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Pay-for-Performance Plans Summary

The document summarizes various short-term pay-for-performance plans including merit pay, lump-sum bonuses, spot awards, individual and team incentives, gain sharing, and profit sharing. Each plan is defined along with its advantages and disadvantages, highlighting aspects such as cost-effectiveness, motivation, and potential issues like fairness and entitlement. Overall, the summary provides insights into how these compensation strategies can impact employee performance and organizational culture.

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Britney Bissambhar
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15 views2 pages

Pay-for-Performance Plans Summary

The document summarizes various short-term pay-for-performance plans including merit pay, lump-sum bonuses, spot awards, individual and team incentives, gain sharing, and profit sharing. Each plan is defined along with its advantages and disadvantages, highlighting aspects such as cost-effectiveness, motivation, and potential issues like fairness and entitlement. Overall, the summary provides insights into how these compensation strategies can impact employee performance and organizational culture.

Uploaded by

Britney Bissambhar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Short-Term Pay-for-Performance Plans Summary

Merit Pay
Definition:
Base pay increases linked to performance evaluation ratings.

Advantages:
Small but positive impact on performance. Motivates and retains high performers. Creates sorting effect.

Disadvantages:
Expensive (compounds in base pay). Rating accuracy issues. Weak motivation if raise gap is small.

Lump-Sum Bonuses
Definition:
Year-end bonuses based on performance; not added to base pay.

Advantages:
Cost-effective. Breaks entitlement culture.

Disadvantages:
Less appealing to employees. No long-term salary benefit.

Spot Awards
Definition:
Immediate rewards for exceptional performance.

Advantages:
Timely and simple. Highly effective if well-implemented.

Disadvantages:
May feel unfair if poorly managed. Potential subjectivity.

Individual Incentives
Definition:
Pre-set performance targets determine bonus pay.

Advantages:
Boosts productivity. Less need for supervision. Accurate budgeting.

Disadvantages:
May harm quality. Tech resistance. Trust and teamwork issues.

Team Incentives
Short-Term Pay-for-Performance Plans Summary
Definition:
Rewards based on team performance vs. set goals.

Advantages:
Promotes teamwork and problem-solving. Matches team-based work structures.

Disadvantages:
Free-riders. Difficult to manage fairly. May cause unhealthy competition.

Gain Sharing
Definition:
Employees share in improvements in operating measures.

Advantages:
Cuts costs, boosts productivity. Increases business knowledge and collaboration.

Disadvantages:
Complex admin. Needs open financials. Risk of unintended effects.

Profit Sharing
Definition:
Bonuses tied to overall company profitability.

Advantages:
Easy to understand. Builds 'one-team' culture. Low admin cost.

Disadvantages:
Weak individual motivation. Profits = external factors. Can feel like entitlement.

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