Pay for Performance and Financial Incentives

Motivation, Performance, and Pay

Incentives
Financial rewards paid to workers whose production exceeds a predetermined standard.
Frederick Taylor
Popularized scientific management and the use of financial incentives in the late 1800s.
Systematic soldiering
Fair days work

Employee Incentive Plans

Pay-for-Performance Plans:

Incentives for Salespeople

1. Salary Plan
Straight salaries.
2. Commission Plan
Pay is a percentage of sales results.
3. Combination Plan
Pay is a combination of salary and commissions, usually with a sizable salary component.

Specialized Combination Plans

Commission-Plus-Drawing-Account Plan
Commission-Plus-Bonus Plan
Team/Group Incentive Plans
1. Team (or Group) Incentive Plans
a) Incentives are based on teams performance.
2. How to Design Team Incentives
a.) Set individual work standards.
 b.) Set work standards for each team member and then calculate each members output.
c.) Members are paid based on one of three formulas:
All receive the same pay earned by the highest producer.
All receive the same pay earned by the lowest producer.
All receive the same pay equal to the average pay earned by the group
Pros
Reinforces team planning and problem solving
Helps ensure collaboration
Encourages a sense of cooperation
Encourages rapid training of new members
Cons
Pay is not proportionate to an individuals effort
Rewards free riders

Organizationwide Incentive Plans

Employee Stock Ownership Plan (ESOP)
Gainsharing Plans

At-Risk Variable Pay Plans

Put some portion of the employees weekly pay at risk.
Incentives for Managers and Executives
1. Short-Term Incentives: The Annual Bonus
2. Issues in Awarding Bonuses
Eligibility basis
Fund size basis
Individual awards
Plans that are designed to motivate short-term performance of managers and are tied to company
profitability.
Prepared by: Bryan Ken Tan BSBA III-HRDM