Exam 2 - Chapter 4

smart reward systems

characterized as being aligned with the core values of an org, utilizing evidence-based metrics to measure the success of reward systems, a stronger emphasis on making sure that employees are engaged at all levels and less concern with design and more emphasis on communication and delivery of rewards

An innovative way to meet CSR objectives would be to give employees paid time off to do

charitable and volunteer work in the community

gainsharing plans

designed to share with the group or team the net gains from productivity improvements i.e. reduced product damage, customer complaints, accidents, etc.

Steps to implementing a gainsharing plan

determine the costs associates with producing the current output. Cost and outputs are then monitored while both the workers and managers are encouraged to generate cost-saving ideas and put more effort into producing more with better quality. Then at some pre-determined point i.e. 6 months, costs and outputs are measured, and productivity savings are determined

Reward systems i.e. P4P are practical only when performance can be _________ and _________ measured

easily; objectively

bonuses are unpopular in ___________ and issues can be resolved by __________ plans

educational compensation; group incentive

Elder care benefits include referral services used by

employee who has a disabled parent or one who needs constant care

There is an increasing number of firms trying to counteract unprofitable stock options held by top managers by

exchanging the options for cash and/or issuing new options with a better chance of becoming profitable

Wellness Programs

focuses on keeping employees from becoming physically and/or mentally ill.

The most common form of group incentive pay plans is

gainsharing plans

Competency pay

goes beyond skill pay by rewarding the more abstract knowledge or competencies of employees, such as those related to technology, the international business context, customer service, or social skills.

Broadbanding

has more to do with the design of the pay plan than do the others. Formally defined as a compensation strategy, broadbanding is the practice of collapsing the traditional large number of salary levels into a small number of salary grades with broad pay ranges. Sends a strong message that the org is serious about change and flexibility, not only in the structural and operational processes but also in its reward system. "put its money where its mouth is"

concierge services

help employees choose gifts for presents, get tickets to concerts, schedule home or auto repairs, and so forth.

noninsured benefit programs

help low-wage and part-time workers purchase medicines and medical assistance at a discount.

Benefits are too often taken for granted and are considered to be an entitlement and thus become a

hollow reward for employee performance and retention

formal recognition systems have become important in this industry

hotel and restaurant

Two basic types of P4P plans

individual incentive plans and group incentive plans

Two of the most popular pension plans are ________ that allow employees to save money on a tax-deferred basis by entering into salary-deferral agreements with the employer.

individual retirement accounts (IRAs) and 401(k) plans

social recognition

informal acknowledgment, attention, praise, approval, or genuine appreciation for work well done

Worker's compensation

insurance that covers individuals who suffer a job-related illness or accident, regardless of fault.

One of the major reasons of the '08 economic crisis was

managers trying to look good in the short run

Gainsharing plans are used heavily in

manufacturing

Base pay is determined by

market conditions

Organizational rewards include

money (salary, bonuses, incentive pay), recognition, and benefits

Investment options with pension plans usually include

mutual stock funds and bond funds

Life Cycle Benefits

o Based on a person's stage of life and include child and elder care

Potential limitations of group incentive pay plans

o GIPs often distribute rewards equally even though everyone may not be contributing the same amount. o Rewards may be realized decades later - ESOP that is placed in a retirement account. o If group rewards are distributed regularly i.e. quarterly or annually, employees may regard the payments as part of their base salary and expect them every year. o If group or firm fails to earn them, motivation and productivity could suffer due to employees feeling they aren't fairly compensated.

Steps to effectively manage a formal and informal recognition program:

o When introducing new recognition procedures and programs, take advantage of all communication tools including Intranet and other knowledge-sharing networks—let everyone know what is going on. o Educate the managers so that they use recognition as part of the total compensation package. o Make recognition part of the performance management process, so that everyone begins to use it. o Have site-specific recognition ceremonies that are featured in the company's communication outlets such as the weekly newsletter and the bimonthly magazine. o Publicize the best practices of employees, so that everyone knows some of the things they can do in order to earn recognition. o Let everyone know the steps that the best managers are taking to use recognition effectively. o Continually review the recognition process in order to introduce new procedures and programs and scrap those that are not working well o Solicit recognition ideas from both employees and managers, as they are the ones who are most likely to know what works well and what doesn't

Vacation time

o most employees are entitled to at least 1 week of vacation with pay after being with the org for 1 year and by the end of year 5 - most are given two or four weeks depending.

In order for money to be effective in the organizational reward system, the system must be as

objective and fair as possible and be administered contingently on the employee's exhibiting critical performance behaviors

prepaid legal plans

offer a variety of services such as legal advice, wills and estate planning, and investment counseling

Money provides a rich basis for studying behavior at work because it

offers explanations for why people act as they do.

