1. Pay-for-Performance: The Evidence
Chapter 9
Pay-for-Performance: The Evidence
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2. Learning Objectives
What behaviors do employers care about? Linking organization strategy to compensation and performance
What does it take to get these behaviors? What theory says
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3. Learning Objectives
What does it take to get these behaviors? What practitioners says
Does compensation motivate behavior?
Designing pay-for-performance plans
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4. Exhibit 9.1 - The Cascading Link between Organization Strategy and Employee Behavior
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5. Exhibit 9.2 - The Big Picture, or Compensation Can't Do It Alone!
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6. What Behaviors Do Employers Care About?
Compensation should:
Reinforce desired behaviors
Be sufficiently attractive to recruit and hire good potential employees
Make sure the good employees stay with the company (retention)
Build further knowledge and skills
Motivate employees to perform well on their jobs
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7. What Behaviors Do Employers Care About?
Performance:
Must be accurately measured to tell if compensation efforts are working
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8. Exhibit 9.3 - Performance Measurement Relates to Compensation Strategy
See Exhibit 9.2, pages 284 – 286 in the text
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9. What Does It Take To Get These Behaviors? What Theory Says
Elements of motivation
What is important to a person?
Employees prefer pay systems that are influenced by:
Individual performance
Change in cost of living
Seniority
Market rate
Flexible compensation: Individuals know what rewards would best suit personal needs
Offering it in exchange for some desired behavior
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10. Exhibit 9.4 - Motivation Theories
See Exhibit 9.2, pages 284 – 286 in the text
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11. Exhibit 9.4 - Motivation Theories
See Exhibit 9.2, pages 284 – 286 in the text
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12. Exhibit 9.4 - Motivation Theories
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13. Exhibit 9.4 - Motivation Theories
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14. Exhibit 9.4 - Motivation Theories
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15. Exhibit 9.4 - Motivation Theories
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16. Exhibit 9.4 - Motivation Theories
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17. Exhibit 9.5 - Components of a Total Reward System
See text, Exhibit 9.3 on page 289
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18. Exhibit 9.6 - Wage Components
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19. Exhibit 9.6 - Wage Components
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20. Exhibit 9.6 - Wage Components
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21. Exhibit 9.6 - Wage Components
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22. Does Compensation Motivate Behavior?
Factors influencing a person’s decision to join a firm
Level of pay
Pay system characteristics
Reward systems should be designed to attract people with desired
Personalities and values
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23. Do People Stay in a Firm (Or Leave) Because of Pay?
Factors impacting turnover
Pay based on individual performance
Group incentive plans
Level of employee satisfaction with pay
Changing base pay
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24. Do People Stay in a Firm (Or Leave) Because of Pay?
Other rewards that influence the decision to stay
Work variety and challenge
Development opportunity
Social
Status recognition
Work importance
Benefits
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25. Do Employees More Readily Agree to Develop Job Skills Because of Pay?
Skill-based pay is intended to encourage employees:
To learn new skills
To turn out significantly higher quality products
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26. Do Employees Perform Better on Their Jobs Because of Pay?
Employees perform better when:
A well-designed plan links pay to behaviors of employees
The incentive depends on individual performance
Team-based incentives are less attractive
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27. Do Employees Perform Better on Their Jobs Because of Pay?
Linking pay to performance occurs through:
Incentive effect- Pay can motivate people to perform better
Sorting effect- People sort themselves by what is important to them
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28. Designing A Pay-For-Performance Plan
Efficiency
Strategy
Structure
Standards
Objectives
Measures
Eligibility
Funding
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29. Designing A Pay-For-Performance Plan
Equity/Fairness
Distributive justice
Procedural justice
Communications
Compliance
Comply with existing laws
Enhance and maintain firm’s reputation
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