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12 Pay For Performance and Financial Incentives

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112 views14 pages

12 Pay For Performance and Financial Incentives

Uploaded by

Silvia M
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Human Resource

Management
ELEVENTH EDITION
1
GARY DESSLER

Part 4 | Compensation

Chapter
12
Pay for Performance and
Financial Incentives

© 2008 Prentice Hall, Inc. PowerPoint Presentation by Charlie Cook


All rights reserved. The University of West Alabama
After studying this chapter, you should be able to:

1. Discuss the main incentives for individual employees.


2. Discuss the pros and cons of incentives for
salespeople.
3. Name and define the most popular organizationwide
variable pay plans.
4. Describe the main incentives for managers and
executives.
5. Outline the steps in developing effective incentive
plans.

© 2008 Prentice Hall, Inc. All rights reserved. 12–2


Motivation, Performance, and Pay
• Incentives
 Financial rewards paid to workers whose production
exceeds a predetermined standard.

• Frederick Taylor
 Popularized scientific management and the use of
financial incentives in the late 1800s.
 Systematic soldiering
 Fair day’s work

© 2008 Prentice Hall, Inc. All rights reserved. 12–3


Employee Incentive Plans

Individual Employee Incentive


and Recognition Programs

Sales Compensation
Programs

Pay-for-Performance Team/Group-based Variable


Pay Programs
Plans
Organizationwide Incentive
Programs

Executive Incentive
Compensation Programs

© 2008 Prentice Hall, Inc. All rights reserved. 12–4


Incentives for Salespeople
• Salary Plan
 Straight salaries
 Best for: prospecting (finding new clients), account
servicing, training customer’s salesforce, or participating in
national and local trade shows.
• Commission Plan
 Pay is a percentage of sales results.
 Keeps sales costs proportionate to sales revenues.
 May cause a neglect of nonselling duties.
 Can create wide variation in salesperson’s income.
 Likelihood of sales success may be linked to external factors
rather than to salesperson’s performance.
 Can increase turnover of salespeople.

© 2008 Prentice Hall, Inc. All rights reserved. 12–5


Incentives for Salespeople (cont’d)
• Combination Plan
 Pay is a combination of salary and commissions,
usually with a sizable salary component.
 Plan gives salespeople a floor (safety net) to their
earnings.
 Salary component covers company-specified service
activities.
 Plans tend to become complicated, and
misunderstandings can result.

© 2008 Prentice Hall, Inc. All rights reserved. 12–6


Specialized Combination Plans
• Commission-plus-Drawing-Account Plan
 Commissions are paid but a draw on future earnings
helps the salesperson to get through low sales
periods.
• Commission-plus-Bonus Plan
 Pay is mostly based on commissions.
 Small bonuses are paid for directed activities like
selling slow-moving items.

© 2008 Prentice Hall, Inc. All rights reserved. 12–7


Team/Group Incentive Plans
• Team (or Group) Incentive Plans
 Incentives are based on team’s performance.

• How to Design Team Incentives


 Set individual work standards.
 Set work standards for each team member and then
calculate each member’s output.
 Members are paid based on one of three formulas:
 All receive the same pay earned by the highest producer.
 All receive the same pay earned by the lowest producer.
 All receive the same pay equal to the average pay earned
by the group.

© 2008 Prentice Hall, Inc. All rights reserved. 12–8


Team/Group Incentive Plans (cont’d)
• Pros
 Reinforces team planning and problem solving
 Helps ensure collaboration
 Encourages a sense of cooperation
 Encourages rapid training of new members

• Cons
 Pay is not proportionate to an individual’s effort
 Rewards “free riders”

© 2008 Prentice Hall, Inc. All rights reserved. 12–9


Organizationwide Incentive Plans
• Employee Stock Ownership Plan (ESOP)
 A firm annually contributes its own stock—or cash
(with a limit of 15% of compensation) to be used to
purchase the stock—to a trust established for the
employees.
 The trust holds the stock in individual employee
accounts and distributes it to employees upon
separation from the firm if the employee has worked
long enough to earn ownership of the stock.

© 2008 Prentice Hall, Inc. All rights reserved. 12–10


Gainsharing Plans

Scanlon Plan

Philosophy Sharing of
Involvement
of Identity Competence Benefits
System
Cooperation Formula

© 2008 Prentice Hall, Inc. All rights reserved. 12–11


At-Risk Variable Pay Plans
• Put some portion of the employee’s
weekly pay at risk.
 If employees meet or exceed their goals,
they earn incentives.
 If they fail to meet their goals, they forgo
some of the pay they would normally have
earned.

© 2008 Prentice Hall, Inc. All rights reserved. 12–12


Incentives for Managers and Executives
• Short-Term Incentives: The Annual Bonus
 Plans that are designed to motivate short-term
performance of managers and are tied to company
profitability.

• Issues in Awarding Bonuses


 Eligibility basis

 Fund size basis

 Individual awards

© 2008 Prentice Hall, Inc. All rights reserved. 12–13


KEY TERMS

financial incentives merit pay (merit raise)


fair day’s work team or group incentive plan
scientific management organization wide incentive plans
expectancy profit-sharing plan
instrumentality employee stock ownership plan (ESOP)
valence Scanlon plan
behavior modification gainsharing plan
variable pay at-risk variable pay plans
piecework annual bonus
straight piecework stock option
standard hour plan golden parachutes

© 2008 Prentice Hall, Inc. All rights reserved. 12–14

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