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22 Cards in this Set

  • Front
  • Back
3 assumptions that pay-for-performance is based
1. Individual employees and work teams differ in how much they cnotribute to the firm- not only in what they do but also in how well they do it

The firm's overall performance depends to a large degree on the performance of individuals and groups within the firm

To attract, retain, and motiavte high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance
8 Challenges facing Organizations that want to adopt an incentive program
The "Do Only What You Get Paid For Syndrome"

Negative Effects on the Spirit of Cooperation

Lack of Control

Difficulties in Measuring Performance

Psychological Contracts

The Credibility Gap

Job dissatisfaction and stress

Potential Reduction of Intrinsic Drives
Piece-rate system
compensation system in which employees are paid per unit produced
Meeting the Challenges of Pay-for-Performance Systems
Link Pay and Performance Appropriately

Pay for Performance as part of a braoder HRM system

Build employee trust

Promote the belief that performance makes a difference

Use multiple layers of rewards

Increase employee involvement

Use motivation and nonfinancial incentives
Merit pay
increase in base pay, normally given once a year
Individual bonus programs (lump-sum)
Given on a one-time basis and do not raise the employee's base pay permanently
tangible prize
Advantages of Indivdual-based pay-for-performance
Expectancy theory

Individuals are goal-oriented and financial incentives can shpe an individual's goals over time

Assessing the performance of each employee individually helps the firm achieve individual equity

Individual-based plans fit in with an individualistic culture
Disadvantages of individual-based pay-for-performace plans
Create competition and dstroy cooperation among peers

sour working relationships between subordinates and supervisors

Tying pay to goals may promote single-mindedness

Many employees do not believe that pya and performance are linked

Individual pay plans may work against achieving quality goals

Promote inflexibility in some organizations
Conditions under which individual pay plans are most likely to succeed
contributions of an employee can be accurately isolated, job demands autonomy, cooperation is less critical to successful performance or when competition is to be encouraged
Team based Plans
Normally reward all team members equally


foster group cohesiveness
aid performance measurement


Possible lack of fit with individualistic cultural values

Free rider

Social pressure to limit performance

Difficulties in identifying meaningful groups

Intergroup competition leading to a decline in overall performance
Conditions in which team-based plans are most likely to succeed
When work tasks are so intertwined that it is difficult to single out who did what

Few levels in the hierarchy and teams of individuals at the same level are expected to complete most of their work with littl edependence on supervisors or upper management

Technology allows for the separation of work into relatively self-oriented or independent groups

Employees are committeed to their work and are intrinsically motivated

The organization needs to insist on group goals
creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large bureaucratic structure
Plantwide Plans
Reward all workers in a plant or business unit based on the performance of the entire plant or unit
plantwide pay-for-performance plan in which a portion of the company's cosst saving is returned to workers, usually in the form of a lump-sum bonus
Advantages of Plantwide Pay-for-Performance Plans
Firms can be more productive if it follows a participative approach to mangement


Protection of low performers
Problems with the criteria used to trigger rewards

Management labor conflicts
Conditions Favoring Plantwide Plans
small or midsize

When Technology limits improvement in efficiency

Historical performance

Corporate culture with less hierarchy
Profit sharing
cooperative pay-for-performance plan that uses a formula to allocate a portion of declared profits to employees

Typically used to fund retirement plans

Very mechanistic. Don't attempt to elicit worker participation
ESOP's Employment Stock ownership plans
corporatewide pFp that rewards employees with company stocks, either as an outright grant or at a favorable price that may be below MV
Adv. and Disadv. of Corporate wide pFp plans

financial flexibility for the firm


Employees may be at considerable risk

Limited effect on productivity

Long-run financial difficulties
Conditions favoring corporate wide plans
Large organizations

interdependence of different parts of the business

Market conditions

Presence of other incentives
Conditions favoring corporate wide plans
Large organizations

interdependence of different parts of the business

Market conditions

Presence of other incentives