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IncentivePlansIncentivePlansPayinfluencesemployeesthroughReinforcementtheoryExpectancytheoryPayinfluencesemployeesthrouReinforcementTheoryBehaviorthatisrewardedwillberepeated.ReinforcementTheoryBehaviortExpectancyTheoryExpectancyIfIattemptthislevelofperformance,amIlikelytosucceed?InstrumentalityIfIachievethislevelofperformance,amIlikelytoberewarded?ValenceWhatvaluedoIplaceontherewardsavailabletome?MotivationalForce=E*I*VExpectancyTheoryExpectancyInsIncentiveProgramsDifferbypaymentmethodfrequencyofpayoutwaysofmeasuringperformancechoiceofwhichemployeesarecoveredFittingprogramtosituationdependsonorganizationalstructuremanagementstyletypeofworkIncentiveProgramsDifferbyTypesofPlansMeritPayIndividualIncentivesProfitSharingOwnershipGainsharingGroupIncentivesAlternativeRewardSystemsTypesofPlansMeritPayMeritPayProgramslinkperformanceappraisalratingstoannualpayincreasesfocus:identifyingindividualdifferencesinperformancebetterperformanceresultsinhigherreward,contingentonpositionintherange(compra-ratio)MeritPayProgramslinkperformCriticismsofMeritPaymeritpaysystemsfocusingonindividualperformancediscourageteamworkifperformanceisnotmeasuredfairlyandaccurately,thewholeprocesswillbecontaminatedapparentdifferencesbetweenpeoplearisealmostentirelyfromthesystemthattheyworkin,notthepeoplethemselvescoworkers,jobmaterials,customers,management,supervisionCriticismsofMeritPaymeritpIndividualIncentivesrewardindividualperformancepaymentsareNOTrolledintobasepayperformanceisusuallymeasuredasaphysicaloutputratherthansubjectiveratingsIndividualIncentivesrewardinIndividualIncentivesarerarebecausemostjobshavenophysicaloutputmeasureadministrativeproblemsofsettingandmaintainingacceptablestandardsplansmaybeinconsistentwithothergoals(e.g.acquiringmultipleskills,proactiveproblemsolving)peoplemayfocusonwhattheygetpaidforandnothingelseplansmayrewardoutputattheexpenseofqualityIndividualIncentivesarerareProfitSharingpaymentsarebasedonameasureoforganizationalperformance(profits)paymentsdoNOTbecomeapartofbasepayAdvantage:mayencourageworkerstothinkmorelikeownersDrawbacks:workersmayperceivetheirperformancehaslittletodowithprofitdeferrednatureofpayoutsProfitSharingpaymentsarebasOwnershipencouragesemployeestofocusonthesuccessoftheorganizationasawholebutmaynotresultinmotivationforhighindividualperformancegainsnotrealizeduntilstocksold(employeesleavingcompany?)Methods:stockoptionsESOPs(employeestockownershipplans)OwnershipencouragesemployeesGainsharingsharingproductivitygainswithemployeesdiffersfromprofitsharinginthatinsteadofusinganorganization-levelperformancemeasure(profits)plansmeasuregrouporplantperformancebetterformotivationExamples:Scanlonplan,Ruckerplan,Improsharegoesbeyondmoney--participationinproblemsolving=keyGainsharingsharingproductivitConditionsforeffectiveGainsharingmanagementcommitmentneedtochangeoraprocessofcontinuousimprovementmanagementacceptance&encouragementofemployeeinputhighlevelsofcooperationandinteractionemploymentsecurityinformationsharingonallproductivityandcostsgoalsettingcommitmentofallinvolvedpartiestochangeandimprovementagreementonaperformancestandardcalculationthatisunderstandable,perceivedasfair,closelyrelatedtomanagerialobjectivesConditionsforeffectiveGainsGroupIncentivesFocus=smallerworkgroupsWhilegainsharingtypicallymeasuresphysicaloutput,groupincentivestendtomeasureperformanceintermsofabroaderarraysuchascostsavingssuccessfulcompletionofproductdesignmeetingdeadlinesDrawback:competitionamongteamsGroupIncentivesFocus=smalleAlternativeRewardSystemsalternativestocash--travelmerchandiseearnedtimeoffsymbolicawardsplaques,coffeecups,bananasAlternativeRewardSystemsalteIncentivePlansIncentivePlansConditionsforEffectiveIncentivePlansPlanisclearlycommunicated.Planisunderstoodbyemployeesandmanagement.Bonusesareeasytocalculate.Employeesparticipateinadministratingtheplan.Employeesbelievetheyarebeingtreatedfairly.Employeesbelievetheycantrustthecompanyandthattheyhavesecurity.Bonusesareawardedassoonaspossibleafterthedesiredperformance.ConditionsforEffectiveIncenPayforPerformancePlansPayforPerformancePlansConditionsforEffectivePerformance-BasedPaySystemsPay-performancelinkagemustbeperceivedbyemployeesPayisvaluedbyemployeesEmployeesmustperceivethateffortandabilityleadtorewardedbehaviorPerformancemeasurementmustbefairEmployeesmusttrusttheorganizationPayprogrammustbeunderstoodEmployeesmustbeabletocontroltheirperformancePerformanceappraisalsystemcannotbebiasedTheremustbeenoughmoneytofundincentivesAvalidjobevaluationmusthavebeenconductedConditionsforEffectivePerfoIncentivePlansIncentivePlansPayinfluencesemployeesthroughReinforcementtheoryExpectancytheoryPayinfluencesemployeesthrouReinforcementTheoryBehaviorthatisrewardedwillberepeated.ReinforcementTheoryBehaviortExpectancyTheoryExpectancyIfIattemptthislevelofperformance,amIlikelytosucceed?InstrumentalityIfIachievethislevelofperformance,amIlikelytoberewarded?ValenceWhatvaluedoIplaceontherewardsavailabletome?MotivationalForce=E*I*VExpectancyTheoryExpectancyInsIncentiveProgramsDifferbypaymentmethodfrequencyofpayoutwaysofmeasuringperformancechoiceofwhichemployeesarecoveredFittingprogramtosituationdependsonorganizationalstructuremanagementstyletypeofworkIncentiveProgramsDifferbyTypesofPlansMeritPayIndividualIncentivesProfitSharingOwnershipGainsharingGroupIncentivesAlternativeRewardSystemsTypesofPlansMeritPayMeritPayProgramslinkperformanceappraisalratingstoannualpayincreasesfocus:identifyingindividualdifferencesinperformancebetterperformanceresultsinhigherreward,contingentonpositionintherange(compra-ratio)MeritPayProgramslinkperformCriticismsofMeritPaymeritpaysystemsfocusingonindividualperformancediscourageteamworkifperformanceisnotmeasuredfairlyandaccurately,thewholeprocesswillbecontaminatedapparentdifferencesbetweenpeoplearisealmostentirelyfromthesystemthattheyworkin,notthepeoplethemselvescoworkers,jobmaterials,customers,management,supervisionCriticismsofMeritPaymeritpIndividualIncentivesrewardindividualperformancepaymentsareNOTrolledintobasepayperformanceisusuallymeasuredasaphysicaloutputratherthansubjectiveratingsIndividualIncentivesrewardinIndividualIncentivesarerarebecausemostjobshavenophysicaloutputmeasureadministrativeproblemsofsettingandmaintainingacceptablestandardsplansmaybeinconsistentwithothergoals(e.g.acquiringmultipleskills,proactiveproblemsolving)peoplemayfocusonwhattheygetpaidforandnothingelseplansmayrewardoutputattheexpenseofqualityIndividualIncentivesarerareProfitSharingpaymentsarebasedonameasureoforganizationalperformance(profits)paymentsdoNOTbecomeapartofbasepayAdvantage:mayencourageworkerstothinkmorelikeownersDrawbacks:workersmayperceivetheirperformancehaslittletodowithprofitdeferrednatureofpayoutsProfitSharingpaymentsarebasOwnershipencouragesemployeestofocusonthesuccessoftheorganizationasawholebutmaynotresultinmotivationforhighindividualperformancegainsnotrealizeduntilstocksold(employeesleavingcompany?)Methods:stockoptionsESOPs(employeestockownershipplans)OwnershipencouragesemployeesGainsharingsharingproductivitygainswithemployeesdiffersfromprofitsharinginthatinsteadofusinganorganization-levelperformancemeasure(profits)plansmeasuregrouporplantperformancebetterformotivationExamples:Scanlonplan,Ruckerplan,Improsharegoesbeyondmoney--participationinproblemsolving=keyGainsharingsharingproductivitConditionsforeffectiveGainsharingmanagementcommitmentneedtochangeoraprocessofcontinuousimprovementmanagementacceptance&encouragementofemployeeinputhighlevelsofcooperationandinteractionemploymentsecurityinformationsharingonallproductivityandcostsgoalsettingcommitmentofallinvolvedpartiestochangeandimprovementagreementonaperformancestandardcalculationthatisunderstandable,perceivedasfair,closelyrelatedtomanagerialobjectivesConditionsforeffectiveGainsGroupIncentivesFocus=smallerworkgroupsWhilegainsharingtypicallymeasuresphysicaloutput,groupincentivestendtomeasureperformanceintermsofabroaderarraysuchascostsavingssuccessfulcompletionofproductdesignmeetingdeadlinesDrawback:competitionamongteamsGroupIncentivesFocus=smalleAlternativeRewardSystemsalternativestocash--travelmerchandiseearnedtimeoffsymbolicawardsplaques,coffeecups,bananasAlternativeRewardSystemsalte
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