Rewarding Performance

BY
Ruchi N Sao
Contents
■ Approaches to rewarding performance

■ Strategic Compensation: Pay-for-performance programmes

■ Meaning and types of incentive plans

■ Essential characteristics of effective incentive plan and its limitations

Course Outcome
Better understanding of relationship between compensation and
performance
Purpose of Reward System

■ Stimulate to increase effectiveness & quality

■ Give increased responsibility & influence over individuals own

work situation

■ Stimulate competence development

■ Stimulate new work forms

Approaches to rewarding
performance
Individual Based Compensation System
■ 2 people doing same job may be paid differently

■ Annual increment which employees get used to

■ Individual system is linked with individual performance

■ May result in healthy competition at workplace

Drawbacks:
■ Quantity may take over quality
■ Relation between difficulty of goal and efforts of employee
Team Based Compensation System
■ Skills of team members are complementary to each other
■ Commitment to common goal
■ Cooperation of employees is required more to accomplish goals
■ For large organizations having similar jobs and same targets
■ Providing common incentives

Why team based compensation?

■ Importance of team work & team compensation would enhance it
■ Dissatisfaction with individual based compensation which is harmful
to teamwork
Strategic Compensation: Pay for
Performance Programmes
Strategic Compensation

■ Performance appraisal
– Evaluate past performance
– Develop for future performance

■ It includes decisions made to ensure that compensation is linked to

goal achievement

■ Linkage helps in desired behaviors from employees

■ It is designed to attract, retain, motivate and engage employees

Types of Strategic Compensation
Performance
Appraisal

Evaluative Developmental

Assess Past Develop future

Performance Performance

Rewards Rewards

Stocks Incentives
Developing Pay for Performance
■ Identify qualitative and quantitative jobs

■ Identification of triggers for top performers

■ Identify clear cut objectives for employees

■ Popular short term pay for performance plans:

– Merit pay
– Lump sum bonus
– Individual awards & incentives
– Management development programmes
– Equity
– Special recognition

■ To reward the employee who contributes the best to organization

Prerequisites for Strategic Compensation

■ PMS to be in place

■ Clear Communication

■ Performance measurement against planned goals

■ Clear feedback to employees

■ Well structured unbiased reward system

■ Monitor influence of compensation plan on employee behavior

■ Calculation of return on investment

Checklist for Pay for Performance

■ Clearly outlined performance category

■ Clearly defined job descriptions and goals

■ Clearly defined department and organization goals (aligned with the

employee goals)

■ PMS for tracking manager feedback / evaluations

■ Transparent goal tracking system for employees (view current

results vs. goals)
Incentives
Incentives
■ Individual and group incentives

■ Which attracts an employee’s attention and stimulates him to work

more effectively

■ Combination of financial and non financial rewards

■ It encourages and motivates mechanism that encourages employees to

achieve organizational objectives

■ Incentive is a potential reward that can be manipulated by

experimenter
Introduction to Incentives
■ They are monetary benefits received by employee

■ They are variable rewards given as per the variations in achievement of specific
results

■ Payment by results

■ Motivation to employees

■ Increased earnings

■ Improved standard of living

Characteristics of Incentive plans

■ Must be paid according to goals

■ Clearly communicated and easy to understand

■ Encourage employees

■ Should help in reducing cost of supervision

■ KPI’s clearly defined and linked

Prerequisites for an Effective Incentive System for Workers

■ The cooperation of workers

■ The scheme must be based on scientific work measurement

■ Standards set must be realistic & must motivate workers to perform

better

■ Indirect workers (supervisors, foreman, helpers, etc) should also be

included

■ Emphasis on planning

■ Appropriate & clear

Group Incentives
Group Incentive Plans

■ Where operations are performed by a group of workers

■ Difficult to differentiate output individually

■ Total earnings of group are decided

■ Distributed to the entire group members

Group Incentives

■ Gain sharing plan

■ Kaiser plan

■ Profit sharing plan

■ Cafeteria plan: “Choose your own reward plan”

Individual Incentives
■ Time required to perform is decided on the basis of past records and standard rate
is fixed
■ Minimum time wage is guaranteed
Halsey Premium Plan
■ Time saved multiplied by hourly rate is shared as per rule of company
■ Also called as bonus sharing plan where bonus can be 50%
Rowan Premium Plan
■ If job completed in stipulated time, standard wages
■ Employees who complete their job before standard time are paid bonus with
standard wages
■ Gives higher bonus but not more than 25% of standard time
■ Acts as a motivator and keeps a check on overdoing
Taylor Differential Piece Rate System

■ Time required to perform job is decided through time and motion study

■ Higher and lower rate of wages are decided

■ Higher rate for completing job within or before standard time

■ Lower rate for completing job after the standard time

■ Promotes efficiency and productivity

■ Rule of reward and punishment is followed

Merric Piece Rate System
■ This plan is an improvement of Taylor Differential Piece Rate System

■ 3 rates of wages are determined

■ Completion of 80% of standard production gets minimum guaranteed time

wages

■ Completion of 80% to 99% of standard production gets 10% bonus in

addition to minimum guaranteed time wages

■ Completion of 100% of standard production gets 20% bonus in addition to

minimum guaranteed time wages
Emerson Efficiency Premium Plan

■ Standard time and standard rate of wage is calculated in advance

■ Completion of job in standard time will get standard wages

■ Completion of job before standard time will get bonus with standard wage

■ Employees producing more than 67% of standard production must be

rewarded bonus

■ Bonus will be 20% of wages if efficiency exceeds 100%

■ More efficient employee gets higher wages

Gantt Bonus Plan
■ Minimum time wage is guaranteed

■ Time to complete job decided on the basis of time and motion study

■ Completion of job after standard time, will get only standard wages

■ Completion of job within or before standard time, will get standard wages
and bonus

■ Bonus will be paid as per time saved

■ Rate of bonus can be 25% or 33.33%

■ Bonus is paid to supervisor also

Bedaux Point Premium Plan

■ Time to complete job decided on the basis of time and motion study

■ Completion of job within standard time, will get only time wages

■ Completion of job before standard time, will get time wages & bonus
equal to time saved

■ Generally, the bonus paid will be 75% of time saved and remaining 25%
paid to supervisor
Commission System

■ It is used for sales personnel

■ The commission is given on sales generated in a given period of time

■ It is almost 40% of the total remuneration received to the employee

■ It is able to attract more able and skilled employees

■ Generally, there is no upper limit of target

Limitations of Incentives
■ Quality can go down; if inspection & check not there

■ Workers may ask for higher wages. This may lead to high wage costs

■ Jealousy factor

■ Fixing of rates

■ Money as a motivator can be short term

■ Setting criteria can be difficult

Limitations of Incentives

■ Size of organization

■ Individual performance can be difficult to manage

■ Changing business goals

■ Ethics

■ Corruption