Pay For Performance And Financial Incentive

SUBMITTED BY:-Pallavi GuptaPiyush NigamNidhi BajpaiNeeraj AgarwalPriyanka BasuNidhi WadhwaPrateet Srivastava

SUBMITTED TO:-Prof. Randhir Kr. Singh

Money And Motivation :An IntroductionFinancial rewards paid to workers whose

production exceeds some predetermined standards –in the late 1800s .

“Systematic Soldiering” –the tendency of employees to work at the slowest pace possible and to produce at the minimum acceptable level

PERFORMANCE And PAYWorking definition of “Pay-for- performance”

or “P4P” is: “Transfer of money or material goods conditional on taking a measurable action or achieving a predetermined performance target.”

. For example, conditional cash transfer programs pay monthly subsidies to households conditional on defined actions such as taking children for well-care visits or keeping them in school.

MOTIVATION And INCENTIVES

The manager devising an incentive plan should first remember that different people react to different incentives in different ways

High positive affective(PAs) are energetic , active and alert. Low PAs are lethargic , listless and apathetic.In this study the low PAs actually responded much more favourably to merit raises then did the high PAs.

In India,Pay for performance is gaining wide acceptance and having a performance linked pay(PRP) plan is considered a good HR practice.

FREDRICK HERZBERG

Freddick Herzberg said the best way to motivate someone is to organize the job so that doing it provides the feedback and challenge that helps satisfy the persons “higher level” needs for things like accomplishment and recognition.

Herzberg says the employer interested in creating aself motivated workforce should emphasize “job content” or motivator factors.

EDWARD DECI

Psychologist Edward Deci’s work highlights another potential downside to relying too heavily on extrinsic rewards: they may back fire. Deci found that extrinsic rewards could at times actually detract from the persons intrinsic motivations.

VICTOR VROOM

Vroom says a person’s motivation to exert some level of effort depends on three things: the persons instrumentality, or the perceived connection (if any) between successful performance actually obtaining the rewards: and the valence which represents the perceived value the person attaches to the rewards.

Motivation=(Expectancy*Instrumentality*Valence).If E or I or V is zero then there is no motivation

REINFORCEMENT THEORY

Behaviour modification means changing behaviour through rewards or punishments that are contingent on performance.

Behaviour modification has two basic principles1) That behaviour that appears to lead to a

positive consequence tends to be repeated, while behaviour that appears tp lead to a negative consequence tends not to be repeated

2) Managers can get someone to change his or her behaviour by providing the properly scheduled rewards or punishment.

INCENTIVES FOR SALES PEOPLESales compensation plans typically rely

heavily on incentives in the form of sales commissions. However, some sales people get straight salaries, and most receive a combination of salary and commissions.

SALARY PLANCOMMISION PLANCOMBINATION PLANSALES AWARDS

TEAM/GROUP INCENTIVE PLANS

DESIGN TEAM INCENTIVES:encourage teamwork & focus team members’ attention on performance.

the piece rate or standard hour plan.GAINSHARING PLAN:There are eight basic steps in

implementing a gainsharing plan.1)- Establish general plan objectives 2)- Choose specific performance measures3)- Decide on a funding formula. 4)- Decide on a method for dividing & distributing the

employees’ share of the gains. 5)- Choose the form of payment6)- Decide how often to pay bonuses.7)- Develop the involvement system.8)- Implement the plan.

ORAGANIZATION WIDE VARIABLE PAY PLANSProfit sharing employee stock ownership

(ESOP), and Scanslon/gainsharing plans. PROFIT SHARING PLAN:A plan whereby employees share in the company’s profit.

TYPES OF PROFIT SHARING PLAN1) CASH PLAN2) LINCOLN INCENTIVE SYSTEM3) DEFERRED PROFIT SHARING PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)A corporation contributes share of its own stock to a

trust in which additional contribution are made annually.The trust distribute the stock to employees on retirement or sepration from service.

