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Chapter 6

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Business Administration
BUS 272
Graeme Coetzer

Chapter 6 – Applied Performance Practices  Financial reward practices o Oldest/most fundamental APP → a form of exchange (labour/skills in return for money/benefits), but also symbol of success, reinforce/motivator, reflection of performance, source of reduced anxiety o Value and meaning of money varies considerably across ppl and countries: men tend to value money more than women, countries w/ high power distance have high respect and priority for money, egalitarian cultures are discouraged from talking about money/displaying personal wealth o Membership- and seniority-based rewards (aka. pay for pulse)  Largest part of most paycheques; some benefits are universal while others increase w/ seniority  Might attract job applicants (esp. those seeking predicable income) and reduce turnover  Don’t directly motivate job performance/discourage poor performers from seeking out jobs better suited to their abilities; good performers lured to better- paying jobs  Some rewards are golden handcuffs which can potentially weaken job performance by creating continuance commitment o Job status-based rewards  Job evaluation – systematically evaluating the worth of jobs w/in an org by measuring their required skill, effort, responsibility, working conditions  Often used by firms to estimate job worth  Higher lvls in categories → higher job value, meaning higher pay, larger offices, company cars, etc.  Maintain feelings of equity and motivate employees to compete for promotions, but can encourage a bureaucratic hierarchy when orgs are trying to be more cost efficient and responsibility to external enviro  Reinforce status mentality, while Gen-X and Y employees expect more egalitarian workplace  Potentially motivates employees to compete w/ each other for higher status jobs and raise value of their own jobs by exaggerating job duties and hoarding resources o Competency-based rewards  Pay increases received w/in each pay band partly based on how well they’ve acquired new knowledge and skills  Skill-base pay – rewards for # of modules mastered and thus on # of jobs they can perform  Improve workforce flexibility by motivating employees to learn a variety of skills and perform a variety of jobs; product/service quality improves b/c employees have more skills  Also consistent w/ employability b/c reward employees who continuously learn skills  Measure specific skills, so more objective  Criticisms: over-designed (difficult to communicate plans to employees), vague (fairness issues when relying on definitions to award pay increases), expensive (time spent on employees learning new skills) o Performance-based awards (aka. variable pay plans)  Individual rewards – receipt of individual bonuses/awards for accomplishing a specific task or exceeding annual performance goals  E.g. commission – increased pay w/ sales volume  E.g. piece rate – rewards based on # of units produced  Team rewards  Gainsharing plans – team-based rewards that calculate bonuses from work unit’s cost savings and productivity improvement o Improve team dynamics, knowledge sharing, pay satisfaction, create link b/w effort and performance since cost reduction and labour efficiency is w/in team’s control  Organizational rewards o Profit-sharing plans – a rewards system that pays bonuses to employees based on the previous year’s level of corporate profits o Employee share ownership plans (ESOP) – a reward system that encourages employees to buy shares of the company, usually discounted or a no-share loan o Share options – a reward system that gives employees the right to purchase company shares at a future date at a predetermined price  Motivates employees to make the company more profitable, which would raise co’s share price and allow them to reap value above the exercise price of share options o Balance score-card (BSC) – reward system that pays bonuses (usually to execs) for improved results on a composite of financial, customer, internal process and employee factors → better the improvements, the higher the bonus o Evaluating org-level rewards  ESOP, share options, BSC create an “ownership culture” – employees feel aligned w/ org’s success  BSC also aligns rewards to specific measures of org performance, but potentially more subjective and requires particular corporate culture to be implemented effectively  Profit-sharing creates less ownership culture, but automatically adjusts employee compensation w/ firm’s prosperity, reducing need for layoffs or pay reductions  Problem w/ ESP/share options/less BSC – employees perceive week cxn b/w individual effort and corporate profits/company shares which weakens employee motivation  Some co’s use ESOPS as a replacement for pension progs – risky b/c pension funds lack diversification  Improving reward effectiveness  Link rewards to performance – inconsistencies/biases can be minimized by introducing plans (e.g. gainsharing, ESOPS) that use objective performance measures; if subjective measures are necessary, use multiple sources of info; apply rewards soon after performance occurs and high enough dose so employees experience positive emotions  Ensure that rewards are relevant – co’s need to align rewards w. performance w/in the employees control; need to correct for situational factors  Use team rewards for interdependent jobs – difficult to measure individual performance in team situations; team rewards encourage cooperation; however, in low-collectivist cultures, employees prefer rewards based on individual performance  Ensure that rewards are valued – ask employees what they value, don’t make false assumptions about what employees value  Watch out for unintended consequences – think about consequences of rewards; test incentives in pilot project  Job Design Practices o Job design – the process of assigning tasks to a job, including the interdependency of those tasks w/ other jobs  Job – a set of tasks performed by one person o Job design and work efficiency  Job specialization – the result of division of labour in which each job includes a subset of the tasks required to complete the product or service (usually completed in a short “cycle time”, i.e. time required to complete a task before starting over w/ a new work unit)  Job specialization improves work efficiency – employees have fewer tasks to juggle and spend less time changing activities; require fewer physical/mental skills required to accomplish work, so less time/resources required for training; practice tasks more frequently w/ shorter work cycles, so jobs are mastered quickly; employees w/ specific skill sets can be matched better to jobs for which they are best suited
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