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55 Cards in this Set
- Front
- Back
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Contributions
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Seniority Based
Performance Based Merit Based Incentive Programs |
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Pay Varies With Some Measure of
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Individual, team , or organizational PERFORMANCE.
MUST BE REEARNED |
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Base
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Fixed Base
-Least Motivational Most Commonly Used |
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Merit
(% or lump) |
Performance Appraisal Ratings
Lump Increasingly used as alt to % -Less expensive -NOT built into base pay -Viewed as less of an entitlement |
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Gain-sharing
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EE's earn bonus based on saving costs
-plan is self funded -bonus is under ee control |
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Three Gain-Sharing Options
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Scanlon
Rucker Improshare |
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Profit-Sharing
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Ee receive annual bonus or shares in co based on company wide profit perf.
Note: ee base pay is constant Popular b/c profits matter to many stakeholders and ease of admin Org. Level Becomes an entitlement Should only get NI/NS=% |
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Profit-Sharing Issue
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EE may not feel their jobs directly impact firm profits("line of sight" problems for ees in staff areas)
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Success Sharing
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Group Level Bonus
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Risk Sharing Plans
or Earnings at Risk |
BASE PAY temporarily reduced in poor perf. years
-base pay no longer predictable -Shifts part of risk of doing busi. from company to ee |
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Issue of Risk Sharing
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Pay dis-satisfaction
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COLA
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Cost of Living Adjustments
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Individual Incentive Bonus Plans
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Common feature in ind incentive plans
-An established standard against which employee performance is compared to determine magnitude of incentive pay 1. Straight Piecework Plan 2. Standard Hour Plan 3. Taylor Differential Piece Rate System Merrick Multiple Piece rate System 4. Halsey 50-50 Method |
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Straight Piecework Plan
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Short Cycle Tasks
The Standard should be EASY TO COUNT Bonus is on top of base pay |
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Standard Hour Plan
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Long Cycle Tasks
Standard hour plan a standard time is allowed to complete a job and the employee is paid a set amount for the job if completed within that time. For instance, an auto mechanic may be assigned to tune an automobile, a task for which the standard time is two hours. If the mechanic completes the task in an hour and a half, he or she is paid for two hours. If the job takes two and a half hours, the mechanic is paid for that time. |
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Halsey 50-50
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Estimate to do ABCD
10 Hr Job X amount per hour due to 90 Labor Cost $900 If an employee can do it 9Hrs that 10th hour is split 50/50 b/t ee and company |
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Across the Board
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Wimps way out ticks off highperformers
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Long Term Vs. Short Term Bonus
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Long term usually for Top MGMT
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Pros of Individual Incentive Plans
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Raises PRODUCTION
Yokes Labor cost to outputs Costing and Budgetary Control Less Direct Supervision |
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Cons of Individual Incentive Plans
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Requires Intensive Time-motion Studies
Quantity vs QUALITY Of Output New Technology/Production Methods may be hard to sell to ees therefore resist Increased Complaints about Equipment Unwillingness of experienced workers to train others Individual competition |
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Variable Pay vs. Pay Level on EE performance?
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Pay LEVEL affects co's ability to attract/ retain
VARIABLE pay affects individual, group, & organizational Performance Variable pay can affect the type of EE who leaves |
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How does variable pay affect turnover, when based on Ind. perf. and group perf.?
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Pay based on ind. perf. Tends to send low perf. Leaving
Pay based on group incentive plans lead to higher perf leaving |
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Key Factors when designing Variable Pay Plans?
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Simple and Clear Objectives
"Line of Sight" for ees Clear and Valid Measures Controllable by EES Communicate to EEs Low Complexity "C's of Design" |
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Line of Sight for EES
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Can ees see that their behavior affects the ability to achieve objectives
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Measures
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If I’m going to receive a bonus on the quality of my work then how is quality going to be measured? Rework, scrap, rejects
Net sharing/income easy to understand |
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Controllable by EEs
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Ex: Auto line mfg workers who got a bonus on the amount of cars sold.
