Pay for Performance: Incentive Rewards

Question 1

Variable pay vs incentive plans:

Answer 1

VariablePay: Tying pay to some measure of individual, group, or organizational performance

Incentive Plans: Establishing a performance
“threshold” to qualify for incentive payments

Question 2

Incentive systems work well when:

Answer 2

Incentives are based on actual differences
* Annual incentive budgets are large enough to
reward and reinforce exceptional performance
* Overhead costs are controllable
* Gamifying incentives and rewards to improve
performance

Question 3

Straight piece work vs differential piece rate vs standard hour plan

Answer 3

Straight Piecework: employees receive a certain rate for each unit produced

Differential Piece Rate
employees whose production exceeds the
standard amount of output receive a
higher rate for all of their work than the
rate paid to those who do not exceed the
standard amount

Standard Hour Plan
An incentive plan that sets pay rates based
on the completion of a job in a
predetermined standard time

Question 4

Merit Pay Program/Merit Guidelines/Lump-Sum Merit Program

Answer 4

“Links an increase in base pay to how
successfully an employee achieved some
objective performance standard

Merit Guidelines
Guidelines for awarding merit raises that are tied to
performance objectives

Lump-Sum Merit Program
Program under which employees receive a year-end
merit payment, which is not added to their base pay

Question 5

3 types of sales incentives plans

Answer 5

Straight Salary Plan: salespeople to be paid for performing various duties that are not reflected immediately in their sales
volume

Straight Commission Plan: based upon a percentage of sale

Combined Salary and Commission Plan: includes a
straight salary and a commission component (“leverage”)

Question 6

Team incentive plans:

EX: Gainsharing Plans

EX2: Profit Sharing

Answer 6

A compensation plan in which all team
members receive an incentive bonus
payment when production or service
standards are met or exceeded

EX:Programs under which both employees and the
organization share the financial gains according to a
predetermined formula that reflects improved
productivity and profitability

Ex2: Any procedure by which an employer pays, or makes
available to all regular employees, in addition to their
base pay, current or deferred sums based upon the
profits of the enterprise

Question 7

Employee Stock Ownership Plans (ESOPs)

Advantages and Disadvantages

Answer 7

Stock plans in which an organization contributes shares of its stock to an established trust for the purpose of stock
purchases by its employees

Adv: Retirement benefits, pride of ownership, deferred taxes
Dis: Liquidity and value, single funding bases, not insured