EMPLOYEE

COMPENSATION
MGT
EMPLOYEE INCENTIVES PLANS
BY
Claudia Ahumuza
Lecturer Human Resource Department-MUBS
 INTRODUCTION
• Employee incentives: All measures used to motivate employees to improve their
performance: Incentives are also known as variable pay programmes given to
employees of a company. This is because they are not fixed payments.
• They consist of : Bonuses, incentives and recognition.
• Employee incentive are classified into two forms: Financial & Non- financial
incentives.
• Employee incentive plans reward employees for their continued contribution to
the organization. Thus both the employee and the organization come out as
winners.
• Types of employee incentives: Individual, Group and organizational/enterprise
incentives.
 FINANCIAL INCENTIVES
• These are in direct monetary form or
measurable in form of money and motivate
people for better performance.
•Bonuses
•Profit sharing
•salary increment
•stock options
•retirement benefits.
•Allowances
 NON-FINACIAL INCENTIVES
All needs of individuals which are not satisfied
by money alone. These include psychological,
social and emotional factors which motivate and
influence people’s performance.
These include the following
•Status( Authority, Responsibility)
•Organizational climate( this indicates
organizational x-tics i.e. employee autonomy)
 NON-FINANCIAL
INCENTIVES CONT’D
•Employee recognition(a ward certificates for best performers,
Display in co news paper or notice boards),
•Career advancement( Like promotions to higher level positions),
•Job enrichment,
•Job security,
•Employee participation,
•Employee empowerment
 WHY EMPLOYEE
INCENTIVES
• They align employee efforts with organizational goals and objectives. this is
because both the employee and the organization come out as winners.
• Flexible Vs. Fixed pay; Employee incentives vary depending on how much output
an employee has. Thus they earn more on top of their fixed pay.
• Pay for performance based on achieving goals and objectives. This makes
employees work even harder since they will be compensated for the extra efforts.
• Fosters team work and cohesiveness especially if they are group incentive plans.
• It form of distributed success towards employee efforts to achieve organizational
goals.
 WHY EMPLOYEE INCENTIVES
CONT’D
• Increase equity & justice in the company; Employees
become more accountable for the work that is assigned to
them so that they are able to meet company goals and
objectives.
• Attract and retain top performers.
 DESIGNING AN EMPLOYEE
INCENTIVE PLAN
• Continuous communication to employees in case they
need clarity or guidance oh how to achieve targets.

• NB: Employees must believe in the incentive policy.

 Measurement Dos
Individual Group Organizational
Quantitative & Group Organizationally
Simple work interdependent interdependent
work work
Do Measure Work Results that
independent of employees can
others’ control
contribution
That shows That shows That shows
relationship relationship relationship
between work between work between work
and performance and performance and performance
 Measurement Don'ts

Individual Group Incentives Organizational

Incentives incentives
Don’t Measure Depending on who Without considering Unless there is a
you like or dislike performance of mechanism for
other teams disciplining slakers
disciplining

Based on political Unless there is a Without considering

preferences. mechanism for the effects of the
disciplining slakers environment
disciplining

Without considering
contributions of
peers.
 TYPES/CLASSIFICATION OF INCENTIVE
PLANS

• INDIVIDUAL:
 Piece work; this has two forms
 Straight eg Each piece of chair you make earns you extra 10$.
 Differential Piece rate: eg Make 30 Chairs and earn 100$ then earn 30 dollars for each
extra chair made on top of the 30.
 Standard hour plans: Most common in Construction and mechanical work. This looks at
how much time an employee takes to complete their work. Ie 5hrs get 500 dollars even if the
work is completed in 3 hrs the employee still gets 500$. However quality should be
considered.
 Bonuses; These are given on top of employees fixed salary.
 Merit Pay: This given to employees who meet their targets. It affects the basic pay however
if the performance of such employee drops down the merit pay is also revised accordingly .
 INDIVIDUAL INCENTIVE
PLANS CONT
 Awards & Recognition: ie Best customer service, employee of the
month etc.
 Sales Incentive plans:
 Straight Salary Plans: This means there is a standard pay for the sales
staff even if they have not made any sales especially if times are tough.
 Straight commission plans: Here employees earn extra pay-out on
each sale they make.
 Combined: ie 25% on each sale made but when the employee has a basic
pay.
 GROUP INCENTIVE PLANS
 Team Compensation: Incentive pay-out for team base on their
performance. Note; Set performance measures, determine the size of
the incentive bonus and pay-out formula is defined & communicated
to the team members.
 Gain Sharing: This involves both the company and the employees
having a common goal. Thus once the objectives have been met the
pay-out formular is determined. Eg what it costs in terms of input to
get out put. Thus here the company gets more out put using less
input.
 ORAGNIZATIONAL/
ENTERPRISE INCENTIVE
PLANS
• All organizational members participate in the compensation pay out.
• Its based on the organization’s success over a specific time period.
• Culture of ownership
These include:
 Profit Sharing:
 Stock options these are offered at reduced fixed rates. Employees buy stock
in the company. This make them have a sense of ownership in the company.
 Employee stock ownership options: This is given by the employer to the
employees account and when the are leaving they take that stock.
CHALLENGES OF IMPLEMENTING
EMPLOYEE INCENTIVES
• Class discussion