Inequity in social exchange

Background of Company

Management report was written in accordance with key environment. Alternative energy company, which supports employs 1,000 staff who includes an industrial installation, sales and executive offices Home Administration, sales and managerial levels. The product, air filtration and Purification system from emissions of the plant is currently sold in the world and society He recently went public. The company understands it must be first and best in Dominate the market. In this regard, they understand that they must involve labor force is the best in the industry.

Overview of Objectives

General Director of the company decided to update its compensation plans and incentives package. He instructed the Department of Research and Development investigate various motives, the theory of incentives, as well as expert opinions and interviews and draw lessons from the audience. From this study group Then, recommendations for the development of very complex stimuli package for staff and managers. Incentives and pay packages more strategic decision for any business.

Plan of Action

Study Group initially has different reward schemes consider their positive and negative attributes. Then on the various experts opinion and believe that the approach of some approaches used in awards and incentives. Finally, all of them believe that their findings and make Recommendations for the company. The Working Group will first review the definition remuneration. The award is a process that reinforces behavior, or payment in exchange for service. Some employers and experts believe that the payment of remuneration for work Staff members provide. (Churned and Sherman, 1988) These awards include wages remuneration, duration, and welfare in the position, place and method Grants Informal (Adman, 1965). However, other experts say a well-structured reward and incentive programs to increase awareness of fair workers working relationships and productivity.

Research carried out by Research and Development
  1. Piece-rate pay plan: workers are paid a fixed amount for each unit of output completed. An amendment to the tariff plan known as the standard apartments. In this regard, workers earn per hour, plus Differential rates. There are aspects of both positive and negative Type of incentives. In theory, this type of incentive that motivates employees Always at the peak of performance. Nevertheless, the lower employee would have been more interested in quantity rather than quality. Thus, the cost of the product and the company's reputation can be involved.
  2. Merit-based pay plans or a merit rises: with merit-based compensation plans, or merit salary increases for most employees Estimated level of performance. This incentive also has its own set of advantages and disadvantages. Many entrepreneurs believe that this is a good way improve productivity and the plant must be given as a reward for his outstanding contribution performance. In theory, this will keep the employees working in optimal level, as a source of inspiration for others to improve their effectiveness, so that they, too, receive higher wages. However, critics of this approach believe that evaluation and merit pay later, often conducted unfairly, and often all Employees rewarded for merit equal wages regardless of productivity. Employers do this in order to discourage any of their employees and help. Help control the rising cost of living. (Dressler)
  3. Bonuses: are provided at the bottom all the way workers senior levels of management, which often comes in the form of annual report bonus. General disadvantage is that the premiums are short and, as Cohn Rob said in May staff and managers creative, create a false relationship between the subject of subsidies and a great reward bonuses. There is also a danger that staff will be nervous about going out with their problems because they fear that their bosses may be interpreted as incompetence and fear, which subsequently may affect the premium. Business reward employees with bonuses when corporate profits are improving. The advantage of this bonus awards for merit pay is to reward employees in the past activity, rather than historical activity. An example of this is UMC and TSMC companies offer quarterly bonuses when earnings increase. It Also beneficial for the company to pay compensation higher costs only for a short period, but not at the expense of permanent comes with a raise. Psychologically, a lump sum, it seems more Amount to an employee, and therefore more motivating than to receive A slight increase in weekly wages.
  4. Commission: Give a percentage of the sales tax back seller. This tends to make people work hard to products, since they benefit directly. Attract motivated and qualified people who can sell. People who do not speak sales usually do not stay in a job where earnings are highly dependent Commission. In addition, beneficial to society because it prevents the payment of wages low and in some cases, companies have to pay only when sales do. The disadvantage of this package of incentives is that sometimes sellers focus on some of the decision to sell, so they are in mortal danger denaturation products do not attract repeat business or service only popular The Company's products have on the market.
  5. The price and non-cash awards and prizes based recognition: variety of prices and non-monetary benefits that companies have already developed for theoretically, an increase in productivity. This may take the form target bonus, stock options, or to allow managers and executives travelling to keep their frequent flyer points for personal use. Also take the form of leisure, cars, free food, staff Honors for months, pins, plaques and trophies for professionals " "Execution, etc. According to Dressler such scholarships can be success, if you know your employees and their specific interests' needs and expectations. Non-monetary incentives can be successful if company spends its time considering this type of incentive be of interest to employees and giving them the same thing. This sends message to staff that the company occupies a specific interest to them and adapt the solution for their needs. Nevertheless, there is always a danger that such incentives may come through as a humiliating, degrading, insulting and Cohn said, which may contribute sense of corruption. If a company chooses a combination of cash incentives for non-monetary incentives, incentives to get more and more better. Example was a source of Home Depot, which gave employees $ 100 U.S. to receive five reports for clients. This policy was then changed for employees who receive a pin for every customer deserves a good report and ended at $ 100. This was met with mixed employees. Many found it offensive and created the opposite effect: expected.
  6. Own awards: the awards are an integral form of employee recognition programs and external in the form of compensation. Employee recognition programs and an extensive private spontaneous "thank you" on the spot wide distribution of government programs, where certain types of behavior encourages and means of achieving recognition clearly identified.

