Incentive Pay Systems
Pay for Performance Plans
Individual incentive plans
 Group incentive plans

 Profit-Sharing
 Gain-sharing
28%
32%
13%
 ESOPs
Variable Pay
 Pay for Knowledge/Skill-Based
 All-salaried work force
 Lump sum awards, bonuses

5%
11%
Individual Incentive Plans
Pay plans designed to relate pay directly to
performance or productivity, often used in
conjunction with a basic wage and salary
system.
 Piece rate plans
 Plans based on time saved
 Plans based on commission
 Individual bonuses
 Suggestion Systems
Incentives for Managers


Annual bonuses
Long-term performance plans
 Performance

share plan (unit plan)
Stock options
 Qualified
stock options
 Nonqualified stock options
 Incentive stock option (ISO)
 Stock-for-stock swap
 Stock appreciation rights
 Phantom Stock
 Restricted stock
 Premium price options
Group Incentives
Organization-wide incentifes
 Profit Sharing and Gain-Sharing Plans

 Scanlon-type

plans
Employee Stock Ownership Plans (ESOPs)
DuPont’s “Profit Sharing”
Eligibility:
Group Vice President to Hourly
Performance
measurement:
Time horizon:
Unit profit target
Annual--phase in
Payout method: Lump sum cash
Formula:
Base pay is 94% of other units’ base.
Less than 80% target: NO PAYOUT
80%-100% target: 3%
100%-150% target: 3% to 18%
Three Gain-Sharing Formulas
Ratio
Numerator
Ratio
Denominator
(input factor)
(outcome factor)
Scanlon Plan Payroll Costs
Net Sales
Rucker Plan Labor Costs
Value Added
Improshare
Actual Hours
Worked
Total Standard
Value Hours
Exhibit 5-7
Scanlon, Rucker, and Improshare Plans:
A Comparison of Key Features
FEATURE
SCANLON
RUCKER
IMPROSHARE
Required
Productivity
improvement
Labor costs plus
raw materials
costs plus
services costs
(e.g., utilities)
Required
Productivity
improvement
Completing work
at or sooner
than
production
standard
Not required
Screening and
production
committees
Screening and
production
committees
Not applicable
Monthly
Monthly
Weekly
Program goal
Productivity
improvement
Basis for savings Labor costs
Employee
involvement
Type of
employee
involvement
Bonus payout
frequency
Exhibit 5-4
A Sample Behavioral Encouragement Plan That Rewards
Employee Attendance
At the end of each three-month period, employees with exemplary
attendance records will receive monetary incentive awards
according to the following schedule. Note that the number of days
absent does not refer to such company-approved absences as
vacation, personal illness, jury duty, bereavement leave, military
duty, scheduled holidays, and educational leave.
NUMBER OF DAYS ABSENT
0 days (perfect attendance)
1 day
2 days
3 days
4 days
MONETARY INCENTIVE AWARD
$250
$200
$100
$ 50
$ 25
Typical Performance Measures for Individual, Group,
and Company-wide Incentive Plans

Individual Incentive Plans
 Quantity of work output
 Quality of work output
 Monthly sales
 Work safety record
 Work attendance


Group Incentive Plans
 Customer satisfaction
 Labor cost savings (base pay,
overtime pay, benefits)
 Materials cost savings
 Reduction in accidents
 Services cost savings (e.g., utilities)
Company-wide Incentive Plans
 Company profits
 Cost containment
 Market share
 Sales revenue