Motivation and Compensation Compensation Management Prepared by: Zaheed Husein Md Al-Din, Sr. Lecturer, BBS Adapted from: Compensation, Ninth Edition (By: George T. Milkovich, Jerry M. Newman)
Topics for Discussion Link Between Organization Strategy and Employees’ Behaviors Behavior Performance Management and Compensation Management How to get desired behaviors? Preference for Pay System Motivation Theories Total Reward System Wage Components Pay-For-Performance Plan
Link Between Organizational Strategy and Employee Behavior Corporate Goals Business Unit Goals Department/ Team Goals Employee Team Results Individual Goals Employee Task Behaviors
Behavior =f(M, A, E) Motivation: Ability: Environmental Obstacle: Performance Management Compensation Culture Ability: Selection Recruitment Training Environmental Obstacle: Organizational Design Organizational Development HR Planning
Economic Obstacles Unions Economic Conditions Public Policy/Legislation
Behaviors Compensation Need to Reinforce Attraction Retention Developing Skills
Relation: Performance Measurement and Compensation Strategy Variability in Organizational Performance Low Variability: Few swings in overall corporate performance High Variability: Regular and large swings in overall corporate performance Variability/ease of measurement in individual performance Unstable, Unclear and changing objectives Provide wide range of rewards beyond just money. Include significant incentive component Provide wide range of rewards beyond just money. Emphasize base pay with low-incentive portion Stable and easily measured Emphasize monetary rewards with large-incentive component Emphasize monetary rewards: large base pay with low-incentive portion
How to get desired behaviors? Motivation involves three elements: What’s important to a person Offering it in exchange for some Desired behavior
Preference for Pay System Individual Performance Changes in cost of living Seniority Market Rate Cafeteria Style/Flexible Compensation
Motivation Theories Maslow’s Need Hierarchy: People are motivated by inner needs. Needs form a hierarchy from most basic to higher-order Herzberg’s Two Factor Theory: Employees are motivated by two types of motivators: hygienic factor and satisfiers Expectancy: Motivation = Expectancy * Instrumentality * Valence
Motivation Theories (contd.) Equity: Employees are motivated when perceived outputs are equal to perceived inputs Reinforcement: Rewards reinforce performance Goal Setting: Challenging performance goals influence greater intensity and duration in employee performance Agency: Pay directs and motivates employee performance
Total Rewards System Compensation: Wages, commissions, and bonuses Benefits: Vacations, health insurance Social Interaction: Friendly workplace Security: Stable, consistent position and rewards Status/recognition: Respect, prominence due to work Work Variety: Opportunity to experience different things Workload: Right amount of work (not too much, not too little)
Total Rewards System (contd.) Work Importance: Is work valued by society Authority/control/autonomy: Ability to influence others; control own destiny Advancements: Chance to get ahead Feedback: Receive information helping to improve performance Work Conditions: Hazard free Development Opportunity: Formal and informal training to learn new knowledge skills/abilities
Wage Components Base Pay Across the Board Cost-of-living adjustments (COLA) Merit Pay Lump-sum Bonus Individual Incentive Success-sharing Plans Gain Sharing Profit Sharing Risk Sharing Plan
Person Characteristics and Preferred Reward Characteristics Materialistic: Relatively more concerned about pay level Low Self-Esteem: Want large, decentralized organization with little pays for performance Risk-Takers: Want more pay based on performance Risk-Averse: Want less performance-based pay Individualists: Want pay plans based on individual performance; not group performance
Pay-for-Performance Plan Effectiveness depends on three things: Efficiency Strategy Structure Standards Equity/Fairness Compliance
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