HALSEY PREMIUM PLAN

Workers receive a guaranteed hourly wage plus a

percentage (33 percent was recommended)
of the wage for any time saved.

The actual production standards are determined by past

performance rather than by time-and-motion studies.
RESTRICTING PRODUCTIVITY
Units per hour

60 Standard

56 Group norm

Starting date Two and one-half weeks later

SKILL & KNOWLEDGE BASED PAY
Reward employees for their ability to perform an array
of related tasks or skills rather than for the actual work
performed.

Models
• Stair step model
• Building blocks model
• Job-point accrual model
DIFFERENTIAL PAY
• overtime
• shift pay
• hazard pay
• on-call pay
• call-back pay
• geographic differentials
• weekend and holiday pay
GROUP/ TEAM INCENTIVES
Ideal when….
• Individual performance is difficult to measure
• Coordinated effort is required
• The group is small enough that all members can
discern that their individual effort makes a
difference.
PROFIT SHARING

Philosophy: Those who contributed to creating the profits

should participate in receiving them.

Types
• Cash
• Deferred
 KNOWLEDGE
CHECK
The formula that determines how
profit sharing money will be distributed
among the participating employees is called the
A) Allocation formula
B) Defined benefit formula
C) Deferred income schedule
D) Participation rates
GAINSHARING
Company-wide incentive program similar to profit-sharing;
but the bonuses are based on improved productivity rather
than a percent of the profit.

• Scanlon Plans
• Rucker Plans
• Improshare
SCANLON PLANS
Combination of gainsharing plan and
an employee suggestion system

• Labor cost ratio = Labor costs divided by revenue

(averaged over the previous seven years)
• Suggestion system
• Distribution of savings to employees
RUCKER SHARE-OF-PRODUCTION PLANS

Labor cost ratio is based on the “value added”

rather than on total revenues.
IMPROSHARE PLANS

Improved productivity through sharing

Pay and bonuses are tied directly to performance
measures
• Occupancy rates for hotel employees
• Inventory shrinkage for retail employees
• Attendance statistics for event planners
ESOP
An Employee Stock Ownership Plan is formed by creating a
trust, into which a company makes tax-deductible contributions
of cash or stock.
STRATEGIC ALIGNMENT OF
BASE PAY & INCENTIVE PAY
In designing a compensation system, companies
need to make a strategic decision regarding the best
balance between base pay and incentive pay.

• What percentage of an employee’s pay

should be base pay?
• What percentage should be incentive
pay?
BASE PAY & INCENTIVE PAY
Fine-Tuning of Base Pay and Incentive Pay for Three Jobs
 KNOWLEDGE
CHECK
ESOPs are often used as a financing
tool for all of the following EXCEPT
A) Preventing a hostile takeover.

B) Increasing the value of a company’s stock

C) Keeping a failing company from closing.

D) Providing an employee pension benefit.

 Congratulations, you have
completed this lesson
 LESSON

07

Executive
Compensation
 Examine executive compensation.
LESSON
OBJECTIVES
Explore stock options.
EXECUTIVE SALARIES
Average Annual Pay of Factory Workers, High School Teachers,
Engineers, and Chief Executive Officers: 1990-2000

1960 1970 1980 1990 2000 2010

Worker $4,665 6,933 15,008 20,862 28,600 32,840

Teacher 4,995 8,626 15,970 29,143 40,350 54,390

Engineer 9,828 14,695 28,486 49,772 62,760 89,086

CEO* 190,383 548,787 624,996 1.95 mil 12.4 mil 10.9 mil

*Total compensation, including salary, bonus, and stock options.

STOCK OPTIONS
A stock option is the right to buy company shares
stock at a fixed price over a certain period of time.

Restricted Stock Grant

• Time-based shares
• Performance-bases shares
NQDC
A nonqualified deferred compensation (NQDC) plan
is an income deferral arrangement in addition to other
qualified retirement plans, free of strict limitations.

Rabbi Trust
• Rabbi trust is a vehicle for holding assets set aside
to support an employer’s unfunded deferred
compensation obligations.
 Congratulations, you have
completed this lesson