ACCY 302 Compensation & Incentives

ACCY 302 Compensation & Incentives -...

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vs. Theory
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Baker, Jensen & Murphy’s primary concern: Research evidence suggests that, contrary to many firms’ claims that their pay system is based on merit, many business organizations do not do a very good job of tying pay to performance.
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Why is this? Some psychologists suggest that monetary rewards are counter-productive. Reasons they offer: Rewards encourage people to focus narrowly on a task, to do it as quickly as possible, and to take few risks Extrinsic rewards can erode intrinsic interest People come to see themselves as being controlled by a reward
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Other merit-pay critics suggest that there are significant adverse side effects that are costly to employee morale and productivity such as: Problems associated with horizontal equity concerns (the equal and fair treatment of employees at the same level in an organization) Problems associated with imperfect performance measurement
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B,J &M suggests that the lack of pay-for- performance plans are the result of the extreme effectiveness of pay-for-performance systems. That is, such schemes motivate people to do exactly what they are told to do Large monetary incentives result in inadequate specification of exactly what is expected of people and, thus, how their performance should be measured Such schemes encourage employees to spend effort lobbying about how their performance should be measured
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Objective Performance measurements Pay-for-performance systems that are based on objectives measures such as sales, divisional
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ACCY 302 Compensation & Incentives -...

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