1. Chapter 11: Rewarding Performance
MGT 3513
“The absence of alternatives clears the mind marvelously.” Henry Kissinger

2. Announcements

3. Common use of incentive systems
Sales representatives
Professional athletes
Restaurant servers

4. Potential issue with bonuses
Why does Clark expect to get a Christmas bonus?
What is a potential problem for employers who give bonuses annually?

5. When do incentive systems work?
Incentive (pay-for-performance) systems are based on three assumptions.
Individuals and teams differ in terms of ________________________________
Firm performance depends on
________________________________
To _____________ & ____________high performers
Note: If these assumptions hold true, then an incentive system is appropriate. If not, another type of system should be implemented.

6. Expectancy Theory Effort Performance Outcomes Example: Effort =

7. Expectancy Theory Effort Performance Outcomes Expectancy
Valence
Expectancy
Instrumentality
Effort Performance Outcomes

8. Expectancy Theory Employees need to believe that
their level of effort makes a difference in their performance (_______________)
that performance will be rewarded (_______________)
they will receive attractive outcomes for their hard work (_______________)

9. Practice with Expectancy Theory
I put forth effort at work because I believe it will improve my performance.
This is an example of high/low (circle one) _______________.
It seems like no matter how hard I try my performance doesn’t change.
Valence
Expectancy
Instrumentality
Effort Performance Outcomes

10. Practice with Expectancy Theory
At my company, if you have high performance you will get a raise.
This is an example of high/low (circle one) _______________.
I really don’t trust the management at my company. Some years even the top performers do not get a raise.
This is an example of high/low (circle one) _______________ .
Valence
Expectancy
Instrumentality
Effort Performance Outcomes

11. Practice with Expectancy Theory
I really like that my company gives big bonuses at Christmas time.
This is an example of high/low (circle one) _______________.
My company gives us a subscription to jelly of the month club this Christmas, and I’m not a big fan of jelly.
Valence
Expectancy
Instrumentality
Effort Performance Outcomes

12. High expectancy
Low expectancy
Effort  Performance Charles attaches refrigerator door hinges. The line moves at a constant rate that Charles cannot control; therefore, Charles feels that no matter how hard he tries, he cannot work faster. How would you rate the expectancy in this situation?

13. Performance  Outcome Charles knows that each year his bonus is based upon the # of products he has assembled. The more he produces, the higher his bonus. How would you rate instrumentality?
High Instrumentality
Low Instrumentality

14. Practical take-away Employee perceptions & outcomes
How do you think Charles feels about this incentive system?

15. What’s the take away from expectancy theory?
Employees need to believe that
their level of effort makes a difference in their performance
that performance will be rewarded
they will receive attractive outcomes for their hard work

16. Problems that Occur when We Pay Employees for Performance
Explain the following:
“Do only what you get paid for” syndrome
Unethical behaviors
Negative effects on the spirit of cooperation
Lack of control

17. EXAMPLE
Insurance companies often outsource the processing of MRI claims to Medical Software Solutions (MSS). When a patient needs an MRI approved by their insurance company, they call MSS rather than the insurance provider. MSS has a large call center staffed by employees across the nation. Due to rising health care costs, the insurance companies want MSS to recommend low-cost MRI providers. MSS told their employees that they would receive pay incentives based on the number of times they were able to get a patient to choose a low-cost provider.
Consider the list of problems we discussed. Which are likely to arise in the above situation?
“Do only what you get paid for” syndrome
Unethical behaviors
Negative effects on the spirit of cooperation
Lack of control

18. Meeting the Challenges
Ways to make pay for performance work:
Link pay and performance appropriately
What you _________ matters!
Use multiple layers of rewards
Example:___________________________
Increase employee involvement in system development
Consider how to motivate with nonfinancial incentives

19. 4 Types of Pay Plans
Individual
Team
Plantwide
Corporatewide

20. Individual-based incentive plans
What is merit pay?
What are bonus programs? How do they differ from merit pay?

21. Individual-based incentive plans
Explain some of the advantages of individual level incentive plans
What are the 2 dangers for organizations using individual plans?

22. Individual-based incentive plans
Situations in which individual plans are more likely to succeed

23. Team-based incentive plans
Explain team-based incentive plans
What are some advantages of team-based incentive plans?
What are some disadvantages of team-based incentive plans?

24. Plantwide incentive plans
What are plantwide pay-for-performance plans?
Describe the basic concept behind gainsharing?

25. Corporatewide incentive plans
What is profit-sharing?
How is profit-sharing different from gainsharing?
What is an employee stock ownership plan (ESOP)?
Stock Options (we will discuss as a class)

26. Compensating executives
Short-term incentives
Long-term incentives
“Perks”

27. Practice identifying pay plans
My organization is comprised of 4 factories in different locations. If each factory receives incentives based on its productivity, then a ____________ plan is in place which is a __________-level reward.

28. Practice identifying pay plans
My employees receive a raise at the end of the year if they get rated as excellent in all aspects of their job. This is an example of a ___________ plan which is a(n) ____________-level reward.

29. Practice identifying pay plans
My organization is comprised of 4 factories in different locations. If all employees receive a percentage of the company’s earnings for the year, then a ____________ plan is in place. This is a(n) __________ - level reward.

30. Practice identifying pay plans
My organization gives the employees a chance to become stockholders by offering shares at a discounted price. This is an example of _____________.