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Pay for Performance and Financial Incentives

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1 Pay for Performance and Financial Incentives
Chapter 12 Pay for Performance and Financial Incentives Discuss the main incentives for individual employees. Discuss the pros and cons of incentives for salespeople. Name and define the most popular organization wide variable pay plans. Describe the main incentives for managers and executives. Outline the steps in developing effective incentive plans.

2 Money and Motivation: An Introduction
Financial Incentives Financial rewards paid to workers whose production exceeds a predetermined standard

3 Money and Motivation: An Introduction
Performance and Pay (Frederick Taylor) Motivation and Incentives Frederick Herzberg Edward Deci Vector Vroom Behavior Modification / Reinforcement Theory Incentive Pay Terminology (Variable Pay)

4 Individual Employee Incentive and Recognition Programs
Piecework Plans Piecework A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day Straight Piecework A fixed sum is paid for each unit the worker produces under an established piece rate standard. An incentive may be paid for exceeding the piece rate standard Standard Hour Plan The worker gets a premium equal to the percent by which his or her work performance exceeds the established standard

5 Individual Employee Incentive and Recognition Programs
Merit Pay as an Incentive Merit Pay (Merit Raise) A permanent cumulative salary increase the firm awards to an individual employee based on his or her individual performance Merit Pay Options 1 Annual lump-sum merit raises that do not make the raise part of an employee’s base salary 2 Merit awards tied to both individual and organizational performance

6 Individual Employee Incentive and Recognition Programs
Incentives for Professional Employees Recognition Based Awards Supporting Incentives and Recognition Programs with Technology

7 Incentive for Salespeople
Salary Plan Commission Plan Combination Plan Setting sales Quotas Straight Sales Incentives

8 Team /Group Incentive Plans
How to Design Team Incentives Pros and Cons of Team Incentives

9 Organization Wide Incentives Plans
Organization Wide Incentive Plans Incentive plans in which all or most employees can participate Profit Sharing Plans A plan where by employees share in the company’s profit Employee Stock Ownership Plan (ESOP) A corporation contributes shares of its own stock to a trust in which additional contributions are made annually. The trust distributes the stock to employee on retirement or separation from services Scanlon Plan An incentive plan developed in 1937 by Joseph Scanlon and designed to encourage corporation, involvement, and sharing of benefits Gain Sharing Plans An incentive plan that engages employees in a common effort to achieve productivity objectives and share the gains At Risk Variable Pay Plans Plans that put some portion of the employee’s weekly pay at risk, subject to the firm’s meeting its financial goals

10 Incentives for Managers and Executives
Short Term Incentives Annual Bonus Plans that are designed to motivate short-term performance of managers and are tied to company profitability Eligibility – Fund Size – Individual Awards Long Term Incentives Stock Option The right to purchase a specific number of shares of company stock at a specific price during a specific period of time Stock Option Problems – Broad Based Stock Options – Other Plans

11 Designing Effective Incentive Programs
Why Incentive Plans Fail? How to Implement Effective Incentive Plans? Research Insight: The Impact of Financial and Non Financial Incentives

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