Pay For Performance Incentive Rewards 41o5a

Pay-for-Performance: Incentive Rewards

Human Resources Management Reported by: BSBA students

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STRATEGIC REASONS FOR INCENTIVE PLANS: Variable Pay  also known as performance pay.  Is used to recognize and reward employee contribution above and beyond their normal job requirements, towards company productivity, profitability, quality and the like.

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PURPOSES OF INCENTIVE PROGRAM • Mutual Rewards

• Increased motivation • Increased company morale • Increased company loyalty • Increased productivity

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SUCCESSFUL INCENTIVE PLANS • Employees have a desire for an incentive plan. • Employees are encouraged to participate. • Employees see a clear connection between the incentive payments they receive and their job performance.

• Employees are committed to meeting the standards. • Standards are challenging but achievable. • Payout formulas are simple and understandable.

• Payouts are a separate, distinct part of compensation.

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INDIVIDUAL INCENTIVE PLANS • Straight Piecework An incentive plan under which employees receive a certain rate for each unit produced.

• Differential Piece Rate A compensation rate under which employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount. Page 5

INDIVIDUAL INCENTIVE PLANS Cont’d. • Standard Hour Plan A wage incentive plan in which standard work times are expressed as standard hours and the worker is paid for standard hours instead of the actual work hours.

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BONUSES • Bonus  Incentive payment that is supplemental to the base wage for cost reduction, quality improvement, or other performance criteria.

• Spot Bonus  Unplanned bonus given for employee effort unrelated to an established performance measure.

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MERIT PAY • Merit Pay Program  Merit pay refers to the process of determining employee compensation (base salary or bonuses), in part, on the basis of how well each employee performs at work.

• Merit Guidelines  Guidelines for awarding merit raises that are tied to performance objectives.

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Lump-Sum Merit Pay • Lump-sum Merit Program Program under which employees receive a year-end merit payment, which is not added to their base pay.

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Incentive Awards and Recognition • Awards  Often used to recognize productivity gains, special contributions or achievements, and service to the organization.

• Noncash Incentive Awards  Are most effective as motivators when the award is combined with a meaningful employee recognition program. Page 10

Sales Incentives Sales Incentive Plans

Straight Commission

Salary and Commission Combinations

Straight Salary

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Sales Incentives Cont’d • Straight Salary Plan  Salary Plan a sales force compensation method in which salespeople are paid a straight salary; a salary plan approach provides security and stability but may not provide the incentive associated with commission payments.

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Sales Incentives Cont’d • Straight Commission Plan  Salesperson compensation method in which only a percentage of the sales volume, but no fixed salary, is paid. • Combined Salary and Commission Plan  A compensation plan that includes a straight salary and a commission component (“leverage”). Page 13

Incentives for Professional Employees Managerial and Executive Incentives Bonuses and merit increases Double-track wage systems

Performance incentive bonuses Profit sharing and stock ownership Executive perquisites (perks) Page 14

Managerial and Executive Incentives • Executive Pay Package  is financial compensation received by an officer of a firm.  salary  short term incentives (STIs), sometimes known as bonuses  long-term incentive plans (LTIP) employee benefits  paid expenses (perquisites)  insurance

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Group Incentive Plans • Team Incentive Plans  are offering a reward to the entire group for generating positive results. When using a team-based incentive, it is important to be sure that everyone on the team is doing their part to help the group reach its goals.

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Group Incentive Plans Cont’d • Gainsharing Plans  A group incentive plan used to enhance productivity by sharing with a group a percentage of the gains the organization realizes from specific group efforts.

Scanlon Plan Rucker Plan (SOP) Improshare Page 17

GAINSHARING PLANS Scanlon Plan A gainsharing program in which employees share in specific cost savings that are due to employee effort. Rucker Plan (SOP) Based on a formula that relates labor costs to labor's share of production costs, or to a standard such as an economic productivity index. Improshare Workers share a fixed percentage of the savings resulting from production costs coming lower than a pre-established standard cost.

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Enterprise Incentive Plans • Profit Sharing  Any procedure by which an employer pays, or makes available to all regular employees, in addition to their base pay, current or deferred sums based upon the profits of the enterprise.

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Enterprise Incentive Plans Cont’d • Stock Options  Option that gives its holder the right to buy or sell a firm's common stock (ordinary shares) at a specified price and by a specified date.

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Enterprise Incentive Plans Cont’d • Employee Stock Ownership Plan (ESOPs)  A trust established by a corporate which acts as a tax-qualified, defined-contribution retirement plan by making the corporation's employees partial owners.

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