Study Notes: Chapter 12.docx

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17 Apr 2012
Chapter Twelve: Pay for Performance and Financial Incentives
MHR Notes
Variable Pay any plan that ties pay to productivity or profitability
Incentives for Operations
Piecework Plans
Piecework a system of pay based on the number of items processed by each individual worker in a unit of
time, such as items per hour or items per day
Straight Piecework plan a set payment for each piece produced or processed in a factory or shop
Guaranteed Piecework plan the minimum hourly wage plus an incentive for each piece produced above a
set number of pieces per hour
Advantages of Piecework Plans: simple to calculate and easily understood
Disadvantages of Piecework Plans: poor reputation amongst workers since employer could raise production
standards if workers were earning “excessive” wages, employees become more concerned about meeting
production demands rather than up keeping production quality
Standard Hour Plan a plan by which a worker is paid a basic hourly rate plus an extra percentage of his or
her base rates for production exceeding the standard per hour or per day. It is similar to
piecework payment but is based on a percentage premium
Team or Group Incentive Plan a plan in which a production standard is set for a specific work group and its
members are paid incentives if the group exceeds the production standard
Incentives for Salespeople
Salary fixed
Commission percentage of sales
Combination plan salary plus commission
Incentives for Other Managers and Professionals
Merit pay (merit raise) any salary increase awarded to an employee based on this or her individual
Organization Wide Incentive plans
Profit Sharing Plans - a plan whereby most or all employees share the company’s profits
Employee Share Purchase/ Stock Ownership Plan a trust is established to hold shares of company stock
purchased for or issued to employees. The trust distributes
the stock to employees on retirement, separation from
service, or as otherwise prescribed by the plan
Scanlon Plan an incentive plan developed by Joseph Scanlon in 1937 which is designed to encourage
cooperation, involvement and sharing of benefits
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