1. Pay for Performance: The Evidence FastCat Phase III
Chapter 9

2. Exhibit 9.2: The Big Picture, or Compensation Can't Do It Alone!

3. What Behaviors Do Employers Care About?
Behaviors that compensation needs to reinforce
Compensation should be sufficiently attractive to make recruiting and hiring good potential employees possible (attraction)
Need to make sure the good employees stay with the company (retention)
Need to find ways to motivate employees to perform well on their jobs—to take their knowledge and abilities and apply them in ways that contribute to organizational performance

4. What Behaviors Do Employers Care About? (cont.)
How do we get good employment prospects to join our company?
How do we retain these good employees once they join?
How do we get employees to develop skills for current and future jobs?
How do we get employees to perform well on their current job?

5. What Motivates Employees?
In the simplest sense, motivation involves three elements:
1. What is important to a person?
2. Offering it in exchange for some
3. Desired behavior

6. Exhibit 9.4: Motivation Theories
See Exhibit 9.2, pages 284 – 286 in the text

7. Exhibit 9.4: Motivation Theories (con’t)

8. Exhibit 9.4: Motivation Theories (con’t)

9. Exhibit 9.5: Components of a Total Reward System
See text, Exhibit 9.3 on page 289

10. Exhibit 9.6: Wage Components

11. Exhibit 9.6: Wage Components (con’t)

12. Does Compensation Motivate Behavior? General Comments
Organizations with “high-performance work practices” had annual sales that averaged $27,000 more per employee.

13. Do People Join a Firm Because of Pay?
Key factors affecting a person’s decision to join a firm
Level of pay
Pay system characteristics
Job candidates look for organizations that “fit” their personalities
Reward systems should be designed to attract people with desired
Personalities
Values

14. Do People Stay in a Firm (Or Leave) Because of Pay?
Factors impacting turnover
Pay based on individual performance results in higher turnover of poor performers
Group incentive plans may lead to higher turnover of better performers
Level of employee satisfaction with pay

15. Do People Stay in a Firm (Or Leave) Because of Pay? (cont.)
Other rewards affect the decision to stay
Work variety and challenge
Development opportunity
Social
Status recognition
Work importance
Benefits

16. Do Employees More Readily Agree to Develop Job Skills Because of Pay?
Evidence is unclear
Relevance of skill-based pay

17. Do Employees Perform Better on Their Jobs Because of Pay?
Not clear if performance of individuals can be increased by tying it to pay
If the incentive depends on individual performance, applicants find the company more attractive
Team-based incentives, in contrast, are less attractive
A number of recent studies provide strong evidence that pay for performance has a direct and, at times, substantial impact on firm performance
Evidence indicates, however, that ees don’t notice incentive payouts unless they are at least 10%, w/ % more likely to evoke desired response
Some research indicates ee satisfaction w/ pay may depend more on procedures used to determine pay than level

18. Where’s the Merit Pay Payoff?
Jeffrey Pfeffer (Stanford) argues that idea that individual pay for performance will enhance org performance rests on set of assumptions that do not hold in vast majority of orgs
“Merit pay is not based on merit”
Perf appraisals biased
Pay increases not enough to motivate ees, but are enough to irritate them
In effect, for vast majority of ees, merit increases are unevenly distributed cost-of-living and market-adjustment increases couched in language of performance rewards
But, high levels of differentiation destroy engagement, breed distrust, and undermine teamwork
Higher turnover, lower quality, serious ethical breaches
“Effective management is a system, not a pay plan. The mistake is that companies try to solve all their problems with pay.”
Evidence suggests group bonuses, profit sharing, and gain sharing are more effective forms of performance-based pay than merit pay or individual incentives
Source: Workforce Management, 11/3/08

19. Exhibit 9.7: Examples of Group Incentive Plans
See Exhibit 9.5, page 299 in text