Pay for Performance

12 and Financial Incentives

Copyright © 2013 Pearson Education Chapter 12-1

 Learning Objectives
1. Explain how you would apply five
motivation theories in formulating an
incentive plan.
2. Discuss the main incentives for
individual employees.
3. Discuss the pros and cons of
commissions versus straight pay
incentives for salespeople.
Copyright © 2013 Pearson Education Chapter 12-2
 Learning Objectives
4. Describe the main incentives for
managers and executives.
5. Name and define the most popular
organization-wide variable pay
plans.
6. Outline the steps in designing
effective incentive plans.
Copyright © 2013 Pearson Education Chapter 12-3
 Money and Motivation

Strategy

Performance

Incentive Pay

Copyright © 2013 Pearson Education Chapter 12-4

 Explain how you would apply
five motivation theories in
formulating an incentive
plan.

Copyright © 2013 Pearson Education Chapter 12-5

 Motivation and Incentives
• Maslow’s
Hierarchy of
Needs

Copyright © 2013 Pearson Education Chapter 12-6

 Motivation and Incentives

Hygiene
• Herzberg’s
Two-Factory
Theory
• Deci and Motivato
demotivators rs

Copyright © 2013 Pearson Education Chapter 12-7

 Motivation and Incentives

• Expectancy
Theory, Victor
Vroom

Copyright © 2013 Pearson Education Chapter 12-8

 Motivation and Incentives

• Behavior modification
• Incentive pay terminology
• Employee incentives and the law

Copyright © 2013 Pearson Education Chapter 12-9

 Review
• Money and motivation
• Motivation theories
• Incentives
• Terminology
• The law

Copyright © 2013 Pearson Education Chapter 12-10

 Discuss the main incentives
for individual employees.

Copyright © 2013 Pearson Education Chapter 12-11

 Individual Employee Incentive
and Recognition Programs
• Piecework plans • Merit pay as an
o Straight incentive
piecework o Differential pay
o Standard hour increases
plans o Merit pay options
o Pros and cons

Copyright © 2013 Pearson Education Chapter 12-12

 Individual Employee Incentive
and Recognition Programs
• Incentives for professional employees
• Nonfinancial and recognition-based
awards
o Incentives managers can use
• Online and IT-supported awards
• Job design

Copyright © 2013 Pearson Education Chapter 12-13

 Review
• Piecework
• Merit pay
• Incentives for professionals
• Nonfinancial rewards
• Online
• Job design

Copyright © 2013 Pearson Education Chapter 12-14

 ThePros and Cons of
Commissions vs. Straight
Pay Incentives for
Salespeople

Copyright © 2013 Pearson Education Chapter 12-15

 Incentives for Salespeople
• Salary plan
• Commission plan
• Combination plan
• Maximizing sales force results
• How effective are your incentives?

Copyright © 2013 Pearson Education Chapter 12-16

 Review
• Types of sales
incentives
• Maximizing results
• Effectiveness

Copyright © 2013 Pearson Education Chapter 12-17

 Describe the main incentives
for managers and executives.

Copyright © 2013 Pearson Education Chapter 12-18

 Incentives for Managers
and Executives
• Strategy and the executive’s long-term and
total rewards package
• Sarbanes-Oxley Act
• Short-term incentives, annual bonus
o Eligibility
o Fund size
o Individual performance
o Formula
Copyright © 2013 Pearson Education Chapter 12-19
 Incentives for Managers
and Executives
• Strategic long-term incentives
o Stock options
o Stock option problems
o Other stock plans
o Ethics and incentives
• Other executive incentives

Copyright © 2013 Pearson Education Chapter 12-20

 Review
• Strategy and long-term incentives
• Federal law
• Short-term incentives
• Strategic long-term incentives
• Other incentives

Copyright © 2013 Pearson Education Chapter 12-21

 TheMost Popular
Organization-wide Variable
Pay Plans

Copyright © 2013 Pearson Education Chapter 12-22

 Team &Organization-wide
Incentive Plans
• Designing team incentives
o Engineered standards
o Pros and cons
• HR inequities that undercut team
incentives

Copyright © 2013 Pearson Education Chapter 12-23

 Team &Organization-wide
Incentive Plans
• Profit-sharing plans
• Scanlon plans
• Othergainsharingplans
• At-risk pay plans
• Employee stock ownership plans

Copyright © 2013 Pearson Education Chapter 12-24

 Review
• Team incentives
• Inequities
• Profit-sharing
• Scanlon and gainsharing
• At-risk
• ESOPs

Copyright © 2013 Pearson Education Chapter 12-25

 The Steps in Designing
Effective Incentive Plans

Copyright © 2013 Pearson Education Chapter 12-26

 The Five Building Blocks of
Effective Incentive Plans
• Common sense
• Linkages
• Effort Rewards
• Standards
• Contract
• Measurement

Copyright © 2013 Pearson Education Chapter 12-27

 Review
Sense
Scientific

Linkages

Standard
s
Motivatio
n

Copyright © 2013 Pearson Education Chapter 12-28

 All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.

Copyright © 2013 Pearson Education Chapter 12-29