1、.Incentive Pay SystemsIncentive Pay PlansDesigned to relate pay directly to performance.Incentive pay plans strengthen performancereward relationship:Motivate employees.Advantage:Not permanent;must be earned each yearIncentive Pay PlansMost programs tie pay directly to profitability.Incentives can b
2、e rewarded several times per year:Creates more direct link with pay&performance.Requirements of Incentive PlansIf incentives are based on Performance,employees must believe performance is accurately and fairly Evaluated.Key Issue in performance measurement:Trust in Management.Individual IncentivesTi
3、ed to Individual Performance.Advantage:Employees can see relationship between what they do and what they get.Drawback:Competition among employees.Piece Rate PlansSimplest&most common type of incentive.Employee paid set amount for every unit produced.Differential Piece Rate plan(Frederick W.Taylor):P
4、ays one rate for all acceptable units up to standard and higher rate for all pieces produced if output exceeds standard.Plans Based on Time Saved Standard Hour Plans:Based on time saved;give employee bonus for reaching production level in less than standard time.Plans Based on CommissionsRewards emp
5、loyees based on their sales volume:Straight Commission Combination of Salary plus CommissionAdvantages?Disadvantages?Individual BonusesMerit Pay Increase:Reward based on performance but also perpetuated year after year.Bonus:Reward offered on a one-time basis for high performance.Advantage?Potential
6、 Drawbacks?Suggestion SystemsOffer cash incentives for employee suggestions that result in either increased profits or reduced costs or improved customer relations.CommunicationProceduresIncentives for Managerial PersonnelAnnual BonusesLong-Term Performance PlanningStock OptionsAnnual BonusUsually b
7、ased on Organizational/Group performance:Profits.Annual Cash Bonus:Most commonLong-Term Performance PlansManagerial incentives based on attainment of certain long-term corporate financial performance goals:Opposed to more common annual bonus plans.Share plans or unit plans:How do these work?Stock Op
8、tions for Managerial PersonnelHow do Stock Options work?What does it mean to be“underwater”?What is the intent behind stock options?Potential Drawbacks?Phantom Stock Plans:Protects holder if value of stock being held decreases.Restricted Stock PlansGives stock shares,subject to certain restrictions,
9、to participating managers.Major restriction of most plans?Advantage of restricted plans?Stock OptionsPremium-Priced Options:Exercise price of option set significantly above current market price.Advantage?Performance-Vesting(Price-vesting)Options:Set at market price,but only exercisable if stock pric
10、e reaches/exceeds price goal in defined periodStatus of Executive PayTrend toward special types of equity grants relating executive rewards to actual company performance,including:Premium-priced,performance-vested optionsRestricted stock plansGroup IncentivesBest where jobs are interdependent.Encour
11、ages employees to exert peer pressure on group members to perform better.Drawbacks?Self-Directed/Self-Managed Work TeamsWhat is team responsible for?Intent?Organization-wide IncentivesReward all members of organization based on performance of the entire organization.Lincoln Electric plan:Year-end bo
12、nus fund for employees based on co.profitsEncourages employees to unite with management to reduce costs and increase production.Organization-Wide IncentivesCommon organization-wide incentive plans:Gain-Sharing plansScanlon-type plansEmployee Stock Ownership Plans(ESOPs)Variable PayLinking a percenta
13、ge of employee pay to certain performance accomplishmentsMakes a percentage of potential total pay dependent on performance.Benefits?Making Incentive Plans WorkTo generate higher performance,must be:Clearly communicated to employees.Viewed as fair.The more employees understand an incentive plan,the more confidence and trust they will have in the organization.