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Strategy
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Support Corp Objectives
Dont forget about quality through incentive plans Most experts agree that EEs don't begin to notice incentive payout unless they are at least 10%* |
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Taylor Frederick Differential Piece Rate System Merrick Multiple Piece Rate
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Low wage rate was fixed for those workers who did not produce the standard output.
Higher wage rate was fixed for those workers who produced the standard output or who produced more than the standard output. Merrick No Bonus if below a specific Standard |
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"C"s of design
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Communication to EES
Low Complexity High EE Control |
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Why are variable pay plans gaining in popularity?
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Signals movement away from an entitlement mentality, shifts risk to the ee
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INDIVIDUAL VARIABLE PAY PLANS
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Merit Pay % vs Lump
Spot Award Piece Rate |
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Spot Award
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Awarded for exceptional performance
Moderately Effective by firms |
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Pros of Individual Incentive Plans
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Raises Production
YOKES LABOR COST TO OUTPUTS Helps budgeting and costing control Less direct supervision |
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Cons of Individual Incentive Plans
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Requires Intensive time motion studies
Quantity vs QUALITY of output New Technology/ Production Methods may be hard to sell to ees therefore resist incerased complaints about equipment Unwillingness of experienced workers to train others Individual Competition |
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Group Level Incentives
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Appropriate only if work is REALLY interdependent
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Level Problem
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Loses incentive power if group is too large
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Free Rider Problem
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Idea: No team bonus if ee's dont achieve their individual goals
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FLSA implications for nonexempt ees' regular and OT rates of pay under plan
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Incentive-based pay for non-exempt workers must be included in their regular pay. Because the bonus increases employees' regular pay, the company has to re-calculate overtime for the period when bonus earned. This creates additional payroll administration burdens. Thus, it may make firms reluctant to use gain-sharing plans.
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Types of Gainsharing
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Scanlon
Rucker Improshare |
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Scanlon
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- SVOP includes sales revenue and value of goods in inventory. Typically 50% to ees; 25% to co.; 25% to emergency fund
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Rucker
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incents workers to reduce materials, supplies and utility costs
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Improshare
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Standard is developed that identifies expected hours required to produce an acceptable level of output. This plan is easy to communicate and administer. Incented to reduced down time, defect rates, repair time (like in OH bus facility)
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Long Term Incentives
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Tied to Increase in Firm Performance
Balance Scorecard Approach Given usually to Top MGMT |
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Stock Options
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NOT true form of Variable Pay
Grants you option to buy stock at some point in the futurewhat I do today won’t have much of impact on stock price at time I exercise my option. Maybe ESOPs foster ee willingness to participate in decision making |
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Factors that affect stock prices
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General economy
Weather Vacations Co News Analyst Reports |
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Performance Shares
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typically vest over three years sometimes longer are quickly becoming the stock options of the new era
require you stay with company for three years and the companies earning per share grow 10% a year over that three year period for you to vest and be entitled to the full value of the shares. If EPS growith is only 8 % you do not get full value. |
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Golden Parachute
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Negotiation upon job offer to the exec
What will he get in pay and benefits in case of M&A or after being fired, typically for 1-3 yrs |
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Broad Based
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Broad Based Participation rewarding all ees (like starbucks "beanstocks" with stock grants)
Not lastest trend |
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Stock Grant
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given a corp. stock
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Stock option
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Given an option to purchase corp stock at a fixed price for a given time
Little evidence that stock ownership by mgmt leads to better firm perf. There are many factors other than mgr perf that drive co stock price Poor reflecetion of mgr per, esp when market is volatile |
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FAS 123R
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Firms must expense stock options
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Agency Theory
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Agency theory is based on the relationship of shareholders and the managers of the company. Its main emphisis is on the differences in the objectives of the managers and the shareholders.
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Equity Theory
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he core of the equity theory is the principle of balance or equity. As per this motivation theory, an individual’s motivation level is correlated to his perception of equity, fairness and justice practiced by the management
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Reinforcement Theory
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the process of shaping behavior by controlling the consequences of the behavior. In
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Expectancy Theory
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Expectancy,
-If I work harder than everyone else in the plant will I produce more? Instrumentality, -If I produce more than anyone else in the plant, will I get a bigger raise or a faster promotion? and Valance |
