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33 Cards in this Set
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Main Types of Performance Pay Plans |
Gain-Sharing Goal-Sharing Profit-Sharing Employee Stock Plans |
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Define Gain Sharing Plans |
Group performance pay plan that shares cost savings or productivity gains generated by a work group with all members of that group |
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Define Goal Sharing Plans |
A group performance pay plan in which a work group receives a bonus when it meets pre specified performance goals
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Define Profit Sharing Plans |
An organizational performance pay plan in which a firm provides bonus payments based on the profitability of the firm
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Define Employee Stock Plans |
An organizational performance pay plan in which employees acquire shares in the firm that employs them |
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Types of Gain-Sharing Plans |
Scanlon Plan Rucker Plan Improshare Family of Measures Plan |
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Define Scanlon Plan |
Gain sharing plan that creates mechanisms for employee participation in developing productivity improvements and that shares the financial benefits of those improvements with the employee group that generated them Example: labour costs is 50% of sales value of production. If lowers to 47%, employees share productivity gain of 3% |
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Why do some Scanlon Plans include additional costs besides labour |
Many possible cost savings do not show up in labour costs It is usually possible to decrease labour costs by increasing other costs |
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Define Rucker Plan |
Gain-sharing plan similar to the Scanlon plan but that expresses labour costs as a percentage of value added Employees benefit from reductions in raw materials motivating them to reduce these costs |
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Define Improshare |
Gain-sharing plan that focuses on labour hours per unit of output and that does not usually include worker participation
Doesn't take other cost savings into account |
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Define Family of Measures Plan |
Gain-sharing plan that uses a variety of measure to determine the extent to which a bonus is justified
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Issues when designing gain-sharing plans |
1. Defining the group or work unit to be included in the plan 2. Establishing the bonus formula 3. Defining the baseline against which to measure improvement 4. Deciding on the share between the company and the employees 5. Deciding on the split among employees 6. Deciding on the frequency of payout 7. Developing procedures for communicating results 8. Deciding whether and how to incorporate employee participation |
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What types of baselines are there? |
Fixed Baseline Rolling Baseline (uses fixed period) Ratcheting Baseline (adjusts every year that there is a productivity gain) |
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Types of Goal-Sharing Plans |
Single-goal Multigoal Financially Funded |
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What are single-goal plans |
Focus attention on one key goal May cause other behaviours to be neglected |
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What are multi goal plans |
Focus is on multiple goals |
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Two criteria of financial funded plans |
Total amount of goal sharing bonus available is typically based on some indicator such as company profit, while the actual amount of payout is based on the achievement of specified goals Benefit is not paying out when not profitable but makes less certain, diminishing motivation |
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Issues in Designing Goal-Sharing Plans |
1. Define the group to which goal sharing applies 2. Decide on the nature of the goals to be sought 3. Determine levels and time frames for goal achievement 4. Establish the bonus amounts 5. Decide on the split of the bonus among employees |
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Ways to allocate bonus among employees |
Salary-based Seniority-based Individual Performance Equal Distribution Mix |
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Types of Profit Sharing Plans |
Current distribution Deferred Profit Sharing Combination |
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Define Current Distribution Profit Sharing |
Distributes the profit-sharing bonus to employees in the form of cash or shares, at least annually |
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Define Deferred Profit-Sharing Plan |
Bonuses are allocated to employee accounts but not actually paid out until a later date, usually on termination or retirement |
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What profit sharing plan is tax deferred? |
Deferred Profit sharing plans. Therefore, it must be registered with the government |
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Key Issues when designing profit-sharing plans |
The formula for bonus determination (fixed or discretionary) Employee eligibility The basis for allocating the profit-sharing bonus across employees Payout frequency Communicating financial results and profit sharing |
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Types of Employee Stock Plans |
Stock bonus plans Stock purchase plans Stock option plans |
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Define Stock bonus plans |
Employees receive company stock at no cost to themselves |
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Define Share Appreciation rights |
A plan through which employees are awarded shares in their employer at no cost to themselves if the price of employer shares rises during a specified period Example: employee is allocated 1000 shares. If share price is $20 and rises during timeline to value of $25, then employee will receive a bonus of 200 actual company shares Issues: taxation issues when shares are vested. Seen as a capital gain which is good in good market, bad in declining economy |
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Define Stock Purchase Plans |
Employees provide some kind of direct payment in return for company shares Usually do not have to pay the full amount Is deemed as employment income but taxed as capital gain rate which is half of employment income rate |
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Define Stock Option Plans |
Employees receive options to purchase company stock at a future time at a fixed price. Example: If company stock is trading at $10 a share, then 1000 options with an exercise price of $11 might be issued. I year later, the employee has the option of purchasing 1000 shares at $11 |
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Define Phantom Share Plan |
A plan through which employees participate in the appreciation of company shares and any associated dividends, without ever owning any company shares |
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Issues in designing stock plans |
Eligibility for inclusion Criteria for allocating stock among employees The type of holding period |
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Types of non monetary reward plans |
Informal - encouragement from supervisors day-to-day Formal - formal recognition |
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5 types of non monetary awards |
Social Reinforcers Merchandise Awards Travel Awards Symbolic Awards Earned Time Off |
