HR Oops!
Giving Arbitrary Bonuses to Employees
Josh Patrick, a successful advisor to business owners, knows how important it is to give
incentives employees so he started his company with performance tied to bonuses. However,
there wasn’t much of a tie to objectives and the company’s profitability. So, he decided to build
a new bonus plan. He developed a plan to pay group bonuses and taught the employees about
the company’s finances to tie it all together.
Discussion Questions with Possible Responses
1. What problems do you see in the way Patrick set up his original bonus program?
2. How might Patrick have improved his system for awarding individuals bonuses without
switching to awards for group performance? That is, how could he continue to reward
individual performance but do it more effectively?
ROADMAP: CASE STUDY
Thinking Ethically
Can Incentives Promote Ethics?
The federal government has investigated allegations that Walmart had engaged in bribery
in Mexico, China, and Brazil. Walmart reacted with promoting internal policies aimed at
ethical conduct. In 2014, Walmart issued a Global Compliance Program Report focusing
on compliance in three areas: people, policies/processes, and systems. After
implementing the program, at the end of the year, Walmart determined they had
“achieved substantial progress.”
Discussion Questions with Possible Responses
1. Do you think Walmart’s compliance-related performance standards, as described here,
would ensure ethical conduct? Why or why not?
2. Review the principles for incentive pay described in the first section of this chapter. How,
if at all, could Walmart apply these principles to strengthen its effort to promote
compliance with legal and ethical standards?
Answers will vary.
ROADMAP: Review and Discussion Questions
Review and Discussion Questions
1. With some organizations and jobs, pay is primarily wages or salaries and with others,
incentive pay is more important. For each of the following jobs, state whether you think
the pay should emphasize base pay (wages and salaries) or incentive pay (bonuses,
profit sharing, and so on). Give a reason for each.
a. An accountant at a manufacturing company
b. A salesperson for a software company
c. A chief executive officer
d. A physician in a health clinic
2. Consider your current job or a job you have recently held. Would you be most motivated
in response to incentives based on your individual performance, your group’s
performance, or the organization’s overall performance (profits or stock prices)? Why?
3. What are the pros and cons of linking incentive pay to individual performance? How can
organizations address the negatives?
4. Suppose you are a human resource professional at a company that is setting up work
teams for production and sales. What group incentives would you recommend to
support this new work arrangement?
5. Why do some organizations link incentive pay to the organization’s overall performance?
Is it appropriate to use stock performance as an incentive for employees at all levels?
Why or why not?
6. Stock options have been called the pay program that “built Silicon Valley,” because of
their key role as incentive pay for employees in high-tech companies. They were
popular during the 1990s when the stock market was rising rapidly. Since then, stock
prices have fallen.
a. How would you expect this change to affect employees’ attitude toward stock options
as incentive pay?
b. How would you expect this change to affect the effectiveness of stock options as an
incentive?
1. Based on the balanced scorecard in Table 13.2, find the incentive pay for an employee
earning a salary of $4,000 a month in each of the following situations.
a. The company met all of its target goals for the year. (Multiply the percentage
at the top of the table by the employee’s salary).
b. The company met only its target goals for financial performance (25 percent
of the total incentive pay).
c. The company met its stretch goals for financial performance and its base
goals in other areas. (For each category of goals, multiple the percentages by
the employee’s salary, and then add the amounts together).
8. Why might a balanced scorecard like the one in Question 7 be more effective than
simply using merit pay for a manager?
9. How can the way an organization creates and carries out its incentive plan improve the
effectiveness of that plan?
10. In a typical large corporation, the majority of the chief executive’s pay is tied to the
company’s stock price. What are some benefits of this pay strategy? Some risks? How
can organizations address the risks?
Some of the benefits of this pay strategy may include that it encourages executives to
Taking Responsibility
At Rhino Foods, Incentive Pay is an Expression of Respect
Rhino Foods is a small baking production and warehouse company with big ideas on
how to treat employees. The company is focused on goals and posts performance
indicators on a bulletin board on a daily basis. The employees are aware of the goals
and what they can do to achieve them. They receive daily, weekly, and monthly reports
of their progress.
Discussion Questions with Possible Responses
1. What form of incentive pay is described in this case? What are the pros and cons of this
kind of incentive?
2. What additional types of incentive pay, if any, would you recommend for Rhino Foods?
Answers will vary.
Managing Talent
Making Hilcorp Energy’s Employees Feel (and Act) like Owners
Hilcorp Energy Company ranks as one of the biggest privately help oil and natural gas
exploration and production companies in the US. They attribute their success to living
out five core values: ownership, urgency, alignment, innovation, and integrity. Hilcorp
rewards performance with annual and 5-year bonuses.
Discussion Questions with Possible Responses
1. How well would individual incentives align with Hilcorp’s core values?
Answers will vary. Students should focus on how the rewards to do tie to many of the values
and that leads to their overall success.
2. What advice would you give Hilcorp’s management for adding merit pay (an individual
incentive) to its current forms of incentive pay?
Answers will vary
ROADMAP: End of Chapter Case
HR in Small Business
Employees Own Bob’s Red Mill
Bob’s Red Mill Natural Foods sells a variety of whole-grain flours and mixes, specializing in
gluten-free products. Bob Moore, the founder of the company, announced to his employees that
he was giving them the company 30 years after he started the company. As a retirement plan
for them, he had set up an employee stock ownership plan, placing the company’s stock in a
trust fund. All employees who had been with the company at least three years were immediately
fully vested in the plan.
Discussion Questions with Possible Responses:
1. Which types of incentive pay are described in this case? Are these based on individual,
group, or company performance?
2. Would you expect the motivation impact of stock ownership or profit sharing to be
different at a small company like Bob’s Red Mill than in a large corporation? Explain.
3. Suppose Bob’s Red Mill brought you in as a consultant to review the company’s total
compensation. Explain why you would or would not recommend that the company add
other forms of incentive pay, and identify any additional forms of compensation you
would recommend for the company’s employees.
HRM DVD Vol 3 Suggested Video with Discussion Questions and Possible Responses
Video Part 4: Sulphur Springs Teachers (3:09)
Video Summary
Sulphur Springs Elementary in Tampa, Florida received an F rating two-years prior to the
making of this film. A new principle replaced over 60 percent of her teachers in an effort to
change the situation for the school. The new principle took advantage of a program which pays
merit bonuses for students who achieve better grades.
Critics state there is not enough research done on the benefits of pay for performance, it is hard
to administer fairly, and can create ill-will between teachers. However, President Obama is in
support of rewarding excellence in teaching with extra pay. After just two years at Sulphur
Springs they were able to change the schools rating from an F to a B.
Discussion Questions
1.) What are some of the most significant benefits of Pay for Performance System?
2.) Pay for Performance also has its list of challenges. What are the main areas of concern with
the implementation of a Pay for Performance System.