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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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