4. Learningoutcomes
• Incentive pay system?
• What are incentives?
• Types of incentives
• Individual incentives
• Group incentives
• Variable Pay
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5. Incentive pay system?
“Definition”
“Pay plans designed to relate pay directly to
performance or productivity; often used I
conjunction with a base wage and salary
system”
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6. What is incentive?
• In the words of Burack & Smith,
"An incentive scheme is a plan or program to
motivate individual or group performance.
An incentive program is most frequently
built on monetary rewards (incentive pay
or a monetary bonus), but may also include
a variety of non-monetary rewards or
prizes”.
7. • Consists of both ‘monetary’ & ‘non-monetary’
elements.
• Timing, accuracy & frequency of incentives
• Proper communication of the incentive plan to the
employees
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features of an incentive plan
8. Requirement of incentive plans
• The first concerns the procedures and methods used
to appraise employee performance.
(A key issue in performance measurement is the degree of
trust in management. If the employees distrust management, it
is almost impossible to establish a sound performance
appraisal system).
• The second requirement is that the incentive must be
based on performance.
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10. Individual incentive
• individual incentives are usually based on the
performance of the individual as opposed to those of
the group or organization. However, at managerial
levels, individual incentives are often based on the
performance of the manager’s work unit.
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11. Types of individual incentive
• Piece Rate Plans
• Plans Based on Time Saved
• Plans Based on Commissions
• Individual Bonuses
• Suggestion Systems
• Incentives for Managerial Personnel
12. Piece Rate Plans
Piece rate plan devised by Frederick W. Taylor that,
“ Pays one rate for all acceptable units
produced up to some standard and then
a higher rate for all pieces produced if
the output exceeds the standard”
13. Plan based on time saved
Incentive plans based on time saved give an employee
bonus for reaching a given level of production or
output in less than the standard time.
• Plan based on
commission plan
Incentive plan that rewards
employees, at least in part, based on their sales
volume.
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14. Plan based on individual
• Bonus
Reward that is offered on a one-time basis for high
performance.
• merit pay increase
Reward based on performance but perpetuated year
after year.
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15. Suggestion system
“Systems that usually offer cash incentives
for employee suggestions that result in the
either increased profits or reduced costs”
16. Incentive for managerial performance
• Annual Bonus
• Long-Term Performance Plans
• Stock Options for Managerial
Personnel
1. Annual Bonus:
incentive for managerial employees is the annual
cash bonus.
17. • Long-TermPerformance Plans:
These plans usually award top executives a set
number of performance units at the beginning of a
performance period. The actual value
of the units is then determined
by the company’s performance
over the performance period,
usually from three to
five years.
18. • Stock Options for Managerial Personnel:
Stock option plans are generally designed to give
managers an option to buy company stock at a
predetermined, fixed price.
19. Group incentive
Incentives based on group rather
than individual performance.
Types of group incentive:
1. organization wide incentives.
2. Gain sharing.
3. Scanlon plan.
4. Employee stock ownership plan
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20. Organization
wide incentives.
Incentives that reward all members of the
organization based on the performance of the entire
organization.
2. Gainsharing.
incentive plans that involve employees in a common
effort to achieve the company’s
productivity objectives.
21. 4. Scanlon plan.
Organization wide incentive plan that provides
employees with a bonus based on tangible savings in
labor costs.
5. Employee stockownership plan.
Form of stock option plan in which the organization
provides for purchase of its stock by employees at a
set price for a set time period based on the
employee’s length of service and salary and the
profits of the organization.
22. Variable pay
Variable pay is an approach to compensation that attempts
to reward employees by linking a
percentage of their pay to certain
performance accomplishments.
Explanation:
One difference between variable pay programs and most of
the previously described incentive programs is that most
variable pay programs make all employees’ pay variable as
opposed to the pay of certain groups, such as senior
executives or salespeople.
23. . A second difference is that many variable pay
programs utilize individual, group, and organizational
performance measures or some combination of these
to determine an individual’s incentive pay.
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Con’t
