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Chapter 5

COMM 292 Chapter Notes - Chapter 5: Employee Stock Ownership Plan, Flexible Spending Account, Goal Setting

Course Code
COMM 292
Angela Kelleher

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COMM 292: Observational Behaviour
Chapter 5
From Theory to Practice: The Role of Money
There are personality traits and demographic factors that correlate with and individuals
attitude toward money
People who value money highly score higher on competitiveness, materialism and control
o Score higher on self-esteem, need for achievement and Type A personality measures
Organizations need to understand individuals' needs when rewarding
Creating Effective Reward Systems
What to Pay: Establishing a Pay Structure
The worth of the job in the organization and relative to the market determines job pay
Paying more may attract better qualified and more motivated employees
Firms that pay below market level may have high turnover or not be able to afford higher
How to Pay: Rewarding Individuals through Variable-Pay Programs
Variable-pay programs: a portion of an employee's pay is based on some individual and/or
organizational measure of performance
Costs for organizations decline as productivity declines as pay is variable
Individual-Based Incentives:
Piece-rate pay: employees are paid a fixed sum for each unit of production completed
o Many firms modify this plan and add a base salary to the variable pay plan
Merit-based pay: based on performance appraisal ratings
o Individuals perceive a strong relationship between performance and rewards
o Separation between the most productive and blow average producers (lower pay
Bonuses: rewards employees for recent performance rather than historical performance
o Focus on the recent past, and rewards employees for high productivity or better work
o Rewarding individuals based on bonuses can cause problems (financial crisis 2008)
Skill-based pay: sets pay based on how many skills employees have/how many jobs they
can do
o Employees may top out and not be able to have any more pay increases
o Employees may be paid for skills they may not need immediately or ever
o Pay is not based on the level of performance which may vary
Group-Based Incentives:
Gainsharing: improvements in group productivity determine the total amount of money to
be shared
o Focuses on productivity gains rather than profits
o Rewards specific behaviours that are less influenced by external factors

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COMM 292: Observational Behaviour
Organizational-Based Incentives:
Profit-sharing: employer shares profits with employees based on a predetermined formula
o Employees may ignore customer service and employee development
o Companies in cyclical industries would see varied results, thus varied profit-sharing
o Best in organizations with more teamwork, and managerial philosophy encouraging
Stock options and employee stock ownership plans (ESOP): company-established benefit
plan in which employees acquire stock as part of their benefits
o Employees will think more about their actions if they have ownership in the
Teamwork: incentive pay to individuals can lead to problems in group productivity and
o Organizations focused of teamwork must focus incentives on the team not individuals
Unions: employees are usually paid based on seniority and job categories, with little
o Against variable pay as it may lead to competition and increased work stress
Public Sector Employees: difficult to link productivity as most of these jobs are service
o The goal setting theory is better applied to these types of employees
Research Findings: ESOPs
Have the potential to increase job satisfaction and work motivation
Takes ownership and participative style to achieve improvements in the firm's performance
Research Findings: Variable-Pay Programs
Variable-pay programs increase motivation and productivity
o Does not mean this is true for all organizations or employees
Teamwork, unions, public sectors, and ethics are problems to the pay-for-performance
Flexible Benefits: Developing a Benefits Package
Different employees have different needs and ideas about their benefits
Flexible benefits: employees put together a benefits package individually tailored to their
own needs
Modular plans: predesigned packages of benefits that fit a specific group of employees
Core-plus plans: consist of a core benefits package with other added options available
Flexible spending accounts: given money to purchase of package of benefits
Intrinsic Rewards: Employee Recognition Programs
Recognition given to employees may not be enough in some jobs, organizations
Linked Employee Recognition Programs and Reinforcement Theory:
Recognition is the best motivator in the workplace according to employees
Team celebrations can enhance group cohesiveness and motivation
Employee Recognition in Practice:
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