Chapter 10 Implementing Productivity Improvement Programs LEARNING OBJECTIVES After reading this chapter, students should be able to: • Explain what productivity improvement programs are and how they contribute to competitive advantage. • Define the standards for effective productivity programs developed within the framework of expectancy theory. • Understand the rationale behind pay-for-performance programs. • Describe the different types of pay-for-performance programs. • Appreciate the rationale behind employee empowerment programs. • Explain the various types of employee empowerment programs. CHAPTER OUTLINE AND LECTURE 10-1 Gaining Competitive Advantage Productivity efficiency and improvement are vital in today’s competitive world of international business. The HRM department can play a vital role in this area. 10-1a Opening Case: Gaining Competitive Advantage at Lincoln Electric John C. Lincoln, founder of Lincoln Electric Company, was keenly aware of the importance of a highly motivated workforce that worked diligently for the good of the organization. His solution to improve productivity was to provide a comprehensive incentive system that turned out high-quality products efficiently while controlling costs by allowing contributing workers to share in the proceeds. Workers were paid by the number of product units they produced that were defective free. Year-end bonuses were given based on worker contributions that would allow them to nearly double their base wages. Employees were given the option of buying company stock at low cost and were given shares of stock based on annual profits. The purpose of this pay system was to give employees a sense of ownership in the company and provide incentives to produce more output and quality work. Workers earn a lot of money and the company receives nearly 1,000 unsolicited job applications per month. Benefits are less competitive and turnover for new employees is higher than competitors, but the system works. The company’s productivity rate is two to three times higher than any of its competitors. It has maintained a stable price structure, has not implemented any layoffs, continues to excel. Take a class vote on how many people would prefer working under conditions that exist at Lincoln Electric. Brainstorm the pros and cons of the situation and reduce both lists to the top five. 10-1b Linking Productivity Improvement Programs to Competitive Advantage An organization cannot compete successfully unless workers help to achieve the organization’s mission. Many employees believe they can increase their productivity but are not motivated to do so. It is for this purpose that many firms implement productivity improvement programs. Companies approach motivation by offering either extrinsic rewards such as pay raises or bonuses or intrinsic rewards such as internal feelings associated with success. Productivity improvement programs motivate employees to engage in appropriate job behaviors to improve quantity, quality, and efficiency. A major approach is to use the expectancy theory which operates on the premise of employee’s belief that their efforts will lead to successful job performance and that the performance will lead to outcomes or rewards they value. The greater the perceived probabilities of this happening, the greater the worker motivation. Productivity improvement programs help attract more and better job applicants, and increase retention rates, as most people prefer to work in settings that allow them to earn rewards from their work. How might companies motivate through intrinsic rewards? Since people are individuals, how would managers know what motivates each person and what he or she values? Is it worth the time and effort to get to know each worker on an individual basis? 10-2 HRM Issues and Practices The two basic types of productivity improvement programs include pay-for-performance and employee empowerment. As you discuss them, note student reaction. 10-2a Pay-for-Performance Programs Here, employees’ financial rewards are linked directly to their performance. According to surveys and the expectancy theory, these programs are appealing to workers. If the overall job performance improvement yields financial returns that exceed the cost of the rewards, a company’s competitive advantage will improve. By 2000, 80 percent of U.S. firms used some form of pay-for-performance because management believes these programs increase motivation. Problems can occur when programs are administered unfairly or they violate standards listed in Exhibit 10-1. Within the framework of the expectancy theory, it must be clear to employees what behavior is expected of them and performance standards must be set so that they are perceived as being achievable. Programs must ensure that job performance is accurately measured and reflect actual job performance levels so that employees trust the system. Workers must also see that the reward is directly linked to performance. Employees must truly value the rewards and they must be given within a short period of time following efforts. A pay-for-performance program enhances competitive advantage when performance contributes to the organization’s overall mission. Furthermore, employees must believe rewards are achievable and challenging, and the firm must operate it with cost efficiency. Merit pay plans reward employees annually, rather than piecemeal as the work occurs. Many companies find it more efficient and fair to use a merit pay guide chart as seen in Exhibit 10-2. Divide the class into teams and assign them to analyze a merit pay guide chart as outlined in Exhibit 10-2. Is the chart clear? Can managers easily implement such a chart? How will it make the job easier? Merit pay plans have the following strengths and weaknesses: • These plans do establish effort-performance and performance-reward links. They also let employees know what reward their hard work can earn them. Guide charts point this out. • A firm’s