Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-1 Presentation Slide 10-1 Advantages of Incentive Pay Programs n Employee effort is focused on important targets n Rewards are variable costs linked to results n Incentives are directly related to improved performance n Incentives reward those responsible for higher performance

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-2 Variable Pay Tying pay to some measure of individual, group, or organizational performance

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-3 Presentation Slide 10-1 Advantages of Incentive Plans Foster Teamwork Variable Costs Tied to Operating Performance Focus Employee Effort Distribute Success

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-4 Six Components of Effective Incentive Plan Administration u Grant incentives based on performance u Adequate financial resources to reward performance u Clearly defined and accepted performance standards u Easily understood payout formula u Reasonable administrative costs u Wide coverage of employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-5 Presentation Slide 10-2 Employee Opposition to Incentive Plans s Production standards are set unfairly. s Incentive plans are really “work speedup.” s Incentive plans create competition among workers. s Increased earnings result in tougher standards. s Payout formulas are complex and difficult to understand. s Incentive plans cause friction between employees and management.

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-6 Incentives for Hourly Employees Piecework Team Bonuses Individual Bonuses Standard Hourly Plan

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-7 Presentation Slide 10-3 Incentive Plans for Employees #1

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-8 Presentation Slide 10-4 I ncentive Plans for Employees #2

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning 10-9 Presentation Slide 10-5 Motivation Through Merit Raises w Develop employee confidence and trust in performance appraisal w Establish job-related performance criteria w Separate merit pay from regular pay w Withhold merit payments when performance declines w Distinguish merit raises from cost-of-living raises

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Straight Piecework Incentive plan under which employees receive a certain rate for each unit produced

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Differential Piece Rate Compensation rate under which employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Standard Hour Plan Incentive plan that sets rates based upon the completion of a job in a predetermined standard time

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Bonus Incentive payment that is supplemental to the base wage

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Spot Bonus Unplanned bonus given for employee effort unrelated to an established performance measure

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Merit Guidelines Guidelines for awarding merit raises that are tied to performance objectives

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Lump-Sum Merit Program Program under which employees receive a year-end merit payment, which is not added to their base pay

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Compensating Salespersons Salary Combination Plan Commission

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Straight Salary Plan Compensation plan that permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Straight Commission Plan Compensation plan based upon a percentage of sales

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Combined Salary and Commission Plan Compensation plan that includes a straight salary and a commission

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Maturity Curves Experience or performance bases for providing salary increases for professional employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Perquisites Special benefits given to executives; often referred to as perks

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Executive Perquisites n company-provided car n free financial consulting n club memberships n use of company plane and yacht n use of company loges at sporting events n low-cost or no-cost loans n special travel allowances n limousine service n kidnap and ransom protection n free legal counseling n family member travel allowances n home entertainment allowance n payment of children’s educational expenses n executive dining room n estate planning

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Presentation Slide 10-7 Types of Group Incentive Plans Teams Gainsharing Incentive Plans –Scanlon Plan –Rucker Plan –Improshare –Earnings-at-Risk

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Team Incentive Plan Compensation plan where all team members receive an incentive bonus payment when production or service standards are met or exceeded

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Gainsharing Plans Programs under which both employees and the organization share the financial gains according to a predetermined formula that reflects improved productivity and profitability

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Scanlon Plan Bonus incentive plan using employee and management committees to gain cost-reduction improvements

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Rucker Plan Bonus incentive plan based on the historic relationship between the total earnings of hourly employees and the production value created by the employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Improshare Gainsharing program under which bonuses are based upon the overall productivity of the work team

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Earnings-at-Risk Incentive Plans Incentive pay plans placing a portion of the employee’s base pay at risk, but giving the opportunity to earn income above base pay when goals are met or exceeded

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Profit Sharing Any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred sums based upon the profits of the enterprise

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Employee Stock Ownership Plans (ESOPs) Stock plans in which an organization contributes shares of its stock to an established trust for the purpose of stock purchases by its employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning Providing Retirement Benefits Pride of Ownership Employee Stock Ownership Plans Dependency No Guarantee Inability to Buy Back Stock Lost Tax Revenue Advantages Disadvantages