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Chapter 10: Pay For Performance Plan (Specific Pay for Performance…
Chapter 10: Pay For Performance Plan
Specific Pay for Performance Plans(Short Term)
Merit Pay
- A merit pay system links increases in base pay to how highly employees are rated on a subjective performance evaluations - Issues: Exopensive, doesnt achieve the desired goal which improving employee and corporate performance -Managing merit pay: improving accuracy of performance, allocate enough money to truly rewards performance -Make sure size of merit increase differentiates across perfromance
Merit Bonus
-Increasingly used substitute for merit pay
-Not built inro base pay
-viewed as less of an entitlement than merit pay
-Less expensive than merit pay over the long run
Individual Spot Awards
-Viewed as highly or moderately effective
-Typically awarded for exceptional performance
Indiviual Incentives Plan
-Offer a promise a pay for some objective, pre established level of performance
-Common feature: An established standars against which employee performance is compared to determine magnitude of incentive pay
The Taylor plan establishes two piecework rates
In the Merrick system, three piecework are set
In the Hasley 50-50 method, the savings from completion of a task in less than the standard time are allocated between 50-50 between the worker and the company
The Rowan plan is similar to the Hasley Plan; the major distinction in this plan that a worker's bonus increases as the time required to complete the task decreases
In the Gantt plan, the standard time for a task is purposely set at a level requiring high effort to complete
Team Incentive Plans
-Few causes for failures of team incentives schemes:
-Varieties in teams
-Level problem
-Complexity
-Control
-Communications
Gain Sharing Plans:
-Scanlon Plans-desin to lower labor cost without lowering the level of a firm's activity
-Rucker Plan-A ratiois calculated that expresses the value of production required for each dollar of total wage bill
Key Elements in GainSharing Plan:
-Strength of reinforcement
-Productivity standards
-Sharing the gains
-Scope of the formula
-Perceived fairness of the formula
-Ease of administration
-Production variability
Profit Sharing Plan
-Predetrmined index of profitability -The trend in recent variable pay design is to combine the best of gain sharing and profit sharing plans -the plans must be self funding -Along with having the financial incentive, employees feel they have a measure of control
Earning at-risk Plans
-Success sharing Plan: Employee base pay is constant
-Risk sharing Plan: base pay is reduced by some amount relative to the level that would be offered in a success-sharing plan
Group Incentive Plans
-All incentive plans can be described by common features:
-The size of the group that participates in the plan
-The standard against which performance is compared
-The payout schedule
Long Term Incentives Plan
Employee Stock Ownership Plans (ESOPs)
-The effects are generally long-term
-Foster employee willingness to participate in the decision making process
-have little impact on productivity or profit
Performance plans(performance share and performance unit)
-driven by financial earnings or return measures, and they pay out for meeting or exceeding specific goals
Broad_based Options Plan (BBOPs)
-Are stock grants
-Are versatile