PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE - PowerPoint PPT Presentation

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE • Objectives: Understand 1. Different reward systems & their role in organization. 2. Importance of profit sharing, stock options & other incentive plans. 3. Different types of employee benefits & their utility to the employer & employees.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE • Structure: 1. Reward systems. 2. Incentives & rewards. 3. Competence related pay. 4. Skill-based rewards. 5. Team-based rewards. 6. Profit-sharing.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE • Structure: (cont.) 7. Gain sharing. 8. Sock options. 9. Merit pay. 10. Employee ownership. 11. Employee benefits

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Five factors to be considered in designing reward system: 1. Satisfaction depends on amount received and expected. 2. It is influenced by comparison with what others got. 3. It affects overall job satisfaction. 4. Different people expect different rewards and attach different values. 5. Rewards lead to more rewards and more satisfaction.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Attributes of Reward system: 1. Equity. 2. Fairness 3. Effectiveness. 4. Motivation 5. Satisfy needs 6. Linked to performance.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Motivational aspect: Of late reward system practices are changing consistent with participative management e.g. gain-sharing has become popular, skill-based pay plans have replaced job-based plans. • Best performers represent retention problem. External comparisons make retention difficult. To counter turnover, rewards at a level higher than others is one solution. Connection between performance and reward must be visible and a climate of trust and credibility must exist in the organization. Employees have to trust the system that promises reward.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Reward can motivate the learning of skills and development of knowledge. Since employees want to learn skills leading to promotions, companies use skill-based pay when they want employees to learn skills not leading to promotions. Reward system may cause the culture of a company to vary widely. Reward systems are often significant cost factor in organization. • The way rewards are distributed has a profound effect on the quality of work –life as well as on effectiveness of organization.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Reward systems are expected to do four things : 1. Motivate to perform effectively. 2. Motivate employees to join the organization. 3. To come to work 4. Motivate employees by indication their position in the organization structure.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.1 Reward systems: • Factors determining satisfaction with rewards : 1.Comparison with own expectations. 2. Comparison with others within & outside. 3. Internal feelings of competence, achievements, personal growth and self-esteem. 4. Kind of reward they desire- cash or job content etc. 5. Rewards leading to other rewards, or their symbolic value. • Criteria of receiving award should be clear. Management must ensure that workers perceive rewards as equitable and comparable with competitors .

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.2 Incentives & rewards: • Incentives are forward looking, rewards are retrospective. Financial incentives provide direct motivation. Financial rewards give tangible recognition for exceeding performance & reaching a level of competence. Financial incentives motivate to achieve objectives, improve performance and enhance competitive skills. Financial rewards Payment by result on shop floor and commission on sales are financial incentives. Achievement bonus or team-based lump-sum payment are financial rewards.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.3 Competence-related pay: • This is a method of rewarding people. By reference to the level of competence they demonstrate. It is about the effective use of competence to generate added value. The system works through competence analysis.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.4 Skill-based pay: • It links pay to the level of skill and acquisition and application of additional skills. It mainly is applied to manual work. In competence related pay schemes, the behaviors and attitudes are assessed in addition to pure skills. Initially skill based pay provides incentive, but may outlive their usefulness and have to be revised or replaced to be cost effective

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.5 Team-based rewards: • These are provided to members of established team, linked to the performance of that team. These are shared amongst members. Rewards for individuals may be influenced by team results. It is necessary to understand the nature of teams and how they function. Team-based rewards are not easy to design or manage.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.6 Profit-sharing: • It is a participative management theory, a group- based organization plan. • Objectives: 1. Encourage employees to identify themselves with company. 2. Stimulate greater interest in the affairs of company. 3. Encourage cooperation between employees & management. • Under this scheme, employees get concerned with success of organization and it permits labour costs to vary with organisation’s ability to pay. • Companies use it to educate employees on its financial performance

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.7 Gain-sharing: • It is a factory or company-wide plan, where employers share the financial gain and create a motivated and committed workforce. Traditional forms of gain-sharing plans are Scanlon plan and Rucker plan. • Success of the plan depends on creating a feeling of ownership, involvement of employees and their commitment to plan. Three main principles on which gain-sharing plan is based are- ownership, involvement and commitment. Gain-sharing plan focuses the attention of all employees on key issues and enlists their support.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.7 Gain-sharing: • There are three differences between Gain- sharing and profit-sharing. 1. Gain-sharing is based on productivity rather than profits. Thus pay is linked to what employee can control. 2. Gain-sharing is paid more frequently. 3. Gain-sharing pay is not deferred.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.7 Gain-sharing: • Common results of Gain-sharing plan: 1.Coordination, teamwork and sharing of knowledge are enhanced at lower level. 2. Social needs are recognised through participation & reinforcing group behavior. 3. Attention is focused on cost savings, not just quantity of production. 4. Acceptance of change due to technology, market and new method is greater because higher efficiency leads to bonus. 5. Attitudinal change occurs among workers and they demand more efficient management, planning and good performance from co-workers.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.7 Gain-sharing: • Common results of Gain-sharing plan: (cont) 6. Employees try to reduce overtime, and to work smarter. 7. Employees produce ideas as well as effort. 8. Union-management relations can be more flexibly administered. 9. Unions get stronger by supporting the plan due to better work situation and higher pay. 10. Unorganised locations remain free from unions. • Limitations of Gain-sharing are: As they do not pay more for better performance, they do not attract and retain best performers. It pays bonus even when organization is not earning profits. Gain-sharing plans do not fit in with every situation.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.8 Stock options: • These are long term incentives. It is a right to purchase shares at specific price. It is long term executive incentive and retention tool. • Goals of this plan are: 1. motivate employees to act in best interest of the company. 2. Enhance their identification with the company. 3. Make labour cost variable with company performance.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.9 Merit pay: • It pays salary increase for performance based on appraisal. Purpose of merit pay is to motivate and retain best performers. However if appraisal is not done well, good measure of individual performance does not exist.

PERFORMANCE APPRAISAL SYSTEMS CHAPTER VII REWARD FOR PERFORMANCE 7.10 Employee ownership: • In this some or total ownership of company is put in the hands of employees. These include stock option, stock purchase plans & employee stock ownership plans (ESOPs). It creates integration across the company and attracts and retains employees. However its usefulness is situational.