Chapter 12 discussion-hr management

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PLEASE ANSWER THE FOLLOWING QUESTION…Why are some car sales companies like CarMax paying their sales associates a salary when most of the industry pays their sales associates a straight commission? What might be some drawbacks of this plan?

AN EXAMPLE…

I believe they are doing this in order to create a sense of security for the employees along with loyalty among the company, So the associates can work more efficiently without worrying about their paycheck coming from a sale they perform, and instead get paid for the process of engaging with the customer to make the sale. However, there can be some drawbacks to this plan, the associates might not feel that motivated to sell the vehicle because they know that they are on a fixed salary, and there would be a decrease in performance possible due to this, and this may increase the tension of financial salary. 

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Human Resource Management: Functions, Applications, Skill

Development by Robert N. Lussier and John R. HendonChapter 12

Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Incentives (Variable Pay)

Compensation that depends on some

measure of individual performance or

results in order to be awarded.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Why Give Incentives?

1. To reward employees for their past
performance in the hope they will want
similar rewards in the future and will
therefore will repeat the desired behaviors.

2. To move some of the risk associated with
paying employees from the firm to the
individual.

3. To guide employees towards goals that ties
into the organizational goals.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Individual or Group-based Incentives?

Individual incentives reinforce
performance of a single person with a
reward that is significant to that person.

Group incentives provide reinforcement
for actions of more than one individual
within the organization.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Individual Incentives Work Best When…

� There are distinct, measurable outcomes for

individual efforts.

� Individual jobs require autonomy.

Group Incentives Work Best When…

� We need people to cooperate.

� Individual contributions are difficult to identify.

� Members possess similar or complimentary skills.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Incentive Options for Individuals

Bonus – a lump sum payment, typically given to an
employee at the end of a period; is most effective when
given after employee reaches a specified goal.

Commission – payment for selling an item, usually
calculated as a percentage of the item’s price; is most
effective when it provides a significant return but also
provides a disincentive to make a “quick sale.”

Merit Pay – rewards top performers with increases in
annual wage that carry over from year to year; is most
effective when employees understand the benefits of this
incentive and when only top performers are rewarded.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Incentive Options for Individuals (continued)

Piecework Plans – the more workers get done, the more
they get paid; are more effective when managers set clear
performance standards and offer continuous feedback.

Standard Hour Plans – each task is assigned a “standard”
amount of work time for completion; are more effective if
worker must redo substandard work for no additional pay.

Recognition and other non-monetary incentives – are the
most effective motivational tools, and include: extra time
off; ability to choose tasks or jobs; flexible hours and
working conditions; extra training in areas of interest to
employees; and giving praise.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Incentive Options for Groups

Profit Sharing Plans – a portion of company proceeds

paid over a specific period of time (usually quarterly or

annually) through a bonus payment; are more effective

when management doesn’t manipulate factors to

minimize profits and posts weekly records of firm

revenues and profits; and when employees are trained

to increase revenues/decrease costs.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Incentive Options for Groups (continued)

Gainsharing Plans – can be accomplished
through any organization factor that costs the
company money, and that can be analyzed and
modified for performance improvement; are
more effective than profit sharing because
options are more difficult for management to
manipulate, so workers feel they have more
control over their results.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Employee Stock Ownership Plan (ESOP) – company
stock is given to employees over a period of time;
offers tax advantages to firm and employees, and
motivates employees to feel/act more like owners of
the firm.

Stock Options– employees may buy X shares of stock
in the company at a specified point in the future, at a
preset price; motivates employees to improve the
value of the firm.

Stock Purchasing Plans – ability to purchase company
stock anytime, usually at a discount

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Evenly Distributed or Fairly Distributed Group

Incentives?

1. Even. Each member receives the same reward;

best to use when group cohesion is needed.

2. Fairly. Each member receives his/her fair share

of the incentive based on peer evaluations and

a formula for their pay level; best to use when it

is important to motive top-performing

employees.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Failure, Challenges, and Guidelines in Creating
Incentive Pay Systems

Many incentive systems are poorly designed
and implemented due to:

� Poor system management.

� Complicated programs.

� The plan doesn’t really increase rewards, or it
provides insignificant rewards.

� Employee can’t affect the desired outcomes.

� Employees don’t know how they are doing.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Challenges to Incentive Pay Systems
Group v. individual incentives – group incentives work
better than individual ones when people have to cooperate
with one another to complete tasks.

Employee entitlement mentality – overcome it by basing
rewards on achieving a particular specific and measurable
goal, and providing reinforcement soon after the goal is
achieved.

Do only what gets paid for syndrome – overcome it by
making the incentive specific, but making overall job
performance a part of any variable pay program.

Extrinsic rewards may decrease intrinsic motivation – look
for ways to show that the external motivators are good for both
the employee and others who depend on the employee.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Executive Compensation – Too Much or Just Enough?

Excesses in executive pay, e.g., when CEO’s pay increased
while employees took pay cuts and were laid off, resulted
in questions about companies acting ethically and being
socially responsible.

� The practice harmed a large number of stakeholders
(including employees and shareholders) in order to
reward relatively few executives.

Some of these actions affected the market value of firms
and resulted in the Dodd-Frank Wall Street Reform and
Consumer Protection Act.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

The Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010

Limits executive pay in public corporations and

adds requirements for reporting of compensation

and shareholder involvement with executive

compensation.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

The Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010

Significant provisions:

� Shareholders can vote on executives’ compensation
packages (“say on pay”) and “golden parachutes”.

� Every public company must disclose the CEO’s total
compensation and the total median compensation of
all employees, and the ratio.

� All public firms must provide annual information on
the relationship between executive compensation and
the total shareholder return.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

Executive Incentives

Should be designed to motivate the executive to make
decisions that will benefit the organization over both
the short and the long term.

� Stock incentives.

� Perquisites.

� Short-term bonuses.

� Long-term stock awards or options.

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Incentive Pay

Human Resource Management: Functions, Applications, Skill Development by Robert N. Lussier and John R. Hendon © 2012 SAGE Publications, Inc.

The Goal of Executive Compensation

To create a system that aligns the behavior of the

executive with the interests of the owners of the

firm by combining short and long-term

incentives.

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