Pay for- performance: Incentive Rewards

Human Resources ManagementHuman Resources Management
Reported by: BSBA studentsReported by: BSBA students
Pay-for-Performance:
Incentive Rewards

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.

PURPOSES OF INCENTIVE PROGRAM
• Mutual Rewards
• Increased motivation
• Increased company morale
• Increased company loyalty
• Increased productivity

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.

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.

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.

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.

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.

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.

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.

Sales Incentives
StraightStraight
CommissionCommission
Sales Incentive PlansSales Incentive Plans
StraightStraight
SalarySalary
Salary andSalary and
CommissionCommission
CombinationsCombinations

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.

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”).

Double-track wage systemsDouble-track wage systemsDouble-track wage systemsDouble-track wage systems
Profit sharing and stock ownershipProfit sharing and stock ownershipProfit sharing and stock ownershipProfit sharing and stock ownership
Bonuses and merit increasesBonuses and merit increasesBonuses and merit increasesBonuses and merit increases
Performance incentive bonusesPerformance incentive bonusesPerformance incentive bonusesPerformance incentive bonuses
Executive perquisites (perks)Executive perquisites (perks)Executive perquisites (perks)Executive perquisites (perks)
Incentives for Professional Employees
Managerial and Executive IncentivesManagerial and Executive IncentivesManagerial and Executive IncentivesManagerial and Executive Incentives

Managerial and Executive IncentivesManagerial 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

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.

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.
Rucker Plan (SOP)
Scanlon Plan
Improshare

GAINSHARING PLANS
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.
Scanlon Plan A gainsharing program in which employees share in
specific cost savings that are due to employee effort.
Improshare Workers share a fixed percentage of the savings resulting
from production costs coming lower than a pre-established standard
cost.

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.

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.

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.

Pay for- performance: Incentive Rewards

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