INCENTIVES & FRINGE BENEFITS

Variable Pay Or Pay For Performance Systems Here the pay is linked to individual, group or organisational performance. Employees have to compete and deliver results. Three types of variable pay are commonly used:  Individual incentives: they link individual effort to pay  Group incentives: they link pay to the overall performance of the entire group  Organisation-wide incentives: here employees are rewarded on the basis of the success of the organisation over a specified time period.

Individual Incentive Plans Straight Piecework  An incentive plan under which employees receive a certain rate for each unit produced. Differential Piece Rate  A 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.

Individual Incentive Plans: Standard Hour Plan  An incentive plan that sets pay rates based on the completion of a job in a predetermined “standard time.”  If employees finish the work in less than the expected time, their pay is still based on the standard time for the job multiplied by their hourly rate.

Bonuses Bonus  Incentive payment that is supplemental to the base wage for cost reduction, quality improvement, or other performance criteria. The Payment of Bonus Act, 1965

Merit Pay Merit Pay Program (merit raise)  Links an increase in base pay to how successfully an employee achieved some objective performance standard.

Incentive Awards and Recognition Awards  Often used to recognize productivity gains, special contributions or achievements, and service to the organization.  Employees feel appreciated when employers tie awards to performance and deliver awards in a timely, sincere and specific way.

Sales Incentives Straight Commission Sales Incentive Plans Straight Salary Salary and Commission Combinations

Incentive Plans for Salespersons Straight Salary Plan  Compensation plan that permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume. Encourages building customer relationships. Provides compensation during periods of poor sales. May not provide sufficient motivation for maximizing sales volume.

Incentive Plans for Salespersons Straight Commission Plan  Compensation plan based upon a percentage of sales.

Incentive Plans for Salespersons Combined Salary and Commission Plan  A compensation plan that includes a straight salary and a commission component (“leverage”)..

Executive Compensation The Executive Pay Package  Base salary  Short-term incentives or bonuses  Long-term incentives or stock plans  Perquisites (perks)

Executive Perks Company car Company plane Executive eating facilities Financial consulting Company-paid parking Personal liability insurance Estate planning First-class air travel Home computers Chauffeur service Children’s education Spouse travel Physical exams Mobile phones Large insurance policies Income tax preparation Country club membership Luncheon club membership Personal home repairs Loans Legal counseling Vacation cabins

Group Incentive Plans Team Incentive Plans  Compensation plans where all team members receive an incentive bonus payment when production or service standards are met or exceeded.

Enterprise Incentive Plans Profit Sharing  Any procedure by which an employer pays, or makes available to all regular employees, in addition to their base pay, current or deferred sums based upon the profits of the enterprise.

Enterprise Incentive Plans (cont’d) Stock Options  Granting employees the right to purchase a specific number of shares of the company’s stock at a guaranteed price (the option price) during a designated time period.  The value of an option is subject to stock market conditions at the time that option is exercised.

Fringe Benefits These are extra benefits provided to employees in addition to the normal compensation paid in the form of wages or salaries. Features  Supplementary forms of compensation  Paid to all employees  Indirect compensation, since they are not directly related to performance  May be statutory or voluntary Need for fringe benefits  Employee demands  Trade union demands  Employer's preference  A kind of social security  To improve industrial relations

Types of Fringe Benefits