Implementing Productivity Improvement Programs
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Transcript of Implementing Productivity Improvement Programs
Implementing Productivity Improvement Programs
Chapter 10
• Explain what productivity programs are and how they contribute to competitive advantage
• Define the standards for effective productivity programs developed within the framework of expectancy theory
• Understand the rationale behind pay-for-performance programs• Describe the different types of pay-for-performance programs• Appreciate the rationale behind employee empowerment programs• Explain the various types of employee empowerment programs
Chapter 10 Objectives
Linking Productivity Improvement Programs to Competitive Advantage
• The goal of productivity improvement programs is to improve productivity by increasing employee motivation. • Extrinsic rewards: given by the employer to employees. • Intrinsic rewards: those that come from within a person.
• Successful productivity improvement programs are able to establish a clear connection between employee efforts and rewards.
• Many theories attempt to explain the motivational process.
Linking Productivity Improvement Programs to Competitive Advantage
Expectancy Theory Model
HRM Issues and PracticeExtrinsic Rewards
• Pay-for-performance programs• Link financial rewards to successful job performance. • Provide extrinsic rewards.• Can create legal problems when administered unfairly.
HRM Issues and PracticeExtrinsic Rewards
HRM Issues and PracticeExtrinsic Rewards
• Merit pay plans• Grant employees annual pay raises
based on their levels of job performance. • The merit pay guidechart shows the size
of a merit pay raise associated with each level of job performance.
• Merit pay plan—strengths• Established effort-performance and
performance–reward link.• Publicized merit pay guidecharts to
strengthen the performance–reward link.
HRM Issues and PracticeExtrinsic Rewards
• Merit pay plan—weaknesses• Fail to establish a clear performance-reward link.• Fails when employees do not value the rewards offered
by the company.• Hinder performance-reward link when supervisors fail to
distinguish between employees within the team• Time lag exists between behavior and reward.• Is not very cost-efficient.• Productivity hinders if these plans fail to reward
behaviors that contribute to organizational goals.
HRM Issues and PracticeExtrinsic Rewards
• Recommendations for properly designing and implementing an effective merit pay plan:• Make objective assessments of employees’ job
performance.• Measure an employee’s performance on the basis
of job behaviors that have a proven impact on the success of the business.
• Make payouts quarterly, not annually.• Frequently communicate performance
expectations to employees.• Train managers to properly implement the system.
HRM Issues and PracticeExtrinsic Rewards
• Piece rate plans• Base an individual’s wages on the
number of “pieces” or product units he or she produces.
• Piece rate plans vary.• Straight piecework: pays workers a set
amount for each unit produced.• Different piece rates: depends on
whether the worker has met the standard.
HRM Issues and PracticeExtrinsic Rewards
• Piece rate plans• Strengths
• Cost efficient.• Employees know what to do
to earn reward.• Performance standards are
objective.• Rewards are tied directly to
performance.
• Weaknesses• Pressure placed on employees
to produce.• Workers may resist
management’s attempts to introduce new technology or systems.
• Workers are not rewarded for suggesting new ideas.
• Employees may neglect aspects not covered in the performance goals.
• Encourage competition rather than teamwork.
HRM Issues and PracticeExtrinsic Rewards
• Gainsharing plans offer employees a cash award for meeting or exceeding goals based on the collaborative performance of a team of employees.
• Most gainsharing plans feature the following:• The organization has productivity goals that can be achieved
through effective teamwork.• Employees receive cash bonuses if goals are met.• Productivity is measured by an explicit formula with objective
measures.• Employees are encouraged to submit suggestions for cutting
production costs or increasing productivity.
HRM Issues and PracticeExtrinsic Rewards
• The Scanlon Plan• Is a gainsharing plan.• Aims to cut production costs, relative to output.• For implementing a Scanlon Plan:
• Calculate the ratio of production cost/sales value of production that would be expected in a typical year.
• Decide how production costs are to be cut.• Allocates bonuses in the following manner: 75 percent is
paid out and 25 percent is held in reserve for lean periods in which there are no bonuses.
HRM Issues and PracticeExtrinsic Rewards
• Gainsharing plans• Strengths
Effort-performance and performance-reward links are strong.
Link performance with the organization’s mission.
Promote teamwork. Are cost-effective.
• Weaknesses Employees may perceive
rewards as being unfairly distributed.
