Incentive Compensation by Sunny Lal

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Incentive Compensation

Published on Sep 02, 2016

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PRESENTATION OUTLINE

Incentive Compensation

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Organizations are confronted with the concern for efficiency in operation. This is brought about by competition or just the plain instinct for survival. A very important area of consideration is employee performance in which ways must be devised to make it happen.

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Job Evaluation
- is the way used to determine the basic pay of employees.
Although the basic pay may motivate the employee to work, it may not push him to perform beyond the minimum requirements.

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When this happens, organizations, which depend on the full capacity performance of their employees, will have to consider other means to motivate them. A solution had been devised and it is referred to as incentive compensation.

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What are Incentives?

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Incentives are rewards given to employees for performing beyond the standard requirements. In addition to the base salary, a deserving employee receives incentives.

Incentives are also sometimes referred to as "variable pay".

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Factors to Consider in Establishing and Maintaining Incentives Systems

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1. They must be tied to performance. Efforts and rewards must also be viewed as fair and desirable.
2. They must be designed to cater to individuals who have different needs. This means that there must be variety of incentives to make sure that a certain type of incentive matches the unique and particular needs of any employee.

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3. The must consider the specific environment and limitations of the organization.
4. They must be reviewed periodically to find out if they are still effective. Changes are necessary if the incentive system is not encouraging employees to perform as expected.

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10.

Types of Incentives

1. Individual Incentive Plan 2. Group Incentive Plan 3. Organizatjonal Incentive Plan

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Individual Incentives Plans

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Those designed to motivate the individual employees to perform beyond standard requirements.

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Two requisite conditions for individual incentive plans to succeed.
1. Individual contribution must be the emphasis of the organization, and
2. The job must be designed to allow the individual employees to work independently and with autonomy.

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Individual incentive plans may be classified into the following:
1. Piece-rate system,
2. Commissions,
3. Bonuses, and
4. Merit pay.

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15.

The Piece Rate System
- pays individual employees based on the number of units produced by each. It may be straight or differential.
Straight piece-rate plan pays employees a certain rate for each unit produced.
Differential piece-rate plan, two rates are established: one for production within the standard and another one for production.

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Strengths:
1. It provides guidelines to employees on what they must produce to get the amount of reward they want.
2. The reporting of performance results cannot be influenced by the supervisor's bias.
3. Rewards are tied directly to performance, i.e,, higher outputs mean higher pay.

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Weaknesses:
1. The pressure to produce is great and some employees may be affected leading them to produce less.
2. Not all of the behaviors encouraged by the plan contribute to the organizational mission.

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18.

Commissions
- form of incentive usually paid to sales employees.

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19.

Commissions may be paid using any of the two arrangements as follows:
1. Straight commission - the employee receives as an incentive the total amount of sales made times his rate.
2. A small salary plus a commission when the employee exceeds the budgeted sales goal.

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20.

Bonuses

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21.

An extra payment given to employees for good performance. This may also determine on the basis of cost reduction, quality improvement, or performance criteria established by the organization.

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22.

Merit Pay

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Individual pay increases based on the rated performance of individual employees in a previous period of time.

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Group Incentive Plans

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Designed to reward work teams, project members, or departments. The emphasis of group incentive is on group output.

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Organizational Incentives Plans

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Rewards designed to cover all employees in an organization. Organization-wide incentives plan consists of gain sharing, profit sharing, and employee stock ownership.

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Gain sharing Plans
- company-wide group incentives plans that provide additional pay to employees based of group performance.
Objective of Gain Sharing Plan
- motivate the employees to increase production or reduce costs.
Common Gain Sharing Plans
1. Scanlon Plan 2. Rucker Plan 3. Improshare

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29.

Scanlon Plan

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Organization-wide incentive program focusing on cooperation between management and employees through sharing problems, goals, and ideas.

Objective of Scanlon Plan
- involve all employees in the problem solving process and to improve productivity.

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The two general step involved are
1. Organizing employees into productivity teams, which will explore any idea that would improve quality and output, eliminate waste and save time.
2. Organizing a steering committee to perform the ff:
a. evaluate suggestion,
b. get budget proposal,
c. establish priorities, and
d. report back to the employee teams.

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Rucker Plan

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Based on any improvement in the relationship between the total earnings of hourly employees and the production value that employees create.

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Improshare
- gain sharing where bonuses are based upon the overall productivity if the work team. It ties the economic rewards to performance disregarding employee participation.