appraisal may not adequately sort out each worker’s contributions and give a fair reward. As a result motivation is lessened. Sometimes they do not show a clear performance-reward link, employees do not value rewards, managers can fail to reward fairly, the time lag is too long, they may not be cost efficient, and when administered improperly they may actually hinder job performance by creating competitive behaviors. Although many potential problems exist, most experts believe that merit plans are better than across the board raises or raises based solely on seniority. Have students research across the board raises and seniority raises. What questions arise in their use? Can they motivate? If not, why? Would labor unions prefer these over merit raises only? Piece rate plans are used in 35 percent of U.S. companies that base wages on the number of pieces or product units produced by the employee. Piece rate plans vary. Lincoln Electric uses a straight piecework plan where workers are paid a set amount for each unit produced. Different piece rates can also be paid depending on whether the worker has met the standard. Examine the strengths and weaknesses below: • Strengths include establishing links between effort and performance and between performance and rewards to let employees know what to do to earn the reward, they are objective, and they can be cost-efficient. • Weaknesses include possibly making employees feel uncomfortable by keeping them under a lot of pressure. They may slow down the work to get into their comfort zone, they may resist changes to improve, and they may not be rewarded for bringing up new ideas. This may cause them to neglect aspects of their jobs not covered in the performance goals and may foster competition rather than teamwork. Gainsharing plans help to overcome the problems associated with merit pay and piece rate plans. Instead of rewarding only individual efforts, they reward teamwork. They have the goal of increasing productivity or reducing production costs. The resulting financial gains are then shared with the teams responsible for them. A very successful form of this plan for reducing costs is the Scanlon Plan. A firm must calculate the ratio of production cost/sales value of production (SVOP) that would be expected in a typical year. Following this, firms must decide how production costs are to be cut. Lastly, bonus is allocated in the following manner: 75 percent is paid out and 25 percent is held in reserve for lean periods in which there are no bonuses Their strengths and weaknesses are delineated below: • Strengths include strong effort-performance and performance-reward links, linking performance with company mission, promoting teamwork, and being cost-effective. • Weaknesses include workers perceiving that rewards are unfairly distributed among team members, employee suggestions for improving efficiency may dwindle over time, and plans may suffer when payout formulas are inflexible. Gainsharing programs are most likely to succeed if management orients the company culture, payout is dependent on factors the employees can control, and management meets regularly with employees to share information and ideas and gather suggestions. Profit-sharing plans reward teams based on profits and distribute profits to individual employee accounts. Strengths and weaknesses are worth examining: • Strengths include being designed to improve productivity and giving workers a greater sense of ownership. • Weaknesses include only marginally addressing effort-performance-reward links. Not always being cost efficient and deferred plans are not well timed from a motivation perspective. Assign each of the above plans to a different team. First, let students tell which plan they prefer and group them on that team. Let students provide all the practical reasons they can think of to use the reward system. Also ask them to rank the plans according to the one providing most competitive advantages. Share each team’s findings with the class. 10-2b Employee Empowerment Programs Employee empowerment seeks to give employees greater voice in decisions about work-related matters. It allows employees to attain intrinsic rewards from their work. The process leads to better decisions. As a result, productivity can improve. Informal participative decision-making programs allow employees to possess some decision-making authority. This program has a positive impact on productivity. The amount of employee empowerment can be tailored to the specific situation. Those who do not want to participate in decision-making view such programs with suspicion. Job enrichment aims to redesign jobs to be more intrinsically rewarding. This is done by combining tasks, establishing client relationships, reducing direct supervision, or increasing identification with products/services. Dull jobs can become more interesting, rewarding, less automated, and often lead to improvements in productivity, quality, absenteeism rates, and retention. Production may become less efficient. Quality circles allow 6 to 12 workers the opportunities to identify and solve problems. Circle members are trained on problem identification, problem solving, statistical control procedures, and group dynamics. The use of quality circles improves productivity and efficiency by obtaining valuable input from employees, improving communications, and increasing motivation. The dark side is that these programs have failed in more than 60 percent of the firms that implemented them. They are often mistakenly used as a quick fix and overlook the real problems; they alienate no circle members, and sometimes are administered improperly. Continuous improvement programs attempt to build quality into all phases of design, production, and delivery. Worker empowerment takes the form of self-managed work teams. Employees from different departments have authority to plan, organize, coordinate, and take corrective action on the projects they work. The major issue to deal with is deciding how to effectively implement these programs and train workers. Training must be provided for technical, interpersonal, and administrative skills. They seem to work because they are effective and allow greater flexibility. On the other hand, turf battles and departmental rivalries may arise. Supervisor absence and lack of time may cause problems. Difficulties may also arise in the performance appraisal process. Create a quality circle program. Assign one person in each team to serve from a different department of a mock company. Let them think of solutions acting in their respective roles. After each team has presented its solutions, take a class vote on which team came up with the best solutions. 10-3 The Manager’s Guide Managers’ play a major role in improving productivity by being in daily contact with workers. Their efforts and attitudes directly influence employee performance. 10-3a Productivity Improvement Programs and the Manager’s Job The success of any productivity improvement program hinges on whether it can effectively motivate employees to behave in ways that contribute to the organization’s goals. Managers can favorably impact motivation in three ways: (1) strengthen the effort-performance link (2) strengthen the performance-reward link (3) provide rewards that are valued and perceived as being fair. There must be a balance between empowerment and a worker thinking the manager is shirking duties. Employees must believe they have the right to share work decisions with the manager. Managers can assist with the smooth transition from employee to self-managed work teams. They can then serve as technical consultants, facilitators, and area managers. 10-3b How the HRM Department Can Help The HRM department must align the corporate culture with the programs we are discussing. They must also train managers and employees to ensure the programs are implemented successfully. The culture should emphasize the importance of employee participation and make employees feel their input is desired. A participative environment should be established that is not imposed by decree. Training must be imparted at management levels as well as employee levels. 10-3c HRM Skill-Building for Managers Managers can motivate employees by using intrinsic and/or extrinsic rewards. A useful guide to using extrinsic rewards is found in reinforcement theory. The following six steps can be used to apply the principles of this theory: • Determine the specific behaviors you want your employees to exhibit. • Establish a baseline measure for this behavior by measuring current performance levels. • The heart of the program is to analyze performance consequences. • Change the consequences if necessary. • Monitor and evaluate the effectiveness of the program by keeping records of the employee’s behavior and comparing them with baseline figures. • Periodically, not continuously, reinforce the desired behaviors. Using intrinsic rewards to motivate employees can be effective when providing stimulating job assignments. We can use the McClelland’s need-achievement theory to learn which of these three needs motivate employees: (1) need for affiliation (2) need for achievement (3) need for power. Knowing the type of need that drives an employee allows you to find intrinsically rewarding activities that will stimulate them. To motivate employees, you should try to assign work activities that help employees satisfy their most important need first. Ask students how managers can determine what motivates each employee and what their individual work needs are. How can the manager remember them? What is a good way to translate them into effective action? KEY TERMS Combination plans: Employees receive a portion of each period’s profit-sharing earnings immediately; the remainder awaits future distribution. Continuous quality improvement programs: Programs that attempt to build quality into all phases of the design, production, and delivery of a product or service by empowering workers to trace product or service problems to their root causes and redesign production processes to eliminate them. Deferred plans: An employee’s profit-sharing earnings are distributed at retirement. Distribution plans: An employee’s profit-sharing earnings are distributed as soon as the profit-sharing pool is calculated. Employee empowerment programs: Productivity improvement programs that make the work itself more rewarding. Expectancy theory: A motivation theory that focuses on the effort-to-performance and performance-to-reward links. Extrinsic rewards: Rewards that the employer gives to employees. Gainsharing plans: Pay-for-performance plans that offer employees a cash award for meeting or exceeding team-based goals. Informal participative decision-making program: An employee empowerment program in which managers decide just how much decision-making authority employees should have in each instance. Intrinsic rewards: Rewards that come from within a person. Job enrichment: An employee empowerment program in which jobs are redesigned to be more intrinsically rewarding. McClelland’s need-achievement theory: A motivational theory stating that all individuals are primarily motivated by one of three needs—affiliation, achievement, and power. Merit pay guide chart: A chart that shows the size of a merit pay raise associated with each level of job performance. Merit pay plan: A pay-for-performance program that grants employees annual pay raises based on their levels of job performance. Pay-for-performance programs: Productivity improvement programs that link financial rewards to successful job performance. Piece rate plans: Pay-for-performance programs that base an individual’s wages on the number of “pieces” or product units he or she produces. Profit-sharing plans: Pay-for-performance plans in which a portion of the company’s profits are contributed to individual employee accounts. Quality circles: An employee empowerment program in which a team of