UNIT IV

SUSTAINING EMPLOYEE INTEREST

by
Ramya Rajendran
Asst Professor
VIMS
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CHAPTER OUTLINE
Compensation plan
Reward
Motivation
Application of theories of motivation
Career management
Development of mentor Protg relationships

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COMPENSATION PLAN

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WHAT IS COMPENSATION?
Deals with every type of
reward individuals receive
in exchange for
performing organizational
tasks.
Chief reason why most
individuals seek
employment.
An exchange relationship.

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OBJECTIVES OF COMPENSATION

Adequate
Equitable
Balanced
Cost-effective
Secure
Incentive-providing
Acceptable to the employee

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COMPENSATION METHODS/PLANS
FLAT RATES
PAYMENT FOR TIME WORKED
VARIABLE PAY: INCENTIVE
COMPENSATION
OWNERSHIP
PEOPLE BASED PAY
EXECUTIVE PAY
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Flat rates

Uniform wage rates

Ex: Administrative assistants - $11/hour
Bonus/incentives (sales professions)
For satisfied workforce

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Payment for time worked

S. NO

WAGES

SALARY

Pay calculated at
hourly rates

Annual or monthly
rates

Overtime pay

No overtime

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Payment for time worked

General, across-the-board increase for all
employees (WAGES)
Merit increases paid to some employees
(SALARY)
based on some indicator of job performance

Cost-of-living adjustment (COLA)

based on the consumer price index (CPI)

Seniority
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VARIABLE PAY: INCENTIVE COMPENSATION

Definition for variable pay:
Any compensation plan that
emphasizes
a shared focus on org. success,
broadens opportunities for
incentives to nontraditional groups &
operates outside the base pay
increase system.

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VARIABLE PAY: INCENTIVE COMPENSATION

Variable Pay: Key Design Factors

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VARIABLE PAY: INCENTIVE COMPENSATION

TYPES:
Merit incentives
Individual incentives
Team incentives
Org. Incentives

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VARIABLE PAY: INCENTIVE COMPENSATION

Merit incentives:

Performance increases
Pay increases
Higher base salary after annual performance evaluation

ISSUES:
Employees fail to make the connection between pay and
performance
The secrecy of the reward is perceived by other employees as
inequity
The size of the merit award has little effect on performance

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VARIABLE PAY: INCENTIVE COMPENSATION

INDIVIDUAL INCENTIVES:
Piecework
Pay fluctuates based on production units/time
Eg: sewing mills 25 shirts

Production bonuses
Pays a bonus when a employee exceeds the standard (labor
savings)

Commissions
Compensation on Sales % in units/money (marketing
professions)

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VARIABLE PAY: INCENTIVE COMPENSATION

TEAM INCENTIVES
When it is difficult to measure individual output
When cooperation is needed to complete a task or
project
When management feels this is a more appropriate
measure on which to base incentives

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VARIABLE PAY: INCENTIVE COMPENSATION

Organization wide Incentives
Usually based on one of two performance concepts:
A sharing of profits generated by all employees altogether
A sharing of money saved as a result of employees' efforts to
reduce costs

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VARIABLE PAY: INCENTIVE COMPENSATION

SUGGESTION SYSTEMS:
Formal method
Obtain employee advice on improvements in org
effectiveness
Rewarded on successful application of the idea.

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VARIABLE PAY: INCENTIVE COMPENSATION

Gain sharing:
Employees earn bonuses tied to unit-wide
performance as measured by a predetermined, gain
sharing formula
Commonly used gain sharing plans:
Lincoln Electric Plan
Scanlon Plan
Rucker Plan
ImproShare

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VARIABLE PAY: INCENTIVE COMPENSATION

PROFIT SHARING PLANS:
Cash or current distribution plans provide full payment
to participants soon after profits have been determined
Deferred plans credit a portion of current profits to
employees accounts with cash payments made at the
time of retirement, disability, severance, or death
A combination of both incorporates aspects of current
and deferred options

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VARIABLE PAY: INCENTIVE COMPENSATION

ISSUES OF VARIABLE PAY:
Percentage of an employees paycheck is put at risk
If business goals are not met, the pay rate will not rise
above the lower base salary
Annual raises are not guaranteed
Helps manage labor costs
Does not guarantee equitable treatment of employees

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Ownership
Employee stock ownership plan (ESOP)
employees receive stock in the company
Invests in the stock of the employer company
To increase worker commitment & performance

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People based pay

Skill-Based Pay
Knowledge-Based Pay
Credential-Based Pay (qualifications)
Feedback Pay
Competency based pay(skill, knowledge & credential)

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Executive pay
Dramatic growth
Variable performancebased pay is emphasized
over guarantees
CEOs are encouraged to
invest in company stock
CEOs are held
responsible for the cost of
capital

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REWARDS

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WHAT IS A REWARD?
Something given or
received in return or
recompense for
service, merit,
hardship, etc.

