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PART TWO RECRUITMENT AND REPLACEMENT

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PART TWO RECRUITMENT AND REPLACEMENT Powered By Docstoc
					PART FOUR                                                                 COMPENSATION

C H A P T E R                                                   T   T w e l v e


                         Pay for Performance
                                And Financial
                                   Incentives                    12
Lecture Outline
     Strategic Overview
Money and Motivation: An Introduction
     Performance and Pay
     Individual Differences
     Psychological Needs and Intrinsic vs. Extrinsic
       Motivation
                                                             In Brief: This chapter gives an
     Instrumentality and Rewards: Vroom’s Theory             overview      of    money    and
     Types of Incentive Plans                                motivation, and then outlines
Individual Employee Incentives and Recognition               different incentive programs that
     Piecework Plans                                         are used for different types of
     Merit Pay as an Incentive                               employees. It also discusses
     Merit Pay Options
                                                             organization-wide       incentive
     Incentives for Professional Employees
     Recognition—based Awards                                plans.
     On-line Award Programs
Incentives for Salespeople
     Salary Plan                                             Interesting Issues: There is
     Commission Plan                                         tension between the concept of
     Combination Plan
                                                             providing employees with a
     Setting Sales Quotas
     Strategic Sales Incentives
                                                             secure, stable income (which
Team or Group Variable Pay Incentive Plans                   some feel allows them the ability
     How to Design Team Incentives                           to be entrepreneurial and take
     Pros and Cons of Team Incentives                        appropriate risks for the
Organization-wide Variable Pay Plans                         company), and the idea of
     Profit-Sharing Plans                                    linking     pay     directly   to
     Employee Stock Ownership Plan (ESOP)
                                                             performance.
     Scanlon and Other Gainsharing Plans
     At-Risk Variable Pay Plans
                                                             Improved employee performance
Incentives for Managers and Executives                       must be linked to improved
     Short-Term Incentives: The Annual Bonus                 organizational performance if
     Long-Term Incentives                                    incentive pay is to be more than
     Other Executive Incentives                              just another labor cost.
     Strategy and Executive Compensation
Designing and Executing Effective Incentive Plans
     Why Incentive Plans Fail
     How to Implement Incentive Plans
     Incentive Plans in Practice
     Pay and Incentive Practices in Asia




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ANNOTATED OUTLINE

I.      Money and Motivation: An Introduction

        A. Performance and Pay – Compensation, shareholder value, and turbulence
           are factors that characterize business today, and they have produced a
           renaissance for financial incentive/pay-for-performance plans.

        B. Individual Differences – the law of individual differences. This means that
           people differ in personality, abilities, values, and needs.

        C. Psychological Needs and Intrinsic versus Extrinsic Motivation

            1. Abraham Maslow – argued that people have a hierarchy of five
               increasingly higher-level needs, which he called physiological,
               security, social, self-esteem, and self-actualization.

            2. Frederick Herzberg - hygiene—motivator theory of motivation similarly
               divides Maslow’s hierarchy into lower level (physiological, safety,
               social) and higher-level (achievement, self-actualization) needs.

        D. Instrumentality and Rewards: Vroom’s Theory – says a person’s
           motivation to exert some level of effort is a function of three things: the
           person’s expectancy (in terms of probability) that his or her effort will lead
           to performance; 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.

        E. Types of Incentive Plans include: individual incentive programs; group
            incentive programs; and profit-sharing plans. Variable pay generally refers
            to a group incentive plan that ties pay to some measure of the firm’s (or
            facility’s) overall profitability.

     NOTES       Educational Materials to Use




II.     Individual Employee Incentive and Recognition Programs

        A. Piecework Plans – Piecework is where you pay the worker a sum (piece
           rate) for each unit he/she produces. Straight piecework entails a strict
           proportionality between results and rewards regardless of output. With a
           standard hour plan, the worker gets a premium equal to the percent by
           which his/her performance exceeds the standard.

        B. Merit Pay As An Incentive – Merit pay or raise is any salary increase the
           firm awards to an employee based on his/her individual performance. It is
           different from a bonus in that it usually becomes part of the employee’s
           base salary, whereas a bonus is a one-time payment.

        C. Merit Pay Options – Traditional merit pay plans have two basic
           characteristics: (1) merit increases are usually granted to employees at a
           designated time of the year in the form of a higher base salary, and (2) the
           merit raise is usually based exclusively on individual performance. Two
           adaptations of merit pay plans are: (1) one awards merit raises in one


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             lump sum once a year and (2) merit awards are tied to both individual and
             organizational performance (see Table 12-2).

