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Chapter 5

BUS 272 Chapter Notes - Chapter 5: Employee Stock Ownership Plan, Life Insurance, Performance Appraisal

Business Administration
Course Code
BUS 272
Lieketen Brummelhuis

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Chapter 5
Extrinsic rewards:
Demonstrate how the different types of variable-pay programs can increase employee
Variable-pay program A pay plan that bases a portion of an employee’s pay on some
individual and/or organizational measure of performance.
Four major forms of individual-based variable
1. Piece-rate pay plan - an individual-based incentive plan in which employees are paid
a fixed sum for each unit of production completed.
2. Merit-based pay plan - an individual-based incentive plan based on performance
appraisal ratings.
3. Bonus - An individual-based incentive plan that rewards employees for recent
performance rather than historical performance.
4. Skill-based pay - An individual based incentive plan that sets pay levels on the basis
of how many skills employees have or how many jobs they can do.
Group-Based Incentives
Gainsharing - A group-based incentive plan in which improvements in group productivity
determine the total amount of money to be shared.
Organizational-Based Incentives
Profit-sharing plan - An organization-wide incentive plan in which the employer shares profits
with employees based on a predetermined formula.
Employee stock ownership plan (ESOP) - A company-established benefit plan in which
employees acquire stock as part of their benefits.
- Eg. stock options give employees the right to buy stocks in the company at a later
date for a guaranteed price.
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Flexible Benefits - A benefits plan that allows each employee to put together a benefits
package individually tailored to his or her own needs and situation.
- Eg.
Alain Boudreau and Yasmin Murphy have very different needs in terms of employee benefits.
Alain is married and has three young children and a wife who is at home full time. Yasmin, too, is
married, but her husband has a high-paying job with the federal government, and they have no
children. Alain is concerned about having a good dental plan and enough life insurance to support
his family in case it’s needed. In contrast, Yasmin’s husband already has her dental needs
covered on his plan, and life insurance is a low priority for both Yasmin and her husband. Yasmin
is more interested in extra vacation time and long-term financial benefits such as a tax-deferred
savings plan.
Intrinsic Rewards:
Employee Recognition Programs
Expectancy theory tells us that a key component of motivation is the link between
performance and rewards (that is, having your behaviour recognized)
As companies and government organizations face tighter budgets,
nonfinancial incentives become more attractive.
Motivating by Job Redesign:
Job design: The way the elements in a job are organized.
The way the elements in a job are organized can increase or decrease effort.
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