Chapter 12: Pay-for-Performance and Financial Incentives

Question 1

Define Fixed Pay

Answer 1

Compensation independent of performance level

Question 2

Define Variable Pay

Answer 2

Any plan that ties pay to productivity or profitability

Question 3

List some organization wide incentive plans

Answer 3

• Merit Pay
• Profit sharing plans
• Employee share purchase/stock ownership plan
• Scanlon Plan
• Gainsharing Plan

Question 4

List some incentives for operations Employees

Answer 4

• straight piecework plan
• Guaranteed piecework plan
• Differential Piece-rate plan
• Standard hour plan
• Team or group incentive plan

Question 5

Incentives for management

Answer 5

short-term - Annual bonus

Long-term - Stock options, share units, relating strategy to executive compensation

Question 6

Incentives for sales people: Salary plan

Answer 6

Adv:

• Works for prospecting and account servicing.
• Salespeople know their income in advance.
• Easy to reassign sales people.
• Enhances long-term perspective.

Dis:

• High performance not recognized/rewarded.
• Salary usually based on seniority, demotivating for high performing salespeople.

Question 7

Incentives for salespeople: Commission Plan

Answer 7

Adv:
- Greatest incentive, attracts high performing salespeople.
- Sales costs proportion to sales level.
- Easy to understand/compute
Dis:
- Focus on sales, not customer relationships
- Variances in income among sales people
- Sales people may neglect other duties

Question 8

Incentive Plans for Salespeople: Combination Plan

Answer 8

Adv:
-Earnings floor.
- Allows compensation for administrative work.
Dis:
- May be a compromise.
- Often confusing to calculate.