six to twelve employees meets regularly to identify and resolve production problems within their unit. Reinforcement theory: A motivational theory that states that worker behavior can be shaped, modified, or changed by manipulating the system of rewards given or withheld for the relevant behavior. Scanlon Plan: A gainsharing plan in which workers share the gains produced by cutting production costs. Self-managed work teams: A form of employee empowerment in which teams of six to eighteen employees from different departments work together to produce a well-defined segment of finished work. Straight piecework: A piece rate plan that pays workers a set amount for each unit produced. REVIEW QUESTIONS 1. Which of the following criteria is not a standard for a successful pay-for-performance program? a. Effort must be tied to performance. b. Performance must be tied to rewards. c. The rewards offered must be valued by employees. d. To be most effective, rewards should be distributed once a year in a lump sum. Answer: d Rationale: Research has demonstrated that the shorter the time interval between a behavior and its reward, the more likely it is that the reward will be motivating. Employees will be motivated to perform well to the extent they believe their own individual efforts can lead to successful performance. Expectancy theory states that rewards should be directly linked to performance. If employees do not value the reward, they will not be motivated to attain it. 2. According to the expectancy theory, a merit pay guide chart is used to __________ the perceived performance-to-reward linkage. a. strengthen b. weaken c. keep constant d. none of the above. Answer: a Rationale: Publicized merit pay guide charts serve to strengthen the performance-to-reward link. 3. According to the research study reported in the text, supervisors are more likely to recommend an underserved pay raise for an employee if a. that employee demands a raise. b. the supervisor is dependent upon the worker because of the worker’s specialized expertise. c. both A and B d. neither A nor B Answer: c Rationale: Supervisors often base raises on factors other than job performance. For instance, one study found that managers frequently give pay raises to subordinates simply because their employees demand them, not because they have earned them. This phenomenon occurred under two conditions: • When the manager is dependent on a subordinate because of the subordinate’s specialized expertise. • When a subordinate threatens to appeal to an upper-level manager with whom he or she is well connected politically. 4. Which of the following recommendations was made by expert Ed Lawler regarding how merit pay should be implemented? a. The best performers should receive a raise equal to 30 percent of their base pay. b. Pay raises should be used instead of bonuses. c. Instant or spot rewards should be given when exceptionally good behavior occurs. d. All of the above. Answer: c Rationale: Deliver rewards as soon as possible after the desired behavior takes place. The reward for top-performing employees should be 10 to 15 percent of their base salary. Make pay increases public. Do not deliver rewards as a salary increase; use bonuses. Make sure individual performance can be measured accurately; you cannot reward what you cannot measure. For the program to work, employees must believe management’s claim that performance will be fairly rewarded. 5. Which of the following statements about piece rate plans is true? a. Under a piece rate plan, employees know exactly what they must do to earn a reward. b. Performance standards are subjective and thus can be influenced by supervisory bias. c. Piece rate plans are not cost-effective in most cases—the costs often offset the gains. d. Piece rate plans encourage cooperative behavior among employees. Answer: a Rationale: Piece rate plans clearly establish links between effort and performance and between performance and rewards: • Employees know exactly what they must do to earn the reward they desire. • Unlike merit pay plans, the performance standards set in piece rate plans are objective and thus cannot be influenced by supervisory bias. • Rewards are tied directly to performance —higher outputs result in higher pay. 6. In most gainsharing plans, __________ percent of the “gains” are distributed to the workers. a. 100 b. 75 c. 35 d. 9 Answer: b Rationale: The typical Scanlon Plan allocates bonuses in the following manner: 75 percent is paid out and 25 percent is held in reserve for lean periods in which there are no bonuses. Of the money paid out, 25 percent goes to the company and 75 percent is distributed among employees. 7. Employee empowerment programs aim to strengthen employee motivation by a. making pay raises commensurate with job performance levels. b. enhancing job security. c. providing employees with the opportunity to attain intrinsic rewards from their work. d. all of the above. Answer: c Rationale: Empowerment can enhance productivity in two ways. First, it can strengthen motivation by providing employees with the opportunity to attain intrinsic rewards from their work, such as a greater sense of accomplishment and a feeling of importance. Second, employee empowerment can improve productivity because the process leads to better decisions. 8. Informal participative decision-making programs allow a. employees to make all job-related decisions. b. employees to make decisions concerning their working conditions, but not their job tasks. c. employees to provide input on important job decisions, but have no authority to actually make any decisions. d. managers to decide how much decision-making authority employees will have on a case-by-case basis. Answer: d Rationale: In informal participative decision-making programs, managers and subordinates make joint decisions on a day-to-day basis. 