Chapter 4: Organizational Context: Reward Systems Flashcards
(36 cards)
1
Q
Why are rewards systems important?
A
- In social cognitive theory, reward consequences or contingencies play an important role in organizational behavior.
- An organization may have the latest technology, well-designed structures, and a visionary strategic plan, but unless the people at all levels are rewarded, all these other things may become hollow and not be carried out for performance improvement.
- emphasize the emerging importance of human capital
- Because intellectual/ human capital is now recognized as being central to competitive advantage in the new paradigm environment, attention must be given to rewarding this capital to sustain/ retain it and leverage it
2
Q
Money: four of the important symbolic attributes
A
1) achievement and recognition
2) status and respect
3) freedom and control
4) power
3
Q
Money affects:
A
motivation, job attitudes, and retention
In particular, money helps people attain both physical (clothing, automobiles, houses) and psychological (status, self-esteem, a feeling of achievement) objectives
4
Q
Agency Theory
A
- agency theory is concerned with the diverse interests and goals that are held by a corporation’s stakeholders (stockholders, managers, employees) and the methods by which the enterprise’s reward system is used to align these interests and goals
- widely recognized finance and economics approach to understanding behavior by individuals and groups both inside and outside the corporation
- The theory draws its name from the fact that the people who are in control of large corporations are seldom the owners; rather, in almost every case, they are agents who are responsible for representing the interests of the owners
- Agency theory also examines the role of risk and how owners and managers may vary in their approach to risk taking.
5
Q
Pay for Performance
A
- One study showed that the greater the pay spread, the worse the players performed
- a growing number of corporate shareholders are demanding that the chief executive officer pay be tied to a multiple of the lowest worker’s pay, thus controlling the range between the lowest and highest paid person in the organization
- A public poll indicated that a vast majority (87 percent) believe that executives “had gotten rich at the expense of ordinary workers
- overall, reward does not decrease intrinsic motivation
6
Q
Effective Pay System Requirements
A
- The organization must clarify it’s goals (increased sales, higher profits, more market share).
- Results must be measurable
- Tie rewards to the outcomes
7
Q
Base Wages or Salary Approach
A
- the amount of money that an individual is paid on an hourly, weekly, monthly, or annual basis
- If base pay is not in line with the market rate, organizations may find that they are unable to hire and retain many of their personnel
8
Q
Merit Pay Approach
A
- employees a cost-of-living allowance and then allocate additional funds for those who are judged “meritorious.”
- the criteria for determining merit are often unclear
- difficult to quantify merit pay criteria
9
Q
Individual Incentive Pay Plans
A
- individual incentive plans also pay people based on output or even quality.
- Some might include a combination payment plan in which the individual receives a guaranteed amount of money, regardless of how the person performs
- provide a “drawing account” against which the individual can take money and then repay it out of commissions
10
Q
Bonuses
A
- Bonus pay for KPI’s met
- most companies are moving to bonus pay based on performance rather than fixed pay increases
11
Q
Stock Options
A
- Option to buy company stock in the future at a predetermined fixed price
- if the executives are successful in their efforts to increase organizational performance, stock price will also increase
12
Q
Pay for Performance - Potential Limitations
A
- one problem with bonuses and stock options is that they may have led to the excesses and ethical breakdowns experienced by too many firms in recent years
- The results of a study indicate that stock options prompt CEOs to take high-variance risks (not simply larger risks), but importantly it was also found that option loaded CEOs deliver more big losses than big gains
- measurement of KPI is another limitation
- narrow range of behaviors focused on bonus KPI’s
- individual incentive plans may pit employees against one another that may promote healthy competition, or it may erode trust and teamwork
13
Q
Group Incentive Plans Types
A
- gainsharing plans
- profit sharing
- employee stock ownership plan (ESOP)
14
Q
Gainsharing Plans
A
- share with the group or team the net gains from productivity improvements such as reduced product damage, customer complaints, accidents, or shipping errors.
- if everyone works to reduce cost and increase productivity, the organization will become more efficient and have more money to reward its personnel
- The first step is to determine the costs associated with producing the current output
- Then, at some predetermined point, such as six months, costs and output are measured and productivity savings are determined
- These gainsharing savings are then passed on to the employees, say, on a 75:25 basis
15
Q
Profit-sharing Plans
A
- typically some portion of the company’s profits is paid into a profit-sharing pool then distributed to all employees.
- Some plans defer the profit share, put it into an escrow account, and invest it for the employee until retirement
16
Q
employee stock ownership plan (ESOP)
A
- employees gradually gain a major stake in the ownership of the firm
- The process typically involves the company taking out a loan to buy a portion of its own stock in the open market. Over time, profits are then used to pay off this loan. Meanwhile the employees, based on seniority and/or performance, are given shares of the stock, a key component of their retirement plan. As a result, they eventually become owners of the company.
