Managing
Human Resources
Bohlander  Snell  Sherman
Chapter 10
Incentive Rewards
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-1
Learning Objectives
Discuss the basic requirements for successful
implementation of incentive programs.
List the types of, and reasons for implementing,
individual incentive plans.
Explain why merit raises may fail to motivate
employees adequately and discuss ways to
increase their motivational value.
State and identify the advantage of each of the
principal methods used to compensate
salespersons.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-2
Learning Objectives, cont.
Differentiate how gains may be shared with
employees under the Scanlon, Rucker,
Improshare, and earnings-at-risk gainsharing
systems.
Explain what profit-sharing plans are and the
advantages and disadvantages of these programs.
Describe the main types of ESOP plans and
discuss the advantages of ESOPs to employers and
employees.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-3
Presentation Slide 10-1
Advantages of Incentive Pay Programs
Employee effort is focused on important
targets
 Rewards are variable costs linked to results
 Incentives are directly related to improved
performance
 Incentives reward those responsible for
higher performance

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-4
Variable Pay
Tying pay to some measure of individual,
group, or organizational performance
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-5
Presentation Slide 10-1
Advantages of Incentive Plans
Focus Employee
Effort
Variable Costs
Tied to Operating
Performance
Foster Teamwork
Distribute
Success
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-6
Six Components of Effective
Incentive Plan Administration
 Grant
incentives based on performance
 Adequate financial resources to reward
performance
 Clearly defined and accepted performance
standards
 Easily understood payout formula
 Reasonable administrative costs
 Wide coverage of employees
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-7
Administering Incentive Plans
Individual
Differences in
Performance
Sufficient Salary
Budgeting
Accurate Cost
Overhead
Determination
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-8
Presentation Slide 10-2
Employee Opposition to Incentive Plans






Production standards are set unfairly.
Incentive plans are really “work speedup.”
Incentive plans create competition among
workers.
Increased earnings result in tougher standards.
Payout formulas are complex and difficult to
understand.
Incentive plans cause friction between employees
and management.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-9
Incentives for Hourly Employees
Piecework
Individual Bonuses
Team Bonuses
Standard Hourly
Plan
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-10
Presentation Slide 10-3
Incentive Plans for Employees #1
Type of Incentive
Based on
Piece rate
Units produced
Standard hour plan
Time saved
Bonuses
Established goals or criteria
Merit raises
Established criteria and
policies
Amount of sales
Commissions
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-11
Presentation Slide 10-4
Incentive Plans for Employees #2
Type of Incentive
Based on
Maturity curves
Experience and performance
Stock options
Achievement of specific
goals
Organizational profits
distributed proportional to
pay
Improved productivity or
cost savings
Special purchase plans or
bonus distribution
Profit sharing
Gainsharing
Stock ownership
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-12
Presentation Slide 10-5
Motivation Through Merit Raises





Develop employee confidence and trust in
performance appraisal
Establish job-related performance criteria
Separate merit pay from regular pay
Withhold merit payments when
performance declines
Distinguish merit raises from cost-of-living
raises
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-13
Straight Piecework
Incentive plan under which employees
receive a certain rate for each unit produced
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-14
Differential Piece Rate
Compensation rate under which employees
whose production exceeds the standard
amount of output receive a higher rate for all
of their work than the rate paid to those
who do not exceed the standard amount
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-15
Standard Hour Plan
Incentive plan that sets rates based
upon the completion of a job
in a predetermined standard time
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-16
Bonus
Incentive payment that is supplemental
to the base wage
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-17
Spot Bonus
Unplanned bonus given for employee
effort unrelated to an established
performance measure
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-18
Merit Guidelines
Guidelines for awarding merit raises
that are tied to performance objectives
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-19
Lump-Sum Merit Program
Program under which employees receive
a year-end merit payment, which is
not added to their base pay
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-20
Compensating Salespersons
Salary
Commission
Combination Plan
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-21
Straight Salary Plan
Compensation plan that permits salespeople
to be paid for performing various
duties that are not reflected immediately
in their sales volume
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-22
Straight Commission Plan
Compensation plan based
upon a percentage of sales
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-23
Combined Salary and
Commission Plan
Compensation plan that includes
a straight salary and a commission
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-24
Maturity Curves
Experience or performance bases
for providing salary increases
for professional employees
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-25
Perquisites
Special benefits given to executives;
often referred to as perks
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-26
Executive Perquisites








company-provided car
free financial consulting
club memberships
use of company plane and
yacht
use of company loges at
sporting events
low-cost or no-cost loans
special travel allowances
limousine service







kidnap and ransom
protection
free legal counseling
family member travel
allowances
home entertainment
allowance
payment of children’s
educational expenses
executive dining room
estate planning
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-27
Presentation Slide 10-6
Criticisms of Executive Incentive Plans
Incentive payments are excessive compared with
return to stockholders.
 Time periods for judging and rewarding
performance are too short.
 Quarterly earnings growth is emphasized at the
expense of research and development.
 Emphasis is placed upon equaling or exceeding
executive salary survey averages.
 Benefits do not relate closely to individual
performance.

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-28
Presentation Slide 10-7
Types of Group Incentive Plans
• Teams
• Gainsharing Incentive Plans
–
–
–
–
Scanlon Plan
Rucker Plan
Improshare
Earnings-at-Risk
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-29
Gainsharing Incentive Plans
Scanlon
Rucker
Improshare
Earnings-at-Risk
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-30
Team Incentive Plan
Compensation plan where all team members
receive an incentive bonus payment
when production or service standards
are met or exceeded
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-31
Gainsharing Plans
Programs under which both employees and
the organization share the financial gains
according to a predetermined formula
that reflects improved productivity
and profitability
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-32
Scanlon Plan
Bonus incentive plan using employee
and management committees
to gain cost-reduction improvements
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-33
Rucker Plan
Bonus incentive plan based on the historic
relationship between the total earnings
of hourly employees and the production
value created by the employees
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-34
Improshare
Gainsharing program under which
bonuses are based upon the overall
productivity of the work team
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-35
Earnings-at-Risk
Incentive Plans
Incentive pay plans placing a portion
of the employee’s base pay at risk, but
giving the opportunity to earn income
above base pay when goals are
met or exceeded
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-36
Profit Sharing
Any procedure by which an employer pays,
or makes available to all regular employees,
in addition to base pay, special current or
deferred sums based upon the profits
of the enterprise
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-37
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
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-38
Employee Stock Ownership Plans
Providing
Retirement
Benefits
Pride of
Ownership
Advantages
Disadvantages
Inability to Buy
Back Stock
Dependency
Lost Tax Revenue
No Guarantee
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-39