Hlecture12 - 1 INCENTIVE PAY SYSTEMS Professor Bruce...

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1 INCENTIVE PAY SYSTEMS Professor Bruce Fortado MAN 4301/6305 University of North Florida Incentives plans have a strong intuitive appeal. Many people like the idea of paying in direct connection with output. The underlying assumptions seem straightforward. (1) It is assumed differences in levels of performance can be measured and are reflected in the workers' performance appraisals. (2) It is assumed all workers are economically motivated . This is sometimes referred to as the "economic men" assumption. (3) It is assumed the workers have the necessary skills and equipment to produce higher levels of output if they exert themselves. (4) It is often implicitly assumed higher levels of performance will not hurt the workers in any way . (5) It is also assumed tangible rewards in the form of praise, added monetary rewards and promotions will actually ensue . Incentive pay systems can be designed on an individual, group or organization wide basis. When a group of jobs are interrelated, one must consider group plans instead of individual plans. One practical problem is the linkage between an individual’s effort and results can be weakened in group plans. Each worker’s incentive payment may not match his/her effort (Dessler, 2011: 213). Moreover, about 70% of employees feel their organizations’ incentives are ineffective, so the design and execution of a plan should not be taken lightly (Dessler, 2011: 212). A number of classic field studies were carried out, beginning in the 1920s. These revealed the aforementioned basic assumptions were not entirely accurate. The observation and interviews utilized by these researchers uncovered the following findings. In general the workers could produce thirty percent more than they were turning in to management . Why did this extensive output restriction exist? (1) Group norms prevailed with regard to what was "a fair day's work for a fair day's pay." Deviants who worked too rapidly or too slowly were labeled as either "rate busters" or "chiselers." These deviants were sanctioned by the group via ostracism, insulting nicknames and binging (hitting a person in the upper arm with a knuckle or a fist). (2) The workers feared working themselves and their friends out of work (i.e. they feared added productivity would result in people being laid off). (3) They also feared the incentive standards would be raised if they produced too much (i.e. the managers would move the carrot). In the end, they thought they would be expected to produce more for much the same pay. (4) Goods were often "banked" rather than turning in the full amount produced to management. This was done in order to (a) allow for social time and (b) provide some insurance against a slow period or a bad day
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This note was uploaded on 07/09/2011 for the course MAN 4401 taught by Professor Fortado during the Spring '11 term at UNF.

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Hlecture12 - 1 INCENTIVE PAY SYSTEMS Professor Bruce...

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