Efficiency wage theory holds that firms can save money and become more productive if they

pay higher wages and better benefits because they are able to hire and leverage the best talent

Individual Incentive Pay Plans

pay people based on output or even quality

most orgs are moving to bonus pay based on __________ rather than fixed pay increases

performance

Money helps people attain both ______ and _______ objectives

physical; psychological

o Firms are trying to manage for cost containment through copayment and __________ in order to compete for top employees and retain the best.

preferred providers (PPOs)

unemployment insurance laws

provide benefits if an individual is unable to work through no fault of their own and derive from tax on employers that can range from .1%-5% taxable payroll

Social security initial purpose was to

provide limited income to retired people to supplement things i.e. personal savings, private pensions, and part time work earnings.

long-term health care insurance

provides for nursing homes or at home-care

Agency Theory is not concerned with the diverse interests and goals that are held by a corporation's stakeholders (stockholders, managers, employees) and the methods by which the enterprise's reward system is used to align these interest and goals

FALSE

Benefits constitute a small percentage of most company's expenses

FALSE

If orgs expect customer satisfaction, leadership, satisfied employees, quality, teamwork, knowledge sharing, skill development, new competencies (technical, cross-cultural, and social) and employee growth w/o promotions, they must reward by the old pay techniques

FALSE

In the past, extrinsic motivation was measured by time spent on a task following the removal of the reward

FALSE

Individual incentive rewards may encourage only a wide range of behaviors

FALSE

in addition to social recognition and formal awards, a manager cannot give an employee increased responsibility

FALSE

individual incentive plans were not popular during the height of the scientific management movement in the form of piece rate incentive plans

FALSE

money can be negatively reinforcing for most people and, if the pay system is designed properly to fit the strategies, can have a positive impact on individual, team, and organizational performance

FALSE

money means the same things to the same people and these individual similarities end up affecting group efforts

FALSE

This type of programs can lead to increased satisfaction and reduced turnover but are expensive due to the different types of benefit packages

Flexible, Cafeteria-Style benefits

Rewarding new goals:

In addition to being based on the traditional profit, sales, and productivity goals, rewards are aimed at all relevant employees (top to bottom) contributing to goals such as customer satisfaction, cycle time, or quality measures.

The Patient Protection and Affordable Care Act (ObamaCare)

purpose was to make insurance more affordable, limit discrepancies in what an individual could be charged, require all Americans to maintain Minimum Essential Coverage, and set up a new competitive health insurance marketplace for individuals to buy health insurance. · does not require businesses to provide health benefits to their workers. · However, larger employers (i.e., 100 or more employees in 2015 and 50 or more employees starting in 2016) face penalties if they don't make affordable coverage available. · Requires employers to report the value of their health care benefits on employees W-2 statements. In addition, individual and group health plans that already provide dependent coverage must expand eligibility up to age 26.

Skill pay

recognizes the need for flexibility and change by paying employees based on their demonstrated skills rather than the job they perform. Although it is currently used with procedural production or service skills, the challenge is to apply this concept to the more varied, abstract skills needed in new paradigm organizations (e.g., design of information systems, cross-cultural communication skills).

Family and Medical Leave Act of 1993

requires all orgs with 50 or more employees to grant any worker who has been employed for at least one year an unpaid leave up to 12 weeks for childbirth, the adoption of a child, to care for a family member with a serious health issue or personal health problems.

The intent of merit pay is to

reward, motivate and retain the star performers.

_______ work under an individual incentive plan

salespeople

Profit sharing

some portion of the company's profits is paid into a profit-sharing pool, and this is then distributed to all employees immediately or at year-end

successful managers and individuals who can generate large accounts for a firm can expect sizable bonuses as a percentage of ____________

stockholder's equity

Base wages and salary

the amount of money that an individual is paid on an hourly, weekly, monthly, or annual basis.

One of the major problems with base pay forms of compensation is that

they tend to be most competitive at the entry level and are often less competitive after.

Commonly offered benefits are of two types:

those that must be offered because they are required by law and those that most organizations typically have given to their personnel

tuition assistance

to help employees obtain a college education or advanced degree.

In the past, many firms depended on stock options to lure in and keep

top talented managers and entrepreneurs

stock option plan

used with senior-level managers and gives them the opportunity to buy company stock in the future at a predetermined fixed price

newer types of benefits

wellness programs, life cycle benefits, miscellaneous benefits and flexible, cafeteria style benefits

An effective pay system for rewarding people must address

what outcomes it is seeking (i.e. higher profits, increased sales, greater market share), is it able to measure these results, and how to tie its rewards to these outcomes.

Flexible, Cafeteria-Style Benefits

Orgs today offer their employees flexible times for arriving and departing work, offer plans that allow employees self-control and choice over the benefits received Employees are allowed to put together their own package by choosing those benefits that best meet their personal needs. Under this arrangement, the org will establish a budgeted amount that it is willing to spend per employee, and the individual is then allowed to decide how to spend this money.

time off benefits include

Paid religious holidays, paid sick leave and paid personal leave i.e. funerals or personal reasons

Different types of recognition that can lead to enhanced performance and loyalty

Receiving increased attention is recognition of the fact that many employees have work and family responsibilities and when the org helps them deal with these obligations, loyalty increases

Mandated Benefits

Social security, worker's compensation, Family and Medical Leave Act of 1993; Life, Disability and Health Insurance; Pension benefits, time-off benefit

Agency theory seeks to explain how managers differ from owners in using pay and other forms of compensation to effectively run the org, examines the role of risk and how owners and managers may vary in their approach to risk taking and the differences in time horizons between owners and managers

TRUE

All effective programs lead to improve employee performance and retention and designed to meet the specific and changing needs of the employee

TRUE

Both employees and employers are required to pay a social security and Medicare taxes

TRUE

Child-care benefits are extremely popular, and many have on-site day care.

