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Chapter 6

Chapter 6 Notes

Management (MGH)
Course Code

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Chapter 6
Money as a Motivator
Piece-ratelink pay to performance on production jobs
Ex. pay a certain sum of money for each complete unit of production completed
Wage incentive plansvarious schemes that link pay to performance on production jobs
Wage incentives problems
1) lowered quality
2) differential opportunity – raw materials or the quality of production equipment
3) reduced cooperationneglect common tasks like house-keeping
4) incompatible job designdifficult t indentify individual productivity (i.e. assembly line work
or where teams are large)
5) restriction of productivitywhat constitutes a fair days work
Merit Pay Plans – link pay to performance on white-collar jobs; ineffective
-evaluate the performance of employees
Merit pay Plans Problems
1) low discriminationunable or unwilling to discriminate between good and poor performers
2) small increases spread out over an entire year
Lump sum bonus awarded in single payment and not built into base pay
3) pay secrecy – cant assess the relative value of what they receive
Motivate Teamwork
1) profit sharing – when firm makes a profit, some of this is returned to employees in cash bonus
or a retirement supplement
-not highly motivational because too many factors
-hard to see the impact of ones efforts on overall outcomes
-work best in smaller firms that regularly turn a profit
2) employee stock ownership plans (ESOPs)employees own a set amount of a company’s shares
and stake in the companys future earnings and success
-might purchase shares at a fixed price; match employees contributions
-work best in small firms; bad in weak economy when share price goes down
3) Gainsharing plansworkforce has some control
-reductions in the cost of labour, material, or supplies
-costs decrease monthly bonus shares thisgain” b/w employees and the firm
4) Skill-based pay – pay for knowledge
-according to number of job skills they have acquired
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