Employee suggestions for improving efficiency may dwindle over time.
May suffer if payout formulas are inflexible.
HRM Issues and PracticeExtrinsic Rewards
• Gainsharing programs are most likely to succeed under the following conditions:• Management must orient the company culture to
one of respect, cooperation, and open communication.
• Plan must be designed so that the payout is dependent on factors the employee can control.
• Management must meet regularly with employees to share information and ideas and gather information.
HRM Issues and PracticeExtrinsic Rewards
• Profit-sharing plans • Reward group, rather than individual,
performance. • The payout is based on profits rather than
gains. • A portion of the company’s profits is
contributed to individual employee accounts.
HRM Issues and PracticeExtrinsic Rewards
• Three types of profit-sharing plans: • Deferred plans: An individual’s profit-sharing
earnings are distributed at retirement.• Distribution plans: The company fully distributes
each period’s earnings as soon as the profit-sharing pool is calculated.
• Combination plans: Employees receive a portion of each period’s earnings immediately; the remainder awaits future distribution.
HRM Issues and PracticeExtrinsic Rewards
• Profit-sharing plans• Strengths
Improves productivity by making employees’ interests compatible with employers’ goals.
Employees may gain a greater sense of ownership.
• Weaknesses Only marginally address
effort-performance-rewards links.
Not always cost efficient. Rewards are not timely.
HRM Issues and PracticeIntrinsic Rewards
• Employee empowerment gives employees greater voice in decisions about work-related matters.
• Empowerment can enhance productivity in two ways: • Strengthens motivation by providing employees with the
opportunity to attain intrinsic rewards from their work. • Decisions are better because they are made by employees,
who have a more complete knowledge of their work than do their managers.
Employee Empowerment Programs
HRM Issues and PracticeIntrinsic Rewards
• Informal participative decision-making programs• Managers and subordinates make
joint decisions on a day-to-day basis.
• Have a positive impact on productivity.
• The success of the program hinges on whether employees want to participate in decision making.
Employee Empowerment Programs
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
• Job enrichment• Aims to redesign jobs to be more intrinsically rewarding.• Characteristics that make a job intrinsically rewarding are
skill variety, task identity, task significance, autonomy, and job feedback.
• Some specific techniques for enriching a job:• Combine tasks• Establish client relationships• Reduce direct supervision• Increase identification with product/service
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
• Job enrichment• Strengths
Makes jobs less automated, and more interesting and rewarding.
Enrichment leads to improvements in productivity, quality, absenteeism rates, and retention.
• Weaknesses Production may become
less efficient. Employees preferring
highly automated jobs may oppose job enrichment efforts.
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
• Quality circles• A group of 6 to 12 employees who
identify and resolve production problems within their unit.
• Usually meet once a week.• Are led by a coordinator who may
be a supervisor within the work group or a member elected by the group.
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
Steps to Quality Circle Process
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
• Quality circles• Strengths
• Gains valuable input from employees.
• Improves communications among workers and between workers and management.
• Increases motivation through employee empowerment.
• Weaknesses• Often used as a quick fix.• Does not address the real
problems underlying poor productivity, quality, and employee morale.
• Often creates an “insider-outsider culture.”
• Sometimes operated improperly.
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs• Continuous quality improvement programs
• Attempt to build quality into all phases of the design, production, and delivery of a product or service.
• Companies empower their workers to:• Trace problems to their root causes.• Redesign production processes to eliminate them by
using various problem-solving and statistical techniques.
• Worker empowerment takes the form of self-managed work teams.
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs
• Self-managed work teams– Consist of 6 to 18 employees from different departments who
work together to produce a well-defined segment of finished work.
– Team members are given the authority to plan, organize, and coordinate, and take corrective actions.
– To prepare team-members for self-management, the organization must provide training in three areas:
• Technical skills• Interpersonal skills• Administrative skills
HRM Issues and PracticeIntrinsic Rewards
Employee Empowerment Programs• Self-managed work teams• Strengths
• Empower employees to make day-to-day business decisions.
• Greater flexibility.
• Weaknesses• Possible “turf battles” may
arise.• Departmental rivalries often
flare up.• Absence of a supervisor
may cause problems.• Lack of time to handle
supervisory responsibilities.
• Problems may arise with peer evaluations.