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Fundamentals of Human Resource Management, 8e Instructor’s Manual
13-1
Chapter 13
Recognizing Employee Contributions with Pay
This chapter continues to build on concepts from Chapter 12, now with a focus on performance-
related pay, called incentive pay. First, the chapter describes the link between pay and employee
performance. It discusses both individual and group incentives. Then, the chapter explores the
organization’s processes that can support the use of incentive pay. Finally, the chapter discusses
incentive pay for the organization’s executives.
Chapter Outline
Incentive Pay
• Along with wages and salaries, many organizations offer incentive pay—that is, pay
specifically designed to energize, direct, or maintain employees’ behavior.
Pay for Individual Performance
• Organizations may recognize individual performance through such incentives as
piecework rates, standard hour plans, merit pay, sales commissions, and bonuses for
meeting individual performance objectives.
Pay for Group Performance
• Group incentives include gainsharing, bonuses, and team awards.
Pay for Organizational Performance
• Incentives for meeting organizational objectives include profit sharing and stock
ownership.
• Profit-sharing plans pay workers a percentage of the organization’s profits; these
payments do not become part of the employees’ base salary.
Balanced Scorecard
• A balanced scorecard can be used as the basis for awarding incentive pay. It helps
employees to understand and care about the organization’s goals.
• It includes financial goals to satisfy stockholders, quality- and price-related goals for
customer satisfaction, efficiency goals for improved operations, and goals related to
acquiring skills and knowledge for the future.
Processes That Make Incentives Work
• Communication is especially important when the organization is changing its pay plan.
Incentive Pay for Executives
• Ethical issues may be an issue in executive incentive pay.
• Performance measures should encourage behavior that is in the organization’s best
interests, including ethical behavior.
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Learning Objectives
LO 13-1: Discuss the connection between incentive pay and employee performance.
LO 13-2: Describe how organizations recognize individual performance.
LO 13-3: Identify ways to recognize group performance.
LO 13-4: Explain how organizations link pay to their overall performance.
LO 13-5: Describe how organizations combine incentive plans in a “balanced scorecard.”
LO 13-6: Summarize processes that can contribute to the success of incentive plans.
LO 13-7: Discuss issues related to performance-based pay for executives.
Society for Human Resource Management Body of Competency &
Knowledge
This chapter contains content, which may be identified within the following content areas:
• Total Rewards
• Employee Relations
• Diversity & Inclusion
• Business & HR Strategy
Human Resource Certification Institute’s A Guide to the HR Body
of Knowledge
This chapter contains content, which may be identified within the following content areas:
• Business Management & Strategy
• Workforce Planning and Employment
• Employee and Labor Relations
• Compensation and Benefits
• Risk Management
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Question Guidance to Vignettes and Discussion Questions
Did You Know?
Merit Pay Helps Retain Workers
1. If your goal is to keep and engage high-performing employees, would you expect
incentive pay to be more effective than simply increasing pay equally for all workers?
Why or why not?
Best Practices
AutoNation Offers a Choice of Commissions
1. What kind of workers do you think would choose each of AutoNation’s pay structures?
Which kind would you rather buy a car from?
2. Why do you think most workers chose the new pay plan? Which plan is more attractive
to you?
HR Oops!
Thanks, but We’d Rather Have Cash
1. If you had a chance to earn a $1,000 cash bonus or $1,000 worth of stock in the company
you work for, which would you choose? Why?
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
Answer: Students responses will vary, but instructors should push for depth and
explanation of the choice. Relating this question to the industry, or employer, for each
student could provide an opportunity for students to better illustrate their answer.
2. Is it a mistake for a company to give employees an award of restricted stock without also
training them to understand stocks and investing? Why or why not?
HRM Social
Social-Media Measures for a Balanced Scorecard
1. Suppose a hotel decided to add social-media responsiveness to a balanced scorecard for
its marketing and customer-service managers. What percentage of the total pay do you
think should be based on this score? Why?
2. Many marketers have not yet shown results from use of social media. Do you think
linking rewards to social-media results would correct this problem? Why or why not?
HR How To
Making Incentive Pay Part of a Total-Rewards Package
1. Suppose you work for a company that pays profit-related bonuses to its employees and
wants to communicate the value of this part of its total rewards. What kind of message
about the bonuses would give you, as an employee, a positive feeling about your total
rewards?
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
Second, tying the bonus information back to employees on an individual level would be
highly recommended. This would allow employees to better understand how their daily
actions contribute to the company hitting their goals.
2. Suppose you work in the HR department in question 1. You learn that nonmanagement
employees are most concerned about financing living expenses, like homes and cars,
while managers are most concerned about saving for retirement. How would you adjust
your company’s messages about the bonuses to appeal to these two different groups?
Fundamentals of Human Resource Management, 8e Instructor’s Manual
End of Chapter Questions and Cases
Thinking Ethically
Can Incentives Promote Ethics?
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 efforts to promote
compliance with legal and ethical standards?
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. (LO 13-1)
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.
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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?
(LO 13-2)
3. What are the pros and cons of linking incentive pay to individual performance? How can
organizations address the negatives? (LO 13-2)
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? (LO 13-3)
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Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
response should also include a potential drawback to team awards, such as the
competition that may occur between groups.
5. Why do some organizations link the use of 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? (LO 13-4)
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, the stock market
has experienced some sharp declines, as well as recoveries. (LO 13-4)
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?
7. 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. (LO 13-5)
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) but none of the other goals.
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).
