Chapter 12 dessler 12-ce_ppt_ch12
27
Copyright © 2014 Pearson Canada Inc. All rights reserved. Pay-for-Performance and Financial Incentives | 12-1 Copyright © 2014 Pearson Canada Inc. All rights reserved. Dessler, Chhinzer, Cole Human Resources Management in Canada Canadian Twelfth Edition Chapter 12: Pay-for-Performance and Financial Incentives
Transcript of Chapter 12 dessler 12-ce_ppt_ch12
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-1
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Dessler, Chhinzer, ColeHuman Resources
Management in CanadaCanadian Twelfth Edition
Chapter 12: Pay-for-Performance and Financial Incentives
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-2
Learning Outcomes
• DISCUSS how piecework and team or group incentive plans are used.
• EXPLAIN how to use short-term and long-term incentives for managers and executives.
• ANALYZE the main advantages and disadvantages of salary plans and commission plans for salespeople.
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-3
Learning Outcomes
• EXPLAIN why money is somewhat less important as an incentive for professional employees than it is for other employees.
• COMPARE the three types of organization-wide incentive plans.
• EXPLAIN under what conditions it is best to use an incentive plan.
• ANALYZE the emerging emphasis on employee recognition.
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-4
Money and Motivation
Fixed pay
• compensation independent of performance level
• includes base pay, allowances
Variable pay
• any plan that ties pay to productivity or profitability
• may be in addition to base pay
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-5
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed
Variable Pay Programs, 2011
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-6
Types of Incentive Plans
• operations employees
• senior managers and executives
• salespeople
• other managers and professional employees
• organization-wide
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-7
Incentives for Operations Employees – Piecework Plans
• oldest and most commonly used plan
• based on production standard
• straight piecework plan
• guaranteed piecework plan
• differential piecework plan
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-8
Piecework Plans
• advantages:• simple
• appears equitable
• directly tied to performance
• disadvantages:• some employers arbitrarily raise standards
• difficult to adjust for changes in hourly rates
• resistance to revising the standard
• quality may be compromised
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-9
Incentives for Operations Employees – Team or Group Incentives
• production standard is set for a specific work group
• incentives paid if the group exceeds the standard
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-10
Implementing Team or Group Incentives
1. set standards for each member of the group
• members paid based on highest performer
• members paid based on lowest performer
• members paid based on average performance
2. set standards for the group as a whole• all members paid equally
3. use a group defined measure of performance
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-11
Incentives for Senior Managers and Executives
• short term incentives – annual bonus• who is eligible?
• how much to pay?
• individual rewards?
• long term incentives – capital accumulation• stock options
• performance share units plan
• appropriate link to strategy
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-12
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed
Long-Term Incentive Plans, 2011
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-13
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed
Stock Option Deductions
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-14
Executive Compensation Plan Recommendations
• define internal and external issues facing the company
• group executive compensation components into a whole plan
• check plan for legal compliance and tax effectiveness
• review/evaluate plan whenever a major business change occurs
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-15
Incentives for Salespeople
Salary plan
• fixed salary
Commission plan
• pay in direct proportion to sales generated
Combination plan
• base salary plus commission
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-16
Incentives for Salespeople:Salary Plan
• advantages:• works for prospecting and account servicing
• sales people know their income in advance
• easy to reassign sales people
• enhances long term perspective
• disadvantages:• high performance not recognized/rewarded
• salary usually based on seniority, demotivating for high performing sales people
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-17
Incentives for Salespeople:Commission Plan
• advantages:• greatest incentive, attracts high performing sales
people
• sales costs proportion to sales level
• easy to understand/compute
• disadvantages:• focus on sales, not customer relationship
• variances in income among sales people
• sales people may neglect other duties
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-18
Incentives for Salespeople:Combination Plan
• advantages:• earnings floor
• allows compensation for administrative work
• disadvantages:• may be a compromise
• often confusing to calculate
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-19
Sales Compensation in the E-commerce Era
• sales people encouraged to strengthen relationships with customers
• face-to-face sales reserved for high-volume, high-margin customers
• focus on integration with online customer ordering and supporting rapid change
• movement toward team-based sales results
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-20
Incentives for Other Managers
Merit pay or merit raise
• any salary increase awarded to an employee based on individual performance
• usually an ongoing increase to base pay
• link to performance acts as motivator
• success depends on validity of performance appraisal system
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-21
Incentives for Professionals
• includes lawyers, doctors, economists, and engineers
• relatively high salaries; increases are not as motivating
• often driven by high quality work and peer recognition
• in addition to money, better equipment and support for publishing work is used
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-22
Organization-Wide Incentive Plans
• profit-sharing plans • most or all employees share in the company’s profits
• employee share purchase/stock ownership plan • a trust holds shares of company stock purchased for
or issued to employees
• the trust distributes the stock to employees as prescribed by the plan
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-23
Organization-Wide Incentive Plans
• gainsharing plans
• engages employees to achieve productivity objectives and share the gains
• works in stable organizations with predictable goals and measures of performance
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-24
Developing Effective Incentive Plans
Considerations:
• performance pay cannot replace good management
• firms get what they pay for
• pay is not a motivator
• rewards rupture relationships
• rewards may undermine responsiveness
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-25
Effective Implementation of Incentive Plans
1. Pay for performance
2. Link incentives to activities that engage employees
3. Link incentives to measurable, valuable competencies
4. Match incentives to organizational culture
5. Keep group incentives clear and simple
6. Overcommunicate
7. The greatest incentive is the work itself
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-26
Employee Recognition Programs
• emerging as a critical component of incentive plans
• traditionally, recognition has been for long service
• movement toward recognition throughout the career
• particularly effective in smaller entrepreneurial companies
• effective in achieving improved attitudes, increased workloads, and productivity
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed.
Pay-for-Performance and Financial Incentives | 12-27
Copyright
© 2
014 P
ears
on C
anada I
nc.
All r
ights
reserv
ed
Common Recognition Rewards
