Lim Sei Kee @ cK
Variable Pay: Incentives for
Performance
Variable Pay Systems
Service Pay Systems
Some jobs contribute more to the
organization than others.
Time spent is the primary
measure of employee contribution
Some people perform better than
others.
Length of service is the primary
differentiating factor among
people.
Employees who perform better
should receive more
compensation.
Contributions are recognized
through different amounts of base
pay.
A portion of some employees’
total compensation should be
contingent on performance.
Apportioning rewards based on
individual performance is
considered to be divisive.
Factors for Successful
Variable Pay Plans
Individual Incentives
Identification of
Individual
Performance
Independent
Work
Individual
Incentive Pay
Plans
Individualism
Stressed in
Organizational
Culture
Individual
Competitiveness
Desired
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 units produced up
to a standard output and a higher piece-rate wage for
units produced over the standard.
Bonuses and Special Incentive
Programs
 Bonus
 A one-time payment that does not become part of the
employee’s base pay.
 Awards
 Cash or merchandise used as an incentive reward.
 Recognition Awards
 Recognition of individuals for their performance or
service to customers in areas targeted by the firm.
 Service Awards
 Rewards to employees for lengthy service with an
organization.
Sales Compensation Plans
 Salary Only
 All compensation is paid as a base wage with no
incentives.
 Commission
 Straight Commission
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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.
Why Organizations Establish Team Pay Plans
Group/Team-Based Variable Pay
Determining
Individual
Rewards
Timing of
Team Incentives
Deciding the
Allocation of
Rewards
Distributing
Team
Incentives
Conditions for Successful Team Incentives
Gainsharing
 Gainsharing
 The sharing with employees of greater-than-expected
gains in productivity.
 Alternatives for rewards distribution:

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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
Profit Sharing
 Profit Sharing
 A 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
Profit-Sharing Plan Framework Choices
Common Executive Perks
Benefits
 Benefit
 An indirect compensation given to an employee or group
of employees as a part of organizational membership.
 Strategic Perspectives on Benefits
 Benefits absorb social costs for health care and
retirement.
 Benefits influence employee decisions about employers
(e.g., recruitment and retirement).
 Benefits are increasingly seen as entitlements.
 Benefit costs are about 40% of total payroll costs.
How the Benefit Dollar Is Spent
Benefit Needs Analysis
 Benefit Needs Analysis
 A comprehensive look at all aspects of benefits.

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How much total compensation?
What part of total compensation should benefits comprise?
What expense levels are acceptable for each benefit?
Which employees should get which benefits?
What are we getting in return for the benefit?
How will offering benefits affect turnover, recruiting, and
retention of employees?
How flexible should the benefits package be?
Types of Benefits
Other Benefits
Credit Unions
Purchase Discounts
Stock Investment
Family-Care
Benefits
Family-Oriented
Benefits
Social and
Recreational
Relocation
Expenses
Benefits
Life, Disability,
Legal Insurances
Educational
Assistance
Time-Off Benefits
 Holiday Pay
 Eligibility
 Vacation Pay
 Leaves of Absence
 Family Leave
 Medical and Sick Leave
 Paid Time-Off (PTO) Plans
 Military Leave
 Election Leave
 Jury-duty Leave
 Funeral Leave
Typical Division of HR Responsibilities:
Benefits Administration