Fundamentals of Human Resource Management, 8e Instructor’s Manual
8. Why might a balanced scorecard like the one in Question 7 be more effective than simply
using merit pay for a manager? (LO 13-5)
9. How can the way an organization creates and carries out its incentive plan improve the
effectiveness of that plan? (LO 13-6)
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? (LO 13-7)
Answer: Some of the benefits of this pay strategy may include that it encourages
Taking Responsibility
BNY Mellon Shares the Wealth with Employees
1. BNY Mellon used its additional profits to increase entry-level pay levels rather than
offering incentive pay such as merit increases or bonuses. What advantages of incentive
pay was the bank forgoing?
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2. What HR-related goal might the bank meet by raising entry-level pay instead of paying a
one-time bonus?
Managing Talent
Employees Are Getting a Bite of Apple’s Stock
1. How can Apple’s HR department promote the success of its program of stock grants?
2. If you worked in Apple’s HR department, what kind(s) of individual incentives would
you use? Would these be in addition to the stock incentives or in place of the stock
rewards? Explain.
HR in Small Business
Chobani Founder Plans to Share the Wealth
1. What connections do you see between Chobani’s grant of stock and employee
performance? What connections would you expect the employees to see?
2. What would be some drawbacks of using this stock grant as Chobani’s main or only
incentive pay? How could Chobani correct for these drawbacks?
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
There is also the discussion of the time and when/if employees would have access to the
incentives. This may also have an impact on the type of employee and what their current
needs are versus saving for the long term.
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Recommended Connect Activities
Developing a Balanced Scorecard
Learning Objective: 13-05 Describe how organizations combine incentive plans in a "balanced
scorecard."
Activity Summary: The case analysis asks students to determine the best development,
implementation, and goals of a balanced scorecard approach.
Follow-Up Activity: Understanding the balanced scorecard method is the best way for students
to apply theory to practice. Have students review the HRM Social box feature, Social-Media
Measures for a Balanced Scorecard, on page 419 of the textbook. Another classroom activity
would be for small groups of students to select Performance Category (and weight), Critical
Success Factors, and Goals for companies in one industry, or across multiple industries.
Presentation and reasoning of decision making would be of increased importance in this activity.
Review this Balanced Scorecard Example and Template from ClearPoint Strategy for a multiple
industry example.
Which Type of Strategy?
Learning Objective: 13-01 Discuss the connection between incentive pay and employee
performance.
Activity Summary: This case analysis emphasizes the multitude of ways that employees can be
paid for their overall performance, and which have the most impact.
Follow-Up Activity: Consider that pay for performance programs are not limited to one
industry. Rather than having students discuss the merits of one pay for performance plan versus
another, this content gives instructors the opportunity to bring ethics into the conversation.
Recent discussions on pay for performance in the health care industry have brought up how
medical professionals could be compensated for different services performed. The article Pay for
performance: a dangerous health policy fad that won’t die from STAT is a great jumping off
point for a classroom discussion that applies course content to a potential ethical minefield.
Incentives at Cars R Us
Learning Objective: 13-03 Identify ways to recognize group performance.
Activity Summary: In this case analysis, students will learn and demonstrate their
understanding and implementation of individual and group incentive programs.
Follow-Up Activity: This activity discusses the process used for HR professionals to implement
incentive programs. Industry best practices, past programs, and current employee results are all
part of the information gathering process. In small groups, have students gather, analyze, and
present the findings of best practices across multiple industries. Further activities could then ask
students to discover employer financial constraints, as well as present their own opinions on the
wishes of the employees in that industry.
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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CHRO Conversations: SVP of HR Tim Richmond, AbbVie
Learning Objective: 13-04 Explain how organizations link pay to their overall performance.
Activity Summary: The video case demonstrates how the strategic goals of a company can be
supported by HR activities that reward and recognize employees who produce at high levels.
Follow-Up Activity: Tim Richmond discusses the multitude of external factors that can impact a
positive product experience. Instead of focusing on external variables, AbbVie instead uses HR
as a way to control and improve the end user experience. In small group discussions or as an
entire class, further discuss what "human capital" means at a variety of the employers for your
students. Does the company promote career growth as a way to retain the best employees? What
reward structures exist for the different quality tiers of employees? Is it feasible to replace every
employee departure with someone who is better at that job?
Fundamentals of Human Resource Management, 8e Instructor’s Manual
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Classroom Exercises
Students may benefit from exercises that illustrate the concepts of the chapter. Use these along
with CONNECT activities.
1. Incentives
Instructors may engage students in a general discussion meant to support the
understanding of incentives. Both Review and Discussion questions #1 and #2 may be
used to facilitate this discussion. Instructors may also wish to engage students in
discussing the Did You Know? vignette to extend the discussion on incentives.
2. Stock-Based Incentives
Students may be asked to respond to Review and Discussion question #10. The instructor
may then have students discuss the HR in Small Business vignette, while also applying
their responses to Review and Discussion question #10 to the discussion. To close,
instructors may ask students to respond to the HR Oops vignette.
3. Balanced Score Card and Implementing Incentives
Instructors may facilitate a discussion on implementing incentives by first asking students
to complete Review and Discussion questions #7 and #8. Once students understand the
balanced score card, the instructor may then ask students to compare the balanced score
card to the other incentive approaches previously learned. Then students may be asked to
complete the Taking Responsibility vignette, where they are discussing the balanced
scorecard and then making recommendations for other incentives.
4. HRM Career Considerations
Instructors may wish to have students identify components in Chapter 13 within both the
Society for Human Resource Management Body of Competency & Knowledge and the
Human Resource Certification Institute’s a Guide to the HR Body of Knowledge.
Discussion could focus on how these chapter concepts are important to the development
of their careers and potential certification.
5. Vignette Discussions
Any of the vignettes (see above), may be employed for classroom discussion. Students
could be asked to respond as individuals or placed into groups for discussion. Individuals
and/or groups may then be asked to defend their responses and rationale when comparing
and contrasting other responses.
