Human resources in transition
Diesel2018
Ch10_PowerPoint_Incentives.pptxIncentives
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chapter 10
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Explain why organizations might choose to tie pay to performance.
Describe when it is appropriate to have a high level of reward differentiation across employees.
Describe some of the criticisms of stock options as an incentive tool.
Explain how pay for performance improves employee motivation and performance.
Describe the golden rule of pay for performance plans.
Explain the difference between errors of commission and errors of omission in incentive pay and their impact on organizations.
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Learning Objectives
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Designing Incentive Plans
Top four reasons for tying pay to performance
Recognize and reward high performers
Increase the likelihood of achieving corporate goals
Improve productivity
Move away from an entitlement culture
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Designing Incentive Plans
An incentive pay plan designed to motivate performance, must consider
Preference of individual employees
Size of the rewards for high performance
Method of motivating individual job performance
Objectivity of the evaluation process that determines the rewards
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Designing Incentive Plans
Identify Goals for the Incentive Plan
The organization must determine what it really wants people to do such as safety, performance, productivity, customer service, skill building, etc.
Budgeting
The incentive pay program should motivate employees and also create a positive return on investment for the organization.
Differentiating Rewards
Rewards are based on performance rather than giving all employees the same reward.
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What Can Incentive Plans Influence?
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Table 10-1
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What Differentiated Rewards Can Influence
Focus on assessing outcomes related to business strategy execution and business performance. Rewards should be fair and based on multiple measures that capture employees’ actual contributions to organizational success.
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Table 10-2
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Incenting Short- and Long-Term Performance
Short-term incentives are one-time variable rewards used to motivate short-term employee behavior and performance (typically one year or less).
Long-term incentives are intended to motivate employee behaviors and performance that support company value (e.g., share price) and long-term organizational health.
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Individual Incentive Plans
Pay for Performance (merit pay)
Rewards employees based on some specific measure of their individual performance
Variable pay plans: put a small amount of base pay at risk, in exchange for the opportunity to earn additional pay if performance meets or exceeds a standard
Spot awards: given immediately, or “on the spot,” as soon as a desired behavior is seen
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Individual Incentive Plans
Extrinsic motivation: comes from outside the individual, including performance bonuses
When motivated to do a task because doing so will lead to a valued reward
Intrinsic motivation: comes from an interest in or enjoyment from doing a task
When motivated by the task rather than by tangible external rewards for doing it
When people engage in a hobby, they are experiencing intrinsic motivation.
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What do you think were the biggest factors in the failure of the incentive program at HP?
Why might employees prefer to have only fixed pay and no incentive pay if the incentive pay system meant that they could earn more money?
What would you recommend that HP try instead of pay for performance to accomplish its initial goals of increasing productivity and focusing employees on team rather than individual performance?
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Case Study: Motivation through Incentives at Hewlett-Packard
Exercise
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Skill-Based Pay
Skill-based pay: rewards employees for the range and/or depth of their knowledge and skills
Recognition awards: often used to reward specific achievements like tenure with the organization, helping a coworker, and safety or wellness behaviors
Alternative rewards: noncash awards, incentives, and recognition programs that supplement pay and improve total reward programs (flextime, telecommuting)
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Group Incentive Plans
Incentive plans for work groups and teams should motivate teams to accomplish group goals and align the groups’ objectives with organizational goals.
Gainsharing: the firm shares the value of productivity gains with employees
Scanlon plans: gainsharing programs based on implementing employee suggestions for lowering the cost per unit produced
Improshare: a gainsharing plan based on a mathematical formula that compares a performance baseline with actual productivity during a given period with the goal of reducing production time
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Organizational Incentive Plans
Organizational incentive plans are designed to align employee goals with organizational goals by rewarding employees for organizational-level performance.
Employee stock ownership plans (ESOPs) are tax-exempt, employer-established employee trusts that hold company stock for employees.
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Incentive Plans for Special Situations
Executive incentives: special plans designed to attract, motivate, and retain top managerial talent
Sales incentives: focus on the value of sales made by an employee or focus broader on the customer relationship management process
Incenting innovation: incentives that motivate employees by inspiring enthusiasm and compensating them for the risks and inevitable failures involved in developing innovations
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Sales Incentive Program Decisions
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Table 10-3
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Incentive Errors
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Figure 10-1
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Managing Incentive Systems
Technology
Assists in tracking timely and accurate performance feedback
Evaluating the Effectiveness of an Incentive Program
Feedback from participants and program administrators on the program’s clarity, motivational appeal, and success at rewarding the intended behaviors in order to understand the strengths and weaknesses of the program
Return on Investment
An incentive program should improve performance
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Incentive Bonuses and Customer Service Quality
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Figure 10-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
