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Pay for Performance (Individual-based incentive plan- try to tie…
Pay for Performance
Individual-based incentive plan- try to tie individual effort to additional rewards. Based on individual competencies, contributions and participation
Sales commission- Sales commission is where an employee gets paid a base wage, and receive an amount based on the percentage of sales price achieved by them. These plans tend to attract high-performing salespeople who are motivated by the rewards.
More Payroll Work- A standard hourly wage is generally easier to calculate each pay period, since it remains the same except for overtime or bonuses. The piece rate pay method/ sales commission requires more work from the payroll department, as the productivity levels fluctuate frequently. Each employee will likely vary at times on the amount produced.
Pros
Motivate and increase productivity-
to motivate employees toward better results and to reward high performers. If you pay salesmen a straight salary, some may have limited motivation to exceed basic expectations. However, by adding commission-earning opportunity, companies drive salesmen to set more aggressive goals,
Retention of employees
- feel valued by the company and more likely to stay
- Incentives help attract more desirable and motivated employees
- High level of commitmment to the comapny
Increases in job satisfaction
Cons
Unhealthy competition: The incentive plans places employees in a competitive position for salary increases. This competition between employees might go against organizational objectives of teamwork and cooperation.
High Turnover Potential: The incentive plan can discourage staffers and result in high turnover as employees leave to seek other jobs with more stable compensation structures. Turnover can be bad for business, as the company will incur the costs of advertising, recruiting, screening and retraining new hires.
Piece rate- The piece rate pay method compensates employees a set amount for each unit of work completed. For example, in a manufacturing setting, an employee receives a set amount for each item he produces, regardless of how fast or slow he works.
More Payroll Work- A standard hourly wage is generally easier to calculate each pay period, since it remains the same except for overtime or bonuses. The piece rate pay method/ sales commission requires more work from the payroll department, as the productivity levels fluctuate frequently. Each employee will likely vary at times on the amount produced.
Fairness- the higher the output the higher the employee receive paycheck, it is measurable and objective, less likely for biases
Merit Pay- Merit Pay is a pay increase that is added to employee’s base pay based on their level of performance. It assumes that employees should be rewarded differently based on the effort they put in. The purpose of the incentive is to motivate employees to have a better work performance and to retain valued employees.
Subjective- The pay is subjective. Merit pay often depends on subjective judgments. Is a valid or reliable instrument being used for measuring job performance?
Low morale: Merit pay plans may create problems in employee relationships, problems in morale related to jealousy, fear, favouritism, undesirable competition, and job insecurity.
Occurrence of biases- Management selection of employees leads to allegations of favoritism. An employee nomination system may lead to the creation of discord and factions within the workforce. This problem may be made worse if family members, dating or married couples work together, Merit Pay.
Costly:A cash bonus can be costly for any company. A company must calculate whether it can afford yearly bonuses, holiday bonuses or the use of incentive and reward bonuses—and for how many employees.
Team-based incentive plan- based on the team objective such as developing a new product or budget vacancies
Scanlon Plan-it relies on department-level employee/ management committees to develop cost-savings activities. Scanlon Plans focus on the cost of labour and encourage cooperation among employees. Savings are calculated by comparing the sales value of production with employee costs. They are often used in service industries where customer service focus is essential to success.
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Cons
• Employees must trust that management will disclose accurate financial and profit information.
• To be credible, management must be willing to disclose sufficient financial and profit information to alleviate the scepticism of employees
Team Pay- payments to members of formally established team are linked to the performance of that team. the rewards are shared among the members of the team in accordance with a published formula or on an ad hoc basis in the case of exceptional achievements
Adv: Encourages teamworking, enhances flexible working and multi-skilling, clarifies team goals, encourage less effective performance to improve by meeting team standards
Cons: may be difficult to identify well-defined teams with clear and measurable goals, individuals may resent the fact that their own performance is not recognized.
Gain-sharing: A formula-based company or factory wide bonus plan that provides for employees to share in the financial gains made by a company as a result of its improved performance as measured, for example by value adding
Adv: Recognizes that everyone working in a plant contributes to creating added value and should benefit accordingly, provides a platform for the joint analysis of methods of improving productivity
Cons: does not provide an individual incentive, can be complex, ineffective if too high a proportion of added value is retained by the company
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Objectives of Pay for Performance: The aims of relating rewards to business performance are to:
• increase the commitment of employees to the organization;
• enable employees to share in the success of the organization;
• stimulate more interest in the affairs of the organization;
• focus employees’ attention on what they can contribute to organizational success and
bring areas for improvement to their attention