Chapter 10 Incentives - WGU C202

variable rewards (incentives)

Link rewards to factors determined as valuable, including performance, skills, competence, and contribution (incentives).

gainsharing

The firm shares the value of productivity gains with employees.

________rewards include a personal thank you note, a preferred parking space, a unique award, or some form of personal acknowledgement from management.

alternative

Scanlon plans

are gainsharing programs based on implementing employee suggestions for lowering the cost per unit produced. Any savings per unit of output are shared between the employees and the company.

Long-term incentives

are intended to motivate employee behaviors and performance that support company value (e.g., share price) and long-term organizational health. Long-term incentives are usually based on cycles of at least one year.

Short-term incentives

are one-time variable rewards used to motivate short-term employee behavior and performance (typically one year or less). Commonly used short-term incentives include bonuses and profit sharing.

Variable pay plans

are pay-for-performance plans that put a small amount of base pay at risk in exchange for the opportunity to earn additional pay if performance meets or exceeds a standard

Employee stock ownership plans (ESOPs)

are tax-exempt employer-established employee trusts that hold company stock for employees.

Intrinsic motivation

comes from an interest in or enjoyment from doing a task

Extrinsic motivation

comes from outside the individual, including performance bonuses.

Profit sharing

distributes organizational profits to all employees. Profit sharing only rewards employees when the organization is profitable, providing financial flexibility.

There are two possible types of errors in awarding incentives

errors of commission and errors of omission

Which kind of motivation is illustrated by an employee who is motivated by money or rewards?

extrinsic

________motivation comes from trying to earn performance bonus

extrinsic

studies indicate that __________ rewards including bonuses, pay increases, and awards are detrimental to innovation.

extrinsic

when we are motivated to do a task because doing so will lead to a valued reward, we are experiencing________motivation.

extrinsic

Stock options

give an employee the right to buy shares of the company's stock at a certain price (the exercise price) during some future period of time. If the market value of the stock is higher than the exercise price, the employee can sell the shares for a profit.

________motivation is derived from an interest in or enjoyment from doing a task.

intrinsic

when we engage in a hobby, we are experiencing________motivation

intrinsic

Competency-based pay

is used to evaluate the skills and knowledge of professional workers.

_________ can be undermined by not giving deserving employees rewards

motivation

giving an undeserving employee an award can undermine the _____ of his or her coworkers.

motivation

Errors of commission

occur when an employee receives an undeserved reward, either because the performance measurement system inaccurately identified him or her as a deserving employee or due to some other reason.

Errors of omission

occur when an employee who deserves a reward does not receive one. If a performance measurement system does not thoroughly or accurately evaluate all employees' performance, it is easy to miss a high-performing employee who deserves to receive the incentive award.

Vesting

or the point at which employees can sell or transfer the stock option, can occur on the date of grant, but it more commonly occurs gradually over a period of months or years.

The most common incentive plans for individual employees are

pay for performance plans, skill-based pay, recognition awards, and alternative rewards.

_______ rewards are often used to reward specific achievements like safety or wellness behaviors

recognition

Improshare

A gainsharing plan based on a mathematical formula that compares a performance baseline with actual productivity during a given period with the goal of reducing production time. "Improshare" means improved productivity through sharing,

Alternative rewards

Alternative rewards include a personal thank-you note, a preferred parking space, a unique award, and management doing something personal such as dressing in a crazy outfit or spending the day on the roof if employees meet sales targets.

Spot awards

Awards given immediately when a desired behavior is seen.

Sales incentive programs need to:

Define who is eligible for the incentive plan (are retail store cashiers eligible or only floor salespeople?). Identify the salary/incentive mix that supports the targeted total compensation level for salespeople. Identify the incentive formula that translates performance into incentive pay. Define when a sale counts and how co-sales will be credited. Define the length of the sales cycle.

reward differentiation

Differentiating rewards based on performance rather than giving all employees the same reward.

multicrafting

Employees gain proficiency in two or more trades.

Chapter 10 Takeaway Points

Organizations typically tie pay to performance to recognize and reward high performers, increase the likelihood of achieving corporate goals, improve productivity, and move away from an entitlement culture. When work is done interdependently or when it is difficult to identify employees' relative contribution to results, it is less appropriate to have a high reward differentiation. When work is done independently, the organization wants to set very high individual performance standards, and competition among employees is acceptable or desirable, then high reward differentiation is appropriate. Stock options can help to align individual goals with organizational objectives, but they can also punish or compensate employees for factors beyond their control. Stock options can also motivate executives to engage in unethical behavior to maximize the value of their stock options. Linking pay to specific goal accomplishment helps employees to see a clear link between their effort, job performance, and the reward, which enhances motivation. The golden rule with pay-for-performance plans is that you get what you reward. Incentives can have unintended effects on employee motivation and behaviors, and it is important to consider the range of behaviors that an incentive is motivating. Errors of commission occur when undeserving employees receive an incentive award. Giving an undeserving employee an award can undermine the motivation of his or her coworkers, particularly the higher performing employees who did deserve it. Errors of omission occur when deserving employees do not receive an incentive award. Errors of omission can damage the motivation of high-performing employees by failing to recognize their contributions. It is important to accurately and thoroughly assess employees on their relevant performance to minimize the occurrence of both types of errors.

________ reward employees based on some measure of their performance.

Pay-for-performance

fixed rewards

Pre-determined compensation (salary and benefits).

Before designing an incentive pay plan to motivate performance, it is important to consider the:

Preference of individual employees; Size of the rewards for high performance; Method of motivating individual job performance; and Objectivity of the evaluation process that determines the rewards.

The top four reasons organizations give for tying pay to performance are to:

Recognize and reward high performers; Increase the likelihood of achieving corporate goals; Improve productivity; and Move away from an entitlement culture.

pay-for-performance programs

Reward employees based on some specific measure of their performance; also called merit pay.

Recognition awards

Rewards for specific achievements such as tenure with the organization, helping a coworker, or attendance.

he two most common types of gainsharing programs are

Scanlon plans and Improshare systems.

skill-based pay

rewards employees for the range and/or depth of their knowledge and skills. An example of skill-based pay is when a General Mills plant implemented a plan that paid employees in several types of jobs based on their attained skill levels for their job.44 Workers could attain three levels of skill in their job: Limited ability (ability to perform simple tasks without direction); Partial proficiency (ability to apply more advanced principles on the job); and Full competence (ability to analyze and solve problems associated with that job). Skill-based pay is most appropriate when there is a wide range (in depth and or breadth) of skills, knowledge, or competencies that employees need to acquire and use in their jobs.

Return on Investment (ROI)

the direct financial impact of a firm's expenditure of a resource, such as time or money, should generate greater value in terms of improved performance, improved customer service, or reduced turnover than it costs to implement.