Human Resource Management
Presented to:
Sir Ahmad Tasman Pasha
Presented by:
khurram Shahzad
BSIT07-32
Department of Computer Science
Bahuddin Zakariya University Multan, Pakistan
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Chapter name : Pay For Performance And
Financial Incentives
Topics
Organization Wide Variable Pay Plans
Incentives For Blue-collar Jobs
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Organization Wide Variable Pay Plans
Contents
What is Incentive?
What is Incentive plan?
Organization wide incentive plans
ESOP
Scanlon Plans
At risk Variable Pay Plans
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What is incentive?
“Rewards paid to workers whose
production exceeds some predetermined
standard.”
Rewards can be in the form of bonus,
vehicles, house facility and by many
other ways.
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What is incentive Plan?
“ A plan in which production standard
is set for the workers who exceeds
the production standard ”.
Example
“ NFC Marketing Sales Officer ” is
rewarded on the basis of fertilizer
sales in his region.
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What is Organization wide
incentive Plan?
“ Incentive Plans in which all employees
can participate ”.
 Here Production Standard is set for
all employees of an organization.
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Types Of Organization wide
incentive Plan

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
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Profit Sharing Plans
ESOP
Scanlon plans
At Risk Variable Pay Plans
80% of the companies using profit sharing use
the deferred option.
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Organization wide incentive Plans
Profit
Sharing
ESOP
Scanlon Plans
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At Risk Variable
Pay Plans
Profit Sharing Plans
“ Plans in which employees receive a share
of the firm’s annual profit. ”
Profit sharing is not dominant in many
industrialized countries.
Participant Eligibility
Any employee age 21 and older who has completed
two years of service must be included in the plan.
(This can be vary from organization to organization)
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Profit Sharing Plans
Combinations
Cash or current distribution plans
Deferred plans
Both
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Profit Sharing Plans
Cash plans
Employees receive cash shares of the firm's
profits at regular intervals.
Deferred profit-sharing plans
A predetermined portion of company profits is
placed in each employee’s account under a
well organized department.
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How does Profit sharing work?
 The company contributes a portion of its
profits to a pool that will be distributed
among eligible employees.
 The amount distributed to each employee
may be weighted by the employee's base
salary.
 so that employees with higher base
salaries receive a slightly higher amount
of the shared pool of profits.
 Generally this is done on an annual basis.
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Advantages of Profit Sharing
Plans
 Boost productivity and Morale.
 Brings groups of employees to work
together toward a common goal
 Helps employees focus on profitability.
 Enhances commitment to organizational
goals.
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Example
 Lincoln Electric Company
HERE Profits(15%-20%) are distributed
to employees based on their individual
merit rating.
Home Depot Organization
It distributed $90 million in 2003 using
Profit Sharing Plan
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Employee Stock Ownership PLAN
(ESOP)
“ESOP is a retirement plan in which the
company contributes its stock to the trust.
The trust distributes the stock to employees
on retirement or separation from service”.
 A corporation annually contributes its own
stock or cash (with a limit of 15% of
compensation) to be used to purchase the
stock to a trust established for the employees.
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Employee Stock Ownership PLAN
(ESOP)
The trust holds the stock in individual
employee accounts and distributes it to
employees upon separation from the firm
if the employee has worked long enough
to earn ownership of the stock.
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Advantages Of ESOP
ESOP help employees develop a
sense of ownership and commitment to
the firm, and help to build teamwork.
No taxes on ESOP are due until
employees receive a distribution
from the trust, usually at retirement.
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Example Of ESOP
 Thermacore Company
Thermacore is a private company and it
Uses the ESOP system to give seniority
to their employees.
Seniority Formula
15% of company income × employee bonus pool %age rate
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Scanlon Plan
“An incentive plan developed in 1937 by
Joseph Scanlon and Designed to encourage
cooperation, involvement and sharing of benefits ”.
Important Features
Co-operation of employees
Mission and Policies
Competency
Sharing of benefits formula
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At Risk Variable Pay Plans
“Plans that put some portion of the employee’s
weekly, monthly and yearly pay at risk, subject
to the firm’s meeting it’s financial goals ” .
Important Rules
If employees meet or exceed their goals, they
earn back not only the portion of their pay that was
at risk but also some incentives.
If they fail to meet their goals, they forego some
of the pay they would normally have earned.
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Incentive Plans For Blue Collar Jobs
Contents
Piecework Plan
Straight Piecework Plan
Standard Hours Plan
Merit pay plan
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Piecework Plans
“A system of pay based on the number of
items processed by each individual worker
in a unit of time, such as items per hour or
items per day. ”
Example
Programmer Job
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Straight Piecework Plan
“An incentive plan in which a person is paid a
sum for each Item he or she makes or sells,
with a strict proportionality Between results
and rewards. ”
Example
If Programmer develops an outstanding
software for an organization that is
above the expectations of organization
then he will be rewarded.
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Standard Hour Plan
“A plan by which a worker is paid a basic hourly
rate but is paid an extra %age of his or her rate
for production exceeding the standard per hour
or per day similar to piecework payment but
based on a percent premium.”
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Merit Pay Plan
“Any Salary increase awarded to an
employee based on his or her individual
performance.”
Example
Promotion system in private sector
in Pakistan.
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