incentive plans ok new

8/12/2019 Incentive Plans OK New

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2010 McGraw Hill Ryerson

11-1

COMPENSATIONThird Canadian Edition

Milkovich, Newman, Cole


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11-2

Pay-for-Performance Plans

pay that varies with some measure of

individual or organizational performance

also called variable pay plansthese plans have a positive impact on

performance if they are designed well


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11-3

Short Term

Pay-for-Performance Plans

Merit Pay

Lump-Sum Bonuses

Individual Spot Awards

Individual Incentives


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11-4

Individual Incentive PlansMethod of Rate Determination

Units of production pertime period

Time period per unit ofproduction

(1) (2)

(4)(3)

Straight piecework plan Standard hour plan

Halsey 50 - 50 methodTaylor differential piece

rate system

Merrick multiple piece

rate system

Pay constant function of

production level

Pay varies as function ofproduction level

Relationship

between

production level

and pay


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11-5

Advantages of Individualized

Incentive Plans substantial contribution to:

increased productivity

lower production costs

increased earnings of workers

less direct supervision is required to maintain

output than under pay for time

payment for results (if accompanied by improved

organizational and work measurement) enablelabour costs to be estimated more accurately than

under pay for time

helps costing and budgetary control


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11-6

Disadvantages of Individualized

Incentive Plans (1 of 2)conflict between employees seeking to

maximize output and managers concerned

about deteriorating quality levelsattempts to introduce new technology may

be resisted by employees concerned aboutthe impact on production standards

reduced willingness of employees tosuggest new production methods for fear ofsubsequent increases in productionstandards


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11-7

Disadvantages of Individualized

Incentive Plans (2 of 2) increased complaints that equipment is

poorly maintained, hindering employee

efforts to earn larger incentives increased turnover among new employees

discouraged by the unwillingness of

experienced workers to cooperate in on-

the-job training

elevated levels of mistrust between

workers and management



11-8

Team / Group

Incentive PlansGain-Sharing Plans

Profit Sharing PlansEarnings-at-Risk Plans



11-9

Sample Group/Team

Performance Measures (1 of 2)Customer-Focused Measures

Time to Market Measures

On time delivery

Cycle time New product introductions

Customer Satisfaction

Measures

Market share

Customer satisfaction

Customer growth and retention

Account penetration

Financial ly-Focused Measures

Value Creation

Revenue growth

Resource yields Profit margins

Economic value added

Shareholder Return

Return on invested capital

Return on sales / earnings

Earnings per share

Growth in profitability



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Sample Group/Team

Performance Measures (2 of 2)Capabil i ty -Focu sed Measu res

HR Capabilities

Employee satisfaction

Turnover rates Total recruitment costs

Rate of progress ondevelopmental plans

Promotability index

Staffing mix/head-count ratio Other Asset Capabilities

Patents and copyrights

Distribution systems

Internal Process-Focused

Measures

Resource Utilization

Budget-to-actual expenses

Cost allocation ratios

Reliability / rework

Accuracy / error rates

Safety rates

Change Effectiveness Program implementation

Teamwork effectiveness

Service / quality index



11-11

Different Types of Variable

Pay PlansCash ProfitSharing Stock Ownership

or Options

Balanced

Scorecard

Productivity /

Gain- SharingTeam / Group

Incentives



11-12

Gain-Sharing Plans

under gain-sharing plans,

employees share in cost-savings or productivity gains



11-13

Key Elements in Designing a

Gain-Sharing Planstrength of reinforcement

productivity standards

sharing the gains

scope of the formula

perceived fairness of the formula

ease of administration

production variability



11-14

Three Gain-Sharing

FormulasScanlon Plan(single ratiovolume)

Rucker Plan Improshare

Numerator ofratio (input

factor)

Payroll costs Labour cost Actual hoursworked

Denominator

of ratio(outcome

factor)

Net sales (+/-

inventories)

Value added Total standard

value hours



11-15

Profit-Sharing Plans

variable pay plans requiring a

corporate profit target to be met

before any payouts occur



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Earnings-at-Risk Plans

incentive plans sharing profits in

successful years and reducing

base pay in unsuccessful years



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Advantages of Group

Incentive Planspositive impact on organization and individual

performance of about 5 10 percent per year

easier to develop performance measures than

for individual plans

signals that cooperation, both within and

across groups, is a desired behaviour

teamwork supported by most employees

may increase participation of employees in

decision making process



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Disadvantages of Group

Incentive Plans

line of sight may be lessened

employees may find it more difficult to see how

their individual performance affects their

incentive payouts.

may lead to increased turnover among top

individual performers because they must

share with lesser contributorsincreases compensation risk to employees

because of lower income stability



11-19

Long-Term Incentive Plans

Employee Stock Ownership

Plans (ESOPs)

Stock Options

Broad-Based Option Plans

(BBOP)



11-20

Special Groups in

Compensation Managementsupervisors

top management

corporate directors

professional employees

sales staff

contingent workers



11-21

Components of an Executive

Compensation Package

1. base salary

2. short-term (annual) incentives or bonuses

3. long-term incentives and capitalappreciation plans

4. executive benefits

5. executive perquisites


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11-22

Examples of Long-Term

Incentives for Executives1. Appreciation-Based Plans

stock options

stock appreciation rights

2. Full-Share Plans

restricted stock plans

restricted stock units/phantom stock plans

Deferred share units

3. Performance-Based Plans

performance share / unit plans


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11-23

Pay Components for

Professional Employeesdual career ladders

maturity curves

performance bonusesattaining professional licenses

perks

flexible work schedules

Campus-like environment


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11-24

Key Factors in Designing a

Sales Compensation Planthe nature of the people who enter the

sales profession

organizational strategy

competitor practices

product/service being sold


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2010 McGraw Hill Ryerson11-25

Key Issues in Contingent

Workforce Compensation

equity/fairness relative to

permanent employees

boundaryless careers


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11-26

Conclusion

the design and effective administration ofpay-for-performance plans is key to theirsuccess

special employee groupscompensation must address high

potential for conflict in these jobs

compensation treatment differs from thatfor other employees

incentive plans ok new

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