Discuss the advantages of employee stock ownership plans for employers and employees.?
Your response must be at least 200 words in length.
Compare and contrast incentive plans that would be appropriately offered to engineers versus their managers.?
Your response must be at least 200 words in length.
Pg. 368 – 373
Discuss the increasing popularity of family-friendly benefits and flexible benefits. Provided examples of both types of programs.?
Your response must be at least 200 words in length.
Pg. 414 – 420
Discuss the essential issues for initiating a successful EAP program. Express your opinion whether organizations should offer EAPs? Support your response.?
Your response must be at least 200 words in length.
In any case,?incentive?pay?tying workers? pay to their performance?is widely popular.6The problem is that linking pay to performance is easier said than done. One plan, at Levi Strauss, is widely assumed to have been the last nail in the coffin of Levi?s U.S.-based production. As logical as it seems to link pay to performance, about 83% of companies with such programs say their programs are at best somewhat successful. One study found that just 28% of the 2,600 U.S. workers it surveyed said their companies??incentive plans?motivated them. ?Employees don?t see a strong connection between pay and performance, and their performance is not particularly influenced by the company?s?incentive?plan,? said one expert.7?Equally problematical is the fact that some incentives incentivize the wrong behavior.8?Thus, incentivizing ?number of cars sold? in a dealership might produce high performance (in numbers of cars sold) but a low per-car profit.
There are other reasons for?incentive plans? often-dismal results. For example, many employers ignore the fact that incentives that may motivate some people won?t motivate others.9?Compensation experts therefore argue that managers should understand the motivational bases of?incentive plans.10?We?ll review some motivation background next, and then go on to explain various?incentive plans.
Motivation and Incentives
Several motivation theories have particular relevance to designing?incentive plans.
Motivators and Frederick Herzberg
Frederick Herzberg said the best way to motivate someone is to organize the job so that doing it provides the challenge and recognition we all need to help satisfy ?higher-level? needs for things like accomplishment and recognition. These needs are relatively insatiable, says Herzberg, so challenging work provides a sort of built-in motivation generator. Doing things to satisfy a worker?s ?lower level? needs for things like better pay and working conditions just keeps the person from becoming dissatisfied.
Herzberg says the factors (?hygienes?) that satisfy lower-level needs are different from those (?motivators?) that satisfy or partially satisfy higher-level needs. If?hygiene?factors (factors outside the job itself, such as working conditions, salary, and?incentive?pay) are inadequate, employees become dissatisfied. However, adding more of these hygienes (like incentives) to the job (supplying what Herzberg calls ?extrinsic motivation?) is an inferior way to try to motivate?someone, because lower-level needs are quickly satisfied. Inevitably the person says, in effect, ?I want another raise.?
Instead of relying on hygienes, says Herzberg, managers interested in creating a self-motivated workforce should emphasize ?job content? or?motivator?factors. Managers do this by enriching workers? jobs so that the jobs are more challenging, and by providing feedback and recognition??they make doing the job intrinsically motivating, in other words. In organizational psychology,?intrinsic motivation?is motivation that derives from the pleasure someone gets from doing the job or task. It comes from ?within? the person, rather than from externally, such as a financial?incentive?plan. Intrinsic motivation means that just doing the task provides the motivation. Herzberg makes the point that relying exclusively on financial incentives is risky. The employer should also provide the recognition and challenging work that most people desire.
Motivation that derives from the pleasure someone gets from doing the job or task.
Demotivators and Edward Deci
Psychologist Edward Deci?s work highlights another potential downside to relying too heavily on extrinsic rewards: They may backfire. Deci found that extrinsic rewards could at times actually detract from the person?s intrinsic motivation.11?The point may be stated thusly: Be cautious in devising?incentive?pay for highly motivated employees, lest you inadvertently demean and detract from the desire they have to do the job out of a sense of responsibility.
Expectancy Theory and Victor Vroom
In general, people won?t pursue rewards they find unattractive, or where the odds of success are very low. Psychologist Victor Vroom?s expectancy motivation theory echoes these commonsense observations. He says a person?s motivation to exert some level of effort depends on three things: the person?s?expectancy?(in terms of probability) that his or her effort will lead to performance;12?instrumentality?, or the perceived connection (if any) between successful performance and actually obtaining the rewards; and?valence?, which represents the perceived value the person attaches to the reward.13?In Vroom?s theory:
A person?s expectation that his or her effort will lead to performance.
The perceived relationship between successful performance and obtaining the reward.