         D. 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, doctors,
            economists, and engineers.     Making incentive pay decisions for
            professional employees can be challenging because they’re usually paid
            well anyway.

         E. Recognition-Based Awards – Studies show that recognition has a positive
            impact on performance, either alone or in conjunction with financial
            rewards.

      NOTES      Educational Materials to Use




III.     Incentives for Salespeople

         A. Salary Plan – offered by some firms. Straight salary makes it simple to
            switch territories or to reassign salespeople, and it can foster loyalty
            among the sales staff. A disadvantage is that it can constrict sales and
            de-motivate potentially high-performing salespeople.

         B. Commission Plan – pays salespeople for results, and only for results;
            thus, they tend to attract high-performing sales people who see that effort
            clearly leads to rewards. But it may cause them to neglect non-selling
            duties like servicing small accounts, cultivating dedicated customers, and
            pushing hard-to-sell items.

         C. Combination Plan – Most companies pay salespeople a combination of
            salary and commissions, usually with a sizable salary component.
            Combination plans give salespeople a floor to their earnings, and still
            provide an incentive for superior performance. But they can become
            complicated, and misunderstandings can result.

         D. Setting Sales Quotas – Setting effective quotas is an art. In today’s fast-
            changing business scene, sales quotas must become more flexible than
            they have been in the past.

            1. An Example: Auto Dealers – Compensation for car salespeople ranges
               from a high of 100 percent commission to a small base salary with
               commission accounting for most of total compensation.


      NOTES      Educational Materials to Use




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IV.     Team Variable Pay Incentive Plans

        A. How to Design Team Incentives – There are three approaches:

           1. Members are paid based on one of three formulas – all members
              receive the pay (a) earned by the highest producer, (b) earned by the
              lowest producer, or (c) equal to the average pay earned by the group.

           2. Set a production standard based on the final output of the group as a
              whole.

           3. Tie rewards to goals based on some overall standard of group
              performance.

        B. Pros and Cons of Team Incentives – A lot of our work today is organized
           around teams, so team incentives make sense to encourage cooperation
           and training. But exceptionally hard working employees do not get paid
           according to their efforts, which may reduce motivation.

     NOTES      Educational Materials to Use




V.      Organization-Wide Variable Pay Plans

        A. Profit-Sharing Plans involves employees receiving a share of the
           company’s annual profits. There are several types of profit-sharing plans:
           cash plans, Lincoln Incentive system, and deferred profit-sharing plans.

        B. Employee Stock Ownership Plans (ESOP) are company-wide plans in
           which a firm contributes shares of its own stock or cash to purchase the
           stock to a trust established to purchase shares of the firm’s stock for
           employees.

        C. Scanlon and Other Gainsharing Plans

           1. Scanlon Plan – is an incentive plan developed in 1937 by Joseph
              Scanlon. The basic features of the plan include: philosophy of
              cooperation, identity, competence, involvement system, and sharing
              of benefits formula.

           2. Gainsharing Plans are incentive plans that engage many or all
              employees in a common effort to achieve a company’s productivity
              objectives, with any resulting cost-savings gains shared among
              employees and the company.

               Implementing a Plan – The basic eight steps are: 1) establish general
               plan objectives; 2) define specific performance measures; 3) decide
               on a funding formula; 4) decide on a method for dividing and
               distributing the employees’ share of the gains; 5) choose the form of
               payment; 6) decide how often bonuses are to be paid; 7) develop the
               involvement system; and 8) implement the plan.

        D. At-Risk Variable Pay Plans are plans that put some portion of the
           employee’s weekly pay at risk, subject to the firm meeting its financial
           goals.




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     NOTES      Educational Materials to Use




VI.     Incentives for Managers and Executives

        A. Short-Term Incentives: The Annual Bonus – is aimed at motivating the
           short-term performance of managers and executives.

           1.   Eligibility usually includes both top and lower level managers.

           2.   Fund Size refers to the total amount of bonus money the firm makes
                available. A nondeductible formula is where they use a straight
                percentage (usually of the company’s net income) to create the short-
                term incentive fund. A deductible formula assumes that the fund
                should start to accumulate only after the firm has met a specified level
                of earnings.

