BUS 272 Chapter Notes - Chapter 5: Employee Stock Ownership Plan, Flexible Spending Account, Alfie Kohn

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Chp 5: Motivation in Action
Creating Effective Reward Systems
Four major strategic rewards decisions:
1. What to pay employees - establishing a pay structure
Balancing internal equity and external equity
o Internal Equity - The worth of the job to the organization established through technical
process called job evaluation
o External Equity - The external competitiveness of an organization's pay relative to pay
elsewhere in its industry established through pay surveys
2. How to pay individual employees - variable-pay plans and skill-based pay
Variable-Pay Program - A reward program in which a portion of an employee's pay is based on
some individual and/or organizational measure of performance
o Allows companies to fluctuate pay quicker in response to the economy, changing fixed
labour costs to more variable costs
Individual-Based Incentives
Piece-Rate Pay Plan - An individual-based incentive plan in which employees are paid a fixed sum
for each unit of production completed
o Often modified where employees earn a base hourly wage plus a piece-rate differential
Merit-Based Pay Plan - An individual-based incentive plan based on performance appraisal ratings
o Effective because individuals perceive strong relationship between performance and
o Based on performance appraisals can make it valid or invalid
o Sometimes pay raise pool fluctuates based on economic conditions, not performance
o Unions typically resist merit-based pay plans
Bonus - An individual-based incentive plan that rewards employees for recent performance rather
than historical performance
o Incentive effects higher because it rewards recent performance
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
o Increase flexibility in workforce, employee skills are interchangeable
o Employees get frustrated when they learn all the skills
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o Don't address level of performance
o Skills acquired may not be needed immediately
o Is not agreed to be equitable
Group-Based Incentives
Gainsharing - A group-based incentive plan in which improvements in group productivity
determine the total amount of money to be shared
o Focus on productivity allows employees to receive incentive even when organization isn't
Organizational-Based Incentives
Profit-Sharing Plan - An organization-wide incentive plan in which the employer shares profits with
employees based on a predetermined formula
o Focus on past financials, ways to cut cost today without considering longer-term needs
o Tend to ignore factors such as customer service, not directly linked to profits
Employee Stock Ownership Plan (ESOP) - A company-established benefit plan in which employees
acquire stock as part of their benefits
3. What benefits to offer - flexible benefits
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
Three most popular types of benefit plans
Modular Plans - Predesigned packages of benefits, with each module put together to meet the
needs of a specific group of employees
Core-Plus Plans - Consist of a core of essential benefits and a menu-like selection of other benefit
options from which employees can select and add to the core
Flexible Spending Accounts - Allow employees to set aside up to the dollar amount offered in the
plan to pay for particular services
4. How to construct employee recognition programs
o Recognition can take many forms, informal or formal
o Rewarding a behaviour with recognition immediately following that behaviour is likely to
encourage is repetition
o Recognizing an employee's superior performance often costs little or no money
Caveat Emptor: Apply Motivation Theories Wisely
2:08 PM
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