CH-10-12 Pay for Performance: Incentive Rewards – Managing Human Resources : Chapter Notes

This Document Contains Chapters 10 to 12 Chapter 10: Pay for Performance: Incentive Rewards If nothing else, my students should learn that… • Incentives must be strategically aligned and handled carefully in order to glean the benefits from them. • Incentives can be at the individual, group, or enterprise level, and each type of incentive has advantages and disadvantages. Learning objectives 1. Discuss the basic requirements for successful implementation of incentive programs. 2. Identify the types of and reasons for implementing individual incentive plans, and discuss under what conditions individual incentives are appropriate. 3. Indicate the advantage of each of the principal methods used to compensate salespeople. 4. Identify the key aspects of team and group-level pay-for-performance plans. 5. Differentiate between profit-sharing plans and explain the advantages and disadvantages of these programs. 6. Describe the main types of employee stock ownership plans and discuss their advantages to employers and employees. Why is this chapter important? This chapter acquaints students with the different types of financial incentive plans that have been developed to motivate each category of employees within an organization. More important, it seeks to make students aware of the criteria for a successful incentive plan and how effective financial incentives are in comparison with other forms of motivation. Some of the new financial incentive plans for management employees are described. Also discussed in the chapter are the various forms of gainsharing incentive plans. The advantages and disadvantages of gainsharing plans are reviewed. The chapter concludes by discussing the conditions that have led to the introduction of employee stock ownership plans. What can I do in this class? This section includes ideas for how to start and finish the class. It also contains information from the textbook that can be used as a basis for a lecture. Moreover, it contains numerous suggestions for student engagement. Depending on your class size, the nature of the students, and your desire for classroom participation, choose from these activities to enliven the classroom. Getting started • Start the class by opening with Discussion Question 2 from page 382: Assume you are a consultant for a small fast-food retail outlet. What would be your suggestions for key steps in designing a successful incentive plan? Discuss a few recommendations you would suggest with respect to incentives for exceptional performance. Why? This is a useful starting point, as most students are familiar with fast-food restaurants, and many have probably worked for one in the past. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • Begin the class with a topical issue: executive compensation. Use Case Study 1: Executive Compensation: The Case of Ontario Hospital Executives on page 383. Ask the students to respond to the case study question in groups. See a sample solution in the Notes for End-of-Chapter Case Studies. • Start with Beyersdorfer and colleagues’ (2012) case published in the Harvard Business Review called “Bonuses in Bad Times.” See the full citation in the Recommended Reading section. • Exercise: Make photocopies of Figure 10.1: Types of Incentive Plans on page 360 for each student. Cut the different types of incentive plans into squares so that each type is on its own square. Stick all of the pieces of paper into an envelope. In class, provide each student with an envelope and ask the students to arrange the squares according to whether each incentive system is an individual, group, or enterprise/organization incentive plan. Strategic Reasons for Incentive Plans • Incentive plans, also called variable pay programs, have grown significantly over the past years. • Variable pay means tying pay to some measure of individual, group, or organizational performance. • Call-Out Question: Ask students why they believe that organizations use incentive pay programs. Use Figure 10.2: Advantages of Incentive Pay Programs on page 361, which looks at incentives as a way to reward performance, foster teamwork, and attract top performers, to inform the answers. Requirements for a Successful Incentive Plan • Connectivity Activity: First review Highlights in HRM 10.1: Setting Performance Measures: The Keys on page 362. Next, ask students to evaluate how well their performance is measured in most of their university courses. Do their university courses pass this test? • Call-Out Question: Explain that employees may oppose incentive plans. Ask students why they believe employees may resist these pay programs. Their answers should reflect the opposite of the characteristics that make an incentive plan successful. Administering Incentive Plans A cardinal rule for administering incentive plans is that they must be carefully thought out, implemented, and maintained with a “proceed with caution” approach. Some important points to consider about administering incentive plans include the following: • Incentive plans are effective only when managers are willing to grant incentives based on differences in individuals, team, or organizational performance. • Annual salary budgets must be large enough to reward and reinforce exceptional performance. • The overhead costs associated with plan implementation and administration must be determined, including the cost of established performance standards, the added cost of record keeping, and the time communicating to employees and resolving any complaints. • In-Class Activity: The rest of the textbook reviews (1) individual incentive plans, (2) group incentive plans, and (3) enterprise incentive plans. Rather than lecture about each type of plan, assign students to groups, and provide one type of plan to each of the groups. Ask the groups to develop a PowerPoint slide presentation or give them flip chart paper to document the dos and don’ts for each. Students should present to one another. Individual Incentive Plans Call-Out Question: Ask the students: If Google paid its programmers based on how many programs they wrote per day, what would happen? Once they’ve discussed how pay may align that one goal, ask them what would not happen if Google paid its programmers in that way. Ensure that the students understand that paying only based on one goal will likely cause employees not to behave cooperatively, or to innovate, etc. A. Piecework • Straight piecework—employees receive a certain rate for each unit produced. • Differential piece rate—employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount. • Think-Pair-Share: What are the advantages and disadvantages of piecework? When is piecework inappropriate? Advantages may include simple to compute; plan permits an organization to predict its labour costs with accuracy; motivates employees to complete tasks. Disadvantages may include it is not always an effective motivator; employees may not work as hard due to the public scorning from other employees because this appears to be “rate busting”; many jobs cannot have individual contributions determined. Piecework is probably inappropriate to use in the following instances: when quality is more important than quantity; when technology changes are frequent; when productivity standards on which piecework must be based are difficult to develop; when it is counter-culture. B. Standard Hour Plan • The standard hour plan—sets rates based on the completion of a job in a predetermined standard time. If the job is completed in less than the standard time, the individual is paid based on the standard time determined for the job times the employee’s hourly rate. C. Bonuses • A bonus is an incentive payment that is supplemental to the base wage. Bonuses can be paid based on units produced, cost reduction, or other established performance criteria. • A spot bonus is an unplanned bonus given for employee effort unrelated to an established performance measure. D. Merit Pay • A merit pay program (or merit raise) links an increase in base pay to how successfully an employee performs his or her job. • Think-Pair-Share: Ask students to think of at least five conditions that are necessary for merit-pay programs to work. Ask students to share their responses in a round robin until all of the responses have been documented on the board or overhead. Answers should include: when raises are perceived to be tied to performance; when the raise is high enough (7–9 percent minimum); when employees are evaluated objectively; when they are separate from cost-of-living adjustments; employees do not come to expect the increase or see it as an entitlement; not based on seniority or favouritism; managers must have guidance for how to define and measure performance; clear communication on what is ‘performance’; they don’t create feelings of inequity. • Small Group Discussion: Use Discussion Question 1 on page 382 as a basis for this small group discussion: Individual-level performance pay systems have been heavily criticized by scholars and other experts. Using merit pay as an example, discuss the pros and cons of individual performance pay systems. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • Connectivity Activity: Use HRM Experience: Awarding Salary Increases on page 383 to showcase the difficulty in awarding merit pay. E. Lump-Sum Merit Pay • A lump-sum merit program—employees receive a year-end merit payment, which is not added to their base pay. • Call-Out Question: Ask students why an organization would use this form of incentive system? Ensure that students recognize that this may be advantageous in case the organization does not have sufficient funds to promise a wage increase, or when an employee’s performance is variable year-to-year. F. Incentive Awards and Recognition • Incentive awards and employee recognition are an important part of an employer’s pay-for-performance compensation strategy. Awards are used to recognize productivity gains, special contributions or achievements, and service to the organization. • Think-Pair-Share: Ask the students to discuss whether the rewards that they value are different from the rewards that their parents value. See Highlights in HRM 10.2: Customize Your Noncash Incentive Awards on page 368 for examples of different awards for different age groups. G. Sales Incentives • Call-Out Question: Ask students for examples of clothing stores that use sales incentives for their employees (many will have worked in such environments). Ask them to share their experiences as a customer or employee, and whether they’ve ever felt pressure to sell/buy a product. • A straight salary plan—permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume. • Call-Out Question: Ask students where this plan would be most beneficial to the employee and the organization. The principal limitation of the straight salary plan is that it may not motivate salespeople to exert sufficient effort in maximizing their sales volume. However, the organizational culture should be taken into consideration. Indigo and Best Buy, two hugely successful retail outlets in Canada, do not use a commission plan for their shop-floor employees. • A straight commission plan—a compensation plan based on a percentage of sales. This provides maximum incentive to increase sales performance and is easy to compute. • Call-Out Question: What are the disadvantages to a straight commission plan? Salespeople will stress high-priced products; customer service after the sale is likely to be neglected; earnings tend to fluctuate widely between good and