BUS 272 Chapter Notes - Chapter 5: Employee Stock Ownership Plan, Performance Appraisal, Profit Sharing

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Ch. 5 – Motivation in Action
- organizations can use piece-rate wages, merit-based pay, bonuses, stock options & employee stock
ownership plans to motivate employees
 but making job themselves motivating more effective
- process of initially setting pay levels entails balancing internal equity (job evaluation) & external equity
(pay surveys)
- piece-rate wages = pay employees w/ fixed sum for each unit of production completed
 limitation: not feasible for many jobs
- merit-based pay = pay for indiv performance based on performance appraisal ratings
 to be effective, indivs need to perceive strong relationship b/t performance & rewards
 typically based on annual performance appraisal, only valid as performance ratings
 pay raise pool fluctuates based on economic/other conditions that have little to do w/ indiv’s
 may result in gender & racial discrimination
- bonus = reward employees for recent performance rather than historical performance, one-time
 rewarding based on financial measures can cause problems, better to split into categories so
employees don’t feel like they “missed out”
- skill-based pay = on basis of how many skills employees have/how many jobs they can do
 ppl gain better understanding of one another’s jobs
 related to higher flexibility, positive attitudes, productivity, etc
 ppl can learn all the skills they need, no more challenge
 don’t address level of performance, only whether someone can perform the skill
- gainsharing = group-based incentive plan in which improvements in group productivity determine the
total amount of money to be shared
- profit-sharing plan = distributes compensation based on some established formula designed around
company’s profitability
- employee stock ownership plans & stock options (ESOP) = company-established benefit plan in which
employees the right to buy stock in the company at a later date for a guaranteed price
 employees will be more likely to think about consequences of their behaviour on bottom line if
they own part of company
 increase employee satisfaction & innovation, but impact on performance less clear
- profit-sharing plans linked to higher levels of employee affective commitment, esp in small orgs
- flexible benefits = benefits plan that allows each employee to put together a benefits package
individually tailored to his/her own needs & situation
- financial incentives may be more motivating in the short term, but in long run nonfinancial more
 free!
 need to be meaningful
- 3 obstacles to ending common management reward follies
1) indivs unable to break out of old way of thinking about reward & recognition practices
2) orgs often don’t look at big picture of their performance system
3) both management & shareholders often focus on short-term results
 org objective needs to align w/ rewards
- job characteristics model
 skill variety = degree to which job requires variety of diff activities so employee can use
specialized skills & talents
 task identity = degree to which job requires completion of whole & identifiable piece of work
 task significance = degree to which job has impact on lives/work of other ppl
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