Copyright © 2014 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin FUNDAMENTALS OF HUMAN RESOURCE MANAGEMENT 5 TH EDITION BY R.A. NOE, J.R. HOLLENBECK, B. GERHART, AND P.M. WRIGHT CHAPTER 12 RECOGNIZING EMPLOYEE CONTRIBUTIONS WITH PAY

12-2 Pay for Individual Performance Piecework ratesStandard hour plansMerit payIndividual bonusesSales commissions

12-3 Pay for Group Performance: Gainsharing Gainsharing – group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees. Addresses challenge of identifying appropriate performance measures for complex jobs. Frees employees to determine how to improve their own and their group’s performance. Addresses challenge of identifying appropriate performance measures for complex jobs. Frees employees to determine how to improve their own and their group’s performance.

12-4 Pay for Group Performance: Group Bonuses and Team Awards Bonuses for group performance tend to be for smaller work groups. These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. Bonuses for group performance tend to be for smaller work groups. These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. Similar to group bonuses, but more likely to use a broad range of performance measures: – Cost savings – Successful completion of a project – Meeting deadlines Similar to group bonuses, but more likely to use a broad range of performance measures: – Cost savings – Successful completion of a project – Meeting deadlines Group BonusesTeam Awards

12-5 Pay for Organizational Performance: Profit Sharing Profit sharing – incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary. Profit sharing may encourage employees to think like owners. Evidence is not clear whether profit sharing helps organizations perform better. Profit sharing – incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary. Profit sharing may encourage employees to think like owners. Evidence is not clear whether profit sharing helps organizations perform better.

12-6 Pay for Organizational Performance: Stock Ownership Rights to buy a certain number of shares of stock at a specified price. Traditionally, stock options have been granted to executives. Rights to buy a certain number of shares of stock at a specified price. Traditionally, stock options have been granted to executives. (ESOP) – an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust. Most common form of employee ownership. (ESOP) – an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust. Most common form of employee ownership. Stock OptionsESOPs

12-7 Balanced Scorecard Balanced scorecard – a combination of performance measures directed toward the company’s long- and short-term goals and used as the basis for awarding incentive pay.  Four categories of a balanced scorecard include: 1. financial 2. customer 3. internal 4. learning and growth  Four categories of a balanced scorecard include: 1. financial 2. customer 3. internal 4. learning and growth

12-8 Processes That Make Incentives Work Employee participation in pay-related decisions can be part of a general move toward employee empowerment. Employee participation can contribute to the incentive plan’s success. Employee participation in pay-related decisions can be part of a general move toward employee empowerment. Employee participation can contribute to the incentive plan’s success. Communication demonstrates that the pay plan is fair. When employees understand the incentive pay plan’s requirements, the plan is more likely to influence their behavior as desired. Important when changing the pay plan. Communication demonstrates that the pay plan is fair. When employees understand the incentive pay plan’s requirements, the plan is more likely to influence their behavior as desired. Important when changing the pay plan. Participation in Decisions Communication

12-9 Incentive Pay for Executives Bonuses based on ROI, year’s profits, or other measures related to the organization’s goals. Actual payment of bonus may be delayed to gain tax advantages. Bonuses based on ROI, year’s profits, or other measures related to the organization’s goals. Actual payment of bonus may be delayed to gain tax advantages. Include stock options and stock purchase plans. Rationale is that executives will want to do what is best for the organization because that will cause the value of their stock to grow. Include stock options and stock purchase plans. Rationale is that executives will want to do what is best for the organization because that will cause the value of their stock to grow. Short-Term IncentivesLong-Term Incentives

12-10 Incentive Pay for Executives: Ethical Issues Incentive pay for executives lays the groundwork for significant ethical issues. When an organization links pay to its stock performance, executives need the courage to be honest about their company’s performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings. Incentive pay for executives lays the groundwork for significant ethical issues. When an organization links pay to its stock performance, executives need the courage to be honest about their company’s performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings.