1. © 2001 by Prentice Hall and Anne Tsui 2002 11-1 October 24 Rewarding Performance Part II

2. © 2001 by Prentice Hall and Anne Tsui 2002 11-2 M&M at work  TAPPS Individual work quiet time – 1 min Interaction in pairs – 3 min Sharing and closure – 5 min Other than cash, what are some other M&M that employees may like? What is the difference between rewards, incentives and recognitions?

3. © 2001 by Prentice Hall and Anne Tsui 2002 11-3 Performance Measurement & Evaluation Levels of Rewards Assumptions & Challenges Individual Team based Plant-wide Corporate Rewarding Performance Advantages Disadvantages Facilitating conditions Advantages Disadvantages Facilitating conditions

4. © 2001 by Prentice Hall and Anne Tsui 2002 11-4 Learning Objectives – at the end of this topic, you should be able to: 1.Identify and analyze the assumptions underlying pay for performance systems. 2.Identify the challenges in using pay to motivate or reward performance. 3.Differentiate the four levels of reward systems. 4.Determine the advantages and disadvantages of different pay for performance systems. 5.Identify the conditions when each system is most likely to succeed. 6.Examine the limitations of monetary rewards and the potential of non-monetary rewards 7.Design pay for performance systems that motivate the appropriate employee or team behaviors. © 1998 by Prentice Hall Reading: Chapter 11, Tuesday: pp. 358-373, Thursday: 373-389.

5. © 2001 by Prentice Hall and Anne Tsui 2002 11-5 Video: Reward System at Lincoln Electric  Why does this reward system work for LE?  Why won’t it work for other companies? In class exercise (graded) 1.Individual work, quiet time – 1 min. 2.Sharing in team – 15 min. 3.Summarize and record best answers – 5 min. 4.Hand in completed answer sheet.

6. © 2001 by Prentice Hall and Anne Tsui 2002 11-6 Conditions Favoring Plantwide Plans  Gainsharing is more likely to work well in small to midsize plants.  When technology limits improvements in efficiency, gainsharing is less likely to be successful.  If a firm has multiple plants with varying levels of efficiency, the plan must take this variance into account so that efficient plants are not penalized and inefficient plants rewarded.  Gainsharing is less likely to be successful in firms with a traditional hierarchy of authority.  Gainsharing is most appropriate in situations where the demand for the firm’s product or service is relatively stable.

7. © 2001 by Prentice Hall and Anne Tsui 2002 11-7 Conditions Favoring Corporatewide Plans  Profit sharing and ESOPs are the plans of choice for larger organizations.  Corporations with multiple interdependent plants or business units often find corporatewide plans most suitable because it difficult to isolate the financial performance of any given segment of the corporation.  Unlike gainsharing, profit-sharing and ESOP programs are attractive to firms facing highly cyclical ups and downs in the demand for their product.  When used in conjunction with other incentives, corporatewide programs can promote greater commitment to the organization by creating common goals and a sense of partnership among managers and workers.

8. © 2001 by Prentice Hall and Anne Tsui 2002 11-8 Advantages of Plantwide Pay- for-Performance Plans (Gainsharing)  Gainsharing plans can provide a vehicle to elicit active employee input and improve the production process.  Gainsharing plans can increase the level of cooperation across workers and teams by giving everyone a common goal.  Gainsharing plans are subject to fewer measurement difficulties than individual- or team-based incentives.  Because gainsharing plans do not require managers to sort out the specific contributions of individuals or interdependent teams, it is easier both to formulate bonus calculations and to achieve acceptance of these plans.

9. © 2001 by Prentice Hall and Anne Tsui 2002 11-9 Advantages of Corporatewide Pay-for-Performance Plans  Financial flexibility for the firm.  Increased employee commitment

10. © 2001 by Prentice Hall and Anne Tsui 2002 11-10 Disadvantages of Plantwide Pay-for-Performance Plans  Protection of low performers.  Criteria for rewards may become too rigid.  May penalize already high performing plants.  Management may be reluctant to give up control.

11. © 2001 by Prentice Hall and Anne Tsui 2002 11-11 Disadvantages of Corporatewide Pay-for- Performance Plans  Employees may be at considerable risk.  Limited effect on productivity  Long-run financial difficulties.

12. © 2001 by Prentice Hall and Anne Tsui 2002 11-12 Differences Between Gainsharing Plans and Profit Sharing Plans  In a profit-sharing program, no attempt is made to reward workers for productivity improvements. Many factors that affect profits have little to do with productivity, and the amount of money employees receive depends on all of these factors.  Profit-sharing plans are very mechanistic, and do not attempt to elicit worker participation.  In a typical profit-sharing plan, profit distributions are used to fund employees’ retirement plans. As a result, employees seldom receive profit distributions in cash.

13. © 2001 by Prentice Hall and Anne Tsui 2002 11-13 Compare and Contrast Plant Level and Corporate Level Reward Systems Bases for comparisonPlant LevelCorporate Level Assumptions Conditions Advantages Disadvantages Employee input Performance measures

14. © 2001 by Prentice Hall and Anne Tsui 2002 11-14 Multiple Levels of Rewards Plant level Team Level Individual Corporate Level Plant Level

15. © 2001 by Prentice Hall and Anne Tsui 2002 11-15 The Reward Scenarios Again  Green Giant designed a bonus plan to reward employees for removing insects from the vegetables. Green Giant abandoned the incentive plan when it found that employees were bring insects from home, putting them into the vegetables, and then removing them to get their bonuses.  A software developer installed an incentive plan to reward programmers for finding and removing software bugs. Initially, the plan was successful. Soon, the company found that employees were creating the bugs the incentive plan was paying them to remove. 1.Is such employee behavior ethical or unethical? Why? 2.Would you punish the employees who engaged in those acts, the managers who devised the incentive systems, or both? Why?

16. © 2001 by Prentice Hall and Anne Tsui 2002 11-16 Meeting the Challenges of Pay for Performance Systems  Link Pay and Performance Appropriately u There are few cases in which managers can justify paying workers according to a preestablished formula or measure.  Use Pay for Performance as Part of a Broader HRM System u Pay-for-performance programs are not likely to achieve the desired results unless they are accompanied by complementary HRM programs  Build Employee Trust u Even the best conceived pay-for-performance program can fail if managers have a poor history of labor relations or if the organization has a cutthroat culture

17. © 2001 by Prentice Hall and Anne Tsui 2002 11-17 Meeting the Challenges of Pay for Performance Systems (cont.)  Promote the Belief that Performance Makes a Difference u Unless an organization creates an atmosphere in which performance makes a difference, it may end up with a low- achievement organizational culture  Use Multiple Layers of Rewards u Because all pay-for-performance systems have positive and negative features, providing different types of pay incentives for different work situations is likely to produce better results than relying on a single type of pay incentive  Increase Employee Involvement u When employees do not view a compensation program as legitimate, they will usually do whatever they can to subvert the system  Use Motivation and Nonfinancial Incentives u Some people are more interested in the nonfinancial aspects of their work

18. © 2001 by Prentice Hall and Anne Tsui 2002 11-18 The Potential Importance of Non- Cash Incentives  Interesting and challenging work  Supportive supervisor and coworkers  Respect and recognition  Promotion and transfer opportunities  Training and learning opportunities  Doing something meaningful