17
Q
Group Incentive Plans Limitations
A
- often distribute rewards equally even if the contribution to the result is not the same
- rewards may be realized decades later as in the case of an employee’s profit-sharing or ESOP that is placed in a retirement account
- if group rewards are distributed regularly, such as quarterly or annually, employees may regard the payments as part of their base salary and come to expect them every year
18
Q
New Pay Techniques
A
- Commissions beyond sales to customers
- Rewarding leadership effectiveness
- Rewarding new goals
- Pay for knowledge workers in teams
- Skill pay
- Competency pay
- Broadbanding
19
Q
Commissions beyond sales to customers
A
- are aligned with the organization’s strategy and core competencies
- besides sales volume, the commission is determined by customer satisfaction and sales team outcomes such as meeting revenue or profit goals
20
Q
Rewarding leadership effectiveness
A
- includes an employee-satisfaction measure to recognize a manager’s people-management skills
21
Q
Rewarding new goals
A
- rewards under this approach are aimed at all relevant employees (top to bottom) contributing to goals such as customer satisfaction, cycle time, or quality measures
22
Q
Pay for knowledge workers in teams
A
- part of this pay is initially given to individuals who have taken additional training
- the assumption being that their performance will increase in the future as a result of their newly acquired knowledge or skills.
23
Q
Skill pay
A
- This approach recognizes the need for flexibility and change by paying employees based on their demonstrated skills rather than the job they perform.
- Although it is currently used with procedural production or service skills, the challenge is to apply this concept to the more varied, abstract skills needed in new paradigm organizations (e.g., design of information systems, cross-cultural communication
skills)
24
Q
Competency pay
A
- This approach goes beyond skill pay by rewarding the more abstract knowledge or competencies of employees, such as those related to technology, the international business context, customer service, or social skills
25
Broadbanding
- a compensation strategy, broadbanding “is the practice of collapsing the traditional large number of salary levels into a small number of salary grades with broad pay ranges (larger salary range)
- allows a manager to give a salary increase to a
supervisor without having to first get approval from higher management because the supervisor’s salary puts the individual in the next highest salary level
- sends a strong message that the organization is serious about change and flexibility
26
Recognition as an organizational reward
- In addition to money, forms of recognition to identify and reward outstanding performance
- both formal organizational recognition and social recognition used systematically by supervisors and managers is very important to their people and their day-to-day behaviors and performance effectiveness
- there is considerable research evidence that social recognition (informal acknowledgment, attention, praise, approval, or genuine appreciation for work well done) has a significant impact on performance at all levels and types of organizations
27
Non-Financial Rewards
- Nonfinancial rewards can be given any time
- genuine social recognition
- increased responsibility
28
Employee survey results
(1) only 30 percent feel an obligation to stay with their current employer;
(2) individuals who are highly committed to their organization tend to do the best work;
(3) workers who are discontent with their jobs are least likely to be productive;
(4) employees in large organizations (100 or more people) tend to be less satisfied than their peers in small enterprises;
(5) lower-level employees are less satisfied than those in higher-level positions; and
(6) the things that the respondents would like their companies to focus on more include being fair to employees, caring about them, and exhibiting trust in them
29
Steps to set up a formal and informal recognition program
1. Communicate it
2. Educate the managers on the program
3. Make recognition part of the performance management process
4. Have site-specific recognition ceremonies
5. Publicize the best practices of employees
6. Communicate what best managers are doing
7. Continually review the recognition process (add new items, scrap things that don't work)
8. Solicit recognition ideas from both employees and managers
30
efficiency wage theory
- firms can save money and become more productive if they pay higher wages and better benefits because they are able to hire and leverage the best talent.
31
Mandated benefits
- Social Security
- Workers Compensation
- FMLA (Family and Medical Leave Act)
32
Other major benefits
- medical, life and disability insurance
- pension
- time off benefit (PTO, vacation, sick, holidays)
33
Newer Benefits
- wellness programs
- life cycle benefits (child or elder care)
- EAP (employee assistance program)
- cafeteria-style benefits
34
intrinsic motivation
- was usually measured in the laboratory by time spent on a task following the removal of the reward
- However, through the years, there have been many criticisms of these studies, and a meta-analysis of 96 experimental studies concluded that “overall, reward does not decrease intrinsic motivation.”
35
National Association for Employee Recognition have concluded
practicing human resource professionals and managers still seem to underestimate how
useful recognition can be in motivating employees to achieve goals.
36
Steven Kerr's comments on money
“Nobody refuses it, nobody returns it, and people who have more than they could ever use do dreadful things to get more.”
