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LEARNING

OBJECTIVES1Explain

what

productivity

improvement

programsare

and

how

they

contribute

to

competitiveadvantage.Define

the

standards

for

effective

productivityprograms

developed

within

the

frameworkofexpectancy

theory.Understand

the

rationale

behind

pay-for-performance

programs.Describe

the

different

types

of

pay-for-performance

programs.Opening

Case:

Gaining

CompetitiveAdvantage

at

Lincoln

Electric2Problem:

Figuring

out

how

to

motivateemployeesSolution:

Implementing

an

employee

incentivesystemPaying

by

the

pieceProviding

year-end

bonusesProviding

stock

optionsHow

it

enhanced

competitive

advantageLow

turnover

rateProductivity

rate

two

to

three

times

greater

than

any

ofits

competitorsMaintained

a

stable

price

structure

despitehighsalaries2.

Linking

Productivity

ImprovementPrograms

to

Competitive

Advantage3Productivity

improvement

programs

havevarious

way

but

share

the

common

goal

oftryingto

improve

productivity

by

increasing

employeemotivation.Extrinsic

rewardsRewards

given

to

employees

by

someone

else

(e.g.,

theemployer)Examples—pay

raises

and

bonusesIntrinsic

rewardsRewards

that

come

from

withinExamples—a

good

feelingone

gets

fromsuccessfullycompleting

an

assignment(1)

Improving

worker

productivity4Productivity

improvement

programs

motivateemployees

to

engage

in

appropriate

jobbehaviors

to

improve

quantity,

quality,

andefficiency.Successful

Productivity

improvement

programsare

able

to

establish

a

clear

connection

betweenemployee

efforts

and

valued

rewards.Make

employees

believe

that

they

cangainvalued

rewards

by

workinghard.Expectancy

theory5States

that

workers

make

consciousdecisions

about

how

hard

they

are

goingto

work

to

achieve

organizational

goals.Employees

will

be

highly

motivatedwhenthey

perceive:

Their

efforts

will

lead

to

successful

jobperformance.

Their

successful

job

performance

will

lead

tooutcomes

or

rewards

theyvalue.(2)

Enhancing

recruitment

efforts

andretention

ratesmost

people

do

prefer

to

work

in

settingsthat

allow

them

to

earn

rewards

from

theirwork.usually

attract

more

and

better

jobapplicantsproduce

higher

retention

rates.62.

HRM

Issues

and

Practices2.1

Pay-for-performance

programsProductivity

improvement

programsthat

link

financial

rewards

to

successfuljob

performanceProvide

extrinsic

rewards7(1)

Rationale8Linking

rewards

directly

to

performanceisintuitively

appealing,

because

most

Americansbelieve

that:Employees

should

be

rewarded

for

goodperformance.Exceptional

performers

should

earn

greater

rewardsAccording

to

expectancy

theory,

workers

havelittle

incentive

for

performing

well

if

their

effortsare

unrewarded.On

the

other

hand,

when

pay

is

linked

to

performance,overall

performance

should

improve.If

the

overall

job

performance

improvementyields

financial

returns

that

exceed

the

cost

ofthe

rewards,

a

company’s

competitiveadvantagewill

improve.(2)

Potential

problems9May

create

legalproblemsWhen

administered

unfairly,

a

pay-for-performance

system

could

violate

Title

VIIofthe

Civil

RightsAct.They

also

fail

if

they

violate

the

standardsfor

effectivepay-for-performanceprograms.(3)

standards

for

effective

pay-for-performance

programsEffort-performancelinksPerformance-reward

linksValue

of

rewardTimeliness

of

rewardsPerformance-organizationalmissionlinksCost

efficiency10(4)

Merit

payplans11A

pay-for-performance

program

thatgrants

employees

annual

pay

raisesbased

on

their

levels

of

job

performance.Job

performance

is

usually

measured

onan

appraisal

instrument

completed

by

thesupervisor.The

size

of

the

pay

raise

is

directlylinkedto

performance

and

is

specified

inadvance

in

a

merit

payguidechart.An

example

of

a

merit

pay

planPerformance

Rating Merit

Increase

(PercentofSalary)1258–10%45–7%32–4%2Noincrease1NoincreaseMerit

payplans:strengths

and

weaknesses13strengthsEstablish

effort-performancelinkEstablishperformance-reward

linkwhenpublicizedweaknessesPerformance

appraisal

system

mayimpede

the

effort-performance

linkSometimes

fail

to

establish

a

clearperformance-reward

linkFail

when

employees

do

not

value

therewardsPerformance-reward

link

is

hindered

whensupervisors

fail

to

distinguish

betweenemployeesTime

lag

between

behavior

and

rewardNot

very

cost-effectiveCan

hinder

productivity

if

wrong

behaviorsare

rewardedRecommendationsfor

starting

a

merit

pay

plan14ThinkbigMake

pay

increases

publicDon’t

deliver

rewards

as

a

salary

increase;