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35.

Profit-Sharing Plans

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Employees using the profits of the enterprise as basis.

Profit-sharing plans may be distinguished according ti how they are distributed:
1. Deferred plans - where the individual's shares in the profits are distributed after profits are declared.
2. Distribution plans - where the individual's shares in the profits are distributed after profits are declared.
3. Combinations Plans -- where part of the shares in the profits are distributed at retirement and the remainder as soon as the profits are declared.

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37.

Employee Stock Ownership Plan

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Some organizations offer company stock as an incentive to employees for good performance. Stocks not only represent ownership in the company but also a chance to share in the profits, or in the income generated by the appreciation of the stocks' value.

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39.

Incentives for Professional

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40.

Tendency for some organization to reward professionals just like ordinary employees. This may not be a good idea because professional are different and as such, they must be rewarded accordingly.

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41.

Incentives for Executives

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The ability of executives to influence employees to perform provides sufficient reason to consider carefully the kinds of incentives they deserve,

The ff, are the basic components of executive compensation:
1. Base Salary
2. Short-term Incentives or Bonuses
3. Long-term incentives or stock plans, and
4. Perquisites.

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43.

What some Chief Executives got in 2003

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44.

To motivate executives to achieve the company's long term goals, long term incentives like stock plans are provided. When the executive is required by the company to own some shares of stock, the incentive is referred to as "stock ownership plan"

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45.

Perquisites are special benefits given to executives. Also referred to as "perks", the reason for these is to attract and keep good managers and to motivate them to work hard for the organization.

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46.

An Advertisement Indicating Incentives for a Vacant Executive Position

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47.

Designing and Implementing Incentive Pay
1. Defining the required performance criteria
-key indicators in the various levels of operation must be stated.
Before the above mentioned activities are undertaken, however some requirements must be in place. These are the following:
a. the right leaders must be selected,
b. clear set of goals must be communicated, and
c. the company's performance culture must be aligned with its strategy.

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48.

2. Develop a comprehensive reward framework
-incentives are directed towards making employees perform beyond standards.
3. Desired behaviors must be reinforced
- It is very easy for an organization's management to declare what it wants from employees.
4. Incentive pay system must be properly funded
- the success of any system can be assured if there are sufficient funds to back it up.

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49.

Thankyou!

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Sunny Lal

https://www.facebook.com/app_scoped_user_id/1213221322043914/

Slide Notes

Incentive Compensation

MORE DECKS TO EXPLORE

PRESENTATION OUTLINE

Incentive Compensation

Organizations are confronted with the concern for efficiency in operation. This is brought about by competition or just the plain instinct for survival. A very important area of consideration is employee performance in which ways must be devised to make it happen.

Job Evaluation- is the way used to determine the basic pay of employees.Although the basic pay may motivate the employee to work, it may not push him to perform beyond the minimum requirements.

When this happens, organizations, which depend on the full capacity performance of their employees, will have to consider other means to motivate them. A solution had been devised and it is referred to as incentive compensation.

What are Incentives?

Incentives are rewards given to employees for performing beyond the standard requirements. In addition to the base salary, a deserving employee receives incentives.Incentives are also sometimes referred to as "variable pay".

Factors to Consider in Establishing and Maintaining Incentives Systems

3. The must consider the specific environment and limitations of the organization.4. They must be reviewed periodically to find out if they are still effective. Changes are necessary if the incentive system is not encouraging employees to perform as expected.

Types of Incentives

Individual Incentives Plans

Those designed to motivate the individual employees to perform beyond standard requirements.

Two requisite conditions for individual incentive plans to succeed.1. Individual contribution must be the emphasis of the organization, and2. The job must be designed to allow the individual employees to work independently and with autonomy.

Individual incentive plans may be classified into the following:1. Piece-rate system,2. Commissions,3. Bonuses, and4. Merit pay.

Strengths:1. It provides guidelines to employees on what they must produce to get the amount of reward they want.2. The reporting of performance results cannot be influenced by the supervisor's bias.3. Rewards are tied directly to performance, i.e,, higher outputs mean higher pay.

Weaknesses:1. The pressure to produce is great and some employees may be affected leading them to produce less.2. Not all of the behaviors encouraged by the plan contribute to the organizational mission.

Commissions- form of incentive usually paid to sales employees.

