Chapter 11.doc

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Western University
Management and Organizational Studies
Management and Organizational Studies 3342A/B
Linda Eligh

Chapter 11Pay for Performance PlansWhat is a PFP planoSignal a movement away from entitlement toward pay that varies with some measure of individual and org performanceoGrandfather of all plansMERIT PAYoTwo trends can be traced back to PFP plansIncreasing competition from foreign producers forces North American producers to cut costs andor increase productivitywell designed variable plans have known to motivate employees and even cut costs In todays fast paced business environment with so much new technology workers must be willing to adjust what they do now and how they do itfailure to move quickly means market share goes to competitors Scientific pay for performance plans Short termoMerit payincrease in base pay related to performanceWhat the employee does this year in terms of performance is rewarded every year heshe remains with the employer Some people say that it is expensive and it doesnt achieve its desired goalimproving individual and corporate performance Must improve the accuracy of performance ratings allocate enough merit money to truly reward performance and make sure the size of the merit increase differentiates across performance levels oLump sum bonusesEmployees receive an end of year bonus that does not build into base payViewed less of an entitlement than merit pay because it has to be earned every year By giving lump sum bonuses the company is essentially freezing the base payemployees not fond of this oIndividual spot awardsAwarded for exceptional performance that top management is notified about In a large company formal recognition might occur Smaller companies may be more casual about recognition and more subjective about deciding the size of the award oIndividual incentive plans typesOffer a promise of pay for some preestablished level of performance Incentive plans vary on two dimensionsMethod of rate determinationbased on units of production over time or time period per unit of production Specified relationship between production level and wagesties wages to output on a onetoone basisor vary wages as a function of production level Method of rate determinationRelationship between Units of production Time period per unit production level and per time periodof productionpayPay constant function 1 Straight piecework 2 Standard hour planof production levelplanPay varies as function 3 Taylor differential 4 Halsey 5050 methodof production levelpiece rate systemMerrick multiple piece rate system1most frequently implemented easily understood by workers and more readily accepted than some other systems2relatively commonmore practical than 1 for longcycle operations and jobs that are nonrepetitive and require numerous skills for completion3both those plans provide diff piece rates depending on the level of production relative to standardTaylor plan establishes 2 ratesone
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