poor periods of business; turnover of trained sales employees tends to increase in poor periods; salespeople are tempted to grant price concessions. • A combined salary and commission plan—the most widely used sales incentive program, which includes a straight salary and a commission. • Think-Pair-Share: What are the advantages of a combined salary and commission plan? The plan can be customized to the right kind of compensation and salary proportions; a salary-plus incentive compensation plan offers greater flexibility; the plan can develop the most favourable ratio of selling expense to sales; the field sales force can be motivated to achieve specific company marketing objectives in addition to sales volume. Incentives for Professional Employees The Executive Pay Package • Use Figure 10.3: Types of Long-Term Incentive Plans on page 372 to review long-term incentives used for executives. • Executive compensation plans consist of five basic components: a) Executive Base Salaries—represent between 30–40 percent of total annual compensation. b) Executive Short-Term Incentives—Annual bonuses represent the main element of executive short-term incentives. A bonus may take the form of cash or stock and may be paid immediately or deferred until retirement. c) Executive Long-Term Incentives—Stock options are the primary long-term incentive offered to executives. The principal reason driving executive stock ownership is the desire of both the company and outside investors for senior managers to have a significant stake in the success of the business—to have their fortunes rise and fall with the value they create for shareholders. d) Executive Benefits—might include: extended health, vacations, estate planning assistance, payment of mortgage interest, legal assistance, and so on. • Making Explicit Real-World Links: See Highlights in HRM 10.3: The “Sweetness” of Executive Perks on page 373 for examples. e) Executive Perquisites—special nonmonetary benefits given to executives, often referred to as perks. The status that comes with perks shows a pecking order and conveys authority. Executive Compensation: Ethics and Accountability • Think-Pair-Share: Use Ethics in HRM: Executive Incentives and Perks: Blackberry on page 369 as the basis for this think-pair-share. Ask the students: How ethical is high executive compensation packages, as a whole across Canada (and not just Blackberry), when compared to average employee pay? • Individual Assignment: Use Discussion Question 3 as the basis for an individual assignment: CEO pay has been heavily criticized in North America, especially in the United States. Discuss both reasons for and reasons against high executive pay. See sample solutions to the debate/discussion question in the Answers to End-of Chapter Discussion Questions. • Case Study: Use Case Study 1: Executive Compensation: The Case of Ontario Hospital Executives on pages 383‒384 to generate discussion on the ethics of executive pay. See the sample solutions in the Notes for End-of-Chapter Case Studies. Group Incentive Plans A. Team Compensation—all team members receive an incentive bonus payment when production or service standards are met or exceeded. • Think-Pair-Share/Connectivity Activity: What are the advantages and disadvantages of team compensation? Alternatively, you can ask students to recall working in team projects in university and ask them what the advantages and disadvantages are. One advantage is that team bonuses can replace individual bonuses when individual effort is hard to measure or when the employer wishes to encourage group cooperation. Moreover, it encourages teamwork and aligns the team’s goals with the organization’s goals. Disadvantages may include the following: Individual team members may perceive that their efforts contribute too little to team success; intergroup social problems might target one individual as a free-rider; compensation payout formulas are too complex; payout rewards are insufficient. • Connectivity Activity: Ask the students how they could best incentivize a team to which they belong in a different class. Relate their responses to Highlights in HRM 10.4: Lessons Learned: Designing Effective Team Incentives on page 375. • Case Study: Use Case Study 2: Team-Based Incentive Rewards: Not Your Usual Office on pages 384‒385 to illustrate the pitfalls in team-based compensation programs. See the recommended responses in the Notes for End-of-Chapter Case Studies. B. Gainsharing Incentive Plans—programs under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability. There are two types: • The Scanlon Plan—a bonus incentive plan using employee and management committees to gain cost-reduction improvements. The philosophy behind the Scanlon Plan is that employees should offer ideas and suggestions to improve productivity, and be rewarded for their constructive efforts. Improvements or gains largely come from “working smarter, not harder.” Financial incentives under the Scanlon Plan are ordinarily offered to all employees on the basis of an established formula. • Improshare—bonuses are based on the overall productivity of the work team. Improshare means improved productivity through sharing. The bonus is based on productivity gains that result from reducing the time it takes to produce a finished product. The employees and the company each receive payment for 50 percent of the improvement. Improshare promotes increased interaction and support between employees and management. • Call-Out Question: Is gainsharing possible if the organizational culture is not cooperative and empowered? • Think-Pair-Share: Ask students to determine whether they would voluntarily suggest ways to improve their work environments if they were NOT compensated, as in the example in gainsharing. How should you be compensated if you saved your company $1 million? Enterprise Incentive Plans • All organizational members participate in the plan’s compensation payout. • Reward employees on the basis of the success of the organization over an extended time period—normally one year. • Seek to create a “culture of ownership” by fostering cooperation and teamwork. A. Profit-Sharing Plans—any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred sums based on the profits of the enterprise. • Call-Out Question: Why would organizations use profit-sharing plans? Answers may include the following: They give employees the opportunity to increase their earnings by contributing to the growth of their organization’s profits; makes employees feel like partners in the enterprise and be concerned with the welfare of the whole organization. • Call-Out Question: What are the potential drawbacks of using a profit-sharing plan? As accountants well know, profits shared with employees may be the result of inventory speculation, climatic factors, economic conditions, national emergencies, or other factors over which employees have NO control. Since there is little linkage between the efforts made by employees and the generation of profits, employee involvement might decline. Also since profit-sharing payments are only made once per year, their motivational value is reduced. If there are too many unprofitable years in a row, this will influence employee productivity and morale to decline. B. Employee Stock Option Plans—grant to employees the right to purchase a specific number of shares of the company’s stock at a guaranteed price during a designated time period. Most options are granted at the stock’s fair market value. • Organizations that offer stock option programs do so with the belief that there is some incentive value to the system. By allowing employees to purchase stock, the organization hopes they will increase their productivity, assume a partnership role in the organization, and thus cause the stock price to rise. • See Highlights in HRM 10.5: Employee Stock Option Plans on page 377. • Making Explicit Real-World Links: Use Reality Check: Pay for Performance at Lombard Canada on pages 378‒379 to illustrate how Lombard’s compensation strategy given today’s economic and social environment in Canada. C. Employee Stock Ownership Plans (ESOPs)—an organization contributes shares of its stock to an established trust for the purpose of stock purchases by employees. • Think-Pair-Share: Ask students: What are the advantages and disadvantages of ESOPs? Advantages might include the following: ESOPs can increase employees’ pride of ownership in the organization, providing an incentive for them to increase productivity and help the organization prosper and grow; employees can also become more interested in how the company is managed and hold managers to higher and different performance standards, such as maximizing share value; ESOPs provide a form of savings for employees’ retirement. Problems with ESOPs might include the following: the potential inability to pay back the shares of employees when they retire since the employees do not have the option of disposing of their shares on the open market; the more retirement income comes from these plans, the more dependent a pensioner becomes on the price of company shares; employees may become demotivated and frustrated if the share price falls, even though they have worked productively; productivity improves when ESOPs are implemented but these gains are not guaranteed. • Making Explicit Real-World Links: See The Business Case: Incentive Plan at Royal Bank of Canada on page 380 to see an interpretation of when an incentive plan is successful. FINISHING CLASS • Review the learning objectives. • Create a multiple-choice style quiz based on the lecture material to check learning. Use clickers if they are available. • Provide students with a “one-minute” paper and ask them to respond to the following questions: (1) What is the most important thing I learned today? (2) What question do I have that is left unanswered? Collect the one-minute papers and take up any unresolved issues in the following class. • Ask students a provocative question: “Will there come a time when incentives will be a thing of the past? What will be predicted regarding incentives when there are labour shortages?” Use this as a basis for discussion on the online board for your class. • Thank students for volunteering their ideas and experiences. Reinforce that class discussions advance their thinking about all topics. Remind students that they will not be able to work without making contributions to discussions. Additional Teaching Resources Recommended Reading • Beyersdorfer, D., Dessain, V., Zeynep, T., Hollanders, N., & Barberan, M. (2012). Bonuses in Bad Times. Harvard Business Review, 90(7/8), 153–157. • Dahlström, C., & Lapuente, V. (2012). Explaining cross-country differences in performance-related pay in the public sector. Journal of Public Administration Research & Theory, 20(3), 577–600. • Desai, M. (2012). The Incentive Bubble. Harvard Business Review, 90(3), 124–132. • Hollensbe, E.C., Guthrie, J.P. (2000). Group pay-for-performance plans: The role of spontaneous goal setting. Academy of Management Review, 25(4), 864–872. • Lazear, E.P., & Shaw, K.L. (2007). Personnel Economics: The economist’s view of human resources. Journal of Economic Perspectives, 21(4), 91–114. Chapter 10: Pay for Performance: Incentive Rewards If nothing else, my students should learn that… • Incentives must be strategically aligned and handled carefully in order to glean the benefits from them. • Incentives can be at the individual, group, or enterprise level, and each type of incentive has advantages and disadvantages. Learning objectives 7. Discuss the basic requirements for successful implementation of incentive programs. 