Lecture Human resource management: Gaining a competitive advantage (9/e) – Chapter 12: Recognizing employee contributions with pay

Chapter 12 - Recognizing employee contributions with pay. After reading this chapter, you should be able to: Discuss how pay influences individual employees, and describe three theories that explain the effect of compensation on individuals; describe the fundamental pay programs for recognizing employees’ contributions to the organization’s success; list the advantages and disadvantages of the pay programs;...

Chapter 12 Recognizing Employee Contributions with Pay Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education Introduction  Organizations have discretion in deciding how to pay  Each employee’s pay is based upon individual performance, profits, seniority, or other factors  Regardless of cost differences, different pay programs can have different consequences for productivity and return on investment  Pay plans used to energize, direct, or control employee behavior  Three theories that help to explain compensation’s effects are the reinforcement theory, expectancy theory and the agency theory; behavior–reward contingencies shape behaviors 12­2 Programs Recognizing Contributions  Programs differ by payment method, payout frequency and ways of measuring performance  Potential consequences include employees’ performance motivation and attraction, culture and costs  Management style and type of work influence whether a pay program fits the situation Gain Sharing 12­3 Merit Pay  Merit pay programs link performance-appraisal ratings to annual pay increases  A merit increase grid combines an employee’s performance rating with employee’s position in a pay range to determine size and frequency of his or her pay increases Merit Bonus - Merit pay paid in the form of a bonus, instead of a salary increase Some organizations provide guidelines regarding percentage of employees who should fall into each performance category 12­4 Profit Sharing Under profit sharing, payments are based on a measure of organization performance (profits), and payments not become a part of base pay  Advantages profit sharing may encourage employees to think more like owners  labor costs are automatically reduced during difficult economic times, and wealth is shared during good times  Disadvantage-workers may perceive their performance has less to with profit than top management decisions over which they have little 12­5 Ownership Ownership encourages employees to focus on organization’s success, but may be less motivational the larger the organization Stock options - plan that give employees the opportunity to buy company stock at a previously fixed price Employee stock ownership plans (ESOPs) give employers certain tax and financial advantages when stock is granted to employees ESOPs can carry significant risk for 12­6 Gainsharing Gainsharing – form of compensation based on group or plant performance rather than organizationwide profits that does not become part of the employee’s base salary offers a means of sharing productivity gains with employees Improves performance 12­7 Group Incentives and Team Awards  Group incentives measure performace in physical output  Team award plans may use a broader range of performance measures  Individual competition may be replaced by competition between groups or teams  Individual incentives reward individual performance but payments are not rolled into base pay Performance is measured as physical output rather than by subjective ratings 12­8 Managerial and Executive Pay  Top managers and executives are a strategically important group whose compensation warrants special attention  Some companies' rewards for executives are high regardless of profitability or stock market performance  Executive pay can be linked to organizational performance (agency theory)  Increased pressure from regulators and shareholders to better link pay and performance  Securities and Exchange Commission (SEC) 12­9 Process and Context Issues issues represent areas of company discretion and pose opportunities to compete effectively: Employee Participation in Decision Making Pay & Process: Intertwined Effects Communication 12­10 Summary  Programs vary as to whether they link pay to individual, group, or organization performance Often, it is a choice between different combinations of programs that seek to balance individual, group, and organization objectives  Wages, bonuses, and other types of pay influence an employee’s standard of living Pay can be a powerful motivator  An effective pay strategy promotes an organization’s success; conversely, a poorly conceived pay strategy can have detrimental effects  categories of a balanced scorecard include financial, customer internal and learning and growth 12­11 ... whether a pay program fits the situation Gain Sharing 12­3 Merit Pay  Merit pay programs link performance-appraisal ratings to annual pay increases  A merit increase grid combines an employee? ??s... measure of organization performance (profits), and payments not become a part of base pay  Advantages profit sharing may encourage employees to think more like owners  labor costs are automatically... rolled into base pay Performance is measured as physical output rather than by subjective ratings 12­8 Managerial and Executive Pay  Top managers and executives are a strategically important group