Professional Documents
Culture Documents
Some people perform better and are more productive than others Better performing employees should receive more compensation
Employees View of Variable Pay Plan Plan rewards teams/groups rather than individuals
Individual Incentives
Necessary Conditions For Individual Incentive Plans
Individual Incentives
Piece-Rate Systems
Straight
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Improve productivity
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Group/Team Incentives
Distributing Rewards
Same-size reward for each member Different-size reward for each member
Rewards in equal amounts may be perceived as unfair by employees who work harder, have more capabilities, or perform more difficult jobs. Group/team members may be unwilling to handle incentive decisions for co-workers. Many employees still expect to be paid according to individual performance.
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Group/Team Results
Self-funding pay plans for groups/teams that reward through improved organizational results on the basis of group output, cost savings, or quality improvement.
The sharing with employees of greater-than-expected gains in productivity through increased discretionary efforts.
Organizational Incentives
Profit Sharing
Primary Objectives
Increase productivity and organizational performance Attract or retain employees Improve product/service quality Enhance employee morale
Drawbacks
Disclosure of financial information Variability of profits from year to year Profit results not strongly tied to employee efforts
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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.
If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit. If the market price of the stock is below the specified option price, the stock option is underwater and is worthless to employees.
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A plan whereby employees gain significant stock ownership in the organization for which they work. Advantages
Favorable tax treatment for ESOP earnings Employees motivated by their ownership stake in the firm
Disadvantages Retirement benefit is tied to the firms future performance Management tool to fend off hostile takeover attempts.
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Salary-Only
Commission
Compensation is computed as a percentage of sales in units or dollars. The draw system make advance payments against future commissions to salesperson. Compensation is part salary for income stability and part commission for incentive.
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Salary-Plus-Commission or Bonuses
An entitlement culture
Executive Compensation
Executive Salaries
Executive Benefits
Executive Perquisites (Perks) Annual Executive Incentives and Bonuses Performance Incentives: Long Term vs. Short Term
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Is the executives pay consistent with pay for other employees within the company?
What would an investor pay for the level of performance of the executive?
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