OB Chapter 4: Reward Systems
Base Pay approach
Base Pay: amount of money that an individual is paid on an hourly, weekly monthly, or annual basis • determined by market conditions • does not reward above-average performance or penalize below-average performance • problem: base pay tends to be most competitive at entry level and less competitive thereafter
Life-Cycle Benefits
based on a person's stage of life and include things such as child care and elder care
Merit Pay approach
form of "pay for performance"... people who do superior work are given greater increases than their colleagues • pay can take one of these 2 forms: flat sum or % of base salary
Life, Disability, and Health Insurance
health benefits; company covers some insurance; companies make affordable coverage available for employees
Garnishing Plan
if everyone works to reduce cost & increase productivity, the organization will be more efficient and have more $$ to reward its employees • net gains (savings) are shared w/ employees
3) Rewarding new goals
rewards all relevant employees (any job level) that contribute to goals such as customer satisfaction, cycle time, or quality measures
6) Competency pay
rewards the more abstract knowledge or competencies of employees
Group Incentive Pay Plan
teamwork can lead to higher productivity, better quality, higher satisfaction than individuals working alone • garnishing plan • profit sharing • employee stock ownership plan (ESOP) • problems: often distribute rewards evenly even though everyone in the group may be contributing different amounts
Purpose of rewards
to motivate employees' performance and encourage their loyalty and retention
2) Rewarding leadership effectiveness
(based on factors beyond just financial successes of organization)... measures employee-satisfaction measure to recognize a manager's people-management skills
New Pay Techniques
1) Commissions beyond sales to customers 2) Rewarding leadership effectiveness 3) Rewarding new goals 4) Pay for knowledge workers in teams 5) Skill pay 6) Competency pay 7) Broadbanding
Benefits as rewards (Traditional)
1) Mandated Benefits 2) Life, Disability, and Health Insurance 3) Pension Benefits 4) Time-Off Benefit
Benefits as rewards (New)
5) Wellness Programs 6) Life-Cycle Benefits 7) Other Benefits 8) Flexible, Cafeteria-Style Benefits
7) Broadbanding
a small number of salary grades with broad pay ranges (instead of a large number of different salary levels)
Agency Theory
approach to understanding behavior of individuals & groups inside & outside the corporation • focuses on the corporations' interests/goals and the methods by which the company's reward system is used to align the interests/goals
Wellness Programs
focuses on keeping employees from becoming physically and/or mentally ill ex: coping with stress
1) Commissions beyond sales to customers
commission is determined by customer satisfaction and sales team outcomes (meeting revenue or profit goals) ... (instead of commission being solely based on sales volume)
Employee Stock Ownership Plan (ESOP)
employees gradually gain ownership of firm through stocks
Other Benefits
ex: concierge services, tuition assistance for college education or advanced degree, etc.
Time-Off Benefit
paid time off
Individual Incentive Pay Plan
pay people based on output or quality (ex: commission) • bonuses • stock-option plan: managers can buy company stock in the future at a predetermined fixed price; if executives are successful in performance, their stock value will rise) • limitations: only works when performance can be easily and objectively measured
5) Skill pay
pays employees based on their demonstrated skills rather than the job they perform (purpose is to apply this to more abstract stills needed)
Profit Sharing
portion of profits are put in a profit-sharing pool and distributed to employees
Pension Benefits
private pension plans
Mandated Benefits
required by law ex: Social Security, workers' compensation
Flexible, Cafeteria-Style Benefits
• firms offer employees flexible times for arriving & departing work • employees are allowed to put together their own package by choosing benefits that fit their personal needs (w/in a certain budget)
How does money affect behavior?
• helps people attain physical (clothing, cars, houses) and psychological (status, self-esteem) objectives • associated w/ 4 important attributes for which humans strive: achievement & recognition, status & respect, freedom & control, power
Research on effectiveness of pay
• money is a motivator: the more people get, the more they want • reward systems have a strong influence on employee trust in the workplace • money means different things to different people • money can be an effective positive reinforcement strategy to improve performance • for money to be an effective reward system, the system must be objective/fair and be administered solely on employee's performance
Importance of recognition
• social recognition (attention, praise, etc) has a positive impact on performance • financial rewards can only be given at certain times a year; nonfinancial rewards (recognition) can be given at any time • giving employees more responsibility and recognizing/helping workers with family obligations increases their loyalty to company