The perceived value a person attaches to the reward.
Motivation = (E ? I ? V),
where E represents expectancy, I instrumentality, and V valence. If E or I or V is zero or inconsequential, there will be no motivation.
Vroom?s theory has three implications for how managers design?incentive plans.
First, if employees don?t?expect?that effort will produce performance, no motivation will occur. So, managers must ensure that their employees have the skills to do the job, and believe they can do the job. Thus training, job descriptions, and confidence building and support are important in using incentives.
Second, Vroom?s theory suggests that employees must see the?instrumentality?of their efforts?they must believe that successful performance will in fact lead to getting the reward. Managers can accomplish this, for instance, by creating easy to understand?incentive plans.
Third, the reward itself must be of?value?to the employee. Ideally, the manager should take into account individual employee preferences.
Behavior Modification/Reinforcement and B. F. Skinner
Using incentives also assumes the manager understands how consequences affect behavior.14?Psychologist B.?F. Skinner?s findings are useful here. Managers apply Skinner?s principles by using?behavior modification.?Behavior modification?means changing behavior through rewards or punishments that are contingent on performance. For managers, behavior modification boils down to two main principles. First, that behavior that appears to lead to a positive consequence (reward) tends to be repeated, whereas behavior that appears to lead to a negative consequence (punishment) tends not to be repeated; and second, that managers can therefore get someone to change his or her behavior by providing the properly scheduled rewards (or punishment).
Using contingent rewards or punishment to change behavior.
To arrange our discussion, we will organize the following sections around individual employee?incentive?and recognition programs, sales compensation programs, management and executive?incentive?compensation programs, and team and organization-wide?incentive?programs. First, however, see the Know Your Employment Law feature to see how legal issues affect?incentive?plan design.
KNOW YOUR EMPLOYMENT LAW?Employee Incentives and the Law
Various laws affect?incentive?pay. Under the Fair Labor Standards Act, if the?incentive?the worker receives is in the form of a prize or cash award, the employer generally must?include the value of that award?when calculating the worker?s overtime pay for that pay period.15?So, unless you structure the?incentive?bonuses properly, the bonus itself becomes part of the week?s wages. For example, suppose someone who earns $10 per hour for a 40-hour week also earns, in one week, performance?incentive?pay (a performance bonus) of $80 for the week, or $480 total pay for the week. Further, assume she?also?works 2 hours overtime that week. The overtime rate for each of the 2 hours she works overtime is not simply 1.5 times her regular $10 per hour pay. Instead it is 1.5 times $12 per hour. Why? Because with her performance bonus she earned $480 for the 40 hour week, and $480 divided by 40 hours is $12 per hour. Therefore she actually earned in total that week $480 plus the overtime pay of $12 per hour for the two extra hours, or $480 + $24 = $504 total for the week.
Certain bonuses are excludable from overtime pay calculations. For example, Christmas and gift bonuses that are not based on hours worked, or are so substantial that employees don?t consider them a part of their wages, do not have to be included in overtime pay calculations. Similarly, purely discretionary bonuses in which the employer retains discretion over how much if anything to pay are excludable.
However other types of?incentive?pay?must?be included. Under the Fair Labor Standards Act (FLSA), bonuses to include in overtime pay computations include those promised to newly hired employees; those provided for in union contracts or other agreements; and those announced to induce employees to work more productively or efficiently or to induce them to remain with the company. Such bonuses would include many of those we turn to next, such as individual and group production bonuses.
2 Discuss the main incentives for individual employees.
Individual Employee?Incentive?and Recognition Programs
Several?incentive plans?are particularly suited for use with individual employees.
Piecework?is the oldest?incentive?plan and still the most commonly used. Earnings are tied directly to what the worker produces; the person is paid a piece rate for each unit he or she produces. Thus, if Tom Smith gets $0.40 apiece for stamping out doorjambs, then he would get, say, $80 for stamping out 200.
A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day.
Developing a workable piece rate plan requires both job evaluation and (strictly speaking) industrial engineering. Job evaluation enables you to assign an hourly wage rate to the job in question. But the crucial issue in piece rate planning is the production standard, and this standard is often developed by industrial engineers. The engineers state production standards in terms of a standard number of minutes per unit or a standard number of units per hour. In Tom Smith?s case, the job evaluation indicated that his doorjamb stamping job was worth $8.00 an hour. The industrial engineer determined that 20 jambs per hour was the standard production rate. Therefore, the engineered piece rate (for each doorjamb) was $8.00 divided by 20, which equals $0.40 per doorjamb.
