Motivation Reward system and the role of compensation — страница 3

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continue to shape employees’ satisfactions, and those expectations will sustain the existing practices. If money has been emphasized as an important symbol of success, that emphasis will continue even though a compensation system with a slightly different emphasis might have equal motivational value with fewer administrative problems and perhaps even lower cost. Money is important, but its degree of importance is influenced by the type of compensation system and philosophy that management adopts. Pay for performance Some reasons why organizations pay their employees for performance are as follows: under the right conditions, a pay-for-performance system can motivate desired behavior. a pay-for-performance system can help attract and keep achievement-oriented individuals. a

pay-for-performance system can help to retain good performers while discouraging the poor performers. In the US, at least, many employees, both managers and workers, prefer a pay-for-performance system, although white-collar workers are significantly more supportive of the notion than blue-collar workers. But there is a gap, and the evidence indicates a wide gap, between the desire to devise a pay-for-performance system and the ability to make such a system work. The most important distinction among various pay-for-performance systems is the level of aggregation at which performance is defined - individual, group, and organizationwide. Several pay-for-performance systems are summarized in the exhibit that follows. Individual performance Group performance Organizationwide

performance Merit system Piece rate Executive bonus Productivity incentive Cost effectiveness Profit sharing Productivity-sharing Historically, pay for performance has meant pay for individual performance. Piece-rate incentive systems for production employees and merit salary increases or bonus plans for salaried employees have been the dominant means of paying for performance. In the last decade, piece-rate incentive systems have dramatically declined because managers have discovered that such systems result in dysfunctional behavior, such as low cooperation, artificial limits on production and resistance to changing standards. Similarly, more questions are being asked about individual bonus plans for executives as top managers discovered their negative effects. Meanwhile,

organizationwide incentive systems are becoming more popular, particularly because managers are finding that they foster cooperation, which leads to productivity and innovation. To succeed, however, these plans require certain conditions. A review of the key considerations for designing a pay-for-performance plan and a discussion of the problems that arise when these considerations are not observed follow. Individual pay for performance. The design of an individual pay-for performance system requires an analysis of the task. Does the individual have control over the performance (result) that is to be measured? Is there a significant effort-to-performance relationship? For motivational reasons already discussed such a relationship must exist. Unfortunately, many individual bonus,

commission, or piece-rate incentive plans fall short in meeting this requirement. An individual may not have control over a performance result, such as sales or profit, because that result is affected by economic cycles or competitive forces beyond his or her control. Indeed, there are few outcomes in complex organizations that are not dependent on other functions or individuals, fewer still that are not subject to external factors. Choosing an appropriate measure of performance on which to base pay is a related problem incurred by individual bonus plans. For reasons discussed earlier, effectiveness on a job can include many facets not captured by cost, units produced, or sales revenues. Failure to include all activities that are important for effectiveness can lead to negative

consequences. For example, sales personnel who receive a bonus for sales volume may push unneeded products, thus damaging long-term customer relations, or they may push an unprofitable mix of products just to increase volume. These same salespeople may also take orders and make commitments that cannot be met by manufacturing. Instead, why not hold salespeople responsible for profits, a more inclusive measure of performance? The obvious problem with this measure is that sales personnel do not have control over profits. These dilemmas constantly encountered and have led to the use of more subjective but inclusive behavioral measures of performance. Why not observe if the salesperson or executive is performing all aspects of the job well? More merit salary increases are based on