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9

Part

Employee Contributions: Determining


Individual Pay

III

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STRATEGIC
POLICIES
ALIGNMENT

COMPETITIVENESS

CONTRIBUTORS

STRATEGIC
OBJECTIVES

TECHNIQUES

Work
Descriptions
Analysis

Market
Surveys
Definitions

Seniority
Based

Evaluation/
Certification

Policy
Lines

Performance
Based

INTERNAL
STRUCTURE

PAY
STRUCTURE

Merit
Guidelines

INCENTIVE
PROGRAMS

EFFICIENCY
Performance
Quality
Customers

Stockholders
Costs
FAIRNESS

ADMINISTRATION

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Planning Budgeting Communication EVALUATION

COMPLIANCE

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Employee performance depends on


three general factors:
Employee performance = f (S,K,M)
where:
S = Skill and ability to perform task
K = Knowledge of facts, rules,
principles, and procedures
M = Motivation to perform

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What Behaviors Do Employers


Care About?
How

do we get good employment prospects to


join our company?
How do we retain these good employees once
they join?
How do we get employees to develop skills for
current and future jobs?
How do we get employees to perform well on
their current job?
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2002 by The McGraw-Hill Companies, Inc. All

What Motivates Employees?


In the simplest sense, motivation involves three
elements:
1. what is important to a person, and
2. offering it in exchange for something
3. desired behavior

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What Motivation Theories Say


Content

Theories (what is important to a person)

Maslows Need

Hierarchy
Herzbergs 2-Factor Theory
Process

Theories (the nature of the exchange)

Expectancy

Theory
Equity Theory
Agency Theory
Reinforcement Theories

(desired behavior)

Goal

Setting
Reinforcement
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Components of a Total Reward System


1. Compensation
2.. Benefits

Wages, Commissions and Bonuses


Vacations, Health Insurance

3. Social Interaction
4. Security

Friendly Workplace
Stable, Consistent Position and Rewards

5. Status / Recognition

Respect, Prominence Due to Work

6. Work Variety

Opportunity to Experience Different Things

7. Workload

Right Amount of Work (not too much, not too little)

8. Work Importance

Is Work Valued by Society

9. Authority / Control / Autonomy Ability to Influence Others; Control Own Destiny


10. Advancement
11. Feedback

Chance to Get Ahead


Receive Information Helping to Improve Performance

12. Work Conditions


13. Development Opportunity
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Hazard Free
Training to Learn New Knowledge / Skills / Abilities
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Across the Board


Base Pay

Cost of Living
Increase

Merit Pay

Lump Sum
Bonus

Individual
Incentive

` Gain Sharing
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Wage
Components

Profit Sharing

Success
Sharing Plans

Risk
Sharing Plans

2002 by The McGraw-Hill Companies, Inc. All

Performance Depends on the


Employees Perception of: (1 of 2)
The

probability the performance will meet or


exceed managers objective.

The

probability that if the objective is met, the


manager/organization will give extrinsic rewards.

The

probability the extrinsic rewards will satisfy


some needs.

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2002 by The McGraw-Hill Companies, Inc. All

9-

Performance Depends on the


Employees Perception of: (2 of 2)
The

probability that doing the task will provide


intrinsic rewards.

The

probability the intrinsic rewards will satisfy


needs.

How

much satisfaction of these needs is


important or valued.

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2002 by The McGraw-Hill Companies, Inc. All

9-

Designing A Pay-For-Performance Plan


Efficiency
Strategy
Structure
Standards
Objectives
Measures
Eligibility
Funding

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Equity

or Fairness

Distributive

justice
Procedural justice
Compliance
Comply

with existing

laws
Enhance and
maintain firms
reputation

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9-

Summary
Employee

performance depends upon some blend of


skill, knowledge, and motivation.
Absent any of these three ingredients, performance is
likely to be sub-optimal.
Rewards must:
Help organizations attract and retain employees
Make high performance an attractive option for
employees
Encourage employees to build new skills and
gradually foster commitment to the organization
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2002 by The McGraw-Hill Companies, Inc. All

9-

Review Questions
Do you think incentive pay will motivate faster
performance? Is this desirable?
2. Should rewards focus mostly on money, or
should employers work hard to incorporate the
other 12 rewards discussed in this chapter?
3. If you wanted workers to perceive their
compensation package as secure, what
components would you include and which
would you avoid?
1.

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2002 by The McGraw-Hill Companies, Inc. All

9-

Review Questions (continued)


4.

How does procedural justice differ from


distributive justice?
a.

b.

Defend the position that supervisors have


considerable control over procedural justice in their
departments, but little control over distributive
justice.
How might you use the principles of procedural
justice to avoid having an employee quit because
she believes her boss gave her an unfair evaluation?

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2002 by The McGraw-Hill Companies, Inc. All

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