Recognizing Employee Contributions with Pay (Pay for Individual…
Recognizing Employee Contributions with Pay
forms of pay linked to an employee’s performance as an individual, group member, or organization member.
Incentive pay is influential because the amount paid is
linked to certain predefined behaviors or outcomes.
For incentive pay to motivate employees to contribute to the organization’s success, pay plans must be well designed.
Effective Incentive Pay Requirements
Performance measures are linked to the organization’s goals.
Employees believe they can meet performance standards.
Organization gives employees the resources they
need to meet their goals.
Employees value the rewards given
Employees believe the reward system is fair
Pay plan takes into account that employees may
ignore any goals that are not rewarded.
Pay for Individual Performance
Straight Piecework Plan:
Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces.
Differential Piece Rates
: Incentive pay in which the piece rate is higher when a greater amount is produced.
A wage based on the amount workers produce.
Standard hour plans
Standard Hour Plan
: An incentive plan that pays workers extra for work done in less than a preset “standard time”
A system of linking pay increases to ratings on a performance scale.
They make use of a merit increase grid.
The employee must re-earn them during each
Performance bonuses are not rolled into base pay.
Sometimes the bonus is a one-time reward.
Bonuses may also be linked to objective performance measures, rather than subjective ratings.
Commissions – incentive pay calculated as a
percentage of sales.
Some earn a commission in addition to a base salary.
Straight commission plan – some earn only
Some earn no commissions at all, but a straight salary
Pay for Group Performance
Addresses challenge of identifying appropriate performance measures for complex jobs.
Frees employees to determine how to improve their own and their group’s performance.
10 Conditions for Effective Gainsharing
Need for change or commitment to continuous improvement
Management acceptance and encouragement of employee input
Information sharing on productivity and costs.
High levels of cooperation and interaction
Commitment of all involved parties to the process
of change and improvement.
Performance standard and calculation that employees understand and consider fair and that is closely related to managerial objectives.
Employees who value working in groups.
Gainsharing – group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees.
Bonuses for group performance tend to be for smaller work groups.
These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output
Team Awards:Similar to group bonuses, but more likely to use a broad range of performance measures:
of a project
Pay for Organizational Performance:
Profit sharing may encourage employees to think like
incentive pay in which payments are a percentage o
Evidence is not clear whether profit sharing helps
organizations perform better.
Rights to buy a certain number of shares of stock at a specified price.
Traditionally, stock options have been granted to execu
a combination of performance measures directed toward the company’s long- and short-term goals and used as the basis for awarding incentive pay.
Four categories of a balanced scorecard include: financial, customer, internal, learning and growth
Processes That Make Incentives Work
Participation in Decisions
Employee participation in pay-related decisions can be part of a general move toward employee empowerment.
Employee participation can contribute to the incentive plan’s success.
Communication demonstrates that the pay plan is fair.
When employees understand the incentive pay plan’s requirements, the plan is more likely to influence their behavior as desired.
Important when changing the pay plan.
Incentive Pay for Executives
Bonuses based on ROI, year’s profits, or other measures related to the organization’s goals.
Actual payment of bonus may be delayed to gain tax advantages.
Rationale is that executives will want to do what is best for the organization because that will cause the value of their stock to grow
Include stock options and stock purchase plans.