Individual Equity

1
Individual Equity

• Adjustments or additions to base pay to
  differentiate the contributions of individuals
  (teams) performing the same jobs in the
  organization.
• Performance and/or Seniority Based

2
Assumptions

• People differ in their contributions to the
  organization
• Firms overall performance depends on the
  performance of individuals and groups in the
  organization
• Required to be fair
• Required to attract, retain and motivate high
  performers

3
Challenges

• Do only what get paid for
• Negative impact on cooperation
• Lack of control over factors affecting
  performance
• Difficult to measure performance
• Psychological contracts/Credibility gap
• Job dissatisfaction and stress
• Reduction of intrinsic drives

4
Individual Plans

• Incentive Plans Piece Rate, Standard Hour Plan
• Merit Pay Adjustments to Base Pay
• Lump Sum Bonuses
• Alternative to merit pay
• Reduced costs because of lack of compounding.
• One Time Awards
• vacation trip, t.v., dinner

5
Obstacles to a "True" Merit Pay System

• Due to internal equity concerns, jobs are priced
  to the value of the job rather than individual
  performance
• Pay adjustments are intended to meet multiple
  objectives
• seniority, equity adjustments (comparable
  worth), increases for high demand employees, COL

6
Obstacles to a True Merit Pay System

• Performance is not normally distributed
• as poor performers not hired or everyone is above
  average. To maintain equity, everyone gets the
  same adjustment.
• Validity of the performance appraisal

7
Group Incentive Plans

• Advantage
• Foster group cohesiveness
• Facilitate performance measurement
• Disadvantage
• Free riders
• Hard to identify group
• Inter-group competition

8
Plant or Corporation-Wide Plans

• Gainsharing
• Split between management and workers of any cost
  savings generated
• Profit Sharing
• Organizational profits
• ESOPS
• Special purchase plans or bonus distributions

9
Managerial or Executive Plans

• Annual Bonus
• Short-term performance
• Stock Options
• Stock Appreciation
• Performance Plans
• Bonus based on long-term performance measure
• Book Value Plans
• Organizations book value

10
Myths About Pay

• Labor Rates and Labor Costs are the Same Thing
• You Can Lower Labor Costs by Cutting Labor Rates
• Labor Costs Constitute a Significant Part of
  Total Costs
• Low Labor Costs are a Potent and Sustainable
  Competitive Weapon
• People Work for Money

11
Meeting Challenges

• Link pay and performance appropriately
• Use a part of broader HRM system
• Build employee trust
• Use multiple layer of rewards
• Increase employee involvement
• Use motivation and non-financial incentives