Chapter 12
Pay for Performance and Financial Incentives
1.
Discuss the main incentives for individual employees.
2.
Discuss the pros and cons of incentives for salespeople.
3.
Name and define the most popular organization wide variable pay plans.
4.
Describe the main incentives for managers and executives.
5.
Outline the steps in developing effective incentive plans.
1
Money and Motivation: An Introduction
Financial Incentives
Financial rewards paid to workers whose production exceeds a predetermined
standard
2
Money and Motivation: An Introduction
Performance and Pay (Frederick Taylor)
Motivation and Incentives
Frederick Herzberg
Edward Deci
Vector Vroom
Behavior Modification / Reinforcement
Theory
Incentive Pay Terminology (Variable Pay)
3
Individual Employee Incentive and Recognition Programs
Piecework Plans
Piecework
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
A fixed sum is paid for each unit the worker produces under
an established piece rate standard. An incentive may be
paid for exceeding the piece rate standard
Straight
Piecework
Standard
Plan
Hour
The worker gets a premium equal to the percent by which
his or her work performance exceeds the established
standard
4
Individual Employee Incentive and Recognition Programs
Merit Pay as an Incentive
Merit Pay
Raise)
(Merit
A permanent cumulative salary increase the firm awards to an
individual employee based on his or her individual performance
Merit Pay Options
1
Annual lump-sum merit raises that do not make the raise part of an employee’s
base salary
2
Merit awards tied to both individual and organizational performance
5
Individual Employee Incentive and Recognition Programs
Incentives for Professional Employees
Recognition Based Awards
Supporting Incentives and Recognition Programs with Technology
6
Incentive for Salespeople
Salary Plan
Commission Plan
Combination Plan
Setting sales Quotas
Straight Sales Incentives
7
Team /Group Incentive Plans
How to Design Team Incentives
Pros and Cons of Team Incentives
8
Organization Wide Incentives Plans
Organization Wide Incentive Plans
Incentive plans in which all or most employees can participate
Profit Sharing Plans
A plan where by employees share in the company’s profit
Employee
Ownership
(ESOP)
A corporation contributes shares of its own stock to a trust in which additional
contributions are made annually. The trust distributes the stock to employee on
retirement or separation from services
Stock
Plan
Scanlon Plan
An incentive plan developed in 1937 by Joseph Scanlon and designed to
encourage corporation, involvement, and sharing of benefits
Gain Sharing Plans
An incentive plan that engages employees in a common effort to achieve
productivity objectives and share the gains
At Risk Variable Pay
Plans
Plans that put some portion of the employee’s weekly pay at risk, subject to the
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firm’s meeting its financial goals
Incentives for Managers and Executives
Short Term Incentives
Annual Bonus
Plans that are designed to motivate short-term performance of managers and are
tied to company profitability
Eligibility – Fund Size – Individual Awards
Long Term Incentives
Stock Option
The right to purchase a specific number of shares of company stock at a specific
price during a specific period of time
Stock Option Problems – Broad Based Stock Options – Other Plans
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Designing Effective Incentive Programs
Why Incentive Plans Fail?
How to Implement Effective Incentive Plans?
Research Insight: The Impact of Financial and Non Financial Incentives
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