Hlecture12 - 1 INCENTIVE PAY SYSTEMS Professor Bruce...

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INCENTIVE PAY SYSTEMS Professor Bruce Fortado MAN 4301/6305 University of North Florida 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. Each individual should see a relation between his/her effort and the results. This linkage can be weakened as more people enter the equation. Incentives plans have a strong intuitive appeal. The underlying assumptions are rather straightforward: (1) higher performance will result in higher pay - assuming differences in levels of performance can be measured and are reflected in the workers' performance appraisals; (2) all workers are economically motivated - this is sometimes referred to as the "economic men" assumption; (3) increased effort will result in increased levels of performance - it is assumed the workers have the necessary skills and adequate equipment; (4) higher levels of performance will not hurt the workers in any way; and (5) tangible rewards in the form of praise, added monetary rewards and promotions will actually ensue. A number of classic field studies were carried out, beginning in the 1920s, that revealed these 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. The workers often worked very rapidly in the mornings, producing far more than the upper level managers realized they could. Lookouts were posted to make sure no one observed this high level of activity. (5) When the time study engineers came to study jobs, the workers normally tried to fool them by working in a slow and deliberate way. This was essentially part of a negotiation where the workers strived to get a favorable rate set, while the engineers
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Hlecture12 - 1 INCENTIVE PAY SYSTEMS Professor Bruce...

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