8. Identify the types of and reasons for implementing individual incentive plans, and discuss under what conditions individual incentives are appropriate. 9. Indicate the advantage of each of the principal methods used to compensate salespeople. 10. Identify the key aspects of team and group-level pay-for-performance plans. 11. Differentiate between profit-sharing plans and explain the advantages and disadvantages of these programs. 12. Describe the main types of employee stock ownership plans and discuss their advantages to employers and employees. Why is this chapter important? This chapter acquaints students with the different types of financial incentive plans that have been developed to motivate each category of employees within an organization. More important, it seeks to make students aware of the criteria for a successful incentive plan and how effective financial incentives are in comparison with other forms of motivation. Some of the new financial incentive plans for management employees are described. Also discussed in the chapter are the various forms of gainsharing incentive plans. The advantages and disadvantages of gainsharing plans are reviewed. The chapter concludes by discussing the conditions that have led to the introduction of employee stock ownership plans. What can I do in this class? This section includes ideas for how to start and finish the class. It also contains information from the textbook that can be used as a basis for a lecture. Moreover, it contains numerous suggestions for student engagement. Depending on your class size, the nature of the students, and your desire for classroom participation, choose from these activities to enliven the classroom. Getting started • Start the class by opening with Discussion Question 2 from page 382: Assume you are a consultant for a small fast-food retail outlet. What would be your suggestions for key steps in designing a successful incentive plan? Discuss a few recommendations you would suggest with respect to incentives for exceptional performance. Why? This is a useful starting point, as most students are familiar with fast-food restaurants, and many have probably worked for one in the past. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • Begin the class with a topical issue: executive compensation. Use Case Study 1: Executive Compensation: The Case of Ontario Hospital Executives on page 383. Ask the students to respond to the case study question in groups. See a sample solution in the Notes for End-of-Chapter Case Studies. • Start with Beyersdorfer and colleagues’ (2012) case published in the Harvard Business Review called “Bonuses in Bad Times.” See the full citation in the Recommended Reading section. • Exercise: Make photocopies of Figure 10.1: Types of Incentive Plans on page 360 for each student. Cut the different types of incentive plans into squares so that each type is on its own square. Stick all of the pieces of paper into an envelope. In class, provide each student with an envelope and ask the students to arrange the squares according to whether each incentive system is an individual, group, or enterprise/organization incentive plan. Strategic Reasons for Incentive Plans • Incentive plans, also called variable pay programs, have grown significantly over the past years. • Variable pay means tying pay to some measure of individual, group, or organizational performance. • Call-Out Question: Ask students why they believe that organizations use incentive pay programs. Use Figure 10.2: Advantages of Incentive Pay Programs on page 361, which looks at incentives as a way to reward performance, foster teamwork, and attract top performers, to inform the answers. Requirements for a Successful Incentive Plan • Connectivity Activity: First review Highlights in HRM 10.1: Setting Performance Measures: The Keys on page 362. Next, ask students to evaluate how well their performance is measured in most of their university courses. Do their university courses pass this test? • Call-Out Question: Explain that employees may oppose incentive plans. Ask students why they believe employees may resist these pay programs. Their answers should reflect the opposite of the characteristics that make an incentive plan successful. Administering Incentive Plans A cardinal rule for administering incentive plans is that they must be carefully thought out, implemented, and maintained with a “proceed with caution” approach. Some important points to consider about administering incentive plans include the following: • Incentive plans are effective only when managers are willing to grant incentives based on differences in individuals, team, or organizational performance. • Annual salary budgets must be large enough to reward and reinforce exceptional performance. • The overhead costs associated with plan implementation and administration must be determined, including the cost of established performance standards, the added cost of record keeping, and the time communicating to employees and resolving any complaints. • In-Class Activity: The rest of the textbook reviews (1) individual incentive plans, (2) group incentive plans, and (3) enterprise incentive plans. Rather than lecture about each type of plan, assign students to groups, and provide one type of plan to each of the groups. Ask the groups to develop a PowerPoint slide presentation or give them flip chart paper to document the dos and don’ts for each. Students should present to one another. Individual Incentive Plans Call-Out Question: Ask the students: If Google paid its programmers based on how many programs they wrote per day, what would happen? Once they’ve discussed how pay may align that one goal, ask them what would not happen if Google paid its programmers in that way. Ensure that the students understand that paying only based on one goal will likely cause employees not to behave cooperatively, or to innovate, etc. A. Piecework • Straight piecework—employees receive a certain rate for each unit produced. • Differential piece rate—employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount. • Think-Pair-Share: What are the advantages and disadvantages of piecework? When is piecework inappropriate? Advantages may include simple to compute; plan permits an organization to predict its labour costs with accuracy; motivates employees to complete tasks. Disadvantages may include it is not always an effective motivator; employees may not work as hard due to the public scorning from other employees because this appears to be “rate busting”; many jobs cannot have individual contributions determined. Piecework is probably inappropriate to use in the following instances: when quality is more important than quantity; when technology changes are frequent; when productivity standards on which piecework must be based are difficult to develop; when it is counter-culture. B. Standard Hour Plan • The standard hour plan—sets rates based on the completion of a job in a predetermined standard time. If the job is completed in less than the standard time, the individual is paid based on the standard time determined for the job times the employee’s hourly rate. C. Bonuses • A bonus is an incentive payment that is supplemental to the base wage. Bonuses can be paid based on units produced, cost reduction, or other established performance criteria. • A spot bonus is an unplanned bonus given for employee effort unrelated to an established performance measure. D. Merit Pay • A merit pay program (or merit raise) links an increase in base pay to how successfully an employee performs his or her job. • Think-Pair-Share: Ask students to think of at least five conditions that are necessary for merit-pay programs to work. Ask students to share their responses in a round robin until all of the responses have been documented on the board or overhead. Answers should include: when raises are perceived to be tied to performance; when the raise is high enough (7–9 percent minimum); when employees are evaluated objectively; when they are separate from cost-of-living adjustments; employees do not come to expect the increase or see it as an entitlement; not based on seniority or favouritism; managers must have guidance for how to define and measure performance; clear communication on what is ‘performance’; they don’t create feelings of inequity. • Small Group Discussion: Use Discussion Question 1 on page 382 as a basis for this small group discussion: Individual-level performance pay systems have been heavily criticized by scholars and other experts. Using merit pay as an example, discuss the pros and cons of individual performance pay systems. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • Connectivity Activity: Use HRM Experience: Awarding Salary Increases on page 383 to showcase the difficulty in awarding merit pay. E. Lump-Sum Merit Pay • A lump-sum merit program—employees receive a year-end merit payment, which is not added to their base pay. • Call-Out Question: Ask students why an organization would use this form of incentive system? Ensure that students recognize that this may be advantageous in case the organization does not have sufficient funds to promise a wage increase, or when an employee’s performance is variable year-to-year. F. Incentive Awards and Recognition • Incentive awards and employee recognition are an important part of an employer’s pay-for-performance compensation strategy. Awards are used to recognize productivity gains, special contributions or achievements, and service to the organization. • Think-Pair-Share: Ask the students to discuss whether the rewards that they value are different from the rewards that their parents value. See Highlights in HRM 10.2: Customize Your Noncash Incentive Awards on page 368 for examples of different awards for different age groups. G. Sales Incentives • Call-Out Question: Ask students for examples of clothing stores that use sales incentives for their employees (many will have worked in such environments). Ask them to share their experiences as a customer or employee, and whether they’ve ever felt pressure to sell/buy a product. • A straight salary plan—permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume. • Call-Out Question: Ask students where this plan would be most beneficial to the employee and the organization. The principal limitation of the straight salary plan is that it may not motivate salespeople to exert sufficient effort in maximizing their sales volume. However, the organizational culture should be taken into consideration. Indigo and Best Buy, two hugely successful retail outlets in Canada, do not use a commission plan for their shop-floor employees. • A straight commission plan—a compensation plan based on a percentage of sales. This provides maximum incentive to increase sales performance and is easy to compute. • Call-Out Question: What are the disadvantages to a straight commission plan? Salespeople will stress high-priced products; customer service after the sale is likely to be neglected; earnings tend to fluctuate widely between good and poor periods of business; turnover of trained sales employees tends to increase in poor periods; salespeople are tempted to grant price concessions. • A combined salary and commission plan—the most widely used sales incentive program, which includes a straight salary and a commission. • Think-Pair-Share: What are the advantages of a combined salary and commission plan? The plan can be customized to the right kind of compensation and salary proportions; a salary-plus incentive compensation plan offers greater flexibility; the plan can develop the