Below are the incentives groups. The study is then carried out management to determine the advantages and disadvantages of individual incentives Comparison of group incentive plans.

  1. Profit-sharing plans: the organization's programs, in which employees receive annual exchange earnings. Again, there are certain disadvantages of this incentive program, while increasing productivity, it is effective in treating increase the benefits that the cost is very high. (Dessler) If the economy immersion or company does not increase profits for the reasons control officer, you can create low morale and may be counterproductive. The advantage of this program is to encourage the recruitment of staff believe that they have an interest in society and be more committed to the creation of profits. There are various plans to participate in the benefits:
  2. I) Lincoln incentive system - the work of employees in a sheet base and benefits are distributed according to merit.
  3. II) Cash plans - regular payments of shares to employees (usually 15% -20%)

III) Deferred Benefits - part of the profits of companies placed in accounts in the name of the employee. Employee uses it later, usually at retirement.

(B) Gain sharing plans:it is officially called the Scanlon Plan. Such The plan has many good qualities, because it promotes cooperation and benefit. This group plan based on the formula of incentives encourages employees to work together to reduce costs and increase productivity. performance target to work together - one period to another while a certain amount of money allocated from the cost reduction, production proposal to make an effective contribution to make or save money and / or increase productivity, these benefits are distributed equally between employees. distribution of profits is different from participation in the benefits that focus on increase productivity and profits. Employees whose companies have Plans for the development of the distribution of benefits may receive incentive awards, although the organization is not profitable.

(C) Employee stock ownership plans: the company, founded in pension plans where workers have shares, often below market price, in the context of benefits. Actions paid to the employee upon retirement or when They parted with the company (if the employee has been around for a long time enough). ownership plans have a number of positive points for company and the employee. The company can claim tax deductions Dividends paid on ESOP shares, and can take from the employee values. Studies show that companies that offer plans of higher return to shareholders than those who did not. (Dessler) These options also employees a sense of ownership, commitment, financial incentives, equipment and investments at retirement.

Evidence: when the U.S. economy went into recession in 2001 variable remuneration were able to reduce its labor costs more quickly than companies that maintenance of the system of payment is not based on performance.

Concerns and Issues

Management must first consider the positive aspects of individual performance. individual incentive program does not attract attention and make examples of people in companies that have made outstanding contributions to society. This is gives employees and other aims of the work to a level where they can compare their work. It also shows how society values people as individuals and shows that they understand the needs of workers. Sometimes companies can workers to collect custom packages that meet their needs. The three most popular types of benefit plans modular plans, except for the basic parameters and flexible spending accounts.

Team incentives have their advantages and disadvantages. Group to improve incentives performance groups within the company encourages people to work together as equipment and forces the group to focus on business objectives and performance. There several methods to evaluate the group on their work. One of the options is based on "The total time of each final product" (Dessler). This method is cited as "Emergency" when we focus on the strategic objectives and labor groups have been changed relationships (Seaman, 1997). There are several positive aspects of team incentives. In numerous groups of companies working together naturally and are also responsible for creation of a product. Teams are working together on assembly lines and projects It is therefore logical to reward groups, respectively. It is also impossible to promote individual efforts in such circumstances. With incentives and improve productivity team in planning, problem solving, cooperation and training of new members. (Nickel and O'Neal, 1993). The obvious drawback is that often in certain groups States more productive than others. That's why some people who were not as productive as other members of the group holding the group to receive compensation greater rewards and are remunerated for the work carried out mainly by others. Not recognizing the efforts of individuals or group members that outside the enterprise.

  1. in the national legislation: measures the value of work within the organization determined by the assessment.
  2. outside equity: the organization of research and research to determine how the company pays its employees in respect similar companies in the industry.

