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Rewarding
Performance
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Pay-for-Performance (Incentive)
Systems Assume That
Individuals and teams differ in level
and quality of contribution
Firms overall performance depends on
performance of individuals and groups in the
firm
Firm should reward employees based on their
relative performance to attract, retain and
motivate high performers
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Challenges to Incentive System
Do Only What You Get Paid ForSyndrome
Adversely affects cooperation
Lack of Control
Difficulties in Measuring Performance
Psychological Contract is created that is
often resistant to change
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Challenges to Incentives (contd)
Employees question fairness and
credibility
Potential reduction of intrinsic drives
Leads to job
dissatisfactionand stress
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2004 by Prentice Hall
Terrie Nolinske, Ph.D. 11 - 6
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Developing Incentive Systems
Link pay and performance appropriately
Use incentives as part of a larger plan
Use financial andnon-financial incentives
Build Employee Trust
Promote belief that performance matters Use multiple layers of rewards
Increase employee involvement
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Terrie Nolinske, Ph.D. 11 - 8
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PERFORMANCE INCENTIVES
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Types ofperformance
incentives
Individual
Group
organization
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Individual incentive plans
Variable pay-
Employees who perform better should receive
more compensation.
Piece- work incentives
The employee is paid for the each unit of output.
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Production bonus-
Incentives that reward extra effort in the work
place.
Commission-
A percentage of the selling price given to the
seller.
Hazard pay-
Extra payment to an individual or a group for
working under dangerous/undesirable condition.
Cost-of-living adjustments- Increase to supplement payment designed tobring pay in line with the increase in cost of living
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Terrie Nolinske, Ph.D. 11 - 13
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2004 by Prentice Hall
Terrie Nolinske, Ph.D. 11 - 14
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Individual-Based Incentive Plan:
Advantages
Individuals are goal-oriented
Financial incentives can shape goals
Individual-based plans fit anindividualistic culture
Performance rewarded
may be repeated
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Tying pay to goals promotes narrow
focus
Individual pay plans may work against
achieving quality goals
Individual-based programs maypromote inflexibility
Individual-Based Incentive
Plan: Disadvantages
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Individual-Based Plans
Best When
contributions of individuals can be
accurately isolated
job demands autonomy
cooperation is less critical to
successful performance or whencompetition is to be encouraged
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Team-Based Incentive Plan:
Advantages
Foster group cohesiveness
Facilitates workforce flexibility
Reliably measure
team performance
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Team-Based Incentive Plan:
Disadvantages
Free-ride effect
Intergroup competition leads
to decline in overall performance
Social pressures limit performance
Identifying meaningful groups difficult
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Team-Based PlansBest When
it is difficult to single out who did what
firms culture / structure support teams
task objective fosters entrepreneurship
in self-managed work groups
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Organization wide incentive-
Profit sharing-
Profit sharing incentive plans are practiced
in retail and FMCG sectors. Other sectorstoo implement the plan based on
organizational policies. It refers to giving
out the share of profits the organization
earned to all the employees. Indirectly allthe organizations follow the plan by giving
out the dividends.
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ESOPs-
The scheme provides employees the
ownership of stocks in the company.
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2004 by Prentice Hall
Terrie Nolinske, Ph.D. 11 - 24
0 10 20 0 40 50 0 70 0 90 100
Most Common Perks Received
by U.S. Senior Executives
Financial Counseling
Club Memberships
Personal Liability Ins.
Cellular Phone
Airline VIP Clubs
Home Security System
Home Computer
Company Car
First-Class Air TravelCompany Plane
Chauffeur Service
Reserved Parking
Executive Dining Room
Loans
PerkPercentage of Surveyed Companies
Offering to Senior Executives
Physical Exams