most favourable ratio of selling expense to sales; the field sales force can be motivated to achieve specific company marketing objectives in addition to sales volume. Incentives for Professional Employees The Executive Pay Package • Use Figure 10.3: Types of Long-Term Incentive Plans on page 372 to review long-term incentives used for executives. • Executive compensation plans consist of five basic components: f) Executive Base Salaries—represent between 30–40 percent of total annual compensation. g) Executive Short-Term Incentives—Annual bonuses represent the main element of executive short-term incentives. A bonus may take the form of cash or stock and may be paid immediately or deferred until retirement. h) Executive Long-Term Incentives—Stock options are the primary long-term incentive offered to executives. The principal reason driving executive stock ownership is the desire of both the company and outside investors for senior managers to have a significant stake in the success of the business—to have their fortunes rise and fall with the value they create for shareholders. i) Executive Benefits—might include: extended health, vacations, estate planning assistance, payment of mortgage interest, legal assistance, and so on. • Making Explicit Real-World Links: See Highlights in HRM 10.3: The “Sweetness” of Executive Perks on page 373 for examples. j) Executive Perquisites—special nonmonetary benefits given to executives, often referred to as perks. The status that comes with perks shows a pecking order and conveys authority. Executive Compensation: Ethics and Accountability • Think-Pair-Share: Use Ethics in HRM: Executive Incentives and Perks: Blackberry on page 369 as the basis for this think-pair-share. Ask the students: How ethical is high executive compensation packages, as a whole across Canada (and not just Blackberry), when compared to average employee pay? • Individual Assignment: Use Discussion Question 3 as the basis for an individual assignment: CEO pay has been heavily criticized in North America, especially in the United States. Discuss both reasons for and reasons against high executive pay. See sample solutions to the debate/discussion question in the Answers to End-of Chapter Discussion Questions. • Case Study: Use Case Study 1: Executive Compensation: The Case of Ontario Hospital Executives on pages 383‒384 to generate discussion on the ethics of executive pay. See the sample solutions in the Notes for End-of-Chapter Case Studies. Group Incentive Plans A. Team Compensation—all team members receive an incentive bonus payment when production or service standards are met or exceeded. • Think-Pair-Share/Connectivity Activity: What are the advantages and disadvantages of team compensation? Alternatively, you can ask students to recall working in team projects in university and ask them what the advantages and disadvantages are. One advantage is that team bonuses can replace individual bonuses when individual effort is hard to measure or when the employer wishes to encourage group cooperation. Moreover, it encourages teamwork and aligns the team’s goals with the organization’s goals. Disadvantages may include the following: Individual team members may perceive that their efforts contribute too little to team success; intergroup social problems might target one individual as a free-rider; compensation payout formulas are too complex; payout rewards are insufficient. • Connectivity Activity: Ask the students how they could best incentivize a team to which they belong in a different class. Relate their responses to Highlights in HRM 10.4: Lessons Learned: Designing Effective Team Incentives on page 375. • Case Study: Use Case Study 2: Team-Based Incentive Rewards: Not Your Usual Office on pages 384‒385 to illustrate the pitfalls in team-based compensation programs. See the recommended responses in the Notes for End-of-Chapter Case Studies. B. Gainsharing Incentive Plans—programs under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability. There are two types: • The Scanlon Plan—a bonus incentive plan using employee and management committees to gain cost-reduction improvements. The philosophy behind the Scanlon Plan is that employees should offer ideas and suggestions to improve productivity, and be rewarded for their constructive efforts. Improvements or gains largely come from “working smarter, not harder.” Financial incentives under the Scanlon Plan are ordinarily offered to all employees on the basis of an established formula. • Improshare—bonuses are based on the overall productivity of the work team. Improshare means improved productivity through sharing. The bonus is based on productivity gains that result from reducing the time it takes to produce a finished product. The employees and the company each receive payment for 50 percent of the improvement. Improshare promotes increased interaction and support between employees and management. • Call-Out Question: Is gainsharing possible if the organizational culture is not cooperative and empowered? • Think-Pair-Share: Ask students to determine whether they would voluntarily suggest ways to improve their work environments if they were NOT compensated, as in the example in gainsharing. How should you be compensated if you saved your company $1 million? Enterprise Incentive Plans • All organizational members participate in the plan’s compensation payout. • Reward employees on the basis of the success of the organization over an extended time period—normally one year. • Seek to create a “culture of ownership” by fostering cooperation and teamwork. A. Profit-Sharing Plans—any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred sums based on the profits of the enterprise. • Call-Out Question: Why would organizations use profit-sharing plans? Answers may include the following: They give employees the opportunity to increase their earnings by contributing to the growth of their organization’s profits; makes employees feel like partners in the enterprise and be concerned with the welfare of the whole organization. • Call-Out Question: What are the potential drawbacks of using a profit-sharing plan? As accountants well know, profits shared with employees may be the result of inventory speculation, climatic factors, economic conditions, national emergencies, or other factors over which employees have NO control. Since there is little linkage between the efforts made by employees and the generation of profits, employee involvement might decline. Also since profit-sharing payments are only made once per year, their motivational value is reduced. If there are too many unprofitable years in a row, this will influence employee productivity and morale to decline. B. Employee Stock Option Plans—grant to employees the right to purchase a specific number of shares of the company’s stock at a guaranteed price during a designated time period. Most options are granted at the stock’s fair market value. • Organizations that offer stock option programs do so with the belief that there is some incentive value to the system. By allowing employees to purchase stock, the organization hopes they will increase their productivity, assume a partnership role in the organization, and thus cause the stock price to rise. • See Highlights in HRM 10.5: Employee Stock Option Plans on page 377. • Making Explicit Real-World Links: Use Reality Check: Pay for Performance at Lombard Canada on pages 378‒379 to illustrate how Lombard’s compensation strategy given today’s economic and social environment in Canada. C. Employee Stock Ownership Plans (ESOPs)—an organization contributes shares of its stock to an established trust for the purpose of stock purchases by employees. • Think-Pair-Share: Ask students: What are the advantages and disadvantages of ESOPs? Advantages might include the following: ESOPs can increase employees’ pride of ownership in the organization, providing an incentive for them to increase productivity and help the organization prosper and grow; employees can also become more interested in how the company is managed and hold managers to higher and different performance standards, such as maximizing share value; ESOPs provide a form of savings for employees’ retirement. Problems with ESOPs might include the following: the potential inability to pay back the shares of employees when they retire since the employees do not have the option of disposing of their shares on the open market; the more retirement income comes from these plans, the more dependent a pensioner becomes on the price of company shares; employees may become demotivated and frustrated if the share price falls, even though they have worked productively; productivity improves when ESOPs are implemented but these gains are not guaranteed. • Making Explicit Real-World Links: See The Business Case: Incentive Plan at Royal Bank of Canada on page 380 to see an interpretation of when an incentive plan is successful. FINISHING CLASS • Review the learning objectives. • Create a multiple-choice style quiz based on the lecture material to check learning. Use clickers if they are available. • Provide students with a “one-minute” paper and ask them to respond to the following questions: (1) What is the most important thing I learned today? (2) What question do I have that is left unanswered? Collect the one-minute papers and take up any unresolved issues in the following class. • Ask students a provocative question: “Will there come a time when incentives will be a thing of the past? What will be predicted regarding incentives when there are labour shortages?” Use this as a basis for discussion on the online board for your class. • Thank students for volunteering their ideas and experiences. Reinforce that class discussions advance their thinking about all topics. Remind students that they will not be able to work without making contributions to discussions. Additional Teaching Resources Recommended Reading • Beyersdorfer, D., Dessain, V., Zeynep, T., Hollanders, N., & Barberan, M. (2012). Bonuses in Bad Times. Harvard Business Review, 90(7/8), 153–157. • Dahlström, C., & Lapuente, V. (2012). Explaining cross-country differences in performance-related pay in the public sector. Journal of Public Administration Research & Theory, 20(3), 577–600. • Desai, M. (2012). The Incentive Bubble. Harvard Business Review, 90(3), 124–132. • Hollensbe, E.C., Guthrie, J.P. (2000). Group pay-for-performance plans: The role of spontaneous goal setting. Academy of Management Review, 25(4), 864–872. • Lazear, E.P., & Shaw, K.L. (2007). Personnel Economics: The economist’s view of human resources. Journal of Economic Perspectives, 21(4), 91–114. Chapter 11: Employee Benefits If nothing else, my students should learn that… • In Canada, the law requires organizations to provide employees with some benefits, and other benefits are discretionary. • Organizations must balance the cost of benefit programs with the anticipated benefits of increased employee satisfaction, commitment, and loyalty. Learning objectives 1. Describe key aspects of managing employee benefits and the characteristics of an effective benefits program. 2. Identify and explain the employee benefits required by law. 3. Describe benefits that involve payment for time not worked. 4. Discuss recent trends in retirement policies and programs, and the major factors involved in managing pension plans. 