Opinion: pay is often the biggest cost of operating the same organization. Although the article Cohn, W. Edward Deming says: "Do not worry about the motivation" pay the employee and compared with other companies or pay in accordance with professional skills and knowledge can be an important incentive for the employee. Nevertheless, Company also to address the strategic, that wages will directly affect organizing products and prices followed by sales and the cost of these services and products. Thus, even the proposed treatment and other incentives is a strategic decision of the organization should do is the obvious desire. There are many problems managers face the choice of rewards program and list below some of these problem. Proposals for resolving these problems will be given research group.

The Challenges of Rewards Programs

Incentive programs can increase productivity, but managers should consider number of problems in the design and implementation.

  1. Employees may be tempted to do just what they were paid.
  2. cooperation and collaboration can be damaged in case of individual merit pay too strongly emphasized.
  3. results are difficult to measure, and linking pay to insufficient measures can create problems.
  4. of the loyalty program can be regarded as workers' rights and can be difficult adapt to the changing needs of the organization.
  5. emphasizing the merits of pay employees may be placed under great tension and leads to job dissatisfaction.
  6. worth of wages may reduce the intrinsic motivation of employees.
  7. Many employees do not believe that success will be rewarded.
Meeting the Challenges of Rewards Programs

To avoid the problems sometimes associated with rewards programs, managers should consider the following approaches:

  1. and pay the appropriate connection performance.
  2. the use of performance pay within the broader human resource management system.
  3. Increased confidence of staff.
  4. assisting in the conviction that the performance differences.
  5. the use of multilayer awards.
  6. to consider the use of non-financial incentives.
  7. employee participation in design can enhance its credibility and long-term success.
Continued Research / Experts Insight

Research and development team and to respect the fact that experts should talk about incentives. Take into account the contrasting research Each of these professionals, as they give a good idea of what you need to know when developing a number of benefits and advantages and disadvantages of incentives. First, the group will explore Kona approach to incentives. Below The main teaching and research in the theory of Kohn incentives. In Alfie See Cohn, rewards do not motivate people. Some reasons why you think Kona Awards do not motivate.

  1. (Works) is not a determining factor: too little money, can irritate employees. More money does not necessarily mean that the employee will no longer have the motivation or provide a more complete satisfaction, let alone increases motivation.
  2. punish rewards: Rewards have a punitive effect because they are, and the right sentences in circulation.
  3. Communication Awards gap: When employees compete for a limited number of incentives are likely to begin to see themselves as obstacles to own success.
  4. Awards to ignore the causes of performance or failure in company.
  5. Awards impede risk: When people are asked to think about they must perform a task, they become less inclined to accept risks and explore opportunities to play a premonition of stimuli considered accessories.
  6. Premium affect interests.
  7. and penalties and rewards are actually two sides of one coin.

Rewards can also be seen as a "carrot and stick" motivator. But when you take carrot and stick approach to manage their employees to obtain what you want them to do. Then you can feel bribe controlled. In many cases, you will create resentment and staff reward will be the opposite of what was originally planned for that. Some experts from other theories were also considered the following: Maslow argued that people have a hierarchy of five levels of increasingly higher Requirements:

  1. Physiological
  2. Security
  3. Social
  4. Self-esteem
  5. Self-actualization

Most experts interpret Maslow's hierarchy as a ladder. That is, if want someone to motivate to be successful, you must meet the lower level requirements. Maslov looking external and internal motivation. It postulates that If you want to motivate someone with the recognition and hard work, Must ensure that their lower level needs are not met. Maslow's theory is According to officials, because they believe that the needs realization and self-actualization can not create a sense of accomplishment that stems from difficult to do Y.

Hertzberg has a more accurate view reward. He invented the famous motivation motivation theory hygiene and split down the hierarchy of Maslow level (physiological, safety, and social) and a higher level (directed and self- update) needs.

Health and motivation to meet the needs of lower-level and motivation to better level requirements. Herzberg argues that adding more hygienic, since incentives for employment extrinsic motivation provides a way to motivate the people below. An employer who wants to create a motivated workforce should focus on work better and provide feedback and recognition. Motivation An employee can be insured by a feeling of pleasure and success. Hertzberg hypothesis that, based on financial incentives is risky. He said that the motivation person, rather than external factors, such as reward or oversight. Motivation to stimulate employment. Edward Deci, that "the behavior, intrinsic motivation conduct motivated by a basic need in the competence and autonomy definition.

