XYZ Ltd.has just introduced a performance-based reward system for all production employees.The plan pays employees a team-based bonus based on the reduction of labor costs per unit in the production department.Describe three strategies to ensure that this and other performance-based reward systems are effective.Your answer should also briefly state the type of reward system used by XYZ Ltd.

XYZ Ltd.has introduced a form of gainsharing plan.By identifying ways to reduce labor and/or material costs, employees share subsequent financial gains with the company using a predetermined formula.Bonuses are distributed monthly or quarterly and some of the money is withheld in case productivity falls.The textbook describes five ways to improve performance-based reward systems.To answer this question, students can describe any three of these problems with specific reference to this gainsharing plan.
Link rewards to performance.One common problem is that many companies have a poor pay-for-performance linkage.This is less of a problem with gainsharing plans because rewards are linked to performance (reduced labor costs) through an objective formula.This minimizes bias and politics.However, students might note that gainsharing formulas might be flawed, and they might suggest ways to minimize these errors.
Ensure that rewards are relevant.The production group might perform better simply because situational factors are operating in their favor.For example, they might increase labor efficiency because of a falling currency or the introduction of new technology.
Use team rewards for interdependent jobs.Labor efficiency in the production department might be affected by people in other departments.For example, labor efficiency might drop because the purchasing department ordered the wrong supplies.
Ensure that rewards are valued.Many so-called rewards don't motivate employees because they aren't valued by the people who receive them.As an example, many production employees at XYZ Ltd.might prefer time off with pay rather than a financial bonus.
Watch out for unintended consequences.Performance-based reward systems sometimes influence different behaviors than management intended.For example, XYZ Ltd.'s gainsharing plan might motivate employees to waste and misuse materials in order to reduce labor costs.