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INTRINSIC VERSUS EXTRINSIC REWARDS

Intrinsic rewards
Satisfactions derived from the job itself, such as pride in
ones work, a feeling of accomplishment, or being part of
a team.
job enrichment

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INTRINSIC VERSUS EXTRINSIC REWARDS

Extrinsic rewards
Benefits provided by the employer, usually money,
promotion, or benefits
Eg: a salary increase or a write-up in the company
magazine

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FINANCIAL VERSUS NONFINANCIAL REWARDS

FINANCIAL REWARDS

through wages, bonuses, or

profit sharing
NONFINANCIAL REWARDS

indirectly, through employersubsidized benefits such as

retirement plans, paid
vacations, paid sick leaves,
and purchase discounts.
One persons food is another
persons poison
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PERFORMANCE-BASED VERSUS MEMBERSHIP-BASED REWARDS

MEMBERSHIP-BASED REWARDS
paid on the basis of being a member of an
organization.
reward goes to all employees irrespective of their
performance include
salary increases attributable to labor-market conditions,
seniority or time in rank

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PERFORMANCE-BASED VERSUS MEMBERSHIP-BASED REWARDS

PERFORMANCE-BASED
REWARDS
basis of an employee's job
performance ability.
use commissions, piecework
pay plans, incentive systems,
group bonuses, merit pay, or
other forms

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 What makes people do

what they do?
Why do some people
succeed while others fail?
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MOTIVATION

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MOTIVATION - MEANING
Internal and external factors that stimulate desire
and energy in people to be continually interested and
committed to a job, role or subject, or to make an effort
to attain a goal.

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TYPES OF MOTIVATION

Positive vs negative
Rational vs emotional
Intrinsic vs extrinsic
Financial vs non-financial

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THEORIES OF MOTIVATION

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Maslows
Hierarchy
of Needs

Selfactualization
Esteem
Social needs

Safety and security needs

Physiological needs
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McGregors
Theory X & Theory Y

Little Ambition

Theory X
Workers

Dislike Work
Avoid Responsibility
Self-Directed

Theory Y
Workers

Enjoy Work
Accept Responsibility

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Herzbergs Two-Factor Theory

Job dissatisfaction and Job
satisfaction are not opposite to each
others

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Herzbergs Two-Factor Theory

Hygiene Factors

Motivational Factors

Quality of supervision
Rate of pay
Company policies
Working conditions
Relations with others
Job security

Career Advancement

High

Job Dissatisfaction

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Personal growth
Recognition
Responsibility
Achievement

Job Satisfaction

High

McClellands Needs Theory

Need for
Achievement
Need for
Power
Need for
Affiliation

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Specific Goals

Goal-Setting
Theory

Challenging
Goals
Goals and
Participation

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Effective Goal Setting

Specific
Relevant
Challenging
Commitment
Participation
Challenging

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Task
Effort

Task
Performance

Effect of Goal Difficulty on

Performance
Task Performance

High

Low

Area of
Optimal
Goal
Difficulty

Moderate

Challenging

Goal Difficulty
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Impossible

Reinforcement Theory
Rewards

Consequences

No Rewards

Punishment

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Behavior

Equity Theory
Perceived
Ratio Comparisona
Outcomes A

<

Inputs A
Outcomes A

Inputs B
=

Inputs A
Outcomes A
Inputs A
a

Outcomes B
Outcomes B

Employees
Assessment
Inequity (Under-Rewarded)
Equity

Inputs B
>

Outcomes B

Inequity (Over-Rewarded)

Inputs B

Person A is the employee, and person B is a relevant other or referent.

