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Rewarding Performance
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Introduction • Previous slides: different measures of performance evaluation • How should a firm use the performance evaluation to motivate employees? • Pay for performance helps the organiza... tion improve many human resource objectives, not just motivation • This idea is very important, thus it is worth illustrating before we turn to motivating effort • Therefore, for now we assume that there is no motivation problem for employees • Is there still any benefit from tying pay to performance? • Yes, lets illustrate it formally: • Suppose firm bases pay on some abstract way on performance, • Not necessarily through some kind of deferred pay or probationary period • It should still expect to improve recruiting, and investment skills Assume that potential employees differ in Ability (A) or accumulated capital (H), and performance/performance measure depend on both • PM=PM(A,H) • If pay is a function of performance, then it is also a function of ability (A) and human capital (H) • Those with higher ability/skills can expect to earn more • ∆?????? ∆?? = ∆?????? ∆???? ?? ∆???? ∆?? > 0 ∆?????? ∆?? = ∆?????? ∆???? ?? ∆???? ∆?? > 0 • Employees will have greater motivation to invest in skills because return on skills will be higher if their performance is tied more strongly to pay [Show More]
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