1. Incentive Plans

2. Pay influences employees through
Reinforcement theory
Expectancy theory

3. Reinforcement Theory
Behavior that is rewarded will be repeated.

4. Expectancy Theory Motivational Force = E * I * V Expectancy
If I attempt this level of
performance, am I likely to
succeed?
Motivational Force =
E * I * V
Instrumentality
If I achieve this level of
performance, am I likely to be
rewarded?
Valence
What value do I place on the
rewards available to me?

5. Incentive Programs Differ by Fitting program to situation depends on
payment method
frequency of payout
ways of measuring performance
choice of which employees are covered
Fitting program to situation depends on
organizational structure
management style
type of work

6. Types of Plans Merit Pay Individual Incentives Profit Sharing
Ownership
Gainsharing
Group Incentives
Alternative Reward Systems

7. Merit Pay Programs
link performance appraisal ratings to annual pay increases
focus: identifying individual differences in performance
better performance results in higher reward, contingent on position in the range (compra-ratio)

8. Criticisms of Merit Pay
merit pay systems focusing on individual performance discourage teamwork
if performance is not measured fairly and accurately, the whole process will be contaminated
apparent differences between people arise almost entirely from the system that they work in, not the people themselves
coworkers, job materials, customers, management, supervision

9. Individual Incentives
reward individual performance
payments are NOT rolled into base pay
performance is usually measured as a physical output rather than subjective ratings

10. Individual Incentives are rare because
most jobs have no physical output measure
administrative problems of setting and maintaining acceptable standards
plans may be inconsistent with other goals (e.g. acquiring multiple skills, proactive problem solving)
people may focus on what they get paid for and nothing else
plans may reward output at the expense of quality

11. Profit Sharing
payments are based on a measure of organizational performance (profits)
payments do NOT become a part of base pay
Advantage: may encourage workers to think more like owners
Drawbacks:
workers may perceive their performance has little to do with profit
deferred nature of payouts

12. Ownership
encourages employees to focus on the success of the organization as a whole but may not result in motivation for high individual performance
gains not realized until stock sold (employees leaving company?)
Methods:
stock options
ESOPs (employee stock ownership plans)

13. Gainsharing sharing productivity gains with employees
differs from profit sharing in that instead of using an organization-level performance measure (profits) plans measure group or plant performance
better for motivation
Examples:
Scanlon plan, Rucker plan, Improshare
goes beyond money -- participation in problem solving = key

14. Conditions for effective Gainsharing
management commitment
need to change or a process of continuous improvement
management acceptance & encouragement of employee input
high levels of cooperation and interaction
employment security
information sharing on all productivity and costs
goal setting
commitment of all involved parties to change and improvement
agreement on a performance standard
calculation that is understandable, perceived as fair, closely related to managerial objectives

15. Group Incentives Focus = smaller work groups
While gainsharing typically measures physical output, group incentives tend to measure performance in terms of a broader array such as
cost savings
successful completion of product design
meeting deadlines
Drawback: competition among teams

16. Alternative Reward Systems
alternatives to cash --
travel
merchandise
earned time off
symbolic awards
plaques, coffee cups, bananas

17. Incentive Plans

18. Conditions for Effective Incentive Plans
Plan is clearly communicated.
Plan is understood by employees and management.
Bonuses are easy to calculate.
Employees participate in administrating the plan.
Employees believe they are being treated fairly.
Employees believe they can trust the company and that they have security.
Bonuses are awarded as soon as possible after the desired performance.

19. Pay for Performance Plans

20. Conditions for Effective Performance-Based Pay Systems
Pay-performance linkage must be perceived by employees
Pay is valued by employees
Employees must perceive that effort and ability lead to rewarded behavior
Performance measurement must be fair
Employees must trust the organization
Pay program must be understood
Employees must be able to control their performance
Performance appraisal system cannot be biased
There must be enough money to fund incentives
A valid job evaluation must have been conducted