The decision states that external rewards can sometimes interfere with a person intrinsic motivation. He argues that external motivation and internal mother different needs. Thus, it is not wise to have a "one size fits all" incentive plan, regardless of how the company will focus on their own employees needs.

The psychologist Victor Vroom argues that the motivation of a person comes to the implementation of level of effort, which comes from three things:

  1. Average life expectancy (probability) that these efforts will lead to the result.
  2. the institution is perceived relationship between successful performance and actually get the award.
  3. Valencia third factor is the motivation and the perception of value The man gives the award.

Vroom expressed this attitude by the formula: Motivation = (E x I x V). If E is the expectation, I institution and V is the valence. If staff do not expect the effort will give any performance reasons they occur. Vroom He also said that employees should see the institutions of their efforts - to be shows that successful implementation will lead to the solution. Vroom suggests ways managers to achieve this goal is to create easy to understand incentive plans. Finally remuneration should be important for the employee, the coefficient of Valencia. Finally, the study questioned the company's employees to determine what their approaches to rewards and incentives would be if they were in the manager position.

Different Approaches and Examples:
  • Most administrators plan incentives and rewards to be useful. Awards
  • give positive feedback from staff, build confidence, express thanks and recognition for their achievements. This is probably higher productivity.
  • For example: Report of the retention research identified by ASTD Employee recognition as a key factor in maintaining high officials. (Jimnez, 1999). In fact, 78% of employees indicated that much or It is important to be recognized by their leaders when they do a good job (Nelson, 2004).

  • With incentives can encourage teamwork and group performance.
  • Awards will help the company keep employees on track with business goals.
  • pay particular attention to the best employees and improve morale of staff.
  • Fits with psychologist Edward Deci in that it was inappropriate to create "One size incentives.
  • To stimulate in order to be effective, must respond to external and intrinsic motivation and needs.
  • Some incentives will be appropriate for some companies while others are more adapted to the culture of another society.
  • effective pricing strategies must be tailored to meet the basic behavior that are intrinsic and extrinsic motivation.
  • Awards must be a way to show sincere appreciation and solutions employees feel important and must not leave the impression that they are working manipulate.
  • Incentives to improve governance will not replace good management.
  • Employees should be rewarded for the contribution, ideas and Employees will not steal your creativity. They should be constructive and make them afraid to raise issues and at work.
  • Awards should reflect the efficiency and employees must understand that this a clear link.
  • Awards must also reflect the experience of the staff, skills, abilities, efforts, work assignments and other factors, which reflect higher productivity.
  • Awards must be honest, fair, transparent and consistent

The Study reached a consensus recommendation of the report CEO and the company.

  1. Group believes that if the incentives are serious, it can efficiency and productivity.
  2. Incentives should be tailored to the company and individual benefits made with the needs of workers in mind.
  3. Panel agrees unanimously that the stock options and profit sharing are the best creating incentives for employees.
  4. incentives to attract and retain talent, increase competitiveness of the company.
  5. gives people a sense of ownership and value of the company.
  6. Options often results in stock prices, increasing Shareholder confidence in the company.
  7. If employees feel that part of firms increases commitment and loyalty to the company. Employees (h) makes them feel as partners.
  8. staff work hard to keep stock prices because they have personal interest in maintaining high prices.


  1. Adams, J.S., (1965), "Inequity in social exchange", Advances in Experimental Social Psychology, Vol.2, pp267-299.
  2. Alfie Kohn, "Challenging Behaviorist Dogma: Myths About Money and Motivation", Compensation & Benefits Review, March-April 1998.
  3. Alfie Kohn, "Why Incentive Plans Cannot Work", Harvard Business Review.
  4. Bill Schoeffler, April 18, 2005, "Employee Incentive Plans: Make Them Worthwhile", Insurance Journal.
  5. David A. De Cenzo & Stephen P. Robbins, 1993, "Human Resource Management: concepts & practices", pp 408-434.
  6. Dessler Garry, "Human Resource Management", pp 436-476.
  7. Fay Hansen, "Compensation Survey & Salary Report: Money Transfer",
  8. Luis R. Gmez-Mejia; David B. Balkin; Robert L. Cardy, "Managing Human Resources", Fourth Edition, Pearson Prentice Hall.
  9. Nelson, B., January 2004, "Everything you thought you knew about recognition is wrong", Workplace Management, Retrieved February 16, 2004 from
  10. Stephen P. Robbins, 1992, "Organizational Behavior", pp137-143.
  11. Zigon, J., (1998), "Rewards and performance incentives", Retrieved January 4, 2007 from

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