With a?straight piecework?plan, Tom Smith would be paid based on the number of door jambs he produced; there would be no guaranteed minimum wage. However, today most employers must guarantee their workers a minimum wage. With a guaranteed piecework plan, Tom Smith would be paid $7.25 per hour (the minimum wage) whether or not he stamped out 18 door jambs per hour (at $0.40 each). But he would also get $0.40 for each unit over 18.
An?incentive?plan in which a person is paid a sum for each item he or she makes or sells, with a strict proportionality between results and rewards.
Piecework generally implies straight piecework, a strict proportionality between results and rewards regardless of the level of output. Thus, in Smith?s case, he continues to get $0.40 apiece for stamping out door jambs, even if he stamps out more than planned, say, 500 per day. However, certain types of piecework?plans?call for a sharing of productivity gains between worker and employer. Typically, the worker here receives reduced credit for all production above standard?perhaps $0.35 per piece over 400 units per day, for instance.16?Conversely, some such?plans?boost the employee?s share once a threshold is met?such as paying Tom $0.45 each once he reached 400 units per day.
standard hour plan
A plan by which a worker is paid a basic hourly rate but is paid an extra percentage of his or her rate for production exceeding the standard per hour or per day. Similar to piecework payment but based on a percent premium.
The?standard hour plan?is like the piecework plan, with one difference. Instead of getting a rate per piece, the worker gets a pay premium equal to the percent by which his or her?performance exceeds the standard. So if Tom?s standard is 160 door jambs per day ($64 per day), and he brings in 200 jambs, he?d get an extra 25% (40/160), or $80. Using this approach may reduce workers? tendency to link their production standard (18 jambs per hour) to pay. This makes it easier to change the standard.
Advantages and Disadvantages
Piecework?incentive plans?have several advantages. They are simple to calculate and easily understood by employees. Piecework?plans?appear equitable in principle, and their?incentive?value can be powerful since they tie pay directly to performance.
Piecework also has disadvantages. The main one is its unsavory reputation, based on some employers? habit of arbitrarily raising production standards whenever they found their workers earning ?excessive? wages. A more subtle disadvantage is that since piece rates are quoted on a per piece basis, in worker?s minds the production standard (in pieces per hour) become tied inseparably to the amount of money earned.
Piecework systems thus risk engendering rigidity. When the employer tries to revise production standards, resistance ensues.17?Employees become preoccupied with producing the number of units needed. They can become less focused on quality and may resist switching jobs (since doing so could reduce productivity). Attempts to introduce innovative processes may more likely fail, insofar as they require adjusting engineered standards. Equipment maintenance tends to decline as employees focus on maximizing machine input.18
For such reasons, more employers are moving to other?plans, such as those on the following pages.19
Merit Pay as an?Incentive
Merit pay or a merit raise?is a salary increase the firm awards to an individual employee based on individual performance. It is different from a bonus in that it usually becomes part of the employee?s base salary, whereas bonuses are generally one-time payments. Although the term?merit pay?can apply to the?incentive?raises given to any employee, the term is more often used for professional, office, and clerical employees.
merit pay (merit raise)
Any salary increase awarded to an employee based on his or her individual performance.
?Merit pay is the subject of much debate. Advocates argue that awarding pay raises across the board (without regard to individual merit) may detract from performance by showing employees they?ll be rewarded regardless of how they perform.
Detractors present good reasons why merit pay can backfire. Most notably, since many appraisals are unfair, so too are the merit decisions you base them on.20
The evidence, while mixed, tends to support using merit pay. One study focused on 218 workers in a nuclear waste facility. The researchers found a ?very modest relationship between merit pay increase and performance rating.?21?Research into tying merit pay increases to teachers? or faculty members? research and/or teaching performance suggest that merit pay is more clearly linked with research productivity than with teaching effectiveness.22
When they?re not working, the solution is not to throw out merit raises, but to improve them. This starts with establishing effective appraisal procedures and ensuring that managers do in fact tie merit pay awards to performance.
Merit plan effectiveness also depends on differentiating among employees. In one survey, the highest-paid office clerical employees got short-term?incentive?payouts of about 13%, the lowest rated got 3%, and mid-rated employees got 8%.23
Employers are experimenting with using crowdsourcing for awarding bonuses. For example, one small San Francisco-based company asked each employee to distribute 1,200 stock options among coworkers however they chose.24?Allowing everyone to ?vote? on each other?s performance can help identify employees who are helpful team contributors but might otherwise slip under management?s radar.
