Promotions

Upward or vertical movement of employees

Promotion results into more pay, prestige, responsibilities, and

position with in organization

Purpose of Promotion
1)
2)
3)
4)
5)
6)
7)

Motivate employees
Attract and retain talented people
Recognize and reward efforts and efficiency
Increase effectiveness and efficiency of employee
Fill up higher posts form within the organization
Build loyalty and morale
To provide career development path

Principles of Promotions
1) HRM must clearly established policy whether to promote from
with in to fill higher vacant position or from recruitment of
external candidate
2) Basis of promotion (seniority or performance)
3) Promotions against vacant positions or non vacant positions
(time bound)
4) Frequent promotions are not good practice
5) Promotions decision must be made based on job analysis and
performance appraisal
6) Clear promotion policy and communication to employees
7) Promotion based on competence must be advertised on notice
board

Promotions
Seniority based promotions

Performance based promotions

Merits
1)
2)
3)
4)

5)
6)

Easy to administer
Less subjectivity
Labour unions are happy
Experience is taken into
account
Subordinates feel relax
Loyalty is rewarded

1)
2)

3)

Performance is rewarded
Competent employees get
motivated and retained
Productivity increases

Demerits
1)
2)
3)

4)

Competence is ignored
Seniority issues
Young and competent
employees feel aggrieved
and frustration
Poor performer may get
promoted

1)

2)
3)

4)

Senior employee get

frustrated
Favoritism and subjectivity
Loyalty and service length
are not considered
Union leaders oppose and
retaliate

Objectives of Performance-Based
Pay
Supporting
Supporting
Strategic
Strategic
Objectives
Objectives

Managing
Managing Labor
Labor
Costs
Costs

Performance
Performance
-Based
-Based Pay
Pay
Attracting,
Attracting, Retaining,
Retaining,
and
and Motivating
Motivating Talent
Talent
Copyright 2005
Thomson Business &
Professional Publishing.

114

Use of Performance-Based Pay within

an Integrated HRM System

Copyright 2005
Thomson Business &
Professional Publishing.

EX 11.2
115

Designing PerformanceBased Pay

To be effective, performance-based pay
must successfully deal with:
1. Specifying and measuring performance
2. Specifying the methods for linking pay to
performance
3. Specifying the level of aggregation for
reward distribution
4. Specifying the type of reward
5. Specifying eligibility for rewards
6. Gaining employee acceptance
Copyright 2005
Thomson Business &
Professional Publishing.

116

Why Employees Oppose

Performance-Based Pay
Fear
Fear

Distrust
Distrust

Employee
Employee Opposition
Opposition
to
to PerformancePerformanceBased
Based Pay
Pay
Misunderstanding
Misunderstanding
Copyright 2005
Thomson Business &
Professional Publishing.

117

Profit Sharing
Timing
Current distribution plans: a percentage of
profits distributed is quarterly or annually.
Deferred distribution plans: funds are distributed
at retirement, termination, death, disability

Strategic Objectives:
A criticism of profit sharing:
it is difficult for employees to
see the connection between
their performance and profitability.
Copyright 2005
Thomson Business &
Professional Publishing.

118

Stock Ownership
Employee Stock Ownership Plans (ESOPs)
Grant shares of stock to employees as a means
of long-term savings and retirement.
Not tied to individual performance

Stock Options
Give employees right to buy company stock at
later date at price established when the
purchase option was granted.
Executive stock options:
Often exceeds all other compensation
Encourages executives to think like owners?
Copyright 2005
Thomson Business &
Professional Publishing.

119

Types of Base Pay Systems

Job-based
Pay the job (not the person)
Market-based (external equity focus)
Point factor-based (internal equity focus)

Skills / knowledge-based
Pay the person (not the job)
62% of F1000 firms used some type of skill
based pay in 1999

When to Use a Job-based Pay

Policy
A job-based pay work best in situations where:
Job duties are stable.
Skills are generic.
Employees move up through the ranks over time.
Jobs are fairly standardized within the industry.

Drawbacks of a job-based pay system

Discounts individual ability.
Discourages lateral movement.
Tends to be bureaucratic, mechanistic, and
inflexible.
Employees perceptions of equity are more
important than market or point data.

Variable Pay Incentives

Linking performance to pay
Individual Bonuses, piece-rates, stock options
Team Bonuses and awards
Plant / Unit / Business Gainsharing, profit
sharing
Corporation ESOPs

Line of sight is the perceived link between

individual behavior and the reward.

Factors for
Successful
Variable Pay Plans

2002 Southwestern
College Publishing. All
rights reserved.

1314

Figure 132

Conditions for Successful Team Incentives

2002 Southwestern
College Publishing. All
rights reserved.

1315

Figure 136

Profit Sharing
Profit Sharing
A system to distribute a portion of the profits of
the organization to employees.
Primary objectives:

Improve productivity
Recruit or retain employees
Improve product/service quality
Improve employee morale

Drawbacks
Disclosure of financial information
Variability of profits from year to year
Profit results not strongly tied to employee efforts
2002 Southwestern
College Publishing. All
rights reserved.

1316

Employee Stock Ownership Plans

(ESOPs)
Employee Stock Ownership Plans
A plan whereby employees gain stock ownership in
the organization for which they work.

ESOP Advantages
Favorable tax treatment for ESOP earnings
Employees motivated by ownership in the firm

ESOP Disadvantages
Retirement benefit is tied to the firms
performance
Management tool to fend off hostile takeover
attempts.
2002 Southwestern
College Publishing. All
rights reserved.

1317

Arguments in
the
Executive
Pay Debate

2002 Southwestern
Figure 1311
College Publishing. All
rights reserved.

1318

Objectives of Performance-Related Pay (PRP)

Motivate all employees, not just the high-flyers.
Increase the commitment of employees by
encouraging them to identify with its mission and
values.
Reinforce existing cultures and values to foster high
levels of performance, innovation and teamwork.
Help to change cultures where they need to become
more performance- oriented and results-oriented; or
where the adoption of other new and key values
should be rewarded.
Discriminate consistently and be equitable on the
distribution of rewards to employees according to
their performance results and contributions.

Objectives of Performance-Related Pay (PRP)

Deliver a positive message about performance
expectations of the company focuses attention
on key performance issues.
Direct attention and endeavour by specifying the
organizations performance goals and standards.
Emphasize individual performance or teamwork
as appropriate.
Improve the recruitment and retention of highquality staff.
PRP costs will be in line with company
performance.

Competence and Performance-Related Pay

Curve

Salary ($)

Excellen
t
Good
Satisfactory

Learning

New Entry
Professional

Performing

Competent
Professional

Exceeding

Experienced
Professional

Competence bands

Performanc
e Levels