OS 352 4/1/08 I. Exam II is cancelled – April Fool’s!! II. Pay system design (Chapter 12) A. Review from last time. B. Pay Ranges C. Supplemental incentives III. Rewards and motivation A. Motivation theories B. Intrinsic vs. extrinsic perspectives IV. Exam Guidance. V. ****For Tues.: Read HBR article, “When Salaries Aren’t Secret “ – much of the class is devoted to discussion of this article, so you must read it ahead of time.

Creating the Pay Structure Market Rank/gradewages 1. Admin. Assistant Accountant Flight Attendant Attorney Pilot68000

Two Components of the Pay Structure Pay Ranges Variation in pay that is available in a job. Distinguish ees based upon: performance seniority experience Pay Grades Groups into which jobs of the same or similar values are grouped.

Pay Ranges & Grades $35/hr $25/hr Pay line Establish pay ranges (minimum, maximum, midpoint) around the pay line created by regression Establish pay grades by identifying which jobs should be considered together (e.g., accountant and flight attendant in a single grade  same pay ranges)

Pay Range Issues Issue: Some ees being paid above or below pay ranges. Green circle – increase pay Red circle – freeze or cut pay, supplemental bonus Issue: Equity issues within pay ranges Decision rule for when to address Potential discrimination issues $35/hr $25/hr

Broadbanding Use of fewer grades and wider pay ranges. Advantages Increase flexibility in pay structure. Provide managers with more discretion in setting employee pay. Encourage lateral career moves. Reward outstanding achievers. Disadvantages Less control over compensation costs. Begins to resemble traditional structures over time. EEO issues.

Supplemental Incentives (not added in to ees’ base pay) Gainsharing Plans: Group incentive program that measures improvements in productivity and effectivess, and distributes a portion of the gain to employees. Relies on team cooperation and meetings. Relies on suggestion systems. Profit Sharing Plans: Company incentive pay in which payments are a percentage of the organization’s profits. Earnings-at-risk plans: An incentive play in which ees’ base wages are set below a specified level (e.g., 80% of market wage) and incentive earnings are used to raise wages above market.

Line of Sight An ee’s ability to see how individual performance affects their incentive payout. Gainsharing Clear line of sight Small teams Clear criteria Profit-sharing Fuzzy line of sight Whole company Clear criteria but individual ee can have little impact on criteria.

Motivation That which energizes, directs, and sustains human behavior (p. 595, text).

Exchange Theories of Motivation 1. Organizational justice theory & Equity theory 2. Expectancy theory

Equity Theory (same process as distributive justice theory) OUTCOME INPUTS OUTCOME INPUTS ? the same, more or less A person evaluates fairness by comparing his/her ratio with others. Pay, benefits, opportunities, etc. effort, ability, experience etc. © The McGraw-Hill Companies, Inc., 2000

Responses to Inequity

Expectancy Theory Theory of motivation that says that individuals are motivated to choose between different behaviors if the result is rewards that are valued  Expectancy  Instrumentality  Valence

Expectancy Probability that effort will result in successful performance (0-1). Example: If I try, what are the chances that I can get this computer program to run?

Instrumentality Probability that a successful performance will result in a particular outcome. (0-1) Example: If I get this computer program to run, what are the chances I will receive a bonus?

Valence Value I place on the outcome (e.g., 1-10). Example: How much do I value a bonus?

Your Turn: How would you motivate someone with a low … Expectancy Instrumentality Valence

An Ongoing Debate: Do Monetary Rewards Motivate or De-Motivate? Motivate: Economic incentives improve quality and do not reduce quality (Gupta & Mitra). De-Motivate: Economic incentives reduce the satisfaction of doing enjoyable tasks (Deci).

OS 352 Exam II Guidance Covers chapters pts. - Choose 1 / 2 multi-part essays Selection systems and validity. Compensation system design. 25 pts. - Choose 5 / 8 identifications 30 pts. - True / False 20 pts. – Multiple choice **Any class, textbook, and assignment material may be included on the exam.

Terms You Should Know Pay range Pay grade Gainsharing plans Profit-sharing plans Earnings-at-risk plans Motivation

You Should be Able To … Offer suggestions regarding what to do with employees who are paid out of range. Fully explain and apply equity theory to a hypothetical management situation. Fully explain and apply expectancy theory (including its 3 components) to a hypothetical management situation.