571 week 9
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Performance Based PayPerformance Based PayPerformance Based PayPerformance Based Pay
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Todays class brought to
you by China/Hong Kong
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Real excitement of
Compensation How do you create Performance base
pay system that works. Companies
extoll their Performance based paysystem, yet none seems to beuniversally strong.
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Skill based pay Determine compensable competencies
for type of work. Tie to strategic
issues. Provide training opportunities to get
increased competencies!
Offer competency tests eitherselection or post selection. Floorperformance standards.
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Sauer Danfoss- base pay and thenadded pay for skills.
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Why not rely on external
market only? Or Why is this important?
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Strategic issues Relative importance of base pay vs
performance pay.
Company emphasizing innovation,customer service, teams, internallabor markets etc.
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Pay for perf Benchmark
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Pay for performance Video
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Controversial
Intrinsic vs extrinsic motivation
Does extrinsic motivation alwaysprevail?
If so, then must people be paid to do
everything? When do they sacrificeself-interest for organizationalinterest?
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Pay is but one tool for
performance management Strategic HR relies on Performance
management--which tools used. How
to create an organizational culturerelated to performance management.
Do you wish to pay for performance?
What are problems/advantages?
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Medical Care McFarland Clinic
Medical care is hot because of
culture change. Doctors, lab, x-ray, receptionists.
Pay for performance or other
motivators? What type of climate are you
building.
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What type of culture is Most likely to link pay and
performance.
Least likely to link pay andperformance (rely on othermotivators).
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Other ways to link pay
and individualperformance Bonuses
Commissions
Stock options
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How Incentives for
teams? P-G fit
PO fit
Brainstorm in teams Consider types of incentives, group,
organizational individual.
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Kerr Case
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ISSUE Folly of Hoping for A but no extrinsic
rewards.
Folly of Hoping for A but rewardingfor B.
Outcome measures.
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Summary What is pay used for?
What influences the relative use in
different organizations. If primarily motivation--how can it be
used to recruit and retain or visa-
versa.
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Goal Current trends towards flexibility
Cost Issues (cost containment and
cost benefit). Benefits management
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Types of benefits Security (Income protection)
Convenience (time/stress
management).
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Why are benefits
important? From an employee perspective
From an employer perspective
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Employers Quality of life and the impact on
productivity (spillover of work and
family). Recruitment
Retention
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Trends towards Flexibility in
electing benefits Cafeteria benefits. $ allocation may
elect variety of benefits given costs.
ISU offers health, disability,accidental death, life, dental.
What do you need. Either pay for
more coverage or elect. Not reallycost management issue--just helpretention and recruitment.
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Towards Flexibility in
Coverage
0
1020
30
40
50
60
70
80
90
vacation
options
health
options
1990
1995
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What is the basis for
this?
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Trends towards
Increasing coverage Prepaid legal
adoption benefits
Hopefully more in benchmarking
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Benchmark reportsBenchmark reportsBenchmark reportsBenchmark reports
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Family Benefits
Increasing Job as family benefits administrator
More benefits
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Change over time
0
10
20
30
40
50
60
flextime job share
1990
1995
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Cost issues Do Benefits pay for themselves?
Costs/benefits ratio. How do you
determine? Increasing trend towards results
Getting into the rankings
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Reducing claims
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Pay for themselves
Why do companies offer preventative
medicine-- smoke enders, weightwatchers, free shots
What about Wellness programs
Should Ford Keep up Volvosbenefits?
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Should you offer Fertility medical coverage and child
care?
Car pooling and disability insurance?
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Should you For health insurance, verify not
covered under other insurers
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Family Benefits Chubb estimates from exit
interviews that 50 employees left for
childcare reasons It cost 97% of wages to replace non-
exempt and 150% of wages to replace
exempt. $3 million dollars in replacementcosts
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offers Paid time off
Child-care for snow days
telecommuting Flexibility
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In spite of popularity Few firms offer
People strongly value Security
benefits. New benefits excluding child care
are modest cost.
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Who offers Unions
Larger employers
Industry Corporate image
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Benefits of Benefits Does it help?
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Problems with Benefits Employee backlash especially family
benefits.
Not clear that benefits have muchimpact on recruitment unless clearlyone of the 100 best places to work or
equivalent in a region.S
ome evidencefor retention. Would the money bestbe put elsewhere?
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Will these go away in
times of highunemployment
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Eldercare, spouse care,
parent care
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Linking Benefits to
Strategy/Labor Markets Retailer relies on students for
seasonal sales. Evidence is clear that
sales is more than double if return.How to increase retention throughbenefits.
Vacation days could be example forretention of employees.
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Benefits Management Benefits communication
Have it and want people to take
advantage of them. ISU hasproblems with wellness.
How to communicate? Just in time.
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Summary Importance of benefits increasing.
Portion of benefits as total
compensation increased over the pastthirty years.
Purpose is critical and getting the
most for your dollar.
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