implementing productivity improvement programs

Implementing Productivity Improvement Programs

Chapter 10

• 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

Chapter 10 Objectives

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.

Linking Productivity Improvement Programs to Competitive Advantage

Expectancy Theory Model

HRM Issues and PracticeExtrinsic Rewards

• Pay-for-performance programs• Link financial rewards to successful job performance. • Provide extrinsic rewards.• Can create legal problems when administered unfairly.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.


• 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.

HRM Issues and PracticeIntrinsic Rewards

• 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.

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.




• 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



• 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.



• 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.



Steps to Quality Circle Process



• 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.


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.



• 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


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.

implementing productivity improvement programs

Documents

employees performance

performance standards

performance programsappreciate

performance expectations

performance programsdescribe

successful job performance

levels of job performance

level of job performance