5. Describe the types of work–life benefits employers may provide. Why is this chapter important? This chapter enables students to recognize the changes occurring in the types and value of benefits employees receive as part of their total compensation. It also should make students aware of current benefit trends and the significant cost of these benefits to the employer as a percentage of their labour costs. Current benefits programs are examined in terms of their intended contributions to an organization’s objectives and the extent to which these objectives are being realized. This chapter is organized into four major sections, starting with general information about benefits programs. The other sections cover employee benefits required by law, discretionary major employee benefits, and finally, a discussion of the types of employee services that are provided. What can I do in this class? This section includes ideas for how to start and finish the class. It also contains information from the textbook that can be used as a basis for a lecture. Moreover, it contains numerous suggestions for student engagement. Depending on your class size, the nature of the students, and your desire for classroom participation, choose from these activities to enliven the classroom. Getting started • YouTube Video Clip: There is a CBS clip called “The ‘Google’ Life,” which reviews employee benefits provided by Google. https://www.youtube.com/watch?v=_QqT38QRA84. Ask students if they would like to work for Google, and if they believe that the benefits attract, retain, or motivate, or all three. Share with students that approximately half of Canadians stated that a good benefit plan would make them stay with their current employer, and that they would prefer their health benefits over increased compensation. Another survey found that 4 out of 10 employers use wellness programs and subsidized fitness programs as a retention strategy. • Share with students the numerous examples of organizations that provide benefits programs in the prologue to this chapter. Managing Employee Benefits Programs • PBL: Use Discussion Question 1 on page 413 as the basis for this PBL exercise: Assume that you have been hired as the human resources manager of a small computer software firm with 180 employees. The CEO has asked you to design a strategic benefits plan for the firm. Using the knowledge gained in this chapter and book, discuss the key steps you would suggest in such a plan. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • Explain that employee benefits constitute an indirect form of compensation intended to improve the quality of the work lives and personal lives of employees. • In Canada, benefits constitute approximately 20–25 percent of payroll costs. Requirements for an Effective Benefits Program • The effectiveness of benefits programs hinge on two factors: • Selecting benefits that target important employee needs while promoting strategic objectives • Effective administration of benefits (A) Strategic Benefits Planning—Like any other HR policy, benefits need to be aligned with the organization’s objectives, and most set of objectives include the following: • Improve employee work satisfaction • Meet employee health and safety requirements • Attract and motivate employees • Retain top-performing employees • Maintain a favourable competitive position (B) Allowing for Employee Involvement—Ask for employee involvement in the design and evaluation of the benefit plan. (C) Benefits for a Diverse Workforce—Benefit plans must reflect the social changes that Canada is constantly facing, e.g., family-friendly policies. (D) Providing for Flexibility—also known as “cafeteria style” plans: • Employees are given a number of core benefits, including life and health insurance, sick leave, and vacation. • They are given a specified number of credits that they may use to “buy” whatever other benefits they need, including legal services, financial planning, and so on. • Think-Pair-Share: Ask students: What are the advantages and disadvantages of flexible benefits? Use Figure 11.1: Flexible Benefits Plans: Advantages and Disadvantages on page 392. Advantages include: employees select benefits that match their needs; benefit selections adapt to a changing and diverse workforce; employees gain greater understanding of the benefits offered to them and the costs incurred; employers maximize the psychological value of their benefits program by paying only for the highly desired benefits; employers limit benefit costs by allowing employees to “buy” benefits only up to a maximum amount. Disadvantages may include: poor employee benefits selection results in unwanted financial costs; there are certain added costs to establishing and maintaining the plan; employers may choose benefits of high use to them that might increase employer premium costs. • Taking a Trade Union’s Perspective: Show or share with students CUPE’s view on “flexible” benefits: http://cupe.ca/s43396b8998144/a43396513636a2 • Making Explicit Real World Links: Find a flexible benefits plan online for either your university or a different organization (here is one for IBM Canada: http://www-01.ibm.com/services/socomm/shared/pdf/canada/2012AEBenefitsHandbook.pdf). Communicating Employee Benefits Information • Communication of employee benefits has been stimulated by court rulings (such as Spinks vs. Canada) that require employers to communicate their benefit programs to their employees. • Discuss the Federal Court of Appeal ruling in Schmidt vs. Air Products of Canada that illustrates the importance of providing accurate benefits information to employees, and that employee brochures may be legally binding documents. • Making Explicit Real-World Links: Highlights in HRM 11.1: Crafting an Effective Benefits Communication Program on page 394 provides a list of recommendations for benefits communication. • Making Explicit Real-World Links: Figure 11.2: Communicating Benefits as Part of Total Rewards on page 395 shows how benefits are communicated at Mercer through an online system. • Connectivity Activity: Use Discussion Question 5 on page 413: As was mentioned in the opening of this chapter, many employees do not know details of the benefits they receive. Discuss how you would go about designing and implementing a communications plan to address this issue. See a sample solution in the Answers to End-of-Chapter Discussion Questions. Concerns of Management • Specific concerns of management include meeting employee needs, providing a competitive benefits package, tax consequences, legal concerns, and rising costs. • Studies have shown that employee benefits do not have the motivational impact on employees often assumed by managers. Unfortunately, reducing or removing benefits can have a negative effect on employee attitudes. • Making Explicit Real-World Links: See The Business Case: Managing the Costs of Benefits on page 396. • Making Explicit Real-World Links: See Reality Check: Benefits Planning: From Entitlement to Self-Responsibility on page 397. Ask the students what is meant by the subtitle, “From Entitlement to Self-Responsibility?” Do they think that this shift is fair? The Conference Board of Canada has indicated some cost containment strategies for benefits, such as: • Contribution changes, such as increasing deductibles • Dollar limits, such as a dollar cap on specific benefits, such as glasses • Coverage changes (e.g., limits on hospital upgrades) • Benefit caps (e.g., on dispensing fees) • Use of preferred providers and flexible benefits An additional potential cost of having benefits is fraudulent behaviour on the part of employees. Use Ethics in HRM: Benefits Fraud on page 398 to give some examples of recent cases of fraudulent behaviour in Canada. • PBL: Use Discussion Question 2 on page 413: Many organizations are concerned about the rising cost of employee benefits and question their value to the organization and to the employees. (a) In your opinion, what benefits are of greatest value to employees? To the organization? Why? (b) What can management do to increase the value to the organization of the benefits provided to employees? See sample solutions in the Answers to End-of-Chapter Discussion Questions. • Small Group Discussion: Use Discussion Question 3 on page 413: Benefits account for a significant percentage of payroll costs for organizations. Name three ways in which you, as an employer, would try to reduce the costs of benefits. See sample solutions in the Answers to End-of-Chapter Discussion Questions. Employee Benefits Required by Law Think-Pair-Share: Ask students to respond to the question: Does the government require too many or too few benefits for employees? In their answer, they should state which benefits are required and which are not required. The students should also reflect on their own situation, biases, and other moderating factors that may influence how they answer this question. Legally required employee benefits amount to 12 percent of the benefits package that Canadian employers provide. These include the following: a) Canada and Quebec Pension Plans (CPP/QPP)—Both plans require the employer to match the contributions made by the employee, and the government does not subsidize these plans. b) Employment Insurance (EI)—payable to claimants who are unemployed and are actively seeking employment. Both employees and employers contribute to the EI fund. c) Workers’ Compensation Insurance—insurance provided to workers to defray the loss of income and cost of treatment resulting from work-related injuries or illness. d) Provincial Hospital and Medical Services—Anyone resident in a Canadian province for three months is eligible for health care benefits. Discretionary Major Employee Benefits A. Health Care Benefits • These receive greater attention because of sharply rising costs and employee desire for medical coverage. Today, employers are under pressure to offer prescription drug, dental, optical, and mental health plans to their workers. Drugs now represent the second-largest health expenditures, second only to hospital costs. • Health care costs have grown significantly for many reasons, such as an aging population that requires more health care. • Approaches used to contain costs are reduction in coverage, mandatory second opinions for surgery, increased coordination of benefits, and increased deductibles or co-payments. • Making Explicit Real-World Links: A list of cost containment strategies is given in Figure 11.4: Cost Containment Strategies on page 401, and Highlights in HRM 11.2: Team Approach to Cost Containment at The Economical Insurance Group (TEIG) on page 402 focuses on a team approach to cost reduction at the Economical Insurance Group. B. Payment for Time Not Worked Payment for time not worked includes the following: a) Vacations with Pay—Vacation benefits normally depend on years of service. The average annual number of vacation days in Canada is 19 days, but about 25 percent of employees do not take all of their vacation allotment, and 10 percent never take vacation. b) Paid Holidays—Both hourly and salaried employees can expect to be paid for statutory holidays according to each province. c) Sick Leave—Employees who cannot work because of illness or injury are compensated in various ways. Most employers offer short-term disability and long-term disability plans. d) Severance Pay—Severance pay is a lump-sum payment given to terminated employees by an employer at the time of an employer-initiated termination. C. Life Insurance Group life insurance is the benefit most commonly provided by an employer. The purpose is to provide financial security to the dependents of the employee, in case of his or her death. D. Retirement Programs Retirement Policies • With the federal government repealing legislation forcing retirement at age 65 for federal