Compensation

Chap 9 Pay-for-Performance: The Evidence Mgmt 474

CSULA – Spring 2014

Learning Objectives

• What behaviors do employers care about?

• Linking organization strategy to compensation

and performance

• What does it take to get these behaviors?

• What theory says

Learning Objectives

• What does it take to get these behaviors?

What practitioners says

• Does compensation motivate behavior?

• Designing pay-for-performance plans

Exhibit 9.1 - The Cascading Link between Organization Strategy & Employee Behavior

Exhibit 9.2 - The Big Picture, or Compensation Can't Do It Alone!

What Behaviors Do Employers Care About?

• Compensation should:

 Reinforce desired behaviors

 Be sufficiently attractive to recruit

and hire good potential employees

 Make sure the good employees stay

with the company (retention)

 Build further knowledge and skills

 Motivate employees to perform well

on their jobs

What Behaviors Do Employers Care About?

• Performance:

 Must be accurately measured to tell if

compensation efforts are working

Exhibit 9.3 - Performance Measurement Relates to Compensation Strategy

What Does It Take To Get These Behaviors? What Theory Says • Elements of motivation

• What is important to a person?

• Employees prefer pay systems that are influenced by:

• Individual performance

• Change in cost of living

• Seniority

• Market rate

• Flexible compensation: Individuals know what rewards would best suit personal needs

• Offering it in exchange for some desired behavior

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.4 - Motivation Theories

Exhibit 9.5 - Components of a Total Reward System

Exhibit 9.6 - Wage Components

Exhibit 9.6 - Wage Components

Exhibit 9.6 - Wage Components

Exhibit 9.6 - Wage Components

Does Compensation Motivate Behavior? • Factors influencing a person’s decision to join a

firm

 Level of pay

 Pay system characteristics

• Reward systems should be designed to attract

people with desired

 Personalities and values

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

Do People Stay in a Firm (Or Leave) Because of Pay? • Other rewards that influence the decision to

stay

 Work variety and challenge

 Development opportunity

 Social

 Status recognition

 Work importance

 Benefits

Do Employees More Readily Agree to Develop Job Skills Because of Pay? • Skill-based pay is intended to encourage

employees:

 To learn new skills

 To turn out significantly higher quality

products

Do Employees Perform Better on Their Jobs Because of Pay? • Employees perform better when:

 A well-designed plan links pay to behaviors

of employees

 The incentive depends on individual

performance

• Team-based incentives are less attractive

Do Employees Perform Better on Their Jobs Because of Pay? • Linking pay to performance occurs through:

 Incentive effect- Pay can motivate people to

perform better

 Sorting effect- People sort themselves by

what is important to them

Designing A Pay-For-Performance Plan

• Efficiency

 Strategy

 Structure

 Standards

 Objectives

 Measures

 Eligibility

 Funding

Designing A Pay-For-Performance Plan • Equity/Fairness

 Distributive justice

 Procedural justice

 Communications

• Compliance

 Comply with existing laws

 Enhance and maintain firm’s reputation