copyright 2016 cengage learning. all rights reserved. may not be scanned, copied or duplicated, or...
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Outcomes Differentiate between profit sharing plans and explain advantages and disadvantages of these programs as an alternative to individual and group incentive systems Understand how to apply different incentive systems designed for professionals and executives 3TRANSCRIPT
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning OutcomesImplement a strategic incentive programDetect when and what types of individual
incentives are appropriateDifferentiate how gains may be shared with
employees under different group incentive plans like the Scanlon and Improshare gainsharing systems
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Learning OutcomesDifferentiate between profit sharing plans
and explain advantages and disadvantages of these programs as an alternative to individual and group incentive systems
Understand how to apply different incentive systems designed for professionals and executives
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategic Reasons for Incentive PlansVariable pay programs: Tying pay to some
measure of individual, group, or organizational performance
Incentive pay plansEstablish a performance threshold for
employees to qualify for incentive paymentsEmphasize a shared focus on organizational
objectives Creates an operating environment supporting
shared commitment
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Figure 10.1 - Types of Incentive Plans
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Incentive Plans as Links to Organizational ObjectivesPurpose of incentive plan
Encourages employees to assume ownership of their jobs, thereby improving effort and job performance
Motivates employees to expend more effort than under hourly and/or seniority-based compensation systems
Supports a compensation strategy to attract and retain top-performing employees
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Requirements for a Successful Incentive Plan Identify important organizational metrics
encouraging employee behaviorInvolve employees
Incentive programs should seem fair to employees
Find the right incentive payoutPayout formulas should be simple and
understandableEstablish a clear link between performance
and payout
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Individual Incentive Plans
• Straight piecework: Employees receive a certain rate for each unit produced
• Differential piece rate: Employees whose production exceeds the standard amount of output receive a higher rate for all of their work
Piecework
• Sets rates based on the completion of a job in a predetermined standard time
Standard hour plan
• Supplemental to the base wage
Bonus
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Individual Incentive Plans
• Links an increase in base pay to how successfully an employee performs his or her job
Merit pay
• Awards - Used to recognize productivity gains, special contributions or achievements, and service to the organization
• Recognition - Conduit that shows employees that the company appreciates their efforts, their unique gifts, and their contributions
Incentive awards and recognition
• Performance standards for sales employees are difficult to develop because performance is affected by external factors
• Types - Straight salary plan, straight commission plan, Combination salary and commission plan, and Sales plus bonus plan
Sales incentive
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Group Incentive Plans - Team CompensationTeam incentive plans: All team members
receive an incentive bonus payment when production or service standards are met or exceeded
Gainsharing incentive plan: Both employees and the organization share financial gains by a predetermined formulaScanlon planImproshare
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Figure 10.4 - Scanlon Plan Suggestion Process
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Group Incentive PlansProfit sharing - Employer makes available to all
regular employees, special current or deferred sums based on the organization’s profits
Stock options - Organizations allow employees to buy stocks to increase productivity and assume partnership role in the organizationThis in turn leads to the increase in stock prices
Employee Stock Ownership Plans (ESOPs): Stock plans in which an organization contributes shares of its stock to an established trust for the purpose of stock purchases by its employees
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Incentives for Professional EmployeesProfessional employees
Motivation is influenced by their increased mobility across companies
Can receive compensation beyond base pay
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Executive Pay Package
Base salary Short-term
incentives or bonuses
Long-term incentives or stock plans
Benefits Perks
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Figure 10.5 - Types of Long-Term Incentive Plans
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Figure 10.5 - Types of Long-Term Incentive Plans
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Executive Compensation: Ethics and AccountabilityJustification of bonuses
Large financial incentives are a way to reward superior performance
Business competition is pressure-filled and demanding
Good executive talent is in great demandEffective executives create shareholder valueFact of business life, reflecting market
compensation trends
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Executive Compensation ReformInternal Revenue Service (IRS) makes
executive pay a part of every corporate auditSecurities and Exchange Commission issued
pay disclosure rules requiring companies listed on the New York Stock Exchange and NASDAQ to disclose the true size of their top executive pay packages
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Executive Compensation ReformFinancial Accounting Standards Board
(FASB) requires stock options to be recognized as an expense on income statements
Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203) was signed into effect giving share holders say on pay Voting shareholders of a company must
ultimately approve of its executive salaries19