9. A major weakness of job enrichment programs is that a. jobs often become less interesting. b. employee motivation frequently drops. c. quality is often reduced. d. production often becomes less efficient. Answer: d Rationale: As enriched jobs become less repetitive and routine, production may become less efficient. 10. When assigned to a self-managed work team, workers need training in the following three areas: a. technical, interpersonal, and administrative. b. legal, cognitive, and motor. c. leadership, communications, and management. d. literacy, mathematics, and problem solving. Answer: a Rationale: An organization must provide training in three areas: • Technical skills: cross-training, which allows team members to move from job to job within the team, is essential. • Interpersonal skills: team members must communicate effectively, both one on one and in groups with each other and with people outside the team. • Administrative skills: self-managed work teams must perform tasks formerly handled by supervisors. The team must learn how to keep records, report procedures, budget, schedule, monitor, hire, and appraise the performance of team members. DISCUSSION QUESTIONS 1. Using the framework of expectancy theory, explain the rationale behind productivity improvement programs. • Pay-for-Performance Programs ○ Workers have little incentive for performing well if their efforts are unrewarded. On the other hand, when pay is linked to performance, overall performance should improve. ○ Top performers should be motivated by large rewards to maintain high levels of performance, whereas low-level performers should be motivated to either increase their efforts or leave the company. • Employee Empowerment Programs ○ It can strengthen motivation by providing employees with the opportunity to attain intrinsic rewards from their work, such as a greater sense of accomplishment and feelings of importance. ○ Employee empowerment can improve productivity because the process leads to better decisions. 2. How can effective productivity improvement programs enhance a firm’s recruitment efforts? Most people prefer to work in settings that allow them to earn rewards from their work. Organizations that offer rewards (either extrinsic or intrinsic) as part of productivity improvement programs usually attract more and better job applicants. 3. Describe the standards to be met by pay-for-performance programs. • Motivational Standards ○ Effort-performance links—employees must perceive that they can reach desired performance levels by engaging in appropriate behaviors. ○ Performance-reward links—rewards should be directly linked to successful job performance. ○ Value of reward—the reward should be valued by employees. ○ Timeliness of rewards—rewards should follow shortly after the desired behaviors. • Cost-Benefit Standards ○ Performance-organizational mission links—the performance being rewarded should be directly linked to the achievement of the organization’s mission. ○ Cost efficiency—productivity gains from the program must more than offset the cost of the rewards. 4. What is a merit pay plan and how well do such plans generally fare against the standards referred to in question 3? Be specific. • Merit Pay Plan—a pay-for-performance program that grants employees annual pay raises based on their levels of job performance. • How they fare against the standards referred to in question 3: ○ Effort-Performance Links • Merit plans attempt to link effort to performance. In order to succeed, there must be clear and achievable performance standards and job performance must be accurately measured. ○ Performance-Reward Links • Rewards are supposed to be linked directly to successful job performance. In order to succeed, organizations need to publish merit pay guidelines and ensure that supervisors do not grant merit raises “as they see fit” but rather on an employee’s actual job performance. ○ Value of Reward • The merit pay pool is not unlimited; once raises are distributed to employees whose performance is adequate, there may not be enough money left to sufficiently recognize the outstanding ones. Therefore the rewards received by the best performing employees are not valued. ○ Timeliness of Rewards • The time lag that occurs between the behavior and the reward is often too great. ○ Performance-Organizational Mission Links • Merit pay plans may actually hinder productivity if these plans fail to reward behaviors that contribute to organizational goals. ○ Cost Efficiency • Merit raises are a lot more expensive than they first appear. Once a merit raise increase is earned, it becomes part of the base pay and employees continue to receive it throughout their tenure with the company. 5. What is a piece rate plan? What are the main features distinguishing piece rate plans from merit pay plans? • Piece Rate Plans—pay-for-performance programs that base an individual’s wages on the number of “pieces” or product units he or she produces. • Piece-rate plans clearly establish links between effort and performance and between performance and rewards: ○ Employees know exactly what they must do to earn the reward they desire. ○ Unlike merit pay plans, the performance standards set in piece rate plans are objective and thus cannot be influenced by supervisory bias. ○ Rewards are tied directly to performance—higher outputs result in higher pay. • Piece rate plans can also be cost-efficient. Workers do not receive above-market pay unless their production rates are high. 6. Describe the formula used in the Scanlon Plan. A firm must calculate the ratio of production cost/sales of production (SVOP) that would be expected each year. The ratio is usually determined by averaging the yearly production costs during a base period of three to five years. A payout is made if the company can drop production costs, relative to the SVOP. 7. Describe the five characteristics present in an enriched job. • Skill Variety—the degree to which a job requires a variety of different activities to carry out the work. A job would have high skill variety if it requires a number