           3.   Individual Awards – Typically, a target bonus (as well as maximum
                amount) is set for each eligible position, and the actual award reflects
                the person’s performance.

                        The HR Scorecard, Strategy and Results: The New
                        Incentive Plan – Hotel International did not have an incentive
                        pay program at all. The HR Director had to create and
                        implement an incentive plan that uses many of the concepts
                        listed in this book.

        B. Long-Term Incentives are used to inject a long-term perspective into their
            executives’ decisions.

           1.   Stock Options account for over half of executives’ compensation. A
                stock option is the right to purchase a specific number of shares of
                company stock at a specific price during a specific period of time; the
                executive thus hopes to profit by exercising his/her option to buy the
                shares in the future but at today’s price.

           2.   Other Stock Option Plans – More companies are implementing broad-
                based stock option plans in which the potential appreciation is
                relatively modest, but in which all or most employees can participate.

        C. Other Executive Incentives – Companies provide various incentives to
           persuade executives to remain with the firm such as golden parachutes
           and loans.

        D. Strategy and Executive Compensation – Few HR practices have as
           profound or obvious an impact on strategic success as the company’s
           long-term incentives. In creating the compensation package you should:
           1) define the strategic context for the executive compensation program,
           including the internal and external issues that face the company, and the
           firm’s business objectives; 2) shape each component of the executive
           compensation package based on your strategic aims, and then group the
           components into a balanced plan that makes sense in terms of these
           aims; 3) create a stock option plan that gives the executive compensation
           package the special character it needs to meet the unique needs of the
           executives and the company, and its strategy; 4) check the executive
           compensation plan for compliance with all legal and regulatory



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               requirements and for tax effectiveness; and 5) install a process for
               reviewing and evaluating the executive compensation plan whenever a
               major business change occurs.

      NOTES        Educational Materials to Use




VII.       Designing and Executing Effective Incentive Plans

           A. Why Incentive Plans Fail – Some explanations include: performance pay
              can’t replace good management; you get what you pay for; ―pay is not a
              motivator;‖ rewards punish; rewards rupture relationships; rewards can
              unduly restrict performance; rewards may undermine responsiveness;
              rewards undermine intrinsic motivation; and people work for more than
              money.

           B. How to Implement Effective Incentive Plans – Some guidelines to follow to
              make your plan more effective: use common sense; link the incentive with
              your strategy; make sure effort and rewards are directly related; make the
              plan easy for employees to understand; set effective standards; view the
              standard as a contract with your employees; get employees’ support for
              the plan; use good measurement systems; emphasize long-term as well
              as short-term success; take the corporate culture into consideration; and
              adopt a comprehensive, commitment-oriented approach.

      NOTES        Educational Materials to Use




PAY AND INCENTIVE PLANS IN ASIA

Asian countries are different in terms of their political structure, state of economic development
and cultural tradition. As a result, there are variations in their pay and incentive practices.

       China: With economic reforms, the wage system is undergoing changes. The concept of
          performance-pay is gaining support.

       Hong Kong: Pay and benefits are negotiated based on market forces.

       India: Lnk between pay and performance is being established in the steel sector.

       Indonesia: Performance-based pay is gaining acceptance in the private sector.

       Japan: the annual Spring Offensive is a wage determination process in the private sector.
          The process plays the role of setting a national leading wage rise standard.

       South Korea: Collective bargaining is the most common method for determining pay in
          unionized companies. While seniority remains an important criterion, performance-based
          pay is gaining acceptance.

       Malaysia: Pay and benefits are determined by negotiation between employers and their
          employees.

       Philippines: There have been some changes in the compensation system. Some companies
           are linking pay with performance.


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    Singapore: The government is encouraging a flexible wage system.

    Taiwan: Group-oriented performance pay and relatively equal bonus are the norm.

    Thailand: Large companies guarantee an annual pay increase that will match the inflation
       rate, regardless of performance of employees.

    Vietnam: MNCs are linking pay with performance, especially for sales and engineering
        professionals.


DISCUSSION QUESTIONS

1. Compare and contrast six types of incentive plans. Various types of incentive plans were
   presented in the text, including piecework plans, straight and guaranteed plans, standard hour
   plans, plans for salespersons (commissions and combination plans), and group incentive
   plans. With the piecework plans, earnings are tied directly to what the individual worker
   produces, and are more appropriate in a manufacturing organization. Commissions are more
   appropriate for salespeople in situations where they are largely unsupervised. In-group
   incentive plans like the Scanlon Plan, all workers involved in developing and implementing
   cost savings share in the benefits of the suggestions.

