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Part

III

Employee Contributions: Determining Individual Pay

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STRATEGICPOLICIES

TECHNIQUESSTRATEGIC

OBJECTIVES

EFFICIENCY

Performance

Quality

Customers

Stockholders Costs

FAIRNESS

COMPLIANCE

ALIGNMENT

COMPETITIVENESS

CONTRIBUTORS

ADMINISTRATION

Work Descriptions Evaluation/ INTERNAL Analysis Certification STRUCTURE

Market Surveys Policy PAY Definitions Lines STRUCTURE

Seniority Performance Merit INCENTIVE Based Based Guidelines PROGRAMS

Planning Budgeting Communication EVALUATION

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Employee performance depends on three general factors:

Employee performance = f (S,K,M)

where:

S = Skill and ability to perform task

K = Knowledge of facts, rules, principles, and procedures

M = Motivation to perform

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What Behaviors Do EmployersCare About?

How do we get good employment prospects to join our company?

How do we retain these good employees once they join?

How do we get employees to develop skills for current and future jobs?

How do we get employees to perform well on their current job?

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What Motivates Employees?

In the simplest sense, motivation involves three elements:

1. what is important to a person, and

2. offering it in exchange for something

3. desired behavior

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What Motivation Theories Say

Content Theories (what is important to a person)Maslow’s Need HierarchyHerzberg’s 2-Factor Theory

Process Theories (the nature of the exchange)Expectancy TheoryEquity TheoryAgency Theory

Reinforcement Theories (desired behavior)Goal SettingReinforcement

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Components of a Total Reward System

1. Compensation Wages, Commissions and Bonuses

2.. Benefits Vacations, Health Insurance

3. Social Interaction Friendly Workplace

4. Security Stable, Consistent Position and Rewards

5. Status / Recognition Respect, Prominence Due to Work

6. Work Variety Opportunity to Experience Different Things

7. Workload Right Amount of Work (not too much, not too little)

8. Work Importance Is Work Valued by Society

9. Authority / Control / Autonomy Ability to Influence Others; Control Own Destiny

10. Advancement Chance to Get Ahead

11. Feedback Receive Information Helping to Improve Performance

12. Work Conditions Hazard Free

13. Development Opportunity Training to Learn New Knowledge / Skills / Abilities

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WageComponents

WageComponents

Across the BoardAcross the Board

Cost of LivingIncrease

Cost of LivingIncreaseBase PayBase Pay

Merit PayMerit Pay Lump SumBonus

Lump SumBonus

IndividualIncentiveIndividualIncentive

SuccessSharing Plans

SuccessSharing Plans

Gain SharingGain Sharing Profit SharingProfit SharingRisk

Sharing PlansRisk

Sharing Plans`

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Performance Depends on the Employee’s Perception of: (1 of 2)

The probability the performance will meet or exceed manager’s objective.

The probability that if the objective is met, the manager/organization will give extrinsic rewards.

The probability the extrinsic rewards will satisfy some needs.

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Performance Depends on the Employee’s Perception of: (2 of 2)

The probability that doing the task will provide intrinsic rewards.

The probability the intrinsic rewards will satisfy needs.

How much satisfaction of these needs is important or valued.

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Designing A Pay-For-Performance Plan

EfficiencyStrategyStructureStandards

ObjectivesMeasuresEligibilityFunding

Equity or FairnessDistributive justiceProcedural justice

ComplianceComply with existing lawsEnhance and maintain firm’s reputation

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Summary Employee performance depends upon some blend of

skill, knowledge, and motivation. Absent any of these three ingredients, performance is

likely to be sub-optimal. Rewards must:

Help organizations attract and retain employeesMake high performance an attractive option for

employeesEncourage employees to build new skills and

gradually foster commitment to the organization

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Review Questions

1. Do you think incentive pay will motivate faster performance? Is this desirable?

2. Should rewards focus mostly on money, or should employers work hard to incorporate the other 12 rewards discussed in this chapter?

3. If you wanted workers to perceive their compensation package as secure, what components would you include and which would you avoid?

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Review Questions (continued)

4. How does procedural justice differ from distributive justice?

a. Defend the position that supervisors have considerable control over procedural justice in their departments, but little control over distributive justice.

b. How might you use the principles of procedural justice to avoid having an employee quit because she believes her boss gave her an unfair evaluation?