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After reading this chapter, you should be able to: Describe the fundamental pay programs for recognizing employees' contributions to the organization's success, list the advantages and disadvantages of the pay programs, list the major factors to consider in matching the pay strategy to the organization's strategy,. | 1 Recognizing Employee Contributions with Pay After reading this chapter, you should be able to: Describe the fundamental pay programs for recognizing employees' contributions to the organization's success. List the advantages and disadvantages of the pay programs. List the major factors to consider in matching the pay strategy to the organization's strategy. Chapter 12 Recognizing Employee Contributions with Pay Explain the importance of process issues such as communication in compensation management. Describe how U.S. pay practices compare with those of other countries. Chapter 12 Introduction Organizations have a relatively large degree of discretion in deciding how to pay. Differences in performance by an individual, group, organization, seniority, or skills determine the pay. Regardless of cost differences, different pay programs can have very different consequences for productivity and return on investment. How Does Pay Influence Individual Employees? Three different theories help explain compensation’s effects: Reinforcement Theory Agency Theory Expectancy Theory How Does Pay Influence Individual Employees? Reinforcement Theory - A response followed by a reward is more likely to recur in the future. Expectancy Theory - Motivation is a function of valence, instrumentality, and expectancy. Agency Theory -The interests of the principals (owners) and their agents (managers) may not converge. Types of agency costs include: perquisites attitudes towards risk decision-making horizons Agency Costs Agency costs may be minimized by the principal choosing a contracting scheme that helps align the interests of the agent with the interests of the principals. The type of contract depends partly on the following factors: risk aversion outcome uncertainty job programmability measurable job outcomes ability to pay tradition Programs for Recognizing Employee Contributions Programs differ by payment method, frequency of payout, and ways of measuring performance. Potential . | 1 Recognizing Employee Contributions with Pay After reading this chapter, you should be able to: Describe the fundamental pay programs for recognizing employees' contributions to the organization's success. List the advantages and disadvantages of the pay programs. List the major factors to consider in matching the pay strategy to the organization's strategy. Chapter 12 Recognizing Employee Contributions with Pay Explain the importance of process issues such as communication in compensation management. Describe how U.S. pay practices compare with those of other countries. Chapter 12 Introduction Organizations have a relatively large degree of discretion in deciding how to pay. Differences in performance by an individual, group, organization, seniority, or skills determine the pay. Regardless of cost differences, different pay programs can have very different consequences for productivity and return on investment. How Does Pay Influence Individual Employees? Three different theories .
