Download Real Case: Rewarding Teamwork in the Plains

CHAPTER 5. ORGANIZATIONAL CONTEXT: REWARD SYSTEMS
I.
PURPOSE AND TEACHING OBJECTIVES
The primary purpose of this chapter is to discuss the theoretical background and latest research on
the effectiveness of using money as an organizational reward for employees. Traditional and “new”’
methods of administering pay are described and related to their value in attracting and retaining
talented employees. The use of recognition and the role of benefits as organizational rewards are
also discussed.
II.
TEACHING NOTES AND REVIEW OUTLINE
A. Reward consequences or contingencies play an important role in social cognitive theory.
NOTES:
B. Since human capital is now recognized as being central to knowledge management and
competitive advantage in the new paradigm environment, attention must be given to how
this capital is rewarded.
NOTES:
C. While organizational rewards can take on many different forms, including recognition
and benefits, money remains the most dominant reward system in today’s organizations.
1. The role of money as a reward is complex, and can vary both by individual and
industry.
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a. Money helps people attain both physical and psychological objectives.
b. In addition to its economic value, money has tremendous symbolic meaning:
achievement and recognition, status and respect, freedom and control, and power.
2. Money provides a rich basis for understanding behavior at work because it offers
explanations for why people act as they do.
a. Money has helped develop theories of OB and useful theories of motivation
(addressed in Chapter 8).
b. Agency theory is concerned with the diverse interests and goals of an
organization’s stakeholders and how an organization’s reward system can be used
to align these interests and goals.
c. Research supports the importance of pay as an organizational reward.
3. In order for money to be effective in the organizational reward system, the system
must be as objective and fair as possible. An effective pay system for rewarding
people must address three considerations:
a. outcomes desired by the organization;
b. ability to measure those outcomes; and
c. relationship of rewards to those outcomes.
NOTES:
D. Traditional methods of administering pay include base pay and merit pay.
1. Base wages and salary represent the amount of money an individual is paid on an
hourly, weekly, monthly or annual basis. The level of base pay is typically
determined by the type of job and current market value of labor.
2. Merit pay is typically tied to some predetermined criteria, such as “merit”.
Shortcomings often associated with merit pay systems include:
a. vague criteria for determining merit;
b. difficulty in quantifying merit pay criteria; and
c. incorrectly using merit pay as a means to “catch up” an employee’s pay to market
levels.
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NOTES:
E. Due to problems of linking merit pay with performance, many organizations have
implemented specific pay for performance plans which reward according to individual
or group differences.
1. Individual incentive plans (such as bonuses or stock options) pay people based on
output.
2. The growing use of teams (as described in Chapter 14) has led to the increased use of
group incentive plans, such as gainsharing, profit sharing, and employee stock
ownership plans (ESOPs).
NOTES:
F. New pay programs often extend, and sometimes radically revise, the traditional
approaches. Some of these new pay programs include:
1.
2.
3.
4.
5.
6.
7.
commissions beyond sales to customers;
rewarding leadership effectiveness;
rewarding new goals;
pay for knowledge workers in teams;
skill pay;
competency pay; and
broadbanding.
NOTES:
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G. Using recognition to identify and reward outstanding performance can be an important,
but often overlooked, part of the organizational reward system. Effective recognition
programs are designed to reward desired employee performance behavior, enhance
employee satisfaction and commitment, and meet the specific and changing needs of
employees.
1. Recognition rewards can take many forms and are often controllable by the manager.
2. Unlike many financial forms of reward, there is no limit to the number of people who
can receive this type of reward of how often it is given.
3. Research indicates that managers often underestimate how useful recognition can be
in motivating employees to achieve goals.
4. Steps to follow in creating an effective reward and recognition program include:
a. fully communicate new recognition procedures/programs to all in the
organization;
b. educate and encourage managers to use recognition as part of the overall
compensation package;
c. integrate recognition into the overall performance management process;
d. hold and promote site-specific recognition ceremonies;
e. publicize best practices;
f. continually review and revise the recognition process to ensure maximum
effectiveness; and
g. solicit recognition ideas from employees and managers.
5. Reward and recognition plans should suit the needs of a particular organization.
Dierberg’s “extra step” program represents one creative way to incorporate
recognition into a reward program.
NOTES:
H. Benefit costs typically range between 30-35% of wages and salaries. While some
question the high cost of benefits, many believe it’s money well spent.
1. Efficiency wage theory holds that firms can save money and become more
productive if they pay higher wages and better benefits because they are able to hire
and leverage the best talent.
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2. Traditionally offered benefits include:
a. federal government mandated benefits;
b. life, disability and health insurance;
c. pension benefits; and
d. time off benefits.
3. Newer types of benefits include:
a. wellness programs (more fully discussed in Chapter 12);
b. life cycle benefits; and
c. other (concierge services, tuition assistance, non-insured benefits, prepaid legal,
etc.)4.
A growing number of organizations now offer flexible,
cafeteria style benefit plans that allow employees self-control and choice over the
benefits received.
I. Wrap up – If properly administered, reward systems can not only allow an organization
to attract/keep talented employees, but also positively impact productivity, quality,
customer service. For most organizations, pay dominates the organizational reward
system. Pay administration takes several forms. Many companies have gone beyond
traditional methods of base/merit pay and have established pay for performance plans as
well as creative “new pay” approaches. Recognition is another important, but often
overlooked, component of an organizational reward system. Benefits comprise the third
major component of an organizational reward system. Managers in today’s organizations
must ensure a favorable cost-benefit ratio and go beyond legally mandated benefit
programs to attract and keep talented employees and achieve top organizational
performance.
