Recognising Employee Contributions with Pay Flashcards
Commission
Pay calculated as a percentage of a sale
Paid to a salesperson for closing a sale
Bonus
Paid for meeting a monthly quota
Requirements of effective incentive pay plans
- Performance measures are linked to the org goals
- Employees believe they can meet the performance standards
- The org gives employees the resources they need to reach goals
- Employees value the rewards given
- Employees believe the system is fair
- The pay plan takes into account that employees might ignore any goals that are not rewarded
Categories of incentive pay
- Incentives linked to individual
- Incentives linked to a group
- Incentives linked to org performance
time
Individual incentives
Do not add to base pay. They have the be re-earned.
Does not encourage teamwork
Piecework rate
Pay employees per unit produced
Straight piecework plan
Pay the same rate per piece no matter how much the worker produces
DIfferential piece rate
Piece rate depends on the amount produced.
Advantage: Piece rates
Pay is directly linked to the amount of work
Seems fair and easy
Disadvantages; piece rates
Jobs without physical output are hard to measure
Fail to focus on quality or customer satisfaction
Not suitable for:
- complex jobs
- employee empowerment
- team-based problem solving
Standard hour plan
Quantity oriented incentive. Pays extra for work done in less than a preset standard time
Merit pay/Merit bonuses
Linking pay or bonus increase to ratings on performance appraisal
Merit increase grid
Lists which performance rating is linked to which compa-ratio. Establishes the size and frequency of pay increase
Performance bonuses
Reward individual performance, but bonuses are not rolled into base pay
Can be really effective and give org flexibility in deciding what kinds of behaviour to reward
Retention bonuses
Paid when an acquisition is happening, companies tend to pay in order to keep valuable employees
Straight commission plan
Employee earns only commission
Group incentives
Encourage employees to cooperate
To share knowledge
Gain sharing
Measure increases in productivity and effectiveness, and distribute a portion of each gain to employees
Conditions for gain sharing success
- Management commitment
- Need for change or strong commitment to continuous improvement
- Management acceptance and encouragement of employee input
- High levels of cooperation and interaction
- Employment security
- Information sharing on productivity and costs
- Goal setting
- The commitment of all involved parties of the process of change and improvement
- Performance standard and calculation that employees understand, consider to be fair, and that is closely related to managerial objectives
- Employees who value working in groups
Scanlon plan
Gain sharing plan in which employees receive a bonus if the ratio of labour costs to the sales value of production is below a set standard
Bonuses for group performance
Reward members of a group attaining a specific goal, usually measured in terms of physical output
Team awards
Use a broad range of performance measures
Profit sharing
compensation plan in which payments are a percentage of the org profit and do not become part of base salary
Pros; profit sharing
- encourage broader view on the org
- encourage acting in the best interest of the org
- makes more cooperative
- reduces labour costs in difficult eco times
Cons: Profit sharing
Only top managers see strong connection between what they do and profits
Negatively influence motivation if org makes losses
Stock ownership programs
Stock options
EMployee stock ownership plans
Stock option
Give employees the right to buy a certain number of shares of stock at a previously fixed price
- encourage employees to act in ways that will benefit the company
- underwater (no value) demotivates
Focus too much on stock prices lose focus on values
Exercising the option
Purchasing the stock
Employee stock ownership plans
Give employees certain tax and financial advantages when stock is granted to employees
Balanced Scorecards
Combination of performance measures directed toward the company’s long and short term goals and is used as basis for awarding incentive pay
A process that makes incentives work
Participate in decisions
Communication
Short term incentives
Bonuses based on yearly profits, return on investment, or other measures related to org. goals
Long-term incentives
Stck options and stock purchase plans
Securities and Exchange Commission
Requires companies to more clearly report executive compensation levels and the company’s performance relative to that of competitors
Dodd-Frank Wall Street Reform and Consumer Protection Act
Requires that public companies report the ratio of average compensation of all their employees to the CEO’s compensation
