Pay for performance Essay

Motivation, Performance, and Pay motivatorsFinancial rewards stipendiary to workers whose production exceeds a determine standard. Individual DifferencesLaw of individual differencesThe fact that people differ in personality, abilities, values, and needs. Different people react to different bonuss in different ways. Managers should be mindful of employee needs and fine-tune the inducings offered to joins their needs. Money is not the only motivator.Employee Preferences for Noncash IncentivesNeeds and MotivationAbraham Maslows Hierarchy of NeedsFive increasingly higher- take needsphysiological (food, water, sex) guarantor (a safe environment)social (relationships with others)self-esteem (a sense of personal worth)self-actualization (becoming the desired self)Lower level needs mustiness be satisfied before higher level needs can be addressed or become of interest to the individual.Herzbergs HygieneMotivator theoryHygienes (extrinsic job factors)Inadequate working conditions, sal ary, and incentive bear can causedissatisfaction and prevent satisfaction. Motivators (intrinsic job factors)Job enrichment (challenging job, feedback and recognition) addresses higher-level (achievement, self-actualization) needs. The best way to motivate someone is to organize the job so that doing it helps satisfy the persons higher-level needs.Edward DeciIntrinsically motivated behaviors are motivated by the underlying need for competence and self-determination. Offering an extrinsic reward for an intrinsically-motivated act can infringe with the acting individuals internal sense of responsibility. Some behaviors are best motivated by job challenge and recognition, others by financial rewards. instrumentality and RewardsVrooms Expectancy TheoryA persons motivation to exert some level of effort is a function of ternary things Expectancy that effort will lead to performance.Have to have the skills to do the jobInstrumentality the connection between performance and the appropria te reward. Goal must be attainableValence the value the person places on the reward.Motivation = E x I x VIf any factor (E, I, or V) is zero, then there is no motivation to work toward the reward. Employee confidence building and training, accurate appraisals, and knowledge of workers desired rewards can increase employee motivation.Types of Incentive PlansPay-for-performance programsVariable buy off (organizational focus)A team or group incentive formulate that ties pay to some measure of the firms overall profitability. Variable pay (individual focus) each plan that ties pay to individual productivity or profitability, usuallyas one-time lump payments.Pay-for-performance plansIndividual incentive/recognition programsSales compensation programsTeam/group-based variable quantity pay programsOrganizationwide incentive programsExecutive incentive compensation programsIndividual Incentive PlansPiecework PlansThe worker is paid a sum (called a piece rate) for each unit he or she pr oduces. Straight piecework A fixed sum is paid for each unit the worker produces under an established piece rate standard. An incentive may be paid for exceeding the piece rate standard. Standard hour plan The worker gets a premium equal to the percent by which his or her work performance exceeds the established standard.Pro and cons of pieceworkEasily understandable, equitable, and powerful incentives.Employee resistance to changes in standards or work processes affecting create Quality problems caused by an overriding output focus.Employee dissatisfaction when incentives either cannot be earned due to external factors or are withdrawn due to a lack of need for outputMerit payA permanent cumulative salary increase the firm awards to an individual employee based on his or her individual performance. Merit pay optionsAnnual lump-sum merit raises that do not make the raise part of an employees base salary. Merit awards tied to both individual and organizational performance.Incentives for nonrecreational employeesProfessional employees are those whose work involves the application oflearned knowledge to the solution of the employers problems. Lawyers, doctors, economists, and engineers.Decisions can be challengingThese individuals are already well paid and are driven to succeed Possible incentivesBonuses, stock options and grants, profit sharingBetter vacations, more flexible work hoursImproved pension plansEquipment for home offices scholarship-based awardsRecognition has a positive impact on performance, either alone or in conjunction with financial rewards. Combining financial rewards with nonfinancial ones produced performance returns in service firms almost twice the effect of using each reward alone. Day-to-day recognition from supervisors, peers, and team members is important.Online award programsPrograms offered by online incentives firms that improve and rush the awards process. Broader range of awardsMore immediate rewardsInformation technology and incentivesEnterprise incentive management (EIM)Software that automates the planning, calculation, modeling and management of incentive compensation plans, enabling companies to adjust their employees with corporate strategy and goals.Incentives for SalespeopleSalary planStraight salariesBest for prospecting (finding new clients), account servicing, training customers salesforce, or participating in field of study and local trade shows. Commission planPay is only a percentage of salesSpecialized Combination PlansCommission-plus-drawing-account planCommissions are paid however a draw on future earnings helps the salesperson to get through low sales periods. Commission-plus-bonus planPay is mostly based on commissions.Small bonuses are paid for directed activities like selling slow-moving items.Organizationwide Variable Pay PlansProfit-sharing plansCash plansEmployees receive cash shares of the firms earnings at regular intervals. The Lincoln incentive systemProfits are distributed to employees based on their individual merit rating. Deferred profit-sharing plansA predetermined portion of family profits is placed in each employees account under a trustees supervision.Organizationwide Variable Pay Plans (contd)Employee stock ownership plan (ESOP)A corporation annually contributes its own stockor cash (with a limit of 15%) to be used to purchase the stockto a trust established for the employees. The trust holds the stock in individual employee accounts and distributes it to employees upon separation from the firm if the employee has worked long enough to earn ownership of the stock. Advantages of ESOPsEmployeesESOPs help employees develop a sense of ownership in and commitment to the firm, and help to build teamwork. No taxes on ESOPs are due until employees receive a distribution from the trust, usually at retirement when their tax rate is lower.At-Risk Variable Pay PlansAt-risk variable pay plans that put some portion of the employees weekly pay at risk. If employees meet or exceed their goals, they earn incentives. If they fail to meet their goals, they forgo some of the pay they would normally have earned.Short-Term Incentives for Managers And ExecutivesAnnual bonusPlans that are intentional to motivate short-term performance of passenger cars and are tied to company profitability. Eligibility undercoat job level, base salary, and impact on profitability Fund size basis nondeductible formula (net income) or deductible formula (profitability) Individual awards personal performance/contributionLong-Term Incentives for Managers And ExecutivesStock optionThe right to purchase a specific number of shares of company stock at a specific price during a specific period of time.Other Executive IncentivesGolden shakePayments companies make to departing decision makers in connection with a change in ownership or control of a company. Guaranteed loans to directorsLoans provided to buy company stock.A highly gaga and now frowned upon practi ce.Creating an Executive Compensation PlanDefine the strategic context for the executive compensation program. Shape each component of the package to focus the manager on achieve the firms strategic goals. Create a stock option plan to meet the needs of theexecutives and the company and its strategy. Check the executive compensation plan for compliance with all legal and regulatory requirements and for tax effectiveness. Install a process for reviewing and evaluating the executive compensation plan whenever a study business change occurs.Why Incentive Plans FailYou get what you pay for.Pay is not a motivator.Rewards rupture relationships.Rewards undermine intrinsic motivation.Implementing Effective Incentive PlansAsk Is effort clearly instrumental in obtaining the reward? Link the incentive with your strategy.Make sure effort and rewards are directly related.Make the plan easy for employees to understand.Set effective standards.View the standard as a contract with your employees.Ge t employees support for the plan.Use good measurement systems.Emphasize semipermanent as well as short-term success.