1. Chapter 9 Pay-for-Performance: The Evidence
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter Topics What Behaviors Do Employers Care About?
What Does It Take to Get These Behaviors? What Theory and Practitioners Says
Does Compensation Motivate Behavior?
Designing a Pay-for-Performance Plan

3. What Behaviors Do Employers Care About?
Employers want employees to perform in ways that lead to better organizational performance
Organizational strategy is the guiding force that determines what kinds of employee behaviors are needed

4. Exhibit 9.1: The Cascading Link between Organization Strategy and Employee Behavior

5. Exhibit 9.2: The Big Picture, or Compensation Can't Do It Alone!

6. What Behaviors Do Employers Care About? (cont.)
Behaviors that compensation needs to reinforce:
Compensation should be sufficiently attractive to make recruiting and hiring good potential employees possible (attraction)
Make sure the good employees stay with the company (retention)
Build further knowledge and skills

7. What Behaviors Do Employers Care About? (cont.)
Find ways to motivate employees to perform well on their jobs—to take their knowledge and abilities and apply them in ways that contribute to organizational performance
Performance must be accurately measured to tell if compensation efforts are working
Performance management

8. Exhibit 9.3 Performance Measurement Relates to Compensation Strategy
See Exhibit 9.2, pages 284 – 286 in the text

9. What Motivates Employees?
Motivation involves three elements:
What is important to a person?
Offering it in exchange for some
Desired behavior

10. Exhibit 9.4: Motivation Theories
See Exhibit 9.2, pages 284 – 286 in the text

11. Exhibit 9.4: Motivation Theories
See Exhibit 9.2, pages 284 – 286 in the text

12. Exhibit 9.4: Motivation Theories (cont.)

13. Exhibit 9.4: Motivation Theories (cont.)

14. Exhibit 9.4: Motivation Theories (cont.)

15. Exhibit 9.4: Motivation Theories (cont.)

16. Exhibit 9.4: Motivation Theories (cont)

17. Exhibit 9.5: Components of a Total Reward System
See text, Exhibit 9.3 on page 289

18. Exhibit 9.6: Wage Components

19. Exhibit 9.6: Wage Components

20. Exhibit 9.6: Wage Components

21. Exhibit 9.6: Wage Components

22. Does Compensation Motivate Behavior?
Key factors influencing a person’s decision to join a firm
Level of pay
Pay system characteristics
Job candidates look for organizations with reward systems that fit their personalities.
Reward systems should be designed to attract people with desired
Personalities and values

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

24. Do People Stay in a Firm (Or Leave) Because of Pay? (cont.)
Other rewards that influence the decision to stay
Work variety and challenge
Development opportunity
Social
Status recognition
Work importance
Benefits

25. Do Employees More Readily Agree to Develop Job Skills Because of Pay?
Skill-based pay is intended to pay employees for learning new skills
Evidence indicates that pay for skill may not increase productivity, but it does focus people on believing in the importance of quality and in turning out significantly higher quality products

26. Do Employees Perform Better on Their Jobs Because of Pay?
A well-designed plan linking pay to behaviors of employees generally results in better individual and organizational performance
If the incentive depends on individual performance, applicants find the company more attractive

27. Do Employees Perform Better on Their Jobs Because of Pay? (cont.)
Team-based incentives, in contrast, are less attractive
One view suggests that linking pay to performance occurs through two mechanisms, an incentive effect and a sorting effect

28. Designing A Pay-For-Performance Plan
Efficiency
Strategy
Structure
Standards
Objectives
Measures
Eligibility
Funding

29. Designing A Pay-For-Performance Plan (cont.)
Equity/Fairness
Distributive justice
Procedural justice
Communications
Compliance
Comply with existing laws
Enhance and maintain firm’s reputation