Human Resource Management - Chapter 12 ppsx

© 2008 Prentice Hall, Inc.
© 2008 Prentice Hall, Inc.
All rights reserved.
All rights reserved.
PowerPoint Presentation by Charlie Cook
PowerPoint Presentation by Charlie Cook
The University of West Alabama
The University of West Alabama
1
Human Resource
Human Resource
Management
Management
ELEVENTH EDITION
ELEVENTH EDITION
G A R Y D E S S L E R
G A R Y D E S S L E R
Pay for Performance and
Pay for Performance and
Financial Incentives
Financial Incentives
Chapter
Chapter
12
12
Part 4 | Compensation
Part 4 | Compensation
© 2008 Prentice Hall, Inc. All
rights reserved. 12–2
After studying this chapter, you should be able to:
1.

1.
Discuss the main incentives for individual employees.
Discuss the main incentives for individual employees.
2.
2.
Discuss the pros and cons of incentives for
Discuss the pros and cons of incentives for
salespeople.
salespeople.
3.
3.
Name and define the most popular organizationwide
Name and define the most popular organizationwide
variable pay plans.
variable pay plans.
4.
4.
Describe the main incentives for managers and
Describe the main incentives for managers and
executives.
executives.
5.
5.
Outline the steps in developing effective incentive
Outline the steps in developing effective incentive
plans.
plans.
© 2008 Prentice Hall, Inc. All
rights reserved. 12–3
Motivation, Performance, and Pay

Motivation, Performance, and Pay
•
Incentives
Incentives

Financial rewards paid to workers whose production
Financial rewards paid to workers whose production
exceeds a predetermined standard.
exceeds a predetermined standard.
•
Frederick Taylor
Frederick Taylor

Popularized scientific management and the use of
Popularized scientific management and the use of
financial incentives in the late 1800s.
financial incentives in the late 1800s.

Systematic soldiering
Systematic soldiering

Fair day’s work
Fair day’s work
© 2008 Prentice Hall, Inc. All
rights reserved. 12–4
Employee Incentive Plans
Employee Incentive Plans
Individual Employee Incentive
and Recognition Programs
Sales Compensation

Programs
Organizationwide Incentive
Programs
Executive Incentive
Compensation Programs
Team/Group-based Variable
Pay Programs
Pay-for-Performance
Plans
© 2008 Prentice Hall, Inc. All
rights reserved. 12–5
Incentives for Salespeople
Incentives for Salespeople
•
Salary Plan
Salary Plan

Straight salaries
Straight salaries

Best for: prospecting (finding new clients), account
Best for: prospecting (finding new clients), account
servicing, training customer’s salesforce, or participating in
servicing, training customer’s salesforce, or participating in
national and local trade shows.
national and local trade shows.
•
Commission Plan
Commission Plan


Pay is a percentage of sales results.
Pay is a percentage of sales results.

Keeps sales costs proportionate to sales revenues.
Keeps sales costs proportionate to sales revenues.

May cause a neglect of nonselling duties.
May cause a neglect of nonselling duties.

Can create wide variation in salesperson’s income.
Can create wide variation in salesperson’s income.

Likelihood of sales success may be linked to external
Likelihood of sales success may be linked to external
factors rather than to salesperson’s performance.
factors rather than to salesperson’s performance.

Can increase turnover of salespeople.
Can increase turnover of salespeople.
© 2008 Prentice Hall, Inc. All
rights reserved. 12–6
Incentives for Salespeople (cont’d)
Incentives for Salespeople (cont’d)
•
Combination Plan
Combination Plan

Pay is a combination of salary and commissions,
Pay is a combination of salary and commissions,
usually with a sizable salary component.

usually with a sizable salary component.

Plan gives salespeople a floor (safety net) to their
Plan gives salespeople a floor (safety net) to their
earnings.
earnings.

Salary component covers company-specified service
Salary component covers company-specified service
activities.
activities.

Plans tend to become complicated, and
Plans tend to become complicated, and
misunderstandings can result.
misunderstandings can result.
© 2008 Prentice Hall, Inc. All
rights reserved. 12–7
Specialized Combination Plans
Specialized Combination Plans
•
Commission-plus-Drawing-Account Plan
Commission-plus-Drawing-Account Plan

Commissions are paid but a draw on future earnings
Commissions are paid but a draw on future earnings
helps the salesperson to get through low sales
helps the salesperson to get through low sales
periods.
periods.

•
Commission-plus-Bonus Plan
Commission-plus-Bonus Plan

Pay is mostly based on commissions.
Pay is mostly based on commissions.

