© 2002 by Prof Anne Tsul 11-1 October 22 Rewarding Performance Part I

© 2002 by Prof Anne Tsui 11-2 Three Reward System Scenarios (TAPPS)  Green Giant designed a bonus plan to reward employees for removing insects from the vegetables.  A software developer installed an incentive plan to reward programmers for finding and removing software bugs.  In 1805, a soldier deserted the army. The captain offered a reward of $10 to anyone who brought the soldier back alive, or $20 for the soldier’s scalp. 1. What do you think the company wants from the reward system? 2. What potential problem do you see in each case? What could go wrong?

© 2002 by Prof Anne Tsui 11-3 TAPPS (Thinking Aloud Paired Problem Solving) questions: 1. Individual work, quiet time: 1 min. 2. Explainer explains, listener seeks clarification, disagrees, and gives hints: 5 min. 3. Sharing and teacher closure: 10 min. 1. What do you think the company wants from the reward system? 2. What potential problem do you see in each case? What could go wrong?

© 2002 by Prof Anne Tsui 11-4 HR planning Evaluating Separating Relating Protecting Career Planning RewardingPaying Training Hiring Job designing The Course: HRM Activities Attract Motivate Retain

© 2002 by Prof Anne Tsui 11-5 Performance Measurement & Evaluation Levels of Rewards Assumptions & Challenges Individual Team based Plant-wide Corporate Rewarding Performance Advantages Disadvantages Facilitating conditions

© 2002 by Prof Anne Tsui 11-6 Learning Objectives – at the end of this topic, you should be able to: 1.Identify and analyze the assumptions underlying pay for performance systems. 2.Identify the challenges in using pay to motivate or reward performance. 3.Differentiate the four levels of reward systems. 4.Determine the advantages and disadvantages of different pay for performance systems. 5.Identify the conditions when each system is most likely to succeed. 6.Examine the limitations of monetary rewards and the potential of non-monetary rewards 7.Design pay for performance systems that motivate the appropriate employee or team behaviors. © 1998 by Prentice Hall Reading: Chapter 11, Tuesday: pp , Thursday:

© 2002 by Prof Anne Tsui 11-7 Pay for Performance: 8 Challenges  The “Do Only What You Get Paid For” Syndrome u The closer pay is tied to particular performance indicators, the more employees tend to focus on those indicators and neglect other important job components  Negative Effects on the Spirit of Cooperation u Employees may withhold information from a colleague if they believe that it will help the other person get ahead  Lack of Control can reduce motivation u Employees often cannot control all of the factors affecting their performance  Difficulties in Measuring Performance u Assessing employee performance is one of the thorniest tasks a manager faces, particularly when the assessments are used to dispense rewards

© 2002 by Prof Anne Tsui 11-8 Pay for Performance: Challenges (cont.)  Psychological Contracts u Once implemented, a pay-for-performance system creates a psychological contract between the employee and firm, and it is very resistant to change  The Credibility Gap u Employees often do not believe that pay-for- performance programs are fair or that they truly reward performance  Job Dissatisfaction and Stress u Pay-for-performance systems may lead to greater productivity but lower job satisfaction  Potential Reduction of Intrinsic Drives u Pay-for-performance systems may push employees to the point of doing whatever it takes to get the promised monetary reward and in the process stifle their talents and creativity

© 2002 by Prof Anne Tsui 11-9 Pay for Performance Systems – 3 underlying assumptions  Individual employees and work teams differ in how much they contribute to the firm—not only in what they do, but also in how well they do it.  The firm’s overall performance depends to a large degree on the performance of individuals and groups within the firm.  To attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance.

© 2002 by Prof Anne Tsui The Problem: Pay for Student Performance for Teachers In one district, schools tried to improve student performance by rewarding teachers with more pay if their students’ performance improves. These merit pay plans reported some initial positive effects, such as decline in teacher absences, improved teacher motivation, and increased attention to teaching. Soon, problems emerged. There was rivalry among teachers and resentment when teachers were denied rewards they felt they deserved. High program costs and heavy demands on administrators further reduced support.

© 2002 by Prof Anne Tsui Group Discussion: 1. Individual work, quiet time: 3 min. 2. Round robin: 1 min. each person 3. Discuss: 15 min.  What is the level of the reward system used in this case and are the conditions right for using this type of reward system?  What criteria or system would you use to reward the performance of teachers that may prevent some of the problems noted in this case? Explain.

© 2002 by Prof Anne Tsui Four Levels of Pay-for- Performance Systems Microlevel Merit pay Bonuses Awards Piece rate IndividualTeam Macrolevel Business Unit/PlantOrganization Bonuses Awards Gainsharing Bonuses Awards Profit sharing Stock plans

© 2002 by Prof Anne Tsui Conditions Under Which Individual-Based Plans Are Most Likely to Succeed  When the contributions of individual employees can be accurately isolated.  When the job demands autonomy.  When cooperation is less critical to successful performance or when competition is to be encouraged.

© 2002 by Prof Anne Tsui Advantages of Individual- Based Pay-for-Performance Plans  Performance that is rewarded is likely to be repeated (research).  Individuals are goal-oriented (assumption) and financial incentives can shape an individual’s goals over time.  Assessing the performance of each employee individually helps the firm achieve individual equity (assuming performance can be accurately measured).  Individual-based plans fit in with an individualistic culture.

© 2002 by Prof Anne Tsui Disadvantages of Individual- Based Pay-for-Performance Plans  Tying pay to goals may promote singe-mindedness, overlook other performance areas.  Many employees do not believe that pay and performance are linked.  Individual pay plans may work against achieving quality goals.

© 2002 by Prof Anne Tsui Conditions Under Which Team- Based Plans Are Most Likely to Succeed  When work tasks are so intertwined that it is difficult to single out who did what.  When the firm’s organization facilitates the implementation of team-based incentives.  When the objective is to foster entrepreneurship in self-managed work groups.

© 2002 by Prof Anne Tsui Advantages of Team-Based Pay-for-Performance Plans  They foster group cohesiveness.  They aid performance measurement.  They promote cooperation.

© 2002 by Prof Anne Tsui Disadvantages of Team-Based Pay-for-Performance Plans  Possible lack of fit with individualistic cultural values.  Some team members may free-ride.  Social pressures to limit performance.  Difficulties in identifying meaningful groups.  Intergroup competition leading to a decline in overall performance.

© 2002 by Prof Anne Tsui Compare and Contrast Individual and Team Based Reward Systems Bases for comparison Individual-basedTeam-based Assumptions Conditions Advantages Disadvantages School teachers Green Giant workers

© 2002 by Prof Anne Tsui What have we achieved or learned in today’s class? Objectives +? TAPPS 1.Individual work, quiet time - 1 min 2.Interaction in pair – 3 min. 3.Teacher closure – 3 min.