Commissions may be paid using any of the two arrangements as follows:1. Straight commission - the employee receives as an incentive the total amount of sales made times his rate.2. A small salary plus a commission when the employee exceeds the budgeted sales goal.

Bonuses

An extra payment given to employees for good performance. This may also determine on the basis of cost reduction, quality improvement, or performance criteria established by the organization.

Merit Pay

Individual pay increases based on the rated performance of individual employees in a previous period of time.

Group Incentive Plans

Designed to reward work teams, project members, or departments. The emphasis of group incentive is on group output.

Organizational Incentives Plans

Rewards designed to cover all employees in an organization. Organization-wide incentives plan consists of gain sharing, profit sharing, and employee stock ownership.

Gain sharing Plans- company-wide group incentives plans that provide additional pay to employees based of group performance.Objective of Gain Sharing Plan- motivate the employees to increase production or reduce costs.Common Gain Sharing Plans1. Scanlon Plan 2. Rucker Plan 3. Improshare

Scanlon Plan

Organization-wide incentive program focusing on cooperation between management and employees through sharing problems, goals, and ideas.Objective of Scanlon Plan- involve all employees in the problem solving process and to improve productivity.

Rucker Plan

Based on any improvement in the relationship between the total earnings of hourly employees and the production value that employees create.

Improshare- gain sharing where bonuses are based upon the overall productivity if the work team. It ties the economic rewards to performance disregarding employee participation.

Profit-Sharing Plans

Employee Stock Ownership Plan

Some organizations offer company stock as an incentive to employees for good performance. Stocks not only represent ownership in the company but also a chance to share in the profits, or in the income generated by the appreciation of the stocks' value.

Incentives for Professional

Tendency for some organization to reward professionals just like ordinary employees. This may not be a good idea because professional are different and as such, they must be rewarded accordingly.

Incentives for Executives

What some Chief Executives got in 2003

To motivate executives to achieve the company's long term goals, long term incentives like stock plans are provided. When the executive is required by the company to own some shares of stock, the incentive is referred to as "stock ownership plan"

Perquisites are special benefits given to executives. Also referred to as "perks", the reason for these is to attract and keep good managers and to motivate them to work hard for the organization.

An Advertisement Indicating Incentives for a Vacant Executive Position

Thankyou!

Sunny Lal

Error!

Job Evaluation
- is the way used to determine the basic pay of employees.
Although the basic pay may motivate the employee to work, it may not push him to perform beyond the minimum requirements.

Incentives are rewards given to employees for performing beyond the standard requirements. In addition to the base salary, a deserving employee receives incentives.

Incentives are also sometimes referred to as "variable pay".

3. The must consider the specific environment and limitations of the organization.
4. They must be reviewed periodically to find out if they are still effective. Changes are necessary if the incentive system is not encouraging employees to perform as expected.

Two requisite conditions for individual incentive plans to succeed.
1. Individual contribution must be the emphasis of the organization, and
2. The job must be designed to allow the individual employees to work independently and with autonomy.

Individual incentive plans may be classified into the following:
1. Piece-rate system,
2. Commissions,
3. Bonuses, and
4. Merit pay.

Strengths:
1. It provides guidelines to employees on what they must produce to get the amount of reward they want.
2. The reporting of performance results cannot be influenced by the supervisor's bias.
3. Rewards are tied directly to performance, i.e,, higher outputs mean higher pay.

Weaknesses:
1. The pressure to produce is great and some employees may be affected leading them to produce less.
2. Not all of the behaviors encouraged by the plan contribute to the organizational mission.

Commissions
- form of incentive usually paid to sales employees.

Commissions may be paid using any of the two arrangements as follows:
1. Straight commission - the employee receives as an incentive the total amount of sales made times his rate.
2. A small salary plus a commission when the employee exceeds the budgeted sales goal.

Gain sharing Plans
- company-wide group incentives plans that provide additional pay to employees based of group performance.
Objective of Gain Sharing Plan
- motivate the employees to increase production or reduce costs.
Common Gain Sharing Plans
1. Scanlon Plan 2. Rucker Plan 3. Improshare

Organization-wide incentive program focusing on cooperation between management and employees through sharing problems, goals, and ideas.

Objective of Scanlon Plan
- involve all employees in the problem solving process and to improve productivity.

Improshare
- gain sharing where bonuses are based upon the overall productivity if the work team. It ties the economic rewards to performance disregarding employee participation.