1. Base Pay (Salary) Issues
Adjustments
Cost of living
Merit increases
Difficult to fairly differentiate and reward top performers in terms of base pay
Top performers: 6% increase (2% COLA, 4% merit)
Average performers: 4% increase (2% COLA, 2% merit)
Bottom performers: 2% increase (2% COLA, 0% merit)
Timing (performance - reward relationship)
Difficult to see the connection between your performance last year and your pay this year

2. Pay for Performance Objectives
Motivate performance
Reinforce strategic goals
Focus attention on specific goals
Recognize differential employee contributions

3. Pay & Organizational Strategy
Want to achieve a fit between strategy & pay practices
Pay is a key indicator of organizational strategy, objectives & culture
What behaviors do you reward & thereby encourage?

4. Pay for Performance
All or a portion of pay will vary with measures of individual, team, department, division, &/or organization performance
Turns a portion of fixed labor costs into a variable cost
When performance declines, so does labor costs
Signals a movement away from pay as an entitlement

5. Individual Incentives
All or a portion of an individual’s pay is tied to their performance
Piece-rate
Commissions
Specific goals

6. Team/Group Incentives
Examples of incentives:
Productivity improvements
Customer satisfaction measures
Financial performance
Quality of goods or services

7. Team/Group Incentive Plans
Advantages
Availability of measures
Cooperation is valued
Teamwork
Disadvantages
Compensation at risk
Individual’s performance – reward link is stretched (“line of sight” is lessened relative to individual incentives –it’s more difficult to see)
Receipt of rewards depends upon others

8. Gainsharing Plans
Employees earn bonuses based upon a predetermined gainsharing formula
Initially intended to focus attention on costs
Formula is tied to group or department performance measures
Based upon factors controllable by the group
Typically target a specific problem area
Supplies expense, quality concerns
Direct employee attention to the area/issue
Timing: Monthly or quarterly payouts
Reinforces the performance-reward link

9. GE Information Systems
Team-based incentive with links to individual payouts
Team and individual performance goals are set
If the team hits its goals, the team members earn their incentive only if they hit their individual goals
Incentive component is 12% to 15% of base pay and is paid monthly

10. Profit-Sharing Plans
Employees receive an annual bonus based upon company wide performance measures
Revenue minus expense = Profit
Disadvantages
“line of sight” is further stretched (performance-reward link is more difficult to see)
Less direct control
Advantages
Encourages employees to think about all aspects of the business and act accordingly

11. PepsiCo’s SharePower Program
What is the SharePower program and why did Pepsi implement it?
What are the pro’s and con’s of
the SharePower plan?
Want to encourage and Ownership culture/mentality
E’s to think like owners and be rewarded like owners
Why is that important? In other words, how are owners likely to differ from employees
In terms of thought processes and reward potential?

12. Implications of Pay-for Performance
Employees will need more information
Sharing of financial information
Training to understand the financial information (SRC corp. example)
Heightened pressure for performance
Pay can go up or down
Potential for unintended consequences
Need for controls