NDBF - RemunerationLim Sei Kee @ cK

Variable Pay: Incentives for PerformanceVariable Pay Systems Service Pay Systems

Some jobs contribute more to the organization than others.

Time spent is the primary measure of employee contribution

Some people perform better than others.

Length of service is the primary differentiating factor among people.

Employees who perform better should receive more compensation.

Contributions are recognized through different amounts of base pay.

A portion of some employees’ total compensation should be contingent on performance.

Apportioning rewards based on individual performance is considered to be divisive.

Factors for Successful Variable Pay Plans

Individual Incentives

IndividualismStressed in

OrganizationalCulture

Identification ofIndividual

PerformanceIndependent

Work

IndividualCompetitiveness

Desired

Individual Incentive Pay

Plans

Piece-Rate SystemsStraight Piece-Rate Systems

Wages are determined by multiplying the number of pieces produced by the piece rate for one unit.

Differential Piece-Rate SystemsEmployees are paid one piece-rate for units

produced up to a standard output and a higher piece-rate wage for units produced over the standard.

Bonuses and Special Incentive ProgramsBonus

A one-time payment that does not become part of the employee’s base pay.

AwardsCash or merchandise used as an incentive reward.

Recognition AwardsRecognition of individuals for their performance or

service to customers in areas targeted by the firm.Service Awards

Rewards to employees for lengthy service with an organization.

Sales Compensation PlansSalary Only

All compensation is paid as a base wage with no incentives.

CommissionStraight Commission

Compensation is computed as a percentage of sales in units or dollars.

Draw system make advance payments against future commissions to salesperson.

Salary Plus Commission or Bonus Compensation is part salary for income stability and

part commission for incentive.

Why Organizations Establish Team Pay Plans

Group/Team-Based Variable PayDetermining

Individual Rewards

Timing ofTeam Incentives

Deciding the Allocation of

Rewards

DistributingTeam

Incentives

Conditions for Successful Team Incentives

GainsharingGainsharing

The sharing with employees of greater-than-expected gains in productivity.

Alternatives for rewards distribution: A flat amount for all employees Same percentage of base salary for all employees Percentage of the gains by category of employees A percentage based on individual performance

against measures

Profit SharingProfit Sharing

A system to distribute a portion of the profits of the organization to employees.

Primary objectives: Improve productivity Recruit or retain employees Improve product/service quality Improve employee morale

Drawbacks Disclosure of financial information Variability of profits from year to year Profit results not strongly tied to employee efforts

Profit-Sharing Plan Framework Choices

Common Executive Perks

BenefitsBenefit

An indirect compensation given to an employee or group of employees as a part of organizational membership.

Strategic Perspectives on BenefitsBenefits absorb social costs for health care and

retirement.Benefits influence employee decisions about

employers (e.g., recruitment and retirement).Benefits are increasingly seen as entitlements.Benefit costs are about 40% of total payroll

costs.

How the Benefit Dollar Is Spent

Benefit Needs AnalysisBenefit Needs Analysis

A comprehensive look at all aspects of benefits. How much total compensation? What part of total compensation should benefits

comprise? What expense levels are acceptable for each

benefit? Which employees should get which benefits? What are we getting in return for the benefit? How will offering benefits affect turnover,

recruiting, and retention of employees? How flexible should the benefits package be?

Types of Benefits

Other Benefits

Benefits

Relocation Expenses

Life, Disability, Legal Insurances

Educational Assistance

Social and Recreational

Family-Oriented Benefits

Family-Care Benefits

Credit Unions Purchase Discounts

Stock Investment

Time-Off BenefitsHoliday Pay

EligibilityVacation Pay

Leaves of AbsenceFamily LeaveMedical and Sick LeavePaid Time-Off (PTO)

PlansMilitary LeaveElection LeaveJury-duty LeaveFuneral Leave

Typical Division of HR Responsibilities:Benefits Administration