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Page 2STRATEGIC REASONS FOR INCENTIVE PLANS:Variable Pay also known as performance pay. Is used to recognize andreward employee contribution above and beyond theirnormal job requirements, towards companyproductivity, profitability, quality and the like.
Page 3PURPOSES OF INCENTIVE PROGRAM• Mutual Rewards• Increased motivation• Increased company morale• Increased company loyalty• Increased productivity
Page 4SUCCESSFUL INCENTIVE PLANS• Employees have a desire for an incentive plan.• Employees are encouraged to participate.• Employees see a clear connection between the incentivepayments they receive and their job performance.• Employees are committed to meeting the standards.• Standards are challenging but achievable.• Payout formulas are simple and understandable.• Payouts are a separate, distinct part of compensation.
Page 5INDIVIDUAL INCENTIVE PLANS• Straight PieceworkAn incentive plan under which employeesreceive a certain rate for each unit produced.• Differential Piece RateA compensation rate under which employeeswhose production exceeds the standardamount of output receive a higher rate for allof their work than the rate paid to those whodo not exceed the standard amount.
Page 6INDIVIDUAL INCENTIVE PLANS Cont’d.• Standard Hour PlanA wage incentive plan in which standardwork times are expressed as standardhours and the worker is paid for standardhours instead of the actual work hours.
Page 7BONUSES• Bonus Incentive payment that is supplemental to thebase wage for cost reduction, qualityimprovement, or other performance criteria.• Spot Bonus Unplanned bonus given for employee effortunrelated to an established performancemeasure.
Page 8MERIT PAY• Merit Pay Program Merit pay refers to the process of determiningemployee compensation (base salary orbonuses), in part, on the basis of how well eachemployee performs at work.• Merit Guidelines Guidelines for awarding merit raises that aretied to performance objectives.
Page 9Lump-Sum Merit Pay• Lump-sum Merit ProgramProgram under which employees receivea year-end merit payment, which is notadded to their base pay.
Page 10Incentive Awards and Recognition• Awards Often used to recognize productivity gains,special contributions or achievements, andservice to the organization.• Noncash Incentive Awards Are most effective as motivators when theaward is combined with a meaningful employeerecognition program.
Page 12Sales Incentives Cont’d• Straight Salary Plan Salary Plan a sales force compensation methodin which salespeople are paid a straight salary; asalary plan approach provides security andstability but may not provide the incentiveassociated with commission payments.
Page 13Sales Incentives Cont’d• Straight Commission Plan Salesperson compensation method in whichonly a percentage of the sales volume, but nofixed salary, is paid.• Combined Salary and Commission Plan A compensation plan that includes a straightsalary and a commission component(“leverage”).
Page 14Double-track wage systemsDouble-track wage systemsDouble-track wage systemsDouble-track wage systemsProfit sharing and stock ownershipProfit sharing and stock ownershipProfit sharing and stock ownershipProfit sharing and stock ownershipBonuses and merit increasesBonuses and merit increasesBonuses and merit increasesBonuses and merit increasesPerformance incentive bonusesPerformance incentive bonusesPerformance incentive bonusesPerformance incentive bonusesExecutive perquisites (perks)Executive perquisites (perks)Executive perquisites (perks)Executive perquisites (perks)Incentives for Professional EmployeesManagerial and Executive IncentivesManagerial and Executive IncentivesManagerial and Executive IncentivesManagerial and Executive Incentives
Page 15Managerial and Executive IncentivesManagerial and Executive Incentives• Executive Pay Package is financial compensation received by an officerof a firm. salary short term incentives (STIs), sometimes knownas bonuses long-term incentive plans (LTIP)employee benefits paid expenses (perquisites) insurance
Page 16Group Incentive Plans• Team Incentive Plans are offering a reward to the entire group for generatingpositive results. When using a team-based incentive, it isimportant to be sure that everyone on the team is doingtheir part to help the group reach its goals.
Page 17Group Incentive Plans Cont’d• Gainsharing Plans A group incentive plan used to enhance productivity bysharing with a group a percentage of the gains theorganization realizes from specific group efforts.Rucker Plan (SOP)Scanlon PlanImproshare
Page 18GAINSHARING PLANSRucker Plan (SOP) Based on a formula that relates laborcosts to labors share of production costs, or to a standard such as aneconomic productivity index.Scanlon Plan A gainsharing program in which employees share inspecific cost savings that are due to employee effort.Improshare Workers share a fixed percentage of the savings resultingfrom production costs coming lower than a pre-established standardcost.
Page 19Enterprise Incentive Plans• Profit Sharing Any procedure by which an employer pays, ormakes available to all regular employees, inaddition to their base pay, current or deferredsums based upon the profits of the enterprise.
Page 20Enterprise Incentive Plans Cont’d• Stock Options Option that gives its holder the rightto buy or sell a firms common stock (ordinaryshares) at a specified price and by a specifieddate.
Page 21Enterprise Incentive Plans Cont’d• Employee Stock Ownership Plan (ESOPs) A trust established by a corporate which acts asa tax-qualified, defined-contribution retirementplanby making the corporations employees partialowners.