The concept of the essays are problems with contingent pay plans and challenges of team performance management. (full descriptions attached)See (essay) attachment and provide a separate response to al

POSSIBLE PROBLEMS ASSOCIATED WITH CONTINGENT PAY PLANS

In spite of the potential positive impact of CP plans, we should be aware that not all CP plans work as intended. For example, in the 1990s, Hewlett Packard implemented CP plans in 13 separate sites; however, the plans were eventually abandoned in all but one. Hewlett Packard decided to abandon CP because the benefits did not outweigh the costs.15 Why is it that CP plans may not succeed? Consider the following reasons:16 • A poor performance management system is in place. What happens when a CP plan is paired with a poorly designed, poorly implemented performance management system, one that includes biased ratings and the measurement of unrelated performance dimensions? This situation may lead some employees to challenge the CP plan legally. Also, rewarding behaviors and results that are not job related is likely to cause good performers to leave the organization. Finally, those who stay are not likely to be motivated to perform well. • There is the folly of rewarding A while hoping for B.17 What happens when the system rewards results and behaviors that are not those that will help the organization succeed? Employees are likely to engage in these often counterproductive behaviors when this behavior is what will earn them the desired rewards. One such example is the hope that executives will focus on long-term growth and environmental responsibility when, in fact, they are rewarded based on quarterly earnings. Given this situation, what are these executives likely to do? Will they think in the long term or quarter by quarter? A second example is an organization that would like its employees to be more entrepreneurial and innovative, but it does not reward employees who think creatively. What are employees likely to do? Will they be innovative and risk not getting rewards, or will they continue to do things the old way? A third example is an organization that would like employees to focus on teamwork and a one-for-all spirit, but it rewards employees based on individual results. This happens in many professional sports teams. What are professional athletes likely to do? Will they pass the ball, or will they try to score themselves to improve their own individual statistics? • Rewards are not considered significant. What happens when a CP plan includes pay increases and other rewards that are so small that they don’t differentiate between outstanding and poor performers? For example, what happens when the top performers receive a 5% pay increase and an average performer receives a 3% or 4% pay increase? In this context, rewards are not viewed as performancebased rewards, and they do not make an impact. The message sent to employees is that performance is not something worth being rewarded. For rewards to be meaningful, they need to be significant in the eyes of the employees. Usually, an increase of approximately 12%–15% of one’s salary is regarded as a meaningful reward and would motivate people to do things they would not do otherwise. • Managers are not accountable. What happens when managers are not accountable regarding how they handle the performance and the performance evaluation of their employees? They are likely to inflate ratings so that employees receive what the manager thinks are appropriate rewards. Similarly, employees 268 Part IV • Reward Systems, Legal Issues, and Team Performance Management Chapter 10 • Reward Systems and Legal Issues 269 may set goals that are easily attainable so that performance ratings will lead to the highest possible level of reward. In other words, when managers are not held accountable, rewards may become the driver for the performance evaluation instead of the performance evaluation being the driver for the rewards. • There exists extrinsic motivation at the expense of intrinsic motivation. What happens when there is so much, almost exclusive, emphasis on rewards? Employees may start to lose interest in their jobs, which, in turn, can decrease motivation. In some cases, the extrinsic value of doing one’s job (i.e., rewards) can supersede the intrinsic value (i.e., doing the work because it is interesting and challenging). Sole emphasis on rewards can lead to ignoring the fact that employee motivation can be achieved not only by providing rewards but also by creating a more challenging, more interesting work environment in which employees have control over what they do and how they do it. • Rewards for executives are disproportionately large compared to rewards for everyone else. In many organizations, executive rewards are disproportionately large compared to the rewards received by everyone else in the organization. A study conducted by Pearl Meyer & Partners in 2004 revealed that the average compensation received by CEOs in major U.S. corporations was US $9.84 million, compared to an average compensation for employees in nonsupervisory roles of $27,485. The compensation for these CEOs was more than 360 times that of their employees! Such a large difference, particularly when the performance of the organization is not stellar, can lead to serious morale problems. CEOs should be compensated according to their performance, and an important indicator of CEO performance is overall firm performance (e.g., stock price in the case of publicly traded organizations).

PURPOSES AND CHALLENGES OF TEAM PERFORMANCE MANAGEMENT

Regardless of the extent to which a performance management system is concerned with individual performance, team performance, or both, the goals of the system are the same as those discussed in Chapter 1: strategic, administrative, informational, developmental, organizational maintenance, and documentational. In the specific case of a system concerned with team performance, one additional goal is to make all team members accountable so that they are motivated to have a stake in team performance. Many organizations have become more team based, but they have not changed their performance management systems to accommodate this new organizational reality, which presents a unique challenge. If the organization is based on teams but performance is still measured and rewarded at the individual level, team performance will suffer. In fact, some of the individual rewards may motivate people not to contribute to team performance and, instead, to focus on individual performance. In general, organizations that choose to include a team component in their performance management system must ask the following questions: • How do we assess relative individual contribution? How do we know the extent to which particular individuals have contributed to team results? How much has one member contributed in relation to the other members? Are there any slackers or free riders on the team? Is everyone contributing to the same extent, or are some members covering up for the lack of contribution of others? • How do we balance individual and team performance? How can we motivate team members so that they support a collective mission and collective goals? In addition, how do we motivate team members to be accountable and responsible individually? In other words, how do we achieve a good balance between measuring and rewarding individual performance in relation to team performance? • How do we identify individual and team measures of performance? How can we identify measures of performance that indicate individual performance versus measures of performance that indicate team performance? Where does individual performance end and team performance begin? Finally, based on these measures, how do we allocate rewards to individuals versus teams?