TRUE

EAPs provide help to employees in dealing with personal problems that can negatively impact their lives and their job performance

TRUE

Efficiency wage theory is useful in explaining the importance of offering benefits that appeal to and are needed by today's employees to make them satisfied, stress free and productive

TRUE

Employee assistance programs or EAP originally designed to assist employees who had problems with alcohol

TRUE

Every permanent employee receives benefits, even though they often seem to be unaware and not know the usually high monetary value of these benefits

TRUE

Issues of bonuses and stock options may have led to the excesses and ethical breakdowns experienced by many firms recently

TRUE

Many orgs have designed formal recognition systems that align their overall objectives (increased productivity, reduced cost, better-quality products and customer service, higher profitability) and employee performance behaviors

TRUE

Merit pay is tied to some predetermined criteria i.e. an org may give all of its employees a cost-of-living allowance and then allocate additional funds for those who are judged meritorious

TRUE

Nonfinancial rewards i.e. genuine social recognition can be given at any time. - have a big impact in employee productivity and quality service behaviors

TRUE

Organizations provide rewards to their personnel in order to try to motivate their performance and encourage their loyalty and retention

TRUE

Recent studies conclude that overall, reward does not decrease intrinsic motivation.

TRUE

Study show that CEOs holding stock options leads to high level of investment outlays and brings extreme corporate performance (big gains/losses)

TRUE

Teams and teamwork can lead to higher productivity, better quality, and higher satisfaction than do individuals working on their own.

TRUE

The amount of merit pay can be a flat sum or a percentage of the base salary - some orgs use a combination of the two.

TRUE

The more some people get, the more they want

TRUE

Virtually all large (but less than half of those with 10 or fewer employees) companies offer health insurance to their employees and pay a major portion of the premiums for this coverage

TRUE

When benefits are used as part of the organizational reward system, these are standard offerings and differ very little from one organization to another

TRUE

employers often make disability insurance available for a minimum premium fee

TRUE

most organizations today have also established private pension plans; contributions are generally made by both the employer and employee, and there are a variety of plans available

TRUE

people who are in control of large corps are seldom the owners but agent who are responsible for representing the interests of the owners

TRUE

some plans defer the profit share, put it into an escrow account, and invest it for employees until retirement

TRUE

the use of extrinsic rewards such as money decreased the intrinsic motivation of subjects to perform a task

TRUE

Pay for knowledge workers in team

With the increasing use of teams, pay is being linked to the performance of knowledge workers or professional employees who are organized into virtual, product development, interfunctional, or self-managed teams. In some cases, part of this pay is initially given to individuals who have taken additional training, the assumption being that their performance will increase in the future as a result of their newly acquired knowledge or skills

Other pay approaches

- Commissions beyond sales to customers - Rewarding leadership effectiveness - Rewarding new goals - Pay for knowledge workers in team - Skill pay - Competency pay - Broadbanding

Employee stock ownership plan or ESOP

- employees gradually gain a major stake in the ownership of the firm - Involves the company taking out a loan to buy a portion of its own stock in the open market and over time profits are used to pay off loan. Meanwhile, employees based on seniority and/or performance are given shares of stock and eventually become owners of the company. - Due to accounting rules, many companies are reducing the # of employees who are eligible to receive ownership

Issues of merit pay:

1) criteria for determining merit are nebulous because the org does not clearly state the conditions for earning the pay or can be too difficult to quantify merit pay criteria or measure performance 2) merit pay can end of being "catch-up" pay i.e. those whose pay is extremely low are given merit to get closer to the market value

Commissions beyond sales to customers

As with all of these new pay plans, the commissions paid to sales personnel are aligned with the organization's strategy and core competencies. As a result, besides sales volume, the commission is determined by customer satisfaction and sales team outcomes such as meeting revenue or profit goals.

Formal recognition

a vital part of the reward system that makes up the environmental component of the social cognitive framework for understanding and effectively managing OB

agency theory

a widely recognized finance and economics approach to understanding behavior by individuals and groups both inside and outside the corporation

Money is associated with four of the important symbolic attributes for which humans strive:

achievement and recognition, status and respect, freedom and control, and power.

Orgs have used two methods ________ and ________ and sometimes supplemented by ________ and _________ that extend the traditional approaches

base pay & merit pay; pay-for-performance plans & "new pay" programs

Rewarding leadership effectiveness

based on factors beyond just the financial success of the organization. It also includes an employee-satisfaction measure to recognize a manager's people-management skills.

Life insurance

based on the individual's annual salary so that the premium provides protection, for example, for two times the person's yearly salary

Efficiency wage theory

benefits is money well spent because it is a vital part of the org's reward system and helps attract, maintain, and retain outstanding employees.