MOTIVATING IN CHANGING TIMES PAY FOR THE PERFORMANCE NOTES
8.0 Introduction
As global competition causes our businesses to restructure, the
empowerment of employees to work faster and smarter has become
increasingly important. However, the success of employee empowerment
depends upon our ability to motivate this extra effort. Motivation may
be defined in terms of some performance behaviour. Motivation is an
emotive state causing persons to want or need something intensely enough
to put forth the necessary effort to achieve it. This drive to achieve
is usually goal-directed, and becomes more complex when dealing with
groups or teams. What drives us as individuals to achieve is often
difficult to decipher, as our needs and desires will vary over time.
What is Motivation
Motivation is a process in which people chose between alternative forms
of behaviour in order to achieve personal goals. The goals sought by
individuals can be relatively tangible, such as monetary reward or
promotion, or intangible such as self-esteem or job satisfaction. The
rewards available to an individual are generally classified under
- Intrinsic rewards – those that derive from the individuals own
experience e.g. sense of achievement or a feeling of self-esteem. - Extrinsic rewards – those conferred on a person from outside e.g. a
pay rise or promotion. Managers find reliable links between
individual motivation and effective performance. There are many
theories of motivation. The human relations school believes
employees want to do a good job. Although their individual may
differ, they would be motivated to achieve their potential.
Hygiene factors include working conditions, pay, company policies, and
interpersonal relations. When hygiene factors are only factors present
in the job, they do not motive employees, they only satisfy them.
However, if they are not present, the work then becomes dissatisfying.
To motivation, the employee needs the presence of the hygiene factors
plus the motivators. The motivators are higher-level employee needs of
achievement, recognition, responsibility and opportunity.
However individuals act to obtain these goals, they must believe their
behaviour will lead to their attainment. A crucial element is how
valuable the goal is to the individual. The more value the individual
attaches to the goal, the more effort the individual will expend to
achieve the goal. The three basic needs are achievement, affiliation,
and power. The need for power is defined as controlling others, assuming
responsibility for others and having authority over other.
Reasons for Pay Performance Plans
Many organizations have implemented incentive plans for a variety of
reasons: increasing labour costs, more global competitive markets,
faster technological advances and greater needs for productivity
quality. In the twenty first century, incentives plans and focusing on
pay-for performance, improved quality and productivity. By using pay for
performance managers are
finding employees improve their job performance. Incentive plans may not
always lead to organization improvement for two main reasons. First some
companies feel that incentive plans are in conflict with a team-oriented
approach. Second management may have to give sufficient attention to the
design and implementation of incentive programs.
The success of pay for performance system mainly depends on the
organization. If the organization has a strong corporate culture, high
morale, and employees trust the management, then there is a stronger
probability of success. Team incentives should not be used in situations
where a few individuals are likely to maximize their output at the
expenses of their coworkers. Group incentives should reduce rivalry and
promote cooperation and concern for all members in the units overall
performance.
Types of Incentive programs
There are three important point related to the effective administration
of incentive plans:
- Incentives. Incentives systems are effective only when management is
willing to pay incentives based on differences in individual or team
performance. - Motivation. Incentives must be large enough to motivate and reinforce
exceptional performance. - Standards. Incentive systems must be based on clearly defined and
accepted performance standards effectively communicated to employees.
There are a number of types in incentive programs, which are described
in the following sections.
- Individual Incentives
Many factors are involved in the design of an individual incentives
plan. For example, most incentive plans are designed to set production
rates according to the technology used. Incentive payments for hourly
employees are based upon the number of units produced, by the
achievement of specific performance goals, or by productivity
improvements in the organization. Who would be including in incentives?
The incentives system should be designed with a focus on specific
employees in mind – such as production middle managers, sales people,
engineering, or senior executives. Most organizations are different
incentives systems for different levels. How will performance be
measured? The decision whether to use an individual, team or
organization wide incentive is critical. The major factor is the extent
to which results can be measured at the individual or team level,
whether the individual’s contribution is measured, and the effect on
teamwork among unit members. - Piecework
One of the oldest most commonly used incentives plans is piecework. In a
straight piecework plan, the employee receives a certain amount of pay
for each unit produced. Compensation is then determined by the number of
units produced during a specific time period. Employees often earn as
much as 55 per cent more than their base pay in a piecework system. The
differential piece plan enables employees whose production exceeds the
standard output to receive a higher rate of all of their work than the
rate rapid to those who perform below the standard. The piecework
systems are more like succeed in repetitive jobs where units of output
can be reliably measured, when quality is less critical, and with a
continuous flow of work. Unfortunately, it is not effective in jobs that
do not have reliable standards of performance. One of the weaknesses of
piecework is that it may not always be an effective motivator. If
workers find that increases in output bring disapproval their fellow
workers, then the need for friendship and approval may outweigh the
incentive to produce more. Secondly, the standards for piece rates often
tend to change, because employees discover ways to do the work in less
than standard time.
