Pay For Performance And Financial Incentives (1)

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• Incentives play an important role in any pay
  plan. The main purpose of this chapter is to
  explain how managers use performance-based
  incentives to motivate employees.
• After a brief overview of motivation theories,
  well discuss incentives for individual
  employees, and then for managers and executives,
  salespeople, and professionals, as well as
  organization wide incentive plans.

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• LEARNING OUTCOMES
• Explain how you would apply five motivation
  theories in formulating an incentive plan.
• Discuss the main incentives for individual
  employees.
• Discuss the pros and cons of commissions versus
  straight pay incentives for salespeople.
• Describe the main incentives for managers and
  executives.
• Name and define the most popular organization
  wide variable pay plans.
• Outline the steps in designing effective
  incentive plans.

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• Motivation, Performance, and Pay
• Incentives
• Financial rewards paid to workers whose
  production exceeds a predetermined standard.
• Frederick Taylor
• Popularized scientific management and the use of
  financial incentives in the late 1800s.
• Systematic soldiering.
• Fair days work.
• Linking Pay and Performance
• Understanding the motivational bases of incentive
  plans.

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• The Hierarchy of Needs
• Maslows Hierarchy of Needs

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• Herzbergs HygieneMotivator Theory
• Hygiene's (extrinsic job factors)
• Satisfy lower-level needs
• Inadequate working conditions, salary, and
  incentive pay can cause dissatisfaction and
  prevent satisfaction.
• Motivators (intrinsic job factors)
• Satisfy higher-level needs
• Job enrichment (challenging job, feedback, and
  recognition) addresses higher-level (achievement,
  self-actualization) needs.

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• Demotivators and Edward Deci
• Intrinsically motivated behaviors are motivated
  by the individuals underlying need for
  competence and self-determination.
• Offering an extrinsic reward for an
  intrinsically-motivated act can conflict with the
  acting individuals internal sense of
  responsibility.
• Some behaviors are best motivated by job
  challenge and recognition, others by financial
  rewards.

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• Victor Vrooms Expectancy Theory
• Motivation is a function of
• 1. Expectancy the belief that effort will lead
  to performance.
• 2. Instrumentality the connection between
  performance and the appropriate reward.
• 3. Valence the value the person places on the
  reward.
• Motivation (E x I x V)
• If any factor (E, I, or V) is zero, then there is
  no motivation to work toward the reward.
• Employee confidence building and training,
  accurate appraisals, and knowledge of workers
  desired rewards can increase employee motivation.

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• Behavior Modification /Reinforcement Theory
• B. F. Skinners Principles
• - To understand behavior one must understand the
  consequences of that behavior.
• - Behavior that leads to a positive consequence
  (reward) tends to be repeated, while behavior
  that leads to a negative consequence (punishment)
  tends not to be repeated.
• - Behavior can be changed by providing properly
  scheduled rewards (or punishments).