Rewarding Performance

1
Rewarding Performance
2
Objectives

• To be able to discuss the advantages and
  disadvantages of
• Individual pay-for performance systems
• Team-based pay-for-performance systems
• Plant-wide pay-for-performance systems
• Corporate-wide pay-for-performance systems
• Know the conditions on which each is most
  appropriate, provide examples

3
Pay incentives Trends

• Close to 90 of U.S. companies offer pay for
  performance incentives. Most popular incentive is
  the bonus
• Half of Best Companies in Fortunes list offer
  stock options to all category of employees

4
Pay for Performance/Incentive Systems Assumptions

• Individual and team contributions vary
• Organizations performance related to individual
  and team performance
• Pay for performance good for attracting,
  retaining and motivating employees

5
Incentive Systems Challenges

• Focus on performance outcomes at expense of other
  organizationally-valued behaviours
• May discourage cooperation (emphasizing
  individual competition)
• Performance outcomes sometimes influenced by
  factors outside of employee control

6
Pay Incentives Challenges (continued)

• Difficulties in measuring performance
• Psychological contract (change resistance)
• Perceived credibility gap
• Job dissatisfaction and stress
• Potential reduction of intrinsic drive

7
Meeting the Challenges

• Link pay and performance appropriately (employee
  control)
• Use as part of broader HRM system (management
  employee training)
• Build employee trust
• Promote and celebrate pay for performance system

8
Meeting the Challenges (continued)

• Use multiple layer of rewards
• Increase employee involvement in plan design
• Use motivation and non-financial incentives

9
Pay for Performance Plans (Types)

• Individual-based
• Merit pay most popular
• Bonus programs
• Awards

10
Individual-based plans Advantages

• Performance is rewarding
• Incentives shape goals and behaviours
• Promotes individual equity
• Fit with individualistic culture

11
Individual Plans Disadvantages (continued)

• Challenge to convince that pay is directly linked
  to performance
• Many may promote quantity goals over quality
• May promote inflexibility

12
Individual-based plans Disadvantages

• May create competition (and discourage
  cooperation)
• Create conflicts between supervisors and their
  employees
• Promotes single-minded effort to achievement of
  goal, at neglect of other organization-valued
  behaviours

13
Conditions promoting success of
pay-for-performance

• When individual contributions can be isolated
• When jobs offer autonomy and control
• When employee cooperation is less critical

14
Team Based Plans Advantages

• Foster group cohesiveness
• Aid performance measurement

15
Team-based plans Disadvantages

• Lack of fit with individualistic cultural values
  challenge
• Free-riding effect
• Social pressures to limit performance
• Defining teams
• Inter-group competition

16
When team-based plans likely to succeed?

• Work is intertwined among workers (much
  inter-dependency)
• Team-based culture
• Few hierarchical levels
• Little dependence on supervisors
• Technology allows for separation of work to unit
• Employee commitment high
• Fostering entrepreneurship at team level

17
Plant-wide Plans Gainsharing

• Advantages
• Promotes cooperation
• Promotes common goal
• Fosters quality
• Disadvantages
• Protection of low performers
• Problems with criteria
• Management-labour conflict

18
Conditions favoring plant-wide plans

• Firm size
• Technology
• Historical performance
• Corporate culture
• Stability of product market

19
Corporate-wide plans Profit Sharing ESOPs

• Advantages
• Financial flexibility for the firm
• Increased employee commitment
• Tax advantages
• Disadvantages
• Risk to employee
• Limited effect on productivity
• Long-run financial difficulties

20
Conditions favoring corporate plans

• Firm size (best for larger organizations)
• Interdependence among parts of the business
• Variable market conditions
• Presence of other incentives

21
Special plans

• Executive
• Base pay plus short-term incentive bonus
• Long-term incentives
• Perks
• Sales
• Straight salary, straight commission, come
  combination