10 - Incentives

Question 1

What is incentive pay?

Answer 1

Forms of pay linked to an employee’s performance as an individual, group member, or organization member.

Question 2

Why is incentive pay influential?

Answer 2

Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes.

Question 3

What requirements do the effective incentive pay plans meet?

Answer 3

1. Performance measures are linked to the organization’s goals.
2. Employees believe they can meet performance standards.
3. The organization gives employees the resources they need to meet their goals.
4. Employees value the rewards given.
5. Employees believe the reward system is fair.
6. The pay plan takes into account that employees may ignore any goals that are not
   rewarded.

Question 4

What are the types of pay for individual performance?

Answer 4

• piecework rate
• standard hour plans
• Merit pay
• individual bonuses
• sales commissions

Question 5

What is piecework rate?

Answer 5

A wage based on the amount workers produce.

Question 6

What is straight piecework plan?

Answer 6

Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces.

Question 7

What are differential piece rates?

Answer 7

Incentive pay in which the piece rate is higher when a greater amount is produced.

Question 8

What is a standard hour plans?

Answer 8

• An incentive plan that pays workers extra for work done in less than a preset “standard time”.
• These plans are much like piecework plans.
• They encourage employees to work as fast as they can, but not necessarily to care about quality or service.

Question 9

What is merit pay?

Answer 9

• A system of linking pay increases to ratings on a performance scale.
• They make use of merit increase grid.
• The system gives the lowest paid best performers the biggest pay increases.

Question 10

What are performance bonuses?

Answer 10

• Not rolled into base pay.
• The employee must re-earn them during each performance period.
• Sometimes the bonus is a one-time reward.
• Bonuses may also be linked to objective performance measures, rather than subjective
  ratings.

Question 11

What are commissions?

Answer 11

• Incentive pay calculated as a percentage of sales.
• Some sales people earn a commission in addition to a base salary.
• Straight commission plan: some salespeople earn only commissions.
• Some salespeople earn no commissions at all, but a straight salary.

Question 12

What are the types of pay for group performance?

Answer 12

Gainsharing, bonuses, team awards.

Question 13

What is gainsharing?

Answer 13

• Group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees.
• Gainsharing frees employees to determine how to improve their own and their group’s performance.

Question 14

What are bonuses?

Answer 14

• Bonuses for group performance tend to be for smaller work groups.
• These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output.

Question 15

What are team awards?

Answer 15

• Similar to group bonuses, but are more likely to use a broad range of performance measures:
  o Cost savings
  o Successful completion of a project o Meeting deadlines

Question 16

What are the types of pay for organisational performance?

Answer 16

Profit sharing, stock options, employee stock ownership plans (ESOPs).

Question 17

What is profit sharing?

Answer 17

Incentive pay in which payments are a percentage of the organisation’s profits and do not become part of the employee’s’ base salary.

Question 18

What are stock options?

Answer 18

Rights to buy a certain number of shares of stock at a specified price.

Question 19

What are employee stock ownership plans (ESOPs)?

Answer 19

Arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.

Question 20

What is a balanced scorecard?

Answer 20

Combination of performance measures directed toward the company’s long and short term goals and used as the basis for awarding incentive pay.
It combines the advantages of different incentive pay plans.
It helps employees understand the organization’s goals.
By communicating the balanced scorecard to employees, the organization shows employees information about what its goals are and what it expects employees to accomplish.

Question 21

What are the four categories of a balanced scorecard?

Answer 21

• Financial
• Customer
• Internal
• Learning and growth

Question 22

What are incentive pays for executives?

Answer 22

Incentive pay for executives lays the groundwork for significant ethical issues.
When an organization links pay to its stock performance, executives need the courage to be honest about their company’s performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings.