BA 2204 and BAS 324Human Resource Management

Rewarding performance

Instructor: Çağrı Topal1

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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Types: corporate-basedConditionsFirm size is largePlants or business units are

interdependent within the firmThe firm faces cyclical ups and

downs in product demandThere are complementary incentive

plans

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