Chapter
Pay-for-Performance:
Incentive Rewards
Managing Human Resources
PowerPoint Presentation by Monica Belcourt, York University
and Charlie Cook, The University of West Alabama
Learning Outcomes
After studying this chapter, you should be able to:
1.
2.
3.
4.
Discuss the basic requirements for successful
implementation of incentive programs.
Identify 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.
Indicate the advantage of each of the principal methods
used to compensate salespeople.
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Learning Outcomes (Cont’d)
After studying this chapter, you should be able to:
5.
6.
7.
Differentiate how gains may be shared with employees
under the Scanlon and Improshare gainsharing systems.
Differentiate between profit-sharing plans and explain
advantages and disadvantages of these programs.
Describe the main types of ESOPs and discuss the
advantages of ESOP to employers and employees.
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10–3
Strategic Reasons for Incentive Plans
Variable Pay
Incentive Pay Programs
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Figure 10–1
Types of Incentive Plans
INDIVIDUAL
GROUP
ENTERPRISE
Piecework
Team compensation
Profit sharing
Standard hour plan
Scanlon Plan
Stock options
Bonuses
Improshare
Employee stock
ownership plans
(ESOPs)
Merit pay
Lump-sum merit pay
Incentive awards
Sales incentives
Incentives for professional
employees
Executive compensation
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Incentive Plans Advantages
Focus on performance targets
Variable costs
Team incentives encourage collaboration
More effort, better pay
Incentive Plan Effectiveness
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Employee Opposition to Incentive Plans
Include:
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Successful Incentive Plans
Include:
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Highlights in HRM 10.1
Setting Performance Measures—The Keys
Performance measures—at all organizational levels—
must be consistent with the strategic goals of the
organization.
Define the intent of performance measures and
champion the cause relentlessly.
Involve employees.
Consider the organization’s culture and workforce
demographics when designing performance measures.
Widely communicate the importance of performance
measures.
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Effective Incentive Plan Administration
Grant incentives based on individual performance
differences.
Have the financial resources to reward performance.
Set clearly defined, accepted, and challenging yet
achievable performance standards.
Use an easily understood payout formula.
Keep administrative costs reasonable.
Do not “ratchet up” performance standards.
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Individual Incentive Plans
Straight Piecework
Differential Piece Rate
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Computing the Piece Rate
60 minutes(per hour)
= 5 units per hour
12 Minutes (standard time per unit)
$7.50 (hourly rate)
= $1.50 per unit
5 units (per hour)
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Piecework: The Drawbacks
Problems with piecework systems:
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Individual Incentive Plans:
Standard Hour Plan
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Bonuses
Bonus
Spot bonus
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Merit Pay
Merit Pay Program (merit raise)
Merit Guidelines
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Problems with Merit Raises
Include:
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Motivation Through Merit Raises
Develop employee confidence and
trust in performance appraisal.
Establish job-related performance
criteria.
Separate merit pay from regular
pay.
Distinguish merit raises from costof-living raises.
Withhold merit payments when
performance declines.
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Lump-Sum Merit Pay
Lump-sum Merit Program
 Program under which employees receive a year-end merit
payment, which is not added to their base pay.
 Advantages:
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Incentive Awards and Recognition
Awards
Noncash Incentive Awards
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Sales Incentives
Sales Incentive Plans
Straight Salary
Straight Commission
Salary and Commission
Combinations
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Incentive Plans for Salespersons
Straight Salary Plan
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Incentive Plans for Salespersons (Cont'd)
Straight Commission Plan
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Incentive Plans for Salespersons (Cont'd)
Combined Salary and Commission Plan
 Advantages:
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Incentives for Professional Employees
Managerial and Executive Incentives
Bonuses and merit increases
Double-track wage systems
Performance incentive bonuses
Profit sharing and stock ownership
Executive perquisites (perks)
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Executive Compensation
The Executive Pay Package
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Figure 10–3
Types of Long-Term Incentive Plans
Stock Option
Phantom Stock
Stock Appreciation
Rights (SARs)
Restricted Stock
Stock Purchase
Performance Units
Performance Shares
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Executive Compensation: Ethics and
Accountablility
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.
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Highlights in HRM 10.3
The “Sweetness” of Executive Perks
• Company car
• Spouse travel
• Company plane
• Medical exams
• Executive eating facilities
• Mobile phones
• Financial consulting
• Large insurance policies
• Company-paid parking
• Income tax preparation
• Personal liability insurance
• Country club membership
• Estate planning
• Luncheon club membership
• First-class air travel
• Personal home repairs
• Home computers
• Loans
• Chauffeur service
• Legal counseling
• Children’s education
• Vacation options
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Group Incentive Plans
Team Incentive Plans
Establishing Team Incentive Payments
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Gainsharing
Gainsharing Plans
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The Pros and Cons of Team Incentive Plans
PROS
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The Pros and Cons of Team Incentive Plans
(Cont’d)
CONS
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Employee Bonus and Gainsharing Plans
Scanlon Plan
Rewards come from employee participation in
improving productivity and reducing costs.
Improshare
Gainsharing based on increases in
productivity of the standard hour output of
work teams.
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Figure 10–4
Scanlon Plan Suggestion Process
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The Network Improshare
A gainsharing program
under which bonuses are
based on the overall
productivity of the work
team.
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Enterprise Incentive Plans
Profit Sharing
 Challenges:
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Enterprise Incentive Plans (cont’d)
 Employee Stock Options
Plans
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Employee Stock Ownership Plans
Employee Stock
Ownership Plans
(ESOPs)
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Employee Stock Ownership Plans
Rewards and Risks of ESOPS
Advantages
Disadvantages
Retirement benefits
Liquidity and value
Pride of ownership
Single funding basis
Incentive to work
Falling stock
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Effective Incentive Plans
Direct relationship between performance and incentives.
Link between effort and rewards.
Money must be of value to the employee.
Must be neither criterion deficient or criterion
contaminated.
No pressure from peers to reduce output or pressure to
increase while risking safety.
High trust in organization.
Communication.
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