employees, mandatory retirement in Canada is being abolished. Statistics Canada reported that 61 is the average age of retirement, with women leaving work at 58 and men at 62. • Many organizations have encouraged early retirements by offering increased pension benefits or cash bonuses, known as the silver handshake. A silver handshake is an early retirement incentive in the form of increased pension benefits for several years or a cash bonus. Note that a growing number of older workers are choosing to retire early. The main factors in a decision to retire early are health, personal finances, and job satisfaction, as well as the possibility of future layoffs. Preretirement Programs • In an attempt to lessen the disappointment once people retire, some employers offer programs to help employees prepare for retirement. These programs typically include seminars, workshops, lectures, videos, and printed material. Usually, they cover such topics as how to live on a reduced, fixed income, and how to cope with lost prestige, family conflict, and idleness. E. Pension Plans Types of Pension Plans: • Contributory plan is a pension plan in which contributions are made jointly by employees and employers. • Noncontributory plan is a pension plan in which contributions are made solely by the employer (very rare, if used at all these days). • Defined-benefit plan is a pension plan in which the amount an employee is to receive on retirement is specifically set forth. • Defined-contribution plan is a pension plan that establishes the basis on which an employer will contribute to the pension fund. • All new pension plans in Canada are defined-contribution plans by law. Federal Regulation of Pension Plans • Registered pension plans are subject to federal and provincial regulations. Standards and controls are provided for, and minimum funding is required. Of special concern to the individual is vesting, the guarantee of accrued benefits to participants at retirement age, regardless of employment status at that time. Pension Portability • Employees who change jobs (and are not vested) lose their equity in a pension that is not portable. Multiple employer plans are sought after by unions to provide portability. These plans cover the employees of two or more unrelated organizations in accordance with a collective agreement. Pension Funds • Pension funds may be administered through either a trusted or an insured plan. In a trusted plan, the pension contributions are placed in a trust fund. The fund is then invested and administered by trustees. Contributions to the insured pension plan are used to purchase insurance annuities. These funds are administered by the insurance company that is providing the annuities. • Debate: Ask students to debate whether employees should have a say in where their pension money is invested. Show students Highlights in HRM 11.3: Whose Money Is It? on page 406 for a summary of each side of the debate. • Integrating Previous Learning and Small Group Discussion: Refer to Chapter 2’s discussion of “Mapping Human Architecture,” and ask students to consider which group will be provided with these “extra” benefits and which ones may not be provided with them. Also ask them to consider how contingent employees feel when they know they are not privy to the most basic benefits, like health, dental, and so on. Does this create a have and have not culture within an organization? Is it fair that contingent employees typically get no employee benefits? Or should regular employees have their benefits rolled back to include contingent workers? How would you go about including contingent employees in a benefits plan? Use equity theory (taught along with Compensation) to try to understand how employees will feel. Also, see Cummings and Kriess’s article published in the American Medical Association Journal on the health implications of contingent work. See the full citation in the Recommended Reading section. Employee Services: Creating a Work–Life Setting Making Explicit Real World Links: Figure 11.5: Family-Friendly Benefits: Balancing Work and Home Needs on page 408 shows a variety of popular benefits. A. Employee Assistance Programs (EAPs)—services provided by employers to help workers cope with a wide variety of problems that interfere with the way they perform their jobs. • EAPs provide diagnosis, counselling, and referral services for alcohol or drug problems, emotional problems, and financial or family crises. • EAPs typically add about 8 percent to payroll costs. • The purpose of EAPs is to help employees solve their personal problems, or at least to prevent those problems from turning into crises that affect their ability to work productively. • Between 7 to 10 percent of employees use EAPs. • Making Explicit Real-World Links: See Highlights in HRM 11.4: Yukon Government’s Public Service Commission on page 409. B. Counselling Services • Counselling is an important part of an EAP. Managers and supervisors should learn counselling techniques so they can assist where feasible and make effective referrals in a helpful manner. • Advise students that as managers and supervisors, they will be expected to play a counselling role at times. They cannot expect someone else to do it. C. Childcare and Eldercare • Today there is an unprecedented demand for eldercare. Eldercare is care provided to an elderly relative by an employee who remains actively at work. • About 32 percent of Canadians have eldercare responsibilities, and employees spend an average of 23 hours each month on eldercare. • Those responsible for caregiving are more likely to miss work because of the emotional and physical fatigue associated with caregiving. • Employers can assist those who give eldercare through seminars, individual counselling, distribution of printed materials, or special support groups. • For working parents, some benefits for childcare include financial assistance, alternative work schedules, family leave, and onsite childcare. • Making Explicit Real Real-World Links: See Highlights in HRM 11.5: Simon Fraser University Makes Childcare a Priority on page 410. • Connectivity Activity: Case Study 1: Evaluate the Work–Life Climate in Your Company on page 414 asks students to respond to a questionnaire that will evaluate the work–life climate of their organization. Discuss their scores in class, and ask students (especially those who do not have a lot of work experience) how they might go about finding a good match between their preferences and their employer (person‒organization fit). What sorts of questions might they ask in an interview, for instance? • Connectivity Activity: Use Thompson’s article published in the Journal of Management Education to teach managing work–life balance. See the full citation in the Recommended Reading section. D. Other Services • Legal Services • Financial Planning • Housing and Moving Expenses • Transportation Pooling • Credit Unions • Recreational and Social Service: • Team Assignment: Use HRM Experience: Understanding Employer Benefit Programs on page 413 as the basis of an out-of-class team assignment. FINISHING CLASS3 • Finish the class by presenting Highlights in HRM 11.6: Business Development Bank of Canada on page 411. This bank was ranked first on a list of Canada’s best employers for pension and benefits in 2007. • Review the learning objectives. • Create a multiple-choice style quiz based on the lecture material to check learning. Use clickers if they are available. • Provide students with a “one-minute” paper and ask them to respond to the following questions: (1) What is the most important thing I learned today? (2) What question do I have that is left unanswered? Collect the one-minute papers and take up any unresolved issues in the following class. • Ask students a reflective question, such as Discussion Question 4 on page 413: Do you agree with the argument that the benefits for time not worked are the ones most readily available to reduce employer costs? Explain. Use this as a basis for discussion on the online discussion board for your class. • Thank students for volunteering their ideas and experiences. Reinforce that class discussions advance their thinking about all topics. Remind students that they will not be able to work without making contributions to discussions. Additional Teaching Resources Recommended Reading • Cummings, & Kreiss. (2008). Contingent workers and contingent health: Risks of a modern economy. The Journal of the American Medical Association, 299(4), 447–449. • Hayashi, A.M. (2001). Mommy Track Backlash. Harvard Business Review, 79(3), 33–42. • Thompson, C.A. (2002). Managing the work‒life balancing act: An introductory exercise. Journal of Management Education, 26(2), 205–220. • Wang, M., & Shultz, K. (2010). Employee retirement: A review and recommendations for future investigation. Journal of Management, 36(1), 172–206. Chapter 12: Promoting Safety and Health If nothing else, my students should learn that… • Both managers and employees have rights and responsibilities with regards to health and safety at work. • Health and safety issues involve many contemporary social concerns, such as workplace violence and stress. Learning objectives 1. Summarize the common elements of federal and provincial occupational health and safety legislation. 2. Describe the measures managers and employees can take to create a safe work environment. 3. Identify ways to control and eliminate various on-the-job health hazards. 4. Describe the programs organizations utilize to build better health among their workforces. Why is this chapter important? Occupational safety and health accidents are both numerous and costly to employers. To prevent losses such as these, employers are concerned with providing working conditions, in all areas of employment, that provide for the safety and health of their employees. Although the laws safeguarding employees’ physical and emotional well-being are certainly an incentive, many employers are motivated to provide desirable working conditions by virtue of their sensitivity to human needs and rights. The more cost-oriented employer recognizes the importance of avoiding accidents and illnesses wherever possible. Employers are motivated by more than costs and their reputations to keep their workers safe and healthy, however. Most organizations provide their employees with good working conditions (1) because it is the right thing to do and (2) because firms realize that people are the most strategic asset they have. But truly proactive companies can go further than this using total quality management (TQM). TQM is a set of principles and practices whose core ideas include understanding customer needs, doing things right the first time, and striving for continuous improvement. What can I do in this class? This section includes ideas for how to start and finish the class. It also contains information from the textbook that can be used as a basis for a lecture. Moreover, it contains numerous suggestions for student engagement. Depending on your class size, the nature of the students, and your desire for classroom participation, choose from these activities to enliven the classroom. Getting started • Begin this lecture by explaining the importance of safety and health to both the employee and the organization. Explain that organizational safety and health are often taken for granted and, therefore, not afforded the attention they deserve. A safe and healthy organization environment helps to reduce personal tragedies while saving the organization money. Stress that supervisors and managers are expected to know and comply with the laws