TAILIEUCHUNG - Lecture Human resource management: Gaining a competitive advantage (9/e) – Chapter 12

Chapter 12 - Recognizing employee contributions with pay. After reading this chapter, you should be able to: Discuss how pay influences individual employees, and describe three theories that explain the effect of compensation on individuals; describe the fundamental pay programs for recognizing employees’ contributions to the organization’s success; list the advantages and disadvantages of the pay programs;. | Chapter 12 Recognizing Employee Contributions with Pay Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Introduction Organizations have discretion in deciding how to pay. Each employee’s pay is based upon individual performance, profits, seniority, or other factors. Regardless of cost differences, different pay programs can have different consequences for productivity and return on investment. Pay plans used to energize, direct, or control employee behavior. Three theories that help to explain compensation’s effects are the reinforcement theory, expectancy theory and the agency theory; behavior–reward contingencies shape behaviors. 12- Programs Recognizing Contributions Programs differ by payment method, payout frequency and ways of measuring performance. Potential consequences include employees’ performance motivation and attraction, culture and costs. Management style and type of work influence whether a pay program fits the situation. Gain Sharing 12- Merit Pay Merit pay programs link performance-appraisal ratings to annual pay increases. A merit increase grid combines an employee’s performance rating with employee’s position in a pay range to determine size and frequency of his or her pay increases. Merit Bonus - Merit pay paid in the form of a bonus, instead of a salary increase. Some organizations provide guidelines regarding percentage of employees who should fall into each performance category. 12- Profit Sharing Under profit sharing, payments are based on a measure of organization performance (profits), and payments do not become a part of base pay. Advantages- profit sharing may encourage employees to think more like owners. labor costs are automatically reduced during difficult economic times, and wealth is shared during good times. Disadvantage-workers may perceive their performance has less to do with profit than top management decisions

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