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Lecture 11

MHR 749 Lecture 11: CHAPTER 11
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Department
Human Resources
Course
MHR 749
Professor
Margaret Yap
Semester
Winter

Description
CHAPTER 11 Pay for performance plans are popular because of competition from foreign competitors, fast-paced business environment and it’s a signal away from entitlements - They have a proven track record of motivating better performance and helping cut costs Why variable pay? For employer: - Motivate better employee performance and can attract/motivate employees - Manage total compensation costs - Align business and individual goals For employees: Performance is rewarded accordingly Short-term performance plans: - Merit pay: increase in base pay related to past performance , subjective and expensive and doesn’t improve employee and corporate performance - Lump sum bonuses: end-of-year bonuses that do not build into base pay o Viewed as less of an entitlement than merit pay, less expensive than merit pay over long run - Individual spot awards: awarding employees for exceptional performance on a special project - Individual incentive payment plan: a pay for some objective, pre- established level of performance. Disadvantage is that it creates a level of mistrust between managers and workers o Advantages ▪ Substantial contribution that raises productivity, lowers production costs and increases earnings of workers ▪ Less direct supervision is required to maintain reasonable levels of output than under payment by time ▪ Helps costing and budgetary control o Disadvantages: ▪ Greater conflict may emerge between employees seeking to maximize output and managers concerned about deteriorating quality levels ▪ Attempts to introduce new technology may be resisted by employees concerned about the impact on production standards ▪ Reduced willingness of employees to suggest new production methods ▪ Increased complaints that equipment is poorly maintained ▪ Increased turnover among new employees discouraged by the unwillingness of experienced workers to cooperate in on-the- job training ▪ Elevated levels of mistrust between workers and management Straight piecework plan: wages are determined by how much products you make Standard hour plan: wages are predetermined, based on hours it takes to complete task multiplied by rate Types of GIP: Gainsharing, Profit Sharing, Earnings at risk Group incentive plans: incentive pay for meeting or exceeding team performance standards. Historically, financial measures have been the most widely used for these plans. They do however suffer from the “free-rider” problem where one person of the group does not carry their share of the work. This is a huge problem with group compensation systems - It is also difficult to set equitable targets for all teams Gainsharing plans: GIP where employees share in cost savings. This does also help increase employees knowledge of business Using a historical standard to calculate whether employees will receive an incentive payout is a key element in designing a gain-sharing plan Differe
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