of different skills and talents. • Task Identity—the degree to which a job requires completion of the “whole” and identifiable piece of work. A job would have high task identity if the worker did the job from the beginning to end with a visible outcome. • Task Significance—the degree to which the job has a substantial impact on the lives of other people, whether these people are in the immediate organization or in the world at large. A job would have high task significance if people benefited greatly from results of the job. • Autonomy—the degree to which the job provides the workers with autonomy. A job would have high autonomy if the workers were given substantial freedom, independence, and discretion in scheduling the work and determining the procedures to be used in carrying it out. • Job Feedback—the degree to which the job provides the worker with knowledge of results. A job would have high job feedback if carrying out the work activities required by the job providing the individual with direct and clear information about the effectiveness of his or her performance. 8. What is a self-managed work team? Discuss the strengths and weaknesses associated with this employee empowerment program. • Self-managed work teams—a form of employee empowerment in which teams of six to eighteen employees from different departments work together to produce a well-defined segment of finished work. • Strengths ○ Self-managed work teams are effective because they empower employees to make decisions that affect their day-to-day business lives. Thus, these teams radically change the way employees’ value and think about their jobs. ○ Self-managed work teams also provide greater flexibility. Today’s companies must be able to produce in small lots, customizing products to increasing demands. Self-managed work teams make this flexibility possible because employees are cross-trained to perform all tasks. They can fill in for absent coworkers and respond quickly to changes in models and production runs. • Weaknesses ○ One of the weaknesses is the possible “turf battles” that may arise: Departmental rivalries often flare up when a team is formed. ○ The absence of a supervisor may cause problems because there is no one responsible for handling human relations problems. ○ Workers lack sufficient time to handle some of the traditional supervisory responsibilities, such as conducting employment interviews and training/orienting new employees. ○ Difficulties may also arise in the performance appraisal process. Self-managed work teams use peer, rather than supervisory appraisals, which are often biased. 9. Using an expectancy theory framework, describe the manager’s role in employee motivation. • Strengthen the effort-performance link: Managers should set goals that are challenging, yet achievable; establish clear performance expectations; and remove obstacles that impede employee performance. • Strengthen the performance-reward link: Managers should provide accurate performance appraisals, thus ensuring workers of the rewards they have earned. • Provide rewards that are valued and perceived as being fair: Managers should help select rewards that are valued by employees. In addition to recommending pay raises, a manager can bestow praise, recognition, added responsibility, greater autonomy, or simply an occasional pat on the back. 10. Describe an original example of a work situation where it would be appropriate for a manager to allow employees to participate fully in decision making. In a tech startup developing a new app, the manager could involve employees in decision-making during a brainstorming session for features. Given the team's diverse skills and backgrounds, encouraging everyone to contribute ideas fosters creativity and ownership. This collaborative approach not only leverages their expertise but also boosts morale, leading to innovative solutions and a stronger team dynamic. EXPERIENTIAL EXERCISES How Can This Job Be Enriched? Job enrichment aims to redesign jobs to be more intrinsically rewarding. Certain job characteristics have been identified as intrinsically rewarding or “enriching.” Once a job has been identified as needing enrichment, the organization must redesign it to incorporate these characteristics (skill, variety, autonomy, significance, and feedback). 1. Break into groups of four or five students. 2. Allow about five minutes for each group member to describe briefly the job he or she currently holds (or one recently held). 3. Select the job that is least enriching according to the five characteristics mentioned in the text. If none of the students in the group has held a job, describe how your professor could enrich this course. 4. As a group, determine how this job could be enriched. Describe the interventions that could be implemented to enrich it, and explain what job characteristics (e.g., skill variety, autonomy) each would strengthen. 5. Select a group spokesperson to present your findings to the class. 6. The presentation of each spokesperson should adhere to the following format: a. Describe the job as it is now performed. b. Discuss your interventions and their rationale. c. Discuss how successful you think the enrichment would be if it were actually implemented by the organization in question. For instance, do you think management would accept it? The workers? Would it be cost-efficient? What Pay-for-Performance Program Would You Recommend? Suggested approach: Students are required to follow the instructions carefully and analyze each one of the job profiles and the situations described. A thorough understanding of various compensation programs described in Section 10-2a will help them arrive at answers. Instructions: Described here are a number of scenarios involving different kinds of employees. Study each scenario carefully and answer the following questions: 1. What type of compensation program should be used? • Merit pay • Individual piecework • Group piecework • Gainsharing • Profit-sharing plan • Pay for performance should not be used. 2. For each pay-for-performance program you have chosen, indicate the primary obstacles to be faced when trying to implement the system. How would you deal with these obstacles? • Forklift driver—Person drives a forklift for a small metals manufacturer. Worker picks up parts that have been boxed and loaded onto pallets and delivers them to warehouse for shipping. Worker then returns and waits for the next load to be readied. • Farm laborer—Person works for the Jiffy Orange Juice Company in Orlando, Florida. The worker rises at 6:00 A.M. and is in the groves picking oranges by 7:00 A.M. Using century-old technology, the worker carefully places each ripe orange into the “picking bag” slung over the worker’s shoulder. The worker dumps the full bag into a box and starts all over again. This process is continued until quitting time. • Custodian—Person is a custodian for a large, nationwide hotel chain. The custodian’s duties are to vacuum the hallways, clean the rest rooms, and carry refuse to the Dumpsters in the rear of the hotel. • Blackjack dealer—Person is a blackjack dealer for an Atlantic City Casino. The job consists of dealing blackjack at a blackjack table. The game is played according to rigid house rules (dealer must draw on 15 and stand pat on 16 or greater). • Chief executive officer—Person is a CEO for a small, independent furniture manufacturer. The CEO is responsible for the firm’s performance in the areas of sales, new accounts, new products, profits, and return on assets. CASE Does This Merit Pay Plan Have Any Merit? Objective: Help students recognize some of the shortcomings of merit pay plans. What to do: Discuss this case prior to discussing merit pay plans. 1. What do you think the major complaints were? Student answers may vary. Exhibit 10-3 lists the common complaints regarding a merit pay. 2. What, if anything, should the university do to improve its merit pay plan? If you suggest scrapping the plan, with what would you replace it? Student answers may vary. For example, a piece-rate system that rewards the professors based on the success percentage of their respective batches would be an option that could be considered. CRITICAL THINKING EXERCISES 1. Take a class vote on how many people would prefer working under conditions that exist at Lincoln Electric. Brainstorm the pros and cons of the situation and reduce both lists to the top five. 2. How might companies motivate through intrinsic rewards? Since people are individuals, how would managers know what motivates each person and what he or she values? Is it worth the time and effort to get to know each worker on an individual basis? 3. Divide the class into teams and assign them to analyze a merit pay guide chart as outlined in Exhibit 10-2. Is this chart clear? Can managers easily implement such a chart? How will it make the job easier? 4. Have students research across the board raises and seniority raises. What questions arise in their use? Can they motivate? If not, why? Would labor unions prefer these over merit raises only? 5. Assign each of the plans covered in section 10-2a to different teams. First, let students tell which plan they prefer and group them on that team. Let students provide all the practical reasons they can think of to use the reward system. Also ask them to rank the plans according to the one providing the most competitive advantages. Share each team’s findings with the class. 6. Create a quality circle program. Assign one person in each team to serve from a different department of a mock company. Let them think of solutions acting in their respective roles. After each team has presented its solutions, take a class vote on which team came up with the best solutions. 7. Ask students how managers can determine what motivates each employee and what their individual work needs are. How can the manager remember them? What is a good way to translate them into effective action? ESSAY QUESTIONS 1. How might Lincoln Electric Company’s solution to motivating employees be applied to a service organization, such as a large firm that processes income tax returns? Lincoln Electric’s employee motivation strategy, which emphasizes performance-based incentives and profit sharing, can be applied to a tax processing firm by implementing a bonus system tied to accuracy and efficiency. By rewarding employees for high-quality work and meeting deadlines during peak tax season, the firm can enhance motivation, boost productivity, and improve overall service quality. Additionally, fostering a culture of recognition and teamwork can further engage employees and drive performance. 2. What are productivity improvement programs and what do they do to help a company gain competitive advantage? Productivity improvement programs are initiatives designed to enhance efficiency, reduce waste, and optimize processes within an organization. These programs typically involve techniques like Lean management, Six Sigma, or continuous improvement methodologies. By streamlining operations and increasing output, they help companies lower costs, improve quality, and respond faster to market demands, ultimately gaining a competitive advantage through enhanced customer satisfaction and profitability. 3. Explain the expectancy theory model. Expectancy theory, developed by Victor Vroom, posits that motivation is driven by three key components: expectancy, instrumentality, and valence. 1. Expectancy: The belief that effort will lead to performance. If employees think their efforts will yield success, they are more motivated. 2. Instrumentality: The belief that performance will lead to desired outcomes or rewards. If employees see a clear link between their performance and rewards, their motivation increases. 3. Valence: The value or attractiveness of the reward to the employee. If the rewards are meaningful, motivation is enhanced. Together, these components suggest that employees are motivated to act when they expect their efforts will lead to performance that earns valued rewards. 