HRM CH 12

Human Resources Management in
Canada
Fourteenth Canadian Edition
Chapter 12
Pay-for-Performance
and Financial
Incentives
Copyright © 2020 Pearson Canada Inc. 12 - 1

Learning Objectives (1 of 2)
12.1 Discuss the impact of money as a means to
incentivize employee motivation, and compare
fixed and variable pay plans and the
appropriate use of each.
12.2 Compare the five types of organization-wide
incentive plans available to all employees.
12.3 Explain how to use short-term and long-term
incentives for managers and executives.

Learning Objectives (2 of 2)
12.4 Analyze the main advantages and
disadvantages of salary plans and commission
plans for salespeople.
12.5 Explain under what conditions it is best to use
an incentive plan.
12.6 Analyze the emerging emphasis on employee
recognition.

Money and Motivation (1 of 5)
Fixed Pay:
• Compensation independent of performance levels.
• Includes base pay and other forms of compensation(E.g
Allowances).
Variable Pay:
• Any plan that links pay with productivity, profitability, or
some other measure of organizational performance.
• Employers prefer variable pay plans while holding salary
increases of fixed compensation at modest levels.
• Accurate performance appraisal is a condition of pay-for-
performance plans.
Motivation and Incentives:
• Motivation and Frederick Herzberg:
– Best motivations comes from a job that provides challenge
and recognition.(Motivators that satisfy higher-level needs)
– Satisfactory pay and working conditions just keeps the
person from becoming dissatisfied.(Hygiene factors that
satisfy lower-level needs)
– Managers should emphasize job content to motivate:
▪ Intrinsic motivation comes from the pleasure of doing a good
job.
▪ Extrinsic motivation comes from external rewards.

• Demotivators and Edward Deci:
– Potential downside of relying on extrinsic rewards:
▪ Could detract from the person’s intrinsic motivation.
▪ Highly motivated employees may find pay for productivity
demeaning and lose the desire to do the job well out of
sense of responsibility.

• Expectancy theory and Victor Vroom:
– People won’t pursue rewards they find unattractive, or
where the odds of success are very low.
– person’s motivation to exert some level of effort depends
on three things:
▪ Expectancy – probability that effort will lead to performance.
▪ Instrumentality – connection between performance and
getting a reward.
▪ Valence (value) – perceived value the person attaches to
the reward.

• Expectancy theory and Victor Vroom:
• Motivation = (E x I x V)
• If E, I, or V is zero or inconsequential, there will be no
motivation.
– If expectancy is lacking, manager must ensure that
employee has the skills and confidence to do the job.
▪ Provide training and support.
– Employees must believe in the instrumentality – that
successful performance will lead to a reward.
▪ Provide easy to understand incentive plans.
▪ Deliver on promised rewards.
– The reward must be of value to the employee.
▪ Take into account individual preferences.
Type of Incentive Plans (1 of 11)
Incentives for All Employees:
• Merit pay:
– Any salary increase that is awarded based on individual
performance.
– Only pay tied directly to performance can motivate improved
performance.
– Usefulness depends on the validity of the performance
appraisal system.
• Traditional merit pay plans:
– Granted once a year as a pay raise, or a single lump sum
without changing base salary.

• Employee share purchase/stock ownership plans (ESOP):
– Can encourage employees to develop a sense of ownership
and commitment to the firm.
• Profit-sharing plans:
– Help attract, retain, and motivate workers; offer tax
advantages.
– Easy to administer; broad appeal to employees.
– Might produce one time productivity improvement only.

• Scanlon plans:have five basic features.
– Philosophy of cooperation; away from “us” and “them”.
– Employees must understand the identity of the firm; how the
business operates.
– High level of competence is demanded from employees at
all levels; careful selection and training.
– Involvement of employees for improvement by offering
suggestions.
– Sharing of benefits where employees share in savings.