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Negative and Positive Inequity

A. An Equitable
Situation

Other

Self

$2
1
hour

= $2 per hour

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$4
2
hours

= $2 per hour

Negative and Positive Inequity (cont)

B. Negative Inequity
Self

$2

= $2 per hour

1
hour
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EMPLOYEE INTEREST

Other

$3

= $3 per hour
1 hour

Negative and Positive Inequity (cont)

C. Positive Inequity
Other

Self

$3

= $3 per hour

1
hour
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EMPLOYEE INTEREST

$2
1
hours

= $1 per hour

Expectancy Theory of Motivation

E-to-P
Expectancy

P-to-O
Expectancy

Outcomes
& Valences
3

Outcome 1
+ or -

Individual

Individual

Effort

Performance

1. Effort-performance relationship

Outcome 2
+ or -

Outcome 3

2. Performance-rewards relationship
3. Rewards-personal goals relationship
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Organizational
Rewards

+ or -

Personal
Goals

Vrooms Expectancy Theory

Expectancy: Belief that effort leads to a specific level of
performance

Instrumentality: A performance outcome perception.

Valence: The Value of a reward or outcome
Motivational force = Expectancy * Instrumentality *

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Valence

ALDERFERS ERG THEORY

Extension & refinement of Maslows model.
ERG
Theory

Growth

Needs Hierarchy
Theory
SelfActualization
Esteem

Relatedness

Belongingness
Safety

Existence
Physiological

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PORTER & LAWLER MODEL

Extension Of Vrooms Expectancy Theory

Individual

Individual

Effort

Performance

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Organizational
Rewards

satisfaction

Theory Z
William Ouchi, integrates Japanese and American
business practices
Theory Z Type Organization should be
1.
2.
3.
4.
5.
6.

Long-term employment
participative decision-making
Slow evaluation and promotion
informal control measures
Greater workers involvement
Stable work environment

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APPLICATION OF THEORIES OF
MOTIVATION
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APPLICATION OF THEORIES OF
MOTIVATION

MBO
Employee Recognition Programs
Employee Involvement Programs
Variable Pay Plans/Rewards

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What Is Management by Objectives?

Organizational
Objectives
Divisional
Objectives
Departmental
Objectives
Individual
Objectives

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Linking MBO and

Goal-Setting Theory
Difficulty
of Goals

Specificity
of Goals

Feedback
on Performance

Participation
in Goal Setting

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Employee Recognition Programs

(linking with Herzberg two factor theory)

Defining
Recognition

Recognition and
Reinforcement

Recognition Plans
in Practice
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Employee Involvement
Programs
Participative
Management

Representative
Participation

Quality
Circles

Employee
Stock Ownership

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Variable Pay
Plans/Rewards
Piece
Rate

Gainsharing

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Profit
Sharing

Bonus
Plans

CAREER MANAGEMENT

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What comes to your mind

when you think of the
word

career

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What is a Career?
A career

is a pattern of work-related experiences that

span the course of a persons life
reflects any work, paid or unpaid
is a broad definition helpful in todays work
environment where employees and organizations
have diverse needs

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Traditional Career Stages

Exploration

Mid career

Estblshment

Late Career

Decline

High
Will performance
increase or decline?

Job
Performance

Low
Transition
from school
to work

10

15

20

25

Getting first
job and
being
accepted

30

35

40
Age

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The elder
statesperson

45

50

55

60

Preparing for
retirement

65

70

75

Traditional Career Stages

exploration
includes school and early work experiences, such as
internships.
involves:
trying out different fields
discovering likes and dislikes
forming attitudes toward work and social relationship patterns
this stage is least relevant to HRM because it occurs
prior to employment

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Traditional Career Stages

establishment

includes:
searching for work
getting first job
getting evidence of success or failure
takes time and energy to find a niche and to
make your mark

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Traditional Career Stages

mid-career

challenged to remain productive at work

employee may:

continue to grow
plateau (stay competent but not ambitious)
deteriorate

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Traditional Career Stages

late career

successful elder states persons can enjoy being respected

for their judgment. Good resource for teaching others
those who have declined may experience job insecurity
plateauing is expected; life off the job increases in
importance

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Traditional Career Stages

decline

may be most difficult for those who were most

successful at earlier stages
todays longer life spans and legal protections for
older workers open the possibility for continued
work contributions, either paid or volunteer

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Enhancing Your Career

You are ultimately responsible for your own career.

manage your
reputation
know yourself

build and maintain

balance your
specialist & generalist
competencies

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network contacts

Successful
Career
Tips

keep current

keep your
options open
document your
achievements

Career management
The process for enabling employees to
better understand and develop their
career skills and interests, and to use
these skills and interests more effectively.
Career management = career planning +
development

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Career planning
The deliberate process through which
someone becomes aware of personal skills,
interests, knowledge, motivations, and other
characteristics; and establishes action plans
to attain specific goals.

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Career planning process

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Career development
The lifelong series of activities that contribute to
a persons career exploration, establishment,
success, and fulfillment.

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Roles in Career
Development

Any
questions?

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