3. 9-3
What Behaviors Do Employers Care
About?
Behaviors that compensation needs to reinforce
– Compensation should be sufficiently attractive to
make recruiting and hiring good potential employees
possible (attraction)
– Need to make sure the good employees stay with the
company (retention)
– Need to find ways to motivate employees to perform
well on their jobs—to take their knowledge and
abilities and apply them in ways that contribute to
organizational performance
4. 9-4
What Behaviors Do Employers Care
About? (cont.)
How do we get good employment prospects to
join our company?
How do we retain these good employees once
they join?
How do we get employees to develop skills for
current and future jobs?
How do we get employees to perform well on
their current job?
5. 9-5
What Motivates Employees?
In the simplest sense, motivation involves three
elements:
1. What is important to a person?
2. Offering it in exchange for some
3. Desired behavior
12. 9-12
Does Compensation Motivate Behavior?
General Comments
Organizations with “high-performance work
practices” had annual sales that averaged
$27,000 more per employee.
13. 9-13
Do People Join a Firm Because of Pay?
Key factors affecting a person’s decision to join
a firm
– Level of pay
– Pay system characteristics
Job candidates look for organizations that “fit”
their personalities
Reward systems should be designed to attract
people with desired
– Personalities
– Values
14. 9-14
Do People Stay in a Firm (Or Leave)
Because of Pay?
Factors impacting turnover
–Pay based on individual performance results in higher
turnover of poor performers
–Group incentive plans may lead to higher turnover of
better performers
–Level of employee satisfaction with pay
15. 9-15
Do People Stay in a Firm (Or Leave)
Because of Pay? (cont.)
Other rewards affect the decision to stay
– Work variety and challenge
– Development opportunity
– Social
– Status recognition
– Work importance
– Benefits
16. 9-16
Do Employees More Readily Agree to
Develop Job Skills Because of Pay?
Evidence is unclear
Relevance of skill-based pay
17. 9-17
Do Employees Perform Better on Their
Jobs Because of Pay?
Not clear if performance of individuals can be
increased by tying it to pay
If the incentive depends on individual performance,
applicants find the company more attractive
Team-based incentives, in contrast, are less
attractive
A number of recent studies provide strong evidence
that pay for performance has a direct and, at times,
substantial impact on firm performance
– Evidence indicates, however, that ees don’t notice
incentive payouts unless they are at least 10%, w/ 15-20
% more likely to evoke desired response
– Some research indicates ee satisfaction w/ pay may
depend more on procedures used to determine pay than
level
18. 9-18
Where’s the Merit Pay Payoff?
Jeffrey Pfeffer (Stanford) argues that idea that individual pay
for performance will enhance org performance rests on set of
assumptions that do not hold in vast majority of orgs
– “Merit pay is not based on merit”
Perf appraisals biased
Pay increases not enough to motivate ees, but are enough to irritate them
In effect, for vast majority of ees, merit increases are unevenly distributed
cost-of-living and market-adjustment increases couched in language of
performance rewards
But, high levels of differentiation destroy engagement, breed distrust, and
undermine teamwork
– Higher turnover, lower quality, serious ethical breaches
– “Effective management is a system, not a pay plan. The mistake
is that companies try to solve all their problems with pay.”
– Evidence suggests group bonuses, profit sharing, and gain sharing
are more effective forms of performance-based pay than merit
pay or individual incentives
Source: Workforce Management, 11/3/08
