HRM textbook

CHAPTER 12 PAY FOR PERFORMANCE AND FINANCIAL INCENTIVES 393
are bonuses, such as Salesperson of the Month (perhaps $300 for most cars sold),
and a Monthly Car Count Bonus for selling, say, 10 or 12 cars. 6
Because maximizing car unit sales and profits still predominates as the strategy
at many dealerships, commission plans like these still dominate, but they are not as
popular as they once were. Many dealerships are substituting salary plus bonus
plans for commissions. The transition to salary plus bonus reflects the growing
emphasis on a dealer (and car company) strategy aimed at making the purchase
process less tense, for instance, with one price no hassle pricing. 7 But in any
case, the pay plan s aim is to produce the salesperson behaviors the dealership
needs to support its strategic aims.
We ll see that there are many reasons for incentive plans often-dismal results.
Many employers, perhaps ignorant of Taylor and history, change their plans standards
arbitrarily. Others ignore the fact that incentive pay that may motivate some people
won t motivate others. 8 Compensation experts therefore argue that managers should
understand the motivational bases of incentive plans. 9 We ll review some motivation
background next.
1 Explain how you would
apply five motivation
theories in formulating
an incentive plan.
Motivation and Incentives
Several motivation theories have particular relevance to designing incentive plans.
These include theories associated with the psychologists Abraham Maslow, Frederick
Herzberg, Edward Deci, Victor Vroom, and B. F. Skinner.
THE HIERARCHY OF NEEDS AND ABRAHAM MASLOW Abraham Maslow
propounded one widely quoted observation on what motivates people. Although
lacking much scientific support, his theory is widely quoted.
He said that people have a hierarchy of five types of needs: physiological (food,
water, warmth), security (a secure income, knowing one has a job), social (friendships
and camaraderie), self-esteem (respect), and self-actualization (becoming the person
you believe you can become). According to Maslow s prepotency process principle,
people are motivated first to satisfy each lower-order need and then, in sequence, each
of the higher-level needs. For example, if someone is out of work and insecure,
getting a job may drive everything he or she does. (So, during periods of high unemployment,
one may see even former executives taking low-level jobs to make ends
meet.) A secure employee may then turn to being concerned with building friendships,
getting respect, and going to school to get the degree required to be a top
executive. On the other hand, don t try to motivate someone with more challenging
work if he or she doesn t earn enough to pay the bills. We usually envision Maslow s
hierarchy of five needs as a stepladder or pyramid.
MOTIVATORS AND FREDERICK HERZBERG Frederick Herzberg said the
best way to motivate someone is to organize the job so that doing it provides the feedback
and challenge that helps satisfy the person s higher-level needs for things like
accomplishment and recognition. These needs are relatively insatiable, says Herzberg,
so recognition and challenging work provide a sort of built-in motivation generator.
Satisfying lower level needs for things like better pay and working conditions just
keeps the person from becoming dissatisfied.
financial incentives
Financial rewards paid to workers whose
production exceeds some predetermined
standard.
productivity
The ratio of outputs (goods and services)
divided by the inputs (resources such
as labor and capital).
fair day s work
Output standards devised based on careful,
scientific analysis.
scientific management
Management approach based on
improving work methods through
observation and analysis.