Compensation system: variable pay plan

-concerned with strenght and direction of behavior ans the factors that influence people to behave in a certain way

-refers to goals that individuals have, the way that individuals choose their goals and in which others try to change their behavior

-motiviating others about getting them move in the direction you want them to go to achieve results

People are motivated first to satisfy each lower-order need and then, in sequence, each of the higher level needs

physiological needs- safety needs- social needs- esteem needs- self actualisation

All people have three motivationg drivers, and one of these will be our dominant motivating driver

the need for power, the need for affliation, the need for achievement

Two factors theory

1.     Hygienes: satisfy lower-level needs, inadequate working conditions, salary and incentive pay can cause dissatisfaction and prevent satisfaction

2.     Motivators: satisfy higher-level needs, job enrichment adress higher level needs

-consequences of specific behavior must be understand

-behavior that leads to positive consequences (reward) tends to be repeated

-Behavior that lead to negative consequences  (punishment) tends to not be repeated

Motivation is afunction of:

-Expectancy: the belief that effort will lead to performance

-Instrumentality: the connection between performance and the appropriate reward

-Valence: the value the person places on the reward

Motivation = (E*I*V)

-variable pay plan (or pay-for-performance plan) is an incentive plan that ties an individual oer team’s pay to some measure of the firm’s overall profitability

·      the worker is paid a sum for each unit he or she produces in one-unit time, such as items per hour or items per day

->Straight piecework: a worker is paid a sum for each item ge or she makes with a strict proportionality between results and reward

->Standard hour plan: worker is paid a basic pay rate but is paid an extra percentage of his/her rate for performance excending standard per hour or per day

·      permanent cumulative base salary increase the firm awards to an individual employee based on his or her individual performance

-> Becomes permanent ongoing reward for past performance

->Tie merit (Gleichstandverdienst) pay to both individual and organizational performance

-Incentive are based on teams performance

How to design team incentives:

-set individual work standards

-set work standards for each team member and then calculate each member’s output

-members are paid based on one of three formulas:

1. all receive teh same pay by the highest producer

2. all receive the same pay earned by the lowest producer

3. all receive the same pay equal to the average pay earned b the group

involve employee receiving a share of the company’s annual profits

·Current profit-sharing plans

->Employees receive cash shares of the firm’s profits at regular intervals

·Scanlon plan

->Basic features of the plan include philosophy of cooperation, identity, competence, involvement system, and sharing of benefits formula and payroll expenses are calculated by dividing total sales

·Gainsharing plans:

-> Employees engaged in a common effort to achieve a company’s productivity objectives, with any resulting cost-savings gains shared among employees and the company

Company-wide plans in which a firm contributes shares of ist own stock or cash to purchase the stock to a trust established to purchase shares of the firm’s stock for employees

->A firm annualy contributes ist own stock- or cash to a trust established for the employees

-> Trust holds the stock in individual employee accounts and distributes it to employees upon separation from the firm if the employee has worked long enough to earn ownership of the stock

Put some portion of the employees pay at risk, subject to the firm meeting is financial goals

-Bonus: pay one time when the task has been done

-Comission plan: pay is a percentage of sales results

-Combination plan: pay is a combination of salary and comissions usually with a sizeable salary component

-Commission-plus-drawing-account plan: commissions are paid but a draw on future earnings helps the salesperson to get through low sales periods

-Commission-plus-bonus plan: pay is mostly based in commissions, small bonuses are paid for directed activities like selling add-ons or slow-mocing items

max as annual bonus

->Plans intended to motivate short-term performance of managers and tied to company profitability and paid as bonuses

->Issues in awarding bonuses: eligibility basis, fundsize basis, individual performance

-stock options                      -premium price options

-performance shares          -stock appreciation right

-indexed options