- Individual Bonuses
Individual bonuses are an incentive payment that supplements the basic
wage. It has the advantage of reward workers with more pay for higher
performance effort, yet still providing a basic paycheck.
- Team Bonuses
Team bonuses are usually used when the contribution of an individual
employee is either not measurable or when performance depends on team
cooperation. Which work process requiring more teamwork and coordination
among workers, team bonuses are very popular. Most team bonus plans are
tied to such measurable outputs as company profit, improvements in
quality, or cost reductions. Team bonuses, like individual incentives
plans, often improve employee motivation. This allows the organization to:
- Reward team productivity.
- Compensate team members for new skills.
- Increase overall performance
Incentives for Management Employees
Merit raises represent one of the most commonly used incentives systems
for managerial level employees. They are used to motivate managerial,
sales and professional employees where raises can be directly related to
performance. Merit increases are usually separate from the person’s base
pay.
- Sales Incentives
Sales incentive plans are often based on the same factors as individual
incentive programs. The drive needed in selling demand highly motivated
sales personnel. The competitive nature of selling underlines the
widespread use of sales incentives.
Sales incentive plans often share many of the characteristics of
individual incentives, but there are also unique requirements. Sales
output measures can usually be establishes as the level of sales (in
shillings or units), but sales people are not paid just on sales volume.
They often provided other services, such as customer training, product
development, consultation and new accounts, which involve complex
measures of performance. A critical first step for a sales incentive
program then is to determine the most important performance factors. In
general, sales performance maybe measured by the total sales volume and
by their ability to generate new
accounts. If measures are used such as promoting new products and
providing customer service, then more complex measures may be used.
Setting performance standards for sales are not without problems because
sales performance is often affected by external factors beyond the
control of the salesperson. There are economic and seasonal fluctuation,
differing levels of competition, changes in demand, and more lucrative
sales territories which can all affect an individual’s sales level.
Because sales volume along not be an accurate an indicator of the effort
salespeople have expanded many organizations set quotas based on sales
potential. In designing an incentive plan for sales people, there are
also the problems of rewarding extra sales effort and compensating for
promotional activities that may not impact directly on sales.
- Managerial and Executive Incentives
There is research to support the use of incentive systems for
executives, which are usually related to the strategic goals of the
organization. Incentives for managerial and executives are believed to
have an impact upon organizational performance although there is little
data to support this belief. In most cases executive incentive plans are
linked to net income, return on investment,
stock price, or total dividend paid. These incentives are usually paid
in the form of bonuses and stock options. CEO’s often receive over half
of their compensation from incentives resulting in criticism of what
they actually contribute to the corporation.
Pros and Cons of Executive Bonuses
Are top executives really worth the exorbitant salaries and bonuses they
receive? The answer usually depends on whom you ask. Corporate
compensation committees feel that big bonuses are necessary as a way to
reward superior performance as a
‘fact of business life’ reflecting market trends for CEO compensation.
However, as previously noted, strong criticism is being voiced regarding
the high salaries and bonuses being paid to senior executives. Others
point out that some critics often find executive may receive record
bonuses even though their organizations are performing poorly and
employees are being asked to take wage and salary cuts or layoffs.
- Executive Perquisites
In order to recruit and attract top people executives usually receive
special benefits termed perquisites. Perquisites or perks are recognized
by executives as important in the organization, the extras used to
supplement basic compensation. Perks also serve as status symbol to both
insides and outsiders. Perquisites also provide tax savings to
executives, because most perks are not taxable as income (although this
is constantly changing). The more common perks range from company care
special parking expenses accounts, plush offices chauffeurs, country
club memberships, special vacations, physical exams an executive dining
room, and liability insurance. Perks are an entrenched feature of
executive compensation.
- Team profit Sharing Plans
There has been an increase in the number and type of team or group
incentive plans. Team incentive plans are becoming preferable to
individual incentives as a result of the increasing use of team-based
approaches. An effective team incentive plan is based on the same
factors an individual plan is based on the same factors as individual
plans. The measures differ in that a team plan is based on some measure
of team productivity. Team plans are particularly effective when team
work is essential and when the essential system is trying to involve the
level of participation. Team plans are used when jobs are so interested
that it is difficult (or impossible) to identify individual output
measures. The size of a team usually ranges from 5 to 20 people,
depending upon the task and the required coordination between team
members. The smaller the team, ‘the higher the identification on team
performance’. There is increasingly evidence that team incentives
increase productivity
- Gain sharing Plans
Gain sharing plans try to reduce the amount of labour required for a
given level of output (cost saving) or increase the output for a given
amount of labour (productivity increase). The method for determining the
standard production rate and the incentives rate must be clearly
defined. Gain sharing plans are based on the assumption that better
cooperation among workers and between workers and manages will result in
greater effectiveness.
