1. © 2010 by Prentice Hall 11-1 Rewarding Performance Chapter 11 Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

2. © 2010 by Prentice Hall 11-2  Pay for Performance Plans  Challenges  Meeting the Challenges  Types of Pay for Performance Plans  Individual  Group  Plant  Corporate  Pay for Performance Plans  For Executives  For Sales Persons Chapter 11 Overview Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

3. © 2010 by Prentice Hall 11-3 Pay-for-performance  Pay-for-Performance (P-f-P)  Incentive System  Rewards individuals and groups based on their contributions   Challenges   “Do only what you get paid for” syndrome  —  Unethical behavior—pressure to produce   Can foster competition, not cooperation Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

4. © 2010 by Prentice Hall 11-4  Factors beyond employee control Pay-for-Performance: Challenges   Difficulties in measuring performance   Psychological contract   Credibility gap   Job dissatisfaction and stress   Potential reduction of intrinsic drives Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

5. © 2010 by Prentice Hall 11-5  Link pay and performance  Piece-rate system Meeting the Challenges   Use P-f-P as part of broader HRM system   Build employee trust   Culture can support or counter mgmt efforts   Promote the belief that performance makes a difference   Infuse into organization’s climate Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

6. © 2010 by Prentice Hall 11-6  Use multiple layers of rewards  Different types of pay incentives Meeting the Challenges   Increase employee involvement   Participate in pay plan design   Stress importance of acting ethically   Use motivation and nonfinancial incentives Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

7. © 2010 by Prentice Hall 11-7 Types of Pay-for-Performance Plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

8. © 2010 by Prentice Hall 11-8 Individual Plans  Individual-based plans  Merit pay, bonuses, and awards   Advantages:   Performance rewarded likely to be repeated   Incentives can help shape person’s goals   Rewarding individual performance is equitable   Fit with individualistic culture in the U.S. Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

9. © 2010 by Prentice Hall 11-9 Individual Plans  Disadvantages:   Can promote single- mindedness   Many do not see link between pay and performance   Quality goals may not be given priority   May promotes inflexibility Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

10. © 2010 by Prentice Hall 11-10  Most likely to succeed when: Individual Plans   Individual contributions can be isolated   The job demands autonomy   Cooperation is less critical to successful performance   Competition is to be encouraged Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

11. © 2010 by Prentice Hall 11-11 Team-based Plans  Cash or noncash  Generally given to all equally  Some teams decide how bonus distributed Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

12. © 2010 by Prentice Hall 11-12 Team-Based Plans  Advantages:  Foster group cohesiveness  Easier to assess team performance   Disadvantages:   Possible lack of fit with individual culture   Free-riders   Social pressures to limit performance   Difficulties identifying meaningful groups   Intergroup competition Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

13. © 2010 by Prentice Hall 11-13  Most likely to succeed when: Team-Based Plans   Work so intertwined, hard to identify individual contributions   Organization’s structure facilitates groups and teams o o Are few levels in hierarchy o o Technology allows for separation of work into independent groups   Objective is to foster entrepreneurship in self-managed work groups Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

14. © 2010 by Prentice Hall 11-14  Gainsharing  Assumes competition to be avoided Plantwide Plans   Advantages:   Encourages active employee input   Can increase cooperation levels   Subject to fewer measurement errors   Easier to calculate   Workers more likely to accept program Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

15. © 2010 by Prentice Hall 11-15  Conditions favoring plantwide plans  Small to mid-size firms  Technology can improve efficiency  Participative management  Product market is stable Plantwide Plans   Disadvantages:   Protects low performers   Management-labor conflict   Improvements easier when first instituted Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

16. © 2010 by Prentice Hall 11-16 Corporatewide Plans  Profit Sharing  Employee Stock Ownership Plan (ESOP) Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

17. © 2010 by Prentice Hall 11-17  Advantages:   Financial flexibility for the firm   Increased employee commitment   Tax advantages   Disadvantages:   Employees may bear financial risk   Limited effect on productivity   May have long-term ramifications on firm’s financial position Corporatewide Plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

18. © 2010 by Prentice Hall 11-18  Conditions favoring corporatewide plans: Corporatewide Plans   Larger organizations   Interdependence of different business segments   Cyclical market conditions o o During short term volatility, help firms save o o Are in retirement plans, so most employees not immediately affected   The presence of other incentives Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

19. © 2010 by Prentice Hall 11-19  Executive Plans:  Can’t always tell if pay tied to performance Designing Executive P-f-P Plans   Salary and short-term incentives   Long-term incentives   Golden Parachutes  —  Perks—“ stealth wealth”   Board of Directors   Sets top management’s pay   More involved than in past Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

20. © 2010 by Prentice Hall 11-20 Key Strategic Pay Questions Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

21. © 2010 by Prentice Hall 11-21  For Salespeople: Designing Salespeople’s P-f-P Plans   Straight Salary o o Maintain good customer relations o o Service existing accounts   Straight Commission o o Generate more sales through new accts   Combination or Mixed Plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

22. © 2010 by Prentice Hall 11-22 Rewarding Excellence in Customer Service  Customer service rewards more common  May be individual, team, or plant- based Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

23. © 2010 by Prentice Hall 11-23  Pay-for-performance: many challenges  Meeting the challenges requires planning  Should be part of larger compensation system  Should fit with overall strategic plan of org.  Pay-for-performance at four levels:  Individual, group, plant, organization wide  If P-f-P plan becomes entrenched  Employees will expect them regularly  P-f-P for executives and salespeople requires additional thought Summary and Conclusions Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall