Implementing Productivity Improvement Programs

1. Chapter 10 Implementing Productivity Improvement Programs

2. Chapter 10 Objectives • Explain what productivity programs are and how they contribute to competitive advantage • Define the standards for effective productivity programs developed within the framework of expectancy theory • Understand the rationale behind pay-for-performance programs • Describe the different types of pay-for-performance programs • Appreciate the rationale behind employee empowerment programs • Explain the various types of employee empowerment programs

3. Linking Productivity Improvement Programs to Competitive Advantage • The goal of productivity improvement programs is to improve productivity by increasing employee motivation. • Extrinsic rewards: given by the employer to employees. • Intrinsic rewards: those that come from within a person. • Successful productivity improvement programs are able to establish a clear connection between employee efforts and rewards. • Many theories attempt to explain the motivational process.

4. Linking Productivity Improvement Programs to Competitive Advantage Expectancy Theory Model

5. HRM Issues and Practice Extrinsic Rewards • Pay-for-performance programs • Link financial rewards to successful job performance. • Provide extrinsic rewards. • Can create legal problems when administered unfairly.

6. HRM Issues and Practice Extrinsic Rewards

7. HRM Issues and Practice Extrinsic Rewards • Merit pay plans • Grant employees annual pay raises based on their levels of job performance. • The merit pay guidechart shows the size of a merit pay raise associated with each level of job performance. • Merit pay plan—strengths • Established effort-performance and performance–reward link. • Publicized merit pay guidecharts to strengthen the performance–reward link.

8. HRM Issues and Practice Extrinsic Rewards • Merit pay plan—weaknesses • Fail to establish a clear performance-reward link. • Fails when employees do not value the rewards offered by the company. • Hinder performance-reward link when supervisors fail to distinguish between employees within the team • Time lag exists between behavior and reward. • Is not very cost-efficient. • Productivity hinders if these plans fail to reward behaviors that contribute to organizational goals.

9. HRM Issues and Practice Extrinsic Rewards • Recommendations for properly designing and implementing an effective merit pay plan: • Make objective assessments of employees’ job performance. • Measure an employee’s performance on the basis of job behaviors that have a proven impact on the success of the business. • Make payouts quarterly, not annually. • Frequently communicate performance expectations to employees. • Train managers to properly implement the system.

10. HRM Issues and Practice Extrinsic Rewards • Piece rate plans • Base an individual’s wages on the number of “pieces” or product units he or she produces. • Piece rate plans vary. • Straight piecework: pays workers a set amount for each unit produced. • Different piece rates: depends on whether the worker has met the standard.

11. HRM Issues and Practice Extrinsic Rewards • Piece rate plans • Strengths • Cost efficient. • Employees know what to do to earn reward. • Performance standards are objective. • Rewards are tied directly to performance. • Weaknesses • Pressure placed on employees to produce. • Workers may resist management’s attempts to introduce new technology or systems. • Workers are not rewarded for suggesting new ideas. • Employees may neglect aspects not covered in the performance goals. • Encourage competition rather than teamwork.

12. HRM Issues and Practice Extrinsic Rewards • Gainsharing plans offer employees a cash award for meeting or exceeding goals based on the collaborative performance of a team of employees. • Most gainsharing plans feature the following: • The organization has productivity goals that can be achieved through effective teamwork. • Employees receive cash bonuses if goals are met. • Productivity is measured by an explicit formula with objective measures. • Employees are encouraged to submit suggestions for cutting production costs or increasing productivity.

13. HRM Issues and Practice Extrinsic Rewards • The Scanlon Plan • Is a gainsharing plan. • Aims to cut production costs, relative to output. • For implementing a Scanlon Plan: • Calculate the ratio of production cost/sales value of production that would be expected in a typical year. • Decide how production costs are to be cut. • Allocates bonuses in the following manner: 75 percent is paid out and 25 percent is held in reserve for lean periods in which there are no bonuses.

14. HRM Issues and Practice Extrinsic Rewards • Gainsharing plans • Strengths • Effort-performance and performance-reward links are strong. • Link performance with the organization’s mission. • Promote teamwork. • Are cost-effective. • Weaknesses • Employees may perceive rewards as being unfairly distributed. • Employee suggestions for improving efficiency may dwindle over time. • May suffer if payout formulas are inflexible.

15. HRM Issues and Practice Extrinsic Rewards • Gainsharing programs are most likely to succeed under the following conditions: • Management must orient the company culture to one of respect, cooperation, and open communication. • Plan must be designed so that the payout is dependent on factors the employee can control. • Management must meet regularly with employees to share information and ideas and gather information.

16. HRM Issues and Practice Extrinsic Rewards • Profit-sharing plans • Reward group, rather than individual, performance. • The payout is based on profits rather than gains. • A portion of the company’s profits is contributed to individual employee accounts.

17. HRM Issues and Practice Extrinsic Rewards • Three types of profit-sharing plans: • Deferred plans: An individual’s profit-sharing earnings are distributed at retirement. • Distribution plans: The company fully distributes each period’s earnings as soon as the profit-sharing pool is calculated. • Combination plans: Employees receive a portion of each period’s earnings immediately; the remainder awaits future distribution.

18. HRM Issues and Practice Extrinsic Rewards • Profit-sharing plans • Strengths • Improves productivity by making employees’ interests compatible with employers’ goals. • Employees may gain a greater sense of ownership. • Weaknesses • Only marginally address effort-performance-rewards links. • Not always cost efficient. • Rewards are not timely.

19. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Employee empowerment gives employees greater voice in decisions about work-related matters. • Empowerment can enhance productivity in two ways: • Strengthens motivation by providing employees with the opportunity to attain intrinsic rewards from their work. • Decisions are better because they are made by employees, who have a more complete knowledge of their work than do their managers.

20. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Informal participative decision-making programs • Managers and subordinates make joint decisions on a day-to-day basis. • Have a positive impact on productivity. • The success of the program hinges on whether employees want to participate in decision making.

21. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Job enrichment • Aims to redesign jobs to be more intrinsically rewarding. • Characteristics that make a job intrinsically rewarding are skill variety, task identity, task significance, autonomy, and job feedback. • Some specific techniques for enriching a job: • Combine tasks • Establish client relationships • Reduce direct supervision • Increase identification with product/service

22. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Job enrichment • Strengths • Makes jobs less automated, and more interesting and rewarding. • Enrichment leads to improvements in productivity, quality, absenteeism rates, and retention. • Weaknesses • Production may become less efficient. • Employees preferring highly automated jobs may oppose job enrichment efforts.

23. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Quality circles • A group of 6 to 12 employees who identify and resolve production problems within their unit. • Usually meet once a week. • Are led by a coordinator who may be a supervisor within the work group or a member elected by the group.

24. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs Steps to Quality Circle Process

25. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Quality circles • Strengths • Gains valuable input from employees. • Improves communications among workers and between workers and management. • Increases motivation through employee empowerment. • Weaknesses • Often used as a quick fix. • Does not address the real problems underlying poor productivity, quality, and employee morale. • Often creates an “insider-outsider culture.” • Sometimes operated improperly.

26. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Continuous quality improvement programs • Attempt to build quality into all phases of the design, production, and delivery of a product or service. • Companies empower their workers to: • Trace problems to their root causes. • Redesign production processes to eliminate them by using various problem-solving and statistical techniques. • Worker empowerment takes the form of self-managed work teams.

27. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Self-managed work teams • Consist of 6 to 18 employees from different departments who work together to produce a well-defined segment of finished work. • Team members are given the authority to plan, organize, and coordinate, and take corrective actions. • To prepare team-members for self-management, the organization must provide training in three areas: • Technical skills • Interpersonal skills • Administrative skills

28. HRM Issues and Practice Intrinsic Rewards Employee Empowerment Programs • Self-managed work teams • Strengths • Empower employees to make day-to-day business decisions. • Greater flexibility. • Weaknesses • Possible “turf battles” may arise. • Departmental rivalries often flare up. • Absence of a supervisor may cause problems. • Lack of time to handle supervisory responsibilities. • Problems may arise with peer evaluations.