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HRA Incentives


Prof Rushen's Notes for MBA, BBA students

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									Human Resources Administration
        Incentive Programs

        Prof. Rushen Chahal
       Views on Incentive Payments

• Fascinate managers as they search for magic

• Linking payment to performance

• Incentives source of much debate

• Some incentive payments subject of significant
  government initiatives
  Hygiene Factor vs. Expectancy Theory

Herzberg – pay a hygiene factor not a motivator

Expectancy Theory -- Individual employees will
  alter their behaviour if they believe that in so
  doing they will be rewarded with something
  they value
Ways Incentive Payment Schemes Operate

• Bonus payments and incremental progression

• Incremental progression dependent on
  individual’s contribution
            Extent of the Incentive

Minimum level – ‘that necessary to elicit positive
  perceptual and attitudinal responses’

Minimum Effective Incentive: 5-7%

Lesser payments will only have a peripheral
    Level at Which Incentives Are Paid

• Reward individuals for individual performance

• Reward a group of employers for collective

• Share incentives payments among all
        Payment by Result Schemes

• Individual time saving

• Measured day work

• Group and plant wide incentives

• Commission
           Disadvantages of PBR Schemes
• Originally set up to cope with stable and predictable
  situations – level of change growing
• Steady decline of these schemes since 1983
• Operational inefficiencies
• Emphasis on quality of work can impact on quantity
• De-motivate workers – impact on quality of work life
• Selective nature of the incentive
• Obscurity of payment arrangements
     Performance Related Pay (PRP)

• Merit based systems

• Goal based systems
                  Critiques of PRP

• Ability of PRP to motivate positively

• Means of reinforcing management control at expense of
  worker autonomy

• Means of perpetuating gender inequality in payment

• Against principles of TQM

• Fundamental flaws that cannot be overcome
    Possible Outcomes of PRP (1 of 2)

• Employees can develop a narrow focus to their
• Tends to undermine teamwork
• Can de-motivate staff when rating received
• Factors outside employees’ control affect their
• Difficult for managers to undertake fair and
  objective appraisals
    Possible Outcomes of PRP (2 of 2)

• Objectives set can become obsolete after a few
• Can discourage creative thinking
• Budgets can lead to reduced ratings
• Difficult to ensure a uniform approach taken by
• Employees can downplay their weaknesses
• PRP systems increase the paybill
         When Should You Use PRP?

1. Where individual performance can be objectively and
   meaningfully measured

2. Where individuals are in a position to control the
   outcomes of their work

3. Where close team working or co-operation with others
   is not central

4. Where there is an individualistic organisational culture
               Skills Based Pay

•   Established in USA
•   Becoming more common in UK
•   Encourages multi skilling and flexibility
•   Can attract and retain staff more effectively
•   Reward employees with additional increments
    once they have completed relevant skills
•   Will only be cost effective if productivity
    increases as a result
                Profit Sharing

•   Promoted by government for many years

•   Cash based schemes

•   Share based schemes
       Disadvantages of Profit Sharing

•   Pay levels may decline if company fails to
    meet expected profit levels

•   Share values can go down as well as up

•   Incentive effort may be slight
•   Incentive schemes should only be used where they
    are appropriate to the business
•   Involve payment of a bonus or form the basis of
    incremental progression systems
•   Various types of payment by result methods
•   Performance related pay systems are either merit or
    goal based
•   Performance related pay systems have been subject
    of much debate
•   Skills based pay involves linking incentives to
    achievement of defined competencies or qualifications
•   Profit sharing has been promoted by government

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