and court cases governing this HR field. • Share these statistics with students to motivate their interest in this subject: Based on 2010 statistics, one in every 68 workers can expect to be injured at work each year in Canada. Costs associated with sick leave, disability payments, replacement of employees who are injured or killed, and workers’ compensation far exceed the costs of maintaining a safety and health program. One study found that employers saved between $1.81 and $6.15 for each $1 invested in workplace health and safety. Accidents and illnesses attributable to the workplace may also have pronounced effects on employee morale and on the goodwill that the organization enjoys in the community and in the business world. • Begin this class with getting students into groups to answer Discussion Question 3 on page 447 to reinforce the role of the line manager in addressing health and safety concerns at work: An unhealthy work environment can lower productivity, contribute to low morale, and increase medical and workers’ compensation costs. Working individually or in teams, list specific ways managers can (a) help individual employees avoid repetitive strain injuries caused by prolonged computer use; (b) deal with employee complaints about sick building syndrome; (c) address employee fears caused by pandemics. See a sample solution in the Answers to End-of-Chapter Discussion Questions. • YouTube: Show this video clip in class. Ask students whether the HR manager did the right thing in the case of workplace violence. https://www.youtube.com/watch?v=aHllPBt868E • Use a case study on workplace violence by Roche and colleagues (2003) published in the Harvard Business Review. See the full citation in the Recommended Reading section. Safety and Health: It’s the Law • An occupational injury is any cut, fracture, sprain, or amputation resulting from a workplace accident or from an exposure involving an accident in the work environment. • An occupational illness is an abnormal condition or disorder, other than one resulting from an occupational injury, caused by exposure to environmental factors associated with employment. • Making Explicit Real-World Links: Share with students some of these statistics: in 2012, there were 977 workplace-related deaths, which means that on average, about 4 Canadian workers die every working day; There are over 1 million work-related injuries each year. In 2013, there were 241,933 injuries serious enough to cause a worker to miss at least one day of work; roughly $11 billion is paid out to injured workers and their families annually. A. Acts and Regulations • Health and safety provisions exist at the federal, provincial, and territorial level, and are enforced by different departments. • Refer students to Figure 12.1: Occupation Health and Safety in Canada on page 421. B. Duties and Responsibilities Duties of Employers • Employers must provide a hazard-free workplace and comply with the applicable statutes and regulations. • Employers must inform their employees about safety and health requirements, keep certain records, compile an annual summary of work-related injuries and illnesses, and ensure supervisors are familiar with potential hazards. • Employers are required to report to the Workers’ Compensation Board all accidents that cause injuries and diseases. • Making Explicit Real-World Links: See Highlights in HRM 12.1: Health and Safety Checklist for New Employees on page 422 for a list of health and safety procedures for new employees. Duties of Workers • Employees are required to comply with all regulations, to report hazardous conditions or defective equipment, and to follow employer safety and health rules and regulations, including those prescribing the use of protective equipment. • Workers have the right to refuse unsafe work without fear of reprisal. Duties of Supervisors • Advise employees of potential workplace hazards. • Ensure that workers use or wear safety equipment, devices, or clothing. • Provide written instructions and take every reasonable precaution to ensure the safety of workers. Duties of Joint Health and Safety Committees • Most jurisdictions require that health and safety committees be set up with both union and management representation. • Joint Health and Safety Committees: Health and safety committees are often formed to create an environment in which union and management may establish a nonadversarial climate for creating a safe and healthy workplace. • Making Explicit Real-World Links: See Highlights in HRM 12.2: A World Leader in Health and Safety for how Novopharm put health and safety on the strategic agenda on page 424. Penalties for Employer Noncompliance • The penalties for violating occupational health and safety regulations vary across the provinces and territories. Most health and safety acts provide for fines up to $500,000, and offenders can be sent to jail. Bill C-45 makes it possible for criminal charges to be brought against co-workers, supervisors, and executives when a worker is killed on injured on the job. Workers’ Compensation • Under workers’ compensation, injured workers can receive benefits in the form of a cash payout (if the disability is permanent) or wage loss payments (if the worker can no longer earn the same amount of money). Unlimited medical aid is also provided, along with vocational rehabilitation, which includes physical, social, and psychological services. • An industrial disease is a disease resulting from exposure to a substance relating to a particular process, trade, or occupation in industry. • In-Class Movie or Homework Assignment: Ask students to watch the movie Erin Brockovich, a 2000 biographical film that dramatizes the true story of Erin Brockovich, portrayed by Julia Roberts, who fought against the energy corporation Pacific Gas and Electric Company. Read about the basic plot here: https://en.wikipedia.org/wiki/Erin_Brockovich_%28film%29; ask students to summarize the film, and provide reasons—from the point of view of all parties—for this disaster. Promoting a Safe Work Environment A. Creating a Culture of Safety • Pre-Class Assignment: Ask students to identify safety programs at your college or university. Ask the students to bring information about them to class. • Probably the most important role of a safety awareness program is motivating managers, supervisors, and subordinates to be champions of safety considerations. • If managers and supervisors fail to demonstrate awareness, their subordinates can hardly be expected to do so. • Call-Out Question: To stimulate class interest in safety and to provide some specific examples of unsafe working conditions or practices, ask students about unsafe work practices with which they are familiar. • Guest Speaker: Invite a safety manager from a local organization to be a guest speaker in class. • Organizations use a variety of communication techniques to promote safety awareness: safety lectures, posters, seminars, videos and films, and various printed materials. Interviewing for Safety and the Key Role of the Supervisor • Encourage supervisors to incorporate safety into their interviews with job candidates. • Supervisors must continually monitor the safety behaviour of employees and provide prompt corrective measures when action is needed. • Failure to take immediate action can signal to employees that unsafe work behaviour is tolerated. • Where unsafe acts are detected, supervisors should take immediate action to find the cause. Proactive Safety Training Program • Stress that safety training programs begin with identifying the special safety needs of employees. • Employees show a greater acceptance of safety awareness programs when they feel a sense of ownership in the design and implementation of the instructional program. • Case Study: Use Case Study 1: Workplace Safety and Young Workers on pages 448‒449. See sample solutions to the discussion questions in the Notes for End-of-Chapter Case Studies. B. Enforcing Safety Rules • The textbook lists the typical areas for safety rules. • Note that penalties for violation of safety rules are usually stated in the employee handbook so no one can say they were not informed. • Safety managers understand that the most effective enforcement of safety rules occurs when employees are actively involved in the organization’s safety program. The textbook highlights ways to involve employees in safety issues. Review these with students, emphasizing their importance. • Figure 12.2: Steps in a Successful Safety Incentive Program on page 429 illustrates how employers can get employees involved in creating a safer workplace. • Opportunities for employee involvement include the following: • jointly setting safety standards with management • participation in safety training • involvement in designing and implementing special safety training programs • involvement in establishing safety incentives and rewards • inclusion in accident investigations C. Investigating and Recording Accidents • Every accident should be investigated by the supervisor and a member of the safety committee. • Such an investigation may determine the factors contributing to the accident and reveal what corrections are needed to prevent it from happening again. • Incidence rate = (Number of injuries  employee hourly base)/Total hours worked by all employees. • Think-Pair-Share: Ask students to discuss why organizations may not wish to report health and safety accidents. Provide students with a copy of Ethics in HRM: Bury the Record on page 429 to see how organizations that investigate their own accidents often face more inspections, higher insurance premiums, and possible lawsuits. • Making Explicit Real-World Links: See Reality Check: CN Centre for Occupational Health and Safety for a perspective on psychosocial issues in the Canadian workplace on pages 445‒446. Controlling and Eliminating Health Hazards Safety Hazards and Issues A. Fatigue • Making Explicit Real-World Links: Bring a copy of this news report from the Wall Street Journal that discusses air traffic controllers who have fallen asleep on the job and could not be awakened by pilots trying to contact them, and why this happens: http://online.wsj.com/article/SB10001424052748704658704576275482890449352.html B. Distracted Driving Making Explicit Real-World Links: Use Highlights in HRM 12.3: Texting While Driving: A Sample HR Policy on page 431 to gives an example of a policy developed by AT&T regarding texting while driving. C. Workplace Violence Forms of violence include the following: • Threatening behaviour, such as shaking fists or throwing objects • Verbal or written threats • Harassment—any behaviour that demeans, embarrasses, or humiliates • Verbal abuse, including swearing, insults, or condescending language • Physical attacks, including hitting, shoving, pushing, or kicking • Call-Out Question: The textbook lists “risk factors” associated with higher incidents of work-related violence. Ask students what these might be, and then review the list given in the textbook. Answers should include (a) interacting with the public; (b) making decisions that influence other people’s lives, e.g., terminating an employee or assigning a failing grade; supervising and/or disciplining others; working nights or working alone; handling cash, handling or guarding valuables, or collecting or delivering items of value; caring for the physical or emotional needs of others or going to clients’ homes; serving or selling alcohol or dealing with individuals under the influence of mind-altering substances. • The Canadian Centre for Occupational Health and Safety suggests a few preventive