HR in Practice at the Hotel Paris
Based on their analysis, Lisa Cruz and the CFO concluded that by any measure, their company?s?incentive?plan was inadequate. The percentage of the workforce whose merit increase is tied to performance is effectively zero, because managers awarded merit pay across the board. To see how they handled this, see the case on page?391?.
Merit Pay Options
Two adaptations of merit pay?plans?are popular. One awards merit raises in a lump sum once a year and does?not?make the raise part of the employee?s salary (making them, in effect, short-term bonuses for lower-level workers). Traditional merit increases are cumulative,?but these?lump-sum merit raises?are not. This produces two potential benefits. First, the merit raise is not baked into the employee?s salary, so you need not pay it year after year. Lump-sum merit increases can also be more dramatic motivators than a traditional merit raise. For example, a 5% lump-sum merit payment to a $30,000 employee is $1,500 cash, as opposed to a weekly merit payout of $29 for 52 weeks.
The other adaptation ties merit awards to both individual and organizational performance.?Table?12-1?presents an example. In this example, you might measure the company?s performance by, say, profits. Here, company performance and the employee?s performance (using his or her performance appraisal) receive equal weight in computing the merit pay. In?Table?12-1?an outstanding performer would receive 70% of his or her maximum lump-sum award even when the organization?s performance was marginal. However, employees with marginal or unacceptable performance would get no lump-sum awards even when the firm?s performance was outstanding. The bonus plan at Discovery Communications is an example. Executive assistants can receive bonuses of up to a maximum of 10% of their salaries. The boss?s evaluation of the assistant?s individual performance accounts for 80% of the potential bonus; 10% is based on how the division does, and 10% on how the company does.25
TABLE?12-1?Merit Award Determination Matrix (an Example)
The Employee?s Performance Rating (Weight = 0.50) The Company?s Performance (Weight = 0.50)
Outstanding Excellent Good Marginal Unacceptable
Outstanding 1.00 0.90 0.80 0.70 0.00
Excellent 0.90 0.80 0.70 0.60 0.00
Good 0.80 0.70 0.60 0.50 0.00
Marginal ? ? ? ? ?
Unacceptable ? ? ? ? ?
Note:?To determine the dollar value of each employee?s award: (1) multiply the employee?s annual, straight-time wage or salary as of June 30 times his or her maximum?incentive?award (as determined by management or the board?such as, ?10% of each employee?s pay?) and (2) multiply the resultant product by the appropriate percentage figure from this table. For example, if an employee had an annual salary of $40,000 on June 30 and a maximum?incentive?award of 7% and if her performance and the organization?s performance were both ?excellent,? the employee?s award would be $2,240: ($40,000 ? 0.07 ? 0.80 = $2,240).
We saw in?Chapter?10?that women typically earn only about 85% as much as men. It turns out that in some cases, women may also not have access to the same bonus?plansas men do.26?In the English town of Sheffield, for instance, town employees such as gardeners and street cleaners, mostly male, were eligible to receive ?productivity improvement? bonuses, which raised their pay by up to 38%. Care workers, primarily female, could not participate in the bonus plan, and thus earned much less than the men did. Successful employers know that ?diversity counts,? and that in designing all their total pay components, it?s important to consider the plan?s affect on female employees.
Incentives for Professional Employees
Professional employees are those whose work involves the application of learned knowledge to the solution of the employer?s problems, such as lawyers and engineers.
Making?incentive?pay decisions for professional employees is challenging. For one thing, firms usually pay professionals well anyway. For another, they?re already driven by the desire to produce high-caliber work.
However, it is unrealistic to assume that people like Google engineers work only for professional gratification. Few firms, therefore, work harder to maintain competitive incentives for professionals. For example, Google reportedly pays higher incentives to engineers working on important projects. Those who choose the intrinsic motivation of working on more theoretical long-term projects are rewarded if their research pays off.27As at most Silicon Valley firms,?Google?s professionals also bask in the light of potentially millionaire-making stock option grants.
Dual-career ladders?are another way to manage professionals? pay. At many employers, a bigger salary and bonus requires rerouting from, say, engineering into management. However, not all professionals want management. Therefore, many employers institute dual-career ladders, such as one for managers and another for engineers. The latter offer professionals the prospect of using advanced technical skills and earning higher pay without switching to management.28