2. Explain five reasons why incentive plans fail. When incentive plans fail, it can be for a
   variety of reasons like: employees do not believe that effort will obtain the reward, bad
   management overrides the plan, rewards tied to the wrong measures, plan is complicated and
   difficult for employees to understand, or standards are too high or too low.

3. Describe the nature of some important management incentives. Two widely used
   management incentive plans are merit pay and profit sharing plans. Merit pay is any salary
   increase that is awarded to an employee on his or her individual performance. Advocates
   argue that only pay tied directly to performance can motivate improved performance. Profit
   sharing plans distribute a portion of the company's profits to employees in the form of a bonus.
   Research shows that benefits are more subtle than increased productivity—benefits are
   possibly in the form of better worker commitment. There might also include long-term
   incentives.

4. When and why would you pay a salesperson a salary and commission combined?
   Salary plans work well when your objective is prospecting work or where the salesperson is
   primarily involved in account servicing. They are often found in industries that sell technical
   products. A commission plan is appropriate when sales costs are proportional to sales. This
   can reduce the selling investment for fixed costs. The straight commission also provides
   salespeople with the greatest possible incentive and there is a tendency to attract high-
   performing people.       Combination plans are used when the firm wants to direct its
   salespeople's activities by detailing what services the salary component is being paid for while
   the commission component provides a built-in incentive.

5. What is merit pay? Do you think it's a good idea to award employees merit raises?
   Why or why not? Merit pay is a salary increase that is awarded to an employee based on his
   or her individual performance. It is a good idea to award merit raises when you have a good
   performance appraisal system and employees' individual effort can be fairly and accurately
   evaluated or measured.

6. In this chapter, we listed a number of reasons experts give for not instituting a pay-for-
   performance plan (such as "rewards punish"). Do you think these points (or any of
   them) are valid? Why or why not? All of these reasons are, or can be, valid. There will also
   be organizational situations where one or more of them will not be valid. Students should
   describe situations in which the reason is (or is not) valid.




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7. What is a Scanlon plan? Based on what you've read in this book so far, what features
   of a commitment-building program does the Scanlon plan include? This is an incentive
   plan that was developed in 1937 by Joseph Scanlon. It includes features such as a
   philosophy of cooperation, identity, competence, involvement, and sharing of benefits. All
   these are features of a commitment-building program. The Scanlon plan is actually an early
   version of what today is known as a gainsharing plan.

8. Give four examples of when you would suggest using team or group incentive
   programs rather than individual incentive programs. Students should review the sections
   in the chapter on team or group incentive programs and individual incentive programs, and
   think about situations where they would prefer one incentive plan over the other.


INDIVIDUAL AND GROUP ACTIVITIES

1. Working individually or in groups, develop an incentive plan for the following positions:
   mechanical engineer, plant manager, used-car salesperson. What factors did you have
   to consider in reaching your conclusions? I would give the chemical engineer a merit raise
   system because he or she has little perceived control or impact over the production or
   profitability of the company. The plant manager should receive an annual bonus tied to the
   profitability of the plant, as well as a stock option plan to encourage long-term planning as well.
   The used-car salesperson would likely receive a straight commission plan because sales are
   more directly dependent on his or her ability to sell those cars to prospective customers.

2. A school in the city recently instituted a "Teacher Incentive Program" (TIP) for its
   faculty. Basically, committees within each department were told to award $5,000 raises
   (not bonuses) to about 40% of their teachers based on how good a job they did in
   teaching and how many courses they taught per year. What are the potential
   advantages and pitfalls of such an incentive program? How well do you think the
   teachers would accept the plan? Do you think it had the desired effect? This program
   would put a premium on teaching. If it were to work, the best teachers would be motivated to
   spend time in teaching more courses in order to increase their earnings. They would spend
   less time in administration or other assigned duties. The pitfalls are many. The awarding of the
   money is likely to be inconsistent because specific guidelines have not been spelled out. More
   likely, the rewarding of the raises may become more political as the committees who have
   other values determine the awards. It is very likely that the system was met with great
   opposition by the teachers.


