Chapter 7 Flashcards
Chapter 7
What are the financial and Non- financial components of Compensation Systems?
Financial Components:
Salary
Incentives
Benefits
Non-Financial Components:
Training Opportunities Career Opportunities Leadership Team fit Working Hours Job Content
What are the Determinants of Pay?
Job Value
Requirements
Performance
Competencies, Skills, Qualifications
Market
Seniority
What is job evaluation and which factors are considered?
The formal systematic means used to identify the relative worth of jobs within an organization
Factors to evaluate: Skills, effort, responsibility AND working conditions
What are Holistic Job evaluation methods?
Job Ranking Method: Ranking jobs relative to all others with regard to
defined criteria
Job Classification Method:Categorizing jobs into pre-determined groups or classes of jobs which are of roughly the same value
What are Analytic Job evaluation methods?
Factor Comparison Method:
Ranking single requirements based on mutual
comparison (summing up - proportionally)
Point Method:
Grading single requirements in pre-determined
requirement-classes (summing up proportionally)
What is Hay Job Evaluation Methodology?
Input -> Throughput -> Output
Know how -> Problem solving -> Accountability
What is purpose of Pay Survey?
To price benchmark jobs (jobs found in many organizations)
To market-price wages for jobs
To make decisions about benefits
What are sources of Pay Survey?
Employer Self-Conducted Surveys
Consulting Firms
Professional Associations
What are INCENTIVES?
Provide TWO examples.
Financial rewards paid to workers whose production
exceeds a predetermined standard.
- Individual Employee Incentive and Recognition Plans
- Sales Compensation Plans
What is Herzberg’s Two-Factors-Theory ?
Hygiene factors: Salary, Incentives, etc. (extrinsic) - Demotivated if not given
Motivating factors: Challenge, recognition, etc. (intrinsic)
What is Vroom’s Expectancy Theory
(M = E * V)
Motivation is the product of expectancy (that effort will lead to performance) and valence (value placed on result respectively reward connected to it)
If any factor (E or V) is zero, there is no motivation to work towards the reward
Confidence building and TRAINING can increase employee motivation
What is Skinner’s Behavior Modification - Reinforcement Theory?
Behaviors that are PUNISHED are NOT repeated.
Behaviors that are REWARDED are REPEATED.
Behaviors can be changed with REWARD or PUNISHMENT.
What is Merit Pay and what are its features?
Salary increase awarded to an employee due to performance
Permanent, cumulative salary increase
Annual lump sum -non permanent
Tied to individual and/or organizational performance
What are Incentives for
Professional Employees?
Bonuses, Stock options, Profit sharing, Flexible work hours. All are linked to performance.
What are Recognition-Based
Awards?
Alone or in combination with financial rewards
Social recognition, performance-based recognition, performance feedback
What are Incentives for Salespeople – Sales Compensation Plans?
Straight Salaries
Commission Plan
Combination Plan
[Combination of salary & commission]
What are Straight Salaries appropriate for?
Finding new clients
Account servicing, training
Customer’s sales-force
What are the features of Commission Plan?
Keeps sales costs proportionate to sales revenues
May cause neglect of non-selling duties
Can create wide variation in salesperson’s income
Sales success may be linked to factors other
than performance
What are the features of Combination Plan
(combination of salary & commission)?
Gives salespeople a floor (safety net) to their earnings.
Salary component covers specified service activities.
What are the Criteria for Effective Incentive Plans?
Incentives must be linked to strategy
Reward must be related to efforts
Plan must be easy to understand
Employees must accept and support the plan
Why Incentive Plans Fail?
Provide reasons!
Performance pay cannot replace good management
Pay is not a motivator: You get what you pay for
Rewards undermine intrinsic motivation
People may be engage in unethical/Illegal behavior for getting REWARDS.
What are the alternatives in Team Based Variable Pay Plans?
What are Pros and Cons of Team based variable pay plans?
Team bonus distributed equally to all members
Team bonus distributed due to individual contribution
− Determined by numbers
− Determined by team manager
− Determined by team itself
Pros: Encourages collaboration and cooperation.
Encourages rapid training of new members
Cons: Pay is not proportionate to an individual’s effort
Rewards “free riders”
What are Organization Wide Incentive Plans?
Profit-Sharing Plans
Cash Plans
− Employees receive cash share of the firm’s profits at regular intervals
− Funding formula for distributing employees’ share of the gains needed
Profit-Based Incentives
− Profits distributed to employees based on their individual merit rating
Deferred Profit-Sharing Plans
− A predetermined portion of profits is placed in employee’s account under a trustee’s supervision
What is Employee Stock Ownership Plan?
Firm annually contributes own stock (with a limit of a percentage of compensation) to be used to purchase the stock at a reduced price
−Employees develop a sense of ownership and commitment to the firm
