Shared Flashcard Set


HRM 652
chapter 12

Additional Business Flashcards




Define and use Expectancy Theory

Expectancy Theory states that motivations to attain rewards develop through the anticipations of:

1) Believing in personal achievment of the reward

2) believing the organization will give reward

3) having a perception of value in the reward 



Getting a $1000 bonus at the end of the year is believed to be achievable by worker, is believed to be attainable through the company, and is highly valued by worker.


What factors influence employee's pay?

Differences in

1) performance either individual, group, or organization-based performance 

2) seniority based on how long an employee has been with a company 

3) skills employees have 


Define and use Reinforcement Theory

Reinforcement theory states that behavior that is rewarded will likely recur, and behavior that is punished will not persist.


Receiving positive feedback from managment on customer service will likely encourage an employee to continue behavior; recieving negative feedback will reduce recurrance of behavior

Define and use Agency theory

This theory focuses on divergent interests and goals of the organization's stakeholders and the ways that compensation can be used to align these interests and goals.



Stakeholders want to see increase in profits which will increase rewards, but decrease in profits will decrease rewards.


What does E. L. Thorndikes Law of Effect state?


A response followed by a reward is more likely to recur in the future.

There is importance in a person's actual EXPERIENCE of recieving the reward.

List and describe 3 of the 6 factors that influence contracts that minimize agency costs.

Risk aversion. Risk aversion among agents makes outcome-oriented compensation contracts less likely.


Outcome uncertainty. Profit is an example of an outcome. Agents are less willing tohave their pay linked to profits to the extent that there is a risk of low profits.


 Job programmability. As jobs become less routine, outcome-oriented contracts become more likely because monitoring becomes more difficult.


 Measurable job outcomes. When outcomes are measurable, outcome-oriented contracts are more likely.


 Ability to pay. Outcome-oriented contracts contribute to higher compensationcosts because of the risk premium.


Tradition. A tradition or custom of using (or not using) outcome-oriented contracts will make such contracts more (or less) likely.

What two factors influence Agency Costs?

1) Principals and agents may have different goals, therefore creating goal incongruences


2) Principals may have less than perfect information on the degree to which the agent is pursuing and achieving the principals goals which creates information asymmetry

What are the potential consequences of the programs recognizing employee contributions?

Potential consequences of such programs are

 -performance motivation of employees,

-attraction of employees,

-organization culture,

-and costs. 

What are the two influences in determining a pay program?

1) management style

2)type of work

Describe merit pay
Merit pay links performance appraisal rating to annual pay increases. The size and the frequency of pay increases is determined by 1) performance rating and 2) employee's position in pay range
What are the cristicisms of merit pay and who criticized merit pay?

Edward Deming criticized merit pay stating differences in people arise from  the system in which they work in, not in the the people themselves.

The criticisms include:

1)Merit pay discourages teamwork

2) measurement of performance is done unfairly and inaccurately

3) Merit pay may not really exist

Explain why  individual incentives are rare.

Individual incentive are not likely to contribute to a flexible, proactive, problem-solving workforce. There needs to be a balance betweenindividual and teams in a work environment, and individual incentives do not encourage team cohesion


§Most jobs have no physical output measure.
§Many potential administrative problems.
§Employees may do what they get paid for and nothing else.
§Typically do not fit in with team approach.
§May be inconsistent with organizational goals.
§Some incentive plans reward output at the expense of quality or customer service.


Describe profit sharing

Profit sharing is based on organization's performance, and allow employees to benefit from shared rewards of the organization's success.

This can encourage employees to think like owners, but can have a drawback of employees perceptions believing they have minimal contribution to success of company's outcomes

Describe ownership, and what is the most common form of employee ownership?

Ownership encourages employees to focus on the oraganization's success as a whole and is offered through stock options which allows partial ownership of the company. Employees can earn through selling stock, or continuing to invest.


The most common form of employee ownership is Employee Stock Option Plans (ESOPs) which creates risks for employees by carry tax and financial advantages for employers.

Describe gainsharing

Gainsharing programs offer a means of sharing productivity gains with employees and are based on group or plant performance. This payment program was more common in old manufacturing plants, and are less common today.

Gainsharing differs from profit-sharing in 2 respects:

1) based on group or plant performance where productivity outweighs profit gains

2) payments are dispersed more frequently and without delay


What are the major differences between group incentives and team awards and what is the major drawback with group & team incentives?



Group incentives tend to measure performance on physical output

Team awards may use a broader range of performance measures.

*Both must be percieved as fair by employees and not reduce quality of work*


The major drawback is group competition can be created which can minimize quality of work.

List and describe the 4 categories in the Balanced Scorecard approach to pay?

Pay is tracked through different categories within the organization

1) Financial: sustainable growth for shareholders

2) Customer: there is value for customers

3) Internal and operations: internal processes influence customer satisfaction

4) Learning and growth: innovation and improvment is viable

Explain why top managers and executives pay warrants special attention.
High pay incentives are granted to executive and top managers even without high performance achievement.
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