Contributions with Pay Objectives • Describe the fundamental pay programs for recognizing employees’ contributions to the organization’s success.. Merit Pay Programs:Characteristics 12-8
Trang 1Contributions with Pay
Objectives
• Describe the fundamental pay programs for recognizing employees’ contributions to the organization’s success.
• List the advantages and disadvantages of the pay programs.
• List the major factors to consider in matching the pay strategy to the organization’s strategy.
• Explain the importance of process issues such
as communication in compensation management.
Trang 2How Does Pay Influence
Individuals?
12-2
Equity Theory - chapter 11
Reinforcement Theory
Expectancy Theory - chapter 5
Agency Theory
principals as owners
agents as managers
Equity Theory - chapter 11
Reinforcement Theory
Expectancy Theory - chapter 5
Agency Theory
principals as owners
agents as managers
Trang 3Types of Agency Costs
1 Perquisites
2 Attitudes toward risk
3 Decision-making horizons
1 Perquisites
2 Attitudes toward risk
3 Decision-making horizons
Trang 4Factors in the Choice of a Compensation
Package
12-4
Risk Aversion
Outcome Uncertainty
Job Programmability
Measurable Job Outcome
Ability to Pay
Tradition
Risk Aversion
Outcome Uncertainty
Job Programmability
Measurable Job Outcome
Ability to Pay
Tradition
Trang 5Individual Pay Programs: Design Features
Programs
Merit Pay
Incentive Pay
Profit Sharing
Ownership
Gainsharing
Skill-based
Payment Method
Performance Measures
Frequency
- Change
in base
- Bonus
- Bonus
- Equity changes
- Bonus
- Change
in base
- Annually
- Weekly
- Semiannual
or annual
- Sale of stock
- Monthly / quarterly
- when skill
is acquired
- Boss’
appraisal
- Output, productivity
- Profit
- Stock value
- Production costs
- Skill acquisition
- All
- Direct labor
- All
- All
- Production /service unit
- All
Trang 6Individual Pay Programs: Consequences
12-6
Programs
Merit Pay
Incentive Pay
Profit Sharing
Ownership
Gainsharing
Skill-based
Performance Motivation Attraction Culture Costs
- Change
in base
- little
- some in small units
- Little
- Little
- Learning
- High performers
- High performers
- All
- All
- Retain employees
- those who want to learn
- Individual competition
- Intra-group competition
- Cooperation
- Knowledge
of business
- Sense of ownership
- Learning
- High maintenance
- Good system
of appraisal
- Variable
- Ability to pay
- Cost not variable
- can be high
Trang 7Individual Pay Programs: Contingencies
Programs
Merit Pay
Incentive Pay
Profit Sharing
Ownership
Gainsharing
Skill-based
Organization Structure
Management
Style Type of Work
- Independent jobs
- Measurable jobs / units
- Autonomous units
- Any company
- Most companies
- Most companies
- Control
- Participation desirable
- Participation
- Participation
- Participation
- Participation
- Individual, easy
to measure
- Individual appraisal
- All types
- All types
- All types
- Professional
Trang 8Merit Pay Programs:
Characteristics
12-8
Tries to identify individual performance
differences
Supervisor provides most performance
information
Pay is linked to performance appraisal results
Feedback is infrequent
Feedback is mostly one way - supervisor to
subordinate
Tries to identify individual performance
differences
Supervisor provides most performance
information
Pay is linked to performance appraisal results
Feedback is infrequent
Feedback is mostly one way - supervisor to
subordinate
Trang 9Merit Pay Programs:
Criticisms
12-9
Individual performance differences are due largely
to SYSTEM
Discourages teamwork
System is not fair
Too much reliance on supervisor for rating
procedural issue
Pay increase are not representative of performance
distributive issue
Contributes to entitlement mentality
Individual performance differences are due largely
to SYSTEM
Discourages teamwork
System is not fair
Too much reliance on supervisor for rating
procedural issue
Pay increase are not representative of performance
distributive issue
Contributes to entitlement mentality
Trang 10Individual Incentives
12-10
1 Most jobs have no physical output
2 Many administrative problems
3 Individuals focus only on the incentive
4 Does not fit with team approach
5 Does not reward obtaining multiple skills
6 Rewards output at the expense of quality or
service
1 Most jobs have no physical output
2 Many administrative problems
3 Individuals focus only on the incentive
4 Does not fit with team approach
5 Does not reward obtaining multiple skills
6 Rewards output at the expense of quality or
service
Used rarely for the following reasons:
Trang 11Profit Sharing
Advantages
Encourages employees to think like OWNERS
Payments are not part of base pay
Disadvantages
Many plans defer actual payments
Few plans pay out during business downturns
Advantages
Encourages employees to think like OWNERS
Payments are not part of base pay
Disadvantages
Many plans defer actual payments
Few plans pay out during business downturns
Trang 1212-12
Similar to profit sharing with employee focus on
organizational success even stronger
Employee ownership through stock options
Stock options typically reserved for executives,
however, the trend is toward pushing pushing eligibility further down in the organization.
ESOPs
Similar to profit sharing with employee focus on
organizational success even stronger
Employee ownership through stock options
Stock options typically reserved for executives,
however, the trend is toward pushing pushing eligibility further down in the organization.
ESOPs
Trang 13 Encourages pursuit of broader(team) goals
Measures performance that is controllable by
employee
Distributes payouts frequently
Conditions for success include:
– management commitment – commitment to continuous improvement and change – willingness to accept employee input
– high level of cooperation and information sharing – agreement on productivity standards
– employment security
Encourages pursuit of broader(team) goals
Measures performance that is controllable by
employee
Distributes payouts frequently
Conditions for success include:
– management commitment
– commitment to continuous improvement and change
– willingness to accept employee input
– high level of cooperation and information sharing
– agreement on productivity standards
– employment security
Trang 14Process and Context Issues
12-14
Employee participation in decision making
Communication
Pay and process: intertwined effects
Employee participation in decision
making
Communication
Pay and process: intertwined effects
Trang 15Matching Strategy to Operating Strategy
Pay Strategy Dimension
Business Unit Strategy
Defenders Prospectors
Risk Sharing (variable pay)
Time Orientation
Pay level (short run)
Pay level (long run)
Benefits Level
Where Pay Decision Made
Low Short-term Above market Above market Above market Centralized
High Long-term Below market Above market Below market Decentralized