Lecture Human resource management: Gaining a competitive advantage (9/e) – Chapter 12: Recognizing employee contributions with pay

Chapter 12 - Recognizing employee contributions with pay. After reading this chapter, you should be able to: Discuss how pay influences individual employees, and describe three theories that explain the effect of compensation on individuals; describe the fundamental pay programs for recognizing employees’ contributions to the organization’s success; list the advantages and disadvantages of the pay programs;...

Chapter 12

Recognizing Employee Contributions with Pay

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profits, seniority, or other factors.

have different consequences for productivity and return on

investment.

 Pay plans used to energize, direct, or control employee

behavior.

the reinforcement theory, expectancy theory and the

agency theory; behavior–reward contingencies shape

behaviors

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Programs Recognizing Contributions

 Programs differ by payment method, payout

frequency and ways of measuring performance

 Potential consequences include employees’

performance motivation and attraction, culture and

costs

 Management style and type of work influence

whether a pay program fits the situation

Gain Sharing

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Merit Pay

 Merit pay programs link performance-appraisal

ratings to annual pay increases

 A merit increase grid combines an employee’s

performance rating with employee’s position in a pay range to determine size and frequency of his or her pay increases

Merit Bonus - Merit pay paid in the form of a bonus,

instead of a salary increase

Some organizations provide guidelines regarding

percentage of employees who should fall into each

performance category

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Profit Sharing

 Under profit sharing, payments are based

on a measure of organization performance

(profits), and payments do not become a part

of base pay.



Advantages- profit sharing may encourage employees to think more like owners

 labor costs are automatically reduced during

difficult economic times, and wealth is shared during good times

 Disadvantage-workers may perceive their

performance has less to do with profit than top

management decisions over which they have little

control

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 Ownership encourages employees to focus on

organization’s success, but may be less

motivational the larger the organization.

 Stock options - plan that give employees the

opportunity to buy company stock at a

previously fixed price

 Employee stock ownership plans (ESOPs)

give employers certain tax and financial

advantages when stock is granted to

employees.

 ESOPs can carry significant risk for

employees

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Gainsharing – form of compensation based on

group or plant performance rather than

organizationwide profits that does not become

part of the employee’s base salary.

offers a means of sharing productivity gains with

employees

Improves performance

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Group Incentives and Team Awards

measures.

between groups or teams.

 Individual incentives reward individual performance but

payments are not rolled into base pay Performance is

measured as physical output rather than by subjective ratings.

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Managerial and Executive Pay

 Top managers and executives are a strategically

important group whose compensation warrants

special attention

 Some companies' rewards for executives are high regardless of profitability or stock market

performance.

 Executive pay can be linked to organizational

performance (agency theory)

 Increased pressure from regulators and

shareholders to better link pay and performance.

Securities and Exchange Commission (SEC)

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Process and Context Issues

3 issues represent areas of company discretion and pose

opportunities to compete effectively:

Employee Participation

in Decision Making

Communication

Pay & Process:

Intertwined Effects

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Summary

organization performance Often, it is a choice between different combinations of programs that seek to balance individual, group, and organization objectives.

standard of living Pay can be a powerful motivator.

conversely, a poorly conceived pay strategy can have detrimental effects.

internal and learning and growth.

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