Chapter

11
Pay for Performance and
Employee Benefits

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 Learning Objectives

1. Discuss the main incentives for individual employees.

2. Name and define the most popular organization-wide incentive
plans.
3. Define employee benefits.
4. List and discuss the main pay for time not worked and insurance
benefits.
5. Describe the main retirement benefits.
6. List and discuss the popular personal services and family-friendly
benefits.
7. Explain how to use benefits to improve engagement, productivity,
and performance.

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 Individual Employee Incentive Plans

Piecework Plans
• Oldest and most popular individual incentive plan
• The worker is paid a sum for each unit he/she produces

Merit Pay:
• Any salary increase the firm awards to an employee based on his/her
individual performance
• Merit plan effectiveness depends on differentiating among employees

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 Merit Plan Example

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 Individual Employee Incentive Plans
For Professional Employees
• Professional employees are those whose work involves the application of
learned knowledge to the solution of the employer’s problems
• Incentive pay decision-making is challenging because such employees are
usually paid well

Dual-Career Ladders: many employers institute one path for managers, and
another for technical experts, allowing the latter to earn higher pay without
switching to management

Nonfinancial & Recognition-Based Awards

• Formal programs, such as employee-of-the-month programs
• Social recognition programs generally refer to informal manager-employee
exchanges such as praise, approval, or expressions of appreciation for a job
well done

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 Individual Employee Incentive Plans

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 Individual Employee Incentive Plans

Social Media & HR: Various apps let employees showcase their awards,
contributions, and praise from coworkers

Job Design
• Job design can have significant impact on employee motivation and
retention
• Studies show that job design is a primary driver of employee engagement.

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 Individual Employee Incentive Plans (cont.)

For Salespeople
• Salary Plan: fixed salaries
• Commission Plan: Straight commission
plans pay salespeople only for results

For Managers & Executives: Executive pay should align with the company’s
strategic aims
• Sarbanes-Oxley: makes executives and board members personally liable for
violating their fiduciary responsibilities to their shareholders

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 Individual Employee Incentive Plans (cont.)

Short-Term Managerial Incentives and the Annual Bonus: motivating

managers’ short-term performance
• Eligibility – Employers traditionally based annual bonus eligibility on
job level/title, base salary, and/or officer status.
• Fund Size – refers to the total amount of bonus money the firm
makes available
• Individual Performance & Formula - Deciding the actual individual
award involves rating the person’s performance, and then applying a
predetermined bonus formula

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 Individual Employee Incentive Plans (cont.)

Executive’s Strategic Long-Term Incentives – injecting a long-term

perspective into executives’ decisions
• Stock options - the right to purchase a stated number of shares of a
company stock at today’s price at some time in the future
• Performance-contingent restricted stock: the executive receives
his/her shares only if he/she meets the preset performance target.
• Phantom stock: gives managers the benefits of stock ownership
without the real ownership but employees cash out in the future.
• Golden parachute: large payment when there is a change of
ownership

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 Multiplier Approach to Determining Annual Bonus

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 Team & Organization-Wide Incentive Plans

Team & Organization-wide incentive plans involves all or most

employees, and that generally ties the reward to team- and company-
wide performance.

• Profit-Sharing Plans: employees receive a share of the firm’s annual profits

• Gainsharing Plans: engages employees in a common effort to achieve a

company’s productivity objectives, with any resulting cost savings (gains)
shared among employees and the company.

• Risk Pay Plans: put some portion of the employee’s normal pay at risk if they
don’t meet their goals, in turn for possibly obtaining a much larger bonus if
they exceed their goals

• ESOP: A qualified, tax deductible stock bonus plan in which employers

contribute stock to a trust for eventual use by employees
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 Employer Costs for Employee Compensation

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 Employer Costs for Employee Compensation

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 Benefits and Services: The Benefits Picture Today

Benefits: indirect financial and

nonfinancial payments
employees receive for continuing
their employment with the
company.

Some benefits are mandatory

while others are at the
employer’s discretion.

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 Benefits and Services: The Benefits Picture Today

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 Pay For Time Not Worked & Insurance Benefits

Supplemental Pay Benefits Unemployment Insurance

Sick Leave Vacations & Holidays

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 Unemployment Insurance Cost-Control Checklist

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 Pay For Time Not Worked & Insurance Benefits

Family Medical Supplemental

Severance Pay
Leave Act & Unemployment
Parental Leaves Benefits

Hospitalization, Health, &

Workers’ Compensation
Disability Insurance
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 Percentage of Employers Offering Some Health
Benefits

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 Pay For Time Not Worked & Insurance Benefits

Insurance Benefits
• Patient Protection and Affordable Care Act of 2010
• COBRA
• ERISA
• The Newborn Mother’s Protection Act, 1996
• HIPAA

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 Tools for Employer Health Care Cost Control

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 Trends in Employer Health Care Cost Control

• Wellness programs
• Claim Audits
• Long-term care
• Life Insurance
• Benefits for Part-Time and Contingent Workers

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 Retirement & Other Benefits

Social Security – provides 3 types of benefits: retirement benefits, survivor’s

(death) benefits and disability payments

Pension Plans - provide a fixed sum when employees reach a predetermined

retirement age or when they can no longer work due to disability

Pensions and Early Retirement

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 Personal Services & Family-Friendly Benefits

Personal Services: include employee assistance, educational subsidies, credit

unions, and social and recreational opportunities

Family Friendly (Work-Life) Benefits

• Subsidized Child Care – an increasingly desirable benefit
• Sick Child Benefits

Other Job-Related Benefits

• Elder-care services
• Domestic partner benefits

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 Personal Services & Family-Friendly Benefits

Executive Perquisites
Flexible Benefits Programs
• Flexible Work Schedules: Flextime, Compressed Workweek
• Workplace Flexibility: Job Sharing, Work Sharing

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 Employee Engagement
Costco’s Compensation Plan: under the philosophy that if the company pays
proper wage and benefits, it helps to attract top workers, improve employee
performance, productivity and performance

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 Summary

1. Incentive programs for individual employee incentives

2. Organization-wide and team incentive plans
3. Various Benefits
4. Pay for time not worked and insurance benefits
5. Social Security
6. Family-friendly benefits
7. Employee engagement

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 References

Domicile. 2019. Vietnam Salary Calculations BIG GUIDE. Retrieved

from
https://www.domicilecs.com/images/PDF/Vietnam%20Payroll%20Quic
k%20Guide%20July%202019%20-%20Domicile.pdf

29
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