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BONUS SCHEME

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Bonus schemes defined

One time lump sum payments given formeeting a performance goal.

Bonus schemes provide cash payments toemployees that are related to theperformance of their organization, theirteam or themselves, or a combination oftwo or more of these.

Often referred as variable pay or pay atrisk

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Examples of bonus

1. Attendance bonus

2. Profit related bonus

3. Performance bonus

Extra dividend to shareholder

Distribution of profit

Gratuity to workmen beyond wage

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Aims of bonus schemes

Enable people to share in the success ofthe organization and therefore increase theircommitment to it.

Increase motivation, commitment andengagement.

Encourages individuals and teams toperform well in the future.

Provide a direct incentive that increasesmotivation and engagement.

Ensure that pay levels are competitiveand will attract and retain good quality

people.

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Rationale for bonus schemes

They contribute to the creation of a high-performance culture.

Lump sum payments can sometimes makea bigger impact on than incrementalincreases spread out thinly over a year.

They provide rewards for specialachievements.

They provide financial recognition topeople who are at the maximum of thesalary range for their grade and arecontinuing to perform exceptionally well.

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Criteria for a bonus scheme

1. Transparency

2. Simplicity

3. Trust

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Types of schemes

1. Schemes driven by business results2. Individual based bonus or incentive

given to individual based on hisperformance.

3. Team based

4. Combination schemes : two or moreschemes together

5. Gain sharing share financial gain.

6. Ad hoc based / project based anywork or project

7. Department/ site based

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Variables in designing bonus scheme

1. Operating levelIndividual bonus scheme

Team bonus scheme

Site bonus scheme

Corporate bonus scheme

2. Factors

Productivity, Quality, safety, cost

management, sales, customer service,attendance, HR measure, project, teamwork, individual performance.

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Variables in designing bonus scheme

3. Distribution of the bonus poolVary by role or designation

Individual performance

Team performance

4. Frequency of payment

Weekly to annually

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Variables in designing bonus scheme

5. Hurdles

Minimum target has to achieve orelse nobonus.

Threshold profit level must be reached.

Absence triggers : if minimum presence ofjob is not found than no bonus.

Management discretion if serious lapsesuch as health and safety no bonus

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Chapter 12 TEAM PAY

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Team pay defined

Team pay links payments made tomembers of a formally established teamto the performance of that team.

The rewards are shared among themembers of the team in accordance with apublished formula or on an ad hoc basis inthe case of exceptional achievements.

Rewards for individuals may also beinfluenced by assessments of theircontribution to team results.

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TYPES OF TEAM

1. Problem solving team

2. Self managed team

3. Cross functional team

4. Virtual team

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Aim of team pay

1. Rewarding team work and cooperation

2. Encourages group

3. Increase flexibility

4. Increase information sharing

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How team pay works

1. Team pay formula: pay forperformance for skill and knowledge.

2. Method of distributing bonus : done

equally to all team membersi.e. Cash bonus or stock, trips , items are

provided.

3. Team pay and individual pay: somepay team bonus and some organizationpay individual bonus.

4. Project team bonus

5. Ad hoc bonus

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Requirements for team pay

Team pay works best if teams:

stand alone as performing units for whichclear targets and standards can be

agreed; have a considerable degree of

autonomy;

are composed of people whose work isinterdependent;

are stable and mature.

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Prepared by : Asst. Prof. Shirufi

Daruwala