Chapter 10: Pay for Performance: Incentive Rewards Flashcards
What is variable pay?
Tying pay to some measure of individual, group, or organizational performance
How can incentive pay work to accomplish business strategy?
Incentive pay establishes a baseline performance level that employees must reach for incentive payment. Managers believe employees will assume ownership of their jobs to improve their performance and achieve the incentive
How should performance metrics be established?
They should be quantitative, simple, and structured to show a clear relationship to improved performance. Also keep in mind that what gets measured and awarded gets attention
What is “ratcheting up”?
When employers continually try to exceed previous results. This is undesirable because it leads to employee frustration and unattainable standards
What is straight piecework?
An incentive plan where employees receive a certain rate for each unit produced
What is a differential piece rate?
A compensation rate where employees whose production exceeds a standard amount of output receives a higher rate for all work than those who do not exceed the standard
What is a standard hour plan?
An incentive plan that sets rates based on the completion of a job in a predetermined standard time. If work is finished in less time, the pay is still based on the standard time multiplied by their hourly rate
What is a bonus?
An incentive payment supplemental to a base wage. Common among managerial and executives
What is a spot bonus?
An unplanned bonus given for employee effort unrelated to an established performance measure
What is a merit pay program?
Links an increase in base pay to how successfully an employee performs their job
What are merit guidelines?
Guidelines for awarding merit raises that are tied to performance objectives
What is a lump-sum merit program?
A program where employees receive a year-end merit payment which is not added to their pay
What is the benefit of lump-sum merit programs to employers?
It freezes base salaries so salary and benefits costs are maintained at a constant level
How can non-monetary incentives be most effective?
When the award is combined with a meaningful employee recognition program
What is a straight salary plan for sales?
A compensation plan that allows salespeople to be paid for performing various duties that are not immediately reflected in sales volume
What is a straight commission plan for sales?
A compensation plan based on a percentage of sales
What is a salary plus bonus plan for sales?
A compensation plan that pays a salary plus a bonus achieved by reaching targeted sales goals
What is a double-track wage system?
A pay system for professionals who do not aspire to become administrators so they still have an opportunity to earn comparable salaries
What are the 5 basic components of an executive compensation plan?
- Base salary
- Short-term incentives or bonuses
- Long-term incentives or stock plans
- Benefits
- Perquisites or “perks”
What are perquisites?
Special non-monetary benefits for executives like access to a health club, chauffeur, private plane, etc
What are stock options?
Rights given to executives to purchase shares of the organization’s stock at an established price for a fixed period
What are stock appreciation rights?
A cash or stock award determined by an increase in stock price during any time
What is phantom stock?
Granting of units equal in value to the book value of the stock. On a specified date, the executive is paid the appreciation in value of the units
What is restricted stock?
Grant of stock at a reduced price with the condition that it cannot be transferred or sold before a specified date
What are performance units?
They are analogous to annual bonuses except the measurement period exceeds one year. It can be expressed as a flat dollar amount or converted to a number of units
What are performance shares?
Grants of actual stock or phantom stock units whose value is contingent on predetermined performance objectives over a specified period of time and the stock market
What is a team incentive plan?
A compensation plan where all team members receive an incentive bonus payment when production or service standards are met or exceeded
What is a gainsharing plan?
A program under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability
What is profit sharing?
Any procedure by which an employer pays or makes available to regular employees special current or deferred sums based on the profits of the company
What are employee stock ownership plans?
Stock plans where an organization contributes shares of its stock to an established trust for the purpose of stock repurchases by employees
What is an employee stock bonus plan?
A stock ownership plan where an employer provides company shares to employees at no cost to the employee by simply granting them
What is an employee stock purchase plan?
A stock ownership plan where employees can purchase shares but they do not have to pay full market price
What is an employee stock option plan?
A stock ownership plan where employees are given the option to purchase shares at some future date at a set price
