Pay-for-Performance

and Financial
Incentives

Presented To :
Sir Javaid Paracha

Presented
Presented By
By ::

Arslan
Arslan Haider
Haider

(13029)
(13029)

Toqeer
Toqeer Shabbir
Shabbir (13031)
(13031)

Baqar
Baqar Ramzan
Ramzan (13032)
(13032)

Adeel
Adeel Ramzan
Ramzan (13033)
(13033)

(13034)
Arslan
Arslan Ali
Ali
(13034)
Copyright 2008 Pearson Education Canada

12-2

What is Pay for Performance:

Performance-related pay or pay for performance is
a salary paid relating to how well one work.

Many employers use this standards-based system for

evaluating employees and for setting salaries.
Standards-based methods have been in de facto use for
centuries among commission-based sales staff: they
receive more pay for selling more, and low performers do
not earn enough to make keeping the job worthwhile
even if they manage to keep the job.

Money and Motivation

Variable
Variable Pay
Pay

plan
plan that
that links
links pay
pay to
to productivity,
productivity,
profitability,
profitability, or
or some
some other
other measure
measure of
of
organizational
organizational performance
performance

accurate
accurate performance
performance appraisal
appraisal or
or
measurable
measurable outcomes
outcomes is
is aa precondition
precondition for
for
effective
effective pay-for-performance
pay-for-performance plans
plans

Types of Incentive Plans

individual
individual incentive
incentive programs
programs

group
group incentive
incentive programs
programs

profit
profit sharing
sharing plans
plans

gainsharing
gainsharing plans
plans

Touqeer Shabbir

Copyright 2008 Pearson Education Canada

Incentives for Operations

Employees

Piecework
Piecework plans
plans straight;
straight; guaranteed
guaranteed

Standard
Standard hour
hour plan
plan

Team
Team or
or group
group incentive
incentive plan
plan

Incentives for Senior Managers and

Executives
Short-term
Short-term Incentives
Incentives
annual
annual bonus
bonus
Long-term
Long-term Incentives
Incentives
capital
capital accumulation
accumulation plans
plans

Annual Bonus - Decisions

Eligibility
Eligibility

Fund
Fund size
size

Determining
Determining individual
individual awards
awards

Long-Term Incentives

Stock
Stock options
options

Book
Book value
value plan
plan

Stock
Stock appreciation
appreciation rights
rights

Performance
Performance achievement
achievement plan
plan

Restricted
Restricted stock
stock plans
plans

Phantom
Phantom stock
stock plans
plans

Performance
Performance plans
plans

Arslan Ali

Copyright 2008 Pearson Education Canada

Incentives for Salespeople

Salary
Salary

Commission
Commission

Combination
Combination

Plan
Plan

Plan
Plan

Plan
Plan

(fixed
(fixed salary)
salary)

(pay
(pay in
in direct
direct

(salary
(salary plus
plus

proportion
proportion

commission)
commission)

to
to sales)
sales)

Incentives for Other Managers and

Professionals
Merit
Merit Pay
Pay

salary
salary increase
increase awarded
awarded to
to an
an employee
employee

based
based on
on individual
individual performance
performance

effectiveness
effectiveness based
based on
on validity
validity of
of
performance
performance appraisal
appraisal system
system

sometimes
sometimes paid
paid as
as aa lump
lump sum
sum without
without
changing
changing base
base salary
salary

Incentives for Professional

Employees

bonus
bonus represents
represents small
small portion
portion of
of total
total pay
pay

incentives
incentives based
based on
on results
results longer
longer than
than

one
one year
year

up-to-date
up-to-date equipment
equipment and
and facilities
facilities

supportive
supportive management
management style
style

support
support for
for research
research publications
publications

Organization-Wide Incentive Plans

profit-sharing
profit-sharing plans
plans

employee
employee share
share purchase/stock
purchase/stock

ownership
ownership plans
plans

Scanlon
Scanlon plans
plans

gainsharing
gainsharing plans
plans

Adeel Ramzan

Copyright 2008 Pearson Education Canada

Scanlon Plan

Developed
Developed by
by Joe
Joe Scanlon
Scanlon l937
l937

engages
engages many
many or
or all
all employees
employees in
in aa

common
common effort
effort to
to achieve
achieve aa companys
companys
productivity
productivity objectives
objectives

any
any resulting
resulting incremental
incremental cost-savings
cost-savings
shared
shared among
among employees
employees and
and the
the
company
company

Gainsharing Plans:
Success Factors
Cooperation
Cooperation between
between management
management and
and labour
labour
Joint
Joint development
development of
of the
the plan
plan
Effective
Effective communication
communication
Clear
Clear guidelines
guidelines regarding
regarding plan
plan changes
changes
Setting
Setting achievable
achievable goals
goals

Gain sharing Plans

Scanlon Plan

Philosophy
of
Cooperation

Identity

Competence

Involvement
System

Sharing of
Benefits
Formula

When to Use Incentives

units
units of
of output
output can
can be
be measured
measured

clear
clear relationship
relationship between
between employee
employee effort
effort

and
and quantity
quantity of
of output
output

standardized
standardized job,
job, regular
regular workflow
workflow with
with
few/consistent
few/consistent delays
delays

quality
quality less
less important
important than
than quantity
quantity

Principles for Effective

Implementation of Incentives
pay for performance
pay for performance
link incentives to career

link incentives to career development

development and
and
challenging
challenging opportunities
opportunities
link incentives to measurable competencies
link incentives to measurable competencies
match incentives to the culture of the
match incentives to the culture of the
organization
organization
keep group incentives clear and simple
keep group incentives clear and simple
over-communicate
over-communicate
remember greatest incentive is the work itself
remember greatest incentive is the work itself

Employee Recognition Programs

Lack
Lack of
of recognition
recognition and
and praise
praise is
is the
the #1
#1

cause
cause of
of employee
employee turnover
turnover

Employee Recognition Programs:

Benefits

cost-effective:
cost-effective: praise
praise and
and modest
modest gifts
gifts

improves
improves employee
employee attitudes
attitudes and
and

productivity
productivity

creates
creates strategic
strategic change
change ifif recognition
recognition
criteria
criteria aligned
aligned with
with strategy
strategy

fuels
fuels achievement
achievement of
of high
high performers
performers

important
important communication
communication tool
tool