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Human Resource Management 11e

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					Effective Incentive Plans




                            Figure 13–1
                                  13–1
Types of Variable Pay Plans




                              Figure 13–3
                                    13–2
    Types of Sales Compensation Plans
• Salary-Only
• Commission
  Ø Straight Commission
     v Compensation is computed as a percentage of sales in units
       or dollars.
     v The draw system make advance payments against future
       commissions to salesperson.
  Ø Salary-Plus-Commission or Bonuses
     v   Compensation is part salary for income stability and part
         commission for incentive.




                                                                     13–3
Determining Sales Effectiveness




                                  Figure 13–5
                                        13–4
         Special Incentive Programs
• Performance Awards
• Recognition Awards
• Service Awards
• Bonus
• Spot Bonus




                                      13–5
    Other Types of Organizational/Team
                Incentives

• Profit Sharing
• Gainsharing (Teamsharing or Goal
  Sharing)
• Stock Option Plan
• Employee Stock Ownership Plan (ESOP)




                                         13–6
Types of Benefits




                    Figure 14–4
                          13–7
            Organizational Incentives
Ø A system to distribute a portion of the profits of the
  organization to employees.
Ø Primary objectives:
   v   Increase productivity and organizational performance
   v Attract or retain employees
   v Improve product/service quality

   v Enhance employee morale

Ø Drawbacks
   v Disclosure of financial information
   v Variability of profits from year to year

   v Profit results not strongly tied to employee efforts




                                                              13–8
      Group/Team Incentives

 Distribution of
 Distribution of
  Group/Team
  Group/Team
   Incentives
    Incentives


    Timing of
     Timing of             Design of
                            Design of
  Group/Team
  Group/Team              Group/Team
                           Group/Team
   Incentives
    Incentives          Incentive Plans
                         Incentive Plans


 Decision Making
 Decision Making
About Group/Team
About Group/Team
    Amounts
     Amounts



                                           13–9
Developing Successful Pay-for-Performance
                 Plans
• Reasons for Adopting Pay or Incentive Plans:
  Ø Link more directly strategic business goals and
    employee performance.
  Ø Enhance organizational results and reward
    employees financially for their contributions.
  Ø Reward employees to recognize different levels of
    employee performance.
  Ø Achieve HR objectives, such as increasing retention,
    reducing turnover, recognizing training, or rewarding
    safety and attendance.

                                                        13–10
           Successes and Failures of
              Variable Pay Plans
Successful incentive plans require:
  Ø Clearly communicated.
  Ø Realistic performance measures.
  Ø Current plans and linked to organizational objectives.
  Ø Strong links among performance results and payouts.
  Ø Clear identification of variable pay incentives
    separately from base pay.




                                                        13–11
               Learning Objectives
Ø Define variable pay and identify three elements of successful
  pay-for-performance plans.
Ø Discuss three types of individual incentives.
Ø Explain three ways that sales employees are typically
  compensated.
Ø Identify key concerns that must be addressed when designing
  group/team variable pay plans.
Ø Discuss why profit sharing and employee stock ownership are
  common organizational incentive plans.
Ø Identify the components of executive compensation and discuss
  criticisms of executive compensation levels.




                                                                  13–12
Purposes of Special Incentives




                                 Figure 13–4
                                      13–13
       Group/Team Incentives (cont’d)


• Problems with Group/Team Incentives
  Ø Rewards in equal amounts may be perceived as
    “unfair” by employees who work harder, have more
    capabilities, or perform more difficult jobs.
  Ø Group/team members may be unwilling to handle
    incentive decisions for co-workers.
  Ø Many employees still expect to be paid according to
    individual performance.



                                                       13–14
              Employee Stock Plans
Ø A plan that gives employees the right to purchase a
  fixed number of shares of company stock at a
  specified price for a limited period of time.
   v   If market price of the stock is above the specified option
       price, employees can purchase the stock and sell it for a
       profit.
   v   If the market price of the stock is below the specified option
       price, the stock option is “underwater” and is worthless to
       employees.




                                                                    13–15
              Employee Stock Plans
Ø A plan whereby employees gain significant stock
  ownership in the organization for which they work.
Ø Advantages
   v   Favorable tax treatment for ESOP earnings
   v   Employees motivated by their ownership stake in the firm
Ø Disadvantages
   v   Retirement benefit is tied to the firm’s future performance
   v   Management tool to fend off hostile takeover attempts.




                                                                     13–16
Components of Executive
Compensation Packages




                          Figure 13–9
                               13–17
Common Executive Compensation Issues




                                   Figure 13–10
                                         13–18

				
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posted:7/25/2013
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