Incentives Stucture

7/23/2019 Incentives Stucture

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Plans



Pay influences employees

throughReinforcement theory

Expectancy theory



Reinforcement

Theory

Behavior that isrewarded will be

repeated.



Expectancy Theory

ExpectancyIf I attempt this level of

performance, am I likely to

succeed?

InstrumentalityIf I achieve this level of

performance, am I likely to be

rewarded?

ValenceWhat value do I place on the

rewards available to me?

Motivational Force =

E * I *



ncentive Programs

Dier by

– payment method

– frequency of payout

–ways of measuring performance

– choice of which employees are covered

Fitting program to situation depends on

–

organiational structure– management style

– type of wor!



Types of Plans

"erit #ay

$ndividual $ncentives

#ro%t &haring'wnership

(ainsharing

(roup $ncentives)lternative Reward &ystems



Merit Pay Programs

lin! performance appraisal ratingsto annual pay increases

focus* identifying individualdierences in performance

better performance results inhigher reward+ contingent onposition in the range ,compra-ratio



Criticisms of Merit Pay

merit pay systems focusing on individualperformance discourage teamwor!

if performance is not measured fairly and

accurately+ the whole process will becontaminated

apparent dierences between people arisealmost entirely from the system that they

wor! in+ not the people themselves– cowor!ers+ /ob materials+ customers+ management+

supervision



ndividual ncentives

reward individualperformance

payments are 0'1 rolled intobase pay

performance is usually

measured as a physical outputrather than sub/ective ratings



ndividual ncentives are rare

because

most /obs have no physical output measure administrative problems of setting and

maintaining acceptable standards

plans may be inconsistent with other goals ,e.g.

acquiring multiple s!ills+ proactive problemsolving

people may focus on what they get paid for andnothing else

plans may reward output at the expense ofquality



Profit Sharing

payments are based on a measure oforganiational performance ,pro%ts

payments do 0'1 become a part of base pay

)dvantage* may encourage wor!ers to thin!more li!e owners

Drawbac!s*

– wor!ers may perceive their performance has

little to do with pro%t– deferred nature of payouts



Onership

encourages employees to focus on thesuccess of the organiation as a wholebut may not result in motivation for high

individual performancegains not realied until stoc! sold

,employees leaving company2

"ethods*

–stoc! options

– E&'#s ,employee stoc! ownership plans



!ainsharing

sharing productivity gains with employees diers from pro%t sharing in that instead of

using an organiation-level performancemeasure ,pro%ts plans measure group or plant

performance better for motivation

Examples*

– &canlon plan+ Ruc!er plan+ $mproshare

goes beyond money -- participation in problemsolving 3 !ey



Conditions for effective

!ainsharing

management commitment need to change or a process of continuous improvement

management acceptance 4 encouragement of employee input

high levels of cooperation and interaction

employment security

information sharing on all productivity and costs goal setting

commitment of all involved parties to change and improvement

agreement on a performance standard

calculation that is understandable+ perceived as fair+ closely

related to managerial ob/ectives



!roup ncentives

Focus 3 smaller wor! groups

5hile gainsharing typically measuresphysical output+ group incentives tend to

measure performance in terms of abroader array such as– cost savings

– successful completion of product design

– meeting deadlines

Drawbac!* competition among teams



"lternative Reard

Systems

alternatives to cash --

travel

merchandiseearned time o

symbolic awards

–plaques+ coee cups+ bananas



ncentive Plans



Conditions for Effective

ncentive Plans

#lan is clearly communicated.

#lan is understood by employees andmanagement.

Bonuses are easy to calculate.

Employees participate in administrating the plan.

Employees believe they are being treated fairly.

Employees believe they can trust the companyand that they have security.

Bonuses are awarded as soon as possible after thedesired performance.



Pay for Performance

Plans



Conditions for Effective

Performance#$ased Pay

Systems

#ay-performance lin!age must be perceived by employees #ay is valued by employees

Employees must perceive that eort and ability lead torewarded behavior

#erformance measurement must be fair

Employees must trust the organiation

#ay program must be understood

Employees must be able to control their performance

#erformance appraisal system cannot be biased

1here must be enough money to fund incentives

) valid /ob evaluation must have been conducted

Documents

Incentives Stucture