Employee Incentive Chart by biy98443

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									Pay for Performance
              Chapter 9
 Wage Components – Pages 269 -270
 Know what these mean
 – Base pay
 – Across the board
 – Cost-of-living
 – Merit pay
 – Lump-sum bonus
 – Individual incentive
            Chapter 9 cont

 Wage   components cont
 – Success-sharing plans
 – Gain sharing
 – Profit sharing
 – Risk sharing plans

 You should know the definition and the
  level of risk to the employee.
            Chapter 10
 Pay-for-performance   plans signal a
  shift away from entitlement towards
  pay that varies with some measure
  of individual or organizational
 Variable pay is commanding a larger
  share of total compensation for all
  employee groups
               Chapter 10
 Base   vs. variable pay
  – 2 trends
     Cut costs & increase productivity
     Business environment requires employees
      to adjust what they do and how they do it.

     Focuson designing reward systems that
     more closely link employee interests with
     the organizations objectives.
   Specific Pay-for-Performance:
             Short Term
 Merit pay
 Lump-Sum Bonuses

 Individual Spot Awards

 Individual Incentive Plans
  – Types
  – Pro’s and con’s
  – Examples
       Team Incentive Plans

 Comparing  Group and Individual
 Incentive Plans
 – “free-rider” problem
 – How will you address in your group?

 The choice between individual and group
  plans. Know the chart on page 300
  Types of Variable-Pay Plans
 Chart   page 298-299
 Types
  – Cash profit sharing
  – Stock ownership/options
  – Balance scorecard
  – Productivity/gain sharing
  – Team/group incentives
        Team Compensation
5   problems with team compensation
 – So many types of teams no best answer
 – At what level should they be defined?
      Broadlydefined?
      Narrowly defined?

 – 3 C’s
      Complexity

      Control

      Communication
          Gain-Sharing Plans

 Looks  at the cost components and
  identifies savings over which
  employees have more impact.
 Compared to profit sharing, where
  employees may not feel they have
  much impact on profits, employees
  can impact savings.
        Gain-Sharing Plans
 Keyelements in designing-page 303-
  – Strength of reinforcement
  – Productivity standards
  – Sharing the gains
  – Scope of formula
  – Perceived fairness of the formula
  – Ease of administration
  – Production variability
 Three Gain-Sharing Formulas
3 types differentiated by their focus
 on either cost savings or some
 measure of revenue.

 Scanlon Plan
 Rucker Plan

 Improshare
           Scanlon Plan
A  group cost savings plan designed
  to lower labor costs without lowering
  the level of the firm’s activity.
 Incentives are derived as a function
  of the ratio between labor costs and
  sales value of production(SVOP).
 SVOP includes sales revenue and
  value of goods in inventory
             Rucker Plan
 A group cost savings plan in which cost
  reductions due to employee efforts are
  shared with the employees. It involves a
  more complex formula than a Scanlon
  plan for determining employee incentive
 A ratio is calculated that expresses the
  value of production required for each
  dollar of the total wage bill.
   Implementing Scanlon/Rucker
 Two   major components
  – Productivity norm
  – Effective worker committees
 Key   elements to success
  – Strong management interest and
    participation in program development
  – Belief workers should play a vital role in
    the decision making process.
Similarities and Differences between
     Scanlon and Rucker Plans
 Both differ from individual incentive
  plans by their focus.
  – Individual incentive plans focus
    primarily on wage incentives to
    motivate performance through
    increased effort
  – Both plans focus more on organizational
    behavior variables as increased output
    is a function of group efforts.
    Similarities and Differences
between Scanlon and Rucker Plans
2   differences between the plans
 – Rucker ties incentives to a variety of
   savings not just labor in the Scanlon
 – This difference give the Rucker plan
   more flexibility which makes it easier to
   link to individual incentive plans.
 IMproved PROductvity through SHARing
 Gainsharing plan – standard time to
 produce an acceptable level of
 outcome is identified.

 Anysavings that arise from
 producing that outcome in a shorter
 time frame is shared by the firm and
 the worker.
       Profit Sharing Plans
 Popularas it focuses on the measure
 that matters most to people –
 predetermined profitability.

 Problem- most employees don’t feel
 they personally impact profits.
 Trends in variable-pay design
 Combine  best of gain-sharing and
 – Variable payout linked to a profit
 – Workers get $ when increased efficiency
   leads to increased profits.
 – Benefit - employees get $ and a feeling
   of participation in efficiency and
       Earning-at-Risk Plans
 Up  to now we’ve discussed success-
  sharing plans, base wages constant
  and variable pay added if successful
 Risk-sharing shifts risk of doing
  business from company to employee
 Examples: AmeriSteel, Dupont and
 Big Surprise- employee
 Pro’s & Con’s of Group Incentive
 Can help organization involve into
 learning organization.

 Know   the chart page 310.
   Long-term incentive plans
 Stock option plans (SOPs)
 Employee Stock Ownership Plans
 Performance Plans

 Broad-Based Option Plans (BBOP)

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