Chapter 12 Flashcards
What is variable pay?
Tying pay to some measure of individual, group, or organizational performance.
Also referred to as incentive pay and performance pay
Purposes:
To motivate employees to assume “ownership” of their jobs, thereby improving effort and job performance.
Support a compensation strategy to retain and reward top-performing employees.
Can foster teamwork if incentives are group-based.
What are the types of an individual based inventive plan?
Piecework Standard hour plan Bonuses Merit pay Competency-based pay Sales incentives Executive compensation Non-financial awards (recognition)
What are some of the group and organization based incentive plans?
Group-level Team compensation Gainsharing (may also be on an individual basis) Organization-level Profit sharing Stock options Employee stock ownership plans (ESOPs)
What is piecework incentive pay?
a system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day
Straight Piecework Plan:
a set payment for each piece produced or processed in a factory or shop
Guaranteed Piecework Plan:
the minimum hourly wage plus an incentive for each piece produced above a set number of pieces per hour
What is Standard Hour Plan?
A plan by which a worker is paid 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.
What are bonuses?
Short-term incentive – usually on an annual basis
Bonus is usually given based on individual performance (but not always) and is not permament (may get it one period but not the next).
What is merit pay?
Also known as a raise
Any salary increase awarded to an employee based on his or her individual performance
Not to be confused with cost of living increases. However, it often is.
Increase is permanent.
Often linked to performance appraisals.
Often a sense of entitlement develops.
What is competency based pay?
individual knowledge, skills and behaviours that are critical to successful individual or corporate performance
pay for range, depth and types of knowledge that employees are capable of using, rather than current job duties
Also known as skill-based pay
What are incentives for salespeople?
Salary plan
Commission plan
Combination plan
What are some of the advantages and disadvantages of the salary plan?
Advantages:
Encourages building customer relationships.
Reduces employee competition and improves teamwork and cooperation.
Provides compensation during periods of poor sales.
Reduces turnover.
Disadvantages:
May not provide sufficient motivation for maximizing sales volume.
Higher fixed costs to the employer
What are the pros and cons of the commission plan?
Compensation plan based upon a percentage of sales.
Advantages are:
Links strongly with performance
Minimizes employers obligation to pay employee in bad economic times
Disadvantages of straight commission incentive
Emphasis is on sales volume rather than on profits.
Customer service after the sale is often neglected.
Earnings tend to fluctuate widely between good and poor periods of business.
What is a combination plan?
A compensation plan that includes a straight salary and a commission component.
Advantages
Combines the advantages of straight salary and straight commission forms of compensation.
Motivates sales force to achieve specific company marketing objectives in addition to sales volume.
Disadvantage:
Can be complicated, if formula changes often.
What is the pay for managerial and professional jobs?
Salary (market pricing) Benefits Short-term incentives Long-term incentives Perquisites (aka: perks)
What are awards?
Often used to recognize productivity gains, special contributions or achievements, and service to the organization.
Employees feel appreciated when employers tie awards to performance and deliver awards in a timely, sincere and specific way.
Are most effective as motivators when the award is combined with a legitimate and meaningful employee recognition program.
What are team-based incentives?
It is a plan in which a production standard is set for a specific work group and its members are paid incentives if the group meets or exceeds the production standard
Can be similar to a bonus but based on group performance