4. How might a productivity improvement program enhance recruitment efforts and retention rates? A productivity improvement program can enhance recruitment efforts and retention rates by creating a positive workplace culture focused on efficiency and employee development. 1. Attraction: Highlighting a commitment to continuous improvement and innovation can attract talent seeking dynamic work environments. 2. Job Satisfaction: Streamlined processes reduce employee frustration and increase job satisfaction, making employees more likely to stay. 3. Career Growth: Programs often include training and development opportunities, which appeal to candidates and encourage existing employees to advance within the company. Overall, a focus on productivity can foster a motivated workforce and a strong employer brand, leading to better recruitment and higher retention rates. 5. Compare pay-for-performance and merit pay plans. Pay-for-Performance and Merit Pay are both incentive compensation strategies, but they differ in focus: 1. Pay-for-Performance: This broader approach ties compensation directly to measurable outcomes, such as sales targets or project completions. It incentivizes employees based on specific performance metrics, making it adaptable across various roles. 2. Merit Pay: This is a specific type of pay-for-performance that rewards employees based on their individual performance evaluations over time. It typically reflects long-term contributions, skills, and accomplishments, and is often integrated into base salary increases. In summary, while all merit pay is pay-for-performance, not all pay-for-performance plans are merit pay; the former focuses on immediate results, while the latter emphasizes sustained individual performance. 6. Describe the strengths and weaknesses of both piece rate and gainsharing plans. Piece Rate Plans Strengths: • Directly ties pay to output, motivating higher production. • Easy to measure performance. Weaknesses: • Risks compromising quality for quantity. • Can foster competition over teamwork. Gainsharing Plans Strengths: • Encourages collaboration and teamwork. • Motivates efficiency improvements across the group. Weaknesses: • Complex to design and implement. • Variable rewards may lead to employee dissatisfaction. 7. Why has the Scanlon Plan been successful? The Scanlon Plan has been successful due to its focus on employee involvement and teamwork in cost-saving initiatives. By rewarding employees for reducing costs while maintaining quality, it fosters a sense of ownership and collective responsibility. Clear communication and shared goals enhance collaboration, while the incentive structure aligns employee efforts with the company’s overall success, leading to increased productivity and morale. This participatory approach helps sustain long-term engagement and commitment from employees. 8. What does a manager need to know about profit-sharing plans? How are they different from individual performance plans? A manager needs to know that profit-sharing plans distribute a portion of the company’s profits among employees, promoting a sense of ownership and aligning employee interests with company success. These plans typically encourage teamwork and collaboration, as rewards depend on overall company performance. In contrast, individual performance plans focus on rewarding employees based on their personal achievements and contributions. While profit-sharing emphasizes collective success, individual plans reward specific performance metrics, fostering competition rather than collaboration. 9. Compare and contrast the extrinsic and intrinsic empowerment programs outlined in this chapter. Extrinsic Empowerment Programs Definition: Focus on external rewards (e.g., bonuses, promotions). Strengths: • Clear incentives for immediate performance. Weaknesses: • Can lead to short-term focus and dependency on rewards. Intrinsic Empowerment Programs Definition: Focus on internal motivation (e.g., skill development, autonomy). Strengths: • Fosters job satisfaction and creativity. Weaknesses: • Results may take longer to manifest and are harder to measure. Summary Extrinsic programs drive immediate results through rewards, while intrinsic programs enhance long-term engagement and fulfillment. 10. Based on the manager’s guide in this chapter, how can a manager effectively use self-managed work teams and create an appropriate culture? To effectively use self-managed work teams, a manager should: 1. Empower Team Members: Provide autonomy in decision-making and encourage accountability for outcomes. 2. Foster Collaboration: Create an environment that promotes open communication, trust, and mutual respect among team members. 3. Set Clear Goals: Ensure that teams have well-defined objectives and understand how their work contributes to the organization’s success. 4. Provide Support and Resources: Equip teams with the necessary tools, training, and resources to succeed. 5. Encourage Continuous Improvement: Promote a culture of feedback and learning, where teams regularly assess their performance and seek ways to improve. By focusing on these elements, a manager can cultivate a culture that supports self-managed teams, leading to enhanced motivation, innovation, and productivity. OTHER RESOURCES I. Websites www.getmoredone.com. This site provides tips on improving organizational effectiveness. II. Articles “HR’s Push for Productivity,” Workforce Magazine, September 1, 2002. Clues us in on flexibility, training, and the right incentives. “Dear Workforce: How Do We Introduce Profit Sharing in a Unionized Manufacturing Environment?” Workforce Magazine, November 7, 2002. The article Focuses on education, commitment, and results. Solution Manual for Human Resource Management: A Managerial Tool for Competitive Advantage Lawrence S. Kleiman 9781426649189
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