Post on 04-Jan-2016
AssumptionsIndividual employees and work
teams differ in how much they contribute to the firm
The firm’s overall performance depends on the performance of individuals and groups
The firm needs to reward employees on the basis of their relative performance
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Challenges“Do only what you get paid for”
syndromeUnethical behaviorsNegative effects on cooperationLack of controlDifficulties in measuring performancePsychological contractsCredibility gapJob dissatisfaction and stressPotential reduction of intrinsic drives
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Meeting challengesUse pay for performance as part of a
broader HRM systemLink pay and performance appropriatelyBuild employee trustPromote the belief that performance
makes a differenceUse multiple layers of rewardsIncrease employee involvementStress the importance of acting
ethicallyUse motivation and nonfinancial
incentives4
Types: individual-basedDefinitionRewarding individuals based on
individual outcomes
Merit payBonusesAwards
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Types: individual-basedAdvantagesRewarded performance is likely to
be repeatedFinancial incentives can shape an
individual’s goals over timeAssessing the performance of each
employee helps the firm achieve individual equity
Individual-based plans fit in with an individualistic culture
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Types: individual-basedDisadvantagesIndividual plans may create competitionIndividual plans may lead to sour
relationshipsMany managers tend to equalize pay increase
rates among employeesTying pay to goals may promote single-
mindednessMany employees do not believe pay and
performance linkIndividual plans may work against quality
goalsIndividual programs may promote inflexibility
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Types: individual-basedConditionsIndividual employee contributions
can be accurately isolatedJob demands autonomyCooperation is less critical to
successful performance
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Types: team-basedDefinition and advantagesRewarding all team members
equally based on group outcomes
Team plans foster group cohesiveness
Team plans aid performance measurement
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Types: team-basedDisadvantagesPossible lack of fit with
individualistic cultural valuesFree-riding effectSocial pressures to limit
performanceDifficulties in identifying meaningful
groupsIntergroup competition and decline
in overall performance
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Types: team-basedConditionsWork tasks are so intertwined that it is
difficult to single out who did whatThe firm’s organization and technology
facilitates team-based incentivesEmployees are committed to their workThe firm needs to prevent employees
from pursuing their personal projectsThe objective is to foster
entrepreneurship in self-managed work groups
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Types: plant-basedDefinition and advantagesRewarding all workers in a plant or unit based
on the efficiency of the entire plant or unit
Productivity gains resulting from employee involvement
Improvements in the production process due to employee input
Development of a cooperative work cultureNo need to measure individual contributionsMore acceptable for workers not singled out
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Types: plant-basedDisadvantagesProtection of low performersCriteria problems• Inflexibility• Unprofitability• Relative easiness• Limited opportunity
Management-labor conflict
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Types: plant-basedConditionsFirm size is small to mediumTechnology is not an alternative to
workersData on the historical performance
of different units within the firm is on hand
Corporate culture is not hierarchicalThere should be a relatively stable
demand for the firm’s product
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Types: corporate-basedDefinition and advantagesRewarding employees based on the
entire corporation’s performance
Profit sharing plansEmployee stock ownership plans
Financial flexibility for the firmIncreased employee commitmentTax advantages
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Types: corporate-basedDisadvantagesEmployees’ savings at considerable
riskHigh exposure to macroeconomic
forcesLimited effect on productivityLong-run financial difficulties
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