Motivation and Reward System Employee Incentive Reward

The way you reward people forms an essential foundation for effective people management. Money is by no means the only motivator of people, but too little money demotivates powerfully. Studies have shown that material reward is far more powerful than monetary. 1. How To Determine Levels Of Reward To determine how much reward is appropriate, consider the question what level of employee reward will attract, retain, and motivate people of the calibre that you require. If an employee does something that results in a one-time boost for the company, a one-time incentive is most appropriate. 2. Why Give Employees Added Rewards In Addition To Wages? Keep in mind that the main reason why you are giving an employee reward is because you want exceptional results, not comparable performance. Exceptional productivity will more than cover extra pay. Employee rewards should be set for noteworthy achievements Rewards must be related to a particular completion of a given task Employees should be encouraged to express their recent achievements Ensure the employee knows they deserve it, it will have a great impresion on their personality

3. Employee reward should never be an alternative for a reasonable remuneration scheme This type of award should not be set as an enduring option to stable income amendments when, in fact, these changes should be carried out for constant and regular completion of tasks, excellent execution, and notable modifications in conscientiousness, or enhanced assessment of a status. Remember that employee reward is a one-time incentive program; therefore, it should be set out clearly and must be understood well by the employees so that they will know where to stand. 6. Employee rewards should not reflect the impression that these are changes to one s basic pay It must be set out clear to the employees so that they will not expect anything more than what they have to receive. Make it apparent that the extra pay is for special achievement only and nothing else. Generally, employee rewards may be in the form of cash incentives or non-cash fringe benefits. It could even be something of no real financial worth such as a personal letter of commendation. 7. Reward By Volume If you have to use a monetary type of employee reward, give reward based on results. This means that the employee gets a fixed amount for a specific amount of results. In theory, this gives the employee the best incentive to maximize output. In fact, employees tend to put a ceiling on their earnings and thus on their effort. Nevertheless, the key concept here is that the management should only give an employee reward that is tied to an individual achievement. The reward must be reasonably large to have value no one likes getting an overly small reward as it could have the opposite effect and make the employee view the company as cheap or undervaluing them. Never reward an employee for what has been accepted as a sensible objective. It should be given for extraordinary achievements only.

The wide variety of pay policies and procedures presents managers with a twopronged challenge: to design a compensation system that:

1. enables the firm to achieve its strategic objectives and 2. ismolded to the firms unique characteristics and environment. Usually mangers and owners are different in terms of: 1. 2. 3. Using pay as an incentive. Managers tend to pay more since they are more interested in the well-beingof the company in the long run. Owners are interested more in short-run profits, in general. Risk taking: Managers tend to take greater risk while owners have a long term perspective and take fewer risks. They are concerned about losing their investment. Time horizons: As mentioned earlier, managers have a short term perspective and owners have a long term perspective.

Research shows a number of things that are related to pay as reward: 1. Pay increases motivation 2. The more money given, the more employees want. This means that as the employees get more money as reward for performance, they tend to be focused more on money only rather than on the job. 3. Reduction in pay will lead to lowering of morale 4. Money means different things to different employees depending on age, gender, status, family, etc. 5. If the gap (spread) in pay is more in a team of workers, performance of team is low 6. Rewarding team rather than person is more motivating

Methods of Pay
1. Base Pay It is the first and the largest element of total compensation. It comprises fixed pay an employee receives on a regular basis, either in the form of a salary or as an hourly wage. It is determined by market conditions

2. Merit Pay
It is paid according to predetermined criteria, e.g. cost of living

3. Pay for Performance

Simply put, pay-for-performance is that more the work done, the more the pay; bonus or stock options. Pay forperformance systems, also called incentive systems, reward employee performance on the basis of three assumptions: a) Individual employees and work teams differ in how much they contribute to the firm-not only in what they do but also in how well they do it. b) The firms overall performance depends to a large degree on the performance of individuals and groups with the firm. c) To attract, retain, and motivate high performances and to be fair to all employees, a company needs to reward employees on the basis of their relative performance. Individual incentive plan At the most micro level, firms attempt to identify and reward the contributors of individual employees. Individualbased pay plans are the most widely used pay-for-performance plans in industry. Individual bonus programs are given on a one-time basis and do not raise the employees base pay permanently. Bonuses tend to be larger than merit pay increases because they involve lower risk to the employer. Bonuses can also be given outside the annual review cycle when employees achieve certain milestones or offer a valuable cost-saving suggestion.

