1. Using equity theory and expectancy theory, discuss the potential advantages of MGOA proposed pay-for-performance compensation system relative to the current base-pay compensation system (2×2=4 points).
The advantages for a pay-for-performance compensation system would lead to repeated positive performance. This is because the doctor’s pay would correlate directly with the number of surgeries they can perform in a given quarter. This compensation system would reduce the protection provided to low performers; the individual would be compensated based on their activity and not spread amongst the group.
The doctors knowing this would be motivated to work more efficiently instead of relying on the base pay they have grown accustomed to. It would provide a sense of responsibility for their own actions, since they would be expected to bring in enough revenue for the company. Failure to do so would result in repayment for the deficit and the blame could not be passed on to other doctors since it is based on individual performance.
In another view it would also provide a decent reward system, for those who out perform their duties. Since there pay would reflect their efficiency, those who over perform can be expected to compensate for their work further fueling their motivation.
2. MGOA has hired you as a consultant to get a second opinion on the proposed pay-for-performance compensation system before implementing it. Please address the following two issues:
a. Discuss TWO potential problems associated with MGOA’s proposed pay-for-performance compensation system. Be sure to justify your answers (3×2=6 points).
Although there are advantages to this form of compensation, pay-for-performance also has some downsides. Employee may become goal oriented to fulfill a requirement and develop single-mindedness. Doctors would be come caught up with the financial incentives that they begin taking shortcuts and try to speed up their procedure to meet their quota. This presents a great liability; doctors who overwork themselves tend to make more mistakes. Which could lead to potential lawsuits and more expenses to the firm. This would bring more harm then good if doctors become more careless with their procedures.
This leads up the other potential problem, the quality of the work the doctors put in. With a performance-based compensation, the expectation would shift form quality work to quantity of work. Doctors would have more of incentive to handle surgeries more quickly, which would result in poor judgment and increase of liabilities.
b. Recommend a solution to each of the problems you have identified. Be as specific as possible in your recommendations (3×2=6 points)
A solution to prevent single mindedness activity, I would propose that doctors are given a cap on the