NAME: S.

M DANIYAL PERVEZ
ROLL NO.: 11600

This assignment is based on Chapter 12: Pay for Performance and Financial Incentives
This study will give you
 PLO 1: To develop knowledge and understanding of business-related concepts and
develop students’ ability to apply them in real-world context.
 CLO 3: Apply HRM concepts and technical knowledge to the analysis of HRM
problems, cases, and issues.

QUESTIONS:

DO ATTEMPT ALL: REFRENCES OF ORGANIZATION WOULD BE APPRICIATED:

1. Explain how you would apply five motivational theories in formulating an

incentive plan?

Motivation and Incentives

Several motivation theories have particular relevance to designing incentive plans.

MOTIVATORS AND FREDERICK HERZBERG

Frederick Herzberg said the best way to motivate someone is to organize the job so
that doing it provides the feedback and challenge that helps satisfy the person's
higher-level needs for things like accomplishment and recognition. These needs are
relatively insatiable, says Herzberg, so recognition and challenging work provide a
sort of built-in motivation generator. Satisfying lower level needs for things like
better pay and working conditions just keeps the person from becoming
dissatisfied.

DEMOTIVATORS AND EDWARD DECI

Psychologist Edward Decis work highlights another potential downside to relying
too heavily on extrinsic rewards: They may backfire. Deci found that extrinsic
rewards could at times actually detract from the person's intrinsic motivation.

THE HIERARCHY OF NEEDS AND ABRAHAM MASLOW

Abraham Maslow propounded one widely quoted observation on what motivates
people. Although lacking much scientific support, his theory is widely quoted. He
said that people have a hierarchy of five types of needs:

1. Physiological (food, water, warmth)

2. Security (a secure income, knowing one has a job)
3. Social (friendships and camaraderie)
4. Self-esteem (respect)
5. Self-actualization (becoming the person you believe you can become)

2. Discuss the main incentives for individual employees?

employee incentive programs: Employee incentive programs have tremendous
benefits.

 Recognition and rewards:

Recognition matters more than ever before: when asked how organizations could
better support them in our new normal, 35% of employees said they wanted more
recognition. Sixty-nine percent of employees cite recognition and rewards
programs as motivation to stay at their current job. 

 Social recognition
Social recognition can be even more meaningful to employees than tangible
rewards. It’s a low-cost way to allow everyone at your organization to express their
gratitude for other team members publicly 一 even a simple thank you can be
enough to keep someone motivated.

 Professional development

Did you know 40% of employees with limited professional development

opportunities development will leave in five years? And millennials value it the
most: 87% said that development is important in their job. When you invest in your
employees’ careers, it matters to them, and they’ll stick around for the long haul. 

3. Discuss the pros and cons of commission versus straight pay

incentives for salespersons?
A commission-based incentive plan often means that workers receive a salary, but
commissions serve as an incentive for strong sales production.

Advantage: Increases Sales

The primary reason companies use commission incentives is to motivate sales employees
to work harder, more effectively or more efficiently to convert sales

Disadvantage: Unpredictable Expenses

Naturally, a company that pays commissions would gladly incur high commission costs in
exchange for strong revenue performance. However, the uncertainty with commission
pay can lead to budget challenges, especially if you sell on account to buyers.
 4. Describe the main incentives for managers and executives?
Managers play a crucial role in divisional and company wide profitability and most firms
therefore put considerable thought into how to reward them. Most managers get short
term and long term incentives in addition to salary. For firms offering short term incentive
plans, virtually all – 96% — provide those incentives in cash. For those offering long term
incentives about 48% offer them as stock options. 

The Annual Bonus

As noted, most firms have annual bonus plans aimed at motivating managers’ and
executives’ short term performance. Short term bonuses can easily result in plus or minus
adjustments of 25% or more to total pay. There are three basic issues to consider when
awarding short term incentives eligibility fund size and individual awards.

Eligibility
Most firms include both top and lower level managers, and mainly decide who’s eligible in
several ways. Most base eligibility on a combination of factors, including job level / title
Base salary and discretionary considerations (such as key jobs having a measurable impact
on profits). Some simply base eligibility on job level or job title.

Fund size
The employer must also decide the total amount of bonus money to make available – fund
size. Some use a nondeductible formula. They use a straight percentage (usually of the
company’s net income) to create the short term incentive fund. Others use a deductible
formula on the assumption that the fund should to accumulate only after the firm has met
specified level of earnings.

Individual awards
The third task is deciding the actual individual awards. Typically a target bonus (as well as
maximum bonus, perhaps double the target bonus) is set for each eligible position. The
actual award then reflects the person’s performance. The firm computes performance
ratings for each manager, computes preliminary total bonus estimates and compares the
total amount of money required with the bonus fund available
5. Name and define the most popular organization wide variable pay plans
 6. Outline the steps in designing effective incentive plans?

10 Steps for Designing Effective

Incentive Programs
Set Goals & Objectives
Identify what goal/objective needs to be accomplished, for example, improved attendance,
increased sales, reduced cycle times, etc. The objectives must be simple, specific, and
obtainable. Begin with not more than 3 clear, briefly stated objectives and communicate
them to all participants.

Identify the Audience

The entire employee or consumer audience is probably not your target. Identify which
individuals or teams can achieve your goals and objectives; those are your program
participants.

Fact-Finding & Involvement

Programs are always more effective if you can get input from representatives of the
participant audience. Inviting input on the rules, rewards and other aspects of the program
will increase ownership and engagement in the program. What steps will be necessary to
achieve the goals? Do participants have the resources they need in order to achieve them?

Program Structure & Budget

Build the foundation of the Incentive Program carefully, expanding on the methodology to
be used. This is where you decide whether you’ll use an open-ended or closed-ended
program design and identify your fixed and variable costs. An open-ended program is
harder to budget but can be funded through incremental sales or other gains; a closed-
ended program is easier to budget and may allow for larger rewards because you’ll have a
set number of winners but may not be as motivating for your participant audience if the
rules are not carefully structured.

Communication & Training

Decide how you will announce and launch the program. Develop a communication strategy
to keep participants updated and engaged throughout the program. Branded programs
are typically more effective than generic programs. Training management in the execution
of the program is critically important to the success of the program or campaign

Tracking & Administration

Decide which elements you’ll track and develop the system to track them. Administration
may account for approximately 20% of the program budget. The right program dashboard
or other technology can help to reduce the time spent on administration.

Fulfillment
The more immediate, the better. Technological advances allow participants to redeem
rewards online and, in some cases, the rewards may be digital. It’s also important that the
reward and fulfillment experience is consistent with your company’s brand attributes. 

Evaluate & Measure

Did the Incentive Program achieve its objectives? Were the participants motivated to
change their behavior? What outside factors contributed to the success (or not) of the
program? Every element that you measure can inform your next program parameters to
ensure greater success in the future.

Celebrate Success
Communicate the employee rewards and results of the recognition program with your
audience. Share how the program impacted company performance and celebrate both
individual and team achievements. Support from top management is critical, so make sure
company leaders are involved in presentations. If you have remote workers, consider web
events or other ways in which to involve all participants in the celebration.