Incentives & Gain sharing Incentives and Gain sharing are compensation approaches that reward specified outcomes.

Incentives Systems Incentives Systems are link compensation and performance by paying employees for actual results, not for seniority or hours worked. * They are often reward on individual performance. Although Incentives may be giving to a group.

Gain sharing systems Gain sharing matches an improvement ( gain ) in performance With a distribution ( Sharing ) of the benefits with employees. * They are always reward on group of employees rather then an individuals.

Classification of Incentive Systems 1- Piecework 2- Production Bonuses 3- Commission 4- Merit Raises 5- Pay – for – Knowledge / Pay –for – Skills Compensation

Piecework Incentives Piece work an incentive system hat compensate the workers for each unit of output. Daily or weekly pay is determine by multiplying the output in units times the rate per unit, for e.g., in agriculture labour, workers are often paid a specific amount per bushel of produced packed.

Production Bonuses Incentives Production bonuses are incentives paid to workers for exceeding output goals often employees received a base pay rate, than, through extra efforts that results is output above the standard, they get supplemental bonus, which is usually figured at a given rate for each unit of production over the standard.

Commission Incentives In sales job the seller may be paid a percentage of selling price or a flat amount for each unit sold when no base compensation is paid, total earning come from commission. Real estate agents and automobile seller are often on this form of “straight commission”. .

Merit Raises Incentives Merit rises are pay increases given after an evaluation of performance. These raises are usually decided by the employee’s immediate supervisor, often in conjunction with superiors.

Pay – for – Knowledge / Pay –for – Skills Compensation Pay for knowledge / pay for skills compensation systems reward employees with higher pay as a n incentive for the increase of knowledge or skills they acquire. Weather the compensation system is called knowledge base pay, skill base pay, or pay for knowledge, pay level are based not on what an employee does but on the range of the jobs the employee can do. Employees are rewarded for each new jobs or skills. These learning base pay systems evaluate the employee’s worth to the employer.

Non-monetary Incentives Incentive usually means money, but performance incentives also come in other forms. For e.g. many companies have reorganizations programs in which employees receive plaques, novelty items from key chains to base ball caps. Certificates, time off, vacations and the other non-cash incentives for job performance suggestions and even community services.

Executives Incentives 1- Short-versus long- term Compensations 2- Stock Options 3- Weighted Incentives Systems

Short-versus long- term Compensations Short term vs. long term compensations At the same time incentives must be matched to the needs of executives. Young and middle age executives are likely to desire cash bonuses to meet the needs of a growing or maturing families. Older executives often seek to defer incentive compensation to build retirement savings.

Stock Options Some times executives are granted stock options- the right to purchase the company’s stock at a predetermined price. This price may be set at, below, or above the market value. According to the compensation experts a top manager’s salary should be base on 1- Company size 2- Return to shareholders of the company 3- Profitability 4- The Complexity and importance of the job

Weighted Incentives Systems given the volatility of the stock market, incentives might be more effective if tied to improvements in key organization wide measures that executives control. For e.g. weighted incentive systems reward executives on the basis of improvements in multiple areas of business performance.

International Incentives To attract, retain, and motivate international executives and key employees, many global companies are setting a foreign allowances that are incentives for international employees. Some companies find it advantageous to pay foreign housing and transportation cost and taxes directly rather than give allowances and incentives to work overseas.

Gain Sharing Approaches Gain sharing matches and improvement in company performance with some distribution of the benefits for employees. This approach has experienced exclusive growth, with nearly three of every four plans installed during the 1980s using it.

Categories of Gain Sharing 1- Employee Ownership 2- Production-Sharing Plans 3- Profit-Sharing Plans 4- Cost Reduction Plans

Employee Ownership Perhaps the ultimate gain sharing approach is for employees to own the company. Many companies have stock purchase plans that allow workers to buy shares in the company, thus “owning” a fractional part of the firm and sharing in its success.

Production-Sharing Plans Production-Sharing Plans allow groups of workers to receive bonuses for exceeding predetermine levels of output. The plans tends to be short-range and related to very specific production goals. For e.g., a team may get a bonus for a specific goals.

Profit-Sharing Plans Profit-Sharing Plans share profits with the employees, When plans work well, they create trust and a feeling of a common fate among workers and management. Usually profit plans reserve a percentage of the firm’s overall profits.

Cost Reduction Plans Plans primarily aim to reduce costs and create improved commitment from workers through various approaches, For e.g., Scanlon plan focuses primarily on labor costs and quality.

Human Resources and Personnel Management Reference Human Resources and Personnel Management William B. Werther, Fifth edition, Page # 407 - 429.