HRM textbook

CHAPTER 12 PAY FOR PERFORMANCE AND FINANCIAL INCENTIVES 413
2. Link the incentive with your strategy. Link the incentive to behavior that is
critical for achieving strategic goals. 114 For example, one incentive program at
Sun Microsystems (now part of Oracle) supported Sun s customer satisfaction
goals. Employees received incentives based on improvements in activities
like on-time delivery and customer returns. 115
3. Make sure the program is motivational. Victor Vroom would say there should
be a clear link between effort and performance, and between performance and
reward, and that the reward must be attractive to the employee. Employees must
have the skills and training to do the job. Employers should support the incentive
plan with performance feedback, as in the form of performance graphs.
4. Set complete standards. For example, don t just pay for quantity if quality is an
issue, too.
5. Be scientific. Don t waste money on incentives that seem logical but that may not
be contributing to performance. Gather evidence and analyze the effects of
the incentive plan over time, to ascertain whether it is indeed influencing the
measures (such as employee turnover, and so on) that you intended to improve
through your plan. 116
Incentive Plans in Practice: Nucor
Nucor Corp. is the largest steel producer in the United States. It also has the highest
productivity and lowest labor cost per ton in the American steel industry. 117 Employees
can earn bonuses of 100% or more of base salary, and all Nucor employees participate
in one of four performance-based incentive plans. With the production incentive plan,
operating and maintenance employees and supervisors get weekly bonuses based on
their work groups productivity. The department manager incentive plan pays department
managers annual incentive bonuses based mostly on the ratio of net income
to dollars of assets employed for their division. With the professional and clerical bonus
plan, employees who are not in one of the two previous plans get bonuses based on their
divisions net income return on assets. 118 Finally, under the senior officer incentive plan,
Nucor senior managers (whose base salaries are lower than those in comparable firms)
get bonuses based on Nucor s annual overall percentage of net income to stockholders
equity. 119 Nucor also divides 10% of its operating profits yearly among all employees
(except senior officers). Depending on company performance, this may be from 1%
to over 20% of an employee s pay.
R E V I E W
MyManagementLab Now that you have finished this chapter, go back to www.mymanagementlab.com to
continue practicing and applying the concepts you ve learned.
CHAPTER SECTION SUMMARIES
1. In designing an effective financial incentive plan, it s
important to understand the relationship between
money and motivation.
Abraham Maslow said that people have a hierarchy
of five types of needs and that people are first
motivated to satisfy each lower order need.
Frederick Hertzberg said the best way to motivate
someone is to organize the job so that it provides the
feedback and challenge that helps satisfy the person s
higher-level needs.
Edward Deci found that extrinsic rewards may
actually detract from a person s intrinsic
motivation.
Victor Vroom s expectancy motivation theory
says a person s motivation depends on expectancy,
instrumentality, and valence.
Psychologist B. F. Skinner s behavior
modification based approach means changing
behavior through rewards or punishments that are
contingent on performance.