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Pay-for-Performance (Incentives) (Individual Incentive Plans (Merit Pay…
Pay-for-Performance (Incentives)
Definition
Incentive scheme is an employee motivational program designed to encourage commitment to increasing productivity or in achieving some worthwhile predetermined standards.
Purpose
The basic purpose of all pay-for-performance incentive plans is to improve employee productivity.
Individual Incentive Plans
Merit Pay
Advantages:
:check: Straightforward and easy to use
Disadvantages:
:green_cross: May add to the base salary permanently
:green_cross: Employees may treat it as their cost of living (Dilution effect)
:green_cross: Appraisal standards are hard to establish in certain jobs
Piecework Plan
Advantages:
:check: Simple and easily understood by workers
Disadvantages:
:green_cross: Any changes in the overall pay scale would require computation of new piece rates for every job
:green_cross: Not all work comes in a neat, piecemeal manner
:green_cross: Not always possible to attribute output directly to an individual
Sales Commission
Types:
Straight commission
Draw against commission
Base salary plus commission
Residual commission
Tired commission
Advantages:
:check: Direct way of motivating employees
:check: Employees know exactly how they have contributed to the company's revenue
:check: Easy for managers to control labour cost
Disadvantages:
:green_cross: Unpredictable Expense especially if sales are credited
:green_cross: Stressful for employees
Professional Employees Pay
Disadvantages:
:green_cross: Very challenging as professionals are are well paid already
:green_cross: Can be expensive to incentivise them with monies
Advantages:
:check: Specially tailored to meet the needs of a specific group
Company-wide Incentive Plan
Profit Sharing
Types:
Current Plan
Deferred Plan
Combination Plan
Advantages:
:check: Increase efficiency when all the employees knows that they are working for the same goal
:check: Shared service to customers when employees all ahve the same goals
Disadvantages:
:green_cross: Not all members know precisely how they have helped generate profits causing them to view this as an entitlement program
:green_cross: Without knowing how they have helped, they would not know which behaviour to continue and which to improve on
Gain Sharing
Types:
Scanlon plan
Improshare
Advantages:
:check: Sustains company's key performances
:check: Supports other performance improvements and promote
:check: Promote positive change
:check: Foster a culture of continuous improvement
Disadvantages:
:green_cross: Requires participative management style
:green_cross: Increase organisational stress
At-Risk Pay Plans
Disadvantages:
:green_cross: Employees lower down the organisational chart may not have control over their 'at-risk' pay
:green_cross: Dilution effect if employee's do not know how they had contributed
Advantages:
:check: Room for huge pay bonuses
:check: Align company’s goals and objectives with employees’
Team-Based Incentive Plan
Advantages:
:check: Foster Teamwork
:check: Encourage peers to serve as mentors for newer members
:check: Push and motivate one another
Disadvantages:
:green_cross: Peer pressure may lead the individual to conform to groupthink or leave the group
:green_cross: May demotivate faster workers as each members contribution would be different yet all get the same pay