copyright © 2005 thomson business & professional publishing. all rights reserved.13–1...

Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved. 13–1

Effective Incentive PlansEffective Incentive PlansEffective Incentive PlansEffective Incentive Plans

Figure 13–1


Types of Variable Pay PlansTypes of Variable Pay PlansTypes of Variable Pay PlansTypes of Variable Pay Plans

Figure 13–3


Types of Sales Compensation PlansTypes of Sales Compensation PlansTypes of Sales Compensation PlansTypes of Sales Compensation Plans

• Salary-Only• Commission

Straight Commission Compensation is computed as a percentage of sales

in units or dollars. The draw system make advance payments against

future commissions to salesperson.

Salary-Plus-Commission or Bonuses Compensation is part salary for income stability and

part commission for incentive.


Determining Sales EffectivenessDetermining Sales EffectivenessDetermining Sales EffectivenessDetermining Sales Effectiveness

Figure 13–5


Special Incentive ProgramsSpecial Incentive ProgramsSpecial Incentive ProgramsSpecial Incentive Programs

•Performance Awards

•Recognition Awards

•Service Awards•Bonus•Spot Bonus


Other Types of Organizational/Team Other Types of Organizational/Team IncentivesIncentives

Other Types of Organizational/Team Other Types of Organizational/Team IncentivesIncentives

• Profit Sharing

• Gainsharing (Teamsharing or Goal Sharing)

• Stock Option Plan

• Employee Stock Ownership Plan (ESOP)


Types of BenefitsTypes of BenefitsTypes of BenefitsTypes of Benefits

Figure 14–4


Organizational IncentivesOrganizational IncentivesOrganizational IncentivesOrganizational Incentives

A system to distribute a portion of the profits of the organization to employees.

Primary objectives: Increase productivity and organizational performance Attract or retain employees Improve product/service quality Enhance employee morale

Drawbacks Disclosure of financial information Variability of profits from year to year Profit results not strongly tied to employee efforts


Group/Team IncentivesGroup/Team IncentivesGroup/Team IncentivesGroup/Team Incentives

Distribution of Distribution of Group/Team Group/Team IncentivesIncentives

Distribution of Distribution of Group/Team Group/Team IncentivesIncentives

Timing ofTiming ofGroup/Team Group/Team Incentives Incentives

Timing ofTiming ofGroup/Team Group/Team Incentives Incentives

Decision Making Decision Making About Group/Team About Group/Team

AmountsAmounts

Decision Making Decision Making About Group/Team About Group/Team

AmountsAmounts

Design of Design of Group/Team Group/Team

Incentive PlansIncentive Plans

Design of Design of Group/Team Group/Team

Incentive PlansIncentive Plans


Developing Successful Pay-for-Performance Plans

Developing Successful Pay-for-Performance Plans

• Reasons for Adopting Pay or Incentive Plans:Link more directly strategic business goals and

employee performance.

Enhance organizational results and reward employees financially for their contributions.

Reward employees to recognize different levels of employee performance.

Achieve HR objectives, such as increasing retention, reducing turnover, recognizing training, or rewarding safety and attendance.


Successes and Failures of Variable Pay Plans

Successes and Failures of Variable Pay Plans

Successful incentive plans require:Clearly communicated.

Realistic performance measures.

Current plans and linked to organizational objectives.

Strong links among performance results and payouts.

Clear identification of variable pay incentives separately from base pay.


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

Define variable pay and identify three elements of successful pay-for-performance plans.

Discuss three types of individual incentives.

Explain three ways that sales employees are typically compensated.

Identify key concerns that must be addressed when designing group/team variable pay plans.

Discuss why profit sharing and employee stock ownership are common organizational incentive plans.

Identify the components of executive compensation and discuss criticisms of executive compensation levels.


Purposes of Special IncentivesPurposes of Special IncentivesPurposes of Special IncentivesPurposes of Special Incentives

Figure 13–4


Group/Team Incentives (cont’d)Group/Team Incentives (cont’d)Group/Team Incentives (cont’d)Group/Team Incentives (cont’d)

• Problems with Group/Team IncentivesRewards in equal amounts may be perceived

as “unfair” by employees who work harder, have more capabilities, or perform more difficult jobs.

Group/team members may be unwilling to handle incentive decisions for co-workers.

Many employees still expect to be paid according to individual performance.


Employee Stock PlansEmployee Stock PlansEmployee Stock PlansEmployee Stock Plans

A plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time.

If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit.

If the market price of the stock is below the specified option price, the stock option is “underwater” and is worthless to employees.


Employee Stock PlansEmployee Stock PlansEmployee Stock PlansEmployee Stock Plans

A plan whereby employees gain significant stock ownership in the organization for which they work.

Advantages Favorable tax treatment for ESOP earnings

Employees motivated by their ownership stake in the firm

Disadvantages Retirement benefit is tied to the firm’s future

performance

Management tool to fend off hostile takeover attempts.


Components of Executive Components of Executive Compensation PackagesCompensation Packages

Components of Executive Components of Executive Compensation PackagesCompensation Packages

Figure 13–9


Common Executive Compensation IssuesCommon Executive Compensation IssuesCommon Executive Compensation IssuesCommon Executive Compensation Issues

Figure 13–10

copyright © 2005 thomson business & professional publishing. all rights reserved.13–1...

Documents

performance plans reasons

organizational performance

current plans

organizational incentives

strategic business goals

performance results

successful pay

base pay