Small bonuses are paid for directed activities like
Small bonuses are paid for directed activities like
selling slow-moving items.
selling slow-moving items.
© 2008 Prentice Hall, Inc. All
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Team/Group Incentive Plans
Team/Group Incentive Plans
•
Team (or Group) Incentive Plans
Team (or Group) Incentive Plans

Incentives are based on team’s performance.
Incentives are based on team’s performance.
•
How to Design Team Incentives
How to Design Team Incentives

Set individual work standards.
Set individual work standards.

Set work standards for each team member and then
Set work standards for each team member and then

calculate each member’s output.
calculate each member’s output.

Members are paid based on one of three formulas:
Members are paid based on one of three formulas:

All receive the same pay earned by the highest producer.
All receive the same pay earned by the highest producer.

All receive the same pay earned by the lowest producer.
All receive the same pay earned by the lowest producer.

All receive the same pay equal to the average pay earned
All receive the same pay equal to the average pay earned
by the group.
by the group.
© 2008 Prentice Hall, Inc. All
rights reserved. 12–9
Team/Group Incentive Plans (cont’d)
Team/Group Incentive Plans (cont’d)
•
Pros
Pros

Reinforces team planning and problem solving
Reinforces team planning and problem solving

Helps ensure collaboration
Helps ensure collaboration


Encourages a sense of cooperation
Encourages a sense of cooperation

Encourages rapid training of new members
Encourages rapid training of new members
•
Cons
Cons

Pay is not proportionate to an individual’s effort
Pay is not proportionate to an individual’s effort

Rewards “free riders”
Rewards “free riders”
© 2008 Prentice Hall, Inc. All
rights reserved. 12–10
Organizationwide Incentive Plans
Organizationwide Incentive Plans
•
Employee Stock Ownership Plan (ESOP)
Employee Stock Ownership Plan (ESOP)

A firm annually contributes its own stock—or cash
A firm annually contributes its own stock—or cash
(with a limit of 15% of compensation) to be used to
(with a limit of 15% of compensation) to be used to
purchase the stock—to a trust established for the
purchase the stock—to a trust established for the
employees.
employees.


The trust holds the stock in individual employee
The trust holds the stock in individual employee
accounts and distributes it to employees upon
accounts and distributes it to employees upon
separation from the firm if the employee has worked
separation from the firm if the employee has worked
long enough to earn ownership of the stock.
long enough to earn ownership of the stock.
© 2008 Prentice Hall, Inc. All
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Gainsharing Plans
Gainsharing Plans
Philosophy
of
Cooperation
Involvement
System
Identity
Scanlon Plan
Competence
Sharing of
Benefits
Formula
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At-Risk Variable Pay Plans
At-Risk Variable Pay Plans
•
Put some portion of the employee’s

Put some portion of the employee’s
weekly pay at risk.
weekly pay at risk.

If employees meet or exceed their goals,
If employees meet or exceed their goals,
they earn incentives.
they earn incentives.

If they fail to meet their goals, they forgo
If they fail to meet their goals, they forgo
some of the pay they would normally have
some of the pay they would normally have
earned.
earned.
© 2008 Prentice Hall, Inc. All
rights reserved. 12–13
Incentives for Managers and Executives
Incentives for Managers and Executives
•
Short-Term Incentives: The Annual Bonus
Short-Term Incentives: The Annual Bonus

Plans that are designed to motivate short-term
Plans that are designed to motivate short-term
performance of managers and are tied to company
performance of managers and are tied to company
profitability.
profitability.
•

Issues in Awarding Bonuses
Issues in Awarding Bonuses

Eligibility basis
Eligibility basis

Fund size basis
Fund size basis

Individual awards
Individual awards
© 2008 Prentice Hall, Inc. All
rights reserved. 12–14
K E Y T E R M S
financial incentives
financial incentives
fair day’s work
fair day’s work
scientific management
scientific management
expectancy
expectancy
instrumentality
instrumentality
valence
valence
behavior modification
behavior modification
variable pay
variable pay

piecework
piecework
straight piecework
straight piecework
standard hour plan
standard hour plan
merit pay (merit raise)
merit pay (merit raise)
team or group incentive plan
team or group incentive plan
organization wide incentive plans
organization wide incentive plans
profit-sharing plan
profit-sharing plan
employee stock ownership plan (ESOP)
employee stock ownership plan (ESOP)
Scanlon plan
Scanlon plan
gainsharing plan
gainsharing plan
at-risk variable pay plans
at-risk variable pay plans
annual bonus
annual bonus
stock option
stock option
golden parachutes
golden parachutes