Chapter 12

Pay for performance and financial incentives

https://www.youtube.com/watch?v=X_Ht8TD9Au8

IntroductionPay for Performance and incentives

Definition: Incentives are financial rewards paid to workers whose production exceeds a predetermined standard

A gentleman called Frederick Taylor made the system of financial incentives popular in the late 1800, when he realized the pace at which the employees were working and the amount been produced.

We will be talking about pay for performance and incentives plans whether monetary or non-monetary for above standard work which is in line with the company’s objectives.

Plans which are geared towards different people within the organization

Developing and implementing effective incentive plans and the employees recognition programs

Types of Incentives plans

Individual programs which are for employees who are paid more than their base salary to do work that is above their performance standard.

Informal incentives are given to worker for achievements that are not measured by a standard for example an award given for above and beyond customer service during the week.

Group incentive are the same as individual, however the reward is given to the group.

Organization-wide incentives are for everyone in the organization and the final one is

Non-monetary or performance rewarded without money but rather praise and expressions of appreciation.

Piecework

• Piecework is when a worker is paid a sum called a piece rate for each unit he or she produces

Incentives for Operations Employees

Straight Piecework plan

Guaranteed Piece work plan Advantages and

Disadvantages of Piecework Incentive plansAdvantagesDisadvantages

INCENTIVES FOR OPERATIONS EMPLOYEES

Standard hour planA plan by which a worker is paid a basic hourly rate plus an extra percentage of his/her base rate for production.

Team or Group Incentive plans

INCENTIVES FOR OPERATIONS EMPLOYEES

Short-term Incentives: The annual bonusEligibility i.e.

Executive Manager Supervisor

80% 30% Up to 15%

Question

Incentives for Managers and Executives

Fund-size Determination (3 formulas) 10% net income after deducting 5% average

capital invested in business 12.5% of the amount by which net income

exceeds 6% of shareholders’ equity 12% net earnings after deducting 6% net

capital Individual Awards (individual performance, team performance, corporate performance or some combination of these)

profit-sharing plana true individual incentive bonus

Split-award method Individual

performance+ company’s profit

Individual performance

Multiplier method

Individual * corporate

performance

Zero

Long-term Incentives: an encouragement for the executives to stay with the company accumulating the capital based on the company’s long-term success. Stock optionsPerformance share unit plans (profit or

growth in earnings per share)A restricted share unit planA deferred share unit plan Relating strategy to executive compensation Defining strategic

context when designing a compensation plan

Creating package

Incentives for salespeople

Salary Plan Commission Plan

Combination Plan

Sales compensation in the E-commerce

Era

Factors Tradition the unsupervised nature of

most sales work the assumption that

incentives are needed to motivate salespeople.

Salary Plan Straight salary makes it simple to

switch territories or to reassign salespeople, and it can foster loyalty among the sales staff.

The main disadvantage is that pay isn’t proportionate to results. This can de-motivate potentially high performing salespeople.

 

Commission Plan Pays salespeople for results, and

only for results; thus, they tend to attract high-performing salespeople who see that effort clearly leads to reward.

But Sales people tend to focus on making the sale and on high volume items, and may neglect non-selling duties like servicing small accounts, cultivating dedicated customers and pushing hard-to-sell items.

Combination Plan Most companies pay salespeople a combination of salary

and commission, usually with sizable salary component. Commission plans give salespeople a floor to their earning, and still proved an incentive for superior performance.

But they can become complicated, and misunderstandings can result.

 Sales compensation in the E-commerce Era For customer, they know what they want, or what they

need. Therefore, rapid low-cost purchases can be made over the Internet.

Face-to-face sales are now reserved for high-volume customers and higher-margin services.

Incentives for other managers and professionalsMerit pay or a merit raises any wage increase that is awarded to an employee based on his or her individual performance in workplace. However, it is different from a bonus in that is usually represents a continuing increment. Merit pay has both advocates and is the project of much debate. Furthermore, Advocates claim that only pay or other rewards tied directly to performance can motivate improved performance. In addition, merit pay detractors present excellent reasons why merit pay can backfire. Incentives for Professional EmployeesAs we can see from the textbook, professional employees are those whose work is to involve the application of learned information to the solution of the employer’s issues. For examples, they include lawyers, doctors, economists, and engineers. Professionals reach their positions through prolonged periods of formal study.

Organization-Wide incentive Plans

Profit sharing plan A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings.

Employee stock ownership planEmployee stock ownership plans can be used to keep plan participants focused on company performance and share price appreciation.

Gain-sharing plansgain-sharing plan is best showed as a system of management in which an organization finds higher levels of performance through the involvement and participation of its individuals. Gains and resulting payouts are self-funded based on savings generated by

improved performance. Gain-sharing commonly applies to a single site, or stand-alone organization. Many plans often have a year-end reserve fund to account for deficit periods. Employees often are involved with the design process. A supporting employee involvement system is part of the plan in order to drive

improvement initiatives.

Implementing Incentive Plans₪ Pay for performance

₪ Link incentives to events that make employees engage in the organization

₪ Link incentives to measurable competencies that the important to the organization

₪ Match incentives to culture of the organization

₪ Keep incentives clear and simple

₪ Over-communicate

₪ Remembering the work itself is the greatest incentive

Employee Recognition Programs₪Lack of recognition is #1 cause of employee

turnover₪Cost-effective/Inexpensive₪Personal & memorable₪ Improves employee’s attitude & productivity₪Motivates high performers₪ Important communication tool

Summary₪ Most management

employees receive short-term incentives

₪ Long-term incentives rewarded to top employees in management

₪ Salary plans can be effective but is not based on performance

₪ Commission plans motivate well since it is Performance equals

rewards type

₪ Profit-sharing plans, purchase stock ownership plans, and gain sharing plans are organization-wide incentive plans

₪ Employee recognition plans becoming more common as an inexpensive way to keeping employees

THE END!Thanks for your time ^w^