• Gainsharing plans:
– Incentive that engages employees in common effort to
achieve productivity objectives and share the gains.
– Works well in stable organizations.
– Less flexible and useful in dynamic industries.
– Payouts can vary by base salary and collective
agreements.

Incentives for Operations Employees:
• Piecework plans:
– Oldest and most common incentive plan.
– Pay is based on the number of items processed by each
worker in a unit of time.
– Job evaluation determines production standards.
– Simple to calculate, easy to understand, appears equitable.
– Disliked by employees due to employers raising production
standards to suppress wages.

• Piecework plans Example:
– If Tom gets paid a piecework rate of $2.50 per
customer phone query completed via phone in his
customer service position,
– then he would make $75 for completing 30 calls a day
– and $100 for 40 calls a day.

• Piecework plans :
– Straight piecework plan: Paid on the basis of number
of pieces completed. No guaranteed minimum wage.
– Guaranteed piecework plan: Paid the minimum wage
whether or not enough pieces completed in a day
required to make minimum wage.
– Differential piece-rate plan: The worker is rewarded
by a premium that equals the percentage by which his
or her performance exceeds the standard.

Team or Group Incentives:
• Options:
– All members receive pay earned by highest or lowest
producer; or average earned by the group.
– Production standard is based on the final output of the
group. All members receive same pay based on the
piece rate for the job.
– Choose a measurable definition of group performance
or productivity that the group can control.

• Rationale for using team incentives:
– Many jobs are interrelated not independent.
– Encourages cooperation through group planning, problem
solving, and collaboration.
– Reduces jealousy; members are indebted to each other.
• Disadvantages:
– May be less effective at motivation as rewards are no longer
based on each worker’s own effort.

• Group plans are most effective when:
– There is a high level of communication about the specifics of
the plan.
– There is strong worker involvement in plan design.
– Plan is perceived to be fair.

Incentives for Senior Managers and Executives:
• Executive compensation includes salary, benefits, short-
term incentives, long-term incentives, and perquisites.
• Short-term incentives:
– Annual bonus.
• Long-term incentives:
– Intended to motivate and reward; encourage executive to
stay with company.
– Capital accumulation plans:
▪ Stock options.

Incentives for Senior Managers and Executives:

Incentives for Salespeople:
• Salary plan:
– Fixed salary with occasional incentives; does not depend on
results. (E.G jobs in industries to sell technical products)
– can be demotivating to potentially high-performing
salespeople who see seniority—not performance—being
rewarded.
• Commission plan:
– Pay only for results; focuses on making a sale rather than
cultivating customers.
– Can result in high turnover.
• Combination plan:
– Base salary and commissions.
– Salary is not tied to performance.
Developing Effective Incentive Plans
(1 of 3)
Role of Incentives in Employee Engagement:

• Employee engagement is often not included as a goal of
an organization’s compensation plan.
• To encourage employee engagement:
– Measure the extent supervisors encourage subordinates to
be engaged.
– Use incentives to reward supervisors for improving
employee engagement.
– Get employees involved in developing rewards programs.

(2 of 3)
Role of Incentives in Employee Engagement:

• When to use incentives:
– Performance pay cannot replace good management.
– Incentive plan that rewards pieces of production could lead
to rush work and lower quality.
– Pay is only a temporary motivator; build other motivators
into jobs.
– Rewards rupture relationships.
– Rewards may undermine responsiveness.
• Careful management of rewards enhances performance.

(3 of 3)
How to Implement Incentive Plans:

• Pay for performance tied to successful achievement of
critical business goals.
• Link incentives to other activities (career development).
• Link incentives to valued measurable competencies.
• Match incentive to company culture.
• Keep group incentives clear and simple.
• Overcommunicate to recognize employee contributions.
• Meaningful work can be as motivating as financial
rewards.

