a gain 4) There may only be a few labor-saving opportunities in a plant.

What are the advantages of corporate wide pay-for-performance plans?

1) Financial flexibility for the firm 2) Increased employee commitment 3) Tax advantages

What are the conditions favoring plantwide plans?

1) Firm size (small to midsize plants) 2) Technology - when it limits improvements in efficiency, gainsharing is less likely to be successful 3) Historical performance 4) Corporate culture - works better in participative management firms 5) Stability of the product market - when a firm's product or service is relatively stable.

What are the four major advantages of individual-based plans?

1) Performance that is rewarded is likely to be repeated 2) Individuals are goal-oriented and financial incentives can shape an individual's goals over time 3) Assessing the performance of each employee individually helps the firm achieve individual equity 4) Individual-based plans fit in with an individualistic culture

What are the five main disadvantages of team-based pay-for-performance plans?

1) Possible lack of fit with individualistic cultural values. 2) The free-riding effect 3) Social pressures to limit performance 4) Difficulties in identifying meaningful groups 5) Intergroup competition leading to a decline in overall performance

What are the three major types of gainsharing programs used in businesses?

1) Scanlon Plan 2) Rucker Plan 3) Improshare

When are team-based incentives appropriate?

1) There are few levels in the hierarchy, and teams of individuals at the same level are expected to complete most of their work with little dependence on supervisors or upper management 2) Technology allows for the separation of work into relatively self-contained or independent groups 3) Employees are committed to their work and are intrinsically motivated 4) The organization needs to insist on group goals 5) Team-based incentives can help blend employees with diverse backgrounds and perspectives and focus their efforts on goals important to the organization

What are the two major advantages of team-based pay-for-performance plans?

1) They foster group cohesiveness 2) They aid performance measurement

When are executive compensation plans more likely to be effective?

1) When it adequately balances rewarding short-term accomplishments with motivating the executive to consider the firm's long-term performance. 2) The incentives provided are linked to the firm's overall strategy 3) The board of directors can make informed judgments about how well the executive is fulfilling his or her role 4) The executive has some control over the facts used to calculate the incentive amount.

Under which conditions are team-based plans most likely to succeed?

1) When work tasks are so intertwined that it is difficult to single out who did what 2) When the firm's organization facilitates the implementation of team-based incentives 3) When the objective is to foster entrepreneurship in self-managed work groups.

What are the disadvantages of plantwide pay-for-performance plans?

1. Protection of low performers 2. Problems with the criteria used to trigger rewards 3. Management-labor conflict

What two particular dangers do individual plans carry?

1.) Creating competition and destroying cooperation among peers 2.) Creating sour working relationships between subordinates and supervisors.

What are the conditions favoring corporate wide plans?

1.) Firm size - larger organizations 2.) Interdependence of different parts of the business - multiple plants or business units 3.) Market conditions - attractive to firms facing highly cyclical ups and downs in the demand for their products 4.) The presence of other incentives - when in used in conjunction with other incentives, corporate wide programs can promote greater commitment to the organizations by creating common goals and a sense of partnership among managers and workers.

What four major disadvantages do individual-based plans include?

1.) Tying pay to goals may promote single-mindedness 2.) Many employees do not believe that pay and performance are linked 3.) Individual pay plans may work against achieving quality goods 4.) Individual-based programs promote inflexibility in some organizations.

Rewards based on individual performance can be highly motivating, usually under which conditions?

1.) When the contributions of individual employees can be accurately isolated 2.) When the job demands autonomy 3.) When cooperation is less critical to successful performance or when competition is to be encouraged.

How much do bonuses usually exceed annual salary?

5%

Some studies indicate that as many as _____ employees question the integrity of pay-for-performance plans?

75%

What is a piece-rate system?

A compensation system in which employees are paid per unit produced.

What is profit sharing?

A corporate wide pay-for-performance plan that uses a formula to allocate a portion of declared profits to employees. Typically, profit distributions under a profit-sharing plan are used to fund employees' retirement plans.

What is an employee stock ownership plan?

A corporate wide pay-for-performance that rewards employees with company stock either as an outright grant or at a favorable price that may be below market value.

What are bonus programs/lump-sum payments?

A financial incentive that is given on a one-time basis and does not raise the employee's base pay permanently.

What is a Scanlon Plan?

A gainsharing program in which committees of employees, union leaders, and top managers generate and evaluate cost-saving ideas.

What is an Improshare plan?

A gainsharing program in which first a standard is developed that identifies the expected number of hours required to produce an acceptable level of output.

What is a Rucker Plan?

A gainsharing program that uses worker-management committees to solicit and screen ideas.

What are awards?

A one-time reward usually given in the form of a tangible prize.

What is gainsharing?

A plantwide pay-for-performance plan in which a portion of the company's cost savings is returned to workers, usually in the form of a lump-sum bonus.

What is a psychological contract?

A set of expectations based on prior experience and it is very resistant to change.

What is a pay-for-performance system or incentive system?

A system that rewards employees on the assumptions that (1) individual employees and work teams differ in how much they contribute to the firm; (2) the firm's overall performance depends to a large degree on the performance of individuals and groups within the firm; and (3) to attract, retain, and motivate high performers and to be fair to all employees, the firm needs to reward employees on the basis of their relative performance.

What is expectancy theory?

A theory of behavior holding that people tend to do those things that are rewarded.

How do team-based pay plans reward team members?

All team members are rewarded equally, based on group outcomes.

What is merit pay?

An increase in base pay, normally given once a year.

If employees are hired because of their political connections rather than for their skills and abilities, what message might it send to other employees?

Other employees will get the message that good performance is not that important to the organization.

What are some examples of perks an executive may receive?

Physical exams, financial counseling, club memberships, company plane, airline VIP clubs, chauffeur service, and concierge service.

What are plantwide pay-for-performance plans?

Plans that reward all workers in a plant or business unit based on there performance of the entire plant or unit.

What is the key performance indicator used to distribute rewards at the plant level?

Plant or business unit efficiency, which is normally measured in terms of labor or material cost savings compared to an earlier period.

What can damage the credibility of a pay-for-performance program?

Poor staffing practices.

What are golden parachutes?

Provide CEOs with a large lump-sum payment if he or she is terminated by the firm.

By creating pressure to produce and to "keep score," incentives may induce employees to engage in what?

Unethical behaviors.

What is the credibility gap?

When employees do not believe that pay-for-performance programs are fair or that they truly reward performance.

Why do employers often use ESOPs as a low-cost retirement benefit for employees?

Because stock contributions made by the company are nontaxable until the employee redeems the stock.

Pay-for-performance programs are not likely to achieve the desired results unless accompanied by what?

Complementary HRM programs.

Pay-for-performance systems may provoke conflict and competition while discouraging what?

Cooperation.

What is the most macro type of incentive programs?

Corporate wide pay-for-performance plans

What are some advantages of plantwide pay-for-performance plans?

Cost savings result from treating employees better and involving them intimately in the firm's management. Can provide a vehicle to elicit active employee input and improve the production process. Increase the level of cooperation across workers and teams by giving everyone a common goal. Subject to fewer measurement difficulties than individual- or team-based incentives.

What does ESOP stand for?

Employee stock ownership plan (ESOP)

What happens as a result of rising employee cynicism?

Employees may unconsciously blame their employer for questionable behaviors or ethical lapses in order to meet incentive criteria rather than take full responsibility for their actions.