BUSI 440 Week 4 Discussion Board Forum 3 Example

Discussion Board Forum 3: Pay for Performance

BUSI 440 Compensation Management, Discussion Board Forum 3 Thread and Replies

Thread by [Student Name]

The forum prompt and the two classmates are composites; the textbooks, the research and the Scripture cited are real.

Thread

Milkovich et al. (2017) weigh the research on performance pay and find that it can lift results considerably, adding that a plan's design should follow from the way it produces those results. I want to argue that performance pay works through two separate channels, effort and sorting, and that a good plan is built with both in mind.

Lazear (2000) examined a windshield replacement company that stopped paying its installers by the hour and began paying them for each windshield they put in. Productivity rose substantially. Roughly half of the gain came from installers working harder or smarter under the new pay, the effort channel. The other half came from changes in who worked there: the company attracted more productive installers and lost fewer of its best ones, the sorting channel. Over time, the workforce itself changed.

The sorting effect has design implications. If a plan's main value is attracting and keeping strong performers, it must be visible to recruits and generous enough that top performers notice the difference. Chapter 10 describes several plan types, from individual piece rates to gainsharing; an individual plan that a recruit can understand quickly will sort more strongly than a complex group formula. At the same time, Koss (2008) reminds managers that performance must be measured accurately, or the plan will reward the wrong people. Piece rates suited the glass company because each installation was easy to count and check for quality.

Paul reminded the Corinthians that a sparse planting brings a sparse harvest and a generous planting a generous one (English Standard Version Bible, 2001/2016, 2 Corinthians 9:6). He was writing about generosity, not wages, but the principle that reward follows effort is woven through Scripture. A pay plan that links reward to contribution, honestly measured, reflects that principle, provided the employer also gives generously where measurement falls short.

For a company considering performance pay, the practical lesson is to ask two questions rather than one: will this plan make our current people work more effectively, and will it change who wants to work here? A plan that answers yes to both, and measures performance in a way employees trust, is likely to repay its cost.

Reply to Olivia

Olivia, your team bonus for the customer support group makes sense, since support agents share tickets and depend on each other's notes. The research supports your choice. Garbers and Konradt (2014) combined dozens of incentive studies and found that money rewards improved results whether paid to individuals or to teams, and that team rewards worked differently depending on how the payout was split, for instance equally or by contribution. Milkovich et al. (2017) point out that group plans encourage cooperation but can invite free riding, so the size of the team and the visibility of each member's work matter. The Teacher in Ecclesiastes says a pair accomplishes more than one person working alone, since together they earn a better return on their labor (English Standard Version Bible, 2001/2016, Ecclesiastes 4:9). A support team that shares a reward for shared work fits that picture. Pairing the team bonus with a small individual recognition award might also keep the strongest agents from feeling that their extra effort disappears into the group. How large is the team, and could each agent see the group's daily progress toward the bonus?

Reply to Jason

Jason, your merit plan ties raises to the annual performance rating, which is the most common approach. I worry the rating may not carry the weight the plan puts on it. Pulakos and O'Leary (2011) contended that many firms' performance management fails because it centers on rating forms and yearly paperwork instead of the ongoing manager and employee conversations that really change performance. Milkovich et al. (2017) devote chapter 11 to rating errors, such as leniency and recency, that distort appraisals. If raises depend on ratings that managers inflate or rush, the plan rewards the manager's habits more than the employee's work. Proverbs urges a shepherd to know well the condition of the flock and give attention to the herds (English Standard Version Bible, 2001/2016, Proverbs 27:23). Managers who meet with employees monthly will know their people's work well enough to rate it fairly. Short monthly conversations would also give employees time to improve before the rating that sets their raise. Would your plan require regular check-ins before the annual rating?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Garbers, Y., & Konradt, U. (2014). The effect of financial incentives on performance: A quantitative review of individual and team-based financial incentives. Journal of Occupational and Organizational Psychology, 87(1), 102-137. https://doi.org/10.1111/joop.12039

Koss, S. (2008). Solving the compensation puzzle: Putting together a complete pay and performance system. Society for Human Resource Management.

Lazear, E. P. (2000). Performance pay and productivity. American Economic Review, 90(5), 1346-1361. https://doi.org/10.1257/aer.90.5.1346

Milkovich, G. T., Newman, J. M., & Gerhart, B. (2017). Compensation (12th ed.). McGraw-Hill Education.

Pulakos, E. D., & O'Leary, R. S. (2011). Why is performance management broken? Industrial and Organizational Psychology, 4(2), 146-164. https://doi.org/10.1111/j.1754-9434.2011.01315.x