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Chapter 6

BUS 272 Chapter Notes - Chapter 6: Liquid Oxygen, Ion, Merit Pay

Business Administration
Course Code
BUS 272

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LO1. The Meaning of Money in the Workplace
1. Rewarding people with money is one of the oldest and certainly the most
widespread applied performance practices. From this perspective, money and
related rewards align employee goals with organizational goals
2. However, money is much more than an object of compensation for an employee’s
contribution to organizational objectives. It is a symbol of achievement and status, a
motivator, a source of enhanced or reduced anxiety, and an influence on our
propensity to make ethical or risky decisions
3. The meaning of money varies considerably from one person to the next. Studies
report that money is viewed as a symbol of status and prestige, as a source of security,
as a source of evil, or as a source of anxiety or feelings of inadequacy.
4. The meaning of money seems to differ between men and women. Men tend to view
money as a symbol of power and status, whereas women are more likely to view its
value in terms of things for which it can be exchanged.
5. The meaning of money also seems to vary across cultures. People in countries with
high power distance (such as China and Japan) tend to have a high respect and
priority for money.
6. People who earn higher pay tend to have higher job performance because the
higher paycheque enhances their self-concept evaluation.

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LO2. Financial Reward Practices Exhibit 6.1!Financial rewards come in many
forms, which can be organized into the four specific objectives identified in
Membership-based and seniority-based rewards (sometimes called “pay for pulse”)
represent the largest part of most paycheques.
! These membership- and seniority-based rewards potentially attract job applicants
(particularly those who desire predictable income) and reduce turnover.
! However, they do not directly motivate job performance;
! On the contrary, they discourage poor performers from seeking work better suited
to their abilities. Instead, the good performers are lured to better-paying jobs.
! Some of these rewards are also “golden handcuffs”—they discourage
employees from quitting because of deferred bonuses or generous benefits that
are not available elsewhere.

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In some parts of the world, companies measure job worth through job evaluation.
Job evaluation - Systematically rating the worth of jobs within an organization by
measuring their required skill, effort, responsibility, and working conditions.
Most job evaluation methods give higher value to jobs that require more skill and effort,
have more responsibility, and have more difficult working conditions.
! Job status–based rewards try to improve feelings of fairness, such as that people
in higher-valued jobs should get higher pay.
! These rewards also motivate employees to compete for promotions.
! However, at a time when companies are trying to be more cost-efficient and
responsive to the external environment, job status–based rewards potentially do
the opposite by encouraging a bureaucratic hierarchy.
! These rewards also reinforce a status mentality, whereas Generation-X and
Generation-Y employees expect a more egalitarian workplace.
Furthermore, status-based pay potentially motivates employees to compete with each
other for higher-status jobs and to raise the value of their own jobs by exaggerating job
duties and hoarding resources.
Skill-based pay plans are a more specific variation of competency-based rewards in
which people receive higher pay based on their mastery of measurable skills.
PRO: Competency-based rewards motivate employees to learn new skills.
! This tends to support a more flexible workforce, increase employee creativity, and
allow employees to be more adaptive to new practices in a dynamic environment.
Product or service quality also tends to improve because employees with multiple
skills are more likely to understand the work process and know how to
improve it.
CON: However, competency-based pay plans have not always worked out as well as
promised by their advocates.
! They are often over-designed, making it difficult to communicate these plans to
employees. Competency definitions tend to be abstract, which raises questions
about fairness when employers are relying on these definitions to award pay
increases. Skill-based pay systems measure specific skills, so they are usually
more objective. However, they are expensive because employees spend more
time learning new tasks.
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