Chapter 12

Pay for performance

Group members
Tahira Azam Mahwish Shaheen Aliza Saeed Sadia saeed Bilal Akhter Syed Asjad Ali 2079 2411 2106 2111 2203 2096

Contents of the presentation An overview

Uses performance based incentives Incentives for
Individual employees Managers and executives Sales people Professionals Organization wide incentive plans

Why incentive plans fail How to create effective plan Some motivation theories
By Fredrick Hertzberg Edward Deci Victor Vroom Behavior modification theory

Introduction
Money and motivation
Performance and pay Motivation and incentive

Money and Motivation

Concept was first introduced by Fredrick Taylor in 1800s who was concerned with the following terms Financial incentives These are considered the rewards paid to workers whose production exceeds some predetermined standards Systematic soldiering Tendency of employees to work at the lowest pace possible and to produce the minimum acceptable level. Fair days work Output standards devised based on careful, scientific analysis. Scientific management Management approach based on improving work methods through observation and analysis.

Performance and Pay

Concept relates with the phenomenon of tying workers pay to their performance and having increased emphasis on productivity, competitiveness and delivering measurable results has eventually raised this practice. But researches proved that doing this is not an easy task and not all rewards are suited to all situations so important thing is managers should be aware of the motivational bases of incentive plans because of the reason that not every one react to a reward in a same way. Here the psychological factor is of importance

Motivation and incentives

Paying importance to the fact that different people react to different incentives in different way. Thats why focus was made on High and low positive effects High positive effect
(energetic active and alert)

Low positive effect These people responded much more favorably to merit raises than did the high PAs
(lethargic, listless and apathetic)

Theories of Motivation
Fredrick Hertzberg Theory of motivation Edward Deci theory of motivation Victor Vroom Theory

Behavior modification/ reinforcement theory

Theories of Motivation
Fredrick Hertzberg Theory of motivation
he says that the best way to motivate employees is to organize the job so that doing it provide the feed back and challenge that help satisfy the higher level needs like recognition and accomplishment, though these are insatiable. So thats why they generate a built in motivation and satisfying lower level needs like better pay and working conditions just keep the person from becoming dissatisfied.

Edward Deci theory of motivation

He says that managers must be conscious in devising incentive pay for highly motivated employees because he found that sometimes extrinsic rewards detract the persons intrinsic motivation.
Example (rushing to accident and saving life)

Victor Vroom Theory

Victor Vroom says that a persons motivation to exert some more level of effort depends on three things Expectancy Instrumentality Valence and these three things represent the persons perceived value attaches to the reward. Implications of the three factors to design incentives

Behavior modification/ reinforcement theory

To understand behavior one must understand the consequences of that behavior. using contingent rewards or punishment to change behavior. Two basic principles of the theory 1) The behavior that leads to positive consequence (reward) tends to be repeated and vice versa 2) managers can get someone to change his/her behavior by providing the properly scheduled rewards (or punishment).

Individual employee incentive and recognition programs

Piece work plans Straight piecework Standard hour plans

Pros and cons

Pros understandable Appear equitable cons Low quality standard Job switching

Power incentive

Poor reputation ( garments industries)

 Merit pay as incentive Merit pay options

Incentives for professional employees

Recognition based rewards
Employee of the month Performance feedback Combining financial and non financial incentives
Gift certification Special events Cash reward Training programs Group travel

Supporting incentives and recognition programs with technology

Incentives system Inc Enterprise Incentive management

Incentives for sales person

Salary plan Commission plan Combination plan Setting sales quota Strategic sales incentive

Team/ group incentive plans and its pros and cons Organization wide Incentive plans
Profit sharing plans ESOP (employee stock ownership plan) Scanlon and other gainsharing plans At-risk variable pay plan

Incentives for managers and executives

Short term incentive : the annual bonus plans Long term incentives
Stock option Broad based stock options

Other executive plans

Why incentive plans fail???

Performance pay cannot replace good management You get what you pay for Pay is not a motivator Rewards punish Rewards rupture relationship Rewards can have unintended consequences Rewards may undermine responsiveness Rewards undermine intrinsic motivation

How to implement effective incentive plans

Ask: are performance levels inadequate due to motivation? Link the incentive with your strategy Make sure the program is motivational Make the plan easy for employees to understand Set effective standards View the standards as a contract with employee Get employees support for the plan Use good measurement system Use a complete set of standards Make the incentive plans part of a comprehensive, commitment oriented approach

Impact of financial and non-financial incentives

Financial incentives Non financial incentives Results of the research

Thank you