Recognizing Employees with Incentive Pay (Quiz 4) Flashcards
What is incentive pay and what is it given for? What does it drive and what does it need to be successful? What is it linked to?
Form of pay linked to employee performance? Drives desired behaviors because the amount paid is linked to predefined behaviors and outcomes. Pay plans must be well-designed. Employee’s performance as individual, group member or organization member.
Effective incentive plans attempt to meet what requirements?
1) Performance measures linked to organizational goals.
2) Employees believe they can meet performance standards.
3) Organization needs to give employees resources to meet goals.
4) Employees value rewards given.
5) Believe reward system is fair.
6) Pay plan takes into account employees may ignore goals not rewarded.
What are 4 ways to pay for individual performance?
Piecework rates, merit pay, individual performance bonuses, sales commissions.
What is a piecework rate? What are the 2 types?
Wage based solely on amount workers produce. Straight piecework and differential piece.
What is a merit pay plan? (Look at slide 11)
System of linking pay increases to ratings on a performance scale, make use of “merit increase grid.” Biggest percentage increases to lowest paid-best performers.
What should performance bonuses be linked to? Are they rolled into pay and do employees have to re-earn them during performance period? One-time reward? When are most bonuses given?
Objective performance measures (lbs/hr, ft/day, $/customer). Pay for performance companies often referred to as P4P plan. Not rolled into base pay, must re-earn. Sometimes one-time reward. Before vacation time and holiday season.
What is commission pay? What are the 3 types?
Incentive pay calculated as a percentage of sales. No commission pay - Straight base salary. Straight commission plan - Only commissions, no base guaranteed wage. Base pay + commission - Commission in addition to small base salary, mostly new salespeople until they learn the ropes.
What are the two ways to pay for group performance?
Gainsharing and bonuses.
What is gainsharing? (Study Scanlon example)
Group incentive program that measures improvements in productivity and effectiveness and redistributes each “gain”/improvement to employees. Allows employees to figure out how to improve self and group performance, addresses challenge of identifying appropriate performance measures for complex jobs.
Disadvantages of group bonus schemes like Scanlon?
Bonus only due to more efficient workers but distributed to all, unless each group has a clear role too many people may share reward, responsibility evasion by a few members may be chronic.
What are the types of pay for organizational performance?
Profit sharing, stock options and Employee Stock Ownership Plans (ESOPs) last two are stock ownership.
Profit Sharing
Incentive pay in which payments are a percentage of organization’s profits and do not become part of employee’s base salary, may encourage employees think like owners, no evidence if it improves performance.
How does a stock option work? (Study example on slides 33-34)
Rights to buy a certain number of shares of stock at a specified price, “strike price” at specified date establishes price, vesting time = from “strike” price until date you receive options, usually 2-3 years.
How does a stock grant work?
Given at a stock price that is set on a future date (2-3 weeks.) Amount is in $ award and stock price on given date is used to get number of shares. Key is number of shares you actually receive on that date. Usually must be there 3-5 years to get them vested, must pay taxes on them at time of acquisition and can do that by cashing out some stock shares or paying taxes in full. Employee has full control of stock going forward, part of compensation.
ESOP
Organization distributes shares of stocks to all its employees by placing it in a trust. Employees are only people who can own stock, usually must sell stock at current price when they leave, most common form of employee stock ownership.