measures. They include workplace design, administrative practices, and work practices. Review these with students. • Figure 12.3: Violence Indicators: Know the Warning Signs on page 433 gives indicators of workplace violence. Review this important figure with students. • Under common law, an employer may be held liable for the actions of employees. • YouTube Video: OSHA developed a 20-minute training video on workplace violence. Develop a Q&A sheet so that students can take notes on important points during the video. Take up the questions and answers after the video: https://www.youtube.com/watch?v=aKttrVw6HKo&feature=related. • YouTube Video Clip: Use this video clip developed by the Ontario government to educate people about Ontario Bill 168: Workplace Violence Prevention: http://www.youtube.com/watch?v=s2rboi5Dop8. D. Workplace Bullying Bullying is defined as the unwanted and ongoing negative actions of one or more persons against another within the workplace. One study finds that up to 47 percent of employees suffer from some sort of ridicule and bullying from their peers and superiors, and 42 percent of them encounter these negative behaviours quite frequently. • Making Explicit Real-World Links: Go to the Huffington Post website and find up-to-date news articles on Workplace Bullying: http://www.huffingtonpost.com/news/workplace-bullying/ E. Workplace Emergencies Include floods, hurricanes, fires, terrorism, and so on. • Call-Out Question: Ask students what the protocol for emergencies is in their organization. If they don’t know it, why not? • Use Highlights in HRM 12.4: Emergency Readiness Checklist on page 435 to show students a sample checklist. • Integrating Research: Share with students the findings of Bacharach and Bamerger (2007) who examined 9/11 and New York City Firefighters’ post-hoc unit support and control climates. See the full citation in the Recommended Reading section. F. Crisis Management Teams Crisis management teams are responsible for the following: • conduct initial risk assessment surveys • develop action plans to respond to violent situations • perform crisis intervention during violent encounters • Role-Play: Develop a fictitious scenario where an employee is angry with his or her colleague for arriving late to a meeting. Provide one student with a script that will guide them to behave in an angry fashion. Next, provide students with a copy of Figure 12.4: Calming an Angry Employee on page 436 to see whether they used any of the techniques suggested for dealing with an angry employee. Ask students to role-play again, but this time using the tips in how they respond. • Think-Pair-Share: Provide students with a copy of a short interview with Lee Clark published in the Harvard Business Review. Ask students to generate how organizations can do more than create “symbolic plans” to deal with crisis. See the full citation in the Recommended Reading section. Creating a Healthy Work Environment A. Ergonomics Focuses on ensuring that jobs are designed for safe and efficient work while improving the safety, comfort, and performance of users (refer to Chapter 4). • See Figure 12.5: Key Elements for a Successful Ergonomics Program on page 437. • Think-Pair-Share: Use Discussion Question 1 on page 447 as the basis for this think-pair-share: Ergonomics-related injuries now account for over 40 percent of lost-time injuries in the province of Ontario. Prepare a list of the most common types of ergonomics-related injuries and then make suggestions about how employers can reduce these types. See sample solutions in the Answers to End-of-Chapter Discussion Questions. B. Cumulative Trauma Disorders Injuries involving tendons of the fingers, hands, and arms that become inflamed from repeated stresses and strains (e.g., carpal tunnel syndrome) C. Computer Workstation Issues Visual difficulties, muscular aches and pains, and job stress. • Connectivity Activity: First ask the students to “Freeze” (not move a muscle)! Then ask students the questions found in Figure 12.6: Computer Workstation Ergonomics Checklist on page 438 about their classroom ergonomics. What about at home, or in the library? D. Chemical Hazards Discuss with students information about the Workplace Hazardous Materials Information System (WHMIS). It is based on three elements: labels, material safety data sheets (MSDSs), and training. E. Smoking and Tobacco Smoke It has been documented that health care costs are higher for smokers; for this reason, some employers are charging smokers more for extended health insurance or are reducing their benefits. Many employers, however, prefer positive reinforcement through wellness programs to encourage employees to stop smoking. Building Better Physical and Emotional Health among Employees • Making Explicit Real-World Links: Use the Business Case: Investing in Employee Health on page 440 to give an example of how a Canadian bank invests in the health of its employees. A. Depression in the Workplace Depression is a negative emotional state marked by feelings of low spirits, gloominess, sadness, and loss of pleasure in ordinary activities. It is a major emotional problem affecting employees, which if left untreated will cause problems in work performance. Fortunately, with proper care, persons with depression can be cured in a relatively short period of time. • Think-Pair-Share: Discuss with students the indicators of depression given in Highlights in HRM 12.5: Depression in the Workplace on page 441, which also discusses what managers can do to help depressed individuals. B. Alcoholism Employers must recognize that alcoholism is a disease that follows a rather predictable course, and so specific actions can be taken. Remind students that alcoholism is classified as a disability and employers must be governed by Human Rights legislation in the area as with any other disability (see Chapter 3). C. Abuse of Illegal Drugs Note that drug abuse among employees is one of the major societal issues of today. It is found in all levels of employees, from top management to the lowest echelons. Human rights legislation prohibits discrimination on the basis of disability, and drug and alcohol dependency is generally considered to be a disability. • Guest Speaker: Invite a specialist in drug abuse treatment to speak to the class. A local organization may have an EAP staff member who would be available for that purpose. Job Stress and Burnout • Stress is any adjustive demand caused by physical, mental, or emotional factors that require coping behaviour. • Eustress is positive stress that accompanies achievement and exhilaration. • Distress is harmful stress characterized by a loss of feelings of security and adequacy. • Integrating Research: Use Houghton and colleagues’ (2012) article on student stress to show an interesting theoretical model that can be discussed in class. See the full citation in the Recommended Reading section. • Connectivity Activity: Divide students into teams of five or six, and have them identify and discuss causes of job-related stress. Have the teams report their findings to the entire class and compare team findings. Relate this to the four factors that have a major influence on employee stress: (1) High demand—having too much to do in a short time; (2) High effort—having to expend too much mental or physical energy over too long a period; (3) Low control—having too little influence over the way a job is done; (4) Low reward—receiving inadequate feedback on performance and no recognition for a job well done. • Burnout is the most severe stage of distress, manifesting itself in depression, frustration, and loss of productivity. It is due primarily to a lack of personal fulfillment in the job or a lack of positive feedback about performance. • Coping with Stress • Many employers have developed stress management programs to teach employees how to minimize the negative effects of job-related stress. • Discuss the following organizational techniques: clarifying an individual’s work role, redesigning and enriching jobs, correcting physical factors in the environment, and effectively handling interpersonal factors. • Figure 12.7: Tips for Reducing Job-Related Stress on page 444 describes different techniques to reduce job-related stress. • Connectivity Activity: Use HRM Experience: Reducing Employee Stress on page 448 to get students thinking about the causes of stress, and how to cope with it at work and school. • Case Study: Use Case Study 2: Too Much Fatigue and Job Stress on pages 449‒450 to examine how managers should deal with conflicting medical opinions about an employee’s ability to return to work after a leave due to depression. See the recommended responses in the Notes for End-of-Chapter Case Studies. • Integrating Research: Discuss Seligman’s (2011) program called Comprehensive Soldier Fitness, which has three components: the Global Assessment Tool, a test for psychological fitness; self-improvement courses following the test; and “master resilience training” (MRT) for drill sergeants. MRT focuses on enhancing mental toughness, highlighting and honing strengths, and fostering strong relationships—core competencies for any successful manager. See the full citation for this article published in the Harvard Business Review in the Recommended Reading section. FINISHING CLASS • Review the learning objectives. • Create a multiple-choice style quiz based on the lecture material to check learning. Use clickers if they are available. • Provide students with a “one-minute” paper and ask them to respond to the following questions: (1) What is the most important thing I learned today? (2) What question do I have that is left unanswered? Collect the one-minute papers and take up any unresolved issues in the following class. • Ask students to respond to Discussion Question 4 on page 447: Many students, balancing school, work, and family demands, experience stress. Consult the Canadian Mental Health Association website (http://www.cmha.ca/) to determine your level of stress. What are some coping mechanisms that you use? Use this as a basis for discussion on the online discussion board for your class. • Another option for an online discussion form could be: Should you come to work when you are sick? How sick do you have to be to stay home? • Thank students for volunteering their ideas and experiences. Reinforce that class discussions advance their thinking about all topics. Remind students that they will not be able to work without making contributions to discussions. Additional Teaching Resources Recommended Reading • Bacharach, S.B., & Bamerger, P.A. 9/11 and New York City Firefighters’ post-hoc unit support and control climates: A context theory of the consequences of involvement in traumatic work-related events. Academy of Management Journal, 50(4), 849–868. • Houghton, J., Wu, J., Godwin, J., Neck, C., & Manz, C. (2012). Effective stress management: A model of emotional intelligence, self-leadership, and student stress coping. Journal of Management Education, 36(2), 220–238. • Roche, E., Fox, J., Kaufer, S., Pearson, C., Porath, C., & Schouten, R. (2003). Do something—he’s about to snap. Harvard Business Review, 81(7) 23–31. • Seligman, M.E.P. (2011). Building resilience, Harvard Business Review, 89(4), 100–106. • Harvard Business Review. (2004). What’s the plan? 82(6), 21–22. Instructor Manual for Managing Human Resources Shad Morris, Monica Belcourt, George W. Bohlander, Scott A. Snell, Parbudyal Singh 9780176570262, 9781337387231, 9781285866390, 9780357033814, 9781337387231, 9781111532826, 9780176798055, 9780176407292, 9781285866390, 9781111532826