EXPERIENTIAL EXERCISES & CASES


Experiential Exercise: Motivating the Salesforce at Express Auto

This exercise presents a fictional auto dealership and problems that they are experiencing with
customer satisfaction and quality. Students are to analyze the current compensation system to see
if it contributes to the problem.

1. In what ways may your group’s compensation plan contribute to the customer services
   problems? Sales force: pay is based almost entirely on commission. The salesperson has
   no motivation to assist customers who they do not believe will result in a sale. Finance office:
   bonuses for getting customers to use the company financing encourage finance people to
   coerce people into making that choice. Detailing: pay is based entirely on the number of cars
   detailed per day. There is no measure of quality, nor requirement of it regarding pay.
   Mechanics: pay is based almost entirely on number of cars serviced as well as servicing them
   faster than the standard estimated repair time. There is no measurement of quality or accuracy
   of repairs. Receptionist/phone service people: straight hourly rate does not have any
   performance rewards.




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2. What recommendations will you make to improve the compensation system in a way
   that will likely improve customer satisfaction? The dealership already has a customer
   satisfaction survey in place. They need to link results from quality measures to the incentives
   that their employees receive. Examples are: Sales force: one might decrease the commission
   somewhat and place that amount in a pool that is distributed based on customer comments
   about specific sales personnel. Finance office: bonuses for using company financing should
   be no more than bonuses based on customer satisfaction ratings. Detailing: there must be a
   measure of quality and detailers should be docked for any problem that results from their lack
   of attention to detail. Mechanics: re-works should dock a mechanics pay and mechanics
   whose work results in no complaints should receive a significant bonus. Receptionist/phone
   service people: those who answer the phone should be able to gain either performance
   increases in pay, or bonuses based on customer satisfaction ratings. In general, the approach
   should be like ―teaching to the test.‖ If you want test scores to improve, you teach what will be
   on the test. If you want measures of customer satisfaction to improve, you reward (or punish)
   people for those measures.


Case Application: Inserting the Team Concept into Compensation – Or Not

Sandy Caldwell, the new Human Resources Manager for Hathaway manufacturing, wanted to
improve teamwork at every level of the organization. As part of the process of implementing
cultural change, Sandy introduced a new pay for performance system. The reaction to the change
was immediate and ―100 % negative‖.

1. Does the pay-for-performance plan seem like a good idea? Why or why not?
   Management wants to provide incentive for team performance. Their motives are fine.
   Properly crafted (and with employee involvement) a pay for performance system may add
   value at Hathaway.

2. What advice will you give Regina and Sandy as they consider their decision? Most
   scholars suggest that pay for performance works best (in the US), when it has both an
   individual and a team component. Further, Regina and Sandy need to consider ways of
   engaging the workforce in the design/decision process. This involvement will likely provide
   better ideas, identify potential problem areas with proposed systems before they are
   implemented and aid in the implementation process.

3. What mistakes did they make in adopting and communicating the new salary plan? How
   might Sandy have approached this major compensation change a little differently?
   Sandy failed to involve significant stakeholders in the process. Their input would likely have
   identified potential weaknesses in her system. Further, by not involving others, the change in
   pay came largely as a surprise. Employees take their pay seriously; surprises are not
   welcome. Sandy already had agreement on some issues like the mission and the vision. She
   could have used that agreement to begin a dialog on linking compensation more directly to
   effectively accomplishing the mission.

4. Assuming the new pay plan was eventually accepted, how would you address the fact
   that in the new performance evaluation system, employees’ input affects their peers’
   pay levels? Typically, plans have two levels – a team component and an individual
   component. It is important for the team to realize that the company does best when the whole
   team succeeds, and that team success also requires individual performance.


Continuing Case: Kwik and Kleen (KK) Laundry Company — The Incentive Plan

    1. Should this plan in its present form be extended to pressers in the other stores?
       No, not in its present form. While the piece-rate plan does make more effective use of
       Wan’s time and save the company energy money, the quality control issue is a problem.
       There needs to be an included incentive for quality.




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    2. Should other employees (cleaner-spotters, counter people) be put on a similar
       plan? Why? Why not? If so, how, exactly? It makes sense for some positions but not
       for others. Cleaner-spotters are production employees who could also benefits from a
       similar plan. It would have to have a quality incentive that makes sure they actually get
       the garments cleaned correctly! An incentive plan that focuses on customer satisfaction
       makes more sense for the counter people.

    3. Is there another incentive plan you think that may work better for the pressers?
       Some ideas might include combination plans (salary plus piece-rate), profit-sharing, or
       merit pay (higher pay for those who produce more.

