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Pay for Performance Pay for Performance and Financial Incentivesand Financial Incentives12
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-1
Learning ObjectivesLearning Objectives
1. Explain how you would apply five motivation theories in formulating an incentive plan.
2. Discuss the main incentives for individual employees.
3. Discuss the pros and cons of commissions versus straight pay incentives for salespeople.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-2
Learning ObjectivesLearning Objectives4. Describe the main incentives for
managers and executives.
5. Name and define the most popular organization-wide variable pay plans.
6. Outline the steps in designing effective incentive plans.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-3
Money and MotivationMoney and Motivation
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-4
Five motivation theories in Five motivation theories in formulating an incentive formulating an incentive
plan.plan.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-5
Motivational TheoriesMotivational Theories1. Maslows Hierarchy of Needs
2. Herzbergs 2-factor theory
3. Reinforcement theory
4. Equity theory
5. Expectancy theory
6. Theory X & Y
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-6
Motivation and IncentivesMotivation and Incentives
• Maslow’s Hierarchy of Needs
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-7
Motivation and IncentivesMotivation and Incentives
• Herzberg’s Two-Factory Theory
• Deci and demotivators
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-8
Reinforcement TheoryReinforcement TheoryBehaviorist theory – Skinner
They believe that all behaviour results from external stimuli and peoples goals are determined by the desire to achieve pleasure and avoid pain.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-9
Equity TheoryEquity Theory
•People are motivated by a desire for fairness.
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Expectancy TheoryExpectancy Theory
• Expectancy Theory (Victor Vroom)
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-11
Theory X and YTheory X and Y1. Theory X – average workers has an
inherent dislike of work and will avoid.
2. Theory Y – expenditure of physical and mental effort in work is as natural as play or rest.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-12
Motivation and IncentivesMotivation and Incentives
• Behavior modification
• Incentive pay terminology
• Employee incentives and the law
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-13
ReviewReview
• Money and motivation
• Motivation theories
• Incentives
• Terminology
• The law
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-14
Incentives for individual Incentives for individual employees.employees.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-15
Individual Employee Incentive Individual Employee Incentive and Recognition Programsand Recognition Programs
• Merit pay as an incentiveoDifferential pay
increasesoMerit pay options
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-16
• Piecework plansoStraight
pieceworkoStandard hour
plansoPros and cons
Individual Employee Incentive Individual Employee Incentive and Recognition Programsand Recognition Programs
• Incentives for professional employees• Nonfinancial and recognition-based
awardso Incentives managers can use
• Online and IT-supported awards• Job design – refer to Oldham &
Hackman.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-17
ReviewReview• Piecework
• Merit pay
• Incentives for professionals
• Nonfinancial rewards
• Online
• Job design
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-18
The Pros and Cons of The Pros and Cons of Commissions vs. Straight Commissions vs. Straight
Pay Incentives for Pay Incentives for SalespeopleSalespeople
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-19
Incentives for SalespeopleIncentives for Salespeople
• Salary plan
• Commission plan
• Combination plan
• Maximizing sales force results
• How effective are your incentives?
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-20
ReviewReview
• Types of sales incentives
• Maximizing results
• Effectiveness
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-21
The main incentives for The main incentives for managers and executives.managers and executives.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-22
Incentives for Managers Incentives for Managers and Executivesand Executives
• Strategy and the executive’s long-term and total rewards package
• Sarbanes-Oxley Act• Short-term incentives, annual bonus
oEligibilityoFund sizeo Individual performanceoFormula
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-23
Incentives for Managers Incentives for Managers and Executivesand Executives
• Strategic long-term incentivesoStock optionsoStock option problemsoOther stock plansoEthics and incentives
• Other executive incentives
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-24
ReviewReview
• Strategy and long-term incentives
• Federal law
• Short-term incentives
• Strategic long-term incentives
• Other incentives
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-25
The Most Popular The Most Popular Organization-wide Variable Organization-wide Variable
Pay PlansPay Plans
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-26
Team & Organization-wide Team & Organization-wide Incentive PlansIncentive Plans
• Designing team incentivesoEngineered standardsoPros and cons
• HR inequities that undercut team incentives
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-27
Team & Organization-wide Team & Organization-wide Incentive PlansIncentive Plans
• Profit-sharing plans
• Scanlon plans
• Gainsharing plans
• At-risk pay plans
• Employee stock ownership plans
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-28
ReviewReview• Team incentives
• Inequities
• Profit-sharing
• Scanlon and gainsharing
• At-risk
• ESOPs
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-29
The Steps in Designing The Steps in Designing Effective Incentive PlansEffective Incentive Plans
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-30
The Five Building Blocks of The Five Building Blocks of Effective Incentive PlansEffective Incentive Plans
• Common sense
• Linkages
• Effort Rewards (motivational)
• Standards
• Contract
• Measurement
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-31
ReviewReview
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Chapter 12-32
