hrm10echap13- variable pay executive compensation

7/30/2019 HRM10eChap13- Variable Pay Executive Compensation

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Human Resource

ManagementTENTH EDITON

2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentationby Charlie Cook

Variable Pay and

Executive Compensation

Chapter 13

SECTION 4Compensating

Human

Resources

Robert L. Mathis John H. Jackson


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2002 Southwestern College Publishing. All rights reserved. 132

Learning Objectives

After you have read this chapter, you should beable to:

Define variable pay and give examples of threetypes of variable pay.

Identify four guidelines for successful incentiveprograms.

Discuss three types of individual incentives.

Explain three different way that sales employeestypically are compensated.

Identify key factors that must be addressed whenusing team variable pay plans.


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Learning Objectives (contd)

Discuss why gainsharing, profitsharing, andemployee stock options have grown asorganizational incentive plans.

Identify the components of executive compensation

and discuss criticisms of executive compensationlevels.


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Variable Pay: Incentives for Performance

Variable Pay Systems Service Pay Systems

Some jobs contribute more to theorganization than others.

Time spent is the primarymeasure of employee contribution

Some people perform better than

others.

Length of service is the primary

differentiating factor amongpeople.

Employees who perform bettershould receive morecompensation.

Contributions are recognizedthrough different amounts of basepay.

A portion of some employeestotal compensation should becontingent on performance.

Apportioning rewards based onindividual performance isconsidered to be divisive.


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Types of Variable Pay Plans

Figure 131


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Factors Affecting Variable Pay Plans

Does the plan fit

the organization?

Are the right behaviors

encouraged by the plan?

Is the plan being

administered properly?

Variable Pay

Plan Success


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Factors fo r

Successfu l

Variable Pay

Plans

Figure 132



Individual Incentives

IndividualismStressed in

OrganizationalCulture

Identification ofIndividual

Performance

IndependentWork

IndividualCompetitiveness

Desired

IndividualIncentive Pay

Plans



Piece-Rate Systems

Straight Piece-Rate Systems Wages are determined by multiplying the number

of pieces produced by the piece rate for one unit.

Differential Piece-Rate Systems

Employees are paid one piece-rate for unitsproduced up to a standard output and a higherpiece-rate wage for units produced over thestandard.



Bonuses and Special Incentive Programs

BonusA one-time payment that does not become part of

the employees base pay.

Awards

Cash or merchandise used as an incentive reward.

Recognition Awards

Recognition of individuals for their performance orservice to customers in areas targeted by the firm.

Service Awards

Rewards to employees for lengthy service with anorganization.


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Sources o f Bonuses

Figure 133

Source: Kathryn F. Clark, Incentives Increase But Competitive Base Salary Key in

Talent Race, Human Resource Executive, June 2, 2000, 30. Used with permission.


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Different Bases for Sales Incentives, In Order o f Use

Figure 134


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Sales Compensation Plans

Salary OnlyAll compensation is paid as a base wage with no

incentives.

Commission

Straight Commission Compensation is computed as a percentage of sales in

units or dollars.

Draw system make advance payments against future

commissions to salesperson.

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

part commission for incentive.


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Why Organizat ions Establ ish Team Pay Plans

Figure 135


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Group/Team-Based Variable Pay

Determining

Individual

Rewards

Timing of

Team Incentives

Deciding theAllocation of

Rewards

Distributing

Team

Incentives


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Condi t ions fo r Successfu l Team Incent ives

Figure 136


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Gainsharing

Gainsharing The sharing with employees of greater-than-

expected gains in productivity.

Alternatives for rewards distribution:

A flat amount for all employees Same percentage of base salary for all employees

Percentage of the gains by category of employees

A percentage based on individual performance against

measures


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Profit Sharing

Profit SharingA system to distribute a portion of the profits of the

organization to employees.

Primary objectives:

Improve productivity Recruit or retain employees

Improve product/service quality

Improve employee morale

Drawbacks Disclosure of financial information

Variability of profits from year to year

Profit results not strongly tied to employee efforts


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Profi t-Sharing Plan Framewo rk Cho ices

Figure 137


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Employee Stock Ownership Plans (ESOPs)

Employee Stock Ownership PlansA plan whereby employees gain stock ownership in

the organization for which they work.

ESOP Advantages

Favorable tax treatment for ESOP earnings Employees motivated by ownership in the firm

ESOP Disadvantages

Retirement benefit is tied to the firms performance

Management tool to fend off hostile takeoverattempts.


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U.S. CEO Remuneration

Figure 138Source: The Economist, May 8, 2000, 16.


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Execu t ive Compensat ion Components

Figure 139


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Common Execut ive Perks

Figure 1310

hrm10echap13- variable pay executive compensation

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