    4. A store manager’s job is to keep total wages to no more than 30% of sales and to
       maintain the fuel bill and the supply bill at about 9% of sales each. Managers can
       also directly affect sales by ensuring courteous customer service and by ensuring
       that the work is done properly. What suggestions will you make to the company for
       an incentive plan for store managers? Profit-sharing, gainsharing, performance plans,
       annual bonus, recognition, and merit pay are all options.


HOTEL INTERNATIONAL
The New Incentive Plan

The continuing case on Hotel International is discussed here. In this segment, HR Director Li must
find a way to link pay to performance.

Questions

    1. Discuss what you think of the measurable criteria Director Li set for the new
       incentive plan. Having a large percentage of employees eligible for merit or incentive is
       good, but will also be expensive. A 10% difference in reward level will likely motivate
       improved performance. In order to justify the expense there should be some proof that the
       behaviors which will be rewarded are linked to improved organizational financial
       performance. Li will need to track and communicate these links. It is also important the
       hotel find ways to measure what they plan to reward.

    2. Given what you know about the hotel’s strategic goals, list three or four specific
       behaviors you would incentivize for each of the following groups of employees:
       front desk clerks, hotel mangers, valets, housekeepers. Answers will vary but may
       include: Front desk clerks – speed of check-in, number of positive comments by guests,
       decrease in number of complaints. Hotel managers – decrease in absenteeism, process
       improvement. Valets – time taken to deliver luggage from curb to room, decrease in
       number of wrong deliveries, positive feedback received. Housekeepers – decrease in
       number of complaints, decrease in number of deliveries to room of forgotten items,
       increase in number of rooms available for early check in.

    3. Lay out a complete incentive plan (including all long and short term incentives) for
       the hotel’s managers.


                             For more Instructor’s Resources,
                    visit the Dessler & Tan companion Web site for
            Human Resource Management: An Asian Perspective (2nd edition) at
                      http://www.pearsoned-asia.com/desslertan/.




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          KEY TERMS
law of individual            The fact that people differ in personality, abilities, values, and
                             needs.
differences

expectancy                   A person’s expectation that his or her efforts will lead to
                             performance.

instrumentality              The perceived relationship between successful performance and
                             obtaining the reward.

valence                      The perceived value a person attaches to the reward.

variable pay                 Any plan that ties pay to productivity or profitability, usually as
                             one-time lump payments.

piecework                    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.

straight piecework           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.

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 base rate for production exceeding
                             the standard per hour or per day. Similar to piecework payment,
                             but based on a percent premium.

merit pay (merit raise)      Any salary increase awarded to an employee based on his or her
                             individual performance.

team incentive               A plan in which a production standard is set for a specific work
                             group,
                             and its members are paid incentives if the group exceed the
                             production standard.

profit-sharing plan          A plan whereby most employees share in the company's profits.

employee stock               A corporation contributes shares of its own stock to a trust in
                             which
ownership plan (ESOP)        additional contributions are made annually. The trust distributes
                             the stock to employees on retirement or separation from service.

Scanlon plan                 An incentive plan developed in 1937 by Joseph Scanlon and
                             designed to encourage cooperation, involvement, and sharing of
                             benefits.

gainsharing plan             An incentive plan that engages employees in a common effort to
                             achieve productivity objectives and share the gains.

at-risk variable pay plans   Plans that put some portion of the employees’ weekly pay at risk,
                             subject to the firm meeting its financial goals.

annual bonus                 Plans that are designed to motivate short-term performance of
                             managers and are tied to company profitability.



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stock option                  The right to purchase a stated number of shares of a company
                              stock at today's price at some time in the future.

golden parachutes             Payments companies make in connection with a change in
                              ownership or control of a company.

stock option                  The right to purchase a stated number of shares of a company
                              stock at today's price at some time in the future.

Financial incentives          financial rewards paid to workers whose production exceeds
                              some predetermined standard

Fair day’s work               Standards of output which the company should devise for each
                              job based on careful, scientific analysis.

Scientific management         A management approach that emphasizes improving work
                              methods through observation and analysis

Behavioral modification       Changing behavior through rewards or punishments that are
                              contingent upon performance.

Organisationwide incentive plans    Plans in which all or most employees can participate, and
                             which generally tie the reward to some measure of company–wide
                             performance.




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