building employee knowledge and skills (develop skills). Compensation should motivate employees to perform well on their jobs—to take their knowledge and abilities and apply them in ways that contribute to organizational performance. Difficulty: Medium 7-79
Chapter 07 - Defining Competitiveness 72. (p. 291) What predictions can be made about performance-based pay based on Maslow's theory? Based on Maslow's need hierarchy the following predictions can be made about performance- based pay: 1. Base pay must be set high enough to provide individuals with the economic means to meet their basic living needs. 2. An at-risk program will not be motivating since it restricts employees' ability to meet lower order needs. 3. Success-sharing plans may be motivating to the extent they help employees pursue higher- order needs. Performance-based pay may be de-motivating if it impinges upon employees' capacity to meet daily living needs. Incentive pay is motivating to the extent it is attached to achievement, recognition, or approval. Difficulty: Medium 73. (p. 291, 295) Briefly explain the concept of cafeteria-style or flexible compensation. Cafeteria-style or flexible compensation is based on the idea that only the individual employee knows what package of rewards would best suit personal needs. Employees choose their own "blend" of rewards which may be both more satisfying and less expensive. As such, employees who hate risk could opt for more base pay and less incentive pay. Tradeoffs between pay and benefits could also be selected. Cafeteria-style compensation is based on the notion of different rewards having different dollar costs associated with them. The key ingredient is careful cost analysis to make sure the dollar cost of the package an employee selects meets employer budgetary limits. Difficulty: Medium 7-80
Chapter 07 - Defining Competitiveness 74. (p. 292) Explain the expectancy theory of motivation. According to the expectancy theory, motivation is the product of three perceptions: Expectancy is employees' assessment of their ability to perform required job tasks. Instrumentality is employees' beliefs that requisite job performance will be rewarded by the organization. Valence is the value employees attach to the organization rewards offered for satisfactory job performance. Difficulty: Easy 75. (p. 293) What are the implications for performance-based pay based on the theory of reinforcement? The implication for performance-based pay based on the theory of reinforcement is that the timing of payouts is very important. As per this theory, rewards must follow directly after behaviors to be reinforcing and behaviors that are not rewarded will be discontinued. As such, withholding payouts can be a way to discourage unwanted behaviors. Difficulty: Easy 76. (p. 297) What is a cost-of-living-increase? Cost-of-living-increase is a wage increase granted to all employees, regardless of performance. The magnitude of increase is based on changes in the cost of living (e.g., as measured by CPI). This wage component poses some risk to the employee since the increase is at the discretion of the employer, but the risk is also lower as it is not tied to performance differences.
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