Chapter 12: Pay For Performance and Financial Incentives Flashcards
Types of Incentive Plans
- incentives for all employees
- incentives for professional employees
- incentives for operations employees
- incentives for senior managers and executives
- Incentives for sales people
Merit Pay
any salary increase that is awarded to an employee based on their individual performance
Employee Share Purchase/Stock Ownership Plans (ESOPs)
a plan whereby a trust is established to hold shares of a companys’ stock purchase for or issued to employees. The trust is distributed to employees on retirement, other separation from services or as prescribed by the plan
Profit Sharing Plan
a plan where most or all employees receive a share of the company’s profits
Incentives for All Employees
- merit pay
- employee share purchase/stock ownership plans
- profit sharing plan
Incentives for Professional Employees
- dual career ladders
- recognition programs
- social recognition programs
- performance feedback
Dual Career Ladders
employers institute one career path for managers and another for technical experts, allowing the latter to earn higher pay without switching to management
Recognition Programs
formal programs, such as employee of the month
Social Recognition Programs
informal manager-employee exchange
Performance Feedback
providing quantitative and qualitative information on tasks
Incentives for Operations Employees
- piecework
Piecework
a system based on the number of items produced by each individual worker in a unit of time
Straight Piecework Plan
a set payment for each piece produced
Key Position
Job by job review is conducted to identify the key jobs that have a measurable impact on profitability
Salary Level
all employees earning over the threshold amount are automatically eligible for consideration of short-term incentive funds
Salary Grade
assumes that all employees at a certain grade or above should be eligible for the short term incentive program
Fund Size
the total amount of bonus money that will be available
Non-Deductible Formula
a straight percentage used to create the short-term incentive fund
Deductible Formula
the assumptions that the short-term incentive funds should begin to accumulate only after the firm has met a specified level of earnings
Split Award Method
breaks the bonus into two parts. the manager gets two separate bonuses, one based on individual efforts and one based on the organization’s overall performance
Multiplier method
the bonus is a product of the individual and corporate performance
Capital Accumulation Programs
long-term incentives most often reserved for senior executives
Stock Options
The right to purchase a stated number of shares of a company’s stock at today’s price at some point in time in the future
Plans Providing Share Units
Executives are granted a specific number of units equal to a company’s share price
- performance share unit plan
- restricted share unit plan
- deferred unit share plan
Performance Share Unit Plan
provides share units subject to the achievement of predetermined financial targets
Restricted Share Unit Plan
units are promised to the executive but will be forfeited if an executive leaves the company before a vesting period
Deferred Unit Share Plan
units are promised to the executive but are only payable when the executive leaves the company
Golden Parachutes
a payment companies make in connection with a change in ownership or control of the company
Incentives For Salespeople
- salary plan for sales people
- commission plans for sales people
- combination plans for sale people
Salary Plan for Salespeople
salespeople are paid a fixed salary although there may be occasional incentives in the form of bonuses, sales prizes, etc.
Commission Plans for Salespeople
pay in direct proportion to their sales
Combination Plans for Salespeople
Base pay and commission
