LEARNINGOBJECTIVESExplainwhatproductivityimprovementprogramsareandhowtheycontributetocompetitiveadvantage.Definethestandardsforeffectiveproductivityprogramsdevelopedwithintheframeworkofexpectancytheory.Understandtherationalebehindpay-for-performanceprograms.Describethedifferenttypesofpay-for-performanceprograms.OpeningCase:GainingCompetitiveAdvantageatLincolnElectricProblem:FiguringouthowtomotivateemployeesSolution:ImplementinganemployeeincentivesystemPayingbythepieceProvidingyear-endbonusesProvidingstockoptionsHowitenhancedcompetitiveadvantageLowturnoverrateProductivityratetwotothreetimesgreaterthananyofitscompetitorsMaintainedastablepricestructuredespitehighsalaries2.LinkingProductivityImprovementProgramstoCompetitiveAdvantageProductivityimprovementprogramshavevariouswaybutsharethecommongoaloftryingtoimproveproductivitybyincreasingemployeemotivation.ExtrinsicrewardsRewardsgiventoemployeesbysomeoneelse(e.g.,theemployer)Examples—payraisesandbonusesIntrinsicrewardsRewardsthatcomefromwithinExamples—agoodfeelingonegetsfromsuccessfullycompletinganassignment(1)ImprovingworkerproductivityProductivityimprovementprogramsmotivateemployeestoengageinappropriatejobbehaviorstoimprovequantity,quality,andefficiency.SuccessfulProductivityimprovementprogramsareabletoestablishaclearconnectionbetweenemployeeeffortsandvaluedrewards.Makeemployeesbelievethattheycangainvaluedrewardsbyworkinghard.ExpectancytheoryStatesthatworkersmakeconsciousdecisionsabouthowhardtheyaregoingtoworktoachieveorganizationalgoals.Employeeswillbehighlymotivatedwhentheyperceive:Theireffortswillleadtosuccessfuljobperformance.Theirsuccessfuljobperformancewillleadtooutcomesorrewardstheyvalue.(2)Enhancingrecruitmenteffortsandretentionrates

mostpeopledoprefertoworkinsettingsthatallowthemtoearnrewardsfromtheirwork.usuallyattractmoreandbetterjobapplicantsproducehigherretentionrates.2.HRMIssuesandPracticesProductivityimprovementprogramsthatlinkfinancialrewardstosuccessfuljobperformanceProvideextrinsicrewards2.1Pay-for-performanceprograms(1)Rationale

Linkingrewardsdirectlytoperformanceisintuitivelyappealing,becausemostAmericansbelievethat:Employeesshouldberewardedforgoodperformance.ExceptionalperformersshouldearngreaterrewardsAccordingtoexpectancytheory,workershavelittleincentiveforperformingwelliftheireffortsareunrewarded.Ontheotherhand,whenpayislinkedtoperformance,overallperformanceshouldimprove.Iftheoveralljobperformanceimprovementyieldsfinancialreturnsthatexceedthecostoftherewards,acompany’scompetitiveadvantagewillimprove.（2）Potentialproblems

MaycreatelegalproblemsWhenadministeredunfairly,apay-for-performancesystemcouldviolateTitleVIIoftheCivilRightsAct.Theyalsofailiftheyviolatethestandardsforeffectivepay-for-performanceprograms.(3)standardsforeffectivepay-for-performanceprogramsEffort-performancelinksPerformance-rewardlinksValueofrewardTimelinessofrewardsPerformance-organizationalmissionlinksCostefficiency(4)MeritpayplansApay-for-performanceprogramthatgrantsemployeesannualpayraisesbasedontheirlevelsofjobperformance.Jobperformanceisusuallymeasuredonanappraisalinstrumentcompletedbythesupervisor.Thesizeofthepayraiseisdirectlylinkedtoperformanceandisspecifiedinadvanceinameritpayguidechart.AnexampleofameritpayplanPerformanceRatingMeritIncrease(PercentofSalary)58–10%45–7%32–4%2Noincrease1NoincreaseMeritpayplans:

strengthsandweaknessesEstablisheffort-performancelinkEstablishperformance-rewardlinkwhenpublicizedPerformanceappraisalsystemmayimpedetheeffort-performancelinkSometimesfailtoestablishaclearperformance-rewardlinkFailwhenemployeesdonotvaluetherewardsPerformance-rewardlinkishinderedwhensupervisorsfailtodistinguishbetweenemployeesTimelagbetweenbehaviorandrewardNotverycost-effectiveCanhinderproductivityifwrongbehaviorsarerewardedstrengthsweaknessesRecommendations

forstartingameritpayplanThinkbigMakepayincreasespublicDon’tdeliverrewardsasasalaryincrease;usebonusesDeliverrewardsassoonaspossibleMakesureindividualperformancecanbemeasuredaccuratelyGetemployee’sinputindevelopingthesystem（5）PiecerateplansPay-for-performanceprogramsthatbaseanindividual’swagesonthenumberof“pieces”orproductunitsheorsheproduces.UsedmainlyinproductionsettingsJobsaresimpleandhighlystructuredAchievementofperformancegoalsiswithinemployeecontrolPiecerateplans:

strengthsandweaknessesCostefficientEmployeesknowwhattodotoearnrewardPerformancestandardsareobjectiveandcannotbeinfluencedbysupervisorsRewardsaretieddirectlytoperformance—higheroutputsresultinhigherpay.Pressureplacedonemployeestoproduceemployeesfeeluncomfortable.Mayhavenegativesideeffectsfortheorganization.Especiallyperformance-organizationalmissionlink.StrengthsWeaknesses(6)Gainsharingplans

Pay-for-performanceplansthatofferemployeesacashawardformeetingorexceedingteam-basedgoals.Mostgainsharingplansfeaturethefollowing:Organizationhasproductivitygoalsthatcanbeachievedthrougheffectiveteamwork.Employeesreceivecashbonusesifthosegoalsaremet.Productivityismeasuredbyanexplicitformulawithobjectivemeasures.Employeesareencouragedtosubmitsuggestionsforcuttingproductioncostsorincreasingproductivity.TheScanlonplanAimstocutproductioncosts,relativetooutputCalculatetheratioofproductioncost/salesvalueofproductionthatwouldbeexpectedinatypicalyearDecidehowproductioncostsaretobecutFormalsuggestionsystemselicitemployeeopinionsAllocatesbonusesinthefollowingmanner:75percentispaidout25percentisheldinreserveforleanperiodsinwhichtherearenobonusesOfthemoneypaidout,25%goestothecompany;75%isdistributedamongemployees.Gainsharingplans:

strengthsandweaknessesEffort-performanceandperformance-rewardlinksarestrong.Linkperformancewiththeorganization’smission.Promoteteamwork.Cost-effective.StrengthsWeaknessesEmployeesmayperceiverewardsasbeingunfairlydistributed.EmployeesuggestionsforimprovingefficiencymaydwindleovertimeMaysufferifpayoutformulasareinflexibleRecommendationsCompanyculturemustbeoneofrespect,cooperation,andopencommunication.Managementmustdemonstrateitswillingnessto:ListentoandsupportemployeesuggestionsGooutandtalkwithemployeesCommunicatehonestlywithemployeesTheplanmustbedesignedsothatthepayoutisdependentonfactorstheemployeecancontrol.Meetregularlywithemployeestoshareinformationandideasandgathersuggestions.Gainsharingprogramsaremostlikelytosucceedunderthefollowingconditions:Profit-sharingplansSimilartogainsharinginthesensethattheyrewardgroup,ratherthanindividual,performance.Thepayoutisbasedonprofitsratherthangains.Aportionofthecompany’sprofitsarecontributedtoindividualemployeeaccounts.Threetypesofprofit-sharingplans:Deferredplans:Anindividual’sprofit-sharingearningsaredistributedatretirement.Distributionplans:Thecompanyfullydistributeseachperiod’searningsassoonastheprofit-sharingpooliscalculated.Combinationplans:Employeesreceiveaportionofeachperiod’searningsimmediately;theremainderawaitsfuturedistribution.Profit-sharingplans:

strengthsandweaknessesImprovesproductivitybymakingemployees’interestscompatiblewithemployers’goalsEmployeesmaygainagreatersenseofownership.Onlymarginallyaddresseffort-performance-rewardslinksNotalwayscostefficientRewardsarenottimelyStrengthsWeaknesses3.TheManager’sGuide

EmployeemotivationStrengthentheeffort–performancelinkStrengthentheperformance–rewardlinkProviderewardsthatarevaluedandperceivedasbeingfairInformalparticipativedecision-makingprogramsThelevelofparticipationgrantedshouldbecommensuratewitheachemployee’sdesireforchallenge,responsibility,andopportunitytohaveavoiceinworkunitdecisions.Employeesmustbelievetheyhavetherighttoshareworkdecisionswiththemanager.3.1ProductivityImprovementProgramsandtheManager’sJob3.2HowtheHRMDepartmentCanHelpDesignandevaluatetheproductivityimprovementprograms.Mustseetoitthatthecorporatecultureiscompatiblewithproductivityimprovementprograms.Mustalsotrainmanagersandemployeestoensuretheprogramsareimplementedsuccessfully.3.3HRMSkill-BuildingforManagersStepstoincreasethemotivationallevelsofsubordinates:DeterminethespecificbehaviorsinwhichyouwantyouremployeestoengageEstablishabaselinemeasureforthisbehaviorbymeasuringcurrentperforma