4.3- Individual rewards

4.3- Individual rewards - Unit 4, Lecture 4: Performance...

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PERFORMANCE MANAGEMENT CONCEPTS Prof. John Kammeyer-Mueller MGT 4301 Unit 4, Lecture 4: Performance Management
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Plan Where we are Understand how companies establish pay policies for jobs Understand how companies provide benefits for employees Where we want to be Understand how pay can be modified to fit the individual How we know how we’re doing What do each of the following theories say about incentive compensation plans? Expectancy Agency Goal setting Cognitive evaluation Risk aversion Unit 4, Lecture 4: Performance Management
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Milgrom and Roberts’ Implications of the Motivation Problems Incentive-Intensity Principle The amount of incentives is not full sharing of profit, of course; only share as much as needed to get maximum effort Introduces a constraint: risk aversion of the agent. The more pay you put at risk, the more you have to pay them. Equal Compensation Principle Activities that are equally valued by the employer should be rewarded proportionately Narrow incentive contracts can produce inefficient behavior, such as emphasizing quantity and neglecting quantity, overproduction, high pressure sales, or ethical breaches Unit 4, Lecture 4: Performance Management
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Milgrom and Roberts’ Implications of the Motivation Problems Informativeness Principle A measure of performance that evaluates performance of the agent should be included in the compensation contract Monitoring Intensity Principle Because monitoring is costly, employers should ensure that they are only monitoring up to the point that it pays off with increased effort Also means cheap monitoring solutions will be favored Unit 4, Lecture 4: Performance Management
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Are Cash Incentives Common? Survey data suggest that there is huge variation in
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This note was uploaded on 07/18/2011 for the course MAN 4301 taught by Professor Kammeyer during the Fall '10 term at University of Florida.

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4.3- Individual rewards - Unit 4, Lecture 4: Performance...

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