Employee Recognition Programs (1 of 2)
Value of Recognition Programs:
• Recognition is a critical component of total rewards.
• Recognition needs to be show throughout employee’s
career.
• Employees consistently feel they receive little or no
recognition and feel ignored and undervalued.
• Recognition is cost-effective.
• Effective recognition is specific, immediate, personal and
spontaneous.
– Builds confidence, and pride, is inspiring and makes one feel
valued.

Employee Recognition Programs (2 of 2)
Recognition and Incentives for Entrepreneurs:
• Best option is the simplest.
• Recognition has a positive impact on performance.
• Positive reinforcement rewards:
– Challenging work assignments.
– Freedom to choose own work activity; set own goals.
– Have fun built into work.
– Take a role in presentations.
– Job rotation.
– Encouragement of training/learning.

A New Compensation Program to Motivate Performance
Marilyn Brown started her chain of 10 wedding boutiques approximately five
years ago. She presently operates within southwestern Ontario and has been
enjoying record profits. Marilyn’s wedding boutiques provide full-service
amenities to future brides, including wedding planning services, custom
fittings, and locating hard-to-find wedding dresses.
Marilyn’s customer service philosophy is that customers are number one and
must be satisfied with their purchases. However, recently there has been a
rise in complaints regarding the lack of friendly service being provided, and
three long-standing employees have threatened to leave unless their
compensation is adjusted in response to servicing Marilyn’s very demanding
clients. Currently, Marilyn pays all of her staff the same base salary of $14 per
hour without any benefits. Marilyn feels that this approach promotes equity
and eliminates any perceptions of favouritism between employees regarding
compensation.
Since receiving the negative complaints and the threats of some of her staff
leaving, Marilyn has decided she needs to rethink her compensation
philosophy, and needs your help.
Questions?
1.What are the specific problems with Marilyn’s current
compensation program?
2.Discuss the types of compensation programs and plans
available to Marilyn to motivate and retain her existing
staff.
3.Should Marilyn use only one type of compensation
plan, or a combination plan for her employees? Discuss
your recommendation in detail.

HRM CH 12

Uploaded by

Copyright:

Available Formats

HRM CH 12

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HRM CH 12

Uploaded by

Copyright:

Available Formats

Human Resources Management in

Copyright © 2020 Pearson Canada Inc. 12 - 1

Copyright © 2020 Pearson Canada Inc. 12 - 2

Copyright © 2020 Pearson Canada Inc. 12 - 3

Copyright © 2020 Pearson Canada Inc. 12 - 5

Copyright © 2020 Pearson Canada Inc. 12 - 6

Copyright © 2020 Pearson Canada Inc. 12 - 7

Copyright © 2020 Pearson Canada Inc. 12 - 9

Copyright © 2020 Pearson Canada Inc. 12 - 10

Copyright © 2020 Pearson Canada Inc. 12 - 11

Copyright © 2020 Pearson Canada Inc. 12 - 12

Copyright © 2020 Pearson Canada Inc. 12 - 13

Copyright © 2020 Pearson Canada Inc. 12 - 14

Copyright © 2020 Pearson Canada Inc. 12 - 15

Copyright © 2020 Pearson Canada Inc. 12 - 16

Copyright © 2020 Pearson Canada Inc. 12 - 17

Copyright © 2020 Pearson Canada Inc. 12 - 18

Copyright © 2020 Pearson Canada Inc. 12 - 19

Copyright © 2020 Pearson Canada Inc. 12 - 20

Role of Incentives in Employee Engagement:

Copyright © 2020 Pearson Canada Inc. 12 - 22

Role of Incentives in Employee Engagement:

Copyright © 2020 Pearson Canada Inc. 12 - 23

How to Implement Incentive Plans:

Copyright © 2020 Pearson Canada Inc. 12 - 24

Copyright © 2020 Pearson Canada Inc. 12 - 25

Copyright © 2020 Pearson Canada Inc. 12 - 26

Copyright © 2020 Pearson Canada Inc. 12 - 28

You might also like