NOTES:
III.
HINTS FOR INTERNET EXERCISE: Rewards in the Workplace
1. The Adcentive website provides examples of many different incentive programs used in a
variety of industries, including ones designed to encourage employees to be creative, increase
sales volume, and improve productivity; as well as reward and show appreciation for past
efforts.
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IV.
STUDENT INVOLVEMENT EXERCISES
Assign the students (as individuals or groups) to discuss (or debate) the following:
Money vs. Recognition as Organizational Rewards
Money vs. Benefits as Organizational Rewards
V.
HINTS FOR CASE DISCUSSION
Real Case: Rewarding Teamwork in the Plains
1.
2.
Explain the organizational reward system this firm uses.
Gainsharing, profit-sharing, and stock ownership plans are all types of variable pay, while the
hourly rate paid to manufacturing workers is an example of standard base pay.
Although this reward system has obviously been very effective, what more can be done?
What specific recommendations would you make?
The company might also consider new pay techniques (e.g., senior management leadership
pay, pay for knowledge workers in teams, skill/competency pay, etc.) as well as nonfinancial
rewards (e.g., recognition, feedback, job design, etc.)
3.
What if the agricultural economy goes bad and the sales of this agribusiness company greatly
decreases? What will be the impact on the reward system this company uses, and what
would you now recommend?
Their pay system is based on productivity and profits, so a decline in sales volume can serve
as an incentive for workers to be as cost-effective as possible. The company may need to
shift their focus to those products with the strongest margins, which may require employees
to be cross-trained and flexible.
Real Case: Different Strokes for Different Folks
1.
Why are more and more companies complementing their monetary incentives with
recognition awards in their organizational reward system?
Employees consider personalized and immediate recognition to be the most important (and
valued) type of reward. Social rewards may cost the organization nothing, yet prove very
powerful in managing behavior and improving performance.
2.
How would you rate each of the examples? What are some strengths and weaknesses of
each?
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What’s most important is to consider whether the recipient views the recognition award as a
reward. For example, is there a comparable type of award made available to employees of
QuadGraphics who have never smoked? Is the voting process at Colin Service Systems
considered to be based on performance and merit, or is it viewed by the employees as more
of a popularity contest? Do the employees at Metro value public recognition, or is it
considered to be embarrassing to the employee who is singled out?
3.
If you work for a human resource management consulting firm and are given the assignment
to head up a project team to develop reward systems that would appeal to new dot-com firms,
what would you recommend?
The reward system at a dot-com firm should reflect the dynamic aspects of the environment.
New pay techniques (skill/competency pay, broadbanding, etc.) may be appropriate, as well
as rewarding employees for increased customer satisfaction, market awareness, and market
share. Nonfinancial reward systems should also be implemented, focusing on the particular
awards that are most desired and valued by dot-com employees.
Organizational Behavior Case: Huge Benefits, Little Understanding or Use
1.
Which benefits did the employees who were leaving seem to best understand and like?
Employees appeared to understand and appreciate the stock given to them by the firm.
2.
Which benefits did they find confusing or of little value?
Employees found the details of their stock option plan and retirement self-contribution plan
to be confusing, and considered the child care and wellness center benefits to be of little
practical value.
3.
Based on your answers and other relevant considerations, what recommendations would you
make to Velma’s management regarding how they can do a better job of using the benefits
package in their organizational reward system?
Velma Company clearly needs to better communicate to employees (and potential hires) the
value of the existing benefit package. The company should use nonfinancial rewards to help
the employees feel valued by the firm, and might consider implementing a gainsharing
program for manufacturing employees. The company would likely benefit by involving
employees from various departments and levels in an overall assessment of existing benefits
to determine ways to structure a reward system that meets the needs of both the organization
and employees.
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GUIDELINES FOR THE EXPERIENTIAL EXERCISES FOR PART 1
Exercise: Synthesis of Student and Instructor Needs
1.
This exercise is mainly aimed at establishing a constructive rapport between class
participants and the instructor.
2.
This exercise is designed not to diminish the instructors’ control over his or her course, but
rather to establish free and open lines of communication with students and to bring about
greater student commitment to learning objectives.
3.
Should any of the student objectives appear infeasible, the instructor should very openly
point out the realities of the situation and seek avenues of compromise. Experience with this
exercise has shown that students are typically quite realistic and cognizant of constraints on
the instructor. They are generally open to compromise.
4.
The value of this introductory exercise is well summed up with the phrase: “People commit
to what they help create.”
Exercise: Work Related Organizational Behavior: Implications for the Course
This exercise has the twofold purpose of showing the students that their past and future
work/organizational experience has direct relevance to topics covered in the course, and secondly, to
have a chance for the students to get to know one another better and to share experiences and
techniques for discussing them.
Exercise: Using “Gung Ho” to Understand Cultural Differences (or Siskel & Ebert Go
International)
This exercise attempts to highlight the differences between Japanese and Americans in interpersonal
style and relationships, cultural expectations, conflict resolution, work practices, management
approaches and much more. The exercise will most likely be enjoyed by most students. It is
important to stretch the students by allowing enough time for them to interact in their groups and
discuss the provided questions.
Exercise: Organizations
The purpose of this exercise is to get your students thinking about and analyzing organizations they
are all familiar with. Stress the theories of structure and design inherent in these organizations and
the managerial processes, such as communication and decision making, that are used to accomplish
objectives and make them as effective as possible.
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Exercise: Paper Plane Corporation
This exercise allows the students to simulate a total organizational experience. The organization
theories can be used as background to actually design a structure and perform the managerial
processes of communication and decision making.
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