人事经济学（院选）Chapter 10 Rewarding Performance.pptx

Chapter 10 Rewarding Performance Introduction After performance evaluation, how should the firm use the evaluation to motivate the employee? The most important reason to tie pay to performance is to increase employee effort and better align it with firm interests, and that is the focus in this chapter. We care about how the employee’s evaluation varies with effort, and how pay varies with the evaluation. Question: How should the firm vary with the performance evaluation? Three-Step Process for Design a Compensation Plan How Strong Should Incentives Be? Although performance may depend on multiple types of effort, for now consider the simplest case: the employee provides only a single kind of effort, e, on the job. The task of the incentive system is to motivate additional effort, until the point where it is too costly to do so. The company sells its computers for ＄10,000 each, and the cost is ＄9,000 each. The marginal profit on each computer sale is ＄1,000. Question: Which level of sales is the optimal? What Is the Optimal Commission? Suppose first that the salesperson was paid a commission of 8%, or ＄800 per computer. The salesperson would provide effort up to sales of 20 computers, but would be unwilling to go beyond that amount. In such a case, profit opportunities are lost, because sales are two low(less that 25). If the company raised the commission a little, the salesperson would be willing to work a little harder, and profits would increase. Question: What is the limit of commission should the firm raise? Or what is the optimal commission? Incentive Intensity The optimal commission rate exactly equals the value of the extra output. In other words, the optimal commission rate is set so that the employee equates total marginal costs, including effort, to total marginal benefits: The optimal commission gives all of the incremental profits from computer sales to the employee. In effect, it rescales the performance measure into units of profit. The optimal schem