usebonusesDeliver

rewards

as

soon

aspossibleMake

sure

individual

performance

can

bemeasured

accuratelyGet

employee’s

input

in

developing

the

system(5)Piece

rate

plans15Pay-for-performance

programs

that

basean

individual’s

wages

on

the

numberof“pieces”

or

product

units

he

or

sheproduces.Used

mainly

in

production

settings

Jobs

are

simple

and

highly

structured

Achievement

of

performance

goals

is

withinemployee

controlPiece

rate

plans:strengths

and

weaknesses16StrengthsCost

efficientEmployees

know

what

todo

to

earnrewardPerformance

standardsare

objective

and

cannotbe

influenced

bysupervisorsRewards

are

tied

directlyto

performance—higheroutputs

result

in

higherpay.WeaknessesPressure

placed

onemployees

to

produceemployees

feeluncomfortable.May

havenegativeside

effects

for

theorganization.Especiallyperformance-organizational

missionlink.(6) Gainsharing

plans17Pay-for-performance

plans

that

offer

employeesa

cash

award

for

meeting

or

exceeding

team-based

goals.Most

gainsharing

plans

feature

the

following:Organization

has

productivity

goals

that

can

be

achievedthrough

effective

teamwork.Employees

receive

cash

bonuses

if

those

goals

are

met.Productivity

is

measured

by

an

explicit

formula

with

objectivemeasures.Employees

are

encouraged

to

submit

suggestions

for

cuttingproduction

costs

or

increasing

productivity.The

Scanlon

plan18Aims

to

cut

production

costs,

relative

to

outputCalculate

the

ratio

of

production

cost/sales

valueof

production

that

would

be

expected

in

a

typicalyearDecide

how

production

costs

are

to

be

cutFormal

suggestion

systems

elicit

employee

opinionsAllocates

bonuses

in

the

following

manner:75

percent

is

paid

out25

percent

is

held

in

reserve

for

lean

periods

in

which

thereare

nobonusesOf

the

money

paid

out,

25%

goes

to

the

company;

75%

isdistributed

among

employees.Gainsharing

plans:strengths

and

weaknesses19StrengthsEffort-performanceandperformance-reward

linksare

strong.Link

performance

with

theorganization’s

mission.Promote

teamwork.Cost-effective.WeaknessesEmployees

may

perceiverewards

as

beingunfairlydistributed.Employee

suggestions

forimproving

efficiency

maydwindle

over

timeMay

suffer

ifpayoutformulas

are

inflexibleRecommendations20Gainsharing

programs

are

most

likely

to

succeedunder

the

following

conditions:Company

culture

must

be

one

of

respect,cooperation,

and

open

communication.Management

must

demonstrate

its

willingnessto:Listen

to

and

support

employee

suggestionsGo

out

and

talk

with

employeesCommunicate

honestly

with

employeesThe

plan

must

be

designed

so

that

the

payout

isdependent

on

factors

the

employee

can

control.Meet

regularly

with

employees

to

shareinformation

and

ideas

and

gather

suggestions.Profit-sharing

plans21Similar

to

gainsharing

in

the

sensethatthey

reward

group,

rather

than

individual,performance.The

payout

is

based

on

profits

ratherthangains.A

portion

of

the

company’s

profits

arecontributed

to

individual

employeeaccounts.Three

types

ofprofit-sharingplans:22Deferred

plans:

An

individual’s

profit-sharingearnings

are

distributed

at

retirement.Distribution

plans:

The

company

fullydistributes

each

period’s

earnings

as

soonasthe

profit-sharingpool

iscalculated.Combination

plans:

Employees

receive

aportion

of

each

period’s

earnings

immediately;the

remainder

awaits

future

distribution.Profit-sharing

plans:strengths

and

weaknesses23StrengthsImprovesproductivity

bymaking

employees’interests

compatiblewith

employers’goalsEmployees

may

gaina

greater

sense

ofownership.WeaknessesOnly

marginallyaddress

effort-performance-rewards

linksNot

alwayscostefficientRewards

arenottimely3.

The

Manager’sGuide243.1

Productivity

Improvement

Programsand

the

Manager’s

JobEmployeemotivationStrengthen

the

effort–performance

linkStrengthen

the

performance–reward

linkProvide

rewards

that

are

valued

and

perceived

asbeing

fairInformal

participative

decision-making

programsThe

level

of

participation

granted

shouldbecommensurate

with

each

employee’s

desireforchallenge,

responsibility,

and

opportunity

to

have

avoice

in

work

unitdecisions.Employees

must

believe

they

have

the

right

to

sharework

decisions

with

the

manager.3.2

How

the

HRM

Department

CanHelpDesign

and

evaluate

the

productivityimprovement

programs.Must

see

to

it

that

the

corporate

culture

iscompatible

with

productivity

improvementprograms.Must

also

train

managers

andemployeesto

ensure

the

programs

are

implementedsuccessfully.253.3

HRMSkill-Building

forManagers26(1)

Using

extrinsic

rewards

to

motivateemployeesSteps

to

increase

the

motivational

levelsofsubordinates:Determine

the

specific

behaviors

in

which

you

wantyouremployees

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