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Introduction
Operations management deals with management of a production process of goods and services in an organization. Operations function is central to any business because it deals with merchandise.
As a whole, operations management contributes to the organizational strategy through cost reduction, customer satisfaction, reduction of risks resulting from operation failures, reduction of the amount of investment, and providing a basis for future innovation.
Employees are useful determinants of success of an organization. They need to be adequately motivated to ensure execution duties in the organization’s strategic plan.
Equity theory
Pay satisfaction is a central element of employee attraction and retention. Pay adequacy and equity are the determinants of pay satisfaction.
Equity theory requires employees to be evaluated through comparison of the ratio of their inputs and outputs with the ratio of input and output of other employees. The inputs take different forms. For instance, what the job contributes, extra role behavior exhibited by the employee and personal contributions.
How to distribute the pay rise
In most cases, the management distributes annual pay rise uniformly to all employees. In such cases, it is computed as a percentage increase of current salaries of the employees. However, the hard working employees might feel unmotivated since non hard working employees also receive the same share. As an alternative, management often distributes the pay rise based on performance of the employees.
This ensures equitable distribution of the pay rise. There are steps that the engineering manager needs to follow to achieve this equitable distribution. First, the manager needs to come up with a budget for the pay rise. Assume that the department intends to spend $10,000 on the pay rise this year. Second, the manger should distribute the annual rise based on the results of performance reviews conducted recently.
The analysis assumes that the total number of employees in the department is 10. The table shows the ratings of employees during the previous performance review. It also shows the distribution of pay rise.
From the table above, employees in “excellent” category receive 16% of the total budget of the increase. In “average” category receives 9% and in “marginal” category receives 5% of the total budget. This distribution can further be differentiated according to each employee’s ratings. The strong performers receive more than weak performers in each category. The table shows these adjustments.
In the above table, the salary increment is further differentiated so that employees who scored more receive more salary increment. The last column shows the amount which each employee receives from the increment.
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