ESOP has serval advantages:A tax detection, The employee retirement income security act(ERISA)

GAIN SHARING PLANS:Gain sharing plan are based on the assumption that better cooperation among worker and between workers and manger will result in greater effectiveness to maximize cost saving and productivity increases,there must be employee involvement in the plant development and execution.

Gain sharing plan are different from Profit sharing in 2 major ways:Gain sharing is based on a measure of productivity, not profit.Gain sharing reward are given out frequently, where as profit sharing is annual and often tied to a retirement plan as deferred payment

INCENTIVES FOR MANAGERS AND EXECUTIVESWhen designed and implemented effectively,

employee incentive programs can be an excellent strategic human resources tool to promote employee confidence and boost measurable performance. In fact, employee incentive programs have become an integral part of any company's competitiveness and desirability.

Most managers get short term and long term incentives in addition To salary.

SHORT TERM INCENTIVESThe Annual Bonus Most firms have annual bonus plans aimed at

motivating managers’ and executives’ short term performance. Short term bonuses can easily result in plus or minus adjustments of 25% or more to total pay. There are three basic issues to consider when awarding short term incentives: eligibility, fund size, and individual awards.

Eligibility, Fund Size, Individual Awards.ELIGIBILITY : most firms include both top and lower

level managers, and many decide who’s eligible in several ways. Most base eligibility on a combination of factors, including job level/title, base salary, and discretionary considerations

FUND SIZE: The firm must also decide the total amount of bonus money to make available- fund size.

INDIVIDUAL AWARDS: A target bonus is set for each eligible position. The actual award then reflects the person’s performance. The firm computes performance ratings for each manager, computes preliminary total bonus estimates, and compares the total amount of money required with bonus fund available

LONG TERM INCENTIVES

Long term incentives are also “golden handcuffs”- they motivate executives to stay with the company, by letting them accumulate that they can only cash in after a certain number of years.

The most common long-term incentive is the stock option, which either gives the executive free company stock, or allows him or her to purchase company stock at a reduced price for a period of time

THE STOCK OPTIONSAn employee stock option is a call option on the

common stock of a company, issued as a form of non-cash compensation.

Employee stock options are mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable.

Stock option problem: enormous stock options in part for incentivizing questionable managerial decision and for helping to trigger the numerous corporate scandals in the past few years.

GOLDEN PARACHUTEA golden parachute is an agreement between a

company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated.

Parachutes provide three main benefits:1) Golden parachutes make it easier to hire and retain

executives, especially in industries more prone to mergers.

2) They help an executive to remain objective about the company during the takeover process.

3) They dissuade takeover attempts by increasing the cost of a takeover, often part of a Poison Pill strategy,

STRATEGIES AND EXECUTIVES COMPENSATIONOne concern about the high pay level for American

executives is that they may encourage executives to make business decisions that benefit themselves rather than the organization in order to meet performance goals necessary to receive incentive pay.

A second concern with the ethics of high executive pay is the use of stock options as an incentive.

Finally, some question the ethics of the high level of executive pay when lower-level employee pay has not risen at the same rate

DESIGNING EFFECTIVE INCENTIVE PROGRAMShow one can design your company's employee incentive

programs effectively on the get go:Determine the objective of the employee incentive

programDesign a home-grown incentive program that's

unique to your organization.Design an employee incentive program that is

realistic.Incentive programs must be separated from the

employee's regular pay.Periodically evaluate employee incentive programs.Ensure mutual understanding with the employee.Ensure mutual understanding with the employee.

WHY INCENTIVE PLANS FAIL. The error seen most often is designing a

program to reward a specific result.  It is known that what we're thinking is that, programs are supposed to get result. Results are the "result" of the interaction of a lot of things - markets, competitors, pricing, the government (today more than ever) and people's behaviour.  Only one thing on that list do you can control rewarding - and that's the behaviour of the audience you're targeting.

THANK YOU