Pay for performance Essay

Motivation, Performance, and PaybonussFinancial rewards paid to workers whose employment exceeds a predetermined standard. soulfulness DifferencesLaw of individual differencesThe fact that peck differ in psycheality, abilities, values, and needs. Different people react to different inducements in different centerings. Managers should be aw be of employee needs and fine-tune the incentives offered to knock againsts their needs. Money is not the only motivator.Employee Preferences for Non exchange IncentivesNeeds and MotivationAbraham Maslows Hierarchy of Needs five whatever increasingly higher-level needsphysiological (food, water, sex)security (a safe environment)social (relationships with others) self-assertion (a sense of personal worth)self-actualization (becoming the desired self)Lower level needs must(prenominal) be satisfied before higher level needs cease be addressed or become of interest to the individual.Herzbergs hygieneMotivator theoryHygienes (extrinsic job fa ctors)Inadequate working conditions, salary, and incentive be merchantman causedissatisfaction and prevent satisfaction. Motivators (intrinsic job factors)Job enrichment (challenging job, feedback and comprehension) addresses higher-level (achievement, self-actualization) needs. The best way to motivate someone is to organize the job so that doing it helps satisfy the persons higher-level needs.Edward DeciIntrinsically motivated behaviors be motivated by the underlying need for competence and self-determination. Offering an extrinsic reward for an intrinsically-motivated act can conflict with the acting individuals internal sense of responsibility. both(prenominal) behaviors are best motivated by job challenge and recognition, others by financial rewards.Instrumentality and RewardsVrooms Expectancy TheoryA persons motivation to exert some level of sudor is a function of three things Expectancy that effort will premise to effect.Have to have the skills to do the jobInstrumen tality the connection mingled with performance and the appropriate reward. Goal must be attainablevalency the value the person places on the reward.Motivation = E x I x VIf any factor (E, I, or V) is zero, then there is no motivation to work toward the reward. Employee confidence building and training, accurate appraisals, and noesis of workers desired rewards can increase employee motivation.Types of Incentive PlansPay-for-performance plansVariable accept (organisational emphasis)A team or group incentive plan that ties contain to some mea current of the sozzleds overall profitability. Variable pay (individual focus) either plan that ties pay to individual productivity or profitability, unremarkablyas one-time lump payments.Pay-for-performance plansIndividual incentive/recognition programsSales recompense programs team up/group-based multivariate pay programsOrganizationwide incentive programsExecutive incentive compensation programsIndividual Incentive PlansPiecework Plan sThe worker is paid a sum (called a get together rate) for each unit he or she produces. Straight piecework A inflexible sum is paid for each unit the worker produces under an realized piece rate standard. An incentive may be paid for especial(a) the piece rate standard. Standard hour plan The worker gets a premium equal to the percent by which his or her work performance exceeds the established standard.Pro and cons of pieceworkEasily understandable, equitable, and powerful incentives.Employee resistance to changes in standards or work processes affecting output signal Quality problems caused by an overriding output focus.Employee dissatisfaction when incentives either cannot be earned due to external factors or are withdrawn due to a lack of need for output chastity payA permanent cumulative salary increase the degenerate awards to an individual employee based on his or her individual performance. Merit pay options yearbook lump-sum chastity raises that do not do the raise go against of an employees base salary. Merit awards tied to both individual and organizational performance.Incentives for professional employeesProfessional employees are those whose work involves the application oflearned intimacy to the solution of the employers problems. Lawyers, doctors, economists, and engineers.Decisions can be challengingThese individuals are already well paid and are driven to succeed Possible incentivesBonuses, livestock options and grants, profit sharingBetter vacations, more flexible work hoursbetter pension plansEquipment for home officesRecognition-based awardsRecognition has a positive impact on performance, either alone or in conjunction with financial rewards. feature financial rewards with nonfinancial ones produced performance improvement in service firms most twice the effect of using each reward alone. Day-to-day recognition from supervisors, peers, and team members is important.Online award programsPrograms offered by online incentives fir ms that improve and expedite the awards process. Broader range of awards more(prenominal) immediate rewardsInformation technology and incentivesEnterprise incentive management (EIM) parcel that automates the planning, calculation, modeling and management of incentive compensation plans, enabling companies to align their employees with corporeal strategy and goals.Incentives for SalespeopleSalary planStraight salariesBest for prospecting (finding new clients), placard servicing, training customers salesforce, or participating in content and local trade shows. Commission planPay is only a percentage of salesSpecialized Combination PlansCommission-plus-drawing-account planCommissions are paid but a draw on future earnings helps the sales representative to get through low sales periods. Commission-plus-bonus planPay is more often than not based on commissions.Small bonuses are paid for directed activities exchangeable selling slow-moving items.Organizationwide Variable Pay PlansPr ofit-sharing plansCash plansEmployees receive cash shares of the firms profits at regular intervals. The Lincoln incentive systemProfits are distributed to employees based on their individual merit rating. Deferred profit-sharing plansA predetermined portion of partnership profits is placed in each employees account under a confidenceees supervision.Organizationwide Variable Pay Plans (contd)Employee stock ownership plan (ESOP)A alliance annually contributes its own stockor cash (with a delimitate of 15%) to be used to purchase the stockto a trust established for the employees. The trust holds the stock in individual employee accounts and distributes it to employees upon separation from the firm if the employee has worked long enough to earn ownership of the stock. Advantages of ESOPsEmployeesESOPs help employees develop a sense of ownership in and commitment to the firm, and help to build teamwork. No taxes on ESOPs are due until employees receive a distribution from the trust, usually at retirement when their tax rate is lower.At-Risk Variable Pay PlansAt-risk variable pay plans that put some portion of the employees weekly pay at risk. If employees meet or exceed their goals, they earn incentives. If they fail to meet their goals, they forgo some of the pay they would normally have earned.Short-Term Incentives for Managers And ExecutivesAnnual bonusPlans that are designed to motivate short-term performance of managers and are tied to company profitability. Eligibility basis job level, base salary, and impact on profitability Fund size basis nondeductible formula (net income) or deductible formula (profitability) Individual awards personal performance/contribution long-run Incentives for Managers And ExecutivesStock optionThe right to purchase a specific phone number of shares of company stock at a specific price during a specific period of time.Other Executive IncentivesGolden handshakePayments companies make to departing executives in connection with a change in ownership or control of a company. Guaranteed loans to directorsLoans provided to buy company stock.A highly idle and now frowned upon practice.Creating an Executive Compensation PlanDefine the strategic condition for the executive compensation program. Shape each component of the package to focus the manager on achieve the firms strategic goals. pee-pee a stock option plan to meet the needs of theexecutives and the company and its strategy. Check the executive compensation plan for compliance with all healthy and regulatory requirements and for tax effectiveness. Install a process for reviewing and evaluating the executive compensation plan whenever a major business change occurs.Why Incentive Plans FailYou get what you pay for.Pay is not a motivator.Rewards fracture relationships.Rewards undermine intrinsic motivation.Implementing Effective Incentive PlansAsk Is effort clearly instrumental in obtaining the reward? Link the incentive with your strategy.Make sure effort and rewards are directly related.Make the plan easy for employees to understand. particularise effective standards.View the standard as a contract with your employees. get under ones skin employees support for the plan.Use good measurement systems.Emphasize long-term as well as short-term success.