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Flashcards in 6- Performance Based Pay Deck (48)
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“I pay the employees so they should work.”
“Why do I need to tell them what to do? They should know.”

These statements typify the
idea that behavior is primarily caused by Internal influences.

does not have a working understanding of the Science of behavior.

cannot explain Why employees do what they do.

Traditional management attitudes


1. hire only good employees and fire the bad ones,

2. persuade employees that working hard is in their best interest,

3 Reengineer the organization’s performance system to maximize and sustain performance.

three strategies for improving and sustaining employee performance,


• Sub- discipline of ABA which is the
application of the science of behavior.

• GUIDED by a single theory of human
behavior and has historically emphasized identification and modification of the
ENVIRONMENTAL variables that affect directly observable or verifiable employee performance (Bucklin, Alvero, Dickinson, Austin, & Jackson, 2000).

• necessary in all aspects of ABA

Organizational Behavior Management (OBM)



2. Behavior best safety

3. Behavioral Systems Analysis,

4. PAY for Performance/Performance Based Pay

sub-divisions of OBM,


The most straightforward application
of ABA to a Business setting.

Typically involves analyzing individual or small groups of employees and modifying the environment to improve PERFORMANCE

Necessary but may not be sufficient

If you are self-employed you probably don’t need this

Performance Management


Typical interventions include:

• antecedents (such as task clarification, and checklists),

• Training (antecedent intervention),

• Consequences: (such as lottery systems, goal setting, and feedback),

• Process interventions (such as job redesign).

Performance Management


necessary but may not be Sufficient

If you are SELF- employed, you probably don’t need this
- Those who are self-employed care quite
a bit about the company and the customers. All contingencies are aligned but for many employees this is not the case.

Equitably aligns the contingencies in an organization
so that the Better the employees and company do, the more money they can make, all things being equal

Performance management


A system with input, an entity that changes its behavior in response to
conditions Outside its boundaries.

Systems rarely ever either open or closed but open to some and closed to other influences.

Adaptations, learning and all manifestations of intelligence require....

open system

.....Some openness to information


• Orienting employees to financial data before sharing it.

• Then link the employee’s Work to financial Results

• link the non-financial measures to financial results.

Open book management


- employee is responsive to external events
- nimble
- has the ability to change Rapidly
- allows for Continuous improvement
- customer focus
-profit Focus
- resilient, sustainable.

Some drawbacks:
- Burden on accounting,
- relies on employee trustworthiness,
- managers fear loss of Control
-information could get to competitors.

Open book management-Pay for Performance


If a behavior analyst were to design an ideal organization, it would
likely utilize a ....

. You might be a business owner someday

PFP system.


• monetary incentives are Counter-productive.
- Some reasons they offer include: - —rewards encourage people to focus only on one task, to do it as often as possible, and to
take few Breaks.
-people come to see themselves as
- problems associated with valid performance management,
- programs are Complex
-Extrinsic rewards can demotivate,
- employees can game the system
-determining correct Objectives is difficult
- (teachers), and employers do not believe
superiors will accurately Evaluate their performance.
-lhard to put in place

Objections to PFP Pay for performance


1. Fixed cost

2. Pay for Time.

3. Corporate Socialism.

4. Performance-Based Promotions

5. Management by Perception

6. Management by Exception

7. Entitlement Thinking

- Sin of Wages


• Merit increase,

annual bonus,

stock options,

profit sharing

Gain sharing,

piece rate,


Goal sharing.

Traditional performance pay plans


• management’s discretion

variable expense,

may retain employees.

•non contingent

• does not impact behavior

• May be inequitable

•employees serve the Manager not the customer

• Becomes an Expectation

Annual bonus
Alternatives for PFP-
Traditional performance pay plans


Pays from expense Reduction

may promote cooperation

impacts performance relative to group size



modest performance gains

self-limiting over time.

(Please see video and presentation slides for images

Gain sharing

Alternatives For Performance Based Pay
- Traditional


-generates High production


no limits to earning

-unbalanced for quality or safety,

-limited to a Single output that requires high volume

- discourages cooperation.

Piece rate- Traditional performance pay plan


is familiar,


employees tend to prefer, but it’s


fixed cost

often Subjective.

Based upon :
- Ranking
-supervisor rating,
-Company performance
-peer assessment
- or a combination of these.

The merit increase


allow management control

Variable expense

provide a tax benefit,

retain employees.


no impact on behavior

may be Inequitable

involves repeatability

becomes an expectation.

Stock options :


based upon year-end Profit, easy to administer, may retain employees.


little impact on behavior,


becomes an expectation

-Non Profit Sharing Calculation:
(Please see video and presentation slides for images

Profit sharing


setting a goal(s) and paying money when Goals are met

provides for balanced performance goals

May produce higher level of performance

can be applied to most jobs

Can be customized

may not motivate,

payouts for each measure often independent which discourages balanced performance.

Can pay out when the company is unprofitable

Budget: fixed percentage of each employee’s base pay is assigned as an Incentive opportunity.
- Each incentive pay period the employee’s
scorecard score is multiplied by the assigned opportunity (e.g. 10% opp. X 80% score =
8% payout).

Goals sharing


Generates high production


No limits on earning Potential

May encourage discounting, selective selling,
poor service, and credit risks

Discourages cooperation.

ethical considerations

not indexed to Profitably

employee does not care about others or the

Sales commissions - Traditional pay


jobs will fill the time.

might abuse overtime

2. Pay for Time-

- Sin of Wages


Conventional pay rewards Under-performers and punishes top performers.

3. Corporate Socialism.

- Sin of Wages


Management cannot reward top performers by increasing pay, so the only way to increase pay is through promotions.

Promoting in this manner creates competition/tension among employees.
-top performers are not always good Managers.

4. Performance-Based Promotions

- Sin of Wages


Weekly paychecks are not dependent upon Performance so managers often use Subjective measures to evaluate employees

5. Management by Perception.

- Sin of Wages


When Employees are noticed under a Pay scheme, typically because there are performance “problems.” Results in Neg. reinforcement contingencies: manage by Fear; Excessive use of N.R - unpredictable effects.
•Excessive negative reinforcement, can result in:
-Performance to the Minimum standard
-restricted innovation
- Adversarial relationships,
- excuses,
- may make necessary negative reinforcement Less effective.
- catch them being Good
-Punishes “bad” behavior
-Ignores good” behavior.

6. Management by Exception:
- Sin of Wages


Involves the thought that “the company Owes me money”, not “we need the company to do well

7. Entitlement Thinking:

Sin of Wages


1. Every year employees are “entitled” to a 3-5% raise. What happens in a downturn?

Fixed cost to pay – sin of wages


Measurement will be ‘cascaded’ through an organization.

Start with what an organization wants to achieve (strategy) on organizational Score cards

Balance short- and long-term measurable goals (use the vision statement as a guide).


Creating a Pay for Performance System- organizational measures