Management Chapter 11 Total Rewards And Compensation Organizational Individual Incentives Individual Incentive Systems Tie

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11-8c. Individual Incentives

• Individual incentive systems tie personal effort to additional rewards for the individual

employee.

• The following four conditions are important when using individual incentive plans:

o Individual performance must be identifiable.

Discussion Starter: Ask students to explain why the four conditions mentioned above are

important.

• Piece-rate systems are the most basic individual incentives, and they determine

employee pay based on the level of output produced or work completed.

o A piece-rate system is a pay system in which wages are determined by

multiplying the number of units produced by the piece rate for one unit.

• A bonus is a one-time payment that does not become part of the employee’s base pay.

o Individual bonuses are used at all levels in firms and are a popular short-term

incentive.

• Nonmonetary incentives are rewards not given in cash; they can be used to reward

individuals, from one-time contests for meeting performance targets to awards for

performance over time.

o Merchandise, gift certificates, and travel are the most frequently used incentives

for performance awards.

HR Competencies & Applications: Tracking Time and Motion

Chapter 11: Total Rewards and Compensation

Key Competencies: Critical Evaluation, Relationship Management, Business Acumen; HR

Expertise: People/Total Rewards, Organization/Technology & Data

An industrial engineer or job analyst conducts a time-and-motion study by observing

workers performing the job. The observer times each task with a stopwatch and takes

notes. The engineer or analyst uses the information to calculate the time for each task and

the time needed to produce a unit of the product.

1. If you were a worker being observed during a time and motion study, what possible

reactions might you have to the process? How might your emotions impact your

performance during the study?

Students’ answers will vary. Some might say that few workers would not want to be

used to set the expected pace and might not operate at top speed because the worker

would have to meet or beat the time in the future.

2. What concerns would you have as a manager who was undertaking a time and

motion study to establish incentive pay rates?

Students’ answers will vary. Some might say that the manager would worry about

accuracy in the study.

11-8d. Team Incentives

• There are substantial gains possible if team incentives are appropriately designed and

administered.

o The main concerns are how and when to distribute the incentives and who will

determine the incentive amounts.

• The two primary ways for distributing team incentives are as follows:

HR Competencies & Applications: Getting Free Riders Off the Train

Chapter 11: Total Rewards and Compensation

Key Competencies: Relationship Management, Ethical Practice; HR Expertise:

People/Total Rewards, Organization/Organizational Effectiveness & Development

Free riding is a common problem in teams. The following guidelines can reduce free

riding: making small teams, dividing complex tasks, matching the task to the worker’s

priorities, and being transparent.

1. Consider a time when you worked on a class project or a project at work and some

members of the team didn’t pull their weight. How did you deal with it? What were

the results?

Students’ answers will vary. They could have forced the free rider to participate,

given the free rider few tasks, or reported the free rider to the instructor. The result

was success or failure depending on the situation and the individuals.

2. What can work group leaders do to identify and deal with free riders on a work

team?

Students’ answers will vary. They should consider observing the group to identify

free riders. The group leader could consider moving the free rider to a different

group or a different task better suited to the free rider’s interests, requiring the free

rider to complete a certain amount of work within a certain period of time, or

disciplining the worker for lack of production.

11-8e. Organizational Incentives

• An organizational incentive system compensates all employees according to how well

the organization as a whole performs during the evaluation period.

• Two common organizational variable pay systems are profit sharing and employee

stock plans.

Chapter 11: Total Rewards and Compensation

• Employers spend a substantial amount of money on employee compensation.

• Compensation expenditures should be evaluated to determine their effectiveness.

o A number of widely used measures are shown in Figure 11-13.

Critical Thinking Challenges

1. Think of an organization where you have worked. What were its compensation policies,

and how were they communicated to employees?

Students’ answers will vary but should reflect a sound understanding of the two basic

2. Recently, larger companies have been in the news because of violations of overtime

regulations. How should your Human Resources department protect itself from these

devastating claims? Brainstorm some ideas on how to prevent these issues from occurring.

3. Discuss why variable pay-for-performance plans have become popular and what elements

are needed to make them successful.

Employers adopt variable pay for many reasons, including the following:

• Link strategic business goals and employee performance

4. What are some key performance indicators (KPIs) that are used by organizations in which

you have been employed? How did managers explain the importance of these KPIs, and

were any rewards tied to them?

5. You are the HR Director for an insurance company with regional offices in several states.

For each office, you want to be sure that the administrative assistants reporting to the

regional manager are paid appropriately.

A. Go to www.salary.com to find geographic pay survey data for this job in Hartford,

Connecticut; Atlanta, Georgia; Omaha, Nebraska; and Phoenix, Arizona.

Case: Should Private-Sector Employees Get Compensatory Time?

A bill that entitles one and one half hours of time off for each overtime hour worked, effectively

giving private-sector employees the same options as those in the public sector, was introduced

recently.

1. What would be the advantages and disadvantages for employers to allow private-sector

workers to utilize comp time rather than payment for overtime worked? What would be the

advantages and disadvantages for employees if they were allowed to utilize comp time

rather than payment for overtime worked?

Chapter 11: Total Rewards and Compensation

Students’ answers will vary. Some might may say that the advantage for employers to

allow private-sector workers to utilize comp time rather than payment for overtime worked

is that it would allow employees to better accommodate their personal and family

2. Would you prefer to have the flexibility for comp time or payment rather than only being

paid for overtime worked? If you were a line manager, would you prefer this for your

direct reports? Why?

Supplemental Cases

Establishing Pay at United Grinding Technologies Incorporated

This case describes how a company dealt with identifying competitive pay rates for its 140

employees. Since a number of jobs were not standard in the industry, the HR staff tapped BLS

and trade association pay surveys to help set appropriate pay levels. (For the case, visit

MindTap® at www.cengage.com/login.)

Chapter 11: Total Rewards and Compensation

Is the FLSA a Dinosaur?

This case identifies how the Fair Labor Standards Act might need to be reformed because of

restrictions caused by workweek definitions. (For the case, visit MindTap® at

1. Does the 40-hour workweek still make sense? Would you recommend changing to a “pay

period” calculation for overtime? For example, if a company pays workers every two

weeks, should hours over 80 in a pay period be used to determine overtime rather than 40

in a week?

Students’ answers will vary. They may answer that the 40-hour workweek is obsolete. The

40-hour workweek used to be followed in factories and industrial settings. In the current

2. How should nonexempt workers track their time spent away from work doing tasks such as

responding to e-mail or text messages?

3. Would you recommend that private sector employers be permitted to offer nonexempt

employees compensatory time off rather than pay for overtime hours worked?

Pay for Performance Enhances Employee Management at Scripps Health

This case discusses how a hospital uses pay for performance to improve employee productivity.

1. Discuss how this case illustrates how compensation can be used as a method for improving

employee satisfaction and motivation.

2. Identify some of the ways that performance-based pay systems should be developed based

on the experiences at Scripps Health.

Best Buy Pays Big Bucks for CEO

This case deals with CEO pay for a newly hired executive at Best Buy. (For the case, visit

1. Was Joly overpaid?

Students’ answers will vary. Some might answer that Joly is overpaid because they may

think that the hospitality sector and the retail industry are entirely different. Hence, they

2. What factors probably led to this pay package?

Chapter 11: Total Rewards and Compensation

3. If you were able to vote on this pay package (“say on pay”), how would you vote and why?

Students’ answers vary. Some may vote in favor of the project because they may feel that

Sodexo Incentives

This case shows how a large firm uses recognition and awards. (For the case, visit MindTap® at

1. Based on the Sodexo example, discuss the importance of widespread incentives in

improving both the culture and employee retention efforts in a firm.

The importance of wide-spread incentives in affecting the culture and employee retention

2. How might having employees receive recognition and incentives at a national level impact

the performance of their coworkers and colleagues?

Students’ answers will vary. Seeing working colleagues getting national recognition may

inspire some employees to try to perform at a higher level to get similar recognition. There

Chapter 11: Total Rewards and Compensation

is also the chance that other employees may feel jealous. However, with the culture at

Sodexo, employees would be used to other employees being recognized for outstanding

performance. The organization would hope that working colleagues would be proud of

their co-worker and they would be aware that their coworker deserves the national

recognition. The organization would hope that this type of recognition sends a message to

other employees that doing an outstanding job will be recognized by the organization and

will be rewarded.

Extra Teaching Video

On the Job Video: Tough Mudder—Compensation

This short video will help reinforce key points and may prompt additional discussion from the

class.