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Rotman Commerce (1,103)
RSM260H1 (28)
Lecture

Chapter 6.docx

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Department
Rotman Commerce
Course
RSM260H1
Professor
J.Heathcote
Semester
Winter

Description
Chapter Six-Motivation in Practice Money as a Motivator  Employees and managers underestimate the importance of pay as a motivator  According to Maslow  Pay can function to satisfy social, self-esteem and self-actualization need  Expectancy theory: of pay can satisfy a variety of needs, it should be highly valent, should be a good motivator to the extent that it is clearly tied to performance  Pay is most important and effective motivator of performance  Ability to earn money for outstanding performance is competitive advantage for attracting, motivating and retaining employees Linking Pay to Performance on Production Jobs  Piece-rate- individual workers are paid a certain sum of money for each unit of production they complete  Usually for workers who are paid a basic hour wage ($8), and a piece-rate on top of hourly wage ie. $8.00/hour & $0.30 for each unit produced  Group incentives-when individual productivity is hard to measure ex. Monthly bonus for production over minimum quota  Wage incentive plans-various schemes to link pay to performance on production jobs  Wage incentives usually lead to substantial increases in productivity Potential Problems with Wage Incentives Lowered Quality  wage incentives increase productivity at the expense of QUALITY  especially hard to control for customer service, faster “people process” Differential Opportunity  workers have different opportunities to produce at a high level  raw materials or quality of product equipment varies from workplace to workplace  expectance theory: workers will differ in expectancy that they can produce at a high level Reduced Cooperation  rewarding individual productivity decrease cooperation among workers Incompatible Job Design  Sometimes impossible to identify and reward individual contributions to productivity ie. Assembly lineuse group incentives  as size of time increases, relationship b/t individual productivity and pay decreases ie. You may be slacking off, but the rest of your team (20 ppl) works really hard, and you all get bonus, the bonus does not reflect on your individual productivity Restriction of Productivity  Restriction of productivity-workers sometimes con to an informal agreement about what constitutes a fair day’s work and artificially limit their output accordinglydecrease the expected benefits of the incentive system Linking Pay to Performance on White Collar Jobs  White collar jobs offer fewer objective performance criteria to which pay can be tied  Paid bonuses that are tied to profitability of firm, or commission on sales  Job performance evaluated by the subjective judge of managervery subjective evaluations  Merit pay plans-systems that attempt to link pay to performance on white collar jobs  Periodically, managers are required to evaluation the performance of employees on some form of rating scale or written descriptionthis determines merit pay  Managers especially support that performance is an important determinant of pay  Merit plans do not work b/c ppl who work under such plans do not perceive a link b/t their job performance and their pay 1  In most cases, seniority, # of employees, job level affect pay more than performance Potential Problems with Merit Pay Plan Low Discrimination  Managers might be unable or unwilling to discriminate between good performers and poor performers Small Increases  When merit increases are simply too small to be effective motivators  Lump sum bonus-merit pay that is awarded in a single payment and built into base pay visually see the bonus received  When merit pay makes up large apart of compensation package, management must make sure that merit pay ties with goals benefiting company  Or employees could be motivated to just earn yearly bonuses at expense of long-term organizational goals Pay Secrecy  Most companies want extreme secrecy surrounding salaries in most organizations  Salaries are confidential and those who receive merit pay to not discuss w/ co-workers  PROBLEM: even if merit pay is fair, no way to know that w/o any comparison, thus think pay too lowcompanies fail to inform about average pay  Employees inclined to “invent” salariesreduces both satisfaction and motivation  Managers tend to overestimate pay of their peer, underestimate pay of their bosses, and underestimate pay of subordinates  If NO SECRECY (open pay system), managers inclined to evaluate everyone to be good to avoid scrutiny by subordinates  but if its open, unfair evaluation would be noted Using Pay to Motivate Teamwork Profit Sharing  Profit Sharing-one of the most commonly used group-oriented incentive systems  the return of some company profit to employees in the form of a cash bonus or a retirement supplement  Not highly motivationproblem is that too many other factory goes into profit (ie. General economy) that is not in the control of workforce and performance  Also difficult (especially in large companies) to see the impact of one’s own actions on profits  Profit sharing work best in smaller firms that regularly turn profit Employee Stock Ownership Plans  ESOP-become a popular group oriented incentive-allow employees to own a set amount of company’s shares and provide employees with a stake in the company’s future earrings and success  Allow purchase of shares at fixed price, and company might match employee contribution  ESOP attract and retain talent, motivate employee performance, focuses employee attention on organizational performance, creating culture of ownership, educating employees about business, conserve cash by substituting options for cash  ESOP believed to increase employee’s loyalty and motivation b/c they align employee’s goals and interest with companycreate a sense of legal and psychological ownership  Work best in small organizations that regularly turn a profit  More difficult in large organization or employees to see connection b/t their efforts and company profits b/c many factors can influence value of company stock besides employee performance  ESOP lose motivation when share price goes down Gainsharing  Gainsharing plans- based on productivity or performance improvements  Result in reduction in cost of labour, material or supplies Skill-based pay  Skill based pay-a system in which people are paid according to the number of job skills they have acquired  Motivate employees to learn a wide variety of work tasks  More skills, more pay 2  Training costs high  Managers might want current worker to stay and work, rather than them learning new skills  Increase productivity, reduction of scrap Plan Type How it Works What it Requires to Advantages Disadvantages be Effective Profit sharing & E receive bonus based on E must increase  Simple and easy Annual ESOP corp profit (#of shares profits  Guaranteed paymentsE you have), payment in Owners must affordable (pay ignore comp. l/t cash or retirement fund share profits and only when goals ownership company has $$$) External factors  Increase E interest influence profits in company Gainsharing When exceed Target measurable  Plan enhances Focus only on predetermined target, get Management coordination and productivitybad bonusbetter encourage E teamwork quality productivity, quality, E must have high  E learn more Pay bonus even customer service degree of trust in about business when unprofitable management and objective
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