Chapter 11 Flashcards
Describe Pay-for-Performance Plans?
- pay that varies with some measure of individual OR organizational performance
- also called variable pay plans & at-risk pay plans
- these plans have a positive impact on performance IF they are designed well
List the 4 types of Pay-for-Performance Plans?
- Short term (S - TIP)
- Long term (L - TIP)
- Group
- Individual
What are concerns about Pay-for-Performance Plans?
- ALWAYS look for potential unintended consequences
- Enron
- Chandelier factory
- Competition among employees, etc
- Assume: People WILL game the system if possible
What are rewards from Short Term Individual: Pay-for-Performance Plans?
- Merit Pay
- Lump-Sum Bonuses
- Individual Spot Awards (“on-the-spot”)
- Individual Incentives
Discuss Piecework/ Halsey 50-50.
Straight piecework – 1 rate Taylor – 2 rates Merrick – 3 rates Halsey – 50-50 : Share savings (time per unit of production)
What is Standard Hour Plan?
Non-repetitive
Multi-skill
Long cycle- time jobs
What are some Advantages of Individualized Incentive Plans?
Substantial contribution to:
- increased productivity
- lower production costs
- increased earnings of workers
- less direct supervision is required to maintain output than under pay for time
- payment for results: enable labour costs to be estimated more accurately than under pay for time
helps costing and budget control
What are Disadvantages of Individualized Incentive Plans?
- Conflict: output volume vs quality
- New technology: may be resisted by employees concerned about the impact on production standards
reduced willingness of employees to suggest new production methods for fear of subsequent increases in production standards - increased complaints that equipment is poorly maintained, hindering employee efforts to earn larger incentives
- increased turnover among new employees discouraged by the unwillingness of experienced workers to cooperate in on-the-job training
elevated levels of mistrust between workers and management
What are types of Team / Group Incentive Plans?
- Profit Sharing Plans
- Gain-Sharing Plans
- Earnings-at-Risk Plans (Note: 2 meanings for this term – text p.261 vs usual meaning here in Canada)
What are Customer-Focused Measures?
Time to Market Measures On time delivery Cycle time New product introductions Customer Satisfaction Measures Market share Customer satisfaction Customer growth and retention Account penetration
What are Financially-Focused Measures?
Value Creation Revenue growth Resource yields Profit margins Economic value added Shareholder Return Return on invested capital Return on sales / earnings Earnings per share Growth in profitability
What are Capability-Focused Measures?
HR Capabilities Employee satisfaction Turnover rates Total recruitment costs Rate of progress on developmental plans Promotability index Staffing mix/head-count ratio Other Asset Capabilities Patents and copyrights Distribution systems
What are Internal Process-Focused Measures?
Resource Utilization Budget-to-actual expenses Cost allocation ratios Reliability / rework Accuracy / error rates Safety rates Change Effectiveness Program implementation Teamwork effectiveness Service / quality index
What are 4 Sample Group/Team Performance Measures?
Customer-Focused
Internal Process-Focused
Capability-Focused
Financially-Focused
What are Different Types of Variable Pay Plans?
Cash Profit Sharing Stock Ownership or Options Balanced Scorecard Productivity / Gain- Sharing Team / Group Incentives
Discuss Balanced Score Card.
Four Perspectives (Kaplan & Norton 1992/ 1996):
- Financial
- Customer
- Internal business processes
- Learning and growth (Many versions of this in use)
Discuss Gain-Sharing Plans.
Under gain-sharing plans, employees share in cost-savings or productivity gains as measured by a predetermined, gain-sharing formula
Helps isolate problem areas
What are Key Elements in Designing a Gain-Sharing Plan and Formula?
strength of reinforcement productivity standards (historical std?) scope of the formula perceived fairness of the formula ease of administration production variability
Describe Scanlon Plans.
SVOP: Sales Value of Production
SVOP = Sales Revenue + Value of goods in inventory
Use historical data to determine ratio:
Total Wage Bill/SVOP
Describe Improshare.
Use historical production data or time and motion studies
Like a group Halsey plan – savings shared 50-50
Define Profit-Sharing Plans.
variable pay plans requiring a corporate profit target to be met before any payouts occur
What is Earnings-at-Risk Plans?
incentive plans sharing profits in successful years and reducing base pay in unsuccessful years
Example: Base pay reduced 15% across the board. Employees are then given .5% increase for every % of productivity above 70% of last year’s productivity.
At last year’s production level, ees break even.
Production above last yr’s level is rewarded with x % increase in pay.
What are the Advantages of Group Incentive Plans?
- positive impact on organization and individual performance
- easier to develop performance measures than for individual plans
- signals that cooperation, both within and across groups, is a desired behaviour
- teamwork supported by most employees
may increase participation of employees in decision making process
What are the Disadvantages of Group Incentive Plans?
line of sight may be lessened
employees may find it more difficult to see how their individual performance affects their incentive payouts.
may lead to increased turnover among top individual performers because they must share with lesser contributors
increases compensation risk to employees because of lower income stability