Awards, like bonuses, are one-time rewards but are given in the form of a tangible prize, such as a paid vacationor a television set etc. The advantages of individual-based pay-for-performance plans are: 1. 2. 3. Performance that is rewarded is likely to be repeated Individuals are goal oriented and financial incentives can shape an individuals goals over time. Assessing the performance of each employee individually helps the firm achieve individual equity.

The disadvantages of individual-based pay-for-performance plans are: 1. 2. Create competition and destroy cooperation among peers and Sour working relationships between subordinates and supervisors.

Team-based incentive plan

In an attempt to increase the flexibility of their workforces, a growing number of firms are redesigning work to allow employees with unique skills and backgrounds to tackle projects or problems together. For instance, atCompaq Computer Corp., as many as 25 percent of the companys 16,000 employees are on teams that develop new products and bring them to market. Employees in this new system are expected to cross job boundaries within their team and to contribute in areas in which they have not previously worked. Team-based pay plans normally reward all team members equally based on group outcomes. These outcomes may be measured objectively or subjectively whether the criteria for defining a desirable outcome are broad or narrow. As in individual-based programs, payments to team members may be made in the form of a cash bonus or in the form of non-cash awards such as trips, time off, or luxury items. Team-based pay plans may include: Gain sharing plan: where team/group performance is rewarded as a whole when the organization gains as a result of the contribution of the group. Profit sharing; where profit is shared by employees in an organization. Whatever the profit of the organization is, the employees get a certain percentage in it. Advantages of team-based-pay-for-performance plans

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They foster group cohesiveness. They aid performance measurement Disadvantages of team-based-pay-for-performance plans Possible lack of fit with individualistic cultural values The free-riding effect Difficulties in identifying meaningful groups Inter-group competition leading to a decline in overall performance

New Pay Techniques Commissions beyond sales to customers

It is an incentive plan in which employees are given commission on factors other than sales to customers. These factors may include customer satisfaction etc. Rewarding leadership roles This incentive plan is linked with the leadership ability of the managers. It is based on employee satisfaction and the ability of the manger to produce the desired results for the organization. Rewarding new goals As indicated by the name, this plan is linked with the employees ability to achieve other goals than the core goals of profits and sales. These goals may include an improved productivity or customer satisfaction etc.

Pay for knowledge This plan is based on the knowledge of the workers in the organization. For example in a team, some of the employees may be more knowledgeable than the others, therefore, they are paid more. Skill pay Under this plan, employees are paid on the basis of their skills rather than the job they perform. Competency pay This plan tends to reward the competencies of the employees which are not visible but are useful for the organization. For example an employee may know more than one language. Broad-banding This refers to setting a range of pay within which certain employees may exist. For example, the pay range for middle level managers may be 10,000 to 50,000. The top management may increase pay within these limits and does not need any pay grading system.

8.2ORGANIZATIONAL BEHAVIOR AND PERFORMANCE APPRAISAL

OB Toolbox: Conducting an Effective Performance Appraisal Meeting Before the meeting

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Ask the person to complete a self-appraisal. This is a great way of making sure that employees become active participants in the process and get their voice heard. Complete the performance appraisal form. Document your rating using many examples. Have more examples handy. Avoid recency bias. Be sure that your review covers the entire years performance, not just recent events. Handle the logistics. Be sure that you devote sufficient time to each meeting. If you schedule appraisals back to back, you may lose your energy in later meetings. Be sure that the physical location is conducive to a private conversation.

During the meeting

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Be sure to recognize effective performance. Give specific praise. Do not start the meeting with a criticism. Starting with positive instances of performance helps establish a better mood and shows that you recognize what the employee is doing right. Give employees lots of opportunities to talk. Ask them about their greatest accomplishments, as well as opportunities for improvement. If they touch on an area you wanted to cover, provide your thoughts. Show empathy and support. Remember: your job as a manager is to help the person solve performance problems. Identify areas where you can help. Set goals and create an action plan. The outcome of the meeting should be a written agreement about what the employee will do in the near future and how the manager will help.

After the meeting

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Continue to give the employee periodic and frequent feedback. Effective feedback immediately follows key incidents of performance. Do not wait until the next appraisal to discuss important issues. Follow through on the goals that were set. Provide continuous support to the employee to help him or her achieve the goals.

Managing Potential Bias in Performance Appraisals

Performance appraisal is by nature a subjective event. Unless the performance appraisal is purely relying on objective criteria such as sales, it requires one or more human beings to observe and evaluate another and arrive at a consensus. Raters, intentionally or unintentionally, make mistakes or exhibit biases. These biases trickle down into the appraisal system and can affect other decisions that are based on appraisals, such as pay and promotion. Therefore, being aware of these tendencies is the first step to managing their influence over the appraisal system. Liking A performance appraisal does not occur between strangers. The rater and ratee have an existing relationship. If they like or dislike each other, these feelings may bias the ratings. For example, research shows that regardless of their objective performance levels, managers give employees they have a good relationship with higher ratings.[323] It is possible that sometimes liking is not a bias and a manager likes an employee because of high performance levels.[324] Still, for some managers, liking someone may mean ignoring the faults of the person and selectively remembering the positive things that person has done. One way of dealing with this problem may be journaling. By recording positive and negative performance incidents throughout the year for each employee, managers may recall each employees performance more accurately.[325] Leniency One of the common problems in appraisals is that managers give employees ratings higher than warranted. There may be many reasons for this, such as the desire to avoid confrontation with the employee, having a very agreeable personality, the desire to avoid hurting the chances of the employee to get a bonus, the desire to motivate employees by giving them high ratings, or liking the employee as a person. Regardless of the reason, leniency is a problem because it makes ratings relatively useless for determining raises, bonuses, or promotions. At the same time, leniency makes it harder for employees to change their behaviors. One way of dealing with this problem could be using relative rankings or at least giving managers a suggested distribution. If managers are asked to grade on a curve, they may end up being less lenient. Moreover, making managers accountable for the ratings they give may be a good idea. For example, if managers are evaluated based on how well they recognize different levels of performance, they may be less tempted to be lenient in appraisals.[326] Stereotypes One of the factors that create bias in appraisals is the stereotypes that raters may have regarding the gender, race, age or another characteristic of the person being rated. Beliefs about different groups may be generalized to the person in question even though they may have little basis in reality. For example, research shows that women in stereotypically male jobs were rated lower than women in stereotypically female jobs. Similarly, attractive women were rated higher if they held nonmanagement jobs, but they were rated lower if they held management jobs. When factors that have no bearing on ones job performance are used to evaluate the person, employees, overall, will be demoralized, the appraisals will lose their effectiveness, and the company may face costly lawsuits.[327] Understanding the importance of eliminating stereotypes from performance appraisals and training managers to accurately observe and evaluate performance may be beneficial in limiting exposure to this type of bias.
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1. The performance appraisal process is construed as a function of 3 interacting systems: organizational context, the appraiser's information processing system, and the behavioral system of the appraisee. It is argued that aspects of each system constrain the ability of the appraisal process to produce accurate, unbiased, and reliable assessment of individual behavior and performance. The following characteristics of the appraisal process are discussed: (1) observation, reward opportunities, and systemic issues such as function and expectations within the context of the organization; (2) the appraiser's automatic attention processes, categorization and memory, and information search and recall; and (3) appraisees' automatic and controlled modes of behavior. Recommendations for improving the appraisal process are presented. (9 p ref) (PsycINFO Database Record (c) 2010 APA, all rights reserved) 2011 American Psychologica