October 24
Rewarding
Performance
Part II
© 2001 by Prentice Hall and Anne Tsui 2002
11-1
M&M at work
 TAPPS
Individual work quiet time – 1 min
Interaction in pairs – 3 min
Sharing and closure – 5 min
Other than cash, what are some other M&M that employees may like?
What is the difference between rewards, incentives and recognitions?
© 2001 by Prentice Hall and Anne Tsui 2002
11-2
Rewarding
Performance
Performance
Measurement
& Evaluation
Individual
Assumptions
& Challenges
Levels of
Rewards
Team based
Plant-wide
Corporate
Advantages
Advantages
Disadvantages
Disadvantages
Facilitating conditions
Facilitating conditions
© 2001 by Prentice Hall and Anne Tsui 2002
11-3
Learning Objectives – at the end
of this topic, you should be able
to:
1.
Identify and analyze the assumptions underlying pay for
performance systems.
2.
Identify the challenges in using pay to motivate or reward
performance.
3.
Differentiate the four levels of reward systems.
4.
Determine the advantages and disadvantages of different pay for
performance systems.
5.
Identify the conditions when each system is most likely to succeed.
6.
Examine the limitations of monetary rewards and the potential of
non-monetary rewards
7.
Design pay for performance systems that motivate the appropriate
employee or team behaviors.
Reading: Chapter 11, Tuesday: pp. 358-373, Thursday: 373-389.
© 2001 by Prentice Hall and Anne Tsui 2002
© 1998 by Prentice Hall 11-4
Video: Reward System at Lincoln
Electric
In class exercise (graded)
1.
2.
3.
4.
Individual work, quiet time – 1 min.
Sharing in team – 15 min.
Summarize and record best answers – 5 min.
Hand in completed answer sheet.
 Why does this reward system work for LE?
 Why won’t it work for other companies?
© 2001 by Prentice Hall and Anne Tsui 2002
11-5
Conditions Favoring Plantwide
Plans
 Gainsharing is more likely to work well in small to midsize
plants.
 When technology limits improvements in efficiency,
gainsharing is less likely to be successful.
 If a firm has multiple plants with varying levels of efficiency,
the plan must take this variance into account so that efficient
plants are not penalized and inefficient plants rewarded.
 Gainsharing is less likely to be successful in firms with a
traditional hierarchy of authority.
 Gainsharing is most appropriate in situations where the
demand for the firm’s product or service is relatively stable.
© 2001 by Prentice Hall and Anne Tsui 2002
11-6
Conditions Favoring
Corporatewide Plans
 Profit sharing and ESOPs are the plans of choice for larger
organizations.
 Corporations with multiple interdependent plants or
business units often find corporatewide plans most suitable
because it difficult to isolate the financial performance of
any given segment of the corporation.
 Unlike gainsharing, profit-sharing and ESOP programs are
attractive to firms facing highly cyclical ups and downs in
the demand for their product.
 When used in conjunction with other incentives,
corporatewide programs can promote greater commitment
to the organization by creating common goals and a sense
of partnership among managers and workers.
© 2001 by Prentice Hall and Anne Tsui 2002
11-7
Advantages of Plantwide Payfor-Performance Plans
(Gainsharing)
 Gainsharing plans can provide a vehicle to elicit active
employee input and improve the production process.
 Gainsharing plans can increase the level of cooperation across
workers and teams by giving everyone a common goal.
 Gainsharing plans are subject to fewer measurement
difficulties than individual- or team-based incentives.
 Because gainsharing plans do not require managers to sort
out the specific contributions of individuals or interdependent
teams, it is easier both to formulate bonus calculations and to
achieve acceptance of these plans.
© 2001 by Prentice Hall and Anne Tsui 2002
11-8
Advantages of Corporatewide
Pay-for-Performance Plans
 Financial flexibility for the
firm.
 Increased employee
commitment
© 2001 by Prentice Hall and Anne Tsui 2002
11-9
Disadvantages of Plantwide
Pay-for-Performance Plans
 Protection of low performers.
 Criteria for rewards may become too
rigid.
 May penalize already high performing
plants.
 Management may be reluctant to give
up control.
© 2001 by Prentice Hall and Anne Tsui 2002
11-10
Disadvantages of
Corporatewide Pay-forPerformance Plans
 Employees may be at
considerable risk.
 Limited effect on productivity
 Long-run financial difficulties.
© 2001 by Prentice Hall and Anne Tsui 2002
11-11
Differences Between Gainsharing
Plans and Profit Sharing Plans
 In a profit-sharing program, no attempt is made to
reward workers for productivity improvements.
Many factors that affect profits have little to do with
productivity, and the amount of money employees
receive depends on all of these factors.
 Profit-sharing plans are very mechanistic, and do
not attempt to elicit worker participation.
 In a typical profit-sharing plan, profit distributions
are used to fund employees’ retirement plans. As a
result, employees seldom receive profit
distributions in cash.
© 2001 by Prentice Hall and Anne Tsui 2002
11-12
Compare and Contrast Plant Level
and Corporate Level Reward Systems
Bases for comparison
Plant Level
Corporate Level
Assumptions
Conditions
Advantages
Disadvantages
Employee input
Performance measures
© 2001 by Prentice Hall and Anne Tsui 2002
11-13
Multiple Levels of Rewards
Corporate
Level
PlantPlant
level Level
Team
Level Individual
© 2001 by Prentice Hall and Anne Tsui 2002
11-14
The Reward Scenarios Again
 Green Giant designed a bonus plan to reward employees for
removing insects from the vegetables. Green Giant abandoned
the incentive plan when it found that employees were bring
insects from home, putting them into the vegetables, and then
removing them to get their bonuses.
 A software developer installed an incentive plan to reward
programmers for finding and removing software bugs. Initially,
the plan was successful. Soon, the company found that
employees were creating the bugs the incentive plan was paying
them to remove.
1.
2.
Is such employee behavior ethical or unethical? Why?
Would you punish the employees who engaged in those
acts, the managers who devised the incentive systems, or
both? Why?
© 2001 by Prentice Hall and Anne Tsui 2002
11-15
Meeting the Challenges of Pay for
Performance Systems
 Link Pay and Performance Appropriately

There are few cases in which managers can justify
paying workers according to a preestablished formula or
measure.
 Use Pay for Performance as Part of a Broader
HRM System

Pay-for-performance programs are not likely to achieve
the desired results unless they are accompanied by
complementary HRM programs
 Build Employee Trust

Even the best conceived pay-for-performance program
can fail if managers have a poor history of labor
relations or if the organization has a cutthroat culture
© 2001 by Prentice Hall and Anne Tsui 2002
11-16
Meeting the Challenges of Pay for
Performance Systems (cont.)
 Promote the Belief that Performance Makes a Difference

Unless an organization creates an atmosphere in which
performance makes a difference, it may end up with a lowachievement organizational culture
 Use Multiple Layers of Rewards

Because all pay-for-performance systems have positive and
negative features, providing different types of pay incentives
for different work situations is likely to produce better results
than relying on a single type of pay incentive
 Increase Employee Involvement

When employees do not view a compensation program as
legitimate, they will usually do whatever they can to subvert
the system
 Use Motivation and Nonfinancial Incentives

Some people are more interested in the nonfinancial aspects
of their work
© 2001 by Prentice Hall and Anne Tsui 2002
11-17
The Potential Importance of NonCash Incentives






Interesting and challenging work
Supportive supervisor and coworkers
Respect and recognition
Promotion and transfer opportunities
Training and learning opportunities
Doing something